Would failure to disclose Mainland enforcement actions prevent the enforcement of Mainland arbitral awards in Hong Kong?
Introduction
With
the Arrangement and Supplemental Arrangement (“Supplemental Arrangement”) Concerning Mutual Enforcement of
Arbitral Awards between the Mainland and the Hong Kong SAR, enforcement of
Mainland arbitral awards in Hong Kong has become increasingly common. The
recent case of Lin Chien Hsiung (林建雄) v Lin Hsiu Fen (林秀芬) [2022] 4 HKC 590, [2022]
HKCFI 1270 illustrated the circumstances in which the Hong Kong Court may
discharge an order granting leave to enforce a Mainland arbitral award.
Facts
The
Applicant and Respondent, both shareholders of a Hong Kong company, entered
into a share transfer agreement under which the Applicant agreed to purchase
the Respondent’s shares in the company.
As
disputes arose over the performance of the share transfer agreement, the
Applicant commenced an arbitration (“Arbitration”)
at the Shanghai Arbitration Commission against the Respondent. The arbitral tribunal issued an award
ordering the Respondent to transfer her shares to the Applicant and pay the
Applicant a sum of RMB7 million (the “Award”).
Enforcement of the Award
in Hong Kong
Following
the Applicant’s ex-parte application,
the Hong Kong Court granted leave to the Applicant to enforce the Award (“Enforcement Order”).
The
Respondent applied to set aside the Enforcement Order on the following grounds:
1.
There had been material non-disclosure as the Applicant failed to
disclose that:
a.
he had also applied for enforcement of the Award in Shanghai;
b.
the Respondent applied to the Shanghai Intermediate People’s Court to
set aside the Award (“Shanghai Setting
Aside Application”).
2.
The
Award had already been suspended under Mainland law as a result of the Shanghai
Setting Aside Application. Its
enforcement should therefore be refused by the Hong Kong Court under section
95(2)(f)(ii) of the Arbitration Ordinance.
3.
The
Respondent had been unable to present her case in the Arbitration.
4.
It
would be contrary to the public policy of Hong Kong to enforce the Award.
Alternatively,
the Respondent sought adjournment of enforcement proceedings (“Adjournment Application”) pending another
application to set aside the Award.
Decision
The
Hon Mimmie Chan J discharged the original Enforcement Order, finding that:
1.
Under
the Supplemental
Arrangement, parties are no longer precluded from filing applications for
enforcement of arbitral awards with Mainland and Hong Kong courts respectively
and simultaneously.
2.
As such, the non-disclosure of the Applicant’s enforcement application
in Mainland is not material to his application for enforcement in Hong Kong.
3.
However, the Applicant misled the Court with an affirmation stating that
the Applicant had not applied for enforcement in the Mainland.
4.
Further, the Applicant’s failure to disclose the Shanghai Setting Aside
Application constituted material non-disclosure, even though the Shanghai Setting
Aside Application was subsequently dismissed.
5.
The ex-parte Enforcement Order shall therefore be discharged.
However, the
Hon. Mimmie Chan J re-granted leave to enforce the Award in Hong Kong and
refused the Adjournment Application, finding inter alia that:
1.
On the proper construction of Article 7 of the Provisions of the Supreme
People’s Court On Several Issues concerning the Handling of Cases regarding
Enforcement of Arbitral Awards by the People’s Courts (“SPC Provisions”), the Award has not been automatically suspended by
reason of the Shanghai Setting Aside Application.
2.
Article 7 of the SPC Provisions only provides that the enforcement court
should rule or decide on the termination of the enforcement proceedings, in the
event of an application for setting aside being accepted by the People’s Court
or application for non-enforcement with provision of appropriate security.
3.
The SPC Provisions however do not apply to the Hong Kong Court such that
the Hong Kong Court as an enforcement court has to terminate the enforcement in
line with the position of the SPC Provisions.
4.
The Respondent had not been deprived of the reasonable opportunity to
present her case in the Arbitration.
5.
The Respondent failed to show any grounds to refuse enforcement of the Award
under section 95 of the Arbitration Ordinance or adjourn the enforcement.
Takeaway
Under the Supplemental Arrangement, it is now clear
that parties are not precluded from applying for enforcement of arbitral awards
in Mainland and Hong Kong simultaneously. Whilst non-disclosure of Mainland enforcement proceedings per se is not material, parties are
reminded of their duty to make full and frank disclosure in ex-parte applications and not to mislead
the Court. Although setting aside applications in Mainland do not automatically
suspend the arbitral award, failure to disclose such applications when making ex-parte enforcement application in Hong
Kong will constitute material non-disclosure that can lead to a discharge of the
enforcement order.
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Important: The law and
procedure on this subject are very specialised and complicated. This article
is just a very general outline for reference and cannot be relied upon as
legal advice in any individual case. If any advice or assistance is needed,
please contact our solicitors. |
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Published by ONC Lawyers
© 2022 |
