Hong Kong, China

Case updates

C v D [2021] HKCFI 1474 and T v B [2021] HKCFI 3645

On 25 May 2021, the Hong Kong Court of First Instance ruled in the case of C v D that non-compliance with a precondition to arbitration set out in contracts (for instance, a condition that the parties should engage in good-faith negotiation before arbitration) does not affect the jurisdiction of the tribunal unless expressly provided by the parties. The Court held that an arbitral tribunal may choose to give effect to the contractual pre-condition by ordering a stay of the arbitral proceedings pending compliance with the clause, impose costs sanctions or dismiss the claim as inadmissible.

This case concerned an application to set aside an award made by a tribunal which ruled that the requirement to refer disputes to CEOs pursuant to a dispute resolution clause was only optional and the pre-condition for arbitration had been fulfilled.

The approach taken by the Hong Kong court in finding that the arbitral tribunal would be well placed to deal with the pre-conditions to arbitration is consistent with the pro-arbitration approach taken by the Hong Kong court and its policy for respecting parties’ autonomy in choosing arbitral tribunal to resolve their disputes.

A few months after the judgment of the case of C v D, the Court of First Instance handed down its judgment for T v B [2021] HKCFI 3645 on 29 December 2021, where the Court reaffirmed the principle that whether or not pre-arbitration conditions had been fulfilled was a question of admissibility rather than jurisdiction and further noting that although C v D is a first instance decision, the principle has continued to gain traction in other common law jurisdiction and recently adopted by the Supreme Court of New South Wales in Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC 1498.

W v AW [2021] HKCFI 1701

In the rare case of W v AW, the Court of First Instance held that an award was invalid because of inconsistent findings in another award made in parallel arbitrations.

The dispute arose under two agreements, a share redemption agreement and a framework agreement, both made as part of a series of transactions leadingup to an envisaged acquisition by a Mainland investor of 80% of the interests and shares in a target company. Both agreements contain an HKIAC arbitration clause.

Separate arbitrations were commenced under the two agreements and two tribunals were formed. There was one common arbitrator between the two tribunals. The award for the first arbitration (Award 1) dismissed the respondent’s counterclaim that the framework agreement had been induced by misrepresentation. However, in the second arbitration, the tribunal found in favour of an identical claim for misrepresentation (Award 2).

The applicant applied to the Hong Kong court to set aside Award 2 on the basis that it was in conflict with the public policy of Hong Kong. Amongst other things, it was argued that the second tribunal had ignored findings on common issues made in the first award, and had in fact reached inconsistent findings notwithstanding that one of the arbitrators had been involved in both cases. The respondent, in turn, applied for leave to enforce Award 2 together with an order that W pay security for the sums owed under that award.

In refusing the application for security, the court acknowledged that this is a “highly unusual case” and that setting aside an award is “an undesirable decision”. The court nonetheless found that Award 2 could not be enforced, and it was likely that the applicant’s application to set aside Award 2 on public policy grounds would succeed as there was substantial injustice arising out of Award 2 by virtue of the contradictory and inconsistent findings which had already been made in Award 1 on the same issues and which findings were binding on the same parties in the two awards. The fact that there was a common arbitrator and the lack of explanation in Award 2 on the inconsistent findings weighed heavily in the court’s decision.

China Europe International Business School v Chengwei Evergreen Capital LP (formerly known as Chengwei Ventures Evergreen Fund LP) and others [2021] HKCFI 3513

In the case of China Europe, the Hong Kong Court of First Instance stayed a winding-up petition on just and equitable grounds in favour of arbitration and refused to apply the general principles in relation to case management stays.

This case concerned a winding-up petition on just and equitable ground arising out of a shareholder dispute regarding a joint venture company carrying on a publishing business in Mainland China.

Winding-up proceedings do not fall within s. 20 of the Hong Kong Arbitration Ordinance (Cap. 609) and the Court is not required by s. 20 to refer the parties to the winding-up petition to arbitration and the considerations for a case management stay in winding-up proceedings, as opposed to a stay for arbitration, are different and the Court should only grant a stay when there are very good reasons in rare and compelling circumstances.

However, in this case, the Court confirmed that it has inherent jurisdiction to grant a stay of a winding-up petition in favour of arbitration and in considering whether to grant a stay, the Court will first identify the substance of the dispute between the parties and ask whether or not the dispute is covered by the arbitration agreement. Once it is shown by the party seeking a stay that the substance of the dispute falls within the arbitration agreement, the burden then shifts to the petitioner to satisfy the Court as to why it should be allowed to act in breach of the arbitration agreement by pursuing the dispute in Court and the requirements for “very good reasons” and “rare and compelling circumstances” do not apply.

As such, in finding that the dispute falls under the arbitration agreement, the Hong Kong Court of First Instance granted the stay of the winding-up petition in favour of arbitration.

Other key developments

The HKIAC launched new case management tools and database

On 1 November 2021, the Hong Kong International Arbitration Centre (HKIAC) launched the HKIAC Case Connect, which is a new online case management platform available for all arbitrations administered by the HKIAC free-of-charge. The platform serves as a repository to which all documents may be uploaded and enables the parties and the tribunal to communicate within the platform as well as tracking deadlines and dates on a case-calendar.

Further on 1 December 2021, the HKIAC launched the HKIAC Case Digest, a searchable database of anonymised and summarised procedural decisions taken by HKIAC under various procedural rules which offers insight into HKIAC’s procedural decision-making, including the analyses of HKIAC’s Standing Committees of different procedural issues.

HKIAC released average costs and Duration report

On 22 June 2021, the HKIAC released a report on the average costs and duration of an arbitration administered by the HKIAC under the HKIAC Administered Arbitration Rules for 186 cases in which a final award was issued between 1 November 2013 and 31 May 2021.

According to the report, the average duration of HKIAC administered arbitration is 13 (median)/16.9 (mean) months and the average costs of arbitration is USD64,606 (median)/USD137, 332 (mean) and the average duration for expedited arbitration is 5.8 (median)/5.9 (mean) months with the average costs at USD24,212 (median)/USD51,239 (mean) respectively. The average duration for emergency arbitration is around 19.7 (median)/22.6 (mean) hours with an average cost of USD55,740 (median)/USD52,217 (mean)

Pilot programme to allow Hong Kong lawyers to practice in the greater bay area On 11 August 2020, the Standing Committee of the National People’s Congress announced a pilot programme to allow Hong Kong legal practitioners to provide legal services in nine Pearl River Delta municipalities in the Greater Bay Area on specified civil and commercial matters to which the Mainland laws apply after passing the examination and obtaining a lawyer’s practice certificate. The first Greater Bay Area Legal Professional Exam was held in 2021 and Hong Kong legal practitioners who have passed the exam, including a number of international arbitration practitioners from this firm, are now allowed to practice PRC law in the Greater Bay Area.

This has been a long anticipated and much welcomed development and the pilot scheme will allow better integration and exchange between legal professionals in the two jurisdictions and enables foreign law firms to establish and strengthen their arbitration practices in Mainland China.

The Supplemental Arrangement came into full effect on 19 May 2021. Please refer to the “China” section above for further details.