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Hong Kong court distinguishes Fiona Trust in negative jurisdictional ruling

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Page d'accueil Perspectives Hong Kong court distinguishes Fiona Trust in negative jurisdictional ruling
In H v. G [2022] HKCFI 1327, an issue arose as to whether the claims made in the arbitration were covered by the arbitration clause contained in the main contract or the non-exclusive Hong Kong court jurisdiction clause contained in the ancillary warranty.  The arbitral tribunal ruled as a preliminary issue that it had jurisdiction to determine claims arising under the warranty. The respondent applied to the Hong Kong court to set aside the jurisdictional ruling.  The Hong Kong court granted the application and ruled that the tribunal did not have jurisdiction over such claims.

Summary of facts

G, a property developer, entered into a building contract with H, a building contractor, whereby H as the main contractor agreed to carry out certain building works for G’s project in Hong Kong (Building Contract). The Building Contract between G and H contained an arbitration clause providing for arbitration under the HKIAC Domestic Arbitration Rules (Arbitration Clause).

The Building Contract provided for H to give a warranty that the waterproofing system to be installed would be free from defects for 10 years. The form of the warranty (Warranty) was appended to the Building Contract and was jointly executed by H and H’s subcontractor. The Warranty contained a jurisdiction clause providing that the warrantors agreed to submit to the non-exclusive jurisdiction of the Hong Kong court (Non-Exclusive Jurisdiction Clause). 

Disputes arose due to a number of alleged issues with the structures, façades and joints in the project.  G commenced arbitration proceedings against H claiming, among other things, that H had committed breaches under the Warranty. The tribunal ruled as a preliminary question that it had jurisdiction over the claims under the Warranty on the basis that the Arbitration Clause in the Building Contract was wide enough to encompass such claims. H applied to the Hong Kong Court of First Instance to set aside the tribunal’s jurisdictional ruling. 

Arguments

H argued that the tribunal’s jurisdictional ruling should be set aside because:

  • On a proper interpretation of the Non-Exclusive Jurisdiction Clause, it did not seek to capture any disputes falling within the ambit of the Arbitration Clause.
  • The Arbitration Clause should yield to the clear and contrary intention expressed in the Non-Exclusive Jurisdiction Clause with regard to claims made under the Warranty. 
  • There was no conflict between the Arbitration Clause and the Non-Exclusive Jurisdiction Clause.

G, on the other hand, made three opposing arguments: 

  • The Non-Exclusive Jurisdiction Clause did not preclude G from referring the dispute to arbitration since the Arbitration Clause was by its plain wording wide enough to include the disputes under the Warranty. 
  • The Fiona Trust presumption operated in that parties, as rational business entities, were likely to have intended any dispute arising out of the relationship in which they had entered to be decided by the same tribunal, and therefore the Arbitration Clause should be construed widely to encompass claims under the Warranty.  It would also make no commercial sense for the claims made under the Building Contract to be decided separately from the claims made under the Warranty when they related to the same subject matter. 
  • If the approach was to identify the contract which gave rise to the dispute, it was clear that the dispute arose out of the Building Contract and should be referred to arbitration.