Hong Kong: Set-Aside Not A Backdoor To Appeal: Hong Kong Court

Last Updated: 11 December 2018
Article by Kathryn Sanger, Briana Young and Simon Chapman

In N v W [2018] HKCFI 2405, the Hong Kong Court of First Instance refused to remit or set aside an award on the basis that an arbitrator had misconducted proceedings, demonstrating its reluctance to entertain such claims absent direct and well-established evidence. The court further noted that the plaintiff could not use a set-aside application as a substitute for appeal.

Note: this case was decided under the old Arbitration Ordinance (Cap. 341).

Background

WL, a law firm, was involved in two arbitrations relating to the same project. In the first arbitration, which ran from 2008 until settlement in 2014, WL acted for the plaintiff’s parent company against the Hong Kong Government. The defendant, W, commenced the second arbitration against the plaintiff, N, and its parent in 2014. The defendant’s lawyers in the second arbitration were TC, whom the plaintiff claimed were working in collaboration with WL, as demonstrated by the fact that documents the defendant used in the arbitration were drafted, revised and finalised by WL lawyers.

On 12 December 2016, the plaintiff unsuccessfully applied ex parte to the court for an injunction restraining:

  1. TC from acting for the defendant in legal proceedings against the plaintiff;
  2. WL from continuing to advise the defendant in relation to the second arbitration; and
  3. TC and WL from using confidential information obtained by WL from the Plaintiff’s parent during the first arbitration.

An award was issued in the second arbitration, in favour of the defendant. On 20 June 2018, the plaintiff applied to the court for leave to appeal the award or, alternatively, for an order that it be remitted for reconsideration or set aside on the following bases:

  1. WL had acted in a position of a conflict of interest and there existed a risk that WL had disclosed to the defendant confidential information about the plaintiff’s parent and/or the plaintiff, prejudicing the plaintiff’s interests and the fairness of the arbitration.
  2. The arbitrator had caused substantial injustice to the plaintiff, by failing to address both the professional misconduct of the defendant’s legal representatives and the defendant’s credibility.
  3. The arbitrator had declined the plaintiff’s request to adjourn the hearing for closing submissions, pending the outcome of an investigation by the Law Society of Hong Kong into the alleged misconduct of the defendant’s counsel.
  4. The arbitrator had made a mistake of law or fact in applying the wrong test for ascertaining whether there was a valid complaint about WL working in collaboration with TC for the defendant.

On 13 September 2018, the court dismissed the plaintiff’s application for leave to appeal. The present judgment deals with the plaintiff’s subsequent remission and set aside application, and whether the arbitrator had misconducted the proceedings.

Decision

The court noted the tribunal’s duty to act fairly and impartially in conducting arbitration proceedings, and to give the parties a reasonable opportunity both to present their own cases and to deal with the cases of their opponents (s.2GA(1)(a) Arbitration Ordinance (Cap. 341)). The court ultimately dismissed the application, holding:

  1. The plaintiff had failed to demonstrate that it had sustained serious prejudice as a result of the alleged misconduct. It would be unfair to allow the plaintiff to set aside the award when it had made no submissions before the arbitrator on the detrimental effect of TC and WL continuing to act for the defendant. The plaintiff had waived any alleged irregularity that may have arisen as a result of WL’s involvement in the arbitration as it had taken no further action beyond its failed applications to the court for injunctive relief and to the arbitrator for adjournment of the proceedings to make closing submissions, such as requesting an order:
    1. for injunctive relief against TC and WL (the plaintiff also had not explained why its ex parte injunction application to the court had failed);
    2. for any further adjournment of the arbitration proceedings;
    3. that the arbitration be generally stayed;
    4. that the defendant disclose its dealings with any confidential information obtained in respect of the plaintiff or its parent;
    5. as to the defendant's representation in the arbitration; or
    6. that the publication of the award be withheld or stayed.
  2. As to the claimed impropriety of the solicitors, the arbitrator found that the plaintiff had decided to address these concerns in a different venue by applying to the court for injunctions restraining TC and WL from acting or making use of confidential information. Any claims regarding the defendant’s credibility could nonetheless have been raised in closing submissions before the arbitrator.
  3. As to the plaintiff’s request to adjourn the proceedings, the arbitrator was rightly of the view that the Law Society’s investigation could not have been completed in two months and that publication of the award should not be indefinitely delayed.
  4. Regarding the claim that the arbitrator had made a mistake of law or fact, the court held that, even if this were the case, it did not constitute misconduct. The court was not entitled to review the merits of the award, and had no jurisdiction to set it aside on the ground of errors of fact or law.

Further, even if the court had been satisfied that there was misconduct on the part of the arbitrator, it would only exercise its discretion to set aside the award if the conduct was so serious or egregious as to “offend...the Court’s most basic notions of justice, morality and fairness”, such that the plaintiff had been denied due process. This is in keeping with the court’s usual approach to applications to set aside or remit an arbitral award.

Discussion

Once again, the court has reaffirmed its commitment to the objectives of the Arbitration Ordinances (old and new) and to its own policy of upholding the validity of arbitration agreements and the finality of arbitral awards. Unless the defendant’s conduct is so serious as to deny the complainant due process, the Hong Kong courts are clear that they will not intervene.

Here, the plaintiff’s claims of misconduct were not sufficient for the court to order that the award be remitted or set aside. In dismissing the plaintiff’s application, the court noted that a s.24 application to set aside or remit an award for arbitrator misconduct “should not be invoked as a back door method of circumventing ” s.23, which restricts the court from setting aside or remitting an award for an error of fact or law. Moreover, parties should raise complaints before the arbitral tribunal where possible, before bringing them to the court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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