Hong Kong Arbitration Case (1): Contractual Place of Arbitration ‘China’ = ‘Hong Kong’? Briefing on the case of Z v A & ORS in the CFI

Hong Kong Arbitration Case (1): Contractual Place of Arbitration ‘China’ = ‘Hong Kong’? Briefing on the case of Z v A & ORS in the CFI

Case name: Z v A & ORS – [2015] 2 HKC 272

Facts of the case

The parties had contractually agreed that the ICC Arbitration Rules would apply to the arbitration, that the place of arbitration would be China, and that the substantive law applicable to the contract would be Chinese Law. After a dispute arose and the parties could not agree on which city in China the arbitration should take place, one party (Party A) applied to the International Court of Arbitration of the ICC, arguing that the place of arbitration should be Hong Kong, China. The other party (Party Z) argued that the agreed place of arbitration was China, meaning only Mainland China, and the ICC tribunal found that the parties had not agreed on the place of arbitration and, in accordance with the ICC Arbitration Rules, determined that the place of arbitration should be Hong Kong, China, and that the arbitration proceedings would be governed by Hong Kong law. The arbitrator then made orders relating to the arbitration proceedings with Hong Kong as the place of arbitration, and party Z applied to the Hong Kong court for confirmation that the arbitrator had no power to make such orders.

Summary of the Court’s Judgment

The court held that

1. where the place of arbitration is Mainland China, an arbitration conducted by an ICC arbitral tribunal may be invalid under the Civil Procedure Law and the Arbitration Law of Mainland China, and an arbitral award made by an ICC arbitral tribunal may not be enforceable in Mainland China. If the place of arbitration is in Hong Kong, the arbitration and the award made by the ICC arbitral tribunal are fully valid under Hong Kong law, and the arbitration award made by the ICC arbitral tribunal in Hong Kong can be enforced in the Mainland.
2. an important principle of contract interpretation is that the parties to a contract cannot intend to enter into an invalid arbitration clause, and in interpreting the terms of a contract, the court should be inclined to choose the interpretation that will make the terms of the contract legally valid and enforceable.
3. Hong Kong is part of China in both the geographical and legal sense. The place of arbitration was agreed to be ‘China’. As the Mainland and Hong Kong have different legal systems, there was no unanimous and clear agreement on the place of arbitration. Under the ICC Arbitration Rules, the arbitral tribunal has the power to rule on the place of arbitration.
4. According to the principle of contractual interpretation, it must have been the intention of the parties to enter into the contract that the place of arbitration chosen by the parties, ‘China’, should be interpreted as ‘Hong Kong, China’, so that the arbitration conducted by the ICC Arbitration Tribunal would be valid and the arbitral award could be enforced in the Mainland. Therefore, the ICC tribunal would not have erred in determining that the place of arbitration was Hong Kong, China.

As to the law applicable to the arbitration clause agreed in the contract (whether it was the law of the Mainland of China or the law of Hong Kong) and the validity of the arbitration clause, Z originally argued that the arbitration clause was invalid because it was applicable to the law of the Mainland of China. Regrettably, Z’s counsel chose to abandon this claim as the Court did not comment on it.

Note: This case was decided by the Court of First Instance and is therefore not binding as a precedent.

The original judgement: click here

For advice on arbitration in Hong Kong or enforcement of arbitral awards in Hong Kong, please consult our Hong Kong arbitration lawyers.

(Bob Yan, principal solicitor of Yan Lawyers, solicitors. Email: [email protected], Tel: +852 31881995, +86 15018939249, WhatsApp: +852 5103 9249)