FIRM “H" v.“W”

HCMP 298/2020

[2021] HKCFI 68

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 298 OF 2020

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BETWEEN

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D E C I S I O N

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1.  The applicant, a solicitors firm in Hong Kong (“Firm”), obtained an arbitral award dated 14 February 2020 (“Award”) against the respondent (“W”), for unpaid legal fees in relation to litigation services, and obtained leave in HCMP 298/2020 to enforce the Award as a judgment of the court. W then took out proceedings in HCCT 23/2020 seeking an order to set aside the Award, as well as a summons in HCMP 298/2020 for an order to set aside leave to enforce the Award. These applications have been fixed to be heard together on 15 March 2021.

2.  Meanwhile, the Firm has applied by summons dated 15 June 2020 for an order that W give security for the Award and security for the Firm’s costs in both sets of proceedings. No one has suggested there should be an additional separate summons for security taken out in HCCT 23/2020. The parties have agreed for this application to be dealt with on the papers without an oral hearing. This is my decision on the Firm’s application for security.

Security for the Award

3.  The order dated 22 April 2020 granting the Firm leave to enforce the Award covered the principal sum of the Award in the amount of $681,138.20; interest thereon up to the date of the Award in the amount of $208,105.07; $716,820 and $61,115 for costs and expenses incurred by the Firm, including the fees and expenses of the arbitral tribunal and the HKIAC’s fees; and interest of $559.84 per day on the principal sum from the date of the Award until payment.

4.  There is no dispute between the parties that in these circumstances, there is a discretion for the court under RHC Order 73 rule 10A to require security to be given by W pending his application to oppose enforcement of the Award. Two main factors to be considered are: first, the strength of the argument that the award is invalid as perceived by the court on a brief consideration of the arguments; secondly, the ease or difficulty of enforcement of the award including whether it will be rendered more difficult if enforcement is delayed: Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208, 212; applied in Guo Shun Kai v Wing Shing Chemical Co Ltd [2013] 3 HKLRD 484; Dana Shipping and Trading SA v Sino Channel Asia Ltd [2017] 1 HKC 281; Weili Su v Shengkang Fei [2019] 2 HKLRD 1214; and X v Jemmy Chien [2019] HKCFI 2172.

5.  Regarding first point, the ground for W’s opposition to enforcement of the Award is that due to his health condition at the time of the arbitration, he was “unable to present [his] case”, within the meaning of section 86(1)(c)(ii) of the Arbitration Ordinance (Cap 609). His application to set aside the Award is based upon the similar ground in art. 34(2)(a)(ii) of UNCITRAL Model Law as set out in section 81 of the Ordinance. The principles relating to a challenge against an award on this ground are, again, not in dispute. The court is not concerned with the substantive merits of the dispute or the correctness or otherwise of the award, but with the structural integrity of the arbitral process. The relevant party has to show that he has been denied due process. The conduct complained of must be serious, even egregious. Even if the ground is made out, the court has a discretion not to set aside an award, which may be exercised where the court is satisfied that the outcome could not have been any different: Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1; China Property Development (Holdings) Ltd v Mandecly Ltd & others (CACV 92 & 93/2015; 24 May 2016).

6.  While the court has to form some view on the strength of the underlying application, this is meant to be an exercise based on a “brief” consideration, not a very detailed inquiry pursuant to the substantive arguments. Detailed chronologies have been set out in the Award,[1] in the first affidavit of W’s wife filed herein, and in the Firm’s skeleton submissions for the present application, which I shall not repeat here. Suffice it to say that while I would not at this stage characterise W’s contentions to be patently unarguable, the following hurdles to his argument are of note:

(1) The only medical evidence supplied to the arbitrator was Dr Berger’s letter dated 24 July 2019 stating that W “had eye surgery on July 23, 2019 and was instructed to be off work and travel for the next three months” and Dr Berger’s letter dated 4 September 2019 stating W “had eye surgery on September 3, 2019 and was instructed to be off work until further notice”. As noted by the arbitrator in his Procedural Order No. 1, the very brief pro forma medical note of 4 September 2019 did not evidence W’s claim that he was not to be put under stress, and the nature and degree of seriousness of the eye operation had not been disclosed.

(2) Dr Berger issued a further note dated 14 November 2019 (which was not supplied to the arbitrator) stating that W “required several eye surgeries for retinal detachment and now requires another surgery. He is currently visually disabled with acuity of 20/200”. Still, this did not address the more general health condition of W.

(3) Even now, there is no medical evidence on the seriousness and effects of W’s eye condition on his health generally. Visual disabilities in themselves are not necessarily a good reason for staying proceedings. It would appear that both before and after 3 September 2019, W had corresponded with his legal representatives in Canada, Samuel Eng & Associates (“SEA”), and instructed them how to act in the correspondence relating to the arbitration, until 9 October 2019 when SEA abruptly stated they had not been retained as solicitors on record for W. It is unclear why W did not formally retain SEA to act in the arbitration or to continue to liaise with the arbitrator after 9 October 2019. Subsequently, W was able to approach Yang Chan & Jamison (“YCJ”) to act for him but only at the last minute. YCJ only wrote to the arbitrator on 14 November 2019, the eve of the substantive hearing, to ask for an adjournment.

(4) On his wife’s own evidence, W was also able to reach a settlement in August 2019 involving the disposal of his 17% shareholding in XXXXXXXXXXXXXX Ltd, being his asset in Hong Kong. That company was the subject matter of legal dispute in the High Court of Hong Kong, which was one of the matters the Firm was retained by W to deal with.[2]

(5) The arbitrator accommodated W a number of times and repeatedly invited him to participate by making representations in any manner, but he did not do so even on a limited basis. He also did not respond to the arbitrator’s request on 26 October 2019 that he explain his difficulties in finding a lawyer and outline the efforts he had made to do so.

7.  Mr Chiu, on behalf of W, asks rhetorically: why could the arbitrator not wait for the recovery of W, but chose to conclude the proceedings within that time? I note that there is no indication as to when, on W’s case, he has recovered or will recover. According to the second affidavit of his wife produced in July 2020, another eye surgery was being rescheduled at that time. More to the point, however, is that this is not the correct question to ask. The true question is whether because of the way the arbitration was conducted, W was unable to present his case. In the context of the present application, I do not think that W has shown that the Award is manifestly invalid.

8.  Moreover, the Firm has pointed out in its affirmation that its claim is a simple one for unpaid legal fees and W had given assurances in the past that he would pay them. On behalf of the Firm, Ms Yuen has also submitted that in truth W has no defence to the claim, and that there is nothing to suggest that the outcome of the arbitration could or might have been different. W has not meaningfully responded to this contention either in his wife’s reply affidavit or in the written submissions made on his behalf. It seems to me therefore arguable that even if W established the ground of inability to present his case, his application might be rejected in the court’s discretion.

9.  On behalf of W, Mr Chiu has placed reliance on Kanoria & Others v Guinness & Another [2005] ArbLR 33,[3] where an English court accepted that a party to an arbitration had been unable to present his case because of illness. Each case must of course be determined on its own facts. In Kanoria there was undisputed medical evidence that Mr Guinness was “seriously ill and suffering from a life-threatening cancer at the relevant time which was followed by clinical depression”. On that basis the judge took the view that it was realistically impossible for Mr Guinness to concentrate on the legal dispute, even though he had a defence obviously available to him that he had no personal obligation as a director of the company that was bound by the terms of the relevant agreement (see §36 of the judgment). The facts are evidently different in the present case. As such, I do not think Kanoria provides much assistance to W’s case.

10.  Turning to the second question, I do not accept Mr Chiu’s submission that precise and concrete evidence that enforcement will be rendered more difficult if it is delayed is a sine qua non for ordering security. In the present case, I take into account the fact that W resides out of the jurisdiction so that enforcement of the Award would be procedurally more complicated for the Firm. Further, it is of note that, while refusing to engage with the arbitral process, W entered into an agreement in August 2019 that apparently had the effect of disposing of his 17% shareholding in a Hong Kong company. Neither the time of completion of that disposal nor the consideration that W will receive or has received has been disclosed.

11.  In all the circumstances, it is in my view appropriate to order security for the Award in the sum of $1.35 million.

Security for costs

12.  There is no dispute that this court has power to order security for costs in favour of the Firm, as W resides out of the jurisdiction. Mr Chiu has not made any submission that W should not be required to give security for costs at all, but contends that the amount sought is manifestly excessive. The Firm asks for security in the sum of $645,000 for its costs in relation to W’s two applications up to their determination, covering both the hearing on 11 June 2020 and the hearing to be held in March 2021. Having examined the statement of costs, and taking account of the entire circumstances of the case, I consider that security for costs in the sum of $450,000 should be required.

Orders

13.  For the above reasons, I shall order security to be provided in the amounts mentioned above. W has not raised any issue with the terms of the order sought as stated in the Firm’s summons, save that he has asked for 28 days to arrange payment if security is ordered. Accordingly, there will be an order that:

(1) The Respondent do, within 28 days from the date hereof, give (1) security for the Final Award dated 14 February 2020 made in favour of the Applicant in HKIAC case No. HKIAC/A19134 in the sum of $1.35 million, and (2) security for the Applicant’s costs in relation to the Respondent’s application by summons herein dated 26 May 2020 and the related application in HCCT 23/2020 up to their determination in the sum of $450,000, by payment into court.

(2) In the event that the Respondent does not pay the total sum of $1.8 million into court within the time specified, the Respondent’s summons herein dated 26 May 2020 and his originating summons in HCCT 23/2020 be dismissed with costs to the Applicant forthwith on an indemnity basis to be taxed if not agreed.

14.  There will be an order nisi that the Respondent do pay the Applicant the costs of the Applicant’s summons dated 15 June 2020, to be taxed if not agreed.