HONG KONG COURT REFUSES LEAVE TO APPEAL AWARD ON POINTS OF LAW

The Hong Kong Court of First Instance has refused leave to appeal a construction award on points of law because the decision of the arbitrator on the relevant issues was not “obviously wrong” or “open to serious doubt” (Employer v. Contractor [2023] HKCFI 2911).

Background

Arbitral awards cannot generally be appealed on the merits in Hong Kong, and errors of law do not provide valid grounds to set aside or refuse enforcement of an award.

It is nevertheless possible for the parties to “opt in” to appeals on points of law by providing in their arbitration agreement that sections 5-7 of Schedule 2 to the Hong Kong Arbitration Ordinance (Cap. 609) will apply.  This regime is commonly adopted in construction contracts, and applies automatically to arbitration agreements providing for "domestic arbitration" which were concluded before 1 June 2017 (see our earlier blog post for details).

The ability to appeal on points of law in such cases, however, is not guaranteed.  In the absence of agreement from the other parties (which is generally unlikely to be forthcoming), a party wishing to appeal on a point of law must first seek and obtain the leave of the Court of First Instance (section 6(1) of Schedule 2).  If leave is refused, that decision can only be reviewed if the question is one of “general importance” or there is some other “special reason” (section 6(6) of Schedule 2).

In the present case, the employer applied for leave to appeal in respect of seven points of law arising out of two disputes (out of a total of 24 disputes addressed in the award).

The test for leave to appeal on a point of law

Leave to appeal on a point of law will only be granted if the CFI is satisfied that: (1) the decision of the question will substantially affect the rights of one or more of the parties; (2) the question is one which the arbitral tribunal was asked to decide; and (3) on the basis of the findings of fact in the award, the decision of the arbitral tribunal on the question is obviously wrong, or the question is one of general importance and the decision of the arbitral tribunal is at least open to serious doubt (section 6(4) of Schedule 2).

In applying the third limb of the test, a key question is whether the court should adopt the higher test ("obviously wrong") or the lower test ("open to serious doubt").  In this respect, the courts distinguish between "one off contract" situations (where the issue merely affects the rights and liabilities of the parties and will be of no general interest, in which case the higher "obviously wrong" test will apply) and "standard term" situations (where there is an interest in uniform construction, and the lower "open to serious doubt" test will apply): see the decision of the Court of Appeal in Chun Wo Construction & Engineering Co Ltd v. Hong Kong Macau (Asia) Engineering Co Ltd [2019] HKCA 369.

In the present case, Mimmie Chan J considered that the meaning of the relevant contractual clauses was not seriously disputed, and that the determination of the relevant questions of law turned on the application of those clauses to the facts and the evidence.  This being a "one off contract" situation, therefore, she considered the "obviously wrong" test to be applicable (whilst also addressing whether the "serious doubt" test was satisfied).

Key considerations

In dismissing the application for leave to appeal, Mimmie Chan J drew upon the key principles arising from previous caselaw (including her decision in A and Others v. Housing Authority [2018] HKCFI 147, reported here) and emphasised that:

• The threshold for leave to appeal on a point of law is high (regardless of whether the "obviously wrong" test or "serious doubt" test applies).
• It has to be demonstrated to the court quickly and easily, without meticulous argument, that the decision of the tribunal cannot be right, or that there are serious doubts as to its correctness.
• Applications for leave to appeal on a point of law will be determined without a hearing by default, and the CFI’s decision on leave must therefore generally be based on what is readily apparent on the face of the award and the limited papers filed with the court.
• In determining an application for leave, the court should read the award generously, in a reasonable and commercial way, and with an understanding of its proper context, in particular as to how the relevant issues were argued before the tribunal (consistent with Mimmie Chan J's approach in LY v. HW, [2022] HKCFI 2267, reported here, with regard to applications to set aside arbitral awards).
• The result is that leave to appeal on a point of law will only be granted in exceptional cases.

Applying these considerations, Mimmie Chan J was not satisfied that the decision of the arbitrator on the relevant questions was either "obviously wrong" or "open to serious doubt".  The application was therefore dismissed.

Comment

The decision is an important reminder to parties who expressly "opt in" to appeals on points of law through Schedule 2 to the Arbitration Ordinance (or to whose contracts Schedule 2 applies automatically) that the ability to appeal is not guaranteed.  Any party wishing to appeal on a point of law will need to front-load their legal arguments and present a compelling case in their application for leave in order to maximise their prospects of success.

The requirement to obtain leave to appeal on a point of law contrasts with the ability of parties to challenge arbitral awards essentially as of right (whether through a set-aside application made within three months of the award, or by resisting enforcement), provided they comply with the relevant procedural requirements.  There are clear policy reasons for this difference in approach.

The ability of parties to challenge awards because of a lack of due process or on jurisdictional grounds is a fundamental safeguard intended to uphold the integrity of the arbitral process.  A dissatisfied party is therefore entitled to challenge an award without meeting any minimum threshold for the strength of their case, on the basis that (i) unsuccessful (and especially unmeritorious) challenges will generally be penalised by an award of indemnity costs, and (ii) any further appeal from the decision of the court can only proceed with the leave of the court (and usually the same judge who determined the challenge).

In contrast, appeals on points of law are an exception to the general principle that the decisions of arbitral tribunals on the merits should be final, and involve a public cost in court time spent revisiting legal issues which have already been considered by an arbitral tribunal constituted in accordance with the parties' agreement and presumably qualified, in the view of the parties, to determine those issues.  The requirement for leave to appeal on a point of law, and the high threshold which must be met before leave is granted, can be viewed against that backdrop.