Default judgment set aside in favour of arbitration in Hong Kong

The Facts 

In Tongcheng Travel Holdings Limited v OOO Securities (HK) Group Limited [2024] HKCFI 2710, the Plaintiff obtained a default judgment against the Defendant for failing to return managed assets under an Investment Management Agreement (“IMA”), and subsequently a garnishee order nisi was made by way of enforcement of the default judgment.  

The IMA contained the following clauses (with emphasis added): 

“11.2 The courts of Hong Kong shall have exclusive jurisdiction over the parties to this Agreement.”

“11.3 ... If, within 7 days of one party notifying the other of any dispute(s), the parties fail to resolve any such dispute(s), the dispute(s) shall be submitted to the relevant legally authorised body in Hong Kong for arbitration in accordance with the arbitration rules presently in force at the time of submission to arbitration.”

The Defendant applied to (1) set aside the regular default judgment and the garnishee order nisi and to (2) stay the proceedings to arbitration under section 20 of the Arbitration Ordinance (Cap. 609) (“Ordinance”) on the following grounds:

• There is a valid arbitration agreement such that the proceedings should never have been commenced in court.
• In the alternative, the default judgment should be set aside as there is a defence which has a real prospect of success.

The Decision

The Court allowed both of the Defendant’s applications, with an order that the Defendant shall pay the costs.

The Proper Approach: Stay Application before Determination of Merits of Defence

The…