In CNG v G & G [2024] HKCFI 575, in dismissing the application to set aside the arbitral award by CNG, the Honourable Madam Justice Mimmie Chan warned that the legal professional should be wary of making unmeritorious challenges to set aside arbitral awards by “massaging” cases to fall under the exceptional grounds of challenge under Section 81 of the Arbitration Ordinance (Cap. 609).

The Court once again reminded litigants that arbitration is a consensual process of final dispute resolution to which parties have voluntarily agreed to, and the limited recourse parties have under the Arbitration Ordinance is not intended to afford them with an opportunity to ask the Court after the event to go through the award with a “fine-tooth comb” to look for defects and imperfections under the guise that the tribunal failed to act within its remit.

Section 81 of the Arbitration Ordinance

With the consensual nature of arbitration and the tribunal’s autonomy at the heart of arbitral process, the grounds to set aside an arbitral award as compared to appealing a judgment in Court actions are much narrower. Before delving into the facts and issues of the case, it is helpful to note the permitted grounds to set aside a Hong Kong arbitral award under Section 81 of the Arbitration Ordinance:

• a party to the arbitration agreement was under some incapacity;
• the arbitration agreement was not valid under the law to which the parties have subjected it, or failing any indication thereon, under Hong Kong law;
• the party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
• the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration;
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, if there was no agreement, Hong Kong law;
• the subject matter of the dispute is not capable of settlement by arbitration under Hong Kong law; or
• the award is contrary to Hong Kong’s public policy.

In addition to the above, Schedule 2 of the Arbitration Ordinance contains opt-in provisions which provide for application to the Court to challenge an award on the ground of serious irregularity and for appeals to the Court on questions of law.

Given the limited grounds for challenge as set out above, in CNG v G & G, CNG attempted to find loopholes and problems in the award by “massaging” its challenges as “CNG was unable to present its case“, “the arbitral procedure was not in accordance with the parties’ agreement“, “the Award deals with a dispute not contemplated by or falling within the terms of the submission to arbitration“, and “the Award is in conflict with the public policy of Hong Kong” ([20]).

Facts and Issues

The dispute was between shareholders of a company (“SIL“) which own and operate a mining and processing project, whereby CNG, a state-owned enterprise of the PRC, owned 65% of the shares of SIL and the 1^st Respondent owned the remaining 35% of the shares of SIL. Relying on the arbitration clauses contained in both the share purchase agreement and the shareholders’ agreement entered into between the two Respondents, CNG and SIL, the Respondents commenced arbitration proceedings at the HKIAC against CNG for the main claims that CNG (a) failed to honour a right of first refusal conferred on the 1^st Respondent under the shareholders’ agreement in respect of CNG’s purported transfer of its shareholding in SIL (the “Share Transfer Claim“); and (b) failed to obtain the unanimous approval of the board of SIL before shutting down certain operations of the mining and processing project.

Failure to deal with issues / give reasons

The Respondents argued in the arbitration that as CNG had issued a valid transfer notice which met the requirements of the shareholder’s agreement to be an offer to the other shareholders, CNG was bound to sell the shares to the 1^st Respondent as the only other shareholder of SIL. In contrast, CNG posited that the offer was an independent offer made to a permitted transferee (CGG, an affiliate of CNG by virtue of its control), and did not constitute a transfer notice within the meaning of the shareholder’s agreement which would afford the 1^st Respondent the right of first refusal.  The tribunal found that CNG’s transfer notice constituted an offer, which was capable of acceptance and was accepted, and that CNG was bound to sell the shares to the 1^st Respondent in accordance with the shareholders’ agreement.

Before the Court of First Instance, CNG’s complaints placed reliance on the failure of the tribunal to deal with key issues or give reasons for its decision on the matter ([23]). For example, CNG emphasised that only 24 paragraphs of the total 163 paragraphs of the award were devoted to the tribunal’s reasoning for its decision on the Share Transfer Claim ([24]). Further, the tribunal did not deal with all the issues listed on the agreed list of issues submitted by the parties ([25]).

In response, Chan J noted that a long prolix judgment or award does not mean that it must contain sound reasoning or analysis of an issue or decision made. Vice versa, a short document likewise cannot indicate that there is no good reasoning or answer to the issue raised for decision ([24]). Moreover, an award is to be read and understood in the context of how the case was argued before the tribunal.  In this case, it was logical for the tribunal to deal with the relevance of CGG being a permitted transferee under the shareholders’ agreement first.  A decision in favour of the Respondents on this issue would render it unnecessary for the tribunal to determine whether, in fact, CGG was a permitted transferee ([33]). As noted by Chan J at [26]:

“…the tribunal does not have to set out each step by which it reaches its conclusion, and a failure to deal with an argument or a submission made on or relating to an issue is not equivalent to a failure to deal with an issue.  The tribunal is not required to deal with each issue seriatim, as it can deal with a number of issues in the composite disposal of them.  A tribunal does not fail to deal with an issue if it does not answer every question that qualifies as an issue.  It can deal with an issue where that issue does not arise in view of the tribunal’s decision on the facts or its legal conclusions. A tribunal may deal with an issue by so deciding a logically anterior point such that the other issue does not arise. If the tribunal decides all those issues put to it that were essential to be dealt with for the tribunal to come fairly to its decision on the dispute, it will have dealt with all the issues. So long as a decision on one argument suffices to resolve an essential issue, the tribunal does not have to consider all arguments canvassed upon the issue. Although awards often respond to parties’ submissions, such submissions do not dictate how the tribunal is to structure the disposal of the dispute referred to it…a list of issues is not an exam paper, and I would add that it is not an exam paper with compulsory questions for the tribunal to answer them all.”

Further, the Court was not concerned with whether the tribunal had come to the right decision for the correct reasons, or whether there was evidence to support its finding in the decision ([31]). The Courts’ approach was to read an award generously with minimal curial intervention.  Only when there are meaningful and readily apparent breaches of the rules of natural justice which can cause actual prejudice (rather than to comb an award in order to assign blame or to find fault in the process), may it warrant the setting aside of an award ([27]).

Procedural decisions and alleged inability to present case

In relation to procedure, it was argued for CNG that the tribunal had imposed an unequal and tight timetable on CNG, and had allowed the Respondents last-minute ambushes by adducing late evidence and running an unpleaded case, which resulted in CNG not being able to present its case ([22], [66]).

Citing COG v ES [2023] HKCFI 294, Chan J reiterated that a case management decision of a tribunal is not a decision which the Court should highly interfere with, in the absence of what the Court can find to be a serious denial of justice. Nor is it the function of the Court to descend to a level of reviewing the minutiae of the procedure, while the tribunal is obviously in the best position to decide on the most appropriate and fair manner of proceeding with the arbitration in accordance with the Arbitration Ordinance ([67]). For instance, as Section 46 of the Arbitration Ordinance provides a “reasonable opportunity” (as opposed to “full opportunity” used in Article 18 of the Model Law) to the parties to present their cases, no party can claim the right to have all the time it needs to prepare for the hearing and what the Court seeks to enforce is a standard of due process which are generally accepted as essential to a fair hearing ([68]).

Takeaways

CNG v G & G serves as another reminder from the Hong Kong Court that it does not sit on appeal against the tribunal’s finding of fact or law, nor interfere with the tribunal’s proper exercise of its case management powers. If parties attempt to rehearse once again before the Court arguments already made before the tribunal, or have different counsel reargue its case with a different focus in the hope that the Court may come to a different conclusion, it is likely to attract indemnity costs being awarded by the Court without changing the outcome of the case.

See full judgment here.