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ICC award refused enforcement in Hong Kong due to tribunal’s violations of procedural fairness

The enforcement of an ICC arbitral award was successfully challenged in the Hong Kong Court of First Instance on the basis of the tribunal’s failure to ensure procedural fairness between the parties (Pacific China Holdings Ltd v Grand Pacific Holdings Ltd HCCT 15/2010, 29 June 2011).

Alleged procedural violations

The respondent in the arbitral proceedings, the award debtor, applied to the court to set aside the award under Article 34(2) of the UNCITRAL Model Law on grounds of a failure of procedural fairness. 

Specifically, the respondent’s key complaints related to the tribunal’s approach to:

(a) pre-hearing submissions on Taiwanese law.  The procedural timetable required the parties to file simultaneous submissions.  However, the tribunal permitted the claimant in the arbitral proceedings to file supplemental submissions dealing with late amendments to the respondent’s case;

(b) the Taiwanese authorities.  The respondent sought to introduce additional legal authorities, but leave to do so was refused by the tribunal without it considering the authorities which were sought to be introduced; and

(c) post-hearing submissions on Hong Kong law.  The respondent referred to matters of the relevance of Hong Kong law, which the claimant objected to, and yet nonetheless responded to substantively.  The tribunal wrote to the parties on this issue, and the respondent then submitted further substantive submissions on the topic of Hong Kong law.  The claimant sought to respond to the respondent’s submissions but the tribunal denied it the opportunity to do so.  The award relied on case law referred to in the respondent’s further submissions.

The court’s findings

The court found that the respondent was procedurally advantaged by having the claimant’s pre-hearing submissions on Taiwanese law to review in the period prior to it filing its supplemental submissions.  By deviating from the procedural timetable agreed by the parties, the tribunal afforded the claimant a procedural advantage, thereby preventing the respondent from being able to present its case.  As such, the court held that the respondent had successfully established grounds for the setting aside of the award under Article 34(2)(a)(ii).  The court also held the procedure for filing the pre-hearing submissions on Taiwanese law was contrary to the agreement between the parties that they would file their submissions simultaneously.  This was held to constitute a breach of Article 34(2)(a)(iv) and established a further ground for setting aside the award.

The court determined that the tribunal’s decision not to grant leave to admit the respondent’s additional Taiwanese legal authorities into evidence was arbitrary.  The tribunal failed to consider the authorities, thereby ignoring the test it had established for the grounds to be considered in determining whether leave should be granted.  The court determined that consequently, the respondent was denied the opportunity to present its case, in breach of Article 34(2)(a)(ii).

The respondent’s complaints about the post-hearing submissions on Hong Kong law were upheld by the court as a further violation of Article 34(2)(a)(ii).  The court determined that the tribunal was required to give the respondent the opportunity to respond to the matters raised by the claimant. 

The court’s discretion to refuse enforcement of arbitral awards

The court noted that pursuant to Article 34(2), it had discretion to enforce an otherwise procedurally unfair award.  However, it held that once the party seeking to set aside the award has demonstrated that there are grounds to set aside the award pursuant to Article 34(2), it will only enforce the award if it is demonstrated beyond any doubt that the decision would have been the same absent the violation complained of.  Given this, where a breach of Article 34(2) can be established, it will be only in exceptional circumstances that a court will be persuaded to nonetheless enforce the award.

Comment

It would be regrettable if arbitrators took this case as a warning that they should be excessively cautious to give unnecessary “procedural” fairness between the parties, and that each party is provided with eternal and extreme opportunities to present their case, to avoid a perceived risk that the arbitration award may be refused enforcement by a dissatisfied party.