Hong Kong court refuses leave to appeal on questions of law against interim injunction granted by arbitrator

The Hong Kong Court of First Instance has dismissed an application for leave to appeal on questions of law against an interim injunction granted by an arbitrator to restrain calls upon a bond in a construction dispute (W v. Contractor [2024] HKCFI 1452).

The court found that the injunction, although granted in the form of an "award", was in substance an interim order and therefore not subject to challenge or appeal.  This is the latest Hong Kong case to turn upon this distinction, following the decision in G v. N [2024] HKCFI 721 earlier this year (reported here).

While awards finally dispose of substantive issues and can be challenged on limited grounds (and sometimes appealed on questions of law), interim orders fall within the procedural discretion of the tribunal and generally cannot be reviewed by the courts.  The classification of a decision as an award or an interim order is a matter of substance rather than form, and the label attached to the decision by the tribunal itself will be relevant but not conclusive.

Background

The dispute arose under a construction contract between a main contractor and an employer which contained an arbitration agreement under which appeals on questions of law were permitted pursuant to Schedule 2 to the Hong Kong Arbitration Ordinance.

The main contractor had provided as a condition precedent an on-demand bond issued by a bank in favour of the employer.  The bond was governed by Hong Kong law and contained an exclusive jurisdiction clause in favour of the Hong Kong courts.

A dispute arose and the main contractor commenced arbitration in Hong Kong against the employer.  The employer then made an initial demand for payment under the bond, which was rejected by the bank.  When the employer made a second demand, the main contractor applied to the arbitrator for an order that the employer should withdraw the second demand and be restrained from making any further calls on the bond.

The arbitrator granted the injunction sought by the main contractor as an interim measure pursuant to Articles 17 and 17A of the UNCITRAL Model Law (given effect by sections 35 and 36 of the Arbitration Ordinance).  The decision was recorded in the form of an "Award and Reasons In Respect of Applications for Interim Measures".

Article 17A of the UNCITRAL Model Law requires (amongst other things) that the party requesting an interim measure demonstrate a reasonable prospect of success on the merits of "the claim".  The arbitrator rejected an argument by the employer that he did not have jurisdiction because the relevant "claim" for these purposes was the claim by the main contractor that the employer was not entitled to payment on the bond pending resolution of the arbitration, which would be covered by the exclusive jurisdiction clause in the bond.

The employer then applied to the Court of First Instance for leave to appeal against the injunction on three questions of law (including what "claim" is referred to in Article 17A of the UNCITRAL Model Law), pursuant to section 6 of Schedule 2 to the Arbitration Ordinance.

Decision

Mimmie Chan J dismissed the employer's application for leave on the ground that the injunction did not constitute an "award" for the purposes of section 5 of Schedule 2 to the Arbitration Ordinance (which provides for appeal on a question of law "arising out of an award").

The "essential reasons" for the decision were the same as those in the judge's earlier decision in G v. N (mentioned above), applying the factors set out in the English case of ZCCM Investments Holdings v. Kansanshi Holdings [2020] 1 All ER (Comm) 132 for classifying a tribunal's decision as an award or an interim order. 

The court explained that:

• The arbitrator's own description of the decision as an "award" was "relevant" but "certainly not conclusive".  Courts were concerned with substance and not with the form, name or label of a document.  The substance of the order and the matters dealt with were "more significant in terms of construction and weight."

• Although there had been arguments before the arbitrator as to the format of the order and he had himself raised the possibility of appeal on the merits if it were to be made in the form of an "award", the arbitrator's view of the nature and effect of the order ultimately made "cannot be final or conclusive".

• The fact that the tribunal may order interim measures "in the form of an award or in another form" [emphasis added] under Article 17(2) of the UNCITRAL Model Law did not dispense with the need to consider whether the decision was in substance an award.

• The nature of the issues dealt with by the arbitrator, and the background and context of the proceedings, were important.  The main contractor sought the injunction from the arbitrator, and the arbitrator granted the injunction, as an interim measure.  The arbitrator had specifically pointed out that he was not determining any dispute as to the validity of a demand on the bond, and that the issue before him was a request for interim measures to maintain or restore the status quo until the disputes in the underlying arbitration had been determined.

• A decision as to the jurisdiction of the arbitrator to determine the application for interim measures might constitute a determination of a preliminary question of jurisdiction which could be referred to the court for review pursuant to Article 16(3) of the UNCITRAL Model Law (given effect by section 34 of the Arbitration Ordinance).  The present application, however, was not made on that basis but as an application for leave to appeal on a question of law pursuant to sections 5 and 6 of Schedule 2.

• The injunction was not final and could be varied, the arbitrator did not in substance decide any of the parties’ rights or liabilities under the contract, and the arbitrator had not been rendered functus officio.  It was not, therefore, an award within the meaning of section 5 of Schedule 2, but rather an interim order.

• The finding that an interim injunction was not an award was consistent with decisions in Singapore (CXG v. CXH [2023] SGHC 244) and Australia (Resort Condominiums International Inc v. Bolwell (1993) ALR 655).

• This conclusion was also consistent with the objective stated in section 3 of the Arbitration Ordinance ("to facilitate the fair and speedy resolution of disputes… without unnecessary expense").  Arbitrations would inevitably be delayed, and their progress unnecessarily hampered, if parties were able to challenge interim orders as and when they were applied for in the course of the arbitral process.  There was accordingly "good reason to restrict challenges to the tribunal's grant or refusal of interim measures."

The application for leave to appeal was accordingly dismissed, with an order for indemnity costs against the employer.

Comment

Taken with the earlier decision of Mimmie Chan J in G v. N, this decision provides a helpful reminder of the key factors which distinguish interim orders from awards and underlines the important legal consequences of that distinction.

In particular, interim orders cannot be: (i) set aside, or their enforcement challenged, on the grounds applicable to awards (as confirmed in G v. N); or (ii) appealed on a point of law, even where the parties have "opted in" to such appeals, or they otherwise apply, pursuant to paragraphs 5 and 6 of Schedule 2 of the Arbitration Ordinance (as confirmed in the present case).  As indicated by the court, however, it may still be possible to challenge a decision by a tribunal as to its jurisdiction to grant relevant interim measures, pursuant to the mechanism in Article 16(3) of the UNCITRAL Model Law.

The decision also demonstrates that, even where the regime for appeals on questions of law under paragraphs 5 and 6 of Schedule 2 to the Arbitration Ordinance applies, this does not mean that a dissatisfied party will automatically be able to challenge any decision on a point of law made by the tribunal in the course of the arbitration. 

Generally, only questions of law decided in an award will be susceptible to appeal (subject to the potential exception of decisions on questions of law relating to jurisdiction, mentioned above).  The dissatisfied party will moreover need to obtain leave to appeal from the Court of First Instance, and (amongst other things) this will only be granted where the decision is "obviously wrong" or "open to serious doubt".  The court in the present case provided a useful summary of the applicable legal principles, which were also discussed in greater detail in Employer v. Contractor [2023] HKCFI 2911 (reported (here).