CL v. SCG

HCCT 9/2018

[2019] HKCFI 398

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 9 OF 2018

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D E C I S I O N

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1.  This is an application by the Respondent (“SCG”) for the Court’s determination, as a preliminary issue, whether as a matter of law, enforcement of an arbitral award against SCG dated 17 February 2011 is time-barred under section 4 (1) (c) of the Limitation Ordinance Cap 347 (“Ordinance”).

2.  The history is simple and undisputed.  SCG entered into a contract with the Applicant (“CL”) on 3 March 2004, for the sale and shipment by CL of soybeans to SCG (“Contract”).  The Contract contains an arbitration clause.  By notice of arbitration dated 23 February 2005, CL commenced arbitration of various disputes under the Contract, in accordance with the arbitration agreement.  The dispute was submitted to the Hong Kong International Arbitration Centre for arbitration (“Arbitration”).  On 14 December 2006, the tribunal issued a 1^st partial award holding that it had jurisdiction to deal with certain of the claims.  On 17 February 2011, the tribunal issued a 2^nd partial award in favor of CL, whereby (inter alia) SCG was ordered to forthwith pay to CL the sum of US$2,173,000 with interest, together with the costs of the Arbitration (“Award”).

3.  On 18 March 2011, CL through its solicitors demanded payment of the sums due under the Award by SCG, and on 31 March 2011, CL through its solicitors made further demand for payment of the tribunal’s costs.  No payment was received.

4.  On 7 July 2011, CL applied to the Shenzhen Intermediate People’s Court on the Mainland (“Shenzhen Court”) to enforce the Award.  SCG filed written submissions to oppose the enforcement.  On 30 March 2015, the Shenzhen Court rejected CL’s application for enforcement, which resulted in an appeal and an application made by CL to the Guangdong Higher People’s Court (“GHPC”) for a retrial.  On 1 March 2016, GHPC rejected CL’s application for retrial. 

5.  Nearly 2 years later, 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 governs the Arbitration.  On 12 February 2018, leave was granted on CL’s ex-parte application in the usual manner, with corresponding leave granted to SCG to apply for the order to be set aside within 14 days of service.

6.  On 6 June 2018, SCG applied to set aside the order granting leave to enforce the Award, on the basis that the application was time-barred by section 4 (1) (c) of the Ordinance.  On 24 July 2018, the question of limitation was ordered to be tried as a preliminary issue.

7.  SCG does not dispute that enforcement of an arbitral award may be by way of a common law action on the award, or by the summary procedure provided under the relevant Arbitration Ordinance (Xiamen Xinjingdi Group Ltd v Eton Properties Ltd [2016] HKLRD 1106). 

8.  Section 4 (1) (c) of the Ordinance provides as follows:

“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.”

9.  “Action” in the Ordinance is defined by section 2 (1) as including “any proceedings in a court of law”.

10.  Very sensibly and rightly, counsel for CL accepts that the 6 years’ time limit prescribed under section 4 (1) (c) applies to both a common law action on an award, as well as the statutory proceedings to enforce an award under section 2GG of Cap 341 (citing Russell on Arbitration 24^th edition paragraph 8-022 and National Ability SA v Tinna Oils & Chemicals Ltd [2010] 1 Lloyd’s Rep 222).

11.  In relation to a common law action on the award, it has been held that such action is an independent cause of action from the underlying contract which gave rise to the arbitration, and is premised on an implied promise between the parties to the underlying contract to perform an award (Xiamen Xinjingdi Group Ltd v Eton Properties Ltd, per Yuen JA, at paragraphs 103-110).  The six-year time limit runs from the time when the defendant fails to honour the implied promise to perform the award, and not from the date of the arbitration agreement, nor the date of the award (Agromet v Moulden Engineering Ltd [1985] 1 WLR 762).  In Agromet, Otton J held, in the context of the corresponding section 7 of the English Limitation Act, that the cause of action on the award accrues “from the breach occasioned by the defendants’ failure to honour the award when called upon to do so”.

12.  The issue in dispute between CL and SCG is the precise date when the cause of action on the action to enforce the Award in this case accrued. 

13.  On behalf of SCG, it was argued that the limitation period commenced from 17 May 2011, 3 months from the date of the Award, which SCG argued was a reasonable time for SCG to pay and honour the Award, such that the limitation period would have expired on 18 May 2017 - prior to the application for enforcement made on 6 February 2018.  Alternatively, SCG argued that the latest time for the cause of action to accrue was 8 July 2011, when CL applied to the Shenzhen Court for enforcement of the Award, in which case the limitation period would have expired on 9 July 2017.

14.  CL claims that the limitation period only commenced to run from 11 March 2012, when SCG manifested a clear and unequivocal intention not to be bound by the Award, by filing its submissions to the Shenzhen Court in opposition to CL’s application for enforcement of the Award on the Mainland.  Despite demands having been made by CL for payment under the Award on 18 March 2011 and 31 March 2011, and payment not forthcoming, counsel argued that no inference can be made from SCG’s lack of response as to whether it was disputing the Award and its liability and obligations thereunder.  It was only on 11 March 2012, when SCG opposed CL’s application for enforcement by disputing the tribunal’s jurisdiction to make the Award, that SCG indicated “a clear intention not to be bound” by the Award.  Only then, counsel argued, did the cause of action for enforcement accrue.

15.  I cannot accept the argument that the cause of action only accrues when SCG as debtor demonstrates a clear and unequivocal intention not to be bound by the Award and its obligations under the Award.  That will mean that as debtor, SCG can indefinitely defer and postpone the accrual of its creditor’s cause of action, and delay its right to enforce the debt due under the Award, by expressing an equivocal stance as to whether or not it would honour the Award and its obligation to make payment.  A similar argument was rejected by the English Court of Appeal in International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corp of India [1996] 1 All ER 1017, on the basis that the respondents should not be able to defer their liability unless and until they clearly refused to pay.  There, the court held that the six-year limitation period began whenever the claimants became entitled to enforce the awards, adopting the conclusions reached in Agromet Motoimport Ltd and Mustill and Boyd Commercial Arbitration, that time begins from the date on which the implied promise to perform the award is broken.

16.  Under the Award made and published on 17 February 2011, SCG was ordered to pay the principal sum of US$2,173,000 and interest “forthwith”.  The cause of action based on the implied obligation to honour the Award arises when SCG fails to make payment within a reasonable time of the publication of the Award and demand being made.  What is a reasonable time for payment and performance under an award depends on the terms of the award as well as the facts and circumstances of the case. 

17.  One month after the publication of the Award, demand for immediate payment was made by CL’s solicitors on 18 March 2011.  On the facts of this case, a reasonable time for payment lapsed at the latest by 8 April 2011, 21 days after the date of the demand for payment.  This takes into consideration the fact that the Award ordered payment “forthwith”, and the fact that SCG is a Mainland company and the demand was made for payment to be made to a bank account in Hong Kong.  The six-year limitation expired on 8 April 2017.

18.  CL calls in aid the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“Arrangement”), Article 2 of which prohibits an applicant for enforcement of an arbitral award from filing applications for enforcement with the relevant courts of the Mainland and Hong Kong SAR at the same time.  Article 2 provides that only when the result of the enforcement of the award by the court of one place is insufficient to satisfy the liabilities may the applicant apply to the court of another place for enforcement of the outstanding liabilities.

19.  CL argued that its accrual of the cause of action was suspended during the time when CL applied to the Shenzhen Court for enforcement on 7 July 2011, and that time only resumed running on 1 March 2016 when GHPC rejected CL’s application for retrial of the enforcement proceedings.  CL highlighted the fact that the purpose of Article 2 of the Arrangement, as reflected in section 40C of Cap 341 (and now section 93 of Cap 609), is to prevent enforcement proceedings of arbitral awards from being pursued simultaneously on the Mainland and in Hong Kong.  As explained in Shenzhen Kai Loong Investment and Development Co Ltd v CEC Electrical Manufacturing (International) Co Ltd [2001-2003] HKCLRT 649, the mischief against which section 40C and section 93 were enacted included double enforcement as well as double recovery. 

20.  Having applied for enforcement on the Mainland in July 2011, CL was not able under the Arrangement and section 40C to apply for enforcement in Hong Kong, until the Mainland enforcement proceedings were finally determined on 1 March 2016.  According to CL, it would be contrary to public policy to hold that a successful party to an arbitration should be prevented from enforcing its award in Hong Kong by operation of section 4 (1) (c) of the Ordinance, simply because it had attempted to enforce the award on the Mainland.

21.  However 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.  In the meantime, 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.

22.  Accordingly, I determine on the preliminary issue that on the facts of this case, enforcement of the Award was barred by section 4 (1) (c) of the Limitation Ordinance, when the proceedings herein were instituted on 6 February 2018 for leave to enforce the Award in Hong Kong.  I make an order nisi that the costs of the application are to be paid by CL to SCG, with certificate for Counsel.