latest developments regarding arbitration in hong …...2019/02/19 · with the choice of remedies...

Latest Developments

regarding Arbitration in

Hong Kong and

Mainland China

Terence Wong

Partner

Hong Kong / Shanghai

19 February 2019

Nick Sharratt

Of Counsel

Dubai

© 2019 Winston & Strawn

Hong Kong Mainland China

Overview

2

Decision of the Court of Final Appeal in Astro v First Media

(which is within the Lippo Group)

New Era for Third Party Funding of Arbitrations in Hong Kong

Enforcement of CIETAC arbitral awards

Enforcement of arbitration awards vs court judgments

Hong Kong –

New Era for

Third Party Funding

of Arbitrations

in Hong Kong

© 2019 Winston & Strawn 4

1 February 2019

• Relevant Amendments of the

Hong Kong Arbitration Ordinance came into effect

• Abolishment of the common law doctrines of

maintenance and champerty

• Opens the door for third party funding of arbitration

• Does not include third party funding of mediation

New Era for Third Party Funding

of Arbitrations in Hong Kong

FEB




Meanwhile,

• 7 December 2018

• Code of practice on third party arbitration funding was issued

• setting out the practices and standards third party funders

• failure to comply will not result in judicial or other proceedings

• clear and non-misleading promotional materials

• reasonable steps ensuring that the funded party is aware of the right for independent legal advice

• requirements for capital adequacy

• effective management of conflicts of interest

• annual returns to be submitted to the advisory body




Increased

number of

funded

arbitrations

Funders’

activities in

Hong Kong

Funding on a “non-

recourse basis”

Financial risk of

parties

potentially being

funded


Onshore and Offshore Jurisdictions

• The UAE (and Dubai in particular), continues to develop as a regional and global financial centre.

• It has earned this reputation largely due to the establishment Dubai International Finance Centre

(“DIFC”) which is an offshore financial free zone located in the heart of ‘mainland’ or ‘onshore’

Dubai.

• The DIFC (unlike many other “offshore” financial centres) has its own common court system and its

own body of substantive laws modelled on English law.

• The DIFC is therefore a jurisdiction in its own right distinguished from the civil law jurisdiction of

mainland Dubai and the wider UAE.

• Accordingly, when we consider the issues raised in this presentation, we consider them both in the

context of the onshore (civil) regime and the offshore (common law) regime of the DIFC.

7


Third Party Funding

• Attitudes to Third Party Funding (“TPF”) are changing in the UAE. This is mainly due to:

• The growth of free-zone jurisdictions with common law legal systems (such as the DIFC and Abu Dhabi Global

Markets (“ADGM”)) which has shifted the dynamic;

• More international businesses (who are familiar with TPF) are investing in the UAE; and

• The Misconception that TPF is for impecunious creditors is diminishing i.e. potential claimants who are not

always “cash rich” (e.g. contractors/sub-contractors) are increasingly seeing TPF as a useful method of

pursuing debtors.

• TPF of disputes has never been restricted in the UAE i.e. the concept of an unrelated party having

an economic interest in the outcome of a dispute is not contrary to Sharia principles.

• DIFC Practice Direction (which makes it mandatory to disclosure existence of TPF) encourages use

of TPF.

• In future there is these is likely to be calls for adherence to a TPF code of conduct.

• Optimism as regards TPF which is likely to gain significant momentum in the coming years.

8

Hong Kong –

Decision of the

Court of Final Appeal in

Astro v First Media


Astro v First Media

2005

Astro and Lippo entered into a Subscription and Shareholders’ Agreement (SSA)

Joint venture to provide multimedia and television services in Indonesia

SIAC arbitration

Singapore Law as governing law

2008

Astro commenced arbitration against Lippo seeking monetary damages for breach of the SSA

Astro applied to include three additional Astro entities (the “Additional Parties”) that were not parties to the SSA as co-claimants

• SSA contained condition precedents

• Prior to fulfilment of these conditions precedent, the Additional Parties would supply funds and services to the joint venture

2010

The tribunal decided that the Additional Parties were entitled to bring claims and awarded in favor of Astro in a sum exceeding US$130 million

Astro sought to enforce the award in Singapore and Hong Kong


Astro v First Media

Singapore

• Astro was initially granted leave to enforce the awards

• October 2013

• Singapore Court of Appeal

• Lippo succeeded on its appeal

• Held that the arbitral tribunal lacked the jurisdiction to make the awards in favor of the

Additional Parties

• The Singapore enforcement orders in favor of these Additional Parties should be set

aside

• Found that Lippo was entitled to choose between the “active” remedy of set aside, and

the “passive” remedy of resisting enforcement


Astro v First Media

Hong Kong

September 2010

• Judgment enforcing the award was entered

• Lippo took no steps to set aside the judgment within 14 days as prescribed under the Arbitration Ordinance

• mistakenly believed that it did not have any assets in Hong Kong

July 2011

• Astro located assets in Hong Kong and obtained a garnishee order to attach a debt of US$ 44 million

• One of the Lippo companies (First Media) then, after a delay of 14 months, applied for an extension of time to set aside the judgment enforcing the award as well as the garnishee order


Astro v First Media

Court of First Instance

• Refused First Media’s application on the following grounds

• First Media in breach of a duty of good faith

• The delay was substantial

to defend the claim on the merits in the hope that it would succeed before the

Tribunal, and keep the jurisdictional point in reserve to be deployed in the

enforcement court only when it suited its interests to do so


Astro v First Media

Court of Appeal

• Overturned the above good faith ground

• fundamental defect - the SIAC award against the Additional Parties were made without

jurisdiction

• But still rejected First Media’s application for the following reasons:

• the length of the delay was substantial

• the fact that a deliberate decision was taken not to apply to set aside within the time

prescribed

• the fact that the awards had not been set aside at the seat of the arbitration


Astro v First Media

Court of Final Appeal

• The Court of Final Appeal granted extension applied by First Media

• Preferred a broader approach to discretionary extensions of time

• “look at all relevant matters and consider the overall justice of the case”

• “rigid mechanistic approach is not appropriate”

• The Courts below had erred in principle, leading them to “downgrade the

fundamentally important absence of a valid arbitration agreement between

First Media and the Additional Parties”


Astro v First Media

Court of Final Appeal (cont’d)

• Found that Lippo was entitled to choose between the “active” remedy of

set aside, and the “passive” remedy of resisting enforcement

• Consistent with the approach of the Singapore Courts

• The lower courts “treat the fact that the awards have not been set aside in

Singapore as a major factor in refusing a time extension come into conflict

with the choice of remedies principle”

• While accepting that the delay was substantial, the CFA held that Astro had

not suffered substantial prejudice as a result, other than costs which can

be compensated


Astro v First Media

Court of Final Appeal (cont’d)

• The CFA considered that there must be balanced against the 14 month

delay the “fundamentally important” absence of a valid arbitration

agreement, which “clearly” gives rise to a defence to enforcement

• In the CFA’s view, refusing an extension would deny First Media a hearing

where its application has “decisively strong merits” and would penalise it

to the extent of permitting enforcement of a US$130 million award.

• The CFA held that that would “self-evidently be wholly disproportionate”


Astro v First Media

• Appeal allowed

• Extended the time for First Media to apply to set aside the orders granting leave to enforce the award and the judgment entered on the awards for three months from the date of the judgment

Result

• Beware of Additional Parties to an arbitration agreement

• Active remedy v Passive remedy

Lessons

Mainland China –

Enforcement of

CIETAC arbitral awards


Family

Feud

CIETAC Family Feud


DESIGNATED

ARBITRATION

COMMISSION

DATE OF ARBITRATION

AGREEMENTJURISDICTION

CIETAC Shenzhen/

CIETAC South China

On or before October 22, 2012 SCIA

October 23, 2012 – July 16, 2015 CIETAC Beijing

On or after July 17, 2015 CIETAC Shenzhen

CIETAC Shanghai On or before April 11, 2013 SHIAC

April 12, 2013 – July 16, 2015 CIETAC Beijing

July 17, 2015 - present CIETAC Shanghai

Guidance by the Supreme People’s Court

(15 July 2015)


Relevant Cases

22

Judgment Courts Arbitration clause Date of arbitration

clauseResult

LDK v Hindustan

(July 2018)

India High

Court

Any and all claims, disputes, controversies or

differences arising between the Parties out of or in

relation to or in connection with this Bond shall be

submitted for arbitration before China International

Economic and trade Arbitration Commission

(“CIETAC”) in Shanghai by three Arbitrators

appointed in accordance with the corresponding

rules of arbitration

14 November 2011 CIETAC Beijing

Wuhan Jiexibo

Equipment v

Shanghai

Jiexibo

Construction

Machinery (2016)

No.2

Intermediate

People’s Court

in Beijing

Any dispute arising from or in connection with this

agreement, shall be submitted to China

International Economic and Trade Arbitration

Commission for arbitration in Shanghai in

accordance with the arbitration rules applicable

when applying for arbitration.

1 January 2014 and

1 January 2015

CIETAC Beijing

Southwest

cement v TAN

Guoren (2017)

No. 2

Intermediate

People’s Court

in Shanghai

Any party may submit dispute to China


Commission for arbitration in Shanghai according

to then valid arbitration rules. The arbitration shall

be final and binding on both parties.

23 March 2012 SHIAC

Dalian Baiyi v

Dalian Carrefour

(2017)

Intermediate

People’s Court

in Dalian


commodity contract shall be submitted to China



to the arbitration rules of the commission

applicable when applying for arbitration.

18 September 2013 CIETAC Beijing

Judgment Courts Arbitration clause Date of arbitration

clauseResult

LDK v Hindustan

(July 2018)

India High

Court

Any and all claims, disputes, controversies or

differences arising between the Parties out of or in

relation to or in connection with this Bond shall be

submitted for arbitration before China International

Economic and trade Arbitration Commission

(“CIETAC”) in Shanghai by three Arbitrators

appointed in accordance with the corresponding

rules of arbitration

14 November 2011 CIETAC Beijing

Wuhan Jiexibo

Equipment v

Shanghai

Jiexibo

Construction

Machinery (2016)

No.2

Intermediate

People’s Court

in Beijing


agreement, shall be submitted to China


Commission for arbitration in Shanghai in

accordance with the arbitration rules applicable

when applying for arbitration.

1 January 2014 and

1 January 2015

CIETAC Beijing

Southwest

cement v TAN

Guoren (2017)

No. 2

Intermediate

People’s Court

in Shanghai

Any party may submit dispute to China



to then valid arbitration rules. The arbitration shall

be final and binding on both parties.

23 March 2012 SHIAC

Dalian Baiyi v

Dalian Carrefour

(2017)

Intermediate

People’s Court

in Dalian


commodity contract shall be submitted to China



to the arbitration rules of the commission

applicable when applying for arbitration.

18 September 2013 CIETAC Beijing


“Feuding Families” • Historically, where a party has wished to enforce a judgment or award against assets held on-shore

in Dubai, they have used the onshore mechanism. Similarly, if enforcement is sought within the

DIFC, the relevant laws and procedures within the DIFC are relied upon.

• However, due to some of the uncertainty associated with enforcement of foreign judgments/awards,

some creditors have sought to use the DIFC as a “conduit jurisdiction”.

• DIFC courts are open to this approach but it has been largely rejected by the Dubai Courts.

• This has resulted in the establishment of the Joint Judicial Committee (“JJC”) to deal with conflicts

of jurisdiction between the DIFC and onshore Dubai Courts.

• The JJC has now handed down several decisions, many of which have removed the "conduit

jurisdiction” of the DIFC courts for the enforcement of both domestic and foreign arbitral awards

where parallel proceedings between the Dubai and DIFC courts are on foot.

• Similarly, the DIFC is (presently) unlikely to be able to be used as conduit for enforcement of foreign

judgments where the subject matter of the execution is situated outside the DIFC

• That said, in view of the rise in prominence of the DIFC (and Dubai more broadly) as a forward

thinking and enforcement friendly jurisdiction, the use of the DIFC Courts in this way is likely to

change. 23

Mainland China –

Enforcement of arbitration

awards vs court judgments


Enforcement of arbitration awards

New York Convention 1958

159 signatories

All major jurisdictions around the world

Arrangement between Mainland China and HK

Two recent cases on reciprocity regarding US and Singaporean judgments

Developments in International Treaty

Enforcement of court judgments

Enforcement of arbitration awards v.

court judgments


Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and

Commercial Matters by the Court of the Mainland and of the Hong Kong Special

Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned

Hong Kong and China may recognize and enforce civil judgment issued by each other

• Implemented in 2006

• Judgment is of payment of money with executive force in a civil or commercial case given by a

designated court of either the mainland or Hong Kong

• There is a written jurisdiction agreement between the parties concerned stipulates in writing

that a people's courts in the mainland or a Hong Kong court has exclusive jurisdiction

• Judgment is final and conclusive


court judgments


Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and

Commercial Matters by the Court of the Mainland and of the Hong Kong Special

Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned

New version

• Signed on 18 January 2019 (Implementation date – to be determined)

• Requesting Place – Personal Jurisdiction (eg defendant’s residence or place of business,

performance of contract or tort, express agreement)

• Requested Place – Not exclusive jurisdiction

• Cover monetary and non-monetary judgments, specific performance, (except punitive damages,

administrative, family, bankruptcy, maritime, arbitration, etc)

• Cover IP disputes (trademarks, trade dress, and counterfeiting, passing off, etc) – punitive damages

(but not specific performance such as injunctions)

• Cover IP disputes (trade secret) - punitive damages, and specific performance (such as injunctions)

• Grounds to refuse enforcement (eg lack of due process, judgment obtained by fraud, etc)


court judgments


Application for recognition and enforcement of civil judgments in foreign courts for

disputes between LIU Li and TAO Li etc

The Intermediate People's Court of Wuhan Municipality

• 30 June 2017

• Recognized and enforced a US court judgment

• Based on the principle of reciprocity

• A judgment issued by the Los Angeles Superior Court, which recognized and enforced a PRC

court judgment (Hubei Gezhouba Sanlian Industrial Co Ltd and Hubei Pinghu Cruise Co Ltd

vs. Robinson Helicopter Company Inc)


court judgments


Application for the recognition and enforcement of civil judgments and rulings of special

procedures in foreign court between Kolmar Group AG and Jiangsu Textile Industry (Group)

Import & Export Co., Ltd.

Kolmar Group AG

The Intermediate People’s Court of Nanjing Municipality

• Recognized and enforced a Singaporean court judgment

• December 2016

• Based on the principle of reciprocity

• A judgement issued by the High Court of Singapore has enforced a PRC judgment issued by

the Intermediate People’s Court of Suzhou Municipality in January 2014


court judgments


• Promotes recognition and enforcement of foreign judgment

• Convention entered into force in October 2015 and has been signed and ratified by Mexico, Singapore and the European Union (on behalf of 28 member states)

• Convention signed but not yet ratified by the US, Ukraine and Montenegro

• Needs “an exclusive choice of court agreement”

• If there is no precedent in a country refusing enforcement of a judgment in another country based on lack of reciprocity, then it should be presumed that there is mutual reciprocity between the two countries.

On 12 September 2017, China signed (but not yet ratified) the Hague Convention on Choice-of-Court Agreement

On 8 June 2017, China and ten member states of ASEAN (including Singapore, Indonesia, Malaysia, Thailand, Vietnam etc) announced a joint statement of initiatives promoting judicial assistance


court judgments


Is enforcement still an important advantage for arbitration awards?

• Average enforcement rate of foreign arbitral awards in China from 1994 to 2015 is

68%

• Significantly improved in recent years (86.4% during the period from 2011 to 2015)

• January 2018, the SPC issued the Relevant Provisions on Issues concerning

Applications for Verification of Arbitration Cases under Judicial Review

• Expansion of the Reporting System


court judgments


Is enforcement still an important advantage for arbitration awards?

• Need proper arbitration clause

• Application for recognition and enforcement of an Singapore International Arbitration Center

arbitral award by Bao Resources International Pte. Ltd.

• August 2017

• PRC Courts refused to enforce the SIAC arbitral award

• Award made under expedited procedure which provided that “the case shall be referred to a

sole arbitrator, unless the President determines otherwise”

• Contrary to the parties’ agreement for 3 arbitrators


court judgments


• The UAE is a signatory to the New York Convention (“NYC”) and has (in theory) ratified the

Convention without reservation. However, whether the UAE courts would agree to enforce an

award rendered in a non-NYC country is debatable.

• When dealing with an award rendered in a country that is not a signatory to the NYC,

enforcement may be possible via a treaty between the UAE and that particular state e.g. Riyadh

Convention or GCC Convention.

• Since signing the Convention, the UAE courts have broadly relaxed their adherence to the

provisions of domestic legislation for ratification of foreign awards and have begun to correctly

apply the more liberal requirements of the NYC. This means that enforcement of foreign awards

may only be refused on certain grounds e.g. where the arbitration agreement was not valid under

the laws of the country where the award was issued or where enforcement would be contrary to

the public policy of the UAE.

• The procedure for enforcing foreign arbitral awards is contained in Articles 235 to 238 of the Civil

Procedure Code (“CPC”) and (arguably) under Articles 53 to 57 of the New Arbitration Law

(passed in 2018 and based on the UNCITRAL Model law).

Enforcement of Foreign Awards (Onshore)


• The DIFC Arbitration Law was passed in 2008 and is based on the UNCITRAL Model Law.

• Very practical and familiar to all practitioners and adheres to international best practice.

• Provisions concerning recognition and enforcement of arbitral awards are contained in Articles 42

to 44.

• Where the UAE has entered into a enforcement treaty, the DIFC courts will comply with the terms

of such treaty (Article 42(1)). Accordingly, the enforcement of foreign arbitral awards in the DIFC

will be subject to the provisions of the NYC.

• An arbitral award (irrespective of the state or jurisdiction in which it was made), will be recognised

as binding within the DIFC once it has been ratified by the DIFC courts.

• Additional steps are required to be undertaken to enforce a DIFC Court judgment onshore which

gives rise to the issues associated with using the DIFC as a “conduit jurisdiction” outlined above.

Enforcement of Foreign Awards (DIFC)


• The UAE courts are generally receptive to enforcing a foreign judgment where a bilateral

enforcement treaty is in place. In such circumstances, the jurisdiction of the court of origin is

generally not reviewed (subject to any exceptions contained in the relevant treaty).

• Where no bilateral treaty exists, the provisions of the CPC must be satisfied, including that the

UAE courts must not have had jurisdiction over the substantive dispute in relation to which the

foreign judgment was obtained.

• This can cause difficulties when enforcing a judgment against a defendant resident or domiciled in

the UAE. Accordingly, and in the absence of being able to overcome this hurdle, a civil claim must

be filed in the relevant UAE court (with the foreign judgment being filed in evidence). In such

circumstances, the local courts will almost certainly examine the merits of the case and may

overturn the original decision.

• The DIFC Court has jurisdiction to ratify any judgment or order from a recognised foreign court

(Article 24 of the DIFC Court Law No. 10 of 2004). However, in principle, the judgment can only

be enforced within the DIFC and therefore, the subject matter of execution must be within, or

have assets in the DIFC. Note issues re: “Conduit Jurisdiction”.

Enforcement of Foreign Judgments


• There have been many recent positive developments for the arbitration dispute resolution

landscape in the UAE including:

• This contributes to Dubai’s image as one of the leading arbitration jurisdictions in the world.

• There are some regional nuances to be mindful of, including:

• State Immunity;

• Concept of “Without Prejudice” is not recognised onshore; and

• Certain procedural issues (including heavy reliance on Powers of Attorney).

• DIFC-LCIA continues to be the preferred forum for dispute resolution for international companies

doing business in the region.

Concluding Remarks

The New

Arbitration

Law

Amendments

to the Penal

Code

Establishment

of the JCC

Development of

Third Party

Funding

ADGM

Thank You


Terence WongPartner

Hong Kong & Shanghai

+852 2292 2014 +86 21 2208 2643

[email protected]

Terence Wong is a partner at Winston & Strawn who focuses his practice on commercial arbitration.

He helps clients resolve disputes via international arbitration as well as other dispute resolution

mechanisms (such as mediation, expert determination, and court proceedings). In addition, Terence

drafts construction contracts for major projects.

Terence is familiar with the arbitration rules of many arbitral institutions, including the China

International Economic and Trade Arbitration Commission (CIETAC), the Shanghai International

Court of Arbitration (SHIAC), the Hong Kong International Arbitration Centre (HKIAC), the Singapore

International Arbitration Centre (SIAC), the International Chamber of Commerce (ICC), the United

Nations Commission on International Trade Law (UNCITRAL) Model Rules, and the Terms of the

London Maritime Arbitrators Associations (LMAA).

Terence is a Fellow with the Chartered Institute of Arbitrators, and is listed in the Panel of Arbitrators

with CIETAC, SHIAC, HKIAC, and SAC.

Terence has solid experience in dealing with multi-jurisdictional disputes, including China, Hong

Kong, Singapore, England, France, Indonesia, the Middle East, Nigeria, Tanzania, and Venezuela.

His experience spans a wide range of sectors such as infrastructure (such as rail, roads, and

bridges), power and utilities, energy, real estate, international trade, shipping, joint venture,

intellectual property etc.


Nick SharrattOf Counsel

Dubai

+971 4 424 2356

[email protected]

Nick Sharratt is Of Counsel in Winston & Strawn's disputes and investigations practice in the Middle

East. Prior to joining Winston, Nick spent seven years working for a leading international firm, the

last five of which in the UAE. Nick has extensive experience advising clients on international

arbitration matters across jurisdictions in the Middle East, Europe, and Africa. He also conducts a

wide range of cross-border litigation and regulatory work.

Nick has acted on behalf of numerous international companies in disputes in the UAE and wider

Middle East. His experience includes acting for a global commodities trader in proceedings brought

by it in England, the Democratic Republic of Congo (“DRC”) and the UAE; advising a major oil and

gas company in bringing arbitral enforcement proceedings in multiple jurisdictions across the Middle

East, which involved bringing the first successful enforcement action in respect of a London seated

arbitration award in Iraq; and defending one of the Middle East’s largest real estate developers in

multi-million dollar claim brought against it by the main contractor.


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