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Nuts and Bolts of Arbitration, Lecture No 8: Award and Challenges to Award

Nuts and Bolts of Arbitration, Lecture No 8: Award and Challenges to Award. Catherine L. M. Mun, Partner 7 May 2013. Introduction. Principles of party autonomy and finality of award restrict the scope of available challenges to awards, compared to litigation

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Nuts and Bolts of Arbitration, Lecture No 8: Award and Challenges to Award

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  1. Nuts and Bolts of Arbitration,Lecture No 8: Award and Challenges to Award Catherine L. M. Mun, Partner7 May 2013

  2. Introduction • Principles of party autonomy and finality of award restrict the scope of available challenges to awards, compared to litigation • Promoted by easier enforcement of arbitral awards under Convention on Reciprocal Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) • Function of the challenge mechanism • Ensure fairness, equal treatment to the parties, valid choice of arbitration and observation of public policy • Globalisation and trend of cross-border and transnational disputes • Local law • Conflict of laws • International arbitration law

  3. What is an arbitral award?(1) • Instrument recording a final and conclusive determination by arbitral tribunal as to the specific issues referred to it • Binding on the parties and can be the subject of challenge or enforcement by the parties • Res judicata between the parties • It usually relates to substantive merits and issues of jurisdiction • Order or decision made by arbitral tribunal such as interim measures • HK - with leave of the court, enforceable in the same manner as an order or direction of the Court that has the same effect (s61 AO) • Enforceable under New York Convention? • Law of the place of enforcement • Procedural decisions may or may not be awards • Don’t be misguided by the title of the award • Substance counts

  4. What is an arbitral award? (2) • Requirements as to form and content • s67, HK Arbitration Ordinance (“AO”) • in writing, signed by arbitrator(s) or the majority of the tribunal with reason for the omitted signature stated • state the reasons, unless dispensed with by parties or it is an award on agreed terms • state the date of the award and place of arbitration • Arbitration agreement and applicable arbitration rules may impose other requirements • Eg, to be affixed with CIETAC’s seal, Art 47(4) CIETAC Rules

  5. Types of arbitral awards (1) • Final, partial, interim, consent and by default • Terms not statutorily or universally defined • s71 AO, arbitral tribunal may make more than one award at different times on different aspects of the matters to be determined, unless otherwise agreed by the parties • HKIAC AAR Art 30.1, ICC Rules Art 2 and CIETAC Rules Art 48 • Their enforceability depends on the law of the place of enforcing court

  6. Types of arbitral awards (2) (1) Final award • “Last” award that disposes of all or all remaining issues raised in the arbitration • Effect – terminates the arbitration proceedings and mandate of the arbitral tribunal (except in respect of error, ambiguity and omission which can be fixed by an additional award) • s68 AO/Art 32 UNCITRAL Model Rules

  7. Types of arbitral awards (3) (2) Partial award • Determination of important issues at earlier stages • Eg, issues of jurisdiction, time bar, liability (with quantum to be determined later), applicable laws (3) Interim award • Award that does not definitely determine an issue before the tribunal • Eg., an interim injunction to restrain a party from doing a certain act pending further award of the arbitral tribunal • s68 AO/Art 32 UNCITRAL Model Rules • Sometimes used interchangeably with “partial” awards

  8. Types of arbitral awards (4) (4) Award on agreed terms / consent award • Tribunal’s ruling that incorporates the settlement reached by the parties in arbitration • Recognised by many arbitration rules or arbitration laws • s66(1) AO / Art 30 Model Law – the award has the same status and effect as any other award on the merits of the case • Art 41(2) HKIAC AAR • Art 45(5) CIETAC Rules, Art 49 PRC Arbitration Law • Settlement agreement entered into by parties to an arbitration agreement is treated as an arbitral award for the purpose of enforcement • s66(2) AO

  9. Types of arbitral awards (5) • (5) Default award • An award made in proceeding where one party fails to participate • To minimise challenges, • opportunity should be given to each party to present its case and to reply to the arguments of the other • keep documentary proof of communications with both parties • issue of jurisdiction should be examined and dealt with • decision based on well founded fact and law

  10. Types of arbitral awards (6) • (6) Additional award • Errors or omissions to deal with issues referred to in the award are open to challenge • s69(1) AO • Not any error can be fixed • It must be a clerical, computational or typographical error, or any errors of similar nature • Can be initiated by arbitral tribunal or either party • Can issue an interpretation upon request made with agreement of the parties • Can handle omitted issues upon request of a party • Review an award of costs which was made without knowledge of relevant information relating to costs – s69(3) AO

  11. Types of arbitral awards (8) • (6) Additional award (cont’d) • Time limit • s69 AO, 30 days of receipt of award (or date of award in respect of costs issue) • Shandong Hongri Acron Chemical Joint Stock Co Ltd v Petrochina International (HK) Corporation Ltd, CA, 2011 • Application to enforce a CIETAC award in HK • Return of goods vs return of purchase price and payment of associated costs • Respondent wrote three letters to CIETAC requesting a supplemental award – 1st two issued by CIETAC Secretariat (18 Nov 2009 & 22 Nov 2009) & the last issued by majority arbitrator (30 Mar 2010)

  12. Types of arbitral awards (7) • (6) Additional award (cont’d) • Shandong Hongri Acron Chemical Joint Stock (Cont’d) • The three letters did not constitute an additional award • 1st two letters not signed by arbitrators and stamped with CIETAC’s seal • 3rd letter was out of time without CIETAC’s deal • Applicant was not provided with the R’s 2nd and 3rd request letters to CIETAC and was denied opportunity to make submissions to tribunal before CIETAC issued the 2nd & 3rd letters – a gross breach of the rules of natural justice

  13. Is all relief granted in an arbitration proceeding recognisable and enforceable? (1) • Laws to consider • Substantive law governing the dispute • Power of the arbitrator to grant the remedy under the arbitration agreement, arbitration rules and/or applicable arbitration law • The law of the place of enforcing courts • S70 AO • Arbitral tribunal may award any remedy or relief that could have been ordered by Hong Kong court, and • unless otherwise agreed by the parties, has the same power as the court to order specific performance of any contract, other than a contract relating to land or any interest in land

  14. Is all relief granted in an arbitration proceeding recognisable and enforceable? (2) • Monetary compensation, specific performance, injunction, declaratory relief, punitive damages etc • Differences between different legal systems mean remedy or relief obtainable in one jurisdiction may be unenforceable in the other

  15. Is all relief granted in an arbitration proceeding recognisable and enforceable? (3) • Specific performance as awarded became impossible performance • Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd and others, CA 2012, leave to appeal rejected by CFA • Award directing Eton Group to transfer certain shares in a company to Applicant • Transfer became impossible at the time of the award because shares had been transferred to Eton Properties • Applicant enforced the award in HK seeking damages in lieu of specific performance • Held: • No jurisdiction to usurp tribunal’s function to award damages in lieu • Tribunal was not asked to consider damages in lieu and the Applicant’s request was outside the scope of reference to tribunal

  16. Grounds to seek to challenge or avoid an award (1) Where parties opt in to ss 4 and 5 of Schedule 2, AO • (1) Challenge on the ground of serious irregularity affecting the arbitral tribunal (s4) • Effect – remit the award to tribunal for reconsideration, set aside the award or declare the award to be of no effect • (2) Appeal on a question of law (s.5) • Effect – confirm or vary the award, remission to tribunal for reconsideration or set aside • (1) & (2): Time limit – made within 30 days after the award is delivered, O73, r5, RHC

  17. Grounds to seek to challenge or avoid an award (2) Where there is no opt-in • (3) Challenge the award in the court of the place where the award was made (Setting Aside) • (4) Resist enforcement before the enforcing court (Refusal of Enforcement)

  18. Setting Aside (1) • Save for limited exceptions, a successful “set aside” may preclude the award from being enforced overseas under Art V(1)(e), NY Convention • Grounds are set out in s81 AO / Art 34 Model Law • Time limit, Art 34(3) • 3 months of receiving the award or if a request for an additional award is made, within 3 months of that request being disposed of by the arbitral tribunal • Extendable with justifiable excuse - “An application for setting aside may not be made after three months …”

  19. Setting Aside (2) • Ground 1: Incapacity or invalid arbitration agreement “a party to the arbitration agreement … was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State [i.e. HK]” • Eg, arbitration agreement that fails to designate an arbitration institution is invalid under Chinese law • Challenge about tribunal’s jurisdiction determined in final award (not as a preliminary decision)

  20. Setting Aside (3) • Ground 2: No proper notification of the arbitration proceedings or denial of opportunity to present one’s case “the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case” • How notice should be given or delivered will be determined by the arbitration agreement, applicable arbitration rules and arbitration law of the place of arbitration • Pacific China Holdings Ltd v Grand Pacific Holdings Ltd [2012] HKCA 200

  21. Setting Aside (4) • Ground 3: Excess of the scope of submission to arbitration “the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, …”

  22. Setting Aside (5) • Ground 4: Irregular composition of the arbitral tribunal or procedural conduct of the arbitration “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties …” • Eg, failure to observe the specific qualification requirements for arbitrators set out in arbitration agreement • Pacific China Holdings Ltd • Allegations of improper procedure which failed to observe the arbitration agreement of the parties, unfair treatment and denial of opportunity to present its case • All rejected by CA and CFA

  23. Setting Aside (6) • Pacific China Holdings Ltd (Cont’d) • In 2009 GP obtained a favourable ICC monetary award of US$55 million plus interest made in HK • In 2010 PC applied to set aside the award based on the grounds set out in Art 34(2)(a)(ii) and (iv), Model Law, contending that tribunal was wrong in: • Ordering sequential submissions on a Taiwanese law issue as opposed to by way of exchange, which departed from an earlier direction and therefore a breach of the parties arbitration agreement • Held: Issue was raised late by PC which justified tribunal in the exercise of its case management power to take into account prejudice to GP in ordering directions • Disallowing PC’s submission of 3 new case authorities, thereby preventing PC from presenting its case

  24. Setting Aside (7) • Pacific China Holdings Ltd (Cont’d) • Held: Tribunal’s case management power to decide whether late evidence should be allowed • Denying PC’s right to make reply submission to respond to GP’s post-hearing submissions on Hong Kong law • Held: PC already had two opportunities to make submissions on the issue • Court stated that the conduct of tribunal would need to be sufficiently serious or egregious in order for it to be said that due process had been denied

  25. Setting Aside (8) • Ground 5: Dispute is not arbitrable (can be raised by the Court) “the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State” • Matters involving the power of the State such as taxation and immigration and family proceedings are non-arbitrable.

  26. Setting Aside (9) • Ground 6: Contrary to public policy of HK (can be raised by the Court) • Heibei Import & Export Corp v Polytek Engineering Co Ltd (1999) HKCFAR 111 • Public policy should be narrowly construed • The guiding principle is the court should recognise the validity of the decision of foreign arbitral tribunals as a matter of comity, and give effect to them, unless to do would violate the most basic notions of morality and justice. • It would make it extremely unjust to refuse enforcement where the supervisory court refused to set aside the award

  27. Setting Aside (10) • Ground 6: Contrary to public policy of HK (Cont’d) • Minmetals Germany GmbH v Ferco Steel Ltd [1999] CLC 647, English case • Normally, great weight must be attached to the policy of sustaining the finality of the determination of properly referred procedural issues by the supervisory court • Unless exceptional circumstances exist such as corruption which makes the supervisory court decline to act • Also see recent CA case of Gao Haiyan v Keeneye Holdings Ltd [2011] HKEC 1626 • Fraud or biased arbitrators (an apprehension of apparent bias) are generally accepted examples

  28. Setting Aside (11) • Ground 7: Challenge against arbitrator sustained, s26(5) AO • An arbitrator may be challenged for a variety reasons such as lack of impartiality or having an interest in the outcome of the disputes • If the challenge is unsuccessful, the dissatisfied may apply to the Court for a review • Arbitration can continue pending Court’s determination • If the Court upholds the challenge, the award made by the arbitral tribunal including the challenged arbitrator may beset aside (or refused enforcement, s26(2) AO)

  29. Setting Aside (12) • Effect of proving the “set aside” grounds • Where appropriate and request by a party, the Court may suspend the proceedings to allow the arbitral tribunal an opportunity to eliminate the grounds • CA in Pacific China made a passing comment that the Court may nevertheless refuse to set aside if it was satisfied that the outcome would not have been different had the circumstances complained of not occurred. CFA reserved its view on this.

  30. Refusal of Enforcement (1) • Grounds for setting aside also apply here • Time limit • HK, 6 years to enforce an award which is not under seal, s4(1) Limitation Ordinance, Cap 347 • China, 2 years • Additional grounds • Ground 8: Award has not yet become binding or has been set aside by the supervisory court, Art V(1)(e) NY Convention • Exception – where the “supervisory court” in question involved corruption or “partial and dependent conduct”

  31. Refusal of Enforcement (2) • Ground 9: State / sovereign immunity • FG Hemisphere Associates LLC v Democratic Republic of Congo (CFA, 2011) • FG Hemisphere sought enforcement of arbitral awards made in France and Switzerland against certain assets (in the form of payments) located in Hong Kong which were to be made to the Democratic Republic of Congo (DRG) • DRG contended that HK court had no jurisdiction over it for it as a state had absolute sovereign immunity from jurisdiction and execution in HK • Absolute immunity vs restrictive immunity • Restrictive immunity – only immune in respect of acts in a state’s sovereign capacity, but not those acts of a private law or commercial character • CFA held: Absolute immunity applied and no jurisdiction over DRC • Effect of making out the grounds – enforcing court is not obliged to refuse enforcement because Article V provides that enforcement “may” be refused

  32. Any restrictions on challenges? (1) • Waiver • May waive by failing to raise the objections during the arbitration • s11 AO / Art 4 Model Law “A party who knows that any provision of this Law from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time-limit is provided therefor, within such period of time, shall be deemed to have waived his right to object.” • Non-compliance; actual knowledge; continued participation in the proceedings; and no objection was raised within a given time or with due diligence • Gao Hai Yan - Not allowed to keep the point up one’s sleeve for later use

  33. Any restrictions on challenges? (2) • Res judicata or issue estoppel • Not allowed to re-litigate or re-arbitrate the same cause of action or issue between the same parties which has already been finally and conclusivelydetermined by a court or tribunal of competent jurisdiction • Whether the decision of a foreign court that an annulment decision made by the supervising court creates an issue estoppel binding on HK court and therefore no further challenge can be made in HK? • Yukos Capital S.A.R.L v OJSC Rosneft Oil Company , CA England, 2012 • Different standards of public policy between The Netherlands and England

  34. Questions are welcome

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