Difference between revisions of "W v AW"

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(Created page with "DMC/Arbn/21/08 '''Hong Kong''' '''W v AW [2021] HKCFI 1707''' '''Court of Hong Kong: Justice Mimmie Chan: Date of Hearing: 22 March 2021: Date of Decision: 17 June 2021'''...")
 
 
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In this case, the High Court granted W’s application to set aside an award made against it in favour of AW, on the grounds that the award in question was contrary to the public policy of Hong Kong, in that it had ignored findings in a previous award between the same parties on an issue that was common to both arbitrations.  
 
In this case, the High Court granted W’s application to set aside an award made against it in favour of AW, on the grounds that the award in question was contrary to the public policy of Hong Kong, in that it had ignored findings in a previous award between the same parties on an issue that was common to both arbitrations.  
As to W’s claim further allegation that there was an actual bias because the Presiding Arbitrator of the relevant tribunal had failed to disclosed her relationship with AW’s counsel, the Court found that there was no “real possibility” that the Presiding Arbitrator was biased.
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As to W’s further allegation that there was an actual bias because the Presiding Arbitrator of the relevant tribunal had failed to disclosed her professional relationship with AW’s counsel, the Court found that there was no “real possibility” that the Presiding Arbitrator was biased.
  
 
Case note contributed by Cindy Ko, LLB (Hons), Advocate & Solicitor of Singapore, Solicitor of Hong Kong, International Contributor to DMC’s Case Notes
 
Case note contributed by Cindy Ko, LLB (Hons), Advocate & Solicitor of Singapore, Solicitor of Hong Kong, International Contributor to DMC’s Case Notes

Latest revision as of 23:10, 29 December 2021

DMC/Arbn/21/08

Hong Kong

W v AW [2021] HKCFI 1707

Court of Hong Kong: Justice Mimmie Chan: Date of Hearing: 22 March 2021: Date of Decision: 17 June 2021

Judgment available on HKLII @ https://www.hklii.hk/cgi-bin/sinodisp/eng/hk/cases/hkcfi/2021/1707.html?stem=&synonyms=&query=title(%222021%20HKCFI%201707%22)

Mr Robert Whitehead SC and Mr David Fong, instructed by Gallant, for the applicant ("W") Mr Adrian Lai, instructed by Wilkinson & Grist, for the respondent ("AW")

ARBITRATION: ISSUE ESTOPPEL: TWO ARBITRATIONS BETWEEN THE SAME PARTIES ON THE SAME ISSUES WITH DIFFERENT CONCLUSIONS: WHETHER SECOND AWARD SHOULD BE SET ASIDE: APPARENT BIAS: WHETHER SECURITY SHOULD BE ORDERED

Summary

In this case, the High Court granted W’s application to set aside an award made against it in favour of AW, on the grounds that the award in question was contrary to the public policy of Hong Kong, in that it had ignored findings in a previous award between the same parties on an issue that was common to both arbitrations. As to W’s further allegation that there was an actual bias because the Presiding Arbitrator of the relevant tribunal had failed to disclosed her professional relationship with AW’s counsel, the Court found that there was no “real possibility” that the Presiding Arbitrator was biased.

Case note contributed by Cindy Ko, LLB (Hons), Advocate & Solicitor of Singapore, Solicitor of Hong Kong, International Contributor to DMC’s Case Notes

Introduction and background

Both W and AW had an interest in the shares of a PRC (People’s Republic of China) company (the “PRC Company”), 80% of the shares of which were to be sold to a third party. In order to accomplish the sale, the parties, together with others, entered into complex contractual arrangements. In the event, the sale of the PRC Company failed. The failure of the sale gave rise to disputes between the parties.

The arrangements for the sale required W to represent that, at a given date, its shareholding in AW stood at a given percentage and was not subject to any actual or potential disputes. In the first arbitration, Arbitration 1, W - following the failure of the sale – sought specific performance of a particular contract that should have restored its shareholding in AW to its previous level. The respondent, AW, counterclaimed that W was in breach of the representations it had made. But the tribunal in Arbitration 1 found that not to be the case and, accordingly, the award in that arbitration, Award 1, was in W’s favour. That award was handed down on 13 March 2020.

In the second arbitration, Arbitration 2, AW based its claim against W on the same representations as were made in Arbitration 1, yet the tribunal in that arbitration issued an Award, Award 2, holding that W was in breach of those representations and that the relevant contract could be rescinded accordingly. The result was that W was required to repay to AW some USD3.8m. Award 2 was handed down on 13 July 2020.

Both arbitrations were conducted under the aegis of the Hong Kong International Arbitrator Centre. Each arbitration was decided by a panel of three arbitrators, of which only one, a Mr TXM, was a member of both panels. However, Award 1 was not drawn to the attention of the Tribunal in Arbitration 2, either by the parties or by Mr TXM.

The claims of misrepresentation made against W were in fact identical in Arbitration 1 and 2.

On 12 October 2020, W applied to set aside the Award 2 on the following grounds:

- The Tribunal in Arbitration 2 had failed to respect the findings on common issues already determined in Arbitration 1 (the “Issue Estoppel” ground). Such was contrary to the principles of fairness, due process and justice.

- The arbitral procedure in Arbitration 2 was not in accordance with the parties/ agreement as the Presiding Arbitrator had failed to disclose her relationship with Counsel representing AW in the proceedings. Such failure to disclose gave rise to the appearance of bias.

On 30 December 2020, AW applied to enforce Award 2 and applied for security from W.

Judgment

Issue Estoppel Ground

The parties did not dispute the principles of issue estoppel.

On issue estoppel, W argued that Tribunal 2 was bound by the findings on common issues between the same parties already determined by Tribunal 1, for example, whether W had made misrepresentations as to its shareholdings. W also argued that making findings inconsistent with the earlier findings made by Tribunal 1 was contrary to the principles of fairness, due process, and justice.

AW on the other hand argued that:

(a) W should have informed Tribunal 2 that Award 1 had been handed down on 13 March 2020, and that the findings made in Award 1 were relevant to the decision of Tribunal 2 on the claims made and issues raised in Arbitration 2.

(b) W had failed to raise the issue estoppel in Arbitration 2.

In response, W argued that it only became aware of the inconsistency between the two awards when the Award 2 was handed down. W had already reminded Tribunal 2 that there was an Arbitration 1 and there was a risk of inconsistent findings. In particular, W highlighted that Mr TXM was a common arbitrator in both references and was obviously aware of the issues decided in Award 1 and that Award 1 contained findings on the essential ingredients and conditions necessary for the findings on misrepresentations which were made in Award 2. Yet, Mr TXM did not issue any dissenting decision in Award 1, nor in Award 2. This meant that Mr TXM himself made inconsistent findings on the same facts which called for decision in the two Arbitrations.

The Court decided to set aside Award 2 on the grounds that:-

(a) A common arbitrator Mr TXM, made inconsistent decisions without explanation, which constituted injustice and grave unfairness to W;

(b) Parties should have the right to be heard by Tribunal 2 as to whether the parties and Tribunal 2 were bound by Award. Fairness and justice required Mr TXM to invite submissions on this point to be made by W and AW in Arbitration 2;

(c) Confidentiality of Arbitration 1 and Award 1 did not prevent Mr TXM from disclosing Award 1 to the other members of Tribunal 2, because the legitimate use of an earlier award in a later arbitration between the same parties would not raise the mischief against which confidentiality rules are directed;

(d) There was a substantial injustice arising out of Award 2 as it contained a finding that was inconsistent with a finding that had already been made by Tribunal 1 on the same issue. Therefore, Award 2 was manifestly invalid and could not be enforced.

Apparent Bias Ground

W claimed that there was an actual bias because the Presiding Arbitrator had failed to disclosed her relationship with AW's counsel, for example, that they were members of the same chambers, and that they had acted as co-counsel in at least two cases on three occasions within the past three years.

The applicable test to determine whether there is an issue of apparent bias on the part of arbitrators is "whether an objective fair-mind and informed observer, having considered the relevant facts, would conclude that there was a real possibility that the tribunal was biased ".

The Court found that although she did not disclose her relationhips with AW's counsel, there was no "real possibility" that the Presiding Arbitrator was biased.

Security

There were two important factors to be considered in an application for security under the relevant Rule of the High Court:

(a) The strength of the argument that the award is invalid, as perceived on a brief consideration by the Court which is asked to enforce the award while proceedings to set it aside are pending elsewhere. If the award is invalid, there should be an adjournment and no order for security; if it is manifestly valid, there should either be an order for immediate enforcement or else an order for substantial security.

(b) The court must consider the ease or difficulty of enforcement of the award, and whether it will be rendered more difficult if enforcement is delayed. If that is likely to occur, the case for security is stronger; if, on the other hand, there are and always will be insufficient assets within the jurisdiction, the case for security must necessarily be weakened.

(c) In considering the argument that the award is manifestly invalid, if there is a serious or egregious conduct such that due process is undermined, the Court will consider from the perspective of the structural integrity of the arbitral process and the arbitral award, whether the award should be enforced or set aside on the ground of public policy.

On the application for security, the Court found that there was no additional difficulty in enforcement of the award in Hong Kong as W had no assets in Hong Kong anyway and that, given that W had a strong case on the merits to set aside Award 2 - which had been held to be manifestly invalid - it would not be just to order security against W, under the relevant Rule.

Comment

1. This is a “highly unusual case” as there was a common arbitrator in two arbitrations between the same parties, and two arbitration awards which conflicted with each other. This case is a clear reminder to arbitrators and parties that due consideration ought to be given where there are multiple arbitration proceedings ongoing in relation to a single dispute, as it may affect the enforceability of the future award.

2. Although the starting point is that arbitral awards are final and binding between parties, the court - when faced with an enforcement application – will consider from the perspective of structural integrity of the arbitral process and arbitral award, whether the awards should be enforced or set aside on the grounds of public policy.

3. Some arbitral institutions (for example. HKIAC) have rules that specifically provide opportunities for joinder, consolidation, and concurrent proceedings. Parties should consider and seek early and proper legal advice on how to utilize the relevant arbitration rules to avoid parallel arbitral proceedings, so as to avoid the risk of conflicting arbitral awards and to save time and costs.