Paklito Investment Ltd. v. Klockner East Asia Ltd.

Paklito Investment Ltd. (Paklito) (plaintiff) and Klockner East Asia, Ltd. (Klockner) (defendant) entered into an agreement under which Klockner was to sell steel coils to Paklito. The agreement contained an arbitration clause. The steel coils were loaded in Istanbul and delivered to Paklito in China. Paklito alleged that upon delivery, the coils were damaged and had not been properly galvanized by Klockner. The dispute was referred to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in China. The arbitral tribunal appointed its own experts to inspect the goods to determine whether the defects were due to the way the coils were manufactured versus the way the coils were stored. Upon receiving the report of the tribunal’s experts, Klockner alerted the tribunal that Klockner intended to respond to the experts’ opinion with additional evidence. However, the tribunal proceeded to render an award in favor of Paklito before Klockner could submit a response or be heard. Paklito sought enforcement of the award in Hong Kong. The Hong Kong lower court first granted leave for enforcement, but it later set aside that order on the ground that Klockner had not been able to present a defense in the arbitration. Paklito appealed, arguing that neither Chinese law nor the CIETAC rules provided for cross-examination or questioning of the tribunal’s experts. Both parties submitted opinions from legal experts in China on the issue of whether Klockner was entitled to submit evidence rebutting the experts’ report. Paklito’s legal expert maintained that the concept of cross-examination was totally absent from the Chinese legal system, and that a party was not entitled to challenge a tribunal’s expert. Klockner’s experts countered that there were avenues in Chinese civil procedure for questioning witnesses and, furthermore, Chinese law directed that CIETAC must follow international treaties to which China had acceded, including the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which required that a party be given the chance to present its case.