In the recent case Arjowiggins HKK2 Ltd v X Co [2022] HKCFI 128, the Hong Kong Magistrate’s Court set aside an arbitral award on the ground that an order made by the tribunal in the award was outside the scope of the parties’ submissions to the arbitration and therefore outside the jurisdiction of the tribunal

What happened leading up to the lawsuit

1. The plaintiff in the case is ARJOWIGGINS HKK2 LTD (“H.K.K.”) and X CO (“XCo”) is the respondent. They were partners in a joint venture formed in mainland China (the “JV Co”) pursuant to a joint venture agreement (“JVA“).
2. Following the breakdown of the relationship between them, X Co applied to the PRC court for the judicial dissolution of the JV Co, which resulted in the order issued by the PRC court for the dissolution of the JV Co and formation of a liquidation committee in 2014.
3. in 2018, X Co commenced arbitration before the Hong Kong International Arbitration Center (“HKIAC”) against HKK (the “Arbitration”).
4. . In its submissions in the arbitration, X Co sought a court order for delivery of JV Co’s books and other documents (“JVCo Documents”) by HKK to X Co on the basis of its contention that (a) it had the right, as a former Chinese party in the JV Co, to take exclusive possession of the documents of JV Co upon its dissolution; (b) he was entitled to sue HKK for delivery of the JV Co documents under PRC law; and (c) HKK had possession, custody or control of the JV Co documents but, in violation of PRC law, refused to hand them over to X Co despite its demands.
5. In its defence, HKK denied the allegations and claims made by X Co and asserted, relying on PRC law, that during the liquidation process until its delisting, JV Co still existed and remained owner of the JV Co documents and the liquidation committee was the appropriate body to be in possession of the JV Co documents.
6. . It also appears from the pleadings that X Co maintained its claims that it was entitled to possession of the JV Co documents.
7. In its partial final award issued on May 19, 2020, the court found that (a) the JV Co documents were in the possession, custody or control of HKK; and (b) X Co had no right to demand delivery of JV Co’s documents to itself as it had demanded in the arbitration, and the Compulsory Liquidation Group (“CLG”, which was formed by order of the PRC court after the start of the arbitration) had the right to possess the documents of JV Co. Based on the above findings, the court should, according to HKK, have dismissed the claims of X Co in arbitration.
8. However, the court pointed out that, given its findings above that HKK was in possession of the JV Co documents, HKK, as a party to the JVA, had a duty to ensure that the conditions of the JVA for liquidation are met and that it must cooperate with X Co to facilitate the liquidation of the JV Co.
9. The court then invited the parties to make further submissions on what orders (if any) it should make with respect to the disposal of JV Co.’s records.
10. This invitation/request appeared to be a lifeline for X CO, which then requested in one of its other submissions that the JV Co documents be handed over to X CO for X Co to make copies of before releasing them. remit to CLG or remit directly to CLG.
11. HKK disagreed with X Co and said in its supplemental submissions that the court has no jurisdiction to make any further orders except to dismiss X Co’s claims for relief in the arbitration. with costs. he further argued that JV Co’s delivery of documents to CLG was not included in X Co’s original claim and should not be considered by the court. Thus, HKK believed that the tribunal’s jurisdiction covered only the issues raised in the Notice of Arbitration and nothing more. Furthermore, it was never raised as a matter of arbitration how the JV Co should be “properly liquidated”.
12. In its final award issued on August 5, 2020, the court ordered that X Co be entitled to the remedy of pre-delivery of JV Co’s documents to CLG. In reaching its conclusion, the court held that (a) it had jurisdiction over the remedies sought by X Co because the issue of those remedies concerned a matter relating to the rights and obligations of the parties under the JVA; and (b) even if relief was not sought by a party, it was the duty of the tribunal to act in accordance with the terms of reference given to it by the parties’ arbitration agreement and to have accorded equal treatment to the parties giving them the opportunity to make further submissions on the appropriate orders to issue after the partial final decision.

What the court decided

1. HKK asked the trial court to set aside the final award on the grounds that (a) the orders made by the court in the final award were rulings on matters beyond the scope of the submission to arbitration and therefore should be canceled pursuant to Article 81(1) of the Arbitration Ordinance (“Arrangement”) and Article 34(2)(a)(iii) of the Model Law and (b) enforcement of the final award would be contrary to the public policy of Hong Kong.
2. The court set aside the final award and the orders made therein. X Co’s counterclaim to enforce the final award was dismissed. J
3. The court overturned the final award, finding that:

(a) The arbitration only covered the issue of whether X Co was entitled, as it claimed in the Notice of Arbitration, to be provided with the JV Co documents during the liquidation process of the JV Co. Thus, later requesting that the documents to be submitted to the CLG were inconsistent with the original request.

(b) The fact that a question or matter (here the question of the rights and obligations of the parties to a proper liquidation of the JV Co) may fall within the broad scope of the arbitration agreement does not necessarily mean that the question or matter is within the scope of the actual arbitration reference submitted to arbitration. A line must be drawn between what can be agreed in a contract and what has been agreed to be subject to arbitration.

(c) It would be unfair to ambush a party to the arbitration because the tribunal allowed the other party to advance new legal consequences that were not identified in the original pleadings served for the arbitration. ‘arbitration.

(d) The tribunal further stated that it had not been raised as an issue in the arbitration as to X Co’s claims regarding its right to a proper liquidation of the JV Co. The parties to the arbitration should know in advance all relevant claims and remedies that each party requests. This way they will consider all possible defenses and decide on the full scope of evidence to introduce instead of being caught off guard.

(e) On the foregoing, it was not necessary for the tribunal to rule on the additional ground of “public order” raised by HKK to set aside the final award in view of its finding that the orders made by the tribunal in the Award outside the scope of the arbitration referral agreed by the parties

What are the things to learn

The following points may be noted by the parties to the arbitration and the courts in these references:

(a) The scope of the reference to arbitration must be determined by the parties themselves, not by the tribunal, and the tribunal must be careful not to raise questions or decide on matters beyond the agreed scope of the parties’ references.

(b) If a tribunal raises points/issues that go beyond the agreed scope of the parties’ reference to arbitration, an objection must be raised by the parties (which appears to have been raised by HKK in this cases) to preserve the right to challenge the in the future, failure to do so could be inferred as having accepted such decisions of the court.

(c) The fact that arbitration is not as formal as litigation does not mean that fairness and due process should take a back seat. All parties to the arbitration should know, to the fullest extent possible, the claims and remedies that the other party will seek. They must be clearly stated and pleaded from the start of the hearing.