The recent Hong Kong case X Chartering v Yconfirms that Hong Kong is a pro-enforcement jurisdiction and that the bar for invoking public policy as a ground for refusing enforcement is very high.

Background

In 2008, X Chartering (X) commenced arbitration proceedings in London against Y for repudiation of a contract of affreightment. X obtained an award from Y and was subsequently granted an order for the enforcement of the award in Hong Kong.

Y applied to set aside the award. Y argued that there had been procedural irregularities which were contrary to public policy. In Y’s view, the Hong Kong Court should exercise its residual discretion to refuse enforcement on the grounds that:

  • Y had been unable to present its case on the calculation of quantum.
  • The arbitrators had made an error of law in their calculation of quantum (and by doing so, the arbitration procedure was not in accordance with English law or the parties’ agreement).
  • There was a conflict of interest in X’s solicitors acting for X. The firm of solicitors acting for X was the legacy of the firm that had previously acted for Y in another matter prior to a merger of two firms. Y argued that the fact that X’s solicitors had previously obtained confidential information about Y tainted the propriety and fairness of the proceedings, which was contrary to public policy.

Y’s application was refused.

The judge held that Y had not been unable to present its case on the calculation of quantum and that by agreeing to resolve a dispute by arbitration rather than through the courts, the parties were deemed to have undertaken the risk that an arbitrator may be wrong. In any event, a previous application to overturn the substantive findings of the tribunal on the same point had been rejected by the supervisory court in England and moreover, to review the tribunal’s decision on the quantification of damages was akin to revising the merits of the decision.

As to the third ground of the perceived conflict of interest, the Court held that there had been no actual conflict of interest to justify it setting aside the award. It is here that the Court missed an opportunity to clarify the position of the law regarding the threshold of bias required to refuse enforcement.

Bias as a ground for refusing enforcement of arbitral awards in Hong Kong

Hong Kong has long been a pro-enforcement jurisdiction. The Hong Kong courts have repeatedly confirmed that the threshold for refusing to enforce an award on public policy grounds is very high: the award must violate the fundamental concepts of morality and justice in Hong Kong. In fact, when faced with an application to enforce an international arbitration award in Hong Kong, the courts will apply a higher threshold than they would when considering bias in a domestic arbitration or court action. In other words, domestic arbitrators and judges are expected to exercise a higher degree of probity than is expected in relation to arbitrators working overseas.

Although a case has yet to succeed on the ground of bias, bias (together with fraud, corruption and bribery) has received obiter recognition as being sufficiently offensive as a ground to refuse enforcement. However, in the cases where it has been raised, efforts to rely on bias have notoriously failed due to a lack of actual bias having been established.

In a seemingly progressive restatement of the law, two recent cases suggested that apparent bias may be sufficient grounds for refusing enforcement. In Granton Natural Resources Co. Ltd v Armco Metals International2 and Gao Haiyan v Keeneye Holdings Ltd.apparent bias was considered in principle sufficient. However, in both these cases, the question of whether apparent bias existed on the facts was skirted. Instead, deference was made to the judgment of the supervising courts to determine whether there was bias. No inquiry was made by the Hong Kong courts into the bias threshold applied by the supervising court and indeed whether that threshold was sufficient.

In X Chartering, the Court addressed the issue of bias by considering whether actual bias existed. The Judge held no actual breach of confidentiality had been established and furthermore doubted the risk of relevant confidential information having been acquired or used by Y. Enforcement was therefore permitted. Unfortunately the Judge refrained from clarifying the role of apparent bias in setting aside an award and the extent to which a supervisory court’s finding on the matter should be imported into the decision of the enforcing court.

Hong Kong’s public policy favours enforcement

The court’s reluctance to clarify and develop the law pertaining to the relevance of apparent bias in refusing enforcement of arbitral awards in X Chartering comes as no great surprise. It has long been apparent that the Hong Kong courts lean towards enforcement. Public policy arguments for refusing enforcement have been discouraged. Although bias has been recognised as a ground for refusing enforcement, the Hong Kong courts have been reluctant to articulate its parameters, thereby making it difficult to pursue arguments against enforcement.

By skirting the issue of what level of bias is required to set aside an award, the decision in X Chartering appears to take us no further. However, it is significant in that the Hong Kong courts have confirmed the policy towards the enforcement of arbitral awards.

In this sense, X Chartering is a decision to be welcomed. Unlike some other jurisdictions where the finality of awards is sometimes disregarded, the sanctity of arbitral awards remains intact in Hong Kong for all but the most egregious decisions. X Chartering provides assurance that Hong Kong remains a jurisdiction which, when it comes to enforcement, strives to uphold the parties’ contractual agreement to submit their disputes to arbitration.