COG v. ES

Amended and redacted version

HCMP 172/2022

[2023] HKCFI 294

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 172 OF 2022

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REASONS FOR DECISION

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1.  On 24 June 2022, this Court granted leave to the Applicant (“COG”)  to enforce an arbitral award dated 11 November 2021 issued by CIETAC (“Award”)  made in an arbitration between COG and the Respondent (“ES”)  (“Arbitration”). Under the Award, ES was ordered to pay to COG US$21,072,360.54 (“Principal Sum”), liquidated damages of 3.85% per annum on the Principal Sum from 27 May 2016 until the date of payment, legal fees of RMB 300,000 and an arbitration fee of RMB 1,118,705.60.

2.  On 12 July 2022, ES applied by its summons (which summons was amended on 9 September 2022)  to set aside the Order of 24 June 2022 (“Enforcement Order”), on the stated grounds that ES had been unable to present its case in the Arbitration, and that enforcement of the Award would be contrary to public policy (“Setting Aside Application”). By the summons, ES applied alternatively for an order that enforcement of the Award be stayed pending resolution of a new arbitration to be commenced by ES on the Mainland.

3.  In response to ES’ application to set aside the Enforcement Order, COG applied by summons issued on 6 September 2022 for the Setting Aside Application to be dismissed, with an order for immediate enforcement of the Award. Alternatively, ES sought an order for security of US$26 million to be furnished by ES by payment into court, failing which ES should be prohibited from further conducting the Setting Aside Application.

4.  ES’ summons of 6 September 2022 was heard by the Court on 4 January 2023, when the Setting Aside Application was dismissed as sought, with costs on indemnity basis.  Below are the reasons for the decision.

Applicable legal principles

5.  The parties do not dispute that the legal principles applicable to the determination of an application for security are those set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 at 212, applied in Guo Shun Kai v Wing Shing Chemical Co Ltd [2013] 3 HKLRD 484 and Dana Shipping and Trading SA v Sino Channel Asia Ltd [2017] 1 HKC 281, which will not be repeated here.

6.  The first consideration is the strength of the argument that the Award is invalid, as perceived on a brief consideration by the court. In Soleh Boneh, Staughton LJ explained that if the award is manifestly invalid, there should be an adjournment and no order for security, and if it is manifestly valid, there should be either an order for immediate enforcement, or else an order for substantial security. In between, where there are various degrees of plausibility in the argument for invalidity, the court must be guided by its preliminary conclusion on the point.

7.  On my brief consideration of the grounds set out in the Summons issued by ES, which are the only grounds to be considered for the Setting Aside Application, I was satisfied that ES had no grounds to set aside the Award, which Award is clearly and manifestly valid.

8.  The Arbitration was commenced pursuant to the arbitration clause contained in a Sales Contract dated 21 November 2014 (“Contract”)  made between COG and ES, whereby COG agreed to sell to ES a quantity of goods (“Products”). Disputes arose relating to ES’ failure to pay the purchase price of US$25,572,360.54 for the Products delivered by COG under the Contract.  An oral hearing was held before the arbitral tribunal (“Tribunal”)  on 9 July 2021 (“1^st Hearing”), which was attended by the legal representatives of both parties. After the 1^st Hearing, both parties submitted supplementary materials to the Tribunal, and the Award was issued on 11 November 2021.

9.  In its Setting Aside Application, ES claims that the parties had been engaged in the sale and purchase of the Products since 2010, and that there had been a total of 64 contracts made between the parties between January 2011 and December 2014, involving transactions in 100,000 tons of copper for over US$700 million, with multiple deliveries and payments. ES claims that the Arbitration and the Award were isolated to one of the 64 contracts, and alleges that it has a set-off or counterclaim against COG under the 64 contracts “overall”. It is claimed that because of the payment method agreed under the contracts, the issue of payment could not be properly sorted out and determined without having gone through all the 64 contracts and performances thereunder.

10.  In gist, ES claims that it was deprived of a fair opportunity to present its case in the Arbitration on the question of “the involvement and calculation of the purchase price of the multiple transactions across the 64 contracts” (referred to by ES as “the Issue”). It complained of the preparation time required for the Arbitration, claiming that it did not have sufficient time before the 1^st Hearing to prepare its case in view of the complexity of the Issue and the volume of documents and evidence involved. It referred to the issues raised in the submissions filed after the 1^st Hearing, claiming that it was inappropriate for the supplemental submissions, the new evidence, and the new issues raised to be dealt with on paper, without a further oral hearing.  ES claims that it had applied to the Tribunal for a second oral hearing, but its application was rejected by the Tribunal without any justification or reason given.

11.  On the above basis, ES argued that it had been deprived of the opportunity to present its case in the Arbitration, that there was a serious irregularity in that the Tribunal had refused to conduct a further oral hearing, had failed to give any justification for its refusal, and had failed to deal with the Issue. It was argued that it would be contrary to public policy to enforce the Award in these circumstances, particularly when it is claimed that ES had in fact overpaid COG under the 64 contracts, and that it has a set-off/counterclaim against COG under the 64 contracts as a whole. ES claims that it had, after the issue of the summons for the Setting Aside Application, filed a notice for a new arbitration under the 64 contracts. On its case, if ES should prevail in the new arbitration, it will have a set-off of US$20,366,468.76 against COG, offsetting the need for enforcement of the Award COG obtained against ES.

12.  In relation to the complaint of inadequate time for preparing the Arbitration, it was open to ES to seek an adjournment from the Tribunal if it considered that more time was required.  ES failed to make any application to the Tribunal, whether at or before the 1^st Hearing, and it should not be permitted now to claim that the preparation time was “grossly insufficient”. If there was any ground for complaint, ES had deprived the Tribunal of the opportunity to deal with such alleged grievance when there was no proper application made by or on behalf of ES in the Arbitration, whether for time, or for an adjournment.

13.  ES complained of the fact that supplemental submissions and materials had been served by both parties after the 1^st Hearing, and that it should have been given the opportunity to deal with the new evidence and issues raised, including the opportunity to cross-examine a witness on the evidence. It wrote to the Tribunal on 2 November 2021 to seek a second oral hearing, in order to respond to COG’s supplemental evidence, to fully express its opinion on the defence, and to deal with the supplemental materials submitted after the 1^st Hearing. This was rejected by the Tribunal, stating that it had considered the circumstances of the case and the opinion stated for the parties, but considered that a further hearing was not necessary.

14.  As Counsel for COG pointed out, the Tribunal was fully entitled and empowered under the governing arbitration rules to decide not to permit a further or oral hearing for the parties to examine the supplementary evidence. Article 42 of the CIETAC Rules provides that where evidence is submitted after the hearing, and both parties have agreed to examine such evidence by means of writing, they may so do, and Counsel pointed out that at the 1^st Hearing, COG and ES had (through their representatives)  agreed that they would examine further evidence by means of writing. There is no injustice or surprise that such procedure should be followed.

15.  On behalf of ES, it was argued that the Tribunal had failed to adequately explain its decision not to conduct a further hearing, and that this undermined due process and was contrary to the basic notions of justice and fairness, to entitle the Court to refuse enforcement of the Award. There is no basis in this case to set aside the Enforcement Order on any alleged ground of public policy. As held in R v F [2012] 5 HKLRD 278, an award has to be read and understood in the context of how the issue was laid and argued before the tribunal. It has to be borne in mind that an award made in the arbitration process is intended to be read by the parties only, which parties would be familiar with the background and how the issues had been argued. The way reasons are expected to be given in the award for a particular issue should be proportional to the complexities of how that issue is contended before the tribunal, and the reasons for the award do not necessarily need to be elaborate or lengthy, provided that they could be understood in its proper context, particularly in a private consensual process which is intended and expected to be cost effective, shorn of complexities and technicalities.

16.  The particular issue decided by the Tribunal was whether to hold a further hearing after the 1^st Hearing, and when supplemental submissions and materials had been presented by both parties. In the context of this particular case, the reason given by the Tribunal, that it “had considered the actual circumstances of the case” and the opinion expressed by both parties, and that it did not agree that a further hearing was necessary, was in my judgment proportionately adequate and sufficient to enable ES to understand why the Tribunal rejected its application.  Consideration of the “actual circumstances” of the case and the parties’ opinion naturally included the consideration of the new evidence and supplemental submissions, the issues raised thereby, and what had already been raised and argued before the Tribunal at the 1^st Hearing.

17.  Pertinently, the Tribunal’s decision not to conduct a further hearing after the 1^st Hearing was a case management decision which it was entitled to make in the light of the submissions made by the parties, the issues in dispute in the Arbitration and all the circumstances of the case before the Tribunal. It is not a decision which the court should lightly interfere with, in the absence of what the court can find to be a serious denial of natural justice.

18.  ES cited section 86(1)(c)(ii)  of the Arbitration Ordinance (“Ordinance”)  in support of the Setting Aside Application. The applicable provision should be section 95(2)(c)(ii)  of the Ordinance. This permits the Court to refuse enforcement of an award if a party was “unable to present” its case. What the courts seek to enforce and protect under sections 86(1)(c)(ii)  and 95(2)(c)(ii)  is a standard of due process which can satisfy basic minimum requirements and are generally accepted as essential to a fair hearing. In this context, it is relevant to note that section 46 of the Ordinance requires the arbitral tribunal to give the parties “a reasonable opportunity” to present their cases and to deal with the cases of their opponents. Section 46 reflects that a party’s right is to have a reasonable opportunity, as opposed to a “full opportunity” (as used in Article 18 of the Model Law), to present its case, and that such a right is not unlimited in scope and breadth, to entitle a party to make unreasonable demands and to ignore other relevant principles and aims of efficiency and speedy resolution of the dispute. The court will have regard to what is reasonable, in the context of the specific facts and circumstances of each case.

19.  The case relied upon by ES (Guangdong Overseas Shenzhen Co Ltd v Yao Shun Group International Ltd [1998] 1 HKC 451)  is totally distinguishable. In that case, the tribunal’s decision not to have a further oral hearing appeared to contradict its own earlier directions. In the present case, the Tribunal had never indicated or suggested that there would be a further hearing. Further, ES had agreed to the procedure of examination of the supplemental evidence by means of writing.

20.  On the facts of this case, including what transpired at the 1^st Hearing, and the issues which fell to be determined by the Tribunal in the Arbitration, I fail to see how the Tribunal can be criticized for either declining ES’ application for a further hearing, or for failing to give elaborate reasons for its decision.

21.  ES was given and had the reasonable opportunity to present its case, and it did so in the manner agreed and decided by its legal advisers - by filing its Defence, by the case presented through its legal advisers/representatives at the 1^st Hearing, by the supplementary submissions served after the 1^st Hearing, and by the examination of the evidence in writing in the form which had been agreed to by its legal representatives at the 1^st Hearing. Its application for a further hearing was made to and considered by the Tribunal.  I do not consider that either the decision of the Tribunal to proceed with the Arbitration without a further hearing, or the Award, was made in a manner that it would be shocking to the court’s conscience to enforce same.

22.  As Mr Wong for COG emphasized, ES never raised in the Arbitration that it had a counterclaim against COG on the basis of what it now asserts to be payments which it had made under the 64 contracts.  No Counterclaim was ever filed in the Arbitration. ES sought to explain that this was due to the legal advice it had obtained, that it had a strong defence to COG’s claim for the price due under the Contract, and also due to the fact that it did not wish to incur the additional legal expenses of making a counterclaim. It can hardly complain now, that enforcement of the Award should be delayed or stayed by virtue of the new arbitration to be commenced in relation to its claims under the 64 contracts.

23.  ES therefore only based its Defence in the Arbitration on its claim that it was entitled to offset a sum of approximately US$18,360,000, which on ES’ calculation was due and payable by COG to ES upon a reconciliation of the prices payable under all the 64 contracts. ES relied on its calculations of the sums allegedly due, and submitted same in evidence in the Arbitration, but also claimed that it was not possible to compile all the evidence required to substantiate its claim.

24.  Contrary to what is suggested by Counsel for ES, the Tribunal had considered and dealt with the set-off contended by ES, by deciding it against ES and rejecting ES’ defence.

25.  In the Award, the Tribunal referred to the calculation sheet submitted by ES with regard to the sum claimed to be due from COG, of approximately US$18,360,000. This represented, on ES’ case, the aggregate outstanding balance of more than 60 contracts made between ES and COG from January 2011 to December 2014.  The Tribunal found that the claim made by ES, that the parties had performed a general reconciliation of accounts and that the parties had agreed on a settlement and offset of the amounts due under the 64 contracts, lacked factual basis and was not established on the evidence presented. In reaching such decision, the Tribunal had considered the contents of the “QQ chat” exchanged between the parties, and concluded that these did not establish the agreement relied upon by ES. The Tribunal therefore considered that it was not necessary to analyze and decide whether the witness sought to be cross-examined by ES had the authority to perform the reconciliation and the settlement on behalf of COG.

26.  It is trite, that the role of the enforcement court is not to review the correctness of the Award, nor the factual findings made by the Tribunal on the evidence presented. Nevertheless, the Tribunal’s decision not to convene a further hearing can be understood and was further explained in the Award and its finding made that there was never an agreement to reconcile the accounts under the 64 contracts, such that any discredit by cross-examination of the relevant witness as to his/her alleged authority would not be material.

27.  Further, and more significantly, the Tribunal had considered and construed the relevant payment clause under the Contract, and decided in the Award that under the terms of the Contract, payment for the products sold under the Contract was to be made upon delivery of the goods and documents thereunder, and that there was no basis nor evidence for ES to contend that the parties had agreed, or that there was a practice, whereby the price of the products sold under the Contract would be offset against the price of future contracts made or to be made between the parties. The defence of set-off was accordingly rejected by the Tribunal.

28.  Having reviewed the untenable grounds raised by ES in its Setting Aside Application, and even upon a brief consideration of the Award, I was satisfied that the Award is manifestly valid, and that leave for enforcement should immediately be granted without further delay. Since I was not considering to postpone or adjourn enforcement and whether to order security in the interim, it was not necessary to consider whether it would be more difficult for COG to enforce the Award by reason of any interim delay, whether ES’ claim that it has no assets in Hong Kong is credible, and whether there is any risk of dissipation of assets.

29.  For the above reasons, an order was made in terms of COG’s summons of 6 September 2022, for dismissal of the Setting Aside Application, with costs.