Caveat Victor - Hong Kong Court Rejects Late Attempt to Enforce an Arbitral Award

When the battle’s lost and won (in arbitration), and the victor has a final award, they must turn to enforcement. This involves asking the local courts in a relevant jurisdiction (usually, where the award debtor has assets) to enforce the award the same way as a Judgment of those Courts.

In most jurisdictions, this is a two-step process – the award must first be recognised, before it can be enforced. Given the international nature of arbitration, and the large number of signatories to the New York Convention, there is often a choice as to the best jurisdiction in which to seek enforcement.

This often comes down to identifying a jurisdiction in which the award debtor has the most (liquid) assets to enforce against.

However, not all jurisdictions are created equal. For a myriad of reasons, such as judicial understaffing, political risk, bureaucratic inertia and “home advantage”, enforcement in certain jurisdictions can be an opaque process fraught with delays.

Critically, progressing enforcement in one jurisdiction will not affect the time limit to enforce in another. This leaves the victor at risk.

In CL v SCG [2019] HKCFI 398, the successful claimant first sought to enforce a Hong Kong award dated 17 February 2011 (for approx. US $2.17m, plus interest and costs) in Mainland China.

It bears highlighting that the claimant was able to proceed directly to enforcement in China, without having to complete the intermediate step of recognising the award, because this was a Hong Kong arbitral award.

In that regard, one of the advantages of Hong Kong arbitration is that Hong Kong awards (i.e. awards made in arbitral proceedings with their seat in Hong Kong) are automatically recognised in Mainland China. Accordingly, the first step of the enforcement process (recognition) is not required. This is because of the “Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and Hong Kong” (the "Arrangement"), which also requires parties to conduct enforcement proceedings in only one of the given jurisdictions at a time.

The first instance Court (in Shenzhen) rejected the claimant’s application for enforcement. Leave for appeal was denied by the provincial appeal Court. By this time, almost 5 years had passed since the award.

On 6 February 2018, the claimant applied to the High Court of Hong Kong for leave to enforce the award, almost 7 years after the date of the award. Leave was grounded on paper in the normal way but was then challenged by the award debtor.

In a Judgment handed down on 18 February 2019, the Court held that the award was time-barred under section 4 of the Limitation Ordinance, which provides inter alia:

“(1) The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say—
...
(c) actions to enforce an award, where the submission is not by an instrument under seal…”

On the facts, the award had become time-barred on 8 April 2017, which was 6 years after the date on which the Court found that a reasonable time for payment of the sums awarded had lapsed.

This is a cautionary tale.

If the claimant had come before the Hong Kong Court promptly after the appeal in China was rejected, they would still have been in time to enforce the award in Hong Kong.

This case underscores in particular the need to monitor time when enforcing Hong Kong awards in Mainland China, given the prohibition on parallel enforcement proceedings under the Arrangement. No such prohibition exists under the New York Convention.

As the Court put it succinctly at paragraph 21 of the Judgment:

"However unfair may be the consequence, there is no express provision in the Arrangement, the relevant Arbitration Ordinance, or the [Limitation] Ordinance itself, that time limitation for enforcement of an arbitral award should not run during the period when a successful party to an arbitral award applies for enforcement on the Mainland […]

applicants will have to consider withdrawing and procuring determination of a pending application for enforcement on the Mainland, before applying for enforcement in Hong Kong prior to the expiry of the relevant limitation period."

Senior Associate, Lau, Horton & Wise LLP in association with CMS Hasche Sigle, Hong Kong