Arbitration ' Stay ' Arbitration Clause ' Loan Agreement ' Action For Dishonoured Cheque (T v W)

• Published date: 22 February 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Stephenson Harwood
• Author: Mr Andrew Rigden Green

Arbitration analysis: The plaintiff (T) made a loan to the defendant (W) pursuant to a loan agreement which contained an arbitration clause. W provided a cheque in part payment of the loan, however, it was dishonoured, T brought an action against W on the cheque in the Hong Kong court. W applied to stay the court action in favour of arbitration under section 20(1) of the Hong Kong Arbitration Ordinance (Cap 609) (which incorporates article 8 of the United Nations Commission on International Trade Law (the "Model Law"). The Hong Kong Court of Appeal upheld the first instance decision to refuse the stay. The Hong Kong Court of Appeal applied the principle set out in CA Pacific Forex Ltd v Lei Kuan Leong that an arbitration clause contained in an underlying agreement would only apply to a bill of exchange with express wording.

Written by Andrew Rigden Green, partner, head of International Arbitration in Greater China, at Stephenson Harwood, Hong Kong.

T v W [2022] HKCU 233

What are the practical implications of this case?

• As a general rule a cheque or bill of exchange will be considered to be an independent obligation from the underlying agreement.
• In determining whether an arbitration clause in an underlying agreement applies to cheques and bills of exchange, the clause is to be construed in the context of the agreement as a whole against the factual matrix, which includes all relevant circumstances. For an arbitration clause in an underlying agreement to apply to cheques or bills of exchange clear and express language will be required.
• The availability of early determination procedure (broadly...