Ex parte communications lead to successful award challenge in Hong Kong

The Hong Kong Court of First Instance has upheld a challenge to the enforcement of two Shenzhen Court of International Arbitration (SCIA) awards rendered by different tribunals on due process and public policy grounds primarily arising from ex parte communications between the claimant, the tribunal and SCIA (A v. R1 and R2 [2024] HKCFI 1511).

The fees payable by the claimant in the first arbitration had not been paid in full by the deadline stipulated in the 2011 SCIA Rules, such that the arbitration should have been treated as withdrawn pursuant to Article 15 of the SCIA Rules.  The award in the first arbitration was also rendered more than 7 years after the tribunal was constituted, contrary to the default requirement under Article 102 of the SCIA Rules that the award be rendered within 5 months (which can be extended by SCIA in special circumstances).

The relevant deadlines were extended as a result of ex parte communications between the claimant, the tribunal and SCIA.  The award debtor challenging enforcement (one of two respondents in the arbitration) only became aware of those communications after the first award was rendered (and, in the case of the extension for payment of arbitration fees, during the proceedings to challenge enforcement).

The court accepted arguments by the award debtor that, as a result, the arbitral procedure giving rise to the first award had not been in accordance with the parties' agreement, the award debtor had been deprived of the opportunity to present its case on the extensions, and enforcement of the first award would be contrary to public policy.

The court also refused to enforce the second award (rendered by a different tribunal), which dealt with interest from the date of the notice of arbitration in the first arbitration, because it failed to address the award debtors' argument that the snowballing of interest had been caused by the claimant's own delay in the first arbitration.

Given the high threshold for successful challenges of awards in Hong Kong, the decision to refuse enforcement underlines the readiness of the Hong Kong courts to act in exceptional circumstances when the structural integrity of arbitral proceedings has been compromised.

Although the award debtor had argued that the "inordinate delay" of 7 years was itself a valid ground to refuse enforcement, the court accepted that this alone might not be a sufficient basis to uphold the challenge.  Rather, the core issue was the way in which the extension had been obtained and granted through ex parte communications between the claimant, the tribunal and SCIA.  This had deprived the award debtor of the opportunity to present the "respectable counter arguments" available to it on the extension, including a limitation defence.

The decision is a reminder of the perils of improper ex parte communications with tribunals and arbitral institutions, whether in relation to merits or procedural issues.  Although the subject matter of the communications in this case was nominally procedural, the effect of the extensions was fundamental because they resulted in the continuation of the arbitration against the respondents in circumstances in which it might otherwise have been terminated.

There are some limited scenarios in which ex parte communications between a party and an arbitrator or potential arbitrator may be permitted.  Pre-appointment interviews with potential candidates and discussions regarding the suitability of candidates for presiding arbitrator, for example, are permitted under Article 11.5 of the HKIAC Rules and Guideline 8 of the IBA Guidelines on Party Representation in International Arbitration (in each case as an exception to a general prohibition on ex parte communications).

Parties to Hong Kong-seated arbitrations may also apply to the tribunal on an ex parte basis for an interim measure together with a preliminary order directing a relevant party not to frustrate the purpose of the requested interim measure, and the tribunal may grant the preliminary order if it considers it appropriate (section 37 of the Hong Kong Arbitration Ordinance).  This regime is subject to strict safeguards, including a requirement that, after considering the application for a preliminary order, the tribunal should immediately give notice to the other party of the application and any preliminary order granted, on which the responding party will then have an opportunity to present its case.