Following a steady line of authority emphasising the high hurdle to be surmounted in applying for awards to be set aside on grounds of public policy, the Hong Kong Court of First Instance (CFI) has dismissed an application to set aside an order granting leave to enforce an arbitral award (Order) where the applicant alleged fraud on the part of the award creditor (T v C [2016] HCCT 23/2015).

On the allegation of fraud, Mimmie Chan J applied the threshold test confirmed in Karaha Bodas Co LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (2009) 12 HKCFAR 84, which requires the applicant to show that it has a "real prospect of success" in persuading the judge to find that the award had been obtained by fraud.

Background

C applied to set aside the Order, which grants T leave to enforce an award obtained in arbitral proceedings in Malaysia. Under the award, C was to pay T damages for breach of a contract for the supply of coal. As the arbitration proceedings were commenced on 13 August 2009, the old Arbitration Ordinance (Cap. 341) (the Ordinance) applies to C's application.

While Chan J found that C's application failed clearly to specify the grounds on which it sought to set aside the Order, following submissions made by C's counsel at the hearing, she confined her deliberations on the merits to the ground of public policy under s.44(3) of the Ordinance.

C alleged that the documents relied upon by the tribunal and T as the basis of the valid contract (and arbitration agreement) between the parties were forged and created as a result of fraud. In particular, C asserted in several affidavits produced in evidence that the signatures appearing in certain contractual documents were not made by the persons held out to be the signatories. T's position was that C had failed to adduce expert evidence establishing that the signatures were in fact forged, and sought to rely merely on bare assertions.

The judgment

Having evaluated the evidence presented by the parties, Chan J was unequivocal in her finding that C's case failed to satisfy the high threshold of a "real prospect of success in persuading a judge to find that the award had been obtained by fraud". She noted that this "high standard" was justified in light of "the serious nature of an allegation of fraud, the binding nature of an arbitral award and the principle of speedy finality which underpins the Ordinance."

The CFI went on to hold that it was "incumbent on C as the applicant to make full and adequate disclosure of the facts and matters it relies upon to substantiate its allegation of fraud, as opposed to simply making bare assertions", and that C had failed to do so in this instance.

The CFI also noted that C had raised the same allegations before both the arbitral tribunal when challenging its jurisdiction, and the supervisory court in Malaysia, failing in both applications. Chan J noted that the decision of the supervisory court on the existence and validity of the contract and arbitration agreement, and its refusal to set aside the award, should be given "due weight" by an enforcement court. Moreover, the fact that there may be an appeal before the Malaysian courts was not a persuasive reason to set aside the Order, as the arbitral award remained "valid and binding".

The judge awarded costs on the indemnity basis.

The CFI's decision follows established practice of the Hong Kong courts in applying a very high threshold to challenges on public policy grounds. In this respect, the Hong Kong courts' approach is fully aligned with international best practice.