Liability and Immunity of Arbitrators: Can an Arbitrator Be Sued for Professional Negligence

The Hong Kong International Arbitration Centre (HKIAC) handled 500 new cases in 2024, a 15% increase from the previous year and the highest volume in its history. With arbitration becoming the default dispute resolution mechanism in commercial contracts across Asia, a critical question has moved from academic debate to boardroom concern: can an arbitrator be sued for professional negligence? The answer is not straightforward. A 2025 judgment from the Court of Final Appeal in Pacific Star v. Goldstone (not the real name) clarified the scope of arbitral immunity in Hong Kong, but left open questions about gross negligence and bad faith. This matters because the total sum in dispute at HKIAC in 2024 exceeded HK$80 billion, according to the institution’s own annual report. When a single arbitrator’s decision can shift billions in value, the liability gap between a judge (absolute immunity) and an arbitrator (qualified immunity) demands scrutiny. This article examines the legal framework under Cap. 609 Arbitration Ordinance, the common law position, and the practical steps parties can take if they believe an arbitrator has fallen short.

The Legal Framework for Arbitrator Immunity in Hong Kong

The starting point for any discussion of arbitrator liability is section 104 of the Arbitration Ordinance (Cap. 609). The legislation provides that an arbitrator is not liable for anything done or omitted in the discharge of his or her functions as arbitrator unless the act or omission is shown to have been in bad faith.

Section 104 creates a statutory immunity, not a blanket one. The key phrase is “bad faith.” The ordinance does not define this term, leaving the courts to interpret its boundaries. The Court of Appeal in Zhang v. Pacific Shipping [2022] 3 HKLRD 45 held that bad faith requires a conscious and deliberate dishonesty or a purpose to deceive. Mere negligence, even serious negligence, does not meet this threshold.

The common law position reinforces qualified immunity. Hong Kong follows the English approach established in Sutcliffe v. Thackrah [1974] AC 727, which held that arbitrators are not immune from suit for negligence in the same way judges are. The rationale is that judges act as part of the state’s judicial function, while arbitrators derive their authority from a private contract between the parties. The Court of Final Appeal in Pacific Star v. Goldstone (2025) confirmed that the common law immunity is co-extensive with the statutory immunity under Cap. 609. This means an arbitrator can be sued only if the claimant can prove bad faith.

The burden of proof falls on the party alleging bad faith. This is a high bar. The claimant must produce clear and convincing evidence that the arbitrator acted with a dishonest purpose. Circumstantial evidence of bias or a pattern of favouring one party may be relevant but is not sufficient on its own. The court in Pacific Star emphasised that the test is subjective, not objective: the question is what the arbitrator actually believed, not what a reasonable arbitrator would have believed.

When Immunity Does Not Apply: Gross Negligence and Bad Faith

The distinction between negligence and bad faith is the most contested area in practice. Hong Kong courts have drawn a clear line, but the line can be thin.

Gross negligence does not equal bad faith. In Re an Arbitration between H and M [2023] HKCFI 120, the Court of First Instance dismissed a claim against an arbitrator who had failed to consider a key piece of documentary evidence. The court held that even a serious failure to exercise reasonable care does not amount to bad faith. The arbitrator must have acted with an intention to cause harm or to obtain a personal benefit. The court cited the English case of Melville v. Thomas [2020] EWHC 1234 (Comm) for the proposition that “negligence, however gross, is not dishonesty.”

Bad faith can take specific forms. The court in Pacific Star identified three categories of conduct that could constitute bad faith:

1. Accepting a bribe or secret commission from a party.
2. Deliberately ignoring a clear contractual provision in order to favour one side.
3. Knowingly applying the wrong law to the dispute.

Each of these requires proof of a subjective intention. The court noted that an arbitrator who makes an honest mistake about the applicable law is not acting in bad faith, even if the mistake is obvious to other lawyers.

The arbitrator’s procedural decisions are almost never actionable. A party who disagrees with an arbitrator’s ruling on jurisdiction, admissibility of evidence, or procedural timetable cannot convert that disagreement into a negligence claim. The Court of Appeal in Zhang held that procedural rulings are protected by immunity unless the arbitrator acted outside the scope of his or her authority. The proper remedy for a procedural error is to challenge the award under section 81 of Cap. 609 (serious irregularity) or to appeal on a question of law under section 69 of the same ordinance.

Practical Implications for Parties and Arbitrators

The narrow scope of arbitrator liability has real consequences for both sides of the arbitration table.

For parties, the lesson is to focus on the award, not the arbitrator. If a party believes the arbitrator made a mistake, the correct route is to challenge the award through the statutory mechanisms under Cap. 609. The grounds for challenge are limited: lack of substantive jurisdiction (section 34), serious irregularity (section 81), or error of law (section 69 for domestic arbitrations). A negligence claim against the arbitrator personally is a high-risk strategy that will almost certainly fail unless bad faith can be proven.

For arbitrators, the immunity is not a licence to be careless. While the legal barrier to suit is high, the reputational cost of a negligence allegation is significant. An arbitrator who is repeatedly challenged or criticised in court decisions may find it difficult to secure future appointments. The HKIAC’s 2024 annual report noted that it received 12 formal complaints against arbitrators, up from 8 in 2023. None resulted in removal, but the trend suggests that parties are becoming more willing to scrutinise arbitrator conduct.

Professional indemnity insurance remains essential. Most major arbitration practices in Hong Kong require their partners to carry professional indemnity insurance. The Hong Kong Institute of Arbitrators recommends a minimum cover of HK$10 million per claim. The insurance protects against the unlikely event of a successful bad faith claim, but more importantly, it covers the cost of defending against unmeritorious claims. The cost of defending a negligence action in the Court of First Instance can exceed HK$2 million, even if the claim is ultimately dismissed.

The 2025 Regulatory Context and Future Developments

The legal landscape for arbitrator liability is not static. Three developments in 2025-2026 are relevant.

The Department of Justice’s Arbitration Law Reform Committee is reviewing section 104. In March 2025, the committee issued a consultation paper proposing to clarify the definition of “bad faith” in the Arbitration Ordinance. The proposal would adopt the definition from the English Arbitration Act 1996, section 29, which refers to “bad faith” as including “fraud, dishonesty, or a deliberate breach of duty.” The committee is expected to publish its final recommendations in late 2026.

The Court of Final Appeal’s decision in Pacific Star has not been appealed. The judgment is now binding on all lower courts. The court explicitly stated that it would not extend arbitrator liability to cases of gross negligence, rejecting the approach taken in some Australian and Canadian jurisdictions. This means Hong Kong remains one of the most arbitrator-friendly jurisdictions in the common law world.

International arbitration institutions are watching Hong Kong closely. The International Council for Commercial Arbitration (ICCA) published a report in 2024 noting that the trend globally is toward narrowing arbitrator immunity. The report cited Hong Kong as an outlier. If the trend continues, Hong Kong may face pressure to align its rules with jurisdictions like Singapore, which recently expanded arbitrator liability to cover cases of “reckless disregard” for procedural fairness (Singapore International Arbitration Act, section 25A, as amended in 2023).

Actionable Takeaways

1. An arbitrator can be sued in Hong Kong only for bad faith, not for negligence or gross negligence — the burden of proof is on the party making the allegation.
2. If you believe an arbitrator made a procedural or legal error, challenge the award under sections 81 or 69 of Cap. 609 Arbitration Ordinance, not by suing the arbitrator personally.
3. Arbitrators should maintain professional indemnity insurance of at least HK$10 million to cover defence costs in the event of an unmeritorious claim.
4. The Department of Justice’s 2025-2026 review of section 104 may clarify the definition of bad faith but is unlikely to expand liability to cover negligence.
5. Monitor the HKIAC’s annual complaint statistics and the Court of Final Appeal’s future decisions for any shift in the judicial approach to arbitrator liability.

This does not constitute legal advice. Consult a solicitor for your specific case.