Hong Kong Court of Appeal: pre-arbitration compliance is a matter of admissibility, not jurisdiction

The Court of Appeal, in C v D [2022] HKCA 729, has confirmed that compliance with pre-arbitration procedural requirements in a contractual escalation clause is an issue going to the admissibility of the claim, and not to the arbitral tribunal's jurisdiction, and that consequently an arbitral tribunal's decision was not liable to be set aside by the Court for lack of jurisdiction under Article 34 of the UNCITRAL Model Law. 

Background 

A dispute arose between two satellite operators.  Their multi-tiered dispute resolution agreement provided that: 

• the parties shall attempt in good faith promptly to resolve any dispute by negotiation, and either party may by written notice to the other refer such dispute to the chief executive officers of the parties for resolution, 
  
  
• if any dispute cannot be resolved amicably within 60 business days, 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, and
  
  
• any award shall be final and binding on each party, and the parties agree to waive any right of appeal against the arbitral award. 

D issued a letter to C expressing its willingness to refer the dispute to the parties' respective senior management teams for negotiation, but neither party eventually did so.  D then commenced an arbitration and, in response, C claimed that the arbitral tribunal had no jurisdiction to entertain the dispute because there had been no request for negotiation.  

The arbitral tribunal issued a partial award in favour of D, finding that the reference of the dispute to the senior management was optional, but had in any case been satisfied by D's letter.  The tribunal accordingly rejected C's jurisdictional objection, and proceeded to find that C had breached the agreement and was liable to pay damages. 

C applied to the Court of First Instance to set aside the partial award on the basis that it was made without jurisdiction.  It did so under section 81 of the Arbitration Ordinance (Cap. 609), which gives effect to Article 34 of the Model Law, which in turn permits the Court to set aside an award if it deals with a dispute not contemplated by or falling within the terms of the submission to arbitration. 

At first instance the Court noted that it could review the tribunal's decision de novo if the question of whether D complied with the dispute resolution procedure was one of "jurisdiction" falling within Article 34.  The Judge found however that C's objection was one going only to the "admissibility" of the claim and that it therefore fell outside the review of the Court. 

Issue

C appealed to the Court of Appeal, which had to decide whether the tribunal's partial award dealt with a dispute not falling within the terms of the submission to arbitration under Article 34, such that it had no jurisdiction. 

Decision

In a wide-ranging judgment, the Court of Appeal considered court decisions in Hong Kong, the United Kingdom, Singapore, New South Wales and the United States, as well as academic writings.  It held that the jurisprudence and academic opinion support the distinction between admissibility and jurisdiction, and recognise that non-compliance with procedural pre-arbitration conditions is a question of the admissibility of a claim, such that an arbitral tribunal's decision to rule on the merits is regarded, in those circumstances, as final and not subject to review by the Court.

The Court of Appeal took the view that, whilst the distinction cannot be read directly into Article 34, it can be given proper recognition as a matter of statutory construction.  The Court did not accept C's arguments that, since D had agreed to a condition precedent to arbitration, it followed that the arbitral tribunal's decision on that issue was necessarily a jurisdictional decision, or one open to review by the Court under Article 34.  

The answer ultimately depends in each case on the parties' intention, to be ascertained as a matter of the true construction of their agreement.  The proper question to ask is whether the parties intend or agree that the question of whether the condition precedent has been fulfilled is to be finally determined by the arbitral tribunal.      

In the present case, the Court of Appeal found that:

• there was no dispute about the existence, scope and validity of the arbitration agreement,
  
  
• C's objection was not that such a claim should not be arbitrated at all, but that the arbitral tribunal should reject the reference as premature because certain pre-arbitration requirements had to be satisfied first, and 
  
  
• there was no indication in the agreement that C and D intended compliance with the escalation mechanism to be a matter of jurisdiction.

On the facts of the case, and in the absence of any agreement to the contrary, the Court of Appeal upheld the first instance decision that the pre-conditions were concerned only with the admissibility of the claim, rather than the jurisdiction of the tribunal, and thus that the arbitral tribunal's partial award was not subject to review by the Court under Article 34. 

Comments

General significance to arbitration law in Hong Kong 

This case confirms that Hong Kong's position is in line with other jurisdictions, that an arbitral tribunal retains its jurisdiction to determine disputes concerning compliance with pre-arbitral procedural requirements, and that its decision is not then subject to review by the court. 

Drafting escalation clauses 

This decision does not alter the parties' entitlement to agree that a dispute over the satisfaction of pre-conditions to arbitration goes to the tribunal's jurisdiction, but clear and unequivocal language is required.  Given the consensual nature of arbitration, it is the parties' agreement that determines the true scope of the disputes which may be submitted to arbitration.

Indeed, a dispute over an escalation mechanism is, in the Court of Appeal's view, intrinsically suitable for determination 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.