The Hong Kong Court of Appeal in CMBICDHAW Investments Limited v CDH Fund v Limited Partnership and Others [2024] HKCA 516 dismissed an appeal from a decision of the Hon Mimmie Chan J (the “Judge”) to set aside parts of a final arbitration award which she had held to have been made without arbitral jurisdiction. The Court of Appeal also upheld the Judge’s ruling that the arbitrator lacked jurisdiction to make a declaration of non-liability when there was no actual dispute between the parties to the arbitration agreement. The Court of Appeal also found that the final award conflicted with HKSAR public policy by attempting to decide issues properly before the HKSAR courts.
Relevant Background
In 2014, CMBICDHAW Investments Limited (“CMB”), CDH Fund V Limited Partnership (“Fund”) and CDH Grand Cattle Holdings Limited (“Cattle”) entered into a contract for their co-investment in an investment opportunity (the “Investment”) which contained an arbitration clause.
In 2020, within the HKSAR Court of First Instance (the “CFI”), CMB instituted proceedings (“the HCA”) against several individuals plus a related company (“the HCA Defendants”) for fraudulent misrepresentation and conspiracy to defraud, which related to the Investment, but asserted no claim against Fund or Cattle. Shortly thereafter, Fund and Cattle (under the control of the HCA Defendants) plus the HCA Defendants themselves initiated arbitration proceedings against CMB, seeking declarations of non-liability and anti-suit injunctions in respect of the HCA.
In his Final Award, the arbitrator found that, although he had no jurisdiction over the HCA Defendants, he did have jurisdiction to issue a declaration that Fund and Cattle had no HCA liability. Upon CMB’s application, the Judge set aside the impugned parts of the Final Award on the basis that they had been made without jurisdiction. Fund and Cattle appealed to the Court of Appeal.
Summary of the CA’s Decision
The Jurisdiction Issue:
The Court of Appeal upheld the Judge’s conclusion that the arbitrator had erred in law by conflating the issue of whether he had jurisdiction with the issue of whether Fund and Cattle had a legitimate interest in seeking a negative declaration, despite the absence of any real dispute between CMB and Fund/Cattle. The pursuit by Fund and Cattle of their application for a declaration of non-liability was an attempt to clothe an arbitrator with an appearance of jurisdiction by engineering a dispute which had not in fact arisen.
The Public Policy Issue:
Additionally, the CA concluded that the arbitration Claimants had abused the arbitral process by pursuing their arbitration proceedings to trial, despite the earlier submission by the HCA Defendants to the jurisdiction of the CFI. The Court of Appeal held that the arbitrator had improperly offered views on matters exclusively for the CFI to determine within the HCA and that he thereby risked giving the impression that he was seeking to “poison the well” for the CMB, as the HCA plaintiff.
Key Takeaways
On Jurisdiction:
- The very fact that a claimant in an arbitration seeks a declaration of non-liability within another forum tends to point to the artificiality of the suggestion that there was an arbitral dispute.
- Claims for this form of relief should set alarm bells ringing as to whether or not there was an attempt to engineer the appearance of a dispute without the fact of a dispute.
On Abuse of Process:
- It is a clear abuse of arbitral process to pursue arbitral proceedings to trial after the actual litigants concerned have submitted to the exclusive jurisdiction of a court to determine the issues before it.
- Pursuing within arbitral proceeding a proxy claim on behalf of non-contracting parties is contrary to fundamental conceptions of morality and justice and therefore conflict with the public policy of the HKSAR.
- Practitioners should be warned against seeking (as advocate) or making (as arbitrator) any findings concerning matters which only the court hearing them could properly decide.
The full judgment of the Court of Appeal (dated 10 July 2024) is available at:
https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=161192&currpage=T
The full judgment of the Court of First Instance (dated 15 March 2023) is available at:
Barrie Barlow S.C. and Eva Leung, acted for CMB (the Plaintiff / Respondent on appeal) at both levels before the CFI and the CA.
