Hong Kong’s High Court has fired a warning shot at parties considering mounting challenges to arbitral awards.
In A v R, a case on April 30, the losing party tried to resist the arbitration award being enforced in Hong Kong. But relying on flimsy grounds, the respondent was defeated and ordered to pay indemnity costs.
The dispute concerned a sales commission agreement and a failure by the losing party to pay the applicant commission for referring a customer. The respondent argued that a liquidated damages clause in the agreement was void and so it would be oppressive to enforce the award. It was dismissed.
“But this case isn’t really about penalty clauses, it’s about the court upholding the finality of the arbitration process,” said Graeme Johnston, China managing partner at Herbert Smith in Shanghai. “It’s always possible to come up with some grounds to challenge an award,” he said
Johnston added that in this case the court not only rejected the challenge but also said that, unless the challenging party had a serious basis for attempting to bring the case under the New York Convention, it will consider a heavier than usual costs order against the failed challenger.
Judgments in arbitration cases are traditionally final, unlike the layers of appeal available in court litigation. This finality is welcome, too. In a survey carried out by PricewaterhouseCoopers last year, in-house counsel respondents were overwhelmingly in favour of the finality of arbitration decisions.
Hong Kong has traditionally taken a tough line with enforcing awards, unlike the perception of mainland China, where courts often become embroiled in the enforcement process.
This has been helped by the Civil Justice Reforms (CJR). The CJR was introduced on April 2 and aims to make civil litigation proceedings more efficient and ensure fair distribution of court resources.
In A v R the Court concluded that by mounting an unfounded challenge to an arbitration award, a party would be failing to comply with its obligation to further the objectives of the CJR, in particular the duty to assist the Court in the just and efficient resolution of a dispute.
The case carries added importance. By ordering the challenging party to pay indemnity costs too, the judge made his point clearly: Don’t challenge arbitral awards in Hong Kong unless you have very strong case. Doing so could result in added costs.