S v. G

[redacted/edited version for publication]

HCCT 46/2020

[2021] HKCFI 263

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 46 OF 2020

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Before: Hon Mimmie Chan J in Chambers

Date of Hearing: 5 November 2020

Date of Decision: 2 February 2021

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D E C I S I O N

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Background

1.The Applicant (“S”) and the Respondent (“G”) in these proceedings have been embroiled in apparently acrimonious dispute since 2018.  There have been arbitration and injunction proceedings in Hong Kong and on the Mainland, resulting in 2 arbitral awards on the Mainland, one injunction in Hong Kong, one injunction on the Mainland, winding up proceedings in Hong Kong, and now at least a further arbitration on the Mainland commenced in September 2020.

2.The wrangle arises out of a cooperation agreement made between the parties, whereby S agreed to appoint G as the exclusive distributor of S’s products on the Mainland.  The cooperation first commenced with an agreement made between the parties on 20 July 2017 (“17 Agreement”), which was replaced by a new agreement dated 1 October 2018 (“18 Agreement”), under which the territory for G’s distributorship of the S brand of products (“Products”) was extended to include the Mainland, Hong Kong, Macau, South Korea and Japan (“Territory”), for a term commencing 1 October 2018 until 31 December 2023.  Under the 18 Agreement, S authorized G as its exclusive online and off-line channel distributor for the sale of its Products in the Territory, with the exclusive use of S’s trademarks. In turn, G agreed (inter alia) to purchase a minimum quantity of the Products each year, and to pay the price for the Products in the manner and within the time set out in the 18 Agreement.  The 18 Agreement sets out other rights and obligations of the parties in connection with S’s ownership and G’s use of S’s trademarks and intellectual property rights, and S’s supply of the Products for G’s sale during the term of the 18 Agreement.  The parties agreed that any dispute between the parties arising out of or in relation to the 18 Agreement, including any dispute regarding its breach, termination or validity, shall be finally settled by arbitration on the Mainland in accordance with the CIETAC arbitration rules.

3.In April 2019, S commenced arbitration to seek payment of the price of the Products due under 2 purchase orders dated October and November 2018 which were supplied under the 18 Agreement, and for termination of the 18 Agreement (“S Arbitration”).  At the same time, G also commenced arbitration in relation to alleged breaches by S of the 17 Agreement and 18 Agreement (“G Arbitration”).  In the G Arbitration, G sought a declaration that S was in fundamental breach of the 18 Agreement, and for specific performance of the 18 Agreement.  It also claimed damages in respect of S’s late shipment or short delivery of the Products under 9 purchase orders issued under the 17 Agreement and the 18 Agreement.

4.On 3 July 2019, S commenced proceedings in Hong Kong (HCMP 969/2019) and obtained an injunction to restrain G from operating the S official flagship store (“Tmall Store”), and from publishing confidential information concerning the arbitration proceedings (“HK Injunction”). It also commenced separate proceedings in Hong Kong (HCMP 1154/2019) in August 2019 to seek a declaration that the Hong Kong courts have exclusive jurisdiction over all disputes which arise out of the 17 Agreement.

5.The HK Injunction in HCMP 969/2019 was subsequently discharged by consent in November 2019, and the action was discontinued.  HCMP 1154/2019 was subsequently dismissed in September 2020.

6.In August 2019, S obtained a freezing injunction on the Mainland (“Mainland Injunction”), whereby the funds in G’s bank account in Ningbo were frozen by the Hangzhou court.  According to the Order made by the Mainland Court, this was an order for preservation of assets, and was made prior to the date of any award in the S Arbitration.

7.In July 2020, the tribunal issued 2 separate awards in the S Arbitration and the G Arbitration.

8.By its award in the G Arbitration (“G Award”), the tribunal ordered that:

(1)  S was in breach of the 18 Agreement;

(2)  S should continue to perform its obligations under the 18 Agreement and terminate all authorisations granted to third parties in conflict with the exclusive distributorship rights granted to G under the 18 Agreement;

(3)  S should pay G a total sum equivalent to HK$4,754,153 by way of marketing costs incurred under the 17 Agreement, and the costs and fees of the arbitration;

(4)  S should provide G with EUR 890,833.27 worth of sample products, or pay the equivalent amount to G (“Alternative Relief Order”).

9.By its award in the S Arbitration, the tribunal ordered that:

(1)  G should pay S a total sum equivalent to HK$16,395,041, representing the price of the Products supplied under the 18 Agreement, interest thereon and costs of the arbitration.

10.On 21 August 2020, S applied to the Hong Kong Court to enforce the S Award.  On 4 September 2020, this Court made an order granting leave for enforcement of the S Award (“S Enforcement Order”).

11.On 22 September 2020, G applied by summons to stay the S Enforcement Order (“Stay Application”).  It also applied and obtained, on 28 September 2020, an order for leave to enforce the G Award (“G Enforcement Order”).

12.In the meantime, by way of enforcement of the S Award, S had on 23 September 2020 served a Statutory Demand on G in respect of the total sum due under the S Award.  G therefore applied on 5 October 2020 for an injunction to restrain S from issuing any petition to wind up G (“WUP Injunction Summons”).  At the first hearing of the WUP Injunction Summons, G offered to pay into court a sum of US$470,000 (equivalent to approximately EUR 400,000), as a condition for the grant of the injunction.  Ultimately, the matter was 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 US$470,000 (“WUP Injunction Payment”), being the difference between the S Award debt and what G claims to be due to it.  This was all pending the adjourned hearing of the WUP Injunction Summons in the Companies Court on 18 February 2021.

13.On 8 September 2020, G purported to issue a new request for CIETAC arbitration against S (“New Arbitration”), which request was revised on 21 September 2020.  In the New Arbitration, G sought damages of RMB 59,439,836.97 in respect of S’s breach of clause VII 5 of the 18 Agreement (“Inventory Clause”).  The Inventory Clause provides that after expiration or termination of the 18 Agreement, G was entitled to continue to sell the Products through the agreed channels, apparently until its stocks were completely depleted.  The damages were stated to include the value of inventory which had expired, and the loss of profits on sold and salable Products (calculated at a rate of discount of 31% of the original price) (“Unliquidated Damages Claim”).

14.To complete the history of the continuing dispute, S had in fact issued on 13 July 2020, after the handing down of the Awards, a fresh notice of termination of the 18 Agreement, on this occasion in reliance on what it claims to be G’s multiple breaches of the 18 Agreement, including G’s contravention of the provisions of the 18 Agreement which govern S’s ownership of and rights in its trademarks.

The Stay Application

15.In support of its application to stay enforcement of the S Award, G relies on the fact that despite the S Award for G’s payment of EUR 1,814,090.80 (which is equivalent to HK$16,395,041), G has in its favour the G Award for S’s payment of EUR 1,404,644.10 (which is roughly equivalent to HK$12,794,549.31 and includes the Alternative Relief Order, for S’s payment to G of EUR 890,833.27 in lieu of S’s provision of samples as ordered by the tribunal (“Samples Claim”).  On G’s case, the difference between these Awards is approximately EUR 400,000.

16.It was also pointed out, on behalf of G, that S was ordered by the Hong Kong Court to pay to G the costs of HCMP 1154/2019, when S’s claim for a declaration on the exclusive jurisdiction of the Hong Kong courts was dismissed.  G claims that it had incurred costs of approximately HK$500,000, and applying a 30% discount for taxation, the costs recoverable would be in the region of HK$350,000, roughly equivalent to EUR 37,650 (“Costs Claim”). According to G, it is entitled to set-off the HK$12,794,549.31 under the G Award, and the Costs Claim of HK$350,000, against the sum due under the S Award.

17.G further contends that by virtue of its Unliquidated Damages Claim of RMB 59,439,836.97 (equivalent to approximately HK$60 million) in the New Arbitration, it has a total cross-claim of EUR 9 million against S, which actually exceeds S’s entitlement of EUR 1.8 million under the S Award.

18.G highlights the fact that in any event, S is adequately secured in respect of the S Award.  It has the WUP Injunction Payment equivalent to EUR 400,000 which has been paid into court.  Further, under the Mainland Injunction, S has frozen G’s funds of US$469,248.56 (equivalent to approximately EUR 400,000) in its bank account on the Mainland.  According to G, S is already secured in the total sum of EUR 800,000 in respect of the S Award of EUR 1.8 million, or the difference of EUR400,000 after deducting the G Award sum.

19.On the above bases, G argued that enforcement of the S Award should be stayed pending the full determination of the New Arbitration.  G emphasized that the tribunal already found, under the G Award, that S was in breach of the 18 Agreement, and in particular the Inventory Clause when G applied for the HK Injunction to restrain G’s operation of the Tmall Store.  The New Arbitration only seeks assessment of the damages to be paid by S in respect of its liability which has already been determined.  On G’s case, a final award could be made in the New Arbitration by August to November 2021 (paragraph 72 of the expert opinion of Mr Ning).

20.On S’s part, it claims that there was no reason for the delay on G’s part in commencing the New Arbitration, and that the Unliquidated Damages claim has no close connection with the transactions giving rise to the S Award. S further claims that the Unliquidated Damages claimed are grossly exaggerated. According to S, the Unliquidated Damages Claim was only contrived by G to avoid or delay payment under the S Award.  S also disputes its liability under the Alternative Relief Order to make payment of EUR 890,833.27 in lieu of the provision of samples, as the payment was not part of the G Award, and in any event S had already offered to provide the samples and G has no basis to refuse the samples.  On S’s case, there is clearly a balance of HK$11,640,888 owing by G to S (“Balance”), being the difference between the total amount of HK$16,395,041 payable by G under the S Award and the total amount of HK$4,754,153 payable by S under the S Award.

21.In summary, S claims that it should not be deprived of the fruits of the S Award and that it would not be just to stay execution on the enforcement of the S Award.

Applicable legal principles

22.Mr Maurellet SC for G, and Mr Payne on behalf of S, relied on different authorities but after reviewing the same, I do not see that there is substantial difference in the applicable principles.  In the exercise of its discretion and power to order a stay of execution/enforcement of an award or judgment, the Court considers all the relevant circumstances of the case and decides whether there would be prejudice to the award creditor to be denied of the fruits of the award until the determination of the debtor’s alleged cross‑claim, or prejudice to the debtor if it should be ordered to make payment under the award before the outcome of its cross-claim is known.  In my view, these prejudices are to be balanced and considered together with the policy and general principle, that an award is valid and final, and should be enforced when there is no challenge to the sum due thereunder.  This is in line with the Court of Appeal’s decision and the principles stated in Credit Lyonnais v SK Global Hong Kong Limited [2003] 4 HKC 104.  There is nothing in Israel Sorin (IZZY) Shohat v Balram Chainrai, unreported, HCCT 9/2016, 26 May 2017 (on which reliance is placed by Counsel for G), which is inconsistent with these principles.  The decisions in Burnet v Francis Industries Plc [1987] 1 WLR 802 and Inveresk Plc v Tullis Russell Papermakers Ltd [2010] UKSC 19 in the consideration of the availability of cross-claims and set-off also highlight the need for “special circumstances” and “injustice” to be shown, in order to justify a stay of execution.

23.In Credit Lyonnais v SK Global Hong Kong Ltd, Ma CJHC (as he then was) observed (at para 2 of his judgment):

“I have no doubt that the court retains an inherent jurisdiction, in suitable cases, to make orders staying execution quite apart from those situations expressly permitted under the Rules of the High Court (namely, RHC O 47 r 1 and O 59 r 13). 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. This is, of course, the rationale for the existence of the jurisdiction in the first place.” (Emphases added)

At paragraph 21, Ma CJHC further explained:

“In relation to judgments which have been regularly obtained and in respect of which there is no challenge as to the validity or appeal pending, it may be said that, in broad terms, the court has jurisdiction to stay enforcement of its judgments. … Whilst it would not be appropriate in a judgment of this nature to try to define all the circumstances in which a court may exercise its power to stay enforcement of a valid judgment, I would for present purposes, say that for that to happen justice must require it and there must indeed very special circumstances.”

24.In summary, Ma CJHC stated in his judgment that the Court should not prevent a judgment creditor from enjoying the fruits of the judgment short of there being “abuse or manifest injustice” (see paragraph 25).

25.Under the Arbitration Ordinance, when leave for enforcement is granted by the Court, an arbitral award is enforceable in the same manner as a judgment of the Court that has the same effect, so there is no distinction between a valid judgment and a valid arbitral award so far as the Court’s jurisdiction for enforcement and staying enforcement is concerned.

26.In Burnet v Francis Industries Plc [1987] 1 WLR 802, Bingham LJ explained that an order to stay execution under O 49 r 1 of the English Rules is “an unusual order”, and the requirement that special circumstances exist is one that will be strictly insisted upon.  The Court further explained that in deciding whether such special circumstances exist to justify a stay of execution of a judgment pending the outcome of a cross‑claim, a number of factors may be considered and these include the nature of the claims, the extent of the identity between the claim in the judgment and the unresolved cross-claim, the strength and size of the cross‑claim, the likely delay before the cross-claim can be adjudicated, the extent of the prejudice to the judgment creditor and the risk of prejudice to the party compelled to make payment under the judgment.  These factors were applied by Chow J in Israel Sorin (IZZY) Shohat v Balram Chainrai (see paragraph 18 of his judgment), when he dismissed a debtor’s application for stay of execution of an order for enforcement of an arbitral award.

27.In the present case, S does not dispute its liability under the G Award, apart from the Alternative Relief Order, but claims that the Balance is still owing by G to S, and it only seeks enforcement to the extent of the Balance.  The dispute is whether the G Award includes S’s monetary payment under the Samples Claim, and whether enforcement should be stayed by reason of G’s Unliquidated Damages Claim in the New Arbitration, in circumstances when G has the additional Costs Claim, and when S already has security under the WUP Injunction Payment and the Mainland Injunction.

The Costs Claim

28.The costs awarded to G in HCMP 1154/2019 do not constitute a liquidated debt, before they are valued, taxed and ascertained (see Re Grande Holidays Ltd (No 1) [2015] 1 HKLRD 743 paras 11-13, 15).  Under a costs order, a party is only liable to pay reasonable costs and an assessment of what is a reasonable sum involves more than just an arithmetical calculation.  I do not accept that the Costs Claim can constitute a legal set-off.

29.HCMP 1154/2019 relates to S’s claim for a declaration, that the Hong Kong Court has exclusive jurisdiction over all disputes which arise out of the 17 Agreement, including the dispute over 6 purchase orders issued under the 17 Agreement.  The subject matter of HCMP 1154/2019 is distinct from the claim under the S Award, which relates to the 18 Agreement and the price due under the purchase orders issued under the 18 Agreement.  I do not accept that HCMP 1154/2019, and the Costs Claim under the orders made in the action, have any close connection with the S Award to form the basis of either an equitable set‑off, or a cross-claim which justifies a stay of enforcement of the S Award.

30.In any event, the amount involved is insignificant even by G’s estimate of EUR 15,000 to EUR 37,000.

The Samples Claim

31.I am not entirely persuaded that under the G Award, S is clearly bound to make payment of the sum of EUR 890,833.27, and that the option is on G to elect payment when there was no provision of samples after the period of 30 days.  The claim that S had no right, when offering the samples, to impose a condition against sales of the samples, is not a matter for determination here, but simply on the merits of any alleged debt or cross-claim sought to be raised by G, S’s duty under the 18 Agreement was to supply “free samples” of the Products, and samples do not imply or involve sales.  However, even if the G Award should include the amount of the Samples Claim (of EUR 819,833.27), the aggregate does not exceed the sum due from G under the S Award.

The Unliquidated Damages Claim

32.The material difference between the parties is in the Unliquidated Damages Claim made in the New Arbitration, which represents the largest in the amount of G’s claims against S.

33.There is dispute in the parties’ evidence on PRC law, as to whether the New Arbitration commenced by G to pursue its claim of damages is a “repetitive arbitration” of the G Arbitration.  G’s expert evidence is that the subject matter of the New Arbitration, and the request for relief sought, are different to those in the G Arbitration which led to the G Award.  Even without the benefit of any expert evidence, it can be understood from the documents filed that the G Arbitration was to seek specific performance of the 18 Agreement, and the New Arbitration seeks damages flowing from S’s breach of the Inventory Clause of the 18 Agreement.  However, as has been pointed out by S, and it is apparent from the G Award itself, G had already raised in the G Arbitration the claim of S’s breach of the 18 Agreement, including (but not confined to) its purported termination of the distributorship in 2019 as well as S’s breach of the Inventory Clause, seeking liquidated damages of RMB 100,000 in respect of such breach.  As G sought to emphasize, the tribunal ruled on such claims of breach.  From the G Award, it can be seen that the tribunal in fact dismissed G’s claim for liquidated damages on the basis that only a party which was not in breach was entitled to the liquidated damages provided for, and as G was also in breach of the 18 Agreement, it was not entitled to recover such damages.

34.The availability of the New Arbitration to raise a potential cross‑claim is questionable, but leaving that aside, the merits of the Unliquidated Damages Claim itself and the quantum of such claim raise much room for dispute.

35.[Merits of the New Arbitration reviewed, and redacted.]

36.Mr Payne relies on Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938 where, in the context of whether summary judgment should be entered when a defendant seeks to rely on its counterclaim for damages by way of equitable set-off, the Court held that the counterclaim was insufficiently connected to the transaction giving rise to the plaintiffs’ claim to be available as a set-off against the debt admittedly due to the plaintiffs.  In the judgment of Simon Brown LJ (at pp 949-950), reference was made to Hanak v Green [1958] 2 QB 9 and the description therein of a “close relationship… between the dealings and transactions which gave rise to the respective claims”, and the necessity for the cross‑claims to be “closely associated with and incidental to the contract… on which the plaintiff sues for breach”.  Simon Brown LJ then referred to the judgment of Lord Denning MR in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927, 974-975:

“We have to ask ourselves: what should we do now so as to ensure a fair dealing between the parties?... This question must be asked in each case as it arises for decision: and then, from case to case, we shall build up a series of precedents to guide those who come after us. But one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross‑claims that arise out of the same transaction or are closely connected with it. And it is only cross‑claims which go directly to impeach the plaintiff’s demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross‑claim.”

37.Simon Brown LJ concluded in Esso Petroleum that:

“For equitable set-off to apply it must therefore be established, first that the counterclaim is at least closely connected with the same transaction as that giving rise to the claim, and second that the relationship between the respective claims is such that it would be manifestly unjust to allow one to be enforced without regard to the other.”

Applying the test to the facts of the case, His Lordship pointed out that whilst both Esso’s claim for payment of fuel supplied and the defendant’s counterclaim for damages on the basis of Esso’s termination and repudiatory breach of the licence agreement arose out of a single agreement the terms of which govern each delivery of fuel, that does not mean that there is a close connection between each individual delivery and the subsequent claim based on breach of the overall agreement.  Nor did the Court consider that it would be unjust to allow Esso to recover payment for fuel sales without their taking into account the defendant’s claim for future losses.  At page 951E, Simon Brown LJ observed:

“At the point when those deliveries were made, there was no cross‑claim at all in existence and no loss yet suffered by the defendant. No case has been cited to us in which payment of a debt presently due has been required to await the resolution of a cross‑claim for future losses. The mere fact that both claim and counterclaim arise out of the single trading relationship between the parties is in my judgment wholly insufficient to supply the close link necessary to support an equitable set-off.”

38.I agree that the facts in Esso Petroleum bear a great deal of similarity with those in the present case.

39.On behalf of G, Leading Counsel argued that it is not strictly necessary for G’s cross-claim to give rise to a defence of set-off, relying on Inveresk Plc v Tullis Russell Papermakers Ltd [2010] UKSC 19, where the court pointed out that when the strict requirements of set-off are not fulfilled, a stay of execution of a judgment until resolution of a cross-claim may still be granted.  However, the judgment of Lord Collins in Inveresk made it clear that this was in order to “prevent injustice”.  The judgment of Lord Rodger also highlighted the fact that there must be some reason which would make it just and equitable to justify a departure from the general rule, of not permitting a defendant to postpone payment of a liquid debt and to raise a set‑off on the basis of some “illiquid” debt.

40.On the facts of this case, the Unliquidated Damages Claim was made in the New Arbitration on the basis of S’s breach of the Inventory Clause. That is so pleaded in the Request for Arbitration.  The Inventory Clause provides that after termination of the 18 Agreement, G was to continue to have the right to sell the remaining inventory of the Products.  The amounts adjudged to be payable by G to S under the S Award represent the outstanding price of Products sold and delivered to G, under invoices issued in October and November 2018.  [Merits of the New Arbitration considered, and redacted.]  Leaving aside the computation of these damages, I am not satisfied that G’s Unliquidated Damages Claim satisfies the tests outlined in Esso Petroleum, and Inveresk, which require such claim to be closely connected with, or closely associated with and incidental to S’s claim under the S Award.  In Inveresk, Lord Hope spoke of the claims being dependent upon one another, each forming part of the same transaction, such that the obligations could be regarded as counterparts of each other.  Although S’s claim for payment of the price for the Products delivered, and G’s claim for damages occasioned by S’s breach of the Inventory Clause both arise out of the same 18 Agreement, I do not regard the obligations imposed on G and S respectively, and which are claimed to have been breached, are dependent on one another or are counterparts of each other.  The Inventory Clause relates to Products already delivered by S to G under the 18 Agreement, and G’s right to sell and dispose of them after termination of the 18 Agreement.  Such of G’s rights are not dependent on any further performance by S of any of its obligations under the 18 Agreement.  G’s obligation to pay for the Products sold under the October and November 2018 invoices arises under specific and separate transactions made, and cannot be dependent on S’s obligation to permit G to sell, or on G’s right to continue to sell such other Products as may remain in its inventory after January 2019.  As in the case of Esso Petroleum, the Unliquidated Damages Claim relates to G’s future losses, and at the time when the Products were delivered under the October and November invoices, and for which payment was sought in the S Arbitration, there was no cross‑claim at all in existence, nor loss suffered, in respect of any breach of the Inventory Clause.

41.As the authorities demonstrate, the key question is the manifest justice of the case, and whether it would be just and equitable to order a stay of execution or enforcement.

42.I have considered the nature of the respective claims of S and G, and the size of their claims.  So far as the strength and merits of G’s cross‑claim is concerned, and assuming that the New Arbitration is not repetitive of the claims made in the G Arbitration, G emphasized that the tribunal already found in the G Award that S had wrongfully terminated the 18 Agreement and was in breach of the Inventory Clause.  Liability has already been determined, and the New Arbitration is only about assessment and quantification of the damages.

43.Even if that should be true, I am not persuaded on the evidence available at this stage that G would be able to recover the full or a large extent of its Unliquidated Damages Claim, as a result of the breach of the Inventory Clause.  [Merits of the New Arbitration considered, and redacted.]   

44.[Merits of the New Arbitration considered, and redacted.]

45.[Merits of the New Arbitration considered, and redacted.]

46.[Merits of the New Arbitration considered, and redacted.]   

47.Having regard to all the above matters, I agree that the merits of the Unliquidated Damages Claim are dubious.

The Manifest Justice

48.The New Arbitration was only commenced in September 2020.  It is unlikely to be concluded within 2021, and even on G’s estimate, it would take 9 to 12 months before an award can be made in September 2021.  This appears in my view to be optimistic.

49.On the question of risks of prejudice, G argued that if it should make payment under the S Award, it was likely that S would remove the funds recovered from Hong Kong, and unlikely that S would volunteer payment when an award is made in the New Arbitration, such that it would be necessary for G to seek recovery against S in Spain.  G highlighted the fact that S has refused to comply with the G Award for specific performance of the 18 Agreement, and had even purported to serve notice of termination of the 18 Agreement in July 2020.

50.On S’s part, it was pointed out that the notice of termination of July 2020 was based on G’s breaches of the 18 Agreement, including G’s infringement of S’s intellectual property rights by seeking registration of S’s trademarks. S claims that it was entitled to terminate the 18 Agreement for these reasons, after the G Award.

51.Even if there was no S Award, G’s recourse under the G Award is to enforce same against any assets of S which may be in Hong Kong, and if there were no such assets here, to enforce the G Award in Spain.  G agreed with S to arbitrate their disputes on the Mainland, with the knowledge and intention that any award might have to be enforced against S in Spain.  S has no duty to bring assets into Hong Kong, and G has no right to compel S to do so under the G Award.  I cannot agree that there is prejudice to G by reason of the fact that it has to seek recovery and enforcement of the G Award in Spain, so as to make it manifestly unjust to refuse a stay of enforcement of the S Award, and enable G to exercise its set-off.

52.On the other hand, I consider it unjust to compel S to wait 12 months or even longer, for an award to be made in the New Arbitration, when it has a valid, regular and enforceable Award in its favour, and when it is uncertain that the outcome of the New Arbitration would be a substantial award in G’s favour.

53.Leave to enforce the G Award has already been granted, and G is entitled to take such steps as may be open to it to enforce the G Award. 

54.G argued that S is already secured, and will not be prejudiced by the stay of enforcement.  The Mainland Injunction has only frozen a sum of EUR 400,000, which remains in the relevant account of G.  On the face of the Order made by the Mainland Court, the Mainland Injunction was granted as an interim preservation of the funds, applied for and obtained before the G Award was made in the G Arbitration.  I am not convinced that the Mainland Injunction can properly be said to be part of the enforcement proceedings of the G Award on the Mainland so as to prevent enforcement here, or that the Mainland Injunction should be discharged by virtue of the enforcement proceedings in Hong Kong.  Under the Arbitration Ordinance, S is only precluded from enforcing a Mainland award in Hong Kong if an application has been made on the Mainland for enforcement.  If an application has been made on the Mainland for enforcement, and the award has not been fully satisfied by way of that enforcement, the award is enforceable in Hong Kong only to the extent that it has not been so satisfied.

55.If S should succeed in obtaining payment from G through enforcement proceedings in Hong Kong, then S is not entitled to bring enforcement proceedings on the Mainland for the amount preserved in the   bank account on the Mainland, nor to obtain double recovery.  In the meantime, the EUR 400,000 remains in G’s account, but that is a small sum of the amount due to S under the S Award, or the Balance.

56.As for the payment into court made in the winding up proceedings, that is for the purposes of and subject to the outcome of the relevant winding up proceedings of G – and broader considerations apply, as to whether G is insolvent, whether there is a genuine dispute as to G’s debt due to S, whether there is any abuse of the court process, and whether the interests of other creditors of G ought to be considered.  If it can be established that there is dispute on substantial grounds in relation to the S Award debt, and/or that any winding up petition based on the statutory demand would be an abuse of process, the statutory demand may be set aside, and the WUP Injunction Summons and any winding up proceedings would be disposed of as the Court thinks fit.  G may then be entitled to seek payment out of the WUP Injunction Payment, but such funds are most appropriately to be dealt with by the Companies Court in February 2021.

57.In all the particular circumstances, I do not regard the existence of the Mainland Injunction or the WUP Injunction Payment to be matters which make it unjust to warrant a stay of enforcement of the S Award.

Disposition

58.Having considered the nature of the claims, the merits of the Unliquidated Damages Claim, the delay if the enforcement of the S Award should be stayed until the determination of the New Arbitration, and the prejudices to the parties, I decline to grant any stay of enforcement of the S Award.

59.The order nisi is that the costs of the Stay Application are to be paid by G.

Mr Sonny Payne, of GPS McQuhae LLP, for the applicant

Mr Jose Maurellet SC and Ms Cherry Xu, instructed by Wilkinson & Grist, for the respondent