Tribunal can vary of formerly agreed hearing format (Zoom)

I have written about virtual hearings previously (see posts / articles of 7 December 2021 and 24 March 2023). A recent decision of a Hong Kong court suggests that fully virtual arbitration hearings are becoming standard practice (it reflects my own practice - two recent evidentiary hearings that were to be in-person switched to virtual) and that courts are reluctant to find that such a hearing in and of itself causes prejudice to one of the parties.

In Sky Power Construction Engineering Limited v IrAero Airlines JSC, Hong Kong’s Court of First Instance found that the respondent had not been prejudiced by the fact that an arbitrator had conducted a fully virtual – rather than semi-virtual – hearing over the respondent’s objections. The Court would therefore not entertain a request by the respondent to apply to set aside the Court’s earlier order to enforce the arbitrator’s award.

Background

Roughly a month prior to the hearing, in January 2022, the arbitrator issued Procedural Order Number 3 (“PO 3”), which set out procedural parameters for a semi-virtual hearing. Counsel and the parties’ own fact witnesses were to convene at one location (Moscow), while other fact and expert witnesses could participate remotely via video-conferencing. The arbitrator would sit in London, and conduct the hearing remotely. PO 3 appears to have reflected the parties' agreement.

However, shortly after PO 3, Sky Power indicated that its only fact witness was not available to travel to Moscow “due to the inconvenience and disruptions to his business, and the safety concerns of exposure to the risk of becoming infected with Covid”. Sky Power proposed a fully virtual hearing. IrAero objected, given that the parties’ agreement to hold a semi-virtual hearing had been recorded in PO 3 earlier the same month.

The arbitrator decided that the hearing would proceed on a fully virtual basis rather than be postponed until such time as the witness could attend in Moscow. She explained that it was necessary for her “to balance both the need for the proceedings to be concluded expeditiously and for the conduct of the proceedings to be fair to the Parties”, and referred to Article 14 of the LCIA Rules

Given the continuing impact of the pandemic, the continued regulatory uncertainty it engendered, and the nature of the case, the arbitrator concluded that it was more appropriate to conduct the hearing on a fully virtual basis than to wait indefinitely in the hopes of rescheduling the semi-virtual hearing.

Ultimately, Sky Power obtained an award in its favour, and subsequently obtained an enforcement order in Hong Kong against IrAero, which IrAero sought to challenge after the statutory deadline for bringing such a challenge. IrAero therefore required leave from the Court to apply to set aside the enforcement order. In deciding whether to grant leave, the Court considered the merits of IrAero’s application.

The Court declined to grant leave on the basis effectively that IrAero’s application would fail on the merits, as discussed below.

In trying to resist enforcement of the arbitrator’s award, IrAero argued on the merits essentially that the arbitrator lacked jurisdiction to alter PO 3 over IrAero’s objections because s34 Arbitration Act 1996 provides that a tribunal’s power to decide procedural and evidential matters is “subject to the right of the parties to agree any matter.” In IrAero’s view, the arbitrator impermissibly overruled PO 3, which reflected the parties’ agreement to hold a semi-virtual hearing.

Regarding prejudice, IrAero argued that it was hindered from “adequately viewing the demeanour” of Sky Power’s sole fact witness because he attended remotely, and from vetting the “genuineness and the authenticity” of his oral evidence. Further, IrAero claimed it was unable to present its case adequately: IrAero’s director-general claimed he would have preferred to testify in person, and that, because Sky Power’s witnesses ended up testifying remotely from Irkutsk, rather than from Moscow, the time difference with London (eight hours versus three) put IrAero at a disadvantage (for reasons that are not explained).

The Court’s Decision

First, the Court found that there was no longer an agreement between the parties once Sky Power requested a fully virtual hearing. Therefore, the arbitrator did not exceed her jurisdiction in deciding which procedure to follow.

The Court made note of the considerable deference that is owed to arbitrators in determining procedure:

Whether it is appropriate in any particular case to permit the factual witnesses to give evidence at the hearing remotely, whether the effectiveness of cross-examination can be or was undermined, whether appropriate measures are required or were put in place to ensure the security of the process, are all matters for the consideration and final decision of the tribunal in the case.

Second, the Court found no prejudice to IrAero, based on two grounds:

• first, any inconvenience that arose as a result of the virtual hearing would have been suffered by both parties, such that “each party was subjected to the same risks and difficulties”; and
• second, the arbitrator made the final award based on contractual and contemporaneous documents, the construction of the documents, and the legal issues raised, rather than on the basis of witness evidence. Thus, findings of credibility regarding Sky Power’s sole fact witness were not determinative of the outcome.

This seems very sensible and consistent with the attitude of the majority of the Courts around the globe.