In Arjowiggins HKK2 Limited v X Co [2016] HCCT 53/2015, the Honourable Madame Justice Mimmie Chan of the Hong Kong Court of First Instance gave short shrift to an application for setting aside an HKIAC award on technical and procedural grounds that she “dismissed as totally without merit.”

Background

Arjowiggins HKK2 Co Ltd (the “Claimant”) entered into a joint venture agreement in October 2005 (the “JV Agreement“) with X Co (the “Respondent”) to set up a company for the purpose of manufacturing paper products in China (the “Company”). Under the JV Agreement the parties warranted to enter into “Related Contracts” to ensure the provision of a stable supply of water, steam, electricity, and treatment of sewerage. To this end a separate contract was negotiated in which the Respondent agreed to supply steam to the Company (the “Steam Supply Contract“). The JV Agreement provided that the governing law would be that of the PRC, while the arbitration clause provided for arbitration in Hong Kong in accordance with the Arbitration Rules of the Hong Kong International Arbitration Centre (“HKIAC Rules”).

Disputes duly arose in relation to the Steam Supply Contract which gave rise to proceedings in Mainland China, and in June 2010 the Weifeng Intermediate People’s Court granted an application by the Respondent to wind up the Company. Subsequently in October 2012 the Claimant commenced arbitration on the grounds that the Respondent had failed to supply steam in accordance with the JV Agreement and that said agreement was breached when the Respondent wound up the Company without unanimity of all its directors. The majority of the arbitral tribunal found in favour of the Claimant. The Respondent applied to the Hong Kong Court of First Instance for the award to be set aside on three predominantly technical and procedural grounds, all of which were rejected in no uncertain terms by Chan J.

Reasoning

(1) Validity of the Agreement

The Respondent’s expert argued that because the arbitration clause did not explicitly identify HKIAC as the institution of arbitration, stating merely that HKIAC Rules applied, the agreement was void under PRC law. However, Chan J agreed with counsel for the claimant that upon detailed construction of HKIAC rules it was abundantly clear that the parties had intended HKIAC to be the institution of arbitration; the judge pointed out that even the model arbitration clause suggested by HKIAC does not explicitly refer to it as the “institution of arbitration”. Moreover, Chan J criticised the independent expert as failing in his duty to the court by simply rearguing the case advanced by the Respondent at the Arbitration instead of assisting the court in the specialist area of PRC law. The Court reiterated that under Article 4 of the Model Law as adopted by s.11 of the Arbitration Ordinance (Cap. 609), which is mirrored by Article 28 of HKIAC rules, if a party proceeds without stating its objection without undue delay it shall be deemed to have waived its right to object to the conduct of the arbitration. The Respondent had participated fully in the arbitration without objecting; therefore the Court held the Respondent had waived its right to object.

(2) Jurisdiction of the Court

In relation to the Claimant’s argument that the winding up of the Company constituted a breach of the JV Agreement, the Respondent argued that as the winding up order had already been made by PRC courts, then by virtue of res judicata the arbitral tribunal had submitted to the jurisdiction of the PRC courts and thus had no jurisdiction to consider the issue of damages resulting from the winding up of the Company. The Court rejected this argument and emphasised the fact that in addition to not objecting to the Tribunal’s jurisdiction earlier, the Steam Supply Contract was made between the Company and the Respondent, whereas the JV Agreement on which the arbitration was based was between the Respondent and the Claimant; in other words the parties, contracts and ensuing rights and obligations are separate and distinct. Chan J described the undisputed point that only PRC courts had jurisdiction to wind up the joint venture under PRC Company Law as “totally irrelevant … to the arbitrability of the matters submitted to the Tribunal in the Arbitration”.

(3) Constitution of the Tribunal

The arbitration clause in the JV Agreement provided that each party would appoint one arbitrator, and these two arbitrators would agree to appoint a third arbitrator. In the event that a party failed to appoint or the party-appointed arbitrators could not agree on the third arbitrator within 60 days of the referral of the dispute to arbitration, then the Chairman of HKIAC would appoint that arbitrator. The Respondent sought to rely on a narrow technical argument that the arbitral tribunal was improperly constituted because in the absence of the Respondent appointing its own arbitrator an appointment had been made by the Council as distinct from the Chairman of HKIAC. In rejecting this submission Chan J noted that the Chairman is part of the Council that made the appointment and that no previous objections were raised.

For the avoidance of doubt Chan J stated that “[o]pposition to enforcement and recognition of awards based on unmeritorious technical points or minor procedural complaints have always been viewed with disfavour by the Hong Kong courts.” Applying the test outlined by Tang VP in the Court of Appeal authority of Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1, “the conduct complained of must be serious, even egregious” before an award can be set aside on procedural grounds. Chan J clarified that on the facts of this case, even if there was an issue with the composition of the arbitral tribunal, the Respondent had not suffered prejudice and due process had not been undermined as a result.

Orders

Chan J dismissed the Respondent’s application to set aside the Award as “totally without merit”, awarding costs to the Applicant on the highest indemnity basis, including certificate for two Counsel at trial.

The strident criticisms in the judgment of Mimmie Chan J can be interpreted as reinforcing the pro-arbitration stance of Hong Kong courts, whose role is to exercise only supervisory jurisdiction over arbitral awards to prevent grave procedural errors and injustice rather than providing an alternative forum for appeal or for attempts to have a case reheard. In this way, the case is on all fours with another recent decision of Chan J in the case of Sun Tian Gang v Hong Kong and China Gas (Jilin) Ltd [2016] HKEC 2128. If technical arguments are advanced as grounds for setting aside an arbitral tribunal’s award the threshold is clearly very high. As such, the Arjowiggins case is another reminder that objections must be made in a timely manner without delay during the arbitral proceedings. Finally, the costs order serves as a reminder that the court can impose severe cost sanctions on unmeritorious applications to set aside arbitral awards.