Introduction

In a recent Hong Kong Court of Appeal case C v D [2022] HKCA 729, the Court was faced with the situation where a party to an arbitration alleges that some pre-arbitration procedural requirements have not been observed by the other party and applies to the Court to set aside the arbitral award. The Court needed to determine whether such dispute goes to the admissibility of the claim (hence the award is not subject to the Court’s review) or the jurisdiction of the tribunal (hence the award is subject to the Court’s review).

Facts

The plaintiff (C) is a Hong Kong company, and carries on business as an owner and operator of satellites. The defendant (D) is a Thai company that carries on business as a satellite operator in the Asia Pacific region. C and D entered into an agreement for the development and building of a satellite (the “Agreement”), which provided that the parties were to attempt in good faith promptly to resolve any dispute by negotiation, and inter alia if any dispute could not be resolved amicably within 60 business days, it was to be referred to arbitration in Hong Kong.

D issued a letter to C's Chairman, copied to C's directors, which inter alia alleged that C was in repudiatory breach of the Agreement (the “Letter”), before referring the dispute to arbitration.

C argued that the arbitral tribunal did not have jurisdiction to hear the dispute because D failed to make a request for negotiation under the Agreement.

The tribunal issued an award in favour of D, ruling that the Letter constituted a request for negotiation under the Agreement (the “Partial Award”).

C applied to the Court of First Instance to set aside the Partial Award under section 81 of the Arbitration Ordinance (Cap 609) (the “Ordinance”), which gives effect to article 34 of the UNCITRAL Model Law (the “Model Law”), on grounds including that the Partial Award concerned a dispute “not contemplated by or not falling within the terms of the submission to arbitration” under article 34(2)(a)(iii) of the Model Law.

The Judge dismissed C's application. C appealed to the Court of Appeal.

The Court of Appeal’s decision

The Court of Appeal dismissed C’s appeal and its reasoning is as follows.

There was a distinction between objections to admissibility and to jurisdiction for the purpose of determining the permissible scope of challenge to an arbitral award in the Court under article 34(2)(a)(iii) of the Model Law. Whether an objection went to the admissibility of the claim rather than the jurisdiction of the tribunal depended ultimately on the parties' agreement.

Disputes which went to the admissibility of the claim rather than the jurisdiction of the tribunal should be regarded as disputes “falling within the terms of the submissions to arbitration” under article 34(2)(a)(iii) of the Model Law. The distinction between “jurisdiction” and “admissibility” was a concept rooted in the nature of arbitration itself and might be relied upon to inform the construction and application of article 34(2)(a)(iii) and section 81 of the Ordinance. Such interpretation would likely give effect to the parties' agreement to resolve all disputes by the same tribunal, minimise the permissible scope of judicial interference in arbitral procedures and awards, further the object under section 3 of the Ordinance to facilitate the fair and speedy resolution of disputes by arbitration, and would be in-line with the practice in other international arbitration centres.

Further, there was no unjustified curtailment of the parties' right to access to the Court under article 35 of the Basic Law because whether an arbitral award dealt with a dispute not contemplated by or not falling within the terms of the submission to arbitration under article 34(2)(a)(iii) depended ultimately on the parties' own agreement.

It was a matter of the parties' intention as to whether the question of fulfilment of a condition precedent to a reference to arbitration was to be determined by the arbitral tribunal.

It was clear that C's objection was not that the substantive claim advanced by D could never be referred to arbitration. C's objection was only that the reference to arbitration was premature, in that some pre-arbitration procedural requirements should first be observed. C's objection went to the admissibility of the claim rather than the jurisdiction of the tribunal. Thus, the Partial Award was not subject to review by the Court under article 34(2)(a)(iii) of the Model Law.

Accordingly, C failed to prove that “the arbitral procedure was not in accordance with the agreement of the parties” under article 34(2)(a)(iv) of the Model Law. The parties had intended the question of fulfilment of pre-arbitration procedural requirements to be determined by arbitration.

 

Takeaway

Where the a party to an arbitration alleges that some pre-arbitration procedural requirements have not been observed by the other party and applies to the Court to set aside the arbitral award, the Court may take the view that this objection goes to the admissibility of the claim rather than the jurisdiction of the tribunal and hence the arbitral award was not subject to review by the Court. This Hong Kong Court of Appeal case illustrates the importance of including a well-drafted dispute resolution clause in an agreement in order to reflect the parties’ intention to have all disputes in relation thereto to be resolved by arbitration or otherwise. It is advisable for parties to seek legal advice when preparing agreements and their dispute resolution clauses.

 

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2022