The respondent applied to set aside an earlier order granting leave to the applicant to enforce an arbitral award made by the Hong Kong Arbitration Society. The grounds for setting aside were set out in the respondent's affirmation but not in the summons, leading the Honourable Madam Justice Mimmie Chan to issue a reprimand to the respondent.

On 8 September 2022, the applicant (as lender) and the respondent (as borrower) entered into two agreements, a loan agreement and a supplemental loan agreement on essentially the same terms. Hong Kong was stated to be the governing law in the loan agreement which accorded non-exclusive jurisdiction to the courts of Hong Kong. The supplemental agreement contained a different dispute resolution clause, which pointed to arbitration administered by the Hong Kong Arbitration Society and in accordance with the HKAS Online Arbitration Rules.

Clause 3 of the supplemental agreement provided that its terms should prevail in the event of any inconsistency between the two agreements. The supplemental agreement provided the respondent’s email address of [email protected].

No valid arbitration agreement ground

The respondent argued that a dispute resolution clause in the supplemental agreement was not an arbitration agreement, as there was no compulsion on the parties to arbitrate. Mimmie Chan J reviewed recent authority suggesting that once an option to arbitrate conferred on a party had been exercised, the party was bound to arbitrate (see Hogan Lovells alert Hybrid jurisdiction clauses – two new English and Hong Kong cases give confidence to lenders). The dispute resolution clause here conferred an option to arbitrate only on the lender applicant and not on the respondent as borrower, a hybrid or asymmetric dispute resolution clause.

In the view of Mimmie Chan J, the arbitration agreement in the supplement agreement replaced the dispute resolution clause in the loan agreement. This was binding on the respondent and conferred jurisdiction on the tribunal.

Inability to present case ground

Mimmie Chan J said the core issue was whether the respondent had been given proper notice of the arbitration and if he could rely on section 86(1)(c)(i) of the Arbitration Ordinance, Cap. 609 as a ground to set aside the award, that a party "was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings".

The applicant had sent the Notice of Arbitration to the email address set out in the loan agreement – [email protected] with a username and password for the respondent to use to view the notice on an online platform. This email address contained an additional letter beyond the one stated in the supplemental agreement – [email protected].

The court found that on the evidence, the only email address of the respondent was the one stated in the supplemental agreement. Although there was no statement in evidence from the respondent that he did not receive the notice, Mimmie Chan J said the court could not turn a blind eye to the fact that the award on its face referred to 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 to be enforced by the award. The respondent referred to the "obvious discrepancy" between the two email addresses.

Mimmie Chan J said she could only find there was no valid service of the Notice of Arbitration on the respondent. Consequently, the respondent had not 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 against him. He was therefore entitled to set aside the enforcement order.

Reflection

The first point to note relates to asymmetrical dispute resolution clauses. Even though asymmetrical clauses – whether providing for the unilateral option to litigate or arbitrate, like in this case for the lender –  are valid and enforceable in Hong Kong, risks remain as to their validity in the place of enforcement.

An arbitral award or judgment rendered from such a clause may be unenforceable in places such as mainland China, the United Arab Emirates and Russia as a matter of public policy due to the lack of mutuality and violation of principles of equality.

The second relates to the importance of service of the Notice of Arbitration and giving a party due and fair notice of claims so they have an opportunity to answer them. G v. P brings to mind that of two Hong Kong cases.

The first is 廣東順德展煒商貿有限公司 v Sun Fung Timber Co Ltd [2021] HKCFI 3823, in which the court set aside an earlier ex parte court order granting leave to enforce an arbitral award made by a PRC arbitral body in the sum of RMB59 million (HK$64 million).

The judge in that case considered that the underlying contract was entered into without authority to advance the interests of an officer of the company rather than the interests of the company. It was clear that the directors had never been given notice of the arbitration and had not had the opportunity to present their case (see Hogan Lovells alert Hong Kong court refuses to enforce mainland arbitral award in a rare decision).

Whilst the element of fraud was not present on the facts of G v P, the court did take the opportunity to remind parties of the importance of form in the arbitral process. In the words of Mimmie Chan J, "an arbitral award is recognised and enforced by the Court only if the award and the arbitral process leading to the award is structurally intact and there is due and fair process". The court could not "enforce any haphazard document as a judgment or order of the Court". Neither should the "credibility and integrity of the arbitration process be compromised by the enforcement of an award which cannot stand on its face".

The second case is Sun Tian Gang v Hong Kong & China Gas (Jilin) Ltd [2016] HKEC 2128, in which an eight year arbitral award was set aside in unusual circumstances. In 2005, the applicant Sun was imprisoned, three months before the Notice of Arbitration was issued. In 2007, an arbitral award was issued against Sun. In 2012, all criminal charges against Sun were withdrawn and he fled to the United States. 

In 2015, Sun received the arbitral award and in 2016, began proceedings to set aside the award. Sun adduced evidence to rebut the deeming provisions for service. In setting aside the award, Mimmie Chan J ruled that the “deeming” provisions for service cannot be used to derogate from natural justice and fairness. 

The deeming provisions could not preclude a party from adducing evidence to show that, notwithstanding the delivery of any written communication to their last known place of business, habitual residence or mailing address, they had not in actual fact received such written communication. Even if the Notice of Arbitration had been validly served, Sun was unable to present his case as during the entire time after commencement of the arbitration, Sun had been detained and could not participate in the proceedings.   

A particular lesson is that care should be taken to ensure that all documents, in particular the Notice of Arbitration, have been served on the parties, and that the method and address for service stated in the arbitration agreement is in fact used.

Authored by James Kwan and Nigel Sharman.