The case of C v D concerns the issue of whether or not an arbitral tribunal’s decision with respect to compliance with a pre-arbitral tier in a multi-tiered dispute resolution clause is final. The issue is significant and goes to the heart of one of the key advantages of arbitration: finality of a tribunal’s decisions. The case has gone through the Hong Kong courts for some years now.
See our earlier blog post analysing the Court of First Instance Decision July 2021 Multi-tiered dispute resolution clauses – what happens if you don’t comply? and a further post considering the Court of Appeal judgment is here June 2022 Multi-tiered dispute resolution clauses – what happens if you don’t comply? A sequel in the “admissibility or jurisdiction” debate in the Hong Kong Court of Appeal
The most recent development in this case is that the Court of Final Appeal (CFA) has granted permission to appeal the case forward to the full court of the CFA, as it is satisfied that the case presents a question of general importance. The appeal will be heard in April 2023.
The question of general importance to be heard by the CFA is:
“Is an arbitral tribunal’s determination on whether a pre-arbitration condition precedent in an arbitration agreement that the parties thereto should first attempt to resolve their dispute by a specified mechanism has been fulfilled subject to recourse to the Court under Articles 34(2)(a)(iii) of the UNCITRAL Model Law (as incorporated into Hong Kong law under sections 81(1)(2)(a)(iii) of the Arbitration Ordinance (Cap.609))?”
The CFA determination will provide greater certainty on the finality of the tribunal’s decision in respect of compliance with pre-conditions to arbitration.
Background: Multi-tiered arbitration clause in C v D
In C v D in the event of any disputes, the parties were to attempt to resolve the dispute by negotiation between the parties’ respective CEOs and if a dispute could not be resolved amicably within 60 days then it shall have been referred to arbitration. The fact that Party D addressed the written request for negotiation to the Company’s directors not the CEO prompted Party C to object to the tribunal’s jurisdiction.
As seen in this case, what could be seen as a relatively minor procedural oversight has the potential to have serious consequences for the arbitration.
The Arbitration proceedings
The arbitral tribunal dismissed Party C’s argument that the tribunal lacked jurisdiction as the relevant pre-conditions to arbitration had not been met. The arbitration continued and the tribunal determined that that the conditions had been fulfilled, and issued an award. Party C then sought to set aside the award before the court under section 81 Arbitration Ordinance (Cap.609) (which incorporates art.34 of the UNCITRAL Model law) on the basis that the award was made without jurisdiction.
First instance
At first instance, Godfrey Lam J dismissed the set aside application and held that it was a matter for the arbitral tribunal to decide if the stages in a multi-tiered dispute resolution clause had been complied with as an issue of admissibility of the claim, not a matter of jurisdiction open to be reviewed by the court. He stated at §51 “It would not be conducive to swift dispute resolution if controversies regarding procedural conditions such as that in the present case are regarded as jurisdictional questions, opening the way for duplicated arguments in court proceedings.” C v D [2021] HKCFI 1474
Court of Appeal
Party C then appealed to the Court of Appeal (CA). All three grounds raised by Party C were rejected in the CA’s judgment handed down on 7 June 2022 C v D [2022] HKCA 729. The CA held that the distinction between admissibility and jurisdiction is well recognised in both case law and academic writings and is a “concept rooted in the nature of the arbitration itself to inform the construction and application of section 81” §§28 – §§42 and §45. The CA also held that the distinction between jurisdiction and admissibility is one ultimately determined by the parties’ intention (or agreement). Significantly, Party C did not contend that the claim could never be referred to arbitration, only that the reference was premature. Hence, Party C’s objection was directed at the admissibility of the claim rather than the jurisdiction of the tribunal.
Appeal to the Court of Final Appeal
On 31 August 2022, the CA refused leave to appeal their decision on the basis that the proposed appeal concerned the proper construction of a written agreement which was not considered a question of great general or public importance. In addition, the CA was not minded to grant leave to appeal as it was considered inconsistent with the legislative policy of limiting the Court’s intervention in arbitral decisions to allow the Plaintiff to re-argue the same issue for the third time before the CFA. C v D [2022] HKCA 1199
However, with the CFA having given leave to appeal, the final determination of the issue now sits with the CFA. The appeal is to be heard on 27 April 2023.
Tips when faced with multi-tiered dispute resolution clauses
Key from the CA reasoning is the respect that the court accords to the parties’ intention in determining the operation of a multi-tiered dispute resolution clause and the light touch approach to court intervention adhered to in Hong Kong. This reinforces the need to ensure that the multi-tiered dispute clause does accurately record the parties’ intention.
There is no magic bullet in dealing with multi-tiered dispute resolution clauses. Good advice would be this: say what you mean in the clause and do exactly what you say. Endeavour to use clauses written in clear language. When appropriate, include defined time frames to facilitate escalating the process to the next level when necessary. These steps will encourage an efficient and clear dispute resolution process.
We look forward to the additional certainty that the CFA judgment will bring to the “admissibility or jurisdiction debate” in 2023.
See our June 2022 blog which has more practical takeaways.
