HONG KONG COURT GIVES "DUE WEIGHT" TO SUPERVISORY COURT ON ENFORCEMENT

In U v S [2018] HKCFI 2086, the Hong Kong Court of First Instance (Court) dealt with an application to adjourn an application to set aside an enforcement order. In granting the adjournment, Chan J took into account public policy and considered the "due weight" that was owed to a supervisory court in another jurisdiction.

Background

The Applicant agreed to act as an agent for the Respondent in its acquisition of shares in a company. Fees were payable to the Applicant on the completion of the acquisition at a price acceptable to the Respondent. Disputes over these fees led to the Applicant filing a request for arbitration with CIETAC in Beijing (First Arbitration).

The First Arbitration led to an award (First Award), in which the arbitration tribunal (First Tribunal) dismissed the Applicant's claims on the basis that the conditions for payment of the fees had not been met at the time of the First Arbitration. The Applicant then served notice of a second arbitration (Second Arbitration), on the basis that new facts had arisen since the First Award. This led to an award from a second tribunal on 30 June 2017.  This time, the Respondent was ordered to pay the Applicant US$20 million, plus interest (Second Award). In February 2018, the Court granted the Applicant's ex parte application under section 92 of the Arbitration Ordinance for leave to enforce the Second Award.

The Respondent applied to the Hong Kong Court under section 95 of the Ordinance to set aside such leave (Set Aside Application) on the grounds that:

• the Respondent had not properly been served with the notice of the Second Arbitration and was thereby deprived of the right to appoint an arbitrator;
• the Second Arbitration dealt with the same subject matter as the First Arbitration;
• the findings in the Second Award were inconsistent with those in the First Award;
• the Second Award contained decisions on the contractual rights and interests of a third party that fell outside the scope of the submissions to the Second Arbitration; and
• it would, by reason of the above, be contrary to public policy to enforce the Second Award in Hong Kong.

The Respondent also applied to the Beijing Court, as the court with supervisory jurisdiction, to set aside the Award on the same grounds. The Applicant opposed these proceedings.  The Beijing Court's decision was pending at the time of the Hong Kong judgment.

The Respondent subsequently applied to the Hong Kong Court to adjourn the Set Aside Application until the final disposal of its application in Beijing to set aside the Second Award (Adjournment Application).  The parties agreed that the Adjournment Application should be heard prior to the hearing of the Set Aside Application.

Decision

Chan J granted the Adjournment Application and adjourned the Set Aside Application.  The judge applied Hong Kong law in deciding whether enforcement of the Second Award should be recognised or refused in Hong Kong, including in the context of considering whether subsequent enforcement would be contrary to Hong Kong public policy. In giving the supervisory court "due weight", the Hong Kong Court considered the following factors:

• The Agency Agreement was governed by PRC law;
• The two arbitrations were held on the Mainland in accordance with the CIETAC Arbitration Rules; and
• PRC law governed the validity of the Second Award and the procedure of both arbitrations.

Chan J noted that if the Beijing supervisory court granted the Respondent's application, the Second Award would be set aside and enforcement might be refused under the Ordinance.  However, even if the supervisory court did not set aside the Award, the Hong Kong Court could still refuse enforcement if it would be contrary to Hong Kong public policy.

To determine whether enforcement would be contrary to public policy, Chan J considered the strength of the Respondent's arguments that the Second Award was invalid. In making this assessment, Chan J found:

• the application made on the Mainland to set aside the Second Award had a real prospect of success as the new facts that had arisen after the First Award consisted only of the Applicant's demands for information in relation to: (i) the steps the Respondent had taken after the First Award, and (ii) the Respondent's acquisition of shares in the company;
• there were findings in the Second Award which contradicted the findings of the First Tribunal; and
• although the Respondent's lack of notice ground was less persuasive, the Respondent had a good case to argue that the Second Award should not be enforced as it involved a serious error which undermined due process, or was contrary to fundamental concepts of justice, on the basis that it was a re-adjudication of the claims which had been the subject matter of the First Arbitration.

Chan J accordingly adjourned the Hong Kong Set Aside Application for six months with liberty to the parties to apply to lift or extend the stay in the interim. The adjournment was conditional on the Respondent paying US$2 million to the court within 28 days, in order to incentivise the parties to proceed as quickly as possible. The adjournment also reflected the need to balance the interests of the Applicant in the enforcement of a final and binding arbitral award.

Discussion

This decision confirms that Hong Kong courts will give due weight to the decision of the supervisory court when deciding whether to enforce an arbitration award, but will continue to bear in mind the importance of Hong Kong public policy when it comes to enforcement.