Hong Kong Court Strikes Out First Ever Claim Against HKIAC

19 May 2014

HomeNewsHong Kong Court Strikes Out First Ever Claim Against HKIAC
19 May 2014

The Hong Kong Court of First Instance has struck out a claim against the Hong Kong International Arbitration Centre (HKIAC) arising from HKIAC’s decision rejecting a challenge to two arbitrators in an ongoing arbitration governed by the 2008 HKIAC Administered Arbitration Rules.

In an order dated 18 March, the court rejected the claim on the basis that it disclosed no reasonable cause of action and ordered the plaintiff Mr Gong Benhai to pay all of HKIAC’s costs. The order was followed by a reasoned judgment dated 28 April, which was written in Chinese and its contents have been made public.

Gong is the claimant to an ongoing HKIAC arbitration, which concerns a dispute regarding the repayment of a loan and associated interest owed to Gong by a Chinese tyre factory. The arbitration was commenced in September 2012 pursuant to an arbitration agreement dated 30 August 2012, which provides for disputes to be referred to a three-member tribunal in an HKIAC arbitration seated in Hong Kong. The parties have also agreed that the arbitral proceedings shall be conducted in Chinese and that the dispute be heard in public.

In August 2013, Gong challenged the impartiality and independence of two arbitrators after the tribunal refused to order disclosure of a piece of evidence in the manner requested by him. HKIAC rejected the challenge in accordance with the HKIAC Challenge Rules, which were given effect by the 2008 HKIAC Rules. After receipt of HKIAC’s decision on 24 December 2013, Gong applied to the Court of First Instance in February 2014 to have HKIAC’s decision set aside. HKIAC was listed as the only defendant. The challenged arbitrators and the respondent in the arbitration did not participate in the court proceedings.

The court dismissed Gong’s application at a hearing of 18 March. It held that HKIAC is not the proper defendant in proceedings seeking the court’s decision on a challenge to an arbitrator under Article 13(3) of the UNCITRAL Model Law, given effect by Section 26(1) of the Hong Kong Arbitration Ordinance. The Court said the proper defendant should be the respondent in the arbitration, citing Order 73, Rule 5 of the Rules of the High Court which requires that the arbitral tribunal (including the challenged arbitrators) and the other parties to the arbitration shall be served with the proceedings.

The court also found that Gong’s application was not made within the 30-day time limit prescribed in Article 13(3) of the Model Law. The court noted that, under Sections 3 and 12 of the Arbitration Ordinance, it should interfere in an arbitration only in the circumstances expressly provided for in the Ordinance. Accordingly, since Gong’s request did not comply with the requirements of Article 13(3) (including the time limit), the court said it should not intervene in the matter or to decide the challenge. In this regard, the court rejected the Gong’s argument that he missed the deadline for filing the application because HKIAC failed to notify him of the time limit. The court said HKIAC is under no obligation to provide such legal advice to the parties.

The court further confirmed HKIAC’s immunity status under Section 105 of the Arbitration Ordinance. Section 105 provides that a body which appoints arbitrators or administers arbitrations is not liable in law for the consequences of exercising its function unless the function was exercised dishonestly. The court did not find any basis to suggest that HKIAC made its decision dishonestly.

It is very rare for a party to sue HKIAC not only for the exclusion-of-liability provision in the HKIAC Rules, but also because generally parties and arbitrators have highly rated the services provided by HKIAC. In this case, the court helpfully points out the appropriate avenue to pursue a challenge under Article 13(3) of the Model Law and clarifies that an arbitral institution should not be privy to this type of challenge proceedings.

It took the court just over a month to decide the case. This shows that the Hong Kong courts will not hesitate to dismiss unmeritorious challenges that will undermine the ability of an arbitral institution to properly exercise its function. The court’s decision once again reinforces the Hong Kong courts’ long-standing non-interventionist approach to arbitration and indicates that parties to arbitrations seated in Hong Kong can be assured of strong judicial support of arbitral institutions’ proper exercise of their case administration functions. The decision is likely to be influential in other UNCITRAL Model Law jurisdictions.

This is the first time a lawsuit has been brought against HKIAC. Mayer Brown JSM and a Hong Kong barrister Adrian Lai acted for HKIAC on a pro bono basis.

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