Court of Appeal refuses further stay of enforcement of arbitral award

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:

• The granting (or the refusal) of a stay of execution involves the exercise of the Court’s discretion and it is well established that the Court will only interfere with the exercise of such discretion if the judge made errors in principle or exercised the discretion in a manner that was plainly wrong. CZ had failed to satisfy the Court of Appeal that there was any reasonable prospect of success in the intended appeal.
• The CFI Judge was clearly appraised of the circumstances of the case. She was the judge who granted leave to BS to enforce the Award in Hong Kong in the first place. It was clear from the Stay Decision that she had taken into account the matters referred to at (1) above. The weight to be attached to such matters are matters for the judge. It was perfectly open to the judge to attach much less weight to those matters (some 6 months since the Stay Decision) when she refused to extend the stay.
• The CFI Judge was entitled to conclude that CZ had failed to demonstrate that a judgment of a competent authority would be handed down within “the fixed foreseeable future”. The CFI Judge’s exercise of discretion could not reasonably be argued to be flawed.
• The finely balanced Stay Decision could not pre-empt the CFI Judge’s exercise of discretion in determining the Extension application.
• There was no reasonable argument to suggest that BS would suffer no prejudice. As the CFI Judge rightly pointed out, BS was entitled to have the Award enforced without any delay. Even if a judgment were obtained in HH’s favour in the Mainland Proceedings, it could not be a defence to the Award. At the time of the Award, it was (and still was) a mere unliquidated claim by HH, not CZ.

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.

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张国杰

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