19 May, 2015
The Hong Kong Court of First Instance recently granted an appeal from its own decision to allow enforcement of two Mainland arbitral awards. This case turns on service of a notice of arbitration and notice of hearing, which were deemed served under the applicable Chinese arbitration commission’s rules, but not under the law of Hong Kong, where enforcement was sought. To read the full judgment (in Chinese), please click here.
The underlying disputes arose out of a contract for sale of a property in Guangzhou, PRC between Ms Ho (a Hong Kong resident) as the seller, the buyer and a PRC incorporated real estate agent (the Sales Contract). The dispute resolution clause in the Sales Contract provided for arbitration administered by the Guangzhou Arbitration Commission (theArbitration Commission). The buyer and real estate agent subsequently initiated arbitration proceedings against Ms Ho, after Ms Ho had sold the property in question to a third party.
In May 2013, the Arbitration Commission sent the notice of arbitration by post to Ms Ho’s address in Hong Kong, as provided by the real estate agent. It is not in dispute that Ms Ho received this notice. However, as stated by Ms Ho, this property was not her place of residence at the time, and she received this notice only because she happened to be at the address when it was sent.
Later, the Arbitration Commission sent the notice of hearing to the same address. Ms Ho did not receive it, and the notice was returned to the sender, ie, the Arbitration Commission. Nonetheless, this notice was deemed to have been served on Ms Ho under Article 73 of the Arbitral Rules of the Arbitration Commission (the Arbitral Rules), because the notice of arbitration was successfully delivered to that address. The hearing was conducted in July 2013, in the absence of Ms Ho. After considering the evidence and submissions advanced by the real estate agent and the buyer, the sole arbitrator issued two awards in their favour in August 2013.
In April 2014, Ms Ho applied to the Intermediate People’s Court of Guangzhou (the Guangzhou Court) to set aside the two arbitral awards. Her application was rejected on the grounds that it was time-barred under Article 59 of the PRC Arbitration Law. Article 59 provides that an application for setting aside an arbitral award should be submitted within six months after receipt of the award. The award was also sent to the above-mentioned Hong Kong address by the Arbitration Commission. Although no one acknowledged receipt and it was returned to the Arbitration Commission, the award was deemed to have been served on Ms Ho in August 2013 on the basis of Article 73 of the Arbitral Rules.
The buyer and the real estate agent sought enforcement of the arbitral awards in the Hong Kong Court of First Instance, which allowed enforcement. In accordance with Rule 10(6), Order 73 of the Rules of the High Court, Ms Ho applied to set aside the court’s orders allowing enforcement, on the basis that:
- She was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings; and
- She was unable to present her case,
pursuant to Article 95(2) Hong Kong Arbitration Ordinance, which sets out the grounds for resisting enforcement of a Mainland Chinese award (“Mainland Award”).
In considering Ms Ho’s application, the Court referred to Sir Anthony Mason NPJ’s speech inHebei Import & Export Corp v Polyteck Engineering Co Ltd (1999) 2 HKCFAR 111, where he stated that:
- “The [New York] Convention distinguishes between proceedings to set aside an award in the court of supervisory jurisdiction (arts.VI and VI(e)) and proceedings in the court of enforcement (art.VI). Proceedings to set aside are governed by the law under which the award was made or the law of the place where it was made, while proceedings in the court of enforcement are governed by the law of that forum.” (Paragraph 136 C-E) ; and
- “[…] the ground is expressed in the Convention (art.V 2(b)) as “contrary to the public policy of the country”, that is, the country in which enforcement is sought. In the court of supervisory jurisdiction, the public policy to be applied would be a different public policy, namely that of the supervisory jurisdiction.” (Paragraph 136 G-H)
Therefore, the Court was of the view that when a party is relying on any of the grounds under Article 95(2) to resist enforcement of a Mainland Award, the law of Hong Kong is applicable to these applications. The Court also noted that counsel for the buyer and the real estate agent had failed to show that the notice of hearing, which was deemed to have been served by the Arbitral Rules, could be deemed “proper notice” of the arbitral proceedings under Article 95(2) of the Arbitration Ordinance. Therefore, the Court concluded Ms Ho was not given proper notice of the arbitral proceedings, or was otherwise unable to present her case.
The judge also noted that Hong Kong courts have discretion under Article 95(2) to allow enforcement of Mainland Awards even if any of the grounds for refusal of enforcement is made out. Nonetheless, the Court considered there was no adequate reason for it to exercise such discretion in the present case. As such, the Court allowed Ms Ho’s application to set aside the court orders allowing enforcement of the arbitral awards.
This case is a helpful reminder that it is not always safe to rely on deemed service provisions in applicable arbitral rules; the law in the country where enforcement is sought may have different requirements for service of process, which, if not met, could have a significant impact on subsequent enforcement proceedings.
For further information, please contact:
May Tai, Partner, Herbert Smith Freehills
may.tai@hsf.com
Simon Chapman, Partner, Herbert Smith Freehills
simon.chapman@hsf.com
Eunice Bai, Herbert Smith Freehills
eunice.bai@hsf.com
