Notes on arbitration (arbitral awards)ppt

Adrian notes

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

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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

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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 judicatabetween 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

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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

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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

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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

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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

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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

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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

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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

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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)

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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 2
nd
and 3
rd
request
letters to CIETAC and was denied opportunity to make
submissions to tribunal before CIETAC issued the 2
nd
& 3
rd
letters –a gross breach of the rules of natural justice

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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

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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

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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

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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

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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)

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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 maynot be made after three months …”

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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)

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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

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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, …”

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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

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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

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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

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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.

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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

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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

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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)

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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.

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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”

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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

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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

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Any restrictions on challenges? (2)
●Res judicata or issue estoppel
•Not allowed to re-litigate or re-arbitrate the same cause of action
or issuebetween the same partieswhich has already been finally
and conclusivelydeterminedby 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

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Questions are welcome