We previously reported on the Decision in TGL v SDC [2024] HKCFI 1796, in which the court dismissed the Respondents’ application to set aside an Enforcement Order, whereby the Applicant had been granted leave by the Hong Kong court to enforce an arbitral award made by the Shenzhen Court of International Arbitration (SCIA) against them. The court rejected the Respondents’ contentions that, by virtue of the arbitrator’s relationship with the Applicant, there was apparent bias on the arbitrator’s part. The court has now granted the Respondents leave to appeal the Decision (see TGL v SDC [2024] HKCFI 2393). The court noted that the Decision is a final one and it was not persuaded that the Respondents had an arguable case with reasonable prospects of success that the Decision exceeded the generous ambit within which reasonable disagreement is possible, and was plainly wrong. However, it still granted leave to appeal because the parties had not advanced focused arguments at the hearing on the duties of an arbitrator to make disclosure throughout the course of an arbitration, which duty exists by virtue of s.25(1) of the Arbitration Ordinance (AO), the extent of such duties with regard to matters which came to the arbitrator’s knowledge or which he ought reasonably to have known, and whether the matters required to be disclosed should be wider in scope than what would justify recusal of an arbitrator. The court said that breach of such duties may be relevant to the question of whether enforcement of the arbitral award should be refused, as being contrary to public policy, and this question was one of general principle and of importance, such that a decision of the Court of Appeal would advantageous to the arbitration community.
The Decision
To recap, the Respondents had applied to set aside the Enforcement Order on the grounds that given the relationship between the arbitrator and companies associated with the Applicant, there was apparent bias on the arbitrator’s part, in that he failed to disclose that relationship and the possibility of the existence of a conflict of interest on his part. The Respondents argued that this gave rise to justifiable and reasonable doubts in the mind of an objective observer as to the arbitrator’s independence or impartiality and that the composition of the tribunal was not therefore in accordance with the parties’ arbitration agreement, and/or the law of the Mainland and/or it would be contrary to the public policy of Hong Kong to enforce the Award, as being in breach of the basic principles of natural justice, such that the Enforcement Order should be set aside and enforcement refused under sections 95(2)(e) and 95(3)(b) of the AO.
In the Decision, the court had found that the Hong Kong court of enforcement should give due regard and weight to the decision of the Shenzhen Court, as the supervisory court of the arbitration, that there was no breach of PRC law and no breach of the SCIA Rules governing the arbitration regarding the arbitrator’s duty of disclosure, and no actual or apparent bias on his part, in that there were no circumstances which may give rise to a reasonable doubt as to the arbitrator’s fairness and impartiality. The ground under s.95(2)(e) of the AO was accordingly not established.
The court also found that in the circumstances of the case, there was no cogent and rational link between any association which the arbitrator may have had with the Applicant, and the capacity of such association to influence the arbitrator’s decision in the arbitration, to give any impression of possible bias on the arbitrator’s part. As such, it would not be contrary to the public policy of Hong Kong to enforce the Award.
Grounds for seeking leave to appeal the Decision
The Respondents sought leave to appeal the Decision, arguing that the court had erred in accepting at face value, or placing too much weight on, the arbitrator’s own representation or evidence as to the relevant facts, of the Impugned Relationship between the Applicant and the companies with which the arbitrator/his firm had dealings, and of the arbitrator’s professed knowledge or lack of knowledge of those facts and relationship. They also argued that the court had failed to consider relevant matters which would have shown inconsistencies in the arbitrator’s disclosure, and would have caused an objective fair-minded and informed observer to conclude that the arbitrator had not been truthful, and that there was a real risk of bias on his part.
Court’s decision on leave application
The court held that the Decision was a final one, and under s.84(3) of the AO (which applies to a Mainland award by virtue of s.92(1)(b) of the AO), the leave of the court is required for any appeal from a decision of the court to grant or refuse leave to enforce an award. A decision to grant or refuse leave to enforce an arbitral award is an exercise of the discretion of the court, and the applicant for leave to appeal has to show that he has an arguable case with reasonable chances of success that the relevant decision exceeds the generous ambit within which reasonable disagreement is possible, and is in fact plainly wrong, and not merely that the appellate court would prefer a solution which the judge had not chosen. A reasonable prospect of success means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”. It is insufficient to show that the appeal was “merely arguable” and “not fanciful” for the court to be satisfied that the applicant had a reasonable prospect of success.
The court found that there was no evidence adduced at the hearing which could contradict the arbitrator’s claims, that he had no knowledge of the dealings relating to the Impugned Relationship of which the Respondents complained. Having considered all the facts and circumstances and the entire history of the dealings between the arbitrator and the group of companies of which the Applicant formed part, the court was not satisfied that there was a sufficiently cogent and rational link between any association which the arbitrator may have had with the Applicant, and the capacity of such association to influence the decision of the arbitrator, to give any impression of a real risk of bias on the part of the arbitrator. Hence, the court was not persuaded that the Respondents had an arguable case with reasonable prospects of success that the Decision exceeded the generous ambit within which reasonable disagreement is possible, and was plainly wrong.
However, the parties had not advanced focused arguments at the hearing on the duties of an arbitrator to make disclosure throughout the course of an arbitration, the extent of such duties with regard to matters which came to the knowledge of the arbitrator or which he ought reasonably to have known, and whether the matters required to be disclosed should be wider in scope than what would justify recusal of an arbitrator. Breach of such duties may be relevant to the question of whether enforcement of the Award should be refused as being contrary to public policy. This question, the court said, is one of general principle and is of importance, such that a decision of the Court of Appeal would serve as an advantage to the arbitration community. For that reason, the court granted leave to appeal.
Comments
A decision of the Court of Appeal about the extent of an arbitrator’s duties to make disclosure of his/her relationship with the parties will be useful to arbitrators. The arbitration community of Hong Kong is small. It is not uncommon for the arbitrator to have prior relationships with the parties and their legal advisors. If the IBA Guidelines on Conflicts of Interest in International Arbitration is strictly followed, disclosure of relationships has to be made by the arbitrator in many situations. Generally, an arbitrator will err on the side of caution in making disclosure once the matter requiring disclosure has come to his/her knowledge, so that any objection from the parties can be dealt with as soon as possible.
For further information, please contact:
Stanley Lo, Deacons
stanley.lo@deacons.com