Arjowiggins Hkk2 Ltd v. X Co

HCCT 77/2020

[2022] HKCFI 128

(redacted and anonymised version)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 77 OF 2020

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D E C I S I O N

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Background

1.There has been a long-running saga of disputes between the Applicant (“HKK”) and the Respondent (“X Co”): with at least 2 arbitrations held and awards made in Hong Kong, enforcement and winding-up proceedings here, and liquidation proceedings on the Mainland. They all relate to the parties’ joint venture on the Mainland and their resulting disputes concerning the operation and ultimate dissolution of the joint venture company (“JV Company”).

2.These proceedings concern HKK’s application to set aside the final award of the Tribunal made on 5 August 2020 (“Award”) in an arbitration commenced by X Co in Hong Kong in 2018 (“2018 Arbitration”), and X Co’s cross-application for leave to enforce the Award. By its Originating Summons issued on 5 November 2020, HKK claims that the orders made in the Award were decisions on matters beyond the scope of the submission to arbitration, and should be set aside under section 81 (1) of the Arbitration Ordinance (“Ordinance”) and Article 34 (2) (a) (iii) of the Model Law. On 20 May 2021, the Originating Summons was amended, to seek the setting aside of the Award on the additional ground that enforcement of the Award would be contrary to the public policy of Hong Kong.

3.It suffices to say that since the date of the Joint Venture Contract between HKK and X Co in October 2005 (“JV Contract”), the relationship between the former partners irretrievably broke down and has by now become extremely acrimonious. The joint venture became deadlocked, and in June 2010, X Co applied to the Mainland court for the judicial dissolution of the JV Company. HKK commenced an arbitration in Hong Kong in October 2012 (“2012 Arbitration”), claiming that X Co was in breach of the JV Contract by failing to supply steam to the JV Company for its business operation, and by commencing dissolution proceedings against the JV Company. An award was issued in the 2012 Arbitration in November 2015 (“2012 Award”), under which X Co was ordered to pay RMB 167 million to HKK as damages (which has remained unpaid).

4.In the interim of the 2012 Arbitration, the JV Company was dissolved by order of the Weifeng Intermediate Court made in July 2013, and a liquidation committee of the JV Company was formed in around August 2014 (“LC”). However, there were disputes as to the constitution and meetings of the LC, and in particular as to how the books, records and documents of the JV Company should be held, and there was not much progress in the liquidation. The Shouguang Court on the Mainland became involved as a result of unpaid social security contributions of the JV Company, and this eventually led to X Co applying to the Weifang Intermediate Court to seek the compulsory liquidation of the JV Company. Despite opposition from HKK, an order for compulsory liquidation was made by the Weifang Court on 19 June 2019, on the ground that the JV Company had deliberately delayed the liquidation, which might seriously damage the interests of creditors and shareholders. On 28 October 2019, a “compulsory liquidation group” of the JV Company (“CLG”) was appointed by the Shandong Shouguang Court (where the JV Company was located).

5.Much of the dispute which is the subject matter of the 2018 Arbitration, the Award and these proceedings relate to the dissolution and liquidation of the JV Company.

The claims and pleadings in the 2018 Arbitration

6.To understand the nature of the claims made in the 2018 Arbitration and the issues raised between the parties and referred to the tribunal in the 2018 Arbitration (“Tribunal”), and in order to determine whether the Tribunal had strayed beyond the scope of the reference, the pleadings served in the 2018 Arbitration have to be considered.

7.According to the Statement of Claim (“SOC”) served by X Co, its claims were made as shareholder of the JV Company, and it alleged that upon dissolution of the JV Company, it was entitled to take exclusive possession of the account books and documents of the JV Company (“JV Documents”), as it was obliged under PRC law, as the “former Chinese party” to the joint venture, to keep these JV Documents in its safe custody (paragraph 15 of the SOC). It further claimed (in paragraph 16 of the SOC) that its entitlement to take exclusive possession of the JV Documents was a form of property right, which entitles it to sue HKK for the delivery up of the JV Documents. X Co pleaded to and relied upon various provisions of Mainland law, including Article 96 of the Foreign EJV Regulations (“Regulations”), and Article 34 of the Property Law. It further relied on Article 4.3 of the JV Contract, the Contract Law and the General Provisions of the Civil Law of the PRC, to plead that the parties to the JV Contract were bound by and subject to obligations of good faith and fair dealing, and to comply with all applicable PRC laws and regulations, such that upon dissolution of the JV Company, HKK should hand over and deliver up all the JV Documents in its possession, custody or control to X Co.

8.X Co’s pleaded case in the SOC was that HKK had possession, custody or control over the JV Documents, but had deliberately withheld same from X Co, despite demands made by X Co and despite having been ordered by the Mainland authorities and the Shouguang Court to deliver up the JV Documents. It claimed (in paragraph 26 of the SOC) that by virtue of HKK’s refusal to hand over the JV Documents, HKK was in breach of the implied terms of the JV Contract to comply with applicable PRC Law and in breach of fundamental principles of PRC law, such that X Co was entitled to the delivery of the JV Documents by HKK.

9.By way of relief, X Co claimed (in paragraph 28 of the SOC) for an order for the immediate return and delivery up of the JV Documents by HKK to X Co, and an order for the immediate examination of the JV Documents by X Co.

10.In its Statement of Defence, HKK denied that X Co had any property right in, or right to possession, or any claim or right of recovery of the JV Documents against HKK. HKK referred to the fact that the JV Company was in the liquidation process, and that the LC had been formed. HKK claimed (in paragraph 13 of the Defence) that the JV Company still existed as a legal entity, and continued to exist in the course of liquidation and is terminated only upon the completion of liquidation and deregistration of the JV Company. At paragraph 14, it was claimed that the JV Company remained the owner of the JV Documents, and that during the liquidation process, the LC was the proper organ to have possession of the JV Documents and to be responsible for liquidation matters, relying on Articles 19.2 and 19.3 of the JV Contract, Articles 91 and 93 of the Regulations, the Company Law and the PRC Enterprises Bankruptcy Law. In particular, HKK claimed that Article 96 of the Regulations does not entitle X Co to take exclusive possession of the JV Documents, nor to sue for delivery up of the documents, prior to completion of the liquidation process and deregistration of the JV Company (paragraph 16 of the Defence). HKK pleaded (in paragraph 23 of the Defence) that the proper party to be sued in respect of any denial of X Co’s alleged right to review the JV Documents, was the JV Company and not HKK.

11.In the Defence, HKK denied that it was in possession or control of the JV Documents.

12.On its part, X Co denied the validity of the LC. In its Reply, X Co denied that the JV Company was in the liquidation process as described by HKK. X Co claimed in the Reply that no valid LC had been formed, and no voluntary liquidation had been validly commenced. It referred to its application to the Weifeng Court for compulsory liquidation, and claimed that the legal effect of a compulsory liquidation was that the voluntary liquidation was “immediately disbanded and replaced by a liquidation committee appointed by the Courts” (paragraph 26 of the Reply). It was X Co’s claim in the 2018 Arbitration that HKK had not been cooperative in the compulsory liquidation ordered by the Mainland Court.

13.As for the status of the JV Company, X Co claimed (in paragraph 29 of the Reply) that although the JV Company continued to exist after dissolution, and would only cease to exist upon the completion of its subsequent liquidation and deregistration, its existence was limited in terms of its operations. X Co’s pleaded case was that upon dissolution, and notwithstanding any liquidation, the JV Documents were required to be preserved by X Co under Article 96 of the Regulations. It continued to plead, in paragraph 29 of the Reply that:

“In any event, there is now a compulsory liquidation, such that (HKK) can no longer hide behind an alleged LC to deny (X Co’s) entitlement to the JV Documents.”

14.X Co further pleaded, at paragraph 46 (f) of the Reply, as follows:

“Further, as pleaded in paragraph 26 hereinabove, in any event, the LC of the voluntary liquidation (insofar as it ever validly existed, which is denied) had already been disbanded due to the onset of compulsory liquidation, such to be replaced by an LC appointed by the Courts. As such, even on the Respondent’s case, i.e. that the LC of the voluntary liquidation had possession of the JV Documents (which, for the avoidance of doubt, is strenuously denied), the LC of the voluntary liquidation no longer has the right to possession of the JV Documents and must be obliged to transfer the JV Documents to the party having entitlement to possession of the JV Documents:-

i. it was, is and continues to be the Claimant’s case that the party having entitlement to possession is the Claimant by virtue of Article 96;

ii. even on the Respondent’s case (which is again strenuously denied), the party having the entitlement to possession will be the LC of the compulsory liquidation.

Insofar as possession of the JV Documents is not passed to either the Claimant or the LC of the compulsory liquidation, the only inference available is that the whole premise (i.e., the Respondent’s case that the JV Documents are in the possession by the LC of the voluntary liquidation) is false; instead, the JV Documents had all along been in the possession of the Respondent.”

15.It can be seen from the above, that X Co maintained in its pleadings that itwas the party which was entitled to possession of the JV Documents, by virtue of Article 96 of the Regulations.

16.In response, a Rejoinder was served by HKK. This pleads, at paragraph 3, a denial that the LC of the voluntary liquidation would be immediately disbanded as a result of the compulsory liquidation ordered by the Court. HKK pleaded in the Rejoinder that the LC continued to exist, maintained its powers and “remained the proper organ to have possession of the JV Documents, unless and until such time as a liquidation committee has been appointed by the PRC Court”. HKK further pleaded that even if the LC was disbanded, X Co would have no right to claim the JV Documents.

17.HKK further maintained in the Rejoinder (at paragraph 4) that X Co had no basis to claim that it was entitled to possession of the JV Documents during liquidation.

18.Expert evidence on PRC law was served by both parties in the 2018 Arbitration. The expert evidence covered: the effect of Article 96 of the Regulations; the right or obligations of X Co, as the Chinese party to the joint venture, and its entitlement to possession and delivery up of the JV Documents under various provisions of the Mainland law as well as under the JV Contract; and the rights of the LC and of X Co, in the course of liquidation and after compulsory liquidation was ordered by the Mainland court.

19.Just before the hearing of the 2018 Arbitration, the Shouguang Court appointed the Compulsory Liquidation Group for the compulsory liquidation of the JV Company (ie the CLG). This was on 28 October 2019, and Yongtuo Accounting Firm (Special General Partnership) was appointed as the CLG, with one Qing Xuechang in charge.

20.After hearing the witnesses and the submissions made on behalf of the parties, over 4 days in December 2019, the Tribunal comprising a panel of 3 eminent and experienced arbitrators handed down a Partial Final Award on 19 May 2020.

The Partial Final Award

21.The Tribunal pointed out, at paragraph 68 of the Partial Final Award, that the issues in the 2018 Arbitration were narrow, consisting of the factual issue of whether the JV Documents were in the possession, custody or control of HKK; and if yes, the legal issue of whether HKK should be ordered to deliver up the JV Documents to X Co.

22.The Tribunal noted the emphasis made by X Co in Closing that it had the right to a proper liquidation of the JV Company under the terms of the JV Contract, and that each of the parties to the JV Contract had “a right to observance of the terms of the Agreement, the By-laws of the JV Company and the general law of the PRC as to the liquidation of the JV Company”. The Tribunal further noted the duty of the parties to the JV Contract to proceed with and properly complete the liquidation of the JV Company as envisaged in Article 19 of the JV Contract.

23.The Tribunal then considered the evidence adduced, on the question of whether HKK had possession, custody or control of the JV Documents. It found, at paragraph 96 of the Partial Final Award, that the JV Documents had been taken from the JV Company by Mr Y, on behalf of and for the purposes of HKK since 2013, and that the JV Documents had remained in his possession, custody or control on behalf of HKK. Mr Y was formerly a director of HKK, and at one stage the chairman and legal representative of the JV Company, until his resignation, and the chairman of the LC. The first factual question, of whether the JV Documents were in the possession, custody or control of HKK, was answered by the Tribunal in the affirmative. This is a finding of fact on the evidence adduced before and considered by the Tribunal, and cannot be challenged by HKK before this Court.

24.On the legal question of whether HKK should be ordered to deliver up the JV Documents to X Co, the Tribunal analyzed Article 96 of the Regulations and the other relevant provisions of Mainland law relied upon by the parties. It accepted that there is a process from dissolution to liquidation, that the JV Company continued to exist as a corporate entity in the course of its dissolution, and that the legal entity is terminated only upon completion of liquidation and deregistration.

25.The Tribunal referred to and analyzed the expert evidence adduced, and concluded that it was questionable whether X Co’s obligation under PRC law to preserve the JV Documents can turn into a right, let alone an exclusive right, to possession of the JV Documents. At paragraphs 114 to 117 of the Partial Final Award, the Tribunal observed:

“114. In these circumstances, it is questionable whether the Claimant’s obligation to preserve the JV Documents, turns into a right, let alone, an exclusive right to possession of the JV Documents. When a joint-venture company is dissolved, the liquidation process should begin with alacrity, as envisaged by the Company Law, EJV Regulations, Bylaws of the JV Co and the terms of the JV Agreement. The persons in charge of the liquidation process, in this case, the Compulsory Liquidation Group, should have possession of the JV Documents in order that the liquidation process may begin. As the Archival Law places a responsibility on all parties to preserve JV documents while in that party’s possession, that responsibility is placed on the Compulsory Liquidation Group. As has been accepted by Mr Liu and Mr Kang, the Claimant has a right to access of the JV Documents so that it may participate in the liquidation process, but this is far from having a right to possession of the documents.

115. In the view of the Tribunal, the process of liquidation must take precedence over the duty of preservation of the JV Documents placed on the Claimant as the ‘former Chinese Party’ under Article 96. Since the Compulsory Liquidation Group is bound by the Archival Law to preserve the documents, the Claimant’s duty to preserve the JV Documents is not adversely affected. As the Claimant is entitled to participate in the liquidation process, it may ask for a copy of the JV Documents and then observe whether the Liquidation Committee is keeping the JV Documents safe. In the course of the liquidation, the Claimant, if it is in any doubt over the safety of the JV Documents, may ask for inspection of the JV Documents. If the Claimant is denied either a copy or an opportunity for inspection, it may apply to Court for appropriate orders. According to the People’s Supreme Court Symposium Minutes, the court having jurisdiction over the liquidation retains powers to facilitate and/or supervise the liquidation.

116. At the end of the liquidation process, the Claimant would have a right to seek the transfer of the JV Documents to it, for the purpose of preservation. However, during the liquidation process, the Compulsory Liquidation Group clearly has the better right to the possession of the JV Documents. This does not, however, preclude the Claimant from seeking a copy of the JV Documents from the Compulsory Liquidation Group nor is the Claimant precluded from seeking appropriate orders from the Court supervising the liquidation if it has reason to believe that the JV Documents are not being properly preserved.

117. Thus, in light of the foregoing discussion, the Tribunal is unable to agree with Leading Counsel for the Claimant, that the Claimant has a right to possession of the JV Documents by virtue of Article 96.” (Emphasis added)

26.The Tribunal then proceeded to analyze X Co’s claim of a proprietary right, and also ruled against X Co on the issue, finding instead that it was the JV Company which retained the proprietary right to the JV Documents, and that the parties to the JV Contract, and both the CLG and X Co, merely have duties relating to those documents. The Tribunal concluded that contractually, the JV Contract only imposed obligations on the parties to cooperate in the liquidation of the JV Company, and to abide by Mainland laws in relation to their responsibilities to the JV Company, but these contractual obligations do not by themselves give any right to X Co to call for delivery of the JV Documents to it.

27.In the circumstances, the Tribunal found that X Co did not have any right to call for delivery of the JV Documents to itself, as claimed in the 2018 Arbitration.

28.According to HKK, that should have been the end of the matter, and the Tribunal should simply have dismissed X Co’s claims, with costs to HKK as the successful party.

29.Instead, the Tribunal pointed out, at paragraphs 122 and 123 of the Partial Final Award, that as it had found that the JV Documents were in the possession, custody or control of HKK, and that as a party to the JV Contract, HKK had a duty to ensure that the terms of the JV Contract in relation to liquidation are complied with, and that it must cooperate with X Co to facilitate the liquidation, the Tribunal considered that there was scope to invite submissions from the parties, as to what, if any, orders the Tribunal should make in relation to the disposal of the JV Documents. The Tribunal then invited the parties to exchange first submissions within 21 days, and to exchange reply submissions within 14 days thereafter, on the proper orders the Tribunal should make in relation to the JV Documents, and on the proper costs order to be made in the arbitration.

30.In its submissions served in accordance with the Tribunal’s directions, X Co claimed that HKK should be ordered to deliver the JV Documents to X Co, for X Co to make copies before delivery up to the CLG, and alternatively that HKK should deliver the JV Documents to the CLG directly.

31.On its part, HKK’s submission to the Tribunal was that the Tribunal had no jurisdiction to make any further orders, other than to dismiss X Co’s claim for relief made in the 2018 Arbitration, with costs. HKK pointed out that the CLG was not in existence at the commencement of 2018 Arbitration, and that X Co had never in the 2018 Arbitration sought any relief that the JV Documents should be delivered to the CLG. HKK submitted that the Tribunal only had jurisdiction to decide those matters referred to in the Notice of Arbitration.

32.In relation to the Tribunal’s references in the Partial Final Award to X Co’s “right to a proper liquidation”, and HKK’s duty to ensure that the terms of the JV Contract in relation to liquidation are complied with, HKK highlighted in its submissions that the way in which the JV Company should be “properly liquidated” had never been in issue in the 2018 Arbitration, and therefore, had not been fully argued by the parties. It submitted that if this were the question in issue in the 2018 Arbitration, evidence would have been called as to the conduct of the parties, and expert evidence on PRC law would have been adduced as to the actions required to facilitate the proper liquidation of the JV Company, and further, that HKK could have counterclaimed against X Co in respect of what HKK claimed to be X Co’s obstruction to the LC.

33.In its reply submissions, X Co pointed out that the material facts: of HKK being in possession of the JV Documents; of X Co’s contractual claim and right under the JV Contract to enforce the parties’ obligations to comply with PRC law and to seek delivery up of the JV Documents; and of the onset of compulsory liquidation; have all been sufficiently pleaded in the 2018 Arbitration, and the Tribunal should decide on the parties’ right to relief on the basis of the facts found. X Co highlighted the fact that on the pleadings, the expert evidence and the submissions made, X Co’s claim for delivery of the JV Documents to the CLG raised no new point of which HKK was not aware.

The Award

34.In the Tribunal’s Final Award handed down on 5 August 2020, the Tribunal pointed out that the question of whether HKK had possession, custody or control of the JV Documents had been at the core of the 2018 Arbitration, and was not a new question. The “new question” of what orders were appropriate as a result of the findings made as to HKK being in possession, custody or control of the JV Documents, and the JV Documents being necessary for the liquidation process, was a question of PRC law. It concluded that the question of the remedies which are available to X Co concerned a matter as to the rights and obligations of the parties under the JV Contract, and was within the jurisdiction of the Tribunal. The Tribunal considered that even if a remedy was not asked for by a party, it was its duty to act in accordance with the remit given to it by the parties’ arbitration agreement, and having given equal treatment to the parties by giving them the opportunity to make further submissions on the appropriate orders to be made, the Tribunal was satisfied that X Co was entitled to the remedy of procuring the delivery up of the JV Documents to the CLG, which it ordered.

Whether the orders for delivery of documents to the CLG and consequential costs were outside the scope of the submission

35.In essence, HKK’s complaint is that there was never a pleaded case, nor any dispute submitted to the Tribunal in the 2018 Arbitration, that HKK was in breach of an obligation to assist in the liquidation of the JV Company pursuant to the JV Contract, or that the JV Documents should be delivered up to the CLG, or any party other than the Claimant, X Co. Despite the fact that the CLG was appointed just before the commencement of the hearing of the 2018 Arbitration, X Co did not take any steps to amend its pleadings or its claim for delivery up of the JV Documents to it. The final order made by the Tribunal was, on HKK’s case, inconsistent with X Co’s pleaded case and with the relief sought by X Co, and outside the reference and submission to the Tribunal.

36.There is no doubt that, on review of the pleadings in the 2018 Arbitration, any claim of delivery of the JV Documents to the CLG was inconsistent with X Co’s own pleaded case, that it was the party entitled to exclusive possession of the JV Documents and the party to which HKK should be ordered to deliver up the JV documents, notwithstanding and irrespective of the voluntary liquidation (which it claimed had never been validly commenced) and the order for compulsory liquidation.

37.It is trite that the pleadings, and not the evidence, dictate the proper course of the proceedings and the ambit of the orders to be made.

38.The pleading in paragraph 46 (f) of the Reply, on which X Co relies, sets out what X Co claims to be HKK’s case (which was denied by X Co), that “the party having the entitlement to possession (of the JV Documents) would be the LC of the compulsory liquidation”. This was in reply to paragraph 27 of HKK’s Defence in which HKK denied that it had possession of the JV Documents, and which contained HKK’s plea that it was the LC rather than HKK which was then in control of the JV Documents.

39.Paragraph 3 of HKK’s Rejoinder dealt with paragraph 26 of the Reply and X Co’s pleading as to the dissolution of the JV Company, and X Co’s application for compulsory liquidation. HKK’s pleading was that the LC of the voluntary liquidation “remained the proper organ to have possession of the JV Documents, unless and until such time as a liquidation committee of the compulsory liquidation has been appointed by the PRC Court”, but that even if the LC was disbanded, X Co had no right to claim the JV Documents.

40.On a strict reading of the pleadings, HKK did not plead further as to the right of the CLG after it was appointed, and whether the JV Documents should properly be delivered to the CLG as the party entitled to possession, or when and how this should be done. X Co may have referred to or pleaded HKK’s case on the party entitled to possession of the relevant documents (paragraph 46 (f) of the Reply), but as it was made clear that it was not X Co’s case and that such case was denied, CLG’s entitlement to the JV Documents was not the case which HKK was called upon by the pleadings to meet, or refute, by evidence.

41.With the greatest respect to the Tribunal, the fact that an issue or a matter (in this case the question of the parties’ contractual obligations and rights to a proper liquidation of the JV Company) may be within the wide scope of the arbitration agreement does not necessarily mean that the issue or matter is within the scope of the actual reference of the particular dispute to the tribunal in the particular arbitration. As HKK argued, the issue of the parties’ breach of their respective duties under the JV Contract to facilitate or complete the proper liquidation was not pleaded, nor did the Tribunal have complete evidence on this matter. Although the Tribunal pointed out in the Award that the voluntary liquidation had not proceeded since December 2014, and that there had been delay, it also pointed out, at paragraph 13 of the Award, that it had no information as to what contact had been made between the CLG, which was appointed just before the hearing of the Tribunal, and the parties to the JV Contract. It also accepted, at paragraph 27 of the Award, that the Tribunal had not been concerned with the liquidation process, only with the delivery of the critical JV Documents. It observed that communications with the CLG were not relevant, unless HKK could inform the Tribunal that the JV Documents had been delivered to the CLG, and this had not been done. The focus of the parties and of the Tribunal was on whether X Co had the right to possession, and whether HKK’s failure to deliver the JV Documents (which the Tribunal had found to be in HKK’s possession custody and control) as demanded by X Co constituted a breach of HKK’s duties under the JV Contract and under PRC law, in particular a breach of Article 96 of the Regulations which X Co claimed conferred a right on X Co.

42.The Tribunal did not accept that it was precluded from awarding a proper remedy to a party, even though such a remedy was not asked for. It considered that so long as there was equal treatment of the parties, and that each party was afforded a reasonable opportunity to present its case on the new remedy sought by X Co, it was entitled and had the jurisdiction, indeed the duty, to resolve the dispute between the parties, and to award the proper remedy to X Co. The Tribunal was no doubt acting with the intention to assist the parties. However, again with the greatest respect to the Tribunal, the question of whether each of the parties was given a fair and reasonable opportunity to present its case is separate to the question of whether the Tribunal has jurisdiction, by consensus of the parties, to act and to decide on the dispute referred to it under the arbitration agreement contained in the JV Contract. In this case, the consensus between the parties, and HKK’s agreement, was to refer to the Tribunal the dispute relating to X Co’s claim for possession and delivery to it of the JV Documents in the course of the dissolution of the JV Company, and not the dispute over X Co’s claim of its right or entitlement to the “proper liquidation of the JV Company” (referred to at paragraph 75 of the Partial Final Award). Nor was it the consensus of the parties to refer to the Tribunal the dispute as to HKK’s alleged breach of its obligation under the JV Contract to complete the due liquidation of the JV Company upon the compulsory liquidation ordered by the Weifeng Court - what such obligation consisted of, how it was breached, and whether it was HKK’s duty to deliver the JV Documents to the CLG which was only formed in October 2019. The claim made, and the remedies sought by X Co, was X Co’s entitlement and right to the JV Documents as the former Chinese party to the joint venture, and for delivery to it as such of the JV Documents. There was no claim for specific performance generally of the JV Contract, and no remedy sought for HKK’s breach of its duty to properly complete the liquidation.

43.The Tribunal referred to the HKIAC Rules, which required the Tribunal to adopt such procedures as would avoid unnecessary delay or expense, provided such procedures ensure equal treatment of the parties and afford the parties a reasonable opportunity to present their case. These rules deal with the procedure of the arbitration, not with the jurisdiction of the Tribunal.

44.On behalf of X Co, it was argued that as held in S Co v B Co [2014] 6 HKC 421, strict rules of pleadings and procedures are not insisted upon for arbitration proceedings, and narrow and technical construction of the claims made in the pleadings filed in an arbitration should be discouraged, in order to give effect to the intention of the parties to use arbitration as the more informal manner of dispute resolution. When formal and litigation style of pleadings are used by the parties in fact and practice, and submissions are made in the arbitration on the basis of such formal pleadings, it may be artificial to draw a real distinction between arbitration and court litigation. In any event, however informal the procedure, surprise should be avoided, and to ensure that principles of fairness are adhered to in the arbitration, material facts and adequate particulars of the allegations relied upon must be clearly set out in a party’s documents served to formulate the claims which are referred to the tribunal.

45.As the Court of Appeal held in Choi Yuk Ying v Ng Kwok Chuen [2019] HKCA 171, albeit in the context of pleadings filed in Court, “trial by ambush” has no place in modern litigation, and this includes “advancing new legal consequences” in opening submissions, which is unfair to the other side. I agree that the touchstone is fairness. Bearing in mind the requirement that there should be due process and fairness to both parties in arbitrations, I cannot agree that it is fair, when a party in an arbitration is ambushed as a result of the Tribunal permitting the other party to advance new legal consequences not identified in the pleadings served for the arbitration. Parties to an arbitration should know in advance, before the hearing of the arbitration, and in as full an extent as possible, the pertinent claims and remedies sought by the other side, to enable them to consider all possible defences, and to decide on the full extent of the evidence to be adduced, rather than to have new issues raised with the witnesses only when they are called. This in fact should reduce the time spent on the hearing itself, saving the costs of the legal representatives and of the members of the Tribunal sitting in the hearing. The observations made by the Court on the need for “unambiguous pleadings”, at paragraph 62.3 of the judgment in Choi Yuk Ying v Ng Kwok Chuen, apply to arbitrations as well.

46.I do not accept the submissions that because the material facts of X Co’s possession of the JV Documents, and of the liquidation of the JV Company, are pleaded in the SOC and the Reply, there is sufficient basis for a claim that as a consequence, X Co has a claim or right to call for HKK’s performance of its duty to deliver the JV Documents to the CLG, a separate entity to X Co. I agree that it was only when the Tribunal called for further submissions after the Partial Final Award that X Co put forward its claim for delivery of the JV Documents to the CLG. Before that, on its own pleaded case and evidence, X Co had maintained throughout the 2018 Arbitration that it was the only party entitled to make the claim for possession and for delivery up of the JV Documents. In fact, it never had any capacity or standing to make the claim for or on behalf of the CLG. On its part, HKK was entitled to prepare its defence and evidence to answer the claim of X Co only – and not what X Co stated to be HHK’s case, or the case of CLG.

47.By virtue of the prime importance of fairness in the arbitral process, the real question in the particular circumstances of this case is whether, despite the inadequacies of the pleadings and in view of the evidence which had been served before the commencement of the hearing of the 2018 Arbitration, HKK had been surprised by the claim that the JV Documents should be ordered to be delivered to CLG, pursuant to its duty to properly complete the liquidation of the JV Company. This was in fact X Co’s submission as to the proper scope of the pleading rule, namely, protection of parties against being taken by surprise (Lo Yuk Sui v Fubon Bank (Hong Kong) Limited (2020) 23 HKCFAR 138).

48.The Tribunal had noted, and X Co in these proceedings has highlighted the fact, that the expert of HKK had in his evidence accepted that the JV Documents should be produced to the LC. At paragraph 31 of the expert report of Mr Kang dated 12 September 2019, he dealt with the question under the heading “Whether the JV Documents shall be kept by the Liquidation Committee or the former Chinese party in the course of liquidation”. The expert considered that under Article 96 of the Regulations, X Co as the former Chinese party was only entitled to the JV Documents after the JV Company had completely ceased to exist upon termination of the liquidation process and its deregistration. In the opinion of Mr Kang, it was more appropriate and in the interests of the JV Company for the JV Documents to be kept by the LC. Mr Kang noted however that although the compulsory liquidation had been ordered by the Mainland Court, a new liquidation committee had not yet been appointed for the compulsory liquidation. He concluded thus at paragraph 31:

“Therefore, before the new Liquidation Committee has been designated by the court, it is more appropriate for the JV Documents to be possessed by the Liquidation Committee of the voluntary liquidation to be maintained in safe custody.”

49.On the information known to the parties and the experts before the commencement of the hearing of the 2018 Arbitration, no distinction had been made by either expert between the LC of the voluntary liquidation, and the CLG in the compulsory liquidation, in terms of its duties and powers. They only expressed their different opinions on whether the LC in the voluntary liquidation was properly established, and whether it continued to exist after the compulsory liquidation had been ordered. Nor was there any evidence on what constituted the proper liquidation of the JV Company, and whether there was breach of the duties of either X Co or HKK to complete the proper liquidation, in particular after the CLG had been formed in October 2019, just 2 months before the hearing of the 2018 Arbitration. The remedy granted by the Tribunal was recognized by the Tribunal to have been one which had not been asked for, but which the Tribunal considered to be no more than to give effect to X Co’s right to seek performance of the JV Contract under PRC law. It was premised on the Tribunal’s conclusion that X Co had the right to a proper liquidation and that the parties had responsibilities to pursue a proper liquidation of the JV Company, but there was no evidence as to what such proper liquidation entailed, particularly with the formation of the CLG which was a recent event. HKK had only been made aware of the request made by the CLG for documents just before the hearing. As the Tribunal itself pointed out (at paragraph 27 of the Award), it had not been concerned with the liquidation process in the 2018 Arbitration, only with the delivery of the JV Documents to enable it to properly proceed. The Tribunal in fact had no role to play in the supervision of the liquidation process of the JV Company, which task could only and would be amply carried out by the Mainland Court.

50.Having given careful consideration to the complaints made by HKK, I accept its submissions that in the particular circumstances of this case, the order for delivery of the JV Documents to the CLG, which the Tribunal referred to as giving effect to CLG’s “right to seek performance of the (JV Contract)”, could not have been reasonably anticipated from the state of the pleadings and the evidence served before the commencement of the 2018 Arbitration, and was outside the scope of the submission by HKK to the arbitration. A party cannot in its pleading simply recite all the rights and duties contained in an agreement, and pick and choose, or ask the tribunal to pick and choose, at the end of the hearing, which rights to enforce and to issue an award on that basis.

51.On behalf of X Co, Counsel argued that if HKK had considered that it was necessary to file further evidence on the new claim for delivery of the JV Documents to CLG, instead of to X Co, it should have applied to the Tribunal for the opportunity to do so, should have clearly identified the type of evidence required and, if it was in need of further time, to apply for an extension of time to prepare and serve such evidence. X Co pointed out that in its second round of submissions to the Tribunal, HKK only claimed that if the Tribunal should consider making any further order, HKK should be given an opportunity to adduce further evidence, but failed to particularize the precise evidence it required, referring instead to such general evidence as the correspondence between the parties and the CLG, a list of the documents that had been sent by the parties to the CLG, and a decision on the Red Notice issued by Interpol which was no longer effective against Mr Y. Without having been informed of the relevance of and reasons for calling the additional evidence, the Tribunal rejected HKK’s claim of the need for further evidence, and X Co argued that HKK only had itself to blame for having failed to identify and justify the precise evidence it required.

52.I agree with X Co that a tribunal’s determination, on whether to accept further evidence from a party, is a case management decision, and that there is no basis or ground for the court to interfere. Yet, in my judgment, the question of whether HKK had the reasonable opportunity to call further evidence and present its case, on the further orders to be made by the Tribunal after the Partial Final Award, is separate from the question of whether the Tribunal had the jurisdiction to make the further orders, after it had rejected X Co’s case of its alleged right to seek delivery of the JV Documents from HKK. Even if a party had been given the full opportunity in the course of an arbitration to present its case, the consequent award may still be found to have been entirely outside the scope of the reference to the arbitration, and may be liable to be set aside.

53.To conclude, my judgment is that the order made by the Tribunal for HKK’s delivery of the JV Documents to the CLG was outside the scope of the parties’ submission to the 2018 Arbitration, and it must be set aside together with the orders on costs flowing from that further order.

Whether it would be contrary to public policy to enforce the Award

54.This ground was included by HKK by amendment to the Originating Summons after the first hearing, to embrace further arguments which HKK had attempted to raise to support its application to set aside the Award. As amended, HKK’s claim is that enforcement of the Award would be contrary to the public policy of Hong Kong, in that the Tribunal should not have ordered delivery of the JV Documents to the CLG, without receiving further evidence on and considering the appointment and composition of the CLG, the correspondence between the parties and the CLG, what documents had been provided by the parties to the CLG, Interpol’s decision to delete the Red Notice which had been issued against Mr Y (“Interpol Decision”), and Mr Y’s reasons for refusing to share the JV Documents.

55.To understand HKK’s case as a whole, its complaint is that the Tribunal had acted beyond the scope of the parties’ submission, by making the order for delivery of documents to CLG when this was not X Co’s claim in the 2018 Arbitration, and had done so without giving HKK the proper and necessary opportunity to present its case on the new remedy sought, by adducing the evidence which is relevant to the new claim and remedy. It is not a mere complaint against a case management decision of the Tribunal in rejecting HKK’s application to adduce further evidence. HKK’s claim is that considering these matters together, enforcement of the Award would be repugnant to recognized and basic notions of justice, or there is substantial injustice arising out of the Award which is shocking to the Court’s conscience (A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389).

56.Any alleged error of the tribunal which is complained of must be serious or egregious (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1 (CA)), to the extent of undermining due process, and must be material, in the sense that the irregularity or breach of due process (in this case, the decision of the Tribunal not to permit the further evidence sought by HKK to be adduced on the new claim or remedy sought) could have affected the outcome of the 2018 Arbitration (Po Fat Construction Co Ltd v IO of Kin Sang Estate HCCT 15/2013, 6 November 2013, Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd [2011] 1 HKLRD 707)).

57.On the issue of whether HKK had been afforded a reasonable opportunity to present its case, X Co highlighted the fact that the hearing of the Arbitration itself took place over 4 days in December 2019, and when the Tribunal gave the parties the opportunity to file first submissions within 21 days of the Partial Final Award of 19 May 2020, and reply submissions within 14 days thereafter, on the question of whether and what orders the Tribunal should make as a result of its findings made in the Partial Final Award, HKK had already been given the reasonable opportunity to present its case. According to X Co, if HKK failed to use such opportunity to present and make submissions on such further evidence as it considered necessary, then it only had itself to blame.

58.In its reply submissions to the Tribunal dated 23 June 2020, HKK only referred to the fact that it wished to adduce further evidence in the form of the correspondence between the parties and the CLG, a list of the documents that had been sent to the CLG, and the Interpol Decision.

59.The Interpol Decision was dated February 2020, and it set out what the Commission for the Control of Interpol’s Files (“Commission”) considered to be the non-compliance or irregularity of the Red Notice issued by Interpol at the request of the Mainland, on the basis of an arrest warrant issued by the Public Security Bureau of Shouguang City, Shandong Province, and published on 15 May 2018 against Mr Y (“Red Notice”). Mr Y had applied to the Commission for the deletion of the Red Notice and the data concerning him, in the context of the claim made, that he had refused to hand over accounting documents of the JV Company without justified reason, despite the demands of the Shouguang Court and as a result of proceedings relating to the social security fee due and unpaid by the JV Company on the Mainland.

60.The Interpol Decision referred to the fact that there was ongoing civil litigation between the parties as to the ownership of the accounting books of the JV Company, that Mr Y’s failure to deliver same was claimed to have caused loss to X Co, and that the Red Notice had been used by X Co in its arbitration proceedings. The Commission pointed out that the Red Notice had been issued as a result of representations made by X Co, that an arrest warrant had been issued against Mr Y in criminal proceedings in the PRC, for suspicion of committing the crime of concealing. The Commission stated in the Decision that Mr Y had not been provided access to the Red Notice, whereas X Co had been “manifestly granted a direct access from an unknown source”, raising concerns that the Red Notice of Interpol had been used for an improper purpose as part of national proceedings, “in addition to its being manifestly linked to a private matter”.

61.The Commission considered that the matters investigated by it pointed to the fact that “the Red Notice was issued amidst an ongoing civil litigation as part of private dispute concerning the property ownership of the accounting books and primarily refers to a civil breach of conduct”. It concluded that due to the primarily commercial character of the case, originating from a private dispute, the Red Notice did not in fact comply with Article 83 (1) a) i) of the Rules on the Processing of Data under which the Red Notice was purportedly issued, and should be deleted.

62.In support of the public policy ground, HKK sought to refer to the Interpol Decision, as showing that there were “unexplained and improper ties between X Co and the PRC authorities”, and that there had been misuse of the Red Notice by X Co which, it argued, were matters relevant to the question of whether the JV Documents should be ordered to be delivered up to the CLG, which HKK claims to have close ties with X Co as well.

63.I do not consider that the Interpol Decision can be considered as sufficient evidence which can show that the CLG appointed by the Mainland Court for the JV Company had a close relationship or improper ties with X Co, to render it inappropriate for the Tribunal to order that the JV Documents should be delivered up by HKK to the CLG. Any improper use of the Red Notice was at most, by X Co, and not by CLG. In any event, the Interpol Decision was already issued in February 2020, and if it was material evidence relevant to the question of whether the Tribunal should order the delivery of the JV Documents to the CLG, then HKK should have made submissions on that in its first and second round of the submissions in June 2020, and it did not do so.

64.Mr Y’s letter, which HKK also seeks to rely upon, set out the reasons why he could not deliver the JV Documents, including his claim that CLG was “a puppet of X Co” and effectively controlled by X Co, that X Co had a long track record of colluding with the local government, the Mainland court and the police, and using criminal proceedings to benefit its own business interests, and that X Co had been trying to obtain the JV Documents in order to manufacture false evidence to use against Mr Y and the staff of the JV Company, and to overturn the 2012 Award in the 2012 Arbitration. According to Mr Y, to deliver the JV Documents to the CLG would put himself and former employees of the JV Company at risk and in personal danger, as it is claimed that the CLG would pass on the documents to X Co without any query.

65.Mr Y’s letter was not available to HKK until after 18 January 2021, when HKK had written to Mr Y again, after the Award, to ask for his delivery up of the JV Documents. HKK had pointed out that at the time when the Partial Final Award was handed down in May 2020, it only had limited instructions in June 2020 as to the composition of the CLG on its appointment in October 2019, and HKK did not have details on the lack of impartiality of the CLG as pointed out in the letter from Mr Y. Part of HKK’s difficulty was the lack of time to consider, prepare and produce evidence which would be relevant to X Co’s unpleaded claim of HKK’s alleged breach and failure to complete the due liquidation of the JV Company, and to X Co’s new claim for delivery of the JV Documents to CLG.

66.I am not satisfied that the evidence contained in Mr Y’s letter would be sufficient to establish HKK’s claim of CLG’s lack of independence or impartiality, which are matters to be brought before the Mainland court in the liquidation proceedings, for its consideration and determination as to whether the party appointed as the CLG was suitable, and acting adequately and properly to protect the interests of the JV Company and/or the general body of creditors. However, if Mr Y’s reasons as set out in his letter had been put before the Tribunal, it might have led to a decision by the Tribunal that further orders relating to the “due or proper” liquidation of the JV Company should be fully and properly ventilated before, and dealt with by, the Mainland Court rather than the Tribunal.

67.In any event, the real substance of HKK’s claim on the public policy ground is that it had not been given the reasonable opportunity to present its case and to file further evidence, as a result of the Tribunal acting beyond the scope of the parties’ reference to the 2018 Arbitration, by deciding to consider X Co’s claim for delivery up of the JV Documents to the CLG, and by ordering HKK to deliver the documents to CLG in performance of its obligation to complete the proper liquidation of the JV Company. I have found that the Tribunal’s order was outside the scope of the reference, and that in my judgment is sufficient to set aside the Award.

Disposition

68.This is an unusual case on its facts, but after careful consideration of the submissions made by the parties, I set aside the Award and the orders made therein. X Co’s application to enforce the Award is dismissed.

69.The costs order nisi is that X Co is to pay to HKK the costs of and incidental to the application to set aside made by the Amended Originating Summons, with Certificate for 2 Counsel.

Mr Laurence Li SC and Mr CHOW Ho Kiu, instructed by CL Chow & Macksion Chan, for the applicant

Mr Victor Joffe QC and Mr Alexander Tang, instructed by King & Wood Mallesons, for the respondent