AB v. CD

HCCT 27/2020

[2021] HKCFI 327

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 27 OF 2020

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REASONS  FOR  DECISION

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Background

1.  This is an application made by AB (“AB Engineering”) to set aside an arbitral award made in Hong Kong and dated 18 March 2020 (“Award”). The Award was made in an arbitration (“Arbitration”) conducted by the Hong Kong International Arbitration Center (“HKIAC”), pursuant to an arbitration clause contained in an agreement dated 26 November 2013 (“Agreement”) made between AB Bureau (“Bureau”) and (“CD”). 

2.  At the hearing of the application, the only grounds relied upon for the setting aside are that:

(1)  AB Engineering was not a party to the Agreement, and there was no valid arbitration agreement between AB Engineering and CD (in reliance on Article 34 (2) (a) (i) of the Model Law); and/or

(2)  the Award deals with a dispute not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to the Arbitration (in reliance on Article 34 (2) (a) (iii)); and/or

(3)  AB Engineering was not given proper notice of the appointment of an arbitrator or of the Arbitration proceedings (in reliance on Article 34 (2) (a) (ii)).

3.  If AB Engineering succeeds on any of the grounds stated in the Originating Summons, the Court may set aside the Award.  AB Engineering of course has the burden to establish the grounds relied upon by it in seeking to set aside the Award.  Under Article 34 (2) (which has effect under section 81 of the Arbitration Ordinance (“Ordinance”)), an arbitral award may be set aside “only if the party making the application furnishes proof” of the matters specified in Article 34 (2).

4.  In opposition, CD only argued that AB Engineering is estopped and debarred from denying that the Award is enforceable against it, and from applying to set aside the Award, on the basis that employees of AB Engineering had misled CD and the tribunal into believing that Bureau had been renamed AB Engineering, and that AB Engineering had failed to state its objection to any procedure in the Arbitration.

5.  The Notice of Arbitration (“NOA”) was issued by CD on 24 April 2019 and submitted to the HKIAC pursuant to the Agreement.  The dispute in the Arbitration was for payment of a success fee of approximately US $11 million claimed to be due from Bureau to CD for services rendered by CD under the Agreement.  The NOA named Bureau as respondent, and stated that the NOA would be served at the named respondent’s address listed in the Agreement, in its correspondence and on its website, and further, that the NOA would be served on Mr Gao Jianguo (“Gao”) who was the signatory to the Agreement.

6.  According to the Award, CD had also delivered a copy of the NOA to Bureau by email on 30 April 2019.

7.  On the evidence, and this is not disputed by the parties, HKIAC invited the named respondent to submit its Answer to the NOA by 29 May 2019.  This was communicated by email, fax and courier, based on the contact information supplied by CD when the NOA was submitted.  On 10 June 2019, HKIAC noted that no Answer had been received from the respondent, and determined that the Arbitration should be referred to a sole arbitrator.  It also invited the parties to designate the sole arbitrator by 25 June 2019.

8.  On 23 June 2019, CD emailed Bureau regarding its designated candidates for the sole arbitrator, and invited Bureau to comment.

9.  After receiving CD’s designated candidates for the sole arbitrator, the HKIAC sent a letter to CD by email and to the respondent by fax, email and courier on 16 July 2019, to inform the parties that HKIAC intended to appoint Mr Jakob Ragnwaldh (“Arbitrator”) as the sole arbitrator.  The HKIAC invited the parties to submit comments by 23 July 2019.

10.  The critical event took place on 16 July 2019, when CD’s representatives received an email from one (“Ms X”), who described herself as from “Contracts & Legal Department of AB (AB Engineering, previously called AB Bureau) International”.  The email (“16/7 Email”) went on to state:

“We just received your Email which forwarded from our colleagues of AB Middle East. We have many Contracts, Agreements with different corporations in different countries all over the world, could you give us more details about Case: HKIAC/A19089 and the relevant Agreement dated November 26, 2013. Your prompt reply will be highly appreciated.”

The 16/7 Email was sent with the correspondence between HKIAC and CD of 10 and 25 June 2009 (relating to the invitation made by HKIAC to the parties to designate the sole arbitrator).

11.  Another email was received on 17 July 2019 by CD (“17/7 Email”). The 17/7 Email was sent by one (“Mr Y”), and was copied to HKIAC.  The 17/7 Email stated as follows:

“This is Mr Y from Legal Department of AB Engineering Middle East (previously named AB Bureau) (‘AB’).

One of our email accounts in the Middle East office received a letter sent by you on behalf of (CD) to HKIAC dated June 25, 2019 regarding case HKIAC/A19089. This is the first letter we received regarding the case. From the letter we received, we assume that all the previous correspondences regarding the case have not been properly delivered with the Respondent.

In order for us to formally respond to you and appoint the correct designated correspondence email account, we would like to request you to provide for the details about the case HKIAC/A19089 including the formal application for arbitration, the confirmation letter from HKIAC and all the previous formal correspondences….” (Emphasis added)

12.  On 17 July 2019, CD submitted an Amended NOA, which revised the name of the stated respondent, from Bureau to “AB Bureau also known as AB Bureau Co, Ltd”.  The Amended NOA was stated to have been submitted to identify the respondent’s name change.  It is relevant to remark at this stage that the corrected name is not the same as that stated in the 16/7 Email and 17/7 Email (on which reliance is sought to be placed by CD).

13.  The Amended NOA was sent to Bureau as the named respondent by email.

14.  No further communication was received from Bureau, Ms X or Mr Y, despite letters sent by HKIAC/the Arbitrator by fax to the named respondent, seeking the contact details of the respondent, and inviting comments on the Arbitrator’s draft Procedural Order No 1.

15.  On 10 October 2019, the Arbitrator requested Bureau as the named respondent to submit its Statement of Defence by 31 October 2019.  No Defence was submitted.

16.  On 11 November 2019, the legal representatives of CD made a request by email to the Arbitrator, to correct the name of the respondent from Bureau to that of AB Engineering.  A draft Procedural Order No 2 (“Draft Order”) was submitted to the Arbitrator, with recitals paragraph 6 of which stated (“Paragraph 6”):

“The Claimant has since become aware that the correct name of the Respondent is AB Engineering, and wishes to avoid any issues or confusion that may arise from any misnomer of the Respondent.”

17.  The Draft Order provided for the following:

“1.  For the avoidance of doubt, all references made in this arbitration to the Respondent shall be deemed to be references to AB Engineering (formerly AB Bureau), including any successors or assigns thereto.

2.  The style of cause in this arbitration shall identify the Respondent as AB Engineering (formerly AB Bureau), without the need for an application to amend the style of cause or to re-serve the Respondent with any of the pleadings or submissions in this arbitration.”

18.  The Arbitrator invited Bureau on 13 November 2019 to comment on CD’s requests for amendment, but nothing was received.  Hence, on 25 November 2019, the Arbitrator wrote to CD, inviting CD (amongst other things) to clarify the information/documentation that formed the basis for CD’s statement in Paragraph 6, that CD had since become aware of the correct name of the respondent.  The Arbitrator referred to the fact that there had been letters (respectively dated 24 July 2019 and 7 October 2019) issued by HKIAC to the respondent, addressing the respondent as “AB Engineering  Middle East” and “AB Bureau Co, Ltd (also known as AB Bureau)”.

19.  In response, CD’s legal representatives wrote to the Arbitrator on 2 December 2019 (“2/12 Submission”).  CD’s legal representatives referred to the 17/7 Email, to explain that it was from the Middle East branch of the respondent, and that that was the reason why the Middle East office was referred to in the HKIAC letter of 24 July 2019.

20.  In answer to the Arbitrator’s request for clarification on the information which formed the basis of CD’s claim as to the correct name of the respondent, CD’s representatives attached a copy from the respondent’s website, and referred to the “History” section of the website, explaining:

“The Claimant respectfully draws your attention to the History section of the Respondent’s website (attached hereto as Annex 2), which notes that in 2017, the company previously known as ‘AB Bureau which was (AB) became ‘AB Engineering (AB) after restructuring.

Therefore, according to its website, the Respondent’s correct name is AB Engineering (formerly AB Bureau), as noted in draft Procedural Order No 2.”

21.  It is to be observed that if the copy of the website which was attached as Annex 2 is examined, there was in fact no statement contained there, to the effect that AB Bureau had become AB Engineering after restructuring, as claimed in the 2/12 Submission.  The only statement made in the website was that “Oil and Gas Pipeline Bureau, the predecessor of AB” was reformed to China National Petroleum Corporation later; that in 1992, “the company” was renamed as “AB Bureau”; that in 1999, AB Bureau was restructured into a professional pipeline engineering company, and that in 2017, “AB Engineering (AB) was established after restructuring”. 

22.  The claim in the 2/12 Submission was an attempt to make a precis of the history recited in the website, with many steps omitted and a self-drawn conclusion.

23.  Nevertheless, the Arbitrator acceded to CD’s request for amendment.  Procedural Order No 2 was issued, the Arbitrator stating his finding that CD had been able to demonstrate that “the legal entity called AB Bureau has been renamed as AB Engineering”.  The Arbitrator ordered that all references made in the Arbitration to the respondent or Bureau shall be deemed to be references to AB Engineering, the Arbitration shall continue to identify the respondent as AB Engineering, and that CD did not have to re-send any of the pleadings or submissions to the respondent.

24.  In Procedural Order No 2, the Arbitrator referred to the 16/7 Email and the 17/7 Email which had been received by CD prior to its request for correction of the name of the respondent.

25.  There is no dispute that pursuant to Procedural Order No 2, no further amended NOA was issued, and there was no further service of the NOA or the Amended NOA or any other revised NOA on either Bureau or AB Engineering.

26.  Ultimately, the Final Award was issued by the Arbitrator on 18 March 2020.  In accordance with Procedural Order No 2, the only respondent named in the Award was AB Engineering.  CD was found to be entitled to payment by AB Engineering of US$18 million, interest, and costs.  The Arbitrator noted, at paragraph 46 of the Award, that the respondent had chosen not to participate in the Arbitration.

Whether AB Engineering was party to the Agreement

27.  On the evidence of AB Engineering, it is a company established on the Mainland with limited liability.  According to its business licence issued by the Bureau of Administrative Examination and Approval, AB Engineering was established on 17 February 2000.  According to the business licence of Bureau, it was established on 28 March 1989.  Bureau and AB Engineering have different unified social credit codes on the Mainland.  It is clear that Bureau and AB Engineering are two separate and distinct legal entities.

28.  According to AB Engineering, although it was a subsidiary of Bureau prior to 2016 and at the time of the Agreement, there had been a series of restructuring after August 2016.  Since then, AB Engineering has been a subsidiary of another company, China Petroleum Engineering Corporation, which is a subsidiary of China Petroleum Engineering Co, Ltd, a company listed on the Shanghai Stock Exchange.  This listed company and Bureau are apparently owned by an ultimate parent company known as China National Petroleum Corporation (“CNPC”). The English name of AB Engineering was also changed during the restructuring, from AB Engineering Corp to AB Engineering.  All this may be confusing due to the similarities in the names of the different companies involved, but it does not detract from the fact that Bureau and AB Engineering were and are separate legal entities.

29.  There is no dispute that the Agreement was made between CD and Bureau.  The Agreement is stated to be made between Bureau, a company incorporated under the laws of the Mainland, and referred to in the Agreement as “AB”.  AB is described in the Agreement as “a professional company of China National Petroleum Corporation”, ie CNPC.

30.  CD relies on the fact that clause 1.4 of the definitions section of the Agreement defined “AB” to mean “AB Bureau or any other Affiliated entity”.  “Affiliate” was defined in clause 1.1 to mean: with respect to any Person, (i) any other Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with such Person; (ii) any other Person owning or controlling 50% or more of the outstanding voting securities of such Person; (iii) any other Person 50% or more of the outstanding voting securities of which are owned or controlled by such Person.

31.  As AB Engineering admits, it was at the time of the Agreement a subsidiary of Bureau.  CD sought to argue therefore that AB Engineering falls within the contractual definition of “AB”/Bureau, and is a party to the Agreement.

32.  Whether AB Engineering can be said to be a party to the Agreement by virtue of the definition of “AB”/Bureau is a matter of construction of the Agreement.  The present case is distinguishable from the facts and the agreement relied upon in Giorgio Armani SpA v Elan Clothes Co Ltd [2019] 2 HKLRD 313 and [2020] 1 HKLRD 354.  The agreement in Giorgio Armani was clearly expressed to have been made “by and between” the parent company, SpA, “together with its branch offices and Affiliates”.  Each of SpA and the other contracting party Elan is referred to in the Master Agreement as a “Party”, and together as the “Parties”.  The body of the agreement itself includes references to the Affiliates, when obligations imposed and rights conferred on the Parties are set out in the provisions of the agreement.  The description of the parties, how they were referred to in the entire agreement, and how they were defined, together made it clear in Giorgio Armani that SpA (the parent company) and its different subsidiaries were all included as parties to the agreement.

33.  There is no such clear indication in the Agreement in this case, and no reference to any other subsidiary or affiliate of AB/Bureau in other parts of the Agreement which set out the rights and obligations of the parties to the Agreement.  There is only the apparently wide definition of AB.  As AB Engineering highlighted, AB/Bureau was at the time of the Agreement in 2013 a subsidiary of CNPC, and Bureau had over 30 subsidiary companies.  There is no evidence that AB Engineering had any role in relation to the performance under the Agreement, the rights conferred or the obligations imposed thereunder.

34.  Significantly, even if AB Engineering can, by its status as a subsidiary of Bureau, fall within the definition of “AB” under the Agreement to be a party thereto, the proper course would have been for CD to add AB Engineering as a party to the Arbitration, and not to include AB Engineering as the same entity as Bureau, the original respondent, by virtue of a change of name.

35.  The existence of a valid arbitration agreement between the parties goes to the jurisdiction of the tribunal, and the Court has to be satisfied as to the correctness of the decision of the tribunal that it has jurisdiction.

36.  Having regard to the evidence of AB Engineering, and the basis of CD’s claim to the tribunal as to the alleged change of name of Bureau to seek the amendment made to the name of the respondent, my finding is that AB Engineering is not the same entity as Bureau, and is not a party to the Agreement.  As there is no arbitration agreement between CD and AB Engineering, the Award should be set aside under Article 34 (2) (a) (i).

Whether AB Engineering was given proper notice of the appointment of arbitrator or of the arbitral proceedings

37.  If I should be wrong and AB Engineering can be said to be a party to the Agreement, and can properly be made a party to the Arbitration by the amendment made under Procedural Order No 2, AB Engineering had not been given proper notice of the arbitral proceedings or the appointment of the Arbitrator.

38.  The NOA named Bureau as the only respondent.  The Amended NOA named the respondent as “AB Bureau also known as AB Bureau Co, Ltd”.  These were the only two notices of the Arbitration which were purportedly faxed or sent to the addresses of Bureau.

39.  There is no clear evidence of actual receipt of these notices, which is denied by AB Engineering.  Clause 29.1 of the Agreement provides for service of notices to the “registered office” or relevant place of business or last known addresses of the parties to be served.  According to the available documents, the notices had been sent to “Guangyan Road” and not “Guangyang Road” which is the proper registered address of Bureau/AB Engineering in Langfang on the Mainland.  Guangyang Road was the address used and shown in the Agreement – not “Guangyan Road” nor “Guongyang Road” as stated in the NOA and the Amended NOA.

40.  Even if it can be accepted that the NOA and the Amended NOA had been deemed received by the respondent, by fax or by their having been sent to the last known or registered address or the address stated in the Agreement, the NOA and the Amended NOA were addressed to Bureau, and Bureau and another different entity known as “AB Bureau Co, Ltd” were named in the documents served.  The respondent named in the NOA and the Amended NOA was not AB Engineering.

41.  As this Court emphasized in Sun Tian Gang v HK & China Gas (Jilin) Ltd [2016] 5 HKLRD 221, service of notice of arbitration is an important step in the arbitration.  A party is required to be given “proper notice” of such under Article 34 (2) (a) (ii) of the Model Law.  I do not regard service of the NOA and the Amended NOA in this case, naming a totally different company, as proper service sufficient to give adequate and proper notice of the Arbitration to AB Engineering.  Even if AB Engineering and Bureau have offices in the same building, being separate legal entities, the court and tribunal cannot expect either of them to take action and enquire into or respond to any notice directed at another, even affiliated, company.  It would be totally unreasonable, onerous and unfair so to do.

42.  Having made clear findings on the 2 separate grounds under Article 34 (2) (a) (i) and (ii), it is unnecessary to make further findings under the scope of the submission, or on public policy, which was raised in the Originating Summons but not pursued at the hearing.  As indicated in the course of the hearing, having found that there was no valid arbitration agreement between the parties, this Court has no ground to exercise its residual discretion to enforce the Award.

Estoppel

43.  There is no basis for CD to claim that AB Engineering is estopped and debarred from applying to set aside the Award, because its employees had misled CD and the tribunal into believing that it was the same company as Bureau, thus causing the amendment of the name of Bureau to AB Engineering.

44.  First, as AB Engineering submitted, even if there was any representation made by AB Engineering by virtue of the 16/7 Email and the 17/7 Email, there was no reliance by CD on the alleged representation that AB Engineering was previously named Bureau.  In the 2/12 Submission, CD relied on the website which CD sent to the Arbitrator as Annex 2.  In reliance on the website, CD stated, erroneously, that Bureau became AB Engineering after a restructuring, when there was no such statement made on the website.  The 17/7 Email was referred to by CD’s legal representatives to explain why the respondent was referred to as AB Engineering Middle East.  CD’s legal representatives further stated in the 2/12 Submission that the HKIAC letter and the reference made therein to AB Engineering (Mainland China) was not determinative of the respondent’s correct name.

45.  As this Court indicated at the hearing, it is incumbent on a claimant and its legal advisers to identify the proper defendant/respondent and to verify its name, particularly after query has been raised.  It is no excuse for CD and its legal advisers now to put the blame on employees of Bureau/AB Engineering for any misnomer in the name of the party CD seeks to bring proceedings against.

46.  Second, the cases relied upon by Counsel for CD to assert estoppel are totally distinguishable, and inapplicable to the present case.  In SEB Trygg Holding AB v Manches [2005] EWCA Civ 1237, the party in question had instructed its solicitors to take steps in the proceedings, to change the name of the claimant, and to participate in the proceedings, before changing stance and denying the authority of the solicitors to act on its behalf.  Not surprisingly, the court held that the party in question had submitted to the jurisdiction of the tribunal and was estopped from contending otherwise.  In all the other authorities cited by Counsel, there had been participation in the arbitral process, which participation gave rise to the estoppel and waiver found.

47.  In this case, AB Engineering did not take part in the Arbitration at all, as the Arbitrator acknowledged in the Award.  The 16/7 Email and the 17/7 Email were sent before the Arbitrator was appointed, and the emails made it clear that Ms X and Mr Y had received documents from their overseas colleagues, that they did not know the agreement to which the documents relate, and further information and documentation was sought.  That cannot constitute any submission to or participation in the Arbitration.  Without participation, section 11 of the Ordinance does not apply at all.

48.  As highlighted by Mr Lewis, AB Engineering had no obligation to participate in an arbitration of which it disputes to be a party.  In Dallah Co v Ministry of Religious Affairs of Pakistan [2011] 1 AC 763, Lord Mance JSC stated (at paragraph 23) (in the context of enforcement of an award):

“… A person who denies being a party to any relevant arbitration agreement has no obligation to participate in the arbitration or to take any steps in the country of the seat of what he maintains to be an invalid arbitration leading to an invalid award against him. The party initiating the arbitration must try to enforce the award where it can. Only then and there is it incumbent on the defendant denying the existence of any valid award to resist enforcement.”

49.  Any other conduct relied upon as the basis of any estoppel must in any event be clear and unequivocal.  The 16/7 Email and the 17/Email do not constitute clear representation of any submission by AB Engineering to the Arbitration or to the jurisdiction of the Arbitrator.

50.  There being no submission to the Arbitration in this case, no estoppel can apply against AB Engineering, as contended.

Disposition

51.  At the conclusion of the hearing on 4 February 2021, I granted the application to set aside the Award.  There being no valid arbitration agreement between CD and AB Engineering, the tribunal had no jurisdiction over AB Engineering and there is no basis at all to remit the Award to the Arbitrator, as CD submits.

52.  AB Engineering being successful on its application, the order is that CD should pay to AB Engineering the costs of the setting aside application (including the costs reserved).