A Judicial Methodological Perspective on the Validity of Transnational Arbitration Agreements (1)
__ “Arbitration in Hong Kong and English Law to Apply” as an example
Song Lianbin^*

Abstract: “Arbitration in Hong Kong and English law to apply” - such a simple and concise arbitration provision is rather common in practice; nevertheless, many different methodologies are used to identify its validity. Analyzing cases in practice from the perspective of judicial interpretation is helpful to identify clearly what method of judicial interpretation should be adopted in such cases，so as to maintain consistency of judgment. In terms of fact finding, the method of contractual interpretation is mainly adopted for the purpose of defining the meaning of arbitration agreements, and clarifying whether the parties involved did in fact hold a true intention to arbitrate in the case a conflict arising. As for applicable laws, it is common that the judge will face the issue of choosing between two different laws, namely finding the applicable conflict rules and confirming the applicable law for arbitration agreement through rules of conflict. While confirming the governing law, special attention should be paid to investigation issues of foreign laws.

Key words: arbitration agreements; transnational; governing law for arbitration; judicial interpretation, method,

In transnational arbitration and juridical practice in our country, the validity of an arbitration agreement is a commonly disputed issue. From the judicators’ perspective, such an issue is generally simple in the particulars of the case, but the legal issues involved are rather complicated and the award can often arouse heated debate. Nevertheless, with respect to the study on validity identification of arbitration agreement, academic discourse generally focuses on areas such as the validity extension and severability of arbitration agreement, jurisdiction and jurisdiction principle（Kompetenz-Kompetenz Doctrine）rather than the common issues surrounding validity of the arbitration agreement. Indeed, most articles focus on providing reviews of novel cases. Moving away from this trend, this article will focus on the well-known concise arbitration provision “arbitration in ‘location x’ and ‘jurisdiction y’ laws to apply”, and its interpretation in practice, in other words the finding of its validity being subject to the different approaches in court to judicial interpretation. Providing a way to avoid such variation and emphasizing the importance of pursuing a consistency of judgment is the underlying purpose of this article.

I. Origin: Judgments of Two Instances with Opposite Results

Following a review and investigation, the first instance trial court found that “the plaintiff is a Hong Kong company and the contract involved is Voyage Charter Party entered by and between plaintiff and defendant on shipping 5,000 tons of steels from China to Iran. Article 16 of Interpretations of the Supreme People's Court about Several Problems concerning the Application of the Marriage Law of the People's Republic of China²stipulates that ‘the validity review of transnational arbitration agreement applies to the agreed governing laws of both parties; in case both parties have agreed on the place of arbitration without specific governing laws, the laws of arbitration place shall be applicable; if no governing laws nor arbitration place have been agreed, or agreed clearly, lex fori shall be applicable.’ Whereas the plaintiff and defendant had not provided proof to prove how to identify validity of arbitration clause in the contract involved in English laws or Hong Kong laws, the review of validity identification of arbitration clause applies to the laws of People’s Republic of China. In accordance with the Regulations in Aberration Law of People’s Republic of China that ‘if the arbitration matters or the arbitration commission are not agreed upon by the parties in the arbitration agreement; or, if the relevant provisions are not clear, the parties may supplement the agreement; if the parties fail to agree upon the supplementary agreement, the arbitration agreement shall be invalid’, the plaintiff and defendant only agreed that the place of arbitration was Hong Kong, without specifically stating the arbitration commission. Even though the defendant claimed that Hong Kong International Arbitration Centre (HKIAC) was the only arbitration commission in Hong Kong and the case should be submitted to Hong Kong International Arbitration Centre (HKIAC) based on the arbitration clause agreed by plaintiff and defendant, the defendant had not provided the proof to prove its claims. Therefore, such arbitration clause shall be deemed as null and void..”

For this reason, the court of first instance overruled the objections of jurisdiction.³

The Defendant appealed to Higher People’s Court of Shanghai Municipality, with the aim to repeal the judgment of first instance. The grounds of appeal included: 1. The court of first instance drew the conclusion that the validity of involving arbitration clause shall apply to domestic legal review for the reason that both parties had not provided English laws or Hong Kong laws, which is against the legal regulations. 2. Even though the validity of the arbitration clause shall apply to domestic legal review, Article 18 of domestic arbitration law shall not apply. The defendant (appellant) had submitted a legal opinion from Hong Kong counselor to support its appeal so as to prove that the arbitration clause at issue is valid.

The Plaintiff (respondent) agreed to the judgment of the court of first instance and deemed that the appeal and factual reasons are false as follows: 1. The suggestive arbitration clause in Procedures for the Administration of International Arbitration requires that there should be a clear arbitration commission and governing laws agreed in the contract; whereas the arbitration clause have not clearly prescribed the arbitration commission and governing laws. 2. Based on the Most Significant Relationship Principle, the case should be tried in the original court, which is good for fact-finding.

After trial and investigation, the court of second instance concluded that the arbitration clause at issue was transnational. Both parties agreed that: “Arbitration in Hong Kong and English law to apply”. Based on the relevant regulations in English law, the arbitration clause at issue is valid, the applicable substantive law for arbitration is English law, the place of arbitration is Hong Kong and the applicable procedural law is the law of the place of arbitration, namely Hong Kong law. Based on the regulations of Hong Kong Arbitration Rules. ⁴ the arbitration clause at issue is also valid and may be imposed; therefore, the original court does not have jurisdiction over the case and the dispute arising between both parties shall be submitted to Hong Kong for arbitration. The Plaintiff claimed that the arbitration clause at issue did not prescribe the arbitration commission and governing law and based on the suggested arbitration clause in Procedures for the Administration of International Arbitration of Hong Kong International Arbitration Centre (HKIAC), the arbitration clause at issue shall be null and void. To this effect, the court believed that Procedures for the Administration of International Arbitration of Hong Kong International Arbitration Centre (HKIAC) are the regulations on management of arbitration commission and what the Plaintiff cited was the suggestive clause. Besides, the applicable Hong Kong laws in this case should be the Hong Kong Arbitration Rules and the arbitration clause had prescribed that the applicable law for arbitration is English law. Therefore, the court of second instance held that the arbitration clause at issue is valid based on the investigated English laws and Hong Kong laws and the court of first instance therefore had no jurisdiction over the case. ⁵

It is clear from the foregoing statement that, as for “Arbitration in Hong Kong and English law to apply”, such a concise and non-typical arbitration clause, the court of first instance and second instance had drawn conflicting conclusions in their respective judgments: the court of first instance held the clause to be null and void; whereas the court of second instance, i.e. the court of last trial, deemed it valid. Such a divergence in approach has aroused wide attention at home and abroad and people commonly give credit to the judgment of second instance. It is believed that the case has shown that the court is changing its traditional method which previously was inclined to keep the court’s jurisdiction and reject the arbitration jurisdiction. A move away from this traditional approach indiciates great support and drive for the development of international arbitration. ⁶

In terms of positive law, the judgment of second instance is the final effective award, and is considered accurate unless it is duly cancelled or amended; while the judgment of first instance is subverted. However, from a theoretical perspective, there is no clear distinction between right or wrong and different judgments are only made due to different arbitration concepts employed by different judges. As a matter of practice, whenever ruling a case, the judge could not be separated from the existing laws to prate about the theory; nor ignore the existing laws when supporting the value judgment of arbitration. With the same legal background and facts before them- without considering the illegal factors affecting the juridical justice, supposing the judges in the two levels of courts have shared common views on supporting arbitration, the awards should be consistent. If the judges have not reached the same conclusion - which is closer to the reality, a guarantee of the legitimacy of the case award clearly depends on the ruling methods, or judicial interpretation of the particular judge or court. Even in the first scenario, the consistency of awards could not be guaranteed in the case ruling methods are ignored(to be continued).

* LLD, International Law Research Institute, Wuhan University, tutor of a Ph.D. student
This article is one of the achievements of Wuhan University’s scientific research project (Humanities and Social Sciences) （09ZZKY021）.
1. It should be noted that, as for the arbitration clause in the case, the award of first instance has not completely cited and the award of second instance cited that “Arbitration in Hong Kong and English law to apply”, with similar meaning but different expressions in English and Chinese. The author has never seen the original text and the award of second instance shall be used for the cited arbitration clause.
2. Namely, Interpretations of the Supreme People's Court about Several Problems concerning the Application of the Marriage Law of the People's Republic of China that came into force as of September 8, 2006. The award of first instance has cited the Interpretations twice with wrong title.
3. Please refer to Civil Ruling of Shanghai Maritime Court (2008) H. F. S. C. Zi No. 964, June 9, 2009.
4. Award of Second Instance wrote it as Hong Kong Arbitration Rules in mistake.
5. Please refer to Civil Ruling of Shanghai Higher People’s Court (2009) H. G. M. (S.) H. Z. Zi No. 58, June 9, 2009. It should be noted that due to the long article of ruling of second instance, it has not been shortened based on the original meaning rather than directly cited.
6. Please refer to Whether “Arbitration in Hong Kong and English Law to Apply” Effective, published on Haikou Arbitration, Vol. 1, 2010, 26. The magazine has noted that the report is from CMAC (Shanghai) Newsletter , Vol. 2010, Please see http://www.incelaw.com/whatwedo/shipping/article/Shipping-e-Brief-October-2009/Shanghai-Peoples-High-Court for the report on foreign professional commissions: June 11, 2010, last interview.

Disclaimer and Copyright Statement
This article represents the opinion and standing of the author and not that of BAC. BAC will not provide an explanation for any aspect of the content of this article, nor bear any responsibility for actions made in relation to or in reliance on the contents of this article, or opinions presented by any person or unit on the basis of the contents of this article. Unless authorized by BAC in advance, contents of this article shall not be used or reproduced, retained for retrieving, or transmitted or circulated in any form including in video & audio or electronically or mechanically.