In our previous article, we reported on the judgment in Baosteel Engineering & Technology Group Co. Ltd. v. China Zenith Chemical Group Ltd, HCCT 7/2018, whereby the Court of First Instance (CFI) refused to extend a temporary stay of enforcement of a Mainland arbitral award in Hong Kong. On 9 April 2019, the Court of Appeal upheld that decision, holding that the granting (or refusal) of a stay of execution involves the exercise of discretion and the Court of Appeal will only interfere with such if the judge below made errors in principle or exercised the discretion in a manner that was plainly wrong, which was not the case here. The decision reflects the Hong Kong Courts’ pro-enforcement approach and its stance that a successful party to arbitration proceedings is entitled to have their award enforced without delay and are likely to suffer prejudice if enforcement is delayed.
To recap, the Plaintiff (BS), a Mainland company, had obtained an arbitral award (Award) against the Defendant (CZ), a Hong Kong listed company. The CFI granted BS leave to enforce the Award in Hong Kong. Subsequently, upon CZ’s application, the CFI granted a temporary stay of enforcement of the Award for 6 months, on the condition that CZ pay into court the principal amount of the Award, RMB20 million (Stay Decision). The temporary stay was sought and granted on the basis that HH (CZ’s 90% subsidiary on the Mainland) had a cross-claim against BS for damages in respect of defective and unfit designs provided by BS, pursuant to a separate agreement between HH and BS, not connected with the arbitration award, for works to be carried out by BS for the Project (Project Defects Claim). The Project Defects Claim was being litigated in a Mainland Court, where HH had advanced a claim of RMB 32.97 million against BS.
CZ applied to the CFI for an extension of the stay for a further 3 months. The CFI refused the application on the basis that CZ was unable to show that a judgment would be handed down by the Mainland Court in the foreseeable future and there was no reason why BS’s rights should be further delayed; further, any set-off could only be raised by HH (Extension Decision). The CFI also refused to grant CZ leave to appeal against the Extension Decision and so CZ applied to the Court of Appeal for such leave on the following grounds:-
(1) The CFI Judge had failed to have regard to various matters, including the alleged concrete timetable of the handing down of the Mainland Court decision, the lack of material prejudice to BS, the substantial prejudice to CZ, the relationship between CZ and HH, the inter-relationship between BS’s arbitral claim and the Mainland proceedings, the amount of the counterclaim against BS in the Mainland proceedings as compared to the Award and that the judgment in the Mainland proceedings could provide a defence against the enforcement of the Award.
(2) The CFI Judge had wrongly placed excessive reliance on the fact that there would be a further 12 months from the conclusion of the Mainland trial to the handing down of the Mainland judgment, which was not supported by evidence.
On 9 April 2019, the Court of Appeal dismissed the application for leave to appeal, holding:
There was no basis to suggest that it was plainly wrong for the CFI Judge to exercise her discretion in refusing to extend the stay. CZ had failed to establish a reasonable prospect of success in the intended appeal. Nor was there any other reason in the interests of justice that the intended appeal should be heard.