Hong Kong – Court Refuses To Set Aside Arbitrator’s Decision On Grounds Of Irregularity.

3 March, 2017

 

In the recent case of A & Ors v D, HCMP 1014/2016, the Plaintiffs applied to Court to set aside an arbitrator’s decisions on the grounds of irregularity, under Section 4 of Schedule 2 to the Arbitration Ordinance (Cap 609). The question arose as to whether Schedule 2 applied to this arbitration.

 

The Facts

 

The Plaintiff and Defendant were equity partners in a firm pursuant to a letter of agreement (Agreement). The Defendant gave notice to retire from the firm with effect from 15 November 2009 and on 16 November 2009 assigned his equity in the partnership to the 1st Plaintiff (the Assignment).

 

Disputes arose between the partners in relation to amounts allegedly due from the Defendant and as to the Defendant’s entitlement to drawings and profit share under the Agreement as a result of his retirement. Pursuant to a clause in the Agreement, the parties submitted the dispute to arbitration.

 

Preliminary Issue before Tribunal

 

The Arbitrator ruled on the legal effects of the Assignment, as a preliminary issue. He held that the Defendant had ceased to be an equity partner of the firm with effect from 15 November 2009 and ceased to have any rights under the Agreement, which were only applicable to equity partners, including the right to make drawings, as well as rights to share profits.

 

Plaintiff’s strike out application

 

Following the Arbitrator’s ruling on the preliminary issue, the Plaintiff applied to the Arbitrator to strike out the Defendant’s Counterclaim. The Arbitrator dismissed that application and ordered the Plaintiff to pay the Defendant’s costs (Decision). The Plaintiffs now applied to Court to set aside that Decision on the grounds of serious irregularity under Section 4 of Schedule 2 of Cap 609. The Defendant responded by seeking a declaration from the Court that the Court had no jurisdiction in respect of the subject matter of the proceedings and an order that the action be dismissed.

 

Did Schedule 2 of Cap 609 apply?

 

The parties had agreed with the Arbitrator that the arbitration was to be governed by Cap 609, rather than the repealed Arbitration Ordinance (Cap 341).

 

As the Court noted, Schedule 2 of Cap 609 applies only if the parties opt for it to apply and section 99 of Cap 609 permits an arbitration agreement to expressly provide that Schedule 2 is to apply.

 

There was no dispute that the Agreement in this case made no express provision for any of the provisions of Schedule 2 to apply. Section 100 of Cap 609 provides that all the provisions in Schedule 2 apply to an arbitration agreement entered into before the commencement of Cap 609 (as in this case) which provided that the arbitration under the agreement is a domestic arbitration. The Agreement here made no provision that the arbitration would be a domestic arbitration, but the Plaintiffs argued that any arbitration under the Agreement would be a domestic one since all the partners were Hong Kong partners with a place of business in Hong Kong.

 

Court’s Ruling

 

The Court held that under the repealed Cap 341, any arbitration between the partners of the firm might have been considered a domestic arbitration. However, the parties had agreed with the Arbitrator that Cap 609 and not Cap 341 was to govern the arbitration and accordingly, the Court said, any arbitration held in Hong Kong would be governed by the provisions of Cap 609 and the Model Law as applied by Cap 609, without any distinction and consideration of whether the arbitration was domestic or international. The Court said that since the Agreement made no provision at all for Schedule 2 to apply, there was no basis for the Plaintiffs to apply to court to set aside the Decision on the grounds of irregularity under Section 4 of Schedule 2. As provided by Section 3(2) of Cap 609, the Court should interfere in the arbitration of the dispute only as expressly provided for in Cap 609.

 

The Plaintiffs also failed in their argument that the Court should set aside the Decision under Section 81 of Cap 609, as such application must state (in the Originating Summons) the grounds of the application, which had not been done here. 

In any event, the Court said that the Plaintiffs’ case had no merit and there was no irregularity either in the arbitration procedure or in the Arbitrator’s exercise of his powers.

 

Comment

 

The Court’s decision is unsurprising given the clear wording of Section 100, not to mention the general reluctance of the Courts to set aside arbitration awards.