May 2023

The recent decision of Canudilo International Company Limited v Wu Chi Keung, Wu Chi Fong and Others [2023] HKCFI 700 highlights how the court looks at the regularity of an arbitral process.

The arbitration related to a contractual claim of goods sold and delivered by Canudilo International Company Limited against Apennine Holdings Limited while the several defendants including “Wu” were the guarantors. Wu pleaded various defences including misrepresentation and duress under the contract. The arbitral process involved the change of arbitrators while the second arbitrator made a final award in favor of the plaintiff and found Wu liable as guarantors under the contract. Wu applied to set aside the enforcement order, though out-of-time, on the ground that arbitrator had failed to deal with the key issues of the defence so that Wu did not have a reasonable opportunity to present their case, and enforcement of the final award was therefore unsafe.

Mimmie Chan J allowed Wu’s application to set aside the enforcement order of the final award and found that the arbitrator had failed independently to determine the issues in dispute and had unfairly and unjustly deprived Wu of the reasonable opportunity to present their case. In particular, Wu should be entitled in law to challenge the evidence on the contract and the arbitrator should have adequately considered the issues raised in the defence.

The court also made clear that even though the application was made out of time, it had jurisdiction to extend time under Order 3 rule 5 of the Rules of the High Court and in view of the Court of Final Appeal’s decision in Astro Nusantara International BV v. PT Ayunda Prima Mitra [2018] HKCFA 12, the court would still allow the application to be made out-of-time given the merits of the belated application and the seriousness of the errors undermining the structural integrity of the final award.

Notwithstanding the aforesaid, the court still stressed that a high threshold of irregularity has to be shown for an award to be set aside and the court would not intervene in cases where the arbitrators had merely erred on facts or law. The court would scrutinize the structural integrity of the arbitral process. When the error of the arbitrator is egregious and gives rise to a serious denial of due process, the court would intervene.

The authority marks the importance to arbitrators that reasonable opportunities must be given to parties to present their cases to ensure that the arbitral process is strictly adhered to the agreed arbitration rules and procedures.