DANA SHIPPING AND TRADING SA v. SINO CHANNEL ASIA LTD

HCCT 47/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO 47 OF 2015

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D E C I S I O N

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Background

1.  By order made on 16 November 2015 (“Order”), I granted leave to Dana Shipping And Trading SA (“Dana”), to enforce a final arbitration award dated 3 February 2015 (and corrected on 15 June 2015) (“Award”), made in arbitration proceedings commenced by Dana against Sino Channel Asia Ltd (“Sino”) in London (“Arbitration”) in around February 2014.  The claims made by Dana in the Arbitration were that Sino had failed to perform its obligations under a contract of affreightment (“Contract”) made between the parties, by failing to nominate shipments in accordance with the provisions of the Contract.  The Award was for Sino’s payment to Dana of a principal sum of US$1,680,404.15, with interest and costs (“Award Amount”), on the basis of its breach.

2.  On 27 November 2015, Sino applied to set aside the Order.  The grounds relied upon are that Sino was not given proper notice of the appointment of the arbitrator or of the Arbitration proceedings, and that Sino was unable to present its case in the Arbitration.  The application to set aside has been adjourned to be heard on 16 March 2016.

3.  On 8 January 2016, Dana applied for payment to be made by Sino of the Award Amount, as security, pursuant to s 89 (5) of the Arbitration Ordinance Cap 609 (“Ordinance”) and O73 r10A RHC.  The adjourned hearing of the security application took place on 8 March 2016.

4.  In the interim of Sino’s application to set aside the Order and the hearing of Dana’s application for security, Sino applied to the English court in January 2016 to set aside the Award, notwithstanding that the time period for such an application to be made has expired, and it is approximately 6 months out of time.  No explanation has been furnished by Sino in respect of this delay.  No date has yet been fixed for the hearing of Sino’s application in London, and it is unknown when an outcome of the application can be expected.

5.  Sino argued that Dana’s application for security and Sino’s application to set aside the Order should both be adjourned pending the outcome of Sino’s setting aside proceedings in London.

6.  Dana’s stance is that the Court should either immediately dismiss Sino’s application to set aside the Order and enforce the Award in Hong Kong, or should exercise its power to order security to be furnished by Sino for the further conduct of its application to set aside the Order in Hong Kong.

Applicable legal principles

7.  The applicable legal principles for determination of Dana’s application for security are set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993]  2 Lloyd’s Rep 208, applied in Guo Shun Kai v Wing Shing Chemical Co Ltd [2013] 3 HKLRD 484.  In Soleh Boneh, Staughton LJ stated (at p 212):

“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 (sufficient) assets within the jurisdiction, the ease for security must necessarily be weakened.” (Emphasis added)

8.  In my view, the mere existence of proceedings to challenge an award in another jurisdiction does not by itself require a court to refuse enforcement for the time being and to adjourn the proceedings.  Section 89(5) of the Ordinance only stipulates that the adjournment and the order for security may be made by the Court, and only if it thinks fit.  O 73 r 10A is in even wider terms, providing that the Court may, and if it thinks 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 the application” (to set aside an order granting leave to enforce an award), as it thinks fit.

9.  In the overall context, it is relevant to bear in mind that the primary aim of the Court under the Ordinance is to facilitate the arbitral process, to assist with enforcement of arbitral awards, and to enforce arbitration agreements made by the parties, whereby they agreed to arbitrate their dispute and to treat the arbitral award as final. 

10.  The ground relied upon by Sino in this case, in resisting enforcement of the Award, is that it was not given notice of the arbitral proceedings or was unable to present its case.  The Court has to be satisfied that the conduct complained of was serious, even egregious, before the Court would find that there was an error sufficiently serious as to have undermined due process (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] 4 HKLRD 1 (CA)).  It is also important to bear in mind that any failure to make prompt objection to the Tribunal or the supervisory court may constitute estoppel or want of bona fide (Hebei Import & Export Corp v Polytech Engineering Co Ltd (1999) 2 HKCFAR 111), and that even if sufficient grounds are made out to refuse enforcement of an award, the Court has a residual discretion to enforce the Award (Hebei Import & Export Corp v Polytech Engineering Co Ltd (1999) 2 HKCFAR 111).

The strength of the argument that the Award was invalid

11.  It appears to be undisputed that notice of the Arbitration and the appointment of the arbitrator was served on one Mr Cai (“Cai”) of a company known as Beijing XCity (“BX”).  The real issue in dispute is whether Cai can be said to be Sino’s agent, and whether Cai had authority to accept notice of the Arbitration, such that the service of notice on Cai constitutes valid notice on Sino.

12.  Although there is evidence of the Tribunal’s receipt of a fax from Sino, which was signed by both Cai and Jung Byung Dug (“Jung”) (the director of Sino), on 19 February 2014, whereby an extension of time was sought for Sino to appoint its arbitrator, Jung claims that he had not in fact signed the fax, and that it was a cut and paste production.

13.  At this stage, the Court is not to make a determinative finding on the merits of the application to set aside the Order. However, in this case, all the necessary evidence to be relied upon in the determination of Sino’s application has already been filed, pursuant to directions made by the Court.  From such evidence, it is clear that at the very outset, Jung has admitted that he had “lent” Sino’s name to BX, for Sino’s name to be used by BX in the signing of purchase and sales contracts with third parties, and in making applications to the banks for the issue of letters of credit for such contract transactions. 

14.  Jung is the director and shareholder of Sino.  In Jung’s affidavit filed on behalf of Sino on 27 November 2015 (“Jung 1”), Jung claimed that this lending of name was agreed between himself and Mr Zhou Wen Li (“Zhou”), the director and shareholder of BX, in around 2009.  Under this arrangement, Sino agreed to act as buyer to enter into sales contracts with suppliers of raw materials (such as steel, iron ore or coal), to on-sell such raw materials by entering into contracts with buyers, and to apply for letters of credit to be issued by banks in respect of the purchase price to be payable to the supplier.  All the details after the execution of the contracts would be handled by Zhou and his staff at BX.  Zhou and his staff would not inform Jung of the details and performance of the transactions.  According to Jung, such business relationship and dealings carried on smoothly between 2009 to early 2014.

15.  Jung claims that pursuant to the arrangement with Zhou and BX, in early 2013, he agreed at Zhou’s request to sign a charterparty in the name of Sino, for several shipments of raw materials to be made under the supply and sale contracts.  The charterparty was entered into with Dana.  According to Jung, he had met Cai at the office of BX in Beijing, and he understood that Cai was assisting Zhou in handling the documentation of some of the sale and purchase transactions.  Between November 2012 and June 2014, Jung had communicated with Cai through Skype messages.  Jung appears to accept that Cai was at all material times employed by BX, until he left BX in late 2014/early 2015.

16.  On such evidence from Sino, and with the clear acknowledgment by Jung that he had lent Sino’s name to BX, and had agreed to BX using Sino’s name to enter into contracts with third parties for the sale and purchase of goods, with knowledge that BX would be taking steps to perform such contracts entered into in Sino’s name, Sino had clearly agreed to BX acting in its name and/or as its agent in respect of the contracts, and to BX taking steps exclusively (without prior approval from Sino/Jung) to carry out and perform the contracts.  Particularly, this extends to the use of Sino’s name in entering into the charterparty on which the Contract with Dana is based, and BX’s performance of the charterparty made in Sino’s name.

17.  Since Dana had been dealing with Cai and other representatives of BX throughout the performance of the Contract, there is no merit in the argument that Dana (and the arbitrator) should have made attempts to contact Sino’s shareholder and director, Jung, whom Dana’s representatives had never met or dealt with, and who had played no role in the Contract.

18.  I consider that Dana has a good case to argue that since BX was Sino’s agent, with actual authority to enter into contracts for, and to execute, the sale and purchase of raw materials and the shipment of such materials under the Contract, service and notification of the Arbitration on BX and Cai for BX is good service and notification on the principal, Sino (Articles 94 & 95, Bowstead & Reynolds on Agency).  The claims made by Dana in the Arbitration relate to the performance of the Contract for the carriage of the goods sold and purchased under the relevant contracts entered into in Sino’s name.

19.  Overall, I consider that Sino does not have a strong case to argue that the Award is invalid, on the basis that the notice of the arbitral proceedings had not been validly served on Sino.  It certainly cannot be said that the Award is “manifestly invalid”.

20.  Counsel for Dana argued that in any event, Sino had ratified BX or Cai’s acceptance of the notice of the Arbitration and/or Cai’s conduct of the Arbitration.

21.  According to Jung, he had met with Zhou in May or June 2013, and was told that there were “some problems” with the charterparty, but that Zhou was dealing with these.  After that, on about 30 June 2015, Sino received the Award for the first time.  According to Jung, he passed this to Zhou, and they met in Beijing.  Jung asked Zhou about the Award, and was told by Zhou to ignore it, and that it was not necessary for Jung to do anything.  Zhou assured Jung that he would settle the Award.  Jung claims that he heard nothing further from Zhou and that it was only on 29 October 2015 that he first took action, by writing to the Tribunal to say that Sino had not received any notice of the Arbitration.  On 2 November 2015, Jung received the order from the Singapore court, whereby leave was granted to Dana to enforce the Award in Singapore.  It was then that Jung asked for and obtained a written Confirmation from Zhou dated 3 November 2015, whereby BX and Zhou agreed to bear full responsibility for Dana’s claim, and to indemnify Sino from any damage.

22.  Since Sino had claimed to the Tribunal on 29 October 2015 that Sino had not received any notice of the Arbitration, and even after the receipt of the Confirmation on 3 November 2015, Sino has applied to the Court to set aside the Order, I cannot agree at this stage that there is clear evidence of Sino’s unequivocal adoption and recognition of the act, either of accepting notice of the Arbitration, or of the conduct of the Arbitration, by Cai and/or Sino.

23.  The Contract was entered into by Sino, admittedly in its name, under the agreed arrangement between Zhou of BX and Jung of Sino.  Even if it can be argued that BX and/or Cai did not have any actual, implied or usual authority to accept notice of the Arbitration and of the appointment of the arbitrator, Sino is bound by the Contract made in its name and with its consent.  There has been no evidence adduced (either in the application for setting aside the Order, or the application for security) as to what facts can be raised by way of defence, on the merits, to the claims made by Dana of Sino’s breach of the Contract.  Even if Jung’s 4^th affirmation were to be considered, any error of law made by the Tribunal (as Jung suggests), including any error as to the computation of damages payable in respect of the breach of Contract cannot be a ground for setting aside or resisting enforcement of the Award.  This is relevant to the exercise of the Court’s discretion as to whether the Award should be enforced, even if the grounds under s 89 of the Ordinance can be made out.

24.  As for Sino’s application to the English court to set aside the Award, this was made in January 2016, nearly 12 months after the making of the Award in February 2015.  No expert evidence has been adduced on the likelihood of Sino being given leave to apply for the setting aside of the Award out of time, and no explanation has been offered in any way by Sino as to its 6 months’ delay in making application to the supervisory court, despite receiving notice of the Award on 30 June 2015 (on its own case).  Assuming that English law is the same as Hong Kong law (in the absence of evidence to the contrary), it would appear that Dana has a good case of arguing that leave would not easily be granted by the English court for Sino to proceed with its setting aside application. 

The ease or difficulty of the enforcement of the Award

25.  There is no evidence put forward by Sino as to its financial worth, and whether it would be able to comply with the Award.  I agree that Counsel’s reliance on the fact that Sino has a paid-up capital of HK$12 million has little meaning, in the absence of any other evidence as to its available assets and indebtedness.  As Counsel for Dana rightly pointed out, the only evidence of Sino’s financial credibility or otherwise is from the Infospectrum credit rating reports obtained by Dana (“Reports”).  Their references to Sino’s turnover merely show the total transaction amount under Sino’s contracts, without any indication of its profits or losses and, in the light of Jung’s evidence as to Sino’s dealings, whether such volume represents the business of Sino itself, or whether such business was, again, conducted only in its name for and on behalf of third parties.  I also bear in mind the fact that Jung himself disputes the accuracy of the Reports, and their references to Bow Steel Ltd in Hong Kong, BX in Beijing and other companies being affiliated companies of Sino.

26.  According to the Reports, Sino is wholly owned by Jung and Zhou is the other principal of Sino, BX being an affiliated company and used for administrative purposes.  According to the Report dated 9 March 2015, a discreet interview or conversation had been conducted with Jung on 4 March 2015, when Jung had claimed that Sino had 4 affiliated companies including Bow and BX, which share a common ownership.  These are denied by Jung.

27.  The relevant consideration, as set out in Soleh Boneh, is the ease or difficulty of enforcement of the Award and whether it will be rendered more difficult if enforcement is delayed, for example by movement of assets, improvident trading, and whether it is likely that there would be dissipation in the interim of the delay in enforcement.

28.  Having regard to the circumstances of Sino’s conduct of business on its own case, and its readiness to lend its name to an unrelated company to enter into financial commitments with banks and to carry out contracts made in its name, without any regard to the third party’s performance of the contracts, it would appear that Sino has little or no concern that third parties might be misled by the identity and financial worth of its contracting party, and whether contracts and obligations entered into in its name would be properly and duly performed.  Coupled with Sino’s delay in taking reasonable and prudent steps (even after receiving notice of the Award) to ascertain the meaning and effect of the Award and whether the liability under the Award would be duly discharged, and its delay in applying to the English court to set aside the Award, I consider that Sino is employing delaying tactics and there are real risks that the Award against Sino will not be satisfied, and that if Sino considered that it was in its best interests to do so, it would not shrink from attempts to defeat the interests of Dana under the Award.  In my view, there is a real risk that Sino would remove or dissipate its assets to prejudice the enforcement of the Award should there be further delay.  At this stage, it is unknown when the London proceedings will have an outcome.  Enforcement of the Award should not be indefinitely postponed for no good reason.

Orders made

29.  In all the circumstances, I am only prepared to adjourn the application to set aside the Order for a period of 3 months from 8 March 2016, and on condition that security be provided by Sino, by payment into court (or by provision of such other security as is acceptable to Dana) of 60% of the Award Amount within 21 days of the date of handing down this Decision.  I further order that in the event that the security is not duly provided within the period of 21 days, the application to set aside the Order is to be dismissed and Dana is at liberty to enter judgment in terms of the Award.

30.  If security is provided within the period of 21 days, there be liberty to apply after 3 months from 8 March 2016, as to whether the application to set aside the Order should be restored.

31.  The hearing date fixed for 16 March 2016 is to be vacated. 

32.  The costs of the application for security and the application to set aside the Order (including any costs reserved) are to be paid by Sino to Dana on an indemnity basis, with certificate for counsel.