Legal update: “The arbitration agreement is spent” – Hong Kong Court lifts stay of proceedings notwithstanding pending application to set aside arbitral awards in foreign court01Aug2023
Hong Kong is widely recognised as an efficient and reliable jurisdiction for international arbitration. It is a popular dispute resolution venue due to its modern arbitration legal framework and an independent judiciary. The Hong Kong Courts’ intervention to arbitration proceedings is typically kept to a minimum level.
As a reflection of the Hong Kong Courts’ recognition of and respect for the finality of arbitral awards, in a recent decision – ZS Capital Fund and Others v Astor Asset Management 3 Limited and Another  HKCFI 1047 – the Hong Kong Court of First Instance lifted the stay of the High Court proceedings on the ground that the arbitration agreement between the parties is spent following the issuance of the awards in the foreign arbitration, despite that the awards are subject to an ongoing setting aside application in the foreign supervisory court.
Background of the dispute
The borrowers commenced proceedings in the High Court of Hong Kong, challenging the enforceability of certain financing documents including the loan agreements entered into with the lender. Subsequently, the High Court action between the borrowers and the lender was stayed in favour of an arbitration in St. Kitts & Nevis commenced by the lender.
The arbitral tribunal ruled that it could not grant the relief sought by the lender and that the lender had to apply to the Hong Kong Court if it wished to obtain relief under the proviso to section 23 of the Money Lenders Ordinance (Cap.163) regarding the loan proceeds. The arbitral tribunal also ruled that the borrowers’ counterclaim should similarly be dealt with by the Hong Kong Court, as it involves issues relating to the Ordinance.
The lender applied to the supervisory court – the Jamaican Court – to set aside the arbitral awards on the ground that the tribunal refused to exercise its jurisdiction, and applied for an order that the arbitral proceedings be commenced de novo before a differently constituted arbitral tribunal. The borrowers lodged an application with the Jamaican court to strike out the lender’s setting aside application. The borrowers also applied to lift the stay of the Hong Kong proceedings.
Hong Kong Court’s decision – lifting the stay of the High Court proceedings
Before the Hong Kong Court:
- The borrowers argued that the stay of proceedings in the Hong Kong Court should be lifted because the arbitration agreement between the parties is spent. In other words, the tribunal has already ruled on all of the parties’ disputes and there is nothing further for the tribunal to address.
- The lender relied on its application in the Jamaican court to set aside the arbitral awards as a basis to justify the continuance of the stay in the Hong Kong Court.
The Honourable Madam Justice Cheng ruled in favour of the borrowers and ordered to uplift the stay of the High Court proceedings on the ground that the arbitration agreement between the lender and the borrowers is spent and, accordingly, the basis for a stay no longer exists. More specifically, the Court held that:
- The arbitral tribunal has ruled on all of the parties’ disputes, including a ruling that the parties should pursue their respective claims relating to the Money Lenders Ordinance in the Hong Kong Court. There is nothing further for the arbitral tribunal to do.
- The arbitral awards are binding on the parties unless and until they are set aside – this is not affected by the pending application to set aside the awards. If the awards were to be set aside by the Jamaican court in the future, the appropriate avenue for the lender is to apply to the Hong Kong Court for a further stay of the proceedings on the basis of change of circumstances.
The Hong Kong Court’s acknowledgment that the arbitral awards are operative and binding on the parties unless and until they are set aside highlights its general approach in accepting the binding nature and finality of arbitral awards.
Tanner De Witt is experienced in representing clients in cross border arbitration and arbitration-related applications in the Hong Kong Courts, such as enforcement of arbitral awards.
Pamela Mak and Ling Meng
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.