Applying for enforcement of Mainland awards in Hong Kong SAR under the Arbitration Ordinance 2021

Introduction

The Arbitration (Amendment) Ordinance 2021 of the Hong Kong Special Administrative Region of China (“Hong Kong”) (the “Arbitration Ordinance”) took effect on 19 May 2021, further promoting the implementation of the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (Fa Shi [2020] No. 13] (the “Supplemental Arrangement”) in Hong Kong. This article will focus on the major changes in the Arbitration Ordinance, briefly review the basic procedures for enforcing Mainland awards^[1] in Hong Kong SAR, and address several practical concerns often enquired by Mainland parties.

I. Major changes in the Arbitration Ordinance

On 17 February 2021, the Department of Justice of Hong Kong issued a press release proposing amendments to the then-current Arbitration Ordinance to fully implement the Supplemental Arrangement^[2]. The Legislative Council of Hong Kong considered and passed the amendments in the following month^[3]. There are two major changes: firstly, it removes the restrictions on the enforcement of Mainland awards under Section 93, allowing parties to enforce their awards both with Mainland courts and the High Court of Hong Kong (“Hong Kong court”) at the same time; secondly, it repeals the list of “recognised” Mainland arbitral authorities^[4] published under Section 97.

These changes provide a new solution to the enforcement of Mainland awards. We will likely see more parties to seek enforcement of the Mainland awards in favour of them in Hong Kong SAR when they meet challenges in China Mainland.

II. Overview of the Mainland awards enforced in Hong Kong

From 2000 to 2009, 94.22% of Mainland awards were successfully enforced in Hong Kong. The Hong Kong court received eighty four applications to enforce Mainland awards. All applications were granted with the leave to enforce. Eighteen respondents seek to set aside the order and only five of them were approved^[5].

From 2009 to 2017, 96.58% of Mainland awards were successfully enforced in Hong Kong. During this time, the number of applications reached to 249, of which 85, or 34.13% were from the Mainland, ranking the first place. In other words, 9 Mainland awards on average filed for enforcement in Hong Kong each year. Especially in 2017, 17 Mainland awards were filed for enforcement in Hong Kong^[6]. In this eight years, 11 applications were made to set aside the order and the only 3 were granted.

According to these publicly available data, we believe that the Mainland awards are very likely to be enforced in Hong Kong. This record also demonstrates that the close cooperation in trade and capital between the Mainland and Hong Kong has given rise to a series of civil and commercial disputes, and that many of the parties ordered to pay compensation in Mainland awards may have properties available for enforcement in Hong Kong. Therefore, Hong Kong is an unignorable option to enforce awards for Chinese parties to international arbitration and cross-border disputes.

III. Basic procedures for applying for enforcement of Mainland awards

A party applying for enforcement of an award in Hong Kong should first submit an application to the Court of First Instance of the Hong Kong court (the “Court”) in accordance with Section 84 of the Arbitration Ordinance^[7]. Then the Court may grant a leave to “enter judgment” in terms of the application.

Once the court has granted the leave, the award becomes enforceable as if it were a judgment of the Hong Kong court. If the Court dismisses the application, the applicant may also, with leave, appeal to the Hong Kong court against the Court’s decision.

According to the Rules of the High Court^[8], after a “leave” is granted, the court will serve an “order granting the leave” on the party subject to enforcement (“debtor”) and require the debtor to perform the award. The debtor may raise objection within 14 days or a period specified by the court upon receipt of the order. During this “objection period”, the award cannot be actually enforced.

IV. Legal issues to be considered in applying for enforcement of Mainland awards

(I) Property investigation prior to the initiation of enforcement proceedings

Different from the enforcement requirements in the Mainland, an applicant applying for enforcement in Hong Kong should provide information of the properties pending enforcement. The Hong Kong court are not obliged to and will not take the initiative to investigate about the debtor’s property for the applicant.

In view of this, it is practically necessary for the applicant to investigate the debtor’s property available for enforcement before making a formal application. In addition, property investigations prior to enforcement proceedings in the two jurisdictions are also different. The property investigation in Hong Kong may cover the following:

• Basic information. Obtaining from the registration authority the debtor’s registration information, including but not limited to company’s name, address, company secretary, and shareholders;
• Property. Using a third party institution database to search whether the debtor has ever held any property or conducted any transactions in Hong Kong to trace the debtor’s assets;
• Litigations. Using a third party database to search whether debtor is involved in any litigation in Hong Kong^[9] and to trace the debtor’s assets;
• Winding up. This is to enquire with government authority whether the debtor has ever been or is now in the winding up proceedings, or has been declared liquidated. If the debtor is undergoing the winding up proceedings, then the applicant may make claims against the liquidator for repayment of the relevant debts; and
• Shareholding. To our knowledge, shareholders of listed companies in Hong Kong who hold more than 5% of shares are required to disclose their equity. Except for this, there is no way to directly and fully trace the debtor’s equity investments in Hong Kong.
• In addition, the applicant may engage legitimate private investigation firms in Hong Kong to conduct a more in-depth investigation on the debtor’s assets.

(II) Limitation on applications for enforcement of Mainland awards in Hong Kong

The Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (Fa Shi [2000] No. 3) (the “Arrangement”) provides: “Only when the result of the enforcement of the award by the court of one place is insufficient to satisfy the liabilities may the applicant apply to the court of another place for enforcement of the outstanding liabilities.”

Subject to such requirement, many parties will give priority to the enforcement of arbitral awards in the Mainland, taking into account such factors as the cost of enforcement. If the enforcement proceedings in the Mainland are ineffective or pending, the enforcement proceedings in Hong Kong may not commence in a timely manner, which may have a significant impact on the interests of the successful parties.

The guiding case CL v. SCG [2019] HKCFI 398^[10], jointly issued by the Supreme People’s Court and the Department of Justice of Hong Kong, affirms the general provision on the time limit for applying for enforcement of a Mainland award in Hong Kong: The limitation period for application for enforcement of an award shall commence on the date when the debtor “fails to make payment within a reasonable time of the publication of the Award and demand being made”.

In addition, under Section 4.1.c of the Hong Kong Limitation Ordinance, the limitation period for enforcement application is six years. Not the same as in the Mainland, there is no provision for suspension or interruption of such period.

Before the 2021 amendment, it is important for the applicant to be aware of these differences and coordinate the enforcement procedures in the Mainland and Hong Kong. After the amendment, it is recommended that the successful party should apply for enforcement in both the Mainland and Hong Kong at the same time against the debtor as soon as possible.

(III) Documents required to be submitted in connection with applications for enforcement of Mainland awards in Hong Kong

In accordance with Section 85 of the Arbitration Ordinance^[11], and Order 73, Rule 10 of the Rules of the High Court, the documents required to be submitted for enforcement of Mainland awards in Hong Kong include: (1) an affidavit; (2) the duly authenticated original award or a duly certified copy of it; (3) the original arbitration agreement or a duly certified copy of it; and (4) an authenticated translation if the award is not in Chinese or English.

It is worth noting that as an application for enforcement of an award is generally made ex parte by a party, the party making the application assumes a duty of full and frank disclosure of all relevant information in support of the application. In Grant Thornton International Ltd v JBPB & Co [2013] HKEC 477, the court held that the applicant should disclose facts and evidential material relevant to the success of the application, including whether there is any proceeding to set aside the arbitral award. Inaccurate disclosure or material omissions may be fatal to the application.

Additionally, as the Arbitration Ordinance allows for simultaneous applications for enforcement of awards in both the Mainland and Hong Kong, the problem of double enforcement still exists. The Supplemental Arrangement provides for a system to share information between the two jurisdictions, i.e. “The courts of the two places shall, at the request of the court of the other place, provide information on its status of the enforcement of the arbitral award. The total amount to be recovered from enforcing the arbitral award in the courts of the two places shall not exceed the amount determined in the arbitral award.” In the future, applicants are encouraged to disclose the enforcement of the award in the Mainland, in particular the amount recovered, and apply for enforcement in Hong Kong only in respect of the amount not yet recovered, in order to improve the efficiency of the application review and the possibility of the leave being granted.

(IV) The relationship between the Mainland’s proceedings to set aside arbitral awards and Hong Kong’s enforcement proceedings

In accordance with UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), the Convention on the Recognition and Enforcement of Foreign Arbitral Awards “does not apply to setting aside proceedings” and “a respondent’s cross-motion to set aside the award was governed by domestic law on arbitration.” Similarly, the Arrangement and the Supplemental Arrangement (collectively, the “Arrangements”), which deal with inter-regional judicial matters in China, do not deal with the setting aside of arbitral awards.

The Mainland award is made under the Arbitration Law of the People’s Republic of China (the “Arbitration Law”). Pursuant to Article 58 of the Arbitration Law, the application for setting aside a Mainland award shall be made to the intermediate people’s court at the place where the arbitration institution resides. According to Section 95(2)(f) of the Arbitration Ordinance, a Hong Kong court may refuse to enforce a Mainland award if the award has been set aside by a court of competent jurisdiction in the Mainland.

If the debtor applies for setting aside the Mainland award in the Mainland at the same time as the applicant applies for enforcement of such award in Hong Kong, how will the enforcement proceedings in Hong Kong proceed before the Mainland court makes a ruling on the setting aside case? Does it have to be suspended? Neither the Arbitration Ordinance nor the Arrangements explicitly address this issue. It is noteworthy that under Sections 89 and 98D of the Arbitration Ordinance, if the party concerned applies for setting aside or suspending a Convention award^[12] or a Macao award^[13], the Hong Kong court “may, if it thinks fit, adjourn the proceedings for the enforcement of the award” and “may, on the application of the party seeking to enforce the award, order the person against whom the enforcement is invoked to give security.” There is, however, no similar statutory provision in respect of Mainland awards.

In the precedents such as La Dolce Vita Fine Dining Co Ltd v. Zhang Lan and Others [2020] HKCFI 622, however, the Hong Kong court, in response to an application by the respondents for a stay of proceedings in relation to the enforcement of a Mainland award (where the place of arbitration was Beijing), rendered an order as follows: “The Summons be adjourned for a period of 3 months from the handing down of this Decision, on condition that the 1st, 2nd and 3rd Respondents give security by payment into court (or by provision of such other security as is acceptable to the Applicants) of 40% of the total sum of the Awards, and costs of the Summons on indemnity basis.”

In view of this, we understand that if a debtor applies for a stay of enforcement proceedings on the ground that the Mainland court has not yet made a ruling on the setting aside case, the Hong Kong court will also have the discretion to decide whether to stay the proceedings and whether to require the debtor to provide security depending on the actual circumstances of the case. Such practice is notably different from that in the Mainland where the enforcement court should order the stay of enforcement of a Mainland award if an application for setting aside such award is made by the debtor and accepted by a court.

(V) Property preservation or similar measures in enforcing Mainland awards

Under Article 6 of the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region, before the arbitral award is made, a party to arbitral proceedings administered by a Mainland arbitral institution may, pursuant to the Arbitration Ordinance and the High Court Ordinance, apply to the High Court for interim measure. In Hong Kong, interim measure includes injunction and other interim measure for the purpose of maintaining or restoring the status quo pending determination of the dispute; taking action that would prevent, or refraining from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral proceedings; preserving assets; or preserving evidence that may be relevant and material to the resolution of the dispute.

Therefore, where a Mainland award is potentially enforced in Hong Kong, the applicant should first consider to apply to a Hong Kong court for interim measures at the time of initiating arbitration in order to prevent the counterparty from transferring, concealing or selling its property.

If the applicant has not applied to the Hong Kong court for interim measures against the debtor before the award is made, it may still do so before or after the application for enforcement of the arbitral award is accepted in accordance with Article 4 of the Supplemental Arrangement.

(VI) Enforcement measures in enforcing Mainland awards

In addition to injunction and other interim measures, the applicant may, depending on the type of assets of the debtor, seek charging order, asset sale order,  third party debt order, or to have the responsible person to be examined by the court under Order 48 of the Rules of the High Court to disclose assets of the debtor. The applicant may even file a winding up petition to compel the debtor to go bankrupt and subsequently seek repayment of its debt from the debtor’s estate.

The victory in arbitration is an important step for obtaining legal relief, but it is not the end of the story. Where a debtor refuses to perform a binding award, the ultimate satisfaction of the claim still depends on the progress of the court’s enforcement proceedings. Parties who have obtained a favourable Mainland award and need to apply for enforcement of such award in Hong Kong should figure out a best solution for the enforcement by fully considering the specific circumstances of the case, the assets of the debtor, as well as the procedure, time and financial costs of the various enforcement measures.