Beware differences in law of supervisory court and court of enforcement when enforcing arbitration award

The recent case of 樓外樓房地產咨詢有限公司 對 何志蘭 (HCMP 3202/2013) concerned two Mainland arbitral awards made by the Guangzhou Arbitration Commission against a Ms Ho, under which she was ordered to pay certain amounts to the Respondents (the purchaser and real estate agent respectively) for having breached a sale and purchase agreement in respect of a property in Guangzhou.

The purchaser and real estate agent applied to Hong Kong’s Court of First Instance to enforce the awards and that application was allowed. Ms Ho now applied to set aside the Court’s orders allowing enforcement on the grounds that she had not received proper notice of the appointment of arbitrator or of the arbitral proceedings and had been unable to present her case.     

The awards made by the Guangzhou Arbitration Commission were “Mainland awards” under Hong Kong’s Arbitration Ordinance (Cap. 609). Under section 95(2)(c) of the Arbitration Ordinance, the enforcement of a Mainland award may be refused if the person against whom it is sought to be enforced proves that he:

(i)    was not given proper notice of the appointment of arbitrator or of the arbitral proceedings; 

(ii)   was otherwise unable to present his case.

Service of the Notices

It was undisputed that Ms Ho had received the relevant notice of arbitration which had been sent by mail to an address in Hong Kong (“HK Address”) of which she was the registered owner. However, she claimed that it was not her usual residence and that she had just happened to have been there at the time the notice was sent.

Subsequently, the notice of arbitral hearing was sent to the HK Address by the Guangzhou Arbitration Commission. Ms Ho was not there at the time and the notice was returned, to sender i.e. to the Commission. However, according to Rule 73 of the Arbitration Rules of the Guangzhou Arbitration Commission, such notice of hearing was regarded as having been effectively served on Ms Ho, as it had been delivered successfully to her HK address. As a result, the arbitration hearing proceeded in Ms Ho’s absence and this culminated in the arbitral awards mentioned above, in favour of the purchaser and real estate agent.

The Hong Kong Court’s decision

The Court referred to Hebei Import & Export Corp v Polyteck Engineering Co Ltd (1999) 2 HKCFAR 111 where the Court stated that the New York Convention “… distinguishes between proceedings to set aside an award in the court of supervisory jurisdiction…. and proceedings in the court of enforcement…. Proceedings to set aside are governed by the law under which the award was made or the law of the place where it was made, while proceedings in the court of enforcement are governed by the law of that forum”.

The Court held that when a party is relying on one or more discretionary grounds in section 95(2) of the Arbitration Ordinance to oppose enforcement of a Mainland arbitral award, the position should be the same. Accordingly, here, the case should be dealt with applying Hong Kong law.

The Court was also of the view that Counsel for the Applicant had not been able to show that service of the notice of hearing constituted “proper notice” under section 95(2)(c)(i).

The Court therefore granted Ms Ho’s applications, as she had not been given proper notice of the arbitral proceedings or had been unable to present her case.

Discussion

One of the central issues in this case was the interpretation of “proper notice” under section 95(2)(c)(i) of the Arbitration Ordinance. The Court concluded that there was no “proper notice” under Hong Kong law. As Ms Ho had not actually received the notice of hearing, it seems that the Court elevated the requirement of “proper notice” in section 95(2)(c)(i) to one of actual notice. The Court did not seem to have considered the parties’ freedom to allocate risks in the sale and purchase agreement and their decision to adopt arbitration rules containing a deeming provision for service of documents. It is peculiar that the Court refused to enforce the arbitral awards even though the parties had agreed to arbitral rules, under which the service in question was proper.

This case is significant as it suggests that an otherwise valid arbitral award may not be enforced in Hong Kong because certain provisions in the arbitral rules agreed by the parties are adjudged not to meet Hong Kong’s legal requirements. In particular, parties should be aware of differences in the law under which the award was made (or place where it was made) and that where the award is sought to be enforced, as regards service of process. We believe that this is only the beginning of a larger discussion and are curious as to how the Courts will respond in the future to cases involving this issue.

Key Contacts

Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

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