[1]A snapshot of Hong Kong arbitration cases for the first half of 2023
 

 
A total of 17 decisions/ judgments of the High Court Construction and Arbitration Proceedings were handed down in from 1^st January to 30^th June 2023, compared to 24 for the same period in 2022.   It is clear from the recent HCCT decisions/ judgments that the Hong Kong Court has maintained its pro-arbitration stance as usual and would only interfere where necessary.  
 
This article discusses total of five noteworthy arbitration decisions which were handed down in the first half of 2023. Four out of the five cases were the decisions by Mimmie Chan J, the judge in charge of the Construction and Arbitration List of the High Cour of the Hong Kong SAR. And out of these four decisions, two concerning successful set aside the impugned part of an award or an enforcement order.
 

 
(i)   Facts
 
The 1^st defendant applied for a stay of the proceedings in favour of an arbitration pursuant to s. 20 of the Arbitration Ordinance (Cap. 609) (“AO”).
 
The plaintiff brought a case of deceit and conspiracy against the defendants.  It was alleged by the plaintiff that the defendants have induced the plaintiff to transfer her shares to the defendant by misrepresentation through a share transfer agreement.  The defendant referred to the arbitration clause in the share transfer agreement and invited the Court to stay the proceedings. 
 
The arbitration clause provided as follows:
 
“因履行本协议所发生的争议 … 任一方均有权向香港国际仲裁中心按照其在本协议签署时现行有效的仲裁规则提起仲裁解决。”
 
(Translation: “Regarding the disputes resulting from the performance of this agreement … any party has the right to commence arbitration at the HKIAC pursuant to the rules in effect when this agreement was signed.”)
 
(ii)  Principles
 
Anthony Chan J considered the 4 questions set out in the case of Tommy CP Sze & Co v Li & Fung (Trading) Ltd [2003] 1 HKC 418, namely:
 

 
This case turns on the 2^nd and the 4^th question.
 
(iii) Ruling
 
Turning first to the 4^th question, His Lordship concluded that under PRC law, i.e., the governing law of the share transfer agreement, tortious disputes are not covered by the arbitration clause.
 
Moving on to the 2^nd question, His Lordship concluded that 1^st defendant had waived his right to arbitrate as：

 
The defendant's stay application was dismissed.
 

 
(i)   Facts
 
The 1^st and the 3^rd respondents applied out of time to set aside the enforcement order of an award on the basis that the enforcement of the award would be contrary to the public policy of Hong Kong.
 
The arbitration was commenced by the applicant under two sales contracts which were made between the applicant as the seller and Apennine Holdings Limited (“Company”) as the buyer.  The 1^st to 3^rd respondents were named in the 1^st sales contract as the 3 guarantors.  The 1^st and the 2^nd respondents were named as the 2 guarantors in the 2^nd sales contract.  By virtue of a supplemental agreement to the 2^nd sales contract, the 4^th respondent also agreed to act as a guarantor for the Company in respect of its obligations under the 2^nd sales contract.
 
The arbitration was bifurcated into two parts, namely the applicant's claim (i) as to the Company's liability for payment (“1^st Part”) and (ii) as against the guarantors in respect of their liability (“2^nd Part”).
 
The Company did not take part in the 1^st Part of the arbitration.  As the arbitrator (“Arbitrator 1”) stated in the interim final award on the 1^st Part of the arbitration (“Interim Final Award”), the Interim Final Award “only involved the dispute between [the applicant] and the Company”, “the dispute between the [applicant] and the other [respondents] would continue” and he “did not consider that the disputed matters between the [applicant] and the other [respondents] have to be determined in the [Interim Final Award]”, i.e., the disputed issues raised in the defence of the respondents.  Arbitrator 1 later resigned to avoid the appearance of bias after making the Interim Final Award.
 
The arbitration was then heard before another arbitrator (“Arbitrator 2”) in the 2^nd Part.  In his Final Award, Arbitrator 2 decided the essential issue of whether there was a primary debt established to be due from the Company on the basis that this had already been decided in the Interim Final Award, and he had to follow the findings because he and all the guarantors were bound by the Interim Final Award.
 
(ii)  Principles
 
As Tang VP (as His Lordship then was) pointed out in Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1, “[s]ome breaches may be so egregious that an award should be set aside although the result could not be different.”
 
(iii) Ruling
 
On an objective reading of the Final Award, Mimmie Chan J has grave concerns that Arbitrator 2 had not applied his own independent mind to decide the dispute between the parties.  In particular, her Ladyship opined that “[i]t is not reasonably clear from the Final Award and the dismissive approach adopted by Arbitrator 2 to the [d]efence that he had independently considered the issues raised in [the 1^st and the 3^rd respondents]' [d]efence and the evidence adduced in the second part of the Arbitration heard by him, when deciding the liability of the guarantors under the [c]ontracts.”
 
Her Ladyship also held that “[i]t was grossly unfair and unjust that Arbitrator 2 considered that [the 1^st and the 3^rd respondents] had already been given the opportunity to present their evidence and make their submissions before Arbitrator 1” considering that the arbitration was bifurcated in the first place.
 
Based on the foregoing, Her Ladyship took the view that the violation of the 1^st and the 3^rd respondents' rights were sufficiently serious and egregious for the enforcement order to be set aside.
 
On the issue of extension of time, Her Ladyship referred to the principles set out in Astro Nusantara International B.V. and Others v PT First Media TBK (2018) 21 HKCFAR 118 and considered it appropriate for time to be extended.
 

 
(i)   Facts
 
The 2^nd respondent has taken out an application to set aside the enforcement order of the award where he claimed, in gist, that he did not receive notice of the arbitration as he was not in Hong Kong due to travel restrictions and quarantine requirements during the Covid-19 pandemic.
 
On the other hand, an application was made by the applicants for the 2^nd respondent to give security.
 
(ii)  Principles
 
The legal principles applicable to the determination of an application for security are those set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd's Rep 208.  In gist, the first consideration is the strength of the argument that the award is invalid, as perceived on a brief consideration by the court.  In Soleh Boneh, Staughton LJ explained that if the award is manifestly invalid, there should be an adjournment and no order for security, and if it is manifestly valid, there should be either an order for immediate enforcement, or else an order for substantial security.
 
(iii) Ruling
 
Mimmie Chan J accepted the submissions made for the applicants that the assertions made by the 2^nd respondent in his affirmation are, on their face, full of contradictions which renders his original claim of not having received notice of the arbitration incredible.
 
Reiterating the Hong Kong Court's policy of enforcement of arbitral awards without unnecessary expense and delay, Her Ladyship made an order for the immediate enforcement of the award and dismissed the 2^nd respondent's cross-application for setting aside the enforcement order of the award, bearing in mind the unmeritorious nature of the setting aside application and the manifest validity of the award.
 

 
(i)   Facts
 
The plaintiff entered into a co-investment agreement with the 1^st and the 2^nd defendants which provided for all disputes between the parties arising out of the agreement to be settled by arbitration.  The plaintiff subsequently complained that the 1^st and the 2^nd defendants have failed to properly manage the plaintiff's investment.  The plaintiff then threatened to bring legal proceedings against the 1^st and the 2^nd defendant on the basis of the latter's breach of, inter alia, trustee's duty.
 
The plaintiff then commenced a High Court action (“HCA”) against a number of parties involved in the negotiations (“Defendants in the HCA”) where allegations of fraud and conspiracy were made against the Defendants in the HCA.  However, the 1^st and the 2^nd defendants were not among the Defendants in the HCA.
 
The 1^st and the 2^nd defendant, together with the Defendants in the HCA (“Claimants”), commenced an arbitration against the plaintiff.  The Claimants sought for, inter alia, an interim anti-suit injunction requiring the plaintiff to discontinue or withdraw the HCA, along with various declaratory reliefs including a declaration of non-liability regarding the 1^st and the 2^nd defendant's position to the plaintiff with respect to the HCA (“Declaration of Non-liability”).
 
While the tribunal concluded that it had no jurisdiction to grant the interim injunction, the tribunal found that it had jurisdiction to make and made the Declaration of Non-liability.
 
The plaintiff then sought to set aside parts of the award containing the Declaration of Non-liability.
 
(ii)  Principles
 
Whilst s. 70 of the AO may confer on the arbitrator the power to grant remedies or relief, it does not confer jurisdiction where none exists.  The essential difference between the Court and the arbitral tribunal is that the former has unlimited and inherent jurisdiction, whereas the tribunal has to rely on the existence and scope of the arbitration agreement to exercise his jurisdiction and powers.
 
(iii) Ruling
 
In holding that the arbitrator did not have jurisdiction to make the award and set award the impugned part of the award, Mimmie Chan J held, inter alia, that:
 

 

 

 

 

 
As described by Mimmie Chan J, the case has a “remarkable history in terms of the long and winding course”.  In gist, the dispute between the parties concerns a contract for land development.  In the 1^st arbitration, the tribunal held that that the defendant (“Eton”) is under an obligation to perform their obligation under the contract (“1^st Award”).  Subsequently, Eton argued that they are no longer capable of performing the obligation as the development has already completed, which led to the 2^nd arbitration.  In the 2^nd arbitration, the tribunal rejected Eton's claim.  The plaintiff (“Xiamen”) subsequently brought an action to enforce the 1^st Award.  After a series of appeal, the Court of Final Appeal (“CFA”) found in favour of Xiamen.
 
In light of the PRC Civil Code which came into effect on 1 January 2021 that allows any party to any agreement to terminate an agreement under certain circumstances, Eton commenced a new CIETAC arbitration in China (“New Arbitration”) which Xiamen claimed amount to re-litigating certain issues which were already determined by the Court of Appeal (“CA”) and the CFA.  Hence, Xiamen applied for an anti-arbitration injunction to restrain the New Arbitration.
 

 
The Court has the jurisdiction to grant an anti-suit/ anti-arbitration injunction pursuant to s. 21L of the High Court Ordinance (Cap. 4).
 
Having canvassed the relevant authorities, Mimmie Chan J summarised the principles at [37] as follows:
 
“[W]hat the applicant has to establish is that firstly, the continuance of the arbitration affected by the injunction sought would be oppressive, vexatious or an abuse of process, such as to affect the legal or equitable rights of the applicant (which would include the right not to be harassed by abusive proceedings), and further, that the grant of the injunction will not cause injustice to the claimant in the arbitration.”
 

 
While Mimmie Chan J agreed with the plaintiff's submission that it will be abusive and vexatious for the defendant to be permitted to argue in the New Arbitration that the plaintiff's claim for damages (as made in the plaintiff's action to enforce the 1^st Award) should be determined and assessed by PRC law as the same amounts to a collateral attack on the CFA's judgement, Her Ladyship also notes that there are certain claims in the New Arbitration that Eton did not raise before the Hong Kong Courts.
 
Accordingly, Her Ladyship concluded that it would not be “just to grant the injunction in the wide terms sought by the Plaintiff” and only granted an anti-arbitration injunction in narrower terms, i.e., excluding the part which amounts to a collateral attack on the CFA's judgement.
 
 

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