Court of Appeal decision again highlights Hong Kong Courts’ pro-arbitration approach

In China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers [2016] 1 HKC, the Court of Appeal upheld the constitutionality of Section 81(4) of the Arbitration Ordinance (Cap 609). That section provides that to appeal a Court of First Instance (CFI) decision on the setting aside of an arbitration award, leave to appeal must first be obtained from the CFI.

By an arbitration award, the Respondent had been awarded over US$7.55 million in respect of works it had carried out under an architectural consultancy contract. The CFI dismissed the Applicant’s application to set aside the award.  The Applicant sought the CFI’s leave to appeal that decision, but leave was refused.

Notwithstanding the apparent finality of the matter after the CFI’s refusal of leave, as provided in section 81(4) of the Arbitration Ordinance, the Applicant applied to the Court of Appeal seeking such leave. Article 82 of the Basic Law provides that the power of final adjudication of the Hong Kong Special Administrative Region shall be invested in the Court of Final Appeal. The Applicant argued that section 81(4) was therefore unconstitutional because it disproportionally restricts the power of final adjudication by the Court of Final Appeal under Article 82 of the Basic Law.

The Court of Appeal accepted that because section 81(4) of the Arbitration Ordinance has the effect of limiting appeals to the Court of Appeal, which in turn would limit appeals to the Court of Final Appeal, Article 82 of the Basic Law was engaged and the section must therefore be examined against the proportionality test i.e. was section 81(4) no more than necessary to accomplish its legitimate aim?

The Court of Appeal held that the restriction in section 81(4) was no more than necessary to achieve its legitimate aim of promoting speed, finality and reduction of costs in arbitration and parties’ autonomy in choosing their own dispute resolution process. It came to this conclusion as it found that:

• The limitation in section 81(4) is not an absolute exclusion because the Court of Appeal does retain a residual jurisdiction (under section 14(3) (ea) (iv) and (v) of the High Court Ordinance) to supervise the fair processing of the leave application by the CFI, albeit that such residual jurisdiction would rarely be invoked and only where the CFI’s decision to refuse leave to appeal could not be regarded as a judicial decision.
• Although under the primary regime under the Arbitration Ordinance, the Court of Appeal’s role is more limited than in usual proceedings in the High Court, in that even where appeals to the Court of Appeal are possible, they have to be brought with the CFI’s leave, parties can opt in their arbitration agreement for the alternative scheme in Schedule 2 of the Arbitration Ordinance to apply (in those cases where it does not already automatically apply). Under Schedule 2, there is wider scope for the involvement of both the CFI and Court of Appeal.
• Hence if a party wishes to retain the option of going to the Court of Appeal to seek leave to appeal an award for serious irregularity, he can stipulate in the arbitration agreement that section 4 of Schedule 2 of the Arbitration Ordinance shall apply. Conversely, if a party does not so stipulate, he is taken to have bargained with the opposite party that the role of the Court of Appeal in such matter is limited as per section 81 of the Ordinance. Even if the section 81 regime applies, the Court of Appeal still retains overall supervision on the fairness of the process of seeking leave before the CFI, in the form of a residual jurisdiction, as referred to above.

Since the Court of Appeal came to the clear conclusion in this case that it had no jurisdiction to entertain the leave application, the application was dismissed.

This case emphasizes again the court’s pro-arbitration approach and, as the Court of Appeal said, the limitation on the right to appeal is consistent with the philosophy underpinning arbitration and that philosophy does not cease to apply when the matter comes to court by way of challenge to the arbitral award. To allow multiple rounds of leave applications would, the Court of Appeal said, undermine the legitimate aim of finality and speed and reduction of costs of dispute resolution by arbitration.

Key Contacts

Joseph Chung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9647