In G v P  HKCFI 2173, the Applicant had obtained an order granting it leave to enforce an arbitral award of the Hong Kong Arbitration Society (Enforcement Order). The court set aside the Enforcement Order, as it found that there was no valid service of the Notice of Arbitration on the Respondent and he had not therefore been given notice of the arbitration, or of the claims made against him, and consequently, was not given the opportunity to present his case before the award was made. Accordingly, he was entitled to rely on the grounds set out in s.86(1)(c)(i) and (ii) of the Arbitration Ordinance (Cap 609) (AO), to set aside the Enforcement Order i.e. that he was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings; or was otherwise unable to present his case.
The Loan Agreements
The Applicant (a licensed money lender in Hong Kong), as lender, entered into a Loan Agreement and Supplemental Loan Agreement with the Respondent, as borrower. The two agreements contained essentially the same terms as regards the loan advanced and repayment terms. The only revision in the Supplemental Agreement related to the manner in which disputes between the parties were to be resolved, namely that any dispute arising out of or in connection with the Loan Agreement and Supplemental Agreement shall, at the option of the Claimant (or Plaintiff) be referred to and finally resolved by arbitration administrated by the Hong Kong Arbitration Society and in accordance with the HKAS Online Arbitration Rules or by court proceedings in the Hong Kong courts. The Loan Agreement stated Hong Kong to be the governing law and that the parties irrevocably submitted to the non-exclusive jurisdiction of the Hong Kong courts. The Supplemental Agreement provided that in the event of any discrepancy between the terms of the Loan Agreement and Supplemental Agreement, the latter shall prevail. The Supplemental Agreement stated the Respondent’s residential address, as well as his email address of email@example.com. The Loan Agreement only stated the Respondent’s residential address.
Was there a valid arbitration agreement?
The Respondent argued that the dispute resolution clause in the Supplemental Agreement was not an arbitration agreement because there was no element of compulsion for the parties to arbitrate. The court rejected this argument, referring to case authorities in which the courts had found valid arbitration agreements, even when the arbitration agreement gave the parties an option or choice between arbitration and litigation and used language such as “may” or “can”. It said that cases may turn on the different terminology used in the contract, and the contract construed as a whole and that the ultimate question is one of construction of the clause in question, to ascertain the objective intention of the parties at the time of entering into the contract.
The court also referred to a recent case, in which the English courts had held that once an option to arbitrate conferred on a party has been exercised, the other party is bound to arbitrate. So in this case, if the dispute resolution clause in the Supplemental Agreement conferred an option to litigate, such an option was conferred only on the lender (i.e. the Applicant), and not on the Respondent as borrower. As such, when the Applicant exercised its option and chose arbitration as the dispute resolution method, by commencing the arbitration, the Respondent was bound by the Applicant’s choice, an arbitration agreement came into existence and the Respondent was compelled to follow the option conferred on and chosen by the Applicant. On an objective reading of the dispute resolution clause in question, the court found there was no option at all conferred on the Respondent.
The court held that the Supplemental Agreement contained an arbitration agreement which replaced the dispute resolution clause in the Loan Agreement and that such arbitration agreement was valid and binding on the Respondent, and conferred jurisdiction on the arbitral tribunal.
Inability to present case
The core issue and determining factor was whether the Respondent had been given proper notice of the commencement of the arbitration and had been given an opportunity to present his case. The Respondent had not filed any Defence in the arbitration and the arbitration had proceeded without his participation. The court said that before the Respondent could participate in the arbitration, to present evidence and arguments, he must first have been given proper and valid notice of the arbitration. The Applicant must first establish the fact of valid service of the Notice of Arbitration, before dealing with the Respondent’s claim that he did not have the reasonable opportunity to present his case.
Service of Notice of Arbitration
The Applicant relied on the fact that the Notice of Arbitration was served on the Respondent at the email address specified in the Supplemental Agreement, namely firstname.lastname@example.org and that the arbitration clause in the Supplemental Agreement provided that the arbitration was to be administered by the Hong Kong Arbitration Society, and in accordance with the HKAS Online Arbitration Rules (Online Rules). According to the Applicant, service of the Notice of Arbitration at the Respondent’s email address stated in the Supplemental Agreement was deemed by Article 2.1 of the Online Rules to have been properly received by the Respondent. Article 2.1 provides that any notice or other written communication or arbitration documents (including, amongst others, the Notice of Arbitration) shall be deemed to be received by a party, if transmitted by, amongst others, email, to the email address of the recipient or its representative of which the recipient confirmed upon participating in the online proceedings.
The court said that on the evidence, the only email address of the Respondent was the one stated in the Supplemental Agreement, namely email@example.com and that the only evidence on service of the Notice of Arbitration was in the arbitral award itself, which stated that the Notice of Arbitration had been transmitted by email to the mode of contact set out in the application for the loan, namely XYZ@CHINAT.HK, which was different from that stated in the Supplemental Agreement.
There was no other evidence adduced by the Applicant, as to how, or when the Notice of Arbitration was served on the Respondent and neither the Applicant nor Respondent had adduced in evidence the application for the loan referred to in the award. The only evidence of any email furnished by the Respondent to the Applicant was that stated in the Supplemental Agreement, which was a different email address to that referred to in the award. Accordingly, the court said that Article 2.1 of the Online Rules, and deeming provisions contained in them, as relied upon by the Applicant, could not apply and did not come into operation at all, when the Notice of Arbitration was not transmitted to the email address specified in the applicable arbitration agreement.
The court said that since the Respondent did not participate in the arbitration, there was no evidence of the email address referred to in the award having been specified or confirmed by the Respondent, upon his participation in the arbitration (for Article 2.1 to apply). There was no evidence to support any possible claim that that email address (rather than the email address stated in the Supplemental Agreement) was the email which was held out by the Respondent to the world as his email, at the time of transmission of the Notice of Arbitration.
Documents in support of application for Enforcement Order must be correct
The court referred to the fact that an application to the court for enforcement of an arbitral award is made ex parte, under s.84(1) of the AO and RHC Order 73 rule 10(3) and that the AO only requires the applicant to adduce evidence of the duly authenticated original or certified copy of the award, and original arbitration agreement or duly certified copy of it, and Order 73 rule 10(3) sets out the particulars required to be stated for the court. The application for enforcement is dealt with “mechanistically” and the court does not examine whether the arbitration agreement or the award is valid. However, when leave is granted to enforce the award on such ex parte application, leave is at the same time granted to the respondent to apply to set aside the order granting leave. It is then for the respondent to prove that one or more of the grounds set out in s.86 of the AO applies, and it is at this stage that the award will be scrutinized by the court, to see if enforcement of the award may be refused.
The court said that despite the pro-arbitration approach, an arbitral award is recognized and enforced by the court only if the award and arbitral process leading to the award is structurally intact and there is due and fair process. The solemnity afforded to the award by the court’s recognition and enforcement cannot be justified, if the award is shown on its own face to be irregular, and contradictory to the terms of the arbitration agreement. The court cannot, it said, enforce any haphazard document as a judgment or order of the court and nor should the credibility and integrity of the arbitration process be compromised by the enforcement of an award which cannot stand on its face. Care must therefore be taken by an applicant, to ensure that the documents (including the award) presented to the court in support of an application to enforce the award are all correct, and in order, for enforcement of the award to be allowed by the court.
In this case, the court said it could not turn a blind eye to the fact that the award on its face referred to the Notice of the Arbitration having been served at an address or by a mode of service which was different to that stated for the Respondent in the Supplemental Agreement, which was the contract stated to be enforced by the award. The contents of the award must be taken to be correct and accurate. If it had contained any typographical error, the court said, it would have been corrected by the tribunal on its own accord or on the application of the Applicant, but there had been no amendment here. The deeming provision could not be invoked at all in this case, when the Notice was not sent to the correct email address, as was apparent from the Supplemental Agreement. In any event, the court said, any deeming provision, if it applies, can be rebutted.
In an application made under s.86 of the AO, it is for the respondent to prove that s.86(1)(c) is made out. In this case, although there was no statement by the Respondent that he did not receive the Notice, he had referred to the obvious discrepancy between the email address stated in the Supplemental Agreement, and the different email address stated in the award where the Notice of Arbitration was said to have been served.
The court said that on the evidence, it could only find that there was no valid service of the Notice of Arbitration on the Respondent and accordingly, the Enforcement Order was set aside.
For further information, please contact:
Kwok Kit (KK) Cheung, Partner, Deacons