S Co v B Co

HCCT 12/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 12 OF 2013

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D E C I S I O N

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Introduction

1. In these proceedings, S Co (“S Co”) seeks to set aside the operative parts of an award made by an arbitral tribunal on 5 April 2013, on the ground that S Co was unable to present its case in the arbitration before the tribunal; that the award deals with a dispute not contemplated by or falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration; that the arbitral procedure was not in accordance with the parties’ agreement; and that the award is in conflict with the public policy of Hong Kong. S Co further challenges the award of the tribunal pursuant to Article 16 (3) of the Model Law, and seeks a declaration that the tribunal did not have jurisdiction to adjudicate the claims dealt with in the award. The costs award made by the tribunal on 10 June 2013 is challenged, and sought to be set aside, on the same grounds.

Background

2. S Co is a company incorporated under the laws of the PRC, and is a supplier of hardware for the generation of electricity and the establishment of power plants. Between 2002 and 2007, S Co entered into various agreements with B Co (“B Co”), which is a company incorporated in Hong Kong, and carries on business as a consultant with expertise in the establishment of power plants and in electricity supply.

3. On 3 March 2002, S Co and B Co entered into an agreement in writing (“Cooperation Agreement”) whereby B Co agreed to furnish to S Co technical assistance and advice on energy projects proposed to be developed for the Government of Nigeria. Under the Cooperation Agreement, B Co was generally to assist S Co (inter alia) to finalize and perfect its proposal to be submitted to the Nigerian Government in respect of the establishment of plants and facilities for the generation of electricity supply (“Project”), and to procure the appointment of S Co as the contractor and hardware supplier for the Project. S Co agreed to pay consultancy fees to B Co in accordance with the provisions of the Cooperation Agreement. The parties further agreed, under clause 4.4 of the Cooperation Agreement, to arbitrate in Hong Kong disputes which arise in the course of the performance, or execution, of the Cooperation Agreement, in accordance with the provisions of the Model Law.

4. On 27 March 2002, the National Electric Power Authority of Federal Ministry of Power and Steel of the Federal Republic of Nigeria (“NEPA”) concluded with S Co a contract (“Phase 1 Contract”) whereby S Co agreed to design, supply and build for NEPA a 335 MW single cycle gas turbine power plant at State A, Nigeria (“Phase 1 Project”). The site of the plant was subsequently moved to State B, Nigeria.

5. On 2 May 2002, S Co and NEPA entered into a further agreement (“Phase 2 Contract”) for the construction of a 335 MW single cycle gas turbine power plant at State B (“Phase 2 Project”).

6. It is not in dispute that pursuant to clause 3.5 of the Cooperation Agreement, the parties agreed that the fee payable to B Co was fixed at US$22.50 per kilowatt. S Co agreed under clause 3.6 of the Cooperation Agreement to issue to B Co, or to such third party as B Co may designate, a letter of undertaking of payment (“Letter of Undertaking”) in respect of the fees payable to B Co. Pursuant to the Cooperation Agreement, S Co issued 3 Letters of Undertaking, the first on 26 March 2002 and the remaining 2 on 15 April 2002, whereby it undertook to pay US$7,537,500 as consultancy fee and development cost, and US$1,560,000 as agency fee and development cost, both in respect of the Phase 1 Project, and a further sum of US$7,537,500 as consultancy fee and development cost in respect of the Phase II Project. The 1^st Letter of Undertaking of 26 March 2002 was issued to Mr MD (“MD”), the managing director of B Co at the material time. The 2^nd and 3^rd Letters of Undertakings were issued to “MD/B Co”.

7. It is not disputed that the Phase 2 Project was never built. On B Co’s case, B Co and S Co made new proposals to the Nigerian employer for the construction of another power plant with higher power, namely a 754 MW combined cycle gas turbine power plant at P in State B, to replace the Phase 2 Project.

8. On 16 April 2007, a contract was concluded between the Federal Ministry of Energy and S III, a legal entity separate to S Co (“S III Contract”), whereby S III undertook and agreed to engineer, design and deliver the equipment for and to construct a 750 MW power plant for the P Phase 2 Power Station in Nigeria (“Revised Phase 2 Project”). According to B Co, S III was S Co’s designated and affiliated company and/or subsidiary to enter into the S III Contract, and the Revised Phase 2 Project was revised and expanded from the Phase 2 Project through B Co’s effort.

9. On B Co’s case, S Co acted in breach of the Cooperation Agreement by appointing one F Limited (“F Ltd”) to be its consultant to replace the role played by B Co under the Cooperation Agreement, and was further in breach by failing and refusing to pay consultancy fees due to B Co.

10. On B Co’s case, S Co had paid a total sum of US$7,759,984 under its Letters of Undertaking, and had failed to pay the balance of US$996,846 due and payable as consultancy fees under the Cooperation Agreement.

11. On 11 October 2007, B Co commenced arbitral proceedings against S Co in Hong Kong (“Arbitration”). The Tribunal was constituted on 6 May 2009. On 9 April 2010, S Co challenged the Tribunal’s jurisdiction by notice (“Notice of Challenge”), stating that the Tribunal did not have jurisdiction over B Co’s claims for the unpaid balance of US $996,846 due under the 2 letters of undertaking (“Balance Payment Claim”), and for the US$7,537,500 under the S III Contract (“S III Contract Claim”). On 13 September 2010, the Tribunal directed that the jurisdictional challenge of S Co was to be heard and dealt with together with the substantive hearing on the merits.

12. By an Interim Award issued on 5 April 2013, the Tribunal dismissed S Co’s jurisdictional challenge, and at the same time ordered S Co to make payment to B Co of (i) US$996,846 on the Balance Payment Claim; (ii) US$7,537,500 on the S III Contract Claim; and (iii) 70% of the costs. The Tribunal further awarded to S Co a nominal sum of US$1 on its counterclaim against B Co for damages for breach.

13. On 10 June 2013, the Tribunal made a Costs Award, whereby S Co was to pay 70% of the costs of the arbitration to B Co.

14. These proceedings are commenced by S Co to challenge both the Interim Award and the Costs Award, invoking Articles 16 (3) and 34 of the Model Law. On 3 May 2013, S Co issued HCCT 12/2013 (“Article 16 OS”), to seek a declaration that the Tribunal did not have jurisdiction to adjudicate the Balance Payment Claim and the S III Contract Claim, and an order that the operative parts of the Interim Award and of the Costs Award be set aside under Article 16 (3) of the Model Law. On 27 May 2013, S Co also issued HCCT 16/2013 (“Article 34 OS”), for an order that the operative parts of the Interim Award and of the Costs Award be set aside under Article 34 (2) (a) (ii), (iii), (iv) and/or (b) (ii) of the Model Law. The relevant grounds relied upon under Article 34 are that S Co was unable to present its case; that the Interim Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission; that the arbitral procedure was not in accordance with the agreement of the parties; or that the award is in conflict with public policy.

The jurisdiction challenge

15. Article 16 of the Model Law provides :

“(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or the validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a...