A CONSORTIUM COMPRISING TPL AND ICB v. AE LTD

HCCT 61/2020

[2021] HKCFI 2341

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 61 OF 2020

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D E C I S I O N

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Background

1.  On 22 September 2020, this Court made an order (“Enforcement Order”) granting leave to the Applicant named in these proceedings to enforce an arbitral award issued on 14 May 2020, which award was amended and supplemented by a Supplemental Award issued on 29 June 2020 (“Awards”). This was on the Applicant’s ex parte application made on 18 September 2020.  The Awards were made in an arbitration commenced by the Applicant against the Respondent (“Arbitration”), pursuant to a Request for Arbitration submitted to the Dubai International Arbitration Centre, in a dispute which had arisen between the Applicant and the Respondent under a Sub-Consultancy Agreement and a Supplemental Agreement for the design and construction of a Complex in Riyadh, Saudi Arabia (“Project”).  Under the Award, the Respondent was ordered to pay to the Applicant Saudi Arabian Riyals (“SAR”) 16,315,181 as damages, SAR 3,361,744.30 as monies owed, SAR 7,946,387.91 as costs, and SAR 525,537 as financial penalty.

2.  On 8 October 2020, the Respondent applied by summons to set aside the Enforcement Order (“Setting Aside Application”), on the grounds that (1) the Enforcement Order is irregular as the Applicant is not a legal entity capable of suing and being sued under the laws of Hong Kong and has no capacity to institute the present action (“Irregularity Ground”); (2) there was material non-disclosure on the part of the Applicant when it applied for the Enforcement Order (“Disclosure Ground”); and (3) under section 89 (2) (a), (b), (d) (i), (d) (ii) and (e) (i) of the Arbitration Ordinance (“Ordinance”) (“section 89 Grounds”).  The section 89 Grounds are that the Applicant is under some incapacity, that there was no valid arbitration agreement, that the Awards dealt with a difference not falling within the terms of the submission to the Arbitration or contained matters beyond the scope of the submission to Arbitration, and that the arbitral procedure was not in accordance with the arbitration agreement.

3.  The Disclosure Grounds are that at the time of the Applicant’s ex parte application for leave to enforce the Awards, it was known to the Applicant that the validity of the Awards was under challenge by the Respondent, and that the Respondent had on 12 June 2020 applied to the Dubai Court of Appeal to nullify and to stay enforcement of the Awards (“Nullification Proceedings”).  Notwithstanding such knowledge, the Applicant did not inform the Hong Kong Court of the existence of the Nullification Proceedings, which was a matter material to the Court’s decision as to whether to grant leave to enforce the Awards.

4.  The Respondent further sought by the summons of 8 October 2020 an order that the proceedings for enforcement of the Awards be adjourned until the final disposal of its application in Dubai to set aside the Awards (“Adjournment Application”).

5.  On 4 November 2020, this Court gave directions for evidence to be filed on the summons for the Setting Aside Application and the Adjournment Application, and for the said applications to be adjourned for substantive argument.

6.  On 25 November 2020, the Applicant applied by its summons for leave to amend the Originating Summons issued on 18 September 2020, to name the Applicant as the 1^st Applicant, and to add TPL and ICB as 2^nd and 3^rd Applicants (“Amendment Application”).

7.  On 11 January 2021, the Amendment Application was, by consent, adjourned to be heard together with the Setting Aside Application.

The Irregularity Ground

8.  The substance of the Irregularity Ground has to be explained before the Setting Aside Application and the Amendment Application can be properly considered.

9.  The Respondent claims that the Enforcement Order was granted in favour of an entity which does not exist, nor is such entity recognized under the laws of Hong Kong.  The “Consortium comprising TPL and ICB” is not an incorporated company nor is it registered, and it has no recognized existence in Hong Kong to either commence proceedings to sue, or be sued.  On behalf of the Respondent, reference to and reliance was made on a criminal case, HKSAR v Hyundai-CCECC Joint Venture & Anor HCMA 530/2005, where the Court observed that to convict an unincorporated association such as the Joint Venture named in the action would be a “legal nonsense”.  It was argued that the same uncertainties and the lack of legal status apply to the Applicant as originally named in these proceedings.

10.  There is no evidence that TPL and ICB carry on business in Hong Kong as a partnership in the name of the Consortium.  On the Applicant’s case, TPL and ICB are in law separate and distinct legal entities.  TPL is described as a branch of a foreign company registered under licence in Dubai, and ICB is described as a foreign company registered in Lebanon.

11.  The Applicant has highlighted the fact that the dispute which was submitted to the Arbitration arose under the Sub-Consultancy Agreement dated 23 April 2015 (“Agreement”).  The Agreement was supplemented by a Supplemental Agreement of the same date (“Supplemental Agreement”), and amended by an Amendment to the Agreement dated 31 January 2016 (“Amendment”). These agreements were all expressed to have been made between “the Joint Venture of TPL and ICB” referred to as the Consultant, and the Respondent referred to as the Sub-Consultant.  They were all executed by “authorized signatories of the Joint Venture partners of the Consultant”, and signed in the name of TPL and ICB respectively.  I do not see any real distinction between the use of “Joint Venture” and the use of “Consortium”.  The Joint Venture referred to in the Agreements was clearly identified as the venture of TPL and ICB, and no other.

12.  The Respondent sought to argue that “Consortium” was referred to and has a different meaning in the Agreements, as opposed to “Joint Venture”.  The Agreement recites that TPL and ICB, referred to as the Consultant, had formed a “Consortium of Sub-Consultants” to provide some of the services required of it under its agreement with the client on the Project.  Clearly, that consortium was of a totally different nature to the joint venture comprising TPL and ICB which contracted with and engaged the Respondent, referred to in the Agreements as the Sub-Consultant, as one of those sub-consultants.

13.  The Agreement contained the arbitration clause, and the Arbitration was commenced by the Request for Arbitration served in the name of the Applicant (namely, “A Consortium comprising TPL and ICB).  The Answer and Counterclaim dated 24 October 2017 served by the Respondent likewise referred to the Applicant as the Consortium comprising TPL and ICB.  There was no claim in the Answer that the Applicant was not a legal or valid entity, nor any defence raised on the basis that the Agreement was not a valid contract made with a non‑existent entity which had no capacity.  Evidence was filed, and submissions were made in the Arbitration, on the merits of the different claims made by the Applicant in relation to the Project.  Clearly, the Respondent was under no doubt or confusion as to who had commenced the Arbitration and made the claims against it, and it certainly did not raise such query in the Arbitration.

14.  As the Applicant further highlighted, the Applicant had provided in the Arbitration two separate Powers of Attorney, executed by and on behalf of each of TPL and ICB, to demonstrate that the representatives in the Arbitration had authority to act on behalf of TPI and IBC.  The Applicant and the Respondent in the Arbitration also signed Terms of Reference which confirmed that the parties agreed that the Powers of Attorney were valid and enforceable.

15.  As apparent from the documents in the Arbitration, the Respondent was in no doubt as to the identity of the Claimant, and as to the Claimant being the party to the Agreements.  The Award further makes the identity of the Claimant beyond doubt.  It states that the Claimant was a consortium comprising TPL of the United Arab Emirates and ICB of Lebanon.

16.  It is of course necessary for the proceedings which seek enforcement of the Awards in Hong Kong to be properly constituted and brought by a recognized legal entity.  There is no evidence of any partnership carrying on business in Hong Kong in the name of “A Consortium comprising TPL and ICB”.  The Consortium is not a corporation.

17.  Being an unincorporated association, the joint venture, or “Consortium”, is not a legal entity which can sue or be sued in its name (London Association for Protection of Trade v Greenlands Ltd [1916] 2 AC 15). In the eyes of the law, an unincorporated association is the sum total of its members, and the rights and liabilities of the members in relation to contracts made on their behalf are prima facie joint and all members should be included as claimants, and conversely, as defendants (see Bowardley Enterprises Ltd v Millennium Group Ltd, unreported, DCCJ 3039/2004, [2005] HKEC 1224, at para 23).

18.  On behalf of the Respondent, it was submitted that the Hong Kong courts have held that enforcement of arbitral awards under the Ordinance should be as “mechanistic” as possible.  Under section 84 of the Ordinance, where the Court grants leave to enforce an arbitral award, judgment is entered “in terms of the award”.  On the Respondent’s case, the jurisdiction of the Court is limited only to entering judgment in terms of the award which in this case is an award in favour of “A Consortium comprising TPL and ICB”, and not any other entity.  It was argued that under section 12 of the Ordinance, the Court shall intervene only where so provided by the Ordinance.  The Court should not go behind the dispositive parts of the Awards, to second guess the intentions of the Tribunal, nor to speculate on the intention and objectives of TPL and ICB in initiating an arbitration in the name of “A Consortium”.

19.  I do not agree that by adopting a mechanistic approach towards enforcing arbitral awards, the Court is prevented from giving effect to an award on its plain reading.  Reading the Award of 14 May 2020 on its face, it should be reasonably clear that it was made in favour of a consortium said to comprise the two entities, TPL and ICB.  As the named components of the consortium, they are the two parties jointly entitled to the benefits of the Award.

20.  Applying Hong Kong procedural law governing the constitution of the proceedings, the two parties named as the “Consortium” should be the parties jointly entitled to the relief sought in the Originating Summons, being leave to enforce the Awards in favour of the Consortium.  The case falls within Order 15 rule 4 (2) RHC, on which the Applicant relies in its Amendment Application.  I see no reason why the joinder should not be made, when TPL and ICB both consent to being joined as Applicants.

21.  Notwithstanding the advocacy of a mechanistic approach to the enforcement of arbitral awards, the Courts have nevertheless declined to be rigid if it would be contrary to the spirit of the Ordinance which is to facilitate the enforcement of arbitration agreements and awards.  In the first instance decision of the Court in Xiamen v Eaton Properties Limited and ors HCCT 54/2007, 24 June 2008, Reyes J pointed out that there is nothing in the Ordinance which ties the Court’s hand to enforcing only part of an award where appropriate, and further, that the Court has a degree of flexibility in the deployment of the means of enforcement available to it.  In JJ Agro Industries (P) Ltd v Texuna International Ltd [1992] 2 HKLRD 391, Kaplan J also held that the doctrine of severability of an award enables the Court to enforce such part of an award as is within its jurisdiction, and that it would be contrary to the spirit of the Ordinance if enforcement were to be refused in respect of a severable part of an award which is not in issue.  These decisions go beyond the identification of the parties named in the award.  To be blind to the natural and reasonable meaning as is apparent from the Awards, and refuse enforcement of the Awards in this case would be obstructing rather than “facilitating” arbitration, and entirely contrary to the aim and objectives of the Ordinance in section 3.  This is so when there is no need whatsoever to “go behind” the Awards to understand what it means, or to be embroiled in the underlying dispute or the tribunal’s reasoning for the Awards, in order to identify the party or parties named in the Awards.

22.  There is no substitution of new parties to the Awards, as the Respondent claims.  The Awards were in favour of the “Consortium” described in the Awards themselves as comprising the two parties now to be included, TPL and ICB.  The award made in the case of Norsk Hydro ASA v The State Property Fund of Ukraine & Others [2002] EWHC 2120 (Comm) is distinguishable as the respondent named was “The Republic of Ukraine, through the State Property Fund of Ukraine”.  The English Court considered that the award was made against the one single respondent named, whereas enforcement was sought against the two separate and distinct entities of “State Property Fund of Ukraine”, and the “Republic of Ukraine”.  One party suing or being sued “through” another suggests agency, and is different to a party suing or being sued as a named component of a joint venture or consortium.

23.  In conclusion, I am prepared to allow the Amendment Application, to join TPL and ICB as 2^nd and 3^rd Applicants.  These proceedings for enforcement of the Awards are governed procedurally by the Rules of the High Court.  Under Order 15 rule 6 (1), no cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party.  I cannot see that the Respondent has been or will be prejudiced in any way by the joinder of the 2^nd and 3^rd Applicants in this action.  At no time was the Respondent under any doubt or misunderstanding as to the identity of the Claimant in the Arbitration, as it had not raised any query or issue in the Arbitration which led to the Awards and to these proceedings in Hong Kong for enforcement of the Awards.  The amendment and joinder of the 2^nd and 3^rd Applicants will cure the defect or irregularity of the original Applicant as to its capacity to commence these proceedings.

The Disclosure Ground

24.  By the time of the hearing, the Applicant had admitted that at the time of its ex parte application for the Enforcement Order, there had been non-disclosure of the fact that the Respondent had issued the Nullification Proceedings in Dubai.  The Applicant only contends that such non-disclosure was innocent, based on the mistake of the solicitor who made the application that the duty to make full disclosure did not apply in this case when the Respondent would have 14 days to apply to discharge the Enforcement Order.  The Respondent has however highlighted the fact that even after the Respondent had issued the Setting Aside Application, the Applicant had not explained the non-disclosure until 25 November 2020, which was 2 months after the Enforcement Order had been granted.

25.  The Applicant was clearly under the duty to make full and frank disclosure of all facts which are relevant to the exercise of the Court’s determination of the ex parte application.  Materiality is a matter for the Court to decide, not the Applicant. The existence of the Nullification Proceedings, and the fact that the Respondent had applied to the supervisory court to set aside the Awards, was clearly relevant to whether the Court should grant leave to enforce the Awards.  This is irrespective of the Applicant’s view of the merits of the Nullification Proceedings.  The proper disclosure should have been made as soon as the Applicant realized the mistake which had been made.

26.  If the Court had been made aware of the fact that the Respondent had applied to the Dubai Court to nullify or set aside the Awards, it would not have granted the Enforcement Order on ex parte basis and would likely have ordered an inter partes summons to be issued instead, for the Respondent to be heard and for the matter to be argued.

27.  I accept that the non-disclosure in this case was intended as opposed to being accidental, but was innocent by virtue of the honest mistake made by the solicitor.  Bearing in mind the utmost importance of the duty to make full and honest disclosure in ex parte applications, the Enforcement Order granted on ex parte basis is set aside.  The Court has power to consider its re-grant at the inter partes hearing, and this will be considered in the light of the Irregularity Ground (already dealt with above) and the section 89 Ground against enforcement of the Awards.

The section 89 Ground

28.  By Order of 11 January 2021, the substantive hearing of the Setting Aside Application was, by consent, adjourned to be heard together with the Amendment Application.  At the hearing on 26 March 2021, no detailed submissions were made on behalf of the Respondent on the section 89 Ground.  The Respondent only sought and argued for an adjournment of the application for enforcement of the Awards, pending the outcome of its application to the Dubai Court of Cassation on appeal against the Dubai Court of Appeal’s dismissal of its application to set aside the Awards in the Nullification Proceedings.

29.  Since the hearing of the various summonses in these proceedings on 26 March 2021, the Respondent’s appeal to the Dubai Court of Cassation has been dismissed.  The Respondent has confirmed to this Court that it no longer pursues the Adjournment Application.

30.  As pointed out above, submissions were not made on behalf of the Respondent on the existence of the section 89 Grounds, despite the fact that the Court had ordered that the merits of the Setting Aside Application would be heard and dealt with at the hearing.  Under section 89 of the Ordinance, the onus is on the Respondent to prove the grounds relied upon.

31.  In any event, on the question of the existence of an arbitration agreement, I am satisfied, by reason of the matters set out in the earlier parts of this Decision under the Irregularity Ground, that there was a valid arbitration agreement made between the Applicant as the Consortium, and the Respondent.  It is also clear that the Respondent had not raised any issue as to the existence of the Consortium in the Arbitration, and any alleged defect or irregularity raised by the incapacity or non-existence of the Consortium had been waived by the Respondent, by its continuing with the Arbitration.

32.  As to the other section 89 grounds, of the claim being related to another project outside the submission to the Arbitration under the Agreements, the applicable law not having been applied by the tribunal, and the tribunal not having followed the agreed procedure, these questions of merits and on procedure had been considered and decided, not only by the tribunal but by the Dubai Court of Appeal when it dismissed the Nullification Proceedings.  The Respondent’s appeal to the Dubai Court of Cassation has also been dismissed.  The decision of the supervisory court applying the governing law of the Agreements has to be given “due weight” by the enforcement court (Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKLRD 627).  As Tang VP (as he then was) explained in Gao Haiyan, at paras 65 to 68 of the judgment, where the court with the supervisory jurisdiction has refused to set aside the award and has upheld its validity, the result of the refusal to enforce the award can be extremely unjust.  His Lordship referred to what Colman J had observed in Minmetals Germany GmbH v Ferco Steel Ltd [1999] CLC 647:

“… In international commerce a party who contracts into an agreement to arbitrate in a foreign jurisdiction is bound not only by the local arbitration procedure but also by the supervisory jurisdiction of the courts of the seat of the arbitration. If the award is defective or the arbitration is defectively conducted the party who complains of the defect must in the first instance pursue such remedies as exist under that supervisory jurisdiction. That is because by his agreement to the place in question as to the seat of the arbitration he has agreed not only to refer all disputes to arbitration but that the conduct of the arbitration should be subject to that particular supervisory jurisdiction. Adherence to that part of the agreement must, in my judgment, be a cardinal policy consideration by an English court considering enforcement of a foreign award.

In a case where a remedy for an alleged defect is applied for from the supervisory court, but is refused, leaving a final award undisturbed, it will therefore normally be a very strong policy consideration before the English courts that it has been conclusively determined by the courts of the agreed supervisory jurisdiction that the award should stand.  Just as great weight must be attached to the policy of sustaining the finality of international awards so also must great weight be attached to the policy of sustaining the finality of the determination of properly referred procedural issues by the courts of the supervisory jurisdiction.  I use the word ‘normally’ because there may be exceptional cases where the powers of the supervisory court are so limited that they cannot intervene even where there has been an obvious and serious disregard for basic principles of justice by the arbitrators or where for unjust reasons, such as corruption, they decline to do so.  However, outside such exceptional cases, any suggestion that under the guise of allegations of substantial justice procedural defects in the conduct of an arbitration which have already been considered by the supervisory court should be re-investigated by the English courts on an enforcement application is to be most strongly deprecated.”

33.  On the evidence available in this case, I see no merits in the section 89 Ground to justify a refusal to enforce the Awards under the section.

Disposition

34.  For all the above reasons, I grant leave to the 2^nd and 3^rd Applicants to enforce the Awards.

35.  Parties are directed to confer and to agree within 14 days on directions for the filing of written submissions on costs, if the costs of the Setting Aside Application, the Amendment Application and the Adjournment Application cannot be sensibly and reasonably agreed so that further time and costs can be saved.  Any written submissions should be confined to 3 pages for each party (of double spacing in clearly legible 14 point or larger typeface in Times New Roman font style).