Hong Kong Courts Dismiss Five Award Challenges Over Eleven-Day Period.

Unsuccessful award debtors ordered to pay indemnity costs in every case; lawyers who acted in “totally baseless” enforcement challenge heavily criticised

In a series of recent decisions handed down within days of one another, the Hong Kong courts rejected five attempts by award debtors to set aside, resist enforcement and stay execution of awards rendered against them.

The decisions reflect the high threshold for challenges to awards in Hong Kong and the fact that most are rejected, notwithstanding the willingness of the courts to step in and take appropriate action in those rare cases in which challenges are upheld (see our reports here and here for recent examples).

The decisions related to (i) an application by a Mainland PRC award debtor to set aside an HKIAC award in favour of a US party, (ii) challenges to the enforcement of two Mainland PRC awards (one made 44 months late) and one Hong Kong award, and (iii) an application for a stay of execution of a CIETAC award pending the final resolution of the award debtor’s attempts to challenge enforcement.

The various (unsuccessful) grounds of challenge included arguments that: the award debtor had not received proper notice of the proceedings; the award creditor had failed to notify the HKIAC that the expedited procedure under the HKIAC Rules had ceased to apply; the relationship between an arbitrator and associated companies of the award creditor gave rise to apparent bias; the subject matter of the dispute and the impact of the award on third parties meant that the dispute was not arbitrable; and the arbitrator in a construction dispute had gone beyond his powers in seeking to reopen or set aside a completion certificate issued by the architect.

Whilst providing a colourful snapshot of award challenges before the Hong Kong courts during a specific period, the decisions also reflect broader patterns and underscore key strengths of Hong Kong as a seat, including in relation to PRC-related disputes.

Read on for summaries and key takeaways.  References below to the “CFI” are to the Court of First Instance.

Summaries of decisions

HKIAC award in favour of US party upheld                                          

• The CFI dismissed an application by a Mainland PRC award debtor to set aside an HKIAC award rendered by an “experienced barrister” in favour of a Californian company on due process and public policy grounds, and ordered indemnity costs against the award debtor (Pan Ocean Container Suppliers Co Ltd v. Spinnaker Equipment Services Inc [2024] HKCFI 1753).
• The court rejected an “entirely opportunistic” argument by the award debtor that it was not given proper notice of the proceedings, finding that written communications were properly communicated in accordance with the HKIAC Rules and accordingly deemed to have been received in the absence of sufficient and credible evidence adduced by the award debtor to rebut that presumption.
• The court also rejected an argument that the award creditor had failed, contrary to its duty of good faith, to notify the HKIAC that the expedited procedure was no longer appropriate because the claim amount had exceeded the applicable monetary threshold.  No authority had been cited for the proposition that the award creditor had been obliged to request the disapplication of the expedited procedure in circumstances where the award debtor had chosen not to participate and was “unlikely” to participate in a “more elaborate” procedure.  Crucially, moreover, the arbitrator had been “meticulous and careful” in her conduct of the arbitration even under the “streamlined” expedited procedure.  Accordingly, the complaint did not “come close” to demonstrating a breach of public policy.

Apparent bias allegations rejected (but leave to appeal granted)

• The CFI dismissed a challenge to the enforcement of a Shenzhen Court of International Arbitration award advanced on the ground of apparent bias arising from relationships between one of the arbitrators and certain associated companies of the award creditor which the arbitrator had failed to disclose, and once again awarded indemnity costs against the award debtor (TGL v. SDC and Another [2024] HKCFI 1796).  
• The relationships relied upon by the award debtor included the fact that: (i) the arbitrator had given legal training to an indirectly associated company of the award creditor’s parent company three years before the arbitration; (ii) the arbitrator’s law firm had acted for the award creditor’s sister company in Mainland PRC court proceedings some years prior to his appointment as a co-arbitrator (before he became a partner); (iii) the arbitrator’s law firm was awarded a legal due diligence contract from two entities at the “corporate grandparent” level of the award creditor the day after the award was rendered; and (iv) the arbitrator’s former law firm had acted for the award creditor’s parent company in a construction dispute at an unspecified time.  
• The court held that these circumstances did not disclose apparent bias based on common law principles (the test being whether an objective fair-minded and informed observer, having considered the relevant facts, would conclude that there was a “real possibility” of bias).  It also gave due regard and weight to the findings of the Shenzhen supervisory court, which had rejected an earlier application to set aside the award on the basis that there had been no breach of Mainland PRC law.
• Leave to appeal to the Court of Appeal was nevertheless granted in a subsequent decision (TGL v. SDC and Another [2024] HKCFI 2393), because the case raised various questions of general principle and importance with regard to an arbitrator’s ongoing duty of disclosure and the potential relevance of the breach of such duties to the public policy ground for refusing enforcement, and a decision of the Court of Appeal “would serve advantage to the arbitration community.”
• This was the second Hong Kong decision to address issues of apparent bias in recent months.  In P v. D [2024] HKCFI 1132 (reported here), the CFI earlier this year dismissed a challenge to two arbitrators on the basis of various procedural decisions and comments made during the proceedings.

Lawyers criticised for “totally baseless” award challenge

• The CFI dismissed a “totally baseless” challenge to the enforcement of a Hong Kong award arising from a construction dispute and awarded indemnity costs against the award debtor (IO v. Contractor [2024] HKCFI 1802).  A prior application to set aside the award had already been rejected because it failed to comply with the relevant procedural requirements.
• An argument that the award debtor had been denied an opportunity to present its case was without basis and “should never have been raised at all”, and various others complaints amounted to alleged errors of law or fact which were not reviewable by the court.  The “only possible ground” of challenge was that the arbitrator had dealt with a dispute falling outside the submission to arbitration by going beyond his powers and reopening or setting aside a completion certificate issued by the architect, but this argument too was rejected by the court, which found that the arbitrator had the relevant powers under the contract.
• The court strongly criticised the award debtor’s lawyers, stating that the award debtor “obviously did not receive proper legal advice” and its legal costs had been “incurred in vain” and “totally wasted”.  If the award debtor had been advised that it had a good case to challenge enforcement, then its lawyers had “utterly failed in their duties” to the court and caused their client “to incur totally unnecessary legal costs” and “engage in conduct amounting to abuse of process.”

Late attempt to challenge enforcement rejected

• The CFI rejected a late attempt (made 44 months out of time) to challenge the enforcement of a Xiamen Arbitration Commission award in respect of which a set-aside application made to the Xiamen court had previously been rejected, with indemnity costs ordered against the award debtor (KZ v. KY [2024] HKCFI 1880).
• The court ruled that the “substantial delay” was unjustified, the award debtor’s claim that he had no knowledge of the enforcement order was “disingenuous”, and his failure to challenge enforcement must have been a “conscious and deliberate choice”.  In refusing leave to extend time, the court also took account of the lack of merit in the award debtor’s intended grounds for challenging enforcement and the prejudice to the award creditor.
• An argument that the dispute related to succession and was therefore not arbitrable under PRC law had never been argued before the tribunal or the supervisory court, and the award debtor should therefore be treated as having waived the right to rely, or being estopped from relying, on that argument (see here for a similar finding by the CFI in another recent decision).
• A claim that the award should not be enforced because it affected the interests of third parties was dismissed on the facts, because the court could not see how the award could affect any recognisable right of the alleged third party. 

• The court also rejected the suggestion that it followed from the English case of Fulham Football Club (1987) Ltd v. Richards & Anor [2012] 2 WLR 1008 that, where an award affects a third party, the subject matter of the dispute in the arbitration must be non-arbitrable or the award must not be enforced.  The present case did not involve the exercise of any statutory power or other function reserved to the court or designed for the protection of any group of third parties in the interests of the public, and the dispute concerned purely contractual rights, such that there was nothing against public policy to enforce the arbitration agreement.
• The court also noted that, in Sodzawiczny v. McNally [2022] 1 CLC 348 (also relied upon by the award debtor), the court had found simply that it was open to it to decide whether third party interests provide a reason not to allow enforcement.

Stay of execution refused by Court of Appeal

• The Court of Appeal dismissed an application for a stay of execution of a CIETAC award pending the resolution of attempts by the award debtor to challenge enforcement (Guo Hanwei v. Xie Guomin and Others [2024] HKCA 695).
• The CFI had already rejected the challenge (see our blog post on that decision here) and refused leave to appeal.  Ordinarily that would have been the end of the matter, because section 84(3) of the Hong Kong Arbitration Ordinance provides that any appeal against a decision to grant or refuse enforcement of an award requires the leave of the CFI.  This provision forms part of a regime of limited appeal rights which is intended to safeguard the finality of the arbitral process (as discussed here).
• The Court of Appeal may however exercise its “residual jurisdiction” to set aside the refusal of leave by the CFI in extreme situations of unfair or improper process (where the first instance decision cannot properly be regarded as a “judicial” decision, or where it is a decision reached “not by any intellectual process, but through bias, chance, whimsy or personal interest). 
• The award debtor argued that the Court of Appeal should do so in this case because the judge had made a manifest error in the enforcement of the award and failed to grapple with the grounds of challenge raised by the award debtor, and in refusing leave to appeal had “completely failed to understand a clearly articulated point”.
• Pending the resolution of those points, the award debtor sought a stay of execution of the award.
• In a decision made on the papers without an oral hearing, the Court of Appeal rejected the application for a stay of execution on the basis that, taking a “broad brush approach”, the award debtor did not have reasonable prospects of success in its attempt to invoke the residual jurisdiction.  Indemnity costs were ordered against the award debtor.
• Although this decision strictly related only to the application for a stay of execution, the Court of Appeal therefore effectively foreshadowed its view on the award debtor’s attempt to invoke the residual jurisdiction, and hence on the final resolution of the challenge to enforcement.

Key takeaways

The decisions were delivered on only three separate days during the month of July, and within a period of only eleven consecutive days, illustrating both the volume of award challenges that continue to come before the Hong Kong courts and the efficiency of the judiciary in disposing of arbitration-related cases.

During the same period, a single award challenge was upheld (in a Court of Appeal decision setting aside parts of an ICC award on jurisdiction grounds, as reported here).  This ratio of failed to successful challenges during a short indicative window reflects the broader reality that most award challenges are rejected by the Hong Kong courts.

Three of the five decisions were delivered by the Honourable Madam Justice Mimmie Chan, who has been the judge in charge of the Construction and Arbitration List of the CFI for more than a decade (since 2013), underscoring the depth of specialist arbitration experience on which the Hong Kong courts can draw.

Indemnity costs were ordered against the unsuccessful award debtors in every case, consistent with the long-standing policy of the Hong Kong courts to discourage unmeritorious award challenges.  This fact, along with the strong criticism of the award debtor’s lawyers in IO v. Contractor, demonstrates the potential financial and reputational costs to parties and their lawyers of unsuccessful award challenges.

Three of the five decisions involved Mainland PRC awards and one of the remaining two featured a Mainland PRC award debtor, underlining Hong Kong’s unique strengths in the resolution of PRC-related disputes. 

Each of the Mainland PRC awards was issued under the rules of a different institution (CIETAC, the Shenzhen Court of International Arbitration, and the Xiamen Arbitration Commission), reflecting the range and diversity of institutions which are active in the mainland PRC market and the importance of seeking specialist advice when choosing between them.

In two of the cases, the Mainland PRC supervisory courts in Shenzhen and Xiamen had already rejected applications to set aside the awards, illustrating the extent to which Mainland PRC and Hong Kong courts often adopt a broadly consistent approach in upholding parties’ agreements to arbitrate and rejecting unmeritorious challenges to awards.