Authors
Facts
On 9 February 2020, Grand Ocean & Williams Co Limited (P) and Huaxicun Offshore Engineering Co Ltd (D) entered into an agreement governed by Hong Kong law (the Agreement), whereby P agreed to provide post-trenching services in relation to a pipeline project at Lamma Island.
Subsequently, P and D entered into two contracts governed by PRC law (the PRC Contracts) in respect of further services provided by P, which were not covered by the Agreement. Each of the PRC Contracts contained an arbitration clause in favour of “Jiangsu Arbitration Commission” (the Arbitration Clause).
P commenced an action in the Hong Kong court against D claiming for outstanding payments under the Agreement and the PRC Contracts. As D was a company incorporated in mainland China, P sought leave to serve a concurrent writ on D.
At the ex parte stage, the Hon. Mimmie Chan J was not satisfied that leave should be granted pursuant to the ex parte application because of the existence of the Arbitration Clause in the PRC Contracts. Mimmie Chan J therefore directed that a summons be issued for the hearing of the application, which was returnable before the Hon. Anthony Chan J (the Judge).
Decision
In determining whether leave for service out of jurisdiction should be granted, the Judge considered whether the Arbitration Clause in the PRC Contracts had any impact upon the application.
In this regard, P adduced evidence of a mainland Chinese lawyer that there was no institution bearing the name of “Jiangsu Arbitration Commission” in mainland China. On this basis, P submitted that the Arbitration Clause was invalid under PRC law, being the governing law of the PRC Contracts.
The Judge referred to the case of Klöckner Pentaplast GmbH & Co KG v. Advance Technology (HK) Co Ltd [2011] 4 HKLRD 262, where the Hon. Saunders J held that an arbitration clause that failed to identify an arbitration institution was null and void, inoperative or incapable of being performed under PRC law. Accordingly, Saunders J declined to stay the proceedings in Hong Kong in favour of arbitration in that case.
While the Judge appreciated that the nature of an application for leave for service out of jurisdiction was different from an application for a stay of proceedings in favour of arbitration, the Judge considered that, like Klöckner, the Arbitration Clause should be void and incapable of being performed under PRC law. The Judge therefore held that the Arbitration Clause did not impact upon the application.
The Judge eventually granted P’s application for leave for service out of jurisdiction.
Concluding remarks
In this case, the Hong Kong court followed a previous decision in Klöckner and held that, in order for an arbitration clause to be valid under the PRC law (as currently effective), an existent arbitration institution must be designated.
The position should be contrasted with that under Hong Kong law. As we reported in our previous alert, the Hong Kong court recently upheld an arbitration clause under Hong Kong law notwithstanding the nomination of a non-existent arbitration institution. This illustrates the importance of stipulating the governing law of the arbitration agreement and the difference it could make in terms of the validity of the arbitration clause.
Last but not least, the PRC Arbitration Law is currently under revision and a draft revised Arbitration Law has been published for public consultation. It remains to be seen whether and how the revision will have any impact on the treatment of similar arbitration clauses under PRC law in the future.
Client Alert 2023-009