In this review, we reflect on significant developments in the field of arbitration in Hong Kong over the past year.
Key developments in 2023 included:
- Multi-tiered dispute resolution clause – compliance with pre-arbitration conditions is generally a matter of admissibility to be ultimately determined by the tribunal and not subject to court review.
- Lingering uncertainty remains as to the interplay between arbitration clauses and winding-up proceedings.
- While the court continues to adopt a pro-arbitration approach, cases show it is also prepared to refuse enforcement when appropriate, demonstrating commitment to due process.
- Hong Kong International Arbitration Centre (HKIAC) received more than 100 applications for issuing letters of acceptance under the Mainland-Hong Kong Interim Measures Arrangement.
Compliance with Pre-arbitration Procedures in Multi-tiered Dispute Resolution Clauses: The Court or Tribunal Has the Final Say?
Nowadays, it is common for commercial contracts to contain multi-tiered dispute resolution clauses which usually necessitate parties to engage in certain actions – such as attempting good faith negotiations, or mediation within a specified timeframe after a dispute has arisen – before a party can submit the dispute to arbitration.
In the landmark case of C v. D [2023] HKCFA 16, the dispute resolution clause in a contract regarding operation of a jointly-owned broadcasting satellite required parties to attempt to resolve the dispute through "good faith negotiations" before referring it to arbitration if the dispute could not be resolved through negotiations after 60 days.
In the arbitration, C objected to proceedings going forward on the ground that such prearbitration requirements had not been complied with. The Tribunal held that pre-arbitration conditions had been duly observed in its partial award (Partial Award).
Dissatisfied with the Partial Award, C brought court proceedings to set it aside pursuant to Article 34(2)(a)(iii) of the UNCITRAL Model Law (given effect by virtue of section 81(1) of the Arbitration Ordinance (Cap. 609) ("AO").
In gist, C contended that the Partial Award "[dealt] with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contained matters beyond the scope of the submission to arbitration", as the good faith negotiations requirement had not been complied with. It should therefore be set aside accordingly.
The Court of Final Appeal (except Gummow NPJ) adopted a distinction between a challenge to the admissibility of a particular claim and the challenge to a tribunal's jurisdiction. It ruled that the court may review a tribunal's ruling on its own jurisdiction (under Article 16 of the UNCITRAL Model Law (given effect by virtue of section 34(1) of the AO)) or Article 34(2)(a) of the Model Law (given effect by virtue of section 81(1) of the AO), but not a tribunal's ruling on admissibility of a particular claim.
Applying this distinction, Ribeiro PJ (whom Cheung CJ, Fok PJ and Lam PJ agreed with) held that absent an agreement by the parties that compliance with pre-arbitration conditions is amenable to review by the court, the issue of whether there was such compliance is generally a matter of admissibility of the claim in question, rather than an issue of the tribunal's authority to arbitrate (which goes to jurisdiction).
In this case, nothing in the contract suggested an intention to confer jurisdictional status on the pre-arbitration conditions. Therefore the Partial Award was not amenable to review by the court and C's application to set aside the enforcement order was dismissed.
As Fok PJ pointed out, this jurisdiction/admissibility distinction is widely recognised in various major international arbitration jurisdictions including England & Wales, Singapore and New South Wales, Australia. This decision has therefore brought Hong Kong in line with international practice and maintained Hong Kong's attractiveness as a major seat of international arbitration.
As an example of a true question of jurisdiction, in R v. A [2023] HKCFI 2034, Mimmie Chan J set aside a partial final award which declared that a third party non-signatory to an arbitration agreement is the "true principal" of one of the signatories; and therefore a proper party to the arbitration agreement under section 34 of the AO (which allows the court to review the tribunal's ruling on its own jurisdiction if the tribunal decides that it has jurisdiction).
In this regard, her Ladyship held that the issue of joinder of a non-signatory is a jurisdiction issue susceptible to the court's review.
Lingering Uncertainty over the Interplay between Arbitration Clauses and Winding-up Proceedings
In its landmark decision in Guy Kwok-Hung Lam v. Tor Asia Credit Master Fung LP [2023] HKCFA 9, the Court of Final Appeal addressed the issue of the court's discretion to decline jurisdiction in a bankruptcy petition (which is otherwise properly presented) where the underlying dispute about the petition debt is the subject of an exclusive jurisdiction clause (EJC) of New York courts.
The CFA held that in the ordinary case of an EJC, absent countervailing factors – such as the risk of insolvency affecting third parties and a dispute that borders on the frivolous or abuse of process – the petitioner and the debtor ought to be held to their contract (known as the "Guy Lam Approach").
In other words, the court should normally dismiss the bankruptcy petition when the underlying debt is subject to an EJC and in absence of countervailing factors. This contrasts with the traditional approach, which requires the debtor to demonstrate a bona fide defence on substantial grounds to defeat a bankruptcy petition in cases that do not involve an EJC.
An important question is whether the Guy Lam Approach – decided in a bankruptcy case involving an EJC – applies to winding-up proceedings involving an arbitration clause. In this regard, there have been inconsistent decisions in the Court of First Instance by company judges:-
- On one hand, in Re Simplicity & Vogue Retailing (HK) Co., Ltd [2023] HKCFI 1443 and in Re NT Pharma International Co., Ltd [2023] HKCFI 1623, Linda Chan J held that the Guy Lam Approach does not apply to arbitration clauses and made winding-up orders against both companies.
- However, in Re Shandong Chenming Paper Holdings Limited [2023] HKCFI 2065, Harris J held that the Guy Lam Approach does apply to arbitration clauses. In a footnote of the judgment, Harris J expressly indicated his agreement to the company submission that the Guy Lam Approach should be equally taken to the application of an arbitration clause. Nonetheless, leave was granted for the petitioner to appeal to the Court of Appeal. When granting leave, Harris J noted that "it is highly undesirable that there are conflicting first instance decisions".
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