Aab v. Bba and Another

HCCT 63/2023

[2024] HKCFI 699

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 63 OF 2023

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J U D G M E N T

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I.  INTRODUCTION

1.Article 31 of the UNCITRAL Model Law (as enacted in Hong Kong by section 61 of the Arbitration Ordinance (Cap 609)) provides that an award “shall state the reasons upon which it is based”. The Applicant (AAB) contends that the Tribunal’s Second Partial Final Award in the Arbitration lacked reasoning and should therefore be set aside. AAB also submits that the Second Partial Final Award should be set aside because (1) the Tribunal did not observe due process in the way that it conducted the Arbitration, and (2) the Tribunal failed to deal with an issue which, if considered, would have led to the Second Partial Final Award being in AAB’s favour.

II.  BACKGROUND

2.The Arbitration, which remains ongoing, is between the 1^st Respondent (BBA) and the 2^nd Respondent (BBC) as Claimants and AAB and a joint venture company (the JV) as Respondents. AAB and BBA respectively hold majority and minority percentages of the JV’s shares. BBC is within the same group of companies as BBA. The Arbitration concerns disputes between the JV’s shareholders arising from the exploration of a mining concession in country X. By a Sale and Purchase Agreement (SPA), BBC transferred a majority percentage of the JV’s shares to AAB for a specified consideration. The relationship among AAB, BBA, BBC, and the JV is governed by a Shareholders Agreement (SHA) which was executed three months after the SPA. In this Judgment, I shall refer collectively to BBA and BBC as the “Claimants” and to AAB and the JV as the “Respondents”.

3.The Arbitration has in effect been bifurcated into quantum and liability phases. The substantive hearing on liability took place in May 2022. In February 2023, the Tribunal issued a First Partial Final Award dealing with a share transfer claim by the Claimants against AAB. The First Partial Final Award held in the Claimants’ favour. In April 2023, AAB applied to the court to set aside the First Partial Final Award on procedural grounds, including an overly compressed timetable, inadequate reasoning, and a failure to deal with all issues. Mimmie Chan J dismissed AAB’s application in August 2023. Reasons for the dismissal were handed down by Mimmie Chan J on 27 February 2024.

4.By the SPA, AAB was to make a performance-related payment to BBC, based on the JV’s net present value. It was to be paid after AAB implemented “extensive exploration” of the mining concession and assessed the potential of the same. In June 2023, the Tribunal issued a Second Partial Final Award. That concerned the Claimants’ contention that AAB breached its obligations under the SPA and SHA by not implementing an “extensive exploration” of the concession in accordance with “good industry practice”. The Second Partial Final Award found that AAB had breached its contractual obligation of extensive exploration.

5.The Tribunal has reserved the determination of quantum until later.

III.  DISCUSSION

6.AAB advances a litany of complaints as to why the Second Partial Final Award should be set aside. As already noted, the complaints fall into three broad categories: (1) a lack of reasoning; (2) a lack of due process; and (3) a failure to address an issue.

A.  Setting aside ground 1: Lack of reasoning

A.1  Principles

7.The principles of what constitutes a reasoned award are well-known. So long as the reasoning in an award allows the parties to understand why a conclusion was reached, the reasons stated do not have to be detailed. There is no need to give reasons dealing with every argument raised by the parties. It is enough for an award to identify the basis on which the arbitrators’ material findings were reached. In assessing whether a tribunal has produced a reasoned (as opposed to an unreasoned) award, the court must read the award in its context. In contrast to a court judgment, an award is not a public document, but is instead meant to be confidential. It is solely intended for the parties to the arbitration. They can be presumed to be familiar with the relevant background and how issues were argued before the tribunal. An award should thus be read in a reasonable and commercial way in that context. It should not be read with a carping eye, seeking out omissions, inconsistencies, and other faults.

8.A failure to give reasons should be distinguished from a failure to give adequate reasons. The former is, but the latter is not, a ground for challenge. See Z v R [2021] HKCFI 2312 (Mimmie Chan J):

“20. As the Plaintiff also accepts, the fact that the arbitrator had not given adequate reasons for his award, or sufficiently clarified that an issue fell away because of the findings which had been made, is not tantamount to the arbitrator having failed to deal with an issue....

21. Needless to say, as it is trite, the issue before this Court is not whether the tribunal came to the right conclusion. Whether the tribunal is right on its findings of facts and law, whether its decision is supported by evidence, whether the tribunal gave sufficient reasons for the findings, and the quality of the reasoning, are not matters for consideration. As the Hong Kong Court repeatedly emphasized, an application made under section 81 of the Arbitration Ordinance is not an appeal on the merits or on law. The court is not concerned with the substantive correctness of an award, but only with the structural integrity of the arbitral process and it is only when there is a serious or egregious denial of due process that the court can interfere....”

9.Mr Bernard Man SC (appearing for AAB) agreed that the distinction drawn by Mimmie Chan J in Z v R accurately reflected the law.

10.Mr Man, however, referred me to Ngâti Hurungaterangi, Ngâti Taeotu me Ngâti Te Kahu o Ngâti Whakaue v Ngâti Wahiao [2017] NZCA 429. That case involved a dispute among hapū (clans) over the mana whenua (roughly equivalent to beneficial ownership) of Maori ancestral land. Pending resolution of the clans’ dispute, the land was held under a trust deed. The dispute remaining unresolved, an arbitral panel was convened under the trust deed to determine which hapū was entitled to ownership. The tribunal delivered an interim determination which was eventually adopted as a final award. But the award only had five paragraphs which “might arguably be said to provide reasons for its decision” and which in any event had been characterised in the award as its conclusion.

11.The New Zealand Court of Appeal observed (at Ngâti [62]) that what constituted a reasoned award in an arbitration depends on context. The circumstances of Ngâti were that the arbitral panel had specially been “formed to eliminate by its final determination, grievances of great historical and spiritual significance to the parties”. Those centuries’ old grievances “could only be laid finally to rest by an adequately reasoned award”. It followed that “the parties’ dispute falls at the upper end of the spectrum of subject-matter importance referred for arbitration”. In that unique context, the court did not think that the arbitral panel had discharged its mandate to produce a reasoned award.

12.Mr Man stressed the following passage (at Ngâti [61]):

“Within the arbitral framework for determining competing rights and obligations, the reasons explain how the adjudicator progressed from a particular state of affairs to a particular result. The reasons are the articulation of the logical process employed by a person whose particular skills, expertise or qualification the parties have chosen to decide their dispute. The reasons expose to the parties the disciplined thought pattern of the specialist adjudicator, thereby dispelling any suggestion of arbitrariness. A requirement to give reasons concentrates the mind; if it is fulfilled, the resulting decision is much more likely to be soundly based on the evidence than if it is not.”

13.I accept the New Zealand Court of Appeal’s general explanation of why it is beneficial for awards to be reasoned, rather than not. The requirement of a reasoned award keeps arbitrators from being arbitrary in how they decide a dispute, that is, tribunals reaching conclusions based on mere whim, instinct, or vague feeling. But the context of Ngâti is significantly different from the context here of an international arbitration among commercial parties. I am therefore unable to derive much help from Ngâti in deciding the present circumstances.

14.Mr Man also relied on Flannery and another v Halifax Estate Agencies Ltd [2000] 1 WLR 377. There, the only part of a judgment that could conceivably constitute reasons for the first instance judge’s decision was a cryptic statement that, having seen and heard the witnesses give evidence and the way in which the witnesses reacted to questions asked of them, the judge formed the view that the defendant’s expert evidence was to be preferred over that of the plaintiff. The judge dismissed the plaintiff’s claim based on this unparticularised statement. The Court of Appeal held that the judge’s bare assertion that he preferred one expert over the other, without identifying in any way what it was that he saw or heard that led to his conviction, could not possibly qualify as reasoning. The judgment was thus unreasoned. I will assume (without necessarily accepting) that Flannery applies equally to judgments and awards. Even then Flannery is of little guidance. The Tribunal did not simply say in the Second Final Partial Award that it preferred one expert over another and decide the extensive exploration claim on that basis without more. As will be seen, the Tribunal gave reasons for its preference of one expert over another and also delved into specific factual evidence. In my view, Flannery was an outlier which is nowhere near the present situation.

15.Mr Man alluded in passing to the Singapore case of BZW v BZV [2022] SGCA 1, as an instance where the court closely examined a tribunal’s reasoning. But I do not find BZW to be of much assistance either. There, the tribunal’s reasoning on rating and delay claims was so incoherent, as not to constitute any reasons at all. BZW is miles away from what we have here.

A.2  The award’s reasoning

16.The Tribunal began its analysis of the extensive exploration claim by stating that it preferred the Claimants’ expert evidence to that of the Respondent. By way of justifying this preference, the Tribunal explained that it had been “impressed” by the Claimants’ experts, both of whom “demonstrated a strong understanding of the subject-matter and materials, were articulate and concise, and prepared to make reasonable concessions when necessary”. Additionally, one of the Claimants’ experts had “years of relevant experience” in the continent in which X is situated. In contrast, AAB’s expert “at times asserted conclusions without supporting reasoning and was often reticent during cross-examination”.

17.On AAB’s duty to implement extensive exploration, the Tribunal held that, in its natural and ordinary meaning, the word “implementing” meant that AAB had to prepare an extensive exploration plan in accordance with good industry practice. It had to cause the JV to execute such plan over the whole concession for the purposes of obtaining more and better information about the entire concession and pinpointing promising new mining areas therein. Since the parties to the SPA and SHA were from different countries, the expression “good industry practice” clearly referred to international standards, not just to domestic standards in AAB’s home country.

18.Given its understanding of “extensive exploration,” the Tribunal was of the view that AAB had not produced sufficiently extensive exploration plans in accordance with good industry practice. The plans which the Respondents came up with were instead mere “ad hoc programmes” for mining and drilling known mineral locations. Further, despite verification of information being fundamental to good industry practice, the plans were based on unvalidated datasets.

19.The Tribunal rejected the contention that the Respondents had provided a budget that could support extensive exploration. The Respondents’ budget was a mere fraction of the budget that a 2010 Report prepared by an AAB-related company (the 2010 Report) had projected would be needed for extensive exploration. Additionally, much of the JV’s work consisted of infill drilling, that is, drilling in known deposit areas. That could not qualify as “exploration”. The Tribunal found that, in an area of the concession, little new exploration work had in fact been done, with soil surveys suffering from a large margin of error.

A.3  AAB’s complaints

20.AAB’s complaints may be summarised as follows:

(1)  The Discussion section of the Second Partial Final Award wherein the Tribunal set out its reasons, was too brief.

(2)  The Tribunal asserted that it preferred the Claimants’ expert evidence to that of AAB without explaining why.

(3)  The Tribunal did not deal with AAB’s argument that the geology of the concession area “exhibited very limited mineralisation potential”. Thus, according to AAB, although work was done over a wide area, such work could not progress to later stages of exploration, given existing geological constraints and a lack of prospecting evidence.

(4)  The Tribunal did not say anything in response to AAB’s submission that an area may be "extensively'' explored, albeit reaching a negative "investment decision" based on "reconnaissance and prospecting" without drilling. The Tribunal simply proceeded on the misconception that drilling was needed to define the extent of mineral deposit in a locality.

(5)  The Tribunal did not address AAB’s argument that gaps in stream samples reflected locations where sediment samples could not be taken. This might have been because there was no stream, or because a locality was a floodplain, a dry plateau, or a built-up area.

(6)  The JV had done considerable work to evaluate available historical datasets in respect of the concession. None of that work or its significance was discussed by the Tribunal.

(7)  The Tribunal merely paraphrased the Claimants’ complaints on the JV’s work practices (use of handheld devices, inadequate quality control and quality assurance procedures, lack of validation or verification), without considering the Respondents’ countervailing evidence and submissions.

(8)  The Tribunal found that licences to part of the concession had been forfeited to X’s government due to insufficient exploration by the Respondents and the failure to provide a feasibility study. This finding ignored the Respondents’ case that the relevant licenses could not be extended upon expiry and the forfeited area had no exploration value.

(9)  The Tribunal held that exploration ended at the EX-5 stage of the NRCAN model. But it failed to apply that conclusion to the facts. For instance, the Tribunal concluded that infill drilling fell outside the EX-5 stage, but it did not identify what specific work constituted "infill drilling".

(10)  The Tribunal asserted that the Respondents’ Long-Term Plan (LTP) had not focused on extensive exploration, as opposed to on-site-mine and near-mine confirmation. It held that the LTP should instead have considered exploring all potential areas, including greenfield sites, rather than merely ranking sites which had already been found to have mining potential. But the Tribunal did not deal with the Respondents’ evidence and submissions to the contrary.

(11)  The Tribunal referred to the 2010 Report as indicative of the requisite exploration activity, without consideration of the Respondents’ contrary arguments.

(12)  The Tribunal did not consider the Respondents' submission that the JV’s 24% expenditure on greenfield sites was in line with the approach recommended by previous consultants.

(13)  The Tribunal held that any plan for extensive exploration would require a sufficiently detailed budget or schedule. It claimed that the Respondents’ witness Y had agreed in cross-examination that no budget had been allocated to exploration. But, in so concluding, it took Y’s evidence out of context. Neither did it consider the Respondents’ countervailing submissions and evidence on the matter.

(14)  The Tribunal did not deal with the Respondents’ contention that the JV had generated new targets.

21.None of AAB’s complaints is tenable.

22.Complaint (1) makes a vice out of the virtue of succinctness. It cannot be a ground of criticism that a tribunal has been terse and to the point in its reasoning.

23.Complaint (2) is unwarranted. As is apparent from [16] above, the Tribunal explained why it believed the Claimants’ experts to be more credible and reliable than AAB’s expert. As a result, whenever there was a clash between the Claimants’ and AAB’s experts, the Tribunal preferred the views of the former. I see nothing to fault the Tribunal for proceeding in the manner that it did. AAB is really complaining that the Tribunal failed to grapple with every point raised by its expert. However, in expressing a preference in matters of disagreement among the experts, the Tribunal was impliedly adopting the reasons of the Claimants’ experts for rejecting the views espoused by AAB’s expert.

24.Complaint (3) re-argues the merits of AAB’s case in the Arbitration. The Tribunal held that “extensive exploration” involved widespread, systematic, and detailed exploratory work had to be conducted over the entire concession. By implication, this meant that it was not enough for AAB to dismiss large swathes of the concession as unpromising on account only of geological features and a lack of prospecting evidence.

25.Complaints (4), (5), (6), (7), (11) and (13) likewise re-argue the merits of AAB’s case. Given the Tribunal’s view as to what “extensive exploration” entailed, it followed that AAB’s work fell woefully short when measured against that standard. In particular, AAB did not: (a) cause enough drilling to be undertaken, (b) cause enough work to be done to eliminate gaps in stream sample information, (c) do enough to verify the reliability of historical datasets, (d) use accurate equipment or put in place rigorous procedures to validate information and results, (e) perform many of the activities that the 2010 Report suggested (and which the Tribunal thought) extensive exploration required, and (f) allocate enough budget in comparison to what the 2010 Report projected was needed. By implication, the Tribunal rejected the AAB’s case that: (i) “reconnaissance and prospecting” leading to a negative investment decision could constitute sufficient exploration; (ii) there were insurmountable constraints to the compilation of comprehensive stream sediment samples; (iii) it was enough to base exploratory work on historical datasets without further verification or validation; (iv) the Respondents’ equipment and procedures were adequate for the work that had to be carried out; and (v) enough funds had been budgeted for extensive exploration. In the Tribunal’s view, none of the reasons given by the Respondents for only carrying out the more limited exploration which they did, excused the Respondents’ failure to meet the “extensive exploration” standard which the Tribunal held that the Respondents were contractually bound to deliver.

26.Complaint (8) is unjustified. The Tribunal discussed the forfeited portion of the concession as follows:

“[BBC] submits that [AAB] has failed to conduct and/or procure [the JV] to conduct any meaningful exploration works in the [Concession]. While [the JV] conducted limited exploration works in 2015, [BBC] understands that no further exploration works have been conducted in the [Concession] since 2015. As a result, despite the [JV] Group possessing the right to explore [a large Concession], an area well known for its mining potential, such potential has not been realised. Moreover, a significant area of the [Concession] was forfeited because of [AAB’s] failure to implement proper exploration (let alone extensive exploration). [BBC] submits that the [X] Government has discretion pursuant to [statutory law] to renew licenses subject to a reduction of the concession area, and licenses can only be renewed a finite number of times. The [X Government] needs licensees to show commitment to exploration and palpable development in the areas under license. A failure to invest in exploration makes those licensees vulnerable to reduction and non-renewal.”

It is evident from the passage that the Tribunal was aware of (but did not accept) AAB’s argument that the licence for the relevant portion of the concession was non-renewable. The Tribunal rejected the same based on the Claimants’ submissions which it identified. It is also plain that the Tribunal disagreed with AAB’s argument that the forfeited concession area could be written off as having no exploration value.

27.Complaints (9) and (10) are similarly unjustified. The Tribunal set out what it understood by “infilling” in paragraphs 101 to 103 of the Second Partial Final Award. For this, it expressly adopted the evidence of the Claimants’ expert. The Tribunal concluded as it did on the LTP, by reference (among others) to the evidence of the Respondents’ factual witnesses (Y and T). Comparing the LTP against what the Tribunal held to be the contractually agreed standard of “extensive exploration,” the Tribunal reasoned:

“A proper exploration plan would provide for the definition, budgeting, and eventual execution of a series of exploration activities aimed at producing economic mineralization. The LTP contained no allocation of resources or budgets to any target or workstream.”

On Y’s evidence as understood by the Tribunal, the LTP did not attempt to discover new potential targets. The Tribunal was thus “satisfied that the LTP did not meet [AAB’s] obligation to implement an extensive exploration”.

28.Complaints (12) and (14) are attempts to re-argue matters decided by the Tribunal. AAB is in effect saying that the Tribunal failed to consider certain evidence when concluding that there was a lack of exploration of greenfield sites and potential new targets by AAB.

29.At the end of the day, what AAB is essentially protesting about is not that the Second Partial Final Award is unreasoned. AAB is really contending that the Second Partial Final Award only dealt superficially with AAB’s case. AAB is saying that, because the Second Partial Final Award did not specifically comment on numerous points raised by AAB, the Second Partial Final Award must be set aside as “arbitrary”.

30.But a tribunal is not bound to deal with every argument raised by a party. The authorities carefully distinguish between (1) wholly unreasoned awards and (2) awards with skeletal reasons. The case law only characterises the former type of award as “arbitrary” and thus capable of being set aside. The possibility in arbitration of the latter type of award reflects the range and diversity of arbitrators in the market. There are arbitrators who believe that they are duty-bound to dispose of every argument raised by the parties. There are also arbitrators who take the view that they should be robust and deal only with the gist of a losing party’s key arguments on an issue. Parties are free to choose whom to appoint as arbitrators to resolve their dispute. If the tribunal that results from the parties’ choices later produces a broad-brush award or an award that overlooks a meritorious argument that the losing party advanced, that outcome alone will not justify intervention by the court. If the court becomes embroiled in determining whether a tribunal’s reasons are superficial or insufficient, the court will be impermissibly reviewing the rights and wrongs of the award.

A.4  Conclusion on setting-aside ground 1

31.There is no lack of reasoning in the Second Partial Final Award. Setting-aside ground 1 fails.

B.  Setting-aside ground 2: Lack of due process

B.1  Principles

32.The principles on what constitutes a lack of due process giving rise to the setting aside of an award are familiar.

33.AO section 46(2)(b) requires a tribunal to give the parties a “reasonable opportunity” to present their case and deal with their opponent’s case. Section 46(2)(b) thus modifies Model Law Article 18 which provides that a tribunal must give a party a “full opportunity” of presenting its case. In practice, though, a “full opportunity” means nothing more or less than that a party should have a “reasonable opportunity” to present its case. See China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another [2020] 1 SLR 695, at [103]-[104].

34.Whether a party has been afforded a reasonable opportunity to present its case or deal with an opponent’s case, is fact sensitive. It is not enough to advance general allegations of what a party could have done if it had been given a chance by a tribunal. A party must instead show that the tribunal made an egregious error in the conduct of the arbitration which unfairly prevented the party from putting forward important evidence or mounting a material argument. Even then, the court will not lightly interfere with or second-guess a tribunal’s case management decisions. This is because the tribunal will usually be better placed than the court to balance the competing considerations and trade-offs of efficiency and fairness underlying procedural decisions.

35.A party cannot keep potential procedural challenges up its sleeve, continuing to participate in an arbitration, and only deploying a procedural objection if the award turns out adverse to its interest. The failure to make a timely objection or application to the tribunal about an alleged procedural irregularity is usually fatal to a contention of a lack of due process. A party which has not objected promptly will be deemed to have waived its procedural complaint. See, for instance, AO section 11 (enacting Model Law Article 4).

B.2  AAB’s complaints

36.AAB’s complaints may be summarised as follows:

(1)  The procedural timetable was too compressed. The Tribunal finalised the procedural timetable on 28 June 2021, fixing the substantive hearing for 16 to 27 May 2022. The 11-month period between June 2021 and May 2022 did not allow the Respondents a reasonable opportunity in which to prepare their case.

(2)  The Tribunal allowed a belated “volte-face” in the Claimants’ expert evidence. Right up to the substantive hearing, the Claimants’ experts apparently accepted that “detailed exploration” (which the parties accepted was equivalent to “extensive exploration”) encompassed activities EX-1 to EX-5 and DA-1 and DA-3 of the NRCAN model. At the substantive hearing, the Claimants’ experts suddenly said that they had been mistaken and activities DA-1 to DA-3 were merely “deposit appraisal” and not “exploration” steps. This dramatic turnaround took the Respondents by surprise, as this was a new case from that which they had come prepared to meet. In accepting the Claimants’ new expert evidence, the Tribunal did not afford the Respondents time to counter the same with rebuttal evidence. The Respondents had to scramble to deal with the “volte-face” as best as they could in their post-hearing brief.

(3)  The Tribunal allowed the “volte-face,” despite the “opacity” of the Claimants’ pleadings, which gave no inkling that the Claimants would be contending that “extensive exploration” excluded “deposit appraisal”.

37.AAB’s complaints are groundless.

38.At the start of the hearing before me, I drew the parties’ attention to Mimmie Chan J’s judgment dismissing AAB’s application to set aside the First Partial Final Award. The judgment stated (at [69]):

“As the [Respondents] pointed out, despite the complaints made by [AAB] in the course of the Arbitration, [AAB] was able to comply with all the procedural deadlines and it never sought to apply for an adjournment of the evidentiary hearing, if it was true that it was indeed unable to present its case by reason of the alleged ambushes and unfair timetables. Both sides had a large and sophisticated team of lawyers working on disclosure, evidence preparation and submissions, and the case took 1.5 years to come to the evidential hearing. As rightly pointed out by Counsel for the [Respondents], there are no unusual features for an international arbitration of this scale, and there is nothing to which I have been referred which can constitute serious and egregious errors.”

39.The passage from the judgment was referring to the procedural steps leading to the same evidentiary hearing that is the subject of these setting aside proceedings. In my view, the judgment gives rise to an issue estoppel against AAB in respect of its complaint of an overly compressed timetable.

40.I agree in any event with Mimmie Chan J that the fact that the Respondents never applied for an adjournment of the evidentiary hearing, is fatal to their complaint that the procedural timetable was too compressed. The Respondents are not entitled to keep their grumblings about timetabling to themselves, only raising the same before the court, because the Second Partial Final Award has gone against them. The Respondents must instead be regarded as having waived their objection that the procedural timetable was overly compressed.

41.As for the alleged “volte-face” in expert evidence, the Respondents likewise never sought an adjournment or more time from the Tribunal to adduce evidence in rebuttal. They opted instead to proceed with post-hearing briefs. They argued in their closing brief that the “volte-face” showed that the Claimants’ expert evidence was not credible. They suggested that the Claimants’ expert evidence on “detailed exploration” should therefore be rejected. It seems to me that AAB’s failure to seek an adjournment or ask more time from the Tribunal, to deal with the apparent about-face, is fatal to their complaint of procedural unfairness.

42.There are other difficulties with AAB’s “volte-face” argument.

43.I reject the Respondent’s proposition that the Claimants’ case (namely, that “detailed” or “extensive” exploration did not include “deposit appraisal”) was never foreshadowed in the Claimants’ pleadings. See, for instance, Statement of Claim paragraphs 72-74, 80, 82-89, especially 83.3 and 85.1. Far from being opaque, the Statement of Claim made it plain in those paragraphs that mere “reserve confirmation” (that is, deposit appraisal) “cannot be considered to be ‘exploration’”. Mr Man argued that, because the paragraphs of the Statement of Claim also referred to the Claimants relying on expert evidence to buttress their case, the Respondents could ignore what was pleaded in the Statement of Claim and rely solely on the Claimant’s position as found in their expert reports. That argument puts the cart before the horse. It is the parties’ pleadings that define the disputed issues in an arbitration. Factual or expert evidence adduced by a party may turn out not to support its pleaded positions. If the evidence adduced is wanting for some reason, that does not mean that the party’s pleading can be dismissed as “opaque” at best or irrelevant at worst.

44.The purpose of an evidentiary hearing is to test the parties’ factual and expert evidence through cross-examination. It can hardly be surprising, if at times evidence does not come up to proof, and there are turnarounds in what a witness says during an oral hearing. Experts must be full and frank before a tribunal. If they change their mind on an issue while being examined, they are duty-bound to inform the tribunal of their change of heart. Experts cannot be blamed for changing their mind and saying so frankly. Sometimes, changes in a witness’ factual or expert oral evidence, may be so unexpected that a party asks (1) for time to deal with the turn in events or (2) for the new evidence to be struck out as coming far too late. Neither sort of application was made to the Tribunal here. In those circumstances, that there was a “volte-face” in the expert evidence cannot by itself be a ground for criticising the Tribunal as having conducted the proceedings unfairly.

B.3  Conclusion on setting-aside ground 2

45.There was no lack of due process. The Respondents were afforded a reasonable opportunity to present their position and to deal with the Claimants’ case. Setting-aside ground 2 fails.

C.  Setting-aside ground 3: Failure to deal with an issue

C.1  Further background

46.The Tribunal began the Second Partial Final Award by identifying three issues for determination. The first two issues were decided by the Tribunal. They were the proper interpretation of AAB’s obligations to plan, prepare, and implement an extensive exploration (Issue 1), and whether AAB breached that obligation (Issue 2). Issue 3 was:

(1)  Did [BBC’s] nominated directors approve any or all of the exploration plans and/or budgets produced by [the JV]?

(2)  If so, are the Claimants estopped from alleging breaches of [AAB’s] obligations in relation to exploration?

47.In the Arbitration, the Respondents’ case on Issue 3 was that, by approving “any or all of the exploration plans and/or budgets produced by [the JV],” the Claimants represented to the Respondents that the Claimants were content with the exploration that the Respondents were conducting. It follows (the Respondents say) that it was unconscionable for the Claimants to resile from their representation. Regardless of what the contractual expression “extensive exploration” means, the Claimants are estopped by their approvals from maintaining that the Respondents must compensate the Claimants for the failure to carry out extensive exploration. According to the Respondents, their estoppel argument is a complete answer to the Claimants’ extensive exploration claim.

48.In their post-hearing brief, the Claimants summarised their position on Issue 3 thus:

(a)  The answer to [third issue] (1) is that “yes” the directors of [BBC] did approve some of the exploration plans/budgets of [the JV] but did so without knowledge of the LTP.

(b)  The answer to [third issue] (2) is “no” [BBC] is not estopped because all the requirements of an estoppel are not established as set out above.

49.The difficulty arises in these setting aside proceedings because, having taken pains to identify Issue 3 at the outset of the Second Final Partial Award, the Tribunal never explicitly answered Issue 3. I therefore have to decide whether the Tribunal’s omission is a basis for:

(1)  remitting the award to the Tribunal to deal with Issue 3,

(2)  setting aside the award at this point, or

(3)  doing nothing, because the Tribunal can be treated as having implicitly determined Issue 3 by the reasoning in the Second Partial Final Award.

I have the power to remit the award back to the Tribunal (option (1) above) under Model Law Article 34(4) (as enacted by AO section 81). That provides that the court:

“when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.”

50.The Claimants’ primary case is that I should adopt option (3). AAB argues for option (2). As an alternative to option (3), the Claimants invite me to choose option (1), stay these proceedings for three months, and remit the matter to the Tribunal. Through remittal, the Tribunal (the Claimants submit) can take such action as the Tribunal considers will eliminate the failure to address Issue 3 as a ground for setting aside the Second Partial Final Award.

C.2  Principles

51.The operative principles may not be so well-known. They were, however, recently summarised by Mimmie Chan J in AI v LG II [2023] 4 HKC 135, at [22].

52.The court must be satisfied that an issue put to the tribunal was not dealt with expressly, or in composition with other issues, and that such failure has caused substantial injustice. The tribunal does not have to set out each step by which it reaches its conclusion. The fact that the tribunal has not given adequate reasons for its award, or sufficiently clarified that an issue fell away because of the findings which have been made, is not equivalent to the arbitrator having failed to deal with an issue. If the tribunal has dealt with the issue in any way, it does not matter whether it has dealt with it well, badly, or indifferently.

53.A tribunal is not required to deal with each issue one after the other. It can deal with several issues in a composite disposal. A tribunal does not fail to deal with an issue if it does not answer every question that qualifies as an issue. A tribunal may deal with an issue by deciding a logically anterior point such that the issue ultimately does not arise. The tribunal does not have to deal with every argument which the parties have canvassed under each essential issue.

54.An inference that a tribunal has failed to consider an important issue will not be drawn:

(1)  if such inference is clear and virtually inescapable, or

(2)  if the facts are also consistent with the arbitrator:

(a)  simply having misunderstood the aggrieved party’s case,

(b)  having been mistaken as to the law, or

(c)  having chosen not to deal with a point because it mistakenly thought it was unnecessary.

Parties’ submissions do not dictate how the tribunal is to structure the disposal of an issue referred to it. The tribunal is not bound to structure its reasons in accordance with the submissions or the agreed list of issues.

C.3  Evaluating the available options

55.Mr Charles Manzoni SC (appearing for the Claimants) submits that the Tribunal did not deal with Issue 3, because the Tribunal implicitly answered Issue 3 by the reasoning in the Second Partial Final Award. Mr Manzoni points out that the Tribunal found that the annual plans sent for the Claimants’ approval had “nothing to do with extensive exploration”. Similarly, the Tribunal (Mr Manzoni emphasises) held that no adequate budget had been allocated for exploration. It logically follows from the foregoing conclusions (Mr Manzoni argues) that no amount of approval of plans or budgets by the Claimants could amount to a representation that the Claimants were content with the exploratory work being carried out by the Respondents.

56.I am unable to agree.

57.In general terms, an estoppel arises when three conditions are met. First, a party A has represented to a party B that A will not enforce its strict legal rights against B. Second, B has acted on A’s representation and materially changed its position because of reliance on A’s representation. Third, given B’s change of position, it would be unconscionable for A to resile from its representation without A at least giving B reasonable notice of A’s intention to enforce its strict legal rights in the future. What is reasonable notice will depend upon the facts of a case.

58.AAB’s estoppel argument (as Mr Man observes) is only pertinent if it is presupposed that (1) AAB breached its strict contractual obligation of “extensive exploration” and (2) any plans and budgets submitted by AAB to the Claimants were too minor to constitute or support “extensive exploration”. Mr Manzoni’s submission consequently adds nothing to what must logically be the starting point from which AAB’s estoppel defence has to be assessed.

59.The real question is whether the Claimants behaved in such a way that, despite the actual magnitude of AAB’s contractual obligation of “extensive exploration,” AAB was led by the Claimants into believing that:

(1)  the Claimants were satisfied with the lesser amount of exploratory work that the Respondents were carrying out; and

(2)  the Claimants would not insist on the Respondents carrying out the full extent of exploratory work that the Claimants were contractually obliged to perform.

Nowhere in the Second Partial Final Award does the Tribunal grapple with such matters or make any findings on the same one way or the other. I am thus unable to infer anything from the holdings in Second Partial Award, as to whether AAB was led by the Claimants’ approval of plans and budgets into a reasonable belief that the Claimants were happy with what the Respondents were doing. Much less is there anything (assuming there to have been a representation) about whether and how AAB changed its position on the strength of the representation and whether and why it would be unconscionable for the Claimants to resile from the representation.

60.In short, I reject option (3). Issue 3 was not dealt with by the Tribunal expressly or impliedly.

61.Mr Man contends that, Issue 3 not having been dealt with by the Tribunal, the Second Partial Final Award should now be set aside in its entirety as unreasoned on an important issue. He agrees that issue 3 should not be remitted to the Tribunal to take such action as may be warranted.

62.I agree with Mr Man that issue 3 is important. It must be important, since the Tribunal flagged it as such at the outset of the Second Partial Final Award. I am prepared to accept that, depending on how Issue 3 is answered, the Respondents may have an answer to all, part, or none of the extensive exploration claim.

63.But setting aside the Second Partial Final Award at this stage strikes me as extreme. It is far from obvious that the AAB will prevail on Issue 3. AAB may fail on the question. Mr Man further justifies setting aside by asserting that the Respondents have “lost trust in the Tribunal”. From AAB’s affirmation evidence, the reasons for the alleged loss of trust are precisely the complaints canvassed in sections III.A and B above. However, since I have found that there is no substance in those complaints, there is nothing to suggest that the Tribunal is unfit to continue with the Arbitration.

64.Mr Man also referred me to BZW (at [67]):

“(a) In deciding whether to remit, the court has to consider whether ‘there is a real risk, judged objectively, that even a competent and respectable arbitral tribunal, whose acts or omissions have been held to amount to serious irregularity causing substantial injustice may subconsciously be tempted to achieve the same result as before’ ...

(b) The test is whether a reasonable person would no longer have confidence in the Tribunal’s ability to come to a fair and balanced conclusion on the issues if remitted ...”

But there is no basis for suggesting subconscious bias on the Tribunal’s part. Apart from the omission to deal with the third issue, no serious irregularity has been found in the Second Partial Final Award.

65.Further, the Second Partial Final Award’s disposition declares:

“(a) [AAB] breached its obligation under ... the SPA and ... the SHA to prepare and implement an extensive exploration plan in accordance with good industry practice.

(b) [AAB] is liable to [BBA] for any damage caused by such breach.

(c) The quantification of damages and all other issues of and relating to quantum are reserved for the hearing on quantum.”

Nothing in the disposition precludes the Tribunal on a remittal from finding either that:

(1)  there is no estoppel so that the disposition holds or

(2)  there is as an estoppel such that, despite AAB’s breach of its extensive exploration obligation and its liability to BBA for the same as a matter of strict contract law, BBA is estopped from enforcing its strict legal rights against AAB and claiming any or any significant damages.

Contrary to Mr Man’s suggestion, there is nothing in the Second Partial Final Award that constrains or pre-ordains how the Tribunal might resolve Issue 3.

66.It follows that option (2) should be rejected as disproportionate and premature.

67.That leaves option (1), that is, remitting the Second Partial Final Award back to the Tribunal to take such action as may be appropriate to eliminate setting aside due to the failure to deal with Issue 3. That seems to be the most practical step to take.

68.I will therefore stay these setting aside proceedings for three months. I will remit the matter to the Tribunal to take such action, within that three-month window, as the Tribunal considers appropriate to obviate the setting aside of the Second Partial Final Award due to the failure to deal with Issue 3.

IV.  CONCLUSION

69.There will be an Order that:

(1)  these setting aside proceedings be stayed for three months,

(2)  the Second Partial Final Award be remitted to the Tribunal to take such action, within that three-month period, as in the Tribunal’s opinion will obviate the setting aside of the Second Partial Final Award for failure to deal with an issue, and

(3)  upon expiry of the three-month stay, any party will be at liberty to restore these proceedings for further directions by the court.

70.Given the stay of these proceedings, the most appropriate costs order for now may be to reserve costs, pending a final determination of these proceedings. There will be an Order Nisi to that effect.

Mr Bernard Man SC leading Ms Natalie So, instructed by Herbert Smith Freehills, for the Applicant

Mr Charles Manzoni SC leading Mr Peter de Verneuil Smith KC and Mr Danny Tang, instructed by Gibson, Dunn & Crutcher, for the 1^st and 2^nd Respondents