Pro-enforcement policy for awards in HK courts

Hong Kong courts have always adopted a pro-arbitration attitude. According to the website of the Hong Kong International Arbitration Centre (HKIAC), the courts maintain an excellent track record of enforcement of arbitral awards, and did not refuse to enforce any award between 2011 and 2014.

This pro-enforcement approach in relation to arbitral awards has consistently been seen in judgments of Hong Kong courts. The Court of Appeal (CA) in the case of Re Petro China International (Hong Kong) Corp Ltd [2011] said that enforcement of arbitral awards should be “almost a matter of administrative procedure” and the court’s task in this regard should be “as mechanistic as possible” in that it was not entitled to go behind the award by exploring the reasoning of the arbitral tribunal, or second-guessing its intention.

Setting-aside application as the only recourse against arbitral awards. The Arbitration Ordinance (Cap 609) provides that (save for the application of opt-in provisions under the ordinance, which will be discussed below), the only recourse to a court against an arbitral award is by way of an application to set aside the award in accordance with the provisions of article 34 of the UNCITRAL Model Law (as implemented by section 81 of the ordinance).

In the case of Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012], the CA made it clear that an application to set aside an award under article 34 is not an appeal. Accordingly, the court would not address itself to the substantive merits of the dispute, or to the correctness or otherwise of the award in fact or law, but only to the structural integrity of the arbitration process. The party seeking to set aside an arbitral award must show that the conduct complained of is serious, or even egregious, before a court might take the view that a party had been denied due process.

Limited right of appeal against the court’s refusal to set aside. To reinforce the pro-enforcement approach, section 81(4) of the ordinance further provides that the leave of Court of First Instance (CFI) is required for any appeal from a decision of the CFI under article 34.

In China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK) Ltd [2015], the CA held that the effect of section 81(4) of the ordinance (the finality provision) is that it imposes finality on the leave decision of the CFI, subject only to the limited supervisory residual jurisdiction of the CA, which is to provide redress only in the rare situation where the refusal of leave by the CFI cannot be regarded as a judicial decision.

In the prolonged series of court proceedings commenced by American International Group Inc and AIG Capital Corporation against Huaxia Life Insurance, AIG sought to set aside an arbitral award made in favour of Huaxia, under article 34. The setting aside application was dismissed by the CFI. AIG sought leave to appeal against the dismissal and leave was refused by the first instance judge. By virtue of the finality provision, the first instance judge’s refusal of leave is final, which as per the above-mentioned CIF case, is subject only to the limited supervisory residual jurisdiction of the CA.

Notwithstanding, AIG applied to the CA for leave to appeal against the dismissal, arguing that the finality provision is unconstitutional and that the CIF case (which is binding on the CA) had been wrongly decided. AIG’s application was again dismissed by the CA. AIG then further sought leave from the CA to appeal to the Court of Final Appeal (CFA) against the CA’s refusal of leave. Leave was again refused.

AIG eventually applied to the CFA for leave to appeal against the CA’s refusal of leave. By its reasons for determination dated 3 November 2017 (American International Group, Inc. & AIG Capital Corporation v Huaxia Life Insurance Co Ltd), the CFA unanimously refused AIG’s leave application and finally upheld the constitutionality of the finality provision.

Parties may expressly opt-in right to appeal an arbitral award on a question of law, or challenge the same on the ground of serious irregularity, or by implication in certain situations. Notwithstanding the pro-arbitration framework of the ordinance, one of the objectives of the ordinance (as set out in section 3) is that, subject to the observance of safeguards that are necessary in the public interest, the parties to a dispute should be free to agree on how the dispute should be resolved. Accordingly, where the parties prefer having a higher degree of court supervision over the arbitration, they may expressly opt in to the provisions under schedule 2 of the ordinance, which provides for, amongst others, the right to appeal against an arbitral award on a question of law (with the court’s leave) and the right to challenge it on the grounds of serious irregularity.

The schedule 2 provisions will also 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 ordinance, i.e. before 1 June 2011; or
2. within six years after commencement of the ordinance (i.e. from 1 June 2011 to 31 May 2017).

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