J. Setting aside arbitral awards

J. Setting aside arbitral awards 

In Hong Kong, an application for setting aside an arbitral award is the exclusive judicial recourse against an award made in an arbitration seated in Hong Kong. This process is governed by section 81 of the Arbitration Ordinance (Cap. 609). This is not an appeal on the merits. The court will not set aside an award merely because the tribunal may have made an error of fact or law. 

Under the standard section 81 regime, the grounds for setting aside are limited. Additional grounds may be available only where Schedule 2 applies, including serious irregularity or appeal on a question of law. 

The Court of First Instance has power to set aside only awards that are seated in Hong Kong. Where an award is made outside Hong Kong, the Hong Kong court cannot set it aside. It may only refuse enforcement if a valid ground for refusal is established. 

Grounds for setting aside under section 81 

The grounds for setting aside a Hong Kong arbitral award are substantially the same as the grounds for refusing enforcement. The Court of First Instance can only set aside an award based on 6 exhaustive and largely technical grounds. The burden of proof lies with the party making the application. 

(i) Incapacity or invalidity 

A party to the arbitration agreement was under some legal incapacity (such as being a minor or a bankrupt entity), or the agreement itself is invalid under its governing law. If no governing law was specified, the law of the seat (Hong Kong) applies. 

(ii) Procedural unfairness (lack of notice/inability to present case) 

A party was not given proper notice of the arbitrator’s appointment or the proceedings, or was otherwise unable to present their case. To succeed, the breach of natural justice must be serious or egregious, reaching a level that undermines due process. This ground is frequently invoked to address serious breaches of due process, such as a party being imprisoned and unable to participate. 

(iii) Excess of jurisdiction 

The award deals with a dispute not contemplated by or falling within the terms of the submission to arbitration. If the decisions on matters submitted can be separated from those not submitted, the court may set aside only the part of the award that exceeds jurisdiction. 

(iv) Irregular composition or procedure 

The composition of the tribunal or the arbitral procedure was not in accordance with the parties’ agreement or the mandatory provisions of the Arbitration Ordinance. 

(v) Non-arbitrability 

The court finds that the subject matter of the dispute is not capable of settlement by arbitration under Hong Kong law. For example, disputes involving criminal liability or personal status (such as divorce) are generally not arbitrable. However, Intellectual Property Rights disputes are specifically clarified as arbitrable by Part 11A of the Arbitration Ordinance. For more information, please refer to “Legal consequences of non-arbitrability under Hong Kong law”. 

(vi) Conflict with public policy 

The award is in conflict with the public policy of Hong Kong. This ground is construed narrowly and applied only where the award or the manner it was arrived at violates Hong Kong’s “most basic notions of morality and justice”. It includes cases where an award was procured by fraud, corruption, or perjury. 

Additional grounds in Schedule 2 

Parties can expressly “opt-in” to additional grounds for challenge under Schedule 2, which were traditionally used in domestic arbitrations. These include: 

(i) Serious irregularity 

Under section 4 of Schedule 2, a party may challenge an award for “serious irregularity” affecting the tribunal, proceedings, or award. This is an exhaustive list of 9 categories, such as bias, failing to deal with an issue, or exceeding powers. Unlike section 81, the applicant must prove that the irregularity has caused or will cause substantial injustice. 

(ii) Appeal on a question of law 

A limited right to appeal an award to the court on a point of law, provided the court grants leave. Leave is generally granted only if the tribunal’s decision was “obviously wrong” or the question is one of general importance and the decision is open to serious doubt. 

The court’s residual discretion 

The court is not obliged to set aside an award even if a ground is established. It has residual discretion to refuse to do so. For instance, if the procedural error had no material impact on the result and the tribunal would have reached the same conclusion regardless, the court may allow the award to stand. Conversely, some breaches may be so egregious (such as extreme bias) that they warrant setting aside regardless of the ultimate result. 

Procedural requirements and time limits 

A party seeking to set aside an award must act promptly. Applications must be made by originating summons to the judge in charge of the Construction and Arbitration List in the Court of First Instance.  

The application to set aside an award based on the ground set out in section 81 must be brought within 3 months of the date the applicant received the award. 

Challenges for serious irregularity or appeals on questions of law under Schedule 2 must be made and served within 30 days after the award is delivered. 

Suspension and remission 

In applications under section 81, in addition to directly setting aside the award, the court may suspend the setting-aside proceedings to allow the arbitral tribunal to resume the arbitration in appropriate cases. This enables the tribunal to take steps to remove or cure the grounds relied upon for setting aside the award. This mechanism is often used where the tribunal has failed to deal with a specific issue or has failed to give sufficient reasons, allowing it to correct the defect without requiring the parties to undergo a full rehearing. 

In applications under Schedule 2, remission of the award to the tribunal is a primary remedy. The court must remit an award for reconsideration unless it is satisfied that doing so would be inappropriate (e.g. if the tribunal is biased or the parties have lost confidence in them). Remission revives the tribunal’s jurisdiction only for the matters remitted. 

If the award is remitted, the tribunal must make a fresh award in respect of the matters remitted within 3 months of the date of the order for remission, or within a longer or shorter period that the court may direct. 

Consequences, limitation periods and costs  

If an award is set aside, it is deprived of all legal effect, as if it had never been made. The dispute must then be resolved again by arbitration (usually before the same tribunal) unless the arbitration agreement is terminated. 

To protect parties from being time-barred after a failed arbitration, section 14(4) mandates that the period between the commencement of the original arbitration and the court’s order to set aside the award must be excluded when computing the time prescribed by a limitation enactment for any subsequent proceedings. 

To discourage unmeritorious challenges, Hong Kong courts maintain a strong policy of awarding indemnity costs against unsuccessful applicants in setting-aside proceedings. 

Appeals 

Any decision by the Court of First Instance under section 81 may only be appealed with leave from that court. If the Court of First Instance refuses leave, that decision is generally final.