The case of Po Fat Construction Co Ltd v IO of Kin Sang Estate [2014] 2 HKC, 6 November 2013, demonstrates once again that the courts will not easily set aside arbitral awards and that they require strict adherence to the procedural rules governing applications to set aside.
The Plaintiff contractor ("the Contractor") had agreed with the Defendant owners ("the Owners") to carry out renovation works. Disputes arose and arbitration proceedings commenced, in which an award was made ("the Award") ordering the Contractor to pay the Owners HK$4.2 million, that being the cost of rectifying defective works.
The Contractor commenced court proceedings, by Originating Summons ("the OS"), seeking leave to appeal against the Award and set it aside on questions of law. However, the OS did not specify the questions of law and was not accompanied by an affidavit, as required by the procedural rules. The Contractor tried to remedy this by seeking the court's leave to amend the O.S. to state the grounds upon which leave was sought to set aside the Award, namely (i) that the arbitrator had breached due process and, alternatively; (ii) on the question of law of whether the arbitrator could make findings that the Contractor was liable for the design waterproofing system of canopies and was in breach of its implied duty to warn the Owners of the design defects, when these issues were not pleaded issues, and without giving the Contractor an opportunity to fully present its case.
The court dismissed the Contractor's applications and ordered it to pay the Owner's legal costs on an indemnity basis, for the following reasons:
- The Contractor's OS was defective and an abuse of process because it did not comply with procedural rules in that it (i) had not been served within 30 days after the Award had been delivered (i.e. within 30 days of the arbitrator informing the parties that it was ready for collection); (ii) had not been accompanied by an affidavit; and (iii) did not state the precise grounds of appeal on a point of law.
- In any event, there were no merits whatsoever in the Contractor's grounds for setting aside the Award. Only where the conduct of the arbitrator is so serious or egregious will the court set aside an award. Here, the arbitrator's conduct in allowing the issues of the Contractor's responsibility for the design of the waterproofing system and implied duty to warn to be raised and making of findings against the Contractor on these issues, was not so serious or egregious as to justify the Award being set aside.
- When a party seeks to set aside an award on the grounds that the arbitrator's findings were outside the scope of the parties' submission to arbitration, such ground will be narrowly construed to include only those decisions which were clearly unrelated to or not reasonably required for determination of the issues submitted to arbitration. Here, the arbitrator's findings were related to and were reasonably required to determine the pleaded issues.
- Further, even if a party was unable to present its case or there had been some serious procedural irregularity or error such that due process could be said to have been undermined, the court will not exercise its discretion to set aside an arbitral award, if not satisfied that the outcome of the dispute would have been affected by such irregularity or breach of due process, or if the court is satisfied that the arbitral tribunal could not have reached a different conclusion.
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