Certainty of arbitration was preserved in Hong Kong.  The Hong Kong Court of Final Appeal recently ended the challenge to the Court of Appeal’s reinstatement of an ICC arbitration award which had been set aside at first instance for want of due process.  The Court of Appeal’s decision in this case authoritatively sets out the test for setting aside an award.

Test for setting aside for want of due process:

Tribunal’s conduct has to be serious or egregious

The decision of the Court of Appeal in Pacific China Holdings Limited (In Liquidation) v Grand Pacific Holdings Limited (click here for the judgment) sets out the test for when an arbitration award can be set aside for want of due process under the UNCITRAL Model Law on International Commercial Arbitration (Article 34(2)(a)(ii) or (iv)).

The tribunal’s conduct has to be serious or egregious before the court will invoke its power to set aside the award for want of due process.

The above decision of the Court of Appeal is final, as an application for leave to appeal was recently dismissed by the Court of Final Appeal2 (click here for the judgment).

Background

The arbitration clause in this case provided for arbitration in Hong Kong under the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

The losing party to the arbitration sought to set aside the award on the following grounds under Article 34(2)(a)(ii) and (iv) of the Model Law:

  • it had been unable to present its case - the tribunal refused to accept 3 additional authorities it submitted or to allow it to respond to the opponent’s submissions;
  • the arbitration process had not been in accordance with the agreement of the parties - the tribunal had not adhered to an agreed procedural timetable for the exchange of pre-hearing submissions.

Decision of the Court of Appeal

Test for setting aside

The conduct complained of must be serious, even egregious, before a court could find that a party "was otherwise unable to present his case".  It has also been said that the conduct of the tribunal must be sufficiently serious to offend our most basic notions of morality and justice, although the Court of Appeal did not reach a decision on that point.

A “full opportunity” to present one’s case (under Article 18 of the Model Law) does not mean that the tribunal has to sacrifice all efficiency to accommodate that party.  In the case of a late application (like the one in the present case), any opportunity afforded to one party must be balanced against the opportunity to the other.  A party who has had a “reasonable opportunity” to present its case would rarely be able to establish that he has been denied due process.

Even if denial of due process is established, the court has the discretion to refuse to set aside the award if it is satisfied that the arbitral tribunal could not have reached a different conclusion.  The seriousness of the breach can affect how a court exercises its discretion.  Some breaches may be so egregious that an award would be set aside although the result would not have been different.

Burden of proof

The burden is on the party who seeks to set aside the award to show that he had, or might have, been prejudiced (rather than on the party resisting an application to set aside to show that the result could not have been different).  Generally speaking, the party who complains of a violation is best placed to show that he has been prejudiced and, thus, he has the burden to show prejudice.

Costs

Following the usual rule, indemnity costs were ordered against the losing party in the arbitration who also did not succeed in having the award set aside.

Comments

The Court of Appeal’s decision gave a comprehensive analysis of the law on setting aside awards for want of due process.  It represents the position in Hong Kong as no further appeal was allowed.

This decision also gives teeth to arbitrators in case management.  It specifically mentioned the following:

  • the tribunal, when faced with a late amendment, was entitled “to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute”3 , instead of being constrained by an unworkable agreed timetable
  • case management decisions are within the discretion of the tribunal with which the courts ought not interfere4.

This case brings about more certainty in arbitration.  Hong Kong’s position as a pro-arbitration jurisdiction has thus been confirmed.