Introduction

The Hong Kong Court of First Instance in CI v IU (HCCT 34/2025) addressed a critical jurisdictional question that has long concerned the maritime arbitration community: whether an appeal under Sections 5 and 6 of Schedule 2 to the Arbitration Ordinance (Cap. 609) (“AO”) is available when the underlying dispute is governed by foreign law (in this instance, English law). While the Court ultimately dismissed the Plaintiff’s application for leave to appeal on the merits, it provided a decisive clarification that the choice of a foreign governing law does not automatically preclude an appeal to the Court on a question of law.

Background

The dispute arose from a voyage charterparty evidenced by a Fixture Note dated 6 July 2022 (“Subject Charterparty”) for the carriage of a phosphate rock cargo from Egypt to China. The Plaintiff (“Charterers”) and the Defendant (“Owners”) were parties to this contract. The Subject Charterparty was part of a chain of back-to-back charterparties involving related companies upstream, including IS (HK) Co Ltd (“IS”), a company related to the Owners. All charterparties in the chain contained materially the same terms.

Following the Charterers’ repudiatory breach, the matter proceeded to arbitration in Hong Kong under the HKMAG Terms. On 24 February 2025, the Tribunal published its First Final Arbitration Award (“Award”). Crucially, the Tribunal awarded the Owners not only their own loss of profit but also the losses suffered by IS. These included IS’s liability to its own head charterer (FS) as established in a separate arbitration award (the “FS Award”), IS’s own loss of profit, and IS’s liability for FS’s arbitration costs.

The issue

The Charterers sought leave from the Court to appeal the Award on a question of law. The specific “Question” posed was: “Whether the Tribunal has erred in law by ordering the [Charterers] to indemnify the [Owners] in respect of losses allegedly suffered by a third party, [IS], when the [Owners] faced no claim from IS in respect of such alleged losses”.

The application raised two primary issues for the Court’s determination:

·           Jurisdictional issue: The Owners argued that the Court had no jurisdiction to hear the appeal. They contended that a “question of law” under Sections 5 and 6 of Schedule 2 to the AO is confined to questions of Hong Kong law. Since the Subject Charterparty was governed by English law, they submitted the appeal was not on a question of law but on a question of foreign fact.

·           Merits of the appeal: Assuming jurisdiction existed, the Charterers needed to satisfy the statutory threshold for leave, which required showing that the Tribunal’s decision was “obviously wrong” or, if the question was of general public importance, at least “open to serious doubt”.

The Charterers advanced three appeal grounds, arguing the Tribunal had: (1) wrongly treated Owners and IS as the same entity to pierce the corporate veil; (2) failed to apply the principle that an indemnity cannot be ordered for unclaimed third-party losses; and (3) ordered an indemnity without any claim being made or threatened by IS against the Owners.

The rulings

On the jurisdictional challenge (foreign law)

The Court firmly rejected the Owners’ jurisdictional argument. Deputy High Court Judge Jonathan Wong noted that, unlike Section 69 of the UK Arbitration Act 1996 which explicitly limits appeals to “questions of law of England and Wales,” the AO contains no such restriction. The Court held that the fact the governing law is not Hong Kong law does not automatically preclude an appeal under Sections 5 and 6 of Schedule 2 to the AO. Whether a complaint falls within Sections 5 and 6 of Schedule 2 depends on the nature of the complaint and whether it constitutes a question of law from the perspective of the Hong Kong Court. The judge accepted that foreign law is not always a pure question of fact, particularly where it is closely analogous to Hong Kong common law, and a tribunal’s application of such law could give rise to an error of law amenable to appeal. Had it been necessary to decide, the Court would have held against the Owners on this point.

On the merits of the appeal grounds

Despite this favourable ruling on jurisdiction, the Charterers’ application ultimately failed on the merits.

·           Appeal ground 1 (separate entities): The Court found this ground to be a misreading of the Award. The Tribunal was fully aware the parties were separate entities. Its decision was based on a finding of fact that the Charterers’ breach caused the Owners to incur liability to IS, not on a conflation of their legal identities. The Court drew parallels with Occidental Chartering Inv v Progress Bulk Carriers Ltd [2012] EWHC 3515 (Comm), where liability down a charterparty chain was established without needing an award between related companies.

·           Appeal grounds 2 and 3 (indemnity for unclaimed losses): The Court distinguished the cases relied upon by the Charterers, such as Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297, which was concerned with granting a prospective indemnity for future, unquantified claims. In contrast, the Tribunal here had awarded damages for a loss that had already been quantified (the FS Award) and had already been fully argued before it. The Court noted that the Charterers had a full opportunity to be heard and had advanced wide-ranging arguments, including on issues of remoteness and mitigation, all of which the Tribunal rejected. Therefore, the Tribunal’s decision was neither obviously wrong nor open to serious doubt.

Takeaway

The decision in CI v IU provides crucial clarity for parties arbitrating in Hong Kong, especially under the HKMAG Terms. By opting into the HKMAG Terms, the parties had access to this statutory appeal mechanism. Parties who wish to preserve a right to appeal on a question of law should ensure their arbitration agreement, whether by adopting the HKMAG Terms or otherwise, clearly opts in the relevant provisions of Schedule 2 of the AO.

The choice of English or another common law as the governing law will not automatically deprive parties of their right to seek leave to appeal on a question of law under Schedule 2 of the AO. The Court will look at the nature of the legal challenge, not merely the governing law clause. This aligns Hong Kong’s position more closely with London and strengthens its appeal as a seat for international arbitration.