In China Property Development (Holdings) Ltd v Mandecly Ltd HCCT 53/2010, the Hong Kong Court of First Instance (the CFI) has set aside part of an arbitral Award, on the basis that the applicant had been denied an opportunity to present its case on certain issues (click here for the full judgment). The decision underlines the policy of the Hong Kong courts to set aside arbitral awards on due process grounds only where the conduct of the arbitral tribunal has been “serious” or “egregious” in nature (see our previous post on the leading case Pacific China Holdings Ltd v Grand Pacific Holdings Ltd here). It also provides a useful reminder for arbitral tribunals of some of the pitfalls to be avoided when setting out their reasoning in arbitral awards.
The underlying dispute related to the consideration payable under a share sale agreement pursuant to which China Property Development (Holdings) Ltd (CPDH) acquired a PRC entity referred to as “BPP“. CPDH and BPP commenced arbitration against the sellers and numerous issues fell to be determined by the Tribunal. In relation to one of those issues, the sellers expressly confirmed during the hearing that their arguments were directed against BPP only. CPDH consequently made no further submissions on the point. In its award, however, the Tribunal made a ruling on that issue against CPDH, and ordered it to make a payment to the sellers as a result.
CPDH sought clarification from the Tribunal as to whether the reference to “CPDH” in the relevant part of the award was a typographical error and should actually be a reference to “BPP”. The Tribunal confirmed that there was no typographical error and provided a written explanation of the reasons for its decision. The explanation revealed that in making its finding against CPDH on the issue, the Tribunal had applied the reasoning underlying the sellers’ arguments on a different issue (which had also been directed against BPP only).
CPDH therefore applied to set aside the relevant parts of the award under Article 34 of the UNCITRAL Model Law on the basis that, inter alia, it had been unable to present its case on the arguments on which the Tribunal had relied.
Decision on set-aside
The CFI accepted that CPDH had been denied an opportunity to present its case on arguments on which the Tribunal might have based its decision, and considered this to be a “sufficiently serious breach of due process” to justify the setting aside of the relevant parts of the award. In reaching its decision, the CFI emphasised that the role of the court is to consider the structural integrity of the arbitration proceedings and not to address the substantive merits of the case or the correctness of the Award on matters of law or fact. The CFI nevertheless noted the necessity in set-aside applications for the court to review the pleaded cases of the parties, an exercise which it considered was particularly important in this case given the factual complexity of the issues.
This case is a useful reminder that the Hong Kong courts are willing to set aside arbitral awards where the statutory grounds are made out. Although set aside is rare and the requirements stringent, it is a remedy that the courts can and will order where appropriate, in order to support the integrity of the arbitral process. As such, the decision in China Property Development is a pro-arbitration one, and to be welcomed.
The case also serves to remind tribunals to tie their reasoning to the arguments made by the parties during the proceedings. If a tribunal considers that there is a case to be made which has not been expressly pleaded, it must give both parties an opportunity to be heard. In this regard, the fact that an argument was already “in the arena” during the proceedings will not necessarily be sufficient, if the tribunal relies upon the argument to support its conclusions on an issue different from the one in respect of which the argument was advanced. Finally, while a tribunal is entitled under Article 33 of the UNCITRAL Model Law to provide an interpretation of a specific point or part of the award on the request of a party, it should take care in doing so not to introduce new arguments nor a train of reasoning to which one or more of the parties have not had a chance to respond.