Toeca National Resources B V v. Baron Capital Ltd and Another

HCA 1913/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1913 OF 2009

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D E C I S I O N

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1.This is the defendants’ application made in April 2013 for a stay of execution of my order of 26 February 2013, pending their appeal against my judgment. The judgment and order appealed against are for the defendants’ payment of $116.8 million and interest of $1.94 million to the plaintiff.

2.As the court emphasized in Star Play Development Ltd v Bess Fashion Management Company Ltd [2007] 5 HKC 84, the starting point is that the successful party is not to be deprived of the fruits of its success.  In order to deprive a successful litigant of the fruits of its litigation, and to lock up funds to which it is prima facie entitled, the court must be satisfied that there are good reasons or special circumstances which require a stay of execution on the judgment.

3.I am not satisfied that the grounds of appeal are so strong in merits as to constitute a good or special reason.

4.The defendants claim that a refusal of a stay of execution will cause severe financial hardship to them, effectively stifling their appeal and rendering it nugatory.  It is claimed that the net asset value of the 1^st defendant (“Baron Capital”) as of 15 April 2013 is $477,550.67, and that the personal assets of the 2^nd defendant (“Wan”) do not exceed $2.75 million.

5.Baron Capital continues to carry on its corporate finance and investment consultancy business for local and international clients.  On the face of the financial statements produced in support of the stay application, Baron Capital’s income is substantially if not solely derived from consultancy fees it receives, recorded at approximately $54 million for 2008, and $35 million for 2009.  Likewise, its major expenses are in the form of service fees and other fees and expenses paid to other companies within the Baron group.  Examples are $11.4 million paid by Baron Capital to Baron International Limited for service fee in 2009, and over $3 million paid by Baron Capital to Baron International Investment Holdings Limited for rental expenses and management fees in 2009. 

6.It is clear from the evidence at trial that Wan had full control of the allocation and transfer of funds within the Baron group of companies, including allocation of consultancy fees and income received.  At trial, despite the defendants’ pleaded case that Baron Capital was the entity appointed as financial adviser to the client (Hung), the introduction fee and advisory fees paid by the client to Wan were “allocated” by Wan to Baron International, another company within the Baron group.  It was easy for Wan to allocate income and expenses as he saw fit to reflect the financial position of Baron Capital as he chose or required.

7.The Writ in these proceedings was issued in September 2009.  Wan claims in the application for stay of execution that he had sold the business of Baron Capital to his daughter in 2009, and that he was no longer the Chairman of the Baron group.  The consideration of $10.8 million was based on the net asset value of the companies within the group, and according to Wan, the consideration he received has been utilized to pay the legal fees incurred in the litigation.  Wan accepted, when challenged by the plaintiff in evidence filed to oppose the stay, that he continued to be described as a director in the financial statements of Baron Capital until 2012, and had signed the accounts of Baron Capital as director until July 2011.  He explained that the sale of the business to his daughter commenced in 2009, but was based on the net asset value of Baron Capital as of 31 October 2011, as the sale was only completed in November 2011. 

8.On the evidence filed in support of the application for stay, I am not satisfied either that full disclosure has been made of the defendants’ financial position, or that the balance sheets, accounts and financial documents which Wan has disclosed, in stages, can reliably be accepted as a full and accurate reflection of the true financial state of Baron Capital and Wan. 

9.It is to be borne in mind that the onus is on the defendants seeking the court’s indulgence in granting a stay of execution to establish, to the court’s satisfaction, that there are good reasons or exceptional circumstances to justify the stay.  Mere assertions by the defendants of the alleged deleterious effect on them are obviously not sufficient.  It is for the defendants applying for the stay to establish, by good and credible evidence, the alleged financial hardship on the basis of their alleged financial position.  If there are questions unanswered on the face of the evidence filed in support of the application for stay, then the defendants have failed to discharge their burden.  It is not for the successful plaintiff in this case to show that the defendants’ evidence is not as they purport to be, that the defendants in fact have assets, or that the defendants are in fact able to pay the judgment debt.

10.As the court pointed out in Star Play Development Ltd v Bess Fashion Management Company Ltd [2007] 5 HKC 84, it is ultimately a balancing exercise, in the court’s unfettered discretion, the starting point being that the successful party is not to be deprived of the fruits of his success.  In this case, balancing the merits, my view of the evidence produced in the application for stay, the prejudice to the plaintiff, the substantial amount involved, and any prejudice to the defendants by refusing a stay, I come to the conclusion (with some reluctance) that a stay of execution pending appeal should be granted, but only on condition that:

(a) within 21 days, the defendants pay into court, or otherwise provide a bank guarantee for the defendants’ payment of, 50% of the judgment sum of $118,767,000.00 ($116,820,000.00 plus interest of $1,947,000.00); and

(b) the defendants pay to the plaintiff the costs of the application for stay of execution, including the costs of the appeal against the garnishee orders, and the costs reserved at the hearing on 28 May 2013 before Master Hui, with certificate for counsel.

11.I further order that the garnishee order absolute granted in respect of the defendants’ bank accounts remain in place, save that enforcement of the garnishee order absolute be stayed pending appeal. 

Mr Simon Westbrook SC, instructed by Jones Day, for the plaintiff

Mr Benjamin Yu, SC and Miss Kate Poon, instructed by Baker & McKenzie, for the 1^st & 2^nd defendants