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Hong Kong – Arbitration Agreement Operative Until All Matters In Dispute Are Settled.

12 June, 2015

 

 
Facts T and TS entered into a contract (the “Fabcon Agreement”) to build a clean room of a Russian semiconductor manufacturing plant. T and B entered into a separate agreement (the “IP Agreement”) for the transfer of technology and training from B to T for the operation of the clean room. B’s performance of the IP Agreement was secured by J’s guarantee (the “Guarantee”). The Fabcon Agreement, the IP Agreement, and the Guarantee all contained arbitration clauses (the “Arbitration Clauses”).
 
The Arbitration Clauses covered “any dispute, difference or claim arising out of or connected with” the Fabcon Agreement, and “any dispute between the parties with respect to the rights and obligations set out in” the IP Agreement and the Guarantee.
 
T alleged breach of the Fabcon Agreement and the IP Agreement and terminated the contracts accordingly. An arbitration, ICC Case 15438, was commenced by T against TS, B and J on 4 February 2008 for refund of the deposits paid to TS and B under the Fabcon Agreement and the IP Agreement respectively (the “Deposits”) and payment of sums due from J under the Guarantee. The ICC Case 15438 tribunal (the “Tribunal”), by a Partial Award dated 20 January 2010, dismissed T’s claims and allowed the counterclaims by TS and B for T’s wrongful termination and breach of the Fabcon Agreement and the IP Agreement; and, by a Final Award dated 10 October 2011, awarded damages to TS and B. On 17 October 2013, T’s application to set aside the Final Award was dismissed by the Court.
 
In December 2012, T commenced court proceedings (the “Court Proceedings”) against TS, B and J for refund of the Deposits and enforcement of the Guarantee. TS, B and J applied for stay of the Court Proceedings based on the Arbitration Clauses. T argued that the parties’ agreement to refer their dispute to arbitration (the “Arbitration Agreement”) pursuant to the Arbitration Clauses was inoperative because T had already referred their dispute to the Tribunal, which did not deal with the refund of the Deposits as part of the Final Award in ICC Case 15438. The Court Proceedings should therefore be allowed to proceed notwithstanding the Arbitration Clauses.
 
The Arbitration Agreement Was Not Inoperative
 
Mimmie Chan J held that the Arbitration Clauses all contemplated that more than one dispute might arise and all such disputes would be referred to arbitration. The Arbitration Clauses should not be considered performed or discharged simply because one dispute had already been referred to arbitration. The parties’ present dispute regarding the Deposits remained “connected with” the Fabcon Agreement and “with respect to the rights and obligations set out in” the IP Agreement and the Guarantee, and hence fell within the Arbitration Clauses. The parties could not have intended to subject the present dispute to litigation instead of arbitration, following “the sensible and rational business persons approach”.
 
Given the Arbitration Agreement was still operative, the present dispute should be referred to arbitration. The Court therefore granted a stay of the Court Proceedings.
 
Conclusion
 
This decision is consistent with the holding in Radio Publicity (Universal) Limited v Compagnie Luxembourgeoise de Radiodifusion [1936] 2 All ER 721 at 728 that “where there is an agreement between the parties, which not only involves certain duties on each side, but also involves an agreement that disputes shall be settled by arbitration, until all matters in dispute under the agreement have been duly settled, the agreement is still perfectly operative, although it may be that an end has been put to the relations which the agreement originally brought into being between the two parties”.
 
Hong Kong courts are reluctant to allow parties to “circumvent” an arbitration agreement to litigate a dispute which was not completely resolved by previous arbitration proceedings when the arbitration agreement was intended to cover all disputes arising between the contractual parties. This is consistent with the “the sensible and rational business persons approach”.
 
This article was supplied by Jose-Antonio Maurellet, Des Voeux Chambers

 

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