LY v. HW

At a glance

Parties

LY (Plaintiff; respondent in the arbitration) v. HW (Defendant; claimant in the arbitration)

Case no.

HCCT 96/2021; [2022] HKCFI 2267

Court

Hong Kong Court of First Instance (Construction and Arbitration Proceedings), Hon Mimmie Chan J in Chambers

Underlying award(s)

Final award on merits and quantum dated 21 October 2021, by Robert Tang, Thomas So and Winnie Tam (Hong Kong-seated arbitration)

Treaty

Contract arbitration clause in a Distribution Agreement dated 29 January 2015; set-aside under section 81 of the Arbitration Ordinance (Cap 609) / Article 34 Model Law

Sector

Pharmaceutical distribution

Outcome

Application to set aside the award dismissed (26 July 2022).

Amount

Costs of the application against LY on an indemnity basis, with certificate for counsel.

The dispute

HW, a Mainland company, was appointed exclusive distributor in the Mainland of AZ's pharmaceutical products under a Distribution Agreement dated 29 January 2015. A 2016 Letter, which supplemented the Agreement, allowed termination if HW's 2018 sales were below RMB 354 million. AZ assigned the Agreement to LY, a Hong Kong company, with effect from 28 June 2018. On 17 May 2019 LY terminated the Agreement on the ground that HW's 2018 annual sales value (ASV) was only RMB 353.31 million. HW started arbitration in Hong Kong. The tribunal found that 2017 excess inventory had to be rolled over into the 2018 ASV, so the target was met and the termination was wrongful. LY applied under Article 34(2)(a)(iii) and Article 34(2)(b)(ii) of the Model Law to set the award aside. It argued that the tribunal had failed to deal with three key issues, or to give sufficient reasons on them: (1) whether the rollover was consistent with sections 10.2 and 38.1 of the Agreement; (2) the power of the Joint Review Committee (JRC) and the effect of its minutes; and (3) whether LY, as assignee, was bound under Article 82 of the PRC Contract Law. HW argued that a failure to consider an issue is at most an error of law and not a ground for setting aside under section 81.

Key holdings

1. A failure to deal with an issue normally goes to the substance of the decision and is at most an error of law. LY could still argue that such a failure breached due process and so offended Hong Kong public policy. The grounds for setting aside are construed narrowly and require a serious or egregious error. ¶¶ 5–9
2. Read in a reasonable and commercial way, the award shows that the tribunal construed ASV under sections 10.2, 1.59 and 17.2. It considered LY's argument that the rollover had no contractual basis, and it explained why excess 2017 inventory counted towards the 2018 ASV. ¶ 58
3. The issues on JRC power (section 13.3), written amendment (section 38.1) and the assignment were not key issues. They were arguments supporting LY's central claim that the target had not been met. LY itself relied on the binding effect of the 2016 Letter. ¶¶ 59–60
4. On the Assignment Issue, the tribunal took into account LY's knowledge that inventory exceeding 40 days had been deducted from HW's 2017 rebates. Even if the tribunal had not dealt with the issue, that would be at most an error of law, for which there is no redress. ¶¶ 61–65
5. An inference that the tribunal failed to consider an important issue was not clear and virtually inescapable. The court found no serious or egregious error justifying setting aside, whether on the arbitral-procedure ground or the public-policy ground. ¶¶ 66–68
6. A suspension under Article 34(4) is available only where grounds for setting aside are made out. It cannot be used simply to have an award clarified or improved, so it did not apply here. ¶¶ 70–71
7. The application was dismissed, with costs against LY on an indemnity basis and a certificate for counsel. ¶ 72

Procedural history

1. 29 January 2015Distribution Agreement concluded between HW and AZ.
2. 27 June 2018AZ gives notice assigning the Agreement to LY, with effect from 28 June 2018.
3. 17 May 2019LY gives notice terminating the Agreement for failure to meet the 2018 sales target.
4. 29 July 2019HW files a notice of arbitration.
5. 21 October 2021Final award on merits and quantum in HW's favour.
6. 28 June 2022Hearing of LY's set-aside application.
7. 26 July 2022Court of First Instance dismisses the set-aside application.

Tribunal, counsel and experts

Decided by

• Mimmie Chan Judge, Hong Kong Court of First Instance

For the claimant

Fangda Partners

For the respondent

Anthony Siu & Co.

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Keywords

• set-aside
• infra petita
• failure to deal with issues
• adequacy of reasons
• public policy
• due process
• Article 34 Model Law
• Article 34(4) suspension
• section 81 Arbitration Ordinance
• Hong Kong
• distribution agreement
• pharmaceutical distribution
• rollover arrangement
• annual sales value
• assignment
• PRC Contract Law Article 82
• minimal curial intervention
• New York Convention Article V

Summary generated with AI from the published documents — refer to the award for the authoritative text.