Court holds arbitration agreement spent and lifts stay of proceedings

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Authored by: Joseph Chung

In ZS Capital Fund SPC & Ors v Astor Asset Management 3 Limited & Anor [2023] HKCFI 1047, the court lifted a stay of proceedings which had been granted in favour of arbitration, holding that the arbitration agreement had been spent. The arbitral tribunal in St Kitts & Nevis had already ruled on all of the parties’ disputes, and issued two Awards. The Tribunal ruled that insofar as the parties sought to pursue their arguments relating to Hong Kong’s Money Lenders Ordinance, those should be resolved by the Hong Kong court and there was nothing further for the arbitral tribunal to address in the arbitration proceedings. Accordingly, the basis for a stay had gone, notwithstanding that an application to set aside the Awards at the seat of arbitration (in Jamaica) was pending. The court said that the 1st Defendant had not applied to stay the Awards and if the Awards should be set aside in the future, it was always open to the 1st Defendant to apply for a further stay at that stage, based on the change in circumstances constituted by such setting aside.

Background

The Plaintiffs’ action against the 1^st Defendant in these proceedings concerning loan agreements, had been stayed in favour of arbitration in St Kitts & Nevis.  The arbitral tribunal in the St Kitts & Nevis arbitration (Tribunal) ruled that the seat of the arbitration was in Jamaica and issued Awards.

In the First Award, the Tribunal held that it was difficult to accept that the 1^st Defendant  was not a money lender subject to Hong Kong’s Money Lenders Ordinance (Cap.163) (MLO); that the MLO was clear that an unlicensed money lender is not entitled to recover the loan proceeds or any interest thereon unless it comes within the proviso to s.23 which provides for the Hong Kong court to order recovery in certain circumstances; that the Tribunal therefore could not grant the relief sought by the 1^st Defendant; and that the 1^st Defendant had to apply to the Hong Kong court to obtain relief. 

In the Second Award, the Tribunal clarified that the Plaintiffs’ counterclaim should also be dealt with by the Hong Kong court, as it similarly involved issues relating to the enforceability of the loan agreements between the parties under the MLO, and to avoid inconsistent rulings.  The essence of the two Awards was therefore that the parties’ disputes should proceed to be determined in the Hong Kong court.

 The 1^st Defendant complained that the Tribunal refused to exercise its jurisdiction to adjudicate most of the issues referred to it and had therefore applied to set aside both Awards in the Court of Jamaica, asking for the arbitral proceedings to be commenced de novo before a differently constituted tribunal.  The Plaintiffs had applied to strike out the setting aside application on the grounds that it was completely groundless and the hearing of the application had been adjourned to 21st September 2023.

The parties’ positions

The Plaintiffs said that by analogy with the test as to whether a stay should be granted in favour of arbitration, as set out by Ma J in Tommy CP Sze & Co v Li & Fung (Trading) Ltd & ors [2003] 1 HKC 418 at [18] to [22], the stay should be uplifted. The applicable questions on that test were (i) is the clause in question an arbitration agreement? If not, a stay will not be granted; (ii) Is the arbitration agreement null and void, inoperative or incapable of being performed?  If yes, a stay will not be granted. (iii)Is there in reality a dispute or difference between the parties? If not, a stay will not be granted. (iv) Is the dispute or difference between the parties within the ambit of the arbitration agreement? If not, a stay will not be granted. The Plaintiffs said that on the second of the four questions, the arbitration agreement was spent and no longer capable of being performed, since the Tribunal has already ruled on the dispute and issued the two Awards.  

The 1^st Defendant argued that the application to uplift the stay was premature and that it was wrong to say that the arbitration proceedings had concluded, since the 1^st Defendant had applied to set aside such proceedings in the supervisory court i.e. in the Supreme Court of Judicature of Jamaica.

Court’s decision

The court ordered that the stay of the action be lifted, holding:

(1) The arbitration agreement was spent.  The Tribunal had already ruled on all of the parties’ disputes, and issued the two Awards.  The Tribunal had ruled that insofar as the parties sought to pursue their arguments relating to the MLO, those arguments should be resolved by the Hong Kong court.  There was nothing further for the Tribunal to address in the arbitration proceedings. Accordingly, the basis for a stay had gone.

(2) As regards the 1^st Defendant’s application to set aside the Awards, this did not affect the fact that the Awards were operative and binding on the parties unless and until they were set aside.  The 1^st Defendant had not applied to stay the Awards.  If the Awards should be set aside in the future, it was always open to the 1^st Defendant to apply for a further stay at that stage, based on the change in circumstances constituted by such setting aside.

(3) The case authorities did not say that pending the determination of an application to set aside an arbitral award, proceedings in the Hong Kong court should be stayed.

(4) The parties’ agreement to arbitration also extended to an agreement that the conduct of the arbitration should be subject to the supervisory jurisdiction of the relevant court of the seat of the arbitration. Insofar as a party is aggrieved by the arbitral process, he should in the first instance pursue remedies under the supervisory jurisdiction. However, that did not mean that the other party was not, in the meantime, free to proceed on the basis of the award as made by the arbitral tribunal, when that award was not the subject of any stay. 

Comments

The Hong Kong Court takes the view that, like court judgments, the mere fact that an arbitral award is under appeal (or as in the present case, there is an application for setting aside) will not operate as a stay of enforcement automatically. The aggrieved party should first apply for a stay of the enforcement of the award before the supervisory court in the place of the arbitration. Otherwise, there may be risk of inconsistent findings in the different courts and the arbitration if the award is only set aside after the Court has issued its ruling in Hong Kong.

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Joseph Chung

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