The Hong Kong Court of Final Appeal ("the CFA") was recently given its first opportunity to consider the exercise of the judicial discretion to grant leave to appeal against a domestic arbitral award. In Swire Properties Ltd & Others v Secretary for Justice [2003] HKEC 840, the CFA threw out Swire Properties’ application for leave; as a result, the Hong Kong conglomerate faces the prospect of having to pay a substantial land premium to the Government. The case is another example of the pro-enforcement stance often adopted by the Hong Kong Courts, with respect to arbitration awards. However, the leading judgment (of the Hon. Mr. Justice Bokhary PJ) widens the scope to appeal against an award where the dispute arises out of a standard form clause.

The dispute in the Swire Properties case arose from the terms of an agreement made with the Government, limiting the commercial space at Swire Properties’ Taikoo Shing project. The parties disagreed over the implementation of the arrangements and submitted their dispute to arbitration. An arbitral award was made against Swire Properties in January 2001. Dissatisfied with the arbitrator’s decision regarding an alleged breach of the commercial space restriction for the development, Swire Properties applied to the Court of First Instance for leave to appeal on a question of law. On 7 May 2001, that application was refused. On 11 June 2002, the Court of Appeal similarly refused such leave. The CFA finally dismissed Swire Properties’ appeal on 7 July 2003, on the basis that the arbitrator’s decision was not "obviously wrong". However, the CFA also took the opportunity to review the test for granting leave to appeal, where a question of law of general public importance or the construction of a standard clause was involved. In so doing, the CFA lowered the threshold for leave to appeal in such cases. Leave to appeal on a question of law arising out of a common standard form will now be granted if the applicant can show that there is a "serious doubt" as to the correctness of the arbitrator’s decision.

The test for granting leave: one-off and standard disputes

Under the Arbitration Ordinance (Cap 341), the Court has no jurisdiction to entertain an appeal from a domestic arbitral award unless, having regard to all the circumstances, the determination of the question of law could substantially affect the rights of one or more of the parties (s. 23(4)). Even if that requirement is satisfied, the Court will not automatically grant leave to appeal. The Court will only grant leave if it is satisfied that it should intervene on the basis of the guidelines laid down by Lord Diplock and the English House of Lords in The Nema (Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724), as explained and applied in The Antaios (Antaios Cia Naviera SA v Salen Rederierna AB [1985] AC 191).

The Nema guidelines recognise that all cases lie somewhere on a scale from a "one-off" dispute (which may arise from a uniquely worded contract) to a "standard" dispute (which may arise from a standard form contract). When a court is faced with a one-off dispute, it will only grant leave to appeal from an arbitral award if the arbitrator’s construction of the contract appears to be obviously wrong. However, when a court has to consider a case at the other end of the scale, that is a dispute between Hong Kong parties in relation to standard forms of contract in regular use in Hong Kong, leave to appeal will be granted if there is a strong prima facie case that the arbitrator was wrong in law.

Applying the test in the Swire Properties case and beyond

The Swire Properties case concerned a one-off dispute. Accordingly, the CFA applied the test of whether the arbitrator’s construction of the agreement between the parties was obviously wrong. The CFA unanimously held that in this case the arbitrator was not obviously wrong, a decision that was consistent with the Court’s preference to hold parties to their choice of arbitration.

Although the issue did not directly arise in the Swire Properties case, the Hon. Mr. Justice Bokhary PJ reviewed the circumstances in which leave to appeal could be granted in respect of awards arising out of standard contractual disputes. In doing so, the CFA has departed from the Nema guidelines, preferring the concept of a serious doubt, to Lord Diplock’s requirement of a strong prima facie case.

On this point, the CFA appears to have been influenced by the recent decision of the English Court of Appeal in CMA SA v Beteilingungs–KG MS "Northern Pioneer" [2003] 1 WLR 1015. That case compares the Nema guidelines with the statutory criteria in the UK Arbitration Act 1996, which replaced them. Section 69(3)(c)(ii) of the Act provides that leave to appeal may be granted where the question is one of general public importance and the decision of the arbitral tribunal is at least open to serious doubt. Giving the leading judgment of the English Court of Appeal, Lord Phillips MR observed that the statutory criteria: "open the door a little more widely to the granting of permission to appeal than the crack that was left by Lord Diplock".

The CFA has endorsed the English Court of Appeal’s approach, apparently considering the absence of a similar provision in the Ordinance to be no bar to adopting the serious doubt test in Hong Kong. The Hon. Mr. Justice Bokhary PJ stated: "Where a question of law of general public importance or the construction of a standard clause is involved, I think that our courts should normally grant leave to appeal from an arbitral award when, but only when, there is at least a serious doubt as to its correctness".

Conclusion

Following the Swire Properties case, parties who submit a one-off dispute to arbitration are unlikely to find it any easier to obtain leave to appeal against an arbitral award. An applicant for leave to appeal such an award will have to show that the arbitrator was clearly wrong in law. However, an applicant who wishes to dispute an arbitrator’s construction of a standard form of contract in regular use in Hong Kong may find the Court more willing to exercise its discretion in favour of granting leave to appeal, as long as he can show that there is a serious doubt about the correctness of the award.

Article by Craig Shepherd and Mark Lloyd-Williams

© Herbert Smith 2003

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