IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL
CIVIL APPEAL NO 387 OF 2021
(ON APPEAL FROM HCCT NO 24 OF 2020)
IN THE MATTER of an Arbitration
and
IN THE MATTER of Section 81 of
the Arbitration Ordinance (Cap 609)
regarding a Partial Award on
Jurisdiction and Liability dated
21 April 2020
BETWEEN
C Plaintiff
and
D Defendant
Before: Hon Cheung, Yuen and Chow JJA in Court
Date of Hearing: 26 April 2022
Date of Judgment: 7 June 2022
J U D G M E N T
Chow JA (giving the judgment of the Court):
INTRODUCTION
- The principal issue which arises for determination in this
appeal is whether an arbitral tribunal’s determination that a pre-
arbitration procedural requirement in an arbitration agreement that the
parties thereto should first attempt to resolve their dispute by negotiation
has been fulfilled is subject to recourse to the court under Article
34(2)(a)(iii) or (iv) of the UNCITRAL Model Law.
BASIC FACTS
- In what follows, unless the context indicates otherwise,
references to:
(1) “Section” and “s” shall be to the Arbitration Ordinance,
Cap 609 (“the Ordinance”);
(2) “Art” shall be to the UNCITRAL Model Law (“the Model
Law”);
(3) “Clause” shall be to the Co-operation Agreement of the
parties dated 15 December 2011 (“the Agreement”).
- The relevant background facts of this case have been set out
in the judgment of G Lam J (as he then was) dated 24 May 2021 (“the
Judgment”), from which the present appeal is brought. For the purpose of disposing of this appeal, the following brief summary, taken largely from the Judgment, should suffice.
- The Plaintiff (“C”) is a Hong Kong company, and carries on
business as an owner and operator of satellites. The Defendant (“D”) is a
Thai company that carries on business as a satellite operator in the Asia
Pacific region. - The government authorities of the PRC and Thailand each
holds certain frequency priority rights to an orbital slot at 120 o East
Longitude in the geostationary arc (“the Orbital Slot”). - C and D wished to operate, or secure the right to operate, a
satellite using the frequencies held by the government authorities of the
PRC and Thailand respectively at the Orbital Slot, and entered into the
Agreement for the development, building and deployment of a satellite
(“Satellite A”) at the Orbital Slot. - Under the Agreement, C is to take the lead and fully manage
the procurement of Satellite A, including its design, construction and
launch. Satellite A has 28 transponders, ie the equipment used to transmit
broadcasts to, and receive broadcasts from, Earth. Half of the
transponders belong to C, and the other half belong to D (referred to as
“the Thai Payload”). Each party has the exclusive rights to utilize its own
transponders. Clause 4.7 provides that C is to control only its portion of
the payload on Satellite A, except that in an emergency and solely for the
safety of the satellite, C may exercise control over the whole of Satellite
A. The Agreement is to continue in force for the operating life of
Satellite A unless terminated earlier.
- Satellite A was launched in September 2014. In 2016, a
dispute arose between the parties relating to the video content of the
broadcast from the Thai Payload. To broadcast video content into the
PRC, approval of the State Administration of Press, Publication, Radio,
Film and Television (“SARFT”) of the PRC was required. In the course
of its satellite monitoring, SARFT noticed that certain video signals from
the Thai Payload of Satellite A were reaching the PRC. On 1 April 2016,
SARFT issued a notice requiring C to take steps to ensure that all foreign
television business on the Thai Payload was shut down. C forwarded the
notice to D requesting it to cease its video broadcasting pursuant to
Clause 6.3(b). That clause states as follows –
“In the event [C] notifies [D] of a request from the relevant
PRC Governmental Authority to cease the transmission of
specific broadcast content on the [Thai Payload], then [D]
shall forthwith cease transmission of such specific
broadcast content or service.”
- D considered that it was not obliged to comply with C’s
request because it was not a request to cease transmission of specific
broadcast content within the meaning of Clause 6.3(b). The subsequent
arbitration of this dispute resulted in an award in favour of D dated
11 October 2017. - Following this award, in late 2017, D indicated its intention
to resume television broadcasts from Satellite A, while C contended that
any such broadcast would be subject to termination pursuant to a notice
from SARFT that was specific enough under Clause 6.3(b). Discussion
ensued between C and D with a view to finding an amicable solution, but
no compromise was reached.
- By a letter dated 1 November 2018, C’s solicitors (Baker &
McKenzie, “B&M”) formally demanded D to remove certain video
content, believed to be a “test carrier”, at one of its transponders on
Satellite A. The demand was rejected by D’s solicitors (Herbert Smith
Freehills, “HSF”) by a letter dated 8 November 2018. In response to C’s
inquiry, on 27 November 2018, the National Television and Radio
Administration of the PRC (which had taken over SARFT’s functions)
required C to cease transmission of television programmes from the Thai
Payload in accordance with SARFT’s notice of 1 April 2016. On
4 December 2018, D uplinked further video content at another
transponder in the Thai Payload. - By B&M’s letter dated 6 December 2018, C gave notice to
D that if it did not cease the video transmission complained of by 3 pm
HK time on that day, C would cease the video transmission of the said
transponders immediately without further notice. On the same day, at
3:33 pm HK time, C issued commands to Satellite A switching off the
two transponders concerned. D considered that C’s action constituted a
repudiatory breach of the Agreement and a material default under
Clause 8.2 thereof 1 . - At this juncture, it is relevant to refer to the dispute
resolution provision contained in the Agreement. Section 14 of the
Agreement (sub-titled “Governing Law and Dispute Resolution”) states
as follows:
1 Clause 8.2 states as follows: “Material Default by either Party. In the event that either Party
believes that the other Party is in material default of its obligations under this Agreement, such
Party shall give a written notice to the defaulting Party in writing requiring remedy of the default
(the ‘Material Default Notice’). If the defaulting Party fails to remedy the default within thirty (30)
Business Days of receipt of the Default Notice, the Parties shall resolve the dispute by referring to
the procedure set forth at Section 14.2.”
“[14.1] Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of
Hong Kong, without regard to the principles of
conflicts of law of any jurisdiction.
[14.2] Dispute Resolution. The Parties agree that if any
controversy, dispute or claim arises between the
Parties out of or in relation to this Agreement, or the
breach, interpretation or validity thereof, the Parties
shall attempt in good faith promptly to resolve such
dispute by negotiation. Either Party may, by written
notice to the other, have such dispute referred to the
Chief Executive Officers of the Parties for
resolution. The Chief Executive Officers (or their
authorized representatives) shall meet at a mutually
acceptable time and place within ten (10) Business
Days of the date of such request in writing, and
thereafter as often as they reasonably deem
necessary, to attempt to resolve the dispute through
negotiation.
[14.3] Arbitration. If any dispute cannot be resolved
amicably within sixty (60) Business days of the date
of a Party’s request in writing for such negotiation,
or such other time period as may be agreed, then
such dispute shall be referred by either Party for
settlement exclusively and finally by arbitration in
Hong Kong at the Hong Kong International
Arbitration Centre … in accordance with the
UNCITRAL Arbitration Rules in force at the time
of commencement of the arbitration …
(e) Any award made by the arbitration tribunal
shall be final and binding on each of the
Parties that were parties to the dispute. To
the extent permissible under the relevant
laws, the Parties agree to waive any right of
appeal against the arbitration award.”
- On 24 December 2018, the Chief Executive Officer of D
issued a letter (“the December Letter”) to the Chairman of C, copied to
other directors of C. The Chief Executive Officer of C also received a
copy of the December Letter from its Chairman. So far as material, the
December Letter reads as follows:
“Dear Chairman of the Board of Directors
Re: Cooperation Agreement between [C] and [D]
We write with regard to the recent serious breach of the
Cooperation Agreement by [C], which now requires your
urgent attention.
Our legal representatives have written separately to your
lawyers on this issue, but have not received a satisfactory
response. Given the longstanding cooperation between our
two companies, [D] is raising its concerns directly with
[C’s] board in a final effort to resolve this issue and avoid
further legal proceedings.
…
Breach of the Cooperation Agreement
… [D] has therefore received legal advice that [C]’s actions
constitute a repudiatory breach of contract under Hong
Kong law, and a material default under Section 8.2 of the
Cooperation Agreement.
Proposed Solution
[D], through its lawyers, has already served a notice of
material default under the Cooperation Agreement. It is
therefore clear from the correspondence that a relevant
dispute now exists for the purpose of Section 14 of the
Cooperation Agreement.
In accordance with the contract, [D] now invites [C’s]
Board to reconsider its position and avoid further legal
proceedings by taking all necessary steps to reinstate the
relevant transponders and desist from any further
interference with [D]’s portion of the payload.
[D] is willing to refer the dispute to the parties’ respective
senior management teams in accordance with Section 14.2
of the Cooperation Agreement if necessary. Unless the
dispute can be resolved swiftly and amicably, however, [D]
will take all relevant steps to safeguard its rights.
[D] reserves all of its legal rights accordingly.”
- In response, B&M wrote to HSF on 7 January 2019, as
follows:
“…
Whilst reserving all of [C]’s rights in this regard, we would
observe that the procedure laid out at sections 8.2 and 14 of
the Cooperation Agreement, and the potential engagement
of the respective Chief Executive Officers does not concern
[C]’s Directors.
[D]’s direct communication with [C]’s Directors in all
circumstances is neither appropriate nor productive.
We request that all further correspondence on this matter be
directed to us or if pursuant to Clause 14.2 of the
Agreement be addressed to the Chief Executive Officer of
our client, copying us.”
- There was no further correspondence from D. Neither party
referred the dispute to the respective Chief Executive Officers with a
view to resolving the dispute through negotiation. - On 18 April 2019, D issued a notice referring the dispute to
arbitration under Clause 14.3. In response, C claimed, among other
things, that the arbitral tribunal did not have jurisdiction to entertain the
dispute due to the absence of a request for negotiation under Clauses 14.2
and 14.3. - An arbitral tribunal of three arbitrators (“the Tribunal”) was
formed. They decided to deal with C’s objection on jurisdiction and the
issue of liability together, leaving the issue of quantum to be addressed, if
necessary, at a later stage. After a hearing which took place in Hong
Kong on 2 and 3 January 2020, the Tribunal issued an award (“the Partial
Award”) on 21 April 2020, finding in favour of D:
(1) In relation to the issue of jurisdiction, the Tribunal held that
the first sentence in Clause 14.2 mandatorily required the
parties to attempt in good faith to resolve any dispute by
negotiation, but the reference of dispute to the respective
Chief Executive Officers mentioned in the second sentence
of Clause 14.2 was optional.
(2) The Tribunal further held that the condition in Clause 14.3,
ie the dispute could not be resolved within 60 business days
of a party’s request in writing for such negotiation, referred
to a request for negotiation under the first sentence of Clause
14.2, and that condition had been fulfilled by D by the
December Letter.
(3) The Tribunal accordingly rejected C’s objection on
jurisdiction, and proceeded to find that C had breached
Clause 4.7 and was liable to pay damages to D in an amount
to be assessed.
THE JUDGMENT
- On 21 May 2020, C issued an originating summons seeking
a declaration that the Partial Award was made without jurisdiction and
not binding on C, and an order that the Partial Award be set aside under
s 81, which, so far as material, states as follows:
“Article 34 of UNCITRAL model Law (Application for
setting aside as exclusive recourse against arbitral
award)
(1) Article 34 of the UNCITRAL Model Law, the text of
which is set out below, has effect subject to section 13(5) –
‘Article 34. Application for setting aside as
exclusive recourse against arbitral award
(1) Recourse to a court against an arbitral award
may be made only by an application for
setting aside in accordance with paragraphs
(2) and (3) of this article.
(2) An arbitral award may be set aside by the
court specified in article 6 only if:
(a) the party making the application
furnishes proof that:
…
(iii) 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,
provided that, if the decisions
on matters submitted to
arbitration can be separated
from those not so submitted,
only that part of the award
which contains decisions on
matters not submitted to
arbitration may be set aside;
or
(iv) the composition of the arbitral
tribunal or the arbitral
procedure was not in
accordance with the
agreement of the parties,
unless such agreement was in
conflict with a provision of
this Law from which the
parties cannot derogate, or,
failing such agreement, was
not in accordance with this
Law …’”
- At the hearing of the originating summons before the Judge
on 24 February 2021, it was common ground that the first sentence in
Clause 14.3 meant that it was a condition precedent to any reference to
arbitration that there should have been a request in writing for negotiation
and that the dispute nevertheless could not be resolved amicably within
60 business days. The parties differed, however, on what the condition meant:
(1) C contended that the condition referred to the giving of a
written notice to have the dispute referred to the Chief
Executive Officers for resolution, as referred to in the second
sentence of Clause 14.2, and no such written notice was given.
(2) On the other hand, D contended that the condition was
satisfied by a written request to negotiate in good faith, as
referred to in the first sentence of Clause 14.2, and that it had
made the requisite request by the December Letter.
(3) D further contended that the question of whether the
condition precedent had been fulfilled was a question of
“admissibility” rather than “jurisdiction”, and as such the
court should not interfere with the Tribunal’s decision on
that question.
- The Judge identified two questions which arose for
consideration (§26 of the Judgment):
(1) The primary question: is the question whether D complied
with the dispute resolution procedure set out in Clause 14.2
of the Agreement a question of the admissibility of the
claim, or a question of the tribunal’s jurisdiction, and does
that question fall within s 81(1)?
(2) The secondary question (only if the primary question is
answered in C’s favour): what is the condition precedent to
arbitration on the proper construction of the Agreement, and
was the condition fulfilled by the December Letter?
- In respect of the primary question, the Judge held that:
(1) The court may review the Tribunal’s decision on the
standard of “correctness” and decide the question de novo if
the question of whether D complied with the dispute
resolution procedure set out in Clause 14.2 is a true question
of “jurisdiction” properly falling within Art 34 (§28 of the
Judgment).
(2) The distinction between “jurisdiction” and “admissibility” is
recognized both in court decisions in the United Kingdom,
Singapore and United States, as well as in various academic
works (§§30-36 and 37-42 of the Judgment).
(3) Although the Ordinance does not in terms draw a distinction
between jurisdiction and admissibility, it may properly be
relied upon to inform the construction and application of
s 81 (§43 of the Judgment).
(4) C’s objection in the present case is one going to the
admissibility of the claim, rather than the jurisdiction of the
arbitral tribunal (§53 of the Judgment).
(5) As such, the objection does not fall under Art 34(2)(a)(iii)
(§54 of the Judgment).
(6) Neither is Art 34(2)(a)(iv) applicable to C’s objection
because that provision concerns the way in which the
arbitration was conducted, but not contractual procedures
preceding the arbitration, or pre-arbitration dispute
resolution procedures such as those provided in the
Agreement (§§55-57 of the Judgment).
(7) Having reached the conclusion that C’s objection does not
fall within either Art 34(2)(a)(iii) or (iv), it becomes
unnecessary to deal with the secondary question (§58 of the
Judgment).
THE PRESENT APPEAL
- On 8 August 2021, the Judge granted C leave to appeal the
Judgment, on the basis that multi-tiered dispute resolution clauses are not
uncommon, and the question of the proper approach to an application to
set aside an arbitral award on the ground that certain prior requisite steps
envisaged by such a clause have not been undertaken and that the arbitral
tribunal consequently lacks jurisdiction is a subject matter of some
general significance to arbitration law in Hong Kong. - On 13 August 2021, C filed a Notice of Appeal pursuant to
the leave granted by the Judge. The Notice of Appeal contains three
grounds. The first two grounds challenge the Judge’s conclusion that C’s
objection to the Partial Award does not fall within Art 34(2)(a)(iii) or
(iv):
(1) Under Ground 1, C contends that the Judge erred in holding
that it had failed to show that the Partial Award dealt with a
dispute not falling within the “terms of the submission to
arbitration” under Art 34(2)(a)(iii).
(2) Under Ground 2, C contends that the Judge erred in holding
that Art 34(2)(a)(iv) was apt to refer to the way in which the
arbitration was conducted but not to the contractual
procedures preceding the arbitration.
- Ground 3 concerns the question which the Judge considered
he did not need to deal with (ie the construction of Clauses 14.2 and 14.3,
and whether the relevant condition precedent was fulfilled).
GROUND 1: WHETHER PARTIAL AWARD DEALT WITH A
DISPUTE NOT FALLING WITHIN THE TERMS OF THE
SUBMISSION TO ARBITRATION UNDER ART 34(2)(a)(iii)?
(i) C’s argument
- Mr Benjamin Yu, SC (on behalf of C) argues that the Judge
erred in 2 respects:
(1) Assuming that there exists a distinction between questions of
“admissibility” and “jurisdiction” and that only the latter
falls within Art 34(2)(a)(iii), C’s challenge is jurisdictional
in nature 2 .
(2) The distinction between “admissibility” and “jurisdiction”
ought not to be adopted since it is not found in Art
2 See §11 of the Skeleton Submissions for the Appellant dated 29 March 2022.
34(2)(a)(iii) or (iv), and the question should simply be
whether the Partial Award dealt with a dispute “not
contemplated by or not falling within the terms of the
submission to arbitration” (as Art 34(2)(a)(iii) states), and
whether “the arbitral procedure was not in accordance with
the agreement of the parties” (as Art 34(2)(a)(iv) states) 3 .
- Pausing here, it is clear from the Notice of Appeal that
Ground 1 is concerned only with Art 34(2)(a)(iii), while Art 34(2)(a)(iv)
is dealt with under Ground 2. Accordingly, Mr Yu’s argument in respect
of Art 34(2)(a)(iv) will be dealt with in the next section of this judgment
relating to Ground 2. In respect of Ground 1, we shall first consider the
question of the true construction of Art 34(2)(a)(iii), before dealing with
the question of whether C’s objection to the arbitration in the present case
should properly be characterized as an objection going to the jurisdiction
of the tribunal rather than the admissibility of the claim.
(ii) The distinction between “admissibility” and “jurisdiction” - For the purpose of determining the permissible scope of
challenge to an award made by an arbitral tribunal under Art 34(2)(a)(iii)
(or similar provisions), the distinction drawn between objections to
admissibility and jurisdiction is well recognised in both case law and
academic writings.
Case law - UK: s 67(1) of the Arbitration Act 1996 permits a party to
arbitral proceedings to challenge an award of an arbitral tribunal as to its
3 See §28 of the Skeleton Submissions for the Appellant.
“substantive jurisdiction”, while s 30(1) of the 1996 Act provides that an
arbitral tribunal may rule on its own substantive jurisdiction as to (a)
whether there is a valid arbitration agreement, (b) whether the tribunal is
properly constituted, and (c) what matters have been submitted to
arbitration in accordance with the arbitration agreement.
- In Republic of Sierra Leone v SL Mining Ltd [2021] Bus
LR 704, the relevant dispute resolution clause provided that “[t]he parties
shall in good faith endeavour to reach an amicable settlement of all
differences of opinions or dispute which may arise between them in
respect of the execution performance interpretation or termination of the
agreement”, and that “[i]n the event that the parties shall be unable to
reach an amicable settlement within a period of 3 (three) months from a
written notice by one party to the other specifying the nature of the
dispute and seeking an amicable settlement, either party may submit the
matter to the exclusive jurisdiction of a Board of 3 (three) Arbitrators
…”. An arbitral award was challenged on the ground that the 3-month
negotiation period had not yet expired by the time of the request for
arbitration, and thus the arbitrators were without jurisdiction. Sir Michael
Burton (sitting as a High Court judge) held that there was a distinction
between a challenge that a claim was not admissible before arbitrators
(admissibility) and a challenge that the arbitrators had no jurisdiction to
hear a claim (jurisdiction), and that only the latter was available to a party
under s 67, observing that such distinction was seemingly first drawn out
judicially by Butcher J in Obrascon Huarte Lain SA (trading as OHL
International) v Qatar Foundation for Education, Science and
Community Development [2020] EWHC 1643 (Comm), PAO Tatneft v
Ukraine [2018] 1 WLR 5947, and Republic of Korea v Dayyani [2020]
Bur LR 884. Sir Michael further held that an objection based on an
alleged prematurity of a request for arbitration such as that before him
was one going to the admissibility of the claim rather than the jurisdiction
of the tribunal. At §§16-21 of his judgment, Sir Michael stated as
follows:
“[16] The international authorities are plainly
overwhelmingly in support of a case that a challenge
such as the present does not go to jurisdiction, but at
the end of the day the matter comes down at English
law to an issue as to whether the question of
prematurity falls within section 30(1)(c) of the 1996
Act. I do not accept Mr Lightfoot’s case that much
depends upon the precise wording of the clause. I do
not see that there would be any difference between
‘No arbitration shall be brought unless X’ and ‘In
the event of X the parties may arbitrate’. As Mr
Lightfoot himself submitted, sections 30(1)(a) and
(b) give a binary choice, and on the face of it (c)
does not. The subsection could have said ‘whether
[or not] the matters have been submitted to
arbitration’, which might have given more support
for his argument.
[18] I consider that, to accord with the views of
Paulsson, as approved in the Singapore Court of
Appeal (at para 77 of BBA v BAZ [2020] 2 SLR
453), if the issue relates to whether a claim could
not be brought to arbitration, the issue is ordinarily
one of jurisdiction and subject to further recourse
under section 67 of the 1996 Act, whereas if it
relates to whether a claim should not be heard by the
arbitrators at all, or at least not yet, the issue is
ordinarily one of admissibility, the tribunal decision
is final and section 30(1)(c) does not apply. The
short passage in the Singapore Court of Appeal set
out in para 15(ii) above is useful: ‘Jurisdiction [and
so susceptibility to a section 67 challenge] is
commonly defined to refer to ‘the power of the
tribunal to hear a case’, whereas admissibility refers
to ‘whether it is appropriate for the tribunal to hear
it’.’ The issue for (c) is, in my judgment, whether
an issue is arbitrable. The issue here is not whether
the claim is arbitrable, or whether there is another
forum rather than arbitration in which it should be
decided, but whether it has been presented too early.
That is best decided by the arbitrators.
[19] Such a conclusion accords with the guidance given
by the Chartered Institute of Arbitrators in its
International Arbitration Practice Guideline:
Jurisdictional Challenges, last revised in November
2016, and still in force, as setting out ‘the current
best practice in international commercial arbitration
for handling jurisdictional challenges’. It reads as
follows, in material part, at p 3:
‘6. When considering challenges, arbitrators
should take care to distinguish between
challenges to the arbitrators’ jurisdiction and
challenges to the admissibility of claims. For
example, a challenge on the basis that a
claim, or part of claim, is time-barred or
prohibited until some precondition has been
fulfilled, is a challenge to the admissibility
of that claim at that time, ie whether the
arbitrators can hear the claim because it may
be defective and/or procedurally
inadmissible. It is not a challenge for the
arbitrators’ jurisdiction to decide the claim
itself.’
And at p 15:
‘After deciding upon the jurisdictional
challenges, arbitrators may also be called
upon to decide on the admissibility of the
claim. This may include a determination as
to whether a condition precedent to referring
the dispute to arbitration exists and whether
such a condition has been satisfied. It also
involves challenges that the claim is time-
barred.’
[20] The arbitrators are in any event, in my judgment, in
the best position to decide questions relating to
whether the conditions precedent has been satisfied,
consistent with the views of Lord Hoffmann in
Fiona Trust [2007] Bus LR 1719 referred to in para
8 above.
[21] I consequently agree with the conclusions of the
arbitrators (para 110 of the Award) that
‘if reaching the end of the settlement period
is to be viewed as a condition precedent at
all, therefore, it could therefore only be a
matter of procedure, that is, a question of
admissibility of the claim, and not a matter
of jurisdiction.’
In any event I am satisfied that sections 30(1)(c) and
67 of the 1996 Act are not engaged in respect of a
challenge that the claim was made prematurely to
the arbitrators.”
- Mr Yu argues that this decision rested upon a different
legislative provision, and thus affords no assistance to the present case.
We do not agree with this submission. Similar to s 81 (and Art 34),
neither s 30(1) nor s 67 of the 1996 Act draws any distinction between
admissibility and jurisdiction. Nevertheless, Sir Michael plainly
considered such distinction to be relevant to the consideration of whether
a challenge to an award was permissible under the 1996 Act. As
observed by the Judge at §44 of the Judgment, the question of “what
matters have been submitted to arbitration in accordance with the
arbitration agreement” under s 30(1)(c) of the 1996 Act is not
substantially different in nature from the question of whether “the award
deals with a dispute not contemplated by or not falling within the terms of
the submission to arbitration” under Art 34(2)(a)(iii). - The distinction between admissibility and jurisdiction was
applied more recently by Calver J in NWA v NVF [2021] EWHC 2666
(Comm). In that case, the issue was whether the failure of a party to
comply with a term of an arbitration agreement that the parties should
first seek to mediate a dispute before arbitration resulted in the arbitral
tribunal not having jurisdiction to hear the dispute at all such that the
award was susceptible to challenge under s 67 of the Arbitration Act
Calver J agreed with the analysis of Sir Michael Burton in SL
Mining Ltd as well as the approach advocated in various academic
commentaries (which were also considered by the Judge in his
Judgment), and expressed the view that: “To give an arbitration clause
such as this a commercial construction so that pre-arbitration procedural
requirements are not jurisdictional is appropriate because, in most cases,
if a dispute is not settled in the pre-arbitration procedure, it remains the
same dispute, so non-compliance with the pre-arbitration procedure does
not affect whether it is a dispute of the kind which the parties agreed to
submit to arbitration” (§54). Calver J also pointed out that the outcome
of each case depends on the proper construction of the arbitration
agreement in question, and stated that “the dispute as to whether the duty
to mediate amounts to a condition precedent and if so whether it has been
breached, are matters which should be resolved by the arbitral tribunal as
relating to the admissibility of the dispute” (§67) such that the court’s
supervisory jurisdiction over the arbitration in s 67 of the Act was not
engaged (§78).
- Singapore: The Model Law is given the force of law in
Singapore by s 3(1) of the International Arbitration Act (Cap 143A). The
distinction between admissibility and jurisdiction is well recognised in
that jurisdiction, and has been adopted for the purpose of determining
whether the Singapore court is entitled to undertake a de novo review of
an arbitral award in setting aside applications. - In BBA v BAZ [2020] SGCA 53, one of the grounds raised to
support an application to set aside an arbitral award under Art 34(2)(a)
was that the claim was time-barred. The Singapore Court of Appeal held
that Singapore law (as the lex arbitri as well as the law of the seat court)
governed the question of whether limitation should be classified as going
towards jurisdiction or admissibility (§64), and that issues of time bar
which arose from the expiry of statutory limitation periods went towards
admissibility, not jurisdiction, and thus were matters for the tribunal and
not the court to decide. Consequently, such issues could not be reviewed
de novo by the seat court in setting aside applications (§73). The court
considered that the “tribunal versus claim” test underpinned by a consent-
based analysis should apply for the purpose of determining whether an
issue went towards jurisdiction or admissibility (§76), and explained that
the “tribunal versus claim” test asked whether the objection was targeted
at the tribunal (in the sense that the claim should not be arbitrated due to a
defect in or omission to consent to arbitration), or at the claim (in that the
claim itself was defective and should not be raised at all) (§77). Consent
served as the touchstone for whether an objection was jurisdictional
because arbitration was a consensual dispute resolution process. Thus,
arguments as to the existence, scope and validity of the arbitration
agreement were regarded as jurisdictional, as were questions of the
claimant’s standing to bring a claim or the possibility of binding non-
signatory respondents (§78). Conversely, admissibility related to the
“nature of the claim, or to particular circumstances connected with it”,
and asked whether a tribunal might decline to render a decision on the
merits for reasons other than a lack of jurisdiction (§79). In the result, the
court held that the plea of statutory time bar went towards admissibility as
it attacked the claim, although it was recognised that an express provision
in the arbitration clause (eg “the tribunal shall have no jurisdiction to hear
claims that are time-barred under statute”) could turn the objection into a
jurisdictional one (§§80-82). - The above analysis was adopted and applied in a subsequent
decision of the Singapore Court of Appeal in BTN v BTP [2020] SGCA
105. In that case, one of the grounds relied upon by a party to an
arbitration to set aside an award under Art 34(2) was that the arbitral
tribunal prevented that party from arguing an issue on the ground of res
judicata and thus (it was argued) there was a breach of natural justice, it
would be contrary to public policy to enforce the award, and the tribunal
had failed to decide matters contemplated by and/or failing within the
submission to arbitration. The court rejected the setting aside application,
holding that a tribunal’s decision on the res judicata effect of a prior
decision was not a decision on jurisdiction, but a decision on
admissibility (§§68 and 71). At §70, the court accepted that “tribunals’
decisions on objections regarding preconditions to arbitration, like time
limits, the fulfilment of conditions precedent such as conciliation
provisions before arbitration may be pursued, mootness, and ripeness are
matters of admissibility, not jurisdiction”. - New South Wales: The Model Law has been adopted in all
the States of Australia, and is applied in New South Wales through the
Commercial Arbitration Act 2010. The powers of the court to set aside
an arbitral award under s 34(2)(a)(iii) and (iv) of that Act are cast in
materially the same terms as Art 34(2)(a)(iii) and (iv). In The Nuance
Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC
1498, Rees J adopted the analysis of the Singapore Court of Appeal in
BBA as regards the distinction between admissibility and jurisdiction, and
held that a challenge to a claim referred to arbitration on the basis that it
was time barred was not a challenge to jurisdiction (§132). - United States: Although the Model Law has been adopted in
only a limited number of States in the US, in BG Group plc v Republic of
Argentina 134 S Ct 1198 (2014), Breyer J (delivering the majority
opinion of the Supreme Court) expressed the view that generally courts
presume that parties intend that (i) courts, not arbitrators, to decide
disputes about “arbitrability” (including questions such as “whether the
parties are bound by a given arbitration clause” or “whether an arbitration
clause in a concededly binding contract applies to a particular type of
controversy”), but (ii) arbitrators, not courts, to decide disputes about the
meaning and application of particular procedural preconditions for the
use of arbitration (including “prerequisites such as time limits, notice,
laches, estoppel and other conditions precedent to an obligation to
arbitrate”) (at pp 7-8). In that case, the relevant provision was to the
effect that arbitration could only be resorted to after a period of 18
months had elapsed from the moment when the dispute was submitted to
a competent local tribunal and the tribunal had not given its final
decision. It was held that the provision determined when the contractual
duty to arbitrate arose, not whether there was a contractual duty to
arbitrate at all, and consequently it was a purely procedural requirement
(or procedural condition precedent to arbitration) which was for
arbitrators, not courts, primarily to interpret and to apply (at pp 8-9).
- Hong Kong: The distinction between admissibility and
jurisdiction drawn by the Judge in this case has been followed and
applied by Mimmie Chan J in Kinli Civil Engineering Ltd v Geotech
Engineering Ltd [2021] HKCFI 2503, and by Coleman J in T v B [2021]
HKCFI 3645. - The former case concerned an application for a stay of court
proceedings in favour of arbitration in relation to a dispute arising out of
a building sub-contract, which contained an arbitration clause which
provided that “… arbitration shall not be conducted before either the
completion of the main contract or the determination of the subcontract”.
Granting the stay sought, Mimmie Chan J held that “the question of
whether a party has complied with the procedure or conditions as to the
exercise of the right to arbitrate, as set out in an arbitration agreement, is
a question of admissibility of the claim, and the Court has no role to play
in relation to such a question, as it does not go to the question of the
jurisdiction of the tribunal. It is for the tribunal to decide on admissibility
and such decision of the tribunal is final, and not for review by the Court”
(§8). Hence, “[t]he question as to when arbitration can be commenced,
whether the parties have to wait until the Main Contract has been
completed, or the Contract has been determined or terminated by
performance or by breach, and whether these events have occurred, is a
matter for the tribunal to decide and does not concern the Court at this
stage, if it is satisfied that there is a prima facie case of the existence of
an arbitration agreement” (§33).
- The latter case concerned, inter alia, an application to set
aside an arbitral tribunal’s decision that the institution of an arbitration by
a sub-contractor against the main contractor was premature because the
notice of dispute and request for mediation was given prior to the
issuance of a completion certificate under the main building contract.
The relevant arbitration clause stated as follows:
“[31.1] Sub-Contract Disputes shall be settled in accordance
with the provisions of this Clause 31.
[31.2] For the purpose of this Clause 31, a Sub-Contract
Dispute shall be deemed to arise when either Party
serves on the other a notice in writing (herein called
a ‘Notice of Dispute’ which in any event shall only
be raised after the completion certificate, or where
there is more than one certificate, the last
completion certificate, issued by the Relevant
Persons under the Main Contract) stating the nature
of such Sub-Contract Dispute…
[31.5] If … within twenty-eight (28) days of the service of
the Notice of Dispute, and, in the case of the
circumstances set out in Clauses 31.5(ii) or (iii),
within a further twenty-eight (28) days of such
refusal [to refer the dispute to certain ADR
Procedure] or failure [to resolve the dispute under
the ADR Procedure], either Party may refer the Sub-
Contract Dispute to arbitration. Provide always that
the Notice of Dispute under this Clause 31 shall
only be raised after the completion certificate, or
where there is more than one certificate, the last
completion certificate issued by the Relevant
Persons under the Main Contract.”
- Adopting the distinction between admissibility and
jurisdiction for determining whether the tribunal’s decision was
reviewable by the court, Coleman J held that the question of compliance
or non-compliance with the pre-arbitration procedures in that case was
one going to the admissibility of the claim rather than the jurisdiction of
the tribunal, and thus the tribunal’s decision was not subject to review by
the court (§42). At §23 of his judgment, Coleman J also made it clear
that it was open to the parties to an arbitration agreement to agree that
pre-arbitral procedural requirements should go to the tribunal’s
jurisdiction, but such an agreement would require clear and unequivocal
language.
Academic writings
- There is also a substantial body of academic writings which
supports the drawing of a distinction between jurisdiction and
admissibility for the purpose of determining whether an arbitral tribunal’s
decision is subject to de novo review by a national court, including Mills,
Arbitral Jurisdiction, in Oxford Handbook on International Arbitration
(OUP 2018), at pp 6-7; Born, International Commercial Arbitration
(3 rd ed 2021), at pp 997-1001; Paulsson, in Jurisdiction and Admissibility
in Global Reflections on International Law, Commerce and Dispute
Resolution (ICC Publishing, 2005), at pp 615-617; Merkin and Flannery
on the Arbitration Act 1996 (6 th ed 2019), at §§30.3 and 30.13; Merkin
and Flannery, Emirates Trading, good faith, and pre-arbitral ADR
clauses: a jurisdictional precondition?, in Arbitration International
(OUP 2015), 31, 63-106, at p 105; and Chartered Institute of Arbitrators,
International Arbitration Practice Guideline on Jurisdictional Challenges
(29 November 2016), at Preamble 6 and pp 15-16. These academic
writings have been carefully reviewed by the Judge at §§30-36 of the
Judgment, and it is not proposed to repeat the analysis here. Many of the
academic writings reviewed by the Judge were also considered by Sir
Michael Burton in SL Mining Ltd, who pointed out that the views of the
leading academic writers, after careful analysis by them, were all one way
(§14), and by Calver J in NWA, who pointed out that “the approach
advocated in these academic commentaries is consistent with, and give
effect to, the commercial purpose of arbitration clauses, as explained by
Lord Hoffmann in Fiona Trust …” (§54).
- In summary, there is a substantial body of judicial and
academic jurisprudence which supports the drawing of a distinction
between jurisdiction and admissibility for the purpose of determining
whether an arbitral award is subject to de novo review by the court under
Art 34(2)(a)(iii), and the view that “non-compliance with procedural pre-
arbitration conditions such as a requirement to engage in prior
negotiations goes to admissibility of the claim rather than the tribunal’s
jurisdiction” (as stated in §42 of the Judgment).
(iii) The construction of Art 34(2)(a)(iii)
- Mr Yu argues that the distinction between jurisdiction and
admissibility should not be adopted because it is not found in
Art 34(2)(a)(iii). Instead, the court should simply ask whether the award
deals with a dispute “not contemplated by or not falling within the terms
of the submission to arbitration” as stated in that sub-paragraph. - We accept, as a matter of principle, that the statutory
conditions for the court’s exercise of its power to set aside an arbitral
award under Art 34(2)(a)(iii) cannot be re-written judicially. The
relevant statutory question is whether the award deals with a dispute “not
contemplated by or not falling within the terms of the submission to
arbitration …”. It is clear, from the statutory language used, that the
answer to this question depends on the intention (or agreement) of the
parties. It does not mean, however, that the distinction between
jurisdiction and admissibility is irrelevant when answering the statutory
question. As pointed out by the Judge at §43 of the Judgment, the
distinction between jurisdiction and admissibility is not one only to be
drawn on the specific wording of the written law of a particular country,
but is a concept rooted in the nature of arbitration itself, and may properly
be relied upon to inform the construction and application of s 81 even
though the Ordinance does not in terms draw such a distinction. - There is, we consider, much to be said for recognising the
distinction between admissibility and jurisdiction for the purpose of Art
34(2)(a)(iii). Such an approach would (i) likely give effect to the
agreement of the parties who, “as rational businessmen, are likely to have
intended any dispute arising out of their relationship … to be decided by
the same tribunal” (per Lord Hoffmann in Fiona Trust Corp v Privalov
[2007] 4 All ER 952, at §13), (ii) be in line with the general trend of
minimizing the permissible scope of judicial interference in arbitral
procedures and awards, (iii) further the object of the Ordinance as stated
in s 3 thereof, ie “to facilitate the fair and speedy resolution of disputes by
arbitration without unnecessary expenses”, and (iv) ensure that Hong
Kong does not fall out of line with major international arbitration centres
like London or Singapore. In our view, while the distinction between
jurisdiction and admissibility cannot be written directly into Art
34(2)(a)(iii), it can be given proper recognition though the route of
statutory construction, namely, that a dispute which goes to the
admissibility of a claim rather than the jurisdiction of the tribunal should
be regarded as a dispute “falling within the terms of the submissions to
arbitration” under Art 34(2)(a)(iii). It is important to emphasise that the
distinction between admissibility and jurisdiction is ultimately controlled
by the agreement of the parties, because arbitration is consensual and it is
the parties’ agreement which determines the true scope of the disputes
which may be submitted to arbitration.
- Mr Yu argues that that there is no reason to confine, as the
Judge did at §53 of the Judgment, the “terms of the submission to
arbitration” to the substantive content or subject matter of the dispute.
Such a narrow construction: (i) is inconsistent with one of the objects and
purposes of the Ordinance (namely, that the parties should be free to
agree on how a dispute should be resolved: s 3(2)); (ii) is inconsistent
with the fundamental principle that arbitration is based on the parties’
consent; and (iii) would curtail the parties’ access to the court guaranteed
by Article 35 of the Basic Law. Contrary to the Judge’s view at §§48 and
52(5) of the Judgment, the parties’ autonomy is plainly curtailed in this
case where their agreement that the arbitral process should not be invoked
until the procedure in Clause 14.2 has been complied with is not upheld
despite the use of clear and unequivocal language in the contract 4 .
- At §53 of the Judgment, the Judge stated as follows:
“The objection in the present case seems to me to be one
going to the admissibility of the claim. There is no dispute
about the existence, scope and validity of the arbitration
agreement. There is no dispute that [D’s] claim, as far as its
subject matter is concerned, ‘arises out of or in relation to’
the Agreement and falls within the scope of the arbitration
agreement. The issue is not whether there was ‘initial
consent’ to the submission of the dispute to arbitration and
to the tribunal’s determination: (S Co v B Co, §35). The
parties’ commitment to arbitrate is not in doubt; they intend
the arbitral award to be final and binding. [C’s] objection is
that the particular reference to arbitration was invalid
because the stipulated mechanism of negotiation between
the CEOs had not been gone through. The objection is not
that such a claim should not be arbitrated at all, but that the
tribunal should reject the reference as premature. There is
no indication in clauses 14.2 or 14.3 of the Agreement that
the parties intended compliance with these provisions to be
a matter of jurisdiction. It seems unlikely to be the parties’
intention that despite a full hearing before and a decision by
a tribunal of their choice the same issue should be re-
opened in litigation in the courts. In my view the challenge
is one of admissibility rather than jurisdiction.” - It seems to us that the Judge was, at §53 of the Judgment,
addressing the question of whether C’s challenge to the arbitration in this
case went to the admissibility of the claim rather than the jurisdiction of
the Tribunal, and not the question of whether the reference to the “terms
of the submission to arbitration” in Art 34(2)(a)(iii) should be confined to
“the substantive content of subject matter of the dispute” as suggested by
Mr Yu. Neither do we read the Judge as saying that Art 34(2)(a)(iii)
should be so confined. Further, the Judge’s analysis at §53 of the
Judgment cannot be faulted.
- As for the suggested curtailment of the parties’ right to
access to the court guaranteed by Article 35 of the Basic Law, once it is
recognised that the question of whether an award deals with a dispute not
contemplated by or not failing within the terms of the submission to
arbitration under Art 34(2)(iii) depends ultimately on the parties’ own
agreement, there can be no question of any unjustified curtailment of the
parties’ right to access to the court. Had it been necessary to undertake
the 4-step proportionality analysis established in Hysan, we would have
no difficulty in coming to the conclusion that any interference with the
right to access to the court by Art 34(2)(iii) is proportional and justifiable,
in agreement with the Judge’s view at §52 of the Judgment. - Mr Yu also argues that the scope of Art 34 can be
ascertained by reference to Article V of the New York Convention, since
it is recognised to be the source of inspiration for Art 34 and the latter
was drafted in a way to ensure a high degree of consistency with the
former (UNCITRAL Model Law on International Arbitration – A
Commentary, Cambridge University Press, at pp 859-860), and it is well
established that Article V(1)(c) of the New York Convention (which
provides a ground for challenging an award dealing with a difference not
“falling within the terms of the submission to arbitration”) encompasses
challenges other than the substantive content of the dispute falling outside
the arbitration agreement (Dr Reinmar Wolff, New York Convention –
Article-by-Article Commentary (2 nd ed 2019), at §§234-254). This
argument is based on the same misreading or misunderstanding of §53 of
the Judgment mentioned above.
(iv) The condition precedent argument
- Mr Yu argues that, assuming there exists a distinction
between questions of “admissibility” and “jurisdiction” and that only the
latter falls within Art 34(2)(a)(iii), C’s objection is “jurisdictional” in
nature 5 :
(1) The characterization of a particular objection as one of
“admissibility” or “jurisdiction” depends on the parties’
intention and the proper construction of the arbitration
agreement in question. There are two different situations.
The first is where the parties intend that no obligation to
arbitrate should arise unless the condition precedent has been
satisfied. The second is where the parties intend the
stipulation to be in the nature of procedural regulation of the
arbitral process itself or a substantive limitation on the
parties’ ability to assert claims in the arbitration which the
parties intended for the final decision to be made by the
tribunal. The former would be a jurisdictional objection,
whilst the latter would be one of admissibility.
(2) Under Hong Kong law (being the Governing law of the
arbitration agreement), where a contractual obligation is
subject to a condition precedent, there is, prior to occurrence
of the condition, no duty to render performance of that
obligation. In relation to a condition precedent to arbitration,
until the occurrence of the condition, there is no consent and
no duty to arbitrate. An award made by an arbitral tribunal
where a condition precedent has not been fulfilled has no
validity, and is liable to be set aside for want of jurisdiction.
(3) In the present case, Clause 14.3 clearly imposes a condition
precedent to arbitration (as is accepted by D). Hence, if the
condition precedent was not fulfilled, it should be concluded
that the Tribunal did not have jurisdiction to make the Partial
Award.
(4) The distinction between admissibility and jurisdiction takes
the matter no further. Once it is accepted (as D does) that
Clause 14.3 imposes a condition precedent, then, as a matter
of Hong Kong law, the parties have not agreed to arbitrate
when the condition precedent has not been fulfilled.
(5) The difference between jurisdiction and admissibility is that
the former is “targeted at the tribunal”, whereas the latter is
“targeted at the claim”.
(6) C’s objection that a condition precedent to arbitration was
not satisfied was “targeted at the tribunal” and must be
jurisdictional.
(7) In the premises, the court ought to conduct a de novo review
of the question whether the condition precedent was
satisfied. If it was not, the Partial Award is liable to be set
aside under Art 34(2)(a)(iii).
- The crux of Mr Yu’s argument is based on the proposition in
§52(2) above. He refers this Court to Chitty on Contracts (34 th ed), Vol I
- General Principles, Chapter 4, §197, where it is stated that: “Where an
agreement is subject to a condition precedent, there is, before the
occurrence of the condition, no duty on either party to render the
principal performance promised by them”, and Chitty on Contracts
(34 th ed), Vol II, Chapter 34 (Arbitration), §34-035, where it is stated that:
“There will normally be no valid reference to arbitration if the arbitration
agreement stipulates that certain facts or events shall be a pre-condition
of a reference to arbitration and the pre-condition is not fulfilled. Here,
too, the arbitral tribunal may rule whether or not facts or events exist
which found its jurisdiction, but the final determination of this question
rests with the court. A stipulation that the parties should first strive to
settle the dispute amicably, or that the dispute should, in the first place, be
submitted for conciliation, is not normally such a pre-condition and may
not create an enforceable legal obligation 6 .” Mr Yu also places reliance
on:
(1) Lewison, The Interpretation of Contracts (7 th ed), §16.71:
“Conditions precedent are normally contingent conditions.
In other words unless and until the condition is satisfied, no
6 It has not been suggested by D that the pre-arbitration procedural requirement to attempt to resolve a
dispute by negotiation under Clauses 14.2 and 14.3 of the Agreement does not give rise to a binding
legal obligation. contract comes into existence, or liability under a contract is suspended.”
(2) Russell on Arbitration (24 th ed) –
(a) §2-022: “Conditions precedent to the operation of an
arbitration agreement must be fulfilled before a
tribunal will have jurisdiction to determine disputes
under it … Where the disputes provision is a multi-
tiered clause, the steps to be taken prior to
commencing arbitration may constitute conditions
precedent in which case they must be complied with.”
(b) §2-307: “Many contracts containing arbitration
clauses also provide for the parties first to try to settle
the matter by negotiation or discussion between senior
executives and, if that fails, the dispute must be
referred to mediation or some other ADR process.
Only when these steps have failed is the matter to be
referred to arbitration … Where such preliminary
steps are expressed in mandatory terms so as to
constitute a condition precedent to the right to
arbitrate they must be complied with. In many cases
however they will not be mandatory and it may then
be possible for the claimant to commence arbitration
even without complying with them. Generally
speaking, an obligation simply to negotiate is not
binding. However, this is an area in which the law is
currently unsettled in particular as regards a
requirement to negotiate before commencing
arbitration.”
(3) Mustill and Boyd, The Law and Practice of Commercial
Arbitration in England (2 nd ed), p 114: “Just as an arbitrator
cannot make a binding award as to the existence of a
contract which, if it does exist, is the source of his authority
to act, so also does he lack the power to make a binding
decision as to the existence of the facts which are said to
found his jurisdiction. Thus, where a building contract
provided that an arbitration should not take place until after
completion of the works, it was held that the parties were not
bound by a decision of the arbitrator that the works had been
completed. Similarly, if the jurisdiction of the tribunal
depends upon the giving of a notice, the tribunal has no
power to decide whether an appropriate notice has been
given.”
- Mr Yu also draws the court’s attention to Smith v Martin
[1925] 1 KB 745, where the relevant arbitration clause in a building
contract provided that “… in case any dispute or difference shall arise
between the employer … and the contractor … then either party shall
forthwith give to the other notice of such dispute or difference, and such
dispute or difference shall be … referred to arbitration … Such reference,
except on the question of certificate, shall not be opened until after the
completion or alleged completion of the works …”. The builder obtained
an award from an arbitrator, which was objected to by the employer on
the basis that the whole of the buildings contracted for had not been
completed (undisputed), and thus the arbitration was premature. Bankes
and Atkin LJJ (constituting the Court of Appeal) allowed the employer’s
appeal, both with expressed regret. Bankes LJ, following an earlier
judgment of the English Court of Appeal in Pethick Brothers v
Metropolitan Water Board (which held that where a right to go to
arbitration depended on the happening of an event, the arbitrator had no
jurisdiction to decide whether the event had happened), held that the
finding of the arbitrator in the case before him that the works had been
completed before the commencement of the arbitration was outside the
jurisdiction of the arbitrator, the arbitration was premature, and the
arbitrator had no jurisdiction to make the award in question. Atkin LJ
agreed, holding that since, admittedly, the whole of the works contracted
for had not been completed at the time the arbitration took place, the
arbitration was contrary to the provisions of the contract and without
authority.
- Mr Yu submits that since D accepts that the pre-arbitration
procedural requirement under Clauses 14.2 is a condition precedent to
any reference to arbitration under Clause 14.3, it follows that the
Tribunal’s decision on whether the requirement had been fulfilled is a
decision going to its own jurisdiction, and the court is entitled to conduct
a de novo review of the correctness of the decision. - A similar argument was advanced in NWA but was rejected
by Calver J, who considered Smith v Martin to have been decided long
before s 67 of the Arbitration Action 1996 came into force, and
distinguishable on the basis that the wording of the arbitration clause in
Smith v Martin made it clear that there could never be a reference to
arbitration until the works were completed (§66). Calver J also held that
the outcome of each case depended on the proper construction of the
arbitration agreement in issue (§67).
- In our view, it is an over-simplification to say that where a
reference to arbitration is subject to some condition precedent, an arbitral
tribunal’s decision on whether the condition precedent has been fulfilled
must necessarily be a jurisdictional decision, or one which is open to
review by the court under Art 34(2)(a)(iii). The true and proper question
to ask is whether it is the parties’ intention (or agreement) that the
question of fulfilment of the condition precedent is to be determined by
the arbitral tribunal, and thus falls “within the terms of the submission to
arbitration” under Art 34(2)(a)(iii). This is because the scope of the
disputes which may be referred to arbitration for resolution is a matter for
the parties to decide. As observed by Lord Hoffmann in Fiona Trust
Corp, at §5: “Arbitration is consensual. It depends upon the intention of
the parties as expressed in their agreement. Only the agreement can tell
you what kind of disputes they intended to submit to arbitration.” Lord
Hoffmann went on to state the following at §9: “There was for some time
a view that arbitrators could never have jurisdiction to decide whether a
contract was valid. If the contract was invalid, so was the arbitration
clause. In Overseas Union Insurance Ltd v AA Mutual International
Insurance Co Ltd [1988] 2 Lloyd’s Rep 63 at 66 Evans J said that this
rule ‘owes as much to logic as it does to authority’. But the logic of the
proposition was denied by the Court of Appeal in Harbour Assurance Co
(UK) Ld v Kansa General International Assurance Co Ltd [1993] 3 All
ER 897 …” In our view, just as it is open to parties to decide that all
substantive disputes arising out of an agreement may be referred to
arbitration, it is equally open to them to decide that any dispute on
whether a pre-arbitration procedural requirement has been fulfilled should
be resolved by arbitration as well. There is no reason in either principle
or logic why such a dispute must necessarily be outside the scope of the
arbitration agreement, or be regarded as jurisdictional in nature. The
answer to the question depends, ultimately, on the parties’ intention, to be
ascertained as a matter of true construction of their agreement.
- In passing, we should mention that Mr Yu also places
reliance on the following observation by Lord Hope in Fiona Trust Corp,
at §34:
“But, as Longmore LJ said in para 21 of the Court of
Appeal’s judgment, this case is different from a dispute as
to whether there was ever a contract at all. As everyone
knows, an arbitral award possesses no binding force except
that which is derived from the joint mandate of the
contracting parties. Everything depends on their contract,
and if there was no contract to go to arbitration at all an
arbitrator’s award can have no validity…”
- We do not consider this passage assists C, because it only
takes one back to the question of whether it was the parties’ intention or
agreement that the question of fulfilment of the pre-arbitration procedural
requirement under Clauses 14.2 and 14.3 should also be resolved by the
arbitral tribunal.
(v) Whether the question of fulfilment of the pre-arbitration procedural
requirement is within the terms of the submission to arbitration?
- Mr Chapman (on behalf of D) suggests that an objection
based on an alleged failure to observe pre-arbitration procedural
requirements should be presumed, unless a clear and unequivocal
intention of the parties to the contrary is shown, to be an objection going
to the admissibility of the claim, rather than the jurisdiction of the
tribunal, and thus judicial intervention of the arbitral tribunal’s decision
on such objection is excluded. For the purpose of disposing of the
present appeal, it is not necessary to consider the merits of the
presumptive approach advocated by Mr Chapman, because we consider it
to be clear that C’s objection in this case goes only to the admissibility of
the claim. We agree with the Judge’s analysis on this issue at §53 of the
Judgment. In particular, we consider it significant that C’s objection is
not that the substantive claim advanced by D could never be referred to
arbitration, or be arbitrated, at all. Its objection is only that the reference
to arbitration was premature, in that some pre-arbitration requirements
should first be observed or gone through. Viewed in this light, C’s
objection was targeted “at the claim” instead of “at the tribunal”. In the
absence of any agreement of the parties to the contrary, C’s objection
goes only to the admissibility of the claim rather than the jurisdiction of
the tribunal, and thus the Partial Award is not subject to review by the
court under Art 34(2)(a)(iii).
- For the sake of completeness, we should mention that we
would have reached the same conclusion even if we disregard the
distinction between admissibility and jurisdiction, and consider the
question simply as a matter of construction and application of Art
34(2)(a)(iii). We consider it to be clear that the dispute between the
parties on the question of fulfilment of the pre-arbitration procedural
requirement under Clauses 14.2 and 14.3 is a dispute falling within the
terms of the submission to arbitration under Art 34(2)(a)(iii). Clause 14.3
provides that “any” dispute which cannot be resolved amicably within 60
business days … shall be referred by either party for settlement
exclusively and finally by arbitration. The disputes which may be settled
by arbitration under Clause 14.3 are those referred to in Clause 14.2,
namely, “any controversy, dispute or claim [arising] between the Parties
out of or in relation to this Agreement, or the breach, interpretation or
validity thereof”. There is no reason to confine the scope of arbitrable
disputes under Clause 14.3 to substantive disputes arising out of or in
relation to the Agreement, and exclude from it disputes on whether the
pre-arbitration procedural requirement under Clauses 14.2 and 14.3 has
been fulfilled.
- As stated by Lord Hoffmann in Fiona Trust Corp, at §13:
“… the construction of an arbitration clause should start from the
assumption that the parties, as rational businessmen, are likely to have
intended any dispute arising out of their relationship into which they have
entered or purported to enter to be decided by the same tribunal. The
clause should be construed in accordance with this presumption unless
the language makes it clear that certain questions were intended to be
excluded from the arbitrator’s jurisdiction. As Longmore LJ remarked, at
[17]: ‘[i]f any businessman did want to exclude disputes about the
validity of a contract, it would be comparatively easy to say so.’” In the
present case, it was likewise easy for the parties to say that any dispute on
the question of fulfilment of the pre-arbitration procedural requirement
under Clauses 14.2 and 14.3 was excluded from the arbitral tribunal’s
jurisdiction, if that was what they truly intended. - In our view, the question of whether the pre-arbitration
procedural requirement under Clauses 14.2 and 14.3 has been fulfilled is
a question intrinsically suitable for determination by an arbitral tribunal,
and is best decided by an arbitral tribunal in order to give effect to the
parties’ presumed intention to achieve a quick, efficient and private
adjudication of their dispute by arbitrators chosen by them on account of
their neutrality and expertise.
- In all, we reject C’s contention that the Partial Award deals
with a dispute not within the terms of the submission to arbitration.
Accordingly, the Partial Award is not subject to recourse to the court
under Art 34(2)(a)(iii). - For all of the above reasons, Ground 1 of the Notice of
Appeal is rejected.
GROUND 2: APPLICABILITY OF ART 34(2)(a)(iv)
- Although this ground was maintained by C, it is fair to say
that it was not the focus of Mr Yu’s submissions at the hearing of the
appeal. This ground can be dealt with briefly because it is essentially
based on the same contention advanced under Ground 1, namely, that
upon the true construction of the Agreement, the parties intended that the
fulfilment of the condition precedent to arbitrate under Clauses 14.2 and
14.3 to bar a party from initiating an arbitration, and render an award
given in an arbitration commenced in breach of the condition precedent
subject to challenge under Art 34(2)(a)(iv) 7 . - Under this ground, Mr Yu argues that 8 :
7 See Ground 2c and d of the Notice of Appeal.
8 See §§35-37 of the Skeleton Submissions for the Appellant.
(1) In the context of Article V(1)(d) of the New York
Convention (which provides a ground for challenging an
award where the “arbitral procedure was not in accordance
with the agreement of the parties”), the phrase “arbitral
procedure” can encompass pre-arbitration conditions
precedent; and whether a condition precedent to arbitration
is part of “arbitral procedure” within the meaning of that
article depends on the intention of the parties, in particular
whether they intended non-satisfaction of the condition
precedent to bar arbitration altogether (Dr Reinmar Wolff,
New York Convention – Article-by-Article Commentary
(2 nd ed 2019), at §§324-324a).
(2) The term “arbitral procedure” in Art 34(2)(a)(iv) should be
similarly construed because such construction would be in
accord with s 3(2) 9 and Article 35 of the Basic Law.
(3) The parties here expressly subjected their consent to
arbitration to a condition precedent, and they must have
intended the condition precedent to be part of the “arbitral
procedure” such that the failure to satisfy the condition
precedent is a bar to arbitration and renders the Partial
Award liable to be set aside.
- Assuming, without deciding, that Mr Yu is correct in his
submission that the term “arbitral procedure” in Art 34(2)(a)(iv) should
be construed in a manner similar to Article V(1)(d) of the New York
9 Section 3(2)(a) states that the Ordinance is based on, inter alia, the principle “that, subject to the
observance of the safeguards that are necessary in the public interest, the parties to a dispute should
be free to agree on how the dispute should be resolved”.
Convention, since we have come to the conclusion that the parties here
intended the question of fulfilment of the pre-arbitration procedural
requirement to be determined by arbitration, it follows that it was not
their intention that non-satisfaction of such requirement would bar
arbitration altogether. Accordingly, Ground 2 of the Notice of Appeal is
rejected.
GROUND 3: TRUE CONSTRUCTION OF CLAUSES 14.2 AND
14.3 AND WHETHER THE CONDITION PRECEDENT WAS
FULFILLED
- Having reached the above conclusions, it becomes
unnecessary for us to consider Ground 3 of the Notice of Appeal.
DISPOSITION
- C’s Notice of Appeal is dismissed with costs to D, to be
taxed if not agreed, with certificate for Solicitor Advocate (if necessary).
(Peter Cheung)
Justice of Appeal
(Maria Yuen)
Justice of Appeal
(Anderson Chow)
Justice of Appeal
