In this regard, while Hong Kong law allows tribunals to decide on their own jurisdiction (the so-called kompetenz-kompetenz principle), sections 34 and 81 of the Hong Kong Arbitration Ordinance (Cap 609) (AO) allow for these decisions to be challenged before the Hong Kong courts.
This has in turn given rise to a conceptual distinction between tribunal decisions going to distinguishing between a party’s challenge to the tribunal’s “jurisdiction” and a challenge to the “admissibility” of a particular claim. The principle is that the court may review a tribunal’s ruling on the former, but not on the latter, category of challenge.
Facts
A contractual dispute arose between the appellant (a Hong Kong company) and the respondent (a Thai company) regarding the operation of a jointly-owned broadcasting satellite. The contract, which was made subject to Hong Kong law, contained a stepped dispute resolution clause stipulating certain pre-arbitration procedures which included an attempt to resolve the dispute through good faith negotiations. If the dispute could not be resolved amicably within 60 days of the request for negotiation, the dispute should be referred to Hong Kong-seated arbitration.
A dispute arose and the respondent commenced an arbitration. A tribunal was constituted and an award rendered against the appellant. The appellant, for its part, denied that the pre-arbitration procedures had been properly observed, and brought proceedings before the Hong Kong Court of First Instance (CFI).
The appellant relied upon the grounds in section 34(2)(a)(iii) of the AO, namely that: “the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”.
Decisions of the lower courts: admissibility v jurisdiction
The CFI1, 2 both relied on the admissibility versus jurisdiction distinction in reaching decisions in favour of the respondent.
In particular, the lower courts determined that the satisfaction or otherwise of pre-conditions to arbitrate under a stepped arbitration clause, is a question of admissibility rather than jurisdiction except where there is clear language to the contrary. The CA reached this conclusion by drawing upon English and Singaporean law, as well as academic work to conclude that, absent evidence of the contrary intention, non-compliance with pre-conditions to arbitration is generally a matter of admissibility, rather than jurisdiction, and better determined by the arbitrators.
Consequently, in this case it was decided to not give rise to grounds for setting aside under the provisions of articles 34(2)(a)(iii) and (iv) of the UNCITRAL Model Law.
Decision of the CFA
Mr Justice Ribeiro PJ, Mr Justice Fok PJ, Mr Justice Lam PJ and Chief Justice Cheung considered that, in the words of Justice Ribeiro, the distinction between admissibility and jurisdiction “does provide a helpful aid to construction when deciding whether a particular objection warrants judicial interference” [para. 51].
In particular, Justice Ribeiro, who gave the leading judgment, provided a comprehensive survey of the relevant law and commentary with respect to admissibility and jurisdiction. He cited recent case law on the point from the United Kingdom3 and Singapore4.
When considering an objection relating to a stepped arbitration clause “it is necessary first to construe the arbitration agreement” [para. 47]. It is in principle possible that such a review would find the issue of compliance with the pre-arbitration conditions to be a matter of jurisdiction, as opposed to admissibility. However, this would require “unequivocally clear language”. This is because, following the principles established in Fiona Trust & Holding Corp v. Privalov [2007] 4 All ER 951, it would be “contrary to all normal expectations to find that such was the parties’ intention” since “[t]hey have opted to submit their disputes to an arbitral tribunal rather than a court for resolution”. There would thus be a presumption that pre-arbitration conditions should be non-jurisdictional.
Mr Justice Gummow NPJ also agreed that the appeal should be dismissed. However, he differed from the majority in the logic behind his analysis. Justice Gummow cited various provisions of the AO, and drew particular attention to the wording of the article 34(2)(a)(iii) grounds, namely: “the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”. For Justice Gummow, this provision “is concerned with the ambit of the submission to arbitration. It does not afford any room for the court to review the merits of a particular dispute, including a dispute as to compliance with a pre-arbitration condition” [para. 143]. Thus, the appellant’s challenge did not fall within the scope of this article.
Indeed, for Justice Gummow, the jurisdiction/admissibility distinction was “an unnecessary distraction which presents a risk of supererogation” [para. 159]. Rather the answer could be found “by construing and applying the statute to the facts of the case”.
The court considered the appellant’s argument that the pre-arbitration condition operates as a condition precedent under the law of contract and that, unless complied with, relieves the parties from any obligation to proceed with the arbitration. However, the condition precedent argument was “untenable”, since the question was not whether the obligation operated as a condition precedent, but rather who – the tribunal or court – should have reviewed the decision.
The CFA dismissed the appeal with costs ordered on an indemnity basis.
Conclusion
Although the difference in judicial reasoning makes interesting reading for academics, the practical import of C v. D is to confirm that the question of the validity of pre-conditions to arbitrate remains a matter for the tribunal as opposed to the court. This will probably be well received by parties seeking to arbitrate in Hong Kong or other UNCITRAL Model Law jurisdictions, and who consider that such disputes are more efficiently dealt with by tribunals, perhaps through suspending the arbitration pending satisfaction of a condition. The matter also underlines the fact that, while the intent behind stepped arbitration clauses is to encourage informal resolution of disputes, an improperly drafted stepped arbitration clause can give rise to a lengthy and expensive dispute as to whether pre-arbitration conditions have been met.
- G Lam J [2021] 3 HKLRD 1.) and the Hong Kong Court of Appeal (CA)
- Cheung, Yuen and Chow JJA, Chow JA writing for the court [2022] 3 HKLRD 116
- Republic of Sierra Leone v. SL Mining Ltd [2021] Bus LR 704
- [NWA v. NVF [2021] Bus LR 1788]
Client Alert 2023-150
