Finality of awards and the power of supervisory courts

Finality and ease of enforcement of arbitral awards have long been considered a major advantage of international arbitration. At the same time, it is also recognized that challenges to awards must be allowed in some circumstances (eg where the award is procured by fraud) to avoid injustice, in which case intervention by the supervisory court will be both warranted and necessary. 

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) governs the recognition and enforcement of foreign arbitral awards. About 172 countries are party to the New York Convention.

Most New York Convention jurisdictions tend to adopt a ‘pro-arbitration’ policy, while still allowing arbitral awards to be challenged on certain limited grounds (such as conflict with public policy) and only on those limited grounds. 

Two recent decisions from Convention jurisdictions have provided a useful illustration of the interaction between, on the one hand, the finality of arbitral awards and, on the other hand, the duties and powers of supervisory courts: (i) G -v- N [2023] HKCFI 3366; and (ii) Sodzawiczny -v- Smith [2024] EWHC 231 (Comm).

The Hong Kong Decision

In the Hong Kong Decision, the Court of First Instance of Hong Kong (HK Court) remitted an award arising from a Hong Kong seated arbitration back to the arbitration tribunal (HK Tribunal) for re-consideration. 

Background

G and N were respectively the applicant and the respondent in the Hong Kong set aside proceedings. 

G commenced arbitration in Hong Kong against N seeking restitution of certain sums (Consideration Monies) paid under a Securities Purchase Agreement (which contained a Hong Kong arbitration clause) for the purported allotment of new shares in N (which was set aside by the BVI Court for illegality on the application of a third-party shareholder of N) (Allotment). In response, N claimed that G was not entitled to recover the Consideration Monies because the Allotment was tainted by illegality. 

In the HK Award, the HK Tribunal found that the Allotment was illegal and dismissed G’s claim on the basis that the illegality defence was available to N and was valid. In doing so, the HK Tribunal relied on the English House of Lords decision in Tinsley -v- Milligan [1994] 1 AC 340, in which it was held that a person should not generally be granted a remedy where he has to rely directly on unlawful conduct to succeed. 

This was a different approach to illegality than that subsequently taken by the English Supreme Court in Patel -v- Mirza [2017] AC 467 and which was endorsed by the Court of Appeal of Hong Kong shortly before the HK Award was published (Monat Investment Ltd -v- All Person(s) In Occupation of Part of The Remaining Portion of Lot No 591 in Mui Wo DD 4 No 16 Ma Po Tsuen, Mui Wo, Lantau Island [2023] HKCA 479). In essence, Patel -v- Mirza is authority for the proposition that a range of factors may be relevant in deciding what impact illegality should have on a claim. 

G applied to the High Court of Hong Kong to set aside the HK Award on the ground that the HK Award was in conflict with the public policy of Hong Kong on illegality. 

HK Court decision

The HK Court held that it was entitled to review the HK Award for the following reasons: 

1. The HK Award was subject to the curial review of the HK Court, not because of any error in law made by the HK Tribunal, but because it was the HK Court’s power and duty to review whether the HK Award was in conflict with the current public policy of Hong Kong regarding illegality (ie the ‘range of factors’ approach now recognized as applicable in Hong Kong in place of the Tinsley ‘reliance’ approach). 
    
2. Such review would not undermine the finality of the HK Award. The HK Court was not reviewing or overturning the HK Tribunal’s finding that the Allotment was tainted by illegality (which remained final and binding). Rather, the HK Court only considered, applying the HK Tribunal’s own independent findings of fact and law, whether the effect of the illegality was to render the enforcement of the HK Award in conflict with the public policy of Hong Kong, in light of the intervening decision of the Hong Kong Court of Appeal in Monat. 
    
3. In this regard, the HK Court noted that the HK Tribunal had failed to apply the correct ‘range of factors’ approach in considering the effect of the illegality of the Allotment. Nevertheless, rather than determining itself whether the HK Award was in conflict with Hong Kong public policy, on the facts of this case, the HK Court considered it more appropriate to remit the HK Award back to the HK Tribunal for re-consideration in the light of the correct ‘range of factors’ approach. 

The English Decision

In the English Decision, the English Commercial Court (English Court): (a) granted the claimant’s application for an ‘anti-arbitration’ injunction (AAI) preventing the defendants from commencing an LCIA arbitration; and (b) dismissing the application by one of the defendants for a stay of enforcement of certain arbitration awards in the claimant’s favour and, as the case developed, for a stay of the AAI application. 

Background

The claimant, Dr. Sodzawiczny entered into a settlement agreement with three individuals (Mr Cooper, Mr McNally and Dr Cochrane) which incorporated an LCIA arbitration agreement (LCIA Arbitration Agreement). The claimant obtained three LCIA awards in respect of the sum due under the settlement agreement (LCIA Awards) and obtained permission for all three awards to be enforced in the same manner as a court judgment. 

Dr. Smith filed a Request for Arbitration against the claimant with the LCIA in his and Dr Cochrane’s names, seeking to set aside the LCIA Awards on the ground that the same were procured by fraud or means contrary to public policy (Smith Intended Arbitration). Dr. Smith also applied to the English Court, seeking to stay enforcement of the LCIA Awards (Stay Application). The claimant responded by issuing his own court application seeking an AAI to prevent the Smith Intended Arbitration from proceeding. Dr Smith then cross-requested the Court to direct that the Stay Application should be extended to the AAI application.

English Court decision

The English Court dismissed the Stay Application on the ground that the enforcement proceedings and the AAI application were not arbitral matters. Specifically:

1. For a stay application to be granted, the English Court had to be satisfied that the enforcement proceedings and the AAI application had been brought in respect of a matter which, under the LCIA Arbitration Agreement, was to be referred to arbitration.
    
2. The enforcement of the LCIA Awards was not a matter for the arbitral tribunal (which became functus officio to the extent it had issued a final award) but for the English Court in which the enforcement proceedings were commenced. 
    
3. Similarly, the claimant’s AAI application was not an arbitral matter requiring the Court to corral it back into an arbitration process. Such an application came within the supervisory jurisdiction of the English Court and, in entering into the LCIA Arbitration Agreement, the parties also agreed to the English Court’s supervisory jurisdiction.

At the same time, the English Court allowed the AAI application for, inter alia, the following reasons:

1. It was noted that an AAI may be granted, inter alia, where the applicant was protecting a contractual right arising from the agreement to arbitrate, namely where the parties had agreed their arbitration was to have its legal seat in England and Wales and the losing party then sought to challenge the award otherwise than in accordance with the requirements of the English Arbitration Act 1996 (the Act) (Non-Compliant Challenge).
    
2. The Smith Intended Arbitration was a case of Non-Compliant Challenge, because Dr Smith was in substance seeking to challenge the LCIA Award in a manner that did not comply with, and which infringed against, the claimant’s legal right under the Act that any challenges to the awards be brought only by the means, and within the time, permitted by the Act.
    
3. Accordingly, the English Court considered that this was an appropriate case in which to grant an AAI to restrain the Smith Intended Arbitration. 

Comment

At first glance, it may appear that the Hong Kong Decision (which ordered remission of the HK Award) and the English Decision (which dismissed the Stay Application and allowed the AAI application) approached the question of finality of arbitral awards and the duties and powers of supervisory courts differently. 

Nevertheless, while the practical outcome of the two Decisions may be different due to their different facts, the approaches adopted by the HK Court and the English Court are arguably similar. In particular: 

1. In line with the pro-enforcement policy of the New York Convention, the HK Court/English Court will only allow challenges to arbitration awards based on the limited grounds and in accordance with the procedures set out in the local arbitration legislation of the Convention jurisdictions - the Arbitration Ordinance (Cap. 609) (HKAO) for Hong Kong and the Act for England and Wales. Therefore, in the English Decision, the English Court showed little hesitation in granting the AAI once it had satisfied itself that the Smith Intended Arbitration was a Non-Compliant Challenge. Likewise, in the Hong Kong Decision, the HK Court only held that the HK Award was subject to curial review because a limited ground of challenge (ie public policy) in the HKAO was engaged. Even then, to avoid undermining the finality of the HK Award, the HK Court did not review or reverse any findings of law or fact of the HK Tribunal, and merely considered (based on the HK Tribunal’s own findings of law or fact) whether the HK Award was contrary to the public policy of Hong Kong. It also bears noting that ultimately the Hong Kong Court chose to remit the HK Award to the HK Tribunal for re-consideration, as opposed to deciding the question of public policy itself.  
    
2. At the same time, the HK Court/English Court are conscious of their duty as supervisory courts and will not hesitate to exercise their supervisory jurisdictions where it is appropriate to do so.
    
3. Therefore, the English Decision clearly stated that the enforcement of arbitration awards and application for AAI are matters for the supervisory courts (in that case, the English Court). In similar vein, in the Hong Kong Decision, the HK Court noted that, once an arbitral award is challenged based on one of the specified grounds in the HKAO (which are the same as those set out in the UNCITRAL Model Law), ‘the Court is bound to consider and decide the claim, applying the authorities which define the narrow scope of such a claim’.

The key point is that while the HK Court/English Court will pay great respect to the principle of finality of arbitral awards, they will also not hesitate to step in when it is an appropriate case in which to exercise their powers as supervisory courts. 

This is reassuring but is also not surprising given that the diligence and experience of their supervisory courts have always been a key factor in making Hong Kong and England popular arbitral seats.