A right to be heard – Hong Kong court says it need only be "reasonable"

On 24 June 2022, the court granted leave to the applicant (COG) to enforce an arbitral award dated 11 November 2021 issued by CIETAC made in an arbitration between COG and the respondent (ES). Under the award, ES was ordered to pay COG more than US$21 million, liquidated damages and legal fees.

The arbitration had been commenced pursuant to an arbitration clause contained within a sales contract. ES failed to pay the purchase price for goods delivered by COG under the contract. An oral hearing was held before the tribunal on 9 July 2021 (the first hearing).

After the first hearing, both parties submitted supplementary materials, with ES claiming that consideration of the matter could not take place without examination of all 64 contracts under which goods had been supplied between January 2011 and December 2014 in the value of more than US$700 million.

Validity of the award

On 12 July 2022, ES applied to set aside the enforcement order on the grounds that ES had been unable to present its case in the arbitration and that enforcement would be contrary to public policy.

In response, COG applied for the setting aside application to be dismissed with an order for immediate enforcement of the award, alternatively for an order for security of US$26 million to be furnished by ES, failing which ES would be prohibited from proceeding with the set aside application.

The court first dealt with the application for security, the legal principles deriving from Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd's Rep 208, as applied in two other recent Hong Kong cases.  If an award is manifestly valid, "there should either be an order for immediate enforcement, or else an order for substantial security." The court was satisfied the award was "clearly and manifestly valid."

The court's ruling on security is in line with Firm H v W [2021] HKEC 5281, the Hong Kong court refused the respondent's application to set aside the enforcement order to enforce an award in respect of unpaid legal fees. W claimed that due to his health condition at the time of the arbitration, he was "unable to present [his] case", within the meaning of section 86(1)(c)(ii) of the Arbitration Ordinance (Cap 609).

The Hong Kong court noted that the relevant party has to show that he has been denied due process. The conduct complained of must be serious, even egregious. Even if the ground is made out, the court has a discretion not to set aside an award, which may be exercised where the court is satisfied that the outcome could not have been any different: Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1. Also noting that W resided out of the jurisdiction, and that enforcement would be procedurally more complicated, the court ordered security for the award.

Fair hearing?

With regards to enforcement, ES claimed it had been deprived of a fair opportunity to present its case in the arbitration on the question of "the involvement and calculation of the purchase price of the multiple transactions across the 64 contracts."

ES also complained about the preparation time required for the arbitration, claiming it did not have sufficient time before the first hearing to prepare its case in view of the complexity of the issues and the volume of evidence to be considered. ES further claimed it was inappropriate for issues arising out of the supplemental evidence to be filed by the parties to be dealt with on paper, without a further oral hearing.

On this basis, ES argued that it had been deprived of the opportunity to present its case in the arbitration; that there was a serious irregularity in that the tribunal had refused to conduct a further oral hearing, had failed to give any justification for its refusal and had failed to deal with the issue. ES argued it would be contrary to public policy to enforce the award in view of its own counterclaim for set off.

Mimmie Chan J observed that ES had failed to make any application to the tribunal saying that it needed more time, and so it should not now be permitted to claim that the preparation time was "grossly insufficient".

ES had written to the tribunal seeking a second oral hearing to deal with the supplemental evidence submitted and to cross-examine a witness. This had been rejected by the tribunal, saying that it had considered the circumstances of the case and its opinion, a further hearing was unnecessary.

In the eyes of the court, the tribunal was fully entitled to take the decision. Article 42 of the CIETAC Rules provides that where evidence is submitted after the hearing and both parties have agreed to examine such evidence by means of writing, they may do so, and such a course of action had been agreed at the first hearing.

Mimmie Chan J said the tribunal's decision not to conduct a further hearing "was a case management decision which it was entitled to make in the light of the submissions made by the parties, the issues in dispute in the Arbitration and all the circumstances of the case before the Tribunal." It was "not a decision which the court should lightly interfere with, in the absence of what the court can find to be a serious denial of natural justice".

Standard of due process

Section 95(2)(c)(ii) of the Arbitration Ordinance (Cap. 609) permits the court to refuse enforcement of an award if a party is "unable to present" its case. Mimmie Chan J explained that what the courts seek to protect is a "standard of due process which can satisfy basic minimum requirements and [which is] generally accepted as essential to a fair hearing."

Mimmie Chan J said it was relevant to note that section 46 of the Ordinance requires the tribunal to give the parties "a reasonable opportunity" to present their case. The party's right was one to have a reasonable opportunity as opposed to a "full opportunity" (a term used in Article 18 of the Model Law ), and that "such right is not unlimited in scope and breadth, to entitle a party to make unreasonable demands and to ignore other relevant principles and aims of efficiency and speedy resolution of the dispute. The court will have regard to what is reasonable, in the context of the specific facts and circumstances of each case."

On the facts of the case, the court failed to see how the tribunal could be criticised for either declining ES's application for a further hearing or for failing to give elaborate reasons for its decision. "ES was given and had the reasonable opportunity to present its case and it did so in the manner agreed and decided by its legal advisers."

Not absolute

It is fundamental that the parties' right to be heard in legal proceedings is a fundamental rule of natural justice. In the context of international arbitration, it finds expression in Article 18 of the Model Law which provides that "each party shall be given a full opportunity of presenting its case."

In Singapore, the courts have held on multiple occasions, a “full opportunity" to present ones case under Article 18 of the Model Law is not wider than a "reasonable opportunity" to present one's case, and the word "full" was not intended to create a right of unlimited scope. 

The "full opportunity” must be balanced against considerations of reasonableness, efficiency and fairness. The tribunal's decisions are assessed by reference to what was known to the tribunal at the time and the court will accord a margin of deference to the tribunal on matters of procedure.

As a general rule, so-called "witness gating" (where a tribunal allows only certain witnesses to give oral evidence), is only permitted where the arbitral rules allow for it or the parties have agreed to it.

At first sight, the decision in COG seems at odds with the Singapore Court of Appeal's recent decision in CBS v CBP [2021] SGCA 4, in which the Court of Appeal upheld the High Court's decision in CPB v CBS [2021] SGHC 23, to set aside an award, following the arbitrator's decision not to permit a hearing of oral witness evidence.

The arbitrator in CBS had denied the respondent's request to present its witnesses at the hearing, instead directing that a hearing would be held for oral submissions only. A telephone hearing was held with the claimant alone, and the arbitrator went on to make an award in favour of the claimant.

The decision however turned on the particular wording of rule 28.1 of the Singapore Chamber of Maritime Arbitration which provides:

"Unless the parties have agreed on a documents-only arbitration or that no hearing should be held, the Tribunal shall hold a hearing for the presentation of evidence by witnesses, including expert witnesses, or for oral submission."

In its ruling, the Singapore Court of Appeal noted that "authority to limit witness testimony 'must be tempered by a tribunal's duty to afford the parties a fair opportunity to present their case". The rule granting tribunals the "widest discretion" to ensure the "just, expeditious, economical and final" determination of the proceedings, could not be an "unfettered power that overrides the rules of natural justice."

The question was whether the word "or" in the last part of rule 28.1 should be read disjunctively such that the arbitrator could decide whether to hold a hearing for the presentation of evidence or only for oral submissions.

The Singapore Court of Appeal agreed with the High Court judge that the rule did not allow the arbitrator "to decide on its own accord to hold a documents-only arbitration where parties did not agree to do so" and that parties had to be allowed to call witnesses if they wished to do so.

The arbitrator wrongly interpreted rule 28.1 as providing him with the discretion to hear either evidence or legal arguments at the oral hearing. He therefore wrongly imposed a condition that parties be required to show that their evidence had "substantive" value before deciding whether to allow it through an oral hearing. This amounted to a material breach of the rules of natural justice and the appeal was dismissed.

This court found breach was not merely technical or inconsequential and caused prejudice to the respondent since the oral evidence that the respondent sought to adduce was integral to its defence that there was an oral agreement between the parties. When the buyer's witnesses were shut out altogether, its defence was prejudiced.

What the decisions in COG and CBS together demonstrate, however, is that in terms of the opportunity to be heard, full account must be taken of the individual fact pattern, the rules of the institution concerned as well as the applicable statute.

Whether arbitrators should hear evidence from the parties has to depend on the particular circumstances of the case. It is not an area where generalities can suffice. 

Conclusion 

This is another arbitration friendly decision by the Hong Kong courts. The Hong Kong courts adopt a pro-arbitration policy; they enforce arbitration agreements by staying court proceedings in favour of arbitration, support the arbitral process by issuing interim measures, do not intervene in an arbitration unless expressly provided for under the Arbitration Ordinance, rarely set aside awards and only in limited circumstances, and are pro-enforcement, as COG v ES demonstrates.

Although COG v ES did not involve a Hong Kong seated arbitration, section 46(3)(b) of the Arbitration Ordinance requires a tribunal to act fairly and impartially as between the parties, giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents. 

Under section 52 of the Arbitration Ordinance (which incorporates Article 24(1) of the UNCITRAL Model Law), unless the parties have agreed that no hearings shall be held, the arbitral tribunal shall hold such hearings at an appropriate stage of the proceedings, if so requested by a party.

What the courts seek to protect is a standard of due process which can satisfy basic minimum requirements and which is generally accepted as essential to a fair hearing. 

Authored by James Kwan, Shi Jin Chia, and Nigel Sharman.