Judicial Recognition Of Partial Awards: The BVI Court's Ruling In Global/Gerald v CNG

Abstract

On April 15, 2024, the Eastern Caribbean Supreme Court (Territory of the Virgin Islands) ("the BVI Court"), held that even partial arbitral awards can be final and binding. In the case of Global Mining Development L.P. and Gerald Metals LLC ("Global/Gerald") v China National Gold Group Hong Kong Limited ("CNG") ("the Case"), the BVI Court recognized and enforced two partial awards under the auspices of the Hong Kong International Arbitration Centre (HKIAC), on the basis that partial awards not affected by "ordinary recourse" are binding, notwithstanding that the arbitral tribunal retains the authority to issue further orders.

Case Facts

Global Mining Development L.P. and Gerald Metals LLC ("Global/Gerald") on one hand and China National Gold Group Hong Kong Limited ("CNG") on the other are shareholders of Soremi Investments Ltd, a British Virgin Islands company ("SIL").

In 2020, CNG sought to transfer its shares in SIL to an affiliated company. However, Global/Gerald, exercising its right of first refusal under the shareholders' agreement, requested to purchase CNG's shares. CNG declined to sell its shares to Global/Gerald.

Subsequently, Global/Gerald filed for arbitration under the rules of the Hong Kong International

Arbitration Centre (HKIAC), requesting an order that CNG transfer its shares in SIL to Global/Gerald under the shareholders' agreement.

On February 8, 2023, the HKIAC issued the first final partial arbitral award ("1st FPA"), ruling that CNG should transfer its shares in SIL to Global/Gerald and requiring CNG to provide bank account details to facilitate the payment. The arbitral tribunal expected CNG to comply with the award voluntarily, leaving the specifics of the transfer for the parties to negotiate. The tribunal refrained from issuing a direct order for specific performance but reserved the right to issue further orders for specific performance if CNG failed to comply. However, CNG did not carry out the transfer thereafter.

On February 26, 2023, Global/Gerald wrote to the arbitral tribunal, requesting an order for specific performance to supplement or modify the 1st FPA.

On March 31, 2023, the HKIAC issued an Addendum to the 1st FPA, correcting inconsistencies regarding the deadline for CNG to provide bank account details. However, the arbitral tribunal declined to issue an order for specific performance at that time.

On April 20, 2023, Global/Gerald applied to the BVI Court for the registration of the 1st FPA for the purpose of enforcement. On April 25, 2023, the Court issued an order recognizing the validity of the 1st FPA.

On April 27, 2023, CNG applied to the Hong Kong Court to set aside the 1st FPA (as Hong Kong was the seat of arbitration), citing reasons including: denial of an opportunity to fully present its case during arbitration, procedural non-compliance with the parties' agreement, and the award's failure to address key issues or provide sufficient reasoning.

On May 1, 2023, Global/Gerald again applied to the HKIAC for the issuance of an order for specific performance.

On May 26, 2023, CNG applied to the BVI Court to set aside the order recognizing the 1st FPA.

On August 30, 2023, the Hong Kong Court decided to dismiss CNG's application to set aside the 1st FPA but reserved the reasons for its dismissal.

On November 21, 2023, the HKIAC issued a partial final arbitral award for specific performance ("SP FPA"), ordering CNG to transfer its shares in SIL to Global/Gerald for USD 86.32 million.

On December 18, 2023, Global/Gerald applied to the BVI Court for the registration of the SP FPA to enforce it. On December 20, 2023, the Court issued an order recognizing the validity of the SP FPA.

On February 15, 2024, CNG applied to the BVI Court to set aside the order recognizing the SP FPA. CNG's grounds included the argument that the 1st FPA was not binding due to being affected by "ordinary recourse" and that the arbitral tribunal lacked the authority to issue the SP FPA. CNG further argued that both partial awards should not be recognized or enforced, and requested that the BVI Court set aside the orders recognizing both partial awards.

On February 27, 2024, the Hong Kong Court issued its reasons for dismissing CNG's application to set aside the 1st FPA. The Hong Kong Court found that the arbitral tribunal had already ruled on key issues and provided adequate reasoning based on the facts established in the 1st FPA. Additionally, the Hong Kong Court held that the arbitral tribunal had full discretion in deciding the arbitration procedures and timetable. The appeal deadline had passed at that time, and CNG had confirmed that it would not appeal.

On April 15, 2024, the BVI Court issued its final judgment, affirming the Hong Kong Court's previous decision to dismiss CNG's application to set aside the 1st FPA. The BVI Court further ruled that both partial awards were final and binding, thereby dismissing CNG's application to set aside the orders recognizing the two partial awards.

Key Issues in Dispute

The key issues in the Case primarily focus on two questions:

1. Whether the 1st FPA is binding;
2. Whether the arbitral tribunal has the authority to issue the SP FPA.

The resolution of these two issues directly affected the enforceability of the two partial awards.

Reasoning for the Judgment

1. The 1st FPA is Binding

CNG argued that the 1st FPA should not be recognized or enforced, citing Article V(1)(e) of the New York Convention¹ (United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards) and Section 86(2)(f)(i) of the BVI Arbitration Act², which regulates that if an award is not yet binding on the parties, recognition and enforcement can be refused. CNG contended that the 1st FPA was not binding due to Global/Gerald's exercise of "ordinary recourse", and therefore lacked enforceability. According to previous precedents, the binding effect of an award is subject to the limitation of "ordinary recourse". Burton J had clearly stated: "The binding effect of an award depends upon whether it is or remains subject to ordinary recourse."³ "Ordinary recourse" is typically used to appeal the substantive merits of an arbitral award in order to seek supplementation or modification⁴. In the Case, Wallbank J of the BVI Court pointed out that the exercise of "ordinary recourse" may lead to the award remain indefinitely open to modification. Therefore, to avoid executing a not definitive award that may cause unfair and unjust consequences for both the claimant and defendant, an award against which "ordinary recourse" is available is not yet binding (though this view may vary across different jurisdictions).

CNG argued that: (1) Global/Gerald's application to the HKIAC for an order of specific performance constituted the exercise of "ordinary recourse". However, CNG failed to provide sufficient evidence to support this argument. (2) The set-aside proceedings initiated by CNG in the Hong Kong Court had the effect of suspending the BVI Court's enforcement order. However, the BVI Court held that this action constituted the exercise of "extraordinary recourse". "Extraordinary recourse" is limited to applications for set aside based on procedural irregularities and other such grounds⁵. In the Case, Wallbank J pointed out that such an application is typically reviewed by another arbitral tribunal or court, and that the exercise of "extraordinary recourse" does not affect the binding nature of the award itself.

In this regard, the BVI Court held that the SP FPA is not a supplement or modification of the 1st FPA, but rather an independent, new award. Therefore, Global/Gerald's application for an order of specific performance does not constitute the exercise of "ordinary recourse". Accordingly, the 1st FPA remains binding.

2. The Arbitral Tribunal has the Authority to Issue the SP FPA

CNG further argued that the arbitral tribunal lacked the authority to issue the SP FPA, therefore, the award should not be recognized or enforced. The basis for this argument was the principle of finality in arbitration, which holds that once an award is made, the arbitral tribunal loses its jurisdiction over the case.

In this regard, the BVI Court referred to the decision of Butcher J in the case of YDU v SAB, where the Court held that it can be both valid and effective for an arbitral tribunal to reserve the jurisdiction to issue further orders⁶. In the Case, the arbitral tribunal explicitly stated in the 1st FPA that, if CNG failed to voluntarily comply, the tribunal would issue an order of specific performance. The BVI Court held that the arbitral tribunal's reservation of jurisdiction to issue further orders to support the enforcement of the 1st FPA was valid. Therefore, the arbitral tribunal had the authority to issue the SP FPA, and the award should be recognized and enforced.

Comments

In practice, the binding effect of partial awards is often questioned, typically on the basis of the "finality of arbitral awards" in international arbitration. However, the principle of the "finality of arbitral awards" does not imply that an award cannot be made in parts or stages; rather, it means that once an award is made, its content immediately carries legal binding force, subject to "ordinary recourse" in some jurisdictions.

Several international arbitration centers, such as the HKIAC⁷ in the Case and the Shanghai International Arbitration Center⁸, explicitly provide in their latest arbitration rules that partial awards can be issued. This means that during the arbitration process, partial awards can be made on matters that have been clearly addressed, and that such partial awards are final and binding, without affecting the final award.

In fact, pursuant to important documents in international arbitration, such as Article V(1)(e) of the New York Convention⁹ and Article 35 of the UNCITRAL Model Law on International Commercial Arbitration¹⁰, the recognition and enforcement of an award does not require the award to be "final", but rather that the award is "binding" on the parties. This means that whether an award has legal effect does not depend on its "finality", but rather on the fact that once the award is made, it immediately carries enforceable "binding" force.

Therefore, even if a partial award is not a formality-wise "final" award, it can still have legal binding force and can be enforced when necessary.

Footnotes

1. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958)
Article V
1 Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

2. Arbitration Act (Revised 2020)
86. (2) Enforcement of a Convention award may be refused if the person against whom it is invoked proves—
(f) that the award
(i) has not yet become binding on the parties.

3. Dowans Holdings SA et al. v Tanzania Electric Supply Co Ltd [2011] EWHC 1957 (Comm)

4. Diag Human SE v Czech Republic [2014] EWHC 1639 (Comm)

5. Diag Human SE v Czech Republic [2014] EWHC 1639 (Comm)

6. YDU v SAB [2023] Bus LR 1488

7. 2024 HKIAC ADMINISTERED ARBITRATION RULES
2.13 References to "award" include, inter alia, an interim, interlocutory, partial or final award, save for any award made by an emergency arbitrator.
35.1 The arbitral tribunal may make a single award or separate awards regarding different issues at different times and in respect of all parties involved in the arbitration in the form of interim, interlocutory, partial or final awards. If appropriate, the arbitral tribunal may also issue interim awards on costs and any awards pursuant to Articles 41.5 or 45A.3.
35.2 Awards shall be made in writing and shall be final and binding on the parties and any person claiming through or under any of the parties.

8. Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center) Arbitration Rules (2024)
Article 62 Partial Award
Upon the request of the parties and if the tribunal deems it necessary, the tribunal may render a partial award on matters related to the case before the final award is rendered. The partial award is a part of the final award with binding effect on the parties.
Failure to perform the partial award by any one of the parties will neither affect the continuation of the arbitration proceedings nor prevent the tribunal from rendering the final award.

9. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958)
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

10. UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006
Article 35. Recognition and enforcement
(1) An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36.