Matthew Gearing QC: Application of New York Convention from HK Perspective

Keynote Speech on the 60th Anniversary of New York Convention and “One Belt and One Road” Conference  

Mr. Matthew Gearing QC

Chairperson of HKIAC

Good afternoon, everyone. Many thanks to the Shenzhen Court of International Arbitration for the kind invitation. I am very pleased to be here and see so many familiar faces and also a number of new faces in the audience.

I am going to say a few things about Hong Kong and the New York Convention. Now, Hong Kong is a unique jurisdiction in a number of ways, and it may be particularly unique as far as the New York Convention is concerned in that it has enjoyed its affiliation to the New York Convention by virtue of two states: first of all, the United Kingdom, and then, the mainland of China. Nonetheless, its legal regime has remained essentially the same. The legal regime is one of enforcement. One still refers to decisions of Hong Kong judges before 1997, particular I must mention the well-known decisions of Justice Neil Kaplan, as he essentially set the stage in Hong Kong in the early and mid-1980s, really ahead of his time in terms of setting out a pro-enforcement bent for the Hong Kong courts which has been largely followed today.

I am going to give you some statistics. I know I'm not the first person today to do that, but this is hopefully helpful. It may not be entirely accurate, because surveys of this nature are always subject to some errors. The blue line shows you enforcement applications under the New York Convention in Hong Kong by reference to years. The red line, much lower number, shows the cases where there are attempts to oppose enforcement. Right at the bottom, sort of the grey-blue line shows cases where the award was set aside—more correctly, where enforcement was not granted. When I say set-aside that would be a situation where a Hong Kong court has granted an initial order to enforce an award, and then within 14 days or such a later period of time as may be granted, an application to the court to refuse enforcement is made and subsequently granted. Taking the position from 皇冠体育 to 2016, 210 out of 215 enforcement applications were granted in Hong Kong. That is an extremely high enforcement rate. As I say, it may not be entirely accurate, but I think it's sufficient to show that Hong Kong is very obviously a pro-enforcement jurisdiction.

Now, when one says "pro-enforcement", one needs to be a little bit careful, because obviously and particularly in forums like this, we go around saying, "Generally speaking, arbitration awards should be enforced." But, to use a colloquial English phrase, there are, of course, from time to time, a few rotten apples in the barrel. When you come across the rotten apples or when the courts come across those rotten apples in the barrel, they have to act. So it would actually be disturbing if the enforcement percentage was indeed higher than 97%. It's really right and it's bound to be right, because of these rotten apples, that there will always be a few awards which, rightly, will not be enforced. And most of those, I would venture to suggest, would be where there is an excess of jurisdiction. There would be a few where points are validly taken on very serious due process violations.

I will run very briefly through the pro-enforcement principles. I think there are seven principles. I've taken all those principles from Hong Kong cases, but honestly, you could also go to many other jurisdictions, certainly many other common law jurisdictions, and you could discern very similar principles.

The first principle is the presumption of enforcement. The second principle is that there shall be no review of the merits. It is of course, a very common debate one has on enforcement. A party resisting enforcement will point the judge to such and such an error and will say that this is essentially an untenable error, and then the party resisting the application, seeking to enforce, will say, "what the other party is doing now is to delve into the merits and invite you to review a finding of fact or a finding of law, and that is what you cannot do under the New York Convention."

Indeed, that then flows into my third point: no review of findings of law or fact, closely related to the second point. However, this is where sometimes a contradiction arises: you can, of course, very successfully, and you should be able to successfully refuse enforcement where you can prove a due process violation, and generally it's not just any due process violation, but it has to be a serious due process violation. But the way you often do that is by showing the judge that there has been a serious error, a serious error that could only have resulted from a gross violation of due process.

So often to get through on this fourth point, you have to commit or potentially commit a breach of the second and third principles. Fifthly, there is, as we all know, and this has been discussed today, a public policy exception in the New York Convention. No-one, at least I cannot clearly define what it is, but most people can tell you what it is not. The vast majority of cases that one finds on the public policy exception in Hong Kong and indeed in many other jurisdictions devote paragraphs of judgments to say public policy exception should be narrowly construed. That is the international approach.

The sixth point, which has also been the subject of much case law in Hong Kong and in many other jurisdictions, is that there is a residual discretion to enforce, despite a party having proven the existence of one of the grounds not to enforce under the New York Convention.

Seventh, this is citing a decision of Professor Reyes, Justice Reyes as he then was, if you unsuccessfully resist enforcement, you are going to have to pay the costs of the other party in most cases, and that will be normally on the indemnity basis, which in Hong Kong and in other common law jurisdictions is the higher basis for paying costs. So you can argue about it, but if you lose, you will pay costs, and under the indemnity basis, that means that you should pay most of the other side's legal costs.

I was going to refer to, very briefly, to conclude, to three cases, interesting cases that have been the subject of some discussion in recent years, all from the last three or four years, in terms of how Hong Kong enforced awards.

The first touches on the sensitive question of crown—sometimes called crown immunity, and the question of whether Chinese SOEs may claim crown immunity in Hong Kong. This case I put up on the screen is actually not a New York Convention case, it's actually a Hong Kong award, and there was an application to enforce the award as a judgment of the court, and the question was whether China Coal, a Chinese SOE, could claim crown immunity. The short point was on the facts of that particular case was that it could not, because it was not controlled by the state. It is a case which has been cited a lot since because had it gone the other way, it might have discouraged parties from arguing, litigating or arbitrating against Chinese SOEs in Hong Kong, because they would be concerned that they would be met with a crown immunity defense.

The second of the three cases is the Dana Gas case, which is a case, to put it shortly, where -- a slightly involved case, but ultimately what had happened was an award was set aside -- an English award was ultimately set aside by the English court, and the CFI, the Court of First Instance in Hong Kong, having reviewed the situation, ultimately declined to enforce the award in Hong Kong, on the basis that the award had been set aside at the seat. Once the award is set aside at the seat, validity elsewhere, is a vexed and weighty question. There is a fairly short and succinct answer to it at least given by the Hong Kong courts in the Dana Gas case.

The final case is a saga in itself, touched upon again by Professor Reyes earlier. I mention it only because it is certainly, I'm pretty sure, the most recent pronouncement of the Court of Final Appeal on the New York Convention in Hong Kong, a decision about a month ago, but it has to be said a decision on the question of whether one can apply out of time to resist enforcement on the grounds of one of the New York Convention. There's much more to that case than I have given in that very brief summary, but that is certainly the highest-level and most recent pronouncement on the New York Convention by the Hong Kong courts. So that's all I wish to say, Thank you.