Hong Kong Court of Appeal issues landmark decision on setting aside

Herbert Smith's Hong Kong arbitration practice has secured an important victory in an appeal against the setting aside of an ICC award.

 In Pacific China Holdings Ltd v. Grand Pacific Holdings Ltd CACV 136/2011, the Hong Kong Court of Appeal has today overturned a first instance decision to set aside an ICC award for alleged violations of Article 34(2) of the UNCITRAL Model Law. Click here for a copy of the decision.

In a judgment dated 29 June 2011, the Court of First Instance set aside the award in favour of Grand Pacific Holdings on the basis of breaches of Article 34(2)(a)(ii) and (iv) of the UNCITRAL Model Law on International Commercial Arbitration. Hong Kong, like many jurisdictions around the world, adopts the Model Law as part of its arbitration legislation. Article 34(2)(a) provides that the court may set aside an arbitral award if (among other things) the applicant can show that it has been unable to present its case, or that the arbitral procedure was not in accordance with the agreement of the parties.

The Court of Appeal has now reversed that decision, holding that there were no breaches of Article 34(2)(a) of the UNCITRAL Model Law and making clear that in order to establish a breach, it must be shown that the tribunal's conduct was of a "serious" or even "egregious" nature.  The Court also placed a heavy emphasis on the wide, discretionary case management powers of the arbitral tribunal, which are a cornerstone of international arbitration, thereby demonstrating that the Hong Kong courts will be slow to interfere with the procedural decisions of arbitral tribunals.

The Court accepted in obiter comments that the Court has discretion not to set aside awards even where a violation of Article 34(2)(a) is established, if it is satisfied that the result could not have been different. The Court also held that the burden is on the applicant wishing to set aside an award to show that it had been, or might have been, prejudiced by the conduct of the tribunal.

The strong indication that the Hong Kong courts will not readily review procedural decisions made by the tribunal is a welcome sign of the strong support of the judiciary for arbitration.  The judgment leaves the law on setting aside in Hong Kong in line with international standards, and is likely in time to contribute to the jurisprudence in this area in other UNCITRAL Model Law jurisdictions. As such, this is a welcome and well-reasoned judgment that underlines Hong Kong's status as an arbitration-friendly jurisdiction and illustrates the principle that arbitral awards should be set aside in only the rarest of circumstances, where the tribunal's conduct has been egregious.