AMERICAN INTERNATIONAL GROUP, INC AND ANOTHER v. HUAXIA LIFE INSURANCE CO LTD

FAMV No. 35 of 2017

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 35 OF 2017 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM HCMP NO. 3417 OF 2016)

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REASONS FOR DETERMINATION

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Mr Justice Fok PJ:

1.  We dismissed this application for leave to appeal after hearing counsel for the applicants, reserving our reasons which we now hand down.

2.  This application for leave to appeal arises out of arbitration proceedings between the parties. In those proceedings, the arbitral tribunal had made an award ordering the applicants to return a deposit of US$475 million to the respondent. Dissatisfied with this award, the applicants applied to the Court of First Instance to set aside the award pursuant to s.81(1)(2)(a)(iii) of the Arbitration Ordinance (Cap.609) (“AO”).  The application was dismissed by Mimmie Chan J[1] and the applicants then further applied to the judge for leave to appeal her decision to the Court of Appeal pursuant to s.81(4) of the AO[2] which she refused on 5 December 2016.[3]

3.  By s.14(3)(ea)(iv) of the High Court Ordinance (Cap.4) (“HCO”), it is provided that, except as provided under the AO, no appeal shall lie from any judgment or order of the Court of First Instance under s.81 of the AO (i.e. Model Law Article 34) to set aside an arbitral award.  The combined effect of s.81(4) of the AO and s.14(3)(ea)(iv) of the HCO, properly construed, is that these are finality provisions.

4.  The applicants pursued their application to the Court of Appeal, which refused (on the papers) to grant leave to appeal to it from Mimmie Chan J’s decision refusing leave to appeal against her refusal to set aside the award (i.e. her reasons for decision dated 6 December 2016).[4] The Court of Appeal then dismissed the applicants’ further application for leave to appeal to this court against the Court of Appeal’s judgment dated 19 January 2017.[5]

5.  The applicants now seek leave to appeal to this court on the ground that the appeal involves the question of whether the finality provisions in s.81(4) of the AO and s.14(3)(ea)(iv) of the HCO are unconstitutional as being an infringement on Article 82 of the Basic Law, which vests the power of final adjudication in the Court of Final Appeal.[6]

6.  This is undoubtedly a question of law of some general importance.  Notwithstanding its importance, however, we were not persuaded that the applicants’ constitutional challenge is reasonably arguable for the following reasons.

7.  The Court of Appeal has previously considered the very same question in China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK) Ltd [2015] 4 HKLRD 609 (“CIF”) and concluded that the limitation in s.81(4) of the AO is a proportionate restriction on the rights under BL82, which vests the power of final adjudication in the Court of Final Appeal.  Unless it is reasonably arguable that that decision is wrong, the applicants’ proposed appeal does not enjoy a reasonable prospect of success.  More generally, the Court of Final Appeal has previously performed a proportionality analysis to determine the constitutionality of finality provisions in Solicitor v Law Society of Hong Kong & Secretary for Justice (Intervener) (2003) 6 HKCFAR 570, Mok Charles v Tam Wai Ho (2010) 13 HKCFAR 762 and, most recently, in Incorporated Owners of Po Hang Building v Sam Woo Marine Works Ltd (2017) 20 HKCFAR 240 and so the approach to be adopted in such an exercise is settled.

8.  In CIF, counsel for the applicant (Lord Pannick QC) accepted (at [12]) that the first and second stages of the proportionality test were satisfied in respect of s.81(4) of the AO.  It was the third stage of the test that was in issue in that case (at [13]).  The Court of Appeal analysed the role of that court in the scheme of the AO (at [25] to [36]) and concluded that s.81(4) of the AO was no more than was necessary to accomplish the legitimate aim (at [46] to [55]).

9.  There is no doubt that the Court of Final Appeal has power to consider the constitutionality of the finality provisions relevant to this case, notwithstanding s.14AB of the HCO[7] and the Court did so in relation to the finality provision in s.63B of the District Court Ordinance (Cap.336).[8]  This is the case, notwithstanding the fact that the applicants did not raise their constitutional challenge to s.81(4) of the AO until it applied for leave to appeal to this court from the Court of Appeal.

10.  In the present case, although accepting that the first stage of the proportionality test is satisfied, the applicants contend that the finality provisions here fail the test of rational connection (the second stage) and also the third stage.  The applicants therefore argue that CIF was wrongly decided.

11.  We were not persuaded that the applicants’ contentions that the finality provisions do not satisfy the second and third stages of the proportionality test are reasonably arguable.  The contention that the finality provisions fail the test of rational connection was based on the argument that the provisions apply to both a winning party as well as a losing party to an arbitration.  We do not accept that this alters the conclusion that the finality provisions are rationally connected to their legitimate aim.  The applicants identify the legitimate aim as being “to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense”.  However, as noted in CIF, the legitimate aim of the finality provisions also includes the “parties’ autonomy in choosing their own dispute resolution process” (see CIF at [12]).  That party autonomy is an important additional part of the legitimate aim of the finality provisions and explains why there is a rational connection between the finality provisions and their legitimate aim, even in the case of a winning party to an arbitration.  The consequence of a winning party to an arbitration losing a setting aside application is that it may need to pursue further arbitration proceedings rather than pursuing further appeals further up the appellate court system.  This choice is one which is rationally connected to the legitimate aim of party autonomy in the choice of an arbitral dispute resolution process.

12.  As regards the third stage of the proportionality test, the applicants argue that, in having regard to the ability of parties to include other avenues of challenge against an award as provided by Schedule 2 to the AO, the Court of Appeal confused the nature of an appeal under Schedule 2 and setting aside under s.81 of the AO.  We do not accept that this criticism is justified, nor that the Court of Appeal's conclusion on this stage of the proportionality test in CIF was wrong.

13.  First, the Court of Appeal accepted that s.14(3)(ea)(iv) and (v) of the HCO had to be read down in the light of BL82 to carve out a residual jurisdiction for the supervision of the CFI’s processing of a leave application (see CIF at [21]-[24]). 

14.  Secondly, the applicants’ contention raises a distinction without a difference and does not meet the larger point articulated in the Court of Appeal’s judgment in CIF, namely: that the underlying policy of the AO is set out in s.3 emphasising party autonomy and the restriction on court interference in the arbitral process; that there is an option for alternative schemes in Schedule 2 to the AO, with a wide scope for court involvement, and the scheme of the AO does not impose any requirement that the parties follow the regime reflected in s.81(4) of the AO.

15.  Finally, we do not think that it is reasonably arguable that the Court of Appeal’s decision, in reliance in part on the English Court of Appeal decision in Republic of Kazakhstan v Istil Group Ltd (No.2) [2008] 1 All ER (Comm) 88, that s.81(4) does not fall outside the range of reasonable options to be adopted in order to achieve the legitimate aim identified (see CIF at [51]-[54]) is wrong.

16.  The applicants also advanced a number of discrete points: that the Court of Appeal erred in CIF in holding that it has an implied residual discretion to set aside an arbitral award; that the Court of Appeal wrongly applied a margin of appreciation where remedial interpretation was already engaged; and that the fourth stage of the proportionality test was not considered in CIF and had it done so would have reached a contrary conclusion.  We were not satisfied that any of these points are reasonably arguable.

17.  The applicants have not identified any proper basis for the grant of leave on the “or otherwise” basis.  Although the amount at stake is large (US$475 million), that is not enough on its own to justify the grant of leave on this basis.

18.  For these reasons, we refused the application for leave to appeal with costs, which we ordered the applicants to pay to the respondent on an indemnity basis, to be taxed if necessary.