Jurisdiction - Hong Kong
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Hong Kong – Application To Set Aside Leave To Enforce CIETAC Arbitration Award.
20 August, 2013

Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution

 

In the recent Hong Kong, High Court case of Guo Shun Kai v Wing Shing Chemical Co Ltd, Wing Shing Chemical Co Limited ("Wing Shing") made an application, pursuant to Order 73 rule 10(6), of the Rules of High Court, to set aside or vary a prior court order giving Guo Shun Kai ("Guo Shun") leave to enforce an arbitral award as a judgment of the Hong Kong High Court.

 

The arbitration award had been made by the South China Sub-Commission of CIETAC and required Wing Shing to pay Guo Shun RMB29,195,470.58 compensation for economic loss plus RMB12,293,716.33 interest, RMB500,000 legal costs, RMB675,473 for the costs of the arbitration proceedings and RMB134,574 for the arbitrators' costs.

 

The ground relied upon by Wing Shing for setting aside or varying the order giving leave to enforce is that contained in section 95(2) of the Arbitration Ordinance (Cap 609), which provides that enforcement of a Mainland award may be refused if the person against whom it is invoked proves that the award has not yet become binding on the parties or has been set aside or suspended by a competent Mainland authority, under Mainland law.

 

Wing Shing argued that the award had not yet become binding on the parties or had been suspended under Mainland law on the basis that Wing Shing had commenced legal proceedings in Shenzhen to dismiss the award. The Shenzhen Intermediate People's Court ("the Shenzhen Court") had accepted jurisdiction over the case, had heard both parties and judgment was awaited.

 

Wing Shing's application to the Shenzhen Court had been made on the ground that the arbitration award exceeded the scope of the arbitration and that the arbitration procedures were contrary to law.

 

The Hong Kong court said that as Wing Shing's application had already been heard by the Shenzhen Court, it was appropriate to adjourn Wing Shing's current application in Hong Kong, pending the Shenzhen's Court's determination. It said that if Wing Shing failed in the Shenzhen Court, then there would perhaps be little more it could say to oppose enforcement of the award in Hong Kong. However, if on the other hand, the award was set aside, discharged or dismissed by the Shenzhen Court, then enforcement of the award should be refused under section 95 of the Arbitration Ordinance.

The Hong Kong Court said that by virtue of a proviso in the order giving leave to enforce the award, an adjournment of Wing Shing's current application would mean that Guo Shun would not be able to enforce the award until resolution of the application and that, in these circumstances, it was appropriate to order Wing Shing to give security (by way of payment into court) during the adjournment. This was particularly so, the Court said, because:

 

  1. Wing Shing had not produced any documents showing the grounds or merits of its application to the Shenzhen Court to dismiss the award so as to try to show that the award was manifestly invalid;
  2. Wing Shing had changed its registered office to the address of a service company;
  3. Wing Shing had quite recently sold its industrial property;
  4. Wing Shing's financial performance was deteriorating; and
  5. according to recent public announcements, Wing Shing's unaudited net liabilities far exceeded its total assets.

 

The Court decided that HK$20 million was an appropriate amount of security to order, which would give Guo Shun some protection against any deterioration of his prospects of successfully enforcing the award in Hong Kong as a result of the adjournment.

 

The Court ordered that the security be provided in the form of a payment into court or by such other security as was acceptable to the Court and that if after an inordinate period of time, no judgment was forthcoming from the Shenzhen Court, the parties could apply to them (i.e. to the Hong Kong) again.

 

This judgment is consistent with our understanding that the Hong Kong Court is generally supportive of enforcement of arbitral awards. In this case, the court provided security to Guo Shun in case Wing Shing was only trying to delay enforcement of the award by making a meritless application to dismiss the award in the Shenzhen Court.

 

 

For further information, please contact:
 
Cheung Kwok Kit, Partner, Deacons
kwokkit.cheung@deacons.com.hk
 
 
 

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