Rechtsanwalt, Legal Director
Out-Law Analysis 5 min. read
04 Jan 2023, 3:04 am
In Hong Kong Special Administrative Region (SAR), parties generally have no right to appeal or challenge an arbitral award on a question of law or as a result of serious irregularity unless they expressly opted into the relevant provisions in schedule 2 of the Arbitration Ordinance (Cap 609) in their contract.
Section 12 of Cap 609 also makes it clear that no court shall intervene except where so provided in the Ordinance. Without express agreement that schedule 2 is opted into by the parties, a party will not be able to rely on the below grounds of challenge. Even when schedule 2 applies, there is a high legal threshold to challenging arbitral awards.
Section 4 of schedule 2 allows a party to arbitral proceedings to challenge an arbitral award on the ground of serious irregularity affecting the arbitral tribunal, the arbitral proceedings or the arbitral award.
In the recent case of A Firm v MG, the court reaffirms that challenging an award under section 4 of schedule 2 on the grounds of serious irregularity affecting the tribunal is only allowed if schedule 2 applies to the arbitration agreement between the parties.
The Court of First Instance in Maeda Kensetsu Kogyo Kabushiki Kaisha (Maeda) v Bauer Hong Kong Ltd (Bauer) (2019), as cited in HZ Capital International Ltd v China Vocational Education Co Ltd, acknowledged the high threshold for challenging an arbitral award based on serious irregularities. The court also stressed that it should only be concerned with the process of the arbitration and whether it is fair, rather than looking at whether the arbitrator made errors of fact or law. The court eventually found that Maeda had no basis to challenge the arbitrator’s decision on serious irregularity grounds.
Under section 5 of schedule 2, a party to arbitral proceedings is allowed to appeal to the court on a question of law arising out of an arbitral award made in the arbitral proceedings. Section 5 must be read in conjunction with sections 6 and 7, which set out important supplementary provisions which apply to appeals on question of law under schedule 2.
Under section 6(4) of schedule 2, leave to appeal an arbitral award on a question of law can only be granted if the court is satisfied that:
In an earlier case involving Maeda and Bauer (2018) the Court of First Instance acknowledged the high threshold for granting leave to appeal. It added that the court must approach an appeal against an arbitrator’s decision with care.
In this case, Maeda applied for leave to appeal against the second interim award of the arbitrator and four questions of law were identified. The court granted Maeda leave to appeal on two of the questions of law, as it considered these questions to be of general importance to the construction industry and that the arbitrator’s decision was open to serious doubt, these being the conditions as set out under section 6(4)(c)(ii).
The Court of Appeal, in another decision involving the same parties, also made important comments on dealing with challenges of arbitral awards.
In dealing with a decision to grant leave, the Court of Appeal emphasised that the court “should not condescend into detail arguments on the substantive merits in a judgment granting leave” and “should not intervene unless it can readily be demonstrated that the judge had been plainly wrong in coming to the conclusion that the [section 6(4)(c)(ii)] criterion had been satisfied”.
The Court of Appeal also commented that “the leave process should not be an occasion to obtain some preliminary views of [the Court of Appeal] to pre-empt the course of the substantive appeal to be heard in the Court of First Instance”.
In Chun Wo Construction & Engineering Co Ltd (Chun Wo) v Hong Kong Housing Authority, Chun Wo appealed to the Court of Appeal against the lower court’s decision to refuse to grant leave to appeal the arbitral award on a point of law.
There was no dispute that the criteria under sections 6(4)(a) and 6(4)(b) were satisfied. The Court of Appeal had to decide whether the Court of First Instance should apply the “obviously wrong test” or the “serious doubt test” under section 6(4)(c) of Schedule 2.
The Court of Appeal dismissed the appeal, holding the dispute was a “one-off” case which merely affected the rights and liabilities of the parties to the specific contract. There was no general legal interest to the points in dispute and therefore the lower court was correct to apply the “obviously wrong” test.
The Court of Appeal held that the lower court had considered both “obviously wrong” and “serious doubt” tests and that, according to the court’s judgment, Chun Wo failed to satisfy the threshold of either of the tests.
The Court of Appeal clarified that it was no longer appropriate to rely on the “strong prima facie case” approach for the “serious doubt” test in section 6(4)(c)(ii). It emphasised that when dealing with a decision to grant leave, the Court of Appeal should not intervene unless the lower court judge’s decision had been plainly wrong.
If leave to appeal is granted, the court must then rely on the arbitrator’s findings of fact. The court’s task is simply to “decide the question of law”: it will not at that stage consider whether the decision of the arbitral tribunal is “obviously wrong”; or whether the question is of general importance and the arbitrator’s decision is at least open to serious doubt.
After the court in Maeda v Bauer (2018) granted Maeda leave to appeal on two questions of law, it then allowed the appeal on the first question of law and dismissed the appeal on the second.
In granting Bauer’s application for leave to appeal against the above decision, the court acknowledged that sections 5(8) and (9) of schedule 2 are intended to be a ‘filtering process’ for any further appeal and that the court should also consider the grounds of the intended appeal and be satisfied that the intended appeal is at least arguable and has some reasonable prospect of success.
The Court of Appeal then dismissed Bauer’s appeal and its subsequent application for leave to appeal to the Court of Final Appeal.
The Court of Appeal emphasised that for leave to appeal to the Court of Final Appeal to be given, an important consideration is whether the questions in the intended appeal are reasonably arguable, rather than inviting the applicant to re-argue the grounds and arguments it has already raised in the appeal. The applicant needs to show sufficient merit to be given the opportunity to make a further appeal.
It is also not sufficient that the question has been recognised to be of “general importance” in an application for leave to appeal under Cap 609, citing the 2020 Maeda v Bauer appeal, in which the Court of Appeal stressed that for leave to appeal to the Court of Final Appeal the question involved must be of great general or public importance.
The Court of Final Appeal also subsequently dismissed Bauer’s application for leave to appeal.
Co-written by Cynthia Chan of Pinsent Masons.
11 Mar 2022
Rechtsanwalt, Legal Director