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Authored by: Justin Yuen
In AI & ORS v LG II & ANOR  HKCFI 1183, the Plaintiffs had brought arbitration proceedings in respect of a dispute arising from sale and purchase Agreements for units in trade finance funds. The arbitral tribunal found that the Agreements were not void or unenforceable by reason of illegality or common mistake, as alleged by the Plaintiffs and that there was no basis for rescission of the Agreements. The court dismissed the Plaintiffs’ application to set aside the award on the grounds that the tribunal had failed to provide reasons for its decision and to address certain issues and had wrongly applied the law.
The parties had entered into Agreements for the sale and purchase of units in trade finance funds. Disputes arose and the Plaintiffs commenced arbitration proceedings in Hong Kong against the Defendants, seeking declarations (that the Agreements were void or rescinded for illegality or common mistake or discharged and rescinded from frustration of purpose of the Agreements) and damages. The Plaintiffs’ fundamental complaint in the arbitration was that the Agreements were part of an unlawful scheme.
Application to set aside arbitral award
The arbitral tribunal found that the Agreements were not void or unenforceable by reason of illegality or common mistake and that there was no basis for rescission of the Agreements.
The Plaintiffs applied to set aside the arbitral award on the basis that the tribunal had provided no or inadequate reasoning for its findings, had failed to deal with certain issues and had made errors of law.
An arbitral tribunal’s failure to deal with issues
The court said that as for a claim that a tribunal had failed to deal with an issue, as the basis for contending that the arbitral procedure contravened the principles of natural justice and basic standards of fairness, and/or that it would be contrary to public policy to uphold such an award, the relevant legal principles and approach of the courts are as follows:
The court said that in considering whether a tribunal has dealt with an issue, the approach is to read the award in a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with it. The court also referred to the policy of minimal curial intervention and that the court’s approach should be to read the award generously, so as to remedy only meaningful and readily apparent breaches of the rules of natural justice which can cause actual prejudice.
The court concluded that consideration of the parties’ submissions and a review of the arbitral award, showed that the tribunal had not failed to deal with the issues in question. This was clearly a case, the court said, of the tribunal having considered the issues in question and the Plaintiffs’ submissions and arguments, but rejecting them as not having been established on the evidence.
An arbitral tribunal’s failure to give reasons
The court referred to the high threshold that an applicant has to meet, when challenging an award on the basis that the tribunal had failed to give reasons for its decisions and findings. It said that as long as the reasoning of the tribunal is expressed in an award to enable the parties to the award to understand how and why a conclusion is reached on a particular issue as argued, the reasons for the award do not have to be elaborate. There is no need to give reasons to deal with each and every argument presented. It is sufficient if the award explains the basis on which a material finding was made.
In this case, the court held that the tribunal’s reasons for its findings were, on a reading of the award by a reasonable party in the shoes of the Plaintiffs and Defendants, clear and discernible from the award.
Errors of law by an arbitral tribunal
The court pointed out that errors of law made by an arbitral tribunal are not an excuse for setting aside an arbitral award, as the court does not sit on appeal from the tribunal’s decisions.
This judgment once again reinforces the Hong Kong courts’ pro-arbitration approach. The judgment usefully summarises the relevant legal principles for applications to set aside an arbitral award and the high threshold that the applicant has to meet to be successful in such application.
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