廈門新景地集團有限公司 Formerly Known As 廈門巿鑫新景地房地產有限公司 v. Eton Properties Ltd and Others

CACV 235 /2024, [2025] HKCA 566

On appeal from [2024] HKCFI 1291

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 235 OF 2024

(ON APPEAL FROM HCCL NO 13 OF 2011)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

Introduction

1.This is a renewed application by the 1^st and 2^nd defendants for stay of execution pending appeal against the judgment of Mimmie Chan J (“Judge”) dated 14 May 2024 ([2024] HKCFI 1291) (“Judgment”), the ruling dated 9 September 2024 ([2024] HKCFI 2373) and the ruling dated 15 October 2024 ([2024] HKCFI 2807) (collectively “Judgments”), by which the plaintiff was awarded damages in the sum of RMB169,044,298.25 and pre-judgment interest in the sum of RMB174,272,854.28, further interest, and post-judgment interest. 

Background

2.The background facts are more fully set out in [2] to [95] of the judgment of the Court of Appeal dated 15 April 2016 ([2016] HKCA 143).  Summaries of the background facts are set out in [2] of the judgment of the Court of Appeal dated 10 December 2018 ([2018] HKCA 942) and [1] to [8] of the Judgment.

3.For present purposes, we note the following facts:

(1)  In 2003, the plaintiff and the 1^st and 2^nd defendants entered into an agreement to enable the plaintiff to develop certain land in Xiamen, under which the 1^st and 2^nd defendants were to transfer their shares in the 4^th defendant (which wholly owned the 5^th defendant, which in turn held land use rights) to the plaintiff’s designated company.  The agreement provided for PRC law to be the governing law and contained an arbitration clause requiring disputes to be resolved by CIETAC arbitration in the Mainland.

(2)  Shortly after, the 1^st and 2^nd defendants notified the plaintiff of their decision to discontinue further performance of the agreement, and sought to return the monies so far paid by the plaintiff to them.  The plaintiff did not accept the repudiation.

(3)  Thereafter, as part of a restructuring to set up a Mainland holding company for the group’s various estate development companies in the Mainland, the 3^rd defendant received newly issued shares in the 4^th defendant as well as the 1^st and 2^nd defendants’ shares in the 4^th defendant.  It was accepted that these steps were not undertaken with the intention of breaching the contract between the plaintiff and the 1^st and 2^nd defendants, which was regarded as having been terminated by that point.

(4)  Unaware of the restructuring involving the 4^th defendant, on 27 October 2006, the tribunal issued an award requiring the 1^st and 2^nd defendants to pay RMB1,275,000 to the plaintiff and to “continue to perform the agreement”.

4.On 21 September 2007, the plaintiff applied to the High Court to enforce the award pursuant to sections 2GG and 40B of the then Arbitration Ordinance.  On 31 October 2007, judgment was entered in terms of the award.  Subsequently, the judgment was set aside due to the plaintiff’s election for damages in October 2017.

5.After the plaintiff came to learn of the restructuring and of the divesting by the 1^st and 2^nd defendants of their interests in the 4^th defendant, on 27 May 2008, the plaintiff commenced legal proceedings (relisted as HCCL 13/2011) in Hong Kong to enforce the award at common law.  These proceedings, which were highly contested, resulted in the judgment of the Court of Final Appeal dated 9 October 2020 ([2020] HKCFA 32), affirming the decision of the Court of Appeal to allow the plaintiff to recover damages from the 1^st and 2^nd defendants for breach of an implied promise to honour the award.

6.After an 8-day trial on quantum in September 2023, the Judge issued the Judgment on 14 May 2024 and the two rulings in September and October 2024 respectively.

The Judgments

7.The Judge’s findings may be summarised as follows:

(1)  The plaintiff’s damages should be assessed on the basis as if the award had been complied with^[1], which would enable the plaintiff to attain the stated purpose of the agreement, namely, to attain the right to develop the land and to obtain the earnings from the development of the land under the circumstances prevailing and the realities existing at the time of the award^[2], as reflected in the defendants’ profits^[3].

(2)  The date for the assessment of damages is 27 October 2006, ie the date of the award^[4].

(3)  The quantum of damages awarded is RMB169,044,298.25^[5], on the basis of the net profit calculated as per Mr Leung’s methodology for valuation of the retail units with the locational adjustments proposed by Mr Lau^[6] and after deducting the costs of the development (without deducting the alleged project management costs)^[7] as well as the consideration of RMB120 million^[8].

(4)  The plaintiff is not required to give credit for the sum of RMB1,275,000 awarded by the tribunal as damages.

(5)  The plaintiff is entitled to pre-judgment interest for the period between 27 October 2006 to the date of the Judgment, with 14 months disallowed in the interim^[9].

8.The Judge awarded the plaintiff costs of the action for the assessment of damages (including costs reserved), with certificate for   counsel^[10].

Defendants’ appeal

9.By a Notice of Appeal filed on 11 June 2024 (amended on 8 January 2025), the 1^st and 2^nd defendants sought to set aside the Judgments, and, depending on the outcome of the appeal, an order that the action for assessment of damages be remitted for retrial or further assessment.  Their grounds of appeal may be summarised as follows:

(1)  Ground A.  The Judge erred in adopting the counterfactual for the assessment of the damages suffered by the plaintiff. The Judge misconstrued the award in respect of the terms of the agreement, the tribunal’s emphasis of the nature of the agreement and its intention as to the fulfilment of the purpose of the agreement, and erred in adopting the counterfactual on the basis of the plaintiff’s entitlement to the shares in the 4^th defendant in 2006 and the use of the 5^th defendant’s design.  The Judge also erred in law in treating the profits derived from the development as reflective of the plaintiff’s damages and should have used the profits that the plaintiff would have been able to obtain if the land had been transferred and developed by the plaintiff without the 5^th defendant’s design.

(2)  Ground B.  The Judge erred in adopting 27 October 2006 (the date of the award) as the date of assessment of damages and should have adopted the likely date of the award had the plaintiff not delayed in pursuing the arbitration.

(3)  Ground C.  The Judge erred in (i) valuing the retail units of the development without taking into account (or giving reason for rejecting) Mr Leung’s expert evidence on the issue of adjustments for frontage and layout, and (ii) assessing the costs of the development in respect of the land appreciation tax, the funding costs, miscellaneous items of expenses or profits and the project management costs.

(4)  Ground D.  The Judge erred in fixing the period for which pre-judgment interest was awarded as she failed to take into account the plaintiff’s delay in claiming damages until December 2011 and in election for damages until October 2017 and took into account the 1^st and 2^nd defendants’ conduct of the proceedings, and should have allowed pre-judgment interest from 21 October 2017 until the date of the Judgment.

(5)  Ground E.  The Judge erred in making the costs order as she failed to take into account the plaintiff’s abandonment of part of its pleaded case and Question (c) for which expert evidence was adduced.

10.By a Respondent’s Notice dated 9 January 2025, the plaintiff contended that the Judgments should be affirmed on the additional or alternative ground that the 1^st and 2^nd defendants failed to adduce evidence as to the alleged project management costs.

Plaintiff’s summons in court below for payment out

11.By a summons issued on 13 September 2024 (as amended on 21 January 2025), the plaintiff applied for payment to it of the sum of RMB347,064,070.21 (alternatively RMB52,219,051.14 or RMB27 million) together with accrued interest, out of the sums of RMB27 million and RMB320,064,070.21 paid into the court (totalling RMB347,064,070.21) by the 1^st and 2^nd defendants on 7 October 2022 and 9 October 2024 respectively.

Defendants’ summons in court below for stay of execution

12.On 24 September 2024, the 1^st and 2^nd defendants applied for stay of execution pending appeal against the Judgments.  The appeal is scheduled to be heard on 21 November 2025^[11].

Judge’s decision on the two summonses

13.On 21 March 2025, the Judge handed down the decision ([2025] HKCFI 1180; “March 2025 Decision”) on the plaintiff’s summons for payment out and the 1^st and 2^nd defendants’ summons for stay of execution pending appeal.  By the March 2025 Decision, the Judge ordered RMB180 million to be paid out within 14 days in partial settlement of the Judgment debt (“Payment Out Order”) and the execution of the Judgments be stayed pending appeal on condition that the payments in court (except for the sums to be paid out) shall remain in court until the determination of the appeal. 

14.The arguments before the Judge were focused on whether there should be a stay of execution pending appeal, whether such stay should be unconditional, or subject to payment into court of further amounts (the plaintiff claims that the current amount in court of RMB347,064,070.21 does not cover costs and post-judgment interest in excess of RMB 35 million), or whether any part of the payments already made into court should be released to the defendants or paid out and released to the plaintiff.

15.The Judge was prepared to accept that on a broad brush approach there are reasonably arguable grounds of appeal, which is the minimum requirement for considering a stay.  She accepted there will be grave prejudice to the plaintiff if execution should be stayed, as there has already been a lapse of 18 years from the date of the arbitral award.  However, she found there is a real or appreciable risk that the plaintiff, which has no known assets in Hong Kong, would not repay (or repay promptly) any amount paid to it if the appeal is successful, considering its poor credit rating on the Mainland, the litigation and enforcement proceedings against the plaintiff on the Mainland, and the history of the plaintiff’s delay in complying with costs orders in Hong Kong proceedings.  She also has reservations whether the defendants (which are private companies) would co-operate and make prompt payment of the Judgment debt, if their appeal should be dismissed and there is no further money left in court.

16.Taking all the circumstances into account, the Judge is prepared to grant stay of execution of only a part of the Judgment debt and only on condition there is an amount remaining in court, to which the plaintiff can look for recovery should the appeal be determined in its favour.  In the exercise of her discretion on the terms to be imposed as a condition, she took into account that part of the grounds of appeal concern whether pre-judgment interest for over 16 years should be allowed (Ground D), which on its own came to RMB174,272,854.28.  If the entire pre-judgment interest is held not payable, the principal amount comprising the Judgment debt is RMB169,044,298.25.  Simply proceeding on the basis that if the defendants succeed on the appeal, and taking a broad brush approach on the reduction which may possibly be made, the amount paid into court would be in the region of RMB173,532,035 and not substantially far off from the figure of RMB169,044,298.25.  50% of the amount paid into court, with additional provision for post-judgment interest as contended by the plaintiff, is RMB191,032,035.  Taking a broad brush approach, the Judge ordered RMB180 million of the amount paid in court be released and paid to the plaintiff and the rest of the payments into court shall remain as a condition for granting the stay. 

Defendants’ summons in court below for leave to appeal on payment out

17.On 25 March 2025, the 1^st and 2^nd defendants applied to the Judge for leave to appeal to the Court of Appeal against the Judge’s Payment Out Order.

18.On 27 March 2025, the 1^st and 2^nd defendants applied to the Judge on an ex parte basis for an interim stay of the Payment Out Order.  On 28 March 2025, the Judge refused to grant the interim stay sought.

19.On 16 May 2025, the Judge dismissed the 1^st and 2^nd defendants’ application for leave to appeal against the Payment Out Order ([2025] HKCFI 2005; “May 2025 Decision”).  As pointed out by the defendants, the issues of payment out and stay of execution are two sides of the same coin^[12].  The Payment Out Order was the result of a balance of the injustice to the plaintiff of locking up the entire sum paid into court representing part of the Judgment debt when the merits of the appeal are “not entirely in favour of the defendants”, against any injustice to the defendants in the event that the Judgment debt should be reduced on appeal and there is at least some risk of the plaintiff not being able to repay the entire Judgment debt to the defendants.  In deciding on the 50% referred to in the March 2025 Decision, the Judge has evaluated the merits of the appeal and the risks alleged by the defendants as to the appeal being rendered nugatory as a result of the whole or a substantial part of the Judgment debt being reduced and adopted a broad brush approach.  She is not satisfied that the March 2025 Decision was wrong in principle or was arbitrary or plainly wrong, and the well-established requirements for the appeal court to interfere with the exercise of discretion of the court below are not made out.  She refused leave to appeal against the Payment Out Order as she is not satisfied that the intended appeal has reasonable prospects of success.

Defendants’ summons in Court of Appeal for stay of execution

20.On 25 March 2025, the 1^st and 2^nd defendants took out a summons before the Court of Appeal, in which they renewed their application for stay of execution pending appeal against the Judgments (“CA Stay Summons”).  Their stance is that the Judgments should be stayed on condition that the whole of the sum paid into court should remain in court pending the determination of the appeal, without any payment being released to the plaintiff.  Alternatively, if the Court of Appeal were not minded to grant a stay of execution in respect of a portion of the amount paid into court, that portion should be substantially less than RMB180 million^[13].

21.The plaintiff’s position is that the CA Stay Summons should be dismissed.  Alternatively, if the Court of Appeal is minded to grant any stay of execution, it should only be a partial stay (excluding RMB52,219,051.14, alternatively RMB180 million), and on condition that the sums already paid into court by the 1^st and 2^nd defendants (except the sum of RMB52,219,051.14, alternatively RMB180 million, to be paid out to the plaintiff) remain in court pending the determination of the appeal.

22.On 31 March 2025, the 1^st and 2^nd defendants made an urgent application to the Court of Appeal for interim stay of the Payment Out Order pending the determination of the CA Stay Summons.

23.On 1 April 2025, Chu VP ordered an interim stay of the Payment Out Order pending the determination of (i) the application to the Judge for leave to appeal the Payment Out Order, or (ii) the CA Stay Summons, whichever is earlier.  Chu VP commented that in the interest of procedural economy, there should be a practical approach to the several interlocutory applications pending before the two levels of court, and directed the parties to consider whether the applications for leave to appeal or appeal against the Payment Out Order and the CA Stay Summons should run parallel.  Chu VP made the interim order under the practical approach, stressing that this is “without in any way pre-judging the pending applications”.  Directions were given for the parties to lodge an application bundle and submissions for the CA Stay Summons.

24.On 19 May 2025, after the Judge dismissed the 1^st and 2^nd defendants’ application for leave to appeal against the Payment Out Order (as a result the interim stay granted by Chu VP on 1 April 2025 has lapsed), the 1^st and 2^nd defendants wrote to the Registrar of Civil Appeals asking for (i) an expedited determination of the CA Stay Summons, and (ii) a further (limited) interim stay of the Payment Out Order pending such determination.

25.This was opposed by the plaintiff, who asked the court to dismiss the application for further interim stay, alternatively, not to grant further interim stay at least in respect of RMB52,219,051.14.

26.The 1^st and 2^nd defendants responded to this by letter dated 21 May 2025. 

27.On 23 May 2025, Chu VP and Au JA made an order for further interim stay that the Payment Out Order be stayed pending the determination of the CA Stay Summons.

Discussion

28.We have considered the written submissions filed pursuant to the court’s directions dated 1 April 2025, and the subsequent letters to the court in the application for further interim stay in May 2025.

29.The 1^st and 2^nd defendants have initially sought a direction for an oral hearing for their appeal against the Payment Out Order (should leave be granted) and the CA Stay Summons to be dealt with together.  In light of the Judge’s refusal to grant leave to appeal in the May 2025 Decision, and adopting a practical approach as urged by Chu VP, the defendants indicated in their aforesaid letter to the Registrar dated 19 May 2025 that they would not trouble the appeal court with a renewed application for leave to appeal and would instead ask this court for an expedited determination of the CA Stay Summons.  There is therefore no need for an oral hearing.

30.The principles governing an application for a stay of execution pending appeal are well-established and stated as follows in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84:

(1)  An appeal does not operate as a stay of execution (Order 59 rule 13(1) of the Rules of the High Court (Cap 4A));

(2)  The burden being on an appellant to justify its claim for a stay, it has to demonstrate that good reasons exist for a stay pending appeal.  If the appeal is strong, that may itself be enough for a stay to be granted.  However, if the appeal is only arguable, the appellant would need to provide the court with additional reasons to justify a stay, eg that the appeal would be rendered nugatory if a stay were not granted.

(3)  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.  A broad brush approach is called for.

31.Much of the submissions made on both sides are directed towards the merits of the appeal against the Judgments.  The 1^st and 2^nd defendants avow that the arguments for this application should not be a “dry-run” of the appeal, and criticise the plaintiff’s “extensive arguments” on the merits of the appeal as falling foul of the court’s reminder that it is impracticable and undesirable to go deeply into merits at a stay application.  Despite all that, the two submissions of the 1^st and 2^nd defendants in this application address arguments that would be advanced in support of Grounds A to D in the Notice of Appeal in some detail, with the citation of cases and references to evidence.  The same may be said for the plaintiff’s submissions in this application.

32.We do not find it necessary or appropriate to be drawn into an assessment of the degree of merits (or lack of merits) in the various grounds of appeal.  We are not prepared to differ from the assessment of the Judge, who conducted the trial on quantum over 8 days, and has considered the grounds of appeal in her two decisions in March and May 2025, that on a broad brush approach there are reasonably arguable grounds of appeal. For the purpose of the present application, we do not accept the plaintiff’s contention that the appeal of the 1^st to 2^nd defendants should be considered as unmeritorious.  The minimum requirement for granting a stay is met.

33.The next question is whether there are additional reasons to justify a stay, such as that the appeal would be rendered nugatory if a stay were not granted.  The Judge found there are additional reasons, in that there is a real or appreciable risk that the plaintiff would not repay (or repay promptly) any amount paid to it if the appeal is successful.  The plaintiff seeks to challenge this finding.  We could detect no error in the Judge’s reasoning and are inclined to agree with her in this respect as well.

34.Obviously, both sides will look to the amount currently in court of RMB347,064,070.21 to protect their respective interests in the event the appeal goes one way or other.  So the last question is whether there should be a stay of the entire sum paid into court (as urged by the 1^st and 2^nd defendants) or only a stay of a portion of that sum (as held by the Judge and maintained by the plaintiff).

35.The plaintiff has submitted before the Judge that it is entitled to at least RMB52,219,051.14, which amount should be paid out to it^[14]. This is because the defendants had contended at trial that the plaintiff should only be entitled to RMB36,533,356.73, together with pre-judgment interest from 20 October 2017, which would amount to RMB15,685,694.41.  As the plaintiff is indisputably entitled to this total sum of RMB52,219,051.14, there is no reason why this amount should not be immediately paid to it.  The plaintiff has repeated this submission in the present application before us.

36.The 1^st and 2^nd defendants have disputed before the Judge that the plaintiff is indisputably entitled to this amount.  In short, it was not accepted by the 1^st and 2^nd defendants at the trial they should be liable for this amount, which was merely put forward for the sake of argument as a “reality check” on a “very rough and ready basis”.  These contentions are repeated before us.  The 1^st and 2^nd defendants again remind the court of its contention at trial (and on appeal) that the plaintiff had not adduced factual evidence of what its alleged loss was or would be, and had instead relied on what the plaintiff claimed to be the case from the defendants’ accounts and documents.  They emphasise that until the appeal is determined, it is “impossible to say with any degree of certainty” what the plaintiff’s entitlement would be.

37.The Judge did not find it appropriate to grant a stay on condition that the amounts paid into court should remain in court except for the sum of RMB52,219,051.14 which should be paid out to the plaintiff.  Instead, she ordered that RMB180 million should be paid out to the plaintiff and the balance of the sums paid into court should remain in court as a condition for granting a stay.  We have summarised the Judge’s reasons for this in her two decisions in March and May 2025 Decision.  We do not agree with the 1^st and 2^nd defendants that the amount of RMB180 million allowed to be paid out is “completely arbitrary” and “not based on any discussion or analysis of the plaintiff’s chance of success in obtaining this sum on appeal”.  Nor do we agree with the contention there was no reason why and the Judge did not explain there should be a conditional stay which led to payment out to the plaintiff where money is already in court.

38.It is unnecessary to repeat the Judge’s reasons. Suffice it to say that the contentions of the 1^st and 2^nd defendants are simply not borne out in those reasons, which we find cogent, well balanced and well considered.  We are mindful that under Order 59 rule 13 we have a concurrent jurisdiction to exercise in considering whether to grant a stay pending appeal and on what terms.  Strictly speaking, the principles governing appellate interference with the exercise of discretion of the court below do not apply.  We are entitled to exercise the discretion afresh.  That said, as the Judge is most familiar with the underlying dispute, it is appropriate we should give considerable respect to her assessment of the merits of the grounds of appeal, and the weighing of the prejudice and injustice that might be occasioned to either side in imposing terms for a stay in the exercise of her discretion.  Where the court below has imposed terms, it was said in Hansard v Lethbridge (1891) 8 TLR 179 that the Court of Appeal “will be loath to interfere with its exercise of discretion”^[15].

39.For the above reasons, we will grant a stay of execution pending appeal on the same terms imposed by the Judge in the March 2025 Decision.

40.We make an order nisi that the 1^st and 2^nd defendants should pay the plaintiff’s costs of the CA Stay Summons, as the defendants have not succeeded in varying the terms for granting a stay of the Judge.

41.We will assess costs summarily on a nisi basis.  The plaintiff has lodged a statement of costs for this purpose dated 30 April 2025 in the total sum of $581,070.  We decline to allow fees for three counsel and would only allow the fees for two.  The amount of reasonable costs that should be paid to the plaintiff is reduced to $447,300.