Hong Kong confirms pragmatic approach to enforcement, limited rights of appeal and signals views on "CIETAC split" clauses

In 廣東長虹電子有限公司 v Inspur Electronics (HK) Ltd (HKMP 434/2015), the Hong Kong Court of Appeal has confirmed a lower court's order to enforce a Mainland award, reiterating Hong Kong's "deliberate policy of restricting the rights of appeal" in respect of arbitration awards, and upholding the pragmatic approach to enforcement adopted by the first instance judge. It is the first Court of Appeal authority to confirm that the leave of the Court of First Instance is required to appeal against a decision to grant or refuse leave to enforce an award, under section 84(3) of the Arbitration Ordinance (Cap. 609). The judgment also suggests that Hong Kong will follow the approach of the PRC Supreme People's Court to clauses that provided for arbitration by "CIETAC Shenzhen" or "CIETAC Shanghai" before the CIETAC split. 

Click here for the Court of Appeal judgment.

Click here for the Court of First Instance judgment.

The proceedings 

In December 2014, the Hong Kong Court of First Instance ("CFI") heard an application to set aside its order granting leave to enforce a Mainland award (the "Application"), on grounds that the award creditor had failed to produce the original arbitration agreement (pursuant to s.94 Arbitration Ordinance Cap. 609) and that the underlying contracts were invalid, hence enforcement would be contrary to public policy (s.95 AO). 

Mimmie Chan J did not accept that the underlying contracts were invalid, thus she rejected the public policy argument under s.95 AO. The judge was also satisfied that a copy of the arbitration agreement, appended to the affirmation of the Claimant's witness in which he deposed to the truth of the document, satisfied the requirements of s.94 AO. 

Chan J accordingly refused the Application and – in keeping with A v R [2009] 3 HKLRD 389 and the settled policy of the Hong Kong courts on unsuccessful set aside applications - ordered costs on the indemnity basis. 

The arbitration clauses 

The judgment also provides insight into the Hong Kong courts' likely position on "pre-split" CIETAC arbitration clauses, ie clauses signed prior to CIETAC's internal rift in May 2012, which led its Shenzhen and Shanghai sub-commissions to break away from the Beijing headquarters and establish themselves as independent institutions, known as "SCIETAC" and "SHIAC", respectively. 

The arbitration arose out of three 2009 contracts, each containing identical arbitration clauses. In her judgment, Chan J quotes the clauses as follows: 

"Any dispute arising from or in connection with this Contract shall be submitted to (SCIETAC) for arbitration which shall be conducted in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties." 

This characterisation of the arbitral commission is interesting. Since the clauses were drafted in 2009, they must presumably have referred to "CIETAC South China sub-commission" (also known as "CIETAC Shenzhen sub-commission"), rather than "SCIETAC", which did not exist until 2012. Chan J does not point this out, nor does it appear to have been raised in the arbitration. On the contrary, the judgment simply substitutes the new name for the old, thereby assuming that a "pre-split" reference to CIETAC South China now "translates" automatically to a reference to SCIETAC. 

This appears to track the approach of the PRC courts, which have held in a number of recent cases that SHIAC and SCIETAC have jurisdiction where an arbitration clause pre-dating the split refers disputes to "CIETAC Shanghai" or "CIETAC South China". Although it is impossible to identify a settled approach based on this case alone, it is noteworthy that Hong Kong has enforced an award rendered by one of the breakaway sub-commissions. In future, it will be interesting to see whether subsequent Hong Kong decisions adopt the same view, particularly if one of the parties challenges the jurisdiction of SHKIAC or SCIETAC (which the parties did not do in this case). 

Rights of appeal 

The Respondent applied for leave to appeal against the CFI's decision to refuse the Application. Chan J refused, and the Respondent applied to the Court of Appeal for leave to appeal. The Court o Appeal reminded the Respondent that leave to appeal against such a decision must be obtained from the CFI (s.84(3) AO and s14(3)(ea)(v) High Court Ordinance). The Court of Appeal highlights the "underlying philosophy in respect of the limited role of the courts in respect of enforcement of arbitration awards", and notes that Hong Kong adopts "a deliberate policy of restricting the rights of appeal". In the words of the Court, "parties who have undergone arbitration should have finality as speedily as possible and with as little expense as possible". 

The Respondent conceded that the Court of Appeal had no jurisdiction to grant leave to appeal against the CFI's decision to refuse the Application, but submitted that the Court of Appeal nevertheless had residual jurisdiction to set aside the CFI's refusal of leave, based on unfairness in the process. The Respondent sought to amend its summons to seek an order setting aside Chan J's order refusing leave to appeal, on grounds that there was a "serious flaw in the logic" of her decision. 

The Court of Appeal assumed (without deciding) that it has such residual jurisdiction to set aside, but noted that the threshold for its exercise is extremely high. In the Court's opinion, the Respondent's case was "nowhere near the baseline for meeting such high threshold". In substance, the Respondent's arguments were all directed towards the merits of Chan J's decision, and did not go to the fairness of the procedure. The fact that Chan J did not regard the grounds of appeal as reasonably arguable was "a view she was, rightly or wrongly, entitled to hold and as such, cannot be a ground for challenging the fairness of the process". Leave to amend the summons was denied, and costs ordered on an indemnity basis.

For more information please contact May Tai, Partner, Dominic Geiser, Partner, Briana Young, Professional Support Lawyer or your usual Herbert Smith Freehills contact.