In 2006, Grand Pacific Holdings Ltd ("Grand Pacific")
commenced an ICC arbitration against Pacific China Holdings Ltd (In
Liquidation) ("Pacific China") in an attempt to enforce a
loan agreement worth US$40 million. On August 24, 2009, a
three-member tribunal made an award in favor of Grand
Pacific.
Pacific China then took the rare step of commencing court
proceedings in Hong Kong seeking to set aside the award in 2011,
based on three grounds that were identified as the Taiwanese Law
issue, the Joint Experts and Report issue, and the Hong Kong Law
issue.1 This application was successful in the Court of
First Instance (the "CFI"), which set aside the award due
to the tribunal's breaches of Article 34(2)(a)(ii) and (iv) of
the UNCITRAL Model Law; namely, that Pacific China was unable to
present its case, and that the procedure adopted by the tribunal
was not in accordance with the parties' agreement. In 2012,
Grand Pacific appealed to the Court of Appeal, which released its
judgment in May 2012, overturning the lower court's judgment
and reinstating the arbitral award.2
Taiwanese Law Issue
During the arbitration, the parties had agreed to a procedural
timetable stating that prehearing submissions containing each
party's best case on fact and law would be exchanged
simultaneously. Despite this, the tribunal ordered that Grand
Pacific file its full argument and best case on the Taiwanese law
issue in a supplemental submission made 10 days after Pacific China
had made its prehearing submissions.
The CFI held that this resulted in Grand Pacific having advance
notice of Pacific China's best case before it filed its own
submissions, which was not in accordance with the parties'
agreement. In addition, it meant that Pacific China was not able to
present its case. As such, the court found breaches of Article
34(2)(a)(ii) and (iv) of the UNCITRAL Model Law.
However, the Court of Appeal found that Pacific China had made a
late application for leave to raise the Taiwanese law issue, and
that this late application was taken into account by the tribunal
when it amended the procedural timetable. The Court of Appeal
decided that this was a decision that the tribunal was entitled to
make, despite the prior agreement over the procedural timetable
between the parties, due to the flexible nature of arbitration that
encourages arbitrators to use procedures appropriate to each
specific case.
Joint Experts and Report Issue
In the arbitration proceedings, the tribunal requested that the
two parties' experts produce a joint report and also stated
that no new authorities could be introduced without leave, which
would be granted only if they were "sensational." Later,
Pacific China applied to introduce three additional Taiwanese
judgments, which the tribunal refused to allow.
The CFI found that the tribunal had not reviewed the judgments
that Pacific China sought to adduce, so they had no basis for
determining that the authorities were not sensational. The court
had "no doubt at all" that this prevented Pacific China
from presenting its case on the Taiwanese law issue, falling within
Article 34(2)(a)(ii) of the UNCITRAL Model Law.
The Court of Appeal rejected this finding, simply stating that the
CFI was not entitled to interfere with the tribunal's case
management decision, which was fully within its discretion to
make.
Hong Kong Law Issue
The first argument made by Pacific China in relation to this
issue was that Pacific China had been denied the right to respond
to post-hearing submissions made by Grand Pacific on the
applicability of Hong Kong law. The tribunal in fact informed
Pacific China that it had enough material to decide the Hong Kong
law issue.
However, the CFI found that this failure to allow Pacific China to
respond to Grand Pacific's new material again denied Pacific
China the right to present its case, falling within Article
34(2)(a)(ii) of the UNCITRAL Model Law. It was further mentioned
that the tribunal had sufficient time before releasing its award to
allow Pacific China to make further submissions.
The Court of Appeal again disagreed with the CFI. It held that
Pacific China had already had two opportunities to make submissions
on the Hong Kong law issue (even though the issue was raised at a
late stage by Grand Pacific), which the tribunal was entitled to
take into account. Further, the tribunal was also entitled to
decide that the submissions should end with Grand Pacific's
submissions. The court stated that the conduct of the tribunal
would need to be serious, even egregious, to the extent that one
would say that a party was denied due process, before a court would
find that a party was not able to present its case. As long as
there was a reasonable opportunity to present its case, it would be
difficult for a party to establish a denial of due process. In this
case, the Court of Final Appeal found that the conduct was not
sufficiently serious or egregious.
Conclusion
In obiter, the Court of Appeal also discussed the consequences of a breach of Article 34(2)(a)(ii) and (iv) of the UNCITRAL Model Law. It found that the grounds for refusing to enforce an award would be construed narrowly; in fact, even if the court found violations of Article 34(2)(a)(ii) and (iv) of the UNCITRAL Model Law, such an award would still be enforced if the court was satisfied that the outcome could not have been different. If the violation had no effect on the outcome of the arbitration, then the court should deny the application to set aside the award.
Footnotes
1. Pacific China Holdings Ltd (In Liquidation) v Grand Pacific Holdings Ltd [2011] HKCFI 424.
2. Pacific China Holdings Ltd (In Liquidation) v Grand Pacific Holdings Ltd [2012] HKCA 200.
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