United States: Swire Properties Ltd. And Others v. The Secretary For Justice on Behalf of The Government of The HKSAR

The Court of Final Appeal on July 2003 delivered a judgment in respect of an appeal against an arbitration award. Apart from being financially significant, given that billions of dollars were at stake, the Court of Final Appeal considered this case legally significant, as the question of the correct approach to be adopted under section 23 of the Arbitration Ordinance had never before reached the Court of Final Appeal.

Applying for leave to appeal against an arbitration award, not to say an appeal itself, is not always an easy task in Hong Kong. The well-known Nema guidelines, as applied in the PT Dover case, have always been followed by the Hong Kong Courts when dealing with applications for leave to appeal against arbitration awards.

This is the first time that the Court of Appeal has granted leave to appeal to the Court of Final Appeal in respect of a Court of Appeal decision upholding a refusal by the Court of First Instance to allow leave to appeal from an arbitration award.

The subject matter of the appeal was an arbitration award in favour of the Government of the HKSAR in respect of land development and premium disputes with the Swire Group of companies ("the Swires"). The parties entered into an ad hoc arbitration agreement and appointed Sir Christopher Staughton as the arbitrator.

After the Arbitrator ruled against the Swires, they applied to the Court of First Instance for leave to appeal against the award. The question of law, as transpired from the Notice of Motion, was whether the arbitrator had erred in law in holding that the Swires were contractually bound to suffer a reduction of the commercial gross floor area which they were entitled to build under the relevant leases and deeds of variation. Burrell J in the Court of First Instance dismissed the Swires’ application for leave to appeal.

The Court of Appeal rejected Swires’ appeal against Burrell J’s decision in the Court of First Instance, but nonetheless gave leave to the Swires to appeal to the Court of Final Appeal on the "or otherwise" ground under s.22(1)(b) of the Court of Final Appeal Ordinance, although the Court of Appeal commented that "this court’s view of the strength of the [Swires’] case is not very optimistic, to put it at its mildest".

The Court of Final Appeal examined the law on the test for whether leave should be given to appeal against an arbitration award. Before this decision, the Nema guidelines and the PT Dover decision were the law in Hong Kong on this subject.

Court of First Instance. Burrell J. adopted the PT Dover test, the gist of which is to categorize whether the subject matter of the appeal is a one-off issue, or the construction of a standard clause. For one-off issues, the presumption of finality is at its highest, and leave will only be granted if the applicant can show that the arbitrator was plainly wrong, or "so obviously wrong as to preclude the possibility that he might be right".

It was not disputed that this case concerned a "one-off" issue. Burrell J. dismissed the leave application on the basis that the Swires had failed to reach the required threshold.

Court of Appeal. When the case proceeded to the Court of Appeal, the Court of Appeal held that Burrell J. correctly set out the law and applied it correctly and therefore they refused to intervene in the exercise of the trial judge’s discretion. In this respect, Mr. Michael Thomas SC for the Swires reserved his right to argue on appeal that the test that should be applied in Hong Kong was not the PT Dover test, but rather, was the test set out in Gold and Resource Development (NZ) Limited v Doug Hood Limited [2000] 3 NZLR 318. The test in the Gold and Resource case was "very strongly arguable".

The Swires advanced the argument that the test in Gold and Resource should be adopted in Hong Kong. In the Gold and Resource case, the New Zealand Court of Appeal considered it was not appropriate to say that the judge must be persuaded that the award was "obviously wrong" in a one-off error of law, and substituted a test of a strongly or very strongly arguable case. However, the New Zealand Court of Appeal also made it clear that this substitution was not intended to lower the barrier faced by an applicant applying for leave to appeal.

The Court of Final Appeal observed that the New Zealand Court of Appeal’s use of the word "arguable" was instructive. For it served as a useful reminder that however high the test or threshold, the context was still only one of whether there was to be an appeal rather than one of how the appeal, if there was to be an appeal, was to be decided after full argument.

The Court of Final Appeal then emphasized that the discretion must be exercised in conformity with the purpose of the statute conferring it. This purpose involves a strong inclination to hold people to their choice of arbitration, although this inclination does not attribute to parties an unqualified willingness, or impose on them an absolute obligation, to accept errors of law.

Accordingly, if a question of law of general public importance or the construction of a standard clause is involved, the test should be whether there is at least a serious doubt as to the correctness of the award. This caters for the public interest, which is served by the Courts authoritatively developing the law and bringing uniformity to the understanding of standard clauses.

However, the position is different for "one-off’ clauses. In these cases, the statutory policy to hold people to their choice of arbitration is not off-set by the public interest for the Court to develop the law and bring uniformity. As such, the test for "one-off" clauses remains the "obviously wrong" test.

It therefore appears that the Nema guidelines and the PT Dover test still remain valid law, at least insofar as one-off issues are concerned. However, it is interesting to note that the Court of Final Appeal also concluded that each case "will have its own particular features bearing upon the discretion to grant or refuse leave to appeal from an arbitral award". This concluding note is an indication that while the Court of Final Appeal did not depart from the Nema guidelines and the PT Dover test for one-off cases, the Court is inclined to be more flexible in considering whether leave to appeal should be granted, if the particular circumstances of the case so justify.