A recent decision in Hong Kong has clearly affirmed the constitutionality of Section 20(8) of the Arbitration Ordinance (Cap. 609) (“Ordinance”), which provides that Court of First Instance (“CFI”) decisions to stay proceedings in favour of arbitration are not subject to appeal.

The decision in Wing Bo Building Construction Company Limited v Discreet Limited [2016] HKCFI 41 is an explicit endorsement of Hong Kong’s arbitration regime and rejects any argument that the bar on appeal is incompatible with the Basic Law, Hong Kong’s constitutional document.

For parties choosing their seat of arbitration, the case is an important reminder that Hong Kong is and remains a safe harbor in which challenges to the independence of the arbitration process hold no appeal.

Background

The present case arose out of a dispute between the plaintiff, a construction company and main contractor, and the defendant, its employer on a residential development project. The construction contract contained an arbitration clause which provided for the submission of any disputes or differences between the plaintiff and the defendant to arbitration.

When a dispute arose regarding invoices, the parties engaged a surveyor to determine the final accounts. However, the defendant disagreed with the surveyor’s findings, and they resisted paying the amounts stated by the surveyor. When the plaintiff commenced a claim in the CFI against the defendant to recover the outstanding amounts, the defendant successfully sought an order to stay the CFI action in favour of arbitration.

The plaintiff sought leave to appeal from the CFI’s decision. However, Section 20(8) of the Ordinance, which adopts Article 8 of the UNCITRAL Model Law clearly states that a court’s decision to refer parties to arbitration is not subject to appeal. The success of their application depended, inter alia, on demonstrating that section 20(8) was unconstitutional.

Article 82 of the Basic Law vests the region’s power of final adjudication in the Court of Final Appeal (“CFA”). The essence of the plaintiff’s argument was that by excluding the possibility of appeal from the CFI through to the CFA, Section 20(8) unconstitutionally deprived the CFA of its power of final adjudication.

The Decision

In assessing this argument, Judge Ng acknowledged that Section 20(8) did indeed deprive the CFA from hearing appeals regarding decisions to refer parties to arbitration.

To determine whether such deprivation was proportional and therefore legitimate, her Honour applied the proportionality test to determine whether Section 20(8) was constitutional. This test requires that any restriction on the CFA’s power of final adjudication:

  • pursue a legitimate aim;
  • be rationally connected to that legitimate aim; and
  • be no more than is necessary to accomplish that legitimate aim.

Judge Ng found, and the parties conceded, that Section 20(8) both pursued and was rationally connected to the legitimate aims of the Ordinance, namely, the speedy and efficient resolution of disputes.

The key question, therefore, was whether Section 20(8) was no more than necessary to accomplish this legitimate aim. The plaintiff argued that the total elimination of appeals in Section 20(8) was disproportionate. The plaintiff’s argument contrasted Section 20(8) with Section 81(4) of the Ordinance. This latter section restricts appeals in respect of applications for setting aside arbitral awards. However, the Section 81(4) restriction is not absolute, in that leave to appeal can still be sought from the CFI.

Judge Ng rejected the plaintiff’s argument. Her Honour found that, unlike Section 81(4), the Section 20(8) limitation was “absolute”. However, it was not “final”. Importantly, her Honour noted that a party who was referred to arbitration could then challenge the arbitral tribunal’s jurisdiction during the arbitration. A tribunal’s positive finding on its own jurisdiction could, in turn, be challenged in the CFI under Section 34 of the Ordinance.

The existence of this avenue for challenging a decision to refer parties to arbitration indicated that the restriction in Section 20(8) was proportional to the aims of the Ordinance. Accordingly, her Honour found that Section 20(8) was constitutional.

Importance

This decision comes just three months after the Court of Appeal rejected a similar constitutional challenge to Section 81(4) in China International Fund Limited v Dennis Lau & Ng Chun Man Architects & Engineers (HK) Limited v Secretary for Justice [2015] HKEC 1626, and affirms that Hong Kong’s arbitration regime, and specifically its adoption of Article 8 of the UNCITRAL Model Law, is constitutionally sound.

The decision also highlights the Hong Kong judiciary’s appreciation of the aims of the Ordinance, and its understanding of and support for arbitration.