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[email protected]Arbitration analysis: In the context of a long-running Hong Kong International Arbitration Centre (HKIAC) administered arbitration between one of the claimants and her former partners, the claimants brought two actions (1st Action and 2nd Action, collectively the Actions) in an attempt to frustrate the ongoing arbitration proceeding (Arbitration). The grounds were that the arbitrator (one of the defendants) acted in bad faith as he (i) misused the confidential documents disclosed by parties in making his rulings; (ii) rejected the claimants' application for additional award, which denied the claimants' right to be heard and hence breached the rules of natural justice. The claimants also alleged that the arbitrator should not continue the arbitration because there was a conflict of interest after the claimants commenced the 1st Action against the arbitrator. Therefore, the claimants sought to frustrate the Arbitration by restraining Mr So from being the arbitrator.
The 1st Action was dismissed by Her Honour Judge Phoebe Man on 10 September 2020. On 15 January 2021, the claimants commenced the 2nd Action on almost the same allegations. The 2nd Action was dismissed by Hong Kong court on the grounds that the claimant's allegations were devoid of factual basis and the claimants were found to abuse the process.
Fenn Kar Bak Lily v So Shiu Tsung Thomas [2021] HKCU 2835
The Hong Kong court emphasised the legal principles applicable to exercising its power to restrain the arbitrator from acting. The threshold is very high as the court must be satisfied beyond reasonable doubt that there is no reasonable cause of action, and the court must exercise its power with the greatest care.
When it comes to the application for restraining the arbitrator on the grounds that he was acting in bad faith, the court will look into the merits of the case and will carefully examine the conduct of the arbitrator. Also, the court will take the parties’ actions and responses into account. If parties have any questions about the conduct of arbitrators and/or the arbitration procedures during the arbitration, they should raise those questions as soon as possible in order to protect their legitimate rights in an arbitration.
For issues of conflict of interest, the court held that it is unreasonable for a party to allege conflict of interest and prevent their arbitrator from further acting in the arbitration simply on the ground that he/she has issued a writ against the arbitrator. The court will consider the merits of the case from the perspective of a fair-minded and informed observer with the relevant background facts and decide whether there is any conflict of interest or any real possibility that the arbitrator was biased in continuing to handle the arbitration.
A HKIAC arbitration was brought by the claimants in 2011 (2008 HKIAC Administered Arbitration Rules, and Mr So was appointed as the arbitrator. The claimants applied for extension of time to make an application for an additional award, this was later dismissed by the tribunal. The claimants then brought the 1st Action against the arbitrator, claiming that he was acting in bad faith as he (i) misused the confidential document in dismissing the claimants' application, and (ii) breached the rules of natural justice for failure to give an opportunity for the claimants to make full representations. Also, the claimants claimed that, after the commencement of the 1st Action, there was a conflict of interest and therefore, the arbitrator should have recused himself in the ongoing arbitration.
The 1st Action was rejected by the court. However, the claimants brought the 2nd Action against the arbitrator on almost identical grounds. The claimants added two grounds in the 2nd Action: (i) the arbitrator forced parties to adopt the new Arbitration Ordinance (Cap 609) (which effectively excluded the claimants' right of appeal) and therefore, acted in bad faith; (ii) the arbitrator made an award against the claimants after the commencement of 1st Action, which demonstrated a conflict of interest.
After carefully examining all relevant facts and evidence, the court agreed with the defendants that all allegations were devoid of factual basis.
The defendants submitted that the multiplicity of proceedings constituted an abuse of process. The court agreed with the defendants.
There are four main issues before the court:
For the reasons given above, the court concluded that the Actions should be dismissed.
This analysis was first published on Lexis®PSL on 2 July 2021.
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