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Hong Kong – The Fact That One Dispute Has Been Referred To Arbitration Does Not Mean That The Arbitration Clause Has Been Performed Or Discharged, In Respect Of Further Disputes.

18 September, 2014 


Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution


In court proceedings, the Plaintiff sought a refund of deposits, totalling almost USD 6m from the Defendants TS and B, under contracts with them and USD 400k from another Defendant, J, who had guaranteed B’s performance under B’s contract with the Plaintiff.   


The Defendants applied for the court proceedings to be stayed for arbitration pursuant to arbitration clauses in the contracts and guarantee. The Plaintiff opposed the application arguing that the arbitration clauses were inoperative because the parties agreement to refer disputes to arbitration had already been performed. They had been performed, the Plaintiff argued, because the Plaintiff had already referred the dispute over its claims against the Defendants to arbitration and the arbitral tribunal had failed or omitted to deal with the refund of Deposits in the award. The Plaintiff argued that since the parties had not requested the Tribunal either for an additional award under Article 33(3) of the Model Law in respect of the omission, or for correction or interpretation of the Award under the ICC Rules 1998 which applied to the arbitration, it was entitled to claim the refund of deposits from TS and B and for enforcement of J’s liability under the guarantee by instituting these court proceedings.


The Court granted the stay for arbitration, holding as follows:


  1. If the Court was satisfied that that there was a prima facie case of the existence of a valid arbitration agreement between the parties, there should be a stay of proceedings for the arbitrators to make the detailed final determination as to the existence of the arbitration agreement.
  2. In considering whether the arbitration agreement contained in the arbitration clause could be said to be discharged, the nature of the arbitration agreement should be borne in mind. The arbitration clause in one of the contracts in this case was for reference of any and all disputes arising out of or connected with the contract to arbitration. The arbitration clause in the other contract and guarantee was for reference to arbitration of any dispute between the parties with respect to the rights and obligations set out in the contract and the guarantee.
  3. It could be envisaged that there may be one or more such disputes which may arise and all of them would be referable to arbitration. The fact that one dispute which has arisen has been referred to arbitration, cannot mean that the relevant arbitration clause has been performed, or discharged, if and when a further dispute arises between the parties out of the underlying contract, or is connected with the contract, or with respect to the rights and obligations set out in the underlying contract.
  4. Although the dispute as to the Plaintiff’s entitlement to the refund of deposits and sum due under the guarantee was referred to arbitration, the parties were now clearly still in dispute as to whether the claim to, and liability in respect of, the deposits had been decided by the Tribunal in the Award. The dispute had not been resolved, or put another way, a new dispute had arisen as to whether the Plaintiff was entitled to payment from TS and B of the deposits and whether J was liable under the guarantee. It may be argued by the Plaintiff that such new dispute arose out of the arbitration award, but such dispute was connected with the contract and was with respect to the rights and obligations of the parties set out in the contract and guarantee. Adopting the sensible and rational business persons approach, it could not sensibly be said that the parties could have intended that notwithstanding their agreement to refer the dispute to arbitration, the further or remaining dispute over the parties’ rights and liability in respect of the same deposits by virtue of the Award should be subjected to litigation in the courts.
  5. Even if the Plaintiff was right that the Dispute was omitted from the Award and not determined by the Tribunal, since the dispute was not resolved, the parties’ agreement contained in the arbitration clause remained operative and the dispute should either be referred back to the Tribunal or referred to a new tribunal for arbitration. Whether the current dispute should be construed as the unresolved dispute which had been referred to the Tribunal or as a new dispute which had arisen under, or was connected with, or with respect of rights and obligations in the contracts and guarantee, the agreement embodied in the arbitration clauses remained to be performed and could not be said to have been completely discharged or inoperative.
  6. The arbitration clauses constituted arbitration agreements, there was now a dispute or difference between the parties as to the deposits and that was a dispute within the ambit of the arbitration clauses. 


The Court ordered the Plaintiff to pay the Defendants costs on an indemnity basis and repeated that abortive and unmeritorious attempts to challenge or frustrate enforcement of or compliance with a valid arbitration award should not be encouraged. It said that where a party unsuccessfully resists enforcement or seeks to set aside an award, or as in this case, seeks to reopen through court proceedings an issue dealt with in the arbitration, instead of reverting to the Tribunal or making a new submission to arbitration in accordance with an acknowledged arbitration clause, it should pay the incidental costs on an indemnity basis, unless special circumstances exist. The fact that it may have an arguable case, would not, the Court said, constitute special circumstances.




For further information, please contact:


Kwok Kit Cheung, Partner, Deacons

[email protected]


Deacons Dispute Resolution Practice Profile in Hong Kong

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