No implied provision for appeals on questions of law in share purchase agreement, Hong Kong court rules

The Hong Kong Court of First Instance has dismissed an application for leave to appeal against an award on questions of law because the legal regime for such appeals set out in Schedule 2 to the Hong Kong Arbitration Ordinance did not apply (Sun Tian Gang & Others v. Hong Kong & China Gas (Jilin) Limited [2024] HKCFI 1597).

Although appeals on questions of law are not available by default under the Hong Kong Arbitration Ordinance, the Schedule 2 regime can apply either as a result of an express "opt in" by the parties (pursuant to section 99 of the Arbitration Ordinance), or automatically where the arbitration agreement was concluded before 1 June 2017 and provides for "domestic arbitration" (pursuant to section 100 of the Arbitration Ordinance; see our previous post here for details).

The arbitration clause in this case (which provided for UNCITRAL arbitration administered by the HKIAC) was concluded prior to the entry into force of the current Arbitration Ordinance on 1 June 2011, and therefore could not have contained an express "opt in" to the Schedule 2 regime.  There was no dispute that the clause did not expressly provide for or mention "domestic arbitration".

The award debtor nevertheless argued that the arbitration agreement impliedly provided that the arbitration would be a domestic one, because (i) if the parties had arbitrated their dispute before 1 June 2011 under the "old" Arbitration Ordinance (which applied prior to that date), the arbitration would have been domestic because of various allegedly domestic elements, and (ii) at the time when the parties concluded the arbitration agreement, they had agreed and intended that there would be a right to appeal on questions of law.  The "old" Arbitration Ordinance specifically provided for appeals on questions of law in the case of "domestic" arbitrations (which were defined as arbitrations which were not "international").

Mimmie Chan J rejected this argument on the basis that (as previously held in A v. D [2017] 1 HKLRD 779) Schedule 2 only applies pursuant to section 100 where the arbitration agreement "has provided that" the arbitration is a domestic arbitration.  The fact that the arbitration would have been a domestic arbitration under the "old" Arbitration Ordinance because the parties were Hong Kong residents or had a place of business in Hong Kong (such that appeals on questions of law would have been available) could not per se mean the arbitration agreement "provided" for domestic arbitration.  This would be contrary to the purpose of the unitary regime introduced by the current Arbitration Ordinance, which abolished the distinction between domestic and international arbitrations and the need to consider the characteristics of the parties and the manner of performance of the contract when determining the availability of appeals on questions of law.  The court noted that: "The very aim of the [current Arbitration] Ordinance was to dispense with the need to make such arguments by dispensing with the distinction between domestic and international arbitrations."

The court distinguished its decision in Employer v. Consultant [2022] HKCFI 887, in which it held that there was implied provision for domestic arbitration because the arbitration agreement expressly provided for the application of the 1993 HKIAC Domestic Arbitration Rules.  In contrast, there was nothing in the arbitration agreement in this case which implied provision for the arbitration to be domestic.

The court also rejected an argument by the award debtor that section 100 should be "read down" and construed in such a way so as not to abrogate the parties' fundamental right of access to the courts, in order not to violate the principle of legality (which requires that any restriction of fundamental rights by statute should be done clearly and unmistakably).  It was not justifiable to adopt a construction which was contrary to the plain meaning of both the specific provision in question and the entire legislative intent of the Ordinance.  Fundamental rights could be abrogated by statute, and section 100 was clear and unambiguous in its language.  Where the parties had chosen arbitration for the resolution of disputes, their right of access to the courts was understood and accepted to be limited, and there was nothing unfair or unjust in holding them to their agreement.

Finally, the court noted that the award debtor's contention that it should respect and uphold the contractual bargain between the parties begged the question as to the nature of that bargain.  The evidence that the parties had intended the arbitration to be domestic, and that it would have been a domestic arbitration if arbitrated before 1 June 2011, was "not unequivocal" (for example, it was arguable whether the award creditor had a place of business in Hong Kong, and the contract was for the sale and purchase of shares in a BVI company).  The court also accepted the award creditor's submission that, if the legislative intent had been for arbitration agreements made before 1 June 2011 to be presumed to be for domestic arbitration where they did not specify international arbitration, section 100 would have provided for this. 

This is the second decision of the Court of First Instance in recent weeks, and the third in recent months, to refuse leave to appeal on questions of law (albeit for different reasons in each case).  In W v. Contractor [2024] HKCFI 1452 (reported here), leave to appeal on questions of law against an interim injunction granted by an arbitrator to restrain calls upon a bond in a construction dispute was dismissed because the "award" granting the injunction was in substance an interim order and therefore not subject to challenge or appeal.  In Employer v. Contractor [2023] HKCFI 2911 (reported here), leave to appeal a construction award on points of law was refused because the decision of the arbitrator on the relevant issues was not “obviously wrong” or “open to serious doubt”.