C v D: Compliance with Pre-Arbitration Conditions — A Question of Admissibility Rather than Jurisdiction

In the recent decision of C v D,[1] the Hong Kong Court of Final Appeal (“HKCFA”) unanimously found that when an arbitral tribunal concludes that pre-arbitration conditions in an arbitration agreement have been met, this is not reviewable by a court in a proceeding to set aside the award.

In reaching this conclusion, the majority adopted a conceptual distinction between subject-matter jurisdiction and procedural “admissibility” of a matter to arbitration.[2] The majority found effectively that non-compliance with pre-arbitration conditions does not negate an arbitral tribunal’s jurisdiction over a dispute; rather it merely renders the dispute not yet admissible to arbitration.

Because the question of compliance does not affect the tribunal’s jurisdiction, it is not jurisdictional in nature, and cannot be reviewed by a court (unless otherwise specified by the parties), even if the question was raised as an objection to the tribunal’s jurisdiction.

Given the similarities between Hong Kong and Canada as Model Law[3] jurisdictions, and the application of the jurisdiction/admissibility distinction in some other common law jurisdictions (in the territorial sense of the word), C v D will therefore be of interest to Canadian readers.

The Facts

Company C (“C”)[4] was a Hong Kong company that owned and operated broadcasting satellites. Company D (“D”) was a Thai company that operated satellites in the Asia Pacific. The two entered into a cooperation agreement in December 2011 (the “Agreement”) regarding a jointly-owned satellite. The Agreement contained the following clauses regarding dispute resolution:

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 (‘HKIAC’) in accordance with the UNCITRAL Arbitration Rules in force at the time of commencement of the arbitration (the ‘Rules’)…[5]

The foregoing clauses effectively called for a tiered or cascading dispute resolution procedure. Clause 14.2 required an attempt at good faith negotiations, while Clause 14.3 required that 60 Business days elapse between the written request for negotiations and a referral to arbitration.

On December 24, 2018, D sent a letter to C’s board of directors alleging that C breached the Agreement by interfering with D’s portion of the satellite’s payload (the “Dec 24 Letter”). In the Dec 24 Letter, D expressed a willingness to refer the dispute to the parties’ respective management teams. C responded through external counsel, who requested that all further correspondence on the matter be directed to external counsel or, if pursuant to Clause 14.2, to C’s CEO.

There was no further correspondence from D until it issued a notice of arbitration pursuant to Clause 14.3 on April 18, 2019. In its response, C claimed that the arbitral tribunal lacked jurisdiction because the pre-arbitration conditions under Clause 14.2 had not been met.

Under Article 16 of the Model Law, the tribunal was empowered to rule on its own jurisdiction:

(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. …

[…]

(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; …[6] [emphasis added]

The tribunal opted to deal with C’s objection to the tribunal’s jurisdiction and the issue of liability together, rather than address the objection as a preliminary question. In a partial award on the merits, the tribunal held that D had fulfilled the requirements of Clause 14.2 by sending the Dec 24 Letter, and fulfilled the requirements of Clause 14.3 by sending its notice of arbitration more than 60 business days after the Dec 24 Letter. The tribunal also held that referring the dispute to the parties’ respective CEOs was optional under Clause 14.2. The tribunal found C liable to pay damages in an amount to be assessed.

C then initiated proceedings in the Hong Kong Court of First Instance to set aside the partial award on jurisdictional grounds; namely, that the pre-arbitration conditions had not been met. C relied on Article 34 of the Model Law:

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

(2) An arbitral award may be set aside by the court…only if:

(a) the party making the application furnishes proof that:

[…]

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside[.][7] [emphasis added]

The Court of First Instance rejected C’s application to set aside the partial award, and the Hong Kong Court of Appeal upheld the decision. C then appealed to the HKCFA.

The HKFCA’s Decision

A panel of five judges unanimously dismissed C’s appeal, albeit each with separate reasons.

In the view of Justice Ribeiro, the question before the Court was “whether the Court should have reviewed [the tribunal’s] decision”; in other words, “who finally decides – the tribunal or the Court – whether [the pre-arbitration condition in Clause 14.2] has been met.”[8] The Court concluded that the tribunal has final say, and did not consider whether the pre-arbitration conditions had been met.

Four of the five judges on the panel found the admissibility/jurisdiction distinction to be – in the words of Justice Fok – “a useful principle by which to distinguish between those issues that are reviewable by a supervising court and those that are not.”[9] The fifth judge, Justice Gummow, found the distinction to be “an unnecessary distraction” which “presents a task of supererogation: there is no need to find the answer somewhere else when it is supplied by construing and applying the statute to the facts of the case.”[10]

As discussed in the Analysis section below, there is live debate about the use of the distinction and how it might apply in a given set of circumstances.

The Majority View

The majority view was expressed by Justice Ribeiro and in concurrences by three other judges. Justice Ribeiro considered Articles 16 and 34 of the Model Law (as reflected in Hong Kong’s Arbitration Ordinance[11]), and concluded that a supervisory court has the power to consider questions of jurisdiction, despite the fact that Article 34 does not explicitly mention “jurisdiction.” The Court agreed unanimously that Articles 16 and 34 must be read to confer the same powers on a supervisory court to intervene, albeit at different stages of an arbitration.

As set out above, Article 16 permits an arbitral tribunal to consider a question of jurisdiction on a preliminary basis or in its award. Article 16 lays out a procedure for dealing with the question on a preliminary basis, but does not provide one for deferring the question to the award. When the question is deferred to the award, then Article 34 instead applies, since it deals with setting aside an award.

For obvious reasons, Article 34 must permit the setting aside of an award on the same grounds as Article 16 would; otherwise, a tribunal could avoid judicial scrutiny of its ruling on jurisdiction simply by deferring the question to the award. This would be arbitrary. Therefore, as noted by the majority, Article 16 and 34 must be read “in tandem” and construed consistently.[12] As Chief Justice Cheung put it in his concurrence, Article 34 “must cover an award made by the tribunal without ‘jurisdiction’ in the [Article 16] sense.”[13]

The question for the majority, therefore, was whether the issue of compliance with pre-arbitration conditions was a jurisdictional question or not. The majority found it was not, essentially on the basis that a tribunal would have jurisdiction over the dispute regardless of whether the conditions had been met or not.

In other words, a premature dispute – one that was not yet appropriate to be heard by a tribunal – was still arbitrable in the sense that arbitration was still the appropriate forum for an eventual hearing, rather than a court. The majority observed that neither party would have wanted the underlying substantive dispute about the Agreement to go to court instead of arbitration, even though the parties disagreed about whether the pre-arbitration conditions had been met.

The question of compliance with those conditions, therefore, related to admissibility rather than jurisdiction. Jurisdiction can be understood as “the power of the tribunal to hear a case”, and admissibility as “whether it is appropriate for the tribunal to hear it”.[14] In Justice Ribeiro view, the distinction “seeks to encapsulate [the] principle…that the court may review a tribunal’s ruling on the former, but not on the latter, category of challenge.”[15]

Justice Ribeiro concluded that “pre-arbitration conditions should be regarded as presumptively non-jurisdictional”, although the parties are always free to explicitly specify in their arbitration agreement that the question of compliance with pre-arbitration conditions is reviewable by a court.[16] That is to say, pre-arbitration conditions “inherently involve aspects of the arbitral procedure”…and “are best suited for resolution by arbitral tribunal, subject to minimal judicial review, like other procedural decisions.”[17]

In the case of the Agreement, Justice Ribeiro concluded that the pre-arbitration conditions were “merely procedural and intended to be exclusively decided by the tribunal”[18]. Non-compliance with the conditions would not negate the tribunal’s jurisdiction, and therefore the issue was not jurisdictional in nature.

Justice Ribeiro also rejected C’s attempt to argue that a condition precedent to arbitration had not been met, and that this negated C’s consent to arbitration (as a matter of jurisdiction). He observed that C had argued the question of compliance in front of the tribunal, and that the correctness of the tribunal’s decision about D’s compliance with the conditions was not before the Court. Rather, the question was whether a court had the power to review the tribunal’s decision regarding compliance.

Effectively this meant that the question for the Court was whether the tribunal had jurisdiction over the question of compliance. And because the Court concluded that it did, there was no reviewable issue.

The Minority View

For his part, Justice Gummow agreed that Article 16 and 34 of the Model Law “operate in tandem”; however, unlike the majority, he considered the “scope of curial intervention under Article 34 is epexegetical of Article 16(1)”, which is to say that Article 16 should be read in light of Article 34 rather than vice versa.[19] Accordingly, Justice Gummow implied that a supervisory court did not have the power to consider all jurisdictional questions, although he was careful to emphasize that the scope of curial intervention had “not been the subject of focused submissions by the parties”.[20]

In any event, in his view, a supervising court could only intervene on the issues explicitly set out in Article 34, such as an award that deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or that contains decisions on matters beyond the scope of the submission to arbitration.

In that regard, he concluded that the question of compliance with pre-arbitration conditions was exclusively within the jurisdiction of the arbitral tribunal, because Clause 14.3 of the Agreement applied to “any controversy, dispute or claim [arising] between the Parties out of or in relation to this Agreement, or the breach, interpretation or validity thereof”, such that there was “no reason to confine the scope of arbitrable disputes…to substantive disputes…and exclude…disputes on whether the pre-arbitration procedural requirements…had been fulfilled.”[21] In short, compliance with pre-arbitration conditions was not a basis for intervention under Article 34.

Like Justice Ribeiro, Justice Gummow rejected C’s argument that a condition precedent to arbitration had not been met, albeit for different reasons. He observed that a supervisory court was not entitled under Article 34 of the Model Law to consider the merits, i.e., whether the tribunal was correct in deciding that the pre-arbitration conditions had been met.

Further, in Justice Gummow’s view, “the precondition contained in clauses 14.2 and 14.3 was directed to the obligation to arbitrate with respect to the specific claim in question, not to the agreement to arbitrate.”[22] Thus, a failure to meet the precondition(s) would not negate consent to arbitrate or the tribunal’s jurisdiction.

Analysis

First, as is often the case, C v D demonstrates the general reluctance of courts to intervene in arbitrations or interfere with arbitral awards. This is, broadly speaking, a welcome reaffirmation that is consistent with global trends, and is perhaps best encapsulated in the Court’s characterization of the dispute as an issue as to the scope of the supervisory court’s review jurisdiction. This characterization may deter parties from initiating court proceedings on issues of procedural admissibility, emphasizing that they are properly matters for the tribunal to consider.

Second, C v D suggests that courts will not necessarily treat a question as jurisdictional simply because a party is objecting to the jurisdiction of the tribunal, or the tribunal itself treated the question as jurisdictional. Parties in a similar position to C would therefore be well advised to remain wary, given that C raised the issue in the form of what it thought was a jurisdictional question before the tribunal, the tribunal relied on Article 16 of the Model Law to defer an answer until its partial award on the merits, and the tribunal then concluded it had jurisdiction. It was therefore arguably reasonable for C to have assumed that its objection would be treated as a jurisdictional question, only later to discover that such an assumption was incorrect.

Third, C v D also suggests that if a party to an arbitration agreement believes that pre-arbitration conditions have not been met, then that party may be better off refusing to recognize a tribunal’s jurisdiction than arguing the question of jurisdiction in front of the tribunal. That said, refusing to recognize a tribunal’s jurisdiction carries its own set of risks, such as the tribunal deciding to proceed with the arbitration in the party’s absence (as contemplated by Article 25 of the Model Law, for example, although such article is rarely employed).

Fourth, the judges were divided on the question of how widely the jurisdiction/admissibility distinction has been adopted in other common law jurisdictions. Justice Fok argued:

[T]he distinction has gathered such support as to be widely recognised across several jurisdictions, including England and Wales, Singapore and New South Wales, and in leading academic texts on arbitration law and practice. For Hong Kong to reject the distinction now would risk placing this jurisdiction at variance with other jurisdictions which, like Hong Kong, promote international arbitration and limit the extent of court intervention in the arbitral [process.][23]

However, Justice Gummow rightly observed that the sole Australian case in question – a lower court decision[24] – did not make any reference to the distinction. Accordingly, in Justice Gummow’s view, “it would not appear that New South Wales is a jurisdiction in which the distinction has gathered support.”[25]

In Canada, there appears to be scant jurisprudence on the distinction. However, in a 2020 decision, United Mexican States v Burr (“Burr”), the Ontario Superior Court appears to have approved of the principle:

The Tribunal set out to examine the issue of jurisdiction by considering whether it had the power to adjudicate the dispute (jurisdiction), and if so, whether it should exercise that power over a particular claim (admissibility). The distinction is important in this case as this court may review and set aside findings relating to jurisdiction, but not findings relating to admissibility.[26] [emphasis added]

In a 2022 article, Professor Joshua Karton calls Burr a “rare example of a Canadian court taking seriously the distinction between jurisdiction and admissibility and using the correct terminology”.[27] In his view, the distinction “is often ignored or elided by Canadian courts”.[28]

However, it is one thing to adopt the jurisdiction/admissibility distinction as an analytical tool, and another to conclude that a pre-arbitration condition goes to admissibility rather than jurisdiction. Consider the following example from Professor Karton, who endorses the distinction, and yet concludes that pre-arbitration conditions similar to those in C v D would qualify as jurisdictional:

Suppose, for example, that the contract provides that the parties must attempt to settle any disputes by mediation and that neither party may resort to arbitration unless they have (1) commenced mediation, (2) engaged in that mediation, and (3) at least 60 days have passed since the mediation commenced. Such language will be sufficient to establish mediation as a jurisdictional precondition to arbitration.[29]

Karton reaches the opposite conclusion from the Court by treating the above conditions not as a chronological predecessor activity to arbitration, but rather as an agreed-upon requirement to achieving consent to arbitrate. As noted in Burr (a case involving a dispute under NAFTA, CUSMA’s predecessor treaty, where the tribunal similarly concluded that it had jurisdiction because arbitral preconditions went to the issue of admissibility), “Some tribunals have found that compliance with a prior recourse requirement goes to the question of whether a tribunal has jurisdiction over a dispute and that the tribunal does not have jurisdiction to waive the requirement as a procedural or admissibility-related matter”.[30]

Similarly, in C v D, Justice Gummow notes that the distinction was developed in the context of bilateral investment treaties between countries – where it was necessary to consider, unlike in C v D, whether the parties had consented to submit the dispute to arbitration – and suggests that it would be inappropriate to “transplant” the distinction to a situation, like that in C v D, where an agreement to arbitrate exists between the private parties.[31]

It has yet to be seen when the jurisdiction/admissibility distinction will receive fulsome consideration by Canadian courts and whether this approach will become more widely adopted in Canada. However, given that Canada and its provinces are all Model Law jurisdictions, it stands to reason that this distinction may – and perhaps should – be instructive for Canadian courts applying both international and domestic legislation.

Finally, it does not necessarily follow from C v D that a party has no recourse in court if a tribunal concludes that pre-arbitration conditions have not been met, and then decides to waive compliance with those conditions. Depending on the tribunal’s reasons for doing so, this might be treated by a court as an excess of jurisdiction insofar as the proper approach would likely be to suspend the arbitration pending compliance with the conditions. As noted in Burr, “If the claimant has not complied with the prior recourse requirement, the tribunal does not have jurisdiction over the claim”.^[32]

In short, if a tribunal hears a dispute that the tribunal implicitly acknowledges is inadmissible, that may qualify as a jurisdictional error. However, the aggrieved party should be wary of framing the issue as a question of admissibility, given the approach taken in C v D. Rather, the issue might be better framed as a question of procedural fairness or as a breach of the rules of natural justice.[33] Such a breach has been held – at least in the Canadian context – to constitute an excess of jurisdiction.[34]

As noted recently in Mattamy (Downsview) Limited v KSV Restructuring Inc (Urbancorp) (“Mattamy”),[35] which was the subject of a previous article (available here), some procedural decisions are immune from review (e.g., declining to admit fresh evidence following delivery of an award, or ordering security for costs), while others are not (e.g., deciding to exclude evidence). In Mattamy, the Ontario Superior Court referred to “blanket categories” of procedural decisions of arbitrators that are immune from review, but did not elaborate on the underlying basis for which a given form of decision would qualify for such immunity.

Therefore, the line between what is reviewable and what is not is unclear, and, accordingly, we look forward to when Canadian courts will have the opportunity to address this issue in detail.

[1] C v D, [2023] HKFCA 16.

[2] “Admissibility” in this context should not be confused with the admissibility of evidence, which coincidentally – and perhaps confusingly – is raised in United Mexican States v Burr, 2020 ONSC 2376 [Burr], discussed below.

[3] The United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, can be found here: https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf.

[4] As is common practice in certain jurisdictions internationally, the identities of the parties to the arbitration were anonymized by the Court.

[5] C v D, [2023] HKFCA 16 at para 58.

[6] C v D, [2023] HKFCA 16 at para 20.

[7] C v D, [2023] HKFCA 16 at para 23.

[8] C v D, [2023] HKFCA 16 at para 61.

[9] C v D, [2023] HKFCA 16 at para 97.

[10] C v D, [2023] HKFCA 16 at para 159.

[11] Arbitration Ordinance, Cap 609, as of December 16, 2022.

[12] C v D, [2023] HKFCA 16 at paras 22, 4.

[13] C v D, [2023] HKFCA 16 at para 4.

[14] C v D, [2021] HKCFI 1474 at para 40, citing The Republic of Sierra Leone v SL Mining Ltd, [2021] EWHC 286 (Comm) at para 18.

[15] C v D, [2023] HKFCA 16 at para 29.

[16] C v D, [2023] HKFCA 16 at para 49.

[17] C v D, [2023] HKFCA 16 at para 49, citing G B Born, International Commercial Arbitration, Vol 1: International Arbitration Agreements, 3rd ed (Wolters Kluwer, 2020) at 1000.

[18] C v D, [2023] HKFCA 16 at para 49, citing G B Born, International Commercial Arbitration, Vol 1: International Arbitration Agreements, 3rd ed (Wolters Kluwer, 2020) at 1000.

[19] C v D, [2023] HKFCA 16 at para 157.

[20] C v D, [2023] HKFCA 16 at para 157.

[21] C v D, [2023] HKFCA 16 at para 133.

[22] C v D, [2023] HKFCA 16 at para 137.

[23] C v D, [2023] HKFCA 16 at para 97.

^[24] The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd, [2021] NSWSC 1498.

[25] C v D, [2023] HKFCA 16 at para 143.

[26] United Mexican States v Burr, 2020 ONSC 2376 at para 59. An appeal by the United Mexican States was quashed on the grounds that Article 16(3) of the Model Law prohibited the appeal; 2021 ONCA 64 at para 29.

[27] J Karton, “Multi-Tier Dispute Resolution Agreements in Canadian Law and Practice: Interpreting, Enforcing, Escaping” (2022) 3:1 Can J Comm Arb 81 at 86.

[28] J Karton, “Multi-Tier Dispute Resolution Agreements in Canadian Law and Practice: Interpreting, Enforcing, Escaping” (2022) 3:1 Can J Comm Arb 81 at 86.

[29] J Karton, “Multi-Tier Dispute Resolution Agreements in Canadian Law and Practice: Interpreting, Enforcing, Escaping” (2022) 3:1 Can J Comm Arb 81 at 87.

[30] United Mexican States v Burr, 2020 ONSC 2376 at para 106.

[31] See C v D, [2023] HKFCA 16 at para 148.

[32] United Mexican States v Burr, 2020 ONSC 2376 at para 106, citing Daimler Financial Services AG v Argentine Republic, ICSID Case No ARB/05/01, Award, 22 August 2012 at para 200, involving a request to waive pre-arbitration conditions in a bilateral investment treaty rather than an tribunal’s conclusion that such conditions were met.

[33] Natural justice has been described by the Supreme Court of Canada as “but fairness writ large and juridically”; Nicholson v Haldimand-Norfolk (Regional Municipality) Commissioners of Police, [1979] 1 SCR 311 at para 25, citing Furnell v Whangarei High Schools Board, [1973] AC 660 at 679 (PC).

[34] A “breach of the rules of natural justice is regarded in itself as an excess of jurisdiction and consequently there is no doubt that such a breach opens the way for judicial review”; Université du Québec à Trois-Rivières v Larocque, [1993] 1 SCR 471 at para 43.

[35] Mattamy (Downsview) Limited v KSV Restructuring Inc (Urbancorp), 2023 ONSC 3012.

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