Hong Kong court issues reminder that preconditions to arbitration are matters of admissibility not jurisdiction

The case, which involved a multi-tiered dispute resolution clause in a contract between C, a Hong Kong company, and D, a Thai company, turned on whether compliance with a contractual requirement to first refer the dispute to the parties’ respective CEOs for resolution was a ‘condition precedent’ to arbitration – and, if so, whether such conditions precedent is an issue of admissibility or jurisdiction.

Jurisdictional objections go to an arbitral tribunal’s ability to hear an issue at all, while questions of admissibility refer to objections to the claim itself.

Multi-tiered dispute resolution clauses often require negotiation or mediation as a precondition to arbitration. Hong Kong courts have agreed with common law courts of England and Wales, Singapore and New South Wales, and leading academic texts on arbitration law and practice, that the question of whether or not a multi-tiered dispute resolution clause has been complied with is not a question of the tribunal’s jurisdiction to hear the dispute, but one of the admissibility of the claim.

The impact of this is that the tribunal’s decision on this question is not subject to appeal to the courts and is therefore final, unless the arbitration agreement expressly sets out the parties’ clear and unequivocal agreement that the court can intervene in this respect. This is because without such express words, the inference of the agreement to arbitrate is that parties have elected to have the whole of the dispute resolved by arbitration, without court interference. Parties thus only have one chance to dispute compliance with such multi-tiered dispute resolution clauses.

This is the first decision by a final appellate court in a Model Law jurisdiction to have considered the applicability of Article 34(2)(iii) of the Model Law on such multi-tiered dispute resolution clauses. This case will also be highly persuasive in jurisdictions that, like Hong Kong, have adopted the UNCITRAL Model Law on International Commercial Arbitration.

The decision further highlights Hong Kong as a pro-arbitration jurisdiction where courts will be slow to intervene in the arbitral process, placing Hong Kong in line with other international arbitration hubs where party autonomy, uniformity between the arbitral regimes of different countries, and using arbitration as a “one stop shop” for dispute resolution is encouraged.

The facts of the case

C and D jointly owned and had entered into an agreement in relation to the deployment of, a broadcasting satellite. The dispute arose when D alleged C was in material default of their contractual agreement by preventing transmission of some broadcasts. The contract incorporated certain pre-arbitration procedures set out in the arbitration agreement for party negotiation and CEO resolution. C objected to the arbitration going ahead on the grounds that these pre-arbitration procedures were not complied with, but the arbitral tribunal construed the obligations and found that the procedures were duly observed and held C liable for breach of contract. C then brought court proceedings to set aside the tribunal’s partial award, contending that pre-arbitration requirements were not complied with and accordingly the dispute was outside the jurisdiction of the tribunal.

The court held that the pre-conditions in the case were merely procedural and intended to be exclusively decided by the tribunal. C’s objection was not one denying consent to the tribunal’s authority to determine the issue, but was a matter intended to be dealt with by the tribunal, and so merely an admissibility issue.

Court of Final Appeal held that the objection in the case was one going to admissibility of the claim, as there was no dispute about “the existence, scope and validity of the arbitration agreement”. There was no dispute that D's claim, as one “arising out of or relating to the agreement” as to its subject matter, fell within the scope of the arbitration agreement.

C's objection was 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 was no indication in the multi-tiered dispute resolution clause in the arbitration agreement that the parties intended compliance with these provisions to be a matter of jurisdiction. It seemed 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.

The court held that the challenge was one of admissibility rather than jurisdictional, and finally dismissed the appeal.

Co-written by Ronald Fung of Pinsent Masons.