SETTING ASIDE AN ARBITRAL AWARD ON INCONSISTENT FINDINGS OF FACT

November 2021

When a party feels aggrieved with certain fact findings made in an arbitration, he is in most cases left without recourse. It is trite that only procedural irregularities that are “serious, even egregious” and can be said to have undermined due process in the arbitration proceedings would persuade a court to set aside an award or an order for its enforcement.

The case of W v AW (HCCT 70/2020) is thus unique, in that a tribunal’s fact findings that were inconsistent and contradicted an earlier award were held to have given rise to grave injustice to the aggrieved party.Our firm represents W in the action.

The facts leading to W’s challenge are, in a nutshell:

(1)W and AW were parties to a Framework Agreement and a Share Redemption Agreement entered into in 2015. The agreements related to the shareholding of W (and its shareholder) in AW and constituted part of a series of transactions leading up to an envisaged acquisition by a Mainland investor of certain interests and shares in a company controlled by AW. Both agreements contain HKIAC arbitration agreements.

(2) Disputes arose under the agreements, leading to arbitration commenced by W and its shareholder under the Framework Agreement against AW and other parties in January 2017 (“Arbitration 1”) and arbitration commenced by AW against W under the Share Redemption Agreement in June 2017 (“Arbitration 2”). Whilst the constitution of the tribunals in the two arbitrations is different, a common arbitrator, Mr Tao, sat on both tribunals.

(3) In both arbitrations, AW raised claims that W and its shareholder made certain misrepresentations which vitiated or breached the agreements.

(4) The award in Arbitration 1 was handed down on 13 March 2020 (“Award 1”), in which the tribunal (including Mr Tao) unanimously found that there was no misrepresentation. In its award handed down on 13 July 2020 (“Award 2”), however, the tribunal in Arbitration 2 (including Mr Tao) unanimously upheld AW’s misrepresentation claims. There were thus inconsistent and contradictory findings of fact made by the two tribunals on the same issues and between the same parties.

This unsatisfactory state of affairs prompted W to apply to set aside Award 2.In response, AW applied for security of costs and the sum awarded against W in Award 2, as a condition for allowing W to continue pursuing its set aside application.

In the judgment handed down on 17 June 2021, the Court refused to order security in any amount. In reaching the decision, the Court held that Award 2 is “manifestly invalid”, in that:

(1) AW’s claims of misrepresentation in the two arbitrations were identical and were made on the same representations and facts. The tribunals’ findings were essential ingredients of AW’s misrepresentation claims and may give rise to issue estoppel.

(2) Mr Tao, the common arbitrator in the two arbitrations who did not issue any dissenting opinion in Award 2, failed to explain in Award 2 why the findings on the same facts were different or why he did not consider the parties to be bound by the findings made in Award 1.

(3) Fairness and justice further required Mr Tao to invite submissions from the parties as to the effect of Award 1 on the issues to be decided in Arbitration 2. This is in particular given that (as the Court found in the judgment) W had advised the tribunal in Arbitration 2 that there were concurrent Arbitration 1 proceedings between the parties and the risk of inconsistent findings being made on the issues.Further, confidentiality in arbitrations did not prevent Mr Tao from disclosing Award 1 to the tribunal in Arbitration 2, as this would be a legitimate use of Award 1.

(4) There is substantial injustice arising out of Award 2 by virtue of the findings made in Award 2 which were inconsistent and contradictory with the findings made in Award 1 on the same issues, between the same parties and binding on the same parties. Award 2 could not be enforced.

In light of the court’s findings, not only did the Court exercise discretion to refuse ordering any security, the Judge invited the parties (in effect, AW) to consent to an order setting aside Award 2 as any different outcome at the substantive hearing of W’s set aside application is “highly unlikely”.Nonetheless, the substantive hearing remains scheduled to be heard in early next year.

The judgment serves as a reminder to arbitrators that, in discharge of their duty to render an enforceable award, it is important to be circumspect in addressing matters brought or coming to their knowledge, including offering the parties the opportunity to be heard on those matters, and to address them in the award.

For parties embroiled in multiple arbitrations involving the same issues and the same facts, it may make good sense to constitute tribunals with the same arbitrators.In suitable cases, the parties may also agree to consolidate and deal with the arbitrations together that would have the additional advantage of saving duplicitous work, time and cost. On the other hand, it must be noted that (as the Court has stated in the judgment) a party cannot be faulted or criticized for appointing any arbitrator of its choice.