SHANDONG HONGRI ACRON CHEMICAL JOINT STOCK CO LTD v. PETROCHINA INTERNATIONAL (HONG KONG) CORPORATION LTD

HCCT 45/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION & ARBITRATION PROCEEDINGS

NO. 45 OF 2009

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IN THE MATTER OF ENFORCEMENT OF ARBITRATION AWARD

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BETWEEN

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R U L I N G

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1.  On 21 September 2009, the China International Economic and Trade Arbitration Commission (CIETAC) issued Arbitral award No. 0305 [2009] in respect of a dispute between the parties to this litigation. The award was in the following terms:

“1. (Shandong Hongri) shall return 3,810.578 tonnes of sulphur to (Petrochina).

2. (Petrochina) shall return to (Shandong Hongri) the sum of US$2,953,198, being the payment received for the goods.

3. (Petrochina) shall indemnify (Shandong Hongri) the sum of US$1624.26, equivalent to RMB11,126.18, being the insurance premium incurred.

4. (Petrochina) shall indemnify (Shandong Hongri) the sum of RMB350,002.58, being 14 items of fees, including “service fees”, incurred in relation to the goods under the Sale and Purchase Contract at the destination port (calculated up to December 2008).

5. (Petrochina) shall indemnify (Shandong Hongri) the sum of RMB65,400.00, being the authentication fee.

6. The arbitration fee of the case is RMB347,372, (Petrochina) is responsible for 70% of the arbitration fee, being RMB243,160.4; (Shandong Hongri) is responsible for 30% of the arbitration fee, being RMB104,211.6. (Shandong Hongri) has already paid in advance the said arbitration fee in full. Therefore (Petrochina) shall pay to (Shandong Hongri) the sum of RMB243,160.40.

7. The other claims made by (Shandong Hongri) in the arbitration are dismissed.

The sums mentioned in (2), (3), (4), (5) and (6) above, which are payable to (Shandong Hongri), shall be paid by (Petrochina) to (Shandong Hongri) within 30 days from the date of this award. Should payment be made after the deadline, interest shall be added in accordance with the law.

This award is a final award and is effective on the date when the award is made.” (sic)

2.  On 17 November 2009,Shandong Hongri,in reliance upon s 2GG and s 40B Arbitration Ordinance, Cap 341, made an ex parte application for an order granting leave to enforce items 2, 3, 4, 5,and 6 of the award, together with interest on the sum of US$2,953,198 at judgment rate from 22 October 2009 to the date of payment, and interest on the accumulated sum of RMB669,689.16 for the same period.

3.  It will be noted immediately thatShandong Hongridid not seek to enforce that part of the award contained in paragraph 1, whereby it was obliged to return 3,810.57 tonnes of sulphur to Petrochina.

4.  The matter first came before me on an ex parte basis and, there being no apparent reason on the face of the documents why the order should not be made, an order nisi was duly made on 18 November 2009.

5.  On 4 December 2009, Petrochina applied to set aside the order on the following grounds:

(a) by a supplementary explanation of the award, the Arbitral Tribunal stated that ifShandong Hongrifailed to return to the respondent the goods, at the status when the goods were originally received,Shandong Hongrihad no right to request a return of the payment of the goods from Petrochina; (i.e. payment of the sum of US$2,953,198);

(b) thatShandong Hongrihad refused to discharge its obligation to return the goods;

(c) that the application for the order to enforce the award was made prematurely, prior to the arbitration process having been concluded;

(d) thatShandong Hongriwas in breach of its duty for disclosure when making the ex parte application.

6.  My initial approach to the matter was to endeavour to persuade the parties to resolve the circumstances by making arrangements for an appropriate inspection and return of the goods, and at the time the goods were returned, for payment of the amount due.  In the course of a number of short hearings Petrochina paid into court the whole of the amount due under the award.

7.  Notwithstanding that payment, the parties were unable to arrange inspection and return of the goods.  It is not appropriate at this stage of the proceedings to consider the steps were taken towards that end.  It may be necessary to examine those steps and subsequent proceedings.  It is sufficient if I say that no successful arrangement was made to enable the return of the goods.  The funds remain in court.

8.  Counsel forShandong Hongrisays thatShandong Hongriis entitled, forthwith, to an order enforcing the award, that there should be an immediate order for payment of the sums due as sought by its summons, as set out in paragraph 2 above.

9.  Counsel for Petrochina says that payment should not be made until the goods have been returned, and, at my suggestion, filed a summons to vary the ex parte order, by including in the order item 1 of the award, thereby making the obligation ofShandong Hongrito US$2,953,198 to Petrochina part of the judgment, and consequently enforceable in Hong Kong.

10.  In Xiamen Xinjingdi Group Ltd v Eton Properties Ltd [2009] 4 HKLRD 353, the Court of Appeal rejected an appeal from a decision[1] of Reyes J, holding that the exercise of the conversion of an arbitration award into a court judgment is a purely mechanistic matter, see per Le Pichon JA at § 28.  If the criteria in s 40B of the Arbitration Ordinance, Cap 341 (the Ordinance) are met, the court will usually give effect to the award by granting permission to enforce it: see Russell on Arbitration, 23^rd Edn, § 8‑005.

11.  Effectively, what was sought byShandong Hongriwas partial enforcement of the award.  There is nothing in the Ordinance which prevents partial enforcement where appropriate: see Xiamen Xinjingdi per Reyes J at § 80-84.  At this stage, the court is not concerned with enforcement, but with the stage at which an award is registered, and becomes enforceable as a judgment.

12.  Nothing that Ms Cheng said went to justify an argument that Petrochina should not be entitled to have that portion of the award favourable to it registered and enforceable as a judgment.

13.  I see no reason at all why, if those portions of the award favourable toShandong Hongriare to be registered, and to be enforceable as a judgment, then those portions of the award favourable to Petrochina should not equally be registered and be enforceable as a judgment.

14.  The real issue that arises in these proceedings is the question of enforcement of the award, and whether or not the obligation onShandong Hongrito return the sulphur to Petrochina is concurrent with the obligation on Petrochina to make payment of the sum of $2,953,198 toShandong Hongri. That issue raises the effect of the application made by Petrochina to the CIETAC arbitrators for a supplemental award in order to clarify the sequence of performance by the parties under the award.  That is an issue that will require full argument.

15.  The sequence of events that led to the supplemental award was as follows.

a. The award was issued on 21 September 2009.

b. On 29 September 2009,Shandong Hongrimade clear its position that it considered that the return of the sulphur in the same status as it had been delivered was a pre-condition of the repayment of the purchase price.

c. On the same day Petrochina requestedShandong Hongrito attend a joint inspection on 30 September 2009, to ascertain whether the sulphur was the original sulphur.

d. Shandong Hongridid not send representatives to attend the joint inspection. Petrochina says thatShandong Hongrirefused to cooperate. Shandong Hongridid not suggest any other date for a joint inspection.

e. On 9 October 2009, Petrochina applied to CIETAC for a supplemental award in order to clarify the sequence of performance by the parties under the award.

f. On 15 October 2009 CIETAC replied to both parties informing them that it would entertain an application for a supplemental award under Article 48 of the CIETAC Arbitration Rules.

g. By two letters dated 18 November 2009 and 20 November 2009, the CIETAC Arbitration Tribunal confirmed Petrochina’s view of the interpretation of the award, namely thatShandong Hongrimust return the original goods to Petrochina, and that if it failed to return the goods in the same status as when the goods were originally received,Shandong Hongridid not have the right to demand the return of the payment for the goods from Petrochina. It will be noted that the ex parte application was made on 17 November 2009, and the order of 18 November 2009.

16.  Mr Ng contended that by reason of material nondisclosure on the part ofShandong Hongri, the ex parte order should be set aside.  The material nondisclosure he said, arose because the true effect of the correspondence between the parties and the CIETAC arbitrators was not adequately set out in the affidavit, and the correspondence itself was effectively buried, entirely unidentified, in exhibits to the affidavit comprising 148 pages.

17.  Further, Mr Ng said that the continuing obligation of disclosure in an ex parte application required that the letters purporting to constitute supplementary awards, from the CIETAC arbitrators, apparently clarifying the award and enabling Petrochina to resist payment until it was in receipt of the sulphur, should also have been disclosed to the court, even after the ex parte order was made.

18.  Were this not a situation where Petrochina itself seeks to enforce part of the award itself, there may well be a sound basis to refuse leave to enforce the award.  But I propose to take a practical view of the matter.  If I refuse leave under s 40B, or set aside the order nisi on the ground of material non-disclosure, it will be necessary for the parties to commence an action on the award to achieve enforcement.  To insist on that course would achieve only unnecessary expenditure on legal fees, and the proceedings would reach precisely the point at which they now are in these proceedings.  The question would then arise as to the effect of the purported supplementary awards.

19.  The true nature and effect of the two letters is a pure question of law capable of disposal by a short hearing under O 14A. Shandong Hongrihas issued a summons seeking the resolution of those questions of law.

20.  But that is not to say that the issue of nondisclosure simply disappears.  As I say, Mr Ng may well be on sound ground in his contention that there has been material nondisclosure.  The question is reserved for further argument and consideration when I ultimately come to deal with costs in these proceedings.

21.  Having regard to the foregoing matters I make the following orders:

a. The order nisi shall be varied, by granting leave to Petrochina to enforce paragraph 1 of the Arbitral Award No. 0305 [2009] of the China International Economic and Trade Arbitration Commission (CIETAC) dated 21 September 2009 against Shandong Hongri in the same manner as a judgment of the High Court of the Hong Kong Special Administrative Region to the same effect.

b. Shandong Hongrido forthwith return to Petrochina 3,810.578 tonnes of sulphur.

c. Any execution of the judgment be stayed pending further order of the court;

d. A case management conference in respect ofShandong Hongri’ssummons dated 16 March 2010, pursuant to O 14A, is fixed for Wednesday, 25 August 2010 at 10 a.m. with one hour reserved, to give directions for the hearing of the summons.

e. All questions of costs are reserved.

22.  If required, I will hear the parties on the form of the order.