.The Official Journal of The Law Society of Hong Kong – (February 2021)
A New Era for Cross-Border Recognition and Enforcement of Arbitral Awards Between the Mainland and Hong Kong
Prior to 1997, awards made in the Mainland China were enforced in Hong Kong on the strength of the New York Convention, of which the United Kingdom extended its application to Hong Kong with effect from 21 April 1977. After unification, the New York Convention was no longer applicable to the enforcement of Mainland awards in Hong Kong. In order to alleviate the problems arising from the cross-border enforcement of arbitral awards, the Supreme People’s Court and the Hong Kong Government signed the Arrangement Concerning the Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong SAR (the “Arrangement”) in 1999 for mutual enforcement of arbitral awards. In order to perform the Arrangement, amendments have been made to the Arbitration Ordinance by introducing a new Division 3 in Part 10 for the enforcement of Mainland awards. The implementation of the Arrangement has greatly facilitated the cross-border enforcement of arbitral awards of the Mainland and Hong Kong. Now, after passing of 20 years, some practical issues will inevitably arise. On 27 November 2020, the Supreme People’s Court and the Hong Kong Government signed the Supplemental Arrangement Concerning the Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong SAR (the “Supplemental Arrangement”) to clarify some issues and enhance the enforcement process. More important, it brings the enforcement of Mainland awards more in line with the provisions of the New York Convention.
Recognition” of Arbitral Awards
The full name of the New York Convention is “United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards” (“New York Convention”/“Convention”). Article I of the Convention provides, amongst others, that:
“1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.”
Despite the fact that the two words “recognition” and “enforcement” are used in pair, they are held to be construed disjunctively in Re H (A Child) (Foreign Order), The Times, 19 November 1993. Although this case concerns about the use of the words “recognition and enforcement” in article 10(1) of the European Convention on Recognition and Enforcement of Decisions concerning Custody of Children and on the Restoration of Custody of Children, there is no good reason why the same words used in the New York Convention will be construed in a different manner. If this understanding is correct, recognition of an arbitral award is not necessarily followed by enforcement of the award. However, an award which is being enforced by a Court must first be recognized by the Court.
The Arrangement deals with the crossborder enforcement of arbitral awards, without referring to the preliminary step of recognition of the arbitral awards. Nevertheless, since an award which is enforced by a Court must have first been recognized by the relevant Court, the lack in reference to “recognition” in the Arrangement will not create any practical problems. However, it has now been clarified in the Supplemental Arrangement that the Mainland awards and HK awards which are enforced under the Arrangement are recognized by the HK Courts and People’s Courts respectively.
Preservation Measures – Pre and Post Enforcement of Arbitral Awards
One should recall that, on 2 April 2019, the Supreme People’s Court and Hong Kong Government signed an Arrangement Concerning Mutual Assistance in Courtordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong
Special Administrative Region (the “Interim Measure Arrangement”). This Interim Measure Arrangement allows the parties of one side to apply to the Courts of the other side for pre-award interim measures in aid of arbitral proceedings to be commenced or commenced in the other side. In the case of the Mainland, the interim measures refer to property preservation, evidence preservation and conduct preservation. The interim measures which may be granted by the Hong Kong Courts are mainly in the form of injunction, such as Mareva injunction, Anton Pillar order, mandatory injunction, prohibitory injunction, and so forth.
The availability of preservation measures which may be used in aid of the arbitral proceedings raises a question as to whether these measures are also available for the cross-border enforcement of arbitral awards.
According to the Arbitration Ordinance (Cap. 609) (“AO”), a Mainland award can be enforced in the same manner as a judgment (sections 84 and 92, AO). Under section 21L of the High Court Ordinance (Cap.4), the Court of First Instance may by order (whether interlocutory or final) grant an injunction in all cases in which it appears to the Court to be just or convenient to do so, and such order may be made either unconditionally or on such terms and conditions as the Court thinks just (sections 21L(1) and (2), High Court Ordinance (Cap. 4)). Insofar as Hong Kong Courts are concerned, the power to grant injunctive relief is very wide, which clearly covers pre- and postenforcement of arbitral awards, including Mainland awards.
In any case, the authorities of the Mainland and Hong Kong have now clarified this issue in the Supplemental Arrangement that preservation measures are available in aid of the cross-border enforcement of arbitral awards. A Hong Kong award creditor who wishes to enforce a Hong Kong award against the award debtor in the Mainland may now apply to the relevant People’s Court for preservation measures against the award debtor or its assets before or after the People’s Court’s acceptance of the application for enforcement of the
arbitral award. Similarly, a Mainland award creditor may also apply to the relevant Hong Kong Court for injunctions against the award debtor or its assets in Hong Kong before or after the Hong Kong Court’s acceptance of the enforcement application.
Seat of Arbitration
The seat of arbitration is important in determining (i) the procedural law which governs the conduct of the arbitration, which is also called the “lex arbitri” or “curial law”, (ii) the rights of the parties in the arbitration, and (iii) the Court which is competent in exercising supervisory jurisdiction over the conduct of the arbitration. Although the “seat of arbitration” is usually referred to as the “place of arbitration” in many legislations, including the AO, it refers to the legal seat of the arbitration, distinguishing from the “venue of arbitration”, which is the physical place where the arbitration is being held. The difference of “seat of arbitration” and “venue of arbitration” is shown in many arbitration rules, such as article 14 of the HKIAC 2013 Administered Arbitration Rules and article 18 of the ICC 2017 Arbitration Rules. The importance of the legal seat of an arbitration can be illustrated in Karaha Bodas Co LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara  HKCFI 390;  4 HKC 488; HCCT 28/ 2002 (27 March 2003). In this case, the Court granted leave to the plaintiff, ex parte, to enforce an arbitral award against the defendant. The defendant applied to the Court to set aside the order on, amongst others, the ground that the award had been set aside by the Indonesian Court (i.e. paragraph 1(e) of Article V of the New York Convention). It was undisputed that the arbitration was conducted under Swiss law. After examining the relevant facts and law, the Court found that the legal seat of the arbitration was Geneva, Switzerland, albeit the tribunal, for convenience, sat in Paris. Although the award had been set aside by the Indonesian Court, since the Indonesian Court was not “the competent authority of the country in which, or under the law of which, the award was made” as referred to in the New York Convention, the defendant’s set aside application was dismissed by the Court. The defendant’s appeal was also dismissed by the Court of Appeal.
The Arrangement states at the beginning that “… the People’s Court of the Mainland agree to enforce the awards made in the HKSAR pursuant to the Arbitration Ordinance of the HKSAR...” It therefore appears that, for a Hong Kong award to be eligible for enforcement in the Mainland, there are 2 conditions required to be satisfied, namely the award (i) is “made in the HKSAR” and (ii) is made “pursuant to the Arbitration Ordinance of the HKSAR”. The phrase “made in the HKSAR” is not a term of art and is arguable that it refers to the place where the award is physically made. Section 5(1) AO provides, amongst others, that:
“… this Ordinance applies to an arbitration under an arbitration agreement, whether or not the
agreement is entered into in Hong Kong, if the place of arbitration is in Hong Kong.”
The “place of arbitration” in the legal sense refers to the “seat of arbitration”.
Accordingly, the legal seat of the arbitration under which an award (i) is “made in the HKSAR” and (ii) is made “pursuant to the Arbitration Ordinance of the HKSAR” must be “Hong Kong”. However, an award made in an arbitration, “pursuant to the Arbitration Ordinance of the HKSAR”, with its legal seat in Hong Kong may not be “made in the HKSAR”, since the tribunal may sit outside of Hong Kong. This problem may create a peculiar situation for a Hong Kong award to be enforced in the Mainland Courts, albeit there is apparently no such problem arises to date.
The Supplemental Arrangement has now clarified the position by adopting the “seat of arbitration” approach in defining arbitral awards. Accordingly, the People’s Courts agree to enforce an award which is made in an arbitration with its seat in Hong Kong. On the other hand, the Hong Kong Courts agree to enforce an award which is made in an arbitration with its seat in the Mainland.
Simultaneous Applications of Enforcement of Arbitral Awards
Contrary to the 3 points above, which basically clarify the current position, this last point is important that it enhances the practicality of the Arrangement.
Pursuant to section 93 AO, if a party commences enforcement action in Mainland, he cannot enforce the Mainland award at the same time in Hong Kong, or vice versa. This restriction reflects Article 2 of the Arrangement, which provides, amongst others, that “… the applicant shall not file applications with relevant courts of the two places at the same time …” The purpose of this is to avoid “double enforcement”.
In practice, since the limitation period for enforcement of an arbitral award under the PRC law is shorter than the 6 years under Hong Kong law, an award creditor usually commences enforcement action in the Mainland first, so as to avoid the potential time-bar issues under the PRC law. In addition, the legal proceedings in the Mainland are generally moving quicker. After completion of the enforcement proceedings in the Mainland, the award creditor will generally still have time to commence enforcement action in Hong Kong, if required. Accordingly, the restriction generally will not cause much practical problems, except in some special circumstances, as demonstrated in CL v SCG  HKCFI 398;  2 HKLRD 144; HCCT 9/2018 (18 February 2019).