Herbert Smith Freehills has secured a landmark judgment from the Hong Kong Court of Final Appeal, with significant practical implications for thousands of commercial contracts.
In C v D [2023] HKCFA 16, the CFA confirmed that arbitrators, not the courts, should have the final say on whether a party has complied with an escalation clause – a contractual dispute resolution mechanism that is commonly incorporated into international construction contracts and pursuant to which parties agree (for example) to negotiate, or mediate, before commencing arbitration.
Previously, failure to comply with such an escalation mechanism had left arbitral awards vulnerable to challenge, on the basis that the arbitrators lacked jurisdiction to hear the case unless and until the escalation steps had been followed. The risks of such a challenge were particularly acute in cases where the precise escalation requirements were uncertain or open to interpretation.
The CFA has now confirmed that these matters do not affect the jurisdiction of the arbitrators. Accordingly – and absent exceptional circumstances – any such questions regarding compliance can be finally settled by the arbitrators chosen by the parties. This is a long-anticipated and hugely welcome decision, which narrows the scope for judicial intervention in the arbitral process and brings greater certainty. Furthermore, as Hong Kong adopts the UNCITRAL Model Law on arbitration, this decision will have persuasive effect in 118 other model law jurisdictions.
In a recent post on our Arbitration Notes blog, our team who successfully argued the case in the Court of Final Appeal have given their overview and comment on the decision. The full post can be read here.
