Challenging an arbitral award in Hong Kong

An award made by an arbitral tribunal in the Hong Kong SAR is final and binding on the parties. Parties that are not satisfied with the award, can apply to set aside the award, appeal on questions of law or challenge an award based on serious irregularity.

Arbitration in the Hong Kong SAR is governed by the Arbitration Ordinance (Cap 609), which is modelled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law.

A party must consider carefully whether to seek to set aside or to appeal an award when dissatisfied with the award. The threshold is high but not impossible based on our experience. This is because the court would usually respect the arbitral tribunal’s autonomy in deciding disputes where there is a valid arbitration agreement between the parties. The court may not be used to re-try the decision made by the arbitral tribunal and there could be potential costs implications in trying to do so.

Application to set aside the award

An applicant for setting aside an award must satisfy at least one of the reasons provided in Article 34 of the UNCITRAL Model Law.

The reasons for setting aside include:

• incapacity of a party;
• invalidity of the arbitration agreement;
• improper notice of appointment of an arbitrator;
• inability of a party to present the case;
• a dispute not falling within the terms of the submission to arbitration;
• an award contains decisions matters beyond the scope of submission to arbitration;
• composition of the arbitral authority or arbitral procedure not consistent with the agreement between the parties or the law of the country where the arbitration took place.

An arbitral award may also be set aside if the court finds that the subject matter of the dispute cannot be settled by arbitration under Hong Kong law, or the award conflicts with public policy in the Hong Kong SAR.

Appealing on questions of law or challenging an award based on serious irregularity

Generally, parties 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 in the relevant contract.

Appeal on question of law

In order to appeal on a question of law, a party must obtain either agreement of all other parties to the arbitral proceedings or leave of the court. The application for leave to appeal must identify the question of law to be decided and state the reasons why it should be granted.

Leave to appeal may be granted by the court in the following circumstances:

• when the decision of the question of law will substantially affect the rights of one or more of the parties; and
• the question is one which the tribunal was asked to decide and, based on the findings of fact in the award, the decision of the tribunal on the question of law is obviously wrong; or where the question is one of general importance and the decision of the tribunal is at least open to serious doubt.

An appeal on a question of law can arise if the arbitral tribunal incorrectly ascertained the law, or it can be shown that the arbitral tribunal had misunderstood the law when applying the law to the facts.

If leave to appeal is granted, the court is then required to rely on the findings of fact in the award and 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 that a lower standard should apply where the question is one of general importance.

At the hearing, the court may confirm the arbitral award, vary the arbitral award, remit the arbitral award to the arbitral tribunal for reconsideration, or set aside the arbitral award.

Appeal based on serious irregularity

A party could apply to the court to challenge an award for the reason of serious irregularity affecting the tribunal, the arbitral proceedings, or the award.

Serious irregularity refers to irregularity which causes substantial injustice to the applicant including:

• the arbitral tribunal failed to comply with provision about ‘equal treatment of parties’ under the Arbitration Ordinance;
• the arbitral tribunal overstepped its powers or failed to conduct the arbitral proceedings according to the procedure agreed by the parties;
• the arbitral tribunal did not resolve all the issues which were put to it;
• any arbitral body or other body or person vested by the parties with powers in relation to the arbitral proceedings or the award exceeded its powers;
• the arbitral tribunal failed to interpret the award and the effect of the interpretation is uncertain or unclear;
• the award was obtained by fraud, or the award or the way it was obtained conflicts with public policy of the Hong Kong SAR;
• the requirements of the form of the award were not followed; or
• any irregularity in the conduct of the arbitral proceedings or in the award admitted by the arbitral tribunal or the arbitral institution, and not covered above.

The court would usually remit the award to the arbitral tribunal for reconsideration if there is serious irregularity affecting the arbitral tribunal, the arbitral proceedings or the arbitral award. If it would be inappropriate to remit the award, the court may instead set aside the arbitral award or declare the arbitral award to be of no effect.

An appeal on question of law or application to challenge the award for reasons of serious irregularity may not be brought under Schedule 2 unless the applicant has first exhausted any available recourse such as review, correction or process of appeal by the arbitral tribunal or any institution.

Co-written by Cynthia Chan of Pinsent Masons.