XCHRX SHENZHEN CITY TONG YING FOREIGN TRADE CORPORATION LTD. v. ALPS CO. LTD.

HCCT 82/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO. 82 OF 2000

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REASONS FOR DECISION

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Introduction

1. The following are the reasons for the decision on 12 September to dismiss the defendant's application for setting aside (1) the order dated 2 August 2000 granting leave to the plaintiff to enforce a mainland arbitration award, and (2) the Judgment entered pursuant thereto on 10 August 2000.

2. The background giving rise to the defendant's said application is in short as follows. According to the Arbitration Award (in Chinese) dated 30 April 1997 ("the Award"), the plaintiff (the claimant in the arbitration proceedings) entered into an agreement with the defendant to purchase goods from the defendant. The plaintiff considered that the quality of the goods delivered did not comply with the contractual requirement and alleged that it suffered loss as a result. The defendant denied the claim and alleged that the plaintiff breached the agreement by failing to open a letter of credit to pay for the unshipped portion of the goods. The parties presented their respective case before the arbitration panel in the mainland and the arbitration panel decided in essence in the plaintiff's favour (resulting in the Award).

3. At the hearing, the defendant relied on the following grounds in support of its application:-

(a) there was no binding arbitration agreement between the plaintiff and the defendant and therefore it was "not valid" within the meaning of s. 40E(2)(b) of the Arbitration Ordinance, Cap. 341;

(b) the Award was made outside the time prescribed under the arbitration rules;

(c) the plaintiff failed to pay the arbitration fees prescribed under the said rules.

Other grounds were set out in the defendant's skeleton submissions but were no longer relied upon at the hearing.

4. The aforesaid grounds will be discussed further in the paragraphs below.

Was the Agreement Invalid Pursuant to S. 40E(2)(b)?

5. The argument that there was no binding agreement was raised by the defendant before the arbitration panel by way of a preliminary objection. The arbitration panel however rejected the argument and proceeded with the arbitration.

6. S. 40E(2)(b) of Cap. 341 reads:-

"Enforcement of a Mainland award may be refused if the person against whom it is invoked proves ... that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the Mainland ... " (emphasis supplied).

7. The words "under the law to which the parties subjected it" in s. 40E(2)(b) of Cap. 341 can only have meaning if a binding agreement is already in existence. This is because if there is no existing (or subsisting) agreement, there is nothing which the parties can subject it to. Similarly, the words "or failing indication [by the parties] thereon ... under the law of the Mainland" points to the same conclusion. For this reason, I do not consider that s. 40E(2)(b) can be invoked in relation to an argument as to whether there was a binding arbitration agreement.

8. Even if s. 40E(2)(b) can be invoked in relation to such an argument, I do not consider that it has any merit by virtue of the circumstances of this case (set out below).

9. The agreement between the parties is a pro forma document. Clause 20 thereof provided in English that:-

"Disputes settlement:

* All disputes arising out of the contract or concerning the contract, shall be submitted to the China International Economic and Trade Arbitration Commission ["CIETAC"] for arbitration in accordance with its Arbitration Rules. The arbitration shall take place in Shenzhen China. The arbitral award is final and binding upon both parties.

*                     ".

It is apparent from the above that clause 20 provided a choice to the contracting parties because it contains 2 boxes. The contracting parties could indicate which option has been chosen by ticking the appropriate box.

10. The defendant argued before the arbitration panel (as it argued herein) that the parties have not chosen arbitration to be the mode for settling the contractual dispute since neither box had been ticked. As stated above, the arbitration panel rejected this argument.

11. In a ruling dated 3 April 1996, the arbitration panel approached the matter essentially in the following manner. There were totally 25 clauses in the pro forma document but boxes (for ticking) only appear in those where a choice of several options is available. In relation to clause 20, although there were 2 boxes, not only was the second box unticked, no words were written in the space provided after the second box. In these circumstances, the panel concluded that the parties must have chosen arbitration by CIETAC as the mode for resolving disputes.

12. There is no need to go into the details of the expert evidence adduced by the parties (especially that of the defendant) suffice it to say that the above conclusion of the arbitration panel was criticised by the defendant's expert as being incorrect. Those criticisms were either the "expert's" assertions or personal opinions and no authority (whether statutory or jurisprudential) was referred to in support. There is no proper evidential basis to "prove ... that the arbitration agreement was not valid ... ".

13. Further, under Hong Kong law, such kind of decision is either a question of fact, or (at most) a question of mixed law and fact. Such a decision may arguably be validly challenged in Hong Kong if the tribunal making it:-

(a) applied the law erroneously;

(b) acted against the weight of the evidence such that the decision is perverse.

14. In the absence of evidence that mainland law is different from Hong Kong regarding the correct approach to be adopted by such a tribunal in relation to such matters, it is "presumed" that mainland law is the same as Hong Kong: see Dicey & Morris on The Conflict of Laws (2000) 13th Ed., Vol. 1, Rule 18(2), para. 9-001 (p. 221) and para. 9-025 (p. 232); see also 8(1) Halsbury's Laws of England (1996) 4th Ed., para. 1093, text to n. 6. There is no evidence relating to either (a) or (b) above. It may well be that other approaches could have been adopted by the arbitration panel in determining whether there was a binding arbitration agreement. However, this by itself does not mean that the panel's conclusion can be vitiated such that "... the arbitration agreement [is to be regarded as] not valid under ... the law of the Mainland".

15. For the above reasons, I do not find that the arbitration panel's conclusion that a binding arbitration agreement has been made can be validly challenged. There is accordingly no basis for concluding in the defendant's favour under s. 40E(2)(b) even if that provision were applicable to the present case.

16. The defendant criticised the arbitration panel for wrongly stating that clause 20 was an indispensable contractual provision in the mainland when in fact the expert evidence (elicited in cross-examination) is that contracting parties can opt for this as well as other modes of dispute resolution. Whether or not the criticism is well-founded, I do not consider the panel's conclusion to be based on this matter and therefore the correctness of that statement is of no real significance.

Was the Award Made Outside the Prescribed Time?

17. The defendant relied on Article 52 of the CIETAC Arbitration Rules:-

"The arbitration tribunal shall render an arbitral award within 9 months as from the date on which the arbitration tribunal is formed. The Secretary-General of the Arbitration Commission may extend this time limit at the request of the arbitration tribunal if the Secretary-General of the Arbitration Commission considers that it is really necessary and the reasons for extension are truly justified" (emphasis supplied).

18. It is undisputed that the Award was rendered outside the prescribed 9-month period. The plaintiff's case is that that period has been extended by the Secretary-General whereas the defendant contends that the purported extension was not within the terms of Article 52 and thus invalid.

19. The document which evidenced the extension (or allegedly purported extension) is a letter dated 31 January 1997 from the Shenzhen Commission of the CIETAC in the following terms:-

「... 由于需要对有关事实作进一步调查，仲裁庭 ... 要求将作出裁决的期限延长至１９９７年４月３０日 ...

本会秘书长认为，仲裁庭要求延长作出裁决期限的理由是正当的，本案作出裁决的期限可延长至１９９７年４月３０日. 」

20. The summary of the above in English is that the Secretary-General considered the arbitration panel's request for time extension to "further investigate" the relevant facts to be a "proper reason" and therefore extended the time as requested.

21. The defendant complains that (1) no such "further investigation" has been performed, and (2) it has not been informed of the nature, ambit or result (if any) of such investigation and has thus been deprived of an opportunity to be heard regarding this.

22. I do not find either or both points (1) and (2) above to be relevant to the validity of the Secretary-General's decision to extend the time. Even assuming that the complaint in point (1) above is correctly made, it would only mean that the arbitration panel has not carried out something which was earlier relied upon by it as a reason for asking for time extension. The same observation can be made about point (2) above because even if there had been a deprivation of the defendant's right to be heard regarding the "further investigation", it has nothing to do with the propriety of the Secretary-General's decision.

23. Under Hong Kong law, the Secretary-General's decision may (arguably) be challenged if it had been made unreasonably in the Wednesbury sense or ultra vires Article 52. Whether or not this is the law in the mainland is again unknown because no evidence has been adduced relating to this point. In any event, there is no basis to suggest (nor has it been suggested herein) that at the time the Secretary-General ought to have doubted (or examined more closely) the reason given by the arbitration panel for asking for the time extension. It has not been argued that the need for "further investigation" could not be a reason falling within the terms of Article 52.

24. For the above reasons, I find that there is no merit in the argument that the time extension was invalidly given. Further, although the words "further investigation" had been used in the letter of 31 January 1997, considering the manner in which the conclusions in the Award was arrived at, I consider that the letter intended to refer to "further consideration". I also consider that the need for "further consideration" can be a valid reason under Article 52. However, since I have been able to find in the plaintiff's favour without regard to these 2 last-mentioned matters, no finding is (or needs be) made thereon.

25. The defendant also referred to Articles 45 and 47 of the CIETAC Arbitration Rules which in short provided that evidence should be presented during hearings before the arbitration panel and may be examined by the parties and further that the parties shall have the right to carry on debate in the course of the arbitration. As state above, although the words "further investigation" were used in the letter of 31 January 1997, a perusal of the Award shows that the panel only considered the materials presented by the parties and did not consider any other materials. For this reason, no proper basis has been established regarding any procedural impropriety on the panel's part.

26. Finally, although the said letter of 31 January 1997 did not state that the reason for the request for time extension was "really necessary" or "truly justified" (words used in Article 52) but only that it was "proper", the defendant has (correctly) not raised any point regarding this. Even if the defendant had done so, I would have found that the letter sufficiently shows that the Secretary-General had properly considered the request in accordance with the requirements of Article 52.

Was the Payment of the Arbitration Fee Relevant?

27. Article 14(3) of the CIETAC's Arbitration Rules provided:-

"The [plaintiff] shall pay an arbitration fee in advance to the Arbitration Commission ... " (emphasis supplied).

28. In the affirmation of Lai Koon Sang dated 23 August 2000, it was contended that the prepayment of arbitration fees was a "condition precedent" to the arbitration (see para. 17(d) thereof).

29. No express stipulation in the Arbitration Rules can be found in support of such contention. The "experts" on mainland arbitration law have not been able to find any authority in support of the same. I therefore find that this argument has not been properly substantiated.

30. Quite some time has been spent on the issue of whether prepayment of arbitration fees has in fact been made. By reason of my earlier finding, there is no need to determine this matter. However, even assuming that prepayment has not been made, and even if it was a condition precedent to the arbitration, the condition could have been (and must have been) waived by CIETAC when the arbitration panel proceeded to hear and determine the arbitration despite no prepayment having been made.

Conclusion

31. By reason of the matters aforesaid, none of the defendant's arguments has any substance. The application to set aside the order and the Judgment should be (and was) dismissed.