SHENZHEN HONEYCOMB SYSTEM CO LTD v. HCT TECHNOLOGIES (HONG KONG) CO., LTD

HCCT 20/2019

[2020] HKCFI 3076

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 20 OF 2019

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BETWEEN

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D E C I S I O N

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1.  This is the hearing of the Respondent’s (“HCT”) Summons filed on 24 July 2020 (“Stay Summons”) for a stay of the Applicant’s (“SHS”) Summons filed on 14 May 2019 (“Enforcement Summons”) which sought leave to enforce a Mainland arbitral award (“Award”) against HCT. The stay application is premised upon HCT’s appeal against a Decision of Mimi Chan J dated 20 May 2020 ([2020] HKCFI 822) (“Decision”) whereby HCT’s challenge to the Enforcement Summons on the ground that the proceedings were not brought with authority of SHS was rejected.

2.  After the filing of the Stay Summons, the Enforcement Summons was heard by Mimi Chan J on 2 December 2020.  Leave to enforce the Award was granted to SHS after the hearing, with reasons for decision to be handed down.  This application is therefore, in substance, one for a stay of the enforcement of the Award.      

3.  It is HCT’s case that its appeal against the Decision, based on 2 grounds set out in the Notice of Appeal filed on 17 June 2020, has a strong likelihood of success.  In addition, it was submitted that HCT has no sufficient assets available for execution to satisfy the Award, and a winding up order against it would have serious deleterious effect. 

4.  The background of this case can be seen from the Decision.  For the present purpose, I adopt the nomenclature used in the Decision.  In gist, the 2 grounds of appeal advanced the following contentions :

(1) Jin, the Legal Representative of SHS, had the burden to prove authorisation;

(2) Jin had adduced no evidence, such as Board resolution, to discharge his burden;

(3) On the other hand, the accepted evidence was that the majority of the shareholders (holding 53.7% of the shares of SHS) and 2 of the 3 directors of SHS disapproved of the Enforcement proceedings.

5.  The applicable legal principles for a stay application are uncontroversial, and can be found in the much cited authority of Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at 87D-89I, per Ma J, as he then was. 

6.  With respect, I do not agree with HCT’s submissions on the merits of its appeal.  The 2 grounds of appeal do not address the ratio of the Decision, namely, based on the fact that Jin was the validly registered Legal Representative of SHS, he had the legal power and authority to act for SHS which included the authority to institute proceedings on its behalf: see Decision, §28. 

7.  The ratio was based on evidence of Mainland law adduced before the court by way of expert evidence from both sides.  In particular: (a) the institution of proceedings by SHS against HCT was an act against external party and for which SHS was bound by the action of its Legal Representative (Decision, §§25-26); and (b) the Mainland court decision of Thumb was analysed by the experts and considered by the learned Judge in light of their evidence: Decision, §§22, 24, 26 and 29.

8.  The learned Judge accepted that the opposing majority shareholders of SHS had the power to change the Legal Representative and to terminate the Enforcement proceedings, but no action had been taken in that regard: Decision, §§28, 30 and 31.

9.  I can find nothing in the arguments advanced on behalf of HCT to undermine the Decision, and I am of the view that no reasonable prospect has been demonstrated in respect of the appeal.

10.  There is considerable force in SHS’ submission that in the absence of an appeal with reasonable prospect of success, it should be the end of the matter. 

11.  HCT’s submission that it has insufficient assets to meet the payment of the Award is not supported by any evidence.  The omission of such evidence, which should be readily available to HCT, discredits the submission.

12.  That leaves only the submission by HCT that SHS is a Mainland company and the success of its appeal may be rendered nugatory if the Award is paid.  There is some merit in the point, and I bear in mind that the appeal is scheduled to be heard on 27 May 2021.  I make an order that unless the following sums, which made up the Award, are paid into court by 4pm on 31 December 2020 by HCT, the Stay Summons be dismissed with costs to SHS, to be taxed if not agreed.  In the event of payment, there be a stay of enforcement of the Award pending the determination of HCT’s appeal, with costs of the Stay Summons in the cause of the appeal :

(1) US$2,295,496.75;

(2) RMB 288,719.83 being interest on (1) from 1 February 2016 to 6 July 2016;

(3) RMB 230,000 being legal costs; and

(4) RMB 146,515 being arbitration fees.