Background
The case, C1 and Others v. IBS [2025] HKCFI 227, involved a dispute over a publishing joint venture company (CPG) established and owned by, amongst others, a business school in Shanghai (IBS) and three investment firms (C1, C2 and C3). An arbitration was commenced by CPG against IBS in Hong Kong, with a counterclaim by IBS against CPG, C1, C2, C3 and a school (C1, C2, C3 and the school being the Plaintiffs), with regard to a series of transactions involving share transfers and director appointments.
The Plaintiffs contended that the tribunal’s declarations on two issues – an invalid transfer of beneficial ownership of shares (Beneficial Ownership Issue) and the consequent invalid exercise of voting rights – were neither included in IBS’s pleadings nor in the parties’ agreed list of issues submitted to the tribunal, and thus fell outside the scope of reference to the arbitration.
They applied to the Hong Kong High Court to set aside the arbitral award on the following grounds: (i) the tribunal decided on matters beyond the scope of the submission to arbitration, (ii) the Plaintiffs were unable to present their case and adduce material evidence on the unpleaded issues and (iii) the award was in conflict with the public policy of Hong Kong.
Decision
The court dismissed the application to set aside the award and ordered its enforcement.
Scope of arbitration submission
Mimmie Chan J held that the tribunal’s findings on the validity of the share transfers were within the scope of the submission to arbitration.
In reaching this conclusion, Mimmie Chan J endorsed the legal principles in Grant Thornton International Limited v. JBPB & Co (A Partnership) [2013] HKCFI 726, which held that the words “decisions on matters beyond the scope of the submission to arbitration” in the Arbitration Ordinance (Cap. 609) should be “construed narrowly to only include those decisions which are clearly unrelated to or not reasonably required for the determination of the subject disputes, matters or issues that have been submitted to arbitration” (emphasis added).
It is worth noting that the court took a slightly different approach from the recent Singapore Court of Appeal case of CJA v. CIZ [2022] SGCA 41, which suggested referring to the “five sources” of reference (i.e., the pleadings, lists of issues, opening statements, evidence adduced and closing submissions) when considering the matters which fall within the scope of the parties’ submission to arbitration. While Her Ladyship agreed that pleadings are an important starting point, Mimmie Chan J did not consider it necessary to limit the court’s consideration to any particular sources. Instead, Her Ladyship emphasised that “the correct approach must be for the court to ‘look at matters in the round’, to decide what were the live issues in dispute in the arbitration, in the best way it can”.
Citing X v. Z Co [2024] HKCFI 695, the court further clarified that an issue which was “in the arena” or “in the play”, albeit only briefly argued or not made the focus of a party’s submissions, would still be considered an issue which had been raised.
On the facts, in brief, the court found that the validity of some share transfers, being within the scope of submission, could not have been determined without first deciding on the Beneficial Ownership Issue stemming from an initial transfer of the same shares, being purportedly outside the scope of submission. The pleaded and listed issues formed the basis of the tribunal’s findings on all the invalid share transfers. The tribunal’s findings on the Beneficial Ownership Issue were “necessary and entirely related” to the determination of the dispute and issues submitted by the parties to the tribunal, and the declarations could not be said to be outside the scope of submission to the arbitration.
Mimmie Chan J also observed a tendency in some parties to reformulate the issues from the award after the event. Her Ladyship warned that the court should not be too ready to accept a claim of surprise unless there is clear evidence to the contrary and should interpret the award generously, expecting that the tribunal would not easily have misconstrued or ignored the essential issues in the arbitration. Such inferences should only be made if “it is clear and virtually inescapable to do so”.
Reasonable opportunity to present case and public policy
Referring to its earlier analysis, the court firmly rejected the Plaintiffs’ contention that they were taken by surprise, as the consequences flowing from the tribunal’s findings ought to have been foreseen from the pleadings and the agreed list of issues. The court did not accept that any new issues were raised and rejected arguments of any egregious or serious denial of due process which would warrant its intervention to set aside the award.
On the ground of public policy, the court applied the principles laid down in Hebei Import & Export Corp v. Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, i.e., enforcement of an award may only be resisted on the ground of public policy if it is contrary to fundamental conceptions of morality and justice, clearly injurious to public good or wholly offensive to ordinary, reasonable and fully informed members of the public.
In this case, this ground was premised on ultra vires and a lack of notice or reasonable opportunity to present a case. The court rejected this ground, holding that there was neither irregularity, egregious denial of due process, nor anything so shocking to the court’s conscience as to render enforcement of the award repugnant.
Conclusion
This decision further reinforces the Hong Kong High Court’s pro-arbitration stance and provides helpful guidance to parties seeking to challenge awards on the ultra petita ground. It also underscores the court’s general approach of imposing a high threshold on the requisite requirements before it will interfere with arbitral awards. The case serves as a reminder of the importance of comprehensively defining the issues submitted to the arbitral tribunal and ensuring all relevant issues are adequately pleaded and addressed during the course of the arbitration process.
Client Alert 2025-042
