La Dolce Vita Fine Dining Group Holdings Ltd v. Zhang Lan and Another

HCCT 35/2019

HCCT 36/2019

(heard together)

[2020] HKCFI 622

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 35 OF 2019

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AND

HCCT 36/2019

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 36 OF 2019

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D E C I S I O N

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Background

1.On 14 March 2018, this Court found the 1^st Respondent (“Zhang”) to be in contempt (“Contempt Judgment”), for breach of an injunction and asset disclosure order made by the Court on 26 February 2015 (“Injunctions”) in aid of an arbitration between Zhang and the Applicant in these proceedings.  On 5 March 2019, Zhang was committed to prison for 12 months for her contempt of court (“Committal Order”).

2.On 28 April 2019, arbitral awards were made against Zhang, Grand Lan Holdings Group (BVI) Ltd (“R2”) and Qiao Jiang Lan Development Ltd (“R3”) (“Awards”) in CIETAC arbitration proceedings between the Applicant and the Respondents in these proceedings (“Arbitration”), for payment by Zhang and R2 of US$50,434,209 and interest, and payment by Zhang, R2 and R3 of US $92,029,457.28 and interest.  On 29 July 2019, this Court granted leave to the Applicant to enforce the Awards in Hong Kong (“Enforcement Orders”).  The Enforcement Orders were in the usual form, providing that the Respondents may apply to set aside the Enforcement Orders within 14 days of service of the Enforcement Orders on them.

3.On 15 November 2019, the Respondents applied by their summons to the Court (“Summons”) to set aside the Enforcement Orders, and alternatively to stay the Summons pending an application to the supervisory court on the Mainland to set aside the Awards.  The Summons was supported by an affirmation made by Zhang on behalf of all the Respondents.  The Applicant, in turn, applied on 12 December 2019 for a Hadkinson order against Zhang and for security to be furnished by R2 and R3 as a condition for the stay of the Summons and the setting aside of the Enforcement Orders which the Respondents seek.  The order sought by the Applicant (“Hadkinson Order”) seeks to impose conditions to the following effect:

“Until such time as (Zhang) has fully complied with paragraph 2 of the (Injunction)(as extended by the orders of Justice Chung on 6 March 2015 and Justice G Lam on 22 April 2015) and given full written disclosure of all her assets of an individual value of HK$500,000 or more (whether in or outside Hong Kong, whether in her own name or not and whether solely for jointly owned, giving the value, location and details of all such assets), the Respondents’ summonses dated 15 November 2019 shall not be heard”.

Whether Hadkinson Order should be made against Zhang

4.The principles relating to Hadkinson applications have been set out by the Court of Appeal in Hong Kong in CWG v MH [2014] 4 HKLRD 141, at paragraph 12 of the judgment, where Yuen JA formulated the questions to be asked by the court, on the civil standard of proof, to be:

(1)  Is the party against whom the order is sought in contempt?

(2)  Is there an impediment to the course of justice?

(3)  Is there any other effective means of securing compliance with the Court’s orders?

(4)  Should the court exercise its discretion to impose conditions having regard to that question?

(5)  Is the contempt willful (is it contumacious and continuing)?

(6)  If so, what conditions would be proportionate?

Offensive or defensive?

5.In opposition to the application for the Hadkinson Order, Zhang sought to argue that despite the Court’s finding of her contempt, the Hadkinson Order should not follow.  First, it was argued that the rule that a person who is in contempt cannot be heard applies only to voluntary applications when the person comes to the court and asks for something, and not to cases in which all that he is seeking is to be heard in respect of matters of defence (Hadkinson, at p 290).  Counsel relies on the judgment in Motorola Credit Corp v Uzan [2004] 1 WLR 113, where it is stated at paragraph 55 of the judgment:

“... we bear in mind that the defendant’s appeals are essentially defensive in nature. Their stance in this jurisdiction has been one of resistance to a series of restrictive and intrusive orders sought by the claimant in foreign proceedings, rather than a voluntary invocation of the powers of the English court for their own benefit.”

6.On behalf of Zhang, Counsel argued that she is simply seeking by her Summons to resist the Applicant’s application to enforce the Awards in Hong Kong, at least before the conclusion of the Mainland proceedings commenced to set aside the Awards.  As such, Zhang’s application is merely defensive in nature.

7.I reject this argument.  The application made by Zhang to set aside the Enforcement Orders is a voluntary application made by her, seeking from this Court the relief of having an order made by the Court to be discharged on grounds the onus of which is on her to establish, and invoking the exercise of the Court’s discretion to stay the enforcement of the Court’s order. As Leading Counsel for the Applicant highlighted, the Enforcement Orders in this case were made under s 92 (1) (b) of the Arbitration Ordinance (“Ordinance”) and Order 73 rule 10 RHC.  Arbitral awards are enforced almost “mechanistically” in Hong Kong (PetroChina International (Hong Kong) Corp Ltd [2011] 4 HKLRD 604, Xiamen v Eton Properties Limited & Anor [2009] 4 HKLRD 353 (CA)), allowed on ex parte basis, so long as the provisions of ss 93 and 94 of the Ordinance are satisfied for a Mainland award.  The standard form order of the Court gives leave to a respondent to apply to set aside the ex parte order for enforcement within the time specified in the order, and s 95 of the Ordinance sets out all the grounds on which enforcement of a Mainland award “may” be set aside.  As the Court of Final Appeal has made it clear, the Court has a residual discretion to enforce the award notwithstanding any ground being made out (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111).

8.But for Zhang’s Summons, the Awards are enforceable in Hong Kong as a judgment of the Hong Kong Court, pursuant to s 92 of the Ordinance.  Her application is a voluntary invocation of the powers and discretion of the Hong Kong Court to seek relief for her own benefit. 

9.The question is whether she should be permitted to do so, when she is already found and held to be in contempt of Court.

Right to be heard

10.Next, it was argued for Zhang that she should not be deprived of her right to be heard, as to whether her actions and specifically her failure to disclose her assets constituted a breach of the Injunctions.  Reliance was placed on the judgement in Hadkinson itself, and on para 50 of the judgment in Motorola:

“Whether or not a party is in contempt of court by refusing to obey an order irregularly made, or one consequence upon and/or ancillary to an order so made, the circumstances will be rare indeed where it can be right to shut him out from arguing an appeal or application to appeal against that order made in due time.”

11.Zhang had the full opportunity to, and did, argue before the Court whether she had been in breach of the Injunctions and was in contempt of court.  There was a full hearing of the committal for contempt proceedings, when she was represented by Leading Counsel.  As Ms Sit pointed out for the Applicant, this case is totally distinguishable from the cases cited by Mr Wang for the Respondents when a Hadkinson Order is sought after an order for compliance, but without contempt proceedings having been commenced and determined against the person who failed to comply with the initial order of the court.  Here, the Injunctions (including the mandatory disclosure order) were granted in February 2015, and the Contempt Judgment on the basis of Zhang’s failure to comply with the Injunctions was in March 2018.  There are already findings of contempt against Zhang, and it is no longer an issue of whether Zhang had been given or should be given the opportunity to be heard on an allegation of non-compliance.  As Ms Sit highlighted, in the context of the right to be heard, and whether there was willful contempt, the issue of Zhang’s contempt is beyond dispute, and already determined by the Court.

12.It is not disputed, that there is an appeal by Zhang against the Contempt Judgment, which was lodged by her in April 2019 (“Appeal”).  Zhang argued that it is impractical for her to purge her contempt as it would be tantamount to abandoning her Appeal, and that to grant the Hadkinson Order would be to shut her out from being heard further.

13.The Appeal has never been set down, despite the lapse of nearly 12 months.  It is not unfair to say that Zhang has not seriously pursued her right to be heard on the Appeal, on whether the order of committal against her was correctly made.  Her claim of lack of funds cannot be accepted, considering the substantial expenses so far incurred in the litigation and Arbitration of the disputes between the Applicant and the Respondents including Zhang, particularly given the findings made by the Court that she has not been frank in making full disclosure of her assets. 

14.In any event, I accept the submissions made by Ms Sit on behalf of the Applicant, that the Court will not refuse to grant a Hadkinson Order simply because there is a legitimate argument that the order that was breached is wrong, or should be varied (Laing v Laing [2007] 2 FLR 199, C v C [2011] 1 FLR 434). 

15.I cannot accept that the Appeal is abandoned in effect, if the Court should grant the Hadkinson Order or if, as a condition imposed, Zhang has to purge her contempt of non compliance with the disclosure order under the Injunctions.  The terms of the Hadkinson Order do not exclude the conduct of the Appeal.

16.Nor can I see how Zhang can be prejudiced in her Appeal by the grant of the Hadkinson Order.

17.It is pertinent that the grounds of Zhang’s Appeal relate to (1) questions of service of the Injunctions and whether she could be said to have had notice of the injunction order at the time of her alleged disposal of assets in breach of the injunction; and (2) whether she could be found to have withheld full disclosure of her assets, by reason of what she alleges to be the Court’s misunderstanding of a statement made in her affirmation as to the painting “Three Gorges” (“Painting”). 

18.The ground of the Appeal in (1) above has nothing to do with the practicality or otherwise of purging any contempt as to her failure to make full disclosure of her assets in compliance with the Injunctions.  Even for the ground in (2) above, it is possible for Zhang to disclose her assets, deal with the ownership of the Painting after explaining the alleged misunderstanding, and at the same time pursue her Appeal.  It is also clear and obvious from the Contempt Judgment that the findings of contempt were not simply on the basis of the one statement in Zhang’s affirmation, as to ownership or her previous ownership of the legal and beneficial interest in the Painting, and any alleged misunderstanding of the statement. 

Whether Hadkinson Order and conditions proportionate

19.Zhang further argued that the Hadkinson Order is disproportionate as it will determine the application to set aside the Enforcement Orders without giving her the opportunity to be heard.  Reliance is placed on the importance of the maxim “audi alteram partem” and the decision of the English Court in X Ltd v Morgan Grampian Ltd [1991] AC 1.  However, even in X Ltd, Lord Oliver of Aylmerton explained the position thus:

“First, it is suggested that to decline to hear an appellant who is in contempt infringes the maxim “audi alteram partem” which lies at the root of every civilized system of law. A person whose very liberty is threatened by an order made against him ought, it is said, to have an absolute right to appeal against the very order that has put him in contempt. For my part, I think that this is too facile an analysis. The maxim “audi alteram partem” means not that a person has an absolute right in all circumstances to be heard in his own defence but that he must be given a proper opportunity to be heard. So long as that opportunity is given upon terms with which the proposing appellant can reasonably comply, there is not and there should not be any impediment in principle to the imposition by the court of proper conditions which require to be complied with before the appeal is heard. It is no denial of justice...” (Emphases added)

20.Zhang’s contempt has been found to be wilful, and serious (paras 10, 18, and 96 of the Contempt Judgment, and paragraph 16 of the committal sentencing judgment).  Her refusal to comply with the disclosure order clearly impedes the course of justice.  The information sought in the disclosure order is uniquely within Zhang’s knowledge, and the Applicant has been unable to police the injunction order and to prevent the dissipation of assets within Zhang’s control.  In these proceedings relating to the enforcement of the Awards, the Court is not and has not been able to ascertain the location and value of her assets in Hong Kong, in order to decide whether it would be just and necessary to order security to be furnished by Zhang and the Respondents as a condition for the stay of the application to set aside the Enforcement Orders.

21.Zhang has simply flouted the disclosure order made under the Injunctions, by persistently refusing to comply and make full disclosure, from the time when the Injunctions were made in February 2015, to her deliberate decision to make limited disclosure in March 2015, up to the commencement of the committal proceedings in March 2017, the Contempt Judgment in March 2018, and the Committal Order in March 2019. 

22.Counsel for Zhang has not been able to refer to other effective means of securing Zhang’s compliance with the disclosure order.  He has only referred to the 2nd affirmation signed by Zhang in these proceedings on 15 January 2020 (“15/1/20 Affirmation”), where Zhang stated that she had “no personal assets in Hong Kong other than those disclosed” in her first affirmation of disclosure made on 13 March 2015 (“Zhang 1” referred to in paragraph 6 of the Contempt Judgment).  To the extent that it is suggested that Zhang has purged her contempt by making the 15/1/20 Affirmation, that cannot be accepted.  As pointed out in paragraph 3 of the Contempt Judgment, the order made by the Court on 26 February 2015 required Zhang to inform the Applicant in writing of all her assets of an individual value of HK$500,000 or more, whether in or outside Hong Kong, whether in her own name or not and whether solely or jointly owned, giving the value, location and details of all such assets.  Zhang 1 did not contain the value nor details of the location of the assets disclosed, save for the value of the account at Bank J Safra Sarasin Ltd in Hong Kong.  The 15/1/20 Affirmation only contained Zhang’s confirmation of her personal assets in Hong Kong, with no elaboration on the value or details of the location of the other assets in Hong Kong, and no disclosure of any assets outside Hong Kong.  The one sentence in paragraph 28 of the 15/1/20 Affirmation falls far short of purging Zhang’s contempt.

23.Zhang argued that no practical advantage would be served by the Hadkinson Order against her, when the Summonses of R2 and R3 have to be dealt with by the Court and the submissions made on behalf of the 2nd and 3rd Respondents have to be heard in any event (relying on X Ltd v Morgan-Grampian (Publishers) Ltd [1991] 1 AC 1).  An identical argument was raised, and dismissed by the Court of Appeal in CWG v MH, where Yuen JA observed at para 18.1 of her judgment:

“First, I accept the reality of the additional feature in the present case that the Husband’s legal team remained available, as it were, to fight the Mother’s corner: Morgan Grampian (Publishers) Ltd [1991] 1 AC 1, 51. However that is only one factor to be taken into account. A party cannot get away with non-compliance with the court’s orders simply by taking advantage of the fact that there is another party with allied interests.” (Emphasis added)

24.Having regard to the conditions sought to be imposed in the Hadkinson Order, the seriousness of the willful and continuous breach, and giving due consideration to the other questions raised in CWG v MH , I am satisfied that the Hadkinson Order is proportionate, and that the conditions sought by the Applicant in paragraphs 1 and 2 of its summons can be reasonably complied with by Zhang.  To refrain from imposing the conditions would be tantamount to condoning Zhang’s deliberate flouting of the Injunctions and the orders made by the Court, and her impediment to the course of justice.

25.An order is accordingly granted in terms of paragraphs 1 and 2 of the Applicant’s summonses of 12 December 2019, with 14 days in paragraph 2, and with the correct date of the Order inserted (ie 29 July 2019). 

26.For the record, I did not grant leave to the Respondents to argue before me at the hearing their summons proposed for issue on 12 March 2020 to adduce further evidence.  The Summons to set aside the Enforcement Orders was issued as early as 15 November 2019.  The application for the Hadkinson Order and security was issued on 12 December 2019 and the Applicant’s affirmations in support had been filed by 25 February 2020.  The Hadkinson application was scheduled for hearing on 2 March 2020, had to be adjourned due to GAP and was subsequently re-fixed for hearing on 3 April 2020.  The Respondents only chose to seek leave of the Court to adduce the further evidence on 12 March 2020, the last day fixed for the lodging of the Applicant’s submissions, with no good reason advanced for the delay and why they had to wait until after the date of the original hearing to issue the proposed summons.  It is not fair that the limited time scheduled for the substantive hearing of the Hadkinson application should be burdened and taken up by the arguments for the late application.

27.In any event, even if the further evidence sought to be adduced should be considered, I am not persuaded that they assist the Respondents’ case. The expert evidence on PRC law is not necessary in view of the admission made in the report of the Applicant’s expert.  The new evidence said by Zhang to show the ownership of the Painting is neither clear nor complete on the point, nor is it material to the questions to be considered by the Court at this stage.

Whether security should be ordered against R2 and R3 for their application to set aside or stay

28.In relation to R2 and R3, the Applicant seeks security to be ordered against them as a condition for their application to adjourn the hearing of their application to set aside the Enforcement Orders, pending the determination by the Mainland court of the Respondents’ application to set aside the Awards. 

29.The application by R2 and R3 to set aside the Enforcement Orders is supported by the affirmation of Zhang, made on 15 November 2019 and filed on behalf of herself and the other Respondents.  The ground relied upon is that the composition of the arbitral tribunal was not in accordance with the arbitration agreement (contained in the arbitration clauses of the underlying agreements) between the Respondents and the Applicant, such that the Awards should be set aside under s 95 (2) (e) of the Ordinance.

30.The principles governing the recognition and enforcement of arbitral awards in Hong Kong are clear.  They are set out in the Arbitration Ordinance and stated by the Court in Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] 4 HKLRD 1 (CA) and Guo Shun Kai v Wing Shing Chemical Co Ltd [2013] 3 HKLRD 484. 

31.The principles applicable to the determination of an application to stay enforcement of an arbitral award pending an application to the supervisory court to set aside the award are likewise settled, and are not disputed.  They are set out in the decisions in Soleh Boneh International Limited v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208, 212 and applied in Dana Shipping and Trading SA v Sino Channel Asia Ltd [2017] 1 HKC 281 and Weili Su v Shengkang Fei [2019] 2 HKLRD 1214, and will not be repeated here.

The strength of the argument that the Awards are invalid upon a brief consideration of the case

32.This is the first stage of the consideration, in deciding whether to order security against the Respondents.

33.The Respondents’ challenge to the composition of the Tribunal and the validity of the Awards turns on whether Article 27 of the CIETAC Arbitration Rules 2012 (“2012 Rules”) applies to the Arbitration, or whether it has been excluded by the parties’ agreement.

34.The relevant arbitration clauses in the underlying agreements are identical (“Arbitration Clause”) and provide as follows:

“13.1 This Agreement is governed by, and shall be construed in accordance with, the laws of Hong Kong.

13.2 Any dispute, controversy or claim arising in any way out of or in connection with this Agreement, or the breach, termination or invalidity thereof (whether contractual, pre-contractual or non-contractual) shall be submitted to China International Economic and Trade Arbitration Commission (“CIETAC”) for binding arbitration which shall be conducted in accordance with the CIETAC Arbitration Rules in force as at the date of this Agreement (“Rules”), which Rules are deemed to be incorporated by reference into this clause and as may be amended by the rest of this clause. The seat of the arbitration shall be Beijing. The number of arbitrators shall be three (3). The claimant(s) shall select one (1) arbitrator, and the respondent(s) shall select one (1) arbitrator. The third arbitrator, who shall be the presiding arbitrator, shall be appointed in accordance with the following list-procedure:

13.2.1 The CIETAC Secretariat shall communicate to each of the parties an identical list containing at least three candidates who are (i) qualified to practice law in Hong Kong, and (ii) not nationals of the PRC;

13.2.2 Within 15 days after the receipt of this list, each party returns the list to the CIETAC Secretariat after having deleted the name or names to which it objects and numbered the remaining names on the list in the order of its preference (from the most preferred to the least preferred);

13.2.3 After the expiration of the above period of time, the CIETAC shall appoint the preceding arbitrator from among the same names approved on the lists returned to it by the parties and in accordance with the order of preference indicated by the parties; and

13.2.4 If for any reason the appointment cannot be made according to this procedure, the chairman of the CIETAC may exercise his/her discretion in appointing the preceding arbitrator from CIETAC’s panel of arbitrators who shall satisfy the qualification and nationality requirements in the above clause 13.2.1,

it being specified that the parties agree that the arbitrator may be selected from outside CIETAC’s panel of arbitrators, subject to the confirmation of the chairman of CIETAC” (Emphasis added)

35.Pursuant to the Arbitration Clause, the Applicant selected one arbitrator for the tribunal in the Arbitration.  The Respondents claim that they were not able to agree and jointly nominate one arbitrator amongst themselves, and notified CIETAC so, with the request that the Chairman of CIETAC should appoint all 3 members of the tribunal in accordance with Article 27(3) of the 2012 Rules which they say had been incorporated by the Arbitration Clause.  The Respondents claim that wrongfully and in disregard of the Arbitration Clause agreed by the parties, CIETAC failed to appoint all the 3 members of the tribunal.

36.Article 27(3) of the 2012 Rules, on which the Respondents rely, provides as follows:

“Where either the Claimant side or the Respondent side fails to jointly nominate or jointly entrust the Chairman of CIETAC with appointing one arbitrator within fifteen (15) days from the date of receipt of the Notice of Arbitration, the Chairman of CIETAC shall appoint all three members of the arbitral tribunal and designate one of them to act as the presiding arbitrator.”

37.CIETAC had in fact notified the parties that its view was that the parties had, by agreement, amended the CIETAC Rules as is permitted under Article 4(3) of the 2012 Rules, and that such amendment was not in conflict with any mandatory law.  CIETAC accordingly required the Respondents to appoint an arbitrator within 15 days, failing which the Chairman of CIETAC would appoint an arbitrator for the Respondents.  Under protest, the Respondents finally did nominate one Mr Zhou as their choice of arbitrator, reserving the right to challenge the jurisdiction of the tribunal constituted for non-compliance with Article 27 of the 2012 Rules. 

38.The tribunal was finally constituted by Dr Moser appointed by the Applicant, Mr Zhou jointly appointed by the Respondents (under protest) and Dr So Shiu Tsung as presiding arbitrator appointed by CIETAC (“Tribunal”).

39.The Arbitration took place over 11 days.  By a majority, the Tribunal found the Respondents to be liable for negligent misrepresentation and breach of contract, and awarded damages to the Applicant.  The majority Awards were given by Dr Moser and Dr So.  Mr Zhou did not sign the Awards, but did not give any dissenting opinion or provide any reason for any decision of his.

40.The Respondents applied to the Mainland court on 8 July 2019 to set aside the Awards, relying on the same challenge to the composition of the Tribunal.  The application to set aside the Enforcement Order in Hong Kong was issued in November 2019.  Since then, the hearing of the setting aside of the Awards has taken place on the Mainland on 30 March 2020, and judgment of the Mainland court is awaited. 

41.I agree with Leading Counsel for the Applicant, that for the better understanding of Article 27, it should be read in the proper context of the entire 2012 Rules, and the 2012 Rules should be read as a whole. 

42.Article 4 of the 2012 Rules deals with the “scope of application” of the rules.  Article 4.2 states that the parties “shall be deemed to have agreed to arbitration in accordance with these Rules if they have agreed to arbitration by CIETAC”.  Article 4.3 states:

“Where the parties agree to refer their dispute to CIETAC for arbitration but have agreed on a modification of these Rules or have agreed on other arbitration rules, the parties’ agreement shall prevail unless such agreement is inoperative or in conflict with a mandatory provision of the law as it applies to the arbitration proceedings. Where the parties have agreed on the application of other arbitration rules, CIETAC shall perform the relevant administrative duties.”

43.Article 7 deals with the “place of arbitration”. Article 7.1 provides that where the parties have agreed on the place of arbitration, the parties’ agreement shall prevail.  Article 7.2 states that where the parties have not agreed on the place of arbitration or their agreement is ambiguous, the place of arbitration shall be the domicile of CIETAC or its sub-commission/center administering the case.

44.Section 2 of the 2012 Rules is entitled “Arbitrators and the Arbitral Tribunal”.  Articles 22 to 32 are included under Section 2.  Article 22 sets out duties of the arbitrator, and Article 23 sets out the number of arbitrators. 

45.Article 23 states as follows:

“Article 23 Number of Arbitrators

1. The arbitral tribunal shall be composed of one or three arbitrators.

2.  Unless otherwise agreed by the parties or provided by these Rules, the arbitral tribunal shall be composed of three arbitrators.”

46.Article 25 is entitled “Three-Arbitrator Tribunal”.  It goes on to state:

“Article 25 Three-arbitrator Tribunal

1. Within fifteen (15) days from the date of receipt of the Notice of Arbitration, the Claimant and the Respondent shall each nominate, or entrust the Chairman of CIETAC to appoint, an arbitrator, failing which the arbitrator shall be appointed by the Chairman of CIETAC.

2. Within fifteen (15) days from the date of the Respondent’s receipt of the Notice of Arbitration, the parties shall jointly nominate, or entrust the Chairman of CIETAC to appoint, the third arbitrator, who shall act as the presiding arbitrator.

3. The parties may each recommend one to three arbitrators as candidates for presiding arbitrator and shall each submit a list of recommended candidates within the time period specified in the preceding Paragraph 2. Where there is only one common candidate on the lists, such candidate shall be the presiding arbitrator jointly nominated by the parties. Where there is more than one common candidate on the lists, the Chairman of CIETAC shall choose a presiding arbitrator from among the common candidates having regard to the circumstances of the case, and he/she shall act as the presiding arbitrator jointly nominated by the parties. Where there is no common candidate on the lists, the presiding arbitrator shall be appointed by the Chairman of CIETAC.

4. Where the parties have failed to jointly nominate the presiding arbitrator according to the above provisions, the presiding arbitrator shall be appointed by the Chairman of CIETAC.

47.Articles 26 and 27 are also set out hereunder:

“Article 26 Sole-arbitrator Tribunal

Where the arbitral tribunal is composed of one arbitrator, the sole arbitrator shall be nominated pursuant to the procedures stipulated in Paragraphs 2, 3 and 4 of Article 25 of these Rules.

Article 27 Multiple-Party Tribunal

1. Where there are two or more Claimants and/or Respondents in an arbitration case, the Claimant side and/or the Respondent side, following consultations, shall each jointly nominate or jointly entrust the Chairman of CIETAC to appoint one arbitrator.

2. The presiding arbitrator or the sole arbitrator shall be nominated in accordance with the procedures stipulated in Paragraphs 2, 3 and 4 of Article 25 of these Rules. When making such nomination pursuant to Paragraph 3 of Article 25 of these Rules, the Claimant side and/or the Respondent side, following consultations, shall each submit a list of their jointly agreed candidates.

3. Where either the Claimant side or the Respondent side fails to jointly nominate or jointly entrust the Chairman of CIETAC with appointing one arbitrator within fifteen (15) days from the date of receipt of the Notice of Arbitration, the Chairman of CIETAC shall appoint all three members of the arbitral tribunal and designate one of them to act as the presiding arbitrator.”

48.On behalf of the Respondents, Counsel argued that Article 27 (3) was applicable to the Arbitration, since there were multiple respondents in the Arbitration, and there was failure on the part of the Respondents to nominate one arbitrator within 15 days of receipt of the notice of arbitration in the case.  Mr Wang emphasized that Article 27(3) of the 2012 Rules had been amended to follow and be consistent with the international trend of arbitration institutions, to appoint all 3 members of the tribunal and to mandate rather than to permit the institution to make the appointment.  According to Mr Wang’s interpretation of the Arbitration Clause, the 2012 Rules including Article 27(3) have been expressly incorporated by the parties’ agreement.  Counsel argued that whilst the Arbitration Clause made amendments to other articles of the 2012 Rules, Article 27(3) had been left untouched, which must mean that the parties had intended to adopt Article 27(3) in full. 

49.Although this is not the final determination of the Respondents’ application to set aside the Enforcement Orders, I cannot agree with Mr Wang on his interpretation of the Arbitration Clause. 

50.There does not seem to be serious contention that by its language, the Arbitration Clause incorporates the 2012 Rules.  The Arbitration Clause expressly states that “the Rules are deemed to be incorporated by reference into this clause and as may be amended by the rest of this clause”. The Arbitration Clause goes on to state:

“The seat of the arbitration shall be Beijing. The number of arbitrators shall be three (3). The claimant(s)shall select one (1) arbitrator, and the respondent(s) shall select one (1) arbitrator. The third arbitrator, who shall be the presiding arbitrator, shall be appointed in accordance with the following list-procedure”.

51.The Arbitration Clause then goes on to state the “list-procedure”. This involves the CIETAC Secretariat communicating a list of at least three candidates to each of the parties, then each party returning a list of its preferences to the Secretariat within a set time, and after the expiration of the time period, CIETAC was to appoint the presiding arbitrator from the returned lists.  Article 13.2.4 of the Arbitration Clause then states that if, for any reason, the appointment cannot be made according to the list-procedure, the chairman of CIETAC may exercise his/her discretion in appointing the presiding arbitrator from CIETAC’s panel.

52.On its plain reading, the Arbitration Clause sets out a specific form of agreement to provide for the manner of appointment of the arbitrators constituting the Tribunal.  It is a modification to the provisions of Articles 23 to 27 of the 2012 Rules, and such modification prevails.  Just as Article 7 of the 2012 Rules (which deals with the place and deemed seat of the Arbitration) does not apply, because the parties had agreed under the Arbitration Clause that the seat of the Arbitration was Beijing, Article 23 which deals with the number of arbitrators (ranging from 1 to 3), Article 25 which deals with a three-arbitrator tribunal and the manner of nomination of the presiding arbitrator, and Article 27 which deals with a “Multiple-Party Tribunal” all have no application, when the parties had in the Arbitration Clause agreed on specific provisions which govern the manner of selection of the 3 arbitrators of their tribunal. 

53.In particular, the Arbitration Clause sets out the list-procedure for the appointment of the third or presiding arbitrator.  It is totally different to the manner of nomination and selection set out in Article 25.2, 25.3 and 25.4 and adopted in Article 27.2, and in Article 27.3 of the 2012 Rules.  By virtue of the express provisions of the Arbitration Clause, and also as set out in Article 4 of the 2012 Rules, the Arbitration Clause must prevail. The 2012 Rules are applicable only to the extent that no provision is made in the arbitration agreement for any particular matter, or to the extent that they have not been amended by the Arbitration Clause.

54.On behalf of the Respondents, Counsel argued that as the Arbitration Clause fails to provide for the situation in which a party fails to select its own choice of arbitrator, the deadlock provision in Article 27.3 should apply. Under Article 27.3, the Chairman of CIETAC should appoint all 3 members of the tribunal and designate one of them to act as the presiding arbitrator. It was also argued that as the Respondents had been unable to agree on the joint appointment of an arbitrator for their camp, the Arbitration Clause had become “inoperative” under Article 4.3 of the 2012 Rules, whereupon the mechanism for CIETAC’s appointment of the 3 members of the tribunal under Article 27.3 should apply.

55.On my reading of the headings of Articles 25, 26 and 27 of the 2012 Rules, I am not entirely persuaded at this stage that Article 27 applies to the facts of this case.  The distinction appears to be made of a tribunal which consists of a sole arbitrator, a three-arbitrator tribunal and a tribunal of multiple or more than 3 arbitrators.  The last situation envisages multiple parties in an arbitration, and dispenses with each claimant and respondent nominating or appointing its own arbitrator to the tribunal, providing instead that “the claimant side” and “the respondent side” shall each jointly nominate, or entrust the Chairman of CIETAC to appoint one arbitrator, and then for the nomination of the presiding arbitrator in accordance with Article 25. The procedure for the nomination and selection of the presiding arbitrator is totally different to the mechanism set out in the Arbitration Clause. To adopt the mechanism in Article 27 by reference to Article 25 would be contrary to the parties’ agreement reflected in the Arbitration Clause.

56.In any event, whether Article 25 or 27 is applicable to a tribunal which the parties had agreed to involve 3 arbitrators in an arbitration involving multiple parties, the parties themselves had in this case agreed on a specific manner of appointment of the 3 arbitrators. As such, neither article of the 2012 Rules has scope for application under Article 4, and the parties’ specific agreement prevails. On the express provisions of the Arbitration Clause, the 2012 Rules which are incorporated are as they have been amended by the Arbitration Clause itself. The 2012 Rules can only apply to the extent that they are not amended.

57.As to whether the Arbitration Clause had become inoperative, the Respondents had not given any satisfactory explanation as to why their joint selection of an arbitrator was not possible, apart from the bare assertion of Zhang. As the Applicant has highlighted, Zhang was the beneficial shareholder, director and controller of R2 and R3, and had been authorized throughout to act on their behalf in the Arbitration. R2 and R3 were, on the evidence, the corporate vehicles used by Zhang to effect the sale and purchase of Zhang’s interests in the target company sold under the underlying agreements. The 3 Respondents were represented by the same team of lawyers by the time of the Awards, if not the commencement of the Arbitration, and their interests in the Arbitration appeared to be aligned, with the same submissions adopted for the 3 Respondents. Their unexplained refusal to agree on the candidate for the Respondents’ nominated arbitrator cannot be a credible or valid basis to claim that the Arbitration Clause could not operate or be implemented. Otherwise, a party can rely on its own refusal to act in accordance with the arbitration agreement and claim that the agreement is inoperable and can be ignored.

58.Further, as the Applicants have explained (and as the Tribunal found), in the absence of an express choice of the governing law of the Arbitration, PRC law as the law of the seat applies to govern the procedure of the Arbitration. Article 32 of the PRC Arbitration Law provides that if the parties fail to agree on the formation procedure of the tribunal or fail to select arbitrators, within the time limits prescribed by the arbitration rules, the arbitrators shall be appointed by the chairman of the arbitration commission.

59.On the facts of this case, the Respondents alleged that they were unable to agree on the joint appointment of an arbitrator. Upon being notified by CIETAC on 24 December 2015 that if the Respondents should fail to select their choice of arbitrator within 15 days, the Chairman of CIETAC would appoint an arbitrator for them, the Respondents did eventually agree on the nomination of Mr Zhou (under protest from the 2^nd and 3^rd Respondents), and the third and presiding arbitrator was appointed by CIETAC (in accordance with article 13.2.4 of the Arbitration Clause).

60.On a preliminary and brief consideration of the case, I cannot see that the composition of the Tribunal was not in accordance with the agreement between the parties.

61.Even if the Respondents were correct, that Article 27.3 applied, I do not agree that this constitutes an egregious error, to have undermined due process (see Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1). By the Arbitration Clause, the Respondents had agreed to arbitration of any dispute arising in, out of or in connection with the underlying agreements with the Applicants, with the seat of the arbitration in Beijing, by 3 arbitrators. The Tribunal which was empanelled in this case comprised an arbitrator selected by the Applicants, an arbitrator agreed to by all the 3 Respondents, and a third arbitrator appointed by CIETAC. The Applicants highlighted the fact that even the third presiding arbitrator was one of the candidates on the Respondents’ approved list. The Respondents had obtained what they had specified and agreed to in the Arbitration Clause.

62.None of the Respondents has been able to identify any prejudice that had been suffered, caused by the fact that CIETAC had not appointed all the 3 arbitrators of the Tribunal as they had insisted upon. Even if there had been any error made by CIETAC in its decision regarding the appointment of the arbitrators, the Hong Kong Court as the court of enforcement is very likely to exercise its residual discretion to allow enforcement of the Awards, notwithstanding any irregularity complained of by the Respondents (Hebei Import & Export Corp v Polytech Engineering Co Ltd (1999) 2 HKCFAR 111).

63.According to the principles set out in Soleh Boneh, if the award is manifestly invalid, there should be an adjournment of the enforcement proceedings and no order for security, but if it is manifestly valid, there should be either an order for immediate enforcement, or else an order for substantial security. In between, where there are various degrees of plausibility in the argument for invalidity, the court must be guided by its preliminary conclusion on the point. In my judgment, the Awards in this case are manifestly valid.

The ease or difficulty of the enforcement of the Awards

64.On behalf of the Respondents, it was argued that the Applicants cannot show that the 2^nd and 3^rd Respondents have assets in Hong Kong, and no security should be ordered to compel R2 and R3 to bring in assets to facilitate the Applicants’ enforcement proceedings, particularly when the period of adjournment sought should not be long, as the setting aside proceedings had been commenced on the Mainland in July 2019, and the hearing has just taken place on 30 March 2020.

65.The Applicants are entitled to seek enforcement of the Awards either in Hong Kong, or on the Mainland, subject only to the restrictions of section 93 of the Ordinance. I do not accept the Respondents’ argument that Applicants’ decision to apply for enforcement of the Awards in Hong Kong were tactical attempts to circumvent PRC law.

66.Whether or not the Respondents have assets in Hong Kong, or on the Mainland, are matters best known to the Respondents, and not the Applicants. The Applicants only have Zhang’s affirmation of disclosure (in Zhang 1) to rely on. As found by this Court, Zhang’s evidence is not believable and her failure to make full disclosure of her assets in and outside Hong Kong is a breach of the disclosure order of the Injunctions, and contempt of Court. It lies ill in the mouth of the Respondents to claim that the Applicant has no evidence of the existence of their assets in Hong Kong, when the Court has rejected Zhang’s evidence of her disclosure made on behalf not only of herself but also on behalf of R2 and R3. The Court has no credible evidence before it to judge whether the Respondents have assets in Hong Kong, nor the value of such assets as there may be in Hong Kong, and whether the Respondents as debtors under the Awards would be able to pay the Awards.

67.As emphasized by the Court in the decisions in L v B, unreported, HCCT 41/2015, 5 May 2016 and in Weili Su v Shengkang Fei [2019] 2 HKLRD 1214, Karaha Bodas Co LLC v Perusahaan Pertambangan Minydak Dan Gas Bumi Negara [2003] 2 HKLRD 381 is decided on its own facts and is distinguishable. The debtor in the case had adequate assets in Hong Kong which were frozen by an injunction and other charging orders. There was evidence of the value of the shares of the debtor in Hong Kong, and the Court was able to say that the debtor was plainly able to pay the award on evidence of the given value of its worldwide assets. There was no evidence of any dissipation of assets in Karaha Bodas.

68.Contrasted with the facts and evidence in Karaha Bodas, the Respondents through Zhang have failed to give full and honest disclosure of their assets, and whether they are able to satisfy the Awards. On the evidence of Zhang’s conduct, from the time of the Applicants’ application for the Injunctions, and after the grant of the Injunctions, as referred to in the Contempt Judgment, up to the time of these Hadkinson proceedings, it cannot be said that the Respondents have been candid and forthcoming, such that there is no risk of dissipation of the assets of Zhang, and of the companies which Zhang controls or is associated with, such as to render enforcement of the Awards more difficult if enforcement should be further delayed. The evidence of Zhang filed on behalf of the Respondents is on the whole incredulous, and unreliable.

69.In the circumstances of this case, bearing in mind that it is still uncertain when judgment can be available in the Mainland proceedings, the orders that I make on the Respondents’ Summons for the adjournment of the application to set aside the Enforcement Orders are as follows:

(1)  The Summons be adjourned for a period of 3 months from the handing down of this Decision, on condition that the 1^st, 2^nd and 3^rd Respondents give security by payment into court (or by provision of such other security as is acceptable to the Applicants) of 40% of the total sum of the Awards (“Security Amount”), and costs of the Summons on indemnity basis;

(2)  In the event that security for the Security Amount is not received by the Applicants by 4 pm on 14 May 2020, the Summons be dismissed, with costs to the Applicants on indemnity basis.

70.The order nisi that I make, for the costs of the Applicants’ summonses issued on 12 December 2019 for the Hadkinson Order, is that such costs are to be paid by Zhang to the Applicants, on indemnity basis, together with any costs reserved, with Certificate for 2 Counsel.

Ms Eva Sit, SC and Mr Danny Tang, instructed by Clifford Chance, for the applicant [in both HCCT 35/2019 & HCCT 36/2019]

Mr Clark Wang, instructed by Deacons, for the 1^st & 2^nd respondents in HCCT 35/2019 &for the 1^st to 3^rd respondents in HCCT 36/2019