Global menu

Our global pages

Close

Hong Kong Court Finds Enforcement of Arbitration Award Barred by Section 4(1)(c) of the Limitation Ordinance Cap 347

  • United Kingdom
  • International arbitration
  • Litigation and dispute management

17-04-2019

In CL v SCG [2019] HKCFI 398, the Hong Kong Court of First Instance (the “Court”) clarified that the limitation period for the enforcement of an arbitration award begins to run following the expiry of a reasonable time after the publication of the award. It also reminded parties to exercise care when taking steps to enforce the award in Hong Kong and the PRC given that Article 2 of the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region (the “Arrangement”) does not allow concurrent enforcement and different limitation periods apply in Hong Kong and the PRC. Judgment was handed down by Hon Mimmie Chan J on 18 February 2019.

Facts

On 17 February 2011, an arbitral award was rendered in Hong Kong in favour of CL whereby SCG was ordered to pay to CL approximately USD 2m with interest and costs (the “Award”). On 18 March and 31 March 2011, CL demanded payment of the sum due under the Award from SCG, but no payment was received.

On 7 July 2011, CL applied to the Shenzhen Intermediate People’s Court in the PRC (the “Shenzhen Court”) to enforce the Award, which SCG opposed. On 30 March 2015, the Shenzhen Court rejected CL’s application for enforcement and CL appealed to the Guangdong Higher People’s Court (the “GHPC”) for a retrial. On 1 March 2016, CL’s application for retrial was rejected by the GHPC.

On 6 February 2018, CL applied to the Hong Kong Court for leave to enforce the award under section 2GG of the Arbitration Ordinance Cap 341 (“Cap 341”) which governed the arbitration. On 6 June 2018, SCG applied to set aside the order granting leave on the basis that the application was time-barred by section 4(1)(c) of the Limitation Ordinance Cap 347 (the “Limitation Ordinance”), pursuant to which “actions to enforce an award” shall not be brought after the expiration of 6 years from the date on which the cause of action accrued. “Action” under section 2(1) of the Limitation Ordinance is defined as including “any proceedings in a court of law”.

The central issue in dispute between CL and SCG was the precise date when the cause of action in relation to enforcement of the Award accrued.

Applicable Law

The Court re-affirmed the principles relating to the limitation period for the enforcement of an award:

(1)     A common law action to enforce the award is an “independent cause of action” from the underlying contract which prescribed the use of arbitration. It is “premised on an implied promise” between the parties to the contract to perform an award (Xiamen Xinjingdi Group Ltd v Eton Properties Ltd CACV 158/2012, 103-110); and

(2)    The 6 year limitation period runs from the time when the defendant fails to honour the implied promise to perform the award, not from the date of the arbitration agreement or the award (Agromet v Moulden Engineering Ltd [1985] 1 WLR 762). In Agromet, the English court held that, in the context of the corresponding provision under English law, the cause of action in relation to enforcement of the award accrued “from the breach occasioned by the defendants’ failure to honour the award when called upon to do so”.

The Court rejected CL’s argument that the cause of action only accrued when SCG demonstrated a clear intention not to be bound by the Award by opposing CL’s application to the Shenzhen Court to enforce the Award on 11 March 2012. The Court considered that this would permit the award debtor (SCG) to indefinitely postpone the accrual of the award creditor’s (CL) cause of action and delay its right to enforce the Award.

The Court held that the cause of action based on the implied obligation to honour the Award arose when SCG failed to make payment within a “reasonable time of the publication of the Award and demand being made”.  What is a reasonable time depends on the terms of the award as well as the facts and circumstances of the case.

The Court took into consideration the fact that, pursuant to the Award, SCG was ordered to pay the principal sum and interest “forthwith” upon CL’s demand on 18 March 2011 and that a reasonable time for payment would be 21 days after the date of the demand.  On this basis, the Court held that the limitation period expired on 8 April 2017.

CL also cited Article 2 of the Arrangement, which prohibits the award creditor from filing applications for enforcement with the relevant courts of the PRC and Hong Kong at the same time.  It also provides that only when the result of the enforcement of the award by the court of one place is insufficient to satisfy it in full may the award creditor apply to the court of another place for enforcement of the outstanding balance.

CL argued that accrual of the cause of action was suspended during the Shenzhen Court’s consideration of its application (7 July 2011) and that time only began for run again when the GHPC rejected CL’s application for retrial (1 March 2016). CL cited section 40C of Cap 341 (now section 93 of the Arbitration Ordinance Cap 609) and argued that it would be contrary to public policy to prevent the award creditor from enforcing its award in Hong Kong by virtue of section 4(1) of the Limitation Ordinance simply because it had attempted to enforce the award in the PRC.

The Court appears to have sympathized with CL’s position but rejected the above argument on the basis that “[h]owever unfair may be the consequence, there is no express provision in the Arrangement, the relevant Arbitration Ordinance, or the 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.  By the plain reading and operation of section 4 (1) (c) of the Ordinance, the cause of action accrued to CL to enforce the Award in Hong Kong when SCG acted in breach of its obligation to make payment under the Award, and became time-barred after the expiration of 6 years.  Any remedy to provide for circumstances when there is pending application for enforcement of the Award on the Mainland can only be provided by statutory amendment” (at paragraph 21).

Accordingly, the Court determined that enforcement of the Award was already barred by section 4(1)(c) of the Limitation Ordinance when proceedings were instituted on 6 February 2018 for leave to enforce the Award in Hong Kong.

Takeaways

(1)     The limitation period for the enforcement of an arbitration award begins to run following the expiry of a reasonable time after the publication of the award and demand being made of the debtor. What is reasonable would depend on the terms of the award as well as the facts and circumstances of the case.

(2)     Award creditors are unlikely to be able to argue that the limitation period would commence only after the debtor demonstrates a “clear intention” not to be bound by the award, for example by opposing formal enforcement proceedings.

(3)     Parties who wish to enforce arbitration awards in the PRC and Hong Kong pursuant to the Arrangement will need to ensure that they do not inadvertently find themselves out of time in either jurisdiction. This is because, on the one hand, under the Arrangement parties are prohibited from filing concurrent applications for enforcement with the relevant courts of the PRC and Hong Kong, but, on the other the limitation period for the enforcement of an award in Hong Kong is 6 years and in the PRC 2 years. This difficulty is reflected in paragraph 21 of the judgment where the Court held that “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”.

< Go back

Print Friendly and PDF
Subscribe to e-briefings