In Dana Shipping and Trading SA v Sino Channel Asia Ltd (HCCT47/2015), the Honourable Madam Justice Mimmie Chan of the Hong Kong Court of First Instance (“CFI“), in the latest decision in this case, declined enforcement of an arbitral award that had been set aside at its seat in London.

Background

The enforcement proceedings concerned an arbitral award rendered in London-seated arbitral proceedings in favour of the Applicant (“the Award“). On 16 November 2015, the CFI granted an order to enforce the award (“the Enforcement Order“). On 27 November 2015, the Respondent made an application to set aside the Enforcement Order (“the Earlier Application“) on the ground that the Respondent was not given proper notice of the arbitral proceedings. The Applicant applied for security, which was granted by the CFI (“the Security Order“). After the Respondent failed to provide the requisite security for its application within 21 days, it applied for an extension of time to furnish it. The CFI stayed enforcement of the Enforcement Order until 26 May 2016, during which time the Respondent was to provide security (“the Stay Order“).

Between the Earlier Application and the hearing for the Applicant’s security application, the Respondent had appealed to the English courts to set aside the Award. Judgment was handed down on 13 May 2016, ruling that the Award was set aside pursuant to s 72(1) of the [English] Arbitration Act 1996 (“the Act“) because it was made without jurisdiction and was of no effect (“the English Judgment“). The Respondent applied to the CFI on 24 May 2016, relying on the English Judgment, to set aside the Enforcement and Stay Orders (“the Respondent’s Application“). The Applicant argued that the Respondent’s application to set aside the Enforcement Order had already been dismissed by the Security Order and that the Respondent’s Application was an abuse of process; it also argued that the Hong Kong court retained a discretion to enforce the award.

Reasoning

(1) No automatic right to refusal of enforcement

The CFI agreed the Respondent had no automatic right by virtue of the English Judgment to resist enforcement of the Award, but acknowledged under s 89 of the Arbitration Ordinance (Cap. 609) that the enforcement court in Hong Kong has residual discretion to permit enforcement of an arbitral award set aside by a competent court at the arbitral seat, subject to recognized legal principles, as confirmed in Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111.

The CFI dismissed the existence of ex nihilo nit fit under English law and followed the approach recently established by the English courts of applying the ordinary principles for recognizing foreign judgments to a foreign judicial decision setting aside an arbitral award. Based on the principles, the CFI decided it should give effect to the English Judgment.

(2) Can the court entertain a 2nd application to set aside the Enforcement Order?

In determining whether res judicata or issue estoppel applied, the CFI adopted the view per Kwan J in Re Chime Corp Ltd (No 2) [2003] HKLRD 945 of having reference to the ‘nature and substance’ of the ruling and decided that these doctrines would not apply in the current case. In considering that its ruling and imposition of the Security Order was only a preliminary determination of the Earlier Application to set aside the Enforcement Order, the CFI concluded it was “just and reasonable” (Wong Pak Sum v Hong Kong Furniture & Decoration Trade Association Limited [2014] 1 HKLRD 507) to reconsider the enforcement decision, since the English Judgment constituted a ‘material change in circumstances’ to justify a reconsideration.

(3) Should the court enforce the Award?

The CFI ruled that the Respondent had reasonable grounds, based on the English Judgment, for making its application. Notwithstanding its failure to set out the grounds in its present summons, the Respondent’s Application did not constitute an abuse of process (cf KB v S HCCT13/2015). Considering the facts, the CFI found the Respondent’s conduct did not demonstrate bad faith and thus could not justify the court’s exercise of its discretion to enforce the Award. The CFI, however, took into account the Respondent’s failure, in its Earlier Application, to explain the basis of its application to the English court and the grounds relied on by it. Thus, the CFI declined to award costs in the Respondent’s favor.

Orders

The CFI acceded to the Respondent’s Application and declined to enforce the Award. The court also ordered each party to bear its own costs of the entire proceedings.

Comments

This case reaffirms the general principle that Hong Kong courts generally afford deference to decisions of the supervisory court at the seat. There must be special circumstances in order for a Hong Kong court to ignore a decision rendered by a supervisory court at an arbitral seat and render a judgment in conflict with such supervisory court’s decision. This principle has been confirmed in a number of recent Hong Kong cases, including T v C 2016 HKCFI 559; HCCT 23/2015 (14 March 2016), in which the court denied an application to set aside its order granting leave to enforce an arbitral award rendered in Kuala Lumpur. Please refer to our blog on this decision here. As stated in that blog posting, there is a difference in approach followed between, on the one hand, French and, to a lesser extent, Dutch courts and, on the other hand, the courts in England and Hong Kong. Hong Kong enforcement courts, in common with the currently prevailing approach in England, generally give “due weight” to decisions of the supervisory court at the seat of the arbitration, whereas French and Dutch enforcement courts have shown little deference for decisions rendered at the seat.