E v. N

HCCT 221/2025

[2026] HKCFI 3293

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 221 OF 2025

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BETWEEN

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REASONS FOR DECISION

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Background

1.On 10 December 2025, the Plaintiff applied to set aside the final award dated 6 August 2025 (corrected on 16 September 2025) (“Award”), made in an HKIAC arbitration commenced by the Defendant against the Plaintiff in February 2023 (“Arbitration”). By the Award, the Tribunal found that the Plaintiff was in breach of a contract made between the Plaintiff as seller and the Defendant as buyer of fuel oil (“Contract”), that the Defendant was entitled to terminate the Contract by its termination notice of 19 January 2023, and that the Defendant was entitled to recover damages from the Plaintiff.

2.By the Originating Summons in these proceedings, the Plaintiff claims that:

(1) the Tribunal had no jurisdiction to make the Award, as the question of the Plaintiff’s alleged breach of contract had already been decided in a decision of the Ningbo Intermediate People’s Court dated 18 May 2023 (“Mainland Decision”), so as to create an issue estoppel; and

(2) the Tribunal had failed to deal with the issue of whether the Defendant was entitled to terminate the Contract on the basis of the very small quantities of vanadium and sodium in the fuel oil said to be exceeding the contract specifications, and to seek damages for such breach under clause 21 of the Contract, and alternatively:

(3) the finding that the Defendant was entitled to terminate the Contract is contrary to public policy.

3.The Plaintiff is a Hong Kong company in the business of trading fuel oil, whereas the Defendant is a Mainland company carrying on the main business of processing fuel oil and selling fuel oil products.

4.On 9 November 2022, the Plaintiff agreed to sell and the Defendant agreed to purchase 80,000 metric tons of fuel oil under a contract for sale and purchase (“Contract”). On 18 November 2022, the Defendant procured two guarantees from a bank (“Bank”) as security, for the Bank to act as guarantor in favor of the Plaintiff with regard to the obligations owed by the Defendant under the Contract.

5.In November 2022, the fuel oil arrived at the discharge port in Zhoushan, and upon sampling and the issue of a quality report on the samples taken, the Defendant took delivery and paid for 20,000 metric tons of the oil in December 2022. It failed to take delivery of the remaining fuel oil in the excess of 60,000 metric tons, and instead on 19 January 2023 issued a notice of termination of the Contract pursuant to clause 21 thereof (“Defendant’s Notice”). In the Defendant’s Notice, it was claimed that the specifications of the goods delivered were not in compliance with those specified in the Contract, and stated that the Contract was terminated with immediate effect pursuant to clause 21.

6.On behalf of the Plaintiff, it was highlighted that the Defendant’s Notice only complained that the recoverable volume of the fuel oil after refining was not in accordance with the contractual specification, without identifying the relevant specification. In substance, the Defendant considered that the fuel oil was not of satisfactory quality and was not fit for its production purpose (the so-called “Quality and Purpose Dispute”).

7.In particular, the Plaintiff claims that at the material time of the Defendant’s Notice, the Defendant’s claim and the parties’ dispute was not about the vanadium or sodium content of the fuel oil supplied and these being or containing deviations from the contractual specifications (“Vanadium Claim”) - which complaint was only raised later. The quality report made no mention of the vanadium or sodium contents.

8.The Plaintiff issued a letter of demand on 1 February 2023, urging the Defendant to take delivery of the remainder of the fuel oil under the Contract. In default of the Defendant so doing, the Plaintiff then issued its own notice of termination on 10 February 2023, on the basis of what the Plaintiff claims to be the Defendant’s breach in failing to take delivery (“Plaintiff’s Notice”).

9.The Defendant then commenced proceedings in Ningbo on the Mainland, and obtained an injunction to restrain the Bank from making any payment to the Plaintiff under the Guarantees (“Injunction”). The Defendant claims in these Mainland proceedings that the Plaintiff had committed “guarantee fraud” when it demanded payment from the Bank under the Guarantees. The injunction was granted by the Ningbo Intermediate People’s Court (“Mainland Court”), by its decision of 13 February 2023.

10.The Plaintiff was able to successfully set aside the Injunction, when the Mainland Court (by the Mainland Decision) on 18 May 2023 set aside the earlier decision of 13 February 2023, and overturned the initial finding of guarantee fraud. The Mainland Decision is not challenged by any party.

11.On 30 August 2023, the Defendant commenced the Arbitration in Hong Kong against the Plaintiff. In the Notice of Arbitration (“NOA”), the Defendant stated that there was excess vanadium and sodium in the fuel oil delivered by the Plaintiff which deviated from the contractual specification (ie the Vanadium Claim), that the Plaintiff was in breach of the Contract, and that the Defendant was entitled to terminate the Contract by the Defendant’s Notice.

12.In relation to the Quality and Purpose Dispute referred to in the Defendant’s Notice, the NOA pleaded and relied on implied terms of the Contract. According to the Plaintiff, it was only in the course of the substantive hearing of the Arbitration that the Defendant put focus on the Vanadium Claim, which was never asserted in the Defendant’s Notice when it terminated the Contract.

13.The Tribunal issued the Award in August 2025, after a substantive hearing which took place from 3 to 7 March 2025. As summarized by the Plaintiff, the Tribunal found as follows:

(1) The Plaintiff had breached clause 4 of the Contract due to the vanadium and sodium content of the fuel oil, which exceeded the contractual specifications.

(2) The Defendant was entitled to terminate the Contract by its notice, and to payment of liquidated damages under clause 21 of the Contract.

(3) The Tribunal had jurisdiction over all the claims and counterclaims made in the Arbitration.

(4) The Plaintiff’s drawdown of the Guarantees was in breach of clause 9 of the Contract.

(5) The Defendant was entitled to liquidated damages of US$3,365,761.27; payment of surplus of US$1,012,671.50; and damages arising out of the Guarantees of US$4,275,626.02; interest and costs.

14.It was highlighted that the Defendant’s claim in the Quality and Purpose Dispute was dismissed, as the Tribunal found that there was no implied term as claimed by the Defendant.

15.The only grounds raised in the Originating Summons for the application to set aside the Award are that, firstly, the Tribunal has no jurisdiction to adjudicate the claims made by the Defendant because of issue estoppel: as the issue of whether the Plaintiff was in breach of the Contract had already been decided by the Mainland Court in the Mainland Decision; and secondly, the Tribunal failed to deal with the Defendant’s right or entitlement to terminate the Contract on the basis of the very small quantities of vanadium and sodium exceeding the contractual specification; and alternatively, that it is contrary to public policy to enforce the Tribunal’s finding and Award that the Defendant was entitled to terminate the Contract under clause 21.

16.At the conclusion of the hearing on 28 May 2026, this Court dismissed the Plaintiff’s application to set aside, with costs on indemnity basis.

17.The following sets out the reasons for my decision.

Whether the Tribunal has jurisdiction by reason of issue estoppel

18.The simple answer to the Plaintiff’s claim is that even if there was any issue estoppel arising from the Mainland Decision, the matter does not affect the Tribunal’s jurisdiction to deal with the Defendant’s claims and to make the Award in its favor.

19.If the Mainland Court had decided that the Plaintiff was not in breach of the Contract, or was entitled to payment under the Guarantee, as the Plaintiff alleges, issue estoppel only affects the Defendant’s claim and its admissibility, or the merits of the Defendant’s claim, and not the jurisdiction or authority of the Tribunal to consider and decide the claim. This has been clearly explained by the Court of Final Appeal in C v D (2023) 26 HKCFAR 216.

20.At paragraph 32 of his judgment, Ribeiro PJ characterized an “admissibility” challenge or objection as one which alleges that a claim is defective and cannot be proceeded with, to be contrasted with challenges to the authority of the tribunal to conduct the arbitration. His Lordship referred to the Singapore Court of Appeal’s decision in BBA v BAZ [2020] SGCA 53, where it was stated:

“The ‘tribunal versus claim’ test asks whether the objection is targeted at the tribunal (in the sense that the claim should not be arbitrated due to a defect in or omission to consent to arbitration), or at the claim (in that the claim itself is defective and should not be raised at all).”

21.The Singapore Court held in BBA v BAZ that an objection to the claim on the basis that it was time-barred was targeted at the claim, and thus based on admissibility, and was not reviewable by the court. The Singapore Court of Appeal further held in BTN v BTP [2020] SGCA 105 that an objection on the basis of res judicata was aimed at the claim, and so went to admissibility.

22.Ribeiro PJ further referred to the English Court’s decision in Republic of Sierra Leone v SL Mining Ltd [2021] Bus LR 704, where it was explained:

“ … if the issue relates to whether a claim could not be brought to arbitration, the issue is ordinarily one of jurisdiction and subject to further recourse under section 67 of the 1996 Act, whereas if it relates to whether a claim should not be heard by the arbitrators at all, or at least not yet, the issue is ordinarily one of admissibility, the tribunal decision is final and section 30 (1) (c) does not apply.”

23.At paragraph 40 of his judgment in C v D, Ribeiro PJ explained that the basis of the authority or jurisdiction of an arbitral tribunal is the parties’ consent, as expressed in the arbitration agreement:

“Thus, an appropriate challenge to the Tribunal’s jurisdiction involves grounds which impugn the existence, validity or viability of that agreement or otherwise deny the challenger’s consent to the arbitration. Such a challenge targets the tribunal’s authority rather than the claim and is subject to judicial intervention.” (Emphasis added)

24.His Lordship went on to explain “the other side of the distinction” at paragraph 44, as follows:

“The other side of the distinction, ie, challenges which target the claim on which go to ‘admissibility’, can be described conversely as concerning non-jurisdictional objections, ie, those which do not negate consent to the Tribunal’s authority but allege that the claim is defective and should not be entertained. As this was put in BBA v BAZ:

Conversely, admissibility relates to the ‘nature of the claim, or to particular circumstances connected with it’ … It asks whether a tribunal may decline to render a decision on the merits for reasons other than a lack of jurisdiction, and is determined by the tribunal on the basis of their discretion guided by, amongst others, principles of due administration of justice and any applicable external rules…”

(Emphases added)

25.Counsel for the Plaintiff contended that C v D did not decide that res judicata/issue estoppel “necessarily goes to admissibility and not jurisdiction of the tribunal”, and that the Plaintiff can still argue in this case that the Tribunal had no jurisdiction to consider and decide on the claims made by the Defendant in the Arbitration.

26.It is true that in the judgment of the Chief Justice in C v D, His Lordship referred to a qualification, that the jurisdiction of an arbitral tribunal is agreement-based, and that it is up to the parties to agree what matters should be left to be decided by the tribunal, and what should not, such that the jurisdiction of a tribunal is ultimately dependent on the parties’ agreement, reflecting their consent to arbitration.

27.However, this qualification cannot help the Plaintiff in this case, as there is nothing in the Contract or the arbitration clause which can show that the parties had somehow excluded the jurisdiction of the Tribunal from deciding the very question which was submitted to it, namely, whether there was a breach of the Contract, and whether the Plaintiff was entitled to terminate the Contract under clause 21 and to seek damages for breach, and that somehow the parties should instead submit that claim to the Mainland Court and be bound by the Mainland Decision on those issues.

28.In my judgment, the question of issue estoppel is by nature similar to questions of res judicata and time-bar, and goes to whether the claim made is valid, and should or should not have been raised at all (because of the Mainland Decision), rather than a matter which impugns the existence of the arbitration agreement or the parties’ consent to the arbitration. Considering the scope and language of the arbitration clause in the Contract, and bearing in mind the Fiona Trust principles of construing the arbitration agreement as a reasonable and commercial businessman would, to have all matters relating to the Contract decided by one tribunal, there is no justification at all to construe the Contract and the arbitration clause as excluding the Vanadium Claim from the parties’ consent to arbitrate.

29.Even if there was any basis to say that issue estoppel goes to the jurisdiction of the Tribunal, it is clear from the Mainland Decision that no issue estoppel is raised to affect the Defendant’s claims against the Plaintiff.

30.The Mainland Judgment was issued in the Mainland Proceedings commenced by the Defendant against the Plaintiff, with the Bank as third party. The claim was to restrain the Bank from making payment to the Plaintiff under the Guarantees, on the basis that there was fraud in respect of the Plaintiff’s demand for payment under the Guarantees. It was alleged that in presenting documents and demanding payment under the Guarantees, the Plaintiff knew that it had no basis to seek payment when it knew that the Defendant was not in breach of the Contract, that the Defendant had no right to terminate the Contract under clause 21, and no right to seek payment under the Guarantee from the Bank.

31.Reading the Mainland Judgment, it is clear that what the Mainland Court decided was that on the construction of the terms of the Contract and the Guarantees, it was not established that the Plaintiff had knowledge that there was no question of the Defendant’s breach of the Contract, or that the Plaintiff knew that there was no factual basis to support its demand for payment under the Guarantees. The Mainland Court explained that in deciding whether or not there was “guarantee fraud”, what had to be examined was the state of knowledge of the beneficiary under the Guarantees, and whether it could be shown that the beneficiary had clear knowledge that the counterparty to the underlying contract was not in breach, and that the beneficiary had no factual basis to seek payment. After considering the Contract and the Guarantees to ascertain the independent purpose of the Guarantees, which was to secure performance of the Contract, the Mainland Court found that the Plaintiff had produced the documents required under the Guarantees when it demanded payment, and it cannot be seen that there was any improper profit to be made by the Plaintiff. The Mainland Court finally determined that as the Plaintiff had made demand for payment in accordance with and on the basis of the Contract, there was no guarantee fraud on its part.

32.I agree with Counsel for the Defendant, that the findings made by the Mainland Court were only on the Plaintiff’s state of mind, and there was no finding to the effect that the Plaintiff was not in breach of the Contract. The Mainland Court was clear in stating, in the Mainland Judgment, that clause 21 of the Contract was not within the scope of its review, which was on the question of guarantee fraud, and that clause 21 of the Contract is irrelevant to the issue concerning the Guarantees. This is obviously right, because any dispute as to breach of the Contract is a matter to be resolved under the Contract, in the Arbitration between the Plaintiff and the Defendant, and not in the Mainland Action.

33.The scope of the review by the Mainland Court is reflected in the Plaintiff’s appeal against the first instance grant of the Injunction. In the appeal, the Plaintiff relied on Article 12 of the PRC Guarantee law, which provides that the Court should find that there was guarantee fraud if (inter alia): the beneficiary submitted documents which were forged or fictitious; or the court determined that the debtor had no obligation to pay; or the beneficiary knew that it had no right to seek payment and abused its rights (under the guarantee).

34.On behalf of the Plaintiff, it was argued that it was necessary for the Mainland Court to decide on whether the Plaintiff had fulfilled its obligations under the Contract and was not in breach, by referring to the terms of the Guarantee. Under the Guarantees, the Bank’s payment obligation arises upon the Bank’s receipt of the Plaintiff’s duly signed demand for payment, in which demand it is stated that the Plaintiff has fulfilled the contractual obligations under the Contract and provided the documents according to the stipulations of the Contract, but that the Defendant failed to fulfill its obligation to pay for the goods.

35.However, the findings made in the Mainland Decision were on its face clearly confined to the issue of whether the Injunction initially granted should be discharged, on the ground that there was fraud in the demand for payment under the Guarantees, in circumstances when it was argued that the Defendant had knowledge that there was no breach of the Contract by the Plaintiff and that the Defendant had no right to seek payment. The Tribunal’s findings turned on the question of the state of the Plaintiff’s knowledge, as opposed to whether the Plaintiff, or the Defendant, was the party in breach of the Contract and entitled to terminate the Contract - which, as the Mainland Court expressly pointed out, was not within its scope of review.

36.On my reading of the Mainland Judgment, I reject the submissions made for the Plaintiff that there were any findings made by the Mainland Court on the Plaintiff’s performance of the Contract, or that it was not in breach.

37.In the premises, there is no issue estoppel arising under the Mainland Decision which goes to any question on the merits of the Contract claims, or on jurisdiction.

38.There is no valid complaint, that the Tribunal had failed to properly deal with or to understand the Plaintiff’s jurisdictional challenge and its effect on the claims made in the Arbitration. The issue estoppel claim is but an impermissible attack made on the merits of the claims in the Arbitration under the guise of a jurisdiction challenge.

39.In any event, Counsel for the Defendant rightly pointed out that the alleged lack of jurisdiction by virtue of issue estoppel had not even been properly raised before the Tribunal, which was never given the opportunity to deal with such a fundamental point of its jurisdiction in the Arbitration. The Defendant referred to the Agreed List of Issues submitted to the Tribunal at the commencement of the Arbitration. This clearly shows that the only issue of jurisdiction was raised in relation to the Guarantees, and whether the Tribunal had the jurisdiction to determine the claims made by the Defendant in relation to the Guarantees, under Section F of the Statement of Claim, and whether the Defendant is entitled to claim loss and damage arising out of the Plaintiff’s demand under the Guarantees.

40.By failing to challenge the general and overall jurisdiction of the Tribunal to decide the claims of breach under the Contract, the Defendant had unequivocally and knowingly waived any such right of challenge.

Failure to deal with issue

41.As Counsel for the Defendant explained, the ground stated at paragraph 2b of the Originating Summons is that the Tribunal had allegedly failed to deal with “whether the defendant was entitled to terminate the Contract”, on the basis of the very small quantities of the vanadium and sodium, and to claim liquidated damages, under clause 21. It was claimed in the alternative that the finding that the Defendant was entitled to terminate under clause 21 is contrary to public policy.

42.The Tribunal did find and explain why the Defendant was in breach on the basis that small quantities of the vanadium and sodium exceeding the contractual specifications were found.

43.At paragraph 101 of the Award, the Tribunal set out the Plaintiff’s argument on the insignificant margins of the vanadium and sodium test results and how they fell outside the range, the Defendant’s witnesses arguing that the small differences were acceptable. At paragraphs 106 and 107, the Tribunal stated:

“The Contract is clear on how a breach of Contract is determined, namely where the independent inspector determines that the quality of the Ship Tank Sample does not meet contractual specifications. Two lines in the Clause 4 Table set out the vanadium and sodium contents in the Fuel Oil at 308 mg/kg and 168mg/kg respectively. There is no de minimus rule or acceptable deviation range in either Clauses 4 or 6.

Accordingly, the Tribunal finds that there has been a breach of the contractual specifications for vanadium and sodium set out in Clause 4.”

44.The Tribunal proceeded at paragraph 108 to explain why the defences raised by the Plaintiff did not assist it, pointing out that the Contract price was negotiated on the basis of the quality and contractual specification set out in Clause 4, but essentially relying on the fact that the provisions of Clauses 4 and 6 of the Contract clearly set out the acceptable deviation range, and these clauses do not require the Defendant to raise an allegation of breach in any certain way.

45.Whether the Tribunal is right, or wrong, in reaching its decision on the interpretation of the Contract provisions, and on the Plaintiff’s breach of the Contract requirements, is of course not the subject of review by this Court. As Counsel for the Defendant correctly submitted, even if there was any failure on the part of the Tribunal to set out each step of its reasoning, or to address every argument advanced by the Plaintiff, and even if the Tribunal did not set out a full analysis on the interpretation of clause 21 (as the Plaintiff complains of), that does not constitute a failure to deal with an issue. It is sufficient if the parties who had made their submissions before the Tribunal can, upon reading the Award, understand why the Tribunal had decided against it (whether or not erroneously) (R v F [2012] 5 HKLRD 278).

46.Pertinently, Counsel for the Defendant pointed out that the Award and the reasons given in the Award must be read in the proper context. In this case, the Plaintiff’s legal team had accepted, at the oral opening of the Arbitration, and when questioned specifically by the Tribunal, that “if the Tribunal were to find a breach of the terms on quality … the buyer would be entitled to terminate”.

47.Accordingly, when addressing the issue of whether the Defendant is entitled to terminate the Contract under clause 21 by the Defendant’s Notice, the Tribunal stated (at paragraphs 125 - 126 of the Award):

“Although the (Plaintiff) has raised a number of defences against the (Defendant’s) claim for breach of Clause 4 of the Contract and breach of implied terms, the (Plaintiff) has stayed silent on the (Defendant’s) right to terminate if the Tribunal should find that there has been a breach of Contract. In any event, the (Plaintiff) has not denied the existence of Clause 21 which gives both Parties a right to terminate in the event of breach by the other party. In fact, both parties rely on Clause 21 to terminate the Contract and to claim liquidated damages.

In the circumstances, and given the clear language at Clause 21, the Tribunal finds that the (Defendant) is entitled to terminate and did so terminate the Contract by its Notice of Termination dated 19 January 2023.”

48.I agree with the Defendant, that given the concession made by the Plaintiff’s Counsel in the Arbitration with regard to the Defendant’s right to terminate under Clause 21 if breach was established, there is no room for it now to claim that the Tribunal had failed to deal with the issue of the Defendant’s right of termination under clause 21, after the Tribunal accepted that the content of the vanadium and sodium was not compliant with the contractual specification. The complaint of the absence of “any meaningful analysis on the proper interpretation of Clause 21” is simply a claim of the inadequacy of the reasons given by the Tribunal, rather than a failure to deal with the issue.

Public policy

49.Having found against the alleged failure to deal with issues, there is no basis to refuse enforcement of the Award on any ground of public policy. All that remains of the Plaintiff’s complaint is that despite the Defendant’s having taken delivery of the first batch of the fuel oil, and making no complaint about the vanadium and sodium content, the Tribunal made the decision that the Defendant was entitled to terminate the Contract by reason of trivial and de minimus deviations from the Contract specifications, which was against common law principles, particularly when these trivial defects were not even relied upon in the Defendant’s Notice. All these amount, at most, to a claim that the Tribunal was wrong in law and/or on facts in making the Award, which is not a permissible ground for the Court to set aside the Award.

50.In my judgment, there is nothing shocking to the conscience of the Court to enforce a final award made on the basis of the Plaintiff’s breach of contract.

Disposition

51.The order made at the conclusion of the hearing was for the Originating Summons to be dismissed, with costs on indemnity basis. This includes certificate for Counsel.

Mr Roger Phang, instructed by King & Wood, for the plaintiff

Ms Cherry Xu and Mr Charlie Liu, instructed by Wilkinson & Grist, for the defendant