Overview

In COB v. FCD [2026] HKCFI 4162 (22 July 2026), the Hong Kong Court of First Instance considered the plaintiff’s application for security for costs in connection with the defendant’s application to set aside on the grounds that the arbitrator had allegedly shown apparent or actual bias against the defendant’s quantum expert in breach of due process and natural justice. On a brief and summary consideration, the court found the setting aside application without merit and ordered the defendant to pay 70% of the principal award sum into court as security, failing which the setting aside application would be dismissed with indemnity costs. The costs of the security application were ordered to be paid by the defendant to the plaintiff on an indemnity basis.

Background

The plaintiff commenced HKIAC arbitration and obtained a Final Award (Award) on 9 March 2026 against the defendant for the outstanding payment under a construction contract. By an order dated 17 March 2026, the plaintiff was granted leave to enforce the Award as a judgment of the court (Enforcement Order).
 
On 2 April 2026, the defendant applied to set aside the Enforcement Order (Setting Aside Application). The defendant alleged that it had been unable to present its case in the arbitration, resulting in a lack of due process, structural integrity issues, serious irregularity, and breach of natural justice, which is contrary to public policy.
 
Specifically, the defendant alleged that the plaintiff had “launched a scathing and unwarranted attack” on the report prepared by the defendant’s quantum expert, H. On this basis, the defendant suggested that the arbitrator had “egregiously developed a grudge and/or bias” against H. The defendant pointed to, inter alia, several instances as evidence of this alleged bias, including criticising H for failing to update his report to take into account the latest evidence, referring to the arbitrator’s own internet research on the cost of a waste disposal machine during cross-examination, denying H a reasonable opportunity to present his evidence, and refusing to allow H to submit a further report once a misunderstanding of the arbitrator’s direction was identified.
 
On 28 April 2026, the plaintiff issued a summons to seek security in respect of the Setting Aside Application (Security Application).

Hong Kong court’s decision and analysis

The court decided that the Setting Aside Application was clearly unmeritorious and therefore ordered the defendant to pay 70% of the principal sum into court as security, failing which the Setting Aside Application would be dismissed with indemnity costs. The court also awarded costs of the Security Application to the plaintiff on an indemnity basis.  
 
Guided by the applicable legal principles referred to by the parties in L v. B, HCCT 41/2015 (5 May 2016), which applied Soleh Boneh International Ltd v. Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208, the court had regard to all the facts and circumstances of the case and considered the following important factors when determining a security application:

1. The strength of the argument that the award is invalid as perceived on a brief consideration by the court pending setting aside proceedings; and
2. The ease or difficulty of enforcement of the award, and whether it will be rendered more difficult if enforcement is delayed.

The court reviewed the transcripts of the arbitration proceedings and held that no fair-minded and informed observer would conclude there was a real possibility of actual or apparent bias.
 
With regard to the defendant’s alleged bias and public policy claims, the court found, inter alia, that:

1.  The arbitrator’s independent research on the cost of a waste disposal machine was not unreasonable or unwarranted and the arbitrator’s questions put to H were reasonable and directed at testing the soundness of the expert’s methodology, assumptions, and assessment so that the arbitrator could understand the basis of the expert’s valuation – they were not oppressive, harsh, scathing, or unfair.
2. The defendant’s full legal team and expert had the opportunity to, and did, address the arbitrator on all issues, including quantum.
3. The arbitrator did not treat H differently from the plaintiff’s expert, J, noting that similar probing questions were put to both experts.
4. The tribunal is the “master of the proceedings before it” and there must be “an end to the filing of evidence in any case”. The arbitrator was therefore entitled to limit the rounds of expert reports to be submitted as these are matters which fall squarely within the arbitrator’s case and time management powers.
5. Having decided on liability and quantum, the arbitrator was entitled to reject the defendant’s application for a stay of the proceedings to ensure that the arbitration proceedings were resolved in accordance with the principles of finality and speed. The arbitrator was also entitled not to defer his findings on interest and costs. Accordingly, the defendant’s claim that it had been unable to present its case, or that the arbitrator was biased, was not made out.
6. There was no serious or egregious breach of due process, and nothing “shocking to the Court’s conscience”. The public policy ground fell away with the dismissal of the bias claims.

With regard to the parties’ without prejudice correspondence, to which the plaintiff referred during the hearings, since it was apparently the parties’ intention to negotiate a settlement, the court excluded the correspondence from its consideration of the Security Application.
 
However, as regards the court’s decision on costs in the Security Application, since the without prejudice correspondence did not show any agreement between the parties or that they were ad idem on the essential terms of settlement, the court concluded that the hearing of the Security Application could not have been avoided. Further, as the court found no merit in the Setting Aside Application, there was no special reason to depart from the usual rule – the court ordered the costs of the Security Application to be paid by the defendant to the plaintiff on an indemnity basis.

Comment and practical implications

This decision reflects the Hong Kong courts’ strongly pro-enforcement approach to arbitral awards. Where a setting aside application is obviously unmeritorious, substantial security will be ordered. Practitioners should note the following:

• High threshold for bias claims: Allegations of actual bias remain extremely difficult to establish. Rigorous cross-examination by counsel and probing questions from the tribunal are standard features of the adversarial process – not by nature evidence of bias.
• Tribunal’s case management discretion is broad: The court endorsed the principle that the tribunal is “master of the proceedings” and has wide discretion in deciding whether to permit further rounds of evidence, how to manage the trial timetable, and when to proceed to interest and costs.
• Unmeritorious setting aside applications may justify the order of substantial security: Security applications remain discretionary. Substantial security may be ordered where a setting aside application is clearly unmeritorious.
• Without prejudice privilege will be upheld: The court excluded settlement correspondence despite it being placed before the court, reaffirming that the without prejudice rule applies where there is a genuine intention to negotiate.

Client Alert 2026-161