The Court of First Instance (CFI) already considered twice this year in the context of interim measures whether an arbitrator’s order amounted to an award or interim order: see our blog post on the decisions in G v N and W v Contractor.[1]
But questions for the CFI as to what constitutes an award continue.
InL v R [2024] HKCFI 1611, the plaintiff (L) applied to the CFI to set aside a Settlement Agreement (SA) entered into by L and the defendant (R) during an arbitration as well as a subsequent Procedural Order (PO) terminating the arbitration. The ongoing case is interesting because L argues that the SA and the PO each constitutes an arbitral award and its application is based on grounds for the setting aside of an award under section 81 of Hong Kong Arbitration Ordinance (Cap. 609).
As a first step, the CFI had to determine in the context of service of L’s application on R abroad whether L has shown a serious question to be tried on the merits of its application. The CFI had no difficulty in finding that L has met this threshold which is not a high one. How the CFI will ultimately answer the questions raised remains to be seen.
Background
L and R entered into the SA in August 2023 in the course of a HKIAC administered arbitration commenced by R. The SA provided that the High Court of Hong Kong shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the SA and each party irrevocably submitting to the exclusive jurisdiction of that court.
The parties jointly applied to the tribunal to terminate the arbitration. The application was followed by submissions questioning whether the SA had been signed with the authority of L.
The tribunal decided to terminate the arbitration, but did not issue an order for the parties’ respective claims and counterclaims to be withdrawn and the arbitration to be terminated on the terms set out in the SA as requested by L and R. Instead, the tribunal terminated the proceedings in the form of a procedural order, because in its opinion there were no terms of the settlement to record. In the PO, the Tribunal stated, among others, that it does not make any determination on the validity of the SA (referring to the exclusive jurisdiction clause in the SA), nor on the authority of L’s board of directors or the merits of any claim or counterclaim in the arbitration.
The parties’ applications to the CFI
In November 2023, L applied ex parte to the CFI to set aside the SA and the PO arguing that:
- The terms of the SA were contrary to a scheme of arrangement sanctioned by the Supreme Court of the Seychelles and the SA was signed by a director of L without authority.
- The PO was a final decision of the tribunal in relation to the subject matter of the arbitration which was against public policy as it was based on the settlement agreement, which was contrary to the scheme of arrangement and signed without authority. Further, L was unable to present its case to the tribunal on the issue of authority.
In December 2023, the CFI granted leave to L to serve its Originating Summons on R in St Kitts.
In January 2024, R applied to the CFI to set aside the service out order (and other orders related to service). R relied on various grounds, including that L could make no claims under the Arbitration Ordinance and that there was no serious question to be tried on the merits of L’s application.
The CFI’s decision
In June 2024, the CFI dismissed R’s application which the Court considered an “interlocutory skirmish” and a “total distraction”. The CFI noted that for service out of the jurisdiction, L only had to meet the threshold of a serious question to be tried on the merits of its claims which was not high.
The Procedural Order
R argued that the PO was merely a procedural order to terminate the arbitration rather than a final determination of a claim or a particular issue in the arbitration that amounted to an award. R pointed out that the tribunal specifically declined the parties’ request to record the SA in an award and chose to issue a procedural order.
Referring to G v N and W v Contractor, the CFI reiterated that a tribunal’s orders and directions are enforceable under section 61 of the Ordinance in the same manner as an order or direction of the Court, with leave of the Court. However, the grounds for setting aside an award under section 81 do not apply because section 61 sets out its own regime for enforcement of such interim orders and directions.
Applying the guidelines in ZCCM Investments Holdings[2] for the classification of an order as either an award or an interim order, the CFI found that L has shown that there is at least a serious question to be tried that the PO is final in the termination of the arbitration, and that it is a final and binding “award” in that sense. The CFI noted that the PO also ruled on costs and that nothing remained for the tribunal’s decision, rendering it functus officio.
The Settlement Agreement
The Arbitration Ordinance deals with settlement agreements in section 66:
- Section 66(1) gives effect to Article 30 of UNCITRAL Model Law which provides in essence that, if requested by the parties and not objected to by the tribunal, the tribunal shall record the settlement in the form of an arbitral award on agreed terms. Such an award shall be made in accordance with the provisions of Article 31 (on the form and contents of an award) and state that it is an award. It has the same status and effect as any other award on the merits of the case.
- For cases other than those referred to in Article 30, section 66(2) provides that a settlement agreement is, for the purposes of its enforcement, to be treated as an arbitral award.
L argued that the SA should be treated as an award “for the purposes of its enforcement” under section 66(2). Therefore, questions of whether enforcement of the SA should be challenged, allowed or refused can arise under section 81 (setting aside) or section 86 (enforcement) of the Ordinance.
The CFI agreed that section 66(2) comes into play here because the tribunal did not accede to the parties’ request to record the SA in the form of an award. If the SA is to be treated as an award for the purposes of enforcement, there is a serious question to be tried whether the grounds for challenging or resisting enforcement of an award under the Ordinance can apply to an application to set aside the SA.
Comments
- It remains to be seen how the Court will classify the SA and the PO, and whether it finds that settlement agreements are subject to the setting aside and enforcement regimes for awards. But regardless of the outcome, this case is a helpful reminder that under Hong Kong law, a party to a written settlement agreement can enforce the agreement in Hong Kong as if it was an arbitral award even if it does not meet the requirements under Article 30 of the UNCITRAL Model Law.
- Parties who intend to enter into a settlement agreement have a choice of how to resolve disputes arising from that agreement. They can adopt an identical arbitration clause to the one that gave rise to the arbitration (to benefit from the one-stop-shop advantage of arbitration), a different (incompatible) arbitration clause, or a litigation clause. This case also serves as a helpful reminder that parties should carefully consider their options and make an informed decision.
[1] G v N [2024] HKCFI 721 (March 2024); W v Contractor [2024] HKCFI 1452 (May 2024).
[2] ZCCM Investment Holdings PLC v Kansanshi Holdings PLC and Another [2019] EWHC 1285 (Comm).
