On 15 May 2023, Herbert Smith Freehills co-hosted London International Disputes Week’s inaugural International Arbitration Day, welcoming over 350 external guests to our London office. International Arbitration Day was a flagship arbitration event, showcasing the importance of London as a global arbitration centre. Herbert Smith Freehills was chosen as one of three LIDW member firms (alongside Allen & Overy and Mayer Brown) to host panel events throughout the day.
Tag: China
Beijing Financial Court upholds validity of asymmetric arbitration clause
The Beijing Financial Court has recently upheld the validity of an asymmetric (or “unilateral option”) arbitration clause, determining that it did not constitute an impermissible “either arbitration or litigation” clause under the law of the People’s Republic of China (“PRC“). ((2022) Jing 74 Min Te No.4)
CIETAC 2022 statistics show its endeavour in line with international practices
The China International Economic and Trade Arbitration Commission (CIETAC) has published its 2022 statistics and 2023 Work Plan. In 2022, CIETAC saw continued growth in caseload and in the amount in dispute. The statistics also indicate an enhanced diversity in terms of types of disputes, geographical origins of parties, languages of arbitration, governing laws, and involvement of arbitrators outside of mainland China. CIETAC also continues to explore best practices in international arbitration and innovations, including in relation to emergency arbitrators and third-party funding. Looking forward, CIETAC states that it will continue its efforts in internationalising its arbitration rules, and improving its IT infrastructure and digital management in 2023.
HKIAC 2022 CASE STATISTICS SHOW STRONG GROWTH AND CONTINUED APPEAL OF HONG KONG AS A LEADING SEAT
The HKIAC’s arbitration caseload reached its highest level for more than a decade last year, according to the institution’s recently released 2022 case statistics. The figures underline Hong Kong’s continuing international appeal as well as its unique strengths as a seat for China-related disputes. They also show that Hong Kong’s arbitration third party funding regime, introduced in 2019, is now firmly established and increasingly popular with parties. This suggests that success-based fee arrangements, recently allowed in the jurisdiction, may also see rapid adoption.
DISPUTE RESOLUTION CHOICES FOR BANKS AND FINANCIAL INSTITUTIONS: MAXIMISING THE CHANCES OF SUCCESSFUL ENFORCEMENT – WEBINAR RECORDING NOW AVAILABLE
Choice of dispute resolution forum can have a fundamental impact on the ability of banks and financial institutions to enforce contractual obligations.
In our client webinar on 23 September, Dispute Resolution Choices for Banks and Financial Institutions: Maximising the Chances of Successful Enforcement, Julian Copeman, Nick Peacock and Hannah Ambrose discussed recent trends in dispute resolution choices in the banking and finance sector in the context of Brexit, before addressing:
- the use of the English courts, providing guidance as to enforcement of English court judgments in the EU in the context of Brexit;
- the risks and rewards associated with unilateral clauses which enable a choice of forum to be made once a dispute has arisen; and
- the key points which banks and financial institutions need to be aware of if choosing arbitration, such as the powers of arbitral tribunal with respect to remedies and the award of interest, and the increasing use of summary judgment procedures to resolve unmeritorious claims.
The speakers also touched on practical points to bear in mind for successful enforcement in Russia, Africa, India and China, and addressed questions from clients on the restatement of English court jurisdiction clauses after the end of the Brexit transition period to minimise enforcement risk, and the availability of interim relief from the court to support arbitral proceedings.
The webinar recording is now available for clients and contacts. To access the recording, please contact Hannah Ambrose (here) or your usual Herbert Smith Freehills contact.
For more information, please contact Julian Copeman, Partner, Nick Peacock, Partner, Hannah Ambrose, Senior Associate or your usual Herbert Smith Freehills contact.
Julian Copeman
Partner
+44 20 7466 2168
Nicholas Peacock
Partner
+44 20 7466 2803
Hannah Ambrose
Senior Associate
+44 20 7466 7585
PRC court clarifies enforcement of Mainland award made by foreign institution
On 6 August 2020, Guangzhou Intermediate People’s Court made a civil ruling that an arbitral award made in Guangzhou by the ICC should be regarded as a Chinese arbitral award with a foreign element. It follows that the award should be enforced under Article 273 of the PRC Civil Procedure Law, rather than under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
(2015) Sui Zhong Min Chu Si Zi No. 62 or (2015)穗中法民四初字第62号
Background
This case concerned a supply contract between Brentwood Industries (US) as the seller, Guangzhou Faanlong Machinery Engineering Co Ltd (PRC) as the buyer, and Guangzhou Zhengqi Trading Co Ltd (PRC) as the agent of the buyer. Article 16 of the contract provided that “any dispute arising from or in connection with this contract shall be settled through friendly negotiation. If no settlement can be reached through negotiation, it shall be submitted to ICC for arbitration in the place where the project is located in accordance with international convention and practice…” (emphasis added). Article 17 provided that “the applicable law of this contract is PRC law”. In this case, the project was located in Guangzhou, Mainland China.
On 16 December 2010, Brentwood brought a claim against Faanlong and others (Respondents) in the Court. The Court declined to hear the case, as there was an arbitration agreement between the parties. On 9 May 2011, Brentwood applied to the Court to invalidate the arbitration clause. Brentwood was not successful. Subsequent to the Court’s ruling confirming the validity of the arbitration clause, on 31 August 2012, Brentwood commenced ICC arbitration against the Respondents. The arbitration was administered by the ICC through its Secretariat Asia Office based in Hong Kong. On 17 March 2014, the sole arbitrator made a final award in favour of Brentwood. On 13 April 2015, Brentwood applied to the Court for recognition and enforcement of the award.
The Court’s ruling on enforcement
Brentwood argued that judicial practice in Mainland China is that the nationality of the arbitral award is determined by the place where the arbitration institution is located. Accordingly, as the award was made by the ICC, which is headquartered in Paris, it should be recognised and enforced in Mainland China in accordance with the New York Convention. Alternatively, if the Court considered that the award was made by the ICC Secretariat Asia Office based in Hong Kong, the award is a Hong Kong arbitral award and should be recognised and enforced in accordance with the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region (Mainland and Hong Kong Mutual Arrangement).
The Respondents argued that (1) the award was not “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought “ (Article 1 of the New York Convention), and thus should not be recognised and enforced under the New York Convention; (2) ICC was not an arbitration institution stipulated in the PRC Arbitration Law and it was not legal for it to administer arbitration in Mainland China; and (3) the validity of the arbitration clause and the enforceability of the arbitral award were two separate legal issues under different rules. The fact that the arbitration clause was held valid did not necessarily suggest that the award made pursuant to it was enforceable.
The Court ruled that the award, made in Guangzhou by the ICC, should be regarded as a foreign-related arbitral award made in Mainland China. Enforcement of the award should be brought under Article 273 of the PRC Civil Procedure Law. It rejected Brentwood’s arguments for recognition and enforcement under the New York Convention or the Mainland and Hong Kong Mutual Arrangement and directed Brentwood to re-apply for enforcement under the PRC Civil Procedure Law.
Comment
It is a long-standing question whether foreign arbitration institutions can administer arbitration seated in Mainland China under the current PRC Arbitration Law regime. The traditional view was no, because “arbitration commission” in the PRC Arbitration Law meant Chinese arbitration institutions only. However, with the increase in commercial dealings between Chinese and foreign parties, the strict interpretation of the law no longer sits well with the demands of commercial parties. China’s Supreme People’s Court has recently, in several cases and judicial interpretations, confirmed the validity of clauses providing for arbitrations administered by foreign institutions seated in Mainland China. This latest decision made by the Guangzhou Court took a further step, supporting that the arbitral award made in arbitration seated in Mainland China and administered by a foreign arbitration institution can be enforced under PRC Civil Procedure Law. However, as Mainland China is not a case law jurisdiction, this latest decision by Guangzhou Court, even though it should have been vetted by the Supreme People’s Court via the internal reporting system, is not a binding authority in Mainland China.
Viewed in light of the fact that foreign arbitral institutions are now permitted to operate in Beijing and extended free trade zones in Shanghai (see here), we are hopeful that there will be a final clarification in the near future on the question of whether foreign arbitral institutions can administer arbitration seated in Mainland China. Legal practitioners in Mainland China have been calling for an amendment to the existing PRC Arbitration Law to address this issue. If that happens, it would be a significant step towards China further opening up its legal services market to foreign players. Having said that, before that final missing piece of the puzzle is complete, we would recommend that parties avoid agreeing to an arbitration clause that provides for arbitration seated in Mainland China to be administered by a foreign arbitral institution.
If you have questions or would like discuss any aspect of this post, please contact Helen Tang, Stella Hu or Briana Young of Herbert Smith Freehills, Weina Ye of Kewei Law Firm, or your usual Herbert Smith Freehills contact.
Helen Tang
Partner, Shanghai
+86 21 2322 2160
Weina Ye
International Partner, Kewei
+86 21 2322 2132
Stella Hu
Of Counsel, Beijing
+86 10 65355017
Briana Young
Professional Support Consultant, Hong Kong
+852 2101 4214
Beijing to open to foreign arbitral institutions
On 7 September 2020, the State Council of China published a policy paper on opening up the services sector in Beijing (“Work Plan for Deepening Comprehensive Pilot and New Round of Opening-Up of Services Sectors in Beijing and Building Comprehensive Demonstrative Area of Opening-up of State Services Sectors” or《深化北京市新一轮服务业扩大开放综合试点建设国家服务业扩大开放综合示范区工作方案》). The paper announces that foreign arbitral institutions will be allowed to set up “business organisations in designated area(s) in Beijing”, to “provide arbitration services in relation to civil and commercial disputes arising in the areas of international commerce and investments” and to “support and secure the application and enforcement of interim measures … before and during the arbitration proceedings, such as asset preservation, evidence preservation and action preservation” (emphasis added).
For these purposes, a “foreign arbitral institution” is one that is established outside Mainland China, including in Hong Kong, Macao or Taiwan.
The paper does not explain the exact scope of activities that business organisations will be entitled to carry out in Beijing. They might be permitted, for example, to organise arbitration hearings in venues in Beijing, or even to provide case administration services from Beijing. This is one step further from an earlier policy under a 2017 State Council policy paper (“Reply of the State Council in relation to Deepening Reform and Further Opening-up of Services Sectors in Beijing as Comprehensive Pilot” or 《国务院关于深化改革推进北京市服务业扩大开放综合试点工作方案的批复》), which allowed foreign arbitral institutions to “establish representative offices in Beijing” (emphasis added). No foreign arbitral institution has set up offices in Beijing following the 2017 policy.
The State Council of China previously released similar policies in Shanghai’s free trade zone. In 2015, a State Council policy paper allowed foreign arbitral institutions to open representative offices in Shanghai’s free trade zone. Subsequently, HKIAC, SIAC and ICC have opened representative offices in Shanghai. These offices, however, have been limited to liaison activities and have not been permitted to provide case administration services in Mainland China.
In August 2019, a further State Council policy paper stated that foreign arbitral institutions may be permitted to set up business organisations in Shanghai’s extended free trade zone to “conduct arbitration businesses in relation to civil and commercial disputes arising in the areas of international commerce, maritime affairs, investment, etc.” (emphasis added) (see here). It has been reported that several foreign arbitral institutions are in the process of setting up branches in the extended free trade zone under the August 2019 policy paper, although it remains to be seen which types of “arbitration businesses” those branches will be permitted to conduct.
It is worth noting that both the August 2019 Shanghai policy paper and the September 2020 Beijing policy paper mention that foreign arbitral institutions’ branches will be allowed “to support the application and enforcement of interim measures” in Mainland China. Under current Chinese law, parties to arbitration cases must apply to Chinese courts for interim measures; Mainland China-seated arbitral tribunals are not allowed to grant interim relief. However, Chinese courts generally do not accept interim relief applications from parties to arbitrations administered by foreign arbitral institutions (except for cases administered by designated Hong Kong arbitration institutions and seated in Hong Kong, see here), as there is currently no legal ground supporting this. The two policy papers appear to have allowed this possibility, but it remains unclear whether this is the correct interpretation and, if so, how it will be implemented in practice.
The latest Beijing policy paper, following the path of previous policy papers, signals further liberalisation and opening up of commercial arbitration practice in Mainland China. However, under the current Chinese Arbitration Law, foreign arbitral institutions are still not expressly permitted to administer arbitration cases seated in Mainland China.
For this reason, we continue to recommend against providing for arbitration of foreign-related disputes seated in Mainland China administered by an foreign arbitral institution (see here).
If you have questions or would like discuss any aspect of this post, please contact Helen Tang or Briana Young of Herbert Smith Freehills, Weina Ye of Kewei Law Firm, or your usual Herbert Smith Freehills contact.
Helen Tang
Partner, Shanghai
+86 21 2322 2160
Weina Ye
International Partner, Kewei
+86 21 2322 2132
Briana Young
Professional Support Consultant, Hong Kong
+852 2101 4214
CIETAC tribunal applies UNIDROIT Principles where parties fail to present case under governing law
While commercial parties are generally free to select the law that governs their contracts, they must also ensure that they understand the law they selected, and can actually apply that law to the contract. In a CIETAC arbitral award published by CIETAC in its publication “Selection of Arbitration Cases Involving the Belt and Road Countries”, a sole arbitrator came up with a creative solution in a situation where the parties failed to present their cases under the governing law of the contract. The arbitrator applied the UNIDROIT Principles of International Commercial Contracts to determine the legal issues in dispute. Despite this arbitrator’s willingness to “think outside of the box”, the case is a reminder that parties must consider the legal and practical implications of their contractual choices.
Background
On 24 September 2012, the Indonesian Respondent EPC contractor entered into an EPC Sub-Contract (Agreement) with the Mainland Chinese First Claimant and Indonesian Second Claimant to build a coal-fired power plant located in Indonesia. The governing law of the Agreement was Singapore law and disputes were referred to arbitration at the China International Economic and Trade Arbitration Commission (CIETAC).
The Project was stayed at the preliminary design stage. The Claimants contended that the Respondent had failed to provide permanent use of the road to access the Project’s site and failed to provide location details of the main entrance of the Project, which resulted in the Claimants’ delay in providing the preliminary design drawings to the Respondent. The Respondent in return blamed the Claimants for their delay in submitting the preliminary design drawing within the time limits as provided under the Agreement; and called the advance payment bonds and performance bond just before the Claimants completed and submitted the preliminary design drawings. After calling the bonds, the Respondent refused to pass the preliminary design drawing to the Employer for review and approval. As a result, performance under the Agreement was suspended.
The Claimants commenced arbitration and sought a declaration that the Agreement was terminated due to the Respondent’s breach. The Claimants also sought an order for the Respondent to return the called amounts of the performance bond; to return the difference between the amount of the advance payment bonds and advance payment to the Claimants; damages, and interest.
The governing law issue
The parties had expressly selected Singaporean law to govern the Agreement. However, neither party engaged Singaporean counsel or legal experts when arguing their cases in the arbitration. The Claimants submitted their pleadings based on Chinese law. Whilst the Respondent objected to the application of Chinese law, it merely submitted a Singaporean legal expert report with a few Singapore court cases in support, which was very limited in substance and did not touch upon the major issues in dispute.
Despite the sole arbitrator’s instructions, the parties failed to provide sufficient Singaporean legal authorities. The sole arbitrator referred to Article 49 of the CIETAC Arbitration Rules, which provides: “[t]he arbitral tribunal shall independently and impartially render a fair and reasonable arbitral award based on the facts of the case and the terms of the contract, in accordance with the law, and with reference to international practices”, and proposed that the parties submit their cases under the UNIDROIT Principles. If any party considered there was a conflict between Singaporean law and the UNIDROIT Principles, it could make submissions accordingly. The parties accepted this solution and submitted pleadings based on the UNIDROIT Principles.
The sole arbitrator found that the Claimants had breached the Agreement by delaying the initial design drawings. However, the sole arbitrator held that the Respondent’s response to the Claimants’ breach, by calling the bonds in full and refusing to submit the initial drawing to the Employer, had been disproportionate to the breach. In the arbitrator’s view, the Respondent’s call on the bonds made it impossible for the Claimants to continue performing the Agreement.
In the arbitrator’s view, the Respondent’s call on the bonds therefore constituted a fundamental breach of the Agreement. The arbitrator relied on the UNIDROIT Principles to uphold the Claimants’ claim that they were entitled to terminate the Agreement, and to determine the consequences of that termination. The arbitrator reasoned that the UNIDROIT Principles reflect good practice and general principles in international commercial contracts. Unless either party could demonstrate otherwise, the sole arbitrator held that he had no reason to believe there was any inconsistency between Singapore law and the UNIDROIT Principles.
Comment
In practice, many arbitrators would not proactively apply a non-binding codification of transnational legal principles to resolve a dispute where parties have explicitly chosen the governing law of the contract. The published award does not elaborate on why the tribunal proposed applying the UNIDROIT Principles. However, it does indicate that Chinese arbitrators may be increasingly open to applying international legal principles when dealing with foreign-related commercial disputes.
Nevertheless, this case appears to be a one-off, and it would be unwise for parties to rely on an arbitrator’s willingness to adopt creative solutions of this kind. Parties who take advantage of the contractual freedom to select a neutral governing law must be prepared to argue their cases under that law, i.e. to instruct counsel or experts who are qualified to practice that law. If parties do not apply the selected governing law in the arbitration, they must be prepared for the additional time and expense involved in determining which laws apply before the substantive claims can be heard, not to mention the risk of an unexpected outcome if the law applied produces an unfavourable decision.
[1] This award was published by CIETAC in the Selection of Arbitration Cases Involving the Belt and Road Countries, at pages 58 to 105.
Helen Tang
Partner
+86 21 2322 2160
Jean Zhu
Counsel, Kewei
+86 10 6535 5041
Yingtong Chen
Legal Assistant, Kewei
+86 10 6535 5133
BEIJING COURT UPHOLDS ARBITRATION IN DOMESTIC CONTRACT WHERE DISPUTE PROVISIONS CONFLICT
On 17 January 2020, by its ruling numbered (2019) Jing 04 Min Te 135 (Ruling), the Beijing Fourth Intermediate People’s Court (Beijing Court) upheld the validity of an arbitration agreement in a prospectus for a short-term financing bond which also contains conflicting litigation clauses.
In the Ruling, the Beijing Court followed the opinion of the Supreme People’s Court of China (SPC), reversing the lower court’s initial conclusion. The SPC opined that, where a contract contains different dispute resolution clauses in different sections, the parties’ “last expression of intent” prevails.
Background
In October 2017, Beijing Huaye Capital Holdings Co., Ltd. issued a prospectus for its RMB500 million short-term financing bond. The term of the bond is 365 days. On 2 August 2018, Guangzhou Securities Co., Ltd. purchased the bond at par value for RMB50 million according to the terms of the Prospectus.
Chapter 11 of the prospectus (under the heading “Investors Protections”) contains a number of inconsistent dispute resolution clauses:
- Article 2, paragraph 1 (under the heading “Liability of Default”) provides that the investors “may commence litigation in accordance with the law” if the issuer fails to redeem the bond and pay interest on the maturity date;
- Article 7, paragraph 2(3) (under the heading “Change of Control”) provides, in summary, that the investor “may commence litigation or arbitration” against the issuer for breach of contract if there is a change of control of the issuer;
- The last paragraph of Article 7, which is also the last paragraph of the prospectus, provides: “The issuer, in issuing this debt financing instrument, the lead underwriter, in underwriting this debt financing instrument, and the holders, in subscription and purchasing this debt financing instrument, shall be deemed to have agreed to the agreement above. If the issuer breaches the agreement above, the investor shall have the right to apply to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time. [……]”. (Arbitration Agreement) (emphasis added)
In November 2018, Guangzhou Securities filed a request for arbitration against Huaye Capital with CIETAC, relying on the Arbitration Agreement. It claimed that Huaye Capital had breached the terms of the prospectus by failing to redeem the bond or to pay interest.
In response, Huaye Capital challenged the jurisdiction of CIETAC in early 2019 on two main grounds. First, it argued that the Arbitration Agreement applies only to disputes arising from the change of control of the issuer under Article 7, Chapter 11 of the prospectus. Since Guangzhou Securities’ claims were based on Huaye Capital’s default in repaying the principal and interest, the Arbitration Agreement does not apply. Second, it argued that the prospectus provided for both litigation and arbitration and was therefore invalid under Chinese law.
The Beijing Court’s initial conclusion
The Beijing Court initially concluded that the Arbitration Agreement was invalid. It found that the language “the agreement above” in the Arbitration Agreement referred to the full prospectus, instead of Chapter 11 only. However, the Beijing Court also noted that the prospectus “refers to the expressions like ‘commence litigation’ in several places; which means that the Prospectus provides for both litigation and arbitration as dispute resolution mechanisms without particular distinctions.” It therefore considered that the Arbitration Agreement was invalid under the “Interpretation of the Supreme People’s Court on Certain Issues relating to Application of the Arbitration Law of the People’s Republic of China”, (SPC Interpretation on Arbitration Law), Article 7 of which provides that an arbitration agreement is invalid if “the parties agreed that the dispute can be either referred to an arbitral institution for arbitration or to a court for litigation”.
Minded to invalidate the Arbitration Agreement, the Beijing Court reported the case to the higher courts pursuant to article 2(2) of the Provisions of the Supreme People’s Court on Issues relating to the Reporting and Review of Cases Involving Judicial Review of Arbitration” (Reporting Provisions) (further explanation here). The case was ultimately reported to the SPC for review.
SPC’s review opinion
The Beijing Court’s Ruling contains the SPC’s opinion. While the SPC agreed with the Beijing Court that the term “the agreement above” in the Arbitration Agreement refers to all matters under the prospectus, it found that “[t]he Prospectus provides for different dispute resolution methods in its earlier and later parts, the parties’ last expression of intent shall prevail”. The SPC accordingly reversed the Beijing Court’s decision and confirmed that the Arbitration Agreement is valid.
Comment
Two points are worth noting.
First, it has been trite law in China that a “hybrid arbitration clause”, i.e., an arbitration clause which provides that the parties can submit their disputes to either arbitration or litigation, is invalid. This was reinforced after the SPC Interpretation on Arbitration Law came into effect in 2006. The Beijing Court Ruling may indicate that the SPC is now adopting a more flexible and pro-arbitration approach to this issue. Based on the limited SPC remarks in the Ruling, we think the language of the Arbitration Agreement, which refers to arbitration only and specifically covers “the agreement above”, and the fact that the Arbitration Agreement is the last paragraph of the prospectus, both influenced the SPC’s decision. Although the Ruling should not be seen as a blanket removal of the restrictions imposed by Article 7 of the SPC Interpretation on Arbitration, it does suggest that the SPC may now consider this issue on a case by case basis.
Second, before the SPC issued its latest Reporting Provisions in December 2017, the “reporting system” applied only to foreign-related arbitrations. Had the current case taken place before 2018, the Beijing Court would have delivered its ruling against the Arbitration Agreement without having to report to the SPC. After the Reporting Provisions came into force in January 2018, the SPC has taken control of all cases – both foreign-related and domestic – in which a lower court is minded to hold an arbitration agreement invalid. The Ruling is another example of the SPC supporting arbitration within the current legal regime.
Helen Tang
Partner, Mainland China
+86 21 2322 2160
Stella Hu
Senior Consultant, Hong Kong
+852 2101 4248
Tianyu Ma
Associate, Mainland China
+86 10 6535 5040
Hong Kong court refuses enforcement of mainland award, rejects limitation arguments
In Wang Peiji v Wei Zhiyong [2019] HKCFI 2593; [2019] HKEC 3446, the Hong Kong Court of First Instance has set aside an order to enforce a mainland Chinese arbitration award, rejecting arguments that a twelve year limitation period applied because the award had been made under seal.
Background
The Plaintiff, the Defendant and a third party entered into a loan agreement, under which the Defendant and the third party borrowed RMB 22 million. In case of default, the Defendant and the third party would pay interest at 2% per month, and the Defendant’s companies would guarantee the repayment. The Defendant, the third party and the Defendant’s companies failed to repay the loan, so the Plaintiff commenced arbitration at the Guangzhou Arbitration Commission, which made an award in the Plaintiff’s favour on 20 April 2009.
The Plaintiff commenced enforcement proceedings in the Panyu People’s Court where it recovered RMB 4,734,019.48, leaving RMB 3,353,496.92 plus interest outstanding under the award. The Plaintiff then commenced enforcement proceedings in Hong Kong to recover the remaining amount. On 14 May 2019 Madam Justice Mimmie Chan granted leave to enforce the award, holding that the Defendant should pay the outstanding sum plus interest. The Defendant appealed.
Decision
In setting aside the enforcement order, the court addressed two main issues.
The applicable limitation period
The first issue was the applicable limitation period under the Limitation Ordinance. The Plaintiff argued that the applicable provision was section 4(3) Limitation Ordinance (Cap. 347), which provides a limitation period of twelve years meaning that the Plaintiff was entitled to enforce the award until 20 April 2021. This was based on the fact that the award of the Guangzhou Arbitration Commission was executed under seal. The Defendant argued that the relevant period was six years under section 4(1)(c). The Court ultimately agreed with the Defendant. It rejected the Plaintiff’s argument, stating that the relevant consideration is whether the underlying contractual document, not the award, was executed under seal. As there was no suggestion of that in this case, the Court held that the default limitation period of six years applied.
Suspension of the limitation period
In the alternative, the Plaintiff argued that the limitation should be suspended for the period in which the Plaintiff was engaged in enforcement proceedings before the Chinese court. The Plaintiff sought to distinguish CL v SCG [2019] 2 HKLRD 144, in which the judge relied on the English case Agromet v Maulden Engineering Ltd [1985] 1 WLR 762 to reject the suspension argument. The judge in CL stated that there was no provision in the Limitation Ordinance or the Arbitration Ordinance that the limitation period should not run during the period a party is seeking to enforce an award abroad. The Plaintiff sought to distinguish the case on the basis that, unlike in CL, enforcement efforts in this case went on for considerable time and were successful, meaning that it could not be expected to have ceased its efforts in China.
Despite these arguments, the Court again found in favour of the Defendant. It held that the ruling in CL had been clear, and the fact that the Plaintiff had had more success in China than the plaintiff in CL was not a material difference which distinguished the two cases. The Court therefore allowed the Defendant’s application to set aside the enforcement order, and made a costs order in its favour.
Comment
The case serves as a reminder to pay close attention to limitation periods. In deciding where to bring enforcement proceedings, parties should consider not only the value of the defendant’s assets in a particular jurisdiction, but also the effect that the length of enforcement proceedings could have on their ability to enforce in other jurisdictions. Parties and their legal advisers must consider all relevant factors when assessing where to enforce.
May Tai
Managing Partner, Greater China, Hong Kong
+852 21014031
Simon Chapman
Partner, Hong Kong
+852 21014217
Kathryn Sanger
Partner, Hong Kong
+852 21014029
Briana Young
Foreign Legal Consultant (England & Wales)/Professional Support Consultant, Hong Kong
+852 21014214