Beware of Getting Off on the Wrong Foot
In the matter of the Arbitration Ordinance, Cap 609 and In the matter of an Arbitration between: AB v CD, HCCT 27/2020, Hon Mimmie Chan J in Chambers, 18 February 2021
The arbitration conducted by HKIAC concerns a dispute under an agreement between AB Bureau and CD (“Agreement”). Pursuant to the arbitration clause in the Agreement, CD issued a Notice of Arbitration in April 2019. Both the Agreement and the Notice of Arbitration named AB Bureau as respondent. On 16 and 17 July 2019, CD received two emails from employees of AB Engineering requesting further information and documentation from CD regarding the Arbitration. Subsequently, CD submitted an Amended Notice of Arbitration revising the name of respondent from “AB Bureau” to “AB Bureau also known as AB Bureau Co, Ltd” in July 2019.
On November 2019, in relying on information in AB Engineering’s website, CD concluded that AB Bureau became AB Engineering after a restructuring and applied to further revise the respondent’s name from “AB Bureau” to “AB Engineering”. Following CD’s request, the arbitrator gave effect to the change of name and ordered that further service of notice on AB Engineering was not necessary.
The arbitral award (“Award”) issued in March 2020 named AB Engineering as the respondent. It was noted by the arbitrator in the Award that the AB Engineering did not participate in the Arbitration.
AB Engineering applied to the Court to set aside the Award on the following basis:
AB Engineering was not a party to the Agreement, and there was no valid arbitration agreement between AB Engineering and CD (Article 34 (2)(a)(i) of the UNCITRAL Model Law);
the Award contains decisions on matters beyond the scope of the submission to the arbitration (Article 34(2)(a)(iii) of the UNCITRAL Model Law); and
AB Engineering was not given proper notice of an arbitrator or of the arbitration proceeding (Article 34 (2) (a) (ii) of the UNCITRAL Model Law).
Should AB Engineering succeed on any of the above grounds, the Court could set aside the Award.
On evidence, it was obvious that AB Bureau and AB Engineering, having different unified social credit codes on the Mainland, are two separate and distinct legal entities. In opposition, CD argued that the Award is enforceable against AB Engineering on the basis that it was a party to the Agreement and alternatively, it was estopped from applying to set aside the Award.
CD’s argument was that AB Engineering, being a subsidiary of AB Bureau at the time of the Agreement, was a party to the Agreement by virtue of the definition of AB. In the Agreement, AB is defined to mean “AB Bureau or any other Affiliated entity”. Having construed the Agreement, the Court found that the Agreement was made between CD and AB Bureau only, and that the Agreement did not stipulate the rights and obligations of AB Engineering at all. This distinguished the case from Giorgio Armani SpA v Elan Clothes Co Ltd  1 HKLRD 354, where the underlying agreement was expressly made “by and between” the parent company, SpA, “together with its branch offices and Affiliates” and expressly listed the rights and obligations of SpA and its Affiliates
Even if AB Engineering was a party to the Agreement, the Court held that there was no proper service of the Notice of Arbitration and the Amended Notice of Arbitration (“Notices of Arbitration”) onto AB Engineering: Firstly, the Notices of Arbitration had never been sent to the proper registered address of AB Engineering. Furthermore, the Notices of Arbitration were addressed to AB Bureau and not AB Engineering. In naming a totally different company in the Notices of Arbitration, the Court held that CD had not given adequate and proper notice of the arbitral proceeding to AB Engineering.
CD also argued that as the employees of AB Engineering had misled CD to believe that AB Bureau and AB Engineering were the same entity, AB Engineering was estopped from applying to set aside the Award. However, it was found that CD relied solely and erroneously on information in AB Engineering’s website rather than on the alleged misrepresentation of AB Engineering’s employees. In fact, there was no such statement made on the website supporting CD’s conclusion that AB Bureau became AB Engineering after a restructuring. AB Engineering did not participate in the arbitration and as such, there was no submission to the arbitration.
In conclusion, the Court rejected CD’s arguments and held that the Award should be set aside under Article 34(2)(a)(i) and (ii) of the UNCITRAL Model Law.
As highlighted by the Court, serving a proper notice of arbitration is a key step in arbitration proceeding as it goes to the jurisdiction of the tribunal. This case again reminds the claimant and its legal advisor the Court’s (otherwise, the tribunal’s) emphasis of due process and serving the notice of arbitration on the correct party. While it is often a combination of various factors (i.e companies under a complex corporate structure bearing similar names and the claimant assuming the veracity of information on external sources) that contributed to a case of misnomer, such mistakes could have been avoided had the claimant been more cautious and taken extra steps, i.e. conducting background searches and company searches.
While it is rare for the Court to set aside an arbitral award, it will exercise such discretion if the award debtor can establish a statutory ground for set aside and the circumstances justify the Court to do so. Misnomer in the name of counterparties, which may be mere inadvertence, would be detrimental to the claimant, who may risk the arbitral award being set aside and bear legal costs of the award debtor at the same time.
Closely related, a claimant may find it tempting to serve a notice of arbitration onto the employee or agent of the intended respondent. As a general rule, an employee, agent or P&I club with general authority to deal with the case on behalf of its employer, principal or member respectively does not have the authority to accept service of a notice of arbitration
In Sino Channel Asia Limited v Dana Shipping and Trading PTE Singapore and Anor  EWCA CIV 1703, the English Court of Appeal (“English Court”) found that on evidence, a Beijing XCty Trading Limited (“BX”) had both implied actual authority and ostensible authority to receive Dana’s Notice on Sino’s behalf. That said, the English Court admitted that such decision was premised on the unusual facts that Sino, while assuming liability to Dana under the contract in question, took no part, no role and no interest in the negotiation or performance of the said contract. Sino imposed no safeguards and no notice requirements upon BX as to either the terms of the contract or its performance.
Furthermore, the relationship between Sino and BX gave Dana the impression that BX was to be dealt with for all purposes, including the receipt of the notice of arbitration. The holding out manifested itself in Sino’s conduct of its relationship with BX, including the manner in which Sino’s broker acted in passing on the notice to a Mr. Cai of BX.
As such, it is advised that claimant and its legal advisor should avoid setting a foot wrong in the very first place.