Capital Century Textile Co Ltd v. Li Dianxiao and Another

HCA 263/2012

[2023] HKCFI 2053

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 263 OF 2012

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D E C I S I O N

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1.In this decision, unless otherwise stated, I shall continue to use the definitions and abbreviations adopted in the reasoned judgment ([2021] HKCFI 2216) handed down herein on 27 September 2021 (“Judgment”).

Application before the court  

2.By the Judgment, I held in favour of CCT (plaintiff) against both Mr Li (1^st defendant) and Mr Cong (2^nd defendant) after trial[1] and gave reasons for such determination.

3.More particularly, as against Mr Li:

(1)  I declared that he held and still holds the China Harbour Office on trust for CCT.

(2)  I further declared that he also held the following properties on trust for CCT: (a) the Provident Centre Flat; (b) the Pacific Palisades Flat; and (c) the Tanner Garden Flat between 7 September 2004 and 3 July 2007.

(3)  I ordered him to transfer the China Harbour Office to CCT or at its direction.

(4)  I ordered him to account to CCT for the following:

(a)  the rental income from letting the China Harbour Office since 2006;

(b)  the net deposits forfeited from the aborted sale of the Provident Centre Flat in 1997;

(c)  the net proceeds of sale of the Provident Centre Flat in 1998;

(d)  the rental income from letting the Pacific Palisades Flat between 1998 and 2007;

(e)  the net proceeds of sale of the Pacific Palisades Flat in 2007; and

(f)  all the money and benefits received from holding the Tanner Garden Flat between 7 September 2004 and 3 July 2007.

(5)  I further ordered an inquiry into the aforesaid accounts.

(6)  Lastly, I ordered Mr Li to pay CCT all sums found to be due from him to CCT on the taking of such accounts.

4.By a notice of appeal dated 15 October 2021 and a supplemental notice of appeal dated 13 June 2023 (“NOA” and “Supplemental NOA” respectively and “Notices” collectively) issued under CACV 471/2021, Mr Li appealed from the Judgment against him (“Appeal”).

5.Before the court now is Mr Li’s application by summons dated 31 May 2023 for a stay of execution of the Judgment against him pending the determination of the Appeal (“Application”).

Principles governing grant or refusal of stay of execution pending appeal

6.An appeal does not operate as a stay of execution of proceedings: Order 59, rule 13(1).

7.The principles governing the grant or refusal of a stay of execution of a judgment pending appeal are well established. A summary of such principles can be found in, for example, the judgment of Chow J (as he then was) in Astro Nusantara International BV v PT Ayunda Prima Mitra (No 2) [2016] 1 HKLRD 591 at [15] as follows, following the decision of Ma J (as the former Chief Justice then was) in Stay Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84:

“(1) The applicant is required to demonstrate a “good reason” for a stay of execution.

(2) Generally speaking, the existence of merely an arguable appeal cannot by itself amount to a sufficient reason to justify a stay. It is the minimum requirement before a court would even begin to consider granting a stay.

(3) In other words, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted however exceptional the circumstances may otherwise be justifying a stay of execution.

(4) On the other hand, the existence of a strong appeal or a strong likelihood of success will usually by itself enable a stay to be granted because this would constitute a good reason for a stay.

(5) In most cases, where the court is faced with simply the existence of an arguable appeal, it becomes necessary for the applicant to provide additional reasons as to why a stay is justified.

(6) Commonly, this is done by demonstrating that without a stay the appeal would be rendered nugatory, for example, because of an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal against a money judgment, or because the failure to grant a stay would have a serious deleterious effect on the applicant.

(7) In considering an application for a stay pending appeal, it would be impractical and even undesirable for the court to go deeply into the merits or strengths of the appeal, although the court must still form a preliminary view of these aspects.”

The Appeal has no merits

8.The merits of the Appeal should be assessed with regard to the grounds of appeal that Mr Li has actually advanced in the Notices.

9.I turn firstly to paragraph 1 of the grounds of appeal set out in the NOA, by which Mr Li disputes the finding that CCT was the beneficial owner of the Eternal Building Flats (“Ground 1”).

10.The principles for the appellate court to disturb the findings of fact of the trial judge are well settled. See, for instance, the Court of Appeal’s summary of the threshold for an appeal against findings of fact at [33] and [34] of Yu Man Fung Alice v Chiau Sing Chi Stephen [2021] HKCA 1456:

“Palpable errors, whether of law or of fact, must be identified, and they must be sufficiently material to undermine the conclusions of the trial judge. In the absence of material errors, an appeal court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified. What matters is whether the decision is one that no reasonable judge could have reached. That the judges in the appeal court may have reached a different conclusion is not a ground for intervention.

The principles for appellate intervention apply also to inferences of fact drawn from primary facts (unless the finding is based purely on inferences or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand), and findings of mixed fact and law, or an issue on which the judge had to come to a judgmental conclusion after taking a number of factors into account. The correct approach in reviewing such a conclusion is to treat the judge’s decision with utmost respect, and refrain from interference unless satisfied that it proceeded upon some erroneous principle or was plainly wrong. It is similar to an appeal against an exercise of discretion.”

11.The beneficial ownership of the Eternal Building Flats is raised by the defendants in defence to CCT’s claim in respect of the Tanner Garden Flat. In this connection, as a matter of record, the Tanner Garden Flat was transferred from CCT to Mr Li on 7 September 2004 for a stated consideration of $3,980,000 and then further transferred by Mr Li to Mr Cong on 3 July 2007 for a stated consideration of $4,800,000.

12.It is CCT’s case (and my findings) that: (1) the transfer of the Tanner Garden Flat from CCT to Mr Li was carried out upon Mr Li’s direction in breach of his fiduciary duty to CCT; (2) Mr Li had not paid the stated or any consideration to CCT for the transfer; (3) Mr Li was therefore, in the absence of evidence of an intention on the part of CCT to gift the property to him, holding the property on a resulting trust for CCT. See [105], [111] to [113] of the Judgment.

13.The beneficial ownership of the Eternal Building Flats assumes significance because, in defence to CCT’s claim for the recovery of the Tanner Garden Flat, the defendants allege that: (1) CCT had received and kept the sum of about $4,000,000 realised from the sale of the Eternal Building Flats (which were registered in Mr Li’s name) in 1994; (2) such proceeds had “remained on the account of [CCT]” which held the monies on trust for Mr Li; and (3) Mr Li satisfied the stated consideration of the Tanner Garden Flat by set-off by using the said $4,000,000 allegedly held by CCT on trust for him.

14.Mr Li’s challenge to the finding that he held the Eternal Building Flat on trust for CCT is premised solely upon the fact that CCT was incorporated on 5 October 1990, which post-dated the transfer of the Eternal Building Flats into Mr Li’s name and the discharge of the mortgage loan owed to KWB on 6 September 1990.

15.In gist, Mr Li contends that he could not have held the Eternal Building Flats on trust for CCT, nor could CCT have discharged the expenses arising from the conveyance of the property into Mr Li’s name (including the outstanding mortgage loan) before the incorporation of CCT.

16.With respect, this argument is made out of context and in disregard of the background against which the Eternal Building Flats were purchased in Kingpower’s name and the background against which CCT came into existence:

(1)  The Eternal Building Flats were in the first place acquired in Kingpower’s name in the course of its co-operation with the Beijing Company.

(2)  Kingpower acquired the Eternal Building Flats for the benefit of the Beijing Company. These properties represented part of the Beijing Company’s profits from its co-operation with Kingpower.

(3)  They were transferred by Kingpower into Mr Li’s name free of any actually paid consideration to return to the Beijing Company its share of profit from the co-operation between the Beijing Company and Kingpower upon the termination of such co-operation in the late 1980’s or early 1990’s.

(4)  CCT was formed to take over the functions previously performed by Kingpower as the Beijing Company’s branch office/window company in Hong Kong.

(5)  Mr Li was, throughout the relevant period of time, merely an employee of the Beijing Company.

See [15] to [26], [31], [36] to [37], [56] to [58] and [63] to [64] of the Judgment. It is worthy of note that Mr Li has not, in either of the Notices, disputed any of these findings.

17.There is no merit in Ground 1.

18.Turning then to paragraph 2 of the grounds of appeal set out in the NOA, it is contended that I have erred in ordering Mr Li to account for the monies and benefits received by him from holding the Provident Centre Flat, the Pacific Palisades Flat and the Tanner Garden Flat, “[i]n view of Mr Li’s beneficial ownership of the Eternal Building Flat[s]” (“Ground 2”).

19.I have concluded above why Mr Li’s claim to the beneficial ownership of the Eternal Building Flats is unarguable. It follows that Ground 2, which is premised upon Mr Li being the beneficial owner of the Eternal Building Flats, must also fail.

20.In any event, Mr Li has never set up any connection between the beneficial ownership of the Eternal Building Flat and the beneficial ownership of the Provident Centre Flat or the Pacific Palisades Flat.

21.Ground 2 is likewise unarguable.

22.By the Supplemental NOA, Mr Li complains that CCT’s claim herein against him ought to have been dismissed for want of authority to sue on the part of CCT upon the finding that Mr Li gained beneficial ownership of the CCT Shares registered under his name (representing a 95% shareholding) by virtue of the 2001 Agreement (“Ground 3”).

23.It is pertinent to Ground 3 to note that the court went into the question of the beneficial ownership of the CCT Shares only because of Mr Li’s assertion in paragraphs 37 and 38 of his amended defence that CCT’s complaints about his dealings with the Subject Properties, even if established, can by reason of his 100% beneficial ownership of all the CCT Shares be regarded as having been authorised or ratified by all shareholders of CCT and therefore by CCT. See [35] and [94] to [96] of the Judgment.

24.Mr Li was, at the time of the amendment of his defence, represented by counsel and solicitors. They drafted and signed the pleading including paragraphs 37 and 38 thereof, which were added by amendment. In the circumstances, one would have expected Mr Li to have been fully advised by counsel and solicitors on all the implications of the matters averred in the 2 new paragraphs, including the possibility that CCT might not have been properly authorised to commence and prosecute this action.

25.A defendant cannot by his defence dispute the plaintiff’s authority to sue, nor can he do so at the trial. The proper way to challenge the lawfulness of the legal proceedings on the ground that they have been issued and conducted by the plaintiff without proper authority is by an application to strike out. Such application should be taken out at an early stage. The issue of the plaintiff’s authority to sue should, where there a real doubt, be resolved first before the case is allowed to go any further. See Hong Kong Civil Procedure 2023, volume 1, pages 557 to 558, paragraph 18/19/23.

26.Mr Li, despite have legal representation from 11 November 2015 to 21 September 2016, did not see fit to so apply.

27.I therefore see nothing in Ground 3 either.

CONCLUSION AND DISPOSITION

28.To conclude, the Appeal is, in my opinion, not arguable. The Application should be, and is, dismissed on this ground alone.

29.I also make an order nisi that Mr Li should pay CCT the costs of and occasioned by the Application which, if not agreed, shall be taxed on a party and party basis with certificate for one counsel.

Mr K M Chong and Mr Alvin Chong, instructed by Liu, Chan & Choi, for the plaintiff

Mr Kwok Kam Kwan, instructed by C S Chan & Co, for the 1^st defendant