China Everbright Finance Ltd and Another v. Chan Yung and Another

HCA18300/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 18300 OF 1999

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BETWEEN

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Before : Deputy High Court Judge Carlson in Chambers

Date of Hearing : 28 November 2007

Date of Ruling : 28 November 2007

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R U L I N G

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1.This is an application for a stay of execution by the 1st defendant pending his appeal against the judgment of Deputy High Court Judge Muttrie dated 24 October 2006. 

2.The factual background can be stated shortly.  The 1st plaintiff, which is the judgment creditor as a result of the judge’s order, provides finance to individuals seeking margin facilities to invest in stocks and other securities, and the 2nd plaintiff is its associated company that provides stockbroking services. What happened was that the 1st defendant opened a margin-trading account with the 1st plaintiff who provided the appropriate facilities to enable him to trade through the 2nd plaintiff. 

3.Unhappily, a very substantial level of indebtedness resulted and so the 1st plaintiff brought proceedings to recover an amount in excess of $10 million.  The trial was heard in the course of September of 2006, and as I have already said, judgment was handed down on 24 October in which the plaintiff was completely successful.  The judgment itself - and I state this in round figures - was in the amount of $10.7 million made up of - again in round figures - $6.3 million in respect of the principal and a very substantial element for interest in the amount of $4.3 million.

4.What then happened was that the defendant entered grounds of appeal which he wrote out himself.  He was represented at the trial by solicitors and counsel but then dispensed with their services and his homemade grounds of appeal dated the 17 November 2006 are very brief but it is clear that he was reasonably active in pursuing that appeal and in correspondence with the plaintiffs’ solicitors in that regard. That state of affairs continued until March of this year, he having prepared some bundles for the purposes of the hearing of his appeal.

5.So far as the plaintiffs are concerned, they took out a statutory demand in January this year which has now grown to something like $12.5 million.  They were not able to communicate with the defendant to serve him with the statutory demand and obtained an order for substituted service in May 2007, and it is very much part of their case that the defendant had deliberately gone to ground to avoid the consequences of this judgment.  Having obtained an order for substituted service , they complied with that order which then enabled them to take out a bankruptcy petition dated 27 August this year.  Again, according to Mr Szeto and I think this is clearly borne out on a neutral view of the evidence, the defendant had, as it were, absented himself from their attempts to serve him in the conventional way and so on 3 October 2007 they obtained an order for substituted service of the bankruptcy petition.  That petition is due to be heard on 3 December which is next Monday listed before Poon J.

6.The defendant has since got himself represented.  He went to solicitors in September and they have instructed Mr Leung who appears for him today as well as leading counsel, and as a result of that, his homemade grounds of appeal have been amended and considerably enlarged. The hearing of the appeal will largely centre on the legality of the interest provisions of the trading account which was entered into between him and the ultimately successful plaintiffs.

7.It is said that the agreement contained illegal compound-interest provisions and certainly the statements that were served on him in the course of the active trading account that he held with both plaintiffs do unquestionably reveal that he was being charged compound interest, but what is highly significant in my view is that when it came to it, the plaintiffs, having issued their writ and statement of claim, did not make a claim for compound interest and dealt with it on a perfectly legal basis which has been dealt with in the learned judge’s - if I may say so - very comprehensive judgment.

8.This is how the appeal is going to be mounted, that the agreement contained illegal provisions and that the judge should not have felt able to ignore that which he appears to have done in the sense that he dealt with the matter on the basis that was being presented to him as a claim for simple interest.  It seems to me that the defendant is going to face an uphill task when it comes to the hearing of the appeal and that is really as far as I feel able to go.  I suppose it might be said that this appeal is arguable.  I think it is probably barely arguable.

9.In advancing the case for a stay, Mr Cheung says that I ought to exercise my discretion in favour of a stay because, after all, the appeal itself is relatively imminent.  It has been listed for 24 January next year.  If I do not give a stay, it is very likely that Poon J is going to make a bankruptcy order against the defendant and that would in effect render the appeal nugatory.

10.The bases upon which one deals with applications such as this have been rehearsed by Ma J, as he then was, in the case of Star Play Development Limited v Bess Fashion Management Company Limited.  It is an unreported judgment dated 7 June 2002, case number HCA 4726 of 2001, and I think the point here is and, this is really the starting point to any application such as this is, that a successful plaintiff is not to be kept out of his money unless there are good reasons for doing so.  I have had regard to all of the considerations which Ma J has set out in his judgment in the case that I have just referred to.

11.The particular feature which has impressed me in this is that Mr Szeto has made out an impressive case that the defendant has rather played the game, if I may express it in that way, of avoiding service, having done so rather successfully and only really very late in the day going to solicitors when he saw that the plaintiffs were on the verge of catching up with him and then these bankruptcy proceedings have started and so although it is very attractive for Mr Cheung to say, “Well, I mean the appeal is only two months away” and the consequences of the bankruptcy petition are going to be very grave if I do not order a stay, I think a lot of this timeframe has been created by the defendant’s own rather successful efforts at making himself scarce when it came to him being served with the statutory demand and the bankruptcy petition. 

12.Whilst I appreciate that he showed early enthusiasm for an appeal, he having made out his own homemade grounds of appeal as early as 17 November 2006, less than a month after the judge had handed down his judgment, and being active in pursuing it, the fact is that really since March until about October this year, he has gone to ground, he has done nothing to prosecute the appeal until he saw that he was going to have to do something about it and has sensibly gone to solicitors who instructed counsel to prepare the matter on his behalf.

13.I have a very wide discretion in the way I deal with this matter.  It strikes me that insofar as the appeal itself is concerned, I do not see how, on any view, the defendant is going to be able to successfully argue that he is not liable for the principal and he has got to face up to that.  Now, I have inquired with Mr Cheung as to what the defendant’s means are if I were, in the exercise of my discretion, to order him to put money into court as a condition for granting him a stay and Mr Cheung really has no instructions about that. 

14.The defendant has said in his affirmation evidence that he could have dissipated his assets since Deputy High Court Judge Muttrie entered judgment against him, but he has not done so but, he has not told the court through his affirmation what those assets are, nor he has come to court to say that he has got no assets and I am, in a sense, really operating in the dark about this but it only seems right that if he is to have a stay and, I think in all the circumstances, I will grant him a stay and I am doing that because I take the view he does, although it is barely arguable, have an argument on the interest element of the case and I am going to give him a stay for that reason.  I take into account that the appeal is only two months away although he has rather engineered this tight timeframe because of his successful attempts at evading service. 

15.Nevertheless, I am going to give him his stay on terms that he brings into court the sum of $6,356,000 which is, barring a few cents, the principal element of the plaintiffs’ claim and that he does so by 1 pm on Friday, 7 December.  If he fails to do that, the stay will go and the plaintiff will then be in a position to do what it is advised to do in order to enforce the judgment.  I suspect as a result of today’s order, the hearing on 3 December may have to go over to abide the events of 7 December.  As I say, if he does not meet the condition, then no doubt the bankruptcy petition will be re-listed at an early date.  So that is the order that I propose to make.

(Discussion re costs)

16.Costs in the appeal.

(Discussion re extension of time for the defendant)

17.I will say 1 pm on 14 December.

Patrick Szeto, instructed by Cheng, Yeung & Co., for both Plaintiffs

Lawrence Cheung, instructed by Messrs Leung, Chan & Pang, for the 1st Defendant