The Hong Kong Court of First Instance has ruled that the holding of a fully virtual hearing despite the opposition of one of the parties did not provide a permissible ground to resist enforcement of an award (Sky Power Construction Engineering Limited v Iraero Airlines JSC [2023] HKCFI 1558).
Although the case was decided on its specific facts, the court emphasised the deference which should be shown to the arbitrator’s wide discretion to determine the procedure in the absence of party agreement. The decision also suggested an acceptance in principle of the use of virtual hearings in a post-pandemic world, where appropriate in the circumstances of a particular case. It therefore provides a helpful indication of the way in which the Hong Kong courts might approach challenges to awards based on virtual hearings in future cases.
Background
The award arose out of an arbitration under the rules of the London Court of International Arbitration (“LCIA“) seated in London before a sole arbitrator.
The parties agreed that the hearing (which was delayed by two months because the sole arbitrator was infected with Covid-19) would be held on a “semi-virtual” basis, with most participants (including legal representatives and fact witnesses) convening at a single location in Moscow, and certain others (including the arbitrator) participating remotely. The arbitrator issued a procedural order reflecting this agreed procedure.
The month before the rescheduled hearing, one of the parties (“Sky Power“) indicated that its only factual witness, “Mr B”, was not available to travel to Moscow for the hearing due to inconvenience and disruption to his business and safety concerns in relation to Covid-19. Sky Power therefore proposed a fully virtual hearing, to which the other party (“IA“) objected. The arbitrator accordingly had to choose between a fully virtual hearing or a further postponement of the hearing to enable Mr B to attend in person in Moscow at some future date.
Having weighed these alternatives, the arbitrator ruled that the hearing should proceed on a fully virtual basis, with the parties, their legal representatives and the arbitrator each attending from their respective locations (Sky Power from Irkutsk, IA from Moscow and the arbitrator from London).
The arbitrator subsequently issued an award in favour of Sky Power, which applied for and was granted leave to enforce the award in Hong Kong. IA was granted the standard period of 14 days to apply to set aside the enforcement order, but failed to do so before the deadline. Eight days after the deadline had expired, IA requested an extension of time to make an application to set aside the enforcement order.
IA indicated that, if the extension was granted, the sole ground for resisting enforcement would be the arbitrator’s direction that the hearing be fully virtual, which it argued was not in accordance with the agreement of the parties, prevented it from adequately presenting its case, and resulted in unfair and unequal treatment.
Decision
Mimmie Chan J dismissed the extension application, with the effect that the challenge to the award could not proceed, and awarded costs to Sky Power on the indemnity basis.
The court accepted that IA’s delay was “not unreasonable” in light of various logistical difficulties which it had faced in engaging and consulting with solicitors in Hong Kong (given that it was a Russian company with no Hong Kong branch, and given the difficulties of travel during the pandemic). Ultimately, however, the merits of the challenge to the award (which were “indisputably relevant” to the extension application) disclosed “no permissible ground” to set aside the enforcement order. Considering matters in the round, the extension application was therefore rejected.
The reasoning of the court reflected the following key themes:
- Remote hearings were already commonplace in court proceedings and arbitrations before, and were particularly so after, the pandemic.
- It was for the arbitrator to decide whether a remote hearing was appropriate, balancing the need for the proceedings to be concluded expeditiously and for the conduct of the proceedings to be fair to the parties.
- The arbitrator had duly considered relevant factors (including the continued uncertainty as to the regulation of the pandemic and its impact on travel) in reaching her decision, and the award reflected that she was obviously satisfied with the manner in which the virtual hearing was conducted.
- It was not for the court to question or interfere in the arbitrator’s exercise of her discretionary case management powers.
- The prior agreement of the parties on the semi-virtual procedure did not prevent the arbitrator from directing a fully virtual hearing in the face of IA’s objections. Such prior agreement had been superseded by a dispute as to whether there should now be a fully virtual hearing. It was then up to the arbitrator to decide the matter.
- Any inconvenience was suffered by both parties, which were subjected to the same risks and difficulties. There was therefore no basis to claim that the arbitrator had failed to act fairly and impartially.
- IA had not voiced any concerns in the course of the hearing with regard to any interference or difficulties encountered as a result of the fully virtual format.
- The court did not consider that the outcome of the arbitration could have been different if the hearing had not been conducted on a fully virtual basis, and it therefore could not see any real injustice or prejudice to IA.
Commentary
Although this was not strictly a decision to reject the challenge to enforcement of the award on its merits (but rather a decision not to grant an extension to allow the challenge to proceed “out of time”), the merits of the challenge were an important factor and were considered by the court in some detail. The decision can therefore be viewed as a de facto rejection of the challenge on its merits.
Any decision of this nature will naturally be fact-specific, and the legal analysis will depend upon the law of the seat of arbitration, the content of any rules selected by the parties, and the conduct of the issue by the tribunal. This decision addressed a case management decision taken during the exceptional circumstances of a global pandemic, and related to an arguably relatively limited change from a semi-virtual to a fully virtual hearing (not a fully in-person hearing to a fully virtual one). It is by no means a blanket endorsement by the Hong Kong courts of the use of virtual hearings in every case in which one of the parties objects. It nevertheless provides a helpful indication of the approach which the Hong Kong courts might take to a challenge based on similar grounds in the future, including the strong emphasis on deference to the procedural discretion of arbitral tribunals.
As a practical matter, the decision is a reminder once again of the importance of making contemporaneous reservations of rights in relation to procedural objections, since the court expressly noted that no point was taken by IA with regard to the issue at the hearing itself (albeit it seems unlikely that a formal reservation of rights would have made any difference to the court’s decision in this case).
For further information, please contact:
Kathryn Sanger, Partner, Herbert Smith Freehills
kathryn.sanger@hsf.com
