AAD AND ANOTHER v. BBF

HCCT 7/2023

[2024] HKCFI 698

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 7 OF 2023

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BETWEEN

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JUDGMENT

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I. INTRODUCTION

1.  This case concerns what a court should consider when deciding whether to impose the payment of security as a condition for hearing a party’s application against the recognition and enforcement of an arbitral award in Hong Kong.

2.  The underlying arbitration was a Hong Kong-seated cross-border arbitration. It involved two claimants (a mainland China incorporated company and its related Hong Kong-incorporated company) and a respondent company incorporated in mainland China. In this Judgment, the expression “the claimants” will be used to denote the claimants in the underlying arbitration and the expression “the respondent” will be used to refer to the respondent in the underlying arbitration.

3.  On 27 January 2023 the claimants applied ex parte for the recognition and enforcement of the Quantum Awards (that is, a Corrected Final Quantum Award and an Additional Final Award on Pre-Award Interest (Quantum Phase)) as judgments of this court. The court granted the ex parte application on 6 February 2023. The court gave the respondent 28 days in which to apply to set aside the court’s ex parte Recognition Order. However, the respondent did not issue an application against recognition and enforcement (the Anti-Recognition Application) until 23 August 2023. In its Anti-Recognition Application, as an alternative to the non-recognition and enforcement of the Quantum Awards, the respondent asked that execution of the Recognition Order be stayed pending the final disposal of an application to resist enforcement of the Quantum Awards before the court in mainland China.

4.  In response to the Anti-Recognition Application, on 4 October 2023 the claimants issued a Security Application seeking the following relief:

(1) An Order that the Anti-Recognition Application not be heard until the respondent has complied with certain orders (including cost orders) made in previous related proceedings before the Hong Kong court.

(2) An Order that the respondent provide security for the sums due under the Quantum Awards (approximately RMB 3.5 billion and interest of over US$6.6 million).

(3) An Order that the respondent provide security for the claimants’ costs (estimated at nearly HK$1.9 million) of opposing the Anti-Recognition Application.

(4) In the alternative to sub-paragraph (1) above, an Order that the respondent pay the judgment sums, costs, and interest due in connection with the prior related court proceedings.

The Security Application asked that, If the respondent fails to comply with any Order made under sub-paragraphs (2), (3) or (4) above, the Anti-Recognition Application be dismissed with indemnity costs. An order of the nature sought in sub-paragraph (1) is sometimes called a “Hadkinson Order,” a term which derives from the case of Hadkinson v Hadkinson [1952] P 285.

5.  On 18 September 2023, by consent, Mimmie Chan J adjourned the hearing of the Anti-Recognition Application to a date not less than eight weeks from the hearing of the Security Application.

6.  This is the hearing of the Security Application.

II. BACKGROUND

7.  On 5 April 2005 the claimants and the respondent executed an OEM (Original Equipment Manufacturer) Supply Agreement for the supply of machines by the former to the latter. The parties then entered into purchase orders pursuant to the OEM Supply Agreement. In 2015 the respondent stopped purchasing machines, with substantial payments to the claimants outstanding. It appears that the respondent started to manufacture machines similar to those of the claimants.

8.  On 20 May 2016 the claimants commenced arbitration at the Hong Kong International Arbitration Centre (HKIAC) in accordance with the dispute resolution clause in the OEM Supply Agreement. The respondent challenged the Arbitral Tribunal’s jurisdiction. On 22 February 2017 the Tribunal dismissed the respondent’s jurisdictional challenge.

9.  The Tribunal bifurcated the arbitration into liability and quantum phases. In the first half of 2018, the Tribunal heard the parties on liability. It issued a Final Award on Liability on 16 April 2019. The latter found that the respondent had breached the Agreement, including in respect of a model X machines made by the respondent. The Tribunal ordered that the respondent be enjoined from manufacturing or selling such machines based on the claimants’ confidential information. On 25 June 2019 the Tribunal issued an Addendum to the Final Award on Liability. The Addendum and the Final Award on Liability will be referred to here as the “Liability Awards”.

10.  On 15 August 2019 the claimants applied to the Shenzhen Intermediate People’s Court for the recognition and enforcement of the Liability Awards. On 25 September 2019 the respondent brought an application (the Setting Aside Application) before the court here for certain paragraphs of the Addendum to the Final Award on Liability to be set aside. The respondent contended that the paragraphs should be set aside because they conflicted with existing judgments of the court in mainland China. The latter judgments arose from a dispute between the claimants’ parent company (incorporated outside of mainland China and Hong Kong) on the one hand and the respondent and its mainland China subsidiaries on the other. The Supreme People’s Court (SPC) issued a judgment in late 2019, confirming that the intellectual property rights in certain products and designs (which were the subject of the Hong Kong arbitration) vested in the respondent. According to the respondent, it would be contrary to Hong Kong public policy and would be unjust to enforce the Liability Awards here, because of the SPC’s judgment.

11.  On 11 December 2019 the claimants brought an application (Enforcement Application I) before the Hong Kong court for the recognition and enforcement of the Liability Awards as judgments of this court. The respondent’s Setting Aside Application and the claimants’ Enforcement Application I will collectively be referred to here as the “Prior Proceedings”. On 27 December 2019, by consent, the respondent paid HK$800,000 into court as security for the claimants’ costs in the Prior Proceedings.

12.  On 29 May 2020 this court heard the Prior Proceedings. On 24 August 2020, it handed down its Judgment (the Prior Proceedings Judgment), recognising the Liability Awards and dismissing the respondent’s Setting Aside Application. The Prior Proceedings Judgment held that there was no contradiction between the SPC Judgment and the Liability Awards. On 7 September 2020, the respondent applied for leave to appeal the Prior Proceedings Judgment. This court refused leave to appeal.

13.  In November 2020, the Tribunal heard the quantum phase of the arbitration.

14.  On 9 November 2021 this court issued Allocatur Bill No.2 covering the claimants’ costs of the respondent’s application for leave to appeal against the Prior Proceedings Judgment. On 12 November 2021 this court issued Allocatur Bill No.1 covering the claimants’ costs of the Prior Proceedings. On 11 January 2022, this court ordered payment out of the security for costs lodged by the respondent in the Prior Proceedings. This court also made an adverse costs order against the respondent for opposing the payment out application. I will refer to Allocatur Bill Nos. 1 and 2 and the adverse costs order mentioned in the previous sentence collectively as the “Prior Cost Orders”.

15.  On 9 May 2022, the Tribunal issued its Final Award on Quantum. On 9 June 2022, the claimants applied for the correction of the Final Award on Quantum and the making of an additional award in connection with issues which were the subject matter of the Final Award on Quantum. On 5 July 2022, the Tribunal issued a Corrected Final Award on Quantum and an additional Final Award on Pre-Award Interest (Quantum Phase) (together, the Quantum Awards).

16.  On 27 January 2023, the claimants applied for the recognition and enforcement of the Quantum Awards as judgments of this court. On 6 February 2023, the court issued the ex parte Recognition Order. On 23 August 2023, the respondent filed the Anti-Recognition Application.

17.  On 1 November 2023, the court gave directions on the filing of evidence in connection with the claimants’ Security Application. On 27 December 2023, the respondent failed to file evidence in opposition to the Security Application. On 5 January 2024, the respondent opted not to file affirmation evidence in reply in connection with the Anti-Recognition Application

18.  On 15 February 2024, the respondent’s solicitors ceased to act.

19.  During the hearing of the Security Application, the Anti-Recognition Application was fixed to be heard before me substantively on 10 May 2024 with an estimated length of half a day.

III. DISCUSSION

A. General remarks

20.  It is helpful at the start to make a few general remarks on anti-recognition and security applications.

21.  First, the claimants seek to enforce the Quantum Awards in the same territory (Hong Kong) in which the Quantum Awards are seated (Hong Kong). The Quantum Awards are not “Convention awards” within the definition of that term in section 2 of the Arbitration Ordinance (Cap.609) (AO).[1] This is because, in theory at least, the Quantum Awards fall outside the first sentence of Article 1 of the New York Convention (NYC).[2] Nevertheless, the AO has assimilated the regimes for the recognition and enforcement of awards seated in and outside of Hong Kong. This has the consequence that, in practice, the regimes for the recognition and enforcement of Hong Kong and non-Hong Kong seated awards are similar. I infer from this fact that, in the absence of compelling reason, the principles governing the recognition and enforcement in Hong Kong of Convention and non-Convention awards (including the principles governing the requirement of security as a condition for hearing an application for refusing recognition and enforcement of an award) should be the same.

22.  Second, where a party seeks to set aside an award, that party must apply to do so within a specified time limit. In Hong Kong, the time limit for seeking recourse against an award is three months. See AO section 81 (enacting Article 34(3) of the UNCITRAL Model Law[3]). The court has no jurisdiction to extend the three-month deadline. See AW and others v PY and another [2022] HKCFI 1397 (Mimmie Chan J), at [61]. The respondent never applied to set aside the Quantum Awards. The Quantum Awards accordingly became binding as between the parties on 5 October 2022. In contrast, the time limit for bringing an Anti-Recognition Application can be extended. See Astro Nusantara International BV and others v PT Ayunda Prima Mitra [2018] HKCFA 12, at [34], referring to the court’s power under RHC Order 3 Rule 5 to extend the time in RHC Order 73 Rule 10(6) for challenging an ex parte recognition order. Moreover, the procedure for anti-recognition applications differs from the procedure for applications for setting aside an award. In the former situation, a party seeking recognition and enforcement initiates an application before the court for such recognition and enforcement. The court typically considers such application ex parte based on documents alone. The court then makes a provisional recognition order, if so minded after considering the papers. Thereafter, it is for the party seeking refusal of recognition and enforcement to apply (within the time stipulated in RHC Order 73 Rule 10(6), in the court’s provisional order, or in any extension of time obtained) to set aside the court’s provisional order. Thus, while a party seeking refusal of recognition and enforcement is formally an applicant from a procedural point of view, that party is analytically in the position of a respondent. In actuality, the “applicant” in an anti-recognition application is resisting the original ex parte application for the recognition and enforcement of the award.

23.  Third, normally, a court will not ask a party who is in the position of a respondent to put up security as a condition to defending or resisting a claim or application. This is because there are issues of access to justice at stake. The court will not lightly deprive a party of the right to defend oneself against a claim or application. A party who is analytically in the position of a respondent is entitled to be heard. Such respondent must as a matter of fundamental principle be entitled to defend oneself unconditionally. In my view, in a purely commercial dispute, the fact that a defendant in litigation or a respondent in arbitration has been difficult and obstructionist and has fought all points tooth and nail, would not be a sufficient factor to outweigh the principle of access to justice just articulated.

24.  Fourth, in cross-border arbitration situations, the foregoing principle of access to justice is bolstered by a subsidiary principle, namely, that the losing party in an arbitration has a choice of remedies. The losing party may deploy an active remedy and apply to set aside an award before the court in the seat of arbitration. But the losing party may instead opt to deploy a passive remedy and simply resist the recognition and enforcement of an award in a jurisdiction where recognition and enforcement is sought. Astro Nusantara (at [34] and [76]–[79]) recognised the principle of a choice of remedies when dealing with Convention awards. Nonetheless, since the Convention and non-Convention regimes in Hong Kong are similar (see [21] above), the subsidiary principle should also apply in non-Convention award situations here. Accordingly, it should only be in an exceptional situation that a losing party in arbitration can be deprived of the entitlement to exercise its passive remedy.

B. Security by way of a Hadkinson Order

25.  The claimants seek a Hadkinson Order to forestall the Anti-Recognition Application from being heard, unless the respondent first pays the sums adjudged due to the claimants by the Prior Proceedings Judgment and the Prior Cost Orders.

26.  In the original Hadkinson case, a wife removed her child from England to Australia, despite a court order prohibiting her from doing so without the English court’s approval. The English court granted an application by the left-behind husband for the return of the child by a specified date. On the wife’s appeal against that order, the husband objected that the appeal should not be heard until the wife purged her contempt in removing the child from England without the court’s permission. The English Court of Appeal agreed with the husband, refusing to hear the wife’s appeal until she had purged her contempt. Romer LJ, with whom Somervell LJ agreed, stated at [288-9]:

“ It is the plain and unqualified obligation of every person against, or in respect of whom, an order is made by a court of competent jurisdiction, to obey it unless and until that order is discharged. The uncompromising nature of this obligation is shown by the fact that it extends even to cases where the person affected by an order believes it to be irregular or even void....

Such being the nature of this obligation, two consequences will, in general, follow from its breach. The first is that anyone who disobeys an order of the court (and I am not now considering disobedience of orders relating merely to matters of procedure) is in contempt and may be punished by committal or attachment or otherwise. The second is that no application to the court by such a person will be entertained until he has purged himself of his contempt...”

Denning LJ elaborated at [298]:

“ It is a strong thing for a court to refuse to hear a party to a cause and it is only to be justified by grave considerations of public policy. It is a step which a court will only take when the contempt itself impedes the course of justice and there is no other effective means of securing his compliance. In this regard I would like to refer to what Sir George Jessel MR said in a similar connexion in In re Clements v Erlanger (1877) 46 LJ Ch 375, at 383):

‘ I have myself had on many occasions to consider this jurisdiction; and I have always thought that, necessary though it be, it is necessary only in the sense in which extreme measures are sometimes necessary to preserve men's rights, that is, if no other pertinent remedy can be found. Probably that will be discovered after consideration to be the true measure of the exercise of the jurisdiction.’

Applying this principle, I am of opinion that the fact that a party to a cause has disobeyed an order of the court is not of itself a bar to his being heard, but if his disobedience is such that, so long as it continues, it impedes the course of justice in the cause, by making it more difficult for the court to ascertain the truth or to enforce the orders which it may make, then the court may in its discretion refuse to hear him until the impediment is removed or good reason is shown why it should not be removed.”

27.  In CWG v MH and others Civil Appeal Nos. 80, 81, 82 & 83 of 2013 (30 June 2014), the Court of Appeal (Yuen, Barma and McWalters JJA) granted a Hadkinson Order. That was a matrimonial proceeding in which the husband’s mother refused to comply with a court order that the mother disclose, to the wife, documents relating to companies alleged by the husband to belong to the mother and not to the husband. The mother refused to comply with the court order, placing her in contempt. In the absence of information about the companies, the court ordered the husband to pay HK$120 million to the wife. The husband applied for a stay of the judgment. The mother sought to support the husband’s application. The court refused to hear the mother until she complied with the disclosure order. At [12], Yuen JA identified the criteria that a court should apply when considering whether to grant a Hadkinson Order:

“ (1) Is the person against whom the order is sought in contempt?

(2) Is there an impediment to the course of justice?

(3) Is there any other effective means of securing compliance with the court’s orders?

(4) Should the court exercise its discretion to impose conditions having regard to the question?

(5) Is the contempt wilful (is it contumacious and continuing)?

(6) If so, what conditions would be proportionate?”

28.  Mr Han (appearing for the claimants) has also drawn my attention to La Dolce Vita Fine Dining Group Holdings Limited v Zhang Lan [2000] HKCFI 622. In Dolce Vita, Zhang was in contempt because she ignored an injunction and an order that she disclose her assets in aid of an arbitration between Dolce Vita and herself. The arbitration resulted in an award against Zhang. On her application to set aside the award, Dolce Vita applied for a Hadkinson Order to the effect that, until Zhang complied with the injunction and disclosure orders against her, Zhang’s application to set aside the awards should not be heard. Mimmie Chan J granted the order, stating at [24]:

“ Having regard to the conditions sought to be imposed in the Hadkinson Order, the seriousness of the willful and continuous breach, and giving due consideration to the other questions raised in CWG v MH, I am satisfied that the Hadkinson Order is proportionate, and that the conditions sought by the Applicant in paragraphs 1 and 2 of its summons can be reasonably complied with by Zhang. To refrain from imposing the conditions would be tantamount to condoning Zhang’s deliberate flouting of the Injunctions and the orders made by the Court, and her impediment to the course of justice.”

29.  Mr Han further referred me to CCMJ v SSM [2022] HKCA 173 (Peter Cheung and Chow JJA). A father was in breach of two orders to pay the school fees and maintenance of his son. He applied for the custody and care of his son. His application failed at first instance. He appealed. The Court of Appeal on the mother’s application granted a Hadkinson Order, staying the father’s appeal until he complied with the two orders. In granting the Hadkinson Order, the Court of Appeal stated at [42]:

“ It is clear from the recent authorities that the power of the Court to refuse to hear a party unless he complies with the conditions imposed is based on whether the conduct amounts to a contempt which impedes the course of justice by making it more difficult for the Court to ascertain the truth or to enforce the orders it may make.”

30.  Mr Han argues that a Hadkinson Order is warranted here because the respondent has failed to pay the amounts due under the Prior Proceedings Judgment and the Prior Cost Orders. This (Mr Han contends) amounts to contempt of the court. The non-compliance is said to be wilful. That is because the respondent’s solicitors wrote to the claimants that the enforcement proceedings in mainland China on the Liability Awards make it “uncertain at this stage whether [the claimants] are in fact entitled to the payment under the [judgment] in the Prior Proceedings, as well as the interest thereof”. Mr Han submits that this is “plainly wrong”. This court has in the Prior Proceedings Judgment and in its decision on the respondent’s leave to appeal application, already dismissed the argument that the proceedings in mainland China are a valid ground for refusing recognition and enforcement of the Liability Awards her. Given the length of time that has elapsed since the Prior Proceedings Judgment and the Prior Costs Order, the respondent’s non-compliance (Mr Han maintains) must be characterised as contumacious. Mr Han suggests that a Hadkinson Order would be proportionate in light of the respondent’s stubbornness, since “the present proceedings [are] the only way to secure compliance ..., in view of D’s conduct and general disregard for arbitral and court processes”.

31.  I do not think that this is an appropriate case for a Hadkinson Order.

32.  First, criteria (2) and (3) identified by Yuen JA are lacking. I do not think that the non-payment of the sums due under the Prior Proceedings Judgment and Prior Cost Orders constitutes a contempt of court or contumelious conduct analogous to those in the cases cited by Mr Han. This is not a case of ignoring an injunction or an order for the disclosure of assets or a court order in matrimonial proceedings for the provision of information or maintenance. What the claimants are really complaining about here is that the respondent has not paid the debts adjudged to be due to the claimants. The respondent has instead played hard to get. This is a normal risk when one engages in business with a party. It is a common complaint in commercial cases that a debtor refuses to pay up. In such circumstances, if the respondent has assets in Hong Kong, nothing prevents the claimants from enforcing the Prior Proceedings Judgment and Prior Cost Orders against those assets using the normal means of execution available here to judgment creditors. If the respondent has assets in other jurisdictions, it is open to the claimants to enforce this court’s judgments or the Liability and Quantum Awards against those assets. The claimants have in fact sought to do this in mainland China with the Liability Awards. It is unclear why there is any impediment to justice that calls for a Hadkinson Order.

33.  Second, the application for a Hadkinson Order as set out in [4(1)] above is self-defeating. Mr Han has been at pains to depict the respondent as a party that refuses to honour its debts, but instead raises palpably bad excuses to prolong the day of reckoning when it finally must pay up. Assume that I make a Hadkinson Order as sought in [4(1)] above. If Mr Han is right about the respondent, the latter will simply refuse to put up any of the security demanded by the claimants. The result would be that the hearing of the Anti-Recognition Application and the coming into effect of the Recognition Order will be in limbo. There will be no security and the Recognition Order will remain a provisional order for an indeterminate period. The respondent will have accomplished the very objective of delaying enforcement that Mr Han contends the Hadkinson Order being sought in [4(1)] is designed to circumvent.

34.  Third, cognisant of the difficulty highlighted in the previous paragraph, the claimants additionally ask that if the respondent fails to pay security within two weeks or so, then the Anti-Recognition Application should be dismissed by this court. But, as I have already indicated, I do not believe that the mere fact that the respondent has played “hard ball” throughout the quantum and liability phases of the arbitration and ensuing litigation proceedings, justifies depriving the respondent of its entitlement to exercise its passive remedy. Given that the respondent is analytically in the position of defending against the claimants’ application for recognition and enforcement of the Quantum Awards, it would be wrong in principle (I believe) to require that the respondent pay security to exercise the right to defend. What should instead happen is for the claimants to proceed full speed ahead to a substantive inter partes hearing of their application for recognition and enforcement and the Anti-Recognition Application. The court in Hong Kong is well-known for dealing with recognition and enforcement applications in a fair, efficient, and cost-effective manner. If Mr Han is right in his contention that the respondent’s case against recognition and enforcement is obviously doomed to fail, the Anti-Recognition Application will be dismissed and the Recognition Order absolute in consequence within a short time frame. Ironically, the taking out of the Security Application and the direction (which the claimants insisted upon) that the Anti-Recognition Application not be heard until at least eight weeks after the hearing of the Security Application, has delayed the prompt determination of the Anti-Recognition Application. In the usual course of events, the Anti-Recognition Application could have been decided sooner and, if successful, the claimants would have been able to enforce the Quantum Awards as judgments of the court well before now.

C. Security for the sums due under the Quantum Awards or (alternatively) due under the Previous Proceedings Judgment and Previous Cost Orders

35.  This alternative relief is very much like the Hadkinson Order which I have just refused.

36.  Mr Han argues that I can order security for the sums requested under AO section 86(4):

“ If an application for setting aside or suspending an award referred to in section 85 has been made to a competent authority as mentioned in subsection (1)(f), the court before which enforcement of an award is made:

(a) may, if it thinks fit, adjourn the proceedings for the enforcement of the award; and

(b) may, on the application of the party seeking to enforce the award, order the person against whom the enforcement is invoked to give security.”

Section 86(1)(f) (as referred to in AO section 86(4)) empowers the court to refuse enforcement of a Hong Kong-seated award if:

“ the award—

(i) has not yet become binding on the parties; or

(ii) has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.”

37.  In support of his submissions on this alternative relief, Mr Han has drawn my attention to the following dictum of Mimmie Chan J in Dana Shipping and Trading SA v Sino Channel Asia Ltd [2016] HKCFI 660 at [7] in respect of the similar AO section 89(5) covering Convention Awards:[4]

“ [T]wo important factors must be considered on such an application, although I do not mean to say there may not be others. The first is the strength of the argument that the award is invalid… If the award is manifestly invalid, there should be an adjournment and no order for security. If it is manifestly valid, there should either be an order for immediate enforcement, or else an order for substantial security… The second point is that the court must consider the ease or difficulty of enforcement of the award and whether it will be rendered more difficult, for example, by movement of assets or by improvident trading, if enforcement is delayed. If that is likely to occur, the case for security is stronger…”

38.  Dana Shipping involved the recognition and enforcement of a London-seated arbitration award. Sino Channel applied in Hong Kong to set aside the Hong Kong Court’s provisional order recognising the award. Its grounds were that it had not been given proper notice of the arbitrator’s appointment and had been unable to present its case in the arbitration. At the same time, Sino Channel applied to the English court out of time to set aside the award.

39.  In the alternative to AO section 84(6), Mr Han relies on RHC Order 73 Rule 10A as empowering me to require security, as a condition for hearing the Anti-Recognition Application. Order 73 Rule 10A stipulates:

“ Where a debtor has applied under rule 10(6) to set aside an order made under rule 10(4) [that is, an order for the recognition and enforcement of an arbitral award], the Court may, either of its own motion or on an application made by the creditor, and if, having regard to all the circumstances of the case it thinks it just to do so, impose such terms, as to giving security or otherwise, as a condition of the further conduct of the application, as it thinks fit.”

40.  Mr Han submits that the factors identified by Mimmie Chan J in Dana Shipping are present here. He says that the Quantum Awards are “manifestly valid”. He adds that the outcome of the mainland China enforcement proceedings in respect of the Liability Awards are irrelevant to the enforceability of the Quantum Awards in Hong Kong. He stresses that, from the respondent’s affirmation in support of the Anti-Recognition Application, the respondent is plainly seeking to re-open matters previously determined against the respondent in the Prior Proceedings Judgment. The respondent cannot re-litigate such matters which are now res judicata. Mr Han accepts that there are due process points raised by the Anti-Recognition Application which relate to the quantum phase, and which did not therefore feature in the Prior Proceedings. But Mr Han asserts on those due process points that, contrary to the respondent’s allegation, there was no unfairness in the procedures which the Tribunal adopted in the quantum phase. He repeats that the respondent has been openly contumelious and in contempt of this court. He suggests that there is a real risk of dissipation of assets and further obstructive or bad faith conduct by the respondent to defeat the claimants’ attempts at enforcing the Quantum Awards.

41.  Mr Han contends that, in any event, the respondent’s conduct throughout the liability and quantum phases of the arbitration and before the Hong Kong Court, has been so egregiously bad as to merit my imposing the provision of substantial security as a condition for this court hearing the Anti-Recognition Application. If any security ordered is not forthcoming, Mr Han submits I should simply dismiss the Anti-Recognition Application

42.  I am unable to agree.

43.  First, AO section 86(4) is inapposite. That provision deals with the situation where a party applies to an enforcing court for the refusal of recognition or enforcement of an arbitral award on the ground that the court of the seat has set aside (or is deliberating whether to set aside) the award. In this case, the Hong Kong court is both the seat court and the enforcing court. There has been no application before the Hong Kong court to set aside the Quantum Awards. There can no longer be such application. The respondent is well outside the three-month limit in AO section 81 for applying to set aside the Quantum Awards. There is no power to extend that time limit. The Quantum Awards have long since become binding on the parties. The condition precedent to the invocation of AO section 86(4) is not met and can never be met. The only source of my power to impose security is consequently Order 73 Rule 10A.

44.  Second, an example of this court’s exercise of the discretion to impose security under Order 73 Rule 10A is found in Karaha Bodas Co LLC v Persusahaan Pertambangan Minydak Dan Gas Bumi Negara [2003] 2 HKLRD 381. The case concerned a Swiss-seated award. KBC obtained a provisional order for the recognition and enforcement of the award in Hong Kong. Pertamina applied to the Hong Kong court for the award not to be recognised or enforced. On KBC’s application for security as a condition of hearing Pertamina’s application, Burrell J noted (at [17(1)]) that there may be difficult defendants such as Pertamina who take every point and leave no stone of argument unturned. But he observed: “An alternative view of this conduct is that Pertamina are merely fighting every corner. They are fighting strenuously and have every right to do so.” Accordingly, although accepting that the “merits of the challenge” were in KBC’s favour, Burrell J did not think that it was appropriate to order Pertamina to pay a large sum of money as security about a month from the relevant hearing date. He thought that such an order “could have a seriously adverse, and unnecessarily unjust, effect on Pertamina’s position”.

45.  In my view, an order that the respondent pay the substantial amount sought as security would be equivalent to shutting out the respondent from pursuing its Anti-Recognition Application. In practical terms, there is little (if any) prospect of the respondent coming up with such a large sum within the ten weeks between now and 10 May when the Anti-Recognition Application will be heard. The claimants say that I should not hesitate to require the payment of a large security as a condition, because the respondent has taken innumerable hopeless points, acted in bad faith, sought to re-open matters already decided, and been generally obstructionist throughout. But I am not prepared on a prima facie basis to conclude, without giving the respondent a chance to be heard, that its Anti-Recognition Application is doomed to fail. I accept that some arguments raised in the Anti-Recognition Application appear to be a re-hashing of matters rejected in the Prior Proceedings Judgment. No doubt those arguments can be quickly disposed of during the hearing of the Anti-Recognition Application. However, the respondent also complains about a lack of due process during the quantum phase. That is new. I do not think that I can, in the way that the claimants invite me to do, casually dismiss those complaints now en bloc as solely procedural in character and within the discretion and prerogative of the Tribunal. The claimants may be right at the end of the day. But that is not a reason, in an interlocutory hearing, to impose a draconian condition having the effect that, unless the respondent pays substantial sums as security, it will not be heard by the court at all.

46.  Third, assume that there is a real risk of dissipation of assets as Mr Han posits, I am unable to see how requiring the payment of security addresses that risk. The respondent will simply not put up any security and, if Mr Han is right in his foreboding, the respondent will continue to dissipate assets. A more effective way of dealing with the matter would have been (as Mimmie Chan J indicated in the dictum from Dana Shipping) to apply to the court for the speedy determination of the Anti-Recognition Application. If (as Mr Han submits) the Quantum Awards are “manifestly valid,” the Anti-Recognition Application can readily be shown to be misconceived and dismissed as a result. The claimants will then be able to enforce the Quantum Awards in the same manner as any other judgment of the Hong Kong court.

47.  Fourth, on the respondent’s alleged contumacious conduct and contempt of court, see [32] above.

D. Security for the claimants’ costs of opposing the Anti-Recognition Application

48.  Relying on Order 73 Rule 10A, Mr Han submits that, as a company incorporated in mainland China, the respondent is based outside of Hong Kong and therefore liable to provide security for the claimants’ costs of the Anti-Recognition Application. Citing Hong Kong Civil Procedure 2024, volume I, note 23/3/4, Mr Han argues that it is the “usual ordinary or general rule of practice for the court to require the foreign plaintiff to give security for costs, because it is ordinarily just to do so”. The respondent here having previously paid HK$800,000 as security for the claimants’ costs in connection with the respondent’s application to set aside the Liability Awards, Mr Han suggests that the respondent has tacitly acknowledged the claimants’ entitlement to security for the costs of enforcing the Quantum Awards. Mr Han finally refers to Karaha Bodas in support. There, although refusing to order security of HK$50 million as a condition for the hearing of Pertamina’s anti-recognition application, Burrell J ordered Pertamina to put up security of HK$3 million to cover KBC’s costs.

49.  I am unable to agree.

50.  First, that the respondent is based outside of Hong Kong, is an insufficient basis for ordering security for costs in this case. This is not the usual situation referred to in note 23/3/4. In Hong Kong-seated cross-border commercial arbitrations, the likelihood is that (as here) at least one of the parties will be based outside Hong Kong. Parties from outside Hong Kong choose to resolve their commercial disputes in Hong Kong-seated arbitrations because they regard Hong Kong as a neutral, expeditious, and cost-effective jurisdiction in which to resolve their differences. In cannot be that, just because a non-Hong Kong party to a cross-border commercial contract has agreed to Hong Kong-seated arbitration, that party is susceptible to an application security for the other side’s costs in court proceedings in aid of the arbitration. Something more must be shown to justify an order for security for costs.

51.  For example, the Chartered Institute of Arbitrators’ (CIArb) Guideline on Applications for Security for Cost (2016) is a soft law instrument on the factors to consider when deciding whether to grant security for costs in cross-border arbitrations. It is routinely referred to for that purpose by arbitrators in common law and civil law jurisdictions. It warns (at p. 9):

“ Arbitrators should not order security for costs solely on the ground that the claiming party has a foreign residence, i.e. different from the country of the place of the arbitration. The restriction against requiring security from a party purely because they are resident in a foreign jurisdiction is expressly stated in many national laws and international treaties which forbid discrimination against foreign parties. Moreover, discrimination on the grounds of foreign residence would be contrary to the fundamental principles of international arbitration which enables parties from different jurisdictions to choose where their disputes should be resolved.”

The Guideline points out (at p. 7) that difficulties of enforcing an award against a debtor may have been part of the commercial risk which an enforcing party undertook when it entered into a business relationship with that debtor. In such situation of normal commercial risk, an order for security for costs would be inappropriate.

52.  Here, according to the claimants, the respondent turned out to be a difficult party with whom to do business. But it is not apparent to me why the claimants’ problems of enforcement against a bad debtor should be regarded as something other than part of the normal business risk which the claimants accepted when they chose to deal with the respondent in the first place. The claimants, for instance, could have asked for some sort of financial guarantee when entering into the OEM Supply Agreement. If they did not do so at the outset of their business relationship with the respondent, there must be cogent reasons put forward as to why their commercial position should now be improved by the court ordering security for costs in arbitration-related litigation. The mere fact that the award debtor is resident outside Hong Kong will not be enough reason.

53.  Second, security for costs is usually ordered against a person who is likely to be impecunious. The party seeking security adduces evidence to show that, in all likelihood, the person against whom security for costs is sought, lacks the means to satisfy any future adverse order for costs. In the present case, the complaint is that the respondent has put up feeble excuses for not paying the sums ordered to be paid by the Prior Proceedings Judgment and the Prior Costs Order and is likely dissipating its assets, no evidence has been adduced that the respondent is impecunious apart from that. The respondent’s excuses may or may not be feeble. That will be sorted out when the Anti-Recognition Application is substantively heard. By itself, poor excuses do not strike me as a compelling basis for imposing an order for security for costs as a condition to hearing the Anti-Recognition Application. On the risk of dissipation, see [46] above.

54.  Third, orders for security for costs are typically in the form: “until X pays security for Y’s costs in the amount of Z, X’s application against Y will be stayed”. That is not what is being prayed for here. The claimants are instead seeking a peremptory order in the form: “unless the respondent pays security for the claimants’ costs by date D, the Anti-Recognition Order will be struck out”. In security for costs applications, courts must take a prima facie view of the merits of each side’s case. Mr Han says that, on a broad-brush view, the claimants have a winning case, even on the lack of due process allegations levied by the respondent. That could conceivably be correct. But my concern is that the claimants are effectively seeking to strike a knock-out blow now against the Anti-Recognition Application through the court merely taking a “first impressions” view of the merits. That is inevitably a lesser standard than what a court normally undertakes when it hears an anti-recognition application substantively. There is a danger of shutting out a party which is analytically in the position of a respondent (see [22]-[24] above) on the lower standard of review called for in a security for costs application. I do not think that is right in principle. In any event, the factors upon which the claimants rely, do not seem to me anywhere near enough to override the circumspection with which a court should approach the making of a peremptory order.

55.  Fourth, I am conscious that I am diverging from the outcome in Karaha Bodas where Burrell J ordered security for costs against Pertamina. But, in Karaha Bodas, the matters in [22]-[24], [51]-[52], and [54] above were not canvassed before the court. I am not confident that Burrell J would have decided as he did, if those considerations had been ventilated before him.

56.  Fifth, even if I were amenable to granting security for costs, I do not believe that the near HK$1.9 million sought by the claimants is the correct amount for such an order here. There is a tension inherent in Mr Han’s submissions. On the one hand, he argues that the Anti-Recognition Application is plainly misconceived and can be dismissed just on a prima facie basis. On the other hand, he suggests that the hearing of the Ant-Recognition Order has so far required or will require:

(1) Some 18-, 38- and 12- hours preparation of affidavit evidence by a senior and junior solicitor advocate and a litigation clerk respectively, for a total of HK$399,600.

(2) An additional 22- and 45-hours for the perusal of documents by the senior and junior solicitor advocate respectively, for a total of HK$457,000.

(2) A further 8-hours’ preparation for the substantive hearing by the senior solicitor advocate for a total of HK$68,000.

(3) The briefing of senior and junior counsel for the substantive hearing for a total of HK$750,000.

57.  The claimants are entitled to instruct as many solicitor advocates and senior and junior counsel as they deem warranted to act in their behalf for the purposes of the substantive hearing. But that does not mean that the respondent must pay security to cover all such lawyers. As security of costs in connection with the Prior Proceedings, the claimants accepted HK$800,000. No explanation why the security sought in connection with the recognition and enforcement of the Quantum Awards should come to more than twice HK$800,000. In my view, an amount of HK$600,000 (comprising about HK$400,000 for preparation work and about HK$200,000 for appearances at the substantive hearing) would be a more reasonable and proportionate figure than a sum of nearly $1.9 million.

IV. CONCLUSION

58.  The net result is that all the orders for security sought by the claimants are refused.

59.  The claimants’ Security Application is accordingly dismissed.

60.  There will be an Order nisi that the claimants pay the respondent’s costs of the Security Application on a party and party basis, such costs to be taxed if not agreed, in any event.