Under Hong Kong law, an arbitration agreement is premised upon an implied undertaking by the parties to perform an award. Accordingly, the 6-year time limit to enforce awards in Hong Kong runs from the time when the award debtor fails to honour that promise. In its recent decision in CL v SCG  HKCFI 398, the Hong Kong Court of First Instance (CFI) dismissed an enforcement application because it was made out of time. The court provided useful guidance on the important question of when the 6-year limitation period starts to run.
In March 2005, CL commenced HKIAC administered arbitration proceedings in Hong Kong against SCG. The dispute arose out of a sale and shipment contract. On 17 February 2011, the arbitral tribunal rendered an award ordering SCG to “forthwith” pay CL around USD 2.1 million.
CL demanded payment from SCG on 18 March 2011. On 9 July 2011, CL applied to the Shenzhen Intermediate People’s Court to enforce the award. SCG opposed. In March 2015, CL’s application was rejected. CL appealed to the Guangdong Higher People’s Court which rejected its appeal on 1 March 2017. By then, CL had spent almost 6 years on seeking to enforce the Hong Kong award in China.
On 6 February 2018, CL applied to the CFI to enforce the award in Hong Kong. SCG opposed the application on the ground that it was time-barred. SCG relied on Section 4(1)(c) of the Limitation Ordinance: actions to enforce an award (where the submission is not by an instrument under seal) shall not be brought after the expiration of 6 years “from the date on which the cause of action accrued”.
In response, CL invoked the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region. This Arrangement was put in place in 1999 because the New York Convention no longer applied between Hong Kong and China after Hong Kong was returned to China on 1 July 1997. The Arrangement prohibits an applicant from applying for enforcement to more than one court at the time; the applicant may only apply for enforcement to the court of another place when enforcement in the first place turned out to be insufficient to satisfy the award. CL argued that the limitation period did not run while it attempted to enforce the award in China.
The Honourable Madam Justice Mimmie Chan, who is the judge in charge of arbitration-related court proceedings in the CFI, had to resolve the following issues:
- What is the precise date when the cause of action to enforce the award accrued?
- Whether the 6-year limitation period did not run while CL sought enforcement of the award in China.
3. Decision and Discussion of the Issues
The limitation period started to run 21 days after CL made its first demand
SCG submitted that 3 months was a reasonable time for SCG to pay and honour the award. Accordingly, the limitation period started to run 3 months from the date of the award or, alternatively, when CL applied to the Shenzhen court to enforce the award. Accordingly, the limitation period had either expired on 18 May 2017 or on 9 July 2017.
CL contended that the limitation period only started to run when SCG manifested a clear and an unequivocal intention not to be bound by the award; that is when SCG filed its submissions with the Shenzhen court opposing CL’s application to enforce the award. Chan J did not accept CL’s argument as it would have effectively meant that an award creditor could indefinitely defer the accrual of its cause of action by expressing an equivocal stance as to whether or not it would honour the award.
Chan J then explained the principles on determining when the 6-years start to run. 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. Pointing out that the award ordered SCG to make payment “forthwith”, Chan J explained that the cause of action based on the implied obligation to honour the award arose when SCG failed to make payment “within a reasonable time of the publication of the award and demand being made”. Taking into account that SCG demanded payment one month after the award was made, 21 days were a reasonable time for payment. Consequently, the cause of action accrued on 8 April 2011 (i.e., 21 days from 18 March 2011 when CL made its first demand) and the 6‑year limitation period expired on 8 April 2017.
The limitation period was not suspended while CL sought enforcement in China
CL also contended that the limitation period was suspended when CL applied to the Mainland courts for enforcement of the award and that it only resumed on 1 March 2016 when CL’s application was ultimately rejected by the Guangdong Higher People’s Court. CL submitted that it would be contrary to public policy of Hong Kong to refuse enforcement of an award by operation of the Limitation Ordinance simply because the successful party had first attempted to enforce it in Mainland China.
Chan J rejected this argument. However unfair the consequences may be, there was simply no express provision in the Arrangement or the Arbitration Ordinance (which implements the Arrangement in Hong Kong) or the Limitation Ordinance that limitation period should not run while a successful party seeks to enforce an award in China.
4. Takeaway points
It is important for claimants to get an understanding before commencing arbitration whether the other party has actually any assets to satisfy a favourable award and where those assets are. Award creditors who intend to enforce a favourable award in different jurisdictions should ascertain whether there are any constraints on concurrent enforcement applications in those jurisdictions and what the applicable time limits are.
In Hong Kong, enforcement applications must be brought within 6 years from the date the cause of action has accrued. To play safe, award creditors should assume that the 6 years start to run when they receive the award. When diarising the expiration of the Hong Kong limitation period, sufficient time for the preparation of the enforcement application should be factored in.
Award creditors who obtain a Hong Kong or Mainland award against debtors with potential assets in both places must make a decision as to where to seek enforcement first. Creditors who decided to start in China but subsequently find themselves entangled in a lengthy court battle must be wary of the limitation period for enforcement in Hong Kong. Creditors who are at risk of running out of time and wish to seek enforcement in Hong Kong within the 6-year period must procure determination of a pending application in China before applying for enforcement in Hong Kong. Notably, the same principles apply between Hong Kong and Macau.