Learn more about our comprehensive legal services.
Advising our clients on different opportunities and challenges of the industry.
News & Insights
Authored by: KK Cheung
廣東順德展煒商貿有限公司 v Sun Fung Timber Company Limited, HCCT 25/2019,involved an application to set aside an Enforcement Order, whereby the Applicant had been granted leave to enforce an arbitral award of the Zhanjiang Arbitration Commission. The court granted the application and set aside the Enforcement Order, holding that the Respondent was not a party to the arbitration agreement, had not been given proper notice of the arbitration, had been unable to present its case and that enforcement of the award would be contrary to the public policy of Hong Kong. That decision was upheld on appeal.
As the grounds to set aside as set out in sections 95(2)(b), 95(2)(c) and 95(3) (b) of the Arbitration Ordinance (AO) had been established, it was not necessary for the court to elaborate on the ground that the Enforcement Order should be set aside for material non-disclosure. However, the court made it clear that failure to disclose the sale of the property where arbitration documents had been served and that service was very likely to be disputed, was serious, deliberate, intentional and material and that representations made to the court were misleading.
This was an application to set aside an Enforcement Order granting the Applicant (GD) leave to enforce an arbitral award made by the Zhanjiang Arbitration Commission (Tribunal), for payment by the Respondent (Company) to GD of RMB59 million, with costs (Award). The Award was made in an arbitration commenced by GD against the Company on the basis of the Company’s breach of a Contract entered into by the Company for the sale of marble to GD, a Mainland company. The Company was incorporated in Hong Kong. 50% of its shares are held by ST and 50% by a company, NI, of which DL is the majority shareholder and director. ST and DL are the only two directors of the Company. The Company carried on a timber retail business at a Property, at least until August 2017, when the Property was sold.
In issue were whether there was a binding Contract under which GD claimed to be entitled to commence the arbitration, whether the Company had proper notice of the arbitration and the Award, and whether enforcement of the Award made in GD’s favour could be refused on the grounds provided for in section 95 of the AO. The gist of NI’s complaint was that the Contract, made in the name of the Company and signed by ST, was not authorised, and was therefore invalid, that the Contract was made by ST in collusion with GD in an attempt to strip the Company of its assets by their agreeing on an onerous Contract, admitting to the Company’s breach and liability in the arbitration brought by GD on the Contract, agreeing to the Award and enabling GD under the Award to obtain the proceeds of sale of the Property and other assets of the Company via enforcement of the Award.
NI claimed that the Company had not been given proper notice of the commencement of the arbitration, nor of the Award, as all relevant documents relating to the arbitration were served on the Company at the Property, which had been sold in May 2017 to the knowledge of ST. DL and NI as shareholders of the Company only became aware of the Award when GD commenced winding-up proceedings against the Company on the basis of the debt under the Award. NI had obtained leave of the court to intervene in these proceedings to set aside the Award.
The court held that the Contract was entered into by ST (one of the two directors of the Company) without any authority of the Company under Hong Kong law, such that the Company was not a party to the Contract at all. It followed that the Company was never a party to the arbitration agreement contained in the Contract. If PRC law was applicable, the court was also satisfied on the evidence that GD or SW knew or ought to have known that ST lacked authority to act for the Company when he made the Contract.
There could be no dispute, the court said, that an arbitration agreement is separate to and severable from its underlying contract. In this case, however, the underlying agreement for sale and purchase and the arbitration agreement were contained in the same document, i.e. the Contract. Having found and accepted the Company’s claim that ST, who purported to sign as agent for the Company, had no authority to conclude any agreement on behalf of the Company with GD, the contract to arbitrate had not been agreed to by the Company, and was likewise impeached.
The court found that there had been no “proper” notice of the arbitration to the Company, when the Property had been sold by ST, and documents served at the registered office address there could not be brought to the proper attention of the Company. Notably, there was no evidence of the service of the notice of arbitration on the Company. The Award itself did not refer to the fact, details or manner of service of the arbitration documents on the Company. It only referred to the Company’s address at the Property, the Company being represented by ST in the arbitration hearing, and the Company’s consenting to the summary procedure for the arbitration as well as to the claims of breach of contract and payment of damages to GD.
The court noted that what section 95 of the AO specifies as a ground of refusal of enforcement of an arbitral award is that the party was not given “proper notice” of the arbitral proceedings, or was unable to present its case. If ST had no authority to act on behalf of the Company in his conduct of the arbitration, there was no other evidence, nor claim, that DL, NI or anyone else of the Company had been notified of the commencement of the arbitration, or of the claims made by GD in the arbitration, to be given the opportunity to present the Company’s case in opposition to the claims made in the arbitration. Whether it had a defence, if the Contract was valid, was of course a separate matter. The court therefore accepted that the Company had not been given proper notice of the arbitration, and was unable to present its case.
The court said that on the particular facts and evidence in this case, it would indeed be shocking to the conscience of the court to permit GD to enforce the Award which the court had found to be procured by ST in collusion with GD, or SW acting on its behalf. The arbitral process and the Award had been misused by ST with the assistance of GD, and it would be contrary to the public policy of Hong Kong to permit enforcement of such an Award. The court found that the failure to disclose the sale of the Property, and that service of documents at the Property had been and was very likely to be disputed, was serious, deliberate, intentional, and material. The representations made to the court were misleading. There was clearly material non-disclosure, the court said. It followed that the Enforcement Order had to be set aside and there was no basis to re-grant the Enforcement Order.
The Applicant applied for leave to appeal the above decision on the grounds that the court had erred in law and/or on the evidence in arriving at its conclusion. The court declined to grant leave to appeal, as it was not satisfied that such appeal had reasonable prospects of success, for the following reasons:
Given the “enforcement biased” approach of the Hong Kong court, this is one of few cases where enforcement was refused. The finding of the lower court that GD or SW knew or ought to have known that ST lacked authority to act for the Company when he made the Contract had an important bearing on the outcome of the appeal.
Subscribe to Publications
Sign up for our regular updates covering the latest legal developments, regulations and case law.
For media enquiries please contact us at email@example.com.
Tel: +852 2825 9211