G v. X AND OTHERS

HCCT 58/2021

[2024] HKCFI 773

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 58 OF 2021

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JUDGMENT

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I.  INTRODUCTION

1.  X seeks a stay of this court’s Enforcement Order (providing for enforcement of a Mainland Award), pending the outcome of a setting aside application before the Beijing No.4 Intermediate People’s Court (the Beijing Court). X applies under this court’s inherent jurisdiction. G opposes the stay. If a stay is not granted, a principal amount of some RMB 660 million plus (out of security of RMB 770 million plus which X has lodged with this court), will be paid out to G pursuant to the Enforcement Order.

II.  BACKGROUND

2.  On 20 April 2021, a CIETAC Tribunal issued the Original Award. In May 2021, X applied to the Beijing Court to set aside the Original Award. On 5 July 2021, G issued an ex parte Originating Summons for the enforcement of the Original Award in Hong Kong. This court directed that G’s Enforcement Application be heard inter partes. On 21 June 2022, Mimmie Chan J adjourned the Enforcement Application for 3 months, pending the outcome of the setting aside proceedings before the Beijing Court.

3.  By Notice dated 23 September 2022, the Beijing Court found that, in deciding the Original Award, the Tribunal wrongly relied on evidence upon which X did not have a reasonable opportunity to comment. The Beijing Court accordingly remitted the matter to CIETAC to “re-arbitrate the case before 30 September 2022 and reply to [the Beijing Court] within three days from the date of receipt of this Notice”. By Notice dated 30 September 2022, CIETAC confirmed that the dispute would be re-arbitrated.

4.  On 29 September 2023, the hearing of the Enforcement Application resumed in Hong Kong. X resisted the Enforcement Application on the ground that, by reason of the re-arbitration in mainland China, the Original Award had not yet become binding or was suspended. Mimmie Chan J reserved, stating that her judgment would likely be delivered within three months. She directed the parties to make submissions on the impact (if any) of an award issued as a result of the re-arbitration in mainland China.

5.  On 17 November 2023, a differently constituted CIETAC Tribunal issued the Re-Arbitration Award. This second Tribunal came to the same conclusion as the original Tribunal as to the principal damages payable to G. It ordered X to pay damages in the same principal amount of RMB 660 million plus. However, under the Re-Arbitration Award, interest on the principal amount would only accrue from 18 December 2023 (that is, a month and a day after the date when the Re-Arbitration Award was issued).

6.  On 1 December 2023, X applied to the Beijing Court to set aside the Re-Arbitration Award on two grounds. X primarily argues that the second Tribunal wrongly concluded that the scope of the re-arbitration was limited to reconsidering the specific irregularity (the Evidence Issue) which the Beijing Court had identified in the Original Award. In other words, according to X, the arbitral procedure followed during the re-arbitration was not in accordance with the parties’ agreement. Alternatively, X contends that the Re-Arbitration Award is flawed in any event, because the Tribunal did not properly evaluate the new evidence before it, but instead “rubber-stamped” the first Tribunal’s finding on the Evidence Issue.

7.  On 11 December 2023, X issued a summons to stay the Enforcement Application, pending the determination by the Beijing Court of X’s application to set aside the Re-Arbitration Award. On 9 January 2024, X withdrew the summons.

8.  On 19 December 2023, Mimmie Chan J handed down judgment in the Enforcement Application, granting the Enforcement Order.

9.  On 8 January 2024, G applied for payment out of the principal amount of RMB 660 million plus, adjudged as due under the Enforcement Order, from the security lodged by X with this court. On 19 January 2024, X applied by summons to set aside the Enforcement Order under RHC Order 73 Rule 10(6)[1] on the ground that the arbitral procedure was not in accordance with the parties’ agreement. In the alternative (the Alternative Limb), X asked for a stay of the Enforcement Order, pending the final determination of X’s setting aside application before the Beijing Court.

10.  On 29 February 2024, Mimmie Chan J granted G’s application for payment out. On 1 March 2024, she dismissed G’s summons to the extent that it sought to set aside the Enforcement Order under Order 73 Rule 10(6). She did so on the basis that Order 73 Rule 10(6) did not apply to enforcement orders made (as here) following an inter partes hearing. She left open the Alternative Limb to be dealt with later.

11.  By summons dated 5 March 2024, X applied for leave to appeal to the Court of Appeal out of time against the Enforcement Order. X also applied for a stay of the Enforcement Order, pending the hearing of the appeal against the Enforcement Order (if leave is granted). On the same day, Mimmie Chan J directed that X’s applications for leave to appeal out of time and for a corresponding stay would be dealt with on paper, after the filing of submissions in reply on or about 20 March 2024. Mimmie Chan J refused an interim stay pending her determination of the two applications.

12.  The application which I must determine today is the Alternative Limb to X’s summons of 19 January 2024. That is, I need to decide whether to grant a stay of the Enforcement Order, pending the final determination of the ongoing setting aside proceedings before the Beijing Court. The next hearing before the Beijing Court is scheduled for 19 March 2024. It is unclear whether the setting aside application will be finally disposed of at that time. X’s legal representatives suggest that the setting aside application might finally be decided by the Beijing Court at some point in April 2024.

13.  Mr Paul Shieh SC (appearing for X) says that there is an urgency to the application before me because the amount of RMB 660 million plus may be paid out to G any day now. He submits that, if that happens, the proposed appeal against the Enforcement Order or any benefit to X from the Beijing setting aside proceedings, will be rendered nugatory. This is because, according to X, there is a good chance that G will not repay any monies if X ultimately prevails.

III.  DISCUSSION

A.  Inherent jurisdiction?

14.  There is an initial question over the source of my power to grant a stay in the circumstances of this case. Mr Shieh submits that I have inherent jurisdiction to do so. That must be the case. The Original Award was converted into a judgment of this court by the Enforcement Order. As a judge, I must have inherent jurisdiction to regulate how court orders are executed. That would include staying execution of a court order. See Israel Sorin (Izzy) Shohat v Balram Chainrai HCCT 9/2016 (26 May 2017), at [16].

15.  Mr Douglas Lam SC (appearing for G) does not dispute that I have inherent jurisdiction to grant a stay. What he is instead saying is that X is acting in abuse of process and that there are no special circumstances justifying the exercise of my discretion to grant a stay.

B.  Abuse of process?

16.  Mr Lam characterises X’s present application as the fourth attempt at forestalling the Enforcement Order. According to Mr Lam, X previously encountered three failures. The first failure was when Mimmie Chan J decided to grant the Enforcement Order on 19 December 2023. This was despite X’s submission that any grant should await the outcome of the setting aside proceedings in relation to the Re-Arbitration Award. The second failure happened on 29 February 2024 when Mimmie Chan J ordered that the principal amount due to G under the Enforcement Order be paid out from the funds lodged in court. This was despite X’s contention that the Original Award could still be set aside under Order 73 Rule 10(6). The third failure occurred on 1 March 2024 when Mimmie Chan J dismissed the application to set aside the Enforcement Order under Order 73 Rule 10(6).

17.  Mr Lam further suggests that the present application is redundant. According to him, X is effectively seeking to circumvent Mimmie Chan J’s forthcoming decisions on (1) leave to appeal out of time against the Enforcement Order and (2) the grant of a stay pending the hearing of an appeal (if leave is granted). X’s conduct (Mr Lam stresses) is especially egregious since Mimmie Chan J refused an interim stay covering the period before her decision on the foregoing applications. If an interim stay had been granted by Mimmie Chan J, there would have been no need for the application before me. If leave to appeal and a stay pending appeal are refused by Mimmie Chan J, there can be no basis to grant a stay of the Enforcement Order at all. There would be no further event in Hong Kong that could impact on the Enforcement Order. It is accordingly abusive (Mr Lam suggests) for X not to have withdrawn the present application, but instead to have engaged in judge-shopping by pressuring the Listing Office to arrange for this hearing to be placed before a different judge (myself), instead of Mimmie Chan J.

18.  I am unable to agree with Mr Lam on the question of abuse of procedure.

19.  First, there was no judge-shopping. X’s lawyers sought to fix the present application before Mimmie Chan J. But her diary could not accommodate a hearing before 10 May 2024. X’s lawyers then invited Mimme Chan J to deal with the matter at the same time as the paper disposal of the applications for leave to appeal out of time and a stay pending appeal (if leave is granted). The invitation was declined on the basis that I would be “more than able to deal with the stay application and to have full grasp of the facts and history of the case from the Decisions already handed down”.

20.  Second, there is no redundancy of process. Mimmie Chan J herself envisaged that the present application was distinct from X’s previous applications. She stated in her Reasons for Decision dated 1 March 2024 (at [7]):

“ As for the application for a stay of enforcement of the Award, made under paragraph 2 of the Summons and the inherent jurisdiction of the Court, that application was adjourned at the conclusion of the hearing for further and substantive arguments to be made at an early date to be fixed.”

21.  The judge thus did not see any issue estoppel arising from X’s previous abortive applications. I agree with that assessment. The first “failure” dealt with whether the Original Award should be converted into an Enforcement Order of this court. The second “failure” concerned whether there should be payment out of funds paid into court as security. The third “failure” held that X had invoked a wrong procedure by seeking to set aside the Enforcement Order pursuant to Order 73 Rule 10(6). In no instance was the question whether the Enforcement Order should be stayed pending the outcome of the Beijing proceedings to set aside the Re-Arbitration Award squarely considered.

22.  Third, the present application does not pre-empt a decision on the applications for leave to appeal and a stay pending appeal (if leave is granted). The present application instead seeks a stay pending determination of the Beijing Court setting aside proceedings. Such determination may arise (Mr Shieh points out) before, during, or after a decision on X’s leave application and (if leave is granted) and any appeal. There may potentially be overlap among the periods of stay sought. But I do not think that possibility would by itself make the present application abusive.

C.  Stay?

23.  In her Decision dated 19 December 2023, based on G’s expert evidence on PRC law, Mimmie Chan J stated (at [37]):

“ In this case, the [Beijing] Court only ordered re-arbitration on the Evidence Issue, and the New Award [that is, the Re-Arbitration Award] only replaces the original award on this defined issue, and to the extent that the New Award is in any way different on this issue. In this case, the New Award made in the re-arbitration is the same as the original Award on the question of damages. Any replacement makes no difference in outcome and effect.”

24.  It follows from Mimmie Chan J’s ruling that, if the Re-Arbitration Award is set aside, such fact could have a bearing on the question of damages. It could make a “difference in outcome and effect” on the Original Award. In short, a setting aside may conceivably have the consequence that G’s entitlement to the principal amount of RMB 660 million is reduced in whole or part. This factor militates in favour of a stay.

25.  However, like Mimmie Chan J, I am sceptical of the prospects of X’s setting aside application. It seems to me that the Tribunal which issued the Re-Arbitration Award correctly regarded its role as confined to considering the Evidence Issue identified by the Beijing Court. As for the complaint that the Tribunal failed properly to evaluate the new evidence adduced by the parties, that goes to the merits of the second Tribunal’s decision. That is not typically something that a court considers in setting aside applications. I would in the normal course of events therefore not order a stay, without imposing a condition that the party seeking the stay pay the entire of the disputed amount into court as security. But here X has paid into court significantly more than the RMB 660 million plus which G is seeking to have paid out. The amount paid into court is likewise more than sufficient to cover the interest ordered by the Re-Arbitration Award.

26.  Mr Shieh submits that, if the Re-Arbitration Award is set aside and the amounts apparently due to G are later found to be significantly less than RMB 660 million by another tribunal, there is a real risk that any monies paid out to G now will not be recoverable. In support, Mr Shieh relies on evidence that G has been identified as a “fugitive” in mainland China and is impecunious. For instance, G is apparently being sought by the Economic Investigation Corps of the Department of Public Security of Shuangyashan City, Heilongjiang Province for “bill fraud”. There is also evidence that G may be liable for unpaid debts of over RMB 350 million. It further appears that G’s present whereabouts are unknown.

27.  G has not filed evidence in these proceedings to rebut the matters to which I have just referred. Nonetheless, I am conscious that the details provided of G’s “fugitive” status are at best sketchy. Particulars of the debts which he is said to be evading are likewise sparse. I bear in mind that the RMB 660 million plus adjudged to be due from X to G under the Enforcement Order exceeds the debts of G totalling over RMB 350 million plus mentioned in these proceedings. I also note that the Original Award found that X had defrauded G of substantial sums. The RMB 660 million plus payable to G under the Original and Re-Arbitration Awards and the Enforcement Order is supposed to constitute damages for X’s fraud. Thus, I cannot rule out the possibility that G’s present “impecuniosity” has been caused by X’s fraud and the withholding of sums found due to him may have led to his incurring substantial debts which he is now unable to pay.

28.  In the circumstances, I think that the best that I can say in the absence of rebuttal evidence from G is that, if matters turn in X’s favour, there is some likelihood that G will not reimburse any excess monies released to him. That consideration supports a stay, especially a short one of one or two months, pending the outcome of the setting aside proceedings in Beijing.

29.  I am, however, concerned by a significant countervailing factor against the grant of any stay that lasts beyond a negative decision by Mimmie Chan J on X’s leave to appeal application. Mr Lam has drawn my attention to the hard reality that, if Mimmie Chan J decides against the grant of leave to appeal, that would in practical terms be the end of the line for X.

30.  This is because Arbitration Ordinance (Cap 609) Section 84 provides:

Enforcement of arbitral awards

(1)  Subject to section 26(2), an award, whether made in or outside Hong Kong, in arbitral proceedings by an arbitral tribunal is enforceable in the same manner as a judgment of the Court that has the same effect, but only with the leave of the Court.

(2)  If leave is granted under subsection (1), the Court may enter judgment in terms of the award.

(3)  The leave of the Court is required for any appeal from a decision of the Court to grant or refuse leave to enforce an award under subsection (1).

The expression “Court” in section 84 is defined in AO section 2 to mean the “Court of First Instance of the High Court”. Therefore, if Mimmie Chan J refuses leave to appeal, there would be no further recourse against the carrying out of the Enforcement Order. In those premises, any stay that I grant should not last beyond a decision by Mimmie Chan J refusing leave to appeal out of time against the Enforcement Order. Mr Lam has fairly drawn my attention to the fact that it may theoretically still be possible to apply to the Court of Appeal for leave to appeal against the Enforcement Order under the inherent jurisdiction. But, given the clear wording of AO section 84(3), such possibility (if it exists) would only be in the most exceptional of circumstances. As far as I can see, there is nothing here that can be characterised as exceptional.

31.  Balancing the factors favouring the grant of a stay and the significant countervailing factor just identified, I should grant a stay of the Enforcement Order pending:

(1)  the earlier of:

(a)  the outcome of the current setting aside proceedings relating to the Re-Arbitration Award before the Beijing Court, and

(b)  a dismissal by this court of X’s application for leave to appeal against the Enforcement Order, or

(2)  any further order of this court.

IV.  CONCLUSION

32.  There will be a stay as set out in [31] above.

33.  I shall now hear the parties on costs and consequential orders