Sc v. Oe1 and Another

HCCT 48/2019
HCCT 66/2019
(heard together)

[2020] HKCFI 2065

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 48 OF 2019

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AND

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 66 OF 2019

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Before: Hon Mimmie Chan J in Chambers

Date of Hearing: 29 May 2020

Date of Decision: 24 August 2020

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D E C I S I O N

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Background

1.In April 2005, OE1, OE2 (together “OE”), and SC entered into an OEM Supply Agreement (“Agreement”), with an arbitration clause for their disputes to be settled by arbitration in Hong Kong at the Hong Kong International Arbitration Center in accordance with the UNCITRAL Arbitration Rules.  Disputes arose as to SC’s alleged breach of the Agreement and on 20 May 2016, OE commenced arbitration in Hong Kong.

2.SC challenged the jurisdiction of the Tribunal on 17 October 2016. After a hearing which took place in November 2016, the Tribunal issued its award on jurisdiction, dismissing SC’s challenge.

3.A hearing on liability took place before the Tribunal in January and February 2018, followed by “Post Hearing Briefs” on liability, and a further hearing in April 2018 for closing submissions on liability.

4.A Final Award on liability was issued by the Tribunal on 16 April 2019 (“Award”), spanning 140 pages and 488 paragraphs in total.  By this, the Tribunal made findings on SC’s breaches of sections 4.01, 9.01 and 12.01 of the Agreement, in respect of its filing of 7 patents and utility models on the Mainland.  In its “Dispositive Order”, the Tribunal declared (at paragraph 488 (a) of the Award) that SC was in breach of its obligations under sections 4.01, 9.01 and 12.01 of the Agreement.  It further ordered SC (at paragraph 488 (b)) to pay the costs of the Arbitration, and that “all other claims and reliefs sought by the Parties are rejected” (paragraph 488 (d) of the Award).

5.On 26 April 2019, OE applied to the Tribunal to correct the Award on the basis of the Tribunal’s failure to address OE’s requests for a perpetual licence under the Agreement (“Licence”) and for injunctions, pursuant to their claims for relief (as stated in Section E (i) to (iv) of the Notice of Arbitration, and in its Statement of Case served in the Arbitration).  OE stated that this failure was despite findings made by the Tribunal of SC’s breaches and of OE’s entitlements to the Licence in the body of the Award.  OE requested the Tribunal to correct the Award pursuant to Article 33 (1) of the Model Law, or to make an additional award pursuant to Article 33 (3) in order to correct the oversight and the errors of omission in the Award.

6.SC objected to OE’s application, claiming that the Tribunal had already rejected all the claims and relief sought by the parties in its Dispositive Order, as contained in paragraph 488 (d) of the Award (“488 (d)”). It further disputed the Tribunal’s power to make the correction or additional award sought.

7.On 25 June 2019, the Tribunal acceded to OE’s application and issued the Addendum to the Award (“Addendum”).  At paragraph 33 of the Addendum, the Tribunal stated:

“In addition, the Tribunal would point to the fact that, contrary to the Respondent’s complaints of a lack of pleading, injunctive relief was indeed asked for in the Statement of Case, and again in the post-hearing brief on the issue of liability (at paragraph 332 (d) of the Claimants’ post-hearing brief). The Claimants’ arguments in support of the relief have also been extensively laid out in the body of the brief. Basically they are simply a request for relief that should follow from the necessary finding on the breaches under complaint and are not of any extraordinary nature that would warrant justification in form or impact over and above a positive finding on liability for breach.”

8.In summary, the Tribunal explained that it had already made its findings and conclusions of SC’s breaches of the Agreement, and it should have repeated a summary of its findings by providing a declaration in the Dispositive Order. It pointed out that SC had not advanced any argument in its closing submissions against the grant of the relief formulated by OE.  The Tribunal confirmed that there was a clerical error of its failing to repeat an earlier finding in the Award at the Dispositive Order, and stated at paragraph 37 of the Addendum that it should add an additional paragraph 488 (a) (1), as follows:

“The Tribunal declares that OE1 has been granted royalty‑free perpetual licence with rights to sub‑licence under each of the patents, utility models and designs set forth in (OE’s) Exhibits C5‑1 through C5‑7 (inclusive) and Exhibit C91.”

9.In relation to the application for correction/ an additional award for injunctive relief, the Tribunal pointed out that OE had sought clarification as to whether the silence on the injunctive relief sought was denied on the merits, denied on procedural grounds, or if the Tribunal had failed to address the issue.

10.The Tribunal clarified, at paragraph 61 of the Addendum, that it was “a mistaken omission” for the Tribunal not to have set out the declaration at the Dispositive Order.  From paragraphs 62 to 68 of the Addendum, the Tribunal stated:

“62. Having made the findings and conclusions that (SC) had violated the prohibition and against reverse engineering in Article 4, the Dispositive Order (paragraph 488) of the Final Award should not have been silent with respect to relief granted to prevent (SC) from continuing to benefit from its improper conduct to the detriment of (OE). There was no point for the Tribunal to have gone into the merits of the submissions and come up with reasoning as well as a conclusion in the main body of the Award on Liability but not to sum this up in a single sentence at the Dispositive Order at Paragraph 488 of the Award.

…

64. The Tribunal also agrees with the Claimants’ Reply to Respondent’s Reply that having known about the application for injunctive relief and having failed to make these new arguments that have now been raised in the Respondent’s Reply, or indeed any arguments in its post-hearing brief against the appropriateness of such relief in the event the issue should be found against it, these new submissions should be deemed waived and now rejected.

65. In addition, the Tribunal would point to the fact that, the entitlement to the injunctive relief is to give effect to the findings on confidential information. There is evidence that the subject machine was manufactured, and there is no evidence, less still any undertaking, from the Respondent that no manufacture has continued or would continue to take place. In the absence of any undertaking, and any closing submission arguments from the Respondent against the entitlement or form of relief in the Respondent’s post-hearing brief (other than on the substantive issue of breach of confidentiality) (at paragraphs 332(e) and (f) of the Claimants’ post-hearing brief), the Tribunal was correct in coming to its conclusions in the main body of its Final Award on Liability.

66. The Claimants’ arguments in support of the relief were (sic) also been extensively laid out in the body of the post hearing brief and in essence was simply a request for relief that should follow from the necessary finding on the breaches under complaint. They are not of any extraordinary nature that would warrant justification in form or impact over and above a positive finding on liability for breach. However, there is no need to go further in this direction as the Tribunal has already agreed with the Claimants’ submissions as set out in both its Application as well as its Reply to the Respondent’s Reply.

67. The Tribunal shall allow for the correction in adding in the conclusion made in the main body of the Award on Liability into the Dispositive Order.

68. The Tribunal shall therefore add an additional Paragraph 488 (aaaa) to follow after the current original wording of Paragraph 488 (a) of the Final Award and immediately after Paragraph 488 (aaa) in the following manner:

‘The Tribunal orders and/or issues an order enjoining the Respondent from the manufacture and sale of any ATM that is based upon and/or incorporates any OE Confidential Information including, but not limited to, the SC‑manufactured version of the CDS6040W and/or any part thereof (which CDS6040W was ordered to be produced for inspection during the hearing on liability, but which the Respondent refused to produce for inspection), regardless of model name, model number or other product identifier.’”

11.With regard to 488 (d) of the Dispositive Order, the Tribunal again accepted that there was a clerical error in failing to summarize its findings in the Dispositive Order of the Award.  At paragraph 77 of the Addendum, the Tribunal explained:

“… Paragraph 488 (d) in its current wording would wrongly be interpreted to appear to conflict with the Tribunal’s findings and conclusions in the main body of the Award. In this regard, (OE) are correct in their observations that paragraph 488 of the Final Award on Liability is somewhat inconsistent with the earlier findings in the Award. It does not summarize the Tribunal’s findings that the Respondent had breached Sections 4.01, 9.01 and 12.01 of the OEM Agreement and that (OE) have been successful in their claims in regard to the SC filed IP rights in (OE) Exhibits C5-1 to C5-1 and C 91.

78. As there needs to be no additional findings or reasoning provided the Tribunal shall proceed to rectify its error in omitting to set out the dispositive order in such a way that it does not conflict with its earlier findings and conclusions in the main body of the Award.

79. The original wording of paragraph 488 (d) of the Final Award is, inter alia:

‘All other claims and reliefs sought by the Parties are rejected.’

80. The new wording of paragraph 488 (d) of the Final Award is:

‘All other claims and reliefs sought by the Parties, with the exception of the requested relief addressed and awarded in Sections I, II and IV of this Final Award, are rejected.’”

Court procedural history

12.After the Addendum was issued by the Tribunal on 25 June 2019, SC applied to the Court, by Originating Summons issued in HCCT 48/2019 on 25 September 2019 (“HCCT 48”), to set aside parts of the Addendum to the Award (“Setting Aside Application”) under section 81 of the Arbitration Ordinance (“Ordinance”). The grounds stated in the Originating Summons are that, firstly, the arbitral procedure was not in accordance with the parties’ agreement, or not in accordance with the Model Law (in reliance on Article 34 (2) (a) (iv) of the Model Law); and further, on the ground of public policy (Article 34 (2) (b) (ii)).

13.The parts of the Addendum to the Award sought to be set aside in HCCT 48 are: (1) paragraphs 61 to 68 of the Addendum, which relate to the addition of the injunctive relief; (2) the references to Exhibit C91 in paragraph 37 of the Addendum and the declaration of the Licence; and (3) paragraphs 77 to 80 of the Addendum, which relate to the amendment of 488 (d) of the Dispositive Order.

14.In response to the Setting Aside Application, and pursuant to section 84 of the Ordinance, OE applied by summons issued in HCCT 48 for leave to enforce the Award as corrected by the Addendum (“Enforcement Application”).

15.On 11 December 2019, OE also applied, by Originating Summons issued in HCCT 66/2019 (“HCCT 66”), supported by an affirmation filed on the same day, for leave to enforce the sections of the Award as amended, but which are not challenged in the Setting Aside Application.  For avoidance of confusion, HCCT 66 is referred to hereinafter as the “Partial Enforcement Application”.

16.The Partial Enforcement Application was opposed by SC, on the grounds referred to in an affirmation filed in HCCT 66 on 9 March 2020.  These are that the Tribunal has no jurisdiction to adjudicate the claims brought by OE in the Arbitration, that the Award and Addendum dealt with a difference not contemplated by or not falling within the terms of the submission to arbitration, that the Award and Addendum contain decisions on matters beyond the scope of the submission, that it is against public policy to enforce the Award and Addendum, and that it would be just to refuse enforcement.

17.By direction of the Court, HCCT 48 and HCCT 66 were heard together.

18.The issues for determination by the Court are whether the Tribunal had power to correct the Award by the Addendum, or whether it was functus when it issued the Addendum; whether the Award as corrected by the Addendum should be set aside, or enforced; or whether the Award should be enforced without the challenged parts.  Obviously, if the Tribunal had the power and jurisdiction to issue the Addendum, the Award as corrected should be enforced, without the need to enforce the Award in the manner sought by the Partial Enforcement Application.

The correction of errors under Article 33 (1) (a)

19.The thrust of SC’s argument against the Tribunal’s purported correction of its errors and omissions, is that the Tribunal had no power under Article 33 (1) (a) of the Model Law (adopted in section 69 of the Ordinance) to make the purported corrections.

20.Article 33 deals with correction and interpretation of awards and the making of additional awards.  Article 33 (1) states:

“Within 30 days of receipt of the award, unless another period of time has been agreed upon by the parties:

(a) a party, with notice to the other party, may request the arbitral tribunal to correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature;

(b) if so agreed by the parties, a party, with notice to the other party, may request arbitral tribunal to give an interpretation of a specific point or part of the award. If the arbitral tribunal considers the request to be justified, it shall make the correction or give the interpretation within 30 days of receipt of the request. The interpretation shall form part of the award.” (Emphasis added)

21.Article 33 (3) further provides as follows:

“Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within 30 days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. If the arbitral tribunal considers the request to be justified, it shall make the additional award within 60 days.” (Emphasis added)

22.On behalf of SC, Counsel highlighted the point that the power under Article 33 (1) (a) to correct an award is confined to “errors in computation”, “clerical or typographical errors” or “any errors of similar nature”.  There is no general power to correct errors, and the only errors which can be amended must “stem from a mental lapse or a ‘slip of the pen’, not from an error of judgment” (Arbitration Law Handbook (2^nd edition), Lexis Nexis Butterworks, at para 69.09).  Binder’s International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions (3^rd edition), Sweet & Maxwell (at para 6-103) also states that the errors affected by Article 33 (1) (a) are “mainly flagrant mathematical errors or typing errors, which would otherwise complicate the execution of the award”.

23.As highlighted in such authorities as Gary Born’s International Commercial Arbitration (2^nd edition): Chapter 24: Correction, Interpretation and Supplementation of International Arbitral Awards, there are strong policy reasons against alterations of an award after it has been made.  The arbitral process is intended to be a speedy and final resolution of the parties’ disputes, without the costs and delays of litigation.  Awards should be final and free from continuing dispute about their correctness, completeness or meaning.  Circumstances in which corrections or interpretations can be made should be narrowly circumscribed.

24.The Tribunal’s omission to declare its grant of the Licence and its failure to grant the injunctive relief sought by OE are clearly not errors in computation, which relate to mistakes in calculation only.  Nor are the errors and omissions referred to by the Tribunal typographical errors.

25.They may be accidental errors, but Mr Scott SC argued for SC that they are errors in the thought process, and even if the Award may not have accurately expressed the intention of the Tribunal, it did so in clear words (as held in CNH Global NV v PGN Logistics Ltd [2009] 1 CLC 807, applying Sutherland & Co v Hannevig Bros Ltd [1921] 1 KB 336), and as such any mistakes are not “clerical” errors to be correctable.

26.In Sutherland & Co v Hannevig Bros Ltd, Rowlatt J held that the correction of a “clerical mistake” is “something almost mechanical”, like the slip of the pen, or an accident affecting the expression of the person’s thought.  As the court explained in that case, there was no clerical mistake if the arbitrator had put down precisely what he had meant to put down, and if he had not put in anything that he did not intend to put in.  Inadvertently including something, and inadvertently omitting anything intended to be included, could simply mean that something had gone wrong in the thought process, or there was an inadvertent or accidental slip, but it is not a “clerical” error.

27.In Mutual Shipping Corp v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 WLR 625, Donaldson MR held that a distinction should be made between an arbitrator having second thoughts, which is not permissible, and the correction of an award to give effect to first thoughts or intentions, which is permissible under the slip rule.

28.In CNH Global NV v PGN Logistics Ltd [2009] 1 CLC 807, the arbitration was governed by the ICC Rules, Rule 29 of which adopts language very similar to Article 33 (1) (a) of the Model Law in the categorization of errors which can be corrected.  The Court held that by the application of the concept of ejusdem generis, “errors of similar nature” are “something close to a clerical, computational or typographical error, but not precisely falling within those categories”.  I agree, and have difficulty in accepting that the omission of the Tribunal in this case to make a declaration of the Licence to be granted as a result of SC’s breaches of the Agreement, and its omission to order injunctions to restrain the breaches, can be anything close to clerical, computational or typographical errors. A “clerical” error should not involve any mistake or omission in the thought process or analysis.

29.Mr Scott emphasized, and I accept, that the English cases in which mistakes have been held to be capable of correction under section 17 of the Arbitration Act of 1950 and section 57 (3) (a) of the Arbitration Act 1996, were mistakes found to be “accidental slips or omissions”, a category of mistakes or errors within the ambit of the relevant sections of the English Act, but absent in Article 33 (1) (a) of the Model Law.

30.Section 17 of the 1950 Act provided as follows:

“Unless a contrary intention is expressed in the arbitration agreement, the arbitrator or umpire shall have power to correct in an award any clerical mistake or error arising from any accidental slip or omission.” (Emphasis added)

31.The 1996 Act provides in section 57 (3):

“The tribunal may on its own initiative or on the application of a party –

(a) correct an award so as to remove any clerical mistake or error arising from an accidental slip or omission or clarify or remove any ambiguity in the award, or

(b) make an additional award in respect of any claim (including a claim for interests or costs) which was presented to the tribunal but was not dealt with in the award.” (Emphasis added)

32.In Mutual Shipping, Goff LJ considered that there was no material distinction between an arbitrator’s power under section 17 of the 1950 Act, and the court’s power under the slip rule in Order 20 rule 11 of RSC.  The authorities decided under Order 20 were therefore considered to be useful in deciding on the scope of the arbitrator’s power under section 17.  These authorities make it clear that the power to rectify an order of the court exists in order to carry out the intention and to express the meaning of the court at the time when the order was made.  Clerical mistakes in judgment orders and errors arising from any accidental slip or omission fall to be corrected under Order 20 as well as the inherent jurisdiction of the court.

33.However, Sir Roger Ormrod made it clear in his judgment in Mutual Shipping that section 17 of the 1950 Act must be considered disjunctively, as the section is directed at 2 different situations, clerical mistakes on the one hand and accidental error on the other.  The accidental error situation is absent in Article 33 (1) (a), and the slip rule is not applicable to cases governed by Article 33 (1) (a).

34.To conclude, I find that the errors or omissions sought to be corrected by the Tribunal in the Addendum were not “any errors in computation, any clerical or typographical errors or any errors of similar nature” within the scope of Article 33 (1) (a).

The additional award under Article 33 (3)

35.It has to be borne in mind that the parties are entitled to request, under Article 33 (3) of the Model Law, and the Tribunal has power thereunder to make an additional award as to claims presented in the arbitral proceedings but omitted from the award.  OE’s application to the Tribunal in April 2019 included an application for an additional award to be issued pursuant to Article 33 (3).

36.It cannot be disputed that OE’s claims for the Licence and the injunctions were included in their Notice of Arbitration, Statement of Case and submissions presented in the Arbitration, and that SC had at all material times been given notice of these claims for relief.  These claims for relief were clearly issues which had been presented to the Tribunal in the Arbitration.  They were included in the list of issues for determination by the Tribunal, as the Tribunal recognized in the Award.  It cannot be disputed that SC had been given the full opportunity to address the Tribunal on OE’s entitlement to the relief claimed.

37.On behalf of SC, it was argued that these issues of OE’s entitlement to relief had all been dealt with, and determined by the Tribunal in the Dispositive Order, when it rejected all claims and relief sought by the Parties, apart from the declaration made in paragraph 488 (a) and the award of costs made in paragraph 488 (b).

38.I accept the submissions made by Mr Han on behalf of OE, that in determining whether the Tribunal had “dealt with” OE’s claims in the Arbitration for the relief relating to the Licence and the injunctions, the Award must be read in its context (Union Marine Classification Services LLC v The Government of the Union of Comoros [2015] EWHC  508 (Comm)).

39.The judgment in Union Marine contains a useful summary and references to cases decided on “claims” presented to the tribunal, and whether such claims have been “dealt with”.  In Torch Offshore v Cable Shipping [2004] 2 All ER (Comm) 365, Cooke J explained that section 57 (3) (b) of the 1996 Act, which uses the word “claim”, only applies to a claim presented but has not been dealt with, as opposed to an issue which remains undetermined as part of a claim.  “Claim” can refer to a head of claim for damages or some other remedy, but not to an issue which is part of the process by which a decision is arrived at on one of these claims.  The court in Union Marine also referred to the decision of Colman J in World Trade Corporation v Czarnikow [2005] 1 Lloyd’s Rep 422, where it was explained that “claim” does not mean a submission in support of the relevant question of fact, but a claim for relief by way of damages, declaration or otherwise, such as would have to be pleaded.

40.In Cadogan v Turner [2013] 1 Lloyd’s Rep 630, Hamblen J considered the question of whether a claim has been “dealt with” in an award, and stated:

“A claim is ‘dealt with’ in an award if it has been finally determined by it. Although the dispositive part of the award is likely to be the most important part of the award for the purposes of considering that issue, where, as is almost invariably the case, the written reasons form part of the award, the whole of the award needs to be considered, and the dispositive part of the award considered in the context of the written reasons.” (Emphases added)

41.As in the present case, the dispositive paragraph of the award in Union Marine only stated that “the Government’s counterclaims referred to me all fail”.  However, reading the award in context and looking at the language in the dispositive paragraph of the award, in order to ascertain the “true objective intent” of the earlier sections of the award, Elder J concluded that the arbitrator was entitled to correct the award, either as an accidental slip or omission under section 57 (3) (a), or under section 57 (3) (b) as a claim presented, but not dealt with.

42.In the present case, the Tribunal had in the Award set out the list of issues, and analyzed the arguments on the scope of the Agreement, the designs covered by the Agreement and the relevant clauses of the Agreement, and the validity and enforceability of sections 4.01, 9.01 and 12.01 of the Agreement. It reviewed the patents which were the subject of OE’s claims in the Arbitration, and concluded that SC’s acts and filing of the designs complained of constituted breaches of sections 4.01 (on reverse engineering), 9.01 (on development of intellectual property rights) and 12.01 (on confidential information) of the Agreement.

43.It is pertinent that in paragraph 271 of the Award, the Tribunal stated its conclusion that all the patents and designs in the case were acquired by SC after the date of the Agreement, and that section 9.01 of the Agreement, and the contractual obligation thereunder to grant a royalty‑free licence, applied to each of the rights identified in OE’s Exhibits C5‑1 to C5‑7 and C91.  As Mr Han pointed out on behalf of OE, the Licence provided for in section 9.01 was automatic and self-executing, as the section states:

“Intellectual Property Rights. If either (OE1) or SC has created, conceived or reduced to practice, any inventions, ideas or designs based on the information or materials provided by the other party (collectively ‘Inventions’), such party shall promptly notify the other party of such Inventions. (OE1) and SC shall discuss and agree upon which party or parties shall have the rights to file applications for and obtain patents relating to such Inventions and the acquired patents (including utility models and design patent). In the event that SC has acquired any patent (including utility models and design patent) relating to any Invention in any country, SC hereby grants (OE1) a royalty-free licence, with the right to sublicense, under such patent without limit of time.”

44.Having made clear findings of SC’s breach of section 9.01 of the Agreement, it follows from section 9.01 that the Licence as claimed by OE in the Arbitration should result as a consequence and by operation of the clause itself.

45.The Award did not in any way deal with OE’s pleaded claims for the Licence under section 9.01 and for the injunctive relief to restrain the breaches of the Agreement found by the Tribunal.  Read as a whole and in the proper context of the findings made on the breaches of the specific provisions of the Agreement, I consider that the “rejection” of “all other claims and reliefs sought by the Parties” in 488 (d) was not the true objective intent of the earlier sections of the Award.  The Tribunal could not have been addressing OE’s claims for the Licence and the injunctions, when it rejected the remainder of the claims (or the “other” claims) sought by the parties.  The claims for the Licence and injunctive relief had obviously slipped the minds of the arbitrators, and had not been “dealt with” by the Tribunal.  They were of the same nature as the mistakes described as “howlers” in the award in CNH Global.

46.The Tribunal itself pointed out in the Addendum (at paragraph 61) that it was a mistaken omission not to have included the injunctive relief in the Dispositive Order, and that having made findings and conclusions that SC had violated the prohibition against reverse engineering in Article 4 of the Agreement, the Dispositive Order should not have been silent with respect to relief granted to prevent SC from continuing to benefit from its improper conduct, to the detriment of OE.  The Tribunal stated in paragraph 63 of the Addendum that it had set out its findings of breach at paragraphs 277 to 279 of the Award, with the conclusion that SC had violated sections 4.01 and 12.01 of the Agreement, and that the natural order to have been made, to enjoin SC from the manufacture and sale of products based upon and/or incorporating OE’s confidential information, had been mistakenly omitted.

47.SC sought to argue that the injunctions sought in the claim for relief and included in the Arbitration had not been argued in closing, nor did the Tribunal analyze or refer in the Award to any entitlement to the injunctive relief, and whether it would be appropriate to grant such relief notwithstanding the findings of breach.

48.In the Addendum, the Tribunal pointed out that SC had known of OE’s application for injunctive relief, but had failed in the Arbitration to argue against the grant of such relief, or to make any submissions on the matters SC only sought to argue in opposition to the application for correction and clarification of the Award.  At paragraph 66 of the Addendum, the Tribunal explained that the injunctive relief was not of any extraordinary nature that would warrant justification in form or impact over and above a positive finding on liability for breach, and that the correction of the Award by the addition of an order enjoining SC from manufacture and sale in breach was justified.

49.The Award included the Tribunal’s clear findings of SC’s breach of section 12.01 of the Agreement, which provides for confidentiality, and requires each party to maintain the confidentiality of the confidential information learned, supplied or disclosed by the disclosing party under the Agreement.  It is pertinent that section 12.04 of the Agreement provides for remedies in respect of the parties’ breach.  This states:

“The receiving party hereby acknowledges that money damages will be an inadequate remedy with respect to the injury that will be suffered by the disclosing party by reason of breach by the receiving party of its confidentiality or limited use obligations hereunder and the receiving party hereby consents to the granting by any court in any applicable jurisdiction of an injunction or other equitable relief. To the extent permitted by applicable law, the receiving party hereby waives any claim or defence that an adequate remedy exists at law and the receiving party hereby agrees not to urge in any action or proceeding the defence that any such remedy exists at law. The foregoing shall be in addition to all other rights and remedies available to the disclosing party at law or in equity.” (Emphases added)

50.In view of section 12.04 of the Agreement, the Tribunal was obviously right in its conclusion that no further argument was necessary to justify the grant of OE’s claims for the injunctive relief sought.  SC sought to argue that breach of section 12.04 of the Agreement was not pleaded in the Arbitration, but section 12.04 provides for the consequences of and the remedies for the breach of agreement which was pleaded, and found.

51.As for SC’s challenge to the amendment to include Exhibit C91 in the grant of the Licence, I accept the submissions made on behalf of OE.  It is clear from the Award that Exhibit C91 had been considered by the Tribunal and found by it to be appropriately included in the scope of the Agreement and the Licence under section 9.01, and further, that the findings of breach extended to Exhibit C91.  This can be seen from paragraphs 271 and 294 of the Award, which state:

“271. The Tribunal comes to a similar conclusion in relation to Section 9.01 of the (Agreement). It is clear to the Tribunal that all of the patents and the designs in this case were only acquired by (SC) after the date of the (Agreement). This means that Section 9.01, including the contractual obligation to grant a royalty free licence, applies to every one of the (SC)‑filed IP identified in (OE’s) Exs C5-1 through C5-7 and C91. …

…

294.  The Tribunal notes that there is no evidence from (SC) to show that it had ever informed OE that they had created or conceived any inventions for designs relating to ATMs.  (OE) assert that it has proven the patents, utility models and designs filed by (SC) identified in (OE’s) Exhibit C91, were based on the information or materials provided by OE pursuant to the (Agreement).”

52.For the above reasons, I find that reading the Award in its proper context, the objective intent of the Award and 488 (d) was not the dismissal or rejection of OE’s claims for the Licence and injunctions as relief, and that these claims of OE had not been dealt with by the Tribunal.  The Tribunal was accordingly entitled under Article 33 (3) to make an additional award in order to deal with such claims.  How it dealt with the claims, whether its manner of disposal (as set out in the Addendum) was right or wrong in law, or on the facts, and whether the claims had been properly analyzed and reasoned, are not open to review by the Court (Lesotho Development v Impregilo SpA [2006] 1 AC 221, O’Donnell Developments v Build Ability [2009] EWHC 3388 TCC). Considered as a whole, the corrections and the additional orders made by the Tribunal did not create any inconsistencies in the Award, and this is not a case of the arbitrators having second thoughts, or evaluating the evidence differently.

53.As for the policy reasons highlighted by Mr Scott, that arbitral awards should be final and not be revisited, there are equally good policy reasons for the Court to facilitate the arbitration process.  One of the objectives of the Ordinance is to limit the rights of parties to arbitration agreements to resort to the courts, and to ensure greater autonomy for their chosen tribunal.  The powers of the Court under the Ordinance are to be exercised to support and assist the tribunal and to further the parties’ choice of arbitration, so long as there is due process.

54.Where the Tribunal has the power to amend an error or to make an additional award under Article 33, within the time specified in the article, then the Tribunal is not functus nor acting in excess of jurisdiction when it does so.  Similarly, where the Tribunal has power but exercises it in an incorrect way, then again there is no excess of jurisdiction (Lesotho Highlands Development Authority v Impregilo SpA).  In Lesotho, Lord Steyn in his judgment cited with approval the passage at p 555 of the 2^nd edition of Mustill & Boyd on Commercial Arbitration:

“If … (the arbitrator) applies the correct remedy, but does so in an incorrect way – for example by miscalculating the damages which the submission empowers him to award – then there is no excess of jurisdiction. An error, however gross, in the exercise of his powers does not take an arbitrator outside his jurisdiction and this is so whether his decision is on a matter of substance or procedure.” (Emphasis added)

As the Court observed in O’Donnell Developments Limited v Build Ability Limited [2009] EWHC 3388 (TCC), at paragraph 38, in considering whether an adjudicator was acting within his jurisdiction in exercising his power to correct the award, the court should guard against characterizing a mistaken application of the rule as a decision in excess of and therefore outside his jurisdiction.  If the adjudicator has the power to amend an error, he should be permitted and enabled to make such correction without the unnecessary intervention of the court (Torch Offshore LLC v Cable Shipping Inc [2004] 2 Lloyd’s Rep 446 at para 28).

The Setting Aside Application

55.Under Order 73 rule 5 (4) (a) RHC, the originating summons for the Setting Aside Application “must” state the grounds of the application, and if the application is founded on evidence by affidavit, a copy of every affidavit intended to be used “must” be served with the originating summons under rule 5 (4) (b).

56.The only grounds which were stated in the Originating Summons for setting aside the Addendum to the Award are that the arbitral procedure was not in accordance with the agreement of the parties, and/or conflict with the public policy of Hong Kong.  From the arguments made on behalf of SC, the complaint is that as the Tribunal was functus upon issue of the Award and it had no power to correct the Award on any ground, the issue of the Addendum was not in accordance with the arbitration agreement between the parties, or not in accordance with Article 33 (1) (a) of the Model Law, and it would be contrary to public policy to enforce the Award as amended.

57.As I have ruled that the Tribunal had the power to make the corrections and the additional award, and that the Award itself had not dealt with all the claims, it was not functus, and the procedure adopted by the Tribunal for correction and for the additional award made in the Addendum was in accordance with the parties’ agreement and the Model Law.  I fail to see how enforcement of the Award as amended would be contrary to public policy.

58.The Setting Aside Application fails, and is dismissed with costs on indemnity basis (A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389).  It follows that the Enforcement Application is allowed, with costs to OE.

The Partial Enforcement Application and opposition

59.Since I have granted leave on the Enforcement Application to enforce the Award as amended by the Addendum as a judgment of the Court, it is not necessary to deal with the Partial Enforcement Application made by OE.  The Addendum does not stand on its own.  It is part of the Award, which is to be read together with the amendments made in the Addendum.

60.In its opposition to the Partial Enforcement Application, SC has sought to rely on additional grounds not relied upon in the Setting Aside Application (“Additional Grounds”): namely, that the Tribunal has no jurisdiction to adjudicate the claims brought by OE in the Arbitration; that the Award and Addendum dealt with a difference not contemplated by or not falling within the terms of the submission to the Arbitration; that the Award and Addendum contained decisions on matters beyond the scope of the submission to arbitration; that it is against public policy to enforce the Award and the Addendum, and that it would be just to refuse enforcement of the Award and Addendum in any event.

61.The Additional Grounds are on the basis that the Agreement does not govern disputes involving SC’s model CDS6040W (“Model”), said to be infringing the intellectual property rights of OE and in respect of which breaches of the Agreement were alleged.  SC claims that disputes involving the Model are in fact governed by subsequent agreements made between the parties, which provide for arbitration in the Shenzhen Arbitration Commission or in the South China International Economic and Trade Arbitration Commission.

62.SC further claims that in proceedings which were instituted by OE’s parent company (“OE Parent”) on the Mainland in December 2016, judgment was issued by the Supreme People’s Court on 31 December 2019, confirming the first instance court’s declaration that the intellectual property rights in the patents, utility models and designs which were the subject of the dispute in the Arbitration vested in SC.  On SC’s case, it would be contrary to public policy and unjust to enforce the Award and the Addendum, when the intellectual property rights have been finally and conclusively determined by the Mainland courts to be owned by SC, such that the Award contradicts the rulings made by the Mainland courts, and are incapable of being enforced.

63.In my judgment, it is not open to SC to rely on the Additional Grounds which were set out in the affirmation of ZY filed in opposition to the Partial Enforcement Application, by way of challenge to the enforceability of the Award.  These Additional Grounds were not set out and relied upon in the Setting Aside Application, and by the time the draft affirmation of ZY was exhibited to the affidavit of Wu Ying filed on 9 March 2020 in opposition to the Partial Enforcement, more than 3 months had elapsed from the date of SC’s receipt of the Addendum to the Award in June 2019.  No explanation had been offered in the evidence as to the existence of compelling reasons or exceptional circumstances to justify an extension of time being granted to raise these Additional Grounds by way of challenge to the Award (KB v S [2016] 2 HKC 325).

64.I do not accept that the well-known doctrine of the “choice of remedies” open to a respondent in an arbitration applies to the facts of this case.  It is indisputable, that a party faced with an award has 2 options: to apply to the courts of the country where the award was made to seek the setting aside of the award, or to take no steps to set aside, but wait until enforcement is sought, in one or another country, and attempt to establish a ground of opposition (Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKLRD 39, recognized in Astro Nusantara International BV v PT Ayunda Prima Mitra [2018] 21 HKCFAR 118).  The Arbitration in this case took place in Hong Kong.  The supervisory court is in Hong Kong.  The Award was made in April 2019, and corrected in June 2019.  It is true, that SC had an option either to proactively apply to the Hong Kong Court to set aside the Award as amended, or to take no action and wait passively for OE to apply for enforcement of the Award and Addendum, and to resist enforcement then.  The grounds of setting aside and resisting enforcement of the Award and Addendum in Hong Kong are identical.

65.However, SC did not do nothing.  It did not take the passive route.  On receiving the Addendum, it applied to the Hong Kong Court as the supervisory court of the Arbitration to set aside the Addendum which amended the Award, on the specific grounds under section 81 of the Ordinance, of the arbitral procedure not being in accordance with the arbitration agreement or the Model Law, under Article 34 (2) (a) (iv), and public policy under Article 34 (2) (b) (ii).  In opting for making the Setting Aside Application, it was incumbent on SC to set out all the grounds on which it relies by way of challenge to the enforceability of the Award and Addendum.  It was not open to SC, when OE applied 3 months later to the same Hong Kong Court, as the court of enforcement, for Partial Enforcement of the Award, to then raise new and Additional Grounds to challenge enforcement.

66.Read in the context of the Ordinance, the spirit and objectives of Order 73 rules 5 and 10 RHC, in prescribing the time limits and the requirements as to the contents of the documents supporting applications to the Court made under the Ordinance, including applications to set aside an award or an order granting leave to enforce an award in Hong Kong, are to prevent delay in the recognition and enforcement of arbitral awards and agreements, and to ensure the speedy determination of such applications by requiring certainties in the presentation of the parties’ cases, without unnecessary procrastination in the process.

67.As highlighted in the earlier parts of this Decision, the Addendum does not stand alone from the Award.  The Addendum corrected and supplemented the Award, and they must be read together.  There is no reason why the grounds on which SC relies to oppose enforcement of the Award could not be raised at the time when the Addendum correcting the Award was sought to be set aside.  If the Tribunal had no jurisdiction to adjudicate the difference and the disputes involving the Model, as SC claims, it could not have jurisdiction to make the correction to the Award and issue the Addendum.  Yet, SC did not raise this in its proactive Setting Aside Application.

68.In my view, the steps taken by SC to challenge the Addendum, and then to deploy the Additional Grounds to resist enforcement of the Award, were all in bad faith to obscure, procrastinate and delay enforcement of the Award.  Not having raised the Additional Grounds in the Originating Summons issued in the Setting Aside Application, as SC was required to do by Order 73 rule 5(4) RHC, I consider these grounds waived and I can find no compelling reason or exceptional ground to permit SC to rely on the Additional Grounds.

69.In any event, I do not see any merit in the Additional Grounds, even if they can and should be taken into account in SC’s opposition to the enforcement of the Award.

70.In the Arbitration, SC had challenged the jurisdiction of the Tribunal, on the ground of the alleged existence of the “subsequent agreements” made between the parties, which subsequent agreements had allegedly discharged and superseded the Agreement.  It was claimed before the Tribunal that the dispute between the parties was not a difference which fell within the terms of the submission to arbitration under the Agreement, and that the Agreement did not in fact cover the Model.

71.In its Partial Award on Jurisdiction, the Tribunal dealt with the challenge made by SC.  I agree with the conclusions made by the Tribunal as to its jurisdiction under the Agreement.  The alleged subsequent agreements were made between a subsidiary of OE Parent and a subsidiary of SC, and concerned the terms and conditions of the sale and purchase of products between the 2 subsidiaries.  There was no evidence at all that the parties to the Agreement had intended to discharge their arbitration agreement, and to treat the alleged subsequent agreements of the subsidiaries as superseding the Agreement between OE and SC, and to govern their relationship under the Agreement.

72.The Tribunal was satisfied on the evidence put before it that the Model fell within the scope of the Agreement, and that OE1 was entitled by the express terms of the Agreement to change its parts, components, materials, appearance and functions of the products.  The Tribunal rightly pointed out that the arbitration agreement is separate to the underlying contract between the parties, and that the scope of the Agreement and whether it covered the Model are issues related to the underlying dispute of the substantive contract, and not the arbitration agreement and the jurisdiction of the Tribunal thereunder.

73.I am not satisfied that the correctness of the Tribunal’s decision as to its jurisdiction can be questioned.

74.As for the judgment of the Mainland courts, it is clear that the Mainland proceedings concerned different parties.  They were in fact instituted by OE Parent against SC and 2 different subsidiaries of SC.  Mr Scott accepted that res judicata does not apply because different parties are involved in the Arbitration and in the Mainland proceedings.  For the reasons set out below, I reject the contention that issue estoppel is applicable.

75.OE Parent is a totally separate legal personality from its subsidiaries, OE1 and OE2.  OE Parent has no direct interest in the Arbitration and the claims made therein, other than as a shareholder of OE2, and neither OE1 nor OE2 claim any rights in the intellectual property the title to which was in dispute between OE Parent and SC and its subsidiaries in the Mainland proceedings.

76.The issues raised in the Mainland proceedings and the Mainland judgments are different to the issues raised in the Arbitration.  The issue in dispute in the Mainland proceedings was whether OE Parent, or SC or its subsidiaries owned the patents which were in dispute, and which were generated in the course of the co-operation between OE and SC during the term of the Agreement.  On the other hand, the Arbitration concerned the contractual rights and duties provided for in the framework co-operation Agreement made between OE1, OE2 and SC.

77.The judgment of the Mainland court made it clear that the framework Agreement between OE and SC did not specify title to the patents which were the subject matter of the dispute in the Mainland proceedings.  The Mainland court further highlighted that there was no agreement by the parties to the Agreement on patent ownership.  SC itself had argued in the Mainland proceedings that the Agreement had no connection or concern with the patents in question.

78.The claim in the Arbitration related to the alleged breach by SC of (inter alia) section 9.01 of the Agreement.  As Mr Han highlighted, section 9.01 of the Agreement between OE and SC makes no provision for the ownership of patents or intellectual property rights in the inventions which may be developed in the course of the parties’ cooperation under the Agreement.  It only regulates the procedure whereby the parties were to notify each other of inventions that may be conceived, and to discuss and agree on which party should have the right to file applications for and to obtain patents for such inventions.  The claim made in the Arbitration was that SC was in breach of such contractual duty to notify, confer and agree.

79.Section 9.01 further provides that in the event that SC acquires any patent relating to any invention, then it should grant the royalty‑free licence to OE.  The Agreement does not preclude the possibility of SC’s ownership of rights in the inventions, nor the grant of patents in SC’s name, provided that OE obtains the licence rights to such patents as may be applied for by and granted to SC.

80.The Tribunal ruled that SC was in breach of its duties under section 9.1, and as a consequence of such breach, it was injuncted from manufacturing and selling any product that is based upon or incorporates any confidential information of OE which SC was found to have used, in breach of section 12 of the Agreement.  The Tribunal had also found SC to be in breach of section 4.1 of the Agreement, which forbids analysis and disassembly of equipment supplied under the Agreement.

81.I see nothing unjust, or so shocking to the conscience of the Court as to render enforcement of the Award repugnant, or to be contrary to the fundamental conceptions of morality and justice of this forum (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) HKCFR 111, 139; A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389).

82.The fact that the Award may be unenforceable on the Mainland (and this has not been shown to be the case) does not affect the enforceability of the Award and Addendum in Hong Kong, on the ground of public policy or otherwise (KB v S [2015] HKCFI 1787, Xiamen Xingjingdi Group Ltd v Eton Properties Limited [2009] 4 HKLRD 253 (CA), U v A and others [2017] HKEC 468).  There is no difficulty in enforcement in Hong Kong of the Award which restrains SC from the manufacture and sale of the products in Hong Kong, as a result of SC’s breach of its duties owed to OE under the Agreement.

83.As Mr Han for OE has highlighted, the Tribunal was aware of the existence of the Mainland proceedings and the claims made therein.  It maintained the view that the Mainland proceedings were irrelevant to the contradual dispute between OE and SC and the issues for determination in the Arbitration. The Award itself was made nearly 2 years after the first instance judgment in the Mainland proceedings dated August 2017 (which was subsequently affirmed on appeal to the Supreme People’s Court).  In view of the totally different issues which were dealt with in the Mainland proceedings, and the different parties involved, the finding made by the Mainland courts that SC owned the rights in the patents and utility models registered on the Mainland do not affect the contractual rights and liabilities between OE and SC under the Agreement, as found by the Tribunal.  Whether the Tribunal was in error, in disregarding the relevance of the Mainland proceedings to its findings in the Award, is of course not a matter for review by this Court and not a ground to set aside or resist enforcement of the Award.

84.For all the above reasons, SC’s opposition to the Partial Enforcement Application is also dismissed, again with costs on indemnity basis.

Mr John Scott SC, JP and Mr Joseph Wong, instructed by Nixon Peabody CWL, for the plaintiff in HCCT 48/2019 and for the defendant in HCCT 66/2019

Mr John Han (Solicitor Advocate), of Kobre & Kim, for the 1^st & 2^nd defendants in HCCT 48/2019 and for the 1^st & 2^nd plaintiffs in HCCT 66/2019