How final are arbitral awards?

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Article 34 of the UNCITRAL Model Law is implemented in Hong Kong’s legislative regime by way of section 81 of the Arbitration Ordinance (AO, Cap. 609), which states that an application to court for setting aside an arbitral award can only be made under and in accordance with the provisions of that section. This enshrines the courts’ pro-enforcement approach in respect of arbitral awards.

The limited circumstances in which the court can set aside an arbitral award under section 81 are: (1) incapacity of a party; (2) invalidity of the arbitration agreement; (3) a party not given proper notice of the appointment of an arbitrator or the arbitration proceedings or otherwise being unable to present their case; (4) the award dealing with a dispute not contemplated by or not falling within the terms or scope of the submission to arbitration; (5) the composition of the arbitral tribunal or the arbitral procedure not being in accordance with the parties’ agreement or Hong Kong law; (6) the subject matter of the dispute not being capable of settlement by arbitration under Hong Kong law; or (7) the award being in conflict with Hong Kong’s public policy.

张国杰 CHEUNG KWOK KIT 的近律师行合伙人 Partner Deacons
张国杰
CHEUNG KWOK KIT
的近律师行合伙人
Partner
Deacons

To reinforce the pro-enforcement approach, section 81(4) of the AO further provides that the leave of “the court” is required for any appeal from a decision of “the court” under article 34. The “court” is defined in the AO as the Court of First Instance of the High Court. In China International Fund v Dennis Lau & Ng Chun Man Architects & Engineers (HK) [2015] (CIF case), the Court of Appeal (CA) held that the effect of section 81(4) of the AO is that it imposes finality on the leave decision of the Court of First Instance, subject only to the limited supervisory residual jurisdiction of the CA.

That residual jurisdiction, the Court of Appeal said, is to provide redress only in the rare situation where the refusal of leave by the Court of First Instance cannot be regarded as a judicial decision, “a decision reached ‘not by any intellectual process, but through bias, chance, whimsy or personal interest’”. It targets, the Court of Appeal said, against substantial defect in the fairness of the process which invalidates the decision.

However, as the Court of Appeal pointed out, parties have the option to stipulate in their arbitration agreement that the alternative regime under Schedule 2 of the AO shall apply to their arbitration. Under the Schedule 2 regime, there is wider scope for the involvement of the Court of First Instance and Court of Appeal.

Under section 3 of Schedule 2, a party to an arbitration may apply to court for the determination of a question of law and such determination is appealable, with leave of the Court of First Instance or Court of Appeal. Similarly, under section 4 of Schedule 2, a party may challenge an arbitral award on the ground of serious irregularity and the determination of that challenge by the Court of First Instance can be subject to appeal, with leave of the Court of First Instance or Court of Appeal. Under section 5 of Schedule 2, a party may appeal an arbitral award on a question of law and the determination of such appeal by the Court of First Instance can be further appealed to the Court of Appeal, with leave of the Court of First Instance or Court of Appeal, if the question is one of general importance or for some other reason should be considered by the Court of Appeal.

Conversely, the Court of Appeal said, if a party does not opt for the Schedule 2 regime, they are taken to have bargained with the opposite party that the Court of Appeal’s role in the arbitration will be limited as per section 81 of the AO. Accordingly, bearing that in mind and the Court of Appeal’s residual jurisdiction, the limitation in section 81 was not an absolute exclusion. The rationale for the differences between section 81 and Schedule 2 was based on the parties’ autonomy to choose arbitration or to opt for the Schedule 2 regime, the Court of Appeal said, and there was no inconsistency between the two regimes.

In addition to section 81(4) of the AO and the CIF case, there is an additional hurdle for an unsuccessful appellant going beyond the Court of Appeal. By reason of section 14AB of the High Court Ordinance (HCO, Cap. 4), which provides that no appeal lies from a decision of the CA as to whether or not leave to appeal to it should be granted, the refusal of leave by the CA is final, and there is no substantive decision by the CA from which an appeal could be brought to the CFA.

The above-mentioned analysis was confirmed by the CFA in The Incorporated Owners of Po Hang Building v Sam Woo Marine Works. In that case, Sam Woo challenged the constitutionality of the District Court’s equivalent provision to section 14AB of the HCO in the District Court Ordinance. The CFA rejected Sam Woo’s argument on the ground that the restrictions on rights of appeal in question do not go beyond what is reasonably necessary for the achievement of the legitimate aims identified, and that they are proportionate and constitutionally valid limitations on the court’s power of final adjudication.

Parties who choose to resolve their disputes by arbitration should always bear in mind that the arbitral award can only be set aside in limited circumstances, as set out in article 34 of the UNCITRAL Model Law, and is generally not appealable.

As referred to above, where the provisions in schedule 2 of the AO apply to the arbitration agreement, then the parties do have the right to appeal an arbitral award on a question of law (with the court’s leave) and/or to challenge it on the grounds of serious irregularity.

The schedule 2 provisions will apply automatically, unless the parties expressly opt out of them, where the arbitration agreement provides that the arbitration is a “domestic arbitration” and the arbitration agreement was entered into: (1) before the commencement of the AO (i.e., before 1 June 2011; or (2) within six years after commencement of the AO (i.e., from 1 June 2011 to 31 May 2017).

Parties entering into arbitration agreements on or after 1 June 2017, who wish some or all of the schedule 2 provisions to apply, such as the right to appeal an arbitral award on a question of law, or challenge it on the ground of serious irregularity, must expressly state in the arbitration agreement that they opt into those provisions.

Cheung Kwok Kit is a partner at Deacons in Hong Kong. He can be contacted on +852 2825 9427 or by email at kwokkit.cheung@deacons.com.hk