In the first, K v T [2022] HKCFI 1194, the Honourable Madam Justice Mimmie Chan reminded the court that the party making the application to set aside must furnish proof of the existence of one or more of the grounds for setting aside. In the second, AW v PY [2022] HKCFI 1397, Mimmie Chan J stressed the need for "uniformity" across jurisdictions in applying three month time-limit under Article 34(3) of the Model Law, where local statute did not provide differently.
K v T
The dispute in K v T arose from a shareholders agreement and a repayment schedule agreement dated 25 May 2017 made between the parties in relation to sums invested by the defendant pursuant to the shareholders agreement. Each agreement contained an arbitration clause, stating that the agreements were to be governed by Hong Kong law and that disputes or differences should be determined by arbitration in accordance with the HKIAC's domestic arbitration rules.
In March 2018, T commenced an arbitration against K, by serving a Notice of Arbitration (NOA). In the NOA, T provided details of K's address which was also stated to be K's address in the repayment schedule agreement.
The arbitration award was delivered on 15 August 2019. In June 2021, some 22 months later, K applied to set aside the award on the grounds that (a) she was not given proper notice of the appointment of the arbitrator, and (b) the composition of the tribunal or the arbitral procedure was not in accordance with the parties' agreement.
Proper notice
The court noted that if a party had been given proper notice of the appointment of a particular arbitrator, in the manner agreed under the arbitration agreement, the party would have no grounds to complain that she had not approved the appointment of the arbitrator.
The HKIAC had proposed the appointment of an arbitrator. Having received no comments from K, despite sending a letter by courier to K's address, the HKIAC proceeded to appoint a sole arbitrator in June 2018. In early July 2018, the arbitrator sent an email to T's solicitors and K at her last known email address, stating that he had agreed to act as sole arbitrator and requesting a deposit towards fees in the sum of HK$150,000 to be equally shared between the parties.
Significantly, on 5 September 2018, K sent an email to the arbitrator from her email address, attaching, among other things, a copy of her "response in defence". The following day, the arbitrator emailed K, copied to T, seeking clarification from K as to whether the documents attached to the email were intended as her defence and whether K was prepared to provide her share of the deposit of HK$75,000.
On 21 September 2018, K sent an email to the arbitrator stating (inter alia) that: "[K] will not participate in any of the said proceedings.", "[K's] email served the purpose of submitting a supported recount of the case", and "[K] will not provide any deposit from (sic) the sum of $75,000 to the Hong Kong International Arbitration Centre".
K then asked for additional time to deal with the proceedings with the assistance of lawyers. The arbitrator ordered a stay of seven days on the basis that K provide her share of the deposit. No payment was made by K by the deadline neither did she provide a defence. The arbitrator proceeded with a hearing. He then rendered an award in which he ordered K to pay T the sum claimed of $356,500, plus interest and costs. Readers will appreciate from this that the sum in issue was relatively small.
In considering the challenge, the court noted that was clear documentary evidence that K had received notice from the HKIAC and from the arbitrator himself regarding the appointment.
Procedure in accordance with the parties' agreement
The court was satisfied that the arbitration clause in the agreements did not contain any procedure for the appointment of arbitrators, nor did it specify the number of arbitrators. Hence, T was entitled under the Rules to apply to the HKIAC to appoint a sole arbitrator, while the HKIAC was entitled to appoint an arbitrator under the Rules and the Arbitration Ordinance. There was no requirement for both parties to approve or consent to the candidate appointed by the HKIAC.
Application out of time
In considering the extension of time application, the court noted that the only explanation offered by K for delay from the time of the award in August 2019 to the date of the application in June 2021 was that she had "overlooked" the arbitrator's email enclosing the award as she had not expected it.
The court considered that if the court did have the power to grant an extension of time to make the application, it could only do so in exceptional circumstances. The court saw no good reason to exercise the discretion in K's favour, by virtue of the undue delay and the absence of any good defence to the claims made against her in the arbitration.
AW v PY
In AW v PY - a case concerning two successive arbitrations involving the same parties and allegations of fraud and misrepresentation. In this instance, in considering an application to set aside made out of time, Mimmie Chan J considered the case law in Hong Kong and in other jurisdictions regarding the interpretation of Article 34(3) of the Model Law. Article 34(3) provides that an application for setting aside may not be made after three months have elapsed from the date on which the party making the application had received the award. This was despite the earlier decision in Sun Tian Gang v Hong Kong China Gas (Jilin) Ltd [2016] 5 HKLRD 221 which may have suggested otherwise.
The court noted that the facts in Sun were exceptional (as was made clear in the decision) and that in her view, "there should be uniformity in the interpretation of the time limit imposed under Article 34(3) and the majority view [of authorities in other jurisdictions] is that the time cannot be extended."
The court held that by reason for the unexplained delay by AW Group in lodging the set aside application and the underlying lack of merit in the application, there was no good reason for the court to exercise any discretion it may have in favour of AW Group to grant an extension of time for the application.
The court also refused to rule that enforcement of the award would be contrary to public policy on the unfounded grounds that the Tribunal had improperly delegated the decision making to a third party.
The court disagreed that the quality of the awards were of "surprisingly low quality" as suggested by the AW Group and the fact that an arbitrator's assistant had attended the substantive hearing could not raise an inference "that such assistant had assumed the authorship of the relevant awards or had played a role in the decision making process."
A matter for legislation
Taken together, the cases provide a reminder that parties making applications to set aside arbitral awards out of time must provide compelling reasons and that the court will only grant an extension of time under exceptional circumstances.
Of particular note is the court's review of the interpretation of Article 34(3) in other Model Law jurisdictions namely Singapore, Ireland, Malaysia and New Zealand, and that regard should be "had to its international origin and the need to promote uniformity in its application and the observance of good faith".
Mimmie Chan J observed that "authorities from other Model Law jurisdictions can and should accordingly be taken into account when the Court seeks to interpret the Model Law and provisions of the Ordinance which adopt the Model Law." She said she accepted that "there should be uniformity in the interpretation of the time limit imposed under Article 34 (3) and the majority view is that the time cannot be extended." This is consistent with the rationale for setting out the unamended text of the Model Law within the Arbitration Ordinance and section 9 of Ordinance which adopts Article 2A of the Model Law.
Mimmie Chan J referenced the Court of Appeal decision in Bangkok Capital Antique Co Ltd v the Collector of Stamp Revenue [1984] HKC 16, that a court has no power to extend the period of time limited by statute for doing an act unless the statute so provides.
In Suen Hung Shan v Commissioner of Inland Revenue [2021] 1 HKLRD 175, the Court of Appeal had observed that "the only power which the court has to extend time is in the Rules of the High Court, and these Rules cannot override strict time limits imposed in statutes themselves, being primary legislation". In addition, section 12 of the Arbitration Ordinance provided that "no court shall intervene except where provided in the Model Law".
Mimmie Chan J ruled that Order 3, rule 5 of the Rules of the High Court could not be invoked to extend the time prescribed in Article 34(3) where no provision for extension was made in the Article itself. However desirable it would be, "in the interests of overall justice" for the court to retain a discretion to grant extensions of time in appropriate cases, this would "be a matter to be resolved by appropriate legislation." A decision to permit more extensive judicial engagement with awards would run contrary to the traditional view that the court's engagement should be kept to a minimum.
In AW v PY, the court found that even if it had discretion it would not have exercised it because AW Group had not established the discretion should be exercised in their favour given the circumstances of the case.
Authored by Timothy Hill, Nigel Sharman and Vanessa Kwok.
