1. A Consortium Comprising TPL and ICB v. AE Limited [2021] HKCFI 2341: Hong Kong court intervened to cure the irregularity as to the capacity of the applicant to the arbitration
The Hong Kong court granted an ex parte enforcement order against the respondent in favour of the applicant. The respondent then applied to set aside the enforcement order on, among others, the ground that the enforcement order was irregular. In particular, the respondent argued that the applicant was not a legal entity capable of suing and being sued under the laws of Hong Kong. The application was heard before the Hon. Mimmie Chan J.
The applicant was named as the “Joint Venture” (JV) in the underlying agreement, but was then named as the “Consortium comprising TPL and ICB” (Consortium) in the arbitration and enforcement proceedings. The judge agreed that it was necessary for award enforcement proceedings in Hong Kong to be properly constituted and brought by a recognised legal entity and also accepted that there was no evidence of any partnership or corporation carrying on business in Hong Kong in the name of “A Consortium comprising TPL and ICB”. As such, neither the JV nor the Consortium was a legal entity which could sue or be sued in its name.
However, the judge found that the respondent was under no doubt or confusion as to the identity of the applicant in the arbitration. In the answer and counterclaim served by the respondent, the respondent referred to the applicant as the “Consortium” without any complaint as to its legal identity. The awards also made the identity of the applicant beyond doubt, stating it was “a consortium comprising TPL of the United Arab Emirates and ICB of Lebanon”.
The judge held that, applying Hong Kong procedural law governing the constitution of the enforcement proceedings, the two parties named as the “Consortium” should be the parties jointly entitled to leave to enforce the awards in favour of the Consortium, i.e., TPL and ICB. To cure the defect or irregularity of the original applicant (i.e., the Consortium) as to its capacity to commence the arbitration proceedings, the judge decided to grant leave to join both TPL and ICB as additional applicants to the enforcement proceedings, following which the judge also granted leave to TPL and ICB as additional applicants to enforce the awards.
2. 广东顺德展炜商贸有限公司 v. Sun Fung Timber Company Limited [2021] HKCFI 2407: Hong Kong court dismissed application for security pending enforcement of an arbitral award with indemnity costs
The applicant applied for security to be put up by the respondent company (Company) pending enforcement of an arbitral award in its favour. The Company was jointly owned by an individual (ST) and a corporate shareholder (NI) on a 50/50 basis. Prior to enforcement, the applicant filed a petition for the winding up of the Company. The petition was dismissed by the companies judge on the basis that “there was a bona fide case that the Company had entered into a sham transaction with ST, to harm the Company by depriving the Company of valuable assets”.
The application for security was heard before the Hon. Mimmie Chan J. The judge dismissed the application for security for the following reasons.
First, the judge found that the court had been misled by the applicant in relation to the service of the inter partes summons (Summons) for the enforcement proceedings. The Summons was served at the registered office address of the Company (Property), but the Property had been sold by the Company to the knowledge of the applicant. As such, the Company was not given proper notice of the Summons and the enforcement proceedings. The applicant also did not serve the enforcement order on NI despite contrary indications in the applicant’s affirmation.
Second, the judge held that the applicant’s failure to bring the above to the attention of the court was a material and deliberate non-disclosure, which amounted to misleading the court.
Third, the highly unusual features of the transaction in question, as highlighted by the companies judge as causing him concern, were “all too obvious to be dismissed by this Court with ease”. While the judge accepted that “fraud, collusion, dishonesty and misappropriation are all serious allegations made, and must be proved by cogent evidence” and therefore did not conclude that the award was manifestly invalid, the judge held that there was an argument with realistic prospects of success that the transaction had not been authorised by the Company and/or the transaction was a sham.
Fourth, the judge was not satisfied on the evidence that NI would be in a position to cause or procure the Company to dissipate its assets or to act in a way to defeat the award pending the hearing of the application to set aside the enforcement order.
The judge accordingly dismissed the security application. Having heard the arguments on costs, the judge also held that it was unreasonable for the applicant to insist on the application for security to be heard in the circumstances of the case and in the light of the merits and the evidence filed. The judge therefore ordered indemnity costs against the applicant, with certificate for two counsel.
Conclusion
It can be seen from the above two decisions that the Hong Kong court maintains its pro-arbitration and pro-enforcement approach towards the enforcement of arbitral awards. In the absence of material irregularities, the Hong Kong court would not intervene in arbitration proceedings or question any arbitral awards. However, the above two decisions illustrate the circumstances in which the Hong Kong court may decide to do so for reasons of justice and fairness. The Hong Kong court also provided important clarification that it would be prepared to adopt a flexible approach and step in to cure irregularities in enforcement proceedings, which is in line with the objective in arbitration of allowing speedy, cost effective and flexible ways of resolving disputes.
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Client Alert 2021-229
