CANUDILO INTERNATIONAL COMPANY LTD v. WU CHI KEUNG AND OTHERS

HCCT 63/2021

[2023] HKCFI 1055

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 63 OF 2021

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D E C I S I O N

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Background

1.  This is an application for leave to appeal against the Decision of 8 March 2023 (“Decision”), whereby this Court granted extension of time to the 1^st and 3^rd Respondents to apply to set aside the Enforcement Order, and set aside the leave granted to enforce a Final Award of the arbitrator of 7 June 2021. The application is coupled with a summons to adduce further evidence in support of the appeal.

2.  The nomenclature and definitions used in the Decision are adopted below.

3.  An appeal against an order made under section 84(1)  of the Ordinance is an appeal against the exercise of discretion by the Court.  Leave to appeal will not be granted unless there is misunderstanding of the law or evidence, or the exercise of discretion was plainly wrong.

4.  On behalf of CIC, it was argued that the threshold for seeking leave to appeal “is not a very high threshold”. This observation made by the Court in China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK)  Ltd [2015] 4 HKLRD 609 has to be read in the proper context. In his judgment, Lam VP (as His Lordship then was)  highlighted the aims of recognizing the finality of arbitral awards and the limitations on appeals, pointing out (inter alia)  that in considering applications for leave to appeal, the first intance judge would be more familiar with the case and the arguments of the parties.

5.  The objectives of the Arbitration Ordinance (“Ordinance”)  as set out in section 3, namely the facilitation of the fair and speedy resolution of disputes by arbitration without unnecessary expense, must therefore be borne in mind in the consideration of the grant of leave to appeal under section 84(3).

6.  Assessment of whether there was procedural unfairness in an arbitration is a broad and multi-factorial exercise dependent on the Court’s analysis of the documentary evidence, and it would be unlikely for the Court of Appeal to interfere with the decision of the judge at first instance (Trust Risk Group SpA v AmTrust Europe Ltd [2017] 1 CLC 456). This is also recognized in the judgment of the Court of Appeal in China International Fund Ltd.

7.  Applying the above legal principles, there are, in my judgment, no reasonable prospects of success in the intended appeal, and I refuse to grant leave. The reasons are set out below.

Whether there was error in reviewing the correctness of the Final Award on the merits

8.  Counsel instructed by CIC for the intended appeal seek to argue that the Decision to set aside the Enforcement Order was based on the error made by the Court in reviewing the correctness of the Final Award, which is impermissible.  This is a plain distortion of the analysis and reasons set out in the Decision.

9.  A careful and objective reading of the Decision should have made it plain that the Enforcement Order was set aside and enforcement of the Final Award refused on the basis that there was defect in the structural integrity of the arbitral process, as a result of Arbitrator 2’s misunderstanding of the proceedings which had taken place before Arbitrator 1 and his view of Wu’s failure to respond at that stage to issues as to the validity of the Contracts, such that they should be precluded from having what Arbitrator 2 referred to as a second bite of the cherry in the proceedings before Arbitrator 2. Paragraphs 38 to 40, 42 and 44 of the Decision set out the explanations for the Court’s view of the problems and defects which led to the Decision. In particular, the Court made it clear at paragraphs 39 and 40 of the Decision, that the core of the matter is that Wu had not been given notice or reasonable opportunity to meet the case made against them as to their liability for the primary debt due from the Company to CIC under the Contracts, and as to the binding nature of the 2020 Award as against them. It was emphasized (see paragraph 40)  that the issue was not whether Arbitrator 2 had erred in law, on res judicata as CIC emphasized, but that (see paragraph 42)  in deciding the issue of the primary debt due from the Company, Arbitrator 2 had changed the landscape of the Arbitration by deciding, rightly or wrongly, that he was bound by the 2020 Award. The correctness of his decision was not the focus or issue. The defect was Arbitrator 2’s inability to give a reasonable opportunity to Wu to answer such a case on a relevant and crucial issue. The Court pointed out, at paragraph 50 of the Decision, that the rationale for the finding that Wu’s rights in the Arbitration had been violated, and the fairness of the arbitral process had been undermined, was that even if Wu’s Defences were considered to be unmeritorious, Wu were nevertheless entitled to the reasonable and fair opportunity to present their case to the fact-finding tribunal and to have their Defence properly and fairly determined.

10.  In short, the defect in the structural integrity of the arbitral process and award in this case did not concern the correctness of Arbitrator 2’s decision that he was bound by the 2020 Award. Such defect was that having taken the view that he and Wu were bound by the 2020 Award, Arbitrator 2 should have but failed (inter alia)  to give the reasonable opportunity to Wu to present their case as to such binding effect.

Whether the defect found was the ground stated/relied upon by Wu

11.  CIC seeks to argue, in the draft Notice of Appeal, that Wu had not in fact challenged the Final Award on the basis that they had been deprived of a reasonable opportunity to present their case regarding the binding effect of the 2020 Award.  I agree with Counsel for Wu that this ground is utterly unmeritorious.

12.  In their summons issued on 26 April 2022 for setting aside the Enforcement Order (“Summons”), Wu stated as their grounds for the application that they did not have a reasonable opportunity to present their case, and that enforcement of the Final Award would be contrary to the public policy of Hong Kong. In particular, the ground expressly stated in paragraph 1(a)  of the Summons was that: the tribunal had failed to determine the question of whether the Company was liable to CIC as primary debtor, “by assuming that the 1^st and 3^rd Respondents were bound on this issue by an interim final award dated 26 June 2020”, and that in the circumstances, the tribunal had (as stated in paragraph 1(a)(iii)  of the Summons)  deprived the 1^st and 3^rd Respondents of a reasonable opportunity to present their case. There is no basis at all for CIC to contend that it was not Wu’s pleaded case or evidence that they had not been provided with the reasonable opportunity to be heard on the res judicata issue.

13.  As this Court has observed on numerous occasions, parties should not be making submissions or arguments in affidavits, which should be confined to facts only. Submissions on facts can and should be made at the substantive hearing. The affirmation of CK Wu filed in support of the application to set aside the Enforcement Order adequately stated facts in support of the grounds identified in the Summons. The affirmation itself made repeated references to the fact that as a result of the procedural orders and indications made by Arbitrator 1, Wu’s understanding was that all the disputes between CIC and the Respondents were to be determined by substantive hearings (paragraph 17 (b)  of CK Wu’s affirmation), and that Arbitrator 2 had not ensured that Wu had received a fair and proper arbitral process (paragraph 30 of the affirmation), and had deprived them of a fair chance to present their case on the issue of the Company’s alleged liability to CIC (paragraph 37 (d)  of the affirmation). This was the essence of Wu’s case, in submitting that by deciding that he and Wu were bound by the 2020 Award without proper and reasonable notice to Wu, Arbitrator 2 had deprived Wu of a reasonable opportunity to present their case.

14.  The grounds for setting aside the Enforcement Order have been sufficiently and adequately set out in the Summons, and the facts relied upon have been sufficiently set out in the affirmation of CK Wu filed with the Summons in accordance with Order 73 rule 10(6A)  RHC.

15.  The distinction now sought to be made on behalf of CIC, belatedly, between Wu’s inability to present their case on their substantive defence as a result of Arbitrator 2’s view of his being bound by the 2020 Award, and Wu’s inability to present their case on the effect of the 2020 Award (as concluded by Arbitrator 2), is artificial, and more litigious than real.

16.  In any event, it is reasonably clear from the Decision that Wu had established their complaint that they had not been given the reasonable opportunity to present their Defence in the Arbitration as to the debt due from the Company under the Contracts, as Arbitrator 2 considered that they should not be given a second bite of the cherry.

17.  The issue of whether Wu had the opportunity to present their case under section 86(1)(c)(ii)  was (using the argument sought to be made by CIC on appeal)  clearly “in the arena” of the hearing of the application to set aside the Enforcement Order. It was CIC’s own decision not to file any evidence on the point of whether evidence had been presented, or submissions had been made, before the tribunal on the relevant issue. Nor can I see how the allegedly new evidence sought to be introduced can assist CIC’s case. As Counsel for Wu pointed out, none of the “new” evidence can show that the binding nature of the 2020 Award was an issue in dispute raised, or contended by CIC, prior to the hearing before Arbitrator 2. It was accepted by Mr Wong at the hearing on 23 February 2023 that this was NOT on the list of issues for the tribunal.    Nor can Wu’s case be shut out by the mere fact that the 2^nd and 4^th Respondents, who were separate parties in the Arbitration and who were legally represented, had made submissions and argued on the legal issues.

Whether the Arbitration had been conducted in accordance with the arbitration agreement/agreed arbitration procedures

18.  Any agreement to arbitrate must be an agreement that the arbitration procedure would comply with rules of natural justice, basic standards of fairness as well as with the provisions of the Ordinance. In particular, section 46 of the Ordinance requires the tribunal to treat the parties with equality, to be independent, to act fairly and impartially, giving the parties a reasonable opportunity to present their cases and to deal with the cases of their opponents.  Paragraph 50 of the Decision referred particularly to the importance of the fair trial process, which underpins the recognition and enforcement of arbitral awards.

19.  Given the errors of Arbitrator 2 as identified in the Decision, which the Court pointed out (at paragraph 46)  as being seriously flawed or egregious, it can scarcely be argued that the Arbitration had been conducted in accordance with the agreement to arbitrate, or the agreed arbitral procedure. Nor was it so argued by CIC at the hearing on 23 February 2023, prior to its seeking leave to appeal.

20.  A decision to set aside leave to enforce an arbitral award on the ground of inability to present one’s case is a decision involving the assessment of different factors which have to be weighed against each other.  In an appeal against a judge’s exercise of discretion, the Court of Appeal will not interfere so long as the decision is within the degree upon which different judges can legitimately differ. I am not satisfied that there are reasonable prospects of the appeal succeeding on the ground that the discretion to set aside the Enforcement Order should not have been exercised on the facts of this case.

Public policy

21.  Correctly understood, the Decision to set aside the Enforcement Order was not on the basis of any errors of law made by Arbitrator 2. As such, the ground of appeal that it would not be contrary to public policy to enforce the Final Award has no prospect of success.

Substantial injustice and whether Final Award could be different

22.  At paragraph 46 of the Decision, this Court pointed out that the conduct of the Arbitration was seriously flawed or egregious and that due process had been denied to Wu. The judgments in Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1)  [2012] 4 HKLRD 1, Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd [2011] 1 HKLRD 707, and Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKLR 39 were considered and referred to in the Decision, to explain the Court’s conclusion that Wu had suffered substantial injustice as a result of the egregious breach in due process, which sufficiently warranted the setting aside of the Enforcement Order, and that the Final Award could or might have been different but for the breach. Counsel for CIC has not shown how this conclusion can be said to be plainly wrong to the extent that the Court of Appeal would interfere.

Whether extension of time should have been granted

23.  Given the Court’s views on the merits of the application and on the serious errors undermining the structural integrity of the Final Award, there are no reasonable prospects of the Court of Appeal finding that the discretion to extend time should not have been exercised in Wu’s favour.

Disposition

24.  For all the above reasons, the application for leave to appeal and the application to adduce new evidence are dismissed, with costs on indemnity basis, and with Certificate for Counsel.