CHINA PROPERTY DEVELOPMENT (HOLDINGS) LTD v. MANDECLY LTD AND OTHERS

HCCT 53/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION & ARBITRATION PROCEEDINGS NO. 53 OF 2010

________________________

________________________

J U D G M E N T
________________________

1. This is the application by the plaintiff to set aside part of an award made on 25 May 2010 in an international arbitration between the plaintiff and the 5^th defendant as the claimants and the other defendants as the respondents.

BACKGROUND

2. The 5^th defendant 太平洋城開發有限公司(“BPP”) was set up for the purpose of a real estate development project in the Mainland.  It used to be the wholly owned subsidiary of World Lexus Pacific Limited (“World Lexus”).  World Lexus was owned by the 1^st defendant (“Mandecly”) and the 2^nd defendant (“Tsoi”).  Mandecly was owned and controlled by the 3^rd defendant (“Chan”).

3. In 2004, the plaintiff (“CPDH”), through its subsidiaries, acquired 80% of the shareholdings in World Lexus and thus BPP.  By agreement dated 9 August 2004, CPDH acquired the remaining 20% of the shareholdings in BPP (“the 20% Agreement”).

4. By then, BPP had been involved in litigation in the Mainland in which BPP sought to recover from another company 北京華正時房地産開發有限公司 (“Huazhengshi”) certain deposit paid in respect of the real estate development in 2001-2002.  The parties agreed to cater for the situation and to provide for their rights and obligations arising out of that by, among others, the following terms of the 20% Agreement[1]:

Clause 3.6.2(5)

“出讓方及陳先生同意在2005年3月31日前太平洋城公司如未能收回華正時有關協議下轉付將台鄉政府的人民幣1000萬元，受讓方可在2.4.2.2項下應支付轉讓代價餘額人民幣2000萬元中扣除人民幣1000萬元，如在2008年6月30日前太平洋城公司收回全部或部分華正時有關協議下之所付訂金/合同款，太平洋城公司將把所得款項不超于人民幣1000萬元轉付給出讓方及/或陳先生”.

Clause 3.6.2(6)(b)

“出讓方及受讓方同意以下幾種方式可視為款項已收回……(b)將台鄉政府提供付款人為太平洋公司的發票、收據或公函，確認已收到人民幣1000萬元款，並表明此1000萬元款項權益歸太平洋城公司，可用作抵扣太平洋城公司應付將台鄉政府的各種款項包括土地補償款在內”.

5. The effect of Clause 3.6.2(5) was that: (i) CPDH would be entitled to deduct RMB 10 million from the consideration payable to the vendors under the 20% Agreement, if BPP failed to recover from Huazhengshi by 31 March 2005 the sum of RMB 10 million, which had been forwarded to the Jiangtai party; and (ii) if BPP recovered any part of the sum from Huazhengshi by 30 June 2008, such amount up to RMB 10 million would be payable to the vendors and/or Chan.

6. Clause 3.6.2(6) set out the parties’ agreement on the situations where the sum of RMB 10 million under the Huazhengshi Judgment would be deemed to have been recovered by BPP.  One of such situations was provided in sub-clause (b) above, namely, the Jiangtai party provided documentary proof of receipt of the sum from Huazhengshi, and confirmed the sum to be held for the benefit of BPP, which could be utilised to set off any amount payable by BPP to the Jiangtai party (“the Deeming Provision”).

7. BPP eventually succeeded on appeal and was given judgment against Huazhengshi in the sum of RMB 14 million plus interest (“the Huazhengshi Judgment”). But recovery of the judgment debt was still pending.

8. Dispute arose between CPDH and its counterpart in the deal pursuant to the 20% Agreement.  Amongst other disputes, CPDH claimed to be entitled to invoke Clause 3.6.2(5) for the deduction of RMB 10 million from the consideration payable to the vendors under the 20% Agreement.  In April 2005, CPDH and BPP, through Messrs Reed Smith Richards Butler (“RB”), filed a notice of arbitration as the claimants.

9. As mentioned, the other defendants herein were named the respondents in the arbitration.  Mandecly, Chan and the 4^th defendant (“Minghuaxuan”) were represented by Messrs Anthony Siu & Co (“AS”).  Tsoi was represented by different solicitors; and had since mid-June 2006 acted in person in the arbitration.  Messrs WK To & Co (“WKT”) started to act for Tsoi at the end of October 2007.

10. While the arbitration was pending, by an agreement dated 16 November 2007, World Lexus (then controlled by CPDH) sold the entire shareholdings in BPP to Best China Holdings Limited (“Best China”), which was in turn owned by北京北大青鳥有限責任公司(“Jade Bird”). The following terms of the agreement between CPDH and Best China (“the Jade Bird Agreement”) are relevant for the present purpose:

“買方向賣方實際支付的有關對價……該對價已扣除目標公司和BPP的備考合併資產負債表中以下BPP賬目上的應收賬款：

……

(b) 與華正時應收賬款人民幣壹仟萬元(10,000,000)

……”

Then:

“成交後，在BPP賬目中應作出以下調整：

……

(b) 與華正時應收賬款人民幣壹仟萬元(10,000,000)的權益實為賣方所有，賣方實際是應收華正時人民幣壹仟萬元之權益的所有人，買方承諾由BPP繼續協助及配合賣方追討與華正時之應收賬款，並在成功追回部份或全部款項時，即時歸還給賣方，歸還後BPP賬上改為買方應付BPP歸還金額”.

11. Essentially, credit was given to the RMB 10 million to be recovered by BPP pursuant to the Huazhengshi Judgment in the consideration payable by Best China.  In return, World Lexus retained the benefit of the Huazhengshi Judgment after completion of the sale and purchase, so that the same, when recovered, would be payable by Best China to World Lexus.

12. In late June 2009, RB ceased to act for BPP and have since acted solely for CPDH in the arbitration.  As a party to the arbitration, BPP became unrepresented.

13. The arbitration hearing was held before a panel of 3 arbitrators comprising Mr Philip Yang as Chairman and Mr Rimsky Yuen, SC and Mr M T Yeung as members (“the Tribunal”).  The main hearing lasted from 28 September to 29 October 2009.  Closing submissions were heard on 16 and 17 November 2009.

14. In the arbitration, CPDH (and BPP) claimed that pursuant to Clause 3.6.2(5), it was entitled to deduct RMB 10 million from the consideration payable under the 20% Agreement. The respondents[2] disagreed.  They contended, among other things, that CPDH and BPP were in breach of the contractual term implied to Clause 3.6.2(5) that they should take reasonable steps and exercise due diligence to recover the RMB 10 million under the Huazhengshi Judgment by the contractual deadline 31 March 2005.  CPDH was therefore not entitled to make the deduction.

15. The respondents further contended that the Deeming Provision was invoked upon the letter from the Jiangtai party dated 6 March 2008 (“the 6/3/2008 Letter”). The letter reads:

“……其中人民幣壹仟萬元整(RMB1000萬)已於2002年5月間由華正時公司轉付至我公司做駝房營項目的土地補償款。此1000萬元款項的權益屬貴公司。可用作抵扣貴公司應付將台鄉政府的各種款項包括土地補償款在內。但，在貴公司未完成開發用地及代征地上所有拆遷工作之前以及在公司付清應付將台鄉政府的土地補償款之前，不可用於抵扣。具體抵扣的時間及條件屆時雙方另行協商訂立。”

16. Essentially, the Jiangtai party acknowledged by this letter the receipt of the sum of RMB 10 million from Huazhengshi, and the sum was held for the benefit of BPP and, subject to conditions, could be applied to set off the amount payable by BPP to the Jiangtai party. On this basis, the respondents claimed to be entitled to the payment of RMB 10 million pursuant to Clause 3.6.2(5).

17. Alternatively, if CPDH’s deduction of the price was upheld, the respondents sought to subrogate to the rights of BPP in the interest of the Huazhengshi Judgment.  This alternative claim was based on the concept of unjust enrichment, if CPDH had the benefit of the RMB 10 million deducted while BPP managed to recover any part of the Huazhengshi Judgment.

18. On 25 May 2010, the Tribunal issued the final partial award (“the Award”). Issue is now taken as to the following parts of the Award:

§342

“To conclude, the Tribunal finds that the 6 March 2008 letter from Jiangtai company satisfies the requirements set out in clause 3.6.2(6) and holds that in accordance with the Deeming Provision, CPDH ought to pay the “Vendors and/or Chan” the sum of RMB 10 million in accordance with clause 3.6.2(5) of the 20% Agreement.”

§354

“To conclude, if the Tribunal is wrong in finding of the Deeming Provision and in awarding the Respondents RMB 10 million, the Tribunal would in the alternative, make a declaration that the Respondents are entitled to be subrogated to the rights of BPP under the Huazhengshi Judgment to the extent of RMB 10 million. Any recovery (interest included) short of RMB 10 million should first go to the Respondents. Any excess of RMB 10 million should go to CPDH.”

§477(7)

“The Respondents’ claim for RMB 10 million under clauses 3.6.2(5) and 3.6.2(6)(d) of the 20% Agreement is upheld and CPDH shall pay the same forthwith.”

19. It appeared to CPDH that §§342 and 477(7) of the Award ordering it to pay RMB 10 million to the respondents could not be right.  Believing that it could be a typographical error, RB issued their request to the Tribunal for clarify if it was a clerical mistake to order CPDH, instead of BPP, to pay the sum pursuant to Clause 3.6.2(5).

20. On 7 June 2010, the Tribunal answered and confirmed this part of the Award with reasons (“the Tribunal’s Letter”).

21. Following that, CPDH paid the sum of RMB 10 million into the account of the Hong Kong International Arbitration Centre.  Meanwhile, it commenced the present originating proceedings and seeks to set aside §§342 and 477(7) of the Award mentioned above, which directed it to make the payment.

22. The originating proceedings were commenced on 25 August 2010.  The main contest is between CPDH of one part and Mandecly, Tsoi and Chan of the other part.  Minghuaxuan was in liquidation and did not enter appearance.  BPP, a party to the arbitration, was joined as a defendant.

23. AS act for Mandecly and Chan while WKT act for Tsoi.  Tsoi has filed affirmations in opposition whereas Mandecly and Chan have not.  When it came to the hearing, these defendants advanced their joint submissions through the same counsel[3].

GROUNDS

24. Section 34C of the repealed Arbitration Ordinance, Cap 341 (“the Ordinance”)[4] applies.  It provides, and there is no dispute, that the UNCITRAL Model Law applies to the present arbitration.  Art 34 of the UNCITRAL Model Law as set out in the 5^th Schedule to the Ordinance provides that recourse to a court against an arbitral award may be made by an application for setting aside in accordance with this article.

25. Art 34(2) sets out the grounds on which an arbitral award may be set aside.  CPDH contends that:

(1) CPDH was unable to present its case (art 34(2)(a)(ii));

(2) the Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration; or contains decisions on matters beyond the scope of the submission to arbitration (art 34(2)(a)(iii));

(3) the Award is in conflict with the public policy in Hong Kong (art 34(2)(b)(ii)).

26. The matters that CPDH complains about under these grounds overlap.  Along the same line, CPDH also refers to section 2GA(1)(a) of the Ordinance, which provides that an arbitral tribunal is required to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the vases of their opponents.  Further, art 18 of the UNCITRAL Model Law also provides that the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.

PRINCIPLES

27. It is trite that the findings of fact and law by the tribunal in arbitration, as a matter of consensual dispute resolution between the parties, are final and binding: see Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111; A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389 (at §§22-23).

28. Numerous authorities are referred to, which Mr Wong SC proposes to group broadly into 3 categories of the application of the principles.  At one end of the spectrum are the cases where the arbitral award was under attack for errors of the tribunal in dealing with the merits of the arbitration, but traditionally the court is extremely reluctant to intervene.  He refers to R v F (Arbitration: Reasons) (above); Lesotho Highlands Development Authority (above); Grand Pacific Holdings Ltd (above); ABB AG v Hochtief Airport GmbH [2006] 2 Lloyd’s Rep 1.

29. Another type of cases involved complaint about procedural unfairness in the arbitration, which could have been brought to the attention of the tribunal. For reason that the complaint was somehow kept under the sleeves and the concept of issue estoppel, the court remained reluctant to intervene.  He refers to Hebei Import & Export Corp (above); A v R (Arbitration: Enforcement) (above); Warborough Investments Ltd (above).

30. There were also cases where the tribunal was said to have been in breach of the principle of natural justice in that it based its decision on a non-issue or point not argued, which the party did not have a reasonable opportunity to address at the arbitration.  He refers to Kanoria & Ors v Guiness [2006] 1 Lloyd’s Rep 701; Interbulk Ltd v Aiden Shipping Co Ltd (‘The Vimeira’) [1984] 2 Lloyd’s Law Report 66 (at 75); Zemalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] EGLR 14 (at 15); Pacol Ltd v Joint Stock Co Rossakhar [2000] 1 Lloyd’s Law Report 109 (at 115); Pang Wai Hak v Hua Yunjian [2012] 4 HKLRD 113 (at §29); OAO Northern Shipping v Remolcadores de Marin [2007] 2 Lloyd’s Rep 302 (at §22); Societe Franco-Tunisienne D’Armement-Tunis v The Government of Ceylon [1959] 2 Lloyd’s Rep 1.

31. But the decision in each case must turn on its own circumstances, though several matters of principle are to be borne in mind in an application like this:

(1) The court will not address itself to the substantive merits of the dispute, or to the correctness or otherwise of the award, whether concerning errors of fact or law.  The court is concerned with the structural integrity of the arbitration proceedings.  The grounds for refusal of enforcement of an arbitral award as set out in the UNCITRAL Model Law are to be construed narrowly, and apply only to sufficiently serious or egregious cases where a party was effectively denied due process: see Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in Liquidation) ( No 1) [2012] 4 HKLRD 1 (at §§7, 91-94)[5].

(2) The hurdle to cross is high: see Lesotho Highlands Development Authority v Impregilo SpA & Ors [2006] 1 AC 221 (at 234); Warborough Investments Ltd v S Robinson & Sons (Holdings) Ltd [2004] 2 P&CR 6 (at §60).

32. Whilst it is suggested (by Mr Ho, SC) that the court is not charged with the function of meticulously revisit the parties’ respective cases and arguments, it is nevertheless necessary to, as counsel indeed do, go through the cases of the parties as pleaded and eventually argued before the tribunal.  For reasons to be discussed below, I say this exercise is particularly important in the circumstances of the present case.

PLEADED CASE IN THE ARBITRATION

33. The pleaded case of CPDH in the arbitration was that it was entitled to make the deduction, as BPP had undisputedly failed to recover the Huazhengshi Judgment by 31 March 2005 pursuant to Clause 3.6.2(5).

34. By pleading, Tsoi actually admitted that[6]. However, Mandecly and Chan contended[7] that it was an implied contractual term that CPDH and BPP should take all reasonable steps and exercise all due diligence in recovering the Huazhangshi Judgment.  CPDH and BPP had allegedly failed to do so.  Had they done so, they should have allegedly recovered more than RMB 10 million from Huazhengshi.  Because of the breach, they said that CPDH was not entitled to make the deduction pursuant to Clause 3.6.2(5).

35. Further, Mandecly and Chan relied on the 6/3/08 Letter, and contended that the sum of RMB 10 million was deemed to have been recovered by 30 June 2008 pursuant to the Deeming Provision.  Therefore CPDH was not entitled to make the deduction.  Further or alternatively, BPP became obliged to pay the RMB 10 million to Mandecly, Tsoi and/or Chan pursuant to Clause 3.6.2(5).

36. Further or alternatively, Mandecly and Chan contended that if CPDH was entitled to make the deduction pursuant to clause 3.6.2(5), they should be entitled to subrogate to the rights of BPP to enforce the Huazhengshi Judgment.

37. Minghuaxuan adopted a similar pleaded stance.

38. The pleadings therefore gave rise to, among other things, the following issues relevant for the present purpose:

(1) whether CPDH was entitled to make the deduction pursuant to Clause 3.6.2(5) or whether it was not entitled to do so because of (i) the breach of the alleged implied contractual term or (ii) the deemed recovery of the RMB 10 million pursuant to the Deeming Provision and Clause 3.6.2(5);

(2) whether BPP was obliged to pay the RMB 10 million pursuant to Clause 3.6.2(5) because of the deemed recovery pursuant to the Deeming Provision; and

(3) whether the respondents were entitled to subrogate to the rights of BPP to enforce the Huazhengshi Judgment.

39. Issue (1) was directed against CPDH while issues (2) and (3) were directed against BPP.  This is also made clear by reference to the prayer for relief in the counterclaims.

THE 3^RD INTERIM AWARD

40. Prior to the main hearing, the Tribunal had made its 3^rd Interim Award in May 2009.  This was brought about by the application of Mandecly, Chan and Minghuaxuan for interim payment of RMB 10 million.  The basis for that was precisely the alleged deemed recovery of the sum by virtue of the 6/3/08 Letter and the right to the payment of such sum pursuant to Clause 3.6.2(5) as mentioned above.  Mr Wong, SC appeared for CPDH and BPP while Mr Edward Chan, SC then appeared for the applying respondents.  Tsoi did not join in the application; and WKT attended the hearing on a watching brief.

41. Whilst the application was taken out against CPDH and BPP, the applying respondents made clear at the hearing that it was directed against BPP only.  The Tribunal indeed recorded in the 3^rd Interim Award that the application against CPDH was abandoned.  Eventually the application was not acceded to, as the Tribunal concluded that the heavy burden on the applying respondents in such an application had not been discharged.

AT THE MAIN HEARING

42. As mentioned, the circumstances had changed by then in that Lexus World had sold BPP to Best China by the Jade Bird Agreement.  CPDH ceased to have control over BPP through Lexus World.  RB also ceased to act for BPP in the arbitration.  BPP was therefore absent from the main hearing.  Mr Wong SC continued to appear for CPDH.  Mr Anthony Chan SC appeared for Mandecly, Chan and Minghuaxuan.  Mr To of WKT appeared for Tsoi.

43. By way of their supplemental written opening submissions, Mandecly, Chan and Minghuaxuan referred to the issue of CPDH’s deduction as one relating to both CPDH and BPP, and the issue of payment of the RMB 10 million pursuant to Clause 3.6.2, subject matter of the 3^rd Interim Award, was one directed against BPP only[8].

44. In his closing submissions on behalf of Mandecly, Chan and Minghuaxuan, Mr Chan, SC made the following points in respect of the Huazhengshi Judgment[9]:

(1) In answer to CPDH’s claim, it was submitted that CPDH/BPP had failed to fulfilled their duties to take reasonable steps and exercise due diligence to enforce the Huazhengshi Judgment; and the sum of RMB 10 million deducted under Clause 3.6.2(5) had to be rejected as being wrongfully withheld.

(2) As to the alternative claim on the basis of the Deeming Provision, BPP had not appeared and disputed that.  CPDH was not concerned because the operation of Clause 3.6.2(5) was such that, upon recovery of money, the liability to pay the respondents rested with BPP.

(3) As to the operation of Clause 3.6.2(5), the sum of RMB 10 million was deemed to have been recovered under that clause by virtue of the 6/3/08 Letter, the conditions set out therein having been satisfied, and the Deeming Provision.

(4) As to the further alternative case of the respondents, in the event that the deduction by CPDH was upheld and the Deeming Provision did not avail the respondents (as mentioned above), the respondents should be entitled to a declaration of their rights to subrogate to the rights of BPP under the Huazhengshi Judgment as claimed.  In this regard, the respondents argued that CPDH/BPP would be unjustly enriched otherwise.  That the right to the Huazhengshi Judgment was given to CPDH by virtue of the Jade Bird Agreement, the respondents argued, could not inhibit the granting of such relief.

45. In his written closing submissions, Mr To for Tsoi made the following points in respect of the Huazhengshi Judgment:

(1) Under Clause 3.6.2(5), CPDH had deducted RMB 10 million; and in the event of successful recovery of the Huazhengshi Judgment, BPP was obliged to pay the vendors the sum[10].

(2) CPDH/BPP had failed to discharge their obligations to recover the Huazhengshi Judgment with all reasonable efforts and due diligence.  In this respect, he adopted the pleaded stance of the other respondents[11]. The deduction was unlawful[12].

(3) Alternatively BPP was deemed to have recovered the Huazhengshi Judgment pursuant to Clause 3.6.2(5) by virtue of the 6/3/08 Letter[13]. In this respect, he adopted the submissions of Mr Edward Chan, SC for the other respondents at the hearing of their interim payment application mentioned above[14].

(4) The Tribunal should dismiss the claim of CPDH/BPP and award judgment in favour of the respondents against CPDH and BPP in the sum of RMB 10 million plus interest[15].

46. Much is said about the stance of Tsoi in that he sought to ‘adopt’ the stance of the other respondents.  Whether or not and, if yes, how Tsoi managed to do so, as part of the merits of the case in the arbitration, are not matters for this court now, so long as the crux of CPDH’s present complaint does not concern how the Tribunal dealt with this issue of adoption of stance as raised in the arbitration hearing.

47. In his written closing submissions on behalf of CPDH, Mr Wong submitted and summarised the following points[16] in respect of the Huazhengshi Judgment:

(1) There was no recovery from Huazhengshi by 31 March 2005 and thus CPDH was entitled to make the deduction.

(2) There was no provision in the 20% Agreement for the undoing of the deduction or the repayment of the amount deducted on account of any post 31 March 2005 recovery.

(3) The accusations that CPDH/BPP had delayed the recovery of the Huazhengshi Judgment were groundless.

(4) The claim against CPDH for payment of the RMB 10 million deducted was bound to fail.

(5) On the true construction of Clause 3.6.2(5), no subrogation right could arise from the deduction of RMB 10 million made by CPDH.

(6) Clause 3.6.2(5) already provided for the payment of up to RMB 10 million by BPP, not CPDH, in the event of recovery from Huazhengshi by 30 June 2008.

(7) However, there was no recovery by that date.  In this respect, the 6/3/08 Letter, the pre-conditions set out therein not having been satisfied, did not serve to prove such recovery from Huazhengshi by BPP.

48. When it came to the oral submissions at the closing, the following episodes are worth noting:

(1) Mr To for Tsoi formally adopted the case of the other respondents as his and the written closing submissions of Mr Chan for the other respondents.

(2) After submissions on the issue of unjust enrichment for the purpose of the respondents’ subrogation claim[17], Mr Wong moved on to the issue of the Deeming Provision, and specifically, whether the conditions set out in the 6/3/08 had been satisfied for the provision to operate to deem the recovery of the RMB 10 million from Huazhengshi by BPP.  At this juncture, Mr Chan interrupted.

(3) Mr Chan then confirmed in no equivocal terms that they were separate causes of action based on the Huazhengshi Judgment against CPDH/BPP.  The cause of action for failure to take reasonable steps to enforce the Huazhengshi Judgment (and hence breach of implied contractual term) was directed against both CPDH and BPP (which went to the issue of the deduction).  As far as the alternative case based on the Deeming Provision was concerned, the provision was considered clear in that it only concerned BPP.  His clients were not relying on the Deeming Provision against CPDH[18]. Upon that, Mr Wong refrained from making further submissions on the Deeming Provision and moved on.

49. The interruption was seemingly motivated by the concern about Mr Wong’s authority to submit on behalf of BPP, which did not enter appearance and Mr Wong no longer represented.  But the contention that CPDH was not entitled to make the deduction because of the deemed recovery of the Huazhengshi Judgment under Clause 3.6.2(6)(b), as mentioned above, concerned CPDH.  That, the transcript shows, was what caused Mr Wong to puzzle upon the interruption.  Mr Chan then confirmed that the respondents were not advancing any cause of action against CPDH except for the alleged breach of implied contractual duty to take reasonable steps and to exercise due diligence to recover the Huazhengshi Judgment. Such confirmation became far more significant than what might have motivated the interruption in the first place.

50. In view of the how the arguments of the respondents had evolved as aforesaid, it is perhaps not difficult to see why CPDH was surprised by §§342 and 477(7) of the Award.  The Tribunal held that CPDH/BPP were not in breach of the implied contractual term to take reasonable steps to enforce the Huazhengshi Judgment. That the Tribunal made no express finding that CPDH was thus entitled to make the deduction of RMB 10 million pursuant to Clause 3.6.2(5) could not be taken to be a conclusion that CPDH was not so entitled.  Nevertheless the Tribunal directed CPDH to pay RMB 10 million to the respondents/vendors under the 20% Agreement.

51. More importantly, the basis for so directing, the Tribunal held, was Clause 3.6.2(5), which operated because of the deemed recovery of the sum by virtue of the Deeming Provision as a result of the 6/3/08 Letter.  This did not align with the case of the respondents, which was unequivocally confirmed during the main hearing.  Their claim for payment on the basis of the Deeming Provision, and thus Clause 3.6.2(5), was directed against BPP, and not CPDH.  Pursuant to Clause 3.6.2(5), if satisfied, the party which could contractually be liable to pay the RMB 10 million, even according to the respondents, was BPP.

52. RB’s letter to the Tribunal mentioned above thus followed.

THE TRIBUNAL’S LETTER

53. RB’s letter focused on the Tribunal’s direction that CPDH to pay the respondents RMB 10 million under §477(7) of the Award (above).  RB explained their belief that it was a typographical error in §477(7) in referring to BPP instead of CPDH. All RB asked the Tribunal was to clarify if it was such an error; and, if yes, to correct it under the ‘slip rule’.

54. As to whether or not it was a typographical error as suggested, the Tribunal must be in a position to tell.  It should be noted that it remained the only question before the Tribunal, even according to its own record[19], notwithstanding that RB at one point made a further request for the Tribunal to make an express ruling on CPDH’s entitlement to make the deduction pursuant to Clause 3.6.2(5) upon the facts found.  Whilst the Tribunal invited the respondents to comment probably out of all fairness, one wonders how the respondents were in a position to assist whether the Tribunal meant to say CPDH or BPP in that paragraph of the Award.

55. The Tribunal’s Letter was issued on 7 June 2010.  The Tribunal confirmed that §477(7) of the Award did not contain the error suggested.  In other words, the Tribunal indeed directed CPDH to pay RMB 10 million to the respondents pursuant to Clause 3.6.2(5).  The Tribunal acknowledged that it was not necessary to reiterate its reasons for the Award.  Nor was it appropriate to expand its reasons for the Award because that would raise the question of jurisdiction. This must be correct: see Opotiki Oacking v Opotiki Fruitgrowers [2003] 1 NZLR 205 (at §§24-25); ABB Service Pty Ltd v Pyrmont Light Rail Company Ltd [2010] NSWSC 831 (at §§109-111).

56. Nonetheless, the Tribunal proceeded to give the following explanation:

(1) Properly considered in the context of the dispute and taking into account the arguments advanced on behalf of the parties at the main hearing, including the concept of unjust enrichment, the Tribunal considered that Clause 3.6.2(5) did not prevent it from ordering CPDH to make the payment as stated in the Award.

(2) The respondents’ abandonment of the application for interim payment against CPDH (as mentioned above), which led to the 3^rd Interim Award, likewise did not in law preclude the Tribunal to make the order against CPDH as stated in the Award.

(3) Irrespective of whether CPDH was at the material time justified in making the deduction pursuant to Clause 3.6.2(5), it had had the benefit of it.  As found, the conditions in the Deeming Provision in Clause 3.6.2(6) had been satisfied. Further the shareholdings in BPP had been sold to Jade Bird; and the Jade Bird Agreement provided that the benefit of the Huazhengshi Judgment now belonged to CPDH.  Jade Bird was not a party to the arbitration.  To order BPP to pay the sum of RMB 10 million would have the indirect and inappropriate effect of ordering Jade Bird to make the payment.

57. In view of the incidence of the contractual obligation to pay the sum of RMB 10 million under Clause 3.6.2(5), the Tribunal’s answer summarised under (1) above seems to suggest that CPDH was directed to make the payment other than in accordance with the clause.

CPDH’S COMPLAINT

58. In the following discussion, I will not differentiate the respondents, and will refer to them collectively for convenience.

59. It is questionable whether the Tribunal’s Letter actually went beyond mere confirmation that §477(7) did not contain the typographical error suggested by CPDH.  Mr Ho submits that the Tribunal could have rested at that confirmation; and in that case, CPDH could not complain on the basis that such decision had to be wrong. But the fact was the Tribunal did go further; and what was further said in the Tribunal’s Letter will now have to be examined.

60. Specifically the Tribunal explained by reference to the parties’ arguments on the concept of unjust enrichment and the relevance of the Jade Bird Agreement to the contractual obligation to pay RMB 10 million pursuant to the terms of Clause 3.6.2(5), which was on BPP.  Is the explanation mere repetition or reflection of the Tribunal’s understanding of the parties’ arguments on the concept of unjust enrichment at the arbitration?

61. The Award does not show that the Tribunal considered the concept of unjust enrichment in relation to CPDH’s entitlement to make the deduction or the contractual obligation of BPP to pay RMB 10 million under Clause 3.6.5 and the Deeming Provision under Clause 3.6.2(6)(2)[20]. Unjust enrichment was actually referred to when the Tribunal discussed the respondents’ claim for subrogation[21], which, as mentioned, was the alternative claim in the event that the Tribunal upheld the deduction by CPDH.

62. In arriving at its decision now set out in §342 of the Award that CPDH ought to pay RMB 10 million to the respondents, the Tribunal did not refer to the concept of unjust enrichment but explained that it did so “in accordance with” the Deeming Provision and Clause 3.6.2(5)[22]. It was in arriving at its decision on the alternative case of the respondents, in the event that it was wrong to award the respondents the payment of RMB 10 million, that the Tribunal explained by reference to unjust enrichment.  On this basis, the Tribunal decided, as now set out in §354 of the Award, that the respondents should be entitled to subrogate to the rights of BPP in respect of the Huazhengshi Judgment as an alternative relief[23].

63. Mr Ho argues that Mr Wong in any event argued whether the deduction could be undone and the amount deducted could be kept by his client.  As the right of CPDH to make the deduction, unjust enrichment and the Jade Bird Agreement were all covered in the arguments of the parties, they were all “in the arena” before the Tribunal.

64. However, Mr Wong highlights certain salient features of the present case.

65. The respondents’ case before the Tribunal had evolved from the pleading stage and over the opening Up to the oral closing submissions, so that the stance of the respondents against CPDH and BPP respectively in respect of the Huazhengshi Judgment was made clear (as mentioned above).  Whilst it remained the stance of the respondents that CPDH was not entitled to make the deduction, the payment obligation under Clause 3.6.2(5) concerned BPP only.  Once the right to make the deduction pursuant to Clause 3.6.2(5) arose, the subsequent recovery of the Huazhengshi Judgment, if at all, triggered the contractual payment obligation of BPP instead of the undoing of the deduction.  The only basis for the regurgitation of the amount deducted by CPDH was the alleged breach of implied term as to recovery of the Huazhengshi Judgment.  As mentioned, this cause of action in the counterclaim was dismissed by the Tribunal.

66. The Tribunal is also seen to have dealt with each issue distinctly.  Mr Wong submits that the suggestion that the Tribunal’s decision set out in §342 could well be based on the concept of unjust enrichment is effectively cutting out the reason given for one conclusion and pasting it on a wholly different one.  In the circumstances of the present case, it is not just whether the concept of unjust enrichment had been argued.  The argument was advanced by the parties in relation to specific issue, and could not be transplanted to other issues under the disguise of all being in the arena for the Tribunal to assemble its own assortments.

67. I share that observation, especially when the subrogation arises as an alternative to the denial of CPDH’s entitlement to make the deduction as mentioned above.  The reference in the Tribunal’s Letter to the parties’ arguments on the concept of unjust enrichment as an explanation for this part of the Award is either incorrect or an effective expansion of reasons not set out in the Award.

68. The respondents argue that the Tribunal was entitled to grant relief, albeit not specifically pleaded.  Section 2GF of the Ordinance provides that an arbitral tribunal may award any remedy or relief that could have been ordered by the court, if the dispute had been the subject of civil proceedings in the Court of First Instance.  According to section 16(2) of the High Court Ordinance, Cap 4, the court shall exercise its jurisdiction in every cause or matter before it as to secure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided.  That includes the grant of every remedy necessary: see Lau Wing Hong v Wong Wor Hung [2006] 4 HKLRD 671.  The defendants also refer to the general prayer for ‘further or other relief’ in the counterclaim; and argue that the Tribunal was entitled to direct CPDH to pay back the sum deducted, upon its conclusion that the sum of RMB 10 million under the Huazhengshi Judgment was deemed to have been recovered by virtue of the Deeming Provision.

69. It might be that the Tribunal indeed took the view that the concept of unjust enrichment affected the incidence of the contractual obligation to pay RMB 10 million pursuant to Clause 3.6.2(5).  It might be that the concept of unjust enrichment was thought to have formed a ground for attaching to CPDH the liability to make such payment independent from Clause 3.6.2(5), which would then differ from what was stated in §342 of the Award.  Again the merits of either of these propositions are not matters now for this court.  But if either of these propositions was indeed on the mind of the Tribunal, which eventually led to its decision, CPDH should have been made aware of them and a reasonable opportunity to present its case and to address the Tribunal given: see Russell on Arbitration (23^rd ed) at §5-050.

70. I say the same in respect of the reference in the Tribunal’s Letter to the relevance and implication of the Jade Bird Agreement to and on the contractual liability of BPP to pay the RMB 10 million under Clause 3.6.2(5).

71. It is legitimate for CPDH to feel surprised by the Award in that the Tribunal directed it to pay RMB 10 million to the respondents notwithstanding the Tribunal’s dismissal of the respondents’ case on breach of implied contractual duty on the part of CPDH and did so on the basis that it was CPDH’s obligation under Clause 3.6.2(5).  CPDH is also legitimately surprised by the Tribunal’s explanation of such decision contained in the Tribunal’s Letter, which does not align with how the arguments were advanced in respect of specific issues and how the Tribunal understood them as revealed by the reasons contained in the Award. CPDH was unable to present its case to address those on which the Tribunal might have based for its decision against CPDH.  This, I agree with Mr Wong, was sufficiently serious breach of due process.

72. It is suggested that even assuming that the decision of Tribunal set out in §§342 and 477(7) of the Award is liable to be set aside and re-opened, the result would have been the same notwithstanding the contention and argument advanced.  The court should therefore exercise its discretion not to set aside the Award.

73. It is not for this court to share that speculation.  Further it should be noted that the Tribunal also (at §354) provided for the alternative remedy of a declaration that the respondents are entitled to be subrogated to the rights of BPP under the Huazhengshi Judgment to the extent of that sum in the event that it is wrong in its findings in respect of the Deeming Provision and in awarding the respondents RMB 10 million.

ORDER

74. I accede to the application to set aside §§342 and 477(7) of the Award.

COSTS

75. Apparently the costs of these proceedings are expected to follow the event.  But there was also Tsoi’s application for security for costs against CPDH, which was disposed of by consent, and the costs of which have been reserved.  As requested by counsel, I will rule on costs upon further submissions.  CPDH and the respondents shall file and serve succinct written submissions on costs within 14 days and 14 days thereafter respectively.  Unless otherwise directed, this will be disposed of on paper.

76. I am grateful for counsel’s assistance.