Hong Kong – Court Of Appeal Affirms Court Of First Instance Decision Setting Aside Part Of Arbitration Award For Breach Of Due Process.

21 August, 2016

 

In a previous article, we reported on the Court of First Instance (CFI) decision in China Property Development (Holdings) Ltd v Mandecly Ltd & Ors, CACV 92 and 93/2015, in which the Court set aside part of an arbitral award on the basis of serious breach of due process, namely that the Applicant had not been able to present his case. The Court of Appeal has recently affirmed that decision, finding not only that the Applicant had been unable to present its case, but more importantly, that the arbitral award had dealt with a dispute not contemplated by or not falling within the terms of the submission to arbitration.

 

To recap, a dispute had arisen between China Property Development (Holdings) Ltd (CPDH) and the sellers in relation to a share sale agreement, under which CPDH acquired a PRC entity, BPP. CPDH and BPP commenced arbitration proceedings against the sellers. In relation to one of the issues to be determined by the arbitral tribunal, the sellers had confirmed that their arguments were only directed against BPP and, as a result, CPDH, made no submissions in relation to that issue. However, the Tribunal made a ruling against CPDH in relation to that issue and ordered it to pay the sellers RMB10 million. The Court of Appeal agreed with the CFI that CPDH had been unable to present its case (in breach of Article 34(2)(a)(ii) of the UNCITRAL Model Law), but also went further and found that there had been a breach of Article 34(2)(a) (iii) because the award dealt with dispute beyond the scope of the submission to arbitration.

 

As stated in our previous article, the court will only set aside arbitral awards where there has been “serious or egregious” conduct on the arbitral tribunal’s part. The Court of Appeal explained that the irregularity must in the first place satisfy the “serious and egregious” requirement. Then, since the irregularity will be different in each case, the Court must consider the nature of the irregularity, when deciding whether to exercise its discretion to set aside the award.

 

The Court of Appeal said that in respect of some irregularities, the Court having considered the circumstances of the case will have no difficulty in refusing to set aside the award. On the other hand, some irregularities, may be so fundamental and the structural integrity of the arbitration proceeding so seriously damaged that the Court will have no hesitation in setting aside the award. In between these two extremes, the Court of Appeal said, there is a range of irregularities, the consequence of which depends on the circumstances of the case. In this case, the Court of Appeal held that the irregularity clearly fell under the serious end of the two extremes because the tribunal had decided on an issue which had not even been submitted for arbitration and ruled on a claim which the sellers had not even pursued. The Court of Appeal said that the CFI was clearly correct in the circumstances to exercise its discretion in favour of CPDH by setting aside part of the award.