Case Name: KB v S. and Others  HKCFI 1787 (available here)
Court: Hong Kong Court of First Instance
Coram: Hon Mimmie Chan J
Date Delivered: 15 September 2015
In KB v S and Others, the Respondents sought non-enforcement of two Hong Kong awards on the basis that the awards were not valid and were not in a form that could be entered as a judgment. However, the application was dismissed on the basis that it was procedurally defective – the grounds were not precisely stated, and two of the three Respondents made the application out of time. Further, none of the matters raised could establish the claim that the awards were “invalid”, and the Respondents’ conduct was such that they had not been acting in good faith. Consequently, even if a valid ground for non-enforcement was made out, the Court would exercise its discretion in favour of enforcement. HKIAC Deputy Managing Counsel Joe Liu and IAA’s Michelle Kang and Kayjal Dasan examine the decision in this case update.
On 12 April 2006, the Applicant and the Respondents entered into an agreement which included a Letter of Intent (“LOI”) regarding the sale and purchase of shares. The LOI provided for Hong Kong law to be the governing law and for arbitration in Hong Kong. Disputes arose in 2010; the Respondents sought to terminate the LOI, and the Applicant commenced arbitration in Hong Kong in March 2010. The parties also commenced court proceedings in Guangdong, China. On 28 August 2012, the Guangdong court held that the LOI had terminated under PRC laws.
The tribunal issued three awards:
- It had jurisdiction to deal with the dispute.
- The LOI was valid; the Guangdong judgment was not final since it was under appeal to the PRC Supreme Court, and thus, the tribunal was free to decide. The Applicant succeeded on liability and the Respondents’ counterclaim was dismissed.
- The Respondents were to specifically perform the LOI.
Prior to the hearing for the 3rd award, the Respondents sought to set aside the 2nd award in April 2014 in the Hong Kong courts. This was dismissed by Hon L Chan J.
Subsequently, the Applicant obtained leave from the Hong Kong courts to enforce the 2nd and 3rd awards in June 2015 (“the Order”). In August 2015, the Respondents sought to set aside the Order on the basis that the awards “are not valid and/or are not in a form which can be entered as a judgment”, and on “such further grounds as may be advised by counsel upon sight of the evidence adduced by the Applicant”. The Respondents later elaborated that the 3rd Respondent had been unable to present its case properly in the hearing for the 3rd award, and the 3rd award would not be enforceable in the PRC as the matter was still on appeal.
II. TEN GUIDING PRINCIPLES TO AWARD ENFORCEMENT IN HONG KONG
In the judgment, Chan J first laid down ten principles which summarize the Hong Kong judiciary’s attitude towards the enforcement of arbitration agreements and awards. These principles are set out below in verbatim:-
(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 (“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  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  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  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  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 (p 120I and p 137B of the judgment).
III. THE COURT’S DECISION
First, the application for non-enforcement was defective as the Respondents had failed to precisely state the grounds of the application in the initiating summons under O. 73 r. 5(6) of the Rules of High Court, and in the affirmation in support which was to be filed at the same time as the summons. It is an abuse of process to issue a summons to set aside an order granting leave to enforce an arbitral award, if the summons does not even disclose a ground for setting aside.
Second, the 1st and 2nd Respondents’ application to set aside the Order was made out of time. No attempt was made to apply for leave to make the application out of time; the Respondents neither provided the Court with good reasons for their delay, nor satisfied the Court that the application had merits.
Third, while the 3rd Respondent’s application was made in time, it failed to demonstrate grounds to set aside the Order. In enforcement proceedings, it is not for the Court to consider the substantive merits of an arbitral award. The Respondents failed to clearly formulate and state the precise grounds of their application to set aside the Order, and none of the matters raised could establish the alleged “invalidity” of the awards.
Fourth, the Respondents’ conduct, such as their failure to raise their objections that the 3rd Respondent had not been properly heard during the arbitration despite having opportunities to do so, demonstrated that they had not been acting in good faith. The application was thus an abuse of court process. In any event, even if the Respondents were able to establish a valid ground to set aside the Order, the Court would exercise its discretion in favour of enforcement.
The judgment helpfully sets out the key principles that the Hong Kong courts would apply when dealing with requests for enforcement of arbitration agreements or awards. These principles underpin the Hong Kong courts’ longstanding commitment to supporting arbitration as a mode of dispute resolution. The key objective is to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense by refusing to intervene unless expressly provided for in the Arbitration Ordinance (Cap. 609). Guided by this objective, the Hong Kong courts maintain an excellent track record of enforcing arbitral awards, and have not refused to enforce any awards between 2011 and 2014.
On a practical note, parties must clearly state the grounds for any application for the non-enforcement of an arbitral award, and should raise any procedural complaints promptly during the arbitral process. Otherwise, they run the risk of being taken to have acted in bad faith, and may be estopped from raising such complaints at the enforcement stage.
This article may be cited as follows: Joe Liu, Michelle Kang and Kayjal Dasan “Hong Kong Case Update: Hong Kong’s Ten Principles of Award Enforcement (KB v S. and Others  HKCFI 1787)”, International Arbitration Asia (17 October 2015) <http://www.internationalarbitrationasia.com/hong-kongs-ten-principles-of-award-enforcement-kb-v-s-and-others>.