Whale View Investment Ltd. v. Kensland Realty Ltd. and Others

CACV000286A/2000

CACV 286/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 286 OF 2000

(ON APPEAL FROM HCA NO. 9231 OF 1997)

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Coram: Keith JA, Stock JA and Le Pichon JA in Court

Date of Hearing: 23 May 2001

Date of Judgment: 5 June 2001

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J U D G M E N T

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Keith JA:

Introduction

1.In May 1997, the 1st Defendant ("the vendor") decided to buy a shop in Mongkok for $53m. The market was rising, and later in May 1997 it agreed to sell the shop for $55m. to the Plaintiff ("the purchaser"). If everything went well, the vendor would make a quick profit of $2m. Completion of both agreements was fixed for 2 September 1997. The vendor's purchase of the shop went ahead, but the sale of the shop to the purchaser fell through, each side blaming the other for the failure of the transaction. Litigation ensued.

2.Deputy Judge Gill held in the Court of First Instance that the purchaser was to blame. The purchaser had paid deposits totalling $8.25m., and the judge permitted the vendor to keep those deposits up to the contractual limit of 10% of the purchase price, i.e. 5.5m. However, an appeal to the Court of Appeal was successful, and judgment was entered for the purchaser for the agreed sum of $16.25m. plus interest and costs (the $16.25m. representing $8m. in damages, plus the deposits totalling $8.25m. which the vendor had to return to the purchaser).

3.The vendor wished to appeal to the Court of Final Appeal. It was common ground between the vendor and the purchaser that the vendor was entitled to appeal to the Court of Final Appeal as of right. Accordingly, leave to appeal was granted by consent, and the appeal has provisionally been fixed to be heard on 9 and 10 October 2001. The vendor now applies for a stay of execution of the judgment pending the determination of its appeal to the Court of Final Appeal.

The relevant principles

4.Section 26(1) of the Hong Kong Court of Final Appeal Ordinance (Cap. 484) confers on the Court of Appeal the power to suspend the execution of a judgment requiring an appellant to pay a sum of money. It has been said that a stay pending an appeal to a court of final adjudication will not be granted "save in very exceptional circumstances": see Hong Kong Civil Procedure 2001, para. 59/13/11. That accurately reflects the language of the three decisions of the Court of Appeal in England cited in support of that proposition - Emmerson v. Ind. Coope & Co. (1886) 55 LJ Ch 903, Youssoupoff v. Metro-Goldwyn-Mayer Pictures Ltd. (1934) 50 TLR 581 and Smith Hogg & Co. Ltd. v. The Black Sea and Baltic General Insurance Ltd. (1940) 162 LT 11. However, I do not think that the courts were doing anything other than reflecting what is now axiomatic, namely that a judgment creditor should not be deprived of the fruits of his judgment, unless the court is satisfied that there are really good reasons for doing so. Indeed, in the Smith Hogg case, the court gave examples of situations in which a stay would be appropriate, for example cases "where execution would destroy the subject-matter of the action or deprive the appellant of the means of prosecuting the appeal" (per Scott LJ at p. 12).

5.It may be that appeals to a court of final adjudication from an intermediate appellate court are in a slightly different category from appeals to an intermediate appellate court from a court of first instance. After all, in the former the appellant may already have lost twice (though that is not so in the present case), and the judgment which he is appealing against is a judgment given by a court of greater authority. But with the exception of a cryptic comment in the Youssoupoff case, I have not found thinking of this kind reflected in any of the decided cases.

6.In summary, therefore, it seems to me that a judgment in the Court of Appeal for the payment of money may be stayed pending an appeal to the Court of Final Appeal if the court is satisfied that there are really good reasons for doing so. In order to test whether such reasons exist, it is legitimate, I think, to compare (a) the injustice which the appellant may suffer if a stay of execution is refused and the appeal is eventually granted with (b) the injustice which the respondent may suffer if the stay of execution is granted and the appeal is eventually dismissed. If the injustice which the appellant would suffer is tantamount to rendering the appeal nugatory or would involve the appellant in loss for which he could not be compensated, it may well be appropriate for the execution of the judgment to be stayed.

The grounds of the application

7.The grounds of the application are as follows. The vendor's only asset is the shop to which the action related. Its current value is thought to be about $30m., which is far less than the $53m. which it bought the shop for in September 1997. Apart from the judgment debt, the vendor has two major liabilities: (a) a debt to the Wing Hang Bank ("the Bank"), which is secured by a mortgage over the shop, in the region of $14.6m., and (b) a debt to K. Y. Ltd., one of the vendor's two shareholders, of about $48.8m., being the current balance of a loan which it made to the vendor. Thus, the vendor's debts far exceed its assets. So if the purchaser is permitted to execute its judgment now, the vendor is likely to be wound up, and if that happens, the shop will almost certainly have to be sold. If the shop is sold under a forced sale, otherwise than at a time when the vendor chooses to sell it, the vendor will not be able to recover what it would have fetched if it had been sold when the market was more buoyant.

8.An additional factor to be taken into account is that the purchaser has now obtained a charging order absolute over the shop. Its judgment debt ranks second in priority to the Bank's debt of about $14.6m. Thus, if the shop has to be sold now, and the purchase price is only $30m., only about $15.4m. will be available to the purchaser, whereas more than that may be available if the shop is sold at a more opportune time. Not only may the purchaser be able to recover the whole of the judgment debt (including interest and costs), but there may even be some money left over to pay at least some of K. Y. Ltd.'s debt.

9.In order to ensure that (a) the vendor's debts will not further increase in the meantime, (b) the shop's value will not be further depleted in the meantime, and (c) the proceeds of sale of the shop will still be available for the vendor's creditors, the vendor is prepared to undertake through its counsel, Mr Benjamin Chain, that it will not incur any further liabilities or deal with or further encumber the shop pending the determination of the appeal to the Court of Final Appeal without either the leave of the court or the consent of the purchaser (or the consent of the 2nd Defendant, a judgment creditor in relation to an order for costs made against the vendor). Moreover, K. Y. Ltd. is prepared to undertake through Mr Chain (who for this purpose only is instructed on its behalf) that it will not recall its loan prior to the determination of the vendor's appeal.

10.I see the force of these arguments, but I cannot go along with them for two reasons. First, there is a way in which the purchaser can be prevented from winding the vendor up and forcing a premature sale of the shop, namely by K. Y. Ltd. (or the other shareholder in the vendor) putting up the funds to satisfy the purchaser's judgment debt. If those who hold the financial purse strings of the vendor wish to keep the vendor alive so as to prevent the forced sale of the shop for the time being, the remedy lies in their own hands. In that connection, it is noteworthy that no evidence has been filed to the effect that K. Y. Ltd. is either unwilling or unable to satisfy the judgment debt now.

11.When this was put to Mr Chain in the course of argument, he was extremely careful in his choice of language. He did not say that K. Y. Ltd. was not prepared to do that. He merely invited the court to infer that K. Y. Ltd. had decided not to do that because otherwise this application would have been unnecessary. But it could equally be the case that K. Y. Ltd. are prepared to do what it can to prevent a forced sale of the shop, but that it is waiting for the time being to see whether a stay of execution will be ordered.

12.Secondly, contrary to Mr Chain's submission, I think that the purchaser runs a significant risk of being seriously disadvantaged if the execution of the judgment is stayed now but the appeal is eventually dismissed. That is because the risk of the value of the shop declining further in the next few months cannot be discounted. If that occurs, there will be even less available for the vendor's creditors from the proceeds of sale of the shop if that sale is delayed.

Conclusion

13.For these reasons (which echo some of the reasoning for the court refusing a similar application in Super Keen Investments Ltd. v. Global Time Investments Ltd. (CACV 285/98)), I would dismiss this application for a stay of execution of the judgment of the Court of Appeal pending the determination of the appeal to the Court of Final Appeal. At present, I see no reason why the costs of the application should not follow the event, and the order nisi which I would make as to costs is that the vendor must pay to the purchaser its costs of this application in any event, to be taxed if not agreed.

Stock JA:

14.I have had the advantage of reading in draft the judgments of Keith JA and Le Pichon JA. I agree that the application for a stay of execution pending the determination of the appeal to the Court of Final Appeal should be dismissed.

15.As to the applicable principles, I respectfully agree with the approach and distillation of those principles which is to be found in the judgment of Le Pichon JA , namely, that what is to be shown by an applicant, if he is to succeed, are circumstances which are extremely rare, or very exceptional; and I share her doubts about an approach which carries a flavour of a mere balancing exercise, an approach which would in my judgment constitute an unwarranted departure from well embedded practice.

16.There has been shown in this case no such exceptional circumstance. I would add that I am not in any event at all persuaded that, if the 1st defendant truly wishes to avoid a forced sale, funds would not be made available to the 1st defendant from the shareholder, K. Y. Ltd., to satisfy the judgment debt.

17.I agree with the costs order proposed by Keith JA.

Le Pichon JA:

18.I agree with Keith JA that the 1st defendant's application for a stay of execution of the judgment pending the determination of its appeal to the Court of Final Appeal should be dismissed. My reasons appear below. I gratefully adopt the facts which appear in the judgment of Keith JA.

The applicable principles

19.That the Court of Appeal has jurisdiction to order a stay of execution pending an appeal to the Court of Final Appeal is not in doubt: section 26(1) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484 so provides. The statement in Hong Kong Civil Procedure at 59/13/11 to the effect that a stay pending appeal to the Court of Final Appeal will not be granted "save in very exceptional circumstances" appears to be a correct statement of the practice of the English courts on appeals to the House of Lords. The trilogy of cases referred to in that annotation, namely, Emmerson v. Ind, Coope & Co (1886) 55 LJ Ch. 903, Youssoupoff v. Metro-Goldwyn-Mayer Pictures (1934) 50TLR 581, CA, and Smith, Hogg & Co. v. Black Sea etc. Insurance Company (1940) 162 LT11, CA, support that proposition:

"It is extremely rare to grant stays of execution pending appeal to the House of Lords." (emphasis added)

per Scrutton LJ in the Youssoupoff case at 588.

"... The practice on appeals to the House of Lords was that a stay of execution, pending such an appeal, would not be granted save under very exceptional circumstances ..." (emphasis added)

per Scott LJ in the Smith, Hogg case at 12.

20.What might constitute "extremely rare" or "very exceptional" circumstances can be discerned from those cases and includes the following: where the unsuccessful party in the Court of Appeal, if successful in the House of Lords, may be in such a position that it is very difficult to get the money back from the previously successful party (see the Youssoupoff case at 588); where the appeal would be rendered nugatory (see Emmerson v. Ind, Coope & Co. at 905); where execution would destroy the subject matter of the action or deprive the appellant of the means of prosecuting the appeal but the fact that unnecessary expense to the parties might be incurred if the stay was not granted is insufficient (see the Smith, Hogg case at 12).

21.In my judgment, there is no valid reason why (and I do not understand counsel for the 1st defendant to be advocating to the contrary) the English practice ought not to be followed in Hong Kong.

22.From my reading of the English cases, it is incumbent on the applicant for a stay to satisfy the court that "very exceptional" circumstances do exist. It is not sufficient that some reason or other is made out if that reason is not "very exceptional". The Smith, Hogg case where the only reason made out was unnecessary expense to the parties is an example. There is no reason to think that the epithets the courts have used to describe the circumstances for the granting of a stay, viz. "very rare" and "very exceptional", were not intended to mean what they appear to say. At a minimum, they indicate that the hurdle is a very high one. So it is not simply a question of the applicant making out a reason. The reason or reasons have to be very special or unique. For my part, I have grave doubts as to whether it is correct to approach the matter as one in which the court is to engage in a balancing exercise since the onus is plainly on the applicant to demonstrate that "very exceptional" circumstances do exist.

23.In the present case, the reason why the 1st defendant is seeking a stay of execution is to prevent a forced sale of the property which is the only asset available to meet the judgment sum. It is to be noted that the property itself is not the subject matter of the action. So one is not concerned with the destruction of the subject matter of the action as in Emmerson v. Ind, Coope & Co. What the 1st defendant is really saying that although it is insolvent and unable to meet any part of the judgment sum without having the property realized, it would prefer not to do so. As I understand it, impecuniosity itself is not a sufficient reason for a stay.

24.In my judgment, the 1st defendant has not identified any special circumstances, much less very exceptional circumstances, as would justify a stay. In those circumstances, the application falls to be dismissed.

25.I agree with the costs order as proposed by Keith JA.

Representation:

Mr Wallace Cheung, instructed by Messrs. Bosco Tso & Partners, for the Plaintiff

Mr Benjamin Chain, instructed by Messrs Iu, Lai & Li, for the 1st Defendant