C v D

CACV 387/2021

[2022] HKCA 729

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 387 OF 2021

(ON APPEAL FROM HCCT NO 24 OF 2020)

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J U D G M E N T

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Chow JA (giving the judgment of the Court):

INTRODUCTION

1. The principal issue which arises for determination in this appeal is whether an arbitral tribunal’s determination that a pre-arbitration procedural requirement in an arbitration agreement that the parties thereto should first attempt to resolve their dispute by negotiation has been fulfilled is subject to recourse to the court under Article 34(2)(a)(iii) or (iv) of the UNCITRAL Model Law.

BASIC FACTS

2. In what follows, unless the context indicates otherwise, references to:

(1) “Section” and “s” shall be to the Arbitration Ordinance, Cap 609 (“the Ordinance”);

(2) “Art” shall be to the UNCITRAL Model Law (“the Model Law”);

(3) “Clause” shall be to the Co-operation Agreement of the parties dated 15 December 2011 (“the Agreement”).

3. The relevant background facts of this case have been set out in the judgment of G Lam J (as he then was) dated 24 May 2021 (“the Judgment”), from which the present appeal is brought. For the purpose of disposing of this appeal, the following brief summary, taken largely from the Judgment, should suffice.

4. The Plaintiff (“C”) is a Hong Kong company, and carries on business as an owner and operator of satellites. The Defendant (“D”) is a Thai company that carries on business as a satellite operator in the Asia Pacific region.

5. The government authorities of the PRC and Thailand each holds certain frequency priority rights to an orbital slot at 120º East Longitude in the geostationary arc (“the Orbital Slot”).

6. C and D wished to operate, or secure the right to operate, a satellite using the frequencies held by the government authorities of the PRC and Thailand respectively at the Orbital Slot, and entered into the Agreement for the development, building and deployment of a satellite (“Satellite A”) at the Orbital Slot.

7. Under the Agreement, C is to take the lead and fully manage the procurement of Satellite A, including its design, construction and launch. Satellite A has 28 transponders, ie the equipment used to transmit broadcasts to, and receive broadcasts from, Earth. Half of the transponders belong to C, and the other half belong to D (referred to as “the Thai Payload”). Each party has the exclusive rights to utilize its own transponders. Clause 4.7 provides that C is to control only its portion of the payload on Satellite A, except that in an emergency and solely for the safety of the satellite, C may exercise control over the whole of Satellite A. The Agreement is to continue in force for the operating life of Satellite A unless terminated earlier.

8. Satellite A was launched in September 2014. In 2016, a dispute arose between the parties relating to the video content of the broadcast from the Thai Payload. To broadcast video content into the PRC, approval of the State Administration of Press, Publication, Radio, Film and Television (“SARFT”) of the PRC was required. In the course of its satellite monitoring, SARFT noticed that certain video signals from the Thai Payload of Satellite A were reaching the PRC. On 1 April 2016, SARFT issued a notice requiring C to take steps to ensure that all foreign television business on the Thai Payload was shut down. C forwarded the notice to D requesting it to cease its video broadcasting pursuant to Clause 6.3(b). That clause states as follows -

“In the event [C] notifies [D] of a request from the relevant PRC Governmental Authority to cease the transmission of specific broadcast content on the [Thai Payload], then [D] shall forthwith cease transmission of such specific broadcast content or service.”

9. D considered that it was not obliged to comply with C’s request because it was not a request to cease transmission of specific broadcast content within the meaning of Clause 6.3(b). The subsequent arbitration of this dispute resulted in an award in favour of D dated 11 October 2017.

10. Following this award, in late 2017, D indicated its intention to resume television broadcasts from Satellite A, while C contended that any such broadcast would be subject to termination pursuant to a notice from SARFT that was specific enough under Clause 6.3(b). Discussion ensued between C and D with a view to finding an amicable solution, but no compromise was reached.

11. By a letter dated 1 November 2018, C’s solicitors (Baker & McKenzie, “B&M”) formally demanded D to remove certain video content, believed to be a “test carrier”, at one of its transponders on Satellite A. The demand was rejected by D’s solicitors (Herbert Smith Freehills, “HSF”) by a letter dated 8 November 2018. In response to C’s inquiry, on 27 November 2018, the National Television and Radio Administration of the PRC (which had taken over SARFT’s functions) required C to cease transmission of television programmes from the Thai Payload in accordance with SARFT’s notice of 1 April 2016. On 4 December 2018, D uplinked further video content at another transponder in the Thai Payload.

12. By B&M’s letter dated 6 December 2018, C gave notice to D that if it did not cease the video transmission complained of by 3 pm HK time on that day, C would cease the video transmission of the said transponders immediately without further notice. On the same day, at 3:33 pm HK time, C issued commands to Satellite A switching off the two transponders concerned. D considered that C’s action constituted a repudiatory breach of the Agreement and a material default under Clause 8.2 thereof[1].

13. At this juncture, it is relevant to refer to the dispute resolution provision contained in the Agreement. Section 14 of the Agreement (sub-titled “Governing Law and Dispute Resolution”) states as follows:

“[14.1] Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of Hong Kong, without regard to the principles of conflicts of law of any jurisdiction.

[14.2] Dispute Resolution. The Parties agree that if any controversy, dispute or claim arises between the Parties out of or in relation to this Agreement, or the breach, interpretation or validity thereof, the Parties shall attempt in good faith promptly to resolve such dispute by negotiation. Either Party may, by written notice to the other, have such dispute referred to the Chief Executive Officers of the Parties for resolution. The Chief Executive Officers (or their authorized representatives) shall meet at a mutually acceptable time and place within ten (10) Business Days of the date of such request in writing, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute through negotiation.

[14.3] Arbitration. If any dispute cannot be resolved amicably within sixty (60) Business days of the date of a Party’s request in writing for such negotiation, or such other time period as may be agreed, then such dispute shall be referred by either Party for settlement exclusively and finally by arbitration in Hong Kong at the Hong Kong International Arbitration Centre … in accordance with the UNCITRAL Arbitration Rules in force at the time of commencement of the arbitration …

(e) Any award made by the arbitration tribunal shall be final and binding on each of the Parties that were parties to the dispute. To the extent permissible under the relevant laws, the Parties agree to waive any right of appeal against the arbitration award.”

14. On 24 December 2018, the Chief Executive Officer of D issued a letter (“the December Letter”) to the Chairman of C, copied to other directors of C. The Chief Executive Officer of C also received a copy of the December Letter from its Chairman. So far as material, the December Letter reads as follows:

“Dear Chairman of the Board of Directors

Re: Cooperation Agreement between [C] and [D]

We write with regard to the recent serious breach of the Cooperation Agreement by [C], which now requires your urgent attention.

Our legal representatives have written separately to your lawyers on this issue, but have not received a satisfactory response. Given the longstanding cooperation between our two companies, [D] is raising its concerns directly with [C’s] board in a final effort to resolve this issue and avoid further legal proceedings.

…

Breach of the Cooperation Agreement

… [D] has therefore received legal advice that [C]’s actions constitute a repudiatory breach of contract under Hong Kong law, and a material default under Section 8.2 of the Cooperation Agreement.

Proposed Solution

[D], through its lawyers, has already served a notice of material default under the Cooperation Agreement. It is therefore clear from the correspondence that a relevant dispute now exists for the purpose of Section 14 of the Cooperation Agreement.

In accordance with the contract, [D] now invites [C’s] Board to reconsider its position and avoid further legal proceedings by taking all necessary steps to reinstate the relevant transponders and desist from any further interference with [D]’s portion of the payload.

[D] is willing to refer the dispute to the parties’ respective senior management teams in accordance with Section 14.2 of the Cooperation Agreement if necessary. Unless the dispute can be resolved...