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Hong Kong Court of First Instance declines to set aside HKIAC award
Practical Law UK Legal Update Case Report 9-521-6731 (Approx. 4 pages)
Hong Kong Court of First Instance declines to set aside HKIAC award
by Practical Law
| Published on 03 Oct 2012 �� Hong Kong - PRC |
Freshfields Bruckhaus Deringer
The Hong Kong Court of First Instance has refused an application to set aside an HKIAC award under Article 34(2)(a)(ii) of the UNCITRAL Model Law.
Background
Article 34(2)(a)(ii) of the UNCITRAL Model Law provides that an award may be set aside where a party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or "was otherwise unable to present his case".
This provision applies in Hong Kong and the application to set aside the award in this case was brought on the basis of the last part of Article 34(2)(a)(ii), namely that the losing parties to the arbitration were unable to present their case.
Facts
Pang Wai Hak (Pang) and Chu Sze Sum (Chu) had entered into an agreement to transfer a 50% interest in property located in Wuhan City, the People's Republic of China (PRC), to 華允鑒 (Y) and Xu Xiao Lan (Xu). Disputes arose between the parties regarding the performance of their respective obligations under the agreement. The disputes were subsequently referred to HKIAC arbitration before a sole arbitrator. No issue was taken by either party regarding the question of time limitation under PRC law during the first hearing. Some six months later a second hearing was held where, for the first time, the issue of time limitation under PRC law (the law governing the agreement was PRC law) was raised, but only in the opening statement. However, there was no examination in chief, cross examination or re-examination of any witnesses in relation to the issue of limitation during the course of the second hearing.
On 5 May 2011, the arbitrator rendered an award save as to costs in favour of Y and Xu, dismissing the counterclaim of Pang and Chu (Award).
In the Award, the arbitrator addressed the issue of limitation and gave two reasons for rejecting the parties' respective contentions that the claim or counterclaim were time barred under PRC law, namely:
- The limitation defence had not been pleaded.
- No concrete evidence on this point had been given by the factual witnesses of both parties.
Accordingly, the arbitrator held that both the claim and counterclaim were made within the applicable limitation period.
An application was subsequently made by Pang and Chu to the Hong Kong Court of First Instance to set aside the Award on the basis of Article 34(2)(a)(ii) of the UNCITRAL Model Law. Two arguments were raised:
- The two reasons given by the arbitrator for rejecting the limitation defence had not been raised by the arbitrator before the parties, and therefore the arbitrator had taken these points himself. If the points had been raised, Pang and Chu could and would have successfully applied to amend their pleadings to include the limitation defence.
- As it was clear on the facts of the case as found by the arbitrator that the claim was time barred under PRC law, the arbitrator was wrong to decide that witness testimony providing concrete evidence was a prerequisite for running the limitation defence.
Decision
The Hong Kong Court of First Instance rejected the application to set aside the award.
The pleading point
The court held that the failure of the arbitrator to provide the parties with an opportunity to address the point that the limitation defence had not been pleaded, and the dismissal of the limitation defence on the basis that it had not been pleaded, amounted to a denial of due process.
The lack of concrete evidence point
Although the court considered that there was more than one way to interpret the arbitrator's statement in the Award, where he rejected the limitation defence for lack of concrete evidence, the court held that it was not necessary for it to make a final conclusion on the interpretation of the statement. This was because, following the principles established in Pacific China Holdings Ltd (in liquidation) v Grand Pacific Holdings Ltd, CACV 136/2011, a court "will not address itself to the substantive merits of the dispute or the correctness or otherwise of the Award, whether concerning errors of fact or law" (see Legal update, Hong Kong court orders indemnity costs against unsuccessful application to set aside arbitral award). In the present case, the court confirmed that the only basis on which a court may intervene is where a party has been denied due process in the arbitration.
Conclusion of the court
In conclusion, the court held that Pang and Chu had been successful on the pleading point but not in respect of the lack of concrete evidence. Had the pleading point been the only reason given by the arbitrator to reject the limitation defence, the court would have set aside the award. However, since the two reasons given by the arbitrator to reject the limitation defence were "independent reasons", it was clear to the court that the arbitrator would have reached the same conclusion even if he had ignored the pleading point.
Comment
This judgment demonstrates the mechanistic approach taken by the Hong Kong courts when enforcing awards. It also confirms the residual discretion of the court to refuse to set aside awards where the tribunal would not have reached a different conclusion even though there has been a violation of Article 34(2) of the UNCITRAL Model Law. The judgment also helpfully sets out the test for setting aside an award under Article 34(2)(a)(ii) on the ground that a party was "unable to present his case". In summary:
- The court has to be satisfied that a party has been denied due process (examples include where the tribunal carried out its own investigation or inquiry on primary facts, or decided a case based on a wholly new point of law or fact without giving the parties a fair opportunity to consider and respond to such point).
- The conduct complained of must be serious or even egregious.
- Whether there has been a denial of due process must depend on the court's evaluation of the relevant facts and circumstances of each individual case.
- Ultimately, in considering whether a party was "unable to present his case", the question is one of fairness in the arbitral process.
This decision also serves as a reminder that arbitral tribunals must be careful to allow the parties the opportunity to address any points which the tribunal intends to rely on in its final award.