The High Court has held that where a clause provides for an “arbitration to be held” in a given jurisdiction, there is an implied choice that the laws of that place will be the curial law – that is, the law governing the procedure or conduct of the arbitration – and further, that this implied choice is not lightly displaced.

Facts In Shagang South-Asia (Hong Kong) Trading Co. Ltd v Daewoo Logistics Corp. [2015] EWHC 194 (Comm), Shagang (Charterers) sought to challenge the jurisdiction of a sole arbitrator appointed by Daewoo Logistics (Owners) after a dispute arose between the parties in connection with an alleged shortlanding of a cargo of steel products.

By a fixture note of April 2008 (Fixture Note), the parties agreed the following arbitration clause:

“23. ARBITRATION: ARBITRATION TO BE HELD IN HONG KONG. ENGLISH LAW TO BE APPLIED.

24. OTHER TERMS/CONDITIONS AND CHARTER PARTY DETAILS BASE ON GENCON 1994 CHARTER PARTY.”

Clause 19 of Part 1 of the Gencon 1994 form (the Gencon form) provided three potential provisions for law and arbitration, including, under clause 19(a), arbitration in London before three arbitrators, with English law to apply as both the curial law as well as the substantive proper law of the charterparty. However, the parties failed to indicate which such provision should apply (having failed to complete any of the boxes in Part I of the Gencon form). In default of entry, clause 19 provided that clause 19(a) shall apply.

Owners appointed an arbitrator in London and, after Charterers failed to appoint their own arbitrator, Owners purported to appoint their arbitrator as sole arbitrator. Upon being challenged by Charterers’ lawyers as to its jurisdiction, the Tribunal published an award, concluding that the arbitration was subject to the English Arbitration Act, that clause 19(a) of the Gencon form applied and thus that the Tribunal had been properly constituted.

Charterers applied to the High Court under s.67 of the Arbitration Act 1996, appealing the award. They argued that clause 23 of the Fixture Note provided for arbitration in Hong Kong subject to the curial law of Hong Kong, and that clause 19 of the Gencon form was inconsistent with clause 23 and therefore could not have founded the sole arbitrator’s jurisdiction.

Issues and Decision The primary issue was whether arbitration under the contract was subject to English or Hong Kong curial law.

In considering the issues, the judge noted the distinction between:

• The geographical location or venue in which the arbitration is held
• The “seat” of the arbitration, i.e. the country intended to provide the curial law
• The law governing the arbitration agreement
• The law governing the substantive contract.

Presumption in favour of the geographical location being the “seat” of arbitration Mr Justice Hamblen held that the words “ARBITRATION TO BE HELD IN HONG KONG” carried with it an implied choice of Hong Kong as the seat of arbitration and, therefore, the curial law, given the close link which exists between the place of arbitration and the procedure governing it. The judge also noted that, while a split between the substantive law and the procedural law (i.e. the seat of arbitration) is not uncommon, it is more uncommon for arbitration clauses to provide for a split between the place of arbitration and the procedural laws governing the arbitration.

Displacing the presumption Mr Justice Hamblen concluded that clear words or “significant contrary indicia” are necessary for the parties to choose a seat of arbitration which differs from the place of arbitration.

In the circumstances of the case, the judge found that there was no such “contrary indicia” in the charterparty and that the prima facie conclusion that Hong Kong was the seat of arbitration and that Hong Kong curial law applied had not been displaced. The following factors were considered by the judge:

• Choice of English law: Owners argued that the reference in clause 23 of the Fixture Note to “English law to be applied” referred to both the procedural and substantive elements of the arbitration, or alternatively just procedural elements. Owners noted in this respect that the heading of clause 23 was simply “ARBITRATION” rather than “Law and Arbitration”. The judge rejected this, however, finding that “English law to be applied” would naturally be read as referring to the substantive law governing the dispute. The judge also noted that it would be unusual for parties to have expressly chosen a forum and the procedural law applicable to the arbitration, but not the substantive proper law of the contract. The judge noted that there did not appear to be any reported cases where parties have expressed a choice of curial law by simply stating that a country’s laws apply or are “to be applied”.
• Convenience: The fact that London was less convenient than Hong Kong for any arbitration, the parties being based in the Far East, was not held to be a determining factor in favour of English curial law. The judge noted that Hong Kong was, in any event, not simply geographically convenient but a “well known and respected arbitration forum with a reputation for neutrality, not least because of its supervising courts”.
• Use of words which suggest a geographical location: The use of the phrase “ARBITRATION TO BE HELD IN HONG KONG” rather than “venue”, “place” or other word that might be regarded as referring to the “seat” of the arbitration, was also not sufficient to displace the implied choice of Hong Kong curial law. The words “to be held” could not meaningfully be distinguished, in the judge’s view, from “venue” or “place”.
• The default position in clause 19(a) of the Gencon form: The Court was not persuaded that clause 19(a) of the Gencon form applied. The judge considered that clause 19 of the Gencon form was wholly inconsistent with clause 23 of the Fixture Note and therefore had not been incorporated by clause 24 of the Fixture Note. By providing that arbitration was to be held in Hong Kong with “English law to be applied”, the parties agreed to something that fell wholly outside the Gencon scheme.

As a result of the above, the judge held that that the arbitrator, who had been appointed pursuant to clause 19(a) of the Gencon form and/or the English Arbitration Act, was not validly appointed.

Alternatively, even if English curial law did apply, the Court considered that the Tribunal still had not properly been constituted. This was because the fixture note contained no agreement as to the number of arbitrators of which the Tribunal was to consist, and the relevant procedure applying in these circumstances under the English Arbitration Act had not been followed by Owners.

Accordingly, the arbitrator’s award as to jurisdiction was set aside. Permission to appeal was sought by Owners but refused.

Comment The decision is an important one for clients, particularly in the Far East. The form of wording used in clause 23 of the subject fixture note (that arbitration is “to be held in Hong Kong. English law to be applied”) is quite common under short form fixture notes or recaps. The English Courts have confirmed that where such a wording is used, the starting point will be that the geographical venue for the arbitration is also the ‘seat’ of the arbitration, with its laws governing the procedure of the arbitration. Furthermore, the English Courts have acknowledged Hong Kong’s position as a respected arbitration forum.

Parties should be careful to ensure that contractual documents reflect their intentions as accurately as possible. In particular, any intended divergence between the place of the arbitration and the seat of the arbitration should be expressly stated.

Reed Smith (Lianjun Li and Min Li of the Hong Kong office, Nick Shaw and Halani Lloyd of the London office) acted for the claimants, Shagang South-Asia (Hong Kong) Trading Co. Ltd.

Client Alert 2015-050