TIANJIN JINFU EXPRESSWAY CO LTD v. LUCKY MONEY LTD AND OTHERS

HCA447/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.447 OF 2006

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Before : Hon Waung J in Chambers (Open to Public)

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J U D G M E N T

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1. I have before me an application for a stay of execution of my judgment dated 30 July 2007.  The judgment was for a sum of RMB 176 million odd plus interest.  The contest of the summary judgment is in name between the plaintiff and the defendants but is in reality and in substance between the plaintiff and Kwong Ian, as it can be seen at page 9 of the bundle where I recited the party of the opposition as being Kwong Ian.  I would not go into the details of that judgment.  This is a matter that is clear from my judgment which is under appeal.

2. The application is now made before me in substance by Kwong Ian again, in the name of the defendants, pursuant to the leave granted by the Companies Judge, Madam Justice Kwan, to pursue the appeal.  The appeal will be heard in April 2008 and, after some delay, this application for stay has come before me for determination.  I would try to give as short and brief a judgment as I can in the circumstances expressing my view as to the merits of the application for a stay.

3. First, I think the starting point must be in the context of my judgment.  Having re-read it, as urged by Mr Yu, SC, I am of the view that this is perhaps even more than in the example I had given of 95% of the cases where the judge came to a clear view of what the order should be, and I remained convinced that this is the right decision.  Of course there is an appeal pending.  The grounds of appeal had been read by the parties.  To me, if I can be forgiven for saying perhaps the appeal can be termed politely as “weak”.

4. On that basis, it would require really exceptional ground to be advanced, supported by strong evidence, for the court to exercise the power — undoubtedly the court has the power — to refuse to the plaintiff the fruit of the judgment, that is, to grant an order staying the execution of the judgment merely because of the appeal.

5. The exceptional ground that is now put before me with reference to a large body of authorities really comes to this.  The law that affects the granting of a stay has now largely shifted and the court has a larger discretion, or larger power, in favour of a stay unlike the 19^th century cases.  I totally accept the 19^th century cases no longer provide exclusive code and that the court must look at all the circumstances as is laid down in the rules.  But having said that, the court would only do so in the most exceptional cases and, at the end of the day, having regard to all the authorities, the central question really is : is this an exceptional case?

6. There are really and most importantly two questions : Is this a case where if denied the stay, the defendants would be “financial ruin” — that is one of the expressions used, or the other expression being used by the Court of Appeal in the judgment of Roberts CJ in Caine Tai Investment Co. Ltd v. Ayala International Finance Ltd & Republic National Bank of New York [1983] 1 HKC 163that has “a seriously deleterious effect” on the defendants.  That is the first question.  The second question is whether the appeal cannot be pursued properly if the stay is not granted.

7. I would consider the second question first, because it seems to me the much more important one.  On the second question as to whether the appeal can or cannot be pursued, I have no doubt and I totally agree with Mr Yu’s submissions, that the appeal of course can be pursued.  The reason is very simple : if I refuse to grant a stay, the execution will take its normal course.  At the moment from the time table or program that I have been told, it will seem that it will be some time before the company court would even come to the stage of making a winding-up order.  But assuming that a winding order is made before the appeal is heard in April 2008, what is there to prevent the necessary leave being sought from the companies court to pursue the appeal?  In saying this, I take note of what is being said about the liquidators would probably be much influenced by the plaintiff who is alleged to be the major creditors. 

8. It is further to be pointed out that Kwong Ian has other resourse.  I think there are previous examples of this, of intervention in the Court of Appeal itself, if necessary, by Kwong Ian, asking for leave to intervene and to pursue the appeal.  All they have to show is that they have serious merits and, possibly put up the necessary security for the appeal.  So I do not think any order that I make today refusing the granting of a stay would prevent Kwong Ian from pursuing the appeal.  What is important to bear in mind is Kwong Ian is the one which is interested in pursuing the appeal, and it is not the defendants, it is Kwong Ian.  Kwong Ian has resisted Order 14; Kwong Ian is now the party making the application for a stay and Kwong Ian, if they wish to, they can go before a companies judge after winding-up or a single judge of the Court of Appeal for stay or for leave to pursue the appeal before the Court of Appeal.  So, on the second ground I do not think there is any substance in the objection.

9. So far as the first ground is concerned, without trying to tackle this large question, it seems to me that one must look at the cases of whether Ayala or Linotype-Hell Finance Ltd v. Baker [1992] CA 887 (the decision of Staughton LJ) with the benefit of the facts of the case.  I do not think one can really generalize in terms of a company that is being pursued, that is, the defendant company, for a judgment and where the defendant company is seeking to appeal against that judgment, that one can therefore characterize every such situation as being a case of financial ruin or deleterious effect on the company.

10. Look at this company.  This company is, from the limited information that one has before the court, certainly not a company with lots of assets or business.  It seems to be in such a financial position that it cannot even pay the costs of the judgment that I have given (this was referred to in Madam Justice Kwan’s judgment).  The company may have one or more creditors, it is not clear, but one cannot say therefore that merely because there is no stay and with the possibility of winding-up that this refusal of stay would result in financial ruin or cause serious deleterious effect on the company. 

11. In my view, the application of the principles to the fact of this case certainly does not seem to indicate to me that the execution of the judgment should be stopped or that applying the general rule that strong grounds are required to be advanced that I should decide in favour of such a stay application.

12. The court must of course take into consideration all the circumstances, including, for example, whether any securities are in the hands of the plaintiff, whether there is any prospect of security being put up, as well as all the circumstances.  It seems to me that without going into much further detail of all the circumstances of the case, that this is not a case where I should be granting a stay.  I am comforted by the fact that this is not a conclusive final decision.  Kwong Ian can always seek leave from the Court of Appeal directly.  It is a parallel or concurrent jurisdiction to grant stay of execution of the judgment.

13. In the circumstances, the application is refused with certificate for two counsel. 

14. On gross summary assessment, having regard to all the circumstances, I would assess costs at $400,000 to be paid forthwith by Kwong Ian.

Mr Benjamin Yu, SC & Mr Kenneth Chow, instructed by Messrs Ho & Yip, for the Plaintiff

Mr Winston Poon, SC & Mr Victor Dawes, instructed by Messrs Gallant Y.T. Ho & Co., for Kwong Ian

HCA447/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.447 OF 2006

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ORDER FOR COSTS

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1. The question on costs is whether the costs of this action payable to the plaintiff today should be borne by Kwong Ian.  I have no doubt that I have jurisdiction both under section 168BI(1) of the Companies Ordinance, Cap. 32 as well as under section 52A(2) of the High Court Ordinance, Cap. 4, and I cannot see how I should refrain from exercising my discretion in favour of the plaintiff against the party which has brought about this contest and which it has lost.

2. Mr Ng has asked me to reserve the costs to Madam Justice Kwan so that when she, as the Companies Judge, might see the whole picture.  But this is a self-confined dispute and has resulted in a judgment in favour of the plaintiff notwithstanding the intervention and resistance of Kwong Ian.  Kwong Ian is the party which has caused all the costs being incurred.  It is not only costs causative but it is about as bad a case as I can see of the intervener causing the winning party to incur a great deal of costs.  It is such an unusual step taken by Kwong Ian to intervene in this way to prevent a straightforward Order 14 being obtained.  I can see no reason why I should leave this matter to Madam Justice Kwan and I do not see how she would be on top of all the considerations as to why costs should not be given against Kwong Ian.

3. In my view, Kwong Ian should bear the costs of the whole action, including the costs of 17 July 2007, to be taxed if not agreed, with certificate for two counsel.

HCA447/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 447 OF 2006

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J U D G M E N T

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1. This is an order 14 application by the plaintiff against the defendant for some RMB 176 odd million plus interest.  It is resisted.  The defence put forward by Mr Ng in a strong argument is twofold : one, there is a defence; two, for some other reasons, under Miles v Bull, leave to defend be given. 

2. I think it is important first to have a little bit of the background of the case.  This is a case involving the plaintiff company, Tianjin Jinfu Expressway Company Limited, which is a joint venture formed between the Chinese side, Tianjin Highway Development Corporation and the Hong Kong side which I will call, for ease of convenience, as Lucky Companies.  There are in fact three sections of a highway to be built by three joint venture companies.  Lucky Money Limited, one of the defendants, is the joint venture partner under one of the joint ventures and the other two defendants are the joint venture partners in relation to the two other sections. 

3. The Hong Kong side has 60% and Chinese side has 40% in the plaintiff.  In turn the Hong Kong side, the Lucky Companies, has two major shareholders : the shareholding under Golden Tree headed by Mr Ho and shareholding under what is known as Kwong Ian. 

4. The matter that is now brought before me is the recovery of some RMB250 million loan made in 2001 which is said to be made by the plaintiff to the defendants.  Kwong Ian, has pursuant to the provision in the Companies Ordinance, obtained leave from Madam Justice Kwan to come in as minority shareholder of the Lucky Companies to defend the claim.  The defendants having themselves taking a view that there is no defence to the claim have admitted to the liability for the loan.

5. The money that was available to be given as a loan in 2001 came from a loan taken up by the plaintiff company from Citic Bank, and it was part of the arrangement at the time with the consent of the banker that a large part of the drawn down loan could be used by the plaintiff to advance to its shareholders companies because there was no immediate need by the plaintiff for those funds. 

6. A key document in the whole case is at page 135 which is the Board Minutes on 1 March 2001 of the plaintiff attended by both the Chinese side directors as well as the Hong Kong side directors.  Among the Hong Kong side directors, there were Mr Ho and two key directors, Mr Chan and Mr Shek, who were directors of Kwong Ian as well as being appointed by Kwong Ian the minority shareholders of Lucky Companies to sit on the board of the plaintiff.  The Minutes of that Board meeting recited that the plaintiff company, because of the progress of the works, could lend RMB 280 million (out of the loan obtained from Citic Bank) and it specified that the Chinese side would have RMB 30 million and the Hong Kong side, namely the three defendants, would be given the loan of RMB 250 million.  This was signed by Mr Chan and Mr Shek, as well as by Mr Ho and all the Chinese directors. 

7. The authenticity of this document is not in any way disputed.  This is the key document because if this is accurate then it identifies the four key factors in this case :

(i)	the amount is RMB 250 million;
(ii)	the identity of the borrower, namely the three defendants;
(iii)	the timing in March 2001; and
(iv)	the most importantly, it is expressed as a loan to these companies by the plaintiff.

8. I will start by taking a possible defence that might be raised that was discussed at the hearing but which I think was not raised and is not a viable defence.  By a combination of looking at paragraphs 34, 35, 37 and 39 of the affirmation of Mr Lao of 11 August 2006, it could be read that there might be a suggestion that, because of the Inter Ease loan (referred to at paragraph 34 of the affidavit) from Kwong Ian to Inter Ease, that money (this is way back in 1998) then flowed on eventually to the plaintiff and that the 2001 subject matter of the loan by the plaintiff to the defendants could be said to be a repayment by the plaintiff, of the loan received by the plaintiff way back in 1998.  

9. Now, as Mr Yu has pointed out, if that is the defence then it could be said clearly in evidence (which it was not), it could be said clearly in the skeleton argument (which it was not) and furthermore it would be necessary to have positive averment to say that was the case, namely that this was a repayment made in 2001 by the plaintiff authorised by the board in March 2001 in repayment of the loan that the plaintiff had obtained in 1998. 

10. The Board Minutes of 1 March which was referred to earlier by me at page 135 contradicts squarely and fairly the possibility of such a defence.  The Board minutes says very clearly and it is not a dispute what it says.  What it says is that there was a loan by the plaintiff in 2001 made to the defendants.  The Board Minutes did not read, “We, the board, authorised the repayment of a loan given to us in 1998 and this is our authority”.  The traffic of the loan is the other way round.  The traffic is money going out of the company as a loan to the defendants in 2001 under the Board minutes at page 135.  I respect Mr Ng’s very guarded submissions to me on this aspect.  It is guarded because he has got no material to build on.  That case of repayment of loan in 2001 that might have been made was never made.  So therefore I must disregard that as an arguable ground of defence. 

11. What is then left.  Despite everything that has been said really what is left is very little.  The red herring that is thrown by paragraphs 34, 35, 37 and 39 really does not in anyway impact on a viable defence being raised.  It is, as Mr Yu pointed out, perfectly consistent with there being an Inter Ease loan by Kwong Ian to Inter Ease.  There may had been money movements which could be partly pursuant to liability of the Hong Kong shareholders to fund the project with capital injections.  The sum which Mr Ng has cast a doubt on (of RMB 76 million odd) in terms of the quantum question mark could be part of that same picture.  So really in my view there is nothing in these allegations of an Inter Ease loan or restructuring that has given me doubt that there should be no judgment. 

12. A number of other matters being referred to by Mr Ng in his skeleton (although he has kindly not spent too much time at the hearing on these) were dealt with by Mr Yu and I agree with what Mr Yu has said about these points not giving rise to arguable defence.

13. So far as Miles v Bull is concerned, it seems to me that this is certainly in my days described as scraping the bottom of the barrel.  Mr Ng has said everything that he can say.  I do not think this is a case which comes anywhere near the two examples of “for some other reasons” which have been cited to me of possible fraud or collusions requiring investigation.  I appreciate what Mr Ng that said to me about Mr Ho being in charge, in control and there may be possibility of things that are not quite right, but the evidence is nowhere sufficient to bring into play a case of “for some other reasons.” 

14. I think the overwhelming evidence are all against the defendants, and here I must stress two things : one is contemporaneous documentation, the other is the likely probabilities, the inherent probabilities.  The commercial reality is that consistently the plaintiff by its written demands regarded these money paid as loan to the defendant companies.  There has never been a contrary voice until when I think things had gone wrong in 2006.  It seems to me that the overwhelming evidence point to there being no defence.  I have no doubt that therefore I should enter judgment in the sum claimed plus interest thereon at 2% above prime. 

HCA447/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 447 OF 2006

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J U D G M E N T

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1. This is an application by what I will call the intervener Kwong Ian (Hong Kong) Construction and Real Estate Development Company Limited (“Kwong”). Kwong has been given leave by Madam Justice Kwan to take part and to defend in this Order 14 summons by the plaintiff against the defendants for the recovery of debt.

2. Today’s application by Kwong is to be allowed to put in a 2^nd affidavit of Lao Yuan Han so as to exhibit principally a report done by an independent accountant.  

3. The Order 14 was taken out by the plaintiff against the three defendants for the recovery of some $170 million said to be advanced to these defendants.  Affidavits evidence were filed by the parties pursuant to this Order 14 and order for the filing of affidavits including the order that no further affidavit evidence to be filed without leave of the court after the reply affidavit of the plaintiff was also made.

4. The case has been set down for hearing before me on 30 July with three hours reserved.  The sequence of the affidavits that had come in pursuant to the Order was June 2006 (affidavit in support), August 2006 (affidavit in answer by the defendants or Kwong) and October 2006 (affidavit in reply by the plaintiff).  So it was some eight or nine months ago that the affidavit in reply was put in and this application now being heard before me where Kwong seeks the leave of the court to put in this additional affidavit to exhibit the report was only issued recently.  The application is opposed by the plaintiff and in the course of the hearing, it becomes clear why Kwong now wishes to rely on this report.

5. Discovery of this report was sought by the plaintiff from Kwong in correspondence as early as July 2006 and discovery was refused.  In the letter of refusal at page C529 it was expressly said that :“the discovery sought is not necessary either for disposing fairly of the cause or matter or for saving costs”.  The view obviously taken was that the report is totally not relevant although the report covered this very subject matter of the loan or rather one aspect of the report created for the purpose of seeking leave from Madam Justice Kwan was the question of the loan.  I think in reality it is plain to everyone today that Kwong has changed its mind, and that it has taken a different view and it now wishes to rely upon the report.

6. This last minute change of mind (although it might be said was not so last minute because it gave the report some time in May) is, I think, so that Kwong hopes to booster up its case by the contents of the report, in particular on chapter 6 which was read to me during the course of the hearing by Mr Ng for the defendants at paragraph 6.8.1 at page C057 under “Conclusion” of the report : 

“	To determine whether the Alleged RMB250m Loan is valid, the transaction should be properly supported by underlying documentation.  In the absence of sufficient supporting documents, one may raise a doubt as to the validity of the transaction.”

That, of course, is the opinion view of the independent accountant. 

7. What should the court do with this last minute application to rely on the report?  In my view, it seems to me that Mr Yu for the plaintiff is quite justified in taking strong objection to this application.  There are at least three grounds he has advanced why this should not be permitted.  First, relying upon Secretary of State for Trade and Industry v. Bairstow [2003] 1 BCLC 696, he says the opinion evidence in the report is not admissible.  Mr Ng has not sought to contradict that.  No contrary authority was cited to me nor did Mr Ng seek to advance any argument to the contrary. 

8. The reason why opinion view of another tribunal or court is not admissible is that it really does not help the court.  Primary facts are to be litigated and it is for the court to determine these primary facts.  The view of another tribunal only retain does not assist in achieving the purpose of fairly disposing of the cause.  I do not need to go into the law on this as the principle relied upon by Mr Yu is not opposed.  It seems to me that this objection may be a complete answer to the application. 

9. Secondly, Mr Yu relies also in support that in this case, a particular objection to the application is that Kwong did not even condescend to say what are the primary facts in chapter 6 that it relied upon and why Kwong therefore has made a mistake in not relying on the report and now wants to come back in with the report.  A general reliance on the Report is wholly unacceptable according to Mr Yu, and I agree.  I think it will not help me in the three hours that we have on 30 July to have that kind of diversion of our attention.  Our attention should be on the primary facts and not on the Report.

10. Thirdly, Mr Yu says, perhaps in echo to what I indicated earlier during the hearing that it is a question of discipline.  The discipline is that there is in existence an order of the court which says “no further affidavit without leave”.  A timetable for affidavits was set and we are supposed to follow the timetable.  Now, this is not even the case of someone making a mistake and therefore wanting to correct his mistake, and therefore wants to come in with new affidavit evidence.  This is a case of judgment that had been exercised by Kwong who says : we don’t want the report at all for the Order 14.  Now, may be a different team with Mr Ng has come on and says : we want to rely upon it.  How can a court allow this just because there is a change of a view and a change of team?  It seems to me that the order should be respected, and in doing this, I should take note that there are no special circumstances at all to justify the court in giving leave for a rejoinder.  Furthermore, having regard to the general nature of just a report that had been sought to be put in, it seems to me that it is wholly wrong to accede to the application.  I will be left at the hearing to attend to unnecessary or peripheral matters of the Report when I should be concentrating on the primary facts.  Further, it seems to me that it is much too late in the day for this application to come in. 

11. This is of course largely a case management exercise because I am the judge in charge of hearing the Order 14 application.  I therefore must decide what is the best way of dealing with this for the hearing which is to take place in less than two weeks’ time.  In my view, it is quite wrong for any leave to be given as sought by Kwong.  The application therefore must be refused with costs.