The Hong Kong Court of First Instance (HKCFI) has had no hesitation in discharging an Enforcement Order on grounds of material non-disclosure, in a case relating to the enforcement of an arbitration award.

The decision in 1955 Capital Fund I GP LLC v Global Industrial Investment Ltd [2020] HKEC 2008 emphasises the importance of full and frank disclosure of all material facts in applications for leave to enforce arbitration awards, particularly in affirmations or affidavits in support of such enforcement applications.

The failure to do so, even if the information or material is exhibited to the supporting affidavit or affirmation, is likely to be enough to constitute material non-disclosure, and result in any enforcement order for the arbitral award being discharged.

Background

This case concerned an application to discharge a Hong Kong enforcement order (Enforcement Order) for an arbitral award (Award) made in California.

The Award of approximately US$9 million, given in favour of 1955 Capital Fund I GP LLC (a US company) (1955 Capital) against Global Industrial Investment Ltd. (a Hong Kong company) (GII), was at the material time being challenged in California. Shortly after the filing of the challenge in California, 1955 Capital took out an ex parte application in Hong Kong seeking leave to enforce the Award in Hong Kong (Ex Parte Application). The Enforcement Order was granted.

Before the underlying arbitration, 1955 Capital and GII had entered into agreements which contained a clause stating: "…Absent the filing of an application to correct or vacate the arbitration award under applicable law, each party shall fully perform and satisfy the arbitration award within 15 days of the service of the award" (emphasis added). This clause was also referred to, and the wording reproduced, in various documents including the Partial Final Award and the Final Award (Relevant Part). 1955 Capital's attorney, in his affidavit in support of the Ex Parte Affirmation referred to the Relevant Part of the Final Award, but omitted the words in bold above (Omitted Words).

Arguments

GII challenged the Enforcement Order for material non-disclosure on the following bases:

  • 1955 Capital's attorney had deliberately removed the Omitted Words from the Ex Parte Application (given his deep involvement in the contractual relations between the parties, he would have known of the Relevant Part which was quoted in various documents and proceedings in California) and this constituted a material non-disclosure, as it created the impression that the Final Award was immediately enforceable and deprived the judge of the opportunity to consider responsibly and fully the Ex Parte Application.
  • Had the judge seen the Omitted Words, the judge may well have decided that the Final Award was not yet binding and hence, declined to make the Enforcement Order.
  • The non-disclosure provided 1955 Capital with an unfair advantage over GII. In this instance, it enabled 1955 Capital to obtain garnishee orders vis-à-vis GII following the Enforcement Order.

In response, 1955 Capital submitted:

  • That the Omitted Words were relevant for the judge's consideration, and should have been drawn to the judge's attention, and 1955 Capital's attorney had not explained directlyas to why he had removed the Omitted Words.
  • However, the judge would have made the Enforcement Order anyway, and that the Enforcement Order allowed for 14 days within which GII could apply to set it aside (meaning that the Final Award would not be enforced until the expiration of that period).
  • Therefore, the attorney had nothing to gain and acted "innocently".

GII's submissions in reply were to the effect that:

  • The most important feature of this matter was the lack of direct explanation for the deliberate removal of the Omitted Words.
  • The nature of an ex parte application involves the court granting relief to the applicant, in the absence of the person against whom the relief is sought. Such a person has no opportunity to be heard. The duty to make full and frank disclosure is thus imposed to ensure that the application is made with the highest good faith1.

Decision

The HKCFI had no hesitation in discharging the Enforcement Order on grounds of material non-disclosure. It held that:

  • The removal of the Omitted Words was plainly deliberate and no explanation was given as to why this was done.
  • The Omitted Words were material, and had the judge been made aware of the Omitted Words, the judge may not have granted the Enforcement Order.
  • 1955 Capital had something to gain from its behaviour, i.e., getting a head start on GII and obtaining garnishee orders.
  • Exhibiting the Final Award to the supporting affidavit was insufficient to satisfy a duty of full and frank disclosure: The Final Award was more than 140 pages long, and an applicant in an ex parte application cannot shift its burden of full and frank disclosure to the court by exhibiting the relevant material in the expectation that the judge will pick up the pertinent points2.

Commentary

This case reminds parties that, even though the Hong Kong Courts favour efficient enforcement of arbitration awards, they must comply with relevant procedures in enforcement applications. When parties proceed ex parte, they must do so with the highest good faith, and ensure they refer to all material information in the supporting affidavit or affirmation: merely exhibiting relevant documents and expecting that the court will identify the salient points is not sufficient.


1 Au J at §54, Grant Thornton International Ltd v JPBP & Co (A Partnership), HCCT 13/2012, unreported, 5 April 2013

NCS Co. Ltd. v Bao Harvest Holding Ltd. [2012] 5 HKLRD 138