Q AND ANOTHER v. F AND ANOTHER

HCCT 79/2022

[2023] HKCFI 647

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 79 OF 2022

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D E C I S I O N

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Background

1.  On 22 September 2022, this Court granted leave to the Applicants to enforce an arbitral award made on 21 June 2022 (“Award”) in HKIAC/A21099 (“Arbitration”) which was commenced in Hong Kong by the Applicants against 3 Respondents (“Enforcement Order”). The 3^rd Respondent in the Arbitration is currently the 2^nd Respondent in these proceedings (“Y”). The Award was that the 1^st and 2^nd Respondents in the Arbitration had been in breach of a Cooperation Framework Agreement dated 9 February 2018 (“Framework Agreement”), and that the 1^st, 2^nd and 3^rd Respondents in the Arbitration had been in breach of a Subscription and Shareholders’ Agreement also dated 9 February 2018 (“Subscription Agreement”), by failing to pay the agreed preference returns specified in the Subscription Agreement to the 2^nd Claimant. Y was ordered under the Award to pay to the 2^nd Claimant a sum of US$13,302,493.15, a penalty in accordance with the Subscription Agreement, and the costs of the Arbitration.

2.  On 11 October 2022, Y applied to set aside the Enforcement Order (“Setting Aside Application”). The grounds were not set out in his summons for the Setting Aside Application, but in his affirmation filed on 11 October 2022, Y claimed that there had been material non-disclosure in the application for the Enforcement Order, in that the Applicants had not informed the Court that he had made an appeal to the HKIA concerning the Award, and further, that he had not been given notice of the Arbitration and was unable to present his case. In his affirmation, Y claimed that he was not in Hong Kong from 23 August 2021 to 8 March 2022, and from 7 April 2022 to 2 July 2022. In his “2^nd affirmation” filed on 8 December 2022, Y claimed (in paragraph 8e of his 2^nd affirmation) that he had not been given a chance to defend himself in the Arbitration before the Award was granted. It was also claimed (in paragraphs 4 and 6 of his “1^st affirmation” of 8 December 2022) that he did not receive notice of the Arbitration as he was not in Hong Kong from August 2021 to August 2022, due to travel restrictions and quarantine requirements during the Covid pandemic.

3.  On 8 November 2022, the Applicants applied under Order 73 rule 10A RHC for security from Y, and in default of security, for the Setting Aside Application to be dismissed. Under Order 73 rule 10A, the Court may, if it thinks it just to do so, having regard to all the circumstances of the case, impose such terms as to giving security or otherwise as a condition of the further conduct of an application to set aside an order granting leave for enforcement of an arbitral award.

4.  The legal principles applicable to the determination of an application for security are set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208, per Staughton LJ:

“In my judgment two important factors must be considered on such an application, although I do not mean to say that there may not be others. The first is the strength of the argument that the award is invalid, as perceived on a brief consideration by the Court which is asked to enforce the award while proceedings to set it aside are pending elsewhere. If the award is manifestly invalid, there should be an adjournment and no order for security; if it is manifestly valid, there should either be an order for immediate enforcement, or else an order for substantial security. In between there will be various degrees of plausibility in the argument for invalidity; and the Judge must be guided by his preliminary conclusion on the point.

The second point is that the Court must consider the ease or difficulty of enforcement of the award, and whether it will be rendered more difficult, for example, by movement of assets or by improvident trading, if enforcement is delayed. If that is likely to occur, the case for security is stronger; if, on the other hand there are and always will be insufficient assets within the jurisdiction, the case for security must necessarily be weakened.”

5.  The above legal principles were applied in Dana Shipping and Trading SA v Sino Channel Asia Ltd [2017] 1 HKC 281.

Whether grounds to set aside the Enforcement Order for material non‑disclosure

6.  There is no basis to set aside the Enforcement Order on the ground of material non-disclosure. On the evidence, Y’s “appeal” to the HKIAC was in fact a reference to his solicitors’ letter to the HKIAC dated 5 August 2022 (“Letter”). In this Letter, the solicitors referred to the Award and the fact that Y had not been in Hong Kong and had not received any letters or notice relating to any arbitration. It was pointed out in the Letter that Y did not have a reasonable opportunity to attend the Arbitration. The Letter stated that Y’s rights had been denied, that the Award was unfair and objected to, and a request was made that Y be given a further opportunity to attend the hearing.

7.  In the affirmation of Huang Xingyu (“Huang”) made on 9 September 2022 and filed in support of the application for the Enforcement Order, Huang had already exhibited the Letter, and explained that Y had, firstly, applied to the Court of the Cayman Islands to set aside the order for leave to enforce the Award in the Cayman Islands, and secondly, appointed solicitors and issued a letter to the HKIAC to protest that the Award was rendered in the absence of Y.

8.  On the evidence, it is clear that there was no withholding of the fact that Y had raised objection to the HKIAC on the basis that he had not received notice of the Arbitration, was not given the opportunity to attend the Arbitration, and that he had been absent from Hong Kong.

Strength of the argument that the Award is invalid

9.  Applying the principles set out in Soleh Boneh, the first consideration of whether security should be ordered is the strength of the argument that the award is invalid, as perceived on a brief consideration by the court.

10.  The gist of Y’s complaint, as disclosed in the affirmations filed in support of the Setting Aside Application, is that he was not in Hong Kong, and did not receive any notice of the Arbitration. For the Court to refuse enforcement of an award under section 86(1)(c) of the Arbitration Ordinance (“Ordinance”), Y must show that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise “unable” to present his case. The Court has no power or ground to refuse enforcement simply because Y has some defence on the merits to the claims made against him in the Arbitration, or that the Award was wrong in law or on facts. The supervisory court does not sit on appeal from the findings made by the tribunal.

11.  Contrary to what was claimed in his affirmations filed in support of the Setting Aside Application, Y accepted at the hearing on 27 February 2023 that he had been informed of and was aware of the Arbitration “at the beginning”. He only maintained that the Award was made in his absence and without his knowledge. He relied on periods of his absence from Hong Kong after August 2021, and on the fact that the company email account of his had been suspended when the company computer had been seized in the process of criminal investigations on the Mainland.

12.  I accept the submissions made for the Applicants, that the assertions made by Y in his affirmations are on their face full of contradictions, rendering his original claims of not having received notice of the Arbitration incredible.

13.  The Subscription Agreement to which Y was a party contains an arbitration clause in clause 16.1. Clause 16.1(b) provides for written notice of disputes arising out of or relating to the Subscription Agreement to be given, and clause 16.2 provides that any document in an action may be served on a party to the Subscription Agreement by being delivered to that party’s address in the Details of the Subscription Agreement (“Details”). The Notice of Arbitration was sent on 20 May 2021 to Y’s email address as recorded in the Details (william.y_sh@gainfullcapital.com) (“Email Address”). Such service was in accordance with clause 16.2, and also deemed received under the notice provision in clause 14.1 of the Subscription Agreement. On the Applicants’ evidence, which Y has not disputed, the Applicants’ lawyers had received notice of the successful delivery of the email.

14.  Although Y claimed in his evidence that the Email Address had been suspended or that he had no access to the company computer since December 2020, the Applicants pointed out that their emails sent to Y’s Email Address on 18 October 2021 and 1 November 2021 had been successful and had not been bounced back. Further, the Applicants’ evidence is that Y himself had informed them in their discussions in July 2021 that he was aware of the Arbitration. As Counsel for the Applicants pointed out, it was because of the Applicants’ commencement of the Arbitration that Y met with representatives of the Applicants for discussions on how the matter could be resolved.

15.  The Applicants maintained that the Notice of Arbitration had in fact also been sent by mail to Y’s residential address at Amalfi, Discovery Bay, Hong Kong (“DB Address”) on 5 November 2021, in accordance with the Procedural Order No 1 issued by the Tribunal on 1 November 2021 (“PO 1”), in which the Tribunal issued directions on (inter alia) the service of documents, notices and correspondence relating to the Arbitration. PO 1 was served by the HKIAC by sending it to Y at the Email Address on 1 November 2021. According to the Applicants, when the hearing bundle of documents for the Arbitration had been sent to Y at the DB Address in February 2022, Y had in fact signed to acknowledge receipt of such documents – although Y claimed at the hearing before this Court on 27 February 2023 that it was not his signature. The Applicants further emphasized that the DB Address was stated to be Y’s address in his summons for the Setting Aside Application. It was argued that documents delivered to the DB Address should have come to Y’s knowledge even if he had not signed for their receipt in 2022, as he now claims.

16.  According to the Applicants, there was no doubt that Y had received notice of the Arbitration and of the hearing which took place on 18 February 2022.

17.  Having been validly served with notice of the Arbitration, of which Y accepted to have knowledge, there is no ground to refuse enforcement of the Award under section 86(1)(c) of the Ordinance, on the basis that he was not given proper notice of the Arbitration.

18.  Clause 16 of the Subscription Agreement provides for arbitration in accordance with the Hong Kong International Arbitration Rules administered by the Hong Kong International Arbitration Centre (“Rules”). It also provides for an arbitral tribunal to consist of 3 arbitrators. As reflected in the Award, the appointment of the 3 arbitrators was completed on 16 September 2021, in accordance with the Rules, and PO 1 was issued on 1 November 2021. On the evidence, notice of PO 1 was sent by email to Y (at the Email Address) on 1 November 2021, with the procedural timetable for the Arbitration, including (inter alia) the timetable for service of the Statement of Defence, and the manner of service of notices and documents.

19.  It is therefore clear that having been served with the Notice of Arbitration, and having been given notice of the commencement of the Arbitration, the empaneling of the Tribunal, and the timetable for the service of the necessary documents for the Arbitration, Y had notice of all these matters but chose not to take any steps, nor to communicate with the Tribunal in relation to the claims made against him, and any defence he may have to such claims. He could have but chose not to inform the Tribunal that he would not be able to attend or to appear in the Arbitration in Hong Kong on any date, and that the hearing should be postponed for any reasons he relied on.

20.  Even on Y’s own evidence, he only left Hong Kong on 23 August 2021, and was accordingly in Hong Kong when the Notice of Arbitration was served on him, by email in May 2021. It was open to him to deal with the Notice between May and August 2021, and to correspond with the Tribunal if he had the intention to do so.

21.  As the Applicants pointed out, the hearing held on 18 February 2022 was partly by personal attendance in Hong Kong, and partly by remote or virtual attendance. Even if Y was not in Hong Kong, he could have applied to attend by videoconferencing facilities, but he chose not to do so.

22.  Y places reliance on his rights under Articles 1 and 10 of the Bill of Rights, to a fair and public hearing. There is no question of his rights having been denied or deprived of in this case. He had agreed voluntarily under the Subscription Agreement to refer disputes arising out of or relating to the Subscription Agreement, including any matter concerning its existence, validity, performance or breach, to be submitted to arbitration in Hong Kong in accordance with the Rules. The conduct of the Arbitration is subject to and governed by the Ordinance, section 46(3) of which requires the Tribunal to give to the parties “a reasonable opportunity to present their cases and to deal with the cases of their opponents”, and to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute to which the proceedings relate.

23.  The Tribunal had given the reasonable opportunity to Y, and the other parties to the Arbitration, to present their cases. It had specified the time within which the statement of Defence and other evidence should be filed, and fixed the dates of the hearings. The Tribunal was entitled to proceed with the hearing in the absence of any defence, documents, or any response being submitted or made by Y pursuant to the directions and orders of the Tribunal. This is a case, not of Y having been deprived of the opportunity, but of his failing to utilize the opportunity afforded to him, to present his defence in the Arbitration, and it was a matter of his own conscious decision. Whether he had made attempts to settle the matter with the Applicants, and whether he had a good defence to the claims made, are irrelevant when it was his own decision not to appear in the Arbitration to present his case as to whether an award should, or should not, be made against him for the reasons or on the grounds of defence to be submitted by him.

24.  There is accordingly no merit at all in his Setting Aside Application as can be perceived from the evidence already filed. I am satisfied that the Award is manifestly valid, and am prepared to order immediate enforcement without further delay, instead of adjourning the matter until after the substantive hearing of the Setting Aside Application set for 28 April 2023. All the evidence for the Setting Aside Application has already been filed.

Ease or difficulty of enforcement of the Award

25.  If the question has to be considered as to whether or not security should be ordered, in the interim of the period between now and the substantive determination of the Setting Aside Application, I would have taken into consideration the fact that Y’s evidence has been shown to be totally contradicted and is unreliable. His claims that he had no knowledge and had not received notice of the Arbitration, or that he had no access to his email account, cannot be believed, as being inconsistent with his own evidence as to his absences from Hong Kong, the evidence of the dispatch of the emails and the delivery to the DB Address. His claims were contradicted to the extent that he had to concede, at the hearing, that he did have knowledge of the Arbitration, or the commencement and existence of the Arbitration.

26.  Y’s claims that he has no income and no assets in Hong Kong remain bare assertions, which are unsupported by any form of documentary or other evidence relating, for example, to his alleged loans. I do not accept that he has been forthright at all in his evidence, and there is force in the submissions made by Counsel for the Applicants that Y’s evidence has been contradicted in such a way as to show that he had no regard at all for the truth of the facts stated in his affirmations, and is dishonest. The Court should not accept the evidence of such a witness, when he asserts that he has no assets in Hong Kong, and that enforcement would not be rendered more difficult if it should be delayed. When a party makes such an assertion, he raises the issue of his assets and the availability of such assets for enforcement in Hong Kong, and whether the party seeking enforcement would be prejudiced by the delay when there are no available assets. In such a case, it is for Y to make honest disclosure to make good his claim, and I am not satisfied that he has done so.

Conclusion

27.  Having considered the lack of merits in Y’s Setting Aside Application, the absence of frank disclosure of his assets, the falsity of the factual assertions made by him in putting forward the grounds for the Setting Aside Application, notwithstanding the short delay until the hearing on 28 April 2023, I would have ordered security to be furnished for the full amount of the Award as a condition for the further conduct of the Setting Aside Application. I would also have ordered that the Setting Aside Application should be dismissed if security was not provided within 21 days.

28.  In this case, bearing in mind the unmeritorious Setting Aside Application, and the manifest validity of the Award, I consider that there should be an order for immediate enforcement, and for the Setting Aside Application to be dismissed. This in my judgment is consistent with the Court’s policy of enforcement of arbitration agreements and awards without unnecessary expense and delay. It would not be in the interests of either the Applicants or Y himself, for further legal costs to be incurred.

Disposition

29.  The order made on the Applicants’ summons of 8 November 2022 is that the Setting Aside Application be dismissed, there be immediate enforcement of the Award, and that the costs of the summons of 8 November 2022 and of the Setting Aside Application (including costs reserved) be paid by Y to the Applicants, on indemnity basis, to be taxed if not agreed, with Certificate for Counsel.