兴业银行股份有限公司宁波分行 v. 宁波百丰选矿有限公司 AND OTHERS

HCRE 30/2025

[2026] HKCFI 2455

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

RECIPROCAL ENFORCEMENT CASE NO 30 OF 2025

________________________

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.  This is my decision on two applications made by the 3^rd and 4^th Defendants (respectively “D3” and “D4” and collectively “Relevant Ds”). The first application (“Set Aside Application”) is brought by a summons dated 15 September 2025 and seeks to set aside the registration of a judgment dated 30 March 2023 of the Higher People’s Court of Zhejiang Province (“Second Instance Judgment”) as a judgment of the Hong Kong court – such registration having been acceded to by the order of Master Hui dated 17 July 2025. The second application (“Stay Application”) is brought by a summons dated 29 January 2026 and seeks to stay the present proceedings for a period of 6 months.

B. BACKGROUND

2.  In June 2020, the Plaintiff (“P”) and the Defendants entered into the following agreements (“Loan Documents”): (1) D1 as borrower entered into a loan agreement with P as lender (“Loan Agreement”); and (2) D1 as borrower entered into two letters of credit agreements with P as lender (“LOC Agreements”), (3) the 2^nd Defendant (“D2”) executed a guarantee in respect of D1’s repayment obligations in favour of P and (4) the Relevant Ds executed a guarantee in respect of D1’s repayment obligations favour of P.

3.  D1 subsequently defaulted on its repayment obligations under the Loan Agreement and the LOC Agreements, thereby triggering P’s rights against the guarantors.

4.  On 17 March 2022, P commenced proceedings against the Defendants in the Intermediate People’s Court of Ningbo Municipality, Zhejiang Province (“First Instance Court”) seeking recovery of the outstanding sums due under the Loan Documents.

5.  On 16 September 2022, the First Instance Court handed down its judgment finding in favour of P (“First Instance Judgment”). The Defendants appealed to the Higher People’s Court of Zhejiang Province (“Second Instance Court”). By the Second Instance Judgment dated 30 March 2023, the Second Instance Court dismissed the appeal and upheld the First Instance Judgment in its entirety.

6.  By the Second Instance Judgment, D2 to D4 were held jointly and severally liable for D1’s obligations, up to a maximum principal of RMB 80 million, together with interest (利息), compound interest (复利), legal fees (律師費) and translation fees (翻譯費).

7.  Following the Second Instance Judgment, P applied to the First Instance Court for enforcement against D1, including by way of public auction of D1’s properties in the Mainland.

8.  As a result of the enforcement proceedings, a number of D1’s assets were realized. In particular, 7 properties were sold by way of public auction, generating total proceeds of RMB 6,972,000. The execution process was subsequently terminated on 18 December 2023.

9.  P applied to resume enforcement on 18 March 2024, and further recoveries were made. Two additional properties were sold at public auction, and P received a sum of RMB 1,997,000 on 20 May 2024. Notwithstanding these further recoveries, the total proceeds realised remain substantially insufficient to satisfy the Second Instance Judgment in full, and a significant balance remains due and owing to P.

C. PROCEDURAL HISTORY

10.  On 28 March 2025, P made an ex parte application to register both the First Instance Judgment and the Second Instance Judgment as judgments of the Hong Kong court, pursuant to the Mainland Judgments (Reciprocal Enforcement) Ordinance Cap 597 (“Ordinance”). The application was supported by the 1^st Affirmation of Yu Yang (“Yu”), P’s Manager of the Special Assets Department, and the 1^st Affirmation of Song Yu Hong (“Song”), a PRC law expert engaged by P.

11.  On 3 April 2025, Master Hui raised a number of requisitions (“Requisitions”), including whether it was the First Instance Judgment or the Second Instance Judgment that constituted the final and conclusive judgment eligible for registration under the Ordinance.

12.  The 2^nd Affirmation of Yu and 2^nd Affirmation of Song were filed to answer the Requisitions. By those affirmations, P confirmed that it would no longer pursue registration of the First Instance Judgment, as it was the Second Instance Judgment that contained the operative payment order against D1 to D4.

13.  Master Hui granted the order for registration of the Second Instance Judgment on 17 July 2025. The Notice of Registration was duly served on the Relevant Ds on 1 September 2025.

14.  On 12 September 2025, the Relevant Ds applied to the Zhejiang Provincial People’s Procuratorate for a retrial of the Second Instance Judgment (“Retrial Application”).

15.  On 15 September 2025, the Relevant Ds issued the Set Aside Application, supported by the 1^st Affirmation of D3 (“D3 1^st”), which exhibited a PRC law opinion dated 10 September 2025 by Du Xin (“Du”). In opposition, P filed the 1^st Affirmation of Gao Bai Zi, P’s General Manager of the Special Assets Department, and the 3^rd Affirmation of Song (“Song 3^rd”) on 16 October 2025. In reply, the Relevant Ds filed the 2^nd Affirmation of D3 on 19 December 2025, which exhibited a further PRC law opinion by Du (“Du 2^nd Opinion”).

16.  On 29 January 2025, the Relevant Ds issued the Stay Application, seeking a stay of the Set Aside Application pending the determination of the Retrial Application. The Stay Application is supported by the 3^rd Affirmation of D3, which exhibits a further PRC law opinion by Du (“Du 3^rd Opinion”).

C. THE STAY APPLICATION

17.  Sections 5 and 6 of the Ordinance provide as follows:

“5. Application for registration of Mainland judgments

(1) A judgment creditor under a Mainland judgment may apply to the Court of First Instance within the time limit specified in section 7 to have the judgment registered in the Court of First Instance.

(2) On an application made under subsection (1), the Court of First Instance shall order the Mainland judgment to be registered in accordance with this Ordinance if the judgment creditor has proved to the satisfaction of the Court of First Instance that the following requirements are satisfied—

[…]

(b) the judgment is final and conclusive as between the parties to the judgment…

6. Finality of Mainland judgments

(1) For the purposes of section 5(2)(c), a Mainland judgment is final and conclusive as between the parties to the judgment if—

[…]

(c) it is a judgment of the second instance given by a designated court other than a recognized Primary People’s Court…”

18.  At the hearing, the Relevant Ds accepted – notwithstanding the position taken in D3 1^st – that the Second Instance Judgment is final and conclusive within the meaning of sections 5 and 6 of the Ordinance, and is accordingly registrable under the Ordinance. In my view, the concession was properly made and I proceed on that basis.

19.  The Relevant Ds seek a stay of the Set Aside Application pending the determination of the Retrial Application they have filed in the Mainland. They argue that the Ordinance is silent on how the Court should manage proceedings after a retrial application is made but before a retrial is ordered, and that the Court’s general case management powers under section 16(3) of the High Court Ordinance (“HCO”) and RHC Order 1B rule 1(2)(e) of the Rules of the High Court fill that lacuna, permitting a stay for a reasonable period to allow the Retrial Application to run its course. The Relevant Ds point out that the specific assets targeted by P are the Relevant Ds’ shares in the listed company Great Harvest Maeta Holdings Limited (“Listco”) and they are willing to undertake not to sell or dispose of their shareholding in Listco as a condition for a stay of the Set Aside Application.

20.  In contrast, P observes that section 19 of the Ordinance expressly addresses the circumstances under which the Court may adjourn a set aside application, and that those circumstances do not include a pending retrial application. Section 19 provides as follows:

“19. Cases in which registration of registered judgments may be set aside or application to set aside registration may be adjourned

On an application in that behalf made by any party against whom a registered judgment may be enforced, if the Court of First Instance is satisfied that an appeal against the judgment is pending or the case on which the judgment was based is ordered to be retried by a competent designated court, the Court of First Instance may, on such terms as it may think just—

(b) set aside the registration; or

(b) adjourn the application until after the expiration of such period as it appears to the Court of First Instance to be reasonably sufficient to enable the applicant to take the necessary steps to have the appeal or retrial in respect of the judgment disposed of by a competent designated court.” (emphasis added)

21.  As may been seen from the express wording of section 19 of Ordinance, the court’s power to set aside registration or adjourn a set aside application is only engaged where (1) an appeal against a registered judgment is pending or (2) the case on which the registered judgment is based is ordered to be retired. Section 19 expressly does not contemplate that an application for retrial, in and of itself, provides a sufficient reason for either setting aside registration or the adjournment of a set aside application. Whilst the present application is one for stay but not for an adjournment, P argues that the considerations set out in section 19 informs on how the court should exercise its discretion under the stay scenario. In gist, P contends that the general case management powers under section 16(3) of the HCO and RHC Order 1B rule 1(2)(e) should not be exercised in a manner which has the effect of circumventing the statutory criteria set out in section 19.

22.  I agree with P’s submissions.

23.  First, the natural and ordinary meaning of section 19 is clear. The legislature has identified two, and only two, scenarios in which the Court may exercise its discretion to adjourn a set aside application: (1) where an appeal against the judgment is pending; and (2) where a retrial has been ordered by a competent designated court. It is pertinent to note that section 19 also confers a wide discretion that any Order made under it may be made on such terms as the court thinks fit. In my view, there is no material or practical difference between an application made under section 19 or, as here, couched under the guise of a stay.

24.  Secondly and relatedly, the purpose of the Ordinance is to facilitate the recognition and enforcement of Mainland judgments through a simple and expeditious process of registration, on the basis of a judgment already made by a competent and recognized court: Foshan Nanhai Branch of Industrial and Commercial Bank of China Ltd v Foshan Ruifeng Petroleum and Chemical Fuel Co Ltd [2019] 2 HKLRD 478 at §39, cited with approval by the Court of Appeal in Huzhou Shenghua Financial Services Company Ltd v Hang Pin Living Technology Company Ltd [2025] 3 HKLRD 447 at §43.

25.  As (fairly) recognized by counsel for the Relevant Ds, the Ordinance was enacted to avoid the previous uncertainty under the common law as to whether the Mainland judgments are “final and conclusive” given the retrial procedure in the Mainland. To order a stay on the existence of the Retrial Application – where no order has been made and the outcome remains uncertain – would run counter to that legislative purpose. It would (re)introduce precisely the uncertainty that the Ordinance was designed to eliminate. It would, moreover, require the court to undertake an evaluative assessment of the prospects of a Mainland retrial application succeeding – an exercise that the statutory scheme is plainly designed to avoid.

26.  Thirdly, the Relevant Ds rely on the principle of comity as articulated in China NPL Holdings Pte Ltd v Mo Haidan [2021] 1 HKLRD 344 §52, where the Court of Appeal held that, although a foreign judgment subject to appeal may still be regarded as final and conclusive, this does not preclude the Hong Kong court from taking account of developments in the foreign jurisdiction in deciding what is the proper relief to be granted and the course to take in an action in Hong Kong based on such foreign judgment. For the following reasons, I do not consider that China NPL assists the Relevant Ds:

(a) China NPL is concerned with a situation where a retrial had already been ordered by the Mainland court and enforcement had been stayed by reason of the retrial orders and pursuant to Article 206 of the PRC Civil Procedure Law. The Court of Appeal held that, as a matter of comity, the Hong Kong court should give effect to that stay (§59);

(b) By contrast, in the present case, no retrial has been ordered and enforcement of the Second Instance Judgment has not been stayed. In other words, the Second Instance Judgment is a presently enforceable judgment in the Mainland. There is therefore no development in the Mainland which, by reason of comity, would give rise to considerations which would lead to a deferment of P’s rights to seek to enforce the Second Instance Judgment against the Relevant Ds in Hong Kong. Indeed, comity would dictate a course contrary to the one suggested by the Stay Application;

(c) In any event, the Relevant Ds rely on predominantly bare assertions of oral communications with the Sixth Procuratorial Department of the People’s Procuratorate of Zhejiang Province (“Sixth Procuratorial Department”). The picture painted by counsel for the Relevant Ds is that the Sixth Procuratorial Department has acknowledged receipt of the Retrial Application and is in the process of conducting an internal review. Not only are those assertions are unsupported by any documentary evidence, counsel fairly accepted no indication has been given of the likely timetable or outcome.

27.  For the reasons given above, the circumstances set out at section 19 of the Ordinance (or the absence thereof), in my view, provide the most weighty considerations on how the court’s discretion is to be exercised in the context of the Stay Application. The Relevant Ds are driven to seek to defer the present proceedings under the guise of the Stay Application as they well recognize that no application for an adjournment may legitimately be made under section 19 of the Ordinance. On this basis alone, I would dismiss the Stay Application.

28.  However, were I wrong on the foregoing, I have out on the weighing scale the two arguments advanced by the Relevant Ds in support of the Stay Application: first, that a retrial in the Mainland is likely; and secondly, that it would be unjust to proceed with the Hong Kong proceedings whilst the Mainland authorities consider their application. I address each in turn.

29.  First, the Relevant Ds rely on Sunsco International Holdings Ltd v Lin Chunrong [2025] HKCFI 5238 for the proposition that the “likelihood of a retrial” is the paramount consideration. That case was concerned with the substantive question whether, for the purpose of common law enforcement, a Mainland judgment would be considered “final and conclusive” by reason of the existence of the retrial procedure in the Mainland. Here, the Relevant Ds accept that the Second Instance Judgment is final and conclusive for the purpose of registration under the Ordinance. In any event, there is no meaningful evidence adduced by the Relevant Ds on the prospects of a retrial. All that is said in Du 3^rd Opinion is that, through the oral communication with the Sixth Procuratorial Department, the message which was received was meaningful in the process of the Retrial Application (此次現場溝通所取得的訊息，對於推進再審申請具有重要意義). Du then referred to the procedural defects identified in Du 2^nd Opinion and asserted that there is a real prospect of the Retrial Application being granted (鑒於…此前對本案存在的程序瑕疵的判斷，本案有現實的可能性啟動再審程序). However in Du 2^nd Opinion, all that was said was that the alleged procedural defects may qualify as a ground for a retrial, without any substantive analysis (鑒於本案在一審二審程序中存在的諸多程序瑕疵，可能符合審判監督程序的啟動事宜). In my view, the evidence adduced by the Relevant Ds falls far short of showing that a retrial is likely.

30.  Secondly, the principles governing a stay under section 16(3) of the HCO and Order 1B rule 1(2)(e) of the RHC are well established: whether to grant a stay is a matter of sensible case management, to be decided having regard to what is fair and just, taking into account the underlying objectives of the Rules of the High Court: 廈門新景地集團有限公司 v Eton Properties Ltd and Others [2018] HKCFI 910 at §27. In particular, the court must consider (1) what would serve the ends of justice between the parties and the administration of justice generally, (2) whether a stay will cause injustice to the plaintiff, (3) whether continuing the proceedings would be unjust, and (4) that a plaintiff commencing proceedings as of right should not be deprived of the right to continue those proceedings in the absence of very good reasons: ibid at §28 (citing Eastman Chemical Ltd v Heyro Chemical Ltd [2012] 2 HKLRD 135).

31.  The principal matters relied on the Relevant Ds to justify the stay application is that their Listco shareholding represent a controlling shareholding and enforcement against those shares would irreversibly divest them of control of Lisco. It is then said that the prejudice caused to the Relevant Ds should be balanced against the relevant short period of stay of 6 months sought.

32.  I am unable to agree with the Relevant Ds that the foregoing matters constitute a good reason for acceding to the Stay Application. As acknowledged by the Relevant Ds, it is open to them to apply for a stay of execution if and when P seeks to take further steps to execute/enforce the registered Second Instance Judgment. Whilst counsel for the Relevant Ds suggest that this course is no more than “kicking the can down the road”, it seems to me that the foregoing suggestion fails to recognize an important consideration, namely what factors are or are not relevant in the context of an stay application depend on the stage of the proceedings and the orders sought. Here, the court is only concerned with the issue of whether the registration of the Second Instance Judgment should be set aside. By reason of the analysis above, the main relevant considerations are those set out in section 19 of the Ordinance. The prejudice identified by the Relevant Ds only arise at a later stage, namely when P seeks to enforce/execute the registered Second Instance Judgment were registration not set aside.

33.  Weighing all the relevant considerations, I conclude that it is neither fair nor just to grant a stay. The Relevant Ds have failed to demonstrate good reasons for the grant of a stay. The Stay Application is accordingly dismissed.

D. SET ASIDE APPLICATION

34.  The Relevant Ds rely on two grounds in support of the Set Aside Application: (1) that enforcement of the Second Instance Judgment would be contrary to public policy; and (2) that the interest awarded in the Second Instance Judgment constitutes a penalty.

D.1 Legal principles

35.  Sections 5(2)(e) and 18 of the Ordinance govern the setting aside of registration of registered Mainland judgments in Hong Kong:

“5. Application for registration of Mainland judgments

[…]

(1) On an application made under subsection (1), the Court of First Instance shall order the Mainland judgment to be registered in accordance with this Ordinance if the judgment creditor has proved to the satisfaction of the Court of First Instance that the following requirements are satisfied—

[…]

(e) the judgment orders the payment of a sum of money (not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty).

18. Cases in which registration of registered judgments shall be set aside

[…]

(1) On an application in that behalf made by any party against whom a registered judgment may be enforced, the registration of the judgment shall be set aside if the Court of First Instance is satisfied that—

(a) the judgment is not a Mainland judgment which satisfies the requirements specified in section 5(2)(a) to (e);

[…]

(j) the enforcement of the judgment is contrary to public policy…”

D.2 Analysis

D.2.1 Public policy

36.  It is well established that the defence of natural justice is encompassed within the public policy ground under section 18(1)(j) of the Ordinance. The Bills Committee Report on the Mainland Judgments (Reciprocal Enforcement) Bill 2008 (LC Paper No. CB(2)1666/07-08) (“Bills Committee Report”) confirms at §§104 and 105 that section 18(1)(j) relates, wholly or partly, to procedural fairness – which is also known as natural justice – and that the Administration considered it fair and reasonable to conclude that the natural justice defence is encompassed by the public policy defence.

37.  The content of natural justice for these purposes was authoritatively stated by Atkin LJ in Jacobson v Frachon (1927) 138 LT 386 at 392, as summarised in Dicey, Morris & Collins on the Conflict of Laws (16^th edn) at §14-159. The two essential requirements are: (i) that the court gave the litigant notice that it was about to determine his rights; and (ii) that having given such notice, the court afforded him a genuine opportunity to present his case.

38.  The Relevant Ds contend that the Mainland proceedings leading to the First Instance Judgment contained serious procedural defects. They point to two written applications: a written application dated 15 July 2022 to adjourn the hearing (“Adjournment Application”) and written applications dated 22 and 25 July 2022 challenging the jurisdiction of the First Instance Court (“Jurisdictional Challenge”). They assert that neither application was dealt with or determined by the First Instance Court, and that the First Instance Judgment contains no ruling, decision, or explanation in respect of either application. I address each in turn, beginning with the Adjournment Application.

39.  I find that the Adjournment Application does not give rise to any issue of procedural unfairness for the following reasons:

(a) First, the Relevant Ds complain in D3 1^st that they received the court’s summons (寧波中院送達的傳票) only on 13 July 2022 and that, under Article 285 of the PRC Civil Procedure Law, they were entitled to at least 30 days to file a defence. However, the evidence establishes that the First Instance Court had served the relevant court documents – not merely the summons – on the Relevant Ds’ Hong Kong address by express mail on 6 April 2022 and by email on 7 May 2022. According to Song 3^rd, both methods constitute valid service under PRC law, a point that is not disputed by the Relevant Ds’ expert. Taking the later of the two service dates, the 30-day period under Article 285 expired on 6 June 2022, before the hearing on 29 July 2022.

(b) Secondly, the Relevant Ds state in D3 1^st that a further basis for the Adjournment Application was that they had not received complete case documents and were therefore unable to prepare their defence. However, as the evidence establishes, the relevant documents were served on the Relevant Ds by 7 May 2022 at the latest. If documents were genuinely missing, the Relevant Ds could and should have raised the matter with P or with the court well before the hearing. There is no evidence that they ever did so. I reject the claim that missing documents impeded their ability to prepare a defence as unsubstantiated and, in all the circumstances, not credible.

(c) Thirdly, even assuming in the Relevant Ds’ favour that the factual premises of the Adjournment Application were made out – that is, assuming they genuinely did not have 30 days to prepare their defence or did not receive complete case documents – the complaint still fails. The Relevant Ds raise two scenarios regarding the First Instance Court’s treatment of the Adjournment Application: either the court refused it without giving written reasons, or it disregarded it entirely. Neither scenario establishes a breach of procedural fairness:

(1) The refusal of an adjournment application is a case management decision. The absence of written reasons does not, without more, give rise to a breach of natural justice;

(2) Even if the First Instance Court wholly disregarded the Adjournment Application, The Relevant Ds’ complaint still cannot succeed. The approach adopted in China CITIC Bank Corporation Ltd (Quanzhou Branch) v Li Kwai Chun & Ors [2019] HKCFI 2540 is instructive by analogy. That case concerned section 18(1)(f)(ii) of the Ordinance – a provision which, as the Bills Committee Report confirms at §104, also relates to procedural fairness and natural justice. In that case, the court held at §84 that a defendant alleging procedural unfairness must demonstrate: (i) what steps it would have taken to defend the proceedings had the procedural irregularity not occurred; (ii) whether it would have had sufficient time to take those steps; and (iii) if not, why not. In the present case, the Defendants (including the Relevant Ds) all engaged the same legal representation before the First Instance Court and fully contested P’s claims on the merits without raising any issue on the Adjournment Application. Applying the observations in China Citic Bank here, the Relevant Ds have adduced no evidence of what (additional) steps they would have taken had the Adjournment Application been granted, nor have they explained why the time available was insufficient for their defence.

(d) Fourthly, and in any event, not only did the Relevant Ds not raise any issue before the First Instance Court, they did not raise any complaint about the Adjournment Application on appeal to the Second Instance Court. The Relevant Ds rely on DP World Djibouti Fzco and Others v China Merchants Port Holdings Co Ltd [2025] HKCFI 6320 at §112 for the proposition that a party is not required to exhaust local remedies before raising a natural justice objection where the breach alleged is of a primary kind – that is, a lack of notice or a denial of the opportunity to be heard. I agree with P that this is not a case about whether the Relevant Ds did or did not exhaust local remedies. Instead, the lack of complaints made locally (whether to the First Instance Court or the Second Instance Court) is factually indicative that the Relevant Ds did have sufficient time and the requisite materials to contest the Ps claims on the merits.

40.  I find that the Jurisdictional Challenge does not give rise to any issue of procedural fairness for the following reasons:

(a) First, although the Relevant Ds have produced a copy of the Jurisdictional Challenge, it does not appear in the official court file of the First Instance Court, which was extracted on 18 September 2025. In the absence of any such official record, I find that the Jurisdictional Challenge was never formally filed with the First Instance Court.

(b) Secondly, even if the Jurisdictional Challenge had been formally filed, it was filed out of time. According to Song 3^rd, under Article 130(1) of the PRC Civil Procedure Law: “当事人对管辖权有异议的，应当在提交答辩状期间提出。” [English translation: “A party who objects to jurisdiction must raise the objection within the period for filing a defence.”] The deadline for filing a defence expired on 6 June 2022 for the Relevant Ds. The Jurisdictional Challenge is dated 22 and 25 July 2022, postdating that deadline. The Relevant Ds’ expert does not dispute that Article 130(1) imposes this time limit, or that the Jurisdictional Challenge was made out of time. I accept Song’s evidence that the Jurisdictional Challenge was filed out of time and was therefore not a valid procedural objection that the First Instance Court was obliged to consider.

(c) Furthermore, the consequence of the Relevant Ds’ failure to raise a timely objection is that they are deemed to have submitted to the jurisdiction of the First Instance Court. Article 130(2) of the PRC Civil Procedure Law provides: “当事人未提出管辖异议，并应诉答辩或者提出反诉的，视为受诉人民法院有管辖权，但违反级别管辖和专属管辖规定的除外。” [English translation: “If a party fails to raise a jurisdictional objection and files a defence, it is deemed that the court has jurisdiction, except where the rules on level jurisdiction or exclusive jurisdiction are violated.] The Relevant Ds do not suggest that either exception applies. In any event, as noted above, the Relevant Ds fully contested P’s claim on the merits before the First Instance Court.

(d) Thirdly, as with the Adjournment Application, the Relevant Ds did not complain about the Jurisdictional Challenge on appeal to the Second Instance Court.

41.  For the above reasons given above, I find that the Relevant Ds have not made out their complaint that registration of the Second Instance Judgment should be set aside by reason of public policy.

D.2.2 Penalty

42.  The Second Instance Judgment – affirming the First Instance Judgment – orders the Relevant Ds to pay interest under three heads:

(a) Default interest at 8.4825% per annum on the principal amount of RMB 20 million due under the Loan Agreement (“Default Interest”);

(b) Contractual interest at 0.05% per day on the outstanding principal of USD 5.46 million under the LOC Agreements (“Contractual Interest”); and

(c) Interest under Article 260 of the PRC Civil Procedure Law at 0.0175% per day on the principal amounts of RMB 20 million and USD 5.46 million, payable if those principal amounts are not paid within the time stipulated in the judgment (“Enhanced Interest”).

43.  The Relevant Ds seek to set aside the registration of the Second Instance Judgment insofar as it relates to the Enhanced Interest and the Default Interest. The Contractual Interest is not challenged. I address the Enhanced Interest before turning to the Default Interest.

44.  The Court of Appeal’s decision in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 is binding on this court. In that case, the Court of Appeal held that double interest imposed under Article 229 of the PRC Civil Procedure Law – the predecessor to Article 260 – constitutes a penalty and is not enforceable in Hong Kong. Kwan JA (as she then was) stated at §91:

“That the sum is not payable to the state is not a determinative factor. If the court is satisfied that the purpose of the amount ordered was not to compensate for the loss suffered but to punish the defendant and deter others from acting in the same way, this could properly be regarded as a penalty.” (emphasis added)

45.  Though Hung Fung is concerned with enforcement at common law, its reasoning has subsequently been applied under section 5(2)(e) of the Ordinance. In Foshan Nanhai Branch of Industrial and Commercial Bank of China Ltd v Foshan Ruifeng Petroleum and Chemical Fuel Co Ltd [2019] 2 HKLRD 478, Mimmie Chan J held that enhanced interest under Article 229 was a penalty not registrable under the Ordinance. More recently, in 天津津融投資服務集團有限公司 v 濟南穆和企業管理有限公司 and others [2025] HKCFI 6182, DHCJ Gary Lam reached the same conclusion for enhanced interest under Article 260.

46.  The Court of Appeal’s decision in Hung Fung is binding on this court, and that is sufficient to dispose of P’s challenge. At the hearing, despite his initial position, counsel for P accepted that the Enhanced Interest element of the Second Instance Judgment should be set aside.

47.  I turn to the Default Interest which was imposed under the Loan Agreement based on 《中國人民銀行關於人民幣貸款利率有關問題的通知》（銀發【2003】251 號）. The Relevant Ds argue that the default interest rate of 8.4825% per annum – being 150% of the contractual interest rate of 5.655% per annum – is punitive in nature, and that its enforcement in Hong Kong would amount to the enforcement of a penal provision or an assertion of the sovereign power of the Mainland authorities, which is impermissible under the Ordinance.

48.  It is a well-established principle of private international law that Hong Kong court will not entertain an action for the enforcement, either directly or indirectly, of a penal or revenue , or other public law of a foreign country: Dicey, Morris & Collins on the Conflict of Laws, 16^th Ed §14-026. However, the foregoing principle is not engaged in respect of the Default Interest. The Default Interest is a contractual term agreed between the parties[1]; it is not a statutory sanction imposed by the Mainland. Default interest is a common and entirely ordinary feature of commercial lending arrangements, and a higher rate of interest upon default reflects the increased credit risk that a borrower in default represents to the lender: see for example Mrs Nuray Houssein & Ors v London Credit Limited & Anor [2024] EWCA Civ 721 §§41-43. I accordingly reject this ground.

49.  In summary, the penalty ground succeeds in part. The Enhanced Interest constitutes a “fine or other penalty” within the meaning of section 5(2)(e) of the Ordinance and the registration of the Second Instance Judgment must be set aside to that extent. The Default Interest does not constitute a penalty and that sub-ground fails.

E. ORDER AND DISPOSITION

50.  In the result, I make the following orders.

51.  The Stay Application is dismissed.

52.  The Set Aside Application is allowed in part. The registration of the Second Instance Judgment is set aside insofar as it relates to the Enhanced Interest, being the interest awarded under Article 260 of the PRC Civil Procedure. In all other respects, the Set Aside Application is dismissed and the registration of the Second Instance Judgment shall stand.

53.  The parties shall, within 14 days of the date of this judgment, file with the Court an agreed draft order. In default of agreement, either party may apply to the Court for directions.

54.  As to costs:

(a) The Relevant Ds shall pay P’s costs of the Stay Application;

(b) The Relevant Defendants shall pay 90% of P’s costs in respect of the Set Aside Application.

55.  The costs orders set out above are made on a nisi basis. P is to lodge and serve its Statement of Costs (limited to 3 pages) within 7 days hereof and the Relevant Ds their Statement of Objection (limited to 3 pages) within 7 days thereafter. The court will then carry out summary assessment on the papers.