Enforcing Mainland Arbitral Award in Hong Kong – Under Statute and Common Law

Nov 2020

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On 9 October 2020, the Court of Final Appeal (CFA) handed down its judgement in  Xiamen Xinjingdi Group Co Ltd v Eton Properties Limited and Others [2020] HKCFA 32 (Xiamen Xinjingdi), marking an end to a 15 year long dispute between the parties concerning the enforcement of a Mainland arbitral award in Hong Kong.

Key Takeaways

  • A party to an arbitral award obtained in Mainland China may enforce the award in Hong Kong if the other party has failed to comply with the award.[1] The award may be enforced under either statute or common law.
  • Under statute, the Hong Kong Court may enter judgment in terms of the award. The Court cannot go beyond the terms of the award. The statutory approach is governed by the Arbitration Ordinance (Cap 609) .
  • Under common law, the Hong Kong Court has the power to grant relief that is wider than that in the award. This was confirmed by the CFA in Xiamen Xinjingdi.
  • Enforcement under the Arbitration Ordinance is the typical method for enforcing Mainland arbitral award in Hong Kong. It is the simplest and fastest approach. Enforcement under the common law is more costly and time-consuming. However, common law may be used in cases where a party seeks wider relief than that in the award. For example, a party may seek wider relief when the remedies in the award are inadequate or can no longer be performed (as they were in Xiamen Xinjingdi, discussed below).

 

Xiamen Xinjingdi Summary

Background

Xiamen Xinjingdi relates to the enforcement of a CIETAC arbitral award.

In 2006, the plaintiff received an arbitral award in its favour – the Tribunal had ordered the defendants to continue performance of an agreement. However, in practical terms, the award did not assist the plaintiff because it had become impossible for the defendants to perform the agreement. Under the agreement, the defendants were required to transfer shares to the plaintiff. However, the defendants had gone through a restructuring and transferred the shares to a third party instead.

The plaintiff sought to enforce the award in Hong Kong. It first used the statutory approach and obtained a judgment in terms of the award. However, this was not a sufficient remedy for the plaintiff, because the defendants were unable to comply with the judgment.

Therefore, the plaintiff commenced a common law action against the defendants in the Hong Kong Court to enforce the award. The plaintiff sought: (a) an order to enforce the award; and (b) additional orders, including damages and equitable compensation.

CFA decision

A key question for the CFA was whether: (a) it could only enter judgment in the same terms as the award; or (b) it could grant relief beyond the terms of the award.

The CFA ruled that in a common law action to enforce an arbitral award, the Court is not restricted to duplicating the arbitral award (but it is so restricted in a statutory action). The Court has the power to fashion an appropriate remedy to give effect to the arbitral award, distinct from any remedy claimed in the arbitration. In Xiamen Xinjingdi, the Court found that it had jurisdiction to order damages or equitable compensation even though the tribunal had made an award only for performance of the agreement.

 

Enforcing mainland arbitral award in Hong Kong under the Arbitration Ordinance

Mainland awards enforceable as judgment

Under the Arbitration Ordinance, an arbitral award made in the Mainland is enforceable in Hong Kong in the same manner as a judgment of the Court, but only with leave of the Court.[2] If leave is granted, the Court may enter judgment “in terms of the award”.[3]

The award must be made by a “recognised Mainland arbitral authority in accordance with the Arbitration Law of the People’s Republic of China”.[4] This includes CIETAC and the China Maritime Arbitration Commission, as well as most domestic arbitration commissions established under the Arbitration Law.[5]

Benefits and limits of statutory enforcement

Enforcement under the Arbitration Ordinance is summary in nature. An application to enforce may be made ex parte (i.e. without notice to the other party). The object is for the Court to endow the award with the status of a compulsory judgment without itself scrutinising the merits of the award. This allows for effective and speedy enforcement of awards. The Court will only entertain challenges within the limits laid down by the Arbitration Ordinance.[6] The Court’s task is to be “as mechanistic as possible” and in the nature of an administrative procedure. The Court must confine itself to entering judgment “in terms of the award”.[7]

 

Enforcement under the common law

Method of enforcement

In order to enforce an arbitral award under common law, the plaintiff needs to sue on the award and prove its case. The plaintiff will need to commence a court action by filing a Writ of Summons and a Statement of Claim.  The summary ex parte enforcement procedure under the Arbitration Ordinance is not available.[8] Common Law enforcement is, therefore, likely to be more costly and time-consuming. However, it may be preferred over the statutory approach if the remedies in the award are inadequate or can no longer be performed.

Grounds for enforcement

Parties to an arbitration agreement impliedly promise to perform a valid award.[9] If the award is not performed, the successful claimant can commence a court action for breach of this implied promise and obtain a judgment giving effect to the award.[10] In the court action, the plaintiff must prove: (a) there was a submission to arbitration; (b) the arbitration was conducted pursuant to the submission; and (c) the award was valid, made pursuant to the provisions of the submission.[11]

Wider relief permitted

Unlike in a statutory action, the Court in a common law action is not constrained by the requirement that the judgment must be “in terms of the award”. The Court has the power to fashion an appropriate remedy to give effect to the arbitral award, distinct from any remedy claimed in the arbitration.[12]

 

Comment

A successful party to a Mainland arbitral award may enforce an award in Hong Kong if the other party has failed to comply with the award. The party should consider carefully whether to proceed with enforcement under the Arbitration Ordinance or common law.

Enforcement under the Arbitration Ordinance is an expedited procedure, and may be appropriate for enforcing the strict terms of the award. In most cases, the enforcement under statute is procedural and will be preferred because of its speed and simplicity, and because the successful party will simply want an enforceable judgment in the same terms as the award.

Enforcement under common law requires a claimant to commence a court action, and is likely to be more costly and time-consuming than under statute . However, the common law may allow the claimant to obtain broader forms of relief. This may be needed where, for example, it is no longer possible for the respondent to comply with the award.

Examples of when wider relief may be sought include:

  • when the property that is the subject of the award is already in the hands of a third party (as in Xiamen Xinjingdi) or has been destroyed; and
  • where time for performance was of the essence and that time has passed.

 

[1] Enforcement is enabled by the “Mutual Enforcement of Arbitral Awards between the Mainland and HKSAR”, People’s Republic of China Supreme Court Notice of 24 January 2000.

[2] Arbitration Ordinance, s.84(1).

[3] Arbitration Ordinance, s.84(2).

[4] Arbitration Ordinance, s.2(1) and 97.

[5] Government Notice No. 7726, Government Gazette No. 51 Vol. 20, 23 December 2016.

[6] Xiamen Xinjingdi at [87]; Arbitration Ordinance, s.95.

[7] Xiamen Xinjingdi  at [89], [93].

[8] Xiamen Xinjingdi at [90]-[97].

[9] Xiamen Xinjingdi at [102].

[10] Agromet Motoimport v Maulden Engineering Co (Beds) Ltd [1985] 1 WLR 762, cited in Xiamen Xinjingdi Case at [122].

[11] Norske Atlas Insurance Co Ltd v London General Insurance Co Ltd (1927) 28 Ll L R 104 at 106-107, cited in Xiamen Xinjingdi at [90].

[12] Xiamen Xinjingdi  at [94], [122].

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