On 13 March 2024, the Court of First Instance of the High Court (“Court“) in A v B and others [2024] HKCFI 751 refused to enforce an arbitral award on the ground that the arbitrator had failed to give reasons.

Background

On 25 August 2022, the sole arbitrator (“Arbitrator“) granted an arbitral award (“Award“) in favour of the Applicant (“A“) at the International Center for Dispute Resolution under the Rules for International Commercial Arbitration of the American Arbitration Association (“Arbitration“).

Under the Award, the Respondents were held to be jointly and severally liable to pay to A royalty fees and other charges under the licence agreements entered into between A and the 1^st Respondent. The licensee, and the 2^nd and 3^rd Respondents, were prohibited from engaging in any educational business in Hong Kong.

On 12 May 2023, the Court granted leave to A to enforce the Award (“Leave“).

Ground to set aside the Leave – Failing to give reasons

On 23 June 2023, the Respondents applied to set aside the above leave on the ground that the Arbitrator had failed to give any reasons for her decisions. The Award simply made findings and conclusions, without any analysis of the decisions.

Mimmie Chan J in her judgment noted the principles set out in R v F [2012] 5 HKLRD 278, Z v Y [2019] 1 HKC 244, and LY v HW [2022] HKCFI 2267, that awards are to be read generously, in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it. Mimmie Chan J also noted the policy of minimal curial intervention as highlighted in AI & ors v LG II [2023] 4 HKC 135. Any inference that a tribunal has failed to consider an important issue is to be made only if it is clear and virtually inescapable.

However, Mimmie Chan J concluded that, however generously the Award in the case was read, objectively read and in the context of the issues raised and submissions and arguments made before the tribunal, the arbitrator failed to adequately explain in the Award the reasons for her conclusions on the key issues raised in the Arbitration, of the applicable governing law of the Agreements, on the effective date of termination of the Agreements, and on the enforceability or the reasonableness of the non-compete covenant, all of which were disputed by the parties.

Analysis

In the course of reaching the above conclusions, Mimmie Chan J held that the Respondents, as parties who had submitted their disputes to the tribunal for arbitration and determination, were legitimately entitled to expect key issues which affected their rights and liabilities to be dealt with and explained with sufficient reasons in the Award.

Likewise, the procedural law governing the Arbitration required the Arbitrator to give reasons of her decisions. Under Article 33 of the International Arbitration Rules, the tribunal “shall” state the reasons upon which an award is based, unless the parties have agreed that no reasons need be given. Paragraph 5 of the Supplementary Procedures for International Commercial Arbitration of the American Arbitration Association contains an identical provision. There was no suggestion that the parties had waived the need for reasons. Thus, the Award did not comply with the aforementioned rules as no reasons were given, and had not been made in accordance with the procedure of the Arbitration to which the parties had agreed.

In line with R v F [2012] 5 HKLRD 278 and A v B HCCT 40/2014, 15 June 2015, Mimmie Chan J emphasised that the Respondents were entitled to query whether the key issues in the Arbitration had been considered by the Arbitrator, and if considered, why the issues were determined against them. It would be contrary to public policy to enforce and recognise the Award when those important issues, which the parties were entitled to expect to be addressed in the Award, were not in fact addressed or explained.

Hence, Mimmie Chan J was satisfied that failing to give reasons was sufficiently serious to affect the structural integrity of the arbitral process, and to have undermined due process and then set aside the Leave accordingly.

Takeaways

It is observed that although the Hong Kong courts hold a pro-arbitration approach in enforcing arbitral awards, the courts do uphold the structural integrity of the arbitral process.

The same requirement of stating the reasons in the arbitral award is stated under section 67 of the Arbitration Ordinance (Cap. 609) (Article 31 of the UNCITRAL Model Law) that “the award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on the agreed terms under article 30“. Article 35.4 of the Hong Kong International Arbitration Centre (HKIAC) Administered Arbitration Rules (2018) contains the same requirement.

Please see full judgment here.