EW v. HC

HCCT 104/2022

[2023] HKCFI 2619

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 104 OF 2022

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REASONS FOR DECISION

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Background

1.  These are proceedings instituted by the Applicant (“EW”) to set aside an award made on 19 October 2022 (“Award”) in an arbitration HKIAC/A20295 (“Arbitration”) commenced in Hong Kong by the Respondent (“HC”) against EW. The Award is for EW’s payment to HC of (i) the sum of US$5,163,283.05, as the unpaid price of the Delivered Products and Undelivered Products, and (ii) warehousing costs at the rate of US$21,667.75 per month from 1 December 2017 up to the date of actual payment for the Undelivered Products, as the unpaid price of products sold and delivered by HC as seller to EW as buyer under a contract made on 14 January 2016 (“Contract”) for the supply of insulation panels and stainless steel membranes (“Products”) for building an LNG storage tank in the Philippines.

2.  It is not disputed that the Products were sold on CIF terms under the Contract, for delivery to the port of Manila in the Philippines. The total value of the Products under the Contract amounts to US $8.3 million. The Products were manufactured by HC in early/mid 2017, and stored in a warehouse pending shipment. Under the Contract, it was agreed that the Products would be delivered in 4 shipments for each of the panels and the membranes (totaling 8 shipments in all). A total of 4 shipments were delivered (“Delivered Products”), payment for which was due under the Contract in the sum of US $1,389,329.24, but was unpaid by EW.

3.  HC’s claim in the Arbitration was that EW had requested adjustments to the contractual delivery date for the remaining Products, resulting in delay in shipment of the remaining manufactured Products (“Undelivered Products”), for which HC sought payment of the sum of US $3,773,953.81, representing the value of the Undelivered Products.  HC’s claim in the Arbitration also included damages in the form of warehousing and other costs incurred, bringing the total claim to US $6,295,947.23.

4.  By way of defence and counterclaim in the Arbitration, EW claimed that in HC’s application to the Korean Chamber of Commerce and Industry for the issue of a certificate of origin for the Products (“Form AK”), HC had used an incorrect code in the Harmonized Commodity Description and Coding System (“HS code”) developed by the World Customs Organization for the classification of goods in customs declarations.  As a result of the incorrect HS code having been used by HC in Form AK which was submitted to the Philippines customs authorities, EW claimed that HC was in breach of the Contract, causing EW’s inability to import the Products and to sustain loss as a result. EW claimed that it was as a consequence of HC’ use of the incorrect HS code, that the 3^rd shipment of the Products was confiscated by the Philippines Customs in August 2017, and the shipment was only released after an additional payment of approximately US $250,000 made in March 2019. By way of counterclaim, EW sought US $265,193 as damages from HC.

5.  In the Award, the tribunal allowed HC’s claim for (i) the sum of US$5,163,283.05, as the unpaid price of the Delivered Products and Undelivered Products, and (ii) warehousing costs at the rate of US$21,667.75 per month from 1 December 2017 up to the date of actual payment for the Undelivered Products, and dismissed EW’s counterclaim.

6.  By its Originating Summons issued on 15 November 2022, EW seeks to set aside the Award on 2 stated grounds:

(1)  the tribunal has failed to deal with the issue of whether Form AK is a necessary document for custom declaration, such that errors would lead to misdeclaration and seizure of the Products; and

(2)  the tribunal failed to deal with the issue that the parties had by conduct agreed that HC had the duty to provide Form AK.

7.  On 8 March 2023, EW sought leave from the Court to amend the Originating Summons, to include a claim for the setting aside, that the errors made by the tribunal in failing to deal with the issues on the evidence available in the Arbitration were serious and egregious and against the public policy of Hong Kong.

8.  Although the application to amend was initially by way of consent summons, this Court pointed out to the parties that EW’s amendment sought to include an additional ground for the setting aside application, made after the 3 months specified in Article 34(3) of the Model Law (which applies to Hong Kong under section 81 of the Arbitration Ordinance) had expired, and directed EW to justify its application at the hearing.  This is because an application to add a ground for setting aside which was not disclosed in the original application and not stated and verified by affidavit served at the time of the issue of the Originating Summons (as required under Order 73 rule 5(4) RHC) should be treated as an application for extension of time to make the application (see Po Fat Construction Co Ltd v The Incorporated Owners of Kin Sang Estate HCCT 15 & 23/2013, [2013] HKEC 1875).

9.  On the facts and the grounds sought to be relied upon in this case, it is not necessary to consider whether the extension of time or leave to amend can and should be granted to EW, as there are no merits in its application, whether on the grounds stated in the Originating Summons or in the intended Amended Originating Summons. At the conclusion of the hearing on 19 September 2023, EW’s application to set aside was dismissed, with reasons to be handed down.

10.  The reasons are now set out below. I have proceeded on the assumption in favor of EW, that it can rely on an arbitrator’s failure to deal with issues as a ground on its own for setting aside (despite arguments and authorities suggesting otherwise, as can be seen in the decision in LY v HW [2022] HKCFI 2267, which arguments were not dealt with in Counsel’s submissions), and can also rely on the amendment to include the ground of public policy.

Alleged failure to deal with issues

11.  It is clear from the Award that the tribunal had considered and dealt with the two issues identified by EW.

12.  In the List of Issues agreed by the parties in the Arbitration and for the tribunal’s determination, the first issue was identified as: the terms of the Contract including the respective obligations of the parties thereunder, and the party responsible for dealing with import procedures in the Philippines, including declaring the correct HS codes.

13.  The second issue was whether HC was in breach of the Contract by failing to declare the correct HS codes despite EW’s approval thereof.

14.  The arbitrator proceeded to analyze the parties’ positions as submitted in the Arbitration, and to set out his determination, from paragraph 94 of the Award.  In deciding which of the parties was responsible under the Contract for import customs responsibilities, the arbitrator firstly pointed out (at paragraph 95) that the Contract was a CIF contract of sale.  He referred to the basic principles of what a CIF contract entails, namely, that under such a contract, the seller is bound to ship goods of the contract description on board a ship bound for the contract destination, and to tender to the purchaser within a reasonable time after shipment the necessary shipping documents. Citing the relevant authorities, the arbitrator pointed out that the seller would comply with the contract by tendering to the buyer documents which would enable the buyer to get delivery of the goods upon arrival at the port of discharge.

15.  At paragraph 96 of the Award, the tribunal highlighted the fact that under a CIF contract, performance is fulfilled by delivery of documents, and all that the buyer can call for is delivery of the customary shipping documents, which mean documents giving the right to have the goods delivered, and that in the normal course of events, the customary shipping documents to be delivered under a CIF contract would involve a bill of lading, an insurance policy and an invoice.

16.  The tribunal then referred to the dispute between the parties as to what shipping documents were required, and whether (on EW’s case) Form AK had been mutually agreed, by conduct, to be part of the shipping documents to be provided by HC.

17.  At paragraph 100, the Award states:

“While in its most generic term, one may define the Form AK as a “shipping document”, it seems to me that, in the absence of an express and clear term under the Contract, it would be wrong to construe Form AK as being a kind of shipping documents that are required to be tendered as a condition of obtaining payment. In particular, I bear in mind that the Contract was drafted by (EW). If (EW) intended that Form AK should be treated as the kind of shipping documents that are required to be tendered by (HC) as a condition of obtaining payment, there is no reason why no express term was put in place in the Contract to give effect to Parties’ intention.”

18.  The above is a clear finding by the tribunal that there was no express term in the Contract as to the obligation of HC as seller to provide Form AK, and that it was not expressly required as a document under the Contract.

19.  The tribunal then proceeded to consider whether there was any implied duty on the part of HC to obtain and provide a proper Form AK, and whether by conduct, HC had accepted such a duty “as a collateral contract”.

20.  At paragraph 102, the arbitrator considered whether any term is to be implied in the Contract, applying the principles set out in Kensland Realty Ltd v Whale View Investments Ltd [2001] 4 HKCFAR 381, and BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings [1978] 52 ALJR 20. The arbitrator concluded and stated at paragraph 103 that he did not accept that there was any implied term that HC’s entitlement to payment under the Contract was dependent on it having tendered the proper Form AK. The arbitrator referred to the purpose of Form AK, being for the purpose of applying the tax rate, and the fact that Form AK is not a shipping document which would affect the buyer’s title or give the buyer a chose in action should the Products be damaged or lost. He referred to the contemporaneous documents exchanged between the parties as to the nature of Form AK.  At paragraph 107 of the Award, the arbitrator pointed out that the implied term contended by EW is not one which “goes without saying”, nor one which is necessary to give business efficacy to the Contract.

21.  The tribunal’s conclusion is set out at paragraph 108 where the arbitrator stated that he was “unable to find that there was an implied term or collateral contract which places a duty on (HC) to discharge the Import Customs Responsibilities as a condition to receiving payment”. This is a clear finding that there was no implied term, and no collateral contract from the parties’ conduct, as to HC’s obligation to provide the Form AK, and no term or collateral contract that Form AK was a necessary document under the Contract. Whether errors in Form AK would lead to seizure of the Products, or any other consequence, is of no materiality, if the arbitrator finds that it is not a contractually required document.

22.  Whether or not the arbitrator had come to his conclusion correctly, as a matter of law, or as supported by the evidence adduced, is not relevant in these proceedings before the Court, which does not review the merits of the dispute or the correctness of the Award.

23.  On reading the Award, it is in my judgment obvious that the tribunal had dealt with the issues of whether Form AK is a necessary document under the Contract, and whether the parties had by conduct agreed that HC had the duty to provide Form AK. He stated that there was no express duty, no implied duty and no collateral contract arising from the conduct of the parties, which made Form AK a necessary document.  Having so found, the tribunal went on to consider the issue of breach, and found that there was no breach on HC’s part, for the reason (inter alia) that there was no express or implied duty to provide Form AK or to assist in the provision of the correct Form AK, and that even if there was such a duty to assist, HC was not in breach of such duty, and that EW had approved the HS code used.

Disposition

24.  For all the above reasons, EW has failed to discharge its burden of proving that there is any ground to set aside the Award under Article 34(2), and the Originating Summons (even if amendment thereof is allowed) should be dismissed.

25.  The usual costs order is made, for EW to pay the costs of and incidental to the setting aside application and the summons to amend, on indemnity basis, with certificate for counsel.