In China Property Development (Holdings) Ltd v Mandecly Ltd (CACV92/2015), the Hong Kong Court of Appeal (“CA“) affirmed the decision of the Court of First Instance (“CFI“) where an arbitral award was partially set aside due to a serious breach of due process.
The dispute arose out of a share purchase agreement between China Property Development (Holdings) Ltd (“CPD“) and the sellers (including Mandecly Ltd , Mr. Tsoi and Mr. Chan) (“Sellers“), where CPD would buy a PRC entity, BPP. Due to the dispute, CPD and BPP commenced arbitration against the Sellers. In relation to one of the issues to be decided by the Tribunal, the Sellers stated in the hearing that their arguments were directed against BPP only. As a result, CPD made no submissions on that point. However, the Tribunal in its award (“Award“) made a ruling against CPD on such issue. CPD sought clarifications from the Tribunal as to whether there was any typographical error but was told that there was none. The Tribunal came to its ruling by relying on the Seller’s arguments on a different issue. Therefore, CPD sought to set aside the relevant part of the Award under Article 34 of the UNCITRAL Model Law, primarily on the ground that it was unable to present its case on the arguments on which the Tribunal had relied.
CFI and CA judgments
The CFI held that CPD had been denied a chance to present its case under Article 34(2)(a)(ii) of the UNCITRAL Model Law, which was a “sufficiently serious breach of due process”. Therefore, the CFI allowed the relevant part of the Award to be set aside. While the CFI underlined that the Court should ensure the structural integrity of arbitration proceedings rather than decide on the substantive merits, the CFI considered it necessary to review the parties’ pleaded cases. The CA upheld the CFI’s findings and went further by stating that the Tribunal had also fallen into the error under Article 34(2)(a)(iii) of the UNCITRAL Model Law, where the award dealt with a dispute beyond the terms of the submission to arbitration or contained decisions on matters beyond the scope of the submission. In addition, the CA noted that the Court has a residual discretion not to set aside an award even when irregularity has been established, if the Court considers the ruling could not have been different had the irregularity not occurred. Considering the nature of the irregularity, CA regarded it as “at the serious end” and therefore such discretion was not exercised.
This is a pro-arbitration case in the sense that it shows the Hong Kong courts’ efforts to ensure integrity of arbitration proceedings, namely by allowing due process and an opportunity to present one’s case (or defense). While the Hong Kong Courts will generally respect the finality of arbitral awards whenever possible, they are ready to intervene in the event of serious breaches of natural justice. This case highlights the importance of the parties’ right to be heard. Tribunals should be cautious in not introducing new arguments without giving the parties an opportunity to present their cases on such arguments. In order to preserve procedural integrity, the Hong Kong courts may review the pleadings and transcripts to decide what arguments were actually presented before the Tribunal.