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The Hong Kong Court of Appeal decided this month in the decision of C v D [2022] HKCA 729 that the question of whether a party complied with typical tiered dispute resolution procedures as a pre-condition to arbitration is a question of admissibility rather than jurisdiction. In the court’s own words, questions of admissibility are targeted at the claim and questions of jurisdiction are targeted at the tribunal. A multi-tiered dispute resolution procedure targets the claim, i.e., it raises the question of whether the claim has satisfied the agreed dispute resolution procedure and therefore should be heard by the tribunal.
In its decision, the Court of Appeal upheld the decision of the High Court dismissing an application to set aside an arbitration award on the grounds of lack of jurisdiction under Article 34 of the UNCITRAL Model Law (s.81 of the Arbitration Ordinance (Cap. 609)) due to an alleged non-fulfilment of a pre-condition to arbitration in the form of a requirement for good faith negotiations.
Background:
Arbitration proceedings
- D alleged a breach by C of a co-operation agreement between the parties for construction and operation of satellites.
- The agreement contained a provision requiring the parties to attempt in good faith to resolve any dispute by negotiation. The provision also stated that the parties may escalate the dispute resolution negotiations to their respective CEOs.
- At the outset of the dispute, D sent a letter to C requesting negotiations. C did not provide a constructive response. Neither party referred the dispute to its CEO.
- Subsequently, D started arbitration in Hong Kong against C under UNICITRAL Arbitration Rules.
- C objected to jurisdiction of the arbitral tribunal. C argued, among other things, that the absence of a request to negotiate to C’s CEO amounted to a failure to fulfil the pre-arbitration condition.
- The tribunal dismissed C’s objection and held that under the agreement, the parties were mandatorily required to attempt good faith resolution of any dispute by negotiation, but the reference to the respective CEOs was optional. The tribunal further held that D’s letter to C fulfilled the pre-arbitration condition to negotiate.
- The tribunal went on to decide on the merits of the case in favour of D.
Court of First Instance
- C sought to set aside the award on the basis that it was made without jurisdiction and was not binding on C.
- D contended that the question of whether the condition had been fulfilled was a question of admissibility of the claim rather than jurisdiction of the tribunal. For that reason, recourse to a court is not available to C.
- The court agreed with D.
Court of Appeal decision:
C argued on appeal that the distinction between admissibility and jurisdiction should not be adopted because it is not found in the UNCITRAL Model Law. C also argued that in arbitration, the question of compliance with a pre-condition was brought in a jurisdictional challenge and therefore, is properly brought before the court.
The Court of Appeal dismissed the appeal and upheld the decision of the lower court.
After reviewing both case law and academic writings, the court concluded that the distinction between objections to admissibility and jurisdiction is well recognised in Hong Kong, the United Kingdom, Singapore and United States.
The court emphasised that the distinction is ultimately controlled by the agreement of the parties “because the agreement is consensual and it is the parties’ agreement which determines the true scope of the disputes which may be submitted to arbitration”.
As such, the true issue before the court was whether the parties intended that the question of compliance with the pre-condition to arbitration should be determined by the arbitral tribunal. To answer that, the court relied on the proposition in the well-known case, Fiona Trust Corp v Privalov [2007] 4 All ER 952 that “as rational businessmen [the parties would] likely to have intended any dispute arising out of their relationship … to be decided by the same tribunal”. The court also noted that this conclusion is in line with the general trend of minimizing permissible scope of judicial interreference in arbitral procedures and awards and the object of the Arbitration Ordinance to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense.
On that basis, the court ultimately reasoned that C’s objection was only that the reference to arbitration was premature and therefore, was targeted “at the claim” instead of “at the tribunal”. As such, in the absence of any agreement of the parties to the contrary, C’s objection goes only to admissibility of the claim rather than the jurisdiction of the tribunal.
Conclusion:
The decision provides clarity on the question of jurisdiction of an arbitral tribunal in the face of a multi-tier dispute resolution procedures before reference to arbitration. Any attempt to set aside an award for lack of jurisdiction solely on the basis of a party’s failure to comply with a requirement to negotiate as a pre-condition to arbitration would most likely be dismissed.
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