English Court Clarifies What Law Governs Procedure Applied In Hong Kong Arbitration

Shagang South-Asia (Hong Kong) Trading Co Ltd v. Daewoo Logistics (The Nikolaos A) [2015] EWHC 194 (Comm)

A recent Commercial Court decision considered the position when a contract provides for the law of one jurisdiction to be applicable, but for the arbitration to take place outside that jurisdiction. Unless the parties have clearly and expressly provided to the contrary, the law governing the arbitration procedure will be that of the seat of the arbitration.

The background facts

The underlying dispute in this case concerned alleged short landing of a cargo of steel products at Jebel Ali in 2008. Claims arose and were passed down the charterparty chain. The charterparty between Shagang and Daewoo was one of the links in that chain. The Fixture Note provided as follows:

"23. ARBITRATION: ARBITRATION TO BE HELD IN HONG KONG. ENGLISH LAW TO BE APPLIED.

24. OTHER TERMS/CONDITIONS AND CHARTER PARTY DETAILS BASE ON GENCON 1994 CHARTER PARTY."

Many readers will be familiar with the Gencon 1994 form and with the law and arbitration clause found at clause 19 of that form. That clause provides a series of options for the parties to select and further states that, if none of the options are selected, the first of those options is to apply. That first option, clause 19(a), provides for the application of English law and the resolution of disputes in London arbitration.

Daewoo purported to commence arbitration against Shagang by appointing Timothy Rayment as arbitrator. Shagang did not respond to the request that they appoint their own arbitrator, so Daewoo purported to appoint Mr Rayment as sole arbitrator. Shortly thereafter, Shangang instructed English solicitors, who queried the appointment of Mr Rayment and thus his jurisdiction as arbitrator. Shagang's argument was that the seat of the arbitration was Hong Kong and that the applicable procedural law was, therefore, Hong Kong law. Accordingly, the Hong Kong Arbitration Ordinance (the "HKAO") applied. They further argued that it followed from this that Mr Rayment had not been validly appointed and lacked jurisdiction.

Mr Rayment made an award on his own jurisdiction. He found that English law governed the conduct of the arbitration proceedings, even though the seat of the arbitration was Hong Kong. He also held that Gencon clause 19(a) applied and that, therefore, he had been validly appointed as sole arbitrator. Shagang appealed to the Court under s.67 of the Arbitration Act 1996, which deals...