Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Is The Arbitral Service Always Better?

29 May, 2015

 

On 24 April 2015, the Hong Kong Court of First Instance refused enforcement of a Mainland Award because the award debtor did not have proper notice of the arbitral proceedings and was therefore unable to present her case.  These findings were made notwithstanding the fact that the award debtor was deemed properly served under the applicable arbitral rules.

 

Background Facts

 

In 樓外樓房地產咨詢有限公司v 何志蘭 (HCMP 3202/2013) and 陳蕾宇 v何志蘭 (HCMP 3203/2013) (judgment in Chinese only) heard together by Justice Anderson Chow, the award debtor, Ms Ho, was the owner of a property in Guangzhou.  Ms Ho signed a sale and purchase agreement with the two award creditors, namely the real estate agency and the buyer, for the sale of her property.  However, before completion of the sale, Ms Ho breached the sale and purchase agreement by selling the property to a third party instead.

 

In May 2013, the two award creditors commenced an arbitration against Ms Ho under the Guangzhou Arbitration Commission to recover their losses pursuant to the arbitration clause in the sale and purchase agreement.  The Notice of Arbitration was posted to Ms Ho’s property in Hong Kong on 10 May 2013, which she acknowledged receipt.  However, when the Notice of Hearing was couriered to Ms Ho’s Hong Kong property on 8 July 2013, she did not receive it, so the Notice of Hearing was returned by the post office to the Guangzhou Arbitration Commission.

 

The hearing therefore proceeded in Ms Ho’s absence because the arbitral tribunal ruled that service of the Notice of Hearing was valid pursuant to Article 73 of the arbitral rules of the Guangzhou Arbitration Commission.  This was because the Notice of Arbitration was served and accepted at Ms Ho’s Hong Kong property.  Two arbitral awards were therefore made in favour of each of the award creditors against Ms Ho on 6 August 2013 for breaches of the sale and purchase agreement.

 

The two award creditors then obtained orders from the Hong Kong Court of First Instance granting leave to enforce the two arbitral awards against Ms Ho.  In response, Ms Ho first applied to the Guangzhou Intermediate People’s Court to set aside the two arbitral awards, but her application was time barred.  Next, Ms Ho applied to resist enforcement of the two arbitral awards under Section 95(2)(c) of the Arbitration Ordinance (Cap. 609) on the basis that:

 

  1. she was not given proper notice of the arbitral proceedings; and
  2. was otherwise unable to present her case.

 

In this connection, Ms Ho alleged that she did not stay at her Hong Kong property between May – July 2013, which was why she did not receive the Notice of Hearing. However, she explained that she could receive the Notice of Arbitration during that same time period because she happened to be at there at that time to oversee renovation works when the Notice of Arbitration was delivered.

 

Decision Of Justice Chow

 

Justice Chow first articulated the basic principles laid down by the Court of Final Appeal in Hebei Import & Export Corp v Polyteck Engineering Co Ltd (1999) 2 HKCFAR 111 that the New York Convention distinguished between;

 

  1. proceedings to set aside an arbitral award, which are governed by the law where the award was made; and
  2. proceedings to resist enforcement of an arbitral award, which are governed by the law of the place of enforcement.

 

Hence, Justice Chow decided the matter under Hong Kong law. He held that, in the circumstances of the case, each of the two grounds relied upon by Ms Ho under Section 95(2)(c) were established, so he set aside the order granting leave to enforce the two arbitral awards aside.   Unfortunately, Justice Chow did not provide any detailed reasoning to support his findings.

 

Comments

 

It is regrettable that Justice Chow did not proffer his views on the significance of Article 73 of the arbitral rules of the Guangzhou Arbitration Commission, the fact that this rule validated the service of the Notice of Hearing and why he held that Hong Kong law took a different view.

 

The irony is accentuated by the common phenomenon in international arbitration for each forum to prescribe rules based on their own views of procedural justice. If parties opted to arbitrate in that forum, they must surely be bound by what they have agreed and the courts at the place of enforcement should respect that agreement.

 

The need for mutual respect for diverse notions of procedural justice brings back memories of a similar issue in the Hong Kong Court of Appeal case in Gao Haiyan v Keeneye Holdings [2012] 1 HKLRD 627. In Gao Haiyan, Reyes J of the Court of First Instance refused enforcement of a Xian Arbitration Commission award on the basis of breach of Hong Kong public policy because an arbitrator and the secretary general of the Xian Arbitration Commission had ‘wined and dined’ with one of the parties in the absence of the other party, which would give rise to an apparent bias against the absent party. This was notwithstanding the fact that the Xian Intermediate People’s Court refused to set aside the arbitral award because the ‘wining and dining’ was appropriate and nothing more than a med-arb procedure conducted in accordance with the arbitral rules of the Xian Arbitration Commission.

 

The Court of Appeal overturned Justice Reyes’ ruling and upheld enforcement of the arbitral award. In this connection, the Court of Appeal attached great weight to the fact that the Xian Intermediate People’s Court had refused to set aside the arbitral award on the same grounds relied on in Hong Kong to resist enforcement and approved of the following dicta of Coleman J in the English case of Minmetals Germany GmbH v Ferco Steel Ltd[1999] CLC 647:

 

In a case where a remedy for an alleged defect is applied for from the supervisory court, but is refused, leaving a final award undisturbed, it will therefore normally be a very strong policy consideration before the English courts that it has been conclusively determined by the courts of the agreed supervisory jurisdiction that the award should stand. Just as great weight must be attached to the policy of sustaining the finality of international awards so also must great weight be attached to the policy of sustaining the finality of the determination of properly referred procedural issues by the courts of the supervisory jurisdiction… However, outside such exceptional cases, any suggestion that under the guise of allegations of substantial injustice procedural defects in the conduct of an arbitration which have already been considered by the supervisory court should be re-investigated by the English courts on an enforcement application is to be most strongly deprecated.”

 

Although the facts are slightly different here since Ms Ho could not have raised the same grounds to set aside the arbitral award before the Guangzhou Intermediate Court because her application was time barred, the underlying rationale applies equally:- the courts at the place of enforcement should give great weight to notions of procedural justice at the place of arbitration. If the parties had agreed to abide by the rules at the place of arbitration, shouldn’t the courts at the place of enforcement respect that choice in the spirit of party autonomy?

 

It is a pity that the case of Gao Haiyan was not cited to Justice Anderson Chow in argument.

 

Baker McKenzie

 

For further information, please contact:

 

Andrew Chin, Baker & McKenzie

andrewekn.chin@bakermckenzie.com


Baker & McKenzie Dispute Resolution Practice Profile in Hong Kong

 

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