EN
The Hong Kong Court of First Instance recently handed down its decision, G v P [2023] HKCFI 2173, where it set aside an enforcement order of an arbitral award due to invalid service of a notice of arbitration, which resulted in the Respondent not being given a reasonable opportunity to present his case.
Background
The Applicant, as lender, and the Respondent, as borrower, entered into a loan agreement and a supplemental loan agreement (the “Supplemental Loan Agreement“) with the following dispute resolution clause (the “Arbitration Clause“):
“Any dispute or difference arising out of or in connection with the Loan Agreement and this Supplemental Loan Agreement shall, at the option of the Claimant (or the Plaintiff, as may be applicable), be referred to and finally resolved by arbitration administrated by the Hong Kong Arbitration Society and in accordance with the HKAS Online Arbitration Rules for the time being in force or by court proceedings in Hong Kong courts.”
A dispute arose between the parties under the Supplemental Loan Agreement and was resolved by way of arbitration commenced at the option of the Applicant (the “Arbitration“). The Respondent did not serve any defence in the Arbitration and the Arbitration proceeded without the Respondent’s participation. On 28 November 2022, an arbitral award was made by the Hong Kong Arbitration Society in favour of the Applicant (the “Arbitral Award“).
On 2 December 2022, on the application of the Applicant, the Court made an order granting leave to enforce the Arbitral Award against the Respondent (the “Enforcement Order“).
Subsequently, the Respondent applied to set aside the Enforcement Order on two grounds:
Ground 1: Absence of a valid arbitration agreement
The Respondent argued that the Arbitration Clause was not a valid arbitration agreement, as it was an optional arbitration clause which did not compel the parties to arbitrate. An arbitration agreement could not be valid in the absence of the element of compulsion for the parties to arbitrate.
In determining the validity of the Arbitration Clause, the Court stated that the ultimate question was one of construction of the clause in question, to ascertain the objective intention of the parties at the time of contracting. Each case would turn on the terminology used in the contract, with the contract construed as a whole.
The Court held that the Arbitration Clause was valid and binding. It considered that the option in the Arbitration Clause was only conferred on the lender – the Applicant – and not on the borrower – the Respondent. Therefore, when the Applicant exercised the option to commence arbitration proceedings, the Respondent was compelled to arbitrate. The Respondent did not have an option under the Arbitration Clause as to whether to arbitrate or not.
Ground 2: Inability to present case
The Respondent claimed that he was not given a reasonable opportunity to present his case. The Court stated that the core and determining factor for this was whether the Respondent had been given proper notice of the Arbitration (the “Notice of Arbitration“) .
The Applicant argued that given that the Notice of Arbitration was served on the Respondent at the email address specified in the Supplemental Loan Agreement, and the Arbitration Clause provided that the Arbitration was to be in accordance with the HKAS Online Arbitration Rules (“Online Rules“), the Notice of Arbitration was deemed to be properly received by the Respondent under Article 2.1 of the Online Rules, which provides that a notice of arbitration is deemed to be have been received by a party if it is transmitted to:
The Respondent only provided the email address of “[email protected]” in the Supplemental Loan Agreement. Further, the only evidence on service of the Notice of Arbitration was in the Arbitral Award itself, which stated that the Notice of Arbitration was transmitted by email to the email address of “[email protected]”, which was different from that specified in the Supplemental Loan Agreement. The Court decided that the Arbitral Award must be taken to be correct and accurate by virtue that there was no amendment thereto.
Accordingly, the Court held that the deeming provisions in Article 2.1 of the Online Rules could not apply and did not even come into operation, when the Notice of Arbitration was not transmitted to the email address “specified in [the] applicable arbitration agreement”. Further, since the Respondent never participated in the Arbitration, there was no evidence of “[email protected]” having been specified or confirmed by the Respondent upon his participation in the Arbitration. Nor was there any evidence to support any possible claim that “[email protected]” was the Respondent held out to the world as his email, at the time of the transmission of the Notice of Arbitration.
In the circumstances, there was no valid service of the Notice of Arbitration on the Respondent, and consequently, he was not given the opportunity to present his case before the Arbitral Award was made. As such, the Enforcement Order was set aside.
Key Takeaways
This case provides us with the following key takeaways.
First, the unsuccessful jurisdictional challenge for the optional arbitration clause once again confirms the Court’s pro-arbitration stance and willingness to give effect to parties’ agreement.
Secondly, even with the Court’s pro-arbitration approach, failure to effect proper service of the Notice of Arbitration may lead to an eventual setting aside of the arbitral award and any enforcement order, by reason that the Respondent would not be given a reasonable opportunity to present his or her case.
Thirdly, it serves as a reminder that typographical errors in arbitral awards should be corrected to avoid possible prejudice in subsequent enforcement proceedings.
For details, please refer to the full judgment here.