HKIAC Tribunal Does Not Have Jurisdiction Over Claims Under Related Agreement, Hong Kong Court Rules

Published date19 March 2024
Subject MatterLitigation, Mediation & Arbitration, Arbitration & Dispute Resolution
Law FirmHerbert Smith Freehills
AuthorMs Kathryn Sanger, Antony Crockett and Martin Wallace

The Hong Kong Court of First Instance has reversed the decision of an HKIAC tribunal appointed under a loan agreement that it had jurisdiction to determine claims under a related promissory note containing a different HKIAC arbitration clause (AAA, BBB, CCC v. DDD [2024] HKCFI 513).

The decision provides helpful guidance on the approach which the Hong Kong courts are likely to take in multi-contract scenarios where a dispute potentially falls within the scope of more than one different or conflicting dispute resolution provision.

Background

The transaction was documented in (i) a loan agreement between the borrower, the lender and two guarantors, (ii) a promissory note issued to the lender by way of security and signed by the borrower and the guarantors, and (iii) various other security documents concluded by the borrower and the guarantors in favour of the lender.

The loan agreement and the promissory note both provided for HKIAC arbitration, but with two differences. First, the promissory note imposed a 30-day negotiation period prior to arbitration, whereas the loan agreement did not. Second, the promissory note did not specify the number of arbitrators, whereas the loan agreement specified that there should be three arbitrators. The other security documents contained different dispute resolution provisions.

The lender commenced an HKIAC arbitration against the borrower and the guarantors after the borrower failed to repay the loan. The notice of arbitration indicated that the arbitration was being brought under the dispute resolution provisions of the loan agreement, although it referred to and exhibited the promissory note. In the statement of claim, the lender asserted (in response to arguments by the guarantors that they had been released from their obligations under the loan agreement) that in any event the guarantors remained liable under the promissory note. The lender did not seek relief under the promissory note in the statement of claim, but subsequently signalled its intention to do so.

The borrower and the guarantors challenged the jurisdiction of the tribunal to hear the lender's claims against the guarantors under the promissory note.

The tribunal ruled that it had jurisdiction over those claims, because the notice of arbitration mentioned and exhibited the promissory note and therefore implicitly referred the lender's claims under it to arbitration.

The borrower and the guarantors applied to the court to overturn the tribunal's decision...

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