Hong Kong

Litigating to recover money is a long and burdensome process, and it gets worse if a win in court does not translate to getting your money back.

Litigating to recover money is a long and burdensome process, and it gets worse if a win in court does not translate to getting your money back.

A good litigation strategy plans backwards from an ideal end game. In this article, we explore how judgments, arbitral awards and liquidation processes can be recognized and enforced against counterparties, particularly those with assets across jurisdictions.

Recognition of foreign judgments and awards

Foreign judgments and arbitral awards have no direct force in Hong Kong unless they are formally recognized as a local judgment.

Court Judgments

Hong Kong recognizes final money judgments from the superior courts of Australia, Austria, Belgium, Bermuda, Brunei, France, Germany, India, Israel, Italy, Malaysia, Netherlands, New Zealand, Singapore and Sri Lanka by way of registration under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap.319), or FJREO. A similar registration mechanism also exists between Hong Kong and Mainland China under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597), or MJREO.

Judgments outside the scope of the FJREO and the MJREO (e.g. Japan, UK, US) may be recognized in Hong Kong at common law by bringing a fresh action based upon the foreign judgment, in which case, the judgment debt awarded by the foreign court will form the cause of action of the Hong Kong action. The plaintiff (the judgment creditor of the foreign judgment) may then proceed to apply for a default judgment if the defendant/judgment debtor does not defend, or a summary judgment if the defendant/judgment debtor does not have an arguable defense based on the limited defenses available to such an enforcement action.

Arbitral awards

Hong Kong is one of the 168 signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention) and is known for its pro-arbitration and pro-enforcement approach facilitating the arbitral process and assisting with enforcement of arbitral awards. The Arbitration Ordinance provides a mechanistic procedure to convert foreign and local arbitral awards into judgments, which are then enforceable in the same manner as a court judgment.

Enforcement of arbitral awards between Hong Kong and China is governed separately under the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and Hong Kong. In November 2020, the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards was signed bringing the Mainland-Hong Kong arrangement more in line with the Convention.

Major changes include: clarification that the arrangement covers both recognition and enforcement of arbitral awards; the possibility of applying to the courts for interim measures before and after the making of arbitral awards and; the permission of concurrent enforcement applications in the Hong Kong and Mainland courts. Hong Kong is the only seat of arbitration outside Mainland China where parties to arbitral proceedings administered by designated arbitral institutions may apply to the Mainland courts for interim measures (for example, to preserve assets pending the outcome of the arbitration).

Enforcement of local judgments

Once a foreign judgment or arbitral award is recognized, it can be enforced as if it were a Hong Kong court judgment. Below are a few examples of enforcement actions available in Hong Kong:

  1. Winding-up or bankruptcy proceedings against the debtor, followed by asset liquidation
  2. Writs of execution to enlist the court bailiff to seize inventory on the debtor’s premises, which can then be sold at a public auction
  3. Charging orders and orders for sale of real estate property belonging to the debtor
  4. Examination orders to examine the debtor in court for full disclosure of his assets
  5. Garnishee proceedings to order a third party to directly pay the creditor any debt owed by the third party to the debtor
  6. Prohibition orders to restrain the debtor from leaving Hong Kong to facilitate other enforcement efforts
  7. Committal proceedings to hold the debtor in contempt of court, which may result in the imprisonment of the debtor

Cross-border insolvency proceedings

Hong Kong and Mainland China are currently piloting a new arrangement for mutual recognition of and assistance to insolvency proceedings between the courts of Shanghai, Xiamen, Shenzhen and Hong Kong.

Under this new arrangement, liquidators and bankruptcy trustee from Hong Kong may apply to Mainland courts for the recognition of Hong Kong insolvency proceedings, and vice versa. The mechanism aims to bring efficiency and alignment of the insolvency processes in the two jurisdictions, which should promote better protection of the assets in the interests of the creditors as a whole and encourage coordinated debt restructuring efforts in both places and abroad.

For overseas insolvencies, Hong Kong courts have shown an increasing willingness to provide common law recognition and assistance for foreign insolvency proceedings that are collective in nature, including non-common law jurisdictions which share a similar insolvency regime with Hong Kong. This is a welcome development as Hong Kong does not have a statutory cross-border insolvency framework and is not a party to the UNCITRAL Model Law on Cross-Border Insolvency.

Before it all begins…

While it is impossible to avoid disputes altogether, careful contract drafting could narrow the scope of disagreement and offer an upper hand at managing any litigation and enforcement actions that ensue.

Dispute resolution clauses

Often overlooked as standard boilerplate provisions, dispute resolution clauses could significantly affect a position during a dispute.

Though foreign judgments and local/foreign arbitral awards could be recognized and enforced in Hong Kong, it is important to bear in mind that litigation and arbitration (as well as other forms of dispute resolution) are distinct processes. For example, arbitral proceedings are confidential in nature, whereas litigation and court judgments are matters of public record in the interest of open justice. The decision of an arbitrator is final and binding, as opposed to court proceedings where parties generally have a right to appeal to higher courts.

Multi-tiered escalation clauses and built-in alternative dispute resolution processes allow parties an opportunity to resolve their conflicts amicably before resorting to legal action. Liquidated damages clauses and shortened limitation periods for specific types of claims could also be included.

Where should the dispute be determined?

The Hong Kong courts generally respect the parties’ choice of jurisdiction for hearing disputes. It is advisable to plan ahead and choose carefully, as one is bound by the choice at the time of contract for future disputes.

Lacking a properly drafted jurisdiction clause opens the door to potential costly and time-consuming preliminary battles in court to first determine where the substantive dispute should be heard, and the risk of parallel proceedings in multiple jurisdictions. The choice of jurisdiction should best position one’s access to the most convenient and effective adjudication system, availability of interim and final remedies, and ease of enforcement against the counterparty. The location may also provide a strategic or psychological advantage, as one might have less appetite to fight legal proceedings in a foreign country, which would normally require a bigger investment on time and resources.

“Exclusive” and “non-exclusive” jurisdiction clauses do not only identify the choice and the degree of flexibility in the selection of forum but may ultimately affect the chance of recovery in certain circumstances. Asymmetric jurisdiction clauses allow a party to sue in any jurisdiction but restrict the other party to sue only in one jurisdiction. While an asymmetric jurisdiction clause is attractive on paper for those with stronger bargaining power, recent case law holds that such an asymmetric jurisdiction clause was not accepted for enforcement purposes under the MJREO.

Governing law is also an important consideration to provide certainty to the interpretation of hard negotiated contract terms. For arbitration clauses, the contract may also separately provide for the law governing the arbitration clause, the law of the seat of the arbitration, and the applicable procedural laws and rules of the arbitration.

There is no one size fits all. To avoid uncertainty and potential satellite disputes within the substantive dispute, the governing law, jurisdiction and dispute resolution clauses to be adopted should always cater to specific business needs and accurately reflect one’s preferred dispute resolution process.

Why Hong Kong?

Hong Kong has long been regarded as the bridge between the global market and China, both in geographical proximity to Mainland markets and in its strength as an international financial center.

With a mature legal system, a well-established body of case law under common law and a vast pool of legal professionals from around the world, Hong Kong is an ideal dispute resolution hub for international business disputes. The recent developments in the expansion of its cross-border recognition and enforcement regime reinforces Hong Kong’s unique position to best serve the legal and dispute resolution needs of commercial parties.

 


 

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Hill Dickinson Hong Kong

33B United Centre 95 Queensway Admiralty Hong Kong

https://hilldickinson.com/offices/hong-kong

Yvette Yu

Yvette Yu, Partner

Yvette is a litigator with extensive experience in advising and
representing international clients on a broad range of disputes,
including multi-jurisdictional corporate and commercial
litigation, regulatory investigations and enforcement actions.

Nicole Wong

Nicole Wong, Associate

Nicole specializes in a broad spectrum of high stakes cross-
border corporate and commercial disputes and works closely
with many multinational corporations and high-net-worth individuals.

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