Background
Z (“the Applicant”) entered into two separate contracts in 2007. The First Contract, namely CKD and Agency Agreement (“CKD Agreement”), was entered between the Applicant and A (“the Respondent no. 1”) along with its affiliated or subsidiary companies. The Second contract, namely Technical Cooperation Agreement (“TC Agreement”), was entered between the Applicant and AGEMA alongwith its affiliated company A. Both agreements contained an arbitration clause stating that the parties agree to resolve disputes by arbitration as per the International Chamber of Commerce Arbitration Rules (“ICC Rules”), and it will held in China. The CKD Agreement, further in clauses 2.3 and 19, specified the governing laws to be Chinese law and the Laws of the People’s Republic of China (“PRC”), respectively. However, the TC Agreement was silent on this matter.
The dispute arose between the parties on account of the alleged breach of both the agreement by the Applicant and the Respondent alongwith its affiliated companies (collectively, “Respondents”) commenced arbitration. Accordingly, the Respondents sent a request to the ICC Court for arbitration on 11 August 2011 as per the arbitration clause under CKD Agreement. In this request, the Respondent also submitted that the place of arbitration shall be Hong Kong SAR, and PRC laws shall govern it, on the basis that Hong Kong is part of China. The Applicant responded to this request by stating that the agreement already mentioned that the place of arbitration shall be China, as the award would be considered a Chinese award; hence, it is not needed for the ICC Court to fix any other place.
In view of the above submissions, the Secretariat of the ICC Court on 16 December 2011, fixed the place of arbitration as Hong Kong SAR under Article 14(1) of the ICC Rules. In response, the Applicant in a letter sent on 30 December 2011 submitted that the place of arbitration mentioned in the agreements is China, which the parties intended to be Mainland China and not Hong Kong. To this, the ICC secretariat on 10 January 2012 again reiterated that Hong Kong SAR is the place of arbitration by the ICC Court.
On 12 January 2012, the ICC court appointed a sole arbitrator upon the recommendation of the Australia National Committee of the ICC. The sole arbitrator addressed the issue: Whether the Arbitral Tribunal has jurisdiction to deal with the issues in dispute in the present arbitration and passed an award stating that the parties could not agree on the place of arbitration; hence, the ICC court was empowered to determine the place of arbitration under Article 14(1) of the ICC Rules, and the place of arbitration shall be Hong Kong SAR. It further held that since the seat of arbitration is Hong Kong SAR, thus the applicable law to determine the jurisdiction of the Arbitrator is Hong Kong Law (“Arbitrator’s decision”).
Aggrieved by the above, the Applicant filed a petition under Section 34 of the Arbitration Ordinance and Article 16 of the Model Law.
Issues and Decision
Whether the tribunal in this case, constituted by the Arbitrator appointed by the ICC Court, has jurisdiction over the dispute as to the alleged breach of the CKD Agreement and the TC Agreement?
The Applicant argued that the ICC Court could not fix Hong Kong as the place of arbitration, when parties already agreed to “China” referring to Mainland China, as the place of arbitration. Hence, the ICC Court determination of the place of arbitration as Hong Kong is wrong and takes the arbitration outside the jurisdiction of the Arbitrator.
The Respondents argued that the ICC Court appointed an arbitrator in accordance with ICC rules, which is irrespective of the meaning of “China” or the applicable law in the agreements. There is no suggestion by the Applicant that the ICC Court did not follow or that the appointment of the arbitrator is not in accordance with ICC Rules.
The Court in this present case held that there is very dispute on the meaning of word “China” as used in clauses 14.1 and 10 (4); hence it cannot be said that parties agreed for a place of arbitration. In this regard, the court referred to the cases of Louis Dreyfuss v Bonarich International (Group) Limited [1997] 3 HKC 597; and Tai Hing Cotton Mil Limited v Glencore Grain Rotterdam BV [1996] 1 HKC 363, at 375A-B wherein, it was held that the dispute exists between parties unless there has been a clear and unequivocal admission of liability and quantum. The Court further added that China resumed its sovereignty on Hong Kong, but Hong Kong retained its own legal system and China & Hong Kong has separate Procedural Laws and different courts. Thus, the expression “China” is not clear in the Agreements. In view of the same, the ICC Court was empowered to determine the place of arbitration under Article 14 of the ICC rules.
The Court rejected the Applicant’s contention that the reference to “China” meant Mainland China. In this regard, the Court applied the principle of construction of contracts established in Fiona Trust & Holding Corporation v Privalov [2007] 4 All ER 951 HL, and Investors Compensation Scheme v West Bromwich Building Society [1998]1 WLR 896, that the judges should put themselves in the place of a rational businessman/reasonable person and interpret the contract in light of the surrounding circumstances. The Court noted that the agreements have been entered between Mainland Chinese Companies and Egyptian Companies with Chinese law as the governing law. In this backdrop, it would be reasonable and rational to assume that the parties were aware that China has resumed sovereignty over Hong Kong and it is legally and geographically part of it. The parties, while drafting the arbitration clause, did not make efforts to aptly mention that it is limited to Mainland China and Hong Kong is excluded from its purview. The Court considered it artificial to interpret the word “China” as meaning “China excluding Hong Kong” when the parties had not expressly used such limiting language. On a plain and ordinary reading of the arbitration clauses, the designation of “China” as the place of arbitration was broad enough to encompass Hong Kong. Therefore, the ICC Court had not erred in selecting Hong Kong as the place of arbitration.
The Court also examined extensive expert evidence on PRC law. The Applicant’s expert opined that an ICC arbitration conducted in Mainland China could face significant legal difficulties. According to him, an ICC award rendered in Mainland China might not be treated as a domestic award, could encounter enforcement obstacles, and, in some circumstances, the arbitration clause itself might be regarded as invalid for failing to identify a specific arbitral institution. In contrast, the Respondents’ expert relied on decisions of the Supreme People’s Court and other Mainland authorities to contend that ICC arbitrations seated in Mainland China were valid and enforceable. While the experts disagreed on the precise state of PRC law, both experts agreed that an ICC award rendered in Hong Kong would be enforceable not only in Hong Kong but also in Mainland China and other jurisdictions that are parties to the New York Convention.
In view of the expert evidence, the Court held that it is risky to fix the place for arbitration in Mainland China as the award may not be enforceable there. Considering the relative certainty attached to Hong Kong Court and by the applying the principle that the interpretation that makes the contract enforceable should be favour, the Court agreed that the arbitration shall take place in the Hong Kong SAR.
Case Details
Citation Codes: [2015] HKCFI 228
Date of Judgement: 29 January 2015
Forum: High Court of First Instance, Hong Kong
Bench: Mimmie Chan J
Author(s)
Ankita Kumari
Student at Savitribai Phule Pune University