Pacific China Holdings Ltd (In Liquidation) v Grand Pacific Holdings Ltd

CACV 136/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 136 OF 2011

(ON APPEAL FROM HCCT NO. 15 OF 2010)

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BETWEEN

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JUDGMENT

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Hon Tang VP:

Introduction

1. By a loan agreement made between Grand Pacific Holdings Ltd ("GPH"), a company incorporated in Hong Kong, and Pacific China Holdings Ltd ("PCH"), a BVI company, PCH agreed to pay GPH US$40 million on 31 May 2006, with interest at 10% per annum payable in arrears in consideration of the transfer by GPH to PCH of all of GPH's interest in certain Joint Venture Interests described in the loan agreement.

2. Clause 12 of the loan agreement provided that it should be construed and governed by the laws of the State of New York. Clause 14 provided that any dispute or claim should be finally settled by arbitration in Hong Kong under the Rules of Conciliation and Arbitration of the International Chamber of Commerce ("the ICC Rules") as in force at the time of any such arbitration.

3. GPH filed a Request for Arbitration on 21 March 2006, and arbitration proceedings took place before a duly constituted tribunal ("the Tribunal").

4. By the Award dated 24 August 2009 ("the Award"), the Tribunal unanimously ordered PCH to pay the sum of US$55,176,170.48, forthwith to GPH as well as interest at a rate of 5% per annum from 1 June 2009 until the award is satisfied or judgment is entered on it by a court, whichever occurred first. The Tribunal also unanimously dismissed the counterclaim by PCH that the loan agreement is unenforceable and that it was entitled to reimbursement of US$9,717,288.69 plus interest paid to GPH. PCH was also ordered to pay costs.

5. By originating summons dated 8 March 2010, PCH applied, pursuant to section 34C(4) of the Arbitration Ordinance (Cap 341), to set aside the award[1], essentially,

"… on the basis of Article 34 (2)(a)(ii) and/or Article 34(2)(a)(iv) … of the UNCITRAL Model Law on International Commercial Arbitration (the model law)."[2]

6. Article 34 provided:

"(2) An arbitral award may be set aside by the court specified in article 6 only if:

(a) the party making the application furnishes proof that:

…….

(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

……

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; …"

7. The court's approach to such application is not controversial. The court is concerned with "the structural integrity of the arbitration proceedings"[3]. The remedy of setting aside[4] is not an appeal, and the court will not address itself to the substantive merits of the dispute, or to the correctness or otherwise of the award, whether concerning errors of fact or law. It will address itself to the process: see the judgment below of Saunders J paras 53 to 59.

Saunders J's judgment

8. On 29 June 2011, Saunders J set aside the award and concluded that PCH had established violations of Article 34(2)(a)(ii) and (iv).

9. The learned judge described Mr Manzoni's[5] submissions in these terms:

"9. Mr. Manzoni relied upon three discrete matters in support of his submission. Those matters were set out in his skeleton in the following way:

'The award in this case ought to be set aside because the arbitral Tribunal inter alia:

(i) Permitted (GPH) to serve expert evidence on foreign law one working day before an evidential hearing in December 2007, to serve its pre-hearing written submissions zero working days before the hearing, and to review the pre-hearing submissions of (PCH) before it served either, thereby denying PCH an opportunity to present its case. It did this despite an agreed procedural timetable requiring the parties to exchange pre‑hearing submissions simultaneously, and bizarrely relied on the proximity of Thanksgiving – a holiday which is not recognised in Hong Kong – to justify its approach,

(ii) Subsequently refused to allow PCH to rely on three foreign law authorities, because it thought that requiring GPH to review them within the three weeks remaining before an evidential hearing in May 2008 was 'unfair', once again denying PCH an opportunity to present its case. In this respect, the Tribunal appears not to have remembered that only a few weeks previously it had thought nothing of requiring PCH to address 50 authorities referred to in GPH’s evidence in the space of one working day, and

(iii) Yet again denied PCH an opportunity to present its case by refusing to allow it to respond to GPH’s submissions on the relevance of Hong Kong law, and on New York law, and then, when holding against PCH, not only relied on the self-same submissions of GPH, but also on new authorities which it had not shared with either party.'

10. For convenience, Mr. Manzoni describes submission (i) as the 'the Taiwanese law issue' argument; (ii) as the 'joint expert meeting and report argument'; and (iii) as the 'Hong Kong law issue'.

11. As to the Taiwanese law issue, Mr. Manzoni’s submission is that the Tribunal departed from an agreed procedural timetable which required the parties to exchange pre-hearing submissions. Instead, the Tribunal required PCH to include its full argument and best case on the Taiwanese law issue in the exchange submissions, and permitted GPH to reserve its full argument and best case on the Taiwanese law issue, including their submissions in that respect, to a supplemental submission to be filed 10 days after PCH filed, and gave to GPH, its submissions. By so doing, Mr. Manzoni says, the Tribunal adopted the procedure which was not in accordance with the agreement of the parties. Consequently, he says, there was a breach of Article 34(2)(a)(iv). Mr. Manzoni further argues that the procedure adopted was inherently unfair in that it gave GPH the advantage of seeing PCH’s argument on the Taiwanese law issue before it prepared its own submissions. That unfairness, it is contended, rendered PCH unable to present its best case, contrary to Article 34(2)(a)(ii).

12. As to the joint expert meeting and report argument, Mr. Manzoni says that in refusing to permit PCH to adduce three authorities, the Tribunal again rendered PCH unable to present its best case, again contrary to Article 34(2)(a)(ii). That is particularly so, Mr. Manzoni says, because the Tribunal did not even consider those authorities.

13. On the Hong Kong law issue, Mr. Manzoni says that GPH was permitted to make submissions on Hong Kong law, both as to whether that law had to be proved, and as to relevance, but that PCH was refused permission to respond to those submissions. Further, in respect of the issue to which PCH said Hong Kong law was relevant, the Tribunal, without reference to any of the parties, and without giving either party an opportunity to make any submissions, dealt with the issue by the application of New York law. In particular, authorities were relied upon by the Tribunal which the parties had not seen and upon which the parties had made no submissions at all."

10. In relation to the Taiwanese Law issue, the learned judge was of the view that PCH "has established a violation of Article 34(2)(a)(ii) and (iv)", in that:

"121. … the consequence of the procedural order of 20 November 2007 was that the procedure adopted by the Tribunal was not in accordance with the agreement of the parties, and that PCH was thereby unable to present its case. …"

11. In relation to the Joint Experts and Report Argument,

"129. … the Tribunal’s refusal to receive and consider the additional authorities sought to be cited by PCH prevented PCH from presenting its case. In this respect, PCH has established a violation of Article 34(2)(a)(ii)."

12. On the Hong Kong Law Argument,

"140. … the failure of the Tribunal to give PCH the opportunity to respond to GPH’s submissions on Hong Kong law rendered PCH unable to present its case. A violation of Article 34(2)(a)(ii) is established by PCH."

13. This is GPH's appeal[6].

The Arbitral Proceedings

14. The procedural history of the arbitration has been set out in some detail at pages 3 to 29 of the Award. My narration of the procedural history is based on them.

15. GPH began the arbitration on 21 March 2006 when it filed a Request for Arbitration and nominated Mr James Carter of Sullivan & Cromwell LLP, New York, as co-arbitrator. By letter dated 28 March 2006, the secretariat of the ICC International Court of Arbitration ("the Secretariat") notified PCH that it had been named as the Respondent in the Request for Arbitration. On 12 July 2006, PCH served an answer. It did not object to GPH's nominated arbitrator and nominated Dr Michael Moser as arbitrator. PCH's answer denied any knowledge of the loan agreement and asserted that the Tribunal did not have...