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In Baosteel Engineering & Technology Group Co. Ltd. v. China Zenith Chemical Group Ltd HCCT 7/2018, Hong Kong’s Court of First Instance (CFI) granted a temporary six month stay of execution of an order whereby the Plaintiff (BS), a Mainland company, was granted leave to enforce an arbitral award in Hong Kong. The stay was conditional upon the Defendant (CZ), a Hong Kong listed company, paying into Court the full amount due under the award or providing a bank guarantee for that sum. The Court dismissed CZ’s application to extend the stay beyond the six months and its application for leave to appeal against that dismissal.
BS, CZ and CZ’s 90% subsidiary on the Mainland, (HH), had entered into a Debt Agreement for payment of fees in respect of the construction of a plant in the Mainland (Project). An arbitral award dated 16 April 2017 (Award) was made in an arbitration between BS as claimant, and CZ and HH as respondents, under which CZ and HH were ordered to jointly and severally pay RMB19.44 million of outstanding fees to BS. On 7 February 2018, the Hong Kong Court granted BS leave to enforce the Award in Hong Kong (Enforcement Order).
Grounds for stay application
CZ applied for a stay of enforcement of the Award in Hong Kong on that basis that HH had a cross-claim against BS in a Mainland court for damages arising out of HH’s claim in respect of defective and unfit designs provided by BS for the Project, pursuant to an agreement between HH and BS (Project Defects Claim). The Project Defects Claim fell outside the scope of the arbitration clause in the Debt Agreement and arose out of a separate agreement between HH and BS. BS had challenged the jurisdiction of the Mainland court and a decision on that challenge was awaited.
CZ claimed that as the Project Defects Claim arose out of the Project, and the work carried out by BS for the Project, the cross-claim by HH in respect of the defects in BS’s work arose out of the same subject matter as the Award. CZ argued that if HH’s claims were successful and made the subject matter of a Mainland Court PRC judgment, the PRC judgment debt should be set-off against the Award in favour of BS, to fully extinguish any sum which may be payable by CZ to BS under the Award, as the amount of the Project Defects Claim (RMB32.97 million) exceeded the Award of RMB19.44 million.
Court’s decision on 11 July 2018
On 11 July 2018, Hong Kong’s CFI “with some reluctance” granted a temporary stay of the Award for six months from that date, on the condition that CZ pay the full amount of the Award into Court or provide a bank guarantee for that amount. The Court held that:
Court’s decision on 7 January 2019
The CFI refused CZ’s application to extend the stay of enforcement beyond six months because:
Court’s decision on 10 January 2019
CZ sought leave to appeal against the Court’s exercise of discretion on 7 January 2019 (referred to above) whereby it refused to extend the six month stay. The Court refused to grant leave holding:
This judgment makes it clear that the Courts will not easily grant a stay of enforcement of an arbitral award and in deciding whether to grant a stay will consider the likely overall delay and likely consequences if a stay is granted. It is not clear from the judgment whether CZ has complied with the condition for granting the stay by paying into Court the full amount due under the award or providing a bank guarantee for that sum. If it did, BS can now just apply for payment out or enforce the bank guarantee for satisfying the Award. The time and costs for any enforcement proceedings against CZ will be saved.
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