14 June, 2012

The Hong Kong Court of Appeal has recently handed down a decision in Pacific China Holdings Ltd v. Grand Pacific Holdings Ltd (CACV 136/2011; Date of judgment: 9 May 2012) overturning an order of the Court of First Instance to set aside an ICC arbitration award made in Hong Kong. On the facts of the case, the Court of Appeal concluded that there was no violation of due process pursuant to Article 34(2) of the UNCITRAL Model Law. The Court of Appeal also discussed its views on what constitutes a violation of due process and how the Court should exercise its discretion should a violation be established. This decision demonstrates the Hong Kong Courts' pro-enforcement stance when faced with an application to set aside or enforce an international arbitration award.

The Arbitration
The ICC arbitration began in 2006. The claimant, Grand Pacific Holdings Ltd ("GPH") claimed from the respondent, Pacific China Holdings Ltd ("PCH") a sum of US$40 million under an agreement executed by the parties. The Tribunal rendered an Award in August 2009 ordering PCH to pay GPH a sum in excess of US$55 million together with interest.
PCH applied to set aside the Award in Hong Kong, being the seat of arbitration. PCH relied on Article 34(2)(a)(ii) and (iv) of the UNCITRAL Model Law, alleging that it was unable to present its case and that the arbitral procedure was not in accordance with the agreement of the parties. The challenge was based on various procedural matters which arose during the course of the arbitration.
First Instance Decision
In his judgment, Mr. Justice Saunders came to the view that there were violations of due process in all of the matters raised by PCH.
Saunders J recognises the "pro-enforcement bias" of the Hong Kong legislation and noted that the overall scheme of both the Hong Kong legislation and the UNCITRAL Model Law reflects a view that arbitration awards are generally to be upheld and enforced. When exercising its discretion to enforce an award despite a violation being established, the learned judge stated that the court must ask itself this question: "is the court able to say that it can exclude the possibility that if the violation established had not occurred, the outcome of the award would not be different?"
In the present case, Saunders J concluded that he was unable to say that if the violations had not occurred, the result could not have been different. Accordingly, the Award was set aside.
Court of Appeal Decision
The Court of Appeal, in a judgment written by Mr. Justice Tang, the Vice President, with Madam Justice Kwan and Mr. Justice Fok concurring, indicated that its approach is to concern itself with the "structural integrity of the arbitration proceedings". After reviewing commentaries on Articles 18 and 34 of the UNCITRAL Model Law, the Court of Appeal, without deciding on how serious or egregious the conduct must be before a violation could be established, said that the conduct complained of "must be sufficiently serious or egregious so that one could say that a party has been denied due process." Further, it is said that a party who has had a reasonable opportunity to present its case would "rarely be able to establish that he has been denied due process."
Looking at the matters raised by PCH, the Court of Appeal disagrees with Saunders J and concludes that there was no violation of due process and, in any event, the matters complained of were not sufficiently serious or egregious. The Court of Appeal considers the relevant orders made by the Tribunal were case management decisions which were made fully within the Tribunal's discretion. Thus, the court is not entitled to interfere or question the merit of such decisions. Reference was made to s.2GA of the now repealed Arbitration Ordinance (Cap.341) ( s.2GA is now found in s.46 of the new Arbitration Ordinance (cap.609) which came into force in June 2011, after the commencement of these proceedings) which provided that the Tribunal was entitled to use procedures that are appropriate to the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for resolving the dispute.
Having concluded, on the facts of the case, that there was no violation of Article 34(2)(a)(ii) or (iv), the Court nevertheless discussed how the discretion would be exercised if a violation was established.
Agreeing with Saunders J's proposition, the Court of Appeal considers that the "court may refuse to set aside an award notwithstanding such violation if the court was satisfied that the outcome could not have been different."
If the violation has no effect on the outcome of the arbitration, or the error is trivial or not serious, these, according to Tang VP, are good basis for exercising the discretion not to set aside an award. On the other hand, it is said that how a court may exercise its discretion in any particular case will depend on the view it takes of the seriousness of the breach. Some breaches may be so egregious that an award would be set aside although the result could not be different.
Tang VP's discussion on what constitutes an inability to present one's case, what amounts to serious or egregious violation and how a court should exercise its discretion when a violation is established are all obiter dicta. These questions remain to be fully answered. Nonetheless, it is clear that the Hong Kong Court does thrive to enforce and uphold arbitration awards and is only prepared to set aside arbitration awards in extreme and rare cases.
For further information, please contact:
Aloke Ray, Partner, White & Case
Nandakumar Ponniya, Partner, White & Case
Melody Chan, White & Case


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