Introduction

Arbitral tribunals often encounter jurisdictional challenges. Such jurisdictional disputes usually concern whether there is a valid arbitration agreement or whether the dispute falls within the scope of the arbitration agreement. Almost forgotten is another foundation to invoke the jurisdiction of an arbitral tribunal, being the existence of dispute itself between the parties. The recent case CMB v Fund & Ors [2023] HKCFI 760 reminds the public of this equally important pre-condition to arbitration.

Facts

The Plaintiff entered into a co-investment agreement (the “Agreement”) with the 1^st and 2^nd Defendants (“D1” and “D2”) whereby the Plaintiff agreed to invest for a minority stake in a company (the “Company”). The Agreement contains an arbitration clause which provides that all disputes between the parties arising out of or related to the Agreement to be settled by arbitration at the International Chambers of Commerce. In the dealings with the Plaintiff, D1 was represented by Mr Li Lei (“Mr Li”), whilst D2 was represented by Mr Xiong Fei (“Mr Xiong”).

In June 2020, the Plaintiff commenced a High Court action (“HCA”) against Mr Li, Mr Xiong, Mr Chen Yangyou (controlling shareholder and a director of the Company) and the 3^rd Defendant (“D3”) for fraudulent misrepresentation and conspiracy to defraud. Notably, D1 and D2 are not named as defendants in the HCA.

D1, D2, D3, Mr Li and Mr Xiong then commenced an ICC arbitration seeking, among others, the following reliefs:

1.       anti-suit injunctions requiring the Plaintiff to discontinue or abandon the HCA and restraining the Plaintiff from commencing or pursuing other proceedings relating to disputes arising out of or relating to the Agreement otherwise than by ICC arbitration; and

2.       declaration that D1, D2, D3, Mr Li and Mr Xiong have no liability to the Plaintiff with respect to its allegations of fraud, conspiracy and breach of trustee duties and that such allegations are false.

 

The Plaintiff challenged the Arbitrator’s jurisdiction on the grounds that:

1.       The Plaintiff had no contract or arbitration agreement with D3, Mr Li and/or Mr Xiong.

2.       There was no actual dispute between the Plaintiff and D1 and D2, the parties to the Agreement.

 

In March 2022, the Arbitrator handed down the award (“Award”) with, among others, the following findings:

1.       The Arbitrator had no jurisdiction to grant the injunctive reliefs as Mr Li, Mr Xiong and D3 were not parties to the Agreement.

2.       The Arbitrator had jurisdiction in so far as D1 and D2 seek declarations of non-liability as regards their own position.

3.       The Arbitrator made a declaration (“Declaration”) that D1 and D2 have no liability to the Plaintiff with respect to the allegations arising out of the Agreement that are the subject matter of the HCA and that all such allegations in so far as they are made against D1 and D2 are false.

 

The Plaintiff seeks to set aside the Declaration and the finding that the Arbitrator has jurisdiction to make the Declaration.

Decision

The Honourable Mimmie Chan J set aside the Declaration on the grounds that the Arbitrator has no jurisdiction to make the Declaration. Her Ladyship’s reasoning are as follows:

1.       An arbitral tribunal has to rely on the existence and scope of the arbitration agreement to exercise its jurisdiction and powers.

2.       For there to be a valid arbitration process and a valid award, there has to be a formulated dispute.

3.       The right of the parties to put an arbitration agreement into effect does not arise until and unless there is a dispute between the parties to the agreement.

4.       No claim had been made by the Plaintiff against D1 and D2 in the HCA.

5.       If there was no dispute to begin with between the Plaintiff, D1 and D2, there was no subject matter in respect of which any remedy or relief could be considered by the Arbitrator for granting to D1 and D2.

6.       The fact that there is a legitimate interest for D1 and D2 to seek the Declaration cannot by itself invoke the jurisdiction of the Arbitration when there is no dispute between the Plaintiff, D1 and D2.

7.       The Arbitrator had confused the question of whether he had jurisdiction in the arbitration to deal with the claims made in the arbitration with the question of whether he should exercise his power to grant the remedies sought in the arbitration.

 

Her Ladyship further ordered indemnity costs payable by D1 and D2 to the Plaintiff.

Takeaway

This case serves as a reminder that identifying the dispute and parties in dispute is as important as other preliminary and substantive issues in an arbitration. Failure to do so may lead to proceedings commenced at the wrong forum and substantial cost consequences.

 

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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 © 2023