Hong Kong court holds it has no power to extend time for setting aside awards

17 June 2022 Reed Smith Client Alerts

Inicio Perspectivas Hong Kong court holds it has no power to extend time for setting aside awards

In our previous alert, we examined the decision in W v. AW [2021] HKCFI 1707, where the Hong Kong Court of First Instance (CFI) dismissed AW’s application on 17 June 2021 for security on the basis that W had a strong case to set aside the “manifestly invalid” arbitral award that AW sought to enforce (the Security Judgment).

This alert examines the series of judgments that were issued by the Hong Kong courts in the same matter after the Security Judgment and the important legal issues arising therefrom.

Autores: Lianjun Li Min Li Donald Sham Patrick Chong

Application for leave to appeal against the Security Judgment

AW applied for leave to appeal against the Security Judgment, and the application was dismissed by the same judge on 16 August 2021. AW then sought leave from the Court of Appeal (CA) ([2022] HKCA 685). The CA refused to grant leave to appeal, holding that the lack of opportunity for the parties to address the tribunal on the First Award gave rise to concern about the “structural integrity of the arbitral process”. Further, applying Halliburton v. Chubb [2020] 3 WLR 1474, the CA held that the duty of confidentiality was not absolute and did not prevent the common arbitrator from inviting submissions from the parties for the purpose of upholding the integrity of the arbitral process.

Applications to set aside the First Award and Second Award

Separately, setting aside proceedings in respect of the First Award and Second Award also went before Hong Kong courts:

On 26 January 2022, the CFI set aside the Second Award and on 3 May 2022, dismissed AW’s application for leave to appeal ([2022] HKCFI 1296).
On 13 May 2022, the CFI dismissed AW Group’s application to set aside the First Award ([2022] HKCFI 1397).

The Second Award – set aside

In the Security Judgment, the judge stated that given the inconsistent findings in the First Award and the Second Award, no further hearing was required in respect of the setting aside of the Second Award and that the parties should sensibly confer on the orders to be made by consent. The setting aside application for the Second Award nevertheless went before the CFI and was granted on 26 January 2022. AW then applied to the CFI for leave to appeal against the decision. AW argued that the contradictory findings made by the tribunal in the Second Arbitration were justified because of additional evidence not available in the First Arbitration. Eventually, the CFI rejected AW’s application for leave to appeal. The CFI held that as the tribunal in the Second Arbitration did not explain why it had made contradictory findings, the court was not in a position to substitute the court’s view for that of the tribunal or to second-guess the reasons for the tribunal’s contradictory findings.

The First Award – upheld

Meanwhile, AW sought to set aside the First Award out-of-time. Importantly, the CFI held that it had no discretion to grant such a time extension to AW Group under article 34(3) of the Model Law. While the court held in Sun Tian Gang v. Hong Kong China Gas (Jilin) Ltd [2016] 5 HKLRD 221 that it could extend the time period of three months under article 34(3) of the Model Law, the facts in that case were exceptional. Since Sun Tian Gang, there have been decisions in Model Law jurisdictions in which the courts have held that they have no power under article 34 (3) to extend the time and that the use of “may not” in article 34 (3) was prohibitive. Under article 2A(1) of the Model Law, there should be uniformity in the application of the Model Law, having regard to its international origin. On this basis, and having noted the majority views in other Model Law jurisdictions that time could not be extended, the CFI eventually held that it had no power to extend the time limit prescribed by article 34(3) of the Model Law.

In so holding, the CFI remarked that “however desirable it is, in the interests of overall justice, for the Court to retain a discretion to grant extensions of time in an appropriate case, justified on the facts to be exceptional and fit for the Court to exercise its discretion, it would be a matter to be resolved by appropriate legislation”.

In any event, the CFI held that even if the court had the power to extend the time, there was no good reason why it should do so in this case given AW Group’s unexplained delay and the lack of merits in the setting aside application.

Conclusion

These decisions reaffirm the principle that in considering the validity of an arbitral award, the court is concerned with the structural integrity of the arbitral process but not the correctness of the tribunal’s decisions. It is also important to note that, contrary to Sun Tian Gang, the CFI has decided to follow the majority views in other Model Law jurisdictions and held that it has no power to extend the three-month period provided under article 34(3) of the Model Law.

Client Alert 2022-161

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