XCHRX WUZHOU PORT FOREIGN TRADE DEVELOPMENT CORPORATION v. NEW CHEMIC LTD.

HCCT 44/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.44 OF 2000

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D E C I S I O N

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1. On 5 May 2000 this court, on an ex parte application by the plaintiff gave leave to enforce a CIETAC ("China International Economic and Trade Arbitration Commission") award dated 7 December 1998 against the defendant. The defendant now seeks to set aside the ex parte order on three grounds :

(a) neither section 2GG nor section 40B of the Arbitration Ordinance, Cap.341 of the Laws of Hong Kong applies to the facts of this case;

(b) further or alternatively, if, which is denied, either section 2GG or 40B of the Arbitration Ordinance applies to the facts of this case, the Court should refuse to enforce the award on all or one of the grounds set out in section 40E(2) of the Arbitration Ordinance; and

(c) further or alternatively, the defendant has a defence on the merits to the whole of the plaintiff's claim.

(a) Section 2GG and section 40B of Cap.341

2. Section 2GG prior to the amendment of Cap.341 reads :

"An award, order or direction made or given in or in relation to arbitration proceedings by an arbitral tribunal is enforceable in the same way as a judgment, order or direction of the Court that has the same effect, but only with the leave of the Court or a judge of the Court. If that leave is given, the Court or judge may enter judgment in terms of the award, order or direction."

3. The defence submission, skillfully advanced by Mr Lawrence Ng, stated briefly is as follows. In Ng Fung Hong Ltd v. ABC [1998] 1 HKC 213, it was held that :

"Part 1A of the Arbitration Ordinance (Cap 341), of which s 2GG was a part, applied only to arbitrations (whether domestic or international) conducted in Hong Kong. Having regard to other relevant provisions of the Ordinance, in particular s 2AD, to which it was subject, s 2GG could not apply where the place of arbitration was outside Hong Kong. The award in the present case was not, therefore, enforceable under s 2GG."

4. The Arbitration (Amendment) Ordinance 2000 was enacted as a result. It came into operation on 1 February 2000. It introduced a new part, Part IIIA, headed "Enforcement of mainland awards". Mainland awards are defined as follows :

"'Mainland award'（內地裁決）means an arbitral award made on the Mainland by a recognized Mainland arbitral authority in accordance with the Arbitration Law of the People's Republic of China;"

5. Section 40B in the new Part IIIA reads :

"40B. Effect of Mainland awards

(1) A Mainland award shall, subject to this Part, be enforceable in Hong Kong either by action in the Court or in the same manner as the award of an arbitrator is enforceable by virtue of section 2GG."

6. Mr Ng's primary contention is that this reference to section 2GG in section 40B must be read in conjunction with the decision in Ng Fung Hong. Accordingly, as section 2GG does not permit the enforcement of awards unless they were conducted in Hong Kong, section 40B cannot be applied to enforce awards conducted outside Hong Kong.

7. Mr Ng's submission continues that this inadequacy in section 40B was specifically dealt with by a later amendment which came into operation on 23 June 2000 which states :

"2. Enforcement of decisions of arbitral tribunal

Section 2GG of the Arbitration Ordinance (Cap.341) is amended-

(a) by renumbering it as section 2GG(1);

(b) by adding-

'(2) Notwithstanding anything in this Ordinance, this section applies to an award, order and direction made or given whether in or outside Hong Kong.'."

8. This amendment postdates the plaintiff's ex parte order so does not apply.

9. Thus the court has no jurisdiction to enforce the award in Hong Kong.

10. In my judgment, this submission fails for the reasons advanced by Mr Anthony Chan for the plaintiff.

11. Firstly, the introduction of Part IIIA in February 2000 (which pre-dates the ex-parte order) was for the specific purpose of enforcing mainland awards such as this one. Section 40B does not say "a mainland award shall .... be enforceable in Hong Kong either by .... or by section 2GG". What it says is ".... or in the same manner as the award of an arbitrator is enforceable by virtue of section 2GG". (emphasis added). The manner of enforcement is by summary proceedings with the leave of the court.

12. Since 23 June 2000, the defence submission became unarguable. The No.2 amendment, which has effect from that date, leaves no room for debate. It does not follow, however, that prior to that date, the position was unclear and therefore the interpretation in the defence's favour must be adopted. In my judgment, if there was any doubt about the meaning of the ordinance prior to 23 June (which the plaintiff submits there was not), the purpose of the 23 June amendment was merely to remove it. It merely eliminates future arguments on the point. Mainland awards became summarily enforceable in Hong Kong from the introduction of Part IIIA enacted on 13 January 2000, with the leave of the court.

(b) Section 40E(2)

13. The relevant parts of this section upon which Mr Ng relies are :

"40E. Refusal of enforcement

....

(2) Enforcement of a Mainland award may be refused if the person against whom it is invoked proves-

(a) .....

(b) .....

(c) that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(d) subject to subsection (4), that the award deals with the difference 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; or

(e) that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the Mainland; or

(f) ...."

14. The words of this section make it clear that any refusal is by a discretion conferred on the court and that the burden of proving a ground to refuse is on the party seeking to invoke it.

15. The defendant's first and primary contention invokes section 40E(2)(e). The material facts are not in dispute. It is a technical point. The submission is that the arbitral tribunal in the PRC adopted the wrong set of rules to the dispute and therefore had no jurisdiction to hear the case. The facts are as follows. The matter was formally submitted for arbitration on 22 April 1998. The rules that were then in operation were the 1995 rules. Article 2 of those CIETAC rules provided CIETAC with jurisdiction to resolve "disputes arising from international or foreign-related contractual or non-contractual, economic and trade transactions". This dispute did not come within that ambit.

16. The new CIETAC rules, which did govern this dispute, came into force on 10 May 1998. In fact CIETAC took cognizance of this case on 18 May 1998 and applied the 1998 rules, giving it jurisdiction. The defence submission is that if the appropriate time limits had been followed, CIETAC should have taken cognizance of the case, not on 18 May, but prior to 10 May when the 1995 rules were still in operation. In other words, CIETAC was late in taking cognizance of the case. Had they done so at the proper time, they would have had no jurisdiction.

17. There is no dispute that prior to the hearing the parties were sent copies of the 1998 rules, the 1998 rules were in fact applied and no challenge to the application of the 1998 rules or the jurisdiction of CIETAC was ever suggested or made. The point has been taken for the first time in these proceedings, which are now two years after the event.

18. When deciding whether to exercise a discretion to refuse enforcement of a mainland award, the court can plainly take into account the fact that the point being taken was never taken at the time and, in any event, is technical in nature. Had the matter been raised at the time, the arbitrators could have made a determination on it. It cannot be said that they would certainly have found themselves to be without jurisdiction. Two diametrically opposed PRC expert legal opinion have been exhibited in these proceedings. It is not for this court to decide the point. This court's task is confined to deciding whether the defendant has discharged the burden on it to persuade the court to exercise its discretion in its favour by virtue of section 40E(2)(e). For the reasons stated, I have come to the conclusion that it has not.

19. I should add that I find the defence submission is not advanced by the fact that it was or may not have been aware of this technical point at the time of the arbitration. In the particular circumstances of this case, the fact that they may have only discovered the point two years later, should not affect the way in which the discretion should be exercised. At the material time, the defence knew all the facts upon which this submission is premised. What has, or may have, emerged later is a technical legal argument based on those known facts. Failure to argue a purely legal point based on known and undisputed facts at the time must be a factor weighing heavily against the party seeking to rely on it at a much later date.

20. Finally, it is noted, again in the plaintiff's favour on the question of discretion, that the reason that CIETAC delayed in taking cognizance of the case has been explained by affirmation and has not been disputed. Further documents and fees were called for before CIETAC would formally accept the case. They accepted it after these formalities were complied with.

(c) The merits of the case

21. Mr Ng also relies on section 40E(2)(c). He submits that the enforcement of the award should be refused on the basis that his client was "otherwise unable to present his case".

22. Firstly, this part of section 40E(2)(c) should be read in its context within the whole of the sub-section. The first part of the sub-section deals with the situation where a party is not given proper notice of the arbitration and, as a result, is not able to present his case. It is arguable that the words "or otherwise" should be confined to procedural reasons preventing a party from presenting its case; not being given due notice being but an example. Mr Ng, by virtue of his submission on this point, argues for a much wider interpretation of the words "or otherwise" which would permit the re-opening of issues before the tribunal. He submits, for example, that the defendant was unable to present his case because he had not had sight of certain documents.

23. Even if the ambit of section 40E(2)(c) is as wide as Mr Ng contends for, I am satisfied from my reading of the arbitral award itself that the arbitrators were apprised of the relevant issues. The defendant attended the arbitration throughout and was given every opportunity to present his case. Such absence of documentation as there may have been does not cause this court to conclude that the defendant has proved on the balance of probabilities that it was unable to present its case. It is not a case where the court's discretion should be exercised in the defendant's favour. To do so would amount to, in reality, issues being revisited, which have already been ventilated and adjudicated on in a detailed award. The enforcing court should not do this; per Kaplan J in Qinhuangdao Tongda Enterprize Development Co. v. Million Basic Co. Ltd [1993] 1 HKLR at p.177 :

"In arguing now that the plaintiff misled the Tribunal, the defendant wants another chance to argue the merits of the case. It is too late for that. The New York Convention is clear that it is not for the enforcing court to rehear the case on the merits. It makes no difference that the defendant couches his submissions in terms of public policy and an attempt to mislead the arbitral tribunal. He is trying to appeal the merits of the case and that is not allowed.

In view of the above, I cannot accept that the defendant had no opportunity to present its case. On the contrary, the defendant made full use of the ample opportunity given and only complained after the proceedings had finally been closed, having foregone the opportunity of asking for an extension of those proceedings. All proceedings must have a finite end."

Material non-disclosure

24. Mr Ng's final attempt to persuade this court to refuse enforcement is based on the fact that a document, a 1997 fax from the plaintiff to the defendant, was not disclosed at the time of the ex parte order. The plaintiff's primary disclosure duty was to disclose the award. The fax in question postdated the award and its genuineness was disputed. There was no duty to disclose it.

25. For all the above reasons, I refuse the defendant's summons to set aside the ex parte order. Costs should follow the event and be to the plaintiff.