ENGLISH COURT PERMITTED BUT NOT REQUIRED TO REFUSE ENFORCEMENT WHERE STATUTORY GROUNDS MADE OUT

Kei (a protected party by his litigation friend) v Hua She Asset Management (Shanghai) Company Ltd [2022] EWHC 662 (Comm), before Miss Julia Dias QC (sitting as a Deputy High Court Judge in the Commercial Court).

The English High Court restated the principles applicable to a section 103 application under the Arbitration Act 1996 (the "Act") to resist enforcement of a foreign award. In particular, the court highlighted its discretion not to set aside an order for enforcement, even where one of the s103(2) conditions is met under the Act (albeit that those conditions were not met in this case).

Background

Hua She brought an arbitration against Beijing Yaolai Investment Co. Ltd and Mr Kei. Mr Kei acted as guarantor for Beijing Yaolai under a 'buy back' agreement with Hua She.

The arbitration took place before the Shanghai International Economic and Trade Commission under the rules of the Shanghai International Arbitration Centre. An award was made in Hua She's favour and Hua She successfully applied to the English Court for permission to enforce against Mr Kei's assets in the UK.

Mr Kei applied under s103 of the Act to set aside the order granting permission to enforce. He argued that, contrary to s103(2)(c) of the Act, he was not properly notified of the underlying arbitration and, as a result, was not properly represented or given the opportunity to defend himself.

In parallel to the application, Mr Kei made an application to the supervisory court in Shanghai (being the court at the place of arbitration) to set aside the award. The Shanghai court dismissed that application.

Decision

The court restated the legal principles applicable to a s103(2) application, being: (i) the fundamental policy of promoting enforcement; (ii) that a court is not bound to refuse recognition or enforcement if one of the permitted grounds is established (i.e. the court retains inherent discretion); (iii) an unsuccessful challenge in the supervisory court creates an issue estoppel if the issues to be determined are substantially the same as those raised under s103; (iv) a s103 application may be held to be an abuse of process if the challenge could and should have been made before the supervisory court; and (v) there may be exceptional cases where it would nonetheless be unjust to recognise an issue estoppel or apply the principle of abuse of process.

The court dismissed the application. On the particular issues before it, the court held that:

1. Mr Kei's assertion that he did not know about the arbitration because he did not sign a Power of Attorney to give authority to his representative in the arbitration "falls a long way short of proving on a balance of probabilities as required by s.103(2) that Mr Kei did not have actual knowledge of the arbitration and so was unable to present his defence";
2. This conclusion was sufficient to dismiss the application, but in any event the circumstances could not be categorised as exceptional so as to displace the issue estoppel created by the Shanghai court decision;
3. If the court had not dismissed the application on this basis, the judge indicated that she likely would have exercised her discretion nevertheless to maintain the enforcement order in place due to issues as to the credibility of Mr Kei and his conduct in relation to the proceedings. However, given her findings, it was not necessary to reach a conclusion on this point.

Comment

While this decision largely restates established principles applicable to an application to resist enforcement of a foreign award, it re-emphasises the court's residual discretion not to set aside an enforcement order, even where a condition for set aside under s103(2) is made out. That discretion arises from the use of the permissive word "may" in s103(2). While the exercise of such discretion was not necessary in this case, the judge hinted strongly that robust evidence as to the award debtor's credibility and conduct in the context of the proceedings may warrant an enforcement order to be maintained even where a s103(2) condition is made out.

The key takeaways from this decision are therefore: (i) this judgment re-states the English court's pro-enforcement stance in relation to foreign arbitration awards under the Act; and (ii) that the court retains a discretion to permit enforcement of a foreign award where circumstances justify it, even where a s103(2) condition is made out.

For more information, please contact Chris Parker QC, Partner, Charlie Morgan, Senior Associate, or your usual Herbert Smith Freehills contact.