In China International Fund Limited v Dennis Lau (Secretary for Justice intervening) HCMP 2472/2014, the Hong Kong Court of Appeal held that it is constitutional to exclude the Court of Appeal from deciding whether to give permission to a losing party to appeal a decision of the Court of First Instance concerning its failed application to set aside an arbitral award. The implications behind this case is that only the Court of First Instance judge can decide whether to allow a losing party to appeal his own judgment to the Court of Appeal.
Although the reader may find this counter-intuitive to allow no one except the judge to decide whether his own judgment should be appealed against, the Court of Appeal held that such a limitation was constitutional in order to promote the policy objectives of speed, economy and finality in arbitration. Otherwise, the losing party can mount two further applications for leave to appeal to the Court of Appeal and possibly the Court of Final Appeal, thus further depriving the winning party of the fruits of a victorious arbitration.
The arbitrator published his award ordering the Applicant to pay US$7.5 million to the Respondent (an architectural firm) for work done under a consultancy contract. The Applicant applied to set aside the arbitral award before Justice Louis Chan of the Court of First Instance, who refused to set aside the award (the “Refusal to Set Aside Decision”). The Applicant then applied to Louis Chan J for permission to appeal against the Refusal to Set Aside Decision, which was again denied.
This would have been the end of the road for the Applicant because Section 81(4) of the Arbitration Ordinance (Cap. 609) (the “Non-Appeal Provision”) prohibited the Applicant from asking the Court of Appeal for permission to appeal against the Refusal to Set Aside Decision
Section 81(4) reads:
“The leave of the [Court of First Instance] is required for any appeal from a decision of the [Court of First Instance]under article 34 of the UNCITRAL Model Law, given effect to by subsection (1).”
In order to overcome the Non-Appeal Provision, the Applicant applied to the Court of Appeal to strike down the Non-Appeal Provision as unconstitutional because it restricted the power of final adjudication of the Court of Final Appeal. This restriction was a breach of Article 82 of the Hong Kong Basic Law, which reads:
“The power of final adjudication of the Hong Kong Special Administrative Region shall be vested in the Court of Final Appeal of the Region…”
Given the constitutional implications of this case, the Secretary of Justice was invited to intervene.
The Parties agreed that the Non-Appeal Provision breached Article 82 because the Court of Final Appeal cannot adjudicate on the Applicant’s application for permission to appeal the Refusal to Set Aside Decision. Hence, the Court of Appeal had to consider whether this breach was nonetheless constitutional because it satisfied the proportionality test, where:
the restriction must pursue a legitimate aim;
the restriction must be rationally connected to the legitimate aim; and
the restriction is no more than necessary to achieve the legitimate aim.
Again, the Parties agreed that the objective of the Non-Appeal Provision pursued a legitimate aim enshrined in Section 3 of the Arbitration Ordinance (i.e. “the fair and speedy resolution of disputes by arbitration without unnecessary expense”) and that the Non-Appeal Provision was rationally connected to this legitimate aim.
Accordingly, the outstanding question for the Court of Appeal was whether the Non-Appeal Provision was no more than necessary to achieve this legitimate aim (i.e. the third limb of the proportionality test).
The Court of Appeal’s Decision
Johnson Lam VP, delivering the judgment for the Court of Appeal, held that the Non-Appeal Provision satisfied the third limb of the proportionality test
There is nothing wrong with the judge of the Court of First Instance having to determine whether his own decision should be appealed against.
It is common for judges to decide whether to allow a losing party to appeal against their own decision. Judges are independent tribunals and there is no allegation here that Justice Louis Chan was not independent.
The judge who hears an application to set aside an arbitral award is a specialist assigned to the Construction and Arbitration List, which is a case list where all construction and arbitration cases would be heard by specialists. The judge would be aware of the background facts, parties’ arguments and therefore be best placed to decide whether an appeal to the Court of Appeal would have a reasonable prospect of success.
In addition, the judge can make his/her decision quickly, unlike the Court of Appeal who would have to take time to review the papers. This approach would be speedy and expeditious, which are the main objectives of arbitration.
If arbitration users want wider rights of appeal to the higher courts, they can opt for the arbitration regime under Schedule 2 of the Arbitration Ordinance (“Schedule 2 Regime”). The Schedule 2 Regime allows for wider rights of appeal, such as an appeal on a preliminary point of law during an arbitration, an appeal on a point of law after the award is published and an appeal against an award on the grounds that a serious irregularity has occurred in the making of the award. In addition, an applicant under the Schedule 2 Regime is not subject to the Non-Appeal Provision, so he can ask the Court of Appeal for permission to appeal if the Court of First Instance refuses permission.
As the Parties in this case did not opt for the Schedule 2 Regime, their choice should be respected.
The losing party’s case would have already have undergone two rounds of adjudication before the arbitral tribunal and the Court of First Instance. If the Non-Appeal Provision was struck down as unconstitutional, the losing party can still appeal to the Court of Appeal and Court of Final Appeal. Multiple rounds of appeal would undermine the finality, speed and cost efficiency that arbitration users expect.
There are other countries, such as England, which have adopted statutory provisions similar to the Non-Appeal Provision to promote the development of international arbitration. In fact, the Hong Kong Court of Appeal adopted the views of a English Court of Appeal in a case where a similar point was litigated – whether a statutory provision similar to the Non-Appeal Provision would infringe a party’s right to a fair trial under the European Convention of Human Rights?
The Court of Appeal’s decision is unsurprising given the Hong Kong government and judiciary’s policy of promoting Hong Kong as an Asian dispute resolution hub. Moreover, the Arbitration Ordinance had undergone extensive consultation with stakeholders, so it is unlikely that it would suffer from a fundamental constitutional flaw.
One of the biggest strengths of arbitration is that no appeals are allowed for errors of fact and law, even if they are egregious. The only recourse against an arbitration award is to set it aside, which would only be allowed on very narrow and limited grounds for the most egregious procedural defaults (eg. award is in breach of public policy of a state, the arbitration is not valid, the losing party was not given a reasonable opportunity to present its case etc…). This lack of an appeals process has contributed to the speed and expedition of arbitration where the winner does not have to endure multiple rounds of appeal before enjoying the fruits of a hard fought victory.
However, arbitration’s biggest strength may also be one of its biggest weakness. Some potential arbitration users may be turned off if they are forced to accept an award that is egregiously wrong on the facts and/or law which they can do nothing about.
The American Arbitration Association has tried to mitigate this weakness by giving arbitration users the option of an appellate arbitration process. Singapore has recently launched the Singapore International Commercial Court to hear international commercial cases which would give dissatisfied losers one round of an appeal (if the stringent appeal criteria can be met), but these cases would be heard in public unless the judge permits a closed door hearing.
Potential litigants can avoid regret by thinking carefully about the method of dispute resolution that best meets their expectations.