Fung Sang Trading Ltd. v Kai Sun Sea Products & Food Co. Ltd.

HEADNOTE

Arbitration - UNCITRAL Model Law - Article 1 - whether domestic or international - "place where a substantial part of the obligations of the commercial relationship is to be performed" - dispute as to formation of contract - whether court shall rule immediately - Article 16 of Model Law - position if domestic.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

IN THE MATTER OF AN ARBITRATION

___________

JUDGMENT

___________

1. I have before me an application to appoint an arbitrator. This issue raises for the first time in the High Court the application of the UNCITRAL Model Law which has been part of our law of arbitration since 6th April 1990, namely the date of coming into force of the Arbitration (Amendment) (No. 2) Ordinance 1989. The Model Law appears as the 5th Schedule to the Arbitration Ordinance.

2. This case also raises the question whether an arbitrator or arbitral tribunal should rule on the very existence of the contract which contains the arbitration clause.

3. Because of the importance and novelty of these points in the context of the Model Law I heard argument in chambers but said that I would hand down my judgment in open Court.

4. The Arbitration (Amendment) (No. 2) Ordinance 1989 (the 1989 No.2 Ordinance) made substantial and far-reaching amendments to Hong Kong's Law of Arbitration. These legislative changes came about as a result of recommendations from the Law Reform Commission which considered the desirability of adopting the Model Law in Hong Kong.

5. UNCITRAL stands for the United Nations Commission on International Trade Law. On 21st June 1985 the Commission of UNCITRAL completed their drafting of a Model Arbitration Law, which was designed to assist in the harmonisation of the world's differing arbitration laws. On the 11th December 1985, the General Assembly of the United Nations passed resolution 40/72 to the following effect:

"All States give due consideration to the Model Law on Internation Commercial Arbitration in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice."

6. Part IIA of the Arbitration Ordinance applies to an international arbitration agreement and to an arbitration pursuant to an international arbitration agreement. S.34C of the Ordinance provides that:

7. Certain points need to be noted. Firstly, Hong Kong has not adopted Chapter VIII of the Model Law although it is to be noted that this is still set out in Schedule 5.Chapter VIII contains 2 articles dealing with the Recognition and Enforcement of Awards. This was not thought necessary in Hong Kong because Hong Kong is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards by reason of the United Kingdom's accession to that treaty on its behalf. China has also acceded to this convention on 21st April 1987.

8. Secondly, S.34C(2) of the Ordinance expressly deletes the word "commercial" from the phrase "international commercial arbitration".

9. Thirdly, it is the High Court of Hong Kong which is competent to perform the functions assigned to the court in the Model Law.

10. The major philosophy behind the Model Law is that of party autonomy. In recent years there has been a general shift away from court intervention in arbitration towards provisions which solely support the arbitration process and keep judicial review to a minimum. The leave to appeal provisions of the English 1979 Act followed in Hong Kong in 1982 are examples. Under the Model Law, the court cannot intervene on the merits. It can make a number of orders in support of the arbitration process and these are specified. It can, in very limited circumstances, set aside an award or refuse recognition and enforcement on grounds virtually identical to the New York Convention Ground.

11. The Model Law has been adopted in a number of jurisdictions including Scotland, Australia, Canada, Cyprus, Nigeria, Bulgaria and a number of States in the United States of America. Adoption seems imminent in a number of other jurisdictions. Some countries, who have not adopted the Model Law, have in fact amended their arbitration law to bring it more into line with the philosophy behind the Model Law.

12. It is important to note the transitional provisions of the 1989 (No. 2) Ordinance. These were contained in S.26 thereof and now appear as a footnote to S.31 of the Arbitration Ordinance. S.26 reads as follows:

"26. Transitional.

13. Thus where the arbitration is commenced before 6th April 1990 the old law applies. When it is commenced after 6th April 1990 but in respect of an arbitration agreement entered into before that date then the old law applies save that Sections 2B, 2E and 14(3A) of the Ordinance apply in addition to the old law. S.2B deals with the power of an arbitrator to act as a conciliator, S.2E deals with restrictions on reporting of proceedings heard in chambers and S.14(3A) disapplies the strict rules of evidence for arbitration.

14. Thus it will readily be seen that the old law will remain relevant for some considerable time in relation to arbitration agreements entered into before 6th April 1990. The case before me, however, deals with an agreement and consequently a commencement which occurred after that date.

15. Prior to 6th April 1990, the Arbitration Ordinance merely contained a definition of "domestic arbitration agreement". S.23B(8) provided as follows:

"In this section "domestic arbitration agreement" means an arbitration agreement which does not provide, expressly or by implication, for arbitration in a State or territory other than Hong Kong and to which neither:-

16. The scope of application of the Model Law can be found in Articles 1(3) & (4) which reads as follows:-

"(3) An arbitration is international, if:

(a) The parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or

(b) One of the following places is situated outside the State in which the parties have their places of business:

17. Thus it can be seen that the test is initially a place of business test. However, an arbitration will still be international, despite both parties having their places of business in the same State, if "any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected" is outside the State in which the parties have their place of business.

18. Thus it is quite possible for 2 Hong Kong parties to enter into a contract in Hong Kong, under Hong Kong Law and still find themselves in an international arbitration if substantial performance of the obligations of the commercial relationship is outside Hong Kong. In those circumstances, unless they have opted out of the Model Law into the domestic regime, the Model Law regime will apply (see...