Hong Kong Courts’ treatment of arbitral awards set aside by foreign courts
Dana Shipping and Trading SA v Sino Channel Asia Ltd (HCCT 47A/2015)
In Dana Shipping and Trading SA v Sino Channel Asia Ltd (HCCT 47A/2015), the Hong Kong Court of First Instance (“Court”) held that it had discretion to enforce a foreign arbitral award even after it had been set aside by the foreign supervisory court of the arbitration proceedings.
In Dana Shipping and Trading SA v Sino Channel Asia Ltd (HCCT 47A/2015), the Hong Kong Court of First Instance (“Court”) held that it had discretion to enforce a foreign arbitral award even after it had been set aside by the foreign supervisory court of the arbitration proceedings. This discretion will generally be exercised in accordance with the principles applicable to the recognition of foreign judgments.
However, in this case, having considered the facts and circumstances of the case, the Court decided to give effect to the English court’s decision to set aside the arbitral award and declined to enforce the award.
On 3 February 2015, Dana Shipping and Trading SA (“Dana”) obtained in London an arbitral award against Sino Channel Asia Ltd (“Sino”) whereby Sino was ordered to pay Dana a principal sum of US$1.68 million, interest, and costs of the arbitration (“Award”). On 16 November 2015, upon Dana’s ex parte application in Hong Kong, the Court granted Dana leave to enforce the Award (“Enforcement Order”), with the usual provision that Sino may apply to set aside the Enforcement Order within 14 days after service of the same upon it.
On 27 November 2015, Sino applied to set aside the Enforcement Order on the ground that it had not been given proper notice of the appointment of the arbitrator or of the arbitral proceedings and/or was unable to present its case. In January 2016, Sino also applied to the English court (ie. the supervisory court of the arbitration proceedings) to appeal against the Award and to set it aside.
As a condition to Sino’s application to set aside the Enforcement Order, Dana applied on 8 January 2016 for security to be furnished by Sino. In March 2016, the Court adjourned Sino’s application to set aside the Enforcement Order for 3 months on the condition that security of 60% of the Award should be provided by Sino by payment into court within 21 days (ie. by 4 April 2016), failing which Sino’s application to set aside the Enforcement Order will be dismissed and Dana would be given liberty to enter judgment in terms of the Award (“Security Order”).
Sino failed to pay security within the deadline and as a result of the Security Order, Sino’s application to set aside the Enforcement Order was dismissed. Sino did, however, apply on 1 April 2016 for an extension of 21 days to put up security. This application was heard on 28 April 2016, where the Court ordered to stay the enforcement of the Enforcement Order up to 26 May 2016, for Sino to provide security (“Stay Order”).
On 13 May 2016, the English court handed down its decision to set aside the Award on the ground that the Award was made without jurisdiction and is of no effect (“English Judgment”).
Sino then applied to the Court on 24 May 2016 (the “Application”) to set aside the Enforcement Order and the Stay Order and to seek the withdrawal of the other enforcement proceedings issued by Dana.
Dana opposed the Application, arguing that:
- The Hong Kong court retains a discretion in any event to enforce the Award notwithstanding that the English court has set it aside; and
- Sino’s application to set aside the Enforcement Order had already been determined and dismissed by the Security Order; and
- Sino was not acting in good faith and the Application is an abuse of process.
The Court’s decision
The Court concurred with Dana’s submission that Sino had no automatic right to resist enforcement of the Award merely because it had been set aside by the English court. Referring to s89 of the Arbitration Ordinance, which governs when the Hong Kong courts may refuse to enforce foreign arbitral awards, the Court emphasized that it specified that the Court may (ie. not shall) refuse enforcement in the event that an award is set aside or suspended by a competent authority of the country in which it was made. Applying Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, the Court concluded that it did have a residual discretion whether to permit enforcement and that this discretion is to be exercised on recognised legal principles.
In this regard, the Court examined various authorities on the circumstances in which recognition of an annulled award would be appropriate. In particular, in the English authority of Yukos Capital Sarl v OJSC Oil Co Rosneft  2 CLC 162, it was held that whether a foreign court’s annulment of an award should be given effect should be decided on the ordinary principles applying to the recognition of foreign judgments. For example, an award should not be given effect if the decision was impeachable for fraud, contrary to public policy or obtained in breach of the rules of natural justice.
The Court also considered China Nanhai Oil Joined Service Corporation Shenzhen Branch v Gee Tai Holdings Co Ltd  2 HKLR 215, in which the judge commented that “even if a ground of opposition [to enforcement] is proved, there is still a residual discretion left in the enforcing court to enforce nonetheless. This shows that the grounds of opposition are not to be inflexibly applied. The residual discretion enables the enforcing court to achieve a just result in all the circumstances although I accept that in many cases where a ground of opposition is established, the discretion is unlikely to be exercised in favour of enforcement.”
The Court then considered the facts of the present case to determine whether it should exercise its discretion to recognise the English Judgment. In particular, it took into account the grounds on which the English court set aside the Award, which included that the arbitral tribunal was not properly constituted and the Award was made without jurisdiction because notice of arbitration was not properly served on Sino. The Court also noted that there was no evidence that the setting aside proceedings in the English court were procedurally unfair or irregular, that the decision maker was not impartial, or that it would be in any way contrary to the Court’s sense of justice or public policy to recognise the English Judgment. With these factors in mind, the Court decided to give effect to the English Judgment.
Dana’s 2nd opposition to the Application was that Sino’s application to set aside the Enforcement Order had already been dismissed and that Sino is not entitled to reopen the issue again, such that the Application is an abuse of process. In this regard, the Court found guidance from Wong Pak Sum v Hong Kong Furniture & Decoration Trade Association Limited HCMP 2946/2013, which referred to Chu Hung Ching v Chan Kam Ming & Ors  HKC 396, which provided that when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust and unreasonable to allow the second application to be heard, for it would not be re-litigation of an identical issue of law or fact, if:
- The ruling of the first application was not based on the merits of the issue but on a technical objection;
- Upon the first application the applicant had failed to prove essential facts from mistake or inadvertence;
- There is new evidence that seriously justifies reconsideration of the issue; or
- There is a material change of circumstances of a non-evidentiary nature.
The Court considered that in the present circumstances, Sino’s first application to set aside the Enforcement Order was dismissed as a result of the sanction of the Security Order, which was made only upon a preliminary basis and not by a final determination of an application to set aside the Enforcement Order. The Court further accepted that in any event, the English Judgment constituted a material change of circumstance and/or new evidence which seriously justified reconsideration of the issue of whether the Award should be enforced and whether Sino should have leave to set aside the Enforcement Order.
Dana also argued that the Application was an abuse of process because Sino did not set out the grounds it relied on in the Application, and that Sino completely ignored the Security Order, engaging in delaying tactics and failing to provide any satisfactory explanations as to why it could not provide security. However, the Court considered that despite these factors, and bearing in mind the grounds on which the English court set aside the Award, it did not consider Sino’s conduct to be sufficiently egregious to demonstrate bad faith to justify the Court’s exercise of its discretion to enforce the Award notwithstanding the English Judgment. As such, the Court decided against enforcing the Award in Dana’s favour. The Court did, however, take above into account in ordering costs, such that it declined to award Sino costs despite deciding the Application in Sino’s favour.
It is clear from this case that Hong Kong Courts, in deciding whether to enforce an arbitral award that has been set aside by a foreign court, will not just blindly follow the foreign court’s decision to set aside the arbitral award. Instead, it will examine the reasons for the setting aside and the circumstances of the specific case to consider whether it would be just and reasonable to enforce an arbitral award.