Summary of facts
This case concerned an application made by AB (AB Engineering) to set aside an award made against it in an arbitration administered by the Hong Kong International Arbitration Centre. The arbitration clause was contained in an agreement between AB Bureau (Bureau) and CD (the Agreement). The background facts are as follows.
On 24 April 2019, CD issued a notice of arbitration (the NOA), with Bureau named as respondent, for payment of a success fee of approximately US$11 million for services rendered by CD under the agreement. Bureau did not submit its Answer to the NOA or participate in the process of the appointment of the sole arbitrator.
On 16 and 17 July 2019, CD received an email from Ms X, who described herself as from the “Contracts & Legal Department of AB (AB Engineering, previously called AB Bureau) International” and from Mr Y, who described himself as from the “Legal Department of AB Engineering Middle East (previously named AB Bureau)”, respectively. In the first email, Ms X sought clarification regarding the precise agreement under which the arbitration was commenced and, in the second email, Mr Y asked to be provided with the correspondence in relation to the arbitration which they did not receive. It is not clear whether and how the requests of Ms X and Mr Y were dealt with.
On 17 July 2019, CD amended the NOA (the Amended NOA), revising the name of the respondent from Bureau to “AB Bureau also known as AB Bureau Co, Ltd”.
On 11 November 2019, CD made a request to change the name of the respondent, from Bureau to AB Engineering. When asked by the arbitrator to clarify the basis of this second change of name, CD referred to the “History” section of the respondent’s website, which, according to CD, showed that Bureau became AB Engineering after restructuring. The arbitrator accepted CD’s request and issued Procedural Order No. 2, stating the finding that CD was able to demonstrate that “the legal entity called AB Bureau has been renamed as AB Engineering”. The arbitrator ordered that all references to the respondent or Bureau shall be deemed to be references to AB Engineering and that CD did not have to resend any of the pleadings or submissions to the respondent.
The only respondent named in the final award was AB Engineering, which was found liable to pay US$18 million plus interest and costs to CD. The arbitrator noted in the award that the respondent had chosen not to participate in the arbitration.
Legal analysis
Whether AB Engineering was party to the Agreement
The Hon. Madam Justice Mimmie Chan (the Judge) found that it was clear that AB Engineering and Bureau were “two separate and distinct legal entities”, established on different dates and with different unified social credit codes in mainland China.
On the basis that AB Engineering was a subsidiary of Bureau at the time of the agreement (although it ceased to be a subsidiary following a series of restructurings after August 2016), CD argued that AB Engineering fell within the definition of “AB” and was party to the Agreement. In the Agreement, “AB” was defined to mean “AB Bureau or any other Affiliated entity” and “Affiliate” included, inter alia, an entity which Bureau controlled or was under common control with, or an entity of which Bureau owned or controlled 50 per cent or more of the outstanding voting securities.
The Judge held that whether AB Engineering could be said to be a party to the Agreement by virtue of the definition of “AB” was a matter of construction of the Agreement. The Judge distinguished Giorgio Armani SpA v. Elan Clothes Co Ltd [2019] 2 HKLRD 313 and [2020] 1 HKLRD 354 and held that there was no clear indication that all the subsidiaries were included as parties to the Agreement. In this connection, the Judge noted that, in other parts of the Agreement, there was no reference to any other subsidiary or affiliate of AB/Bureau or to any of their rights and obligations. There was “only the apparently wide definition of AB”.
The Judge added that “significantly”, even if AB Engineering did fall within the definition of “AB” under the Agreement and was a party to the Agreement, the proper course would have been for CD to add AB Engineering as a party to the arbitration, and not to replace Bureau with AB Engineering by virtue of a name change.
The Judge held that the existence of a valid arbitration agreement went to the jurisdiction of the tribunal and the court had to be satisfied as to the correctness of the decision of the tribunal that it had jurisdiction. As AB Engineering was not the same entity as Bureau and was not a party to the Agreement, the Judge concluded that the award should be set aside under Article 34(2)(a)(i) of UNCITRAL Model Law as incorporated by section 81 of the Arbitration Ordinance (Cap. 609) (AO).
Whether AB Engineering was given proper notice of the appointment of arbitrator or of the arbitral proceedings
Alternatively, the Judge held that even if AB Engineering could be said to be a party to the Agreement and could properly be made a party to the arbitration by the amendment made under Procedural Order No. 2, AB Engineering had not been given proper notice of the arbitral proceedings or of the appointment of the arbitrator and therefore the award should also be set aside on the basis of Article 34(2)(a)(ii).
The only two notices of the arbitration which were purportedly faxed or sent to the addresses of Bureau were the NOA and the Amended NOA, which named Bureau and “AB Bureau also known as AB Bureau Co, Ltd” as the respondent, respectively. The Judge did not find the service of the NOA and the Amended NOA, naming a “totally different company”, to be proper service sufficient to give adequate and proper notice of the arbitration to AB Engineering.
Further, there was no clear evidence of receipt of these notices, which was denied by AB Engineering. The notices were also sent to “Guangyan Road” and not “Guangyang Road”, which was the proper registered address of Bureau/AB Engineering.
Estoppel
CD argued that AB Engineering should be estopped from applying to set aside the award on the basis that the employees of AB Engineering had misled CD and the tribunal into believing that AB Engineering was the same company as Bureau. The Judge rejected this argument and held that, in any case, there was no reliance by CD on any such representation. Further, as AB Engineering did not submit to or participate in the arbitration, no estoppel could be applied against AB Engineering pursuant to section 11 of the AO or otherwise.
Concluding remarks
This decision is one of the very few cases where the Hong Kong court has intervened to set aside an arbitral award notwithstanding its pro-arbitration approach. The decision serves as a good reminder that the claimants and their legal advisers must be extremely careful as to the identification of the respondents, particularly in cases of previous name change or restructuring, and with regard to the due service of any notice of arbitration.
About Reed Smith's international arbitration practice
Reed Smith is strongly positioned to provide the highest level of service in dispute resolution to our clients. With offices in the world’s leading arbitration centres, including London, Paris, New York, Singapore, Hong Kong, Dubai, Miami, and Houston, we have one of the largest and most diverse international arbitration practices in the world, with the ability to represent clients in every significant arbitral centre and seat around the globe.
We are a recognized leader in international arbitration, and are ranked in the elite GAR 30, Global Arbitration Review’s ranking of the world’s leading international arbitration practices. We have substantial experience representing both claimants and respondents, and a strong track record of obtaining successful results. Our deep knowledge of industry sectors including energy, natural resources, life sciences, transportation, telecoms, insurance, and banking enables us to understand the industry-specific factors and environments affecting our clients’ disputes. This combination of deep arbitration experience, our lawyers’ advocacy skills, and industry knowledge gives us a competitive advantage when representing our clients.
Updates on the go
Listen to our international arbitration updates on the go and at your convenience through our podcast channel, Arbitral Insights. Presented by our international arbitration lawyers from across the Reed Smith global platform, the series explores trends, developments, challenges, and topics of interest in the field. Access our episodes at reedsmith.com.
Client Alert 2021-082
