In Sun Tian Gang v. Hong Kong & China Gas (Jilin) Ltd [2016] HKEC 2128 the Hong Kong Court of First Instance set aside an arbitral award rendered in 2007 after it found that the Plaintiff was not given proper notice of the arbitral proceedings and was not able to present its case due to his incarceration in Mainland China. The Court found that the recognition and enforcement of the award would be contrary to notions of natural justice, fairness, due process and to public policy.
Background
In November 2005, the Defendant ("Gas") commenced arbitration against the Plaintiff ("Sun") for breach of guarantees and warrantees in an agreement for the sale of shares in a company owned by Sun. The arbitration led to an award in March 2007 in which the Tribunal ordered Sun to pay damages to Gas and declared that Gas was entitled to withhold payment of a third tranche of the sale price for the shares.
On Sun's case, he had been arrested in Shenzhen by Mainland public security officers in August 2005 (three months prior to the notice of arbitration being issued) and was prosecuted for charges of deception, providing false capital, misappropriation and bribery. In March 2012, all criminal charges against Sun were withdrawn, and Sun was able to return to Hong Kong. He then fled to the United States but returned to Hong Kong in June 2014.
Sun contended that during the whole of the period in which he was detained, he was deprived of contact with the outside world. It was not until May 2015 that Sun received the award. In October 2016, Sun commenced proceedings to set aside the award on the grounds that he was not given proper notice of the arbitration, was unable to present his case under Article 34(2)(a)(ii) of the Model Law (as the arbitration was commenced before 1 June 2011, the Arbitration Ordinance Cap. 341 applied to the arbitration) and that the award was in violation of the public policy of Hong Kong. Sun also sought an extension of time to apply for the setting aside of the award.
Judgment
- Was proper notice of the arbitral proceedings given?
The notice of arbitration was sent to Sun at three addresses. Gas relied on the provisions on deemed service of communications in Article 3(1) of the Model Law and Article 2 of the UNCITRAL Rules to argue that the delivery and receipt of the notice of arbitration to the first and second addresses was effective, even if the relevant documents were not actually received by the recipient.
The Court, contrary to the Gas' view, found that the deeming provisions in the Model Law were not intended to derogate from the principles of natural justice and fairness, and did not preclude a party from adducing evidence to rebut the presumption of service by showing that he or she had not in actual fact received such written communication.
It is for the Tribunal and the court to decide on the facts of each case whether there is sufficient and credible evidence to rebut the presumptions of receipt. The Court noted that this was supported by Articles 34(2)(a)(ii) and 36(1)(a)(ii) of the Model Law, which permit a party to furnish proof to the supervisory court that he or she was not given proper notice of the arbitration proceedings to set aside the award or to resist enforcement of the award. Based on Sun’s evidence of his incarceration in the Mainland, the Court found that the deeming provisions had been rebutted.
The notice of arbitration had also been sent to a third address pursuant to a letter of authorisation which purportedly appointed one of Sun's colleagues as his agent to make decisions “in the execution (or implementation) of the Agreement and in the process of the resolution of disputes relating to the Agreement”, including negotiating with Gas and “receiving documents”. Although the authorisation was claimed by Sun to be a forgery, the Court found that, even if it was genuine, the scope of the authorisation letter did not extend to cover any authority to accept service of a notice of arbitration bearing in mind the significance of the notice of arbitration which initiates the arbitral process.
- Was the Plaintiff unable to present his case?
The Court emphasized that questions of service of the notice of arbitration aside, the reality of the case was that Sun was not able to participate in the arbitration and defend the claims made against him, such that the ground in Article 34(2)(a)(ii) of the Model Law was established.
In any event, the Court also found that "to enforce an award made in circumstances when Sun was in fact unable to present his case in the Arbitration as aforesaid would itself be contrary to the public policy of Hong Kong, so as to make enforcement repugnant. If Gas had knowledge of Sun’s incarceration and inability to attend the Arbitration, it would only make enforcement of the Award more repugnant".
The Court considered that Gas had a duty, and breached its duty, to inform the Tribunal that the notice of arbitration was not properly served on Sun. Following its finding that there was a lack of due process and the making of the award was contrary to fundamental principles of natural justice, the Court declined to exercise its residual discretion to recognize and enforce the award as it was "repugnant to the court's notions of conscience".
- Was the application out of time?
Another crucial issue in dispute was whether Sun’s application in October 2015 to set aside the award was out of time and should be barred. Under Article 34(3) of the Model Law, an application for setting aside “may not be made after three months have elapsed from the date on which the party making that application had received the award”.
As the award had been sent in 2007 to the same three addresses used by Gas to issue the notice of arbitration, the Court also found that any presumption of delivery had been rebutted by Sun’s evidence that he had not actually received any of the documents sent to those addresses. The fortuitous discovery of the award in 2015 by Sun's staff could not complete the deemed service provisions to constitute valid or deemed receipt of the document for the purposes of triggering the three month limitation period under Article 34(3), nor should it be considered actual receipt resulting from valid delivery of the award in 2007 in accordance with Article 31(4).
In any event, the Court considered that the period of three months under Article 34(3) is not mandatory and the Court has discretion to grant an extension of time for the application to set aside an award. As a general rule however, the Court stated that the three month period should not be extended unless "there are good reasons to do so", which in Sun's case existed.
The Court also noted that the prejudice to Gas from leave being granted to Sun to apply to set aside the award should be balanced against the prejudice to Sun should the award be allowed to stand.
Commentary
The facts of this case are clearly exceptional. Nevertheless, Sun Tian Gang v. Hong Kong & China Gas (Jilin) Ltd highlights that fairness and due process underpin the arbitral process and are pre-requisites for the recognition and enforcement of awards. Central to this is the requirement that a party against whom claims are made must not only be given due and fair notice of those claims, but must also have an opportunity to answer them. The "deeming provisions" for service (Article 3(1) of the Model Law and Article 2 of the UNCITRAL Rules) cannot be invoked to derogate from fundamental principles of natural justice.
