HK Court Refuses to Set Aside Enforcement Order in Unusual Circumstances

In HZ Capital International Limited v China Vocational Education Co Ltd & Ors [2019] HKCFI 2705, the High Court was faced with an unusual situation where in April 2017, the Respondents sought to set aside an order granting leave for the Applicant to enforce an arbitration award made in July 2016 (an application issued more than 14 days from the date of service of the order as prescribed by O.73 r.10(6)), but which, when the matter was eventually heard in June 2019 (after the filing of significant evidence by the parties), the Applicant advised the court that it would not advance any argument to oppose the Respondent’s application to set aside the order granting leave to enforce and had no instructions to consent to an order in term of the Applicant’s summons.

Accordingly, the Respondent had to satisfy the Court that the order ought to be set aside.

The Respondent explained that it had only received the order in late March 2017; in the absence of any opposition, the Court accepted that the application in April 2017 was filed within the time stipulated in O.73 r.10(6). Further, while the original summons to set aside the order to enforce was filed with a 2-page affirmation explaining that instructions had only been received the day before filing (which the Court considered as “hardly sufficient as an affirmation in support of the application…”) with the substantive affirmation filed in late May 2017, the Court accepted the Respondent’s explanation that due to problems with translation and the need to seek legal advice, the substantive affirmation could not be filed earlier.

The Respondent’s application to set aside the order to enforce was based on the following:

  • Pursuant to ss.86(1)(b) and/or 86(2)(c), the tribunal had no jurisdiction to hear the dispute as the condition precedent with respect to mandatory negotiation prescribed by the relevant agreement had not been fulfilled (the Jurisdiction Issue);
  • Pursuant to ss. 86(2)(b), 86(2)(c) and/or section 4(2) of Schedule 2 of the Ordinance, the refusal of the Tribunal to admit evidence (particularly two electronic mails) with respect to the Jurisdiction Issue, there were serious irregularities causing substantial prejudice to the Respondents.

In relation to the Jurisdiction Issue, the Court:

  • Accepted that there was a “choice of remedies” insofar as the Respondents were not precluded from applying to set aside the Order by the mere fact that they had not taken out any application to set aside the Award in the first place (citing Astro Nusantara International BV v PT Ayunda Prima Mitra (2018) 21 HKCFA 118; [2018] HKCFA 12 (at paragraphs 72 – 84) and PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV & Ors [2014] 1 SLR 372 at paragraphs 39 – 40, 65 – 68, 71 and 143(c)).
  • Stated that s.44(2) of the “old” Arbitration Ordinance, Cap.341 was identical to s.86(1)(b) of the Ordinance, wherein it is provided that the Court may refuse to enforce an award where “the arbitration agreement was not valid”. Accordingly, the principle enunciated by the Court of Final Appeal in Astro, referring to s.44(2) of Cap.341 was equally applicable to the present application under the Summons;
  • Concluded that logically, the lack of jurisdiction may arise from invalidity of the arbitration agreement within the meaning of s.86(1)(b) of the Ordinance;
  • Accepted that the determination by the Court as to jurisdiction of the Tribunal was a decision de novo (see Carrier Hong Kong Ltd v Dickson Construction Co Ltd [2005] 4 HKC 142 (at paragraph 3) and S Co v B Co [2014] 6 HKC 421 (at paragraphs 18 – 38); and PT Tugu Pratama Indonesia v Magma Nusantara Ltd [2014] 4 SLR (R) 257 (at paragraph 18).

In relation to the argument that a condition precedent pertinent to a mandatory alternative dispute resolution procedure by way of “negotiation”, as prescribed by the relevant agreement, had not been fulfilled and hence the Tribunal lacked jurisdiction, the Court:

  • Set out the relevant clause [@33], being:

“Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof (each a ‘Dispute’), shall be resolved in accordance with this Section. Should a Dispute arise, the Parties shall first attempt to resolve the Dispute by consultation among the Parties.”

“Such consultation shall begin within 7 days after one Party hereto has delivered to the other Party hereto a written request for such consultation. If within 30 days following the date of which such written request is given the Dispute cannot be resolved, the Dispute shall be submitted to arbitration upon the request of a Party with written notice to the other Parties.”

  • Referred to a number of decisions, including International Research v Lufthansa [2013] 1 Lloyd’s Rep 24 (at paragraph 100); Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd [2015] 1 WLR 1145 (and the various criticisms of this case), holding that the Court was satisfied that although the “consultation” prescribed by the relevant clause was not described as a “condition precedent”, it was couched in sufficiently certain and objective terms to be enforced as such;
  • Finding, on the basis of various email exchanges between the parties, that the Respondents had unequivocally waived the right to insist upon strict compliance with the condition precedent.

In relation to the second ground of objection – that there were serious irregularities causing substantial prejudice to the Respondents – the Court:

  • Referred to the recent summary by Chan J in Maeda Kensetsu Kogyo Kabushiki Kaisha & Anor v Bauer Hong Kong Ltd [2019] HKCFI 1006, where the Court stated:

“As the decisions in Grindrod Shipping Pte Ltd v Hyundai Merchant Marine Co Ltd [2018] EWHC 1284 (Comm), Terna Bahrain Holding Co WLL v Bin Kamil Al Shamsi [2013] 1 Lloyd’s Rep 86, Reliance Industries Ltd v The Union of India [2018] EWHC 822 (Comm), and P v M [2018] HKCFI 2280, 9 October 2018 illustrate, the test of a serious irregularity giving rise to substantial injustice (the language used in section 4(2) of the Schedule) involves a high threshold. In Reliance Industries Ltd v The Union of India, the English Court stated that only an extreme case justified the court’s intervention under section 68 of the Arbitration Act 1996, which adopts the same wording of ‘serious irregularity’ giving rise to ‘substantial injustice’ as in our section 4(2). As this Court recognized in P v M, a balance is to be drawn between the need for finality of an arbitral award and the need to protect parties against the unfair conduct of the arbitration. The threshold for setting aside must be high, in line with the objectives of the Ordinance to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense, and upholding the parties’ choice to resolve their dispute by arbitration (section 3 of the Ordinance), which must require minimal intervention by the courts in the arbitral process.”

“‘Serious irregularity’ is set out in in section 4(2) of the Schedule. These include failure by the arbitral tribunal to comply with its duties of independence, impartiality and the use of appropriate procedures, as provided for in section 46 of the Ordinance; the tribunal exceeding its powers; failure to conduct the proceedings in accordance with the procedure agreed by the parties; and failure to deal with all the issues that were put to it.”

  • Found that on the basis of the evidence before the Tribunal, there was no serious irregularities causing substantial prejudice, as the Respondents had themselves to blame for not making disclosure of the series of emails in good time despite the ample opportunities afforded by the Tribunal.

Accordingly, the application was dismissed.

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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