Enforcement of Mainland Arbitral Awards in Hong Kong

A recent judgment has clarified some issues relating to Part IIIA of the Arbitration Ordinance (Cap 341)

 
Photo: Erick Jones

Introduction

The Arbitration Ordinance (Cap 341) (the Ordinance) was amended in 2000 to include a new Part IIIA, which provides for the enforcement of ‘Mainland awards’ in Hong Kong. The purpose of that amendment was to give effect to the ‘Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region’ dated 21 June 1999 (the Arrangement). In Shenzhen Kai Loong Investment & Development Co Ltd v CEC E l e c t r i c a l M a n u f a c t u r i n g (International) Co Ltd [2003] 3 HKLRD 774, A Cheung, J helpfully clarified a number of legal issues in relation to Part IIIA of the Ordinance.

Application of Part IIIA: the Notion of ‘Mainland Award’

A major issue in the case concerned the meaning of the term ‘Mainland award’ in the Ordinance. Under s 2 (1) of the Ordinance, ‘Mainland award’ is defined to mean ‘an arbitral award made on the Mainland by a recognized Mainland arbitral authority in accordance with the Arbitration Law of the People’s Republic of China’. In April 2000, the plaintiff applied to enforce in Hong Kong an award made by the Shenzhen division of the China International Economic and Trade Arbitration Commission, relying on Part IIIA. Later that year, it successfully obtained an ex parte enforcement order.

The defendant then applied for the order to be set aside on various grounds, including that the award did not fall within the scope of a ‘Mainland award’ that is enforceable under Part IIIA. The latter ground was based on the fact that the award was made on 20 April 1994, whereas the Arbitration Law of the People’s Republic of China (Arbitration Law) was only passed on 30 August 1994 and came into force on 1 September 1995. It was therefore argued that the award was not made ‘in accordance with the Arbitration Law of the People’s Republic of China’ as required by s 2(1) of the Ordinance. A Cheung, J accepted the above submission by the defendant.

A Cheung, J held that in light of its legislative background, Part IIIA should be construed having regard to the contents of the Arrangement, although the Arrangement itself did not have the force of law in Hong Kong. He then noted that the Arrangement expressly provided that the courts of the HKSAR agreed to enforce the awards made pursuant to the Arbitration Law by the arbitral authorities in the Mainland. He rejected the plaintiff’s argument that this reference to the Arbitration Law meant the general arbitration law of the Mainland, instead of a specific Mainland arbitration law. He also rejected the plaintiff’s argument that, as long as a Mainland award did not contravene any of the provisions of the Arbitration Law, it could be regarded as having been made ‘in accordance with’ the Arbitration Law. In making these decisions, he relied on the plain language of the relevant provisions of the Arrangement and the corresponding enabling provisions in the Ordinance: they specifically referred to the Arbitration Law, and required that the relevant Mainland award should be ‘in accordance with’ it.

Further, he noted that the experts called by both parties agreed that, before the implementation of the Arbitration Law, there was not one set of arbitration laws which was generally applicable throughout the Mainland, and that the former segmented Mainland arbitration laws might not be entirely consistent with the provisions of the Arbitration Law. If the Arrangement or the corresponding enabling provisions of the Ordinance had been intended to cover Mainland awards made before the coming into force of the Arbitration Law so long as they did not contravene it, then a difficulty or question would arise: was the relevant Mainland award consistent with the Arbitration Law which, at the time when the award was made, was yet to come into existence or operation? A Cheung, J held that in construing the true intent of the Arrangement or the corresponding enabling provisions of the Ordinance, the above difficulty or question had to be taken into account.

Moreover, A Cheung, J observed that the Arrangement was entered into in 2000 (sic), and that the corresponding amendments to the Ordinance were made in the same year. At that time, the Arbitration Law had been implemented for some time, and the number of Mainland awards which were made prior to its enactment and which parties sought to enforce in Hong Kong was small. Hence, he held that it was not surprising, and was indeed understandable, that both parties to the Arrangement and the local legislators intended to use the Arbitration Law as a watershed in pursuit of general legislative objects of certainty and absence of rival interpretations.

Further Grounds for Setting Aside the Award

The defendant also sought to set aside the ex parte enforcement order on the grounds that the p l a i n t i f f ’s a p p l i c a t i o n f o r enforcement did not meet the requirements of ss 40C and 40E(2) (f) of the Ordinance. Section 40C (1) provides that a Mainland award shall not be enforceable under Part IIIA if an application has been made in the Mainland for enforcement of the award. Section 40C(2) provides for an exception to the above restriction in respect of awards which have not been fully satisfied by way of enforcement in the Mainland. Section 40E(2)(f) provides that enforcement of a Mainland award may be refused if the person against whom it is invoked proves that the award has been suspended in the Mainland.

A Cheung, J held that the defendant’s objection on the ground of s 40C succeeded, but its objection on the ground of s 40E(2) (f) failed. In respect of the former objection, he decided that s 40C, on its true construction, prohibited not only double recovery of a Mainland award through enforcement proceedings in both the Mainland a n d H o n g K o n g , b u t a l s o enforcement of a Mainland award in the Mainland and Hong Kong at the same time (referred to by A Cheung, J as ‘double enforcement’). He noted that the prohibition against double enforcement did not exist under the New Yo r k Convention which, before 1 July 1997, governed the enforcement of Mainland awards in Hong Kong. For this and other reasons, he did not regard the Arrangement and Part IIIA as simply intended to restore the status quo prior to 1 July 1997 regarding the enforcement of Mainland awards in Hong Kong. However, he was of the view that the above additional prohibition is a reasonable means to prevent vexation or oppression (depending on the circumstances of the case) that double enforcement might cause to the debtors. On the facts of the case, he held that as the proceedings for enforcing the relevant Mainland award in the Mainland had not yet completed or concluded, the plaintiff could not, by virtue of s 40C, enforce the award in Hong Kong at this stage.

In respect of the objection based on s 40E(2)(f), A Cheung, J observed that the wording of the above section (the award ‘has been … suspended’) was slightly different from the language used in the original Chinese text of the Arrangement ‘the execution [of the award] has been stopped’. He further noted that the above section was identical to the wording used in the New York Convention (vide s 44(2)(f), which applies to Convention awards). In his view, this evinced a legislative intent to render this aspect of the rules for enforcing Mainland awards equivalent to that under the New York Convention, and thus the construction of the latter would also apply to the construction of the former. On the facts of the case, he held that the relevant Mainland award had not been suspended in the Mainland, and that in any case its execution in the Mainland had not been stopped. Hence, the ground of refusal of enforcement in s 40E(2)(f) did not apply.

Paul Tsang
Senior Government Counsel
Department of Justice

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