HK Court Sets Aside Second Award Following Remission To Tribunal

In our previous post concerning the matter of P v M [2018] HKCFI 2280 (see here), the HK High Court (Chan J) found that P had been deprived of a fair opportunity to make relevant submissions as the tribunal found that certain letters constituted notice under a construction contract where M had not pleaded that the letters constituted notice. Chan J remitted the matter to the tribunal for reconsideration and the parties then filed further submissions and the tribunal issued a second award. P challenged the second award on the same grounds and the matter came before Coleman J in the High Court: P v M [2019] HKCFI 1864.

Coleman J set out what he regarded as “reasonably well-settled” principles applicable to the challenge [54-60]:

It is for the applicant to establish both serious irregularity and substantial injustice.  The test of a serious irregularity giving rise to substantial injustice involves a high threshold to be met.  The threshold is deliberately high, as one main intended effect of the Ordnance is to reduce drastically the extent of intervention by the Court in the arbitral process.

A balance has to be drawn between the need for finality of the award and the need to protect parties against unfair conduct in the arbitration.  In striking this balance, only an extreme case will justify the Court’s intervention.

In deciding whether there has been substantial injustice, the court is not ordinarily required to decide for itself what would have happened in the arbitration had there been no serious irregularity.  It is enough to show that absent the irregularity, the tribunal might well have reached a different view and there might well have been a significantly different result.

There may be circumstances in which an applicant may be able to show that the result would necessarily have been different had the structural integrity of the process been maintained and the serious irregularity avoided.  In such a case, the Court might be able to proceed on the basis of the result which would necessarily follow from the correct application of principle to the circumstances without procedural defect.

The Court is concerned with the structural integrity of the arbitration proceedings, and not with the substantive merits of the dispute.  Ultimately, the question is one of basic fairness in the arbitral process, to be assessed with the principle of finality and comity in consensual arbitration firmly in mind.

The effect of setting aside an award or declaring an award, or part of it, to be of no effect is that the award, or the relevant part, is a nullity.  The arbitration can revive or carry on as necessary to deal with the matters that were set aside or declared to be of no effect.  The parties are put back in the position they were in prior to the relevant award be made, at least to the relevant extent flowing from the Court order.

As to the scope of remission, and arbitrator’s revived authority following a remission extends only to the matters that are remitted to him.  He cannot go beyond the scope of the revived jurisdiction, and if he does so he exceeds his jurisdiction.

Coleman J stated that “once it [was] identified and directed that parties are bound by their pleaded cases, and by the evidence already traversed at the arbitration hearing, and by the findings of fact made on that evidence, then there was really only one proper conclusion which the [tribunal] could have reached” – that the claim must fail. If M had wished to advance a case on the suggestion of the tribunal that the letters constituted the required notice, then “it could only properly have done so by making an application to amend its pleadings, which if allowed would almost certainly have required re-opening the evidentiary hearing.”

Further [78-79]:

“Of course, I fully accept that there is no basis to challenge the good faith of this highly experienced Arbitrator. Various paragraphs in the Second Award identify that he is mindful of the Judgment, and fully intending to comply with it. He says in terms that he recognises the procedural defect which has led to the remission, albeit that he thinks that he has provided a proper opportunity to P to make submissions so as to cure that defect, including by giving P the last word or “final right of reply”. But, in my view, he has mistaken the extent of the defects found by Mimmie Chan J. The defects have not been cured, and could not have been cured, by the route taken by the Arbitrator.”

“I am naturally conscious of the previous statements of the Hong Kong Courts as to the extremely limited circumstances in which it would be felt necessary or appropriate to intervene in the arbitral process. The intended finality of arbitration is important, and the authorities identify the need for serious irregularities in the procedure for the court to be able to exercise a discretion to intervene. But it seems to me that it is just as important for the maintenance of integrity in the arbitration process for the Court to intervene in appropriate cases, as it is for the Court not to intervene when the high threshold for doing so has not been reached.”

Accordingly, since the defects had not been cured by the approach of the tribunal on remission of the first award, the serious irregularity had not been cured. Coleman J therefore set aside the paragraphs in the First Award that had been impugned by Chan J, as well as the relevant paragraphs of the Second Award that exceeded M’s pleaded case.

See also the review of Coleman J’s decision by Herbert Smith Freehills.

See also the commentary by Schellenberg Wittner in relation to the Swiss Supreme Court’s decision in Decision 4A_462/2018, where the Swiss Supreme Court set aside a renewed final award in circumstances where the tribunal had not complied with an earlier decision of the Supreme Court in the same matter which had instructed the tribunal to assess one of the applicants’ prayers for relief.

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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