Post a comment
Print articleCourt Set Aside Order to Enforce Arbitral Award for Material Non-Disclosure
August, 2020 -
In the recent case of 1955 Capital Fund I GP LLC & ANOR v Global Industrial Investment Ltd, HCCT 61/2019, Hong Kong’s Court of First Instance set aside an Enforcement Order, whereby the Applicants had been given leave to enforce in Hong Kong an arbitration award (Award) made in California. The Court found that there had been material non-disclosure by the Applicants in their affidavit in support of the application for the Enforcement Order. The Court said that there was a deliberate attempt to hide relevant material necessary for the weighing exercise that the judge had to undertake before granting the Enforcement Order, and there was no explanation as to why this was done. Furthermore, there was a gain to be made by the Applicants’ behaviour, namely getting a head start on the Respondent and obtaining garnishee orders.
Background
The Award dated 26 June 2019, directed the Respondent to pay the Applicants US$9.3 million. On 31 January 2020, the United States District Court for the Northern District of California made an order denying the Respondent’s petition to vacate the Award and granted the Applicants’ cross-petition to confirm the Award. The Respondent had now instituted an appeal against that judgment and as a fall-back position, submitted that an adjournment would be appropriate by reason of the appeal. The Respondent’s primary position was that there had been material non-disclosure by the Applicants in obtaining the Enforcement Order and that it should therefore be set aside.
Material Non-Disclosure
The Award expressly stated that “Absent the filing of an application to correct or vacate the arbitration award under applicable law,and unless the parties agree otherwise, in accordance with the Arbitration Agreements each party shall fully perform and satisfy this award within 15 days of the service of the award.” Mr Varian, an attorney-at-law at the law firm representing the Applicants, who knew of the Award and of the Respondent’s appeal in the United States District Court, made an affidavit in support of the Applicants’ ex parte application for the Enforcement Order, in which he stated: “The Final Award provides that each party shall fully perform and satisfy the award within 15 days of the service of the award. On 3 July 2019, the Applicants demanded the Respondents CFLD to satisfy the Final Award by making payment of USD9,328,775.53. As of the date hereof, neither the Respondent, nor CFLD, has complied with the Final Award.”
The Respondent’s Counsel pointed out to the Court the obvious, critical words (Omitted Words) of the Award (i.e. “Absent the filing of an application to correct or vacate the Arbitration Award under applicable law”),which had been omitted in Mr Varian’s affidavit and submitted that this omission was deliberate and created the impression to the Judge that the Award was immediately enforceable.
Although the Applicants’ Counsel agreed that the Omitted Words were relevant and would be part of the judge’s weighing exercise and should have been drawn to the judge’s attention and that there was no direct explanation from Mr Varian for the omission, he argued that the judge would have made the Enforcement Order in any event. Furthermore, that the judge’s Order provided for 14 days within which the Respondent could apply to set aside the Order, and the Award would not be enforced until the expiration of that period and that Mr Varian had acted “innocently”.
The Court had no hesitation in discharging the Enforcement Order because of the Applicants’ material non-disclosure. It said:
|
(1) |
The expunging of the Omitted Words by Mr Varian was plainly deliberate. The only sensible inference to be drawn was that this was done because if the judge was made aware of the Omitted Words, she may have taken a course of action unfavourable to the Applicants. It was plain that the judge was thereby deprived of the opportunity to properly and fully consider the Applicants’ application for an Enforcement Order. |
|
(2) |
The material in question was relevant to the weighing exercise which the Court had to undertake and it was of no help to the Applicants to point out that the Award was exhibited to Mr Varian’s affidavit. The Award was 140 pages long and an applicant in an ex parte application cannot shift the burden to the Court by simply exhibiting the relevant material and hoping that the pertinent points would be picked up by the judge. |
Comments
An application for enforcement of an arbitral award is first to be made ex parte. It is trite that the applicant has to give full and frank disclosure to the Court, including details of any matters which may be unfavourable to his application. Sometimes, if the Court is of the view that the omission is not serious and was inadvertent, it can either refuse to set aside the ex parte order or even set it aside but re-grant it at the same time. However, in the present case, the Omitted Words were obviously serious enough for the Court to set aside the ex parte order.
Link to article
