KARAHA BODAS CO L.L.C. v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

HCCT28/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.28 OF 2002

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D E C I S I O N

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1. This is an application by the defendant for a stay of all proceedings pending the outcome of their appeal against a decision of this court. This court's decision was a refusal of their application to resist the enforcement of an arbitral award in Hong Kong. The award had been made in Geneva in December 2000 for a sum of approximately US$270 million.

2. The legal principles governing the granting of a stay in such circumstances need not be considered in any detail due to the sensible approach adopted by the plaintiff to this application. One of the factors to be considered is whether or not there are arguable grounds of appeal. The enforcement proceedings involved five days of legal argument and covered a variety of legal, some complex, issues. Mr John Bleach, SC for the plaintiff has narrowed the issues for this court to consider by making the following concession. He said "For the purposes of this application only we are prepared to concede that the appeal is, at best, just arguable". From this, the plaintiff's position became that a stay could be granted provided it was conditional upon a substantial sum of money being paid into court.

3. Mr Charles Manzoni, for the defendant, submitted that the stay should be granted and should be unconditional. In a sentence, his argument was that such assets that there are in Hong Kong, namely shares to the minimum value of US$36.7 million, were already tied up by garnishee orders and an injunction and therefore no further conditions need be placed on the defendant. Thus, in so far as the Hong Kong assets are concerned, the plaintiff's position is already secured. He submits that it would be unjust to force the defendant to bring more assets into the jurisdiction against which enforcement may be made if the appeal is unsuccessful.

4. Frankly, I see no injustice in this at all. The more pertinent facts are as follows. The plaintiff won an award for US$270 million 30 months ago. It was enforced as a judgment in Hong Kong 15 months ago. Prima facie the plaintiff is entitled to the fruits of the judgment. The assets in Hong Kong, at their lowest valuation, represent approximately 14% of the award. The assets are shares which themselves are the subject of litigation and, like any shares, are vulnerable to fluctuations in value. It should also be weighed in the balance that the defendant is a multi-billion dollar corporation who would have no difficulty in complying with an order for a payment into court.

5. Factors such as the above persuade this court that, far from being unjust, ordering a payment into court as a condition for staying the enforcement order, would be both proper and just. Put another way, a stay, in the circumstances of this case, should come at a price.

6. The question which then arises is, how much? Mr Manzoni submits that if, contrary to his submission, a payment in has to be made, it should not exceed the minimum value of the existing Hong Kong assets, namely US$36.7 million. In my judgment, the value of the existing assets is only of passing relevance to the calculation of a suitable amount. Of more relevance, is the value of the award, the financial strength of the defendant and the merits of the appeal. (As the appeal is from this court any further comment on the merits would be inappropriate.) This is not to say that the value of the assets in Hong Kong is of no relevance. It would, for example, be wrong to order a payment in of the whole of the award if the assets within the jurisdiction were relatively small, say, in the region of 10%. It is a question of degree and balance.

7. The value of the assets provide a marker, but do not create a cap or limit on the quantum of the payment in. The payment in should not be out of proportion to the Hong Kong assets but, depending on the circumstances, it may be greater than their value.

8. Here, the true value of the Hong Kong assets is far from certain. There is a wide gulf between their stated minimum and maximum values, namely between US$36.7 million and US$65.2 million. Their value may go down in the future. The former is 14% of the award, the latter is about 24% of the award. With these sort of statistics in mind, it seems reasonable to me to order the defendant to pay 20% of the award into court as a condition of stay. I consider there to be no hardship or injustice to the defendant. It will not stifle their appeal; they have the ability to pay. If they ultimately lose the appeal and the award becomes enforceable, a sum equivalent to approximately one third of the awarded sum will be in Hong Kong. So be it. That is the natural consequence of these proceedings. If, on the other hand, they ultimately succeed on appeal, the money in court can be returned.

9. I therefore grant a stay of these proceedings in the terms of paragraphs 1 to 4 inclusive of the defendant's summons dated 17 May 2003 subject to a condition that the defendant pays the sum of US$54 million into court by 5:00 p.m. 24 June 2003.