Honestwin Ltd. v. Mezely Trading Ltd.

CACV000311A/1998

CACV 311/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 311 OF 1998

(ON APPEAL FROM HCA 9024 OF 1996)

BETWEEN
	Honestwin Limited	Plaintiff
	AND
	Mezely Trading Limited	Defendant

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Coram : Godfrey, J.A. in Chambers

Date of Hearing : 23 April 1999

Date of Judgment : 23 April 1999

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an application for stay of execution of a judgment of Seagrott, J. made on 4 November 1998. The judge gave judgment for the plaintiff in the action (Honestwin Limited) for HK$16,138,280 with interest and costs. The defendant in the action (Mezely Trading Limited) has given notice of appeal against that judgment. (Rogers, J.A., on 19 April 1999, allowed notice of setting down that appeal to be given out of time.)

2. On 26 April 1999, there is due to be heard a petition presented by the plaintiff for the winding-up of the defendant. If a stay of execution pending appeal is not granted, it is extremely unlikely that the winding-up court will allow any adjournment of the winding-up proceedings pending the appeal : see In re Amalgamated Properties of Rhodesia (1913) Limited [1917] 2 Ch. 115. So this application must be determined today.

The background

3. The action in which Seagroatt, J. gave judgment against the defendant was an action for damages for breach of a contract for the supply of fishmeal by the defendant to the plaintiff. The plaintiff sold on the fishmeal the subject of its contract with the defendant but the defendant defaulted in performance of its contract with the plaintiff. The plaintiff claims to have suffered substantial loss as a result, since it has had to pay compensation to the party to whom it had sold on the goods.

The defendant's appeal

4. The defendant seeks to raise in its appeal two points.

5. The first point is that the contract made between the plaintiff and its buyer was an illegal contract, because it provided for payment in RMB, in breach of the exchange control laws of the People's Republic of China.

6. The second point is that the award of damages was wrongly made in favour of the plaintiff because it reflected a compromise payment made by the plaintiff to its buyer which the defendant says was penal in nature and so ought to be disregarded in assessing the damages to be paid by the defendant to the plaintiff.

The law

7. The principles on which the court may properly be invited to order a stay of execution pending an appeal are not in dispute and may, in my judgment, be summarised as follows.

8. The court may be prepared, if it considers that the appeal has sufficient merit, to grant a stay of execution if enforcement of the money judgment under appeal would result in the appellant's business being closed down (or, to use the word used by Mr. Leo Remedios, for the defendant, in his skeleton argument in support of this application, "ruined"). Where a stay of execution is being considered, the court is entitled to, and very often will, order, as a term of granting the stay, that the appellant should bring some or all of the amount of the judgment awarded against him into court. I bear these principles in mind in coming to the conclusion at which I have to arrive in order to dispose of this present application.

The first ground of appeal

9. As to the first ground of appeal, it has to be observed that at no stage have the pleadings of the defendant ever asserted the illegality on which it is now said it is entitled to rely. This point first surfaced on the 10th day of the trial when a report from an expert in the laws of the People's Republic of China was put before the court and an expert witness for the plaintiff, Mr. Bai Tao, was recalled to give evidence about that report.

10. Counsel for the plaintiff referred Mr. Bai Tao to the report in this way :-

"Just one final question on this topic. Please look at page 39, where it talks about the price in RMB. Just looking at this contract alone, would you say that this contract is valid or invalid under the currency regulations?"

11. Mr. Bai Tao answered :-

"Looking at this contract alone, since both parties agreed that the payment be made in RMB, it would not affect the validity of the contract."

12. This point was one which clearly had to be taken on the pleadings if it was to be further developed.

13. Mr. Leo Remedios appreciated that the point had in fact not been pleaded. He had only recently come into the action and had had not time to consider the matter. He accepted that the point should be pleaded and he told the judge he would nevertheless be seeking to raise it. He was not prepared to deal with the matter immediately. He told the judge that by the next morning he would make the amendment and on this footing he asked the judge's leave to allow him to cross-examine Mr. Bai Tao on the basis of the report, even though those matters had not been previously raised. The judge might have agreed to do this but in fact he did not do so. Mr. Remedios was not allowed by the judge further to pursue the point either in cross-examination or any other way. He now complains that the judge was wrong to do this. He says that, in the circumstances, the Court of Appeal will in due course grant the defendant a new trial, a new trial of all the issues ventilated in the original trial, not just a new trial of this point about the illegality.

The second ground of appeal

14. The second point, the penalty point, was pleaded and argued. The judge expressed himself satisfied that the plaintiff's conduct, in agreeing the amount of compensation which it had to pay its own buyer, could not be challenged. The judge thought that the plaintiff had done its best to keep the compensation payable, and paid, by the plaintiff to its buyer to an absolute minimum. He took the view that the sum paid, RMB8m, could safely and properly be regarded as compensation within the ambit of the foreign economic contract law of the People's Republic of China, and not a penalty at all.

Conclusion

15. It is necessary, in deciding whether or not to grant a stay of execution in the circumstances such as the present, to form at least a provisional view as to the merits of the appeal. I have to say that these seem to me to be exiguous. I see very little hope of success for the defendant on either of its two points. On the other hand, I am conscious that the defendant's business may well be "ruined" if on 26 April 1999 the companies court refuses an adjournment of the winding-up proceedings which, as I have already said, it is very likely to do. No doubt, the liquidator, if appointed, will be able to prosecute the appeal, if funds are made available to him for the purpose by those responsible for the conduct of the defendant's affairs, but, of course, I cannot speculate as to that. It is too remote to consideration to justify my putting it into the scales.

16. The only way, as it seems to me, to do justice to both sides here is to allow any stay of execution only on terms that a substantial part of the damages awarded to the plaintiff be brought into court forthwith. Having regard to the unlikelihood, as it seems to me, of the appeal succeeding on either of the two points taken by the defendant, and to the fact that the plaintiff has been kept out of its money for a very considerable time (and having regard also to the extraordinary way in which the litigation below was conducted on behalf of the defendant, which changed its solicitors and counsel in the middle of the trial), I have no doubt that the RMB8m or so which is the subject of the defendant's challenge to the judgment on these two points should be brought into court.

17. I am therefore prepared to award a stay of execution as asked, if, but only if, the defendant is prepared to submit to the inclusion in the order of a term requiring it to bring into court, by not later than 4:00 p.m. this afternoon, the sum of RMB8m (or its equivalent in Hong Kong dollars) to stand to the credit of the action. Since I understand the defendant is in fact unwilling to submit to such a term, I have no alternative but to refuse this application.

	( Gerald Godfrey )
	Justice of Appeal

Representation:

Sir John Swaine, S.C. & Mr. Kenneth Chow instructed by M/s. Koo & Partners for Plaintiff

Mr. Leo Remedios instructed by M/s. Tsang Chau & Shuen for Defendant

CACV000311/1998

CACV 311/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 311 OF 1998

(ON APPEAL FROM HCA 9024 OF 1996)

BETWEEN
	Honestwin Limited	Plaintiff
	AND
	Mezely Trading Limited	Defendant

----------------------

Coram : Hon. Rogers, J.A. in Chambers

Date of hearing : 19 April 1999

Date of decision : 19 April 1999

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D E C I S I O N

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Rogers, J.A. :

1. This is an application by the Appellant for leave to serve notice that the appeal has been set down out of time.

2. The brief facts of the matter were that there was a judgment entered against the Appellant on 4th November of last year. The Appellant therefore had some 6 weeks in which to appeal, it being a final judgment. On 15th December of last year, the Appellant filed a Notice of Appeal and according to the Court file also set down the appeal. Under Order 59 rule 5(4), the Appellant must give notice of the setting down of the appeal within 4 days after the appeal has been set down. It must do that to all parties on whom the Notice of Appeal has been served.

3. Two events happened close to that time. On 14th December, Messrs. Koo & Partners who are the solicitors now acting for the Plaintiff in the action, the Respondent on this appeal, served a 21-day demand under section 178 of the Companies Ordinance demanding the payment of the judgment sum. Afterwards, on 16th December, the same firm served notice of change of solicitors.

4. Mr. Pin, who is the managing director of the Appellant, refers to these in his affirmation of the 9th April this year and he says that he was advised about the provisions of Order 59 rule 5(4) and was advised that the notice should be served not later than 19th December. He goes on to say in his affidavit :

"7. As I believed it would not have done justice to the Defendant, nor was it acting in the interest of the Defendant, to proceed with the appeal under the circumstances, I instructed WONG to for the time being withhold further step of the appeal but first concentrate on the issue of conflict. The Defendant would give further instructions regarding the same in due course.

8. Pending the matter of conflict, I had instructed WONG to obtain the transcript of the trial before the Honourable Mr. Justice Seagroatt as soon as possible because, once the issue of conflict was clear, the Defendant may proceed with the captioned appeal without delay.

9. In early January 1999, the Defendant gave instructions to WONG that a formal complaint should be launched to Messrs. Koo and Partners putting forth the issue of conflict of interests in their representation. The parties then exchanged a few correspondence."

5. I would observe at the beginning that I find it a little bit surprising that irrespective of the merits of the complaint about the conflict of interest, of which I make absolute no comment in this decision, that the objection was resisted. I consider that it may be advisable for any legal adviser against whom the conflict of interest is alleged, simply to wash his hands of the matter and pass on the papers to somebody against whom no conflict is alleged but, that, as far this decision is concerned, is an aside.

6. The question that I have to decide in this case is whether the Court's discretion should be exercised to give leave to serve the notice of setting down in the circumstances that prevail in this case. I have been extremely troubled by this and it is with the greatest of reluctance that I am prepared to extend time in this case. It seems to me that under paragraph 7, a deliberate decision was taken by Mr. Pin not to comply with the rules of Court in this regard. Instead of immediately applying for a stay of the appeal or applying, as was subsequently done, to have the solicitors removed from file, Mr. Pin in effect took the proceedings in his own hands and exercised his own judgment as to what should happen.

7. I have to say that if it had been a case where no Notice of Appeal had been served, or that the appeal had not actually been set down on 15th December, then the matter would probably have been different and I would not have exercised my discretion.

8. In the circumstances in this case, I consider that it is unlikely that any delay has been occasioned to the appeal as a result of the failure to take the proper steps and that is a matter which I have taken into account. I also note that from about the 8th January the matter of a conflict of interest was pursued. There it seems to have been some delay on both sides. I also have to say that I am not blind to the fact that it seems to me that the Appellant is a company which seems to be totally without resources. That is a matter which is now coming up before Godfrey, J.A. on Friday when a further application for stay of execution pending appeal is made and it is a matter which will no doubt exercise the Companies Judge next Monday when the adjourned hearing of the winding-up petition is heard. It is a matter which I have to bear in mind to decide whether the whole course of the Defendant's conduct is a mere delaying exercise and it is a matter which has troubled me but in the circumstances, purely as a matter of caution, I have felt it necessary to exercise my discretion.

[Further Argument]

9.Appellant's application for adjournment of the application for security for costs refused.

[Further Argument]

10. This is a case where the Appellant is clearly arguably impecunious. In those circumstances, it falls to be considered whether security for costs should be ordered. This is a case of company in business which has had its rights determined. There is no evidence to show that if security is ordered that would stifle the appeal. On the face of the papers before me, there are clearly entities linked with the Appellant and no details have been provided in respect thereof. Giving a discount based on my estimation of fees which would not regarded as in any way excessive I would order a sum of $412,000.

11.Form of Order read out and made available to parties to copy after the hearing. No stay pending the provision of security.

	(Anthony Rogers)
	Justice of Appeal

Representation:

Mr. Kenneth Chow instructed by M/s. Koo & Partners for Plaintiff

Mr. Rocky Wong of M/s. Tsang Chau & Shuen for Defendant