Hong Kong court confirms principles of enforcement

In KB v S (HCCT 13/2015), Mimmie Chan J  of the Hong Kong Court of First Instance dismissed and struck out an application to set aside an order to enforce an arbitral award, where the application was submitted out of time and without a proper supporting affirmation. 

In her judgment, Chan J sets out ten general principles that the Hong Kong courts will apply when dealing with enforcement of arbitral awards. The principles endorse the need for minimal judicial intervention, as established by the leading case Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] 4 HKLRD 1 (CA). Herbert Smith Freehills acted for the successful award creditor in that case.

Chan J articulated these principles as follows:

1. The primary aim of the court is to facilitate the arbitral process and to assist with enforcement of arbitral awards.
2. Under the Arbitration Ordinance, the court should interfere in the arbitration of the dispute only as expressly provided for in the ordinance.
3. Subject to the observance of the safeguards that are necessary in the public interest, the parties to a dispute should be free to agree on how their dispute should be resolved.
4. Enforcement of arbitral awards should be "almost a matter of administrative procedure" and the courts should be "as mechanistic as possible" (Re PetroChina International (Hong Kong) Corp Ltd [2011] 4 HKLRD 604).
5. The courts are prepared to enforce awards except where complaints of substance can be made good. The party opposing enforcement has to show a real risk of prejudice and that its rights are shown to have been violated in a material way (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2002] 4 HKLRD 1 (CA)).
6. In dealing with applications to set aside an arbitral award, or to refuse enforcement of an award, whether on the ground of not having been given notice of the arbitral proceedings, inability to present one's case, or that the composition of the tribunal or the arbitral procedure was not in accordance with the parties' agreement, the court is concerned with the structural integrity of the arbitration proceedings. In this regard, the conduct complained of "must be serious, even egregious", before the court would find that there was an error sufficiently serious so as to have undermined due process (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] 4 HKLRD 1 (CA)).
7. In considering whether or not to refuse the enforcement of the award, the court does not look into the merits or at the underlying transaction (Xiamen Xingjingdi Group Ltd v Eton Properties Limited [2009] 4 HKLRD 353 (CA)).
8. Failure to make prompt objection to the tribunal or the supervisory court may constitute estoppel or want of bona fide (Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKCFAR 111).
9. Even if sufficient grounds are made out either to refuse enforcement or to set aside an arbitral award, the court has a residual discretion and may nevertheless enforce the award despite the proven existence of a valid ground (Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKCFAR 111, 136A-B).
10. The Court of Final Appeal clearly recognized in Hebei Import & Export Corp v Polytek Engineering Co Ltd that parties to the arbitration have a duty of good faith, or to act bona fide (p120I and p137B of the judgment).

These ten points succinctly summarise important principles that are already well established in Hong Kong case law on enforcement of arbitral awards. In addition, KB v S emphasises the importance of making any application within the relevant time limit, and of filing a supporting affirmation that properly identifies the grounds for the application. In this case, the award debtor made the application out of time and filed an affirmation that did not specifically identify an applicable ground for setting aside the enforcement order. In the circumstances, Chan J held that the application was an abuse of court process (applying Free Form Construction Co Ltd v Shinryo (Hong Kong) Ltd [2009] 3 HKC 415). The judge also held that the award debtor had breached its duty of good faith by bringing a meritless application in an attempt to delay and frustrate the enforcement of the arbitral award. Since the award debtor's application failed, Chan J followed the usual approach in Hong Kong of ordering the unsuccessful party to pay costs on an indemnity basis.   

Although this was a case concerning enforcement of arbitral awards, the judge noted that the same principles apply in applications to set aside arbitral awards. The Hong Kong courts are strongly pro-arbitration; a policy that Chan J notes is "demonstrably clear in the authorities", and that is consistently applied.    

For further information, please contact Julian Copeman, May Tai, Simon Chapman, Dominic Geiser or your usual Herbert Smith Freehills contact.