T v. C

HCCT 23/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 23 OF 2015

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REASONS FOR DECISION
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1.  This is an application made by C to set aside the order made by this Court on 10 June 2015 (“Order”), whereby leave was granted to T to enforce an arbitral award made by the Tribunal on 17 December 2014 (“Award”), in an arbitration commenced in Malaysia on 13 August 2009 (“Arbitration”) by T as claimant. Under the Award, C was to pay to T the sum of US$5,274,023.11 as damages for breach of a contract for the supply of coal made between C as supplier and T as purchaser (“Contract”). The Contract was the result of a successful tender by C (“Tender”), which was accepted by T.

2.  Since the Arbitration was commenced on 13 August 2009, the Arbitration Ordinance Cap 341 (“Ordinance”) applies to the application.

3.  In the summons issued by C on 20 August 2015 (“Summons”) to set aside the Order, no grounds were specified as the basis of the application.  The margin of the Summons simply states that the Summons was issued under s 44 (2), (3) and (5) of the Ordinance, and Order 73 rule 10 (6) RHC.  The affirmation of A filed on 11 September 2015 (and exhibited to the earlier affidavit of B filed on 20 August 2015) sets out the facts on which C seeks to rely for the setting aside.  However, contrary to the submission of Mr Cheng (acting for C), it is still not clear from that affirmation which of the different grounds set out in s 44 (2) were in fact claimed by C to be applicable.

4.  A referred to the fact that no binding contract had been entered into between C and T (paragraph 15 of his affirmation), that there had been fraud and forgery of documents, that the Tribunal did not have competence to rule on a matter which is not capable of settlement by arbitration (paragraph 18 of the affirmation), and finally, that it would be contrary to public policy to enforce the Award.  These are matters which may fall within s 44 (2) (b), (d) and (3).  C also referred in its affirmations to its application made in Malaysia to set aside the Award, the dismissal of such application, and its appeal against the refusal of the Malaysian court to set aside the Award.  On the basis of these affirmations filed, Mr Cheng made it clear in the Skeleton filed on behalf of C on 29 February 2016 that C sought also to rely on s 44 (2) (f) of the Ordinance, on the basis that the Award “has not yet become binding”.

5.  On 2 March 2016, I directed the parties’ attention to Societe Nationale D’Operations Petrolieres De La Cote D’Ivoire-Holding v Keen Lloyd Resources Ltd [2004] 3 HKC 452 and its decision on the meaning of a “binding” award.

6.  It was only at the hearing on 3 March 2016, that Mr Cheng confirmed that C only pursues the public policy ground set out in s 44 (3).

7.  As held in KB v S HCCT 13/2015 15 September 2015 (paragraphs 22 to 25), it is an abuse of process to issue a summons to set aside an order granting leave to enforce an arbitral award, if the summons does not set out or clearly disclose a ground for setting aside. It is likewise an abuse of process to issue a summons to set aside an order granting leave to enforce an arbitral award, without a proper supporting affidavit which is required under O 73 r 10 (6A) to be filed with the summons. In this case, C only referred to s 44 (2) and (3) in its Summons, without stating in the body of the Summons itself the precise ground under s 44 (2) which is relied upon.  As I made it clear at the hearing, it is totally undesirable for the Court and the other party to the proceedings to have to speculate as to the precise ground or grounds which form the basis of an application to set aside an arbitral award, for which leave has already been given by the Court to be enforced as a judgment or order of the Court.  The object of the Ordinance and the Model Law is to facilitate a speedy and less expensive arbitral process, and these as well as the underlying objectives of the CJR should not be frustrated.

8.  At the end of the hearing, after hearing the parties’ submissions on the merits, I dismissed C’s application to set aside the Order.  The following are my reasons.

The applicable legal principles

9.  The applicable legal principles are clear from the authorities.  Section 44 of the Ordinance sets out the exclusive grounds on which enforcement of an arbitral award may be refused, and under section 44(3), enforcement of an award may be refused if it would be contrary to public policy to enforce the award.  “Contrary to public policy” has been held by the Court of Final Appeal in Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, 139 to mean “contrary to the fundamental conceptions of morality and justice” of the forum.  Before a Convention jurisdiction can refuse enforcement of a Convention award on public policy grounds, “the award must be so fundamentally offensive to that jurisdiction’s notions of justice that, despite its being a party to the convention, it cannot reasonably be expected to overlook the objection” (p 123H-I of the judgment in Hebei).

10.  The public policy ground is to be narrowly construed, and “must not be seen as a catch-all provision to be used wherever convenient”.  It is “limited in scope and is to be sparingly applied” (Qinhuangdao Tongda Enterprise Development [1993] 1 HKLRD 173, 178).  In A v R (Arbitration : Enforcement) [2009] 3 HKLRD 389, the Court held that if the public policy ground is to be raised, there must be “a substantial injustice arising out of an award which is so shocking to the court’s conscience as to render enforcement repugnant”.

11.  In considering whether or not to refuse enforcement of an award, it is clear that the Court does not look into the merits of the case, nor at the underlying transaction.  Error of law is not a ground for the setting aside of an award under Article 34.  The Court’s role is confined to determining whether or not grounds exist for refusing to enforce the award because it would be contrary to public policy (Xiamen v Eton Properties Limited & Anr [2009] HKLRD 353).  Enforcement should be “as mechanistic as possible” (Xiamen v Eton Properties Limited & Anr; Re PetroChina International (Hong Kong) Corp Ltd [2011] 4 HKLRD 604).

12.  It is also to be borne in mind, that it is in the interests of public policy to uphold an agreement made between parties to submit their dispute to arbitration, and as a matter of comity, to enforce an arbitral award which is binding on the parties and enforceable under and in accordance with the international Convention (as recognized by the Court in A v R (Arbitration : Enforcement) [2009] 3 HKLRD 389).

13.  Since C accepts that the only ground relied upon to resist enforcement of the Award is breach of public policy, its case is premised on the fact that the documents relied upon by T and the Tribunal (“Key Documents”) as the basis of the valid Contract and arbitration agreement between the parties were forged and created as a result of fraud.  It is claimed that C had never seen the Key Documents and that they were never signed by D whose signature is purported to appear on the relevant Key Documents.

14.  In the decision of the Court of Final Appeal in Karaha Bodas Co LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (2009) 12 HKCFAR 84, where fraud was alleged to be the basis for resisting enforcement of an award in Hong Kong, the Court confirmed that the threshold test requires the applicant for setting aside to show that it has a “real prospect of success” in persuading the judge to find that the award had been obtained by fraud.  This is a high standard, which is not surprising, bearing in mind the serious nature of an allegation of fraud, the binding nature of an arbitral award and the principle of speedy finality which underpins the Ordinance.

Whether fraud has been established

15.  Having regard to the threshold test and the other matters referred to in the preceding paragraph, it is incumbent on C as the applicant to make full and adequate disclosure of the facts and matters it relies upon to substantiate its allegation of fraud, as opposed to simply making bare assertions.  In my view, C has failed to adduce any or sufficient evidence to show a case of fraud.

16.  A claims (in paragraph 14 of his affirmation) that “C had never seen any of the Key Documents” before the commencement of the arbitration proceedings.  That in my view is an evasive manner of putting C’s case of alleged fraud, when C is a limited company.  A went on to assert that D had confirmed that he did not sign the Bid Form and the Technical Proposal Schedules which comprised the Key Documents, and that E whose signature appears on the Bid Bond dated 4 December 2002 (“Bond”) was not an employee or agent of C, and had not been authorized by C to sign the Bond.

17.  The evidence relied upon by C to support the claim of forgery is that the Bank which issued the Bond, has confirmed in writing that C “had no bank accounts opened or maintained with the Bank at the material time” of the Bond.  Objectively, this cannot be viewed as evidence that the Bank had not issued the Bond on the instructions of C’s authorized representative, or that E was not authorized to sign the Bond, or that the Bond was the result of a forgery. The Bond states, on its face, that it was issued on behalf of and at the request of its client, C.  It was extended twice after its issue, both extensions being stated to be at the request of C.  The Bond was eventually paid by the Bank.

18.  A also sought to rely on the fact that the 2 letters from C to T, which form part of the Key Documents, bore the letterhead of a company by the name of “X”, and not that of C, and that they were not issued by D, who was the only person in contact with T.  A alleges that although these letters bear the signatures of one F, F did not actually sign the letters.  F filed an affirmation, stating he had not signed the letters and that the matter had been reported to the Malaysian police, in 2010 and 2012.

19.  It is claimed that the 2 powers of attorney issued by C, dated 26 November 2002 (“Powers of Attorney”) and which bore the signature of D, “were not prepared by” C, that D lacked the authority to grant such Powers of Attorney, and further, that D had never signed them.

20.  On behalf of T, it has been highlighted that apart from making bare assertions on affidavit, C has not adduced any expert evidence to support its claim that the signatures of D and F were forgeries.  According to T, the Bond was signed by E, who was C’s lawful attorney pursuant to the Powers of Attorney issued by C.  These authorized E of a company called Y to negotiate a contract on behalf of C to supply coal to T.  The 2 letters of C dated 18 December 2003 were signed by F, C’s deputy general manager, whereby C indicated that it accepted the terms of the contract award, asked for all correspondence to be directed to E, and appointed a company by the name of Z to be C’s local agent.  According to T, X may have been C’s coal trade department, or its branch company responsible for coal trade.

21.  The Bond was signed by E with the company seal of Y affixed.  As highlighted above, the Bond had been extended and was eventually paid up by the Bank, without any claim that the Bond had been issued without C’s authority.

22.  In proceedings which were instituted by C against E and Y in Malaysia, E filed evidence to state that C had appointed Y as its agent to tender for a coal supply contract with T, that Y had been actively involved in working with C in various markets around the world, and that C had given a Power of Attorney to him in connection with the submission of the Tender.  He also claimed that the Tender Bid was signed by D on behalf of C, and that D had met with T’s representatives.  E also referred to correspondence from C, which acknowledged the existence and validity of the Powers of Attorney.

23.  Significantly, C had made all these claims of forgery of the Key Documents before the Tribunal, when it made arguments at a challenge to the jurisdiction of the Tribunal, and also before the Malaysian court when C applied to the supervisory court to set aside the Award.  Both the Tribunal and the Malaysian court had considered, and dismissed, these claims of forgery.

24.  In its Award, the Tribunal had considered the claims raised by C, that there was fraud affecting the underlying contractual documents, and that there was no valid agreement between the parties.  The Tribunal referred to the fact that representatives of T had met with representatives of C in Beijing in December 2002, and there had been no assertions made by these representatives that C had no knowledge of the Contract. The Tribunal took into consideration the fact that neither D nor F had filed sworn evidence to support the allegations of fraud and forgery.  The Tribunal pointed out that it is incredible that the Bank would have paid under the Bonds without the necessary backup documents from C, and without verifying the transaction with C.  The Tribunal had no hesitation in dismissing C’s claims that its representatives had not in fact signed the Key Documents, and that any of the documents were tainted by fraud.

25.  The decision of the Malaysian court, being the supervisory court of the Arbitration, on the existence and validity of the Contract and the arbitration agreement between the parties, and its refusal to set aside the Award, should be given “due weight” by an enforcement court (Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKLRD 627).  The fact that there may be an appeal against the Malaysian court’s decision does not alter the fact that there remains a valid and binding Award.  In the absence of any expert evidence on Malaysian law, I can only assume that it is the same as Hong Kong law.

26.  At the hearing before me on 3 March 2016, Mr Cheng referred to various additional matters, not deposed to in any of C’s evidence, which Mr Cheng claimed he had just discovered.  He referred to 2 different documents comprising the Tenders, which related to different brands of steam coal, with different specifications.  According to Mr Cheng, this is consistent with C’s case that there was fraud in the underlying transaction.  He further claimed that T had never disclosed to the Tribunal the fact that 2 different Tenders had existed, only one of which had allegedly been accepted.

27.  The fact that there were 2 tenders, submitted for different specifications of coal to be supplied, is not commercially unusual.  Mr Sussex SC, who appeared for T, pointed out that the existence of 2 separate tenders may explain the existence of the 2 Powers of Attorney in favor of Y.  There may be a simple and innocent explanation for the features highlighted by Mr Cheng, and he has not been able to identify how the existence of 2 different tenders, or that a different tender had been accepted, could have materially affected the outcome of the Award, or the Tribunal’s decision on its jurisdiction, if the matter had been disclosed to the Tribunal.  I do not consider that this new fact can amount to sufficiently cogent evidence to even raise a case that the Key Documents are not genuine, or that they contain forged signatures.  Nor can I see any serious prejudice to C as a result of any failure on T’s part to disclose to the Tribunal the existence of 2 different tenders.

28.  For all the above reasons, I consider that C has not demonstrated that the Key Documents were forgeries, and that there was no valid agreement between the parties.  I can see no basis to refuse enforcement of the Award on the ground that it would be contrary to the public policy of Hong Kong so to do.  The application to set aside the Order was accordingly dismissed.

29.  As C was unsuccessful in its application, I made an order that C should pay T’s costs of the summons of 20 August 2015 (including the costs reserved under the Order dated 9 October 2015) on an indemnity basis (A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389), with certificate for counsel.