T and B entered into "back to back" construction contracts for reclamation works. T alleged that B committed various breaches of the contract. The contract contained an arbitration agreement which provided for arbitration on the condition that a completion certificate had been issued.
T sought to refer the dispute to arbitration, but B objected that the reference was premature because the completion certificate had not been issued. The parties and the tribunal referred to this objection as a "jurisdictional challenge". The arbitrator by an interim award ruled that he did not have jurisdiction to hear the substantive disputes on the basis that T's purported commencement of arbitration was premature.
T applied to set aside the award under section 81 of the Arbitration Ordinance (Cap. 609) on the basis that the arbitrator had only been appointed to determine the "jurisdictional challenge", and not to construe the relevant clause of the contract. Also, the clause was not valid in itself because it precluded the right to have disputes heard and determined within the statutory limitation period.
T brought court proceedings against B and B applied to have the proceedings stayed in favour of arbitration.
The Hong Kong Court of first instance relied on the earlier judgment of C v D [2021] 3 HKLRD 1, in which the court had found that it must confine itself to true questions of jurisdiction. A "jurisdictional challenge" targets the power of the tribunal to hear a claim, whilst an "admissibility challenge" asks whether it is appropriate for the claim to be heard by the tribunal, despite it having power to do so.
A challenge concerning the timing of when to initiate arbitration is a question of admissibility, just as are other pre-arbitration conditions such as issuance of notices in advance.
The court agreed with the C v D approach. It made commercial sense, respected the parties' autonomy, and was in line with the general trend of facilitating the fair and speedy resolution of disputes by arbitration without unnecessary expense.
The court added that, if the court were the "master of its own procedural rules, so should be the arbitral tribunal". A tribunal's decision on the parties' compliance or non-compliance with pre-arbitration procedures or conditions should be final and not open to review by the court.
The court found it was necessary for the arbitrator to construe the contract (and hence the arbitration agreement), so as to determine the jurisdictional challenge. A limitation defence did not necessarily accrue by virtue of the operation of the clause.
Key takeaways
- Compliance with preconditions to arbitration goes to admissibility and not jurisdiction.
- A party's compliance or non-compliance with pre-arbitration conditions will not be subject to review by the courts.
Please see our publication Arbitration Highlights in the Year of the Tiger for other significant arbitration decisions in the past year.
Authored by James Kwan and Nigel Sharman.
