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Hong Kong Court of Appeal upholds enforcement of CIETAC award
Practical Law UK Legal Update Case Report 8-508-0511 (Approx. 4 pages)
Hong Kong Court of Appeal upholds enforcement of CIETAC award
by Practical Law
| Published on 01 Sep 2011 • China, Hong Kong - PRC |
John Choong (Senior Associate), Freshfields Bruckhaus Deringer
In a recent decision, the Hong Kong Court of Appeal upheld the proposition that an enforcing court cannot go behind an arbitration award to examine the underlying dispute and that supplementary awards must be made strictly in accordance with the applicable arbitration rules.
Facts
Shandong Hongri Acron Chemical Joint Stock Co. Ltd. (Hongri Acron) and PetroChina International (Hong Kong) Co. Ltd. (PetroChina) had entered into a sale and purchase contract for sulphur. Hongri Acron rejected a substantial part of the goods delivered, as being of the wrong specifications, and claimed for the return of the balance of the purchase price. The dispute was submitted to CIETAC arbitration. The arbitral tribunal made an award ordering Hongri Acron to return the remaining sulphur and for PetroChina to return the balance of the price.
After the arbitral award was made, PetroChina and Hongri Acron could not agree on the inspection and return of the sulphur. Correspondingly, PetroChina took the position that until the sulphur was returned, it was not required to make the payment stipulated in the award.
Hongri Acron then commenced an action to require PetroChina to repay the monies due. PetroChina responded by applying for leave to enforce Hongri Acron's obligation to return the sulphur.
PetroChina argued that its repayment obligation was conditional upon return of the rejected goods by Hongri Acron. In support of this, PetroChina relied on two letters from the secretariat of CIETAC and a third from the arbitral tribunal, issued subsequent to the award. These letters were issued pursuant to requests by PetroChina for confirmation of its position that its payment obligation was conditional on return of the sulphur. Although the letters supported PetroChina's position, Hongri Acron argued that none of them, alone or taken together, could amount to a supplementary award.
The High Court ruled in favour of PetroChina and accepted that the letters together constituted a supplementary award. Hongri Acron appealed to the Court of Appeal.
Decision
The Court of Appeal disagreed with the High Court and held that the return of the sulphur was not a condition precedent to PetroChina's repayment obligation. The court noted that an enforcing court such as Hong Kong should adopt a mechanistic approach in enforcement applications. It was incorrect for the court to go behind an arbitral award and to examine the underlying dispute between the parties, and the tribunal's reasoning for its decision. The court noted that the CIETAC award itself did not state that the repayment obligation was conditional or dependent on the return of the sulphur.
As for the three letters which were subsequently issued, the court held that these letters did not constitute a supplementary award. Its reasons were as follows:
- The present case did not fall within Article 48 of the CIETAC Arbitration Rules. Article 48 permits a supplementary award to be issued where a claim put forward by one of the parties has not been dealt with in the award, because it was not "a claim or counterclaim which was advanced in the arbitration proceedings but was omitted from the award".
- The second and third letters had been issued outside the 30 day time limit permitted under Article 48.
- All the letters fell foul of formality requirements under Article 43 of the CIETAC Arbitration Rules.
- Hongri Acron had never had an opportunity to make submissions to the tribunal before the second and third letters were issued, and the court found that this was a breach of natural justice.
Accordingly, the court concluded that the three letters were inadmissible in the enforcement proceedings in Hong Kong.
Comment
The court's analysis of whether the three letters constituted a supplementary award was based on the specific circumstances of this case. However, the judgment highlights the fact that the Hong Kong courts will adopt a mechanistic approach when enforcing awards, and will refuse to go behind an arbitral award and become embroiled in the underlying dispute and the tribunal's reasoning. It also underscores the importance of strict compliance with the arbitration procedure, where parties are seeking a supplementary award from the tribunal.