Hong Kong Court Of Final Appeal Confirms That Arbitrators, Not Courts, Have Final Say On Whether A Party Has Complied With A Multi-tiered Dispute Resolution Clause

• Law Firm: Mayer Brown
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Author: Mr Yu-Jin Tay, Kate H. Apostolova, Matt C. Shaw, Edern Co'nt, Charles K. S. Tay, Maleeha Khan and Beatrice Tsang
• Published date: 10 July 2023

In C v. D [2023] HKCFA 16, the Hong Kong Court of Final Appeal put an end to the debate over whether non-compliance with a multi-tiered dispute resolution clause (MDR clause) would deprive an arbitral tribunal of jurisdiction to hear the dispute. The Court of Final Appeal decided that, absent clear language to the contrary, the question of compliance with an MDR clause is an admissibility question and is thus a matter for tribunals to decide, and is not subject to judicial review.

Key Takeaways

• This decision in Hong Kong is to be welcomed. It limits challenges to the tribunal's jurisdiction on the basis of compliance with an MDR clause (a clause containing pre-arbitration steps, such as requiring negotiations or mediations or both, before commencing arbitration).
• The decision also limits the need for judicial intervention in the arbitral process. The Court of Final Appeal has made it clear that, absent unequivocal language to the contrary, it will not interfere with an arbitral award on the basis of the tribunal's decision on compliance with an MDR clause.
• In this decision, the Court of Final Appeal affirmed the distinction between "jurisdiction" and "admissibility". Generally, "inadmissible" claims are those which fall within the tribunal's jurisdiction but which are not appropriate for the tribunal to decide on the merits. They are to be contrasted with claims over which the tribunal does not have jurisdiction, i.e. claims in respect of which the tribunal has no power to decide at all. A decision by the tribunal on admissibility has important practical consequences for the parties. Parties cannot ask the supervisory court to review and potentially set aside, an arbitral award on the basis of the tribunal's decision on admissibility issues. On the other hand if the issue is jurisdictional in nature, then judges would normally exercise some scrutiny over the tribunal's award and could potentially set it aside.
• Parties should now be well aware of this distinction, and not simply assume that pre-arbitral steps are jurisdictional and subject to judicial review.
• Importantly, this decision does not mean that parties are unable to make compliance with pre-arbitral steps a jurisdictional issue. If they wish to do so, parties are free to expressly state that the specific steps are pre-conditions to jurisdiction.

Background

The cooperation agreement between the parties contained an MDR clause which required the parties to conduct good faith negotiations for a...