A v. R1 and Another

HCCT 20/2023

[2024] HKCFI 1511

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 20 OF 2023

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DECISION

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1.Introduction

1.1By an order dated 20 March 2023 (“Enforcement Order”), the Applicant (“A”) obtained leave to enforce against the 1^st and 2^nd Respondents (“Rs”) 2 arbitral awards respectively dated 7 January 2019 (“1^st Award”) and 11 August 2021 (“2^nd Award”) in arbitral proceedings administered by the Shenzhen Court of International Arbitration (“SCIA”).

1.2Within the time limit stipulated in the Enforcement Order (it having been served on 27 March 2024), the 2^nd Respondent (“R2”) on 11 April 2023 applied for an extension of time to set aside the Enforcement Order (“EOT Summons”). Subsequently, on 23 August 2023, R2 issued its application to set aside the Enforcement Order (“Section 95 Summons”) pursuant to various subsections of section 95 of the Arbitration Ordinance Cap 609 (“AO”). The EOT Summons and Section 95 Summons were ordered to be heard together.

1.3This is my decision on the above two summonses. At the hearing, I was helpfully assisted by Mr Douglas Lam SC (leading Ms Tinny Chan) representing R2 and Ms Sabrina Ho with Mr Arthur Poon representing A.

2.Background

2.1The relevant background matters are taken from Ms Ho’s summary. I do not understand Mr Lam to have disputed its accuracy.

(i)  The commercial background

2.2On 1 April 2010, A and XXXXXXXXXXX (“SZ Company”) as one party (“Party B”) and Rs as the other party (“Party A”) entered into an agreement (“Cooperation Agreement”) whereby Party A agreed to sell (1) their shares in XXXXXXXXXXXXXXand (2) land development rights in a specific plot of land (A510-0119) (“Land”) to Party B at a consideration of RMB234,048,000. XXXXXX(“Mr Gao”) was stated as the legal representative of Rs and a XXXXX(“Ms Cao”) signed the Cooperation Agreement on behalf of Rs. In so far as relevant, the Cooperation Agreement provided as follows:

(1)  Clause 1(2) provided that within 1 working day after the signing of the agreement, Party B should pay Party A 50% of the total consideration, namely the sum of RMB117,024,000 (“Deposit”);

(2)  Clause 6(1) provided that in so far as either Party A or Party B failed to fulfill their obligations under the agreement, the party in breach should pay liquidated damage in the sum of 10% of the total consideration (“Liquidated Damage”);

(3)  Clause 9 provided that the Cooperation Agreement was a supplemental agreement to the Share Transfer Agreement (as defined below), and the terms of the Cooperation Agreement would prevail if there was any inconsistency with the terms of the Share Transfer Agreement:

“ 本合作協議書經甲乙雙方簽署、蓋章後生效。本合作協議書為《股權轉讓協議書》的補充部分。 《股權轉讓協議書》與本合作協議書條款不一致，以本合作協議書為準。”

2.3An undated agreement (“Share Transfer Agreement”) was entered into between A, SZ Company, and Rs. Similarly, Mr Gao was stated as the legal representative of Rs and Ms Cao signed the agreement on behalf of Rs. The terms of the Share Transfer Agreement differed materially from those of the Cooperation Agreement, including but not limited to (1) the rights over the Land did not form part of the transaction under the Share Transfer Agreement, (2) the consideration to be paid by the Applicant and XXXXXXXXXXX was different, (3) the obligations to be assumed by the parties in carrying out the agreement were different, and (4) the rate of liquidated damage payable by the parties in so far as there was any breach was different.

2.4On 1 April 2010, Ms Cao (on behalf of Rs) issued a payment instruction to A and SZ Company, requesting them to make payment of the Deposit. There is no dispute that the sum of RMB117,024,000 was paid and received by R1.

2.5On 15 December 2010, R1 and A entered into a settlement agreement as reflected in a set of meeting minutes (“Meeting Minutes”). The Meeting Minutes provided that: (1) R1 and A agreed to discharge their obligations under the Cooperation Agreement, (2) R1 agreed to repay the Deposit to the Applicant and (3) if the parties were able to agree on a repayment schedule, and if the schedule complied by R1, A agreed not to make a claim for Liquidated Damage.

2.6By way of a letter dated 14 January 2011 bearing the company chops of both R1 and A, the parties agreed inter alia that R1 would complete the refund of the Deposit by 31 March 2011 (“Refund Proposal”).

2.7R1 did not comply fully with the terms of the Refund Proposal, with a sum of RMB59,854,000 still outstanding when arbitral proceedings were initiated in October 2011 (“Outstanding Sum”).

(ii)  The Awards

2.8By a Notice of Arbitration dated 9 October 2011, A commenced proceedings against Rs (“1^st Arbitration”) for payment of the Outstanding Sum and Liquidated Damage.

2.9The hearing was conducted on 17 January 2012. Rs were represented by a Ms XXX(an employee of the 1^st Respondent), and a Mr XXX (the legal representative of R2, being a solicitor of XXXXXXXX).

2.10The Arbitral Tribunal issued the 1^st Award on 7 January 2019 and found in favour of A. R1 was held liable to repay the Outstanding Sum and Liquidated Damage in the sum of RMB11,702,400, together with various interest and costs incurred, in the total sum of RMB74,642,860.16. R2 was held jointly and severally liable for the foregoing sums. Whether R2 should be liable under the Cooperation Agreement and/or the Meeting Minutes had been specifically considered by the Arbitral Tribunal. The Arbitral Tribunal set out its reasons as to why, on a proper interpretation of the Cooperation Agreement, R2 ought to be held jointly and severally liable.

2.11It is of note that the interest awarded under the 1^st Award was only for the period between 31 March 2011 (ie the deadline under the Refund Proposal) and 9 October 2011 (ie the date of the Notice of Arbitration commencing the 1^st Arbitration).

2.12By way of another Notice of Arbitration dated 31 March 2020, A initiated further proceedings against Rs (“2^nd Arbitration”) claiming for interest on the Outstanding Sum awarded under the 1^st Award since 9 October 2011 (ie the date of the Notice of Arbitration in the 1^st Arbitration) to 31 March 2020 (ie the date of the Notice of Arbitration in the 2^nd Arbitration) quantified at upwards of RMB77 million.

2.13The hearing was conducted on 29 April 2021 before a differently-constituted tribunal. Rs were again represented by legal representatives from XXXXXXXX.

2.14The Arbitral Tribunal issued the 2^nd Award on 11 August 2021. R1 was liable to pay interest in relation to the Outstanding Sum until 20 August 2019, together with costs and expenses incurred in the arbitration. R2 was also held jointly and severally liable for the foregoing sums.

(iii)  Matters transpiring post Awards

2.15After the issuance of the Awards, no attempt was made by R2 to set them aside in the Mainland. Enforcement actions were taken by A in the Mainland against Rs, which attempts were unsuccessful as Rs did not have assets in the Mainland. The Mainland enforcement proceedings were concluded (終結) in June 2023.

2.16Prior to the conclusion of the Mainland enforcement proceedings, on 14 March 2023, A issued its ex parte application in the present proceedings which led to the granting of the Enforcement Order.

3.Overview of R2’s case

3.1As set out in the Section 95 Summons, R2’s application is premised on the following grounds:

(1)  In respect of the 1^st Award, the arbitral procedure leading up to the 1^st Award was not in accordance with the agreement of the parties, contrary to section 95(2)(e)(i) of the AO (“Defective Procedure Ground”);

(2)  In respect of the 1^st Award and/or the 2^nd Award, R2 was unable to present its case, contrary to section 95(2)(c)(ii) of the AO (“Due Process Ground”);

(3)  Enforcement of the 1^st Award and/or the 2^nd Award is contrary to public policy, contrary to section 95(3)(b) of the AO (“Public Policy Ground”).

3.2Underpinning the grounds advanced by R2 are the following undisputed matters:

(1)  The 1^st Arbitration was governed by the 2011 SCIA Rules. Under Article 102 of the 2011 SCIA Rules[1], the Arbitral Tribunal, in the case before it, was required to deliver the award within 5 months from the date on which the Arbitral Tribunal was constituted;

(2)  The Arbitral Tribunal was constituted on 8 December 2011 and the hearing was conducted on 17 January 2012. Rather than delivering the award on or before 8 May 2012, the 1^st Award was only issued on 7 January 2019, over 7 years since the Arbitral Tribunal was constituted. The 1^st Award was delivered to P and R2 respectively on 2 and 4 July 2019 only after, as set out below, P settled the arbitration fees;

(3)  In the 1^st Award[2], the Arbitral Tribunal’s explanation for the timing of the award was stated to be “因 [A] 自身原因，本案未能及時審結，經仲裁委員會主任批准，本案期限延長至2019年1月8日 ”[3] (“Approval”);

(4)  On P’s evidence, the Approval was obtained pursuant to Article 61 of the 2011 SCIA Rules, which provides, inter alia, as follows:

“ 第六十一條 [審理期限] … 因特殊情況需延長審理期限的，由仲裁庭報經仲裁委員會主任批准，可以適當延長 …” (emphasis added)

(5)  Under Article 15 of the SCIA Rules[4], applications to commence arbitration proceedings are treated as having been withdrawn where an applicant fails to settle payment of the required fees within the time limit prescribed in the Notice of Acceptance issued by SCIA;

(6)  R2 was never involved in or consulted on the Approval. In the process of compiling evidence for the purpose of the Section 95 Summons, R2 requested SCIA to provide relevant records including those in relation to the Approval, but such requests were, in Mr Lam’s words, “stonewalled” by SCIA. R2 then made enquiries with its Mainland lawyers and was informed by them that they were told by the Tribunal Secretary back in January 2019 that the Approval was necessary due to A’s non-payment of (part of) the arbitration fees;

(7)  SCIA’s Notice of Acceptance of the 1^st Arbitration was issued on 19 October 2011. The Notice of Acceptance expressly stated that the arbitration fees in the sum of RMB615,359 had to be paid in full by 24 October 2011, failing which the 1^st Arbitration would be treated as withdrawn. In the evidence filed in these proceedings, A’s case is that it had reached an agreement with SCIA to pay the arbitration fees in 2 installments (“Deferral Agreement”). A’s evidence does not condescend upon the particulars of the Deferral Agreement as to when, how and on what terms the Deferral Agreement was made. The only documentary evidence provided in support of it are the payment requests from SCIA and A’s payment records which show that the 1^st installment (60%) was requested by SCIA on 19 October 2011 and paid by A on 20 October 2011 and the 2^nd installment (40%) was requested on 7 January 2019 (ie the date of the 1^st Award) and paid on 2 July 2019. There is no dispute that the existence of the Deferral Agreement was, prior to the Section 95 Section Summons, not made known to R2 by A, SCIA, or the Arbitral Tribunal.

3.3R2’s case may be summarized as follows. R2’s grounds are directed mainly at the 1^st Award, as the 2^nd Award, being a claim for interest on the Outstanding Sum awarded under the 1^st Award, is parasitic upon the 1^st Award.

3.4In respect of the Defective Procedure Ground, it is said that (1) the inordinate delay of 7 years in rendering the 1^st Award and (2) the continuation of the 1^st Arbitration notwithstanding A’s failure to pay (in full) the arbitration fees, whether separately or together, bring the 1^st Award within the rubric of section 95(2)(e) of the AO.

3.5In relation to the Due Process Ground, it is said that throughout the 1^st Arbitration, in breach of the rule of natural justice, Rs were kept in the dark in relation to the Approval and the Deferral Agreement. R2 was therefore unable to address the Arbitral Tribunal as to (1) its position on the undue delay in the rendering of the 1^st Award and (2) why the 1^st Arbitration should have been terminated upon A’s payment default of the arbitration fees.

3.6In relation to the Public Policy Ground, it is said that there is a public policy against enforcement of the 1^st Award, which was improperly rendered and inordinately delayed by reference to the complaints made under the other 2 grounds. In relation to the 2^nd Award, it is also against public policy to enforce it, as it failed to address R2’s complaint that the interest which accrued under the 1^st Award was the result of A’s own delay of the 1^st Arbitration.

3.7Mr Lam emphasized that R2 has suffered substantial injustice as a result and there was no waiver or breach of good faith in the circumstances of the present case.

3.8There is also a separate complaint premised on the allegation that the Share Transfer Agreement was withheld by A from the Arbitral Tribunal in the course of the 1^st and 2^nd Arbitrations. It is said that this complaint falls within the Due Process Ground and the Public Policy Ground.

3.9Finally, R2 also contends that the Enforcement Order was obtained in the circumstances where it failed to make full and frank disclosure.

4.The proper approach

4.1There is no dispute between counsel on the broad principles.

4.2As regards the Section 95 Summons, the relevant principles are summarised at KB v S [2016] 2 HKC 325 §1. In particular, the court is concerned with the structural integrity of the arbitration proceedings. The conduct complained of “must be serious, even egregious”, before the court would find that there was an error sufficiently serious so as to have undermined due process. Even if sufficient grounds are made out to refuse enforcement of an award, the court has a residual discretion and may nevertheless enforce the award despite the proven existence of a valid ground.

4.3As regards the EOT Summons, the principles are set out in KB at §§27-34 and Canudilo International Company Ltd v Wu Chi Keung and Ors [2023] HKCFI 700 at §§52-58. In particular:

(1)  On the one hand, there is a need to promote the enforcement of time limits for the expeditious dispatch of litigation in the public interest; on the other hand, the applicant should not ordinarily be denied adjudication of his claim on the merits because of a procedural default unless the default causes prejudice to his opponent for which an award of costs cannot compensate;

(2)  The court will look at all relevant matters and consider the overall justice of the case. The primary aim is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

4.4I now turn to address the grounds advanced by R2.

5.Delay in rendering 1^st Award / Continuing 1^st Arbitration notwithstanding A’s non-payment of arbitration fees

5.1As the Approval (which extended the time limit to render the 1^st Award) and the Deferral Agreement (which permitted the continuation of the 1^st Arbitration despite A’s failure to pay the arbitration fees in full) are inter-related, I propose to deal with them together.

5.2Before I deal with counsel’s submissions, I should first dispose of one matter. Mr Lam in his first set of Skeleton Submissions argued that under the 2011 SCIA Rules, there is no discretion to extend the time limit under Article 102 for the Arbitral Tribunal to render the 1^st Award. He submitted that Chapter 12 of the 2011 SCIA Rules is the specific chapter applicable to, as here, a “foreign-related arbitration” and there is no provision within the chapter to extend the time limit.

5.3I do not think the foregoing was an argument which Mr Lam pursued with enthusiasm at the hearing. In my view, Article 61 (not under Chapter 12) is plainly applicable to foreign-related arbitrations by virtue of Article 105[5], which allows other articles to be applied to foreign-related arbitrations if there is a lacuna in Chapter 12. Even within Chapter 12, there is a provision (Article 101) conferring discretion upon the Arbitral Tribunal to postpone a hearing upon proper reasons, without confining the postponement to the 5-month time limit under Article 102. It seems to me obvious that a postponement of the hearing, depending on the extent, would have an impact on the timing of the award. Under Chapter 13, Article 107 also confers a general discretion on either the Arbitral Tribunal or SCIA, upon application, to grant an extension of time necessitated by force majeure or other proper reasons. Article 107 can be applicable, to among other things, time limits prescribed for procedural steps such as the filing of “pleadings” and supporting evidence (eg Articles 98 within Chapter 12). Again, a deferral of a procedure step must potentially have an impact on the timing of rendering of an award. It cannot be sensibly suggested that Article 107 does not apply to foreign-related arbitrations by virtue of Article 105.

5.4Indeed, Mr Lam acknowledged at the hearing that it would be odd that the 2011 SCIA Rules confer a discretion to extend time to render an award for domestic arbitrations but no such discretion exists for foreign-related arbitrations.

5.5For the above reasons, I proceed on the basis that there is a discretion to extend the 5-month time limit to render an award prescribed under Article 102.

(i)  R2’s Submissions

5.6An outline of R2’s case has been set out at section 3 above. The details of R2’s submissions may be summarized as follows. First, non-compliance of Article 102 has the effect of depriving the Arbitral Tribunal of its mandate and therefore its jurisdiction. Secondly, even if the 2011 SCIA Rules conferred a discretion to extend time, where, as here, A’s case is that the Approval was granted pursuant to Article 61, 7 years could not be an appropriate extension (適當延長), and in any event, A’s inability to fully pay for the arbitration fees could not have been a special circumstance justifying the lengthy extension (因特殊情況需延長審理期限). Thirdly, in so far as the Approval was premised upon the Deferral Agreement, on the evidence of A’s own expert, the Deferral Agreement did not comply with 深圳仲裁委員會仲裁收費實施細則 (“Fee Rules”)[6], as the arbitration fees were not fully paid before the hearing on 17 January 2012. Fourthly, R2 has suffered substantial prejudice by reason of (1) the “snowballing” of interest, the amount of which claimed by A in the 2^nd Arbitration was in excess of RMB77 million and (2) having been deprived of the opportunity to present a potential time-bar defence . Fifthly, there was no waiver on R2’s part to challenge the 1^st Award, whether during the arbitral process or by reason of the choice of remedies principle.

(ii)   A’s Submissions

5.7A’s submissions may be summarized as follows. First, the Approval and Deferral Agreement were within the case-management powers of SCIA. Any intervention by the court is inconsistent with the case management discretion vested in SCIA, citing for example Sky Power Construction Engineering Ltd v Iraero Airlines JSC [2023] 3 HKLRD 654 §34. In particular, the court should pay deference to an institution’s interpretation of its own rules: AT&T Corporation v Saudi Cable Co [2000] APP LR 05/15. Secondly, the Fee Rules only took effect on 1 June 2016 and did not apply to the 1^st Arbitration. Thirdly, R2 is deemed to have waived any procedural irregularity by failing to raise the issue before the Award was issued in January 2019 (N v W [2018] HKCFI 2405 §22), particularly in the light of Article 4[7] of the 2011 SCIA Rules and the proposition that there is a mutual obligation on the parties to proceed with reasonable dispatch in arbitration proceedings (Bremer Vulkan v South India Shipping [1981] AC 909 at 983D-H). Fourthly, it has been held that delay in rendering an award per se cannot be a good ground to set aside an award (for example a delay of 10 years in Hong Huat Development Co (Pte) Ltd v Hiap Hong & Co Pte Ltd [2000] SGCA 14) and R2 must still demonstrate that the delay might have made a difference (BV Scheepswerf Damen Gorinchem v The Marine Institute (The Celtic Explorer) [2015] EWHC 1810 (Comm) §34). Fifthly, R2 has failed to raise any objection to either the Arbitral Tribunal and/or the Mainland Court since 2019 which A says constituted a breach of the principle of good faith.

(iii)   Jurisdictional or Procedural

5.8I first deal with whether Article 102 is concerned with a matter of mandate (as contended by Mr Lam) or simply a case-management issue (as contended by Ms Ho). As accepted by counsel, the leading textbooks have put forward different views.

5.9For example, at Redfern and Hunter on International Arbitration, 7^th Ed §9.166 states:

“ A limit may be imposed as to the time within which the arbitral tribunal must make its award. When this limit is reached, the authority or mandate of the arbitral tribunal is at an end and it no longer has jurisdiction to make a valid award. This means that, where a time limit exists, care must be taken to see that either the time limit is observed, or that the time limit is extended before it expires.”

5.10On the other hand, at International Commercial Arbitration by Gary Born, 3^rd Ed §25[C](5), it is stated:

“ A common instance of challenges based on noncompliance with the parties' agreement on arbitral procedures concerns the time limits for making an award...

Absent clear language to the contrary, an agreement regarding time limits also should not be treated as jurisdictional, but instead as an aspect of the procedural conduct of the arbitration. A serious and unjustified violation of such an agreement regarding arbitral time limits should permit the parties to seek removal of the arbitrator(s), but should not ordinarily warrant annulment of an award, once the award has been made. If the parties' agreement provides expressly that the arbitrators' power to render an award expires after a specifically-prescribed time period, that limit will generally be enforced, provided the agreement contains very clear language requiring this result and the violation of the prescribed time limit is substantial.” (emphasis added)

5.11The only case on the subject referred to at the hearing was Ken Grouting Sdn Bhd v RKT Nusantara Sdn Bhd [2021] 4 MLJ 622 cited by Mr Lam, which is concerned with an arbitration under the Pertubuhan Akitek Malaysia Arbitration Rules (2003 Edition) (“PAM Rules”).

5.12Article 21.3 of the PAM Rules stipulates that the “Arbitrator shall deliver his award as soon as practical but not later than 3 months from his receipt of the last closing statement from the parties”. In Ken Grouting, the last closing statement from the parties was RKT’s submissions in reply dated 29 January 2016. Article 21.3 has an in-built extension mechanism to cater for the eventuality where the three month time-line may not be sufficient for the preparation of an award and expressly provides that if the arbitrator considers that more time is required for the preparation of his award, “such time frame for delivery of the award may be extended by notification to the parties”. The arbitrator did not issue any notification to extend the time frame for the delivery of the award. Thus the deadline of 26 April 2016 for the delivery of the award was not extended.

5.13The arbitrator delivered his award on 10 March 2017. The original award was delivered without any attempt by the arbitrator to extend the timeline for delivery of the award. The arbitrator later amended the original award and issued an amended award on 7 April 2017. During the period from 24 June 2016 to 10 March 2017, neither RKT nor KEN raised any objection to the fact that the deadline for delivery of the arbitration award had passed. It was beyond dispute that the original award (dated 10 March 2017) was well beyond the deadline.

5.14In considering whether the non-compliance of Article 21.3 of the PAM Rules went to jurisdiction or a mere procedural matter, the Malaysian (Putrajaya) Court of Appeal said as follows[8]:

“ [122] The argument that was advanced on behalf of KEN on the procedural vs jurisdictional dichotomy was that article 21.3 is procedural and not jurisdictional because of the arbitrator’s ability to extend time by giving notice to the parties. Thus, the argument that was made on behalf of KEN amounted to this: the in-built contractual mechanism which enabled the arbitrator to extend time does not sit well with RKT’s proposition that the rule is jurisdictional in nature.

…

[126] … [We] do not agree that the mere presence of an in-built contractual mechanism per article 21.3 of the PAM Rules, which enables the arbitrator to unilaterally extend time derogates from the arbitrator’s duty to deliver the award within the time period as prescribed in article 21.3 and which necessarily and fundamentally affects the arbitrator’s mandate and therefore, his jurisdiction.

…

[128] In our view, the timeline in article 21.3 is a mandate to the arbitrator that he is to deliver the award by a certain date and if requires more time, then he has to extend time by notifying the parties. The arbitrator’s mandate is not a matter of mere procedure. Rather, the arbitrator’s jurisdiction springs from his mandate. Once the mandate ceases, then the jurisdiction also ceased.

…

[130] The real focus should be on the arbitrator and the correct statement of law is that it is not an option for an arbitrator who conducts an arbitration under a time-sensitive arbitral regime to ignore, or be oblivious to, or be nonchalant to his duty and responsibility to deliver the award on time. And this particularly more compelling when the arbitrator could have very easily extended time by the simple act of notifying the parties.

[131] As such, we find the arbitrator’s tardiness to be egregious and inexcusable…

…

[133] … In our view, even if the rules of arbitration empowered the arbitrator to extend time (if he felt it was necessary) and even if there was no objection by the parties after the deadline had passed, the failure on the part of the arbitrator to adhere to the timeline stipulated in the rules of arbitration is of itself, fatal, as such non-compliance with a crucial timeline deprives the arbitrator of his mandate and therefore his jurisdiction.

[134] We therefore reject the suggestion that article 21.3 is merely procedural. On the contrary, we find that it is inherently and fundamentally, jurisdictional.

[135] The principle … is that where the rules of arbitration stipulate that an award is to be delivered by a certain date, then if the time limit or deadline is reached, the authority or mandate of the arbitrator is at an end. Simply put, the authority or mandate of the arbitrator dissipates, and he no longer has the requisite jurisdiction to make a valid award.

[136] The principle in this regard applies regardless of whether the relevant rules of arbitration allows the arbitrator to extend time. Indeed, the fact that time could be extended by the arbitrator sou motu goes to show that time is in fact critical and if necessary, the arbitrator must extend it. As mentioned earlier, under article 21.3 of the PAM Rules the arbitrator would have had absolutely no difficulty as the extension was ‘in his hands’ so to speak.

[137] Thus, so long as the timeline for delivery of the award has passed and time (for delivery of the award) has not been extended as per the rules of arbitration, then the arbitrator’s authority, mandate and jurisdiction would have ceased.”

5.15Although the analysis in Ken Grouting set out above appears sound, I do not need to definitively decide the issue. I do not believe Mr Lam can derive much assistance from the point anyway[9]. Even proceeding on the basis that Article 102 is, as Article 21.3 of the PAM Rules was held to be, jurisdictional, unlike Ken Grouting, the deadline here was extended by the Approval. Also unlike Ken Grouting, the 1^st Award was issued on 7 January 2019 and before the deadline of 8 January 2012, as extended by the Approval.

(iv)  The Approval

5.16In my view, the key issue is whether the Approval, which is interwoven with the Deferral Agreement, has affected the structural integrity of the 1^st Arbitration. In this regard, I do not believe Mr Lam has any quarrel with Ms Ho’s submission that, in the present enquiry, I should not carry out a de novo assessment on whether it was appropriate for the Approval to be granted.

5.17As I understand Mr Lam, his complaints are more fundamental. R2’s complaints are primarily directed at how the Approval was granted and what was decided by the Approval only illustrates or underscores the unfairness of the process. The overarching submission by Mr Lam is that the Approval, obtained on an ex parte basis, granted undue leniency and leeway in favour of A.

5.18In my view, R2’s grounds relating to the Approval are quite compelling. The 1^st Award records on its face that (1) the Approval was necessitated by A’s own circumstances (自身原因), (2) such circumstances would have been, pursuant to Article 61, reported by the Arbitral Tribunal to SCIA (由仲裁庭報經仲裁委員會主任) and (3) A’s own circumstances were regarded as constituting special circumstances and an appropriate extension was granted by SCIA for over 7 years to 8 January 2019 (Article 61: “因特殊情況需延長審理期限的 … 適當延長” and 1^st Award: “經仲裁委員會主任批准，本案期限延長至2019年1月8日”).

5.19In the light of the paucity of evidence from A and SCIA, it seems to me what happened chronologically was as follows:

(1)  As at October 2011, there was already an agreement between A and SCIA that A was not required to make full payment of the arbitration fees in accordance with the Notice of Acceptance dated 19 October 2011. The decision made by SCIA at that time to proceed with the 1^st Arbitration is not one warranting scrutiny, as that decision was made before the Notice of Arbitration was served on Rs by SCIA and before the Arbitral Tribunal was constituted in December 2011. It was entirely within SCIA’s discretion to proceed with the 1^st Arbitration even though only partial payment of the arbitration fees were made by A;

(2)  However, it does not appear to me realistic to suggest that the Deferral Agreement was made back in October 2011, namely for the second tranche of the arbitration fees to be paid over 7 years later in January 2019;

(3)  It has not been suggested that Rs were made aware of the issue of arbitration fees before or at the hearing on 17 January 2012, following which, there was nothing further to be done by the parties except to await for the 1^st Award;

(4)  Therefore, the timing of the payment of the 2^nd tranche of the arbitration fees, on the evidence, must have been raised by A after the hearing on 17 January 2012 and represented the only 自身原因 necessitating the Approval;

(5)  In order for the Approval to be obtained under Article 61, A must have made submissions on its 自身原因 to the Arbitral Tribunal for its onward report to SCIA. A’s evidence is silent on the timing of and manner of making those such submissions, and on the evidence, A must have made those submissions, and the Arbitral Tribunal must have allowed those submissions to be made, on an ex parte basis;

(6)  Depending on the timing of such submissions, Rs rights could have been substantively affected. According to R2’s expert evidence (which was not disputed by Ms Ho at the hearing), there is a limitation period of 2 years for civil claims in the Mainland. Had the 1^st Arbitration been deemed withdrawn pursuant to Article 15, it was arguable that a time-bar defence would have been available to Rs, in the event if new arbitral proceedings were only commenced say in November 2013 (2 years after the commencement of the 1^st Arbitration in October 2011);

(7)  Despite requests made by R2, SCIA has not provided information or records of its deliberation leading to the granting of the Approval. Assuming the information before it comprised of some “report” by the Arbitral Tribunal, it must have been apparent that the information emanated solely from A.

5.20The picture which emerges from the above chronology is this. Up until the conclusion of the hearing on 17 January 2012, the 1^st Arbitration was conducted in accordance with the 2011 SCIA Rules. There was no further participation required from Rs, apart from waiting for the publication of the 1^st Award mandated under Article 102 to take place in May 2012. Yet, following the hearing, an extension was granted on an ex parte basis by SCIA for 7 years in A’s favour. It bears emphasis that the ex parte procedure was allowed at both the Arbitral Tribunal and SCIA levels. Whilst it might be said that the payment of arbitration fees was an obligation only on A’s part under Article 15, and in that sense it could be justified for the issue to be initially treated on an “ex parte” basis (as in the case back in October 2011 set out above), there is no doubt in my mind that it became an inter-partes matter after the Arbitral Tribunal was constituted and Rs became parties to the 1^st Arbitration, especially, as here, when the Deferral Agreement was A’s sole reason to apply for the Approval.

(v)  Waiver and breach of good faith

5.21I next consider Ms Ho’s submissions on waiver and breach of good faith.

5.22Ms Ho relies on, inter alia, Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111. At pages 137F to 138B, it is stated:

“ Instead of raising the question on receipt of the letter, the respondent continued to participate in the arbitration. By pursuing this course, the respondent precluded an ascertainment in the arbitration of the extent of the Chief Arbitrator's participation in the inspection and of the nature of any communications made to him by the technicians. Moreover, had the question been raised, it is possible that action may have been taken by the Tribunal to remedy the situation, assuming that such action was necessary or desirable. Also precluded was an investigation of what happened at the inspection and the part that it played in the report and the Tribunal's decision. The respondent's failure to raise the objection in the Beijing Court and before Findlay J., though not directly relevant to the question now under consideration, had a similar effect.

The respondent's conduct amounted to a breach of the principle that a party to an arbitration who wishes to rely on a non-compliance with the rules governing an arbitration shall do so promptly and shall not proceed with the arbitration as if there had been no compliance, keeping the point up his sleeve for later use…

There has been some debate as to the legal basis for declining to refuse enforcement of an award in these circumstances. In the context of absence of the formalities required by Article II(2) of the Convention, Dr van den Berg considers that it is a "question of estoppel as a fundamental principle of good faith". According to Dr van den Berg,

‘ [t]he principle of good faith may be deemed enshrined in the Convention's provisions.’ ”

5.23As I understand Ms Ho, her submissions are directed at two periods, namely during the arbitral process and after the issuance of the 1^st Award.

5.24In my view, there was no waiver during the arbitral process (ie up to the issuance of the 1^st Award).

5.25First, I do not think Ms Ho can derive any assistance from Article 4. Article 4 only bites where a party who has become aware of a procedural irregularity, refrains from raising an objection but continues its participation in the arbitral process. As pointed out above, the hearing was concluded and there was no further participation required on Rs’ part apart from awaiting the publication of the 1^st Award. It seems to me perverse to suggest that Rs should be (1) held to have waived their rights when, unknown to them, the Approval was obtained on an ex parte basis and (2) under an obligation to discover that that was done.

5.26Secondly, the cases have recognized the sensitivity arising from a delay in rendering judgments or awards. As observed at Celtic Explorer §32:

“ The first issue in relation to Damen’s case on delay with which I need to deal is TMI’s suggestion that Damen has lost the right to object to the delay because it failed to make any application to the Court under section 24 or at least, complain about the delay to the arbitrator before the Award was published. In my judgment there is nothing in this point. It is always a delicate matter for counsel or solicitors to raise with a judge or arbitrator when a long outstanding judgment or Award is going to be produced, for fear of causing offence. It seems to me wholly unreal to suggest that, by not making some complaint about delay before the Award was issued, Damen had lost the right to complain about the delay after it was produced.” (emphasis added)

5.27From a slightly different perspective, in so far as it is suggested by Ms Ho that Rs would have been aware that the 1^st Award was not issued in compliance with the original deadline (irrespective of their lack of knowledge of the Approval), it is stated at Ken Grouting §§141:

“ We will now deal with KEN’s suggestion that RKT should have raised H objection before the delivery of the original award. The first point we make is that parties to an arbitration are not under duty to monitor the timelines or to remind or prompt the arbitrator about the timeline. That is plainly the arbitrator’s job. After all, he is paid to be the arbitrator.”

5.28I therefore do not regard there was anything during the arbitral process of the 1^st Arbitration which would have given rise to waiver or breach of good faith on R2’s part. Unlike typical cases, the present situation is not one where an irregularity has taken place and been discovered during a phase of the arbitral process involving active participation by the parties.

5.29As regards the period post issuance of the 1^st Award, Ms Ho relies on the following matters:

(1)  By January 2019, Rs’ legal representatives were aware that the reason for the delay in delivering the award was A’s delay in paying arbitration fees but chose to make no complaint or submission to the Tribunal: §3.2(6) above;

(2)  In July 2019, R2 received the 1^st Award but did not refer either the issue of the arbitration fees or the delay in rendering the 1^st Award to the Arbitral Tribunal, which would have allowed the Arbitral Tribunal to make any corrections/ supplemental ruling (if necessary) under, for example Article 68 of the 2011 SCIA Rules;

(3)  By January 2020, R2 did not apply within the statutory limit prescribed under Article 59 of the Law of Arbitration of the People's Republic of China to set aside the 1^st Award;

(4)  Between 2020 to 2023, R2 did not make any objections to the Mainland Court when the Applicant applied to enforce the 1^st Award.

5.30I do not agree with Ms Ho.

5.31There is no evidence that Rs were told by R2’s Mainland lawyers in January 2019 that the delay in rendering the 1^st Award was by reason of the Deferral Agreement. In any event, the 1^st Award was issued but was not delivered to R2 until July 2019. Without knowing the substance of the 1^st Award, it seems to me excusable that no immediate action was taken.

5.32I do not see how Article 68[10] can assist. It apparently applies to either (1) a situation akin to the application of the slip rule in this jurisdiction or (2) where there is an omission from the 1^st Award. R2’s complaint clearly is not a slip-rule scenario and this is not a case where the 1^st Award has omitted to deal with an issue. It also bears emphasis that the Approval was a decision by SCIA, not the Arbitral Tribunal and Article 68 only has application to the Arbitral Tribunal.

5.33In any event, on the facts and as set out below, Rs did raise the issue of delay in rendering the 1^st Award in the 2^nd Arbitration. The 2^nd Award did not deal with that specific complaint.

5.34R2’s decisions not to apply to set aside the 1^st Award or object to enforcement proceedings in the Mainland plainly fall within the choice of remedies principles as summarized at Song Lihua v Lee Chee Hon [2023] 5 HKLRD 488 §§9-10.

5.35For the above reasons, I am of the view that there was no waiver or breach of good faith on the part of R2.

(vi)  Whether complaints relating the Approval and Deferral Agreement made out

5.36In my view, R2’s complaints relating to the Approval and Deferral are made out under all 3 grounds relied on by R2.

5.37I should point out at the outset that I accept Ms Ho’s submission that the Approval was apparently granted in accordance with the 2011 SCIA Rules. I also accept her submission that a 7-year delay, without more, may not be sufficient to set aside the 1^st Award. In relation to the latter, I have borne in mind that R2 has not sought to demonstrate that the delay might have made a difference on the issues substantively decided by the Arbitral Tribunal on the merits. R2’s complaints are directed at whether the deadline to render the 1^st Award should be extended and/or whether the 1^st Arbitration should have been deemed withdrawn.

5.38However, as pointed out above, the complaints made by Mr Lam is not whether the Approval was superficially compliant with the 2011 SCIA Rules. In my view, there was a clear breach of the parties’ agreed procedure in how the Approval was obtained and granted. There is nothing in the 2011 SCIA Rules which permits the ex parte process adopted by both the Arbitral Tribunal and SCIA in processing the Approval, and as a result, R2 was deprived of the opportunity to present its case on the issues, in particular when it is plain that R2 had presentable arguments to make. On the evidence, the 7-year extension was granted only because of A’s financial condition and it seems to me self-evident that respectable counter arguments were available to R2, including but not limited to the accrual of a limitation defence. In relation to first 2 grounds relied on by R2, I am satisfied that the foregoing failings are sufficiently serious to affect the structural integrity of the arbitral process and to have undermined due process. As set out above, there was no issue of waiver or breach of good faith on R2’s part.

5.39Further under the Public Policy Ground, as pointed out by Mr Lam, the opportunity of a party to present his case and a determination by an impartial and independent tribunal which is not influenced, or seen to be influenced, by private communications are basic to the notions of justice and morality in Hong Kong: Hebei at 139H-I. This is further illustrated by Song Lihua §§13-19:

“ [13] It is clear from the authorities that where public policy is relied upon as a ground to resist enforcement of an award, it is the domestic public policy of the relevant court of enforcement which is relevant. Whereas an award may be recognized in one jurisdiction, its enforcement may be refused if it would be contrary to the public policy of another jurisdiction to enforce it.

[14] “Contrary to public policy” has been held by the Court of Final Appeal to mean “contrary to the fundamental conceptions of morality and justice” of the forum (Hebei Import & Export Corp). In A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389, the Court explained (at para 23) that if the public policy ground is to be raised, there must be “a substantial injustice arising out of an award which is so shocking to the court’s conscience as to render enforcement repugnant”.

[15] In Hong Kong, audi alteram partem is a fundamental principle of natural justice which is recognized and enforced. This means that no person shall be judged without a fair hearing in which each party is given the opportunity to respond to the evidence against it, and to be heard on its case.

[16] Under the Ordinance, the parties to an arbitration must be treated with equality (section 46(2)). When conducting arbitral proceedings, the tribunal is expressly required to be independent, and to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents.

[17] The application of the above principles and statutory provisions means that not only must these rules be applied, but they must be seen by the objective reasonable observer to have been applied …

[18] Needless to say, the arbitrator is carrying out a quasi-judicial role … and has duties to conduct the arbitral proceedings and decide the case before him with appropriate care, skill and professional integrity (see para 13.04, International Commercial Arbitration (Born, 3^rd edition).

[19] As the courts have emphasized in the cases, it is only where the fair and reasonable observer can perceive due process in the arbitration, that public confidence can be maintained and the courts can give effect to that confidence by enforcing an award as a judgment of the court.”

5.40It may be said that, in the arbitral context, a more informal procedure may be adopted for procedural matters, but in my view such informality should not be extended to permit dealing with the matter on an ex parte basis. I am therefore further satisfied that the enforcement of the 1^st Award in Hong Kong would violate the basic notions of justice in our forum.

5.41In the light of my conclusion on R2’s main grounds, I propose to only deal with the other grounds relied on by R2 briefly.

6.Concealment of the Share Transfer Agreement

6.1It is R2’s evidence that it was not aware of the execution of the Share Transfer Agreement. It is said that A’s withholding of the Share Transfer Agreement had crucially affected R2’s presentation of its case in both the 1^st and 2^nd Arbitrations and that the foregoing amounted to a denial of due process.

6.2As submitted by Ms Ho, in approaching the issue of whether a party was unable to present its case, the court draws a distinction between a lack of opportunity to deal with the case and the failure to recognise or take such opportunity. The latter is not a serious irregularity justifying the setting aside of an arbitral award: Reliance Industries Ltd v Union of India [2018] EWHC 822 at §32 per Popplewell J. The relevant issue is not whether a party actually made use of its opportunity to present its case, but whether the party was afforded an adequate opportunity to do so. Only where such an opportunity was unfairly denied would an arbitral award be set aside: Born at §25.04[B](6) at pages 3515-3516. It is also not intended to protect a party from its own failures or strategic choices: Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39 at §83 per Morrison JA.

6.3In the present case, on R2’s own evidence, the cause of R2’s alleged inability to present its case stemmed from its own failings, in that Ms Cao (a former director of Rs but left Rs in 2013, ie after the hearing of the 1^st Arbitration) not having informed Mr Gao or Rs’ legal representatives of the existence of the Share Transfer Agreement.

6.4I also do not regard there was any deliberate or dishonest withholding of the Share Transfer Agreement on A’s part. A was entitled to regard the Share Transfer Agreement as being irrelevant, as its claim was premised on the Cooperation Agreement and the Meeting Minutes.

6.5In my view, the complaint premised on the withholding of the Share Transfer Agreement is not a viable ground.

7.Failure of the 2^nd Award to deal with R2’s complaint

7.1As to a claim that the Arbitral Tribunal failed to deal with an issue and is therefore contrary to public policy, the principles have been summarised in AI v LG II [2023] 4 HKC 135 at §§20-23 per Mimmie Chan J:

(1)  The court has to be satisfied that an "issue" which has been put to the tribunal was not dealt with expressly, or in composition with other issues, and that such failure has caused substantial injustice;

(2)  The tribunal does not have to set out each step by which it reaches its conclusion, and a failure to deal with an argument or a submission made is not equivalent to a failure to deal with an issue;

(3)  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 had been made, is not tantamount to the arbitrator having failed to deal with an issue;

(4)  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;

(5)  A tribunal is not required to deal with each issue seriatim: it can sometimes deal with a number of issues in a composite disposal of them;

(6)  There is a distinction between "issues" on the one hand and "arguments" advanced or "points" on the other. The tribunal does not have to deal with every argument so long as a decision on one argument suffices to resolve an essential issue;

(7)  The approach of the Court should be to read the award generously in a reasonable and commercial way, so as to remedy only meaningful and readily apparent breaches of the rules of natural justice which can cause actual prejudice, rather than to comb an award in order to assign blame or to find fault in the process;

(8)  Any inference that the Tribunal has failed to deal with an issue must be shown to be "clear and virtually inescapable".

7.2As stated at §5.33 above, Rs had made a specific complaint in the 2^nd Arbitration that the snowballing of interest was caused by A “maliciously” causing delay to the conclusion of the 1^st Arbitration. As recorded in the 2^nd Award (pages 6-7), Rs had raised the following issue:

“ 本案中所提请利息主张, 系是因申请人自身恶意拖廷仲裁所至，其不法仲裁请求应予驳回。前案于2011年10月 19 正式受理, 仲裁庭于2012年1月 17曰开庭审埋, 开庭审理完毕后, 本应很快就会作出裁决, 但申请人故意拖廷仲裁費用、拖廷仲裁进程等自身原因，恶意导致前案至2019年1月7曰才作出裁决。 而在前案仲裁长达十年的进程中, 申请人对后续可能产生孳息未以任何方式另行提出主张, 显然应子以驳回?。”

7.3The 2^nd Award did not deal with the above issue. The passage relied on by Ms Ho only dealt with the issue of limitation:

“ 仲裁庭認為，本案的訴請是自2011 年 10 月 10日 開始至被申請人實際支付之日止的利息，時效的起算應自被申請人知道或應當知道該等權利受到損害之日起。申請人與被申請人就前案的糾紛，仲裁程序開始於 2011 年 10 月 19 日， 仲裁裁決於 2019年 1 月 7 日作出。在仲裁程序持續期間，申請人並不確定自己的仲裁請求是否可以被認可。換言之，在仲裁裁決做出之前，對於申請人主張的利息部分，從金額到日期是否能得到支持是不確定的。從2019 年1 月7 日開始，申請人知悉其對於被申請人自違約之日起至2011 年10 月9 日止的利息得到了前案仲裁庭的認可，而利息的產生是具有可持續性的，申請人有理由相信，基於同一法律關係繼續產生的利息也可以得到支持…… 綜上，仲裁庭認為，本案中申請人所提出的利息，其訴訟時效的起算時間應當是2019 年1 月7 日。”

7.4It seems to me clear that R2 was at least left to guess at whether the issue raised by Rs had been dealt with or overlooked: Z v R [2021] HKCFI 2312. The issue was not a sterile one either. On the evidence before me, A was allowed to claim interest in excess of RMB77 million on the basis that, for the extended period during the awarded interest had accrued, it was unable to pay 40% of the arbitration fees, namely the meagre sum of RMB246,144 paid on 2 July 2019.

7.5For the above reasons, I would also refuse enforcement of the 2^nd Award on the foregoing ground.

8.Material non-disclosure

8.1It is R2’s case that A had failed to disclose the following matters when applying for the Enforcement Order:

(1)  Contrary to Article 15 of the 2011 SCIA Rules, the 1^st Arbitration should have been terminated upon the A's payment default, such that neither the 1^st Award nor the 2^nd Award would have arisen;

(2)  Contrary to Article 102 of the 2011 SCIA Rules, the 1^st Award was rendered more than 7 years after the constitution of the Arbitral Tribunal;

(3)  The 1^st Award (and consequently the 2^nd Award) was obtained by the concealment of the Share Transfer Agreement.

8.2As I have decided that the enforcement of the 1^st and 2^nd Awards should be refused on the grounds identified above, it is not necessary for me to deal with Mr Lam’s arguments on material non-disclosure, save to point out this observation. I have some doubt whether A’s duty to give full and frank disclosure extends to the matters identified by Mr Lam. It has been said that the court should adopt a purely mechanistic approach to enforcement. In the particular circumstances of the present case, where R2 had decided to only contest enforcement in Hong Kong on the basis of the choice of remedies principle, I have some doubt whether A was under the obligation to anticipate R2’s grounds, none of which had been indicated at the time of the ex parte application.

9.Conclusion

9.1It seems to me that, in the exercise of my discretion, I should accede to the EOT Summons given my view on the substantive merits. The time for R2 to apply to set aside the Enforcement Order is retrospectively extended to 23 August 2023. I do not believe it can sensibly be suggested that A has suffered prejudice for which an award of costs cannot compensate.

9.2I set aside the Enforcement Order and enforcement of the 1^st and 2^nd Awards is refused.

9.3I also make the following costs orders nisi:

(1)  R2 is to pay to A the costs of and occasioned by the EOT Summons to be taxed if not agreed;

(2)  A is to pay to R2 the costs of and occasioned by the Section 95 Summons to be taxed if not agreed with a certificate for 2 counsel.

Ms Sabrina Ho and Mr Arthur Poon, instructed by Messrs. Simon Ho & Co., for the Applicant

The 1^st Respondent: R1, in person, absent

Mr Douglas Lam SC, leading Ms Tinny Chan and Ms Clara Wong, instructed by Messrs. Wellington Legal, for the 2^nd Respondent