X v Jemmy Chien (Also Known As Chien, Ching Yu Or 簡慶裕)

HCCT 31/2019

[2020] HKCFI 286

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 31 OF 2019

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D E C I S I O N

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Background

1. This is the substantive hearing of the Plaintiff’s application to set aside an arbitral award on merits dated 25 February 2019 (“Award”) and an award on interest and costs dated 26 June 2019, collectively referred to as “Awards”, and the Defendant’s cross application to enforce the Awards.

2. On 5 September 2019, this Court handed down its decision on the Defendant’s application for security (“Security Decision”). The nomenclature in the Security Decision is adopted in this Decision.

3. The relevant facts of the dispute are set out in the Security Decision, and will not be repeated here. To recap, the application to set aside the Award is as stated in the Amended Originating Summons (“OS”), that there was no valid arbitration agreement between the Plaintiff and the Defendant, and that the Award is in conflict with the public policy of Hong Kong.

Whether there was an arbitration agreement

4. The legal principles applicable to an application to set aside an arbitral award by way of challenge to the existence of an arbitration agreement and the jurisdiction of the arbitral tribunal are not in dispute. They are as set out in the case of Dallah Real Estate and Tourism Co v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763, applied in S Co v B Co [2014] 6 HKC 421. The standard of review by the Court of the tribunal’s ruling on jurisdiction is one of “correctness”.

5. It must be emphasized, however, as the Court did in Z v A, unreported, HCCT 8/2013, 30 January 2015 (at paragraphs 21 to 22 of the decision), that this does not mean an unwarranted and unlimited review of the merits of the findings made by the tribunal:

“21. This being a jurisdiction challenge under s 34 of the Ordinance and Article 16 of the Model law, it has been established that the Court has to decide on the correctness of the ruling by the arbitral tribunal of its own jurisdiction (Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763). Notwithstanding the fact that the Court decides this on a de novo basis, it is important to bear in mind that the reviewing Court recognizes its limited and narrow role, of confining the scope of the review and its intervention to true questions of pure jurisdiction only. In the case of The United Mexican States v Cargill Incorporated 2011 ONCA 622 (Court of Appeal for Ontario), the Canadian court highlighted these matters:

‘44. It is important, however, to remember that the fact that the standard of review on jurisdictional questions is correctness does not give the courts a broad scope for intervention in the decisions of international arbitral tribunals. To the contrary, courts are expected to intervene only in rare circumstances where there is a true question of jurisdiction.

45. In the domestic law context, courts are warned to ensure that they take a narrow view of what constitutes a question of jurisdiction and to resist broadening the scope of the issue to effectively decide the merits of the case …

46. This latter approach is magnified in the international arbitration context. Courts are warned to limit themselves in the strictest terms to intervene only rarely in decisions made by consensual, expert, international arbitration tribunals, including on issues of jurisdiction. In my view, the principle underlying the concept of “powerful presumption” is that courts will intervene rarely because their intervention is limited to true jurisdictional areas. To the extent that the phrase “powerful presumption” may suggest that a reviewing court should presume that the tribunal was correct in determining the scope of its jurisdiction, the phrase is misleading. If courts were to defer to the decision of the tribunal on issues of true jurisdiction, that would effectively nullify the purpose and intent of the review authority of the court under art 34(2)(a)(iii).

47. Therefore, courts are to be circumspect in their approach to determining whether an error alleged under art 34(2)(a)(iii) properly falls within that provision and is a true question of jurisdiction. They are obliged to take a narrow view of the extent of any such question. And when they do identify such an issue, they are to carefully limit the issue they address to ensure that they do not, advertently or inadvertently, stray into the merits of the question that was decided by the tribunal.

48. One challenge for a reviewing court is to navigate the tension between the discouragement to courts to intervene on the one hand, and on the other, the court’s statutory mandate to review for jurisdictional excess, ensuring that the tribunal correctly identified the limits of its decision-making authority. Ultimately, when deciding its own jurisdiction, the tribunal has to be correct. …

50. The second challenge for the court is to limit its review to determining whether the award ‘contains decisions on matters beyond the scope of the submission’ and not to review the merits of the decision itself. …

53. The role of the reviewing court is to identify and narrowly define any true question of jurisdiction. The onus is on the party that challenges the award. Where the court is satisfied that there is an identified true question of jurisdiction, the tribunal had to be correct in its assumption of jurisdiction to decide the particular question is accepted and it is for the court to determine whether it was. In assessing whether the tribunal exceeded the scope of the terms of jurisdiction, the court is to avoid a review of the merits.’ (Emphasis added)

22. Hence, it is necessary and important that the present challenge should be confined to the sole question of whether the Arbitrator has jurisdiction to deal with the dispute and the issues submitted to him in the Arbitration, and the Court should not review the Arbitrator’s decision which goes to the merits of the dispute.”

6. The scope of the Court’s review must be limited to true questions of jurisdiction and the Court must be cautious not to stray into the merits of findings of fact and law made by the tribunal, on issues unrelated to or not necessary for the question of jurisdiction.

7. It is not disputed by the parties that the underlying Service Agreement made between the parties, under which disputes had arisen, is governed by PRC law, whereas the Arbitration Agreement contained in clause 7 of the Service Agreement is governed by Hong Kong law.

8. The Plaintiff’s contention is that the Defendant was not the true party to the Service Agreement, as he had signed it as agent for Chen, the principal and true party to the Service Agreement. The Plaintiff alleges that the Service Agreement was in truth a sham to conceal Chen’s involvement, whereby the Defendant was never meant to be the true party, and enforcement of the Award would be giving effect to a sham and would be contrary to public policy in Hong Kong.

9. The Plaintiff relies on the fact that prior to the execution of the Service Agreement, there had been no relationship between the Defendant and the Plaintiff and the Group of which the Plaintiff forms part. By contrast, the Plaintiff had all along been dealing with Chen in its sale of the products. The Service Agreement was signed by the Defendant next to the words “Party B” and “Representative”, such that according to the Plaintiff, the Defendant was clearly described and had signed as a representative of a contracting party. The Plaintiff further relies on the evidence in the Arbitration, that the Defendant had not participated in the negotiation of the Service Agreement, had little knowledge of its terms and the duties and obligations provided thereunder, and never had any communication with the Group. It is common ground that it was Chen who had performed the services under the Service Agreement, and the Plaintiff relies on the Defendant’s evidence that there was no detailed agreement between the Defendant and Chen as to how the profits under the Service Agreement would be shared between them.

10. In the Award on merits, the arbitrator found that the Defendant was the true party to the Service Agreement and therefore the Arbitration Agreement. His analysis was set out in paragraphs 108 to 115 of the Award on merits. At paragraph 109, the arbitrator found that under PRC law governing the Service Agreement, the Defendant was the true party and that the Service Agreement was signed by the Defendant without any qualification. He referred to the following:

“a. The Service Agreement clearly states that Mr Jemmy Chien...