The plaintiff, a Hong Kong company, was the claimant in the arbitration. The first defendant was a Cayman-incorporated company and the first respondent in the arbitration. The second  defendant and second respondent in the arbitration was a special purpose fund formed in the Cayman Islands and of which the first defendant was the General Partner. The third defendant (referred to as C) was a PRC resident who applied to join in the arbitration and was made an additional party.

The plaintiff issued an Originating Summons (OS) requesting the court to set aside a Partial Final Award on jurisdiction and for the court to decide the matter of the court's jurisdiction afresh. In turn, the third defendant issued a summons to strike out the OS (summons) claiming that the OS did not open any true question of jurisdiction which was open to the court's review under section 34 of the Arbitration Ordinance (Cap. 609) (the Ordinance).

The dispute was a complex one, arising out of an investment agreement. The plaintiff and the first  defendant were the only named parties and signatories to the agreement. C was never a signatory and was not named in the agreement. The agreement contained an arbitration clause, whereby all disputes arising out of or in connection with the agreement, including the existence and validity of the agreement, were to be referred to and be finally settled by arbitration before the HKIAC.

The plaintiff initiated the arbitration when it made a request for distributions to be paid in respect of the investment and the first and second defendants failed to comply with the plaintiff's instructions.

When C learned of the arbitration, she made a request to be joined, seeking declarations that she was the true principal of the plaintiff in relation to the investment and the beneficial owner. The plaintiff challenged the right of C to be joined in the arbitration. The tribunal went on to issue a Partial Final Award on Jurisdiction on 8 June 2022.

Question of jurisdiction

The court was asked to decide whether the ruling made by the tribunal in the award was a decision on its jurisdiction. C and the first and second defendants contended that no decision had been made by the tribunal on its jurisdiction and that the question of jurisdiction could not be decided by the court under section 34 of the Ordinance.

The Honourable Madam Justice Mimmie Chan said in her view, the award, was indeed a decision on the jurisdiction of the tribunal over C and the parties to the arbitration. All parties including the plaintiff, C as well as the first and second defendants had sought a preliminary decision on C's request for joinder as an additional party, and the plaintiff challenged the tribunal's jurisdiction in the arbitration on the basis that she was not a party to the agreement and had no rights thereunder.

It was clear that from the time the tribunal was first constituted, there had already been a challenge to C's application to be joined as a party, and that the HKIAC's decision to allow the joinder was preliminary only and without prejudice to the right of the plaintiff to challenge the jurisdiction of the tribunal regarding C. There was no basis to characterise the award as anything other than one on a true question of jurisdiction.

Mimmie Chan J rejected the submission made for C that the issue of joinder was not a question of jurisdiction which can be reviewed and decided by the court de novo but should instead be characterised as a decision of the tribunal's exercise of its procedural authority to join a party. The court's conclusion was that the award was one on the jurisdiction of the tribunal and as to the existence of an arbitration agreement between the plaintiff and C and as such, it was open to review by the court. It was not plain and obvious that the OS should be struck out for failing to disclose a cause of action. The strike out summons was dismissed.

Did an arbitration agreement exist?

The more difficult decision was whether the tribunal was correct in its decision that there was an arbitration agreement between the plaintiff and C. It was clear from the authorities that the court is in a position to consider afresh evidence which is adduced before the court. The tribunal's own view of its jurisdiction had no legal or evidential value before the court.

The court could receive evidence which is relevant and admissible, regardless of whether it had been adduced, or could have been adduced before the tribunal. The court was not bound by or limited to either the findings made by the tribunal in the award, or the evidence adduced before the tribunal, even if this might cause prejudice to the other side.

It is interesting that the tribunal relied on the fact that as opposed to the absence of evidence from the plaintiff of any specific ultimate investment purpose or destination for the RMB payments transferred to Madam Z, there were contemporaneous WeChat messages between C and W evidencing "the back-to-back funding arranged and implemented" between C and W for the payment by the Plaintiff for the 2018 Investment. However, the Hong Kong court held that the RMB300 million remittance was part of the regular transfers of funds made for the scheme, rather than for any other specific purpose such as for the private investment of C.  The court did not find that the WeChat messages were sufficient to prove the actual payment made for the purpose C alleged.      

On the evidence before her, Mimmie Chan J found that C had not discharged her burden of proving herself to be the beneficial owner of the investment and the true principal and party to the investment agreement. As she was not the party to the arbitration agreement contained in the investment agreement, the tribunal had no jurisdiction over her claims purportedly made in the arbitration. The award should be set aside as between the plaintiff and C.

Despite the claims made by the first and second defendants, that the tribunal had made findings on the merits which were binding on the plaintiff and on them, Mimmi Chan J found that it was a ruling on the preliminary question of its jurisdiction under section 34 of the Ordinance. Upon setting aside the award, the merits of the claims made by the plaintiff against the first  and second defendants would have to be resolved by the tribunal in the arbitration.

Reflections

The underlying basis for arbitration is consent. Arbitrations are becoming more complicated as there is a growing number of arbitrations that involve more than two parties, or are based on more than one arbitration agreement. Inevitably, this has meant that tribunals have had to grapple with situations where prima facie, there may not be consent. 

The rise of the recognition of joinder reflect the growing recognition of the need for considerations of good administration of justice and efficiency. These principles can be in tension with consent.

In the United States, principles such as equitable estoppel and third-party beneficiary allow a non-party to avail themselves of an arbitration agreement. In civil law jurisdictions such as France, the group of companies doctrine has been used to find arbitration obligations in situations where there have been a number of affiliated companies involved with various contracts, not all of whom are signatories of the particular contracts that contain an arbitration agreement. 

Hong Kong largely follows English law in that it adopts a strict classical contract law doctrine.  When a Hong Kong court determines that the scope of an arbitration clause includes an entity that was not formally a party to the arbitration agreement, it does so on the basis of traditional contractual concepts of consent and privity to contract, strictly applied, or on the basis of theories such as assignment, agency, subrogation, trust, incorporation by reference, and novation. In this case, C had argued that it was the true principal (and beneficial owner) to the contract, and the court had to analyse whether there was an agency between C and the plaintiff.

The tribunal focused on the performance of the agreement. Conduct of the non-signatories, and involvement in a contract, typically pertains to the substantive part of it, rather than the arbitration agreement itself. What tribunals need to bear in mind is that the well-established principle of autonomy of an arbitration agreement must apply in the fullest sense – the consent to arbitrate must exist and be proved autonomously. 

For the non-signatory and the signatory to be bound by the arbitration agreement, there must be clear evidence showing that the parties first became aware of the existence of the arbitration agreement and agreed even tacitly to arbitrate. It is a party's implied consent to arbitrate, and not the remittance of funds for a specific purpose such as for the private investment of C, which should be decisive. Fact patterns and presumptions of consent may lead to the unjustifiable compromise of consent. 

Tribunals also focus their analysis almost exclusively on whether the non-signatory ever consented to arbitrate, while they pay little attention to whether the signatory party has equally consented to arbitrate with the non-signatory party. 

The case illustrates the scope available to the court to intervene in the arbitral process when it takes the view that it has got something badly wrong. A decision on jurisdiction – and whether there is or isn't an arbitration agreement – is fundamental to everything that flows from that and subsequent rulings the tribunal may choose to make.

Here, the clue was in the question, with the award described as a Partial Final Award on Jurisdiction. Sometimes, it makes sense to take labels at face value when preparing challenges before the courts. Doing otherwise can prove costly.