ISRAEL SORIN (IZZY) SHOHAT v. BALRAM CHAINRAI

HCCT 9/2016

[2021] HKCFI 655

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 9 OF 2016

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D E C I S I O N

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1.  On 15 September 2016, this Court granted leave to the Applicant to enforce an arbitral award in his favour of 31 October 2013 (“Award”) (“Enforcement Order”). The Award is for the Respondent’s payment to the Applicant of NIS 16,148,779 (“Principal”), interest on the Principal and its linkage to the Israeli consumer price index as of 20 June 2008 until full payment (“Interest and Linkage”), arbitration costs and fees and interest thereon.

2.  By his summons issued on 7 January 2021 (“Summons”), the Respondent applied for various orders including, first, a stay of execution of the Enforcement Order pending and before the conclusion of HCA 1462 of 2014 (“HCA 1462”) which had been brought by the Respondent against the Applicant on 31 July 2014 for a sum of NIS 29.5 million (equivalent to approximately HK$30.3 million), and for the setting aside of orders made by the Court on 7 July 2020 and 30 November 2020 (“Examination Orders”) in relation to the oral examination of the Respondent.  By Order made on 25 January 2021, this Court dismissed the application made by paragraphs 1 and 2 of the Summons, and directed that the application for interim stay of the Examination Orders to be determined on paper.

3.  First and foremost, the Award is valid, final and binding, for which leave has been granted since September 2016 for it to be enforced as a judgment of this Court.

4.  Second, the Examination Orders are for the oral examination of the Respondent as a debtor under the final and binding Award, as part of the enforcement of the Award in Hong Kong.  The Examination Orders are not contempt proceedings, and there is no justification to equate them as such, when the Respondent argued that the Examination Orders were the preliminary steps or prelude to contempt proceedings, which contempt proceedings should be a remedy of last resort.  The Examination Orders are distinct from and different in nature to contempt proceedings, and neither the Court nor the Applicant should presume that the Respondent would act in breach of the Court orders or be in contempt before he is even examined.

5.  There is dispute as to the Interest and Linkage payable on the Principal, when the Applicant by way of enforcement of the Award served a Statutory Demand on the Respondent, and in proceedings instituted by the Respondent in 2017 to set aside the Statutory Demand (“HCSD 14”), directions were made by the Court for the parties’ filing of expert evidence on the calculation and ascertainment of the Interest and Linkage.  The Statutory Demand has since been withdrawn by the Applicant, and HCSD 14 has not been pursued.

6.  There was no application ever made to set aside the Enforcement Order.  Unless and until the Enforcement Order is set aside, or an order is made by the Court to stay execution of the Award, the Applicant is and was at all material times entitled to take steps to enforce the Award and to seek recovery of the amounts due and payable under the Award.  As a judgment creditor, the Applicant is entitled to the fruits of the Award.  Whilst the Court has the discretion to order a stay of execution/enforcement of an award or judgment in “suitable cases”, such power will be exercised only when justice must require it, and there must be “very special circumstances” (Credit Lyonnais v SK Global Hong Kong Ltd [2003] 4 HKC 104).  In his judgment in Credit Lyonnais, Ma CJHC (as he then was) explained:

“By the term ‘suitable cases’ are meant those situations in which the inherent jurisdiction of the court is required to be exercised so as to avoid injustice, prevent abuse, preserve the dignity of the court or to facilitate the administration of justice.”

7.  It is pertinent that on 16 November 2016, the Respondent had in fact applied for a stay of execution of the Enforcement Order pending the outcome of his claim in HCA 1462.  By Order of the Court made on 1 December 2016, the Respondent was ordered to make payment into court of HK$33.5 million (the approximate Hong Kong dollar equivalent of the Principal), as a condition for an interim stay.  On 26 May 2017, Chow J dismissed the application for stay of execution, and the payment in court was released to the Applicant, in partial satisfaction of the Principal payable under the Award.  As the Applicant submitted, there is no evidence of any change of circumstances since the decision of Chow J in May 2017.

8.  Against the background of this case and having considered the matters relied upon by the Respondent in support of the Summons, I refuse to grant the interim stay.

9.  To set aside the Examination Orders, the Respondent relies on what he claims to be the Applicant’s failure to make full and frank disclosure in his affirmation filed in support of the ex parte application for the said orders.  In this regard, the Respondent claims that the Applicant had failed: (1) to refer to passages in the judgment of Lisa Wong J in HCA 1462 (“Judgment”), when Her Ladyship dismissed an application to strike out the action, which the Respondent claims supports his position; and (2) to disclose that directions had been given in HCSD 14 for the service of expert reports on the ascertainment of Interest and Linkage payable under the Award, and that a joint expert report had been completed but that the expert of the Applicant had failed to sign it in time.  The Respondent further claims that there was reprehensible and unexplained delay in the service of the Examination Order made on 7 July 2020.

10.  The Respondent claims that he has good prospects to set aside the Examination Orders on the above grounds for material non-disclosure, but I reject such contention.

11.  The matters which the Respondent claims had been withheld from the Court were not material to the ex parte application made in April 2020 for the Examination Orders.  That application was for the grant of orders to examine the Respondent debtor as to his assets, as part of the enforcement of the Award.  It was not an application for stay of execution or enforcement, which had been dismissed in May 2017 and there was no stay in force.  The Court in dealing with the ex parte application did not have to determine whether the Award is valid, or if the Applicant was entitled to the sums which were due under the Award.  Whether the Interest and Linkage was to be assessed by the experts in HCSD 14, pursuant to directions of the Court for exchange of expert evidence and for filing of a joint expert report which was not signed by the Applicant’s expert, was simply irrelevant.  As Counsel for the Applicant emphasized, the Statutory Demand was withdrawn and the proceedings to set it aside came to an end in January 2018, long before the application for the Examination Orders was made in April 2020.

12.  The Judgment on the merits of the Applicant’s application to strike out HCA 1462, and on the time when the Respondent had knowledge of the liquidation of Nachushtan Investment Company Limited, is likewise irrelevant to whether the Examination Orders should be made.  In any event, the Respondent has failed to explain what parts of the Judgment were relevant, how they were material to the Court’s determination and why they should have been disclosed to the Court at the ex parte application for the Examination Orders.

13.  As for the alleged delay in the service of the Examination Order of 7 July 2020, for the directions hearing on 30 November 2020, there is again little merit in the point.  The Examination Order was made on 7 July 2020.  A second draft of the relevant order was lodged in court on 14 July 2020, and following requisitions made by the Master on 5 August 2020, a further draft was produced on 12 August 2020, which was not approved until 7 October 2020 when the order was sealed.  There were then unsuccessful attempts made to effect personal service of the order on the Respondent, until arrangements were made with his lawyers and service was accepted on the Respondent’s behalf on 20 November 2020.  The call-over hearing was on 30 November 2020, which was duly attended by the Respondent’s lawyers, leading to the making of the order on the same day, when the examination was adjourned to a date to be fixed with directions for the production of documents.  I fail to see, and the Respondent has failed to allude to, any prejudice that he has sustained as a result of any delay.

14.  As for the claim that the Applicant has taken steps to enforce the Award and obtained injunctions or freezing orders over the Respondent’s property in Israel, the short point is that the Applicant is entitled to take such steps as may be open to him to enforce the Award in Hong Kong and elsewhere, unless and until the Award is set aside, or enforcement of the same is refused by the enforcement court, or a stay of enforcement is made by a competent court.  In the absence of such orders, there is nothing to prevent the Applicant from seeking the Examination Orders.  Nor is there any obligation on his part to take other steps before enforcing the Award by the Examination Orders in Hong Kong.  The Applicant has pointed out that no recovery has been made under the Award notwithstanding the freezing orders in Israel.

15.  HCA 1462 was commenced in July 2014, but on the evidence, pleadings have only just been closed.  From what is apparent as to the progress of those proceedings, they are unlikely to be concluded in the immediate future and there is nothing in the evidence adduced at this stage to justify the grant of a stay to avoid any prejudice which may be caused to the Respondent in the interim and before the outcome of HCA 1462 is known - even if HCA 1462 may be considered as a cross-claim.  As the Applicant emphasized, even on the Respondent’s case in HCSD 14, and according to the evidence of his expert as to the computation of the Interest and Linkage in that case, a sum of NIS 4,443,714 (which is roughly equivalent to HK $10.6 million) was assessed to be payable as at 11 May 2017 (and a more significant sum would have accrued by now).  On the evidence of the Applicant’s expert in HCSD 14, the Interest and Linkage was assessed at NIS 14,054,508.36, equivalent to HK$30.3 million, as at 29 January 2020.  These are substantial sums due and still outstanding from the Respondent under the Award, and the Applicant has already been denied the fruits of the Award since 2013.  In my view, it would be unjust to compel the Applicant to wait another 12 months, and likely longer, to obtain recovery when he currently has a valid, regular and enforceable Award in his favour, and when it is uncertain what the outcome of HCA 1462 would be, and whether there would be a judgment in favour of the Respondent.

16.  To stay the Examination Orders is effectively to stay enforcement of the Award.  By reason of all the above matters, I fail to see how it can be said that it would be just and equitable or that the presence of manifest injustice calls for enforcement of the Award to be stayed, and on that or any other basis to stay the Examination Orders.

17.  The order nisi is that the costs of the application (including costs reserved) for the interim stay are to be paid by the Respondent, with Certificate for Counsel.