ISRAEL SORIN (IZZY) SHOHAT v. BALRAM CHAINRAI

HCCT 9/2016

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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INTRODUCTION

1. I have before me the following two summonses taken out by the respondent (“the Award Debtor”):-

(1)  a summons dated 16 November 2016 seeking a stay of execution of the order of Madam Justice Mimmie Chan dated 15 September 2016 (“the Enforcement Order”) granting leave to the applicant (“the Award Creditor”) to enforce an arbitration award and an arbitration award on costs both dated 31 October 2013 (collectively “the Award”) made by an arbitrator, Dr Israel Leshern (“the Arbitrator”), in Israel, pending the outcome of the Award Debtor’s claim against the Award Creditor in HCA 1462 of 2014 (“the High Court Action”); and

(2)  a second summons also dated 16 November 2016 seeking leave to appeal against an earlier order made by me on 2 November 2016 refusing to extend the time for the Award Debtor to apply to set aside the Enforcement Order.

2. As indicated in the skeleton submissions of Mr Albert Yau (for the Award Debtor) dated 20 April 2017 and as confirmed by him at the hearing on 25 April 2017, the Award Debtor had decided not to pursue the second summons.

3. Accordingly, only the first summons requires the court’s determination.  Two issues arise for consideration under that summons:-

(1)  whether the court has jurisdiction to grant a stay of execution of the Enforcement Order; and

(2)  if the answer to (1) is “yes”, whether the execution of the Enforcement Order should be stayed in the circumstances of this case.

Basic facts

4. The following brief summary of facts is taken largely from the Award Debtor’s statement of claim in the High Court Action and the skeleton argument on behalf of the Award Debtor dated 8 September 2016 in relation to an application by the Award Creditor to strike out the Award Debtor’s claim in the High Court Action (more particularly described below).  I should make it clear, however, that these facts are not necessarily accepted by the Award Creditor.

5. The Award Debtor is a Hong Kong businessman, and the Award Creditor is an ethnic Hebrew businessman resident in Israel.  They were business partners since 1990s.

6. Since 2004, the Award Creditor started to introduce to the Award Debtor business ventures in Israel which were transacted in Hebrew.  According to the Award Debtor, he relied on the local business knowledge and investment advice given by the Award Creditor in deciding whether to enter into those business ventures, and if so, upon what terms, and he reposed trust and confidence in the Award Creditor.

7. One of such business ventures introduced by the Award Creditor related to a number of loans totalling NIS 29.5 million (collectively “the Loan”) advanced by the Award Debtor to a company called Kushnir Family (Holdings) Ltd (“the Borrower”) between June 2005 and February 2006 for its purchase of a 35% shareholding (“the Shares”) in Nachushtan Investment Company Limited (“the Company”).  The Loan was secured by a pledge of the Shares by the Borrower to the Award Debtor (“the Share Pledge”).

8. In December 2007, the Award Creditor commenced a legal action in Israel (“the Israeli Action”) against the Award Debtor for a declaration that he (the Award Creditor) was entitled to a half interest in the Loan and a lien of half of the Shares under the Share Pledge.  The Award Debtor counterclaimed against the Award Creditor for his breach of fiduciary duties as a trustee of the Award Debtor’s funds and investments regarding other joint ventures between them.

9. In May 2011, the Israeli Action was converted into an arbitration (“the Arbitration”) by consent.  The hearing of the Arbitration took place in August and December 2012.  On 31 October 2013, the Arbitrator delivered the Award, which upheld the Award Creditor’s claim and dismissed the Award Debtor’s counterclaim.  The Award Debtor’s subsequent appeals against the Award were dismissed by the Israeli courts.  I have been told by Mr Russell Coleman SC (for the Award Creditor) that the total amount due to the Award Creditor under the Award comes to about NIS25.6 million (equivalent to about HK$54.6 million).

10. According to the Award Debtor, it was only after November 2013 that he discovered, from his Israeli lawyers, that the Shares were valueless, and that the Award Creditor had concealed the true financial position of the Company from him at all relevant times.  In the High Court Action commenced by the Award Debtor against (inter alia) the Award Creditor (as the 3^rd defendant in that action) on 31 July 2014, the Award Debtor claims against the Award Creditor for damages for negligence and breach of fiduciary duties, including the principal sum of the Loan in the amount of NIS29.5 million.

11. On 2 February 2016, the Award Creditor applied to the Hong Kong court, pursuant to Section 87 of the Arbitration Ordinance, Cap 609 (“the Ordinance”) and Order 73, rule 10(1) of the Rules of the High Court, Cap 4A (“the RHC”), to enforce the Award as a judgment of the court.

12. On 3 May 2016, the Award Creditor applied to strike out the High Court Action against him on (inter alia) the ground it was an abuse of process for the Award Debtor to seek to re-litigate the “same issues and subject matter” in the Arbitration.  The strike out application was heard by Recorder L Wong SC (as she then was) on 12 September 2016 and 22 February 2017.  I am given to understand that the court’s decision on the Award Creditor’s strike out application is currently pending.

13. In the meantime, on 15 September 2016, Madam Justice Mimmie Chan made the Enforcement Order granting leave to the Award Creditor to enforce the Award in the same manner as a judgment of the court.  The Enforcement Order provided that the Award Debtor might, within 14 days after the service thereof on him, apply to set aside the Enforcement Order.  This the Award Debtor failed to do. As earlier mentioned, the Award Debtor’s subsequent application for an extension of time to apply to set aside the Enforcement Order was dismissed by me on 2 November 2016.  In view of the Award Debtor’s decision not to pursue his proposed appeal against my decision, the Enforcement Order must now be regarded as being valid and binding on the Award Debtor.

Court has jurisdiction to stay the execution of the Enforcement Order

14. The effect of the Enforcement Order is to enable the Award to be enforced in Hong Kong in the same manner as a judgment of the court.  It is not in dispute that the court has a discretion to grant a stay of execution of an ordinary judgment where the circumstances would justify execution of the judgment being stayed.  As a matter of principle, I am unable to see why the Enforcement Order should be accorded a higher status than an ordinary judgment of the court, or why the court would lack jurisdiction, in the strict sense, to stay the execution of the Enforcement Order in an appropriate case.  There are some conflicting English authorities at first instance on the issue of the existence of the court’s jurisdiction to stay the execution of an arbitration award which has been permitted by the court to be enforced as a judgment of the court, but none of them is conclusive or binding on me (see Far Eastern Shipping Co v AKP Sovcomflot [1995] 1 Lloyd’s Rep 520 and Air India v Caribjet [2002] 1 Lloyd’s Rep 314 upholding or implicitly recognising the existence of the court’s jurisdiction, and Arab Business Consortium International Finance and Investment Co v Banque Franco-Tunisienne [1996] 1 Lloyd’s Rep 485 to the contrary).

15. Mr Coleman submits that without a proper application to set aside the Enforcement Order under Order 73, rule 10(6) of the RHC, an application for stay is misconceived.  I do not accept this submission.  It seems to me that “setting aside” and “stay” are two different matters, although I can see that a failure to apply to set aside or a failed application to set aside can be relevant to the question of whether the court should grant a stay of execution.

16. Mr Coleman further argues that the whole ethos of enforcement of arbitration awards is that they should be readily enforced, and if the award itself is not under challenge, there is simply no basis for delaying enforcement.  I accept that the general policy of the law is to facilitate enforcement of arbitration awards.  That is given effect by the rules which enable an award creditor to obtain the court’s leave to enforce the award as a judgment of the court by an inexpensive and expeditious procedure, and the limited and narrow grounds on which enforcement of arbitration awards may be refused by the court.  However, once the court has made an ordering granting leave to permit an arbitration award to enforced as a judgment of the court, the question of whether execution of the order should be stayed is a separate matter.  The arbitration award is given the same effect as a judgment and its enforcement must, in my view, be subject to the same regime governing the stay of execution of an ordinary judgment.

17. In all, I conclude that the court has jurisdiction to grant a stay of execution of the Enforcement Order.

Execution of the enforcement order should not be stayed

18. In the absence of any specific statutory provision listing out the factors which are relevant and should be taken into account when deciding whether to stay the execution of an order granting leave to enforce an arbitration award in the same manner as a judgment of the court, the matter resolves itself into one of general principle.  In paragraph 53 of his judgment in Air India v Caribjet, Judge Chambers QC referred to the following factors mentioned by Bingham LJ (as he then was) in Burnett v Francis Industries plc [1987] 1 WLR 802 as being potentially relevant for the present purpose:-

(1)  nature of the claim (the subject matter of the arbitration award) - although the judge said he was a little unsure as to the significance of this factor;

(2)  strength of the cross-claim;

(3)  the size of the claim relative to the size of the cross-claim;

(4)  any delay before the cross-claim will be disposed of;

(5)  the extent of prejudice to the award creditor if it is denied the fruits of its award/judgment until the cross-claim is determined; and

(6)  the risk of prejudice to the award debtor if it makes payment under the award/judgment.

19. In the present case, Mr Yau made it clear at the hearing that he was not advancing any contention that the Award Debtor had a strong claim, or such a strong claim, against the Award Creditor in the High Court Action that the merits of the claim alone would justify imposing a stay of execution of the Enforcement Order pending the resolution of that claim.  On the basis of the materials before me, I consider that the Award Debtor has at most an arguable claim against the Award Creditor, assuming that the strike out application will be decided in his favour (on which I express no view).

20. It is relevant that, notwithstanding the fact that the High Court Action was commenced in July 2014, the defence has not yet been filed.  Thus, even if the Award Debtor should succeed in resisting the strike out application, it will be a long time before the High Court Action can be finally disposed of.

21. On behalf of the Award Debtor, Mr Yau strongly relies on the fact that the Award Debtor has paid the sum of NIS16.59 million (equivalent to about HK$33.5 million) into court pursuant to paragraph 1 of the order of Madam Justice Mimmie Chan dated 1 December 2016 as a condition for granting an interim stay of execution of the Enforcement Order pending the determination of the two summonses mentioned at the beginning of this decision.

22. He also refers to and relies on the fact that the Award Debtor will probably have to enforce any judgment that he may obtain in the High Court Action against the Award Creditor in a foreign jurisdiction (ie Israel).

23. In deciding whether to grant a stay of execution of the Enforcement Order in the present case, I consider the following factors to be most significant:-

(1)  the Award Creditor has now got an unimpeachable award against the Award Debtor for a substantial sum of money;

(2)  the Award Debtor has at most an arguable claim against the Award Creditor; and

(3)  there will be significant delay before the Award Debtor’s action against the Award Creditor can finally be disposed of, assuming that it can survive the strike out application.

24. The above factors persuade me to refuse to grant the stay of execution sought by the Award Debtor, notwithstanding the matters relied upon by Mr Yau in support of the stay application (in particular, those mentioned in paragraphs 21 and 22 above).

25. In passing, I should mention that Mr Yau made, on behalf of the Award Debtor, an offer in open court to the Award Creditor that the Award Debtor (i) would be agreeable to the interim stay of execution being lifted and, I understand, (ii) would not pursue the stay application if the Award Creditor was prepared to offer an appropriate security to the value of the amount paid into court by the Award Debtor so as to facilitate satisfaction of any judgment that he may eventually obtain against the Award Creditor in the High Court Action.  This offer was rejected by Mr Coleman on behalf of the Award Creditor.  I do not consider this offer to be relevant to the question that I have to decide, namely, whether execution of the Enforcement Order ought to be stayed pending the outcome of the High Court Action.

Disposition

26. The Award Debtor’s two summonses both dated 16 November 2016 are dismissed.

27. I also order the Award Debtor to shall pay the Award Creditor’s costs of the two summonses, including all costs previously reserved, to be taxed on an indemnity basis (in accordance with the court’s usual practice regarding unsuccessful applications to challenge the enforcement of arbitration awards) if not agreed, with certificate for one counsel.

28. Lastly, it remains for me to thank counsel for their assistance rendered to the court.