The Hong Kong Court of Final Appeal confirmed the approach for reviewing pre-arbitration conditions in C v D

The Hong Kong Court of Final Appeal (CFA) recently published a landmark judgment of C v D [2023] HKCFA 16, in which the CFA confirmed that the issue of non-compliance with a precondition to arbitration (for instance, a condition for parties to engage in negotiation, mediation, conciliation or the passage of a period of time before commencing an arbitration) is a question to be decided by the arbitral tribunal.

Previously, any arbitral awards rendered in the circumstances that the precondition to arbitration has not been satisfied were susceptible to being challenged for lack of jurisdiction on the part of the tribunal. The CFA decision has now set a definitive tone on the issue of compliance with precondition to arbitration. The confirmation is very welcome in the arbitral community not just in Hong Kong, but in other jurisdictions which have adopted UNCITRAL Model Law.

Decisions of Court of First Instance (CFI) and Court of Appeal (CA)

The decisions rendered by the CFI and CA were consistent in that they both agreed that the issue of non-compliance with a precondition to arbitration, properly construed, is a matter of “admissibility” rather than “jurisdiction”. It is a claim to be decided by the arbitral tribunal and does not go to the jurisdiction of the tribunal itself. Accordingly, the CFI and CA both held that Article 34(2)(a)(iii) of the Model Law was not engaged, and thus the supervisory court had no basis to set aside the award. We have discussed the CFI and CA judgment in our annual arbitration roundup publication here.

Decision of CFA

On appeal to the CFA, the appellant advanced two major sets of arguments in support of its claim:

1. The respondent’s failure to comply with the precondition to arbitration negated its consent to the arbitration and deprived the tribunal of its jurisdiction; and
2. Article 34(2)(a)(iii) does not differentiate between admissibility and jurisdiction, and, in any event, the question of non-compliance with a precondition to arbitration goes to the jurisdiction of the arbitral tribunal.

The CFA was of the view that the first argument put forward by the appellant was untenable and misplaced. In essence, there was no dispute that the pre-arbitration condition was a condition precedent. However, such precondition was directed to the obligation to arbitrate rather than to the agreement to arbitrate. In other words, the non-compliance with the precondition did not negate the parties’ consent to the arbitration.

In relation to the second argument, the CFA agreed with the lower courts’ findings that the distinction of admissibility and jurisdiction is deeply rooted in the nature of arbitration itself. This is consistent with the approach taken by other major arbitration seats such as England and Wales, Singapore and New South Wales.

More importantly, the CFA emphatically stated that the jurisdiction of an arbitral tribunal rests entirely on the parties’ intention. Absent any clear language in the construction of the clause, the precondition to arbitration should presumably be regarded as a matter going to admissibility.

Chief Justice Cheung made a remark that whether an issue such as non-compliance with a precondition should be treated as a matter of jurisdiction should be left for the parties to decide. If the parties think it right to consider certain issues as matters of jurisdiction, and hence subject to curial intervention, it is their decision and hence there is no fixed definition of “jurisdiction”. Ultimately, arbitration is all about party autonomy.

Accordingly, the CFA dismissed the appeal.

Implication

The decision of the CFA has far-reaching implication on the arbitration community and is very welcome by arbitration practitioners around the world. Some takeaways from the case:

• It is now clear that any issue as to the compliance with a precondition to arbitration in Hong Kong is a matter of admissibility, which is to be decided by an arbitral tribunal rather than by a Court, and the Court would not readily intervene with the case unless the parties express a clear intention otherwise.
• The CFA did not attempt to strictly define the term “jurisdiction” but instead leave it for the commercial contracting parties to define it on their own. Should the parties wish to rebut the presumption that the issue is a matter of admissibility, they could do so by expressing their intentions with clear language in the contract.
• Fundamentally, the decision sends an unequivocally clear message to the world that Hong Kong is a pro-arbitration seat where it respects party autonomy, the cornerstone of arbitration.