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Asian litigation

Chinese awards in Hong Kong

Arbitration has become an increasingly important method of dispute resolution. Before the resumption of sovereignty by China on July 1 1997, Hong Kong and China were separate parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Chinese artibral awards were convention awards, enforceable in Hong Kong under section 42(1) of the Arbitration Ordinance. However, since July 1 1997, when Hong Kong and China ceased to be separate parties to the New York Convention, section 42(1) has no longer applied to Chinese awards. Questions then arose as to how Chinese arbitral awards can be enforced in Hong Kong.

In Ng Fung Hong Ltd v ABC (1998) 1 HKC 213, it was held that no other section of the Arbitration Ordinance would assist the enforcement of Chinese awards. Because no special post-handover arrangement has been made between Hong Kong and China regarding the enforcement in Hong Kong of Chinese arbitral awards, they are enforceable only through an action on the award as a debt due to an award-holder.

Arbitration and litigation

A recent Hong Kong case, Louis Dreyfus Trading v Bonarich International (1997) 3 HKC 597 reflects the courts' unwillingness to interfere with an arbitration agreement.

The plaintiff was a sugar trader in London that entered into nine sugar contracts with the defendant, all of which contained an arbitration clause providing for the resolution of disputes arising out of the sugar contracts by arbitration. Disputes arose over the performance of the sugar contracts. A memorandum of understanding that made no reference to the nine contracts was executed. The memorandum set out the process and schedule for determining the amount due to the plaintiff and the payment of the amount.

The plaintiff sought summary judgment against the defendant in Hong Kong on the basis of breach of the memorandum and the contracts. The defendant, having made a request for arbitration, asked for a stay of the proceedings under Article 8(1) of the Uncitral Model Law or alternatively under the inherent jurisdiction of the court. Article 8(1) of the Model Law states:

"A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

The court agreed that when faced with parallel applications of summary judgment and stay on the basis of arbitration, it should apply the test laid down in Tai Hing Cotton Mill v Glencore Grain Rotterdam BV (1996) 1 HKC 363 at 373H:

"Under Article 8(1) of the Model Law, the court is not concerned with investigating whether the defendant has an arguable basis for disputing the claim. If a claim is made against him in a matter which is the subject of an arbitration agreement and he does not admit the claim, then there is a dispute within the meaning of the Article. And if he seeks a stay of the action the court must grant a stay unless the plaintiff can show that the arbitration agreement is null and void, inoperative or incapable of being performed."

Also, where a dispute involves a binding arbitration agreement, a court should refrain from being involved even on a matter of judgment on admissions, unless it is certain that no stay will be granted and no arbitration will take place.

The court dismissed the plaintiff's applications because:

  • there were substantial and serious factual disputes between the parties; and
  • the plaintiff needed to prove the existence of an unequivocal admission by the defendant as to liability and quantum in respect of the nine contracts. However, the memorandum and another document submitted by the plaintiff made no reference to the contracts, and the court did not accept them as being an unequivocal admission of liability and quantum in respect of any of the sugar contracts.

The court had to decide whether a paragraph of an affirmation for the defendant amounted to a statement on the substance of the dispute by the defendant. The paragraph said: "The defendant denies liability to the plaintiff and will dispute the plaintiff's claim on the grounds that the contracts in question do not bind the defendant."

The court ruled that an Article 8(1) statement should contain what that party said on the substance of the dispute. An example would be the defence and counter-claim of a defendant in an action. It was held that the substance of the disputes between the parties varied from sugar contract to sugar contract, so the paragraph did not amount to a first statement on the substance of the dispute. Therefore, an order was made for a mandatory stay of proceedings. The court also said it would order a discretionary stay under the court's inherent jurisdiction after looking at all the circumstances of the case.

Royford Yeung
Stephenson Harwood & Lo
Hong Kong

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