Hong Kong Court of First Instance

Introduction

For the first time since it was established in 1985, the Hong Kong International Arbitration Centre has been sued in the Hong Kong courts (Gong Ben Hai v HKIAC). However, the Hong Kong Court of First Instance has struck down the claim, in a move that highlights both Hong Kong’s robust anti-intervention stance on arbitration and its importance as an international arbitration venue.

The HKIAC’s operational freedoms

To protect its operational freedom, the HKIAC has incorporated exclusions of liability into its arbitration rules. These provide that – barring instances of dishonesty on the part of the HKIAC – it and associated bodies or personnel are not liable to the parties in respect of arbitrations conducted under those rules.

The exclusions are provided in article 40 of the HKIAC 2008 Administered Arbitration Rules (HKIAC 2008 Rules) and article 40 of the updated 2013 rules (HKIAC 2013 Rules).

The HKIAC’s partial immunity is also supported by the provisions of the Hong Kong Arbitration Ordinance (Cap 609) (the Ordinance). Section 105(1) of the Ordinance provides that an arbitration institution is not liable in law for the consequences of exercising its functions unless the function was exercised dishonestly.

By virtue of the above provisions, and its reputation for handling cases effectively, the HKIAC has not been subject to a court challenge since its establishment almost 20 years ago.

The arbitrator challenge process under the Ordinance and HKIAC Rules

As part of its administrative role, the HKIAC’s Council may be called upon to decide challenges to arbitrator appointments (HKIAC 2008 Rules, article 11.7; HKIAC 2013 Rules, 11.9). Parties may challenge the choice of arbitrator in circumstances where there are justifiable doubts as to the arbitrator’s impartiality or independence (section 25 of the Ordinance, giving effect to article 12(2) of the UNCITRAL Model Law – see also article 11.4 of HKIAC 2008 Rules and article 11.6 of HKIAC 2013 Rules).

A two-step procedure is established by the Ordinance and HKIAC rules. This involves

• The challenging party applying to the HKIAC within 15 days of the tribunal’s constitution or within 15 days of becoming aware of the relevant circumstances (section 26 of the Ordinance, giving effect to article 13(1) of the Model Law as modified by article 11.5 of the HKIAC 2008 Rules and 11.7 of the HKIAC 2013 Rules).
• The challenging party applying to the courts within 30 days of receiving notice of the HKIAC Council’s decision rejecting any challenge (section 26 of the Ordinance, giving effect to article 13(3) of the Model Law). It is also important to note that, as in its other decisions, a court is prohibited from interfering in the arbitration of a dispute except where provided in the Ordinance (section 3(2) (b)).

The arbitration and challenge

In Gong Ben Hai v HKIAC, the parties of the original arbitration proceedings were Gong Ben Hai and the Dan Dong Tyre Factory. They entered into an arbitration agreement in August 2012. This agreement referred any disputes to resolution by arbitration in Hong Kong with the HKIAC as administering institution. It specified that a three-person arbitration tribunal would be appointed by the HKIAC.

In September 2012, Gong Ben Hai commenced arbitration proceedings. He claimed repayment of a loan together with interest from his counter-party. The HKIAC duly appointed the three arbitrators for the tribunal which started in February 2013.

However, before the conclusion of proceedings, Gong Ben Hai applied to the HKIAC to challenge the independence and impartiality of two of the appointed arbitrators. The HKIAC Council rejected the challenge for lack of substantive evidence. Gong Ben Hai was notified of this decision on December 24, 2013.

In February 2014, Gong Ben Hai applied to the Hong Kong Court of First Instance requesting several orders, including an order that the HKIAC’s decision be set aside. Gong Ben Hai’s application listed the HKIAC as the only defendant. The challenged arbitrators and respondent did not participate in the proceedings.

The court’s decision

By an order dated March 18, 2014, the court rejected Gong Ben Hai’s application on the following grounds:

• The challenge was procedurally incorrect as it was directed at the wrong defendant. The court held that the proper defendant should be the respondent in the arbitration, not the HKIAC. It was found that Gong Ben Hai’s challenge should have been served upon the arbitration tribunal and the other parties, in accordance with the rules of the High Court.
• The challenge was also found to be made out of time, as it was submitted after the 30-day time limit identified in article 13(1)(3) of the Model Law.
• The court further determined that Gong Ben Hai’s challenge failed to satisfy the burden of article 12(2) of the Model Law and show that circumstances existed to give rise to justifiable doubts as to the arbitrator’s impartiality or independence.

On the basis of the first two points above, the court went so far as to find that under section 3(2)(b) of the Ordinance, it was prohibited from hearing the matter. This would constitute the court interfering in the arbitration of a dispute in circumstances which were not provided in the Ordinance.

In recent years, a number of important decisions have been made by Hong Kong courts which capture a pro-arbitration philosophy. These include refusals to grant anti-arbitration injunctions or overturn arbitration awards. This continued support for arbitration from a strong and independent Hong Kong judiciary is an important factor in maintaining Hong Kong’s pre-eminence as an international arbitration seat.