First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd And Another

HCA 4414/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4414 OF 2001

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D E C I S I O N

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Introduction

1. The Plaintiff is a company incorporated in Macau. The Defendants are “window companies” of the Fujian Provincial Government of the People’s Republic of China. The Plaintiff’s case is that it is the beneficial owner of 51% of the shares in Fujian Casix Laser Inc (福建華科光電有限公司) (“FCL”) held by the 1^st Defendant, which the 1^st Defendant sold, together with its own 49% interest in FCL, to JDS Uniphase China Holdings Company (“JDS”) for US$60 million. The proceeds of sale was remitted to the Fujian Provincial Government through the 2^nd Defendant, save for US$9 million standing in an account with The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) which the Defendants undertook not to dispose of pending the outcome of this action.

2. On 5 February 2008, I entered judgment in favour of the Plaintiff with costs against the 1^st Defendant (“Judgment”). The Plaintiff now applies by Summons for payment out of the money it has deposited in court as security for the Defendants’ costs and for interim payment by the 1^st Defendant. The Defendants apply for stay of execution of the Judgment pending appeal. I think the application for stay is, to a large extent, determinative of the other two applications. I therefore deal with the application for stay first.

Stay of execution

3. The Defendants intend to appeal against the Judgment and apply for a stay of execution pending appeal. Mr Shieh SC, counsel for the Defendants, has undertaken to file a notice of appeal as soon as possible. The legal principles governing stay of execution are well established: see Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at 87D-89I, per Ma J, as he then was. The burden is on the defendant to justify a stay of execution by showing that there are good reasons for a stay. The starting point is the existence of an arguable appeal. The existence of a strong ground of appeal or strong likelihood of success on appeal is by itself a good reason for stay. But in the majority of cases, it is undesirable and unnecessary to go deeply into the merits and strength of an appeal. If an appellant only has an arguable appeal, he will have to provide additional reasons as to why a stay is justified. A commonly recognized good reason is that an appeal will be rendered nugatory if no stay is granted. To determine that question, the court must have regard to the nature of the order being appealed against. An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant will face financial ruin or the loss of all his property. Demonstrating that the failure to grant a stay will have a serious deleterious effect on the defendant is enough.

4. Mr Shieh SC puts his appeal no higher than arguable. Mr Chan, counsel for the Plaintiff, does not seek to argue otherwise. On this basis, Mr Shieh SC seeks to convince me that the Defendants’ appeal will be rendered nugatory if no stay is granted.

5. To consider that question, I must first consider the nature of the order being appealed against. At the same hearing, I approved the order (“Order”) to be made pursuant to the Judgment. The Order consists of an injunctive part and a monetary part. Under the injunctive part, the Defendants are ordered not to dispose of their assets and to make disclosures as to the whereabouts of the proceeds of sale of the FCL shares. Under the monetary part of the Order, the Defendants are required to pay such sums as may have been found to represent the amount or value of the Plaintiff’s 51% interest in FCL.

6. In respect of the injunctive part of the Order, Mr Shieh SC submits that the appeal will be rendered nugatory because the information, once disclosed, will be beyond recall. He concedes that the Defendants do not have a very strong case. The Defendants are impecunious and have no assets to dispose of, save the US$9 million standing in an account of HSBC which they have undertaken not to dispose of anyway. There can be no prejudice for the Defendants if the injunction is to continue. On the other hand, I cannot see any damage which can possibly be done to the Defendants by enforcing the disclosure order. The disclosures are ordered for the purpose of the tracing exercise. Should the Defendants be successful on appeal, that would be the end of the Plaintiff’s tracing exercise. Any information disclosed shall not and cannot be used to the prejudice of the Defendants at all. On my Judgment, the Defendants are liable to the Plaintiff for at least US$30.60 million. US$9 million is secured, but the balance of US$21.60 is not. The Defendants are impecunious. The Plaintiff’s best chance of recovery is by way of tracing. The 1^st Defendant unlawfully sold all the shares in FCL to JDS on 29 February 2000. More than eight years had elapsed since. The longer the Plaintiff waits, the less likely it will ever be able to effect any real enforcement action and execute upon any substantial property and asset. On balance, there is absolutely no ground to deprive the Plaintiff of its fruits of litigation, insofar as the injunctive part of the Order is concerned.

7. The Defendants’ application for stay of execution in respect of the monetary part of the Order is on more substantial ground. The Plaintiff is a Macanese corporate vehicle without any assets. It was formed solely for the purpose of carrying out the joint venture between Mr Ngan, a director and shareholder of the Plaintiff, and the 1^st Defendant. It does not carry on any business and does not own any real property. Hence, Mr Shieh SC submits this is a classic case where, if stay of execution pending appeal is not granted, any payment made to the Plaintiff will be irrecoverable if the appeal is allowed and there is therefore a serious risk that the Defendants’ appeal will be rendered nugatory to the prejudice of the Defendants.

8. Mr Shieh SC also referred me to two decisions in support of the Defendants’ application. In Liu Xian Feng Sam and King Star Computer Inc And Liu Bo & Others (unrep) CACV 112/2006, 31 July 2006, Yam J granted a stay of execution on condition that the defendant shall provide security for costs of the appeal. Tang JA, as he then was, allowed the defendant’s appeal. He held at paragraphs 5 to 9:

“5. It is common ground that the 1^st plaintiff is a resident of the United States of America and the 2^nd plaintiff is a foreign company. Neither of them has any substantial link with Hong Kong.

6. The 1^st defendant submitted that unless a stay of execution is granted pending appeal, the plaintiffs would be able to obtain payment of sums in bank accounts which have been frozen as a result of a mareva injunction granted in the action.

7. In that event, his appeal would be rendered nugatory, because he would not be able to obtain repayment from the plaintiffs, should his appeal be successful. The plaintiffs are not willing to supply any security for repayment in such an event.

8. It is not known why Yam J imposed the condition when he granted a stay. If the plaintiffs wished to have security for costs of the appeal, the proper course was for them to apply for security for costs to this court.

9. Although we are concerned with an exercise of discretion, we believe we can interfere because we do not believe it was right to make the granting of a stay of execution conditional on the provision of security for costs of the appeal. Since we do not know the basis upon which the judge exercised his discretion, and the condition being a highly unusual one, we agree with Mr Collins, who appeared for the plaintiffs, that the judge allowed the application for stay of execution to be “intertwined” with an application for security for costs of the appeal. In other words the judge was influenced by an extraneous consideration.”

The other case quoted by Mr Shieh SC is Shanghai Ornate Candle Art Co Ltd and Transbest Holdings Limited trading as ACME Company (unrep) HCA 1605/1999, 5 May 1999. In that case, Cheung J, as he then was, upheld the Registrar’s decision to stay the execution of a judgment in favour of a foreign plaintiff because of the serious problems of recovery of money if the judgment sum was paid out.

9. Mr Chan seeks to distinguish Liu Xian Feng Sam and King Star Computer Inc And Liu Bo & Others from the present case by arguing that the plaintiff’s claim in that case was fully secured but the Plaintiff’s claim in the present case is not. Hence, the prejudice to the plaintiff in that case was delay simpliciter. That argument is valid only insofar as staying the injunctive part of the Order is concerned, but not relevant as regards staying of the monetary part. Another distinction relied on by Mr Chan is that the plaintiff in Liu Xian Feng Sam and King Star Computer Inc AndLiu Bo & Others was not prepared to supply any security for repayment in the event that the defendant succeeded on appeal, but he says that the Plaintiff in the present case is prepared to offer security for repayment and has no intention to abscond with the payment out. I think it is non-sensical to order the Plaintiff to pay into court as security what the Defendants are...