HONG KONG COURT UPHOLDS ENFORCEMENT OF "MANIFESTLY VALID" CIETAC AWARD

The Hong Kong Court of First Instance has rejected an “untenable” challenge to a US$21 million CIETAC award, holding that that the award was manifestly valid and ordering indemnity costs against the award debtor for its unsuccessful attempt to resist enforcement (COG v ES [2023] HKCFI 294).

Background

The award debtor opposed enforcement on the basis of factual complaints that: (i) it had insufficient time to prepare its case before the first hearing; (ii) its request for a second hearing to address new evidence and issues was denied by the tribunal; (iii) the tribunal failed to provide reasons for that decision; and (iv) it had a set-off / counterclaim which had not been addressed by the tribunal (and in respect of which it claimed to have commenced a new arbitration).

As a result, the award debtor argued that enforcement should be denied (or at least stayed) on the legal grounds that: (i) it had been unable to present its case; and (ii) enforcement of the award would be contrary to public policy.

Legal principles

The award creditor sought security for the award amount as an alternative to its primary request for immediate enforcement of the award.  The parties therefore agreed that the relevant legal principles were those applicable to an application for security, as set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd's Rep 208, which have previously been held to apply in Hong Kong (as reported here).  The key consideration was the strength of the argument that the award was invalid, based on a brief consideration by the Court.  If the award was manifestly invalid, there should be an adjournment and no order for security.  If the award was manifestly valid, the Court should order either immediate enforcement or substantial security.

Decision

Mimmie Chan J rejected all of the award debtor's complaints:

• Lack of preparation time before first hearing. The award debtor had not complained or sought an adjournment at any time before or during the first hearing.  If there was any ground for complaint, therefore, it was that the award debtor had deprived the tribunal of the opportunity to deal with the alleged grievance.
• Denial of request for second hearing. The parties had agreed at the first hearing that they would examine further evidence in writing pursuant to Article 42 of the CIETAC Rules.  There was no injustice in the fact that this agreed procedure had been followed.  The tribunal’s decision not to hold a second hearing was a case management decision which it was entitled to make and which the Court should not lightly interfere with.  The right of a party to a "reasonable opportunity” (not a "full opportunity") to present its case under section 46 of the Arbitration Ordinance was not unlimited in scope and breadth and did not entitle a party to make unreasonable demands.
• Lack of reasons. Applying R v F [2012] 5 HKLRD 278, an award had to be read and understood in the context of how the issue was laid and argued before the tribunal.  The reasons for the award did not necessarily need to be elaborate or lengthy, provided they could be understood in their proper context.  The reasons given by the tribunal (namely, that it "had considered the actual circumstances of the case" and the opinions of the parties, and did not agree that a further hearing was necessary), were proportionately adequate and sufficient.  Moreover, the cross-examination which the award debtor wished to conduct at the proposed second hearing related to the authority of the relevant witness to perform the reconciliation of amounts subject to an alleged set-off agreement, not the existence of the alleged set-off agreement itself.  Since the tribunal had rejected the set-off argument on the basis (amongst other things) that there was no factual evidence of a set-off agreement in the first place, such cross-examination therefore would not be material.  The decision not to convene a further hearing could be understood against that backdrop.
• Set-off / counterclaim not addressed. The award debtor had never raised the alleged counterclaim in the arbitration, and could not now demand that enforcement be delayed or stayed because of the new arbitration.  Contrary to the submissions made to the Court by the award debtor, moreover, the tribunal had addressed and dismissed the set-off argument.  It had done so both on factual grounds (as discussed above) and because there was no basis for it in the terms of the contract.

The Court therefore held that the award debtor had enjoyed a reasonable opportunity to present its case, and that it would not be "shocking to the court's conscience" to enforce the award.  The award was manifestly valid, and leave for enforcement should be granted without further delay.  The Court's order of indemnity costs against the award debtor for the unsuccessful challenge reflects the usual approach in Hong Kong in the absence of special circumstances.

Commentary

The decision is an example of the robust approach of the Hong Kong courts to challenges to arbitral awards and the high threshold which parties seeking to resist enforcement or set aside awards must meet.  In particular, the courts are likely to view with disfavour any attempt by a party to revisit, or blame upon the tribunal, the way in which (for its own reasons) it conducted its case in the underlying arbitration.  Further, when reading an award, the courts should take into account the nature of the arbitral process and the context in which relevant issues have been argued before the arbitral tribunal.  This is particularly important given that arbitration is a private and confidential dispute resolution process based on party autonomy.  An arbitral award is intended to be read by the parties - who would be familiar with the background and how the issues have been argued - and, unlike a judgment of the court, is not to be made public.

From a practical perspective, the decision illustrates the importance of identifying and addressing all material arguments at an early stage of the arbitration.  It also provides a reminder of the need to raise due process objections with the tribunal and make appropriate reservations of rights in a timely manner, and the advisability of exercising caution before committing at a hearing to blanket agreements on future procedure (particularly where material new evidence and submissions are likely to be filed).

For further information, please contact Kathryn Sanger, Partner, Martin Wallace, Professional Support Consultant, or your usual Herbert Smith Freehills contact.