Hong Kong arbitration case based on defective clause

0
51
Hong Kong arbitration case based on defective clause

An arbitration clause is the cornerstone of arbitration. When valid, it is a prerequisite of smoothly conducted arbitral proceedings. However, defects in arbitration clauses are not uncommon in practice, frequently seen in day-to-day case management and inquiries by parties at the CIETAC Hong Kong Arbitration Centre (CIETAC Hong Kong).

These defects can range from non-existent or unspecific arbitration institution/arbitration rules to conflicting or incompatible bilingual versions, and difficulties in operating the agreed procedures for constituting the arbitral tribunal.

In reality, parties often discover a defect in the arbitration clause after the dispute has arisen, and often have no clue as to whether arbitration can commence based on such a defective clause.

In the event that one party commences arbitration based on a defective arbitration clause while the other party accordingly raises a jurisdictional challenge, how would a Hong Kong-seated arbitral tribunal determine the validity of the arbitration clause?

This article analyses this question based on an actual case concluded by CIETAC Hong Kong involving a defective arbitration clause.

CHALLENGED DEFECT

The contract in dispute was written in English and the defective arbitration clause was: “All disputes … shall then be submitted for arbitration to Hong Kong International Economic and Trade Arbitration Commission … The contract is governed by the law of Hong Kong …”

Note the name for nominated seat of arbitration: Hong Kong International Economic and Trade Arbitration Commission. Yet the claimant submitted the arbitration request to CIETAC Hong Kong relying on the defective clause.

On a prima facie review of the case materials, considering that requirements for case acceptance had been met, CIETAC Hong Kong accepted the case and issued a Notice of Arbitration to the claimant and respondent in accordance with CIETAC Arbitration Rules.

The respondent subsequently filed a jurisdictional challenge on the grounds that the arbitration institution under the defective clause – namely the Hong Kong International Economic and Trade Arbitration Commission – did not exist and the arbitral tribunal in this case consequently lacked jurisdiction.

The claimant, nevertheless, argued that the name of the arbitration institution under the defective clause was highly similar to that of CIETAC Hong Kong, clearly indicating intention to submit any dispute for arbitration to CIETAC Hong Kong.

THE DECISION

In accordance with article 75, chapter VI of the Special Provisions for Hong Kong Arbitration of the CIETAC Arbitration Rules, the arbitral tribunal has the power to determine validity of the arbitration clause and its jurisdiction over the case.

After a hearing, the arbitral tribunal dismissed the respondent’s jurisdictional challenge, accepting CIETAC Hong Kong’s jurisdiction over the case. The arbitral tribunal considered that the focal point in this jurisdictional challenge was interpretation of the defective clause.

With reference to precedents set by the Court of Final Appeal of Hong Kong – notably Jumbo King v Faithful Properties (1999), and Fully Profit (Asia) v The Secretary for Justice (2013) – the arbitral tribunal considered that interpretation of contractual clauses shall be based on objective facts including the background of contract signing, contractual context, and other factual scenarios.

The arbitral tribunal further referred to Lucky-Goldstar International (HK) v Ng Moo Kee Engineering (1993), and HKL Group v Riqz International (2013), ruling that if an arbitration clause indicates intention to submit a dispute for arbitration, the arbitral tribunal can infer the arbitration institution agreed by the parties by reference to the city, or type of dispute, indicated by the clause, even though the arbitration clause points to a non-existing arbitration institution.

Against the background of international commercial arbitration, the arbitral tribunal further elaborated that in Hong Kong, only the English name of CIETAC Hong Kong includes wordings such as “Economic and Trade”, which defines the type of arbitration cases. In addition, in Hong Kong, only the English name of CIETAC Hong Kong includes every word of “Hong Kong International Economic and Trade Arbitration Commission”.

Ultimately, considering the transaction background between the parties, the arbitral tribunal considered that the arbitration institution under the defective clause shall be construed as CIETAC Hong Kong, and the arbitral tribunal has jurisdiction over the case.

SOME TAKEAWAYS

First, at the stage of case filing, CIETAC Hong Kong merely conducts a prima facie review on the arbitration clause. If it considers that requirements for case acceptance are met and decides to accept the case after a prima facie review, either party may dispute validity of the arbitration clause or file a jurisdictional challenge before the submission of a first defence, in accordance with article 75(1) of the arbitration rules.

Second, unlike provisions under China’s Arbitration Law, section 34 of the Hong Kong Arbitration Ordinance (cap 609) and article 75(2) of the CIETAC Arbitration Rules provide an arbitral tribunal formed by CIETAC Hong Kong the power to decide on a jurisdictional challenge without having to be authorised by the CIETAC, which can efficiently shorten the length of proceedings and improve procedural efficiency.

MODEL ARBITRATION CLAUSE

Of all cases concluded by CIETAC Hong Kong involving a defective arbitration clause, no arbitral tribunal has so far ruled that CIETAC Hong Kong lacks jurisdiction over the case.

Nonetheless, to avoid any additional costs incurred due to a jurisdictional challenge, parties may consider including into their contracts a model arbitration clause.

For example, the model arbitration clause provided by CIETAC Hong Kong is:

“Any dispute arising from or in connection with this contract shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) Hong Kong Arbitration Centre for arbitration, which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”

Parties may also consider including matters such as a governing law of the arbitration clause, seat of arbitration, arbitration language and place of hearing into their arbitration clause.


Ou Jintao is a counsel at CIETAC Hong Kong Arbitration Centre