Hong Kong Court Upholds Award Challenge For Lack Of Reasons

The Hong Kong Court of First Instance has refused to enforce an AAA-ICDR award because the arbitrator failed to give reasons for her decisions on key issues (A v. B and Others [2024] HKCFI 751).
Hong Kong Litigation, Mediation & Arbitration
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The Hong Kong Court of First Instance has refused to enforce an AAA-ICDR award because the arbitrator failed to give reasons for her decisions on key issues (A v. B and Others [2024] HKCFI 751).

Mimmie Chan J found that the award simply recited the relevant contractual provisions (the interpretation and effect of which was disputed) and stated the orders made, without addressing the parties' arguments or explaining the arbitrator's reasoning. These failings were sufficiently serious to have affected the structural integrity of the arbitral process and undermined due process, such that it would be contrary to public policy to enforce the award.

It is unusual for an award to be successfully challenged before the Hong Kong courts on the basis of a lack of reasons. As the court noted in its decision, the starting point is that awards should be "read generously, in a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with [them], and always bearing in mind the policy of minimal curial intervention... Any inference that a tribunal has failed to consider an important issue is to be made only if it is clear and virtually inescapable."

At the same time, the court noted that "it is fundamental to concepts of fairness, due process and justice, as recognized in Hong Kong, that key and material issues raised for determination, either by a court or the arbitral tribunal, should be considered and dealt with fairly. An award should be reasoned, to the extent of being reasonably sufficient and understandable by the parties... Readers of the award, namely the parties themselves, should understand how and why the tribunal reached its conclusion on a particular issue, in the context of how the relevant issues had been argued before the tribunal."

Here, there had been no waiver of the requirement for reasons, and the award debtors were entitled to expect key issues to be dealt with and explained with adequate reasons. Because there was no analysis or explanation at all of the arbitrator's reasons, the award debtors were therefore entitled to query whether the relevant issues had been considered by the arbitrator, and if so, why they were determined against them.

It is important to note the unusual circumstances of this case. In most award challenges based on a lack of reasons, the complaint relates to one or a small number of discrete points, often with extensive debate between the parties as to whether they were "issues" or merely "arguments", their significance (including whether they were or would have been determinative of the result), the extent to which they were expressly or implicitly addressed in the award, and sometimes the degree to which they were even in issue. An example of the latter point is the recent decision in X and YCo v. ZCo [2024] HKCFI 695 (on which we reported here), in which an application to set aside an award was rejected because the relevant points had not been maintained as key issues for determination by the tribunal.

In this case, by contrast, there was no reasoning at all in relation to substantially all of the central issues for determination. While arbitrators generally have a significant degree of latitude in terms of the nature and extent of the reasoning which they include in their awards, the decision demonstrates the readiness of the Hong Kong courts to act in those rare cases where minimum standards of arbitral reasoning have not been met.

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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