Public Policy And Remission To Arbitrator Where Material Point Not Dealt With By Tribunal

Phillip Rompotis reviews the Hong Kong High Court’s decision in A v B [2015] HKCFI 1077, a case concerning an application to set aside an award on the basis that it would be against public policy to enforce it. The public policy argument was framed as one in which the Arbitrator had failed to take into account a limitations defence and had failed to give any reason for his rejection of it.

The Court useful reviewed the applicable principles in relation to public policy, considering that the starting point was Article 34 of the Model Law, which applies pursuant to the Arbitration Ordinance (both Caps 341 and 609), Article 34(2)(b) providing that an arbitral award may be set aside if the court finds that the award is “in conflict with the public policy” of the forum of the court. The court considered that the public policy ground “must not be seen as a catch-all provision to be used wherever convenient” (Qinhuangdao Tongda Enterprise Development v Million Basic Co [1993] 1 HKLRD 173, 178), and also referred to Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, where the Court of Final Appeal held that the term means “contrary to the fundamental conceptions of morality and justice” and that “the award must be so fundamentally offensive to that jurisdiction’s notions of justice that, despite its being a party to the New York Convention, it cannot reasonably be expected to overlook the objection”. The Court further noted that there was no scope under Article 34 to consider the merits of the case (Xiamen Xinjingdi Group Ltd v Eton Properties Ltd [2009] 4 HKLRD 353 (CA)) and that relief under Article 34 was discretionary meaning that even after finding that the grounds are made out, could decide to enforce the award.

It was held that the limitation defence had not been adequately considered by the Arbitrator and that, when taking the Award as a whole, the reasons were not sufficient to enable the party to understand why the limitation defence was rejected. Moreover, it was held that the Arbitrator did not deal with the issue at all.

Returning the public policy defence, the Court noted that where the conduct of an arbitrator or an error in the process is so serious that they undermine due process, or are egregious, and that a real risk of prejudice can be shown as a result, the award can be set aside: Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No1) [2012] 4 HKLRD 1, holding that it was fundamental to concepts of fairness, due process and justice that material issues raised for determination are dealt with fairly and that an arbitral award should be reasoned and be sufficiently understandable by the parties. As such, if an important issue which the parties are entitled to expect to be addressed is not addressed, then this would constitute serious irregularity and denial of due process which causes substantial injustice and unfairness to the parties. In this case, the limitation defence was material and could have rendered the award materially different and the failure to consider it or explain why it was not considered, resulted in unfairness and created a real risk of prejudice. Therefore, it was held that the Court could not overlook the injustice created by the award and that enforcement would offend the notions of justice.

In the circumstances, the Court held that there would be no risk of judgment bias in remitting the award to the arbitrator to take such action as was appropriate since the time since the hearing was relatively short and the Award was 126 pages long and had contained full details of the issues and the evidence.

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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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