Introduction

In Arjowiggins HKK2 Ltd v X Co [2022] HKCFI 859, the Hong Kong Court of First Instance was faced with an application of the Applicant (“HKK”) to set aside the final award of an arbitration tribunal made on 5 August 2020 with respect to an arbitration commenced by the Respondent (“X Co”) in Hong Kong in 2018.

The facts

In 2005, HKK and X Co executed the Joint Venture Contract (“JV Contract”) to form a joint venture company (“JV Company”). Subsequently, the relationship between the parties turned sour and the joint venture was deadlocked. In June 2010, X Co applied to the PRC court for dissolution of the JV Company. In 2019, an order for compulsory liquidation of the JV Company was made and accordingly, a compulsory liquidation group of the JV Company (“CLG”) was formed.

2018 arbitration

In 2018, X Co initiated an arbitration in its capacity as a shareholder of the JV Company against HKK, claiming (i) for exclusive possession of the accounts and other documents (“Relevant Documents”) of the JV Company upon its dissolution in accordance with the PRC law; (ii) that it has proprietary right as to the Relevant Documents such that it can sue HKK for delivery of the same; and (iii) that HKK and X Co owe the obligations of good faith and fair dealing under PRC laws and the JV Contract such that HKK should deliver the Relevant Documents to X Co. On the other hand, HKK argued that the JV Company continues to own the Relevant Documents until the completion for liquidation and deregistration of the JV Company. 

Arbitration award

The arbitration tribunal (“Arbitration Tribunal”) decided that (i) X Co’s obligation to preserve the Relevant Documents would not turn into a right to obtain the Relevant Documents; (ii) the JV Company retained the proprietary right to the Relevant Documents; and (iii) the obligations of good faith and fair dealing under PRC laws and the JV Contract do not entitle X Co any right to demand for delivery of the Relevant Documents. 

The Arbitration Tribunal then sought submissions from X Co and HKK on their proposed terms of the order to be made. X Co suggested that the Relevant Documents should be sent to the CLG, whereas HKK argued that the CLG was not even formed prior to the commencement of the 2018 Arbitration, and therefore, the Arbitration Tribunal had no jurisdiction to make any order that was not within the scope referred to in the notice of arbitration.

Upon considering both sides’ submissions, the Arbitration Tribunal found that the present case concerned the issue of the rights and obligations of the parties under the JV Contract and is therefore within its jurisdiction, and that it is fair to both parties as both parties were invited to make supplemental submissions. Although a remedy was not asked for, the Arbitration Tribunal is duty bound to act in accordance with the arbitration agreement. The Arbitration Tribunal then ordered that the Relevant Documents shall be delivered up to the CLG.

HKK’s application to the Court

HKK applied the Court to set aside the arbitral award of the Arbitration Tribunal on the grounds that the orders in the arbitral award were not within the scope of the submission to the 2018 Arbitration and that the enforcement of the arbitral award is against public policy of Hong Kong given that HKK was not allowed to adduce further evidence relevant to the disposal of the Relevant Documents. X Co applied for leave to enforce the said arbitral award.

Issues

The issue before the Court is whether the orders for delivery of the Relevant Documents to the CLG and consequential costs orders were outside the scope of the submission to the 2018 Arbitration. The gist of HKK’s complaint is that there was never a pleaded case, nor any dispute submitted to the Tribunal in the 2018 Arbitration, that HKK was in breach of an obligation to assist in the liquidation of the JV Company pursuant to the JV Contract (by being in possession of the Relevant Documents), or that the Relevant Documents should be delivered up to the CLG, or any party other than the Claimant, X Co.

It should be noted that despite the appointment of the CLG just before the commencement of the hearing of the 2018 Arbitration, X Co has never taken any steps to amend its pleadings or its claim for delivery up of the Relevant Documents to the CLG. HKK therefore contends that the final order made by the Tribunal was inconsistent with X Co’s pleaded case and with the relief sought by X Co, and outside the reference and submission to the Tribunal.

Ruling

Review of pleadings

The Court held that it is trite that the pleadings, and not the evidence, dictate the proper course of the proceedings and the ambit of the orders to be made. On review of the pleadings in the 2018 Arbitration, the Court observed that any claim of delivery of the Relevant Documents to the CLG was inconsistent with X Co’s own pleaded case, that itself was the party entitled to exclusive possession of the Relevant Documents and the party to which HKK should be ordered to deliver up the Relevant Documents. HKK also did not plead further as to the right of the CLG after it was appointed in its pleadings. As such, CLG’s entitlement to the Relevant Documents was not the case which HKK was called upon by the pleadings to meet, or refute, by evidence.

Parties’ submissions to the Tribunal

The Court held that the fact that an issue or a matter may be within the wide scope of the arbitration agreement, which is often broadly drafted, does not necessarily mean that the issue or matter is within the scope of the actual reference of the particular dispute to the tribunal in the particular arbitration.

The focus of the parties’ dispute referred to the Tribunal for determination was on whether X Co had the right to possession, and whether HKK’s failure to deliver the Relevant Documents (which the Tribunal had found to be in HKK’s possession custody and control) as demanded by X Co constituted a breach of HKK’s duties under the JV Contract and under PRC law. Meanwhile, the issue of the parties’ breach of their respective duties under the JV Contract to facilitate or complete the proper liquidation was not pleaded, nor did the Tribunal have complete evidence on this matter. 

In other words, the claims made, and the remedies sought by X Co in the 2018 Arbitration, was X Co’s entitlement and right to the Relevant Documents as the former Chinese party to the joint venture, and for delivery to it as such of the Relevant Documents.  There was no claim for specific performance generally of the JV Contract, and no remedy sought for HKK’s breach of its duty to properly complete the liquidation.

Due process and fairness

The Court cited the Court of Appeal case of Choi Yuk Ying v Ng Kwok Chuen [2019] HKCA 171 to emphasize that “trial by ambush”, including “advancing new legal consequences” in opening submissions, has no place in modern litigation. Bearing in mind the requirement of due process and fairness to both parties in arbitrations, the Court is of the view that it is unfair when a party in an arbitration is ambushed as a result of the Tribunal permitting the other party to advance new legal arguments not identified in the pleadings served for the arbitration. Parties to an arbitration should know in advance, before the hearing of the arbitration, the pertinent claims and remedies sought by the other side in full extent, so as to consider all possible defences, and to decide on the full extent of the evidence to be adduced.

The Court accepted that in the particular circumstances of this case, the order for delivery of the Relevant Documents to the CLG could not have been reasonably anticipated from the state of the pleadings and the evidence served before the commencement of the 2018 Arbitration, and was outside the scope of the submission by HKK to the arbitration. HKK was therefore taken by surprise by the claim that the Relevant Documents should be ordered to be delivered to CLG, pursuant to its duty to properly complete the liquidation of the JV Company.

Takeaways

Despite the generally pro-arbitration stance adopted by Hong Kong Courts, the Court in this case illustrates that final arbitration awards may still be set aside if they are inconsistent with the touchstones of due process and fairness. The question of whether a party had the reasonable opportunity to call further evidence and present its case on some purported further orders to be made by the Tribunal is separate from the question of whether the Tribunal had the jurisdiction to make such further orders in the first place. Further, parties of arbitration proceedings should bear in mind that they cannot, at the end of the hearing, simply recite all the rights and duties contained in an agreement and pick and choose, or ask the tribunal to pick and choose, which rights to enforce and to issue an award on that basis. The rights they seek to enforce and remedies sought after must be clearly stated in the pleadings, which will define the ambit of the orders to be made.