Hong Kong Court sets aside ex parte order to enforce Mainland Chinese arbitral award on the grounds of material non-disclosure but re-grants order for enforcement on an inter partes basis

Summary

In Lin Chien Hsiung v Lin Hsiu Fen[1], the Hong Kong Court of First Instance (“CFI”): (a) set aside an ex parte order for enforcement of an arbitral award (the “Award”)issued by Shanghai Arbitration Commission ( “SAC”); but (b) subsequently exercised its discretion to re-grant an enforcement order after hearing both parties to the arbitration. This was the case even when there was a setting aside application relating to the Award pending determination in Mainland China.

This decision illustrates the pro-enforcement approach of the Hong Kong courts regarding arbitration.  It is also an example of the use of the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR (the “Supplemental Arrangement”).  The case serves as a reminder to parties wishing to enforce an award in Hong Kong on an ex parte basis of the need to make full and frank disclosure of material facts.

Background and issues

The Applicant and Respondent were shareholders in Yong Ho International Development Century Limited, a Hong Kong company (“YH HK”). In November 2017, the parties signed a share transfer agreement pursuant to which the Applicant agreed to purchase the Respondent’s 10% shareholding in YH HK (the “Shares”). In April 2019, the Applicant commenced a SAC arbitration against the Respondent.

In its Award of December 2019, the Tribunal ordered the Respondent among other things, to transfer the Shares to the Applicant and to make payment to the Applicant of RMB 7 million and interest.

The Applicant subsequently applied to enforce the Award in Shanghai and in Hong Kong. In March 2021, upon the ex parte application by the Applicant (the “Enforcement Application”), the Court made an ex parte order (the “Enforcement Order”) granting leave to the Applicant to enforce the Award in Hong Kong.

In May 2021, the Respondent primarily applied to set aside the Enforcement Order on the following grounds[2]: (a) material non-disclosure by the Applicant[3]; (b) the suspension of the Award under Chinese law[4]; (c) the Respondent’s had been unable to present her case[5]; and (d) enforcement of the Award in Hong Kong would be contrary to public policy[6].

The Court’s Decision

The CFI found that the Applicant had failed to make full and frank disclosure in its ex parte Enforcement Application.  It therefore discharged the ex parte Enforcement Order. Nevertheless, after considering the enforcement application on an inter partes basis, the CFI rejected all the Respondent’s grounds for setting aside enforcement of the Award and made an order granting leave for the Applicant to enforce the Award in Hong Kong:

Material non-disclosure

On the first issue, the CFI did not find material non-disclosure regarding the disclosure of the Applicant’s simultaneous enforcement of the Award in Mainland China[7].

On the second issue, the CFI found that there had been material non-disclosure when the Applicant failed to disclose the existence of the Respondent’s Setting Aside Application (even though it was ultimately unsuccessful). The CFI held that if the Respondent’s Setting Aside Application has been brought to the Court’s attention at the ex parte stage, it would have required an inter partes hearing.

While the ex parte Enforcement Order was discharged, the CFI reaffirmed its power to re-grant an enforcement order after hearing both parties and went on to consider the other grounds relied on by the Respondent to set aside enforcement of the Award under section 95 of the AO.

Suspended Award Ground

The CFI rejected the Respondent’s argument that the Award was suspended because of either of the Setting Aside Applications and found that there was no automatic suspension of an Award upon an application to set aside in Mainland China. While the Shanghai Courts had the power to suspend enforcement of an Award, there was no evidence in this case that it had done so.

Opportunity to Present Case Ground and Public Policy Ground

The CFI rejected the Respondent’s argument that she had been unable to present her case. The onus of proof for this ground was on the party asking the Court’s to refuse enforcement. The CFI reiterated the principle that there must be a serious and egregious error by the tribunal that denied due process, and even if such error is established, the Court may still refuse to set aside an award if it is satisfied that the tribunal could not have reached a different conclusion. It further held that in considering this ground, the Court would look at whether the party has had “reasonable opportunity” to present its case in the arbitration.

On the facts, the CFI found that the Respondent has had a reasonable opportunity to present its case and object to the new evidence adduced by the Applicant. Importantly, the Respondent did not request to file further submissions in respect of the new evidence when she could have easily done so.

The CFI also rejected the Respondent’s argument on public policy grounds as it did not find a breach of the rules of natural justice.

Significance

This judgment confirms the pro-enforcement approach of the Hong Kong Courts with regard to international arbitration, as well as being an example of the operation of the Supplemental Arrangement.

To set aside or stay the enforcement of an arbitral award in Hong Kong, there must be good reasons for doing so. This case shows that the existence of an application to set aside an arbitral award in Mainland China may not be considered a good reason and will not automatically result in a stay of enforcement proceedings in Hong Kong. It also reminds parties wishing to apply for enforcement to make full and frank disclosure of the material facts, as the failure to do so may lead the courts to set aside an ex parte order.

As a leading Hong Kong law firm with expertise in international arbitration, Tanner De Witt has experience in both applying for and opposing enforcement of arbitral awards. We are prepared to respond to the increasing needs of cross-border enforcement and look forward to assisting our clients. 

Kevin Warburton & Pamela Mak

If you would like to discuss any of the matters raised in this article, please contact:

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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[1] [2022] HKCFI 1270.

[2] The Respondent sought an alternative order that the proceedings for enforcement of the Award be adjourned pending an application made by Lin Ping-Sheng, a third party to the Arbitration, to the Shanghai Intermediate People’s Court for the Award to be set aside (“Third Party Setting Aside Application”).  The CFI rejected this application.

[3] The Respondent alleged the Applicant had: (a) already applied for enforcement of the Award in Mainland China; and (b) the Respondent had already made an application to set aside the Award in Shanghai (“Respondent’s Setting Aside Application”).

[4] See section 95(2)(f)(ii) of the Arbitration Ordinance (Cap. 609) (“AO”).

[5] See section 95(2)(c)(ii) of the AO.

[6] See section 95(3)(b) of the AO.

[7] As simultaneous enforcement of arbitral awards in the Mainland and Hong Kong is now allowed under the Supplemental Arrangement, the existence of dual enforcement measures was not material to the Enforcement Application. However, the CFI found that the Applicant misled the court when it denied taking such enforcement measures in an affirmation.