18 March 2021
In arbitral proceedings where the respondent was wrongly named, the Hong Kong Court of First Instance has set aside the arbitral award on the basis that the named respondent is not a party to the arbitration agreement and was not given proper notice of the proceedings. This rare example of a successful set-aside application demonstrates that the courts will be prepared to overturn an award where a statutorily prescribed ground is clearly established.
Background
The dispute arose out of an agreement between AB Bureau and CD (Agreement). Pursuant to the arbitration clause in the Agreement, CD issued a Notice of Arbitration in April 2019. Consistent with the Agreement, the Notice of Arbitration named AB Bureau as respondent. However, after the Notice of Arbitration was issued, a series of events occurred which ultimately led to the set-aside application:
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In July 2019, CD submitted an Amended Notice of Arbitration revising the name of respondent from “AB Bureau” to “AB Bureau also known as AB Bureau Co, Ltd”.
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The critical event took place in November 2019, when CD applied to the sole arbitrator to “correct” respondent’s name from “AB Bureau” to “AB Engineering”. In support of its application, CD relied on AB Engineering’s website which, CD submitted, showed that AB Bureau was the predecessor of AB Engineering.
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Following CD’s request, the sole arbitrator issued a procedural order giving effect to the name change and ordering that no further service of notice was necessary.
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In March 2020, the final Award was issued, with AB Engineering named as the respondent. Neither AB Bureau nor AB Engineering participated in the arbitration.
AB Engineering, the award debtor, applied to set aside the Award on the basis that:
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AB Engineering was not a party to the Agreement, and there was no valid arbitration agreement between AB Engineering and CD (Article 34 (2)(a)(i) of the UNCITRAL Model Law);
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the Award contained decisions on matters beyond the scope of the submission to the Arbitration (Article 34(2)(a)(iii) of the Model Law); and
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AB Engineering was not given proper notice of an arbitrator or of the arbitration proceedings (Article 34 (2) (a) (ii) of the Model Law).
It was not disputed that if AB Engineering succeeded on any of the above grounds, the Court could set aside the Award.
Decision
It became clear at the court hearing that AB Bureau and AB Engineering were at all times two separate and distinct legal entities. CD nevertheless sought to enforce the Award on the grounds that AB Engineering was a party to the agreement and was estopped from applying to set aside the Award. Mimmie Chan J rejected both arguments.
CD’s primary case was that AB Engineering was a party to the Agreement by virtue of the definition of AB. In the Agreement, AB is defined to mean “AB Bureau or any other Affiliated entity”. On a proper construction of the Agreement, the Court found that the Agreement was made between CD and AB Bureau only and there was no evidence that AB Engineering had had any role in the performance of the Agreement. This distinguished the case from Giorgio Armani SpA v Elan Clothes Co Ltd [2020] 1 HKLRD 354, where the underlying agreement was expressly made “by and between” the parent company, SpA, “together with its branch offices and Affiliates”. The Court disagreed with CD’s “self-drawn conclusion” and found that there was no statement on AB’s website capable of indicating that AB Bureau and AB Engineering were the same legal entity.
The Court further noted that, even if AB Engineering could be said to be a party to the Agreement, it had not been given proper notice of the arbitral proceedings. The two notices of arbitration were never sent to the proper registered address of AB Engineering and were in any case addressed to AB Bureau. As such, no adequate notice of the arbitration had been given to AB Engineering, the award debtor.
CD also contended that AB Engineering was estopped from applying to set aside the Award because its employees had misled CD to believe that AB Bureau and AB Engineering were the same entity. This argument was rejected by the Court on the grounds that CD had not relied on the employees’ statements. On the evidence, CD relied solely and erroneously on AB Engineering’s website rather than on the alleged misrepresentation. In this connection, the Court emphasised that “it is incumbent on a claimant and its legal advisers to identify the proper defendant/respondent and to verify its name, particularly after query has been raised. It is no excuse for CD and its legal advisers now to put the blame on employees of Bureau/AB Engineering for any misnomer in the name of the party CD seeks to bring proceedings against.”
In light of the above, Chan J held that the Award should be set aside under Article 34(2)(a)(i) and (ii) of the Model Law.
Comment
It is rare for a Hong Kong court to set aside an arbitral award, but it will not hesitate to do so if the award debtor can clearly demonstrate a statutory ground for set aside and the court considers set aside is justified.
Here, the similarities in the names of companies involved, the non-participation of the named respondent, and CD’s reliance on online sources all contributed to CD naming the wrong party and, ultimately, persuaded the court that the Award should not stand.
The judgment turns heavily on its facts, rather than marking any general change to the courts’ pro-enforcement approach. However, it emphasises the need for claimants to identify each counterparty carefully before commencing arbitration, especially when a complex corporate structure is involved, or risk losing the benefit of their awards.
For further information, please contact:
May Tai, Managing Partner, Greater China, Herbert Smith Freehills
may.tai@hsf.com
