Parties and Background
Mr Sohat, a businessman residing in Israel regularly introduced Mr Chainrai, a businessman residing in Hong Kong to business ventures in Israel. The initial dispute arose out of a business venture and in May 2011 the parties agreed to convert the legal proceedings initiated before the Israeli courts into arbitration.
The arbitration proceedings concluded in favour of Mr Sohat, who consequently applied to the Hong Kong court to enforce his award pursuant to Section 87 of the Hong Kong Arbitration Ordinance and Rule 10(1) of the Rules of High Court. Mr Chainrai commenced legal proceedings in the Hong Kong High Court, claiming damages for breach of fiduciary duties and negligence. In response, Mr Sohat applied to the same court to have the claim struck. He argued that Mr Chainrai’s application was an abuse of process, based on the proposition that the latter was relitigating the same issues and same subject matter. In the meantime, the enforcement order was granted, even though the strike out claim was still pending. Due to the fact that Mr Chainrai did not apply to set aside the award, the Hong Kong Court of First Instance considered the enforcement order to be valid and binding.
The case revolved around the issue of whether the court had the same discretion to grant a stay of execution of the award as it would have for a court judgment, considering that, in Hong Kong, arbitral awards are enforced in the same manner as court judgments. On this point, Mr Sohat argued that since Mr Chainrai did not apply to set aside the award, the court should follow the general policy of facilitating enforcement of arbitral awards. In response, Mr Chainrai argued that he was entitled to obtain a stay, as he had paid a large amount of money to the court as a condition for granting an interim stay of the execution of the enforcement order.
The court refused to grant the stay of the execution of the enforcement award, noting that it had discretion to grant it, should the circumstances justify such a stay. Furthermore, the court looked at the difference between enforcing an arbitral award and whether to stay the execution of the enforcement order, concluding that the enforcement of an award should follow the same regime as the stay of execution of a court judgement.
In July 2017, Mr Chainrai applied for leave to appeal against the refusal of the Court of First Instance to stay the enforcement order and for an interim stay of execution of the enforcement order pending the court’s decision on the leave application. The leave application was submitted on the basis that the Court of First Instance should not have rejected Mr Chainrai’s request for security pending the outcome of the High Court action.
The court dismissed Mr Chainrai’s leave application for two main reasons. First, a plaintiff has no general right to seek pre-trial security from the defendant, regardless of the latter’s residence/domicile or solvency. Second, Mr Chainrai’s request for security was advanced on the basis that Mr Sohat is an Israeli resident and thus, Mr Chainrai would most likely have to pursue enforcement proceedings in Israel. Furthermore, Mr Chainrai argued that Mr Sohat is likely to dissipate his wealth as part of estate planning, given his advanced age. The court noted that Mr Sohat is of significant wealth and concluded that there were no relevant materials to support the validity of this argument.
Sabina Adascalitei LLB, LLM, MCIArb
Research and Academic Affairs Coordinator