4 May, 2016
In a recent decision, Hong Kong’s High Court confirmed that its Court of First Instance (CFI) decisions to stay court proceedings in favour of arbitration are not subject to appeal and that this is not unconstitutional (Wing Bo Building Construction Company Ltd v Discreet Ltd, HCA 146/2015).
The arbitration clause
This was a construction dispute between a building contractor (Plaintiff) and property owner/employer (Defendant). The relevant contract contained an arbitration clause providing for submission of any disputes or differences to arbitration.
The “Unconstitutional” argument
The Plaintiff commenced legal proceedings, claiming a sum due under the contract. The Defendant applied to stay the proceedings in favour of arbitration, but the CFI Master dismissed that application. On appeal, a CFI judge granted an order that the proceedings be stayed in favour of arbitration (the Order). The Plaintiff then sought the CFI’s leave to appeal the Order to the Court of Appeal, but the Defendant argued that the Order was not appealable because section 20(8) of the Arbitration Ordinance (AO) provides that CFI decisions to stay proceedings in favour of arbitration are not subject to appeal. The Plaintiff argued that section 20(8) was unconstitutional, as it disproportionately restricts the power of final adjudication conferred upon the Court of Final Appeal by Article 82 of the Basic Law. Article 82 provides that the power of final adjudication of the Hong Kong Special Administrative Region shall be vested in the Court of
Final Appeal.
Section 20(8) of Arbitration Ordinance
The Court held that it is plain that section 20(8) of the AO envisages that there will be no appeal from a CFI decision to refer the parties to arbitration. Since section 20(8) has the effect of eliminating appeals to the Court of Appeal, which in turn eliminates appeals to the Court of Final Appeal, Article 82 of the Basic Law is engaged. Therefore it is necessary to examine the nature of 20(8) against the proportionality test. That test requires that a restriction must have a legitimate aim, must be closely connected to such aim and be no more than necessary to achieve that aim.
The aim of the AO, the Court said, is to “facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense”, and the principles underlying such ordinance are that “subject to the observance of the safeguards that are necessary in the public interest, the parties to a dispute should be free to agree on how the dispute should be resolved” and “that the court should interfere in the arbitration of a dispute only as expressly provided for in [the AO]”. Hence, the AO “minimizes the possibility of judicial intervention so as to reduce costs and allow for court resources to be allocated to matters other than arbitration. Meanwhile, the judicial intervention permitted by the [AO] is predominantly in relation to matters that support the arbitral process, such as enforcement, collection of evidence and lending greater weight to the directions of the arbitral tribunal: see section 13”.
The Court said that although the nature of the restriction/limitation in section 20(8) of the AO is absolute, it is not final because if the arbitral tribunal seizes jurisdiction in respect of the dispute, an aggrieved party can apply to the court to challenge the arbitral tribunal’s jurisdiction under section 34 of the AO and Order 73 of the Rules of High Court.
Thus, given that the Court granted the Order to refer the dispute to arbitration, the Plaintiff can seek to persuade the eventual arbitral tribunal that it has no jurisdiction to deal with the matter. Should the arbitral tribunal rule against the Plaintiff’s contention and seize jurisdiction over the matter, the Plaintiff can still apply to the court to challenge the arbitral tribunal’s jurisdiction. Should the arbitral tribunal rule otherwise in favour of the Plaintiff’s contention, it is the Defendant who will be debarred from raising any appeal against such decision, and despite the Order the court will have to decide the dispute. When so analysed, it is plain, the Court said, that whilst the court’s decision to refer the parties to arbitration is not subject to appeal, such decision is not final, and there is an avenue to challenge such decision.
The Court said that proportionality should be considered against the overall scheme of the AO. In the Court’s view, the scheme, which includes section 20(8), is within the range of reasonable options which the legislature can adopt to achieve the legitimate aims of the AO and hence this court should accord the appropriate margin of appreciation to the measure adopted in section 20(8) in the AO passed by the Legislative Council.
Court’s ruling
Accordingly, the Court rejected the Defendant’s challenge against the constitutionality of section 20(8) of the AO and concluded that the Order was not subject to appeal under section 20(8) of the AO, and hence there was no basis to entertain the summons seeking leave to appeal the Order.
Comment
In coming to it’s decision, the Court referred to the decision in China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers [2016] 1 HKC, in which the Court of Appeal held that it did not have power to entertain an appeal against a decision of the CFI refusing to set aside an arbitration award when the judge refused to grant leave to appeal because section 81(4) of the New AO provides that such appeal can only be brought with the leave of the CFI. This again emphasizes the Courts’ pro-arbitration approach.
