## Facts

- Paklito Investment Ltd. (Paklito) and Klockner East Asia Ltd. (Klockner) entered into a contract for the sale of galvanized steel coils, containing an arbitration clause.
- The coils were loaded in Istanbul and delivered to Paklito in China.
- Paklito alleged that on delivery the coils were damaged and had not been properly galvanized, and that the defects were attributable to manufacturing rather than storage or handling.
- The dispute was referred to arbitration before the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing.
- CIETAC held an oral hearing on 25 April 1990, after which the tribunal invited further written submissions.
- Acting on its own initiative under CIETAC procedure, the tribunal appointed independent experts to inspect the goods to determine whether the defects resulted from manufacture or from storage conditions.
- The tribunal’s experts produced a report supporting Paklito’s position; Klockner’s Hong Kong solicitors received the report on about 8 November 1990.
- By letter dated 12 November 1990, Klockner informed CIETAC that it intended to respond to the experts’ report with further evidence and asked that it be able to test the experts’ conclusions (including by questioning them) and present contrary material; CIETAC received that letter on 20 November 1990.
- The tribunal had already signed the award on 15 November 1990 (before receiving Klockner’s 12 November letter). The award ordered Klockner to pay Paklito roughly US$800,000.
- On 8 January 1991, Klockner again wrote to CIETAC, stating that it expected an opportunity to present further evidence at an oral hearing; CIETAC did not act on that request.
- Paklito sought to enforce the award in Hong Kong under s.44 of the Arbitration Ordinance (Cap. 341) (New York Convention regime). A Master granted ex parte leave to enforce on 12 August 1991.
- After an inter partes hearing, the Master set aside the enforcement order on 11 February 1992 on the ground that Klockner had not been able to present its defence in the arbitration.
- Paklito appealed to the High Court (Kaplan J) from the order setting aside enforcement.

## Issues

1. Whether, for purposes of s.44 (reflecting New York Convention art. V(1)(b)), Klockner was “unable to present its case” because the tribunal proceeded to award without giving it a real chance to answer or challenge the tribunal-appointed experts’ report.
2. Whether enforcement should be refused on public policy grounds (s.44(3) / Convention art. V(2)(b)) due to the seriousness of the procedural unfairness.
3. If a Convention ground for refusal was made out, whether the Hong Kong court nonetheless had any residual discretion to enforce, and whether Klockner’s failure to seek to set aside the award in China affected that question.

## Decision

- The High Court dismissed Paklito’s appeal and upheld the Master’s refusal of enforcement.
- The court held that the manner in which the tribunal used the tribunal-appointed experts’ report, without giving Klockner a proper chance to deal with it before the award, amounted to Klockner being unable to present its case within s.44(2)(c) / Convention art. V(1)(b).
- The court treated “public policy” as a narrow ground and did not rely on it as a broad catch-all; the operative basis for refusal was the inability-to-present-case defence.
- The court accepted that, even where a Convention defence is established, any discretion to enforce is extremely limited; it should be exercised only where it is beyond doubt the result could not have been different. That threshold was not met.
- The court rejected the argument that Klockner had to seek annulment in China as a condition of resisting enforcement in Hong Kong; an award debtor may either pursue set-aside at the seat or wait to resist enforcement when it is sought.

## Legal Principles

- Under Hong Kong’s New York Convention enforcement provisions (s.44; Convention art. V(1)(b)), enforcement may be refused where a party was unable to present its case, including where decisive tribunal-appointed evidence is relied on without a real chance to respond.
- Parties may choose foreign arbitral rules and procedures, but enforcement can be denied where the process falls below minimum standards of fairness expected by the enforcing court.
- The public policy defence (Convention art. V(2)(b)) is construed narrowly and is not a general vehicle for complaints about foreign arbitral procedure; where available, the specific due-process defence in art. V(1)(b) is the proper focus.
- A party resisting enforcement of a Convention award is not required to apply to set aside the award in the country of origin; resisting enforcement in the enforcing forum is an available alternative.
- Any residual discretion to enforce despite a proven Convention ground is confined; it may be exercised only where it is beyond doubt that the procedural defect could not have affected the outcome.

## Conclusion

The Hong Kong High Court refused to enforce the CIETAC award because the tribunal relied on its own experts’ report on the central liability question without giving Klockner a real opportunity to answer or test that material before the award issued, satisfying the New York Convention defence that the debtor was unable to present its case; the court also held that failure to pursue set-aside proceedings in China did not bar resistance to enforcement in Hong Kong and that any discretion to enforce despite the defect was too limited to apply on these facts.


Paklito Investment Ltd. v. Klockner East Asia Ltd., 2 H.K.L.R. 40 (1993)