HONG KONG COURT REJECTS AWARD CHALLENGE AFTER RE-ARBITRATION OF DISCRETE EVIDENTIAL ISSUE

The Hong Kong Court of First Instance has upheld the enforcement of a CIETAC award following the re-arbitration by a new tribunal of a limited evidential issue which did not affect the result (G v. X and Others [2023] HKCFI 3316).

The court firmly rejected the award debtor’s claim that the re-arbitration (which concerned two pieces of quantum evidence collected by the original tribunal on its own and not put to the parties) had the result that the original award was no longer binding or had been suspended.

The decision is one of two recent Hong Kong cases addressing “re-arbitration” or “remission” of issues to the tribunal in lieu of an order setting aside the award (see also G v. N [2023] HKCFI 3366 and our blog on that case), and provides a helpful comparative discussion of the similar legal impact of remission in the Mainland PRC and Hong Kong.

Background

G commenced CIETAC arbitration against X and others, claiming that he had been induced by fraud to sell his interests in an online music company at an undervalue.  The tribunal ruled in G’s favour and ordered X to pay him RMB 660 million (approximately US$93 million).

X opposed an application by G to enforce the award in Hong Kong, on the basis that (i) he had been unable to present his case on a formula which the tribunal had come up with on its own for the calculation of damages, and (ii) the award went beyond the scope of the submission to arbitration because of the consolidation of disputes under eight agreements involving different parties.

The Hong Kong enforcement proceedings were stayed following an application by X to set aside the award in the Mainland.

The Mainland court issued a notice informing CIETAC that the tribunal had collected evidence on its own without the parties’ examination, in breach of the applicable CIETAC rules.  The Mainland court therefore directed that a “re-arbitration” should be held pursuant to Article 61 of the PRC Arbitration Law.  The Mainland setting aside application was subsequently terminated.

A new tribunal was appointed and issued a procedural order which limited the scope of the re-arbitration to the examination by the parties of two pieces of quantum-related evidence (namely, the closing price and number of shares in the company, as stated in its 2019 annual report) which had not been put to them by the previous tribunal.

The new tribunal issued an award in which it declined to make any adjustments to the findings made by the original tribunal and upheld the award of RMB 660 million against X.  The new tribunal noted that the original award had not been set aside by the Mainland court and “still has the force of res judicata“.

X challenged enforcement of the original award in Hong Kong on the basis that it was either “not binding” or had been “suspended” by the Mainland court as a result of the re-arbitration (relying on section 95(2)(f) of the Hong Kong Arbitration Ordinance).

Decision

Mimmie Chan J held that there was “absolutely no ground” to refuse enforcement of the original award and proceeded to grant G’s enforcement application and order indemnity costs against X.

At the outset, the court noted that it was now “clear and beyond doubt” in light of developments in the Mainland that the original grounds relied upon by X to oppose enforcement prior to the stay of proceedings were without merit.

Turning to X’s most recent argument that the original award was not binding because of the re-arbitration, the court reasoned that:

  1. On their plain reading, the relevant provisions of PRC law relied upon by X (including Article 61 of the PRC Arbitration Law) did not provide that re-arbitration would result in the setting aside, revocation or even suspension of the award.
  2. Those provisions were similar in intent and purpose to section 81(4) of the Hong Kong Arbitration Ordinance, which provides that the court can, where appropriate and requested by a party, suspend setting aside proceedings and remit the matter to the tribunal to provide an opportunity to eliminate grounds for setting aside the award.
  3. Common law authorities made it clear that (i) an award remained valid and binding despite having been remitted to the arbitrator (in Carter v. Harold Simpson Associates [2005] 1 WLR 919, the Privy Council held that “the remittal of the award does not deprive it of legal effect. It continues to operate so as to make the arbitrator functus officio, unable to alter his award, on those matters which were not remitted”), and (ii) the tribunal only has a limited scope of enquiry on remission (citing the decision of the Privy Council in Sans Souci Ltd VRL Services Ltd [2012] UKPC 6).
  4. The evidence of G’s expert on Mainland PRC law (which the court accepted) as to the limited scope of the tribunal in a re-arbitration was consistent with those common law authorities.  Re-arbitration only concerned the correction of defects or mistakes in an award, and was not a separate arbitration.  It was generally limited to the flaws or defects in the proceedings identified by the Mainland supervisory court, rather than a re-arbitration of the entire matter.
  5. The original award had not been set aside and was still valid under PRC law, and the Mainland setting aside proceedings had been terminated.
  6. To the extent that it was claimed that the original award was replaced by the award of the new tribunal in the re-arbitration, that must depend on the scope of the re-arbitration ordered.
  7. In this case, the Mainland court had only ordered re-arbitration regarding the two pieces of quantum evidence mentioned above.  The new award only replaced the original award on this defined issue, and to the extent that the new award was in any way different on this issue.  It was “patently clear” that the re-arbitration had no effect on the original award.  The new award was the same as the original award on the question of damages, and made no difference in outcome or effect.
  8. The court also noted the distinction between an order of the supervisory court setting aside an award, made as the exclusive recourse against an award under the New York Convention regime, and an order permitting or refusing enforcement.  Even if an award was set aside by the supervisory court, it did not follow that enforcement must be refused by a court of enforcement.  In Hong Kong, it was also settled that the court had a discretion to enforce an award even if the grounds for refusing enforcement were made out.

The court also rejected an argument by X that the new award should not be enforced because the procedure in the re-arbitration was not in accordance with the parties’ agreement, holding that the argument was without merit in light of the evidence and authorities, and should in any case be pursued separately since X claimed that the new award was independent of the original award.

Comment

The court described this as “another unfortunate case of a long drawn out arbitration and a history of disputes over the award made”.  Its decision to proceed with enforcement despite the prospect of further set-aside proceedings in the Mainland was plainly informed by the delays which had already occurred and its view that X’s challenges to date had all been unmeritorious.

Together with the recent decision in G v. N [2023] HKCFI 3366, this case provides a useful reminder of the availability of remission as an alternative to the more drastic remedy of setting aside arbitral awards.

Kathryn Sanger
Kathryn Sanger
Partner
+852 2101 4029

Helen Tang
Helen Tang
Partner
+86 186 2137 8873

Martin Wallace
Martin Wallace
Professional Support Consultant
+852 6388 2660

NEW CIETAC RULES COME INTO EFFECT

The updated arbitration rules of the China International Economic and Trade Arbitration Commission (“CIETAC”), one of the leading PRC arbitral institutions, come into effect today.

The CIETAC 2024 Arbitration Rules feature extensive revisions, including various new provisions to reflect developments in international best-practice and anticipate possible changes to the PRC Arbitration Law.

Continue reading

HONG KONG COURT GRANTS ANTI-ARBITRATION INJUNCTION TO PROTECT ENFORCEMENT OF PRIOR AWARD

The Hong Kong Court of First Instance (“CFI“) has taken the rare step of granting an anti-arbitration injunction to restrain claims which sought to undermine the enforcement in Hong Kong of a prior arbitral award (廈門新景地集團有限公司 formerly known as 廈門市鑫新景地房地產有限公司 v. Eton Properties Ltd and Another [2023] HKCFI 1327).

The decision is the latest in the long-running proceedings between Xiamen Xinjingdi Group Co Ltd (“XJ“) and Eton Properties Limited and others (together “EP“), which have been addressed in three of our previous blog posts (see here, here and here).

In the most recent proceedings, XJ (the award creditor) applied for an anti-arbitration injunction to restrain a new Mainland PRC-seated CIETAC arbitration commenced by EP (the award debtor).

The CFI refused to grant a blanket injunction restraining the arbitration in its entirety, even though there were good grounds to find that the arbitration was vexatious, oppressive and abusive. This was because certain claims being advanced for the first time in the new arbitration (which had not been determined or foreclosed by the findings of previous tribunals or courts) fell within the scope of the arbitration agreement.

Continue reading

PRC LAW DOES NOT PROHIBIT THIRD PARTY FUNDING FOR ARBITRATION, COURT DECISIONS SAY

In two related decisions, different PRC courts have upheld third party funding arrangements for arbitration, finding that they were not prohibited by PRC law or the CIETAC Rules and did not provide valid grounds to challenge an award.  In a third decision, a third party funding arrangement for litigation was held to be invalid because it violated public policy.

These are the first cases in which the PRC courts have considered certain specific issues in the context of third party funding, including disclosure, conflicts of interest, confidentiality and public policy.  The decisions underline the pro-arbitration approach adopted by many PRC courts in recent years, whilst also suggesting greater caution in relation to the use of third party funding in the litigation sphere.

Continue reading

CIETAC 2022 statistics show its endeavour in line with international practices

The China International Economic and Trade Arbitration Commission (CIETAC) has published its 2022 statistics and 2023 Work Plan. In 2022, CIETAC saw continued growth in caseload and in the amount in dispute. The statistics also indicate an enhanced diversity in terms of types of disputes, geographical origins of parties, languages of arbitration, governing laws, and involvement of arbitrators outside of mainland China. CIETAC also continues to explore best practices in international arbitration and innovations, including in relation to emergency arbitrators and third-party funding. Looking forward, CIETAC states that it will continue its efforts in internationalising its arbitration rules, and improving its IT infrastructure and digital management in 2023.

Continue reading

ENFORCEMENT OF CIETAC AWARD IN HONG KONG STAYED, BUT NOT FOR LONG

Summary

In a further decision in the long-running G v X matter (see our previous blog post here), the Hong Kong court has decided to stay enforcement of a CIETAC award pending a challenge to the award at the seat of arbitration in Beijing.  The stay was granted in deference to the jurisdiction of the supervisory Court, but only for a short, three-month period.  After this temporary stay, G can apply again for immediate enforcement of the award.

Latest Developments

G (the Claimant) had obtained an award in a CIETAC arbitration against X, the Respondent. The Court’s latest decision was in respect of G’s application for leave to enforce the award. X’s position was that the award should not be enforced at all, or at the very least enforcement proceedings should be stayed pending the determination of a set aside application at the seat of the arbitration in Beijing. Continue reading

RISE IN ARBITRATION CASES IN 2020 DESPITE REDUCED VOLUME OF IN PERSON HEARINGS DUE TO CORONAVIRUS PANDEMIC

Most arbitration institutions that have released their statistics for 2020 have reported increased caseloads and/or claim amounts, despite the COVID-19 coronavirus pandemic impacting in person hearings.  The strong demand for arbitration services and the fact that most arbitration institutions were able to move quickly to virtual hearings and avoid costly delays to proceedings establish arbitration as a resilient and reliable choice for commercial dispute resolution.  In this blog post we review both interim and full caseload statistics so far released for 2020.

HKIAC

The Hong Kong International Arbitration Centre broke a number of its own records this year.  With 318 cases, HKIAC received its highest number of new arbitration filings in over a decade.  The total amount in arbitration disputes handled by HKIAC was HK$68.8 billion (approximately US$8.8 billion).  Again, this is a record high since 2011.

203 of the arbitrations filed were administered by HKIAC (under rules such as the HKIAC Administered Arbitration Rules, the UNCITRAL Arbitration Rules and the HKIAC Electronic Transaction Arbitration Rules), representing a 20% year-on-year increase.  The amount in dispute for administered cases was HK$51.3 billion (approximately US$6.6 billion).

There was a small reduction in the proportion of new arbitration filings that were “international” (defined as at least one party not being from Hong Kong).  The proportion of all arbitration cases that were international also recorded a small drop.  The vast majority of cases (99.4%) chose Hong Kong as the seat of arbitration.  Hong Kong law was also the most commonly selected governing law for disputed contracts handled by HKIAC.

In 2020, HKIAC processed 22 applications under the Hong Kong-Mainland China Interim Relief Arrangement (Arrangement), which came into force in October 2019.  The total value of the evidence, assets or conduct sought to be preserved amounted to ¥6.4 billion (approximately US$988 million), of which ¥4.4 billion (approximately US$683.3 million) were successfully preserved.  This is an encouraging number, as it shows in the early days of the Arrangement that there is a realistic chance that assets and evidence sought to be preserved would likely be ordered to be preserved.

Fourteen emergency arbitrator applications were submitted to HKIAC in 2020. This is a large number, particularly given that only twenty-seven emergency arbitrator applications in total had been filed with HKIAC before 2020.  While it appears that 11 of the 14 applications were made in related arbitrations (which likely refer to a series of arbitrations arising from a related set of contracts or arise from the same or similar set of facts), there were still more applications than in past years.  Only three emergency arbitrator applications were filed in 2018, while none were filed in 2019.

The HKIAC granted 24 applications for expedited procedure in 2020, from a total of 28 applications.

There was a clear pivot to virtual hearings in 2020: 80 out of 117 hearings hosted by HKIAC in 2020 were fully or partially virtual, doubtless as a result of the pandemic.  Only 37 hearings were in-person, hosted at the HKIAC’s Hong Kong premises.

Fifty-two HKIAC arbitrations were concluded by Final Award in 2020, while four reached party settlement.

Finally, HKIAC released statistics on diversity of arbitrator appointments.  Of the 149 arbitrator appointments by HKIAC in 2020, 34 were of female arbitrators.  This continues an upward trend from 17.6% in 2018, to 20.5% in 2019 and 22.8% in 2020.

SIAC

The Singapore International Arbitration Centre is expected to report its full case load information later this year, but it has already announced that it had crossed the 1000-case threshold with 1005 new cases in 2020 as of 30 October 2020.  This is another record year for SIAC, breaking the previous record caseload it had reported in 2019.

CIETAC

The China International Economic and Trade Arbitration Commission also saw growth in its caseload in 2020.  A total of 3615 ongoing cases were registered by CIETAC, representing an 8.5% year-on-year growth.

CIETAC reported that it handled disputes amounting in total to ¥112.130 billion (approximately US$17.3 billion).

There was growth not only in the number of cases handled by CIETAC, but also in terms of its international caseload.  In 2020, 739 cases were categorised as “foreign-related cases”, compared to 617 in 2019.  67 of these were cases where both parties were considered “foreign”, which was a record high for CIETAC.  CIETAC made 5213 arbitrator appointments in 2020.

As part of its response to the pandemic, CIETAC also established new virtual hearing centres, handling 819 virtual hearings.  This was an increase of 628 cases that were heard virtually.

ICC

Like HKIAC, the International Chamber of Commerce Court of Arbitration also announced record demand for its arbitration services last year.

ICC reported 946 new arbitration cases in 2020, the highest since 2016.  The majority of the new cases (929 cases) adopted the ICC Rules of Arbitration, while the remaining 17 (which were ad hoc cases) were filed under the ICC Appointing Authority Rules.

LCIA

The London Court of International Arbitration also reported a record breaking 444 cases referred to the institution in 2020, which broke the record caseload LCIA had reported in 2019 by an increase of about 10%.  These results were published on an interim basis and further statistics are expected to be released later this year.

VIAC

The Vienna International Arbitral Centre received 40 new cases in 2020, with the majority of cases involving an Austrian party.  The total amount of disputes handled by VIAC by the end of 2020 was €428 million (approximately US$518 million).

Compared to 2019, where VIAC saw 45 new cases, there was a small drop in the number of new cases received.  However, looking at the statistics for VIAC over the past few years, the number of new cases each year has generally ranged from 40 to 60 cases, so the small drop is likely part of a normal fluctuation over a longer period.

While the number of new cases did not grow, on the diversity front, more than 30% of arbitrators nominated or appointed in VIAC cases were female arbitrators.  This is the highest that VIAC has seen in recent years, and is a highlight for the institution.

DIA

The statistics from the Danish Institute of Arbitration indicate that it is primarily focused on domestic arbitrations, but about one-fifth of its cases were international in nature.  At 28 cases in 2020, DIA’s international caseload was approximately the same as during  the past five years, which ranged from 27 to 33 cases.

SCAI

The Swiss Chambers’ Arbitration Institution reported 83 new arbitration cases in 2020, with 61 being international.  While the number of new cases was not the highest that SCAI has received, it continues an average growth trend over the past decade.

AAA-ICDR

The American Arbitration Association-International Centre for Dispute Resolution reported that it handled 9538 cases in 2020, worth approximately US$18 billion.  This is a slight drop from 9737 cases in 2019, but – notably – an increase in claim amount when compared to the US$15 billion in claims in 2019.  AAA-ICDR also saw an increase from 94 filings for emergency arbitration in 2019 to 111 filings in 2020.

The largest claims, in aggregate, were from the technology sector (US$1.4 billion) followed by financial services, telecommunications and energy (in that order).  This is in contrast to the largest claims in 2019 coming from life sciences (USD 1 billion) followed by construction, real estate and technology.

In terms of changes in caseload by sector, cases related to the cannabis industry saw a 100% increase, the largest rise of any sector (the same industry saw a 225% increase in 2019, which was also the largest sector rise in 2019).

On the diversity front, AAA-ICDR reported 33% of appointments as “diverse appointments” (which refers to gender and ethnic diversity).

Commentary

A majority of arbitration institutions globally reported growth in case load and/or claim amounts in 2020, many of them even breaking their previous records.  This goes to show that arbitration remains a robust dispute resolution mechanism, which has proven its ability to adapt to the highly challenging circumstances of the past year.

It was also a clear side effect of the pandemic that there was a significant shift to virtual hearings.  While users have been slowly moving towards virtual hearings for a number of years, it appears that 2020 will be recognised as the year in which virtual hearings went mainstream, allowing arbitral institutions all over the world to continue to serve the needs of their users.

Simon Chapman
Simon Chapman
Partner
+852 21014217
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418
Jacob Sin
Jacob Sin
Associate
+852 21014230