In T v W  HKCA 95, the Hong Kong Court of Appeal gave reasons for refusing a stay to arbitration a court action brought on a dishonoured cheque because of an arbitration clause in the underlying loan agreement between the parties.
The plaintiff agreed to lend HK$5 million to the defendant for one year by way of a written agreement dated 21 March 2017. Interest was to be payable each month at the rate of 2.5 percent per month. The loan was to be repaid by way of post-dated cheque.
The loan was not repaid and the parties agreed to extend the repayment date. They subsequently agreed to extend the repayment date again with the principal being due in September 2019. The loan was still not repaid at that date and the parties entered into a supplemental agreement under which the loan was to be repaid in March 2020. When the sum remained unpaid, the plaintiff brought court proceedings to recover the debt which the defendant applied to stay to arbitration on the basis of a clause in the underlying loan agreement:
"Matters not covered shall be dealt with through friendly negotiation. This loan agreement is subject to the laws of Hong Kong. In case of any disputes, they shall be dealt with through arbitration in Hong Kong". (English translation)
The Court of Appeal agreed with the first instance decision of the Honourable Madam Justice Mimmie Chan that the post-dated cheque was a separate contract from the underlying loan agreement and that bills of exchange are generally regarded as the equivalent of cash.
The Court of First Instance observed that the Court of Appeal in CA Pacific Forex Ltd v Lei Kuan Ieong  1 HKLRD 462, had held there must be a "plain manifestation in the arbitration clause that it is to apply to bills of exchange if the presumption against taking bills of exchange into arbitration is to be rebutted".
The Court of First Instance had rejected the defendant's submission that the court should instead adopt the "one-stop shop dispute resolution presumption" following Fiona Trust & Holding Corporation v Privalov  UKHL 40.
Construing the loan agreement as a whole, the Court of Appeal agreed with the Court of First Instance that the word "disputes" in the arbitration clause was to be construed to mean disputes relating to the loan agreement, the parties' claims, and liabilities thereunder only. There was no sufficiently plain indication that the parties intended the arbitration clause to extend to claims under the cheque.
The Court of Appeal was unable to find that CA Pacific Forex was "plainly wrong" since in Hong Kong, the case had been preceded by at least two first instance decisions by experienced judges to like effect. Fiona Trust was not a case concerned with bills of exchange, to which a competing principle was also applicable.
The approach in CA Pacific Forex had also been applied in Singapore, "a jurisdiction that has adopted both the UNCITRAL Model Law and the Fiona Trust approach of presuming that all disputes between parties fall within the scope of the arbitration clause unless shown otherwise".
- There must be an express indication in the arbitration clause that it is to apply to bills of exchange if the presumption against taking bills of exchange into arbitration is to be rebutted.
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, Timothy Hill, and Nigel Sharman.