Reed Smith Client Alerts

In a recent Hong Kong Court of First Instance decision (GD v. HY [2021] HKCFI 3900), the Hon. Madam Justice Mimmie Chan set aside an order made by the Court of First Instance enforcing an emergency award on the basis that the variation of the dispute resolution provision to an arbitration agreement was invalid and therefore there was no valid arbitration agreement between the parties.

Summary of facts

This case concerned an application made by the respondent (HY) to set aside an order made by the Court of First Instance (the Enforcement Order) granting leave to the applicant (GD) to enforce an award of an emergency arbitrator (the Award).

The arbitration was commenced in respect of a loan agreement (the Loan Agreement) made between GD as lender (the Lender), HY and another party (SD) as borrowers (the Borrowers) and two companies as “covenantors” or guarantors (the Covenantors). Pursuant to the Loan Agreement, GD made a loan of HK$303 million (the Loan) to the Borrowers. The Covenantors agreed jointly and severally to repay the Loan with interest. The dispute resolution clause in the Loan Agreement provided for disputes to be resolved by litigation in the courts of Hong Kong. The variation clause stated that the Loan Agreement should not be amended, supplemented or modified “except by written instrument signed by the Parties hereto or their respective duly authorized representatives” (the Variation Clause).

The repayment date of the Loan was extended four times by way of extension letters issued by GD. GD issued a fifth extension letter to the Borrowers (the Fifth Extension Letter), which contained, for the first time, the arbitration clause relied upon by GD (the Arbitration Agreement). The Arbitration Agreement stated, among other things, that “notwithstanding any provision in the Loan Agreement”, the Borrowers and the Covenantors irrevocably agreed that they had the liberty to choose to refer any disputes relating to or arising out of the Loan Agreement and the related guarantees to arbitration in Hong Kong. The Fifth Extension Letter was countersigned by HY, but not by SD or the Covenantors.

In the Award, the emergency arbitrator concluded that he had jurisdiction to grant the Award notwithstanding that the Fifth Extension Letter was not signed by SD.

HY sought to set aside the Enforcement Order on the basis that there was no valid arbitration agreement between GD and HY, as the Fifth Extension Letter was not signed by all the parties to the Loan Agreement and was not a valid variation under the Loan Agreement.