CONSTRUCTION COMPANY v. GUARANTOR

HCCT 15/2021

[2021] HKCFI 2558

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 15 OF 2021

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BETWEEN

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REASONS FOR DECISION

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Background

1.  On 18 February 2021, this Court granted leave to the Plaintiff to enforce an arbitral award dated 24 November 2020 (“Award”), issued in an arbitration before the American Arbitration Association in Los Angeles, California, USA (“Arbitration”), for payment by the Defendant of a sum of US$38,440,000, interest and costs.

2.  On 9 March 2021, the Defendant applied for the order of 18 February 2021 (“Enforcement Order”) to be set aside. The grounds relied upon by the Defendant are that the Award has not yet become binding on the parties as an application to set aside the Award had been made to the US Court; the arbitration agreement is invalid; the Defendant was unable to present its case in the Arbitration; and/or that it would be contrary to public policy to enforce the Award.

3.  On 16 April 2021, the Plaintiff applied for security to be furnished by the Defendant in the event that enforcement of the Award should be adjourned.

4.  After hearing the parties on 17 August 2021, I dismissed the Defendant’s setting aside application. The following sets out the reasons for my decision.

5.  The Plaintiff was at all material times carrying on the business of general contracting and construction management in the USA. The Plaintiff and LLC (“Subsidiary”) entered into a contract in July 2016, for the construction of a project (“Project”) located in Los Angeles, California (“Construction Contract”). The Subsidiary was at all material times an indirect subsidiary of the Defendant. On 5 March 2020, the Defendant issued a Parent Company Guarantee (“Guarantee”) in favour of the Plaintiff, whereby the Defendant guaranteed the payment to the Plaintiff of the amounts set out in the Guarantee, of the sums of US$10 million, US$20 million and US$24,440,000 on the dates when the payments were due, on 15 April, 15 May and 15 June 2020 respectively. These payments were referred to in the Guarantee as “Funding Schedule Payments”.

6.  The Funding Schedule Payments were not made, and on 13 October 2020, the Plaintiff initiated the Arbitration on the ground of the Defendant’s breach of the Guarantee. The Arbitration ultimately led to the issue of the Award on 24 November 2020.

The Guarantee

7.  The contents and terms of the Guarantee have to be understood, before the Award and the Defendant’s challenge can be explained.

8.  The Recitals to the Guarantee refer to the Construction Contract made between the Plaintiff and the Subsidiary, and set out the fact (in recital (d)) that the Defendant (as guarantor) and the Subsidiary both agree that the Funding Schedule Payments (set out in the Exhibit to the Construction Contract) shall be made as and when due. Recital (e) states that the Subsidiary was in arrears on payments owed to the Plaintiff under the Construction Contract, and that the Subsidiary was in material breach such that the Plaintiff had no obligation to continue performance under the Construction Contract. The Guarantee further recited that the Plaintiff had given notice of its rights to terminate the Construction Contract for cause. By Recital (f), the Defendant acknowledged that it was providing the Guarantee to induce the Plaintiff to agree to a payment of the funds “currently owed pursuant to the Funding Schedule”.

9.  The Defendant guaranteed at clause 2 (a) of the Guarantee, “as a primary obligor and not merely as a surety”, the prompt and complete performance and payment when due by the Subsidiary of the Obligations owed to the Plaintiff. In particular, under clause 2 (b), the Defendant guaranteed “the prompt and complete payment when due of each and every Funding Schedule Payment, without setoff, counterclaim, or defence of any nature whatsoever”.

10.  “Obligations” were defined in the Guarantee to mean “the Funding Schedule Payments plus all undisputed obligations and undisputed liabilities of (the Subsidiary) under the Construction Contract”.

11.  The Arbitration was initiated and conducted pursuant to clause 13 of the Guarantee. This states at (a) (i) and (ii):

“a) Mandatory Expedited Binding Arbitration.

Except as set forth in Paragraph 13(c) of this Guarantee, Guarantor, (the Subsidiary) and Guaranteed Party irrevocably and unconditionally agree to resolve any dispute arising under, regarding, or related to this Guarantee through arbitration before the AAA in accordance with the Fast Track Procedures of the AAA Rules (‘Fast Track Rules’), as modified below.

i) For claims and disputes related to non-payment of the Funding Schedule Payments, the parties agree to utilize the Fast Track Rules with the following modifications:

a. The dollar limits specified in the Fast Track Rules shall not apply.

b. The parties will begin the arbitrator appointment process immediately after the effective date of notice under Section 10 respecting non-payment and a demand for arbitration. If the parties do not reach agreement on arbitrator selection within two business (2) days, AAA will appoint an arbitrator on the third (3^rd) business day.

c. The arbitration shall be completed within fourteen (14) days of the effective date of notice under Section 10 of the demand for arbitration. All other deadlines will be adjusted to ensure the completion of the arbitration within this timeframe.

d. The arbitrator’s award will be issued within five (5) days of the completion of the hearing.

e. The sole issue to be decided by the arbitrator will be whether payment of the Funding Schedule Payments was made in accordance with the Guarantee. The arbitrator will have sole discretion as to whether to decide the matter on the papers or to take testimony, but the unavailability of witnesses shall not provide grounds for a continuance.

f. Both parties prospectively agree to waive any right to seek a continuance or extension of the arbitration hearing.

(ii) For all other claims and disputes, the parties agree to utilize the Fast Track Rules with the following modifications:

a. The dollar limits specified in the Fast Track Rules shall not apply.

b. The sole issue to be decided by the arbitrator will be whether Guarantor is obligated to pay for the underlying claim in accordance with the terms of this Guarantee. Substantive issues determined within any separate arbitration between (the Subsidiary) and Guaranteed Party (an ‘Underlying Arbitration’) will not be relitigated within the arbitration between Guaranteed Party and Guarantor. Guarantor prospectively stipulates that it will not contest the factual or legal conclusions in any award issued in an Underlying Arbitration.

c. Both parties prospectively agree to waive any right to seek a continuance or extension of the arbitration hearing other than extensions permitted under the Fast Track Rules.”

12.  Clause 13 (e) goes on to state that the Guarantee shall be governed by the laws of the State of California, and clause 13 (g) provides as follows:

“Relation to Construction Contract Dispute Resolution Process.

With the exception of a good faith dispute with respect to the Funding Schedule Payments, which are unrelated to the resolution of any underlying dispute under the Construction Contract and shall not be stayed under any circumstances, notwithstanding anything in this Guarantee to the contrary, in the event of a good faith dispute between (the Subsidiary) and Guaranteed Party arising under, regarding, or related to the Construction Contract or any Obligations, then any action on this Guarantee arising under, regarding, or related to that underlying dispute, including but not limited to any arbitration under this Paragraph 13, shall be stayed pending resolution of the underlying dispute under the terms of the Construction Contract.”

13.  Hence, it is clear from clause 13 that the Guarantee provides for mandatory expedited and binding arbitration as the dispute resolution mechanism, for “any dispute arising under, regarding, or related to” the Guarantee. It is also clear from clause 13 that it contemplates two types of disputes, the first relating to “claims and disputes related to non-payment of the Funding Schedule Payments”, which are provided for in clause 13 (a) (i) and are governed by (i) a to f. The second type of disputes relate to “all other claims and disputes” not falling within clause 13 (i), which are provided for and to be governed by clause 13 (a) (ii) a to c.

14.  In respect of claims and disputes related to non-payment of the Funding Schedule Payments, clause 13 (a) (i) e expressly states:

“The sole issue to be decided by the arbitrator will be whether payment of the Funding Schedule Payments was made in accordance with the Guarantee. The arbitrator will have sole discretion as to whether to decide the matter on the papers or to take testimony, but the availability of witnesses shall not provide grounds for a continuance.”

15.  The disputes which are the subject matter of and submitted to the Arbitration were clearly “claims and disputes related to non-payment of the Funding Schedule Payments”, and clause 13 (a) (i) a to g applies to the Arbitration.

16.  In relation to claims and disputes which fall within clause 13 (a) (ii), paragraph b thereof states:

“The sole issue to be decided by the arbitrator will be whether Guarantor is obligated to pay for the underlying claim in accordance with the terms of this Guarantee. Substantive issues determined within any separate arbitration between (the Subsidiary) and (the Plaintiff) (an ‘Underlying Arbitration’) will not be relitigated within the arbitration between (the Plaintiff) and (the Defendant). (The Defendant) prospectively stipulates that it will not contest the factual or legal conclusions in any award issued in an Underlying Arbitration.”

17.  Materially, whether claims and disputes fall within clause 13 (a) (i) or (ii), clause 13 (g) applies. This governs the circumstances in which proceedings on disputes under the Guarantee are to be stayed pending resolution of any underlying dispute under the Construction Contract. Clause 13 (g) expressly states that a good faith dispute “with respect to the Funding Schedule Payments, which are unrelated to the resolution of any underlying dispute under the Construction Contract”, shall not be stayed under any circumstances, notwithstanding anything to the contrary as provided in the Guarantee.

The Defence

18.  In its Answer served in the Arbitration, the Defendant claims that the Plaintiff had the burden to establish that it was validly licensed at all times during the performance of the Construction Contract, such that it was entitled to claim payment of the sums due for work carried out under the Construction Contract. The Defendant claimed that the Plaintiff did not have a valid construction licence held by a qualifying individual for a period of more than 90 days during the Construction Contract, and that its claim in the Arbitration was tainted by illegality (“Illegality Defence”).

19.  In reliance on clause 13 (a) (i) e of the Guarantee, the Plaintiff applied to the arbitrator on 28 October 2020 to seek a ruling as to the limited scope of the arbitrator’s jurisdiction. The Plaintiff contended that the arbitrator’s jurisdiction was limited to the sole issue provided for in the sub-clause, of “whether payment of the Funding Schedule Payments was made in accordance with the Guarantee” (“Sole Issue”), and that the arbitrator did not have jurisdiction to hear or determine the Illegality Defence. The Plaintiff further filed evidence to deny the substance of the Illegality Defence, claiming that the Plaintiff had been granted an extension of time by the Licensing Board, to appoint a new qualifying and licensed individual before 3 April 2019.

20.  The Plaintiff’s motion was opposed by the Defendant. It maintained that the Defendant as guarantor cannot be held liable when the underlying Construction Contract is unlawful, or contravenes public policy, when the Plaintiff had failed to appoint or replace its qualifying individual within the time required, and that it was barred from seeking compensation from the Defendant. The Defendant further claimed that it was necessary to cross-examine the Plaintiff as to the alleged time extension granted for compliance.

The Decision on jurisdiction, the Award and the US Court judgment

21.  On 30 October 2020, the arbitrator made a decision on jurisdiction (“Decision”). Essentially, the arbitrator referred to the fact that the parties had agreed to utilize the Fast Track Rules to resolve their disputes, and that clause 13 (a) (i) e provides for the Sole Issue to be decided by the arbitrator. The arbitrator recorded the fact that the Defendant did not refute that it had failed to make a Funding Schedule Payment in accordance with the Guarantee. The arbitrator referred to the Defendant’s argument that it was entitled to seek an accounting of the Funding Schedule Payments, and a determination of how much remained due and owing on “subcontractor-by-subcontractor basis”. At paragraph 2 of the Decision, the arbitrator pointed out that to “delve into the details of construction payments to subcontractors on the construction project” where the Subsidiary is the contracting party was beyond the purview of the arbitrator’s express and plain authority which was limited under the terms of clause 13 (a) (i) e of the Guarantee.

22.  At paragraphs 4 and 5 of the Decision, the arbitrator explained:

“4. This case is not a construction case. Construction issues including construction contract licensure (which Claimant demonstrates has been in place continuously based on the Contractor’s State License Board’s License Detail, attached as Exhibit A to the Supplemental Declaration of W, see also Exhibit F, granting a 90-day extension to the 90-day period for replacing a qualifier from the CSLB dated 12/21/18 and Exhibit G letter from CSLB confirming W passing the necessary exam dated 1/11/19), can be raised by non-party (Subsidiary) under the dispute process provided for in the Parent Company Guaranty and the Construction Contract where it is a party. In a like manner, any construction project payment and accounting issues can also take place in that context and are beyond the jurisdiction of this Arbitrator per the terms of the Parent Company Guarantee.

5. I find that the words ‘sole issue’ as utilized in the Parent Company Guaranty are unambiguous.  The ‘sole issue’ that is before me and which I am empowered to decide is whether Respondent and Guarantor made the Funding Schedule Payments in accordance with the Guarantee. Any award would provide the basis and amount of any damages.”

23.  Having decided on his jurisdiction, as being confined to the Sole Issue, the arbitrator determined the claim on the papers without a hearing, and on 24 November 2020, he issued the Award and allowed the Plaintiff’s claims on the Defendant’s non-payment. In the Award, the arbitrator stated that to prove its claim for the Defendant’s breach of the Guarantee, the Plaintiff had the burden of establishing: (1) a guarantee contract; (2) default by the borrower; (3) notice to the guarantor of the default; and (4) non-payment of the debt by the guarantor. The arbitrator found that the Plaintiff had satisfied its burden of proof on each element of its claim, and that it was undisputed that as a direct and proximate result of the Defendant’s breach of the Guarantee, the Plaintiff was owed US$38,440,000. The Award was accordingly made for the Defendant’s payment of the amount owed, interest and costs.

24.  On the same day of the Award, the Plaintiff petitioned to the US Federal District Court (“US Court”) for an order to confirm the Award. In turn, the Defendant filed its motion with the US Court for an order to vacate the Award, contending that the arbitrator had exceeded his powers by issuing the Award on the basis of an illegal contract, that the Award violates California public policy expressed in its Licensing Law, and that the arbitrator had refused to hear evidence pertinent and material to the dispute.

25.  On 15 June 2021, the US Court granted the Plaintiff’s motion to confirm the Award, and denied the Defendant’s motion to vacate the same. In its judgment, the US Court considered the provisions of the Guarantee and in particular the dispute resolution procedure for claims and disputes. The analysis of the legal principles was set out in Part III of the civil minutes of the judgment (referred to hereinafter simply as the “US Judgment”). Under the relevant US law, the US Court must confirm an arbitration award unless it is vacated, and the US Court may vacate an award where the arbitrators were guilty of misconduct in refusing to postpone the hearing, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced, and where the arbitrators exceeded their powers. The US Court referred to authorities which provide that an arbitrator’s decision must be upheld unless it is completely irrational, or constitutes a manifest disregard of the law, which means something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law. It must be clear from the record that the arbitrators recognized the applicable law and then ignored it. The US Judgment also recited the Defendant’s argument that the Award should be vacated because it violates public policy, and in particular California public policy which regulates contractors through licensing.

26.  The US Judgment referred to the arbitrator’s finding on the validity of the Guarantee, pointing out in particular the arbitrator’s finding that the Guarantee was independent of the underlying Construction Contract. The US Court referred to the licensing issue which was the basis of the Illegality Defence, as follows:

“The arbitrator also addressed Respondent’s argument as to whether Petitioner’s license had been in place at the relevant times. Based on a review of the competing positions advanced by the parties, the arbitrator rejected Respondent’s argument that Petitioner ‘should be required to establish that it maintained a valid construction license at all times during the project.’ The arbitrator then added that Petitioner ‘demonstrates [licensure] has been in place continuously,’ citing three exhibits Petitioner had submitted to support this determination. Accordingly, the arbitrator decided that Petitioner had made a facial showing that its licensure had not lapsed, even though this was not necessary to the arbitrator’s decision. A court must defer to the arbitrator’s finding on such a factual matter.”

27.  After analyzing the parties’ arguments, the US Court found that the arbitrator had considered and rejected the contention that the Guarantee was unenforceable due to an alleged licensure gap. The US Court considered it clear that the arbitrator had not addressed the issue in a manner that constituted a manifest disregard of the law, and that the decision was rational. The US Court referred to the provision in the Guarantee that the Defendant had “absolutely, unconditionally and irrevocably guaranteed” to the Plaintiff, as a primary obligor and not merely as a surety, the prompt and complete payment when due of each and every Funding Schedule Payment, without setoff, counterclaim, or defence of any nature whatsoever. The US Court found the Award to be consistent with the terms of the Guarantee, and that the award of damages was supported by the record. It concluded that the arbitrator had not exceeded his powers in determining that the Guarantee is valid and enforceable.

28.  On the question of whether the Award should be vacated because the arbitrator was guilty of misconduct in refusing to hear evidence pertinent and material to the controversy, the US Court referred to clause 13 (a) (i) e of the Guarantee, which provides that the arbitrator has sole discretion as to whether to decide the Sole Issue on the papers or to take testimony. The US Court pointed out that the arbitrator had considered the materials presented by the parties and had found that licensure was not an issue of material to the matter, in view of the “Sole Issue” to be determined, pointing out that the licensure question could be brought within the dispute process provided for in the Guarantee and the Construction Contract, under the secondary dispute resolution procedure for “all other claims and disputes” (ie by reference to clause 13 (a) (ii)). The US Judgment states as follows:

“This determination is consistent with the terms to which the parties agreed. These included an accelerated process for arbitration of disputes that arose from an alleged failure to make Funding Schedule payments. Thus, the arbitration was to be completed in a short time period. Further, the Guarantee arbitration would be stayed when a Construction Contract dispute arises except when the Guarantee arbitration concerns the alleged failure to make payments under the Funding Schedule. It is also in harmony with the language in the Guarantee that no ‘setoff, counterclaim, or defense of any nature whatsoever’ can be raised against Funding Schedule payments. Although the Jurisdiction Decision includes a parenthetical comment that Petitioner had shown that there was no gap in licensure, the statement was dicta. The basis for the decision was that licensure issues are properly raised through the other arbitration processes that are available under the Guarantee and the Construction Contract. For these reasons, the arbitrator did not engage in misconduct by declining to receive all of the evidence proffered by Respondent.”

29.  Finally, on whether the Award should be vacated on the ground of public policy, the US Court pointed out that the arbitrator had expressly found that the Guarantee did not raise issues as to the laws concerning licensing, because the Guarantee was not a construction contract (being independent of it), and by virtue of the Sole Issue. The observation of the US Court was that:

“The courts cannot second-guess the arbitrator’s findings, even while conducting a public policy inquiry. To vacate the Final Award based on Respondent’s public policy argument would require finding that the Guarantee was a construction contract under which licensure was necessary, which would be an inappropriate reinterpretation by the Court…. For these reasons, the public policy exception is not a basis to set aside the Final Award. As stated in the Jurisdiction Decision, which the Final Award incorporated, if (the Subsidiary) wishes to raise licensure issues, it has the ability to do so ‘under the dispute process provided for in the Guarantee and the Construction Contract where it is a party. The ‘sole issue’ decided by the arbitrator, a determination made by the arbitrator in analyzing the Guarantee, was whether Respondent ‘made the Funding Schedule Payments in accordance with the Guarantee’. The Arbitrator found that the issues raised by Respondent concerning subcontractor payment and contractor licensing were construction-related issues and outside the jurisdiction of the Arbitrator under the terms of the Guarantee, and therefore not subject to the Arbitration. Deference to this interpretation is required.”

30.  There is no appeal against the US Judgment. The Defendant acknowledged by the time of the hearing that the ground relied upon under section 89 (2) (f), that the Award has not yet come into force, or has been set aside or suspended, is not engaged.

Whether grounds under s 89 established

31.  As this Court indicated in the course of the hearing on 17 August 2021, the parties to the Guarantee firstly, have agreed that the governing law of the Guarantee shall be the laws of the State of California, secondly, have submitted to arbitration of their disputes in accordance with the Fast Track Rules issued by the American Arbitration Association, and thirdly, by so doing, submitted to the supervisory jurisdiction of the US Court at the seat of the Arbitration. The last point was emphasized in Minmetals Germany GmbH v Ferco Steel Ltd [1999] CLC 647, and by Tang VP in Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKLRD 627. Whilst it is accepted that the Defendant has the right to challenge the Award before the enforcement court, on the grounds permitted under section 89 of the Ordinance, the Court of Appeal held in Gao Haiyan that the enforcement court has to give due weight to the decision of the supervisory court, which applied the governing law of the relevant underlying contract and of the arbitration agreement, when it decides on issues of the validity of the contract or on the procedure of the arbitration.

32.  The arbitrator and the US Court in this case are obviously more familiar with the operation of the Fast Track Rules, and on the relevant law governing the licensure issue. Both the arbitrator and the US Court were satisfied that the Guarantee is valid under US law, and that the Award is not contrary to US public policy.

33.  Counsel for the Defendant argued that the grounds for setting aside the Award appear from the US Judgment to be different to the grounds relevant to this Court’s consideration under section 89. It may be that the US Court applies a high standard, requiring the arbitrator to have recognized the applicable law but ignored it, before the award can be set aside for being irrational, or as demonstrating a manifest disregard of the law. In Hong Kong, the applicable test for setting aside or refusing to recognize an arbitral award is that there should be an undermining or abuse of due process which is sufficiently serious, even egregious (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1), and that it would be shocking to the conscience of the Court or contrary to its fundamental conceptions of morality and justice to enforce the Award (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111). I am not persuaded that there is a substantial difference in the standards to be applied, the common theme being that the Court does not act as an appellate court on questions of law and should not interfere in the arbitral process without good justification.

34.  To the extent that this Court has to consider whether the Defendant has discharged its burden under section 89 (2) of the Ordinance to prove the existence of the grounds set out in sections 89 (2) (b), (c) (ii) and 89 (3) (b), I am not satisfied that the arbitration agreement was invalid, that the Defendant was unable to present its case or that it would be contrary to the public policy of Hong Kong to enforce the Award.

35.  The Guarantee expressly provides for two types of disputes, those relating to “claims and disputes related to non-payment of the Funding Schedule Payments”, and those relating to “all other claims and disputes”, to be dealt with and resolved differently. The claims in the Arbitration for the Funding Schedule Payments due were clearly claims and disputes which fall within clause 13 (a) (i), and the Sole Issue was defined in clause 13 (a) (i) e. The arbitrator and the US Court rightly pointed out that it was open to the Defendant under the Guarantee, and the Subsidiary under the Construction Contract, to submit their claims to arbitration for awards on other issues such as the question of the legality of the Construction Contract, and whether the Guarantor “is obligated to pay for the underlying claims”.

36.  The Guarantee contains the parties’ acknowledgment at the time of the Guarantee, that the Subsidiary was already in arrears on payments owed to the Plaintiff, and that the Guarantee was provided to induce the Plaintiff to agree to a payment “of the funds currently owned pursuant to the Funding Schedule”. The Guarantee was also expressed to be the Defendant’s guarantee, as primary obligor, of payment of the Funding Schedule Payments on their due dates, without set-off, counterclaim, or defence of any nature.

37.  Bearing in mind clause 13 (g), which expressly states that disputes with respect to the Funding Schedule Payments are unrelated to any underlying dispute under the Construction Contract, I fail to see how it can be said that the finding made by the arbitrator on jurisdiction, and to such jurisdiction being confined to the Sole Issue, is wrong. In this regard, I give due weight to the US Judgment and the US Court’s endorsement of the validity of the Guarantee as well as on the question of the arbitrator’s jurisdiction.

38.  In any event, it is for the Defendant under section 89 (2) to prove, in its opposition to enforcement of the Award, that the arbitration agreement contained in the Construction Contract, was illegal. On the evidence, the Defendant raised questions as to the letter from the US licensing authority, and whether the assertion made by the Plaintiff’s witness that an extension of time had been obtained for the relevant licence to be renewed is true, and whether any such extension granted was valid. It is impossible for this Court to find on such evidence that the Construction Contract was illegal, that the severable arbitration agreement contained in the Construction Contract is likewise illegal (when there was a clearly expressed intention to arbitrate), and/or that it would therefore be contrary to public policy to enforce the Award on the Guarantee.

39.  The arbitrator’s refusal to hear or deal with the Defendant’s evidence and submissions on the Illegality Defence is by reason and on the basis of his decision on the scope of his jurisdiction, and to it being confined to the determination of the Sole Issue. The ground of the Defendant’s alleged inability to present its case falls with the jurisdiction ground. Further, since the Illegality Defence was outside the scope of the Sole Issue, any opportunity for the Defendant to present its evidence on the Illegality Defence would not have made any difference in the outcome of the Arbitration on the Sole Issue.

40.  Since I agree with the findings of the arbitrator and with the US Court on the scope of the arbitrator’s jurisdiction, and on the validity of the Guarantee, there is no ground to refuse enforcement of the Award on the ground of public policy. There is nothing contrary to the Hong Kong Court’s conscience or its fundamental conceptions of morality or justice to enforce the Award.

41.  On behalf of the Plaintiff, Counsel argued that it is not even open to the Defendant to reargue the Illegality Defence, nor on the jurisdiction of the Tribunal. This is because the US Court has already made a final decision on these issues, which decision is binding on the Defendant. Counsel pointed out that Dalla Co v Ministry of Religious Affairs of Pakistan [2011] 1 AC 763 and S Co v G Co [2014] 6 HKC 421 only concern the Court’s review of a decision of the arbitrator on his jurisdiction, whereas in this case, there is the US Judgment which is final and conclusive on the merits, and as a foreign judgment, cannot be impeached by this Court on the same grounds decided. On this issue, Counsel for the Defendant argued that the findings made by the US Court were not made on any facts or issues which would preclude the Defendant from arguing the grounds set out in section 89 of the Ordinance, since the US Judgment is confined to findings on whether the arbitrator’s decision was irrational, whether the arbitrator had exceeded his powers or was guilty of misconduct, and whether the Award was contrary to Californian (and not Hong Kong) public policy, the grounds relied upon to vacate the Award under US law.

42.  As apparent from preceding paragraphs, I have reviewed, decided and made findings on the merits of the individual grounds relied upon by the Defendant under section 89 of the Ordinance.

Disposition

43.  Since adjournment of the application to set aside was not sought, the security application was not considered.

44.  For all the reasons set out above, the application to set aside the Enforcement Order is dismissed. The costs of the setting aside application and of the security application are to be paid by the Defendant to the Plaintiff, on indemnity basis, with certificate for counsel.