S v. G

CAMP 96/2021

[2022] HKCA 383

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 96 OF 2021

(ON AN INTENDED APPEAL FROM HCCT NO 46 OF 2020)

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J U D G M E N T

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Hon Au JA (giving the Judgment of the Court):

A. INTRODUCTION

1.  This is the respondent (“G”)’s renewed application for leave to appeal from the decision (“the Decision”) of Mimmie Chan J (“the Judge”) dated 2 February 2021 ([2021] HKCFI 263).

2.  By way of the Decision, the Judge dismissed G’s application for stay of enforcement of a Mainland arbitral award obtained by the applicant (“S”) against G dated 3 July 2020 (“the S Award”).  Leave to appeal against the Decision was refused by the Judge on 16 March 2021 ([2021] HKCFI 673).

3.  After reviewing the parties’ respective written submissions, we are of the view that it is proper to dispose of this application on paper pursuant to Order 59, rule 2A(5) of the Rules of the High Court (Cap 4A) (“the RHC”).  This is our decision.

B.   BACKGROUND

4.  The factual background of this case has been set out in detail at [1] ‑ [14] of the Decision and need not be repeated here.  For present purposes, we highlight the following.

5.  The parties entered into a cooperation agreement dated 20 July 2017 (“the 17 Agreement”) whereby G was appointed as the exclusive distributor of S’s products on the Mainland.  The 17 Agreement was subsequently replaced by a new agreement dated 1 October 2018 (“the 18 Agreement”).  Disputes subsequently arose between the parties which eventually led to two sets of arbitrations in April 2019 and two separate arbitral awards in July 2020 being made by the Arbitral Tribunal in the Mainland.

6.  In August 2019, S obtained a freezing injunction on the Mainland (“the Mainland Freezing Order”), whereby funds in G’s bank account in Ningbo, with a balance of USD469,248.56 (around EUR400,000), were frozen by the Hangzhou Court. This was an order for preservation of assets.

7.  In the arbitration commenced by G (“the G Arbitration”), the Arbitral Tribunal ordered, inter alia, that S was in breach of the 18 Agreement and should continue to perform its obligations under the 18 Agreement (“the Specific Performance Order”); and that S should pay G various sums adding up to approximately EUR510,000, which included a total sum of RMB1,181,664.95 and USD161,211.03 in respect of marketing costs incurred during the period of the parties’ cooperation (“the Marketing Costs Order”).  It was also ordered that S should provide EUR890,833.27 worth of sample products to G, or pay the equivalent amount to G (“the Alternative Relief Order”).

8.  In the arbitration commenced by S (“the S Arbitration”), the Arbitral Tribunal ordered, inter alia, that G should pay S a sum equivalent to EUR1,762,360.70 representing the overdue payment for S’s products supplied under the 18 Agreement; together with the corresponding interest thereon and the costs of the arbitration.  The total amount added up to approximately EUR1.8m.

9.  On 4 September 2020, leave for enforcement of the S Award was granted to S by the Judge (“S Enforcement Order”).  S subsequently served a statutory demand on G on 23 September 2020 in respect of the total sum due under the S Award.  This led to an application by G for an injunction to restrain S from presenting a winding up petition against G, which was eventually resolved by S undertaking not to present any winding up petition for the amount due under the S Award and G making payment into Court of the sum of USD470,000 (approximately EUR400,000) (“WUP Injunction Payment”), pending the adjourned hearing of the injunction application in the Companies Court on 18 February 2021.

10.  Subsequently in September 2020, G issued a new request for CIETAC arbitration against S (“the New Arbitration”), seeking, inter alia, damages of RMB59,439,836.97 (approximately EUR7.5m) (“Unliquidated Damages Claim”) in respect of S’s breach of clause VII 5 of the 18 Agreement (“the Inventory Clause”).

11.  On 22 September 2020, G applied by summons to stay the S Enforcement Order (“the Stay Application”) pending the final resolution of (a) G’s application for leave to enforce the G award; and / or (b) the New Arbitration.

12.  On 25 September 2020, the Judge granted leave to enforce the G Award (“the G Enforcement Order”).

13.  As mentioned above, the Judge heard G’s stay application on 5 November 2020 and handed down the Decision on 2 February 2021.  To complete the chronology:

(1)  On 10 November 2020, S applied to set aside the G Enforcement Order (“the Set Aside Application”).  This was however refused by the Judge on 24 May 2021 ([2021] HKCFI 1461).

(2)  On 12 March 2021, Harris J granted the injunction sought by G enjoining S from presenting a petition for winding-up of G on the grounds of insolvency ([2021] HKCFI 568).]

C.   THE STAY APPLICATION AND THE DECISION

14.  G’s claims advanced in support of the Stay Application are essentially that:

(1)  G has various cross-claims adding up to about EUR9m, which is far more than the amount claimed by S under the S Award (about EUR1.8m), which sum is also adequately secured up to about EUR800,000 by the WUP Payment and the Mainland Freezing Order (“the Cross-claims Basis”); and

(2)  On the other hand, serious prejudice will be caused to G if the enforcement of the S Award is not stayed as S may remove such payments from Hong Kong and thereby make it more difficult for G to enforce against S even if G is successful on all of its cross-claims later (“the Prejudice Basis”).

15.  In particular, under the Cross-claims Basis, G submitted that it has the following meritorious claims against S:

(1)  A costs order granted in HCMP 1154/2019 against S in favour of G.  G estimates that the likely taxed sum is to be around HKD350,000 (about EUR37,000 or no less than EUR15,000) albeit it is not yet taxed. (“the Costs Claim”)

(2)  Under the G Award, there is a monetary award of about EUR510,000. (“the G Award Monetary Claim”)

(3)  Under the Alternative Relief Order of the G Award, there is a claim of EUR890,000 as it is G’s case that S had lost the right to elect under that order to provide the equivalent worth of samples to G, as it had (a) failed to provide the same within 30 days or a reasonable time, and (b) wrongfully imposed a condition against sale in providing G with the samples thereafter.  The right of election of reliefs therefore passed to G, and G elected to have the payment of EUR890,000 instead of having the samples.  In this respect, G says its case on the interpretation of the Alternative Relief Order is well supported by its PRC law expert opinion adduced before the Judge.  (“the Sample Claim”)

(4)  The Unliquidated Damages Claim under the New Arbitration (of about EUR7.5m).  Under this claim, it is G’s case that under the Inventory Clause, it is entitled to continue to distribute and sell its remaining stock even after the termination of that agreement, which S had wrongfully prevented G from so doing.  G further says that in fact, in the G Award, the relevant Arbitral Tribunal found S to have acted in breach of the Inventory Clause, and such finding is likely to be followed by the tribunal in the New Arbitration.

16.  In the premises, G submits that it at least has a total of some EUR8.915m[1] in claims against S, which would comfortably set-off S’s sum of EUR1.8m under the S Award.

17.  In this context, G further says it will suffer real prejudice if the enforcement of the S Award is not stayed as:

(1)  S will remove the payment from Hong Kong, making it difficult for G to recover the same even if it later succeeds in its cross-clams, in particular, under the Unliquidated Damages Claim in the New Arbitration.

(2)  On the other hand, as mentioned above, in relation to S’s claim of EUR1.8m, G says S is already secured up to EUR800,000 by reason of the WUP Injunction Payment and the Mainland Freezing Order.

18.  By the Decision, the Judge rejected G’s grounds and refused the Stay Application:

(1)  The Judge considered that the Costs Claim could not properly constitute a good basis to stay the enforcement as (a) it did not constitute a legal set-off; (b) the legal proceedings in HCMP 1154/2019 and costs recoverable therein did not have any close connection with the S Award so as to form the basis of an equitable set-off or a cross-claim which justified the stay of enforcement of the S Award; (c) in any event, the amount involved was insignificant even by G’s own estimate of EUR15,000 to EUR37,000.[2]

(2)  The Judge was also not satisfied that the Sample Claim constituted a good basis to make it just and equitable to stay as (a) she was not persuaded that S was clearly bound to pay EUR890,833.27 under the G Award in light of the argument on the proper construction of the Alternative Relief Order; and (b) even if the payment under the G Award should include this sum, the aggregate did not exceed the sum due from G under the S Award.[3]

(3)  Further, by reference to the evidence placed before her and the reading of the Inventory Clause, the Judge found that the merits of the Unliquidated Damages Claim were dubious and in any event, it was clearly questionable whether that the quantum of the claim of RMB59m was exaggerated.[4]

(4)  Finally, the Judge did not accept that there was prejudice to G as claimed if a stay were not ordered.  Rather, the Judge observed that it would be unjust to compel S to wait for an award to be made in the New Arbitration, especially when it was uncertain whether the outcome of the New Arbitration would be a substantial award in G’s favour.[5]  The Judge also did not regard the existence of the Mainland Freezing Order or the WUP Injunction Payment as matters which would make the situation unjust so as warrant a stay of enforcement of the S Award.[6]

19.  By a decision dated 16 March 2021, the Judge further refused to grant leave to appeal to G ([2021] HKCFI 673) (“the Leave to Appeal Decision”).

D.  THIS APPLICATION FOR LEAVE TO APPEAL

20.  By a summons dated 29 March 2021, G reapplied for leave to appeal before this Court.  In essence, G advanced the following proposed grounds of appeal in support of its application:

(1)  The Judge erred in balancing the S Award and the G Award against each other, by excluding the EUR890,833.27 when calculating the balance between the two Awards. (“Ground 1”)

(2)  The Judge erred in finding that the Unliquidated Damages Claim under the New Arbitration did not have good prospects of success and / or was not likely to be more than the amount of the balance claimed by S under the S Award.  The Judge also erred in law in this respect in requiring the cross-claims relied on by G to give rise to an equitable set-off before they can justify a stay. (“Ground 2”)

(3)  The Judge erred in failing to give any or sufficient regard to the lack of material prejudice to S and the substantial prejudice to G if stay of enforcement was refused. (“Ground 3”)

E.   DISCUSSION

E1.    Legal Principles

21.  For the present purpose, the following relevant principles are not in dispute.

22.  It is a matter of discretion and balancing exercise for the Court to decide whether or not to grant a stay of execution.  Generally, the starting point is that a judgment creditor is entitled to enforce the judgment he has secured against the judgment debtor.  The discretion of the Court in granting stay of execution / enforcement should thus only be exercised in exceptional circumstances where an injustice would otherwise be caused, to prevent abuse, to preserve the dignity of the Court or to facilitate the administration of justice: Credit Lyonnais v SK Global Hong Kong Ltd [2003] 4 HKC 104 at [3] ‑ [8].

23.  As to leave to appeal, it is well established that the Court of Appeal will only interfere with the exercise of the judge’s discretion if he / she made errors in principle or law, or the discretion was exercised in a manner that is plainly wrong: see Baosteel Engineering & Technology Group Company Limited v China Zenith Chemical Group Limited [2019] HKCA 435 at [13] citing Lo King Yeung v Eddie Chu Hoi Dick (unreported, CAMP 18 and 19/2017, 6 November 2017) at [7].

24.  Further, this Court will only grant leave to appeal if the intended appeal has a reasonable prospect of success or there is some other reason in the interests of justice that the intended appeal should be heard.

25.  Bearing these legal principles in mind, we will now consider each proposed ground of appeal in turn.

E2.    Ground 1

26.  Under this ground, G contends that the Judge erred in excluding the Sample Claim from the balancing exercise effectively on the basis that it was not clear that the Sample Claim had strong merit.  G argued that in so concluding, the Judge failed to consider the evidence of G’s PRC law expert on G’s right of election and its right to choose samples or payment at its discretion in accordance with the 18 Agreement.  Alternatively, G contended that, even applying Hong Kong law, given S’s failure to comply with the G Award, G was in any event entitled to seek monetary payment under the Alternative Relief Order.

27.  We do not find this ground arguable.

28.  As mentioned above, whatever her view as to the strength of the Sample Claim, the Judge in any event concluded that the Sample Claim alone could not provide justification for a stay as, even taking G’s case at its highest and assuming that the sum of EUR890,833.27 was to be included in the G Award, the aggregate of the sum due from S under the G Award (which amounted to about EUR1.4m) still fell materially short of the sum due to S from G under the S Award.  See [31] of the Decision.

29.  This conclusion is unchallengeable, and thus, unless G can reasonably challenge the Judge’s conclusion in relation to the Unliquidated Damages Claim under Ground 2 and the Prejudice Basis under Ground 3, Ground 1 by itself does not assist G in its intended appeal one way or the other.

30.  We will therefore turn to look at Grounds 2 and 3.

E3.    Ground 2

31.  Under Ground 2, Ms Xu for G contends that the Judge erred in taking into account the evidence of S’s PRC law expert and had failed to pay any or sufficient regard to the evidence of G’s PRC law expert.  Counsel also contends that (a) the Judge erred in requiring that the Unliquidated Damages Claim under the New Arbitration should constitute equitable set-off as against the debt under the S Award before it could be taken into account in the balancing exercise; and (b) in any event, the Judge further erred in finding that the claims in the S Arbitration and the New Arbitration were not closely connected so as to justify a stay.  G further contends that the Judge erred in finding that the Unliquidated Damages Claim in the New Arbitration did not have good prospects of success and / or the proper quantum of claim was not likely to be more than the amount of the balance claimed by S under the S Award.

32.  First, the complaint about the Judge’s failure to take into account G’s PRC law expert evidence is clearly without basis.  It is plain from the Decision that, insofar as PRC law evidence is concerned, the Judge had considered both parties’ evidence on PRC law in considering the merits of the New Arbitration and whether the New Arbitration was a “repetitive arbitration” of the G Arbitration as contended by S.[7]

33.  Whether S or G’s PRC law evidence was to be preferred is a matter of weight for the Judge in the balancing exercising after considering the circumstances of the case, and there is no proper basis advanced by G at all to challenge that in the intended appeal. In any event, as is evident from the Decision at [34], the Judge in any event proceeded to consider the merits of the New Arbitration claims on the basis that the New Arbitration was not a “repetitive arbitration” of the G Arbitration.

34.  Second, the complaint about the Judge’s conclusion that the Unliquidated Damages Claim did not constitute in law an equitable set-off is concerned is similarly misplaced.  As noted by the Judge, both parties in substance submitted that as matter of principle, for considering whether there should be a stay of execution of a judgment by reason of a cross‑claim, it must be established that there must be some reasons to show that it would be manifestly unjust and unfair to allow one to be enforced without regard to the other.  Those reasons could include showing the extent of connection, if any, between the counterclaim to the underlying transaction of the claim (the judgment in respect of which is to be enforced).  The closer the relationship, the more force there would be in the contention that it would be manifestly unjust and unfair to allow one to be enforced without regard to the other.  See [36] ‑ [39] of the Decision, where S relied on Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938 at p950D, and G relied on Inveresk Plc v Tullis Russell Papermakers Ltd [2010] UKSC 19 at [107], [115] and [116][8].

35.  As shown in [40] and [41] of the Decision, it was on this basis that the Judge further proceeded to consider and analyse with detailed reasons the evidence as to whether there was such a close relationship between the complained of transactions underlying the Unliquidated Damages Claim and the impugned transactions underlying S’s claim under the S Award, which would of itself make it manifestly unjust and unfair not to grant a stay.  She concluded that there was not.  This conclusion was not premised on and had nothing to do with whether or not the Unliquidated Damages Claim constituted an equitable set-off.

36.  The Judge then further considered, again based on the available evidence, the merits of the Unliquidated Damages Claim and concluded the merits of the underlying claim as well as the amount claimed to be dubious.  In so doing, the Judge again had carefully analysed the relevant evidence in detail.  See: [43] - [47] of the Decision.

37.  After taking into account the nature of the relationship between S’s claim and the Unliquidated Damages Claim (which the Judge found not to be closely connected), the merits of the Unliquidated Damages (which the Judge found to be dubious), and the respective prejudice, if any, caused to the parties if a stay was not granted[9], the Judge then concluded that it would not be fair and unjust in all the circumstances not to stay the execution of the S Award pending the determination of the Unliquidated Damages Claim under the New Arbitration.  See: [58] of the Decision.

38.  In the premises, in our view, the Judge had not committed any error of law or principle in considering this question and, based on the available evidence, it was also entirely open to her to come to the conclusion that she reached.

39.  For these reasons, Ground 2 has no merit.

E4.    Ground 3

40.  Under this ground, G contends that the Judge failed to give any or any sufficient regard to the lack of real or material prejudice to S given the short timetable for the New Arbitration; the relatively small amount of the difference in monetary worth between the S Award and the G Award as compared to the amount of the claims in the New Arbitration; and that S had already been adequately secured given the Mainland Freezing Order and the WUP Injunction Payment.  On the contrary, there would be substantial prejudice to G if a stay was not granted as S would remove from the jurisdiction any payments made by G under the S Award and G would be prejudiced if S was allowed to enforce the S Award pending the Set Aside Application.

41.  What G now purports to do under this ground is to effectively rerun the same arguments which had already been duly considered and rejected by the Judge for the reasons set out in the Decision at [48] ‑ [57].  It is well established that this Court will not entertain an appeal simply because an applicant wishes to regurgitate arguments already considered in the Court below in the hope that this Court may come to a different assessment of the situation: Symphony Partners Ltd v Fullerton Bay Investment Ltd [2018] 4 HKLRD 264 at [33].  It is incumbent on G to show that the Judge exercised her discretion under a mistake of law or disregard of principle, or under a misunderstanding of the evidence, or had taken into account irrelevant matters, or failed to take into account relevant ones, or that the conclusion reached in the exercise of discretion was outside the generous ambit within which reasonable disagreement is possible: Trenus Oceanway Ltd v Richland International Limited & Another [2022] HKCA 200 at [6].

42.  In assessing the risk of prejudice, the Judge had already considered, assessed and balanced in detail all the arguments raised by G and rejected the same.  The Judge had given due consideration to the estimate of the timetable for the New Arbitration and whether it would be just and equitable to compel S to wait until the award was rendered in the New Arbitration.  The Judge had also considered in detail whether there would be prejudice to G by reason of the fact that it might have to seek recovery and enforcement of the G Award against S in Spain; and whether the existence of the Mainland Freezing Order or the WUP Injunction Payment would make it unjust to warrant a stay of enforcement of the S Award.  These were all relevant factors that the Judge was entitled to take into account when exercising her discretion and the Judge did not err in principle nor was she plainly wrong in reaching her decision.

43.  Further, as the Set Aside Application had been refused by the Judge on 24 May 2020 and leave was already granted to enforce the G Award, it was open to G to enforce the G Award against S at any time.  G’s contention that it would be severely prejudiced if S was allowed to enforce the S Award against G whilst the Set Aside Application was pending thus becomes wholly academic and naturally falls away.

44.  Accordingly, Ground 3 is also without merit.

F.   CONCLUSION

45.  For the above reasons, the intended grounds of appeal are without any merit.  There is no prospect of success in the intended appeal.  We also do not see any other reason in the interests of justice that the intended appeal should be heard.

46.  Accordingly, we refuse to grant leave to appeal and G’s Summons dated 29 March 2021 is dismissed.  We further order that G do pay S the costs of this application.

47.  In this respect, S submitted a Statement of Costs dated 3 May 2021 claiming a total sum of HKD58,240.

48.  Having considered the Statement of Costs filed by the parties, we consider that the costs claimed by S are largely reasonable and will allow them in full.[10]  We therefore order G to pay S’s costs, summarily assessed at HKD58,240.

49.  Given that this application is without any merit, we further make an order pursuant to Order 59, rule 2A(8) of the RHC that no party may request that this determination be reconsidered at an oral hearing inter partes.