The Hong Kong Court of First Instance has upheld the enforcement of a CIETAC award following the re-arbitration by a new tribunal of a limited evidential issue which did not affect the result ( G v. X and Others [2023] HKCFI 3316).
The court firmly rejected the award debtor's claim that the re-arbitration (which concerned two pieces of quantum evidence collected by the original tribunal on its own and not put to the parties) had the result that the original award was no longer binding or had been suspended.
The decision is one of two recent Hong Kong cases addressing “re-arbitration” or “remission” of issues to the tribunal in lieu of an order setting aside the award (see also G v. N [2023] HKCFI 3366 and our blog on that case), and provides a helpful comparative discussion of the similar legal impact of remission in the Mainland PRC and Hong Kong.
Background
G commenced CIETAC arbitration against X and others, claiming that he had been induced by fraud to sell his interests in an online music company at an undervalue. The tribunal ruled in G's favour and ordered X to pay him RMB 660 million (approximately US$93 million).
X opposed an application by G to enforce the award in Hong Kong, on the basis that (i) he had been unable to present his case on a formula which the tribunal had come up with on its own for the calculation of damages, and (ii) the award went beyond the scope of the submission to arbitration because of the consolidation of disputes under eight agreements involving different parties.
The Hong Kong enforcement proceedings were stayed following an application by X to set aside the award in the Mainland.
The Mainland court issued a notice informing CIETAC that the tribunal had collected evidence on its own without the parties' examination, in breach of the applicable CIETAC rules. The Mainland court therefore directed that a “re-arbitration” should be held pursuant to Article 61 of the PRC Arbitration Law. The Mainland setting aside application was subsequently terminated.
A new tribunal was appointed and issued a procedural order which limited the scope of the re-arbitration to the examination by the parties of two pieces of quantum-related evidence (namely, the closing price and number of shares in the company, as stated in its 2019 annual report) which had not been put to them by the previous tribunal.
The new tribunal issued an award in which it declined to make any adjustments to the findings made by the original tribunal and upheld the award of RMB 660 million against X. The new tribunal noted that the original award had not been set aside by the Mainland court and “still has the force of res judicata“.
X challenged enforcement of the original award in Hong Kong on the basis that it was either “not binding” or had been “suspended” by the Mainland court as a result of the re-arbitration (relying on section 95(2)(f) of the Hong Kong Arbitration Ordinance).
Decision
Mimmie Chan J held that there was “absolutely no ground” to refuse enforcement of the original award and proceeded to grant G's enforcement application and order indemnity costs against X.
At the outset, the court noted that it was now “clear and beyond doubt” in light of developments in the Mainland that the original grounds relied upon by X to oppose enforcement prior to the stay of proceedings were without merit.
Turning to X's most recent argument that the original award was not binding because of the re-arbitration, the court reasoned that:
- On their plain reading, the relevant provisions of PRC law relied upon by X (including Article 61 of the PRC Arbitration Law) did not provide that re-arbitration would result in the setting aside, revocation or even suspension of the award.
- Those provisions were similar in intent and purpose to section 81(4) of the Hong Kong Arbitration Ordinance, which provides that the court can, where appropriate and requested by a party, suspend setting aside proceedings and remit the matter to the tribunal to provide an opportunity to eliminate grounds for setting aside the award.
- Common law authorities made it clear that (i) an award remained valid and binding despite having been remitted to the arbitrator (in Carter v. Harold Simpson Associates [2005] 1 WLR 919, the Privy Council held that “the remittal of the award does not deprive it of legal effect. It continues to operate so as to make the arbitrator functus officio, unable to alter his award, on those matters which were not remitted”), and (ii) the tribunal only has a limited scope of enquiry on remission (citing the decision of the Privy Council in Sans Souci Ltd VRL Services Ltd [2012] UKPC 6).
- The evidence of G's expert on Mainland PRC law (which the court accepted) as to the limited scope of the tribunal in a re-arbitration was consistent with those common law authorities. Re-arbitration only concerned the correction of defects or mistakes in an award, and was not a separate arbitration. It was generally limited to the flaws or defects in the proceedings identified by the Mainland supervisory court, rather than a re-arbitration of the entire matter.
- The original award had not been set aside and was still valid under PRC law, and the Mainland setting aside proceedings had been terminated.
- To the extent that it was claimed that the original award was replaced by the award of the new tribunal in the re-arbitration, that must depend on the scope of the re-arbitration ordered.
- In this case, the Mainland court had only ordered re-arbitration regarding the two pieces of quantum evidence mentioned above. The new award only replaced the original award on this defined issue, and to the extent that the new award was in any way different on this issue. It was “patently clear” that the re-arbitration had no effect on the original award. The new award was the same as the original award on the question of damages, and made no difference in outcome or effect.
- The court also noted the distinction between an order of the supervisory court setting aside an award, made as the exclusive recourse against an award under the New York Convention regime, and an order permitting or refusing enforcement. Even if an award was set aside by the supervisory court, it did not follow that enforcement must be refused by a court of enforcement. In Hong Kong, it was also settled that the court had a discretion to enforce an award even if the grounds for refusing enforcement were made out.
The court also rejected an argument by X that the new award should not be enforced because the procedure in the re-arbitration was not in accordance with the parties' agreement, holding that the argument was without merit in light of the evidence and authorities, and should in any case be pursued separately since X claimed that the new award was independent of the original award.
Comment
The court described this as “another unfortunate case of a long drawn out arbitration and a history of disputes over the award made”. Its decision to proceed with enforcement despite the prospect of further set-aside proceedings in the Mainland was plainly informed by the delays which had already occurred and its view that X's challenges to date had all been unmeritorious.
Together with the recent decision in G v. N [2023] HKCFI 3366, this case provides a useful reminder of the availability of remission as an alternative to the more drastic remedy of setting aside arbitral awards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
