Judgment confirms Hong Kong courts’ “hands off” approach to arbitration

On 19 February 2013, Hong Kong’s Court of Final Appeal refused leave to appeal against the Court of Appeal’s leading judgment on the setting aside of arbitral awards.

Background

On 29 June 2011, the Court of First Instance (“CFI”) granted the application of Pacific China Holdings Ltd (“Pacific China”) to set aside an International Chamber of Commerce (ICC) arbitral award (“the Award”) made against it in favour of Grand Pacific Holdings Ltd (“Grand Pacific”) for US$55 million. The Award was set aside under Article 34 (2) of the UNCITRAL Model Law (which is incorporated in Hong Kong’s Arbitration Ordinance) on the grounds that Pacific China had been unable to present its case and/or that the arbitral procedure had not been in accordance with the parties’ agreement.

The CFI found that the arbitral tribunal(“the Tribunal”) had departed from an agreed procedural timetable for the exchange of pre-hearing submissions and had refused Pacific China leave to rely on legal authorities and respond to submissions of Grand Pacific on a particular issue, meaning that the arbitral procedure had not been in accordance with the parties’ agreement and rendering Pacific China unable to present its case.

In respect of the violations, the CFI was unable to say that if they had not occurred, the result could not have been different and accordingly, Pacific China was entitled to the exercise of the court’s discretion in favour of setting aside the Award.

Court of Appeal Ruling

By a unanimous decision on 9 May 2012, the Court of Appeal reversed the CFI’s decision and reinstated the award, holding that:-

1. The setting aside remedy provided by Article 34 is not an appeal and the court will not address itself to the substantive merits of the dispute or to the correctness or otherwise of the award in fact or law. It would address itself only to the structural integrity of the arbitration process.

2. For the award to be set aside on the basis that a party had been unable to present his case, the conduct complained of must be serious or even egregious before a court might take the view that a party had been denied due process.

3. There was no basis for disagreeing with the Tribunal’s decisions made in this case and the CFI was not entitled to interfere with a case management decision that was fully within the Tribunal’s discretion.

4. The burden was on the party seeking to set aside the award to show that it had or might have been prejudiced.

Court of Final Appeal Ruling

On 19 February 2013, the Court of Final Appeal refused to grant Pacific China leave to appeal to the Court of Final Appeal, the Court of Appeal having previously also refused leave. The Court of Final Appeal said that the Court of Appeal had been entirely correct to hold that the complaints advanced by Pacific China did not constitute viable grounds for setting the Award aside. The rulings complained of, were, the Court of Final Appeal said, made by the Tribunal in the proper exercise of its procedural and case management discretion, reflecting its assessment of the requirements of procedural fairness, as appropriate to the circumstances and there was no basis for interference by the court.

This judgment makes it clear that the Hong Kong courts will be slow to interfere with procedural and case management decisions of arbitral tribunals and that in order to set aside an arbitral award on the basis of lack of due process a party has to meet a very high threshold, namely the conduct complained of must be serious or even egregious. This will no doubt further cement and enhance Hong Kong’s reputation as an attractive arbitration seat.