Introduction

While cross-border enforcement and recognition of arbitral awards have been strengthened by various legislative reforms and case authorities, in the event of re-arbitration, its effect on the enforcement of the original award remains to be uncertain. The Court of First Instance recently considered in G v X, GMCI, GMCC [2023] HKCFI 3316 the effect of re-arbitration and a new award by China International Economic and Trade Arbitration Commission (“CIETAC”) on the enforcement proceedings in Hong Kong.

Brief facts and procedural history

The Applicant commenced the CIETAC arbitration against the 1^st Respondent on 9 October 2018 seeking to, among others, rescind certain agreements as the Applicant was induced by fraud to sell his interests in the company. The Applicant also claimed the return of the shares which had been transferred, and claimed for substantial damages. The Applicant obtained an award against the 1^st Respondent and others on 20 April 2021 where the 1^st Respondent was ordered to pay the Applicant damages, interest and arbitration fees (the “2021 Award”).

Subsequently, the 1^st Respondent applied to the Beijing Intermediate People’s Court on 20 May 2021 to set aside the 2021 Award (the “Mainland Set Aside Proceedings”), while the Applicant applied to the Beijing Court to enforce the 2021 Award on 18 June 2021 (the “Mainland Enforcement Proceedings”). After obtaining a Mareva injunction and disclosure order against the 1^st Respondent from the Hong Kong Court in July 2021, the Applicant applied for leave to enforce the 2021 Award in Hong Kong, which was opposed by the 1^st Respondent (“Hong Kong Enforcement Proceedings”). Concurrently, the Mainland Court made an order to stay the Mainland Enforcement Proceedings pending determination of the Mainland Set Aside Proceedings.

On 12 April 2022, the Applicant applied to the Hong Kong Court to stay the Hong Kong Enforcement Proceedings pending determination of the Mainland Set Aside Proceedings, where the Hong Kong Court granted a short adjournment for the enforcement of the 2021 Award in Hong Kong as the Hong Kong Court considered it prudent to only enforce the 2021 Award with the benefit of considering the decision in the Mainland Setting Aside Proceedings.

Re-arbitration and the 2023 Award

On 23 September 2022, the Mainland Court directed a re-arbitration to be held pursuant to Article 61 of the Arbitration Law of the PRC to reconsider two pieces of evidence which had not been examined by the parties in breach of CITEAC rules (the “Evidence Issue”). The enforcement of the 2021 Award in mainland China was accordingly terminated and a new award in the re-arbitration was issued on 17 November 2023 (the “2023 Award”). While the 2023 Award was again granted in favour of the Applicant and no adjustments were made in the 2023 Award as to the quantum of the damages ordered, the 1^st Respondent sought to rely on the re-arbitration as a ground to resist enforcement of the 2021 Award in the Hong Kong Enforcement Proceedings, contending that the 2021 Award was either not “binding” or had been “suspended” by the Mainland Court.

Hong Kong Enforcement Proceedings

Expert evidence was adduced by both parties on the interpretation of the mainland law to determine the issue on whether the termination of the Mainland Enforcement Proceedings had the effect of setting aside the 2021 Award. The Hong Kong Court sided with the Applicant and ruled that the termination of the Mainland Setting Aside Proceedings in this case simply meant that such challenge proceedings were determined, and came to a halt, without an order being made for setting aside the 2021 Award as re-arbitration was ordered only on the Evidence Issue identified by the Mainland Court. Reference was made in section 81(4) of the Arbitration Ordinance referring to Article 34 of the UNCITRAL Model Law, which expressly refers to the suspension of the setting aside proceedings, which may be ordered in lieu of setting aside the award. That said, the original award remains valid and binding despite having been remitted to the arbitrator or subject to re-arbitration.

One key matter considered by the Hong Kong Court is the scope of the re-arbitration ordered. In this case, the Mainland Court only ordered re-arbitration on the Evidence Issue, and the 2023 Award only replaces the 2021 Award on this particular issue. The 2023 Award made in the re-arbitration is essentially the same in other important aspects, such as the question of damages. Any replacement hence makes no difference in outcome and effect. This view is shared by the Mainland Court as the tribunal pointed out that the re-arbitration was dependent on the Mainland Setting Aside Proceedings and was limited in scope to the Evidence Issue, since the original Award had not been set aside by the Mainland Court and still has the force of res judicata.

Hong Kong Court’s ruling

Upon weighing the expert evidence adduced, the Hong Kong Court held that the 2021 Award remained a valid and binding Award as there was no order of the Mainland Court which set it aside. Re-arbitration was limited to the Evidence Issue and did not have the effect of setting aside the 2021 Award under Mainland law.

Takeaways

It is clear from this case that re-arbitration does not extinguish the binding effect of the original award. That said, the facts of the case are quite peculiar in the sense that re-arbitration was only limited in scope and the ruling in the 2021 Award and 2023 Award are essentially the same in terms of liability and quantum. Although there is not much ambiguity in the interpretation of the Arbitration Ordinance, it still remains to be seen whether Hong Kong Court will rule otherwise if the decision in the new award is different from the original award.