The Importance of Service

The enforcement of arbitral awards in Hong Kong may be refused on the grounds of improper service of notices regarding the arbitration, even though such service is deemed valid under the arbitration rules of the arbitration institution in another jurisdiction. That is the decision of the Court of First Instance (“CFI“) in a recent case (樓外樓房地產咨詢有限公司 v 何志蘭, HCMP 3202/2013) regarding the enforcement of two mainland Chinese arbitral awards.

Case Summary

Pursuant to an arbitration clause, the Applicants had referred a dispute with the Respondent, Ho, to arbitration administered by the Guangzhou Arbitration Commission (the “Commission“). In May 2013, the Commission sent a Notice of Arbitration by post to a Hong Kong address of which Ho is the registered owner. In July 2013, the Commission sent a Notice of Hearing to the same address. Ho admitted to receiving the Notice of Arbitration, but claimed that the address was not her place of residence, and that she only received it because she happened to be present at the time. The Notice of Hearing was not successfully delivered and was returned by the post office to the Commission.

Nonetheless, according to Article 73 of the Arbitral Rules of the Commission, Ho was deemed to have been validly served because she received the Notice of Hearing. As such, the hearing took place in July in Ho’s absence, after which the Commission issued two arbitral awards against Ho (“the Awards“).

The Applicants obtained an enforcement order from the CFI in March 2014 (“the Enforcement Order“). In April 2014, Ho applied to the Intermediate People’s Court of Guangzhou to set aside the Awards; Ho’s application was dismissed on the grounds that her application was made out of time. In June 2014, Ho applied to the CFI to set aside the Enforcement Order.

The CFI considered Section 95(2)(c) of the Arbitration Ordinance (Cap 609) (“the Ordinance“), which provides that the enforcement of a Mainland award may be refused if the person:

(a) was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings; or (b) was otherwise unable to present the person’s case.

The CFI applied Hebei Import & Export Corp v Polyteck Engineering Co Ltd (1999) 2 HKCFAR 111. At Paragraph 136 C-E, the Court of Final Appeal noted that the New York Convention distinguished between proceedings to set aside an award in the court of supervisory jurisdiction and proceedings in the court of enforcement; the latter proceedings are governed by the law of that forum. At paragraph 136 G-H, the CFA also held that the ground in the New York Convention expressed as “contrary to the public policy of the country” refers to the country in which enforcement is sought.

Relying on Hebei, the CFI decided that in the present case the applicable law was that of Hong Kong, being the enforcement jurisdiction and not that of Guanzhou, being the supervisory jurisdiction. The CFI found that the Notice of Hearing was not properly served on Ho, and furthermore, Ho did not in fact receive the Notice of Hearing. Consequently, the court held that Ho was not given proper notice of the arbitral proceedings, or was unable to present her case.

The CFI noted that it still had a discretion under Section 95(2) of the Ordinance to allow enforcement despite of the existence of grounds for refusal, but held that there was no adequate reason for it to exercise its discretion in the present case, and ordered the Enforcement Order set aside.

Conclusion

Parties to arbitral proceedings should beware of service requirements in respect of any documents involved. This must not only be in accordance with the applicable set of rules for arbitration agreed on by the parties, but also the law of the jurisdiction where enforcement is sought.

In light of the recent judgment in HCMP 3202/2013, parties should note that even if service was deemed to be valid in accordance with the agreed arbitral rules of an arbitration institution in mainland China, where the party being served did not actually receive the notice of hearing, leading to his absence from the arbitral hearing, the courts in Hong Kong are prepared to refuse enforcement of any awards granted against a respondent on the basis that he was not given proper notice and/or was unable to present his case.