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Capacity of the applicant and the duty of full and frank disclosure in applications for enforcement of arbitral awards 

by Deacons

Published: September, 2021

Submission: September, 2021

 



Arbitration is an increasingly popular means for cross-border dispute resolution, and it has also led to an increasing number of court applications in Hong Kong seeking enforcement of local and foreign arbitral awards.


The case of A Consortium Comprising TPL and ICB v AE Limited [2021] HKCFI 2341 serves as a reminder to applicants of the need to ensure that the application is brought by recognised legal entities and the duty to make full and frank disclosure in the application, which is ex parte in nature. 


In this case, the Applicant, which was stated to be a consortium of two foreign companies, was granted (on an ex parte application) leave to enforce an arbitral award made in Dubai (Enforcement Order). The Respondent applied to set aside the Enforcement Order on the grounds, amongst others, that it was irregular, as the Applicant was not a legal entity capable of suing or being sued under the laws of Hong Kong (Irregularity Ground) and the Applicant had failed to make full and frank disclosure in the ex parte application.


Irregularity Ground


The Respondent claimed that the Enforcement Order was irregular, as it was granted in favour of an entity which does not exist and was not recognised under the laws of Hong Kong.


The dispute which was submitted to arbitration arose under a sub-consultancy agreement (together with a supplemental agreement and amendment agreement) (Agreement) in which “the Joint Venture of TPL and ICB” was referred to as the Consultant and the Respondent as the Sub-Consultant.


TPL was a company registered in Dubai and ICB was a company registered in Lebanon. The Applicant used the same description as the claimant in the arbitral proceedings and the Court noted that the Respondent did not raise any objection that the Applicant was not a legal or valid entity. Nor was there any defence put forward on the basis that the Agreement was not a valid contract made with a non-existent entity with no capacity.


As was apparent from the Agreement and relevant documents, the Court did not see a particular difference in the meaning between a joint venture and a “consortium” in the context of this case and was of the view that the Respondent was under no doubt or confusion as to the identity of the claimant and as to the claimant being the Consultant under the Agreement.


However, the Court agreed that a joint venture or a “Consortium” is not a legal entity which can sue or be sued in its name. Notwithstanding the advocacy of a mechanistic approach in the enforcement of arbitral awards under the Arbitration Ordinance, the Court disagreed that a rigid approach such that the Court could only enter judgment in favour of the claimant, named as “The Consortium comprising TPL and ICB”, in this case should be adopted, as that would be against the spirit of the Arbitration Ordinance to facilitate the enforcement of arbitration agreements and arbitral awards. 


In the circumstances, the Court allowed the Applicant’s application to join the two foreign companies forming the joint venture as applicants in the proceedings.


Failure to Disclose


The Respondent further argued that the Enforcement Order should be set aside, since when it made its ex parte application for the order, the Applicant failed to disclose the fact that the Respondent had applied to the Dubai court to nullify and stay the enforcement of the award. This was admitted by the Applicant and it was said that the omission was due to its solicitors’ genuine mistake.


The Court confirmed that the Applicant was under the duty to make full and frank disclosure of all facts relevant to the exercise of the Court’s determination of the ex parte application. Had the Court been informed of the proceedings in Dubai to nullify the award, the Court would not have granted the Enforcement Order and would likely have ordered an inter partes summons to be issued, for the Respondent to be heard and for the matter to be argued. In the circumstances, the Enforcement Order granted on ex parte basis was set aside.


Decision


Having heard the parties’ submissions at the inter partes hearing, the Court re- granted the Enforcement Order.


The decision was made upon the findings under the Irregularity Ground, whereby the Court concluded that there was a valid arbitration agreement between the Applicant as the Consortium and the Respondent. As the Respondent did not raise the issue as to the existence of the Consortium in the arbitration, any irregularity raised by the incapacity of the alleged non-existence of the Consortium had been waived by the Respondent by continuing with the arbitration.  Further, the Court saw no merit under section 89 of the Arbitration Ordinance, Cap. 609, to justify a refusal to enforce the arbitral award.   


Comment


Although a respondent has 14 days to apply to discharge an enforcement order, the application for an enforcement order is an ex parte application and the applicant is under the duty to make full and frank disclosure of all facts relevant to the Court’s determination. Failure to comply with the duty will lead to the enforcement order being set aside.  


Also, before an application is made to the Court, the intended applicant should make sure that the application is taken out by legal entities recognised under the laws of Hong Kong. For joint ventures, partnerships or unincorporated associations, the rights and liabilities of their members under contract are prima facie joint and all members should be included as claimants or conversely, defendants, in legal proceedings in Hong Kong. Under Order 81, Rule 1 of the Rules of the High Court, Cap. 4A, a firm consisting of more than one partner carrying on business in Hong Kong may sue or be sued in the firm’s name. The usual way to name the plaintiff is to add in brackets after the firm name the words “a firm” in the title of the action. However, if the firm or partnership does not carry on business in Hong Kong, the name and address of each partner must be set out.


To ensure the effectiveness of dispute resolution by arbitration, the Court adopts a mechanistic approach to the enforcement of arbitral awards. However, that does not mean that it will adopt a rigid approach, to the extent of ignoring the natural and reasonable meaning as is apparent from the awards, which would be contrary to the aim and objectives of Section 3 of the Arbitration Ordinance in facilitating the fair and speedy resolution of disputes by arbitration without unnecessary expense. In exercising its power and discretion in entering judgment of an arbitral award, the Court has a degree of flexibility in its deployment of means of enforcement.


 



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