In Pan Ocean Container Suppliers Co., Ltd v Spinnaker Equipment Services Inc [2024] HKCFI 1753, the court refused the Plaintiff’s application to set aside an arbitral award on the basis that it had not been effectively served with the arbitral proceedings and had only learned of the arbitral Award when the Defendant applied to enforce it on the Mainland. The court found that all written communications to the Plaintiff regarding the arbitration, including the Notice of Arbitration and Award had been communicated to the Plaintiff in accordance with Article 3 of the 2018 HKIAC Administered Arbitration Rules (2018 Rules), which Rules applied by virtue of the terms of the Purchase Agreement, which was the subject of the arbitral proceedings. Accordingly, the communications were deemed received by the Plaintiff. That being the case, the further question was whether there was sufficient and credible evidence to rebut the presumption of receipt. On the facts of this case, the Court held that there was not.
Background
The Plaintiff and Defendant had entered into a Purchase Agreement under which the Defendant agreed to purchase cargo containers from the Plaintiff. The Defendant claimed that the Plaintiff failed to deliver a number of containers and commenced arbitral proceedings against the Plaintiff by a Notice of Arbitration (NOA). The Tribunal acceded to the Defendant’s request for the proceedings to be conducted in accordance with the Expedited Procedure pursuant to Article 42.1 of the 2018 Rules. The Plaintiff did not participate in the arbitral proceedings, on the alleged basis that it was not made aware of them. The arbitral tribunal was constituted, consisting of a sole arbitrator and an Award made in the Defendant’s favour for damages for non-delivery and also liquidated damages.
The Plaintiff’s case was that it never received the Award and only found out about it when its Mainland bank informed it that its account was frozen, as a result of the Defendant’s application to enforce the Award in the Mainland. The Plaintiff then applied to the Hong Kong Court under s.81 of the Arbitration Ordinance (AO) to set aside the Award on the following grounds under the following Articles of the UNCITRAL Model Law: (1) Article 34(2)(a)(ii): it was not given proper notice of the appointment of the Tribunal or arbitral proceedings or was otherwise unable to present its case (Proper Notice Ground); (2) Article 34(2)(a)(iii): the Award dealt with a dispute not contemplated by or falling within the terms of the submission to arbitration, or contained decisions on matters beyond the scope of the submission to arbitration (Scope of Arbitration Ground); (3) Article 34(2)(a)(iv): the composition of the Tribunal or arbitral procedure was not in accordance with the agreement of the parties (Due Procedure Ground); and (4) Article 34(2)(b)(ii): the Award was in conflict with Hong Kong public policy (Public Policy Ground).
Proper Notice Ground
Article 34(2)(a)(ii) of the Model Law provides that an arbitral award may be set aside if the party making the application furnishes proof that: “the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case…” The Plaintiff’s Chairman (Ye) was the only deponent for the Plaintiff and it was his evidence that the Plaintiff did not have actual or proper notice of the arbitral proceedings. He asserted that (i) service was not in accordance with the 2018 Rules to trigger their deeming effect and (ii) even if the deeming provisions were triggered, the Plaintiff’s evidence had the effect of rebutting them. The Plaintiff contended that (a) all physical mail was sent to an “ineffective” address and never reached the Plaintiff’s management; (b) the Plaintiff’s fax number did not receive any fax from Hong Kong at the material time; (c) all relevant emails had been sent to a low-ranking employee (Qin) who had already resigned and had no authority to accept service of the NOA or any other written communications in the arbitral proceedings on the Plaintiff’s behalf and Qin had never brought the arbitral proceedings to the attention of the Plaintiff’s management; and (d) as a result, the Plaintiff’s management was kept in the dark about the arbitral proceedings and did not receive any relevant documents, including the NOA, the HKIAC’s notice that it was minded to appoint a sole arbitrator and the Award.
Were written communications communicated pursuant to the 2018 Rules?
The court referred to section 10 of the AO (which gives effect to Article 3 of the Model Law), which provides that unless otherwise agreed by the parties, any written communication is deemed to have been received, if delivered to the addressee personally or at his place of business, habitual residence or mailing address and, if none of those can be found after making a reasonable inquiry, a written communication is deemed to have been received if sent to the addressee’s last-known place of business, habitual residence or mailing address by registered letter or any other means which provides a record of the attempt to deliver it and the communication is deemed to have been received on the day it is so delivered.
The Plaintiff accepted that the arbitral proceedings were, pursuant to the Purchase Agreement, governed by the 2018 Rules, Article 3 of which provides that any written communication pursuant to those Rules shall be deemed to be received by a party, arbitrator, emergency arbitrator or HKIAC if: (a) communicated to the address, facsimile number and/or email address communicated by the addressee or its representative in the arbitration; or (b) in the absence of (a), communicated to the address, facsimile number and/or email address specified in any applicable agreement between the parties; or (c) in the absence of (a) and (b), communicated to any address, facsimile number and/or email address which the addressee holds out to the world at the time of such communication; or (d) in the absence of (a), (b) and (c), communicated to any last known address, facsimile number and/or email address of the addressee; or (e) uploaded to any secured online repository that the parties have agreed to use. Article 3.2 provides that if, after reasonable efforts, communication cannot be effected in accordance with Article 3.1, a written communication is deemed to have been received if it is sent to the addressee’s last-known address, facsimile number and/or email address by means that provides a record of attempted communication.
Under Article 4.1 of the 2018 Rules, the party initiating arbitration shall communicate the NOA to the HKIAC and other party. The court said that the NOA was a written communication covered by Article 3.1. At the time the NOA was issued, the Plaintiff’s contact details were variously stated in a number of different sources – business card, Purchase Agreement (PA Address), Purchase Orders (PO Address) and business certificate (registered address).
Was there evidence to rebut the presumption of receipt?
The court found that all written communications were communicated to the Plaintiff in compliance with Article 3 of the 2018 Rules, and as a result, were deemed received by the Plaintiff. That being the case, the court said, the further question was therefore whether there was sufficient and credible evidence to rebut the presumption of receipt. The court said that the arbitrator had been keenly aware of the fact that she needed to take extra care in maintaining the structural integrity of the arbitral proceedings, in light of the complete lack of response on the Plaintiff’s part and had only come to her conclusion that due notice of the relevant written communications was given to the Plaintiff, after a careful analysis.
The court found that the Plaintiff had failed to adduce sufficient and credible evidence to rebut the presumption of receipt. It was important to bear in mind, the court said, that the overarching theme in the Plaintiff’s evidence was that Ye himself or “the management” did not receive any of the written communications each sent to the Plaintiff via multiple means (courier, fax and email). The court found that on the evidence, the majority of written communications were successfully delivered to the Plaintiff at the PO Address, which was not an ineffective address as contended by the Plaintiff. Even if written communications were on sporadic occasions not delivered at the PO Address, it did not follow, it said, that the PO Address was ineffective, especially when some of those occasions were caused by factors unrelated to the “effectiveness” of the address, for example COVID-19 considerations as identified by the Tribunal. As regards communications by fax, which the Plaintiff asserted was not an agreed mode of communication in the Purchase Agreement, the court said that one was concerned with written communications communicated in the arbitral proceedings, which was plainly governed by the 2018 Rules and not the Purchase Agreement. The fax transmissions sent by the Defendant were accompanied by a confirmation of successful transmission, which were contemporaneous records to which the court attached significant weight. There was no suggestion by the Plaintiff that the contemporaneous fax confirmations were not authentic or unreliable. The burden being on the Plaintiff, the court said, there was no evidence adduced to suggest that any fax transmission by the HKIAC or Tribunal to the Plaintiff was not successful.
As regards email communications, the court found that contemporaneous evidence plainly showed that Qin was the Defendant’s main contact within the Plaintiff’s organization. He was involved in the negotiation of the Purchase Agreement, and email correspondence was mainly conducted between Qin and the Defendant (without copying Ye). Ye’s evidence that Qin was a low-ranking employee, or had resigned or was terminated was not accepted. Further, the court found that it made no commercial sense to suggest that the Plaintiff, being a sizeable organization, would simply neglect or omit to make alternative arrangements to maintain communication flow with outside parties following Qin’s departure.
The court found that on the evidence Qin was at least one of the persons designated within the Plaintiff to deal with the arbitral proceedings and the Plaintiff’s argument on Qin’s authority to receive written communication was misplaced. Qin was not a third party or agent. At the time of the issuance of the NOA, Qin was indisputably an employee of the Plaintiff.
The court concluded that the Proper Notice Ground was entirely opportunistic and had no hesitation in rejecting it. The Plaintiff had failed, it said, to prove that it was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case. In dealing with applications to set aside an arbitral award, or to refuse enforcement of an award, whether on the ground of not having been given notice of the arbitral proceedings, inability to present one’s case, or that the composition of the tribunal or the arbitral procedure was not in accordance with the parties’ agreement, the court, it said, is concerned with the structural integrity of the arbitration proceedings. In this regard, the conduct complained of “must be serious, even egregious”, before the Court would find that there was an error sufficiently serious so as to have undermined due process. Here, the Plaintiff was unable to show that any of the written communications were not communicated successfully by at least one of the means permitted under Article 3.1 of the 2018 Rules. Any sporadic failure in respect of one of the means of communication did not materially affect the structural integrity of the arbitral proceedings and could not be considered serious or egregious.
Public Policy Ground
The court said that “contrary to public policy” has been held by the Court of Final Appeal to mean “contrary to the fundamental conceptions of morality and justice” of the forum and that in case authorities the court has explained that if the public policy ground is to be raised, there must be “a substantial injustice arising out of an award which is so shocking to the court’s conscience as to render enforcement repugnant”. The Plaintiff alleged a number of procedural irregularities under this ground.
Failure to notify the HKIAC that the Expedited Procedure was no longer appropriate
The Plaintiff argued that the Defendant, in discharging its duty of good faith, was required to inform the HKIAC when the surrounding circumstances of the arbitral proceedings rendered the Expedited Procedure no longer appropriate. Under Article 42.1(a) of the 2018 Rules, prior to constitution of the arbitral tribunal, a party may apply to the HKIAC for the arbitration to be conducted in accordance with the Expedited Procedure under Article 42.2, where the amount in dispute representing the aggregate of any claim and counterclaim (or any set-off defence or cross-claim) does not exceed the amount set by the HKIAC, as stated on its website on the date the Notice of Arbitration is submitted. Article 42.3 provides that upon a party’s request and after consulting with the parties and any confirmed or appointed arbitrators, the HKIAC may, having regard to any new circumstances, decide that the Expedited Procedure shall no longer apply. In its NOA, the Defendant had sought a direction that the arbitration be conducted under the Expedited Procedure on the basis that the amount in dispute was approximately HK$8.3 million, which was accordingly well below the monetary threshold of HK$25 million set by the HKIAC.
The Plaintiff argued that the Defendant should have, on at least two occasions, informed the HKIAC that the Expedited Procedure was no longer appropriate. First, when the Defendant’s claim had increased to an amount exceeding the HK$25 million monetary threshold and second, when the Defendant decided to pursue additional claims, meaning that its claims for damages had increased. It was said by the Plaintiff that the increased quantum would have justified the scrutiny of a more robust procedure than that under the Expedited Procedure (e.g. a live hearing and a panel of 3 arbitrators). The court said that as regards the first occasion, the liquidated damages claim would by effluxion of time naturally increase and the increase in quantum did not affect the complexity of the underlying claim. As regards the second occasion, the court said that the Defendant’s pursuit of the additional claims was in response to an invitation by the arbitrator to it to set out its final relief in the event she was not minded to grant the declaratory relief sought. The court said that what was in fact suggested by the Plaintiff was that the Defendant was obliged to make a request under Article 42.3 to disapply the Expedited Procedure. However, no authority was cited for the proposition, namely where, as here, the Plaintiff had chosen not to participate in the arbitral proceedings, the Defendant was nevertheless obliged to make a request for a more elaborate procedure which the Plaintiff would unlikely participate in in any event. Further, the court said, even within the “streamlined” Expedited Procedure, the Tribunal was meticulous and careful in the process, even disallowing substantial parts of the Defendants’ claim without any input by the Plaintiff. The Plaintiff’s submissions failed to acknowledge this crucial aspect and barely asserted the need for closer scrutiny.
The court said that this complaint did not come close to having the character of precipitating a substantial injustice which was shocking to the court’s conscience.
Due Procedure Ground / Scope of Arbitration Ground and related Public Policy Ground
The complaints underpinning these grounds related to the arbitrator’s invitation for further submissions from the parties in the event that she was not minded to grant the declaratory relief. This led to the Defendant’s pursuit and eventual award of the non-delivery claim in addition to the liquidated damages claim. Again, the court found the challenge to be without merit and in so far as any of the complaints were also pursued under the Public Policy Ground, the Court did not regard any of them as having the effect of amounting to any breach of natural justice or shocking the court’s conscience.
Court’s Ruling
The court dismissed the Plaintiff’s application to set aside the Award and ordered it to pay the Defendant’s costs on an indemnity basis.
Comments
In many court applications, the parties are required to file evidence by way of affidavit. One should bear in mind that if the evidence filed by one party is unconvincing, it will be readily rejected by the court. The evidence filed by the Plaintiff in this case is such an example.
On the applicability of the Expedited Procedure, Article 42.3 of the 2018 Rules only empowers the HKIAC to consider disapplying the Expedited Procedure upon the request of any party. Here, the Defendant had not done so and therefore the HKIAC’s power to disapply the Expedited Procedure could not be invoked. The only argument is whether the Defendant acted in good faith in failing to do so. It has been held in previous decided cases that parties to arbitration have a duty of good faith or to act bona fide (see KB v S & Others [2015] HKEC 2042). Unfortunately, the judge in this case did not find the Defendant had failed to discharge the duty.
For further information, please contact:
Kwok Kit (KK) Cheung, Partner, Deacons
K.K.Cheung@deacons.com
