Credit Lyonnais v. Sk Global Hong Kong Ltd

CACV000167/2003

CACV167/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 167 OF 2003

(ON APPEAL FROM HCA NO.1156 OF 2003)

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Coram: Hon Ma CJHC, Rogers VP & Cheung JA in Court

Date of Hearing: 15 July 2003

Date of Judgment: 15 July 2003

Date of Handing Down Reasons for Judgment: 30 July 2003

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REASONS FOR JUDGMENT

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Hon Ma CJHC :

1.On 15 July 2003, we allowed the plaintiff's appeal from the orders of Chu J dated 6 June 2003 and Seagroatt J dated 20 June 2003. I have read in draft the judgments of Rogers VP and Cheung JA. I agree with the reasons they give for allowing the appeal. I wish, however, to make the following observations.

2.I have no doubt that the court retains an inherent jurisdiction, in suitable cases, to make orders staying execution quite apart from those situations expressly permitted under the Rules of the High Court (namely, RHC O.45, r.11, O.47, r.1 and O.59, r.13). By the term "suitable cases" are meant those situations in which the inherent jurisdiction of the court is required to be exercised so as to avoid injustice, prevent abuse, preserve the dignity of the court or to facilitate the administration of justice. This is, of course, the rationale for the existence of the jurisdiction in the first place. An inherent jurisdiction exists even in respect of matters regulated by statute or rules of court (see Halsbury's Laws of England Vol.37 (4th edition) at paragraph 14), although I accept the point made by Rogers VP that the inherent jurisdiction must not expressly conflict with Rules of Court.

3.The existence of an inherent jurisdiction to stay execution must not, however, be confused with the exercise of it. The exercise of the discretion whether or not to order a stay of execution must be made in accordance with principle. In various parts of her judgment, Chu J referred to the "balance of convenience". In my view, this was not the appropriate test. While it would not be right to set out an exhaustive list of relevant factors for the exercise of the inherent jurisdiction in this context, it is important to bear in mind that the jurisdiction will only be activated where an injustice would otherwise be caused, to prevent abuse, to preserve the dignity of the court or to facilitate the administration of justice.

4.Where, as in the present case, a party (the judgment creditor) has obtained a judgment against another party (the judgment debtor), the starting (and often, finishing) point is that the judgment creditor should be able to take all legitimate measures to enforce that judgment. That is, after all, his right. The various ways of enforcing a judgment, are of course set out in RHC O.45.

5.Exceptionally, however, the judgment creditor may be prevented from levying execution. I emphasize the exceptional nature of this, for the court is in these circumstances being asked to deprive a successful party of the fruits of the judgment he has obtained. The exercise by the court of its jurisdiction to stay execution under O.45, r.11, O.47, r.1 and O.59, r.13 demonstrates this. Thus, a stay of execution may be granted where :-

(1) New evidence emerges after the relevant judgment, showing that it was not valid : - see Tam Ho Man v Wong Kwok Tai, unreported, 20 October 1986 [1986] HKLY 705. This case dealt with the court's jurisdiction under RHC O.45, r.11.

(2) In certain circumstances, the judgment debtor has a claim against the judgment creditor yet to be determined. This may even include situations in which the corporate veil should be pierced : - see Burnet v Francis Industries Plc [1987] 1 WLR 802 (a case dealing with the UK equivalent of RHC O.47, r.1).

6.I see no good reason why the inherent jurisdiction of the court to stay execution generally should not equally apply to those situations referred to in the previous paragraph.

7.But what if the reason for the application for a stay of execution is the possibility or even reasonable prospect of a compromise being reached between the judgment debtor and its creditors in general, or of a restructuring of the judgment debtor's debts? It will be seen that in the present case, the application for a stay of execution before Chu J was put essentially on the basis that the majority of the defendant's creditors wished to continue settlement or restructuring negotiations with the defendant and its Korean parent.

8.In my view, this does not provide any reason to order a stay of execution : -

(1) The starting point is that a judgment creditor is entitled to enforce the judgment he has secured against the judgment debtor.

(2) In any event, as a matter of principle, it is somewhat difficult to see why the interests of non-parties (such as the defendant's other creditors or even its Korean parent's creditors) should be taken into account by the court in the first place. A civil action between two or more parties is normally one in personam, where the court is required to adjudicate on the rights and liabilities as between those parties alone. Were it otherwise, non-parties would then be able to have locus standi to intervene in that action. This is of course possible under RHC O.15, r.6 but the circumstances in which intervention is permitted under that Rule are somewhat circumscribed. They certainly would not cover intervention by creditors of a defendant unless those creditors had some interest directly related or connected to the subject matter of the action.

(3) Of course, certain proceedings by their nature will require the court to take into account the interests beyond the named parties to the action. Admiralty actions in rem provide a ready example. In winding-up petitions, the court is required to take into account the interests of creditors at all times. As I have said, however, this is not the position in an ordinary action in personam.

(4) The only situation in which the courts have appeared to take into account broader interests when considering question of execution, have been where the judgment debtor was in the process of being wound up or where liquidation or some form of scheme of arrangement was imminent : - see the decision of the House of Lords in Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 2 AC 192 and the decision of Hunter J at First Instance in Wardley Ltd & Ors v Aik San Realty Ltd & Anor [1985] 2 HKC 695. These cases, and similar cases, deal essentially with the situation where a statutory scheme for the pari passu distribution of the judgment debtors' assets amongst its creditors (whether by winding-up or scheme of arrangement) is either in place or imminent. In these circumstances, it would then be at least unfair and more likely an abuse, for the judgment creditor to gain an unfair advantage over other creditors. It would also seem somewhat pointless for the court to allow a judgment creditor to do so. It is therefore not surprising that the court would in these circumstances step in to prevent an abuse. Here, the court is not so much taking into account the wishes of non-parties as recognizing that it must not allow a situation to occur that would be contrary to statute (viz. the statutory scheme for the orderly and fair distribution of an insolvent company's assets to its creditors) or would usurp the jurisdiction of other courts (such as the Companies Court).

(5) Other than the special situations I have just referred to (i.e. liquidation or some other statutory schemes being either in place or imminent), it would not be a correct exercise of discretion to take into account the interests or wishes of non-parties at the expense of those of the judgment creditor.

(6) In his submissions, Mr Reyes SC argued that the court should order a stay whenever a judgment debtor was or was likely to be insolvent and there was a "reasonable prospect" for a scheme of arrangement. He relied on Rainbow and another v Moorgate Properties Ltd [1975] 1 WLR 788 at 793-4 and Roberts Petroleum Ltd at 207 (where Lord Brightman referred to the judgment of Lord Brandon of Oakbrook in the Court of Appeal in that case). I am unable to agree. In my view, the position is as stated in sub-paragraphs (4) and (5) above. Any test based on "reasonable prospect" is too uncertain (see Roberts Petroleum Ltd at 213G-H) and likely to cause prejudice to a judgment creditor who, it is to be reiterated, has a judgment in his favour.

9.In applying for a stay, the defendant has in the present case effectively sought a moratorium on its debts to enable restructuring negotiations to take place with its creditors. Neither a winding-up (there is no petition presented) nor a scheme of arrangement is imminent. For the reasons that Rogers VP articulates in his judgment, this is simply not sufficient. As Hunter J said in Wardley Ltd at 698 :

"Unless these circumstances [i.e. winding-up proceedings or their equivalent in the form of some scheme of arrangement being imminent] exist the above choice is not available to the court."

10.It is not up to the court to use its inherent jurisdiction to create a regime in which a judgment debtor or insolvent company is able to obtain a moratorium on its debts (or to put it more crudely, to give it some 'breathing space' to allow it to negotiate with creditors). This is a matter for the legislature to contemplate and if seen fit, to legislate on. The inherent jurisdiction of the court is only to be exercised in the circumstances set out above; it is not there to fill in perceived lacunae in the insolvency legislation.

11.There is no prejudice, much less injustice, to the defendant in the result we have arrived at (a factor which was uppermost in the mind of Chu J). If the interests of creditors as a whole need to be taken into account, the Companies Court will be the right forum for this should a winding-up petition be presented.

Hon Rogers VP:

12.This is an appeal from the order of Chu J given on 6 June 2003, with the reasons for the decision handed down on 17 June 2003, and the order of Seagroatt J given on 20 June 2003. By those orders the judges stayed execution on the judgment which the plaintiff had obtained on 19 May 2003 on condition that the defendant should pay to the plaintiff interest up to the date of the order at the contractual non-default rate on the unaccelerated principal sum of the loan due and owing to the plaintiff forthwith upon receiving a proper calculation of such amount from the plaintiff. At the conclusion of the hearing of this appeal this court allowed the appeal and set aside the orders of Chu J and Seagroatt J with reasons to be given later, which we now do.

Background

13.The background to this matter is set out in the judgment of the Chief Judge given on 7 July 2003. The appeal on that day dealt merely with whether the stay of execution granted by Chu J should further be extended. It left open the question whether Chu J was right in the first place to order a stay of execution. This was the question before us in the present appeal. It is not proposed to repeat the facts save to say that the plaintiff obtained judgment against the defendant for a sum in excess of US$8 million. There is no challenge to the validity of that judgment nor is there any appeal pending or contemplated. Substantial though the amount of that judgment is, it apparently represents less than 2% of the defendant's total financial indebtedness. The defendant is part of a group of companies of which the parent is SK Global Limited, a Korean company. In April 2003, the foreign creditors of SK Global Limited set up a steering committee. The Standard Chartered Bank is the leading bank of that committee. Restructuring proposals are being formulated and a due diligence report by accountants was released on 19 May 2003. The restructuring proposals had to be made on the basis of that report. It is said, and this application proceeded on the basis, that all other creditors were forbearing to enforce their rights against the defendant pending the outcome of the restructuring proposals.

14.The application before Chu J was put upon the basis of Order 47 rule 1 of the Rules of the High Court and under the court's inherent jurisdiction. It can be noted at the outset that the orders, the subjects of this appeal, do not prevent the presentation of a winding-up petition. The presentation of a winding-up petition is not a form of execution : see In re A Company [0022 of 1915][1915] 1 Ch 520. It is not a method of enforcing a judgment so much as proceedings to ensure the administration of a debtor's assets for the benefit of all creditors : see In re International Tin Council [1989] Ch 309, at 331-4. We were informed by Mr Barlow, who appeared for the plaintiff, that the judge below considered that the spirit of the order was that a petition should not be presented and that the plaintiff has abided by that spirit. Be that as it may, Order 47 rule 1 relates to a stay of execution by writ of fieri facias and does not, on the face of it, empower the court to order a stay in relation to other forms of execution or enforcement of a judgment.

15.Order 45 rule 11 empowers a court to order a stay of execution of a judgment or order on the grounds of matters which have occurred since the date of the judgment or order. In the case of London Permanent Benefit Building Society v De Baer [1969] 1 Ch 321 Plowman J considered that the matters referred to in the rule were those which would have prevented the order being made, or which would have led to a stay of execution if they had already occurred at the date of the order. It would appear from a brief note of the decision of Hunter J in Tam Ho Man v Wong Kwok Tai that similar reasoning was applied in his decision, a note of which appears at (1986) HKLY 705. Mr Reyes SC, who appeared on behalf of the defendant, referred to those judgments and submitted that although they were judgments at first instance they appear to have been followed consistently and accepted as the proper interpretation of Order 45 rule 11 and he did not seek to argue against them. He thus put his case upon the court's inherent power to regulate its own proceedings.

16.Chu J came to the conclusion that there was an inherent power in the court to make the order which was made. It was a matter of the court's discretion. The judge said that the discretion could not be exercised to prevent a judgment creditor enjoying the fruits of its successful litigation and its right to enforce the judgment should not be suspended unless there were special or compelling reasons for so doing. It appears that the matters which the judge took into account as relevant considerations are set out in paragraph 18 of her judgment. They were:

(1) that the judgment debtor is insolvent;

(2) that there is a reasonable prospect of the judgment debtor undergoing restructuring;

(3) that there is evidence to show that the restructuring proposal is likely to be sanctioned by the majority of the creditors;

(4) the balance of convenience: this involved weighing of the potential detriment of the stay to the judgment creditor against the advantages that the restructuring may confer on the parties; and

(5) any other special circumstances or relevant considerations.

17.There is, of course, no dispute in this case that the defendant is insolvent. Having considered the evidence the judge came to the conclusion that although the precise terms and details of any restructuring had yet to be finalised, there was a clear majority of support amongst the creditors for restructuring in principle. The judge then considered the balance of convenience. Amongst the considerations taken into account was the fact that the plaintiff's judgment sum was a small amount in comparison to the defendant's total financial indebtedness. Furthermore, the judge took into consideration the fact that if the plaintiff were permitted to enforce the judgment, one of the other creditors, Arab Banking Corporation, had indicated that it would immediately seek the appointment of provisional liquidators.

18.Reference was also made to the guidelines issued by the Hong Kong Association of Banks and the Hong Kong Monetary Authority as set out in the "Hong Kong Approach to Corporate Difficulties" in November 1999. Those guidelines state that as a matter of principle the banks should act in a cooperative and expeditious manner in order to agree a restructuring plan. One of the matters mentioned is that no bank should try to obtain a preferred position after there had been a request for a standstill and that there should be fair treatment to all banks in terms of repayment of sums owing or the obtaining of security or the like. Whilst the judge acknowledged that observance of the guidelines was not mandatory and that the other creditors could not impose their wishes on the plaintiff, she was of the view that it would not be unjust for the court to have regard to the fact that the defendant was contemplating a restructuring and that all other creditors had agreed to a standstill and also to take into account the probable consequences of the enforcement of the judgment on the restructuring process.

19.Seagroatt J extended the order of Chu J but in doing so made it clear that that he was simply following the order and the judgment of which she had given.

20.In my view the approach of Chu J was too broad and generous. It may be assumed that the court has inherent jurisdiction over its own processes. That inherent jurisdiction supplements the rules of court, but, of course, cannot conflict with them. In exercising its inherent jurisdiction the court may, for example, stay proceedings which are before it. The court will only stay proceedings if that is necessary in the interests of justice. The power to stay proceedings is not necessarily limited to instances where there is an abuse or a threatened abuse of process. The court regularly stays proceedings in circumstances where it considers that proceedings should be carried on in a foreign court.

21.In relation to judgments which have been regularly obtained and in respect of which there is no challenge as to their validity or appeal pending, it may be said that, in broad terms, the court has jurisdiction to stay enforcement of its judgments. It is difficult to imagine circumstances in which that power should be exercised short of there being shown to be some abuse. Whilst it would not be appropriate in a judgment of this nature to try to define all the circumstances in which a court may exercise its power to stay enforcement of a valid judgment, I would for present purposes, say that for that to happen justice must require it and there must indeed be very special circumstances.

22.Corporate restructuring may be effected by a scheme of arrangement under section 166 of the Companies Ordinance. However, as the Law Reform Commission of Hong Kong noted in its "Report on Corporate Rescue and Insolvent Trading" October 1996:

"The major deficiency with section 166 is the lack of a moratorium that can bind creditors while an arrangement plan is being formulated. There is nothing in section 166 to prevent a creditor presenting a petition to wind up the company, an event which could have the effect of ending the formulation of any proposal. There is no comparison to be made between section 166 and the sophisticated corporate rescue procedures operating in jurisdictions such as the United Kingdom, Australia, Canada and the United States of America."

23.In answer to a question from the court, Mr Reyes confirmed that he had been unable to locate any decision where there had been a stay ordered, preventing enforcement of a judgment, on the ground that one party or another wished to put forward a scheme of arrangement under section 166 or its previous United Kingdom equivalent. Whilst it is in the power of a court to adjourn winding-up proceedings, in order to enable a scheme of arrangement to be put in place, any such adjournment would generally only be ordered in the absence of opposition from the petitioning creditor. Even then that should only be done in circumstances where the court can see that there would be a realistic probability that a scheme of arrangement would be approved and can be sure that no prejudice will be occasioned as a result of the order made. It was emphasised in the course of argument that the Court is not, however, empowered to invent a corporate restructuring regime outside the scope of the ordinance.

24.There is, of course, a distinction between the presentation of a winding-up or bankruptcy petition and the indication that a section 166 scheme of arrangement may be sought. The presentation of a winding-up or bankruptcy on the grounds of insolvency based on an unpaid debt, triggers the statutory process which, unless the debt is repaid, will lead to orderly distribution of the debtor's assets. This would be grounds for a court preventing any distribution of those assets outside the statutory scheme. So, for example, in the case of Roberts Petroleum Limited v. Kenny Limited [1983] 2 A.C. 192 Lord Brightman approved the statement of Bristow J where he had referred to the fact that the liquidation, set in motion by the presentation of a bankruptcy, was "sufficient cause" for not converting a charging order nisi into an absolute order. The reason was that the commencement of the liquidation constituted the imposition on the assets of an insolvent company of the statutory scheme for the distribution of those assets among the unsecured creditors. But here no petition has been presented.

25.The court should not in my view, prevent a judgment creditor from enjoying the fruits of the judgment short of there being abuse or manifest injustice. Mr Reyes on behalf of the defendant sought to argue that there was an abuse in this case first of all because the plaintiff would be acting in breach of the guidelines referred to above and secondly because it was in receipt of confidential information. In that latter respect he referred to a letter which set out terms to which the plaintiff had agreed on the basis of which confidential information was to be disclosed. In my view even a breach of the guidelines (only assuming this to be the case for present purposes), which I have outlined above, would not come anywhere near to constituting such an abuse which would give rise to a valid exercise of the court's inherent jurisdiction to prevent a judgment creditor taking advantage of a judgment. The terms of the letter of 22 May 2003 merely prevented the plaintiff from misusing confidential information. I see no basis upon which that could be alleged in this case, and, indeed, Mr Reyes sought to put a construction on paragraph 8 of the letter that in my view was unjustified.

26.Whilst it is said that the other creditors are forbearing to enforce their claims that in itself is not a sufficient reason to require the plaintiff to do the same. Moreover, this court has not been informed as to whether there are any other judgment creditors who are not enforcing their claims. I would add that, in this case there may well be prejudice to the plaintiff if it is not allowed to enforce its judgment.

Hon Cheung JA :

The issues

27.The High Court of the Hong Kong Special Administration Region is vested with inherent jurisdiction together with statutory prescribed jurisdiction : see sections 12(2) and 13(4) of the High Court Ordinance, Cap. 4. What is at issue in this appeal is whether there is inherent jurisdiction in staying the execution of a judgment when the Rules of the High Court ("the Rules") have already prescribed the circumstances of stay and if the inherent jurisdiction exists, whether it should be exercised in this case.

The Rules

28.Under Order 45 Rule 11, a stay may be ordered by reason of "matters which have occurred since the date of judgment". This has been interpreted in Tam Ho Man v. Wong Kwok Tai [1986] HKLY 705 as referring to "matters which went to the validity of the judgment and which, if established before the court, might justify the court in saying that this was not a judgment which on the material now placed before it, it would allow to be exercised".

29.Under Order 47 Rule 1, the court may stay execution by writ of fieri facias.

30.Under Order 59 Rule 13 a judgment may be stayed pending appeal.

The purpose of the stay

31.The defendant wishes to stay the execution of the judgment in order to enable the discussions on the restructuring of its debts and liabilities to be finalized. The amount due to the plaintiff by the defendant is only 2% of its total liability in the sum of US$536 million. The defendant is indebted to 34 banks and other bond holders.

32.As apparent from the judgment of Chu J. the focus of the submissions before her was about staying the judgment in order to prevent a winding up order being made against the defendant. The stay prescribed by the Rules will not achieve the purpose the defendant desires. Hence inherent jurisdiction was resorted to.

33.The parties, however, now agreed that a stay will not prevent a winding up petition to be presented. This effectively removes a substantial plank of the arguments that was advanced before Chu J. in support of the stay, namely, if a stay is refused, there will be little option but to put the defendant in liquidation and the plaintiff will be worse off in the event of a liquidation of the defendant than in a re-structuring of its debts. With the concession now made by the defendant, the risk of the defendant being put in liquidation will happen even with a stay.

34.Nonetheless the parties said that they are still concerned with other forms of execution of the judgment such as by way of charging order and garnishee which are expressly provided for under Order 45 Rule 1. The issue is whether the stay could be effected under the inherent jurisdiction of the court.

The inherent jurisdiction

35.Sir Jack I.H. Jacob, the former Senior Master of the Supreme Court of England, had in an article entitled "The Inherent Jurisdiction of the Court" (Current Legal Problems 1970) stated this :

“ The inherent jurisdiction of the court may be exercised in any given case, notwithstanding that there are Rules of Court governing the circumstances of such case. The powers conferred by Rules of Court are, generally speaking, additional to, and not in substitution of, powers arising out of the inherent jurisdiction of the court. The two heads of powers are generally cumulative, and not mutually exclusive, so that in any given case, the court is able to proceed under either or both heads of jurisdiction."

36.In my view this statement is obviously correct because the juridical basis of this jurisdiction is the authority of the judiciary to uphold, to protect and to fulfill the judicial function of administering justice according to law in a regular, orderly and effective manner. In order to discharge these functions the inherent jurisdiction has to be exercised cumulatively with the powers under the Rules. Examples of the concurrent jurisdiction being exercised is bountiful. The most common instance is the jurisdiction to strike out pleadings under Order 18 Rule 19 of the Rules and under the inherent jurisdiction.

37.Halsbury's Laws of England 4th Ed. Reissue Vol. 17(1), 2002, Para 195 stated that,

“ The court's power to stay proceedings should not be confused with its power to stay the execution of a final judgment or order. The court has an inherent jurisdiction to control its own proceedings so as to prevent an abuse of process, and accordingly to stay proceedings which are frivolous, vexatious or harassing, or which are manifestly groundless or in which there is clearly no cause of action in law or equity, or where the justice of the case so requires. A stay imposes a halt on proceedings, apart from taking any steps allowed by the Civil Procedure Rules ('CPR') or the terms of the stay. The court's power to stay proceedings may be exercised under particular statutory provisions, or under the CPR as well as or as an alternative to a stay under its inherent jurisdiction, since these powers are cumulative, not exclusive, in their operation. The court does not, however, have an inherent jurisdiction over all judgments or orders which it has made under which it can stay execution in all cases. On the contrary, the court's inherent jurisdiction to stay the execution of a judgment or order is limited in its extent, and can only be exercised on grounds that are relevant to a stay of the enforcement proceedings themselves, and not to matters which may operate as a defence in law or relief in equity, for such matters must be specifically raised by way of defence in the claim itself. The special circumstances which entitle the court to stay execution of a money judgment are circumstances which go to the enforcement of the judgment and not those which go to its validity or correctness, unless the defendant is seeking to appeal the judgment. The court has no inherent jurisdiction or other power to stay or suspend the execution of a judgment or order for possession of land against a trespasser."

38.The distinction drawn in this passage is between stay of proceedings in order to prevent an abuse of its process and stay of execution of a judgment which can only be exercised on circumstances which goes to the enforcement of the judgment and not those which go to its validity or correctness.

39.In Halsbury Vol. 37 Para 442, the authors stated that the inherent jurisdiction to stay proceedings exists cumulatively with those prescribed by the rules of court. Examples were given of the powers of stay under the inherent jurisdiction such as to prevent abuse of the process, to strike out a notice of appeal where it is not competent etc.

40.Clearly there is a difference between staying a proceeding and staying the execution of a judgment. In the latter case, generally speaking, the validity of the judgment is no longer in issue. However, to stay a proceeding in order to prevent an abuse of the process of the court is only one facet of the exercise of the inherent jurisdiction. The examples given in Para 442 of Halsbury are only illustrations of how the court will prevent its process being abused.

41.The inherent jurisdiction exists in order, among other things, to control the courts' proceedings and process. The prevention of abuse by the court is obviously part of this important jurisdiction. However, what is equally important is its ability to regulate its own process and proceedings. Ultimately these are only different labels used to describe the same source of power. Once this is recognized, one does not need to mechanically examine if a given situation falls within a given category or not.

42.I am prepared to hold that the inherent jurisdiction to stay a judgment is still available notwithstanding the presence of the Rules.

43.In the context of charging and garnishee orders, although the court has jurisdiction under the Rules not to make an order absolute if sufficient cause is shown (see Rainbow and Another v. Moorgate Properties Ltd. [1975] 1 WLR 788, Roberts Petroleum v. Bernard Kenny Ltd. [1983] 2 A.C. 192 and Wardley Ltd. v. Aik San Realty Ltd. [1985] 2 HKC 695), the stay may operate to prevent the charging order nisi or garnishee order nisi being obtained in the first place.

How the jurisdiction should be exercised

44.In a case such as this, how the inherent jurisdiction should be exercised is, in my view, governed by a reconciliation of the two well-recognized and yet often conflicting principles. First, the winning party should be entitled to enjoy the fruits of the judgment and to do so, he is entitled to enforce it. Second, where a company is insolvent, its assets should be shared equally (and proportionately) among its unsecured creditors.

45.These two principles were considered by Lord Brightman in Roberts Petroleum Ltd. The approach I have suggested is analogous to the one adopted by Lord Brightman when he was considering whether there was "sufficient cause" in not making a charging order absolute when the insolvent debtor had resolved in a general meeting for voluntary winding up. The resolution brought in a statutory scheme which would ensure equal distribution of its assets for its unsecured creditors.

46.The same consideration should equally be relied upon when the court is being asked to regulate its own process. In order to regulate its own process, the court obviously should pay heed to the importance of preventing its process being used for an unseemly scramble for assets of an insolvent company.

47.In this case a stay of execution of the judgment will not prevent a winding up petition being presented. However, if a creditor puts this remedy in motion, it will in fact ensure an equal distribution of the company's assets.

48.Under section 166(1) of the Companies Ordinance, the court may order a meeting of the creditors where a compromise or arrangement is proposed between a company and its creditors. Under section 166(2), a compromise reached between the company and 75% of the creditors will be binding on all the creditors if it is sanctioned by the court.

49.Mr. Reyes, S.C., counsel for the defendant, submitted that even if a section 166 application is invoked, until the court makes the order, a recalcitrant creditor may petition for winding up. Section 166 lacks a moratorium (stay of proceedings) element. (see Tomasic and Tyler Hong Kong Company Law Para 8151)

50.However in this case section 166 has not even been invoked. A compromise is not yet reached and an arrangement is not yet proposed which will enable the defendant to rely on section 166(1). What the defendant is seeking to do is to ask for time to finalise these plans.

51.This immediately highlights the problem faced by the defendant in seeking to stay the judgment under the inherent jurisdiction of the court. On the one hand, the plaintiff is prevented from enforcing the judgment. On the other hand, there is nothing yet in place to ensure an eventual equal sharing of the assets of the defendant.

52.In these circumstances, the court is not being asked to regulate its process but rather to impose a "standstill" period when even the legislature has not chosen to enact any law on it.

53.This being the case the inherent jurisdiction should not be exercised in favour of the defendant.

Representation:

Mr Barrie Barlow, instructed by Messrs Denton Wilde Sapte, for the Plaintiff/Appellant

Mr A T Reyes SC, instructed by Messrs Allen & Overy, for the Defendant/Respondent