1955 CAPITAL FUND I GP LLC AND ANOTHER v. GLOBAL INDUSTRIAL INVESTMENT LTD

HCCT 61/2019

[2020] HKCFI 956

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 61 OF 2019

____________

____________

BETWEEN

____________

______________

D E C I S I O N

______________

Introduction

1.  This matter concerns the Respondent’s application by summons dated 23 December 2019 seeking to set aside Madam Justice Mimmie Chan’s ex parte Order dated 29 October 2019 (“Enforcement Order”) to enforce an arbitration award dated 26 June 2019 and corrected on 20 August 2019 by Mr Gerald W. Ghikas QC (“the Award”).

2.  The Award was made in relation to arbitration proceedings in the State of California in the United States between the Applicants and the Respondent. The Award directs the Respondent to pay to the Applicants the total sum of USD9,328,853.53.

The Application

3.  The application to set aside is made pursuant to section 89(2)(d) and or (f) of the Arbitration Ordinance (Cap 609) which provides as follows:-

“(2) Enforcement of a Convention award may be refused if the person against whom it is invoked proves—

…

(d) subject to subsection (4), that the award—

(i) deals with a difference not contemplated by or not falling within the terms of the submission to arbitration;

(ii) contains decisions on matters beyond the scope of the submission to arbitration;

…

(f) that the award—

(i) has not yet become binding on the parties; or

(ii) has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.”

4.  In short, the Respondent submits that:-

(1) The Arbitrator dealt with a difference not falling within the terms of the submission to arbitration and or the Award contains decisions on matters beyond the scope of the submission to arbitration (during the hearing of this application, Mr Pao SC, representing the Respondent, informed the Court that he was “not pressing” this argument);

(2) The Award had not yet become binding at the time the ex parte Enforcement Order was made.

5.  The United States District Court for the Northern District of California on the 31 January 2020 made an order denying the Respondent’s petition to vacate the Award and granted the Applicants’ cross-petition to confirm the Award.  The Respondent has now instituted an appeal against this judgment and as a fall-back position, Mr Pao submits that an adjournment would be appropriate by reason of this appeal, a bond having been posted for an automatic stay of execution of the United States judgment in the United States.

6.  However, Mr Pao’s primary position is that there was material non-disclosure by the Applicants in obtaining the Enforcement Order granted by Madam Justice Mimmie Chan dated 29 October 2019.

7.  Mr Pao has submitted that if the Court was now to discharge the Order for material non-disclosure, it would be unnecessary to deal with the matters advanced by the Respondent set out in paragraphs 4 and 5 herein.

Material Non-Disclosure

8.  Mr Pao’s complaint in this regard is simple and straightforward.

9.  The Parties had entered into Limited Partnership Agreements (“LPAs”). These agreements were referred to by the Arbitrator in his Partial Final Award dated 3 August 2018, and set out in full clause 15.5 of the Fund I LPA (which is identical to clause 14.5 of the China Fund LPA).  Clause 15.5(b) states that:-

“… Absent the filing of an application to correct or vacate the arbitration award under applicable law, each party shall fully perform and satisfy the arbitration award within 15 days of the service of the award.” (emphasis added)

10.  The Final Award dated 26 June 2019 expressly states at paragraph 492(g) that:-

“Absent the filing of an application to correct or vacate the arbitration award under applicable law, and unless the parties agree otherwise, in accordance with the Arbitration Agreements each party shall fully perform and satisfy this award within 15 days of the service of the award.” (emphasis added)

11.  On 21 October 2019, the Respondent filed a petition to vacate the Award in the United States District Court.  Prior to this the parties had entered into a standstill agreement which delayed the time in which the Respondent needed to file its petition to enable settlement talks to take place before the petition was filed.

12.  Mr Robert P Varian is an attorney-at-law at the law firm representing the Applicants (“Mr Varian”). I was informed by Mr Pao that Mr Varian has been deeply involved in the contractual relations between the parties and would have known of the clauses outlined above in the LPAs, the Award, and of the appeal in the United States District Court.  This assertion was not contradicted by Counsel for the Applicants.

13.  Mr Varian made an affidavit dated 23 October 2019 which was filed on 28 October 2019 in support of the Applicants’ ex parte application for the Order granting leave to enforce the Award.

14.  At paragraph 20 of that affidavit and under the heading of “Status of Final Award (as corrected)”, Mr Varian said that:

“The Final Award (as corrected) provides that each party shall fully perform and satisfy the award within 15 days of the service of the award. On 3 July 2019, the Applicants demanded the Respondents CFLD to satisfy the Final Award by making payment of USD9,328,775.53. As of the date hereof, neither the Respondent, nor CFLD, has complied with the Final Award (as corrected).” (emphasis added)

15.  Mr Pao has pointed the Court to the obvious, critical words (the “Omitted Words”) “Absent the filing of an application to correct or vacate the Arbitration Award under applicable law” which have been removed by Mr Varian from the paragraph set out in paragraph 492(g) of the Award.

16.  Mr Pao submits that this omission was deliberate and created the impression to the Judge that the Award was immediately enforceable.  Mr Pao submits that this was obviously a highly material matter, and the deliberate removal of the Omitted Words by Mr Varian deprived the judge of the opportunity to consider responsibly and fully the application made by the Applicants.  Mr Pao further submits that the only inference is that if the judge had seen the Omitted Words, she may well have decided that the Award was not yet binding and hence declined to make the Enforcement Order.

17.  Mr Pao also submits that this non-disclosure provided the Applicants with an unfair advantage in that they were able get a “head start” on the Respondent and then obtain garnishee orders.

18.  Mr Maurellet SC, Counsel for the Applicants, in answer to questions from the Court, and with his customary fairness, agreed that the Omitted Words were relevant and would be part of the Judge’s weighing exercise. Furthermore, that the same should have been drawn to the Judge’s attention. He further accepted, importantly, that there was no direct explanation from Mr Varian as to why he had removed the Omitted Words from the clause.

19.  Mr Maurellet, however, submitted that the Order would have been made anyway by the Judge. Furthermore, that the Judge’s Order dated 29 October 2019 provided for 14 days within which the Respondent could apply to set aside the Order, and the Award would not be enforced until the expiration of that period. That, says Mr Maurellet, indicated Mr Varian had nothing to gain and had acted “innocently”.

20.  Mr Pao in reply submitted that the most important feature of this matter was the lack of any direct explanation for Mr Varian’s deliberate removal of the Omitted Words.

21.  In answer to Mr Maurellet’s submission that Mr Varian was acting innocently because of the 14-day provision in the Judge’s Order, Mr Pao referred to Grant Thornton International Ltd v JPBP & Co (A Partnership) HCCT 13/2012, unreported, 5 April 2013, where a similar argument was made.  Au J rejected the argument that a party is protected from ill-effects or mischief of an ex parte order obtained by failure to make disclosure, because the order does not take effect even after service on the Respondent, holding, inter alia, that:-

“54. …

(1) The duty to make full and frank disclosure is imposed because of the nature of the ex parte application itself i.e. that the court is dealing with an application in an unusual situation in hearing (or reading) only one side’s case and submissions, and that the court is asked to grant a relief without the person against whom the relief is sought having the opportunity to be heard. The duty is thus imposed to ensure that the application is made with the highest good faith.

…

(4) In any event, if Mr Brock was right in his ‘proviso’ submissions, as a matter of logic, the duty of full and frank disclosure should not even bite in the first place at the time of the ex parte application of the present nature. This simply cannot be right.”

Analysis

22.  I have no hesitation in discharging the Enforcement Order because of material non-disclosure by the Applicants.  The expunging of the Omitted Words by Mr Varian was plainly deliberate.  I accept Mr Pao’s submission that the only sensible inference to be drawn is that this was done because if the judge was made aware of the Omitted Words, she may have taken a course of action unfavourable to the Applicants. It is plain that the Judge was thereby deprived of the opportunity to properly and fully consider the Applicants’ application for an Enforcement Order.

23.  As noted, it has been fairly accepted by Mr Maurellet that this material was relevant to the weighing exercise which the Court had to undertake.  And in my view it is of no help to the Applicants to point out that the Award was exhibited to Mr Varian’s affidavit.  The Award is 140 pages long and as noted in NCS Co Ltd v Bao Harvest Holding Ltd [2012] 5 HKLRD 138, an applicant in an ex parte application cannot shift the burden to the Court by simply exhibiting the relevant material and hoping that the pertinent points would be picked up by the Judge.

24.  In conclusion, I find there was a deliberate attempt to hide relevant material necessary for the weighing exercise the judge had to undertake before granting the Enforcement Order, and that there is no explanation as to why this was done.  Furthermore, I accept Mr Pao’s submission that there was a gain to be made by the Applicants’ behaviour; that of getting a head start on the Respondent and obtaining garnishee orders.

Disposition

25.  In view of my findings above and with the agreement of Mr Pao, it is unnecessary to deal with his other arguments set out at paragraphs 4 and 5 herein.

26.  I order that the ex parte Enforcement Order made by Madam Justice Mimmie Chan dated 29 October 2019 be discharged forthwith.

27.  There be an order nisi that the Applicants do pay the Respondents costs of and occasioned by this application, the same to become absolute 14 days hereafter.  There will be a certificate for two Counsel.