Court confirms jurisdiction to order security for costs against parties seeking to set aside an arbitral award under Order 23 RHC
Commercial Law and Arbitration
For the very first time, the Court confirmed in SA & Ors v BH & Anor [2024] HKCFI 1357 that it has jurisdiction under Order 23 of the Rules of the High Court (“RHC”) to order security for costs in arbitration proceedings initiated by parties to set aside an arbitral award. While Order 73 RHC governs arbitration-related court proceedings specifically, it does not exclude or take precedence over Order 23 which deals with security for costs generally.
Valerie Tang appeared for the Plaintiffs, whereas Mr Lawrence Li SC and Mr Tony HH Chow acted for the 1st Defendant.
Facts
The dispute arose out of a joint venture project between the parties to develop a communication satellite and to launch the same into the orbit over Equatorial Africa with the intention of providing internet services. Arbitration was subsequently commenced by the 1st Defendant pursuant to an arbitration clause in the relevant shareholders’ agreement.
By an interim award dated 21 June 2023 on liability only, the Tribunal allowed the 1st Defendant’s claim (the “Award”). The Plaintiffs then commenced these proceedings to set aside the Award (the “Setting Aside Application”), which prompted the 1st Defendant to apply for security for costs (the “Security Application”).
Legal Issues: Jurisdiction and Order 23
In resisting the Security Application, the Plaintiffs argued that the Court has no jurisdiction to order security under Order 23 RHC, specifically as the situation here is different from the usual security application. Generally, the award creditor would have obtained leave to enforce an award in Hong Kong, and security would be sought against the award debtor opposing the enforcement. In this instance, however, the 1st Defendant did not seek leave for enforcement, and hence the provisions in Order 73 RHC under which a party would apply to set aside the Court’s leave,[1] and the Court’s power to impose security[2] against the applying party is not engaged.
In that connection, it was also contended that the more specific rules of Order 73 RHC (governing arbitration-related court proceedings) would apply to the exclusion of the more general Order 23 (governing security for costs).
Decision
The Court ruled in favour of the 1st Defendant and ordered HK$2 million security against the Plaintiffs.
In arriving at that conclusion, the Court held that Order 73 RHC did not exclude or must take precedence over Order 23 RHC. RHC as a whole applied to proceedings relating to arbitrations, and it was only when Order 73 provides differently from the general rules that the specific provision therein would apply. The Court further noted that Order 73 rule 10A RHC was introduced to fill the lacuna in the existing Order 23, namely that a debtor applying to set aside an enforcement order made on the application of the creditor would be a “defendant”, and hence no security can be imposed against the party under Order 23 (which only applied to plaintiffs).
Bearing in mind the rationale of Order 73 rule 10A RHC, the Court highlighted the fact that in this case, it is the debtor (being the Plaintiffs) who is seeking the Court’s interference in the arbitration and the enforcement of the Award by actively launching its attack against the same in the present case. The Court was therefore of the view that the Plaintiffs were properly and for all purposes in name and by deed the “plaintiff” in these proceedings, to which Order 23 RHC is applicable.
In its application of Order 23 RHC, the Court found the following factors to be relevant, including: the ordinary residence of the Plaintiffs being outside of Hong Kong, the availability of the Plaintiffs’ assets, the merits of the Plaintiffs’ claim, the past conduct of the Plaintiffs from the parties’ history of proceedings, and the status of the 2nd Defendant (being the relevant Cayman Islands company, subject to a winding-up order at the time of the hearing).
Insofar as the merits of the Plaintiffs’ claim are concerned, the Court further commented that the Plaintiffs’ failure to raise the issue of non-arbitrability before the arbitral tribunal (which is now the basis of the Setting Aside Application) may well constitute waiver, estoppel or breach of a party’s duty of good faith so as to prevent the Plaintiffs from raising the point at this late stage.
Takeaways
(1) This is the first occasion where the Court has exercised its discretion in ordering security for costs in an arbitral award setting aside application pursuant to Order 23 RHC. In confirming that Order 23 RHC is applicable and not excluded by Order 73, it appears that the Court is now taking a more robust approach in dealing with security applications in the context of arbitration-related court proceedings.
(2) Notwithstanding that international arbitration almost invariably involves parties from outside of Hong Kong, foreign parties should be prepared where necessary to demonstrate in court proceedings they have readily identifiable and available assets.
(3) Practitioners also ought to ensure that all fundamental issues such as the question of non-arbitrability are raised at the earliest stage of the arbitration.
Valerie Tang
Valerie was called to the Bar in 2019. Since joining Chambers, Valerie has established a broad civil practice with an emphasis on commercial and matrimonial matters. Valerie has been a Member of the Chartered Institute of Arbitrators since 2020.
In A v B (HCMP 1625/2021), Valerie (with Mr Jose Remedios) acted for the successful Plaintiff in obtaining a Mareva injunction and Anton Piller Order under Section 21M in aid of foreign proceedings concerning HK$708 million worth of cryptocurrency.
More recently, Valerie obtained a return and non-removal order for children abducted from Hong Kong to a non-Hague Convention contracting state in MF v LJL (FCMC 655/2023).
In addition to her commercial and family practice, Valerie also regularly acts as sole advocate in land, probate, PI and employment matters. She is similarly well-versed in mental health related applications, such as Part II inquiries.
Prior to obtaining her law degree from the Chinese University of Hong Kong, Valerie read International Relations at the London School of Economics and Political Science. During her legal studies, she also served at the Legislative Council of Hong Kong from 2015 to 2018 where she was involved in, inter alia, bill drafting and policy research.
More details can be found in Valerie’s profile.
This article was first published on 24 June 2024.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.