Sc v. Oe1 and Another

HCCT 48/2019
HCCT 66/2019
(dealt with together)

[2020] HKCFI 2844

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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BETWEEN

AND

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 66 OF 2019

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________________________

BETWEEN

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(dealt with together)

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D E C I S I O N

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1.Following the Decision of this Court dated 24 August 2020 (“Decision”), dismissing an application to set aside an Addendum to an arbitral award, and granting leave to enforce the entire Award as amended, application has been made for leave to appeal against the Decision.

2.The application was dealt with by paper disposal. The abbreviations and nomenclature of the Decision are adopted for this Decision.

3.The first ground relied upon by SC in seeking leave to appeal, is that the Court had re-characterized the Addendum as an additional award, which was entirely contrary to the views of the Tribunal to deal with the matter as a correction of the Award. It was argued that the Court is not entitled to do this, nor to second-guess the conclusions of the Tribunal.

4.There is no second-guessing and no recharacterization of either the nature of the application made to the Tribunal, or how the Tribunal dealt with the application. In deciding SC’s application to the Court, that the arbitral procedure was not in accordance with the parties’ agreement nor in accordance with the Model Law, in that the Tribunal had no power to correct the Award or to make additional awards for claims presented and decided in the Award, the Court must review and construe the Award, to ascertain what had been dealt with by the Tribunal, what was decided, what was omitted, and what was sought to be corrected or made the subject matter of an additional award.

5.From the Decision, it is clear that this Court only reviewed and relied upon statements made by the Tribunal itself, in the Award and in the Addendum. In particular, the Tribunal had referred in the Addendum to its findings made in the Award, and to the “mistaken omissions” contained in the Award, on the basis of which the Tribunal then made corrections in the orders and granted further declarations and the prohibitive order by way of injunction. These were referred to in the Decision, at paragraphs 7, 8, 10, 11, 43, 46, 48 and 51.

6.The Tribunal made it clear in the Addendum that there had been omissions in the Award, and that based on the findings it had already made, it was able firstly to make the declaration and grant the injunction which followed from the findings it had made, and secondly to do so on the basis of the arguments already made by the parties in the Arbitration on the provisions of the Agreement.

7.This Court found that read as a whole and in its proper context, the Tribunal was entitled to do the above and to exercise its powers to make the additional award under Article 33 (3) of the Model Law. Even if the Tribunal, in making the additional award, had labeled it as a correction by adding to the Award, it made no real difference if it had the power to make an additional award under Article 33.

8.SC did not argue at the initial hearing that there was no application before the Tribunal for an additional award. It was accepted at the hearing that the Tribunal had the power to correct any computational, clerical or typographical errors in the Award under Article 33 (1) (a), and to make an additional award for claims presented but omitted from the Award under Article 33 (3) of the Model Law. Leading Counsel for SC only sought to argue the limited power of amendment under Article 33 (1) (a), and the fact that there was no power to make an additional award when there was no omission to deal with a presented claim, as all the claims presented in the Arbitration had been dealt with by the Tribunal when it dismissed the claims in the original Award.

9.On the application for leave to appeal, Mr Manzoni sought to argue that the application originally made to the Tribunal was for correction only, under Article 36 of the relevant UNCITRAL Rules, and not for an additional award under Article 37 of the Rules, and that the Tribunal had been mistaken when it referred to Article 37 in the Addendum. This is not entirely correct. The letter dated 26 April 2019 to the Tribunal from those acting for OE (“Letter”) referred to errors of omission to be corrected in the Award, clerical and typographical errors to be corrected, clarification of the dispositive order and, in section IV of the Letter, the Tribunal’s failure to address OE’s request for injunctive relief, with a request for the Award to be supplemented. The request to the Tribunal was in fact stated (in paragraph 24 of the Letter) to be for correction pursuant to Article 33 (1), or an additional award to be issued pursuant to Article 33 (3) of the Model Law.

10.Further, as Mr Han pointed out for OE, in response to the application by the Letter, the Tribunal referred in the Addendum (for example in paragraph 13) to Article 37 (2) of the Rules, and extended the time for the Tribunal to complete the additional award within 60 days after its receipt of a request. This is consistent with the application made in the Letter, for correction as well as for an additional award.

11.As the Court made it clear in paragraph 52 of the Decision, how the Tribunal dealt with the claims made in the additional award, whether the tribunal was right or wrong in law, whether the Tribunal was correct to have found that all matters had been addressed on the claim for the injunction, are not for review by the Court.

12.The second ground relied upon by SC for the intended appeal is that when the Tribunal did not consider that it had omitted to address OE’s claims for injunctive relief and the claims including C91, the Court was not entitled to impose her own views to the contrary.

13.The Court did not impose her own views as to whether the Tribunal had omitted the claims in question. To the contrary, the Tribunal itself stated at paragraph 61 of the Addendum that it was a “mistaken omission” for it not to have set out the declaration in the dispositive order, and that having made findings and conclusions in the Award that SC had violated the provisions of the Agreement, the dispositive order should not have been silent on the injunctive relief sought in the Arbitration. At paragraph 63, the Tribunal also stated that the natural order to have been made, but was mistakenly omitted, was the order enjoining SC from the manufacture and sale of the products.

14.Paragraph 45 of the Decision concluded that reading the Award as a whole and in the context of the findings made by the Tribunal, the true intent of the Award, as objectively construed, was not to reject the claims for the Licence and the injunction, and that such claims had not been “dealt with” and could be dealt with by the additional award of the Tribunal, as it had done. This was not the imposition of the Court’s view, but interpretation of the objective meaning of the Award, which the Court must do.

15.The third ground relied upon for the application for leave to appeal is that the Court wrongly found that the issues in the Arbitration and in the Mainland proceedings were different, such that issue estoppel does not apply.

16.At paragraphs 74 and 75 of the Decision, it was pointed out that the Mainland proceedings concerned different parties to the Arbitration. The Mainland proceedings were instituted by OE Parent, which is not a party to the Agreement and not a party to the Arbitration. OE Parent is the parent company of OE2, but a totally separate legal personality. The essential requirement of identity of parties is simply not satisfied for issue estoppel to apply. The difference in the parties is not artificial, as SC alleges.

17.As Megarry VC stated in Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54, there must be finality of the decision, identity of issues, and identity of parties or else the existence of privity between the parties, before issue estoppel can apply, and privity for this purpose is not established merely by having “some interest in the outcome of the litigation”.

18.OE1 and OE2 assert no rights in the intellectual property which was in dispute between OE Parent and SC and its subsidiaries in the Mainland proceedings, and OE Parent had no direct interest in the Arbitration other than as a shareholder of OE2.  There is no basis to claim that there is sufficiency of identity for any privity of title or interest to exist between OE Parent, and OE1 and OE2.

19.As to the third essential requirement, and whether there is identity of issues in the Arbitration and the Mainland proceedings, the nature of the Agreement has to be borne in mind to understand the claims made in the Arbitration. Under the Agreement, the parties agreed (in section 9.1) that in the course of their cooperation, technical information and specifications of a confidential or proprietary nature would be passed and exchanged, and it was agreed that if any invention or design should be created or conceived by either party based on the information provided by the other, each party would notify the other and discuss the party which would have the right to file applications for patents relating to the invention. That was the obligation assumed by both OE1 and SC, irrespective of the ownership of the original intellectual property rights communicated under the Agreement and in existence at such time. SC highlighted the fact that the Model was developed only after the date of the Agreement. As OE1 had pointed out, the Agreement and section 9.01 thereof anticipated that SC might own patents and rights arising from the partial co-operation and development under the Agreement.  However, section 9.01 sets out the obligation of SC to notify and confer with OE1 in respect of such patent rights which might arise.

20.As the Mainland Court also found, the Agreement did not specify ownership of the title to the patents which were the subject matter of the dispute in the Mainland proceedings.

21.What the Tribunal found in the Arbitration was that SC was in breach of the obligation under section 9.01 of the Agreement. Breach of section 9.01 and remedies which flow from such breach had nothing to do with the ownership of the original intellectual property rights exchanged and communicated to SC in the course of the Agreement, nor with the ownership of the patent rights which might be developed in the course of and after the Agreement.

22.The issues of the ownership to the patent rights decided in the Mainland proceedings are distinct from the issues of breach of the Agreement in the Arbitration. The Tribunal found that SC was in breach of its contractual obligation under the Agreement, to inform OE1 of inventions conceived based on the confidential information provided by OE1, and to confer with OE1 as to the party to apply for any patent rights for such invention. The remedies were granted for such breach of contract. In the Mainland proceedings, the Mainland Court found that (without regard to whether or not SC was in breach of contract with OE1), it was established on the evidence presented to the Court that the patent independently developed and created by SC should be vested in SC.

23.There is nothing inconceivable, nor is it unconscionable, for a party found to be in breach of contract to be injuncted from benefiting from its breach. The Award of the Tribunal dealt with these issues. Whether the Award can be enforced on the Mainland, as being inconsistent with any rights of SC as found by the Mainland Court, or on any permissible ground under Mainland law, is a separate matter, but is not itself a ground to set aside or refuse enforcement of the Award in Hong Kong.

24.In relation to the ground that the tribunal had no jurisdiction over the dispute in the Arbitration, and the contracts relied upon by SC (“Subsequent Contracts”) to claim that the Agreement had been superceded and replaced, neither OE1 nor OE2 was a party to these Subsequent Contracts. Only the Memorandum of Agreement dated 12 July 2006 (“Memorandum”) was made between OE1 and SC, but it was recited in the Memorandum that a factory had been set up in 2005 for the production of model number xxxxxxx (“Product”), and further, that another joint venture company had been set up between SC and OE1 in 2005, which retained the name of SC.  In any event, the Memorandum concerned simply the parties’ agreement on the tender for or promotion of sale of the Product to specified entities on the Mainland.  All the other Subsequent Contracts were made between SC and OE Banking Systems (Shenzhen) Co Ltd (“OE Banking”), another separate legal entity, for SC’s purchase of the Model from OE Banking.

25.On the other hand, the Agreement which was the subject matter of the Arbitration and the Award was between SC, OE1 and OE2, and was wider in scope, setting out (inter alia) in section 1.01 that SC was to purchase products and spare parts from OE1, for sale and distribution in the licensed territory. It expressly states that the terms and conditions of sale and purchase of the products in question “shall be separately agreed”, and that in the event of any inconsistency between the terms and conditions of the sale and purchase and the terms of the Agreement, the Agreement shall prevail.

26.The claims made by OE1 and OE2 in the Arbitration were in respect of SC’s breach of the Agreement, and in particular breaches of sections 4.01 and 12.01 of the Agreement by reverse engineering and misappropriation of trade secrets and confidential and proprietary information owned by OE Parent/OE1, and breach of section 9.01 of the Agreement referred to in paragraph 19 above. Section 9.01 is set out in paragraph 43 of the Decision.

27.The “centre of gravity”/commercial centre of the dispute in the Arbitration, and the agreement which had the closest connection with the claims of breach made in the Arbitration, was clearly the Agreement, as opposed to the Subsequent Contracts which dealt at most with the terms of the orders for, and sale and delivery of the products specified in the Subsequent Agreements.

28.Findings had been made by the Tribunal that particular models and designs, including the Model, fell within the scope of the Agreement.  These findings were made by the Tribunal after having considered the evidence, compared the allegedly different models, and after hearing detailed submissions from the parties. The review of the jurisdiction of the Tribunal should not extend into the correctness of its factual findings on these matters.

29.Stating the most obvious, (and as concluded in paragraph 71 of the Decision) neither OE1 nor OE2 were parties to any of the Subsequent Contracts, apart from the Memorandum. The Memorandum provided for resolution of disputes by consultation. Neither that provision, nor the other contents of the Memorandum, can be sufficient basis or evidence for the argument that OE1 and SC had intended, by entering into the Memorandum, to displace the Agreement or the clause therein for arbitration in Hong Kong (should consultation fail to resolve the dispute).

30.It was not surprising that the Tribunal ruled that the dispute between SC, OE1 and OE2 was governed by the Agreement and the arbitration clause therein contained. The Decision states in paragraph 73 that the Court was not satisfied that the correctness of the Tribunal’s decision as to its jurisdiction can be questioned. This was after referring to the Subsequent Contracts in paragraph 70, and (in paragraphs 71 and 72) to the manner in which the Tribunal had dealt with the challenge to jurisdiction. As Mr Han pointed out, the Court in its review as to the correctness of the Tribunal’s decision on its jurisdiction is entitled to consider and adopt, if found to be correct, the reasoning and findings of the Tribunal (Dallah Real Estate v Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 at para 31).

31.As for the question as to whether SC can resist enforcement of the Award on grounds not raised in its application for setting aside the Award, I see no basis to grant leave to appeal. The grounds sought to be relied upon in resisting enforcement were considered in the Decision, and dismissed.

32.To conclude, there are no reasonable prospects of success in the intended appeal, and I decline to grant leave to appeal against the Decision, which is an exercise of discretion under the relevant provisions of ss 81, 84 and 86 of the Ordinance. SC is to pay to OE1 and OE2 the costs of the application for leave to appeal, on indemnity basis.

Mr Charles Manzoni SC 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