Challenges to arbitral awards increasingly feature as a standard part of the post-award playbook for disappointed parties. Most of these challenges are rejected in leading seats, reflecting the high legal bar for awards to be set aside or refused enforcement, and consistent with parties' general expectations of finality. Limited rights to challenge awards on due process or jurisdictional grounds nevertheless provide an important safeguard to protect the fundamental rights of parties, who expect to have a remedy when things go wrong with the arbitral process.
Striking this balance requires sophisticated courts staffed by judges with specialist arbitration expertise. Recent decisions in Hong Kong and Singapore illustrate the approach of the courts in Asia's most popular seats.
“Herbert Smith Freehills has acted in some of the most high-profile and significant award challenges to have come before the Hong Kong courts in recent years. Arguing the landmark case of C v. D before the Court of Final Appeal was a personal career highlight. The court's ruling that non-compliance with escalation clauses generally will not affect the tribunal's jurisdiction has far-reaching practical and commercial significance for parties. The case also underscores our ability to conduct arbitration-related cases before every level of the Hong Kong courts.”
SIMON CHAPMAN KC, DEPUTY HEAD OF GLOBAL ARBITRATION PRACTICE, EAST
High bar for success
Arbitration judges in both jurisdictions enforce a high threshold for successful challenges. In Hong Kong, a Herbert Smith Freehills (HSF) team led by current CEO Justin D'Agostino acted in the leading case in this area, Grand Pacific v. Pacific China (2012), in which the Court of Appeal held that breaches of due process must be "serious" or even "egregious" before they will justify the court in setting aside an award. In Singapore, the Court of Appeal emphasised in SBT v. Fairmount (2007) that the complaining party must show they suffered actual or real prejudice. The successful party was represented by Daniel Chia (who has since joined HSF's formal law alliance partner in Singapore, Prolegis, as head of litigation).
Back door appeals
One of the most common tactics of dissatisfied award debtors is to allege due process breaches in order to attack merits findings by the back door. The robust approach to such challenges in both Hong Kong and Singapore is exemplified in the ruling of the Singapore Court of Appeal in SBT v. Fairmount (mentioned above), which emphasised that challenge proceedings are not an opportunity for a dissatisfied party to have a "second bite of the cherry" on the merits. The recent Hong Kong case of AI v. LG II (2023), in which HSF appeared for the successful award creditor, underlines the same point. The team was led in court by solicitor advocates Simon Chapman KC and Kathryn Sanger, and details of the case are available on our blog.
While adopting a robust approach to challenges in general, the courts in Hong Kong and Singapore will not uphold awards where there has been a serious breach of due process which gives rise to injustice. A classic example is where the tribunal has decided the case on the basis of an argument or finding which the losing party had no opportunity to address.
This was the position in the Singapore case of Convexity v. Phoenixfin (2022), in which the successful party was represented by Daniel Chia and Yanguang Ker (who joined Prolegis as a director as a member of Daniel's market-leading team). The respondent attempted less than a month before the hearing to amend its case to include a new argument that certain contractual provisions were unenforceable penalty clauses. Despite denying the respondent's formal application to amend its case to include this issue, the tribunal went on to dismiss the claimant's arguments, relying exclusively on the penalty issue.
The Singapore Court of Appeal (in a decision which Daniel Chia and Yanguang Ker have written about in detail here) held that there had been a breach of natural justice prejudicing the claimant and set aside the relevant parts of the award. Recent Hong Kong caselaw is consistent with this decision.
“Upholding a challenge to an award can be the pro-arbitration decision where something has gone badly wrong with the process of the arbitration and a party has been genuinely prejudiced. In the unlikely event that they are on the receiving end of such a result, clients want to have confidence that the courts at the seat or the place of enforcement will provide redress. The courts in both Hong Kong and Singapore have consistently demonstrated a willingness to provide a remedy in these rare cases, while adopting a robust stance in rejecting de facto appeals on law and fact as well as other unmeritorious challenges.”
KATHRYN SANGER, PARTNER, HONG KONG
Where an issue has clearly been placed before the tribunal for determination and the parties have had an opportunity to be heard, in contrast, claims of ambush by disappointed parties will be rejected. The recent Singapore case of CDM v. CDP (2021), in which Daniel Chia and Yanguang Ker represented the successful party, provides a good example. The award debtor challenged parts of the award dealing with an issue which had not been submitted for arbitration in the notice of arbitration or the statement of claim, arguing (among other things) the tribunal had therefore exceeded its jurisdiction. The Singapore Court of Appeal reviewed the record of the proceedings as a whole and found that the relevant issue was not only squarely before the tribunal but had been introduced by the award debtor itself in its own pleadings. The challenge was therefore rejected.
Turning back to Hong Kong, the recent landmark judgment of the Court of Final Appeal in C v. D (2023) has significantly narrowed the scope for jurisdictional challenges to awards based on alleged non-compliance with escalation clauses. Accepting the arguments put forward by Simon Chapman KC, who appeared for the successful party, the court adopted a presumption that disputes in relation to escalation clauses go to "admissibility" rather than jurisdiction and are therefore matters on which the tribunal's decision is final and cannot be reopened by the courts. The highly-anticipated decision provides welcome certainty for parties and brings the position in Hong Kong into line with that in Singapore and many other jurisdictions. Further details are available on our blog.
The devil is in the detail
While there are many similarities between the approach to challenge of awards in Hong Kong and Singapore, there are some differences which parties may wish to bear in mind when selecting a seat and considering post-award options.
The cost consequences of a failed challenge by the award debtor are likely to be more severe in Hong Kong, where the normal practice (which was established by the Court of Appeal in Grand Pacific v. Pacific China, mentioned above) is to order indemnity costs for unsuccessful challenges unless there are exceptional circumstances. In contrast, the Singapore Court of Appeal rejected the adoption of a default rule in favour of indemnity costs in CDM v. CDP (also mentioned above).
Hong Kong also features a statutory regime of limited appeal rights, which requires that the first instance court hearing a challenge to an award must give leave before its decision can be appealed. The constitutionality of this regime as it applies to the setting aside of awards was upheld by the Hong Kong Court of Appeal in CIF v. Dennis Lau (2015), in which HSF acted for the successful party. In Singapore, meanwhile, there is an automatic right to appeal without a requirement for leave.
Whether these differences represent advantages or disadvantages for a particular party will vary depending on the circumstances of each case. In both jurisdictions, however, parties can be confident of a fair hearing from expert judges who are robust in rejecting unmeritorious challenges but are ready to act when needed to safeguard the integrity of the arbitral process.
“Award challenges are highly fact-specific and require a legal team which is completely on top of the details of the case. Having the challenge proceedings conducted by the same team which acted on the underlying arbitration (which will be best placed to understand the background and context of the procedure adopted) can be a huge advantage. Through its formal law alliance firm Prolegis LLC, Herbert Smith Freehills is one of few firms with the capability to provide an end-to-end service for arbitrations seated in both Hong Kong and Singapore. Our market-leading teams in both jurisdictions include lawyers and solicitor advocates who can guide our clients through both the underlying arbitration and any related court proceedings (including challenges to awards).”
DANIEL CHIA, HEAD OF LITIGATION, HERBERT SMITH FREEHILLS PROLEGIS, SINGAPORE