Bright Gold Ltd v. Mega Well Development Ltd

CACV 66/2019

[2019] HKCA 1440

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 66 OF 2019

(ON APPEAL FROM HCA 2194/2011)

________________________

(by Original Action)

(by Counterclaim)

_______________________

______________________________

REASONS FOR DECISION
AND ASSESSMENT OF COSTS

______________________________

Hon Lam VP (giving the Reasons for Decision and Assessment of Costs of the Court):

1.This is a renewed application for stay of execution. Stay had been previously refused by Anthony Chan J (“the Judge”) on 2 September 2019.

2.The judgment in question is the judgment of the Judge after trial.  By the judgment of 9 January 2019 made in HCA 2194/2011, the Judge found in favour of the Defendant by Original Action (“Defendant”) on the counterclaim and granted relief of rescission in respect of a contract for the sale and purchase of a property known as Duplex Flat B, 32^nd and 33^rd Floor, Block 1, Hill Paramount and several car-parking spaces (“the Property”).  The Plaintiff by Original Action (“Plaintiff”) (as vendor) was ordered to pay to the Defendant the sum of $69.8 million (which was the purchase price) and the Defendant would transfer the title to the Property free from encumbrances back to the Plaintiff upon payment. 

3.The sealed judgment of 9 January 2019 was subsequently varied by consent.  By the consent order of 31 January 2019 (pursuant to a consent summons of 23 January 2019) the Judge varied the judgment to the following:

“ IT IS BY CONSENT ORDERED that:-

1. The Orders made by the Court at paragraphs 147(3) and 147(4) of the Judgment dated 9 January 2019 be varied as follows:

On or before 11 March 2019, upon Mega Well executing and delivering a deed or such other necessary documents as may be agreed between Mega Well and Bright Gold for transferring the legal and beneficial title of Duplex Flat B on 32^nd Floor and 33^rd Floor with Balcony, Utility Platform, Roof Staircase, Flat Roof and Roof of Block 1 of Hill Paramount and Residential Parking Spaces No. 165, 166 and 167 on Level 1 of Hill Paramount (collectively “Duplex B”) free from encumbrances and delivering vacant possession of Duplex B to Bright Gold, Bright Gold do pay to Mega Well the sum of HK$69.8 million and interest on the said sum of HK$69.8 million at judgment rate from 9 January 2019 to 23 January 2019.”

4.On 8 February 2019, the Defendant served a Notice of Appeal.  In respect of the judgment between the Defendant and the Plaintiff[1], the appeal challenged the dismissal of the Defendant’s claim for interest on commercial rate. 

5.On 22 February 2019, the Defendant redeemed the mortgage over the Property.  Solicitors for the Defendant informed solicitors for the Plaintiff of the same by a letter of 5 March 2019.

6.On 1 March 2019, the Plaintiff issued a Respondent’s Notice seeking to cross-appeal against the judgment.  Though there was previous reservation of right to appeal in a letter of 17 January 2019[2], this was the first clear indication by the Plaintiff that it wished to appeal against the judgment on rescission.

7.According to the consent order of 31 January 2019, the Defendant should transfer the title of the Property to the Plaintiff and the Plaintiff should pay the Defendant the sum of $69.8 million on or before 11 March 2019.  As indicated in the correspondence between the solicitors, the two sets of obligations were intended to be performed simultaneously.

8.Instead of making any payment, the Plaintiff took out a summons on 11 March 2019 asking for stay of execution of the judgment. Needless to say, as a result of that, the Defendant did not transfer the title to the Plaintiff on that date.

9.The question of stay was only first raised by solicitors for the Plaintiff in correspondence on 5 March 2019.  There was no explanation in the materials before us as to the reticence of the Plaintiff on the stay application prior to that date. 

10.As mentioned, the Judge refused to grant a stay.  In a written decision of 2 September 2019, the Judge started with the proposition that the Defendant as the successful party in the trial should be entitled to the fruit of the litigation unless there were good reason over and above an arguable appeal to justify a stay.  The Judge did not accept that the appeal would be rendered nugatory if no stay is granted.  He did not find any reason to doubt that if the Plaintiff succeeds in the cross-appeal, the transfer of title can be reversed and the Defendant would be able to repay the purchase price to the Plaintiff.  He also found that the Plaintiff held good security in the form of the title to the Property, which according to the evidence had a market value well above the purchase price.  

11.Before us, Mr Wong SC submitted on behalf of the Defendant that the Plaintiff is precluded by the consent order from seeking a stay.  With respect, we agree with the Judge that the consent order does not have such effect.  Like the Judge, we regard the consent order as a mere variation of the mechanism for implementing rescission.  There was no additional consideration in terms of either party undertaking not to seek a stay of the order.

12.However, as will be discussed later, the delay in the making of a stay application and the change of position of the other party in the meantime are relevant matters when the Court considers how its discretion should be exercised. 

13.The principles governing an application for stay pending appeal are well settled.  The leading case in Hong Kong is Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84.  It is not necessary for us to recite that judgment at length.  For present purpose, we would reiterate the following propositions:

(a) The applicant must show an arguable ground of appeal (viz. one with reasonable prospect of success) before the discretion to grant stay is engaged, see Star Play para 9(6); Sy Chin Mong Stephen v Lo Shing Kin CACV 45/2013, 13 March 2013;

(b) Even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party the fruit of the judgment.  Sometimes, the applicant may do so by showing the existence of strong ground of appeal.  Sometimes, the applicant may do so by showing that the appeal would be rendered nugatory if no stay is granted.  In either case, the court must also have regard to the prejudice that could be suffered by the successful party if a stay is granted.  In all cases where the discretion is engaged, ultimately it is a balancing process with common sense;

(c) In assessing the strength of the appeal for the purpose of a stay application, it is impracticable and undesirable to go deeply into the merits: see Star Play para 9(5).  A broad brush approach is called for.  Thus, counsel should not attempt to deploy full arguments on law and facts quoting in extenso all the relevant evidence and transcript as if the application for stay is a platform for a rehearsal of the appeal proper.  Generally, with the benefit of written skeleton submissions, the court is able to assess whether an appeal has a high prospect of success without lengthy oral submissions from counsel, MKKWH v RKSH CACV 197/2012, 27 February 2013 at para 3.  Application for stay of execution should not be a dry run of the appeal, see Ming Hsieh v Xu Zhe [2018] HKCA 390, at para 9.

14.The facts of the case were set out in the judgment of 9 January 2019. 

15.The main grounds of appeal can be categorized as follows:

(a) Challenges to the Judge’s conclusion that the 1^st Defendant by the Counterclaim was the Plaintiff’s agent and the Plaintiff was liable for the misrepresentations made by its agents;

(b) Challenges to the Judge’s grant of rescission notwithstanding the affirmation of the contract after the Defendant finding out the falsity of the representations.

16.Whilst the grounds of appeal are reasonably arguable, we are not satisfied that they carry so high prospect of success that stay of execution could be granted without other considerations.

17.A finding on agency is always fact-sensitive. Even though the Plaintiff’s submissions highlighted several arguable points on the Judge’s approach in assessing the issue of agency, we think there are counter-arguments in light of the evidence of Mr Lai described at para 100 of the judgment and the document mentioned at para 22.

18.On the affirmation point, the terms of the contract were in favour of the Defendant (and that was the reason why rectification had to be sought by the Plaintiff in the first place).  Thus, completing under the terms of that contract by itself could not be an act of affirmation.  The matters set out at paras 132 to 136 of the judgment militate against this ground of appeal.  

19.We turn to examine if the appeal would be rendered nugatory if no stay is granted.

20.In this regard, the Plaintiff essentially relied on two main submissions:

(a) The implementation of the order of 31 January 2019 would occasion transaction costs (conveyancing costs and stamp duty) which would have to be paid again if the transaction has to be reversed again upon the Plaintiff being successful in the cross-appeal;

(b) Given that the Defendant is a company with a paid up capital of only $1, it is unlikely that the $69.8 million paid over to it pursuant to the order of 31 January 2019 would still be available after the Plaintiff succeeds in the cross-appeal.  The utilization of the Property held by the Plaintiff as security means that rescission would be achieved in practice irrespective of the outcome in the cross-appeal. 

21.With respect, we are unable to accept these submissions as making good a case for stay.  In our judgment, the Plaintiff fails to demonstrate that the lack of stay would render the appeal nugatory.

22.Putting aside the dispute on whether the transfer of the title of the Property back to the Plaintiff would be caught by the provisions in the Stamp Duty Ordinance[3], it does not mean that the appeal would be rendered nugatory even if such costs and stamp duty have to be incurred.  It only means that the appeal could be more expensive for the party eventually lose since such party would have to pay for these costs and stamp duties as well.

23.Though parties may and should take account of these matters as the potential “price” of an appeal, it is not suggested on behalf of the Plaintiff that the stamp duty and conveyancing costs factor is such a prohibitive concern that it would not regard it as worthwhile to pursue the cross-appeal.

24.The argument can be tested by reversing the position between the parties.  For the sake of argument, assuming it was the Defendant who sought a stay and contended that such a stay would require it to incur removal costs in vacating from the Property and another set of such costs would have to be incurred if it were to move back to the Property upon it being successful in the appeal.  It is obvious that such contention cannot get off the ground for the purpose of an application for stay.

25.Generally, the costs (and incidental “price”) of an appeal cannot by itself be a ground for the court to grant a stay.

26.Turning to the second main point, before we address the prospect of recovering the $68.9 million from the Defendant, we shall dispose of the subsidiary argument of rescission being achieved in practice if the Property is to be regarded as security.  With respect, such argument is flawed.  The holding of the Property as security only means that the Plaintiff would not be at risk for losing the $68.9 million without any prospect of recovering it after paying such sum to the Defendant.  It does not mean the Defendant would have its way in terms of rescission irrespective of the outcome of the cross-appeal. 

27.If the Plaintiff were successful on the cross-appeal, the primary liability for repaying the $68.9 million is on the Defendant.  The same would go for the other incidental liability flowing from the outcome of appeal like liability for costs (including liability for costs in the court below) and interests and the conveyancing costs and stamp duties mentioned above.  Given such primary and incidental liability, it is distorting the position to say that there would be rescission irrespective of the outcome of the cross-appeal.  Upon a true rescission, the Defendant would not be responsible for such primary and incidental liability.  The Plaintiff may, instead of resorting to the Property, take other steps of enforcement of such primary and incidental liabilities against the Defendant.  It may even choose to wind up the Defendant based on the judgment on appeal.  It may choose to examine the directors of the Defendant regarding the means of the Defendant. None of these steps could be taken if there is a true rescission.

28.Granted that the Plaintiff in such circumstances may find it more attractive to resort to the Property to satisfy the primary and incidental liabilities of the Defendant under the judgment in the cross-appeal.  But it is not the same as upholding an order for rescission.

29.Thus, the cross-appeal would not be rendered meaningless simply because there is a possibility that the Plaintiff might consider it more convenient to resort to the Property as security for meeting the primary and incidental liabilities of the Defendant in the event the Plaintiff succeeds in the cross-appeal.

30.A stay of a judgment imposing a monetary obligation on a party would only be granted if the court can be satisfied that there is no reasonable prospect of recovering it in the event of the appeal succeeding or that serious hardship would occasion to the successful party on appeal if no stay is granted, see Ming Hsieh v Xu Zhe [2018] HKCA 390 at para 12 to be read together with Linotype-Hell Finance Ltd v Baker [1992] 4 All ER 887, cited in Hong Kong Civil Procedure 2018 Vol 1 para 59/13/1 (which was also cited in footnote 9 in Ming Hsieh).

31.We agree with the Judge that there is no sound reason to doubt the ability of the Defendant to repay the $68.9 million if the cross-appeal is successful.  On the evidence before the Court, the mere fact that it has a paid-up capital of $1 is not enough to discharge the Plaintiff’s burden in this regard.  As the Judge observed, the Defendant had demonstrated its financial standing by redeeming the mortgage.  Further, it is the intention of the Defendant to utilize the $68.9 million to purchase the Wiltshire Property.

32.To reinforce that, at the hearing before us Cheng and the Defendant through counsel gave an undertaking to this Court that the $68.9 million will be used for the purchase of a property in the name of the Defendant.  In the event that such purchase cannot be materialized, the $68.9 million would be kept in the account of the solicitors for the Defendant pending the outcome of the appeal[4].

33.In any event, as observed by the Judge, the holding of the Property by the Plaintiff would be sufficient security.  In this connection, we do not find the additional evidence in the affirmation of Lee King Yue of 9 September 2019 to be of assistance.  If the Plaintiff wished to demonstrate that the market value of the Property has fallen to a certain level, there is no reason why they could not produce a properly prepared valuation report of the Property.

34.We cannot see any hardship which the Plaintiff would suffer if no stay is granted.

35.In the overall balance, it is also legitimate to take account of the Defendant redeeming the mortgage in respect of the Property and Cheng’s moving into the Wiltshire Property in anticipation of the implementation of the terms of the order of 31 January 2019. 

36.Having read the correspondence between the solicitors, notwithstanding the reservation of the right of appeal in the letter of 21 January 2019, we are of the view that the Defendant acted reasonably in proceeding with the redemption of the mortgage and the move to the Wiltshire Property.  Though those steps were taken by the Defendant unilaterally, at that time there was no indication on the part of the Plaintiff that it would appeal against the judgment.  Whilst admittedly the Plaintiff could benefit from the appeal launched by the Defendant to have further time to consider its position, one would expect that the Plaintiff should take a more proactive approach in alerting the Defendant to the possibility of its intention to seek a stay in the meantime.  It was reasonable for the Defendant to perceive the Plaintiff’s putting forward of a consent order as indicating that the rescission of the sale and purchase would go ahead for time being even if there were going to be an appeal.

37.There was also no communication between solicitors as to the performance of the respective obligations under the consent order by way of undertakings (so that the Defendant would not need to redeem the mortgage beforehand).  If such was the intention of the Plaintiff, its solicitors should have raised it with the Defendant’s solicitors in good time.  One cannot simply assume that this would be the case in the absence of any discussion.

38.We accept that these changes of position on the part of the Defendant should be taken into account in assessing the overall balance on the stay application.  In other words, even if the Plaintiff does make out a good case of potential risk on irrecoverability of $68.9 million and incidental liabilities associated with the appeal (a burden which we do not accept the Plaintiff has discharged), we would still be minded to refuse the stay on the ground of the prejudice that would be suffered by the Defendant. 

39.For these reasons, we dismiss the application for stay.  Even though the undertaking at [32] was given only at the hearing before us, as we said at the end of the hearing we would have dismissed the application even if the Defendant and Cheng did not give the same.  However, since the undertaking has been given, the Defendant and Cheng are abided by the same.

40.In the circumstances, we ordered the Plaintiff to pay the Defendant the costs of this application. 

41.We are quite concerned about the level of costs that the parties have incurred for this application.  On the Plaintiff’s side, two statements of costs were filed, one for $412,538 and another one for $318,369, viz a total sum of $730,907 (of which $670,500 is counsel fees).  On the part of the Defendant, its statement of costs provides for a total of $562,805 of which $502,500 is counsel fees.  Whilst we appreciate that both sides engaged leading counsel in the application (and such engagement is justified in light of the significance of the application for the parties) and the Plaintiff has to change its leading counsel due to the non-availability of original counsel at the hearing date, we still find the total amount of costs being incurred on an application of this nature to be exorbitant.    

42.Having considered the statement of costs of the Defendant and the submissions of counsel on costs, we make a gross sum assessment of such costs at $400,000.

Mr Edward Chan SC and Mr Lee Tung-ming, instructed by Lo and Lo, for the plaintiff (by Original Action) and the 3^rd defendant (by Counterclaim)

Mr Anson Wong SC and Mr Martin Kok, instructed by Au, Thong & Tsang, for the defendant (by Original Action) and the plaintiff (by Counterclaim)

Cheung & Choy, for the 1^st defendant (by Counterclaim), attendance excused