Citibank N.A. v. Days Properties Ltd

HCMP 477/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 477 OF 2012

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REASONS FOR DECISIONS

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1.This is the defendant’s application for stay of execution pending its appeals against the order and judgment granted by me on 18 June and 26 August 2013. In the hearing on 22 October 2013, I refused the application. I now give my reasons.

2.This is a mortgagee’s action pursuant to O 88 of RHC (Cap 4).  The plaintiff claims for the repayment of monies advanced to the defendant under various credit facilities, and it also seeks to enforce the underlying securities to secure payment.  The background of this case and the reasons for the judgement in favour of the plaintiff have been fully set out in the Judgment and Reasons for Decision dated 26 August 2013 (“the Judgment”), and I do not want to repeat the same here.

Legal principles governing whether a stay of execution pending appeal is to be granted

3.The relevant principles governing whether a stay of execution pending appeal should be granted are discussed by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at §§6-10, which can be summarised as follows:

(i)  it is in the court’s discretion whether or not to grant a stay (§6);

(ii)  a stay of execution will not be ordered unless the defendant can justify a stay, and the practice of the court is that justification can be demonstrated only if good reasons exist (§7);

(iii)  good reason can exist in a variety of forms, and merits of the appeal and whether the appeal will be rendered nugatory are matters which may go to whether good reasons exist (§8);

(iv)  however exceptional the circumstances may be otherwise justifying a stay of execution, if the court is not convinced  that there exist arguable grounds of appeal, no stay will be granted, and so the existence of an arguable appeal is the pre-requisite for the grant of a stay (§9(6));

(v)  the court would have to form a preliminary view of the merits and strengths of an appeal, but the existence of an arguable appeal is only the minimum requirement.  Where there is an arguable appeal, then the appellant will have to provide additional reasons for a stay, for example that without a stay the appeal would be rendered nugatory.  Without such additional reasons, strong grounds of appeal, or a strong likelihood of success would be required (§§9(5) & 9(8));

(vi)  if the order appealed against is a money judgment, the court will require evidence as to why the levying of execution will result in the appeal being rendered nugatory, such as, for example, an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal (§9(1));

(vii)  where it is said that levying of execution would result in financial ruin or serious financial consequences for the appellant, the court will require good evidence to support this contention, such as the production of accounts or other documents to justify the assertion.  A bare assertion is unlikely to meet with much sympathy where more substantial evidence is available (§9(3));

(viii)  it is important to stress that the court must not at any stage forget the position of the successful party.  It is always relevant to consider the prejudice that would be caused to the successful party in the event a stay is granted, and if necessary, to impose conditions so as to minimize the prejudice caused to him (§9(9)); and

(ix)  ultimately, the court embarks on a balancing exercise and uses its common sense, but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success (§10).

Merits of the appeal

4.I have already set out my reasons for the judgment in favour of the plaintiff fully in the Judgement itself.  Although the court in the first instance may be reluctant to take the view that its decision is incorrect, the court should try to be as objective as possible in assessing the merits of the appeal in a stay application.  The court should always guard against the prejudice that its decision must be the correct one.

5.Despite such warning to myself, I have no reservation to say that the intended appeals have no merit at all.  This is a simple claim, and the plaintiff just made a demand for the repayment of a bank loan from its customer.  There are express “on-demand” clauses in various credit facilities, and so there can be no implied term that the loans are not repayable on-demand.  Nor is it believable that the plaintiff’s officers would have assured or promised the defendant that the plaintiff would never exercise the right to immediate payment (see §§45-54 & 66-68 of the Judgment).

6.Further, for the reasons explained in §§55-65 of the Judgment, there is nothing in the argument that the plaintiff had acted in bad faith and hence the defendant does not have to repay the loans.

7.According to the defendant’s case as stated in the affirmations in opposition, the plaintiff would be debarred from demanding the loan indefinitely.  This simply cannot be right.  After having the benefit of an adjournment to consider its position, the defendant seemed to accept that the plaintiff could demand the loan upon the expiration of the maximum tenor of 12 months.  That would mean that even on its own case, the defendant would be liable to repay the plaintiff from 23 June 2012, and yet the defendant had not repaid the plaintiff any part of the outstanding loan.  In such circumstances, there can be no good reason for the court to accede to a stay of execution, so that a person who is undoubtedly liable (even on his own case) can avoid immediate repayment.

8.In respect of the interlocutory order I made on 18 June 2013 relating to the defendant’s application for specific discovery, I refused the application on the grounds of delay, oppression and lack of necessity (see: §§22-35 of the Judgment).  This is very much a case management decision and the appellate court is usually very reluctant to interfere with the exercise of such discretion by the lower court.  More importantly, as pointed  in §35 of the Judgment, even if the materials applied to be disclosed are able to support the evidence as contained in the defendant’s affirmations in opposition, it would not make any difference to the outcome of the proceedings.

9.Undoubtedly, I had granted leave to the defendant to appeal against the interlocutory order relating to specific discovery. However, as stated in §§3-5 of my decision dated 10 September 2013, I granted leave to the defendant to appeal not because I was convinced that there is merit in the appeal.  I only granted leave because on the information then available, it appeared that the appeal against the substantive judgment would be heard by the Court of Appeal anyway.  Hence, the granting of such leave cannot assist the defendant’s case in the stay application.

10.For the above reasons, the defendant does not have arguable appeals.  As the prerequisite for a stay is not shown, the defendant’s application should be dismissed.  I therefore so ordered.

Whether the refusal of the stay would render the appeal nugatory?

11.Even if the defendant has arguable appeals, there is no good reason for the grant of a stay.

12.As mentioned above, if a party says that a money judgment ought to be stayed, he will have to show that there is an appreciable risk that the respondent cannot repay the money, or that compliance with the money judgment would put him in financial ruin.  Given that the plaintiff is a reputable bank, it cannot be (and it has not been) suggested that should the defendant succeed in the appeal, there is any risk that the plaintiff will not be able to repay the judgment sum.

13.The defendant tries to argue that the appeals may be rendered nugatory because members of the Dayaram family are presently occupying the subject properties as their family homes, and they will be distressed if they are to be evicted.  However, the defendant is a company which is a separate legal entity from members of the Dayaram family.  In such circumstances, it is difficult to see why the “distress” of third parties would justify a stay in favour of the defendant.

14.More fundamentally, it is for the judgment debtor to adduce evidence to support the contention that the enforcement of the money judgment would put him into ruin.  In the context of a judgment debtor saying that the mortgaged property is worth vastly more than the judgment debt (as alleged by the defendant), DHCJ Gill said the following in Bank of East Asia v Labour Building & Ors, unreported, HCMP 769/202 (24 April 2008) at §74:

“ … … there is nothing to suggest that either the defendant, and particularly LBL [the mortgagor], has explored the prospect of raising the money on the security of the property from another financier. Whilst plugging the proposition that there is ample security in the worth of the property to relinquish any anxiety of a shortfall in the Bank’s recovery, why is that not being used to attract support from another bank or lending institution?”

15.This is exactly the case here.  The defendant has simply failed to produce any evidence to show that it has tried to obtain refinancing from another bank or lending institution, and so the defendant has plainly failed to demonstrate that refusal of a stay would render the appeals nugatory.

16.Further, DHCJ Gill observed at Labour Building at §§76 and 77 that a “major flaw” in the judgment debtor’s case was that there was no evidence on the shareholders’ ability and willingness or otherwise to finance or contribute to a rescue package.

17.Again the same happens here. There is simply no evidence that the shareholders or backers of the defendant, or indeed the occupiers of the subject properties, are unwilling or unable to finance or contribute towards the compliance of the money judgment.  For the above reasons, the defendant has plainly failed to demonstrate that the refusal of a stay would render the appeals nugatory.

Prejudice to the plaintiff

18.The court has already granted judgment in favour of the plaintiff.  As mentioned above, the court must not at any stage forget the position of the successful party, and it is always relevant to consider the prejudice that would be caused to a successful party in the event that a stay is granted.

19.In §28 of the Judgment, I have already pointed out that properties prices are volatile in Hong Kong, and delay in the enforcement of the securities of the loan may result in substantial losses to the plaintiff.  DHCJ Gill had made similar comment in §73 of the judgement in Labour Building, supra. 

20.The defendant has obtained a valuation of the subject properties in the internet.  However, as observed by DHCJ Gill in §72 of Labour Building, supra, such valuation (even if it is a reliable one) does not take account of the fact that any sale by the plaintiff will be on a forced sale basis.  Further, there is a lis pendens registered in favour of a third party against one of the subject properties.  In such circumstances, delay in the execution of the judgment may result in grave prejudice to the plaintiff, in particular the defendant has not even made some or part repayment of the loan to the plaintiff after a considerable period of time.

21.Based on the aforesaid, it is not appropriate for the court to exercise the discretion in granting a stay.  I therefore refused the stay application.

Rehearing of the costs order made in the hearing on 26 September 2013

22.The costs of the stay application should depend on the result of the substantive appeal, and I therefore ordered that the costs of such application be costs in the cause of the appeal.

23.On the first return day of the stay of execution summons on 26 September 2013, I gave directions for the filing of affirmations and adjourned the stay application for argument on 22 October 2013. Nevertheless, the defendant applied for an interim stay in the hearing.

24.I dismissed the application.  As there was no chance that the plaintiff was able to evict the occupants of the subject properties before 22 October 2013, the defendant should not have pursued the application for the interim stay in the direction hearing.  I therefore ordered that the costs of the interim stay application be to the plaintiff and such costs would be summarily assessed in the substantive hearing of the stay application on 22 October 2013.

25.After the direction hearing, I received a letter from the plaintiff’s solicitors dated 26 September 2013 asking for the plaintiff’s costs of the interim stay application to be taxed on indemnity basis. According to the relevant provisions in the credit facilities, the plaintiff is contractually entitled to indemnity costs in respect of its debt recovery process, and that was the same reason why I awarded the costs of the originating summons to the plaintiff on indemnity basis in the Judgment.

26.Since the parties had not argued on the basis of the taxation in the direction hearing on 26 September 2013, I directed that the order not to be sealed and I would deal with the matter again in the hearing on 22 October 2013.

27.It is trite law that so long as an order has not been sealed, a judge or master on the application of a party or on his own initiative has the power to review it (see: Hong Kong Civil Procedure 2013, vol 1, §42/1/19).

28.As the parties have not expressly argued on the basis of the taxation in the direction hearing, there is a good reason for the court to deal with the issue again.  There is no question of functus because the order has yet been perfected.  The credit facilities expressly provide that the plaintiff is entitled to indemnity costs incurred for the recovery of the debt, and so I ordered that the plaintiff’s costs for the interim stay application to be taxed on indemnity basis.

29.It may not be easy to assess the costs of the interim stay application as the court was not only dealing with such application in the direction hearing.  Further, depending on the result of the appeal, further taxation of the plaintiff’s costs may be required.  In such circumstances, I decided not to assess the costs summarily in the hearing on 22 October 2013.

30.These are the reasons for the decisions I made in the hearing.

Mr Bernard Man, instructed by Baker & McKenzie, for the plaintiff (for the Stay of Execution Summons)

Mr Soo Khim Keoy of Baker & McKenzie, for the plaintiff (for the rehearing of the costs order made on 26 September 2013)

Mr Andrew Sheppard, instructed by Kennedys, for the defendant