Summary
A dispute arose in respect of proceedings initiated by an
insurer (the plaintiff) seeking a declaration of non-liability. The
insurance policy in question was subject to an arbitration clause
and the defendant applied for a stay of the proceedings in favour
of arbitration. The plaintiff argued that given the claim was for a
declaration under the relevant statute, it was non arbitrable and
thus no stay should be granted.
The Hong Kong Court of First Instance granted an order for stay
in favour of arbitration and applied the following principles:-
- The fact that arbitral tribunal may not have powers to grant
certain relief exclusively reserved to the courts does not make the
subject matter non arbitrable.
- If there is a prima facie or plainly arguable case
that the parties are bound by an arbitration agreement, the matter
should be stayed for the arbitral tribunal to determine its own
jurisdiction.
- The perceived lack of merits of any defence does not mean there
is no genuine dispute that should be referred to the contractually
agreed resolution forum (i.e., arbitration).
Falcon Insurance Co (Hong Kong) Ltd v Bing Lee Crane-Lorry
Transportation Co Ltd & Anor [2023] HKCFI 1129 (MP)
Practical implications
This case demonstrates the pro-arbitration stance adopted by the
Hong Kong courts’ when determining the arbitrability of a
dispute.
The court reaffirmed that the requirement to grant a stay for
arbitration under s.20(1) of Arbitration Ordinance (Cap. 609)
(“AO“) is mandatory, provided that
certain conditions are satisfied. One such conditions is that the
court does not find “the agreement is null and void,
inoperative or incapable of being performed”.
In particular, the court noted that arbitral tribunals may not
have powers to grant certain relief exclusively reserved to the
courts does not make the subject matter non arbitrable or render
the arbitration agreement inoperative. However, while acknowledging
the strong public interest in upholding arbitration clauses, the
court also took into consideration whether granting a mandatory
stay under s.20(1) of AO will undermine the statutory regime that
reserves such powers to the courts.
The court also emphasised that an applicant only needs to
demonstrate that there is a prima facie case or it is
plainly arguable, that the parties are bound by an arbitration
clause. If this point is established, the court should refrain from
resolving the issue and instead stay the proceedings in favour of
arbitration, allowing the arbitral tribunal to determine its own
jurisdiction.
Background
This case involves an accident caused by the defendant’s
lorry crane, the plaintiff was the motor insurer of the defendant
at the material time.
Following the accident, one of the injured persons brought a
Personal Injury Claim against the defendant. On 18 May 2022, the
defendant’s lawyer served a notice to the plaintiff to seek a
contribution and an indemnity.
The plaintiff considered that their insurance policy was
rendered void as the defendant had breached the “Clean Claims
Warranty”. Consequently, the plaintiff initiated the present
proceedings, seeking a declaration of non-liability under the
insurance policy. In response, the defendant sought a stay of the
proceedings in favour of the arbitration clause contained in the
insurance policy.
Court’s decision
The court ordered a stay of all further proceedings between the
plaintiff and the defendant. In light of the stay, the merits of
the plaintiff’s claim for declaration were not reviewed by the
court.
In assessing whether a stay of proceedings in favour of
arbitration under AO s.20(1) should be granted, the court
considered the following 4 questions outlined in the case Chu
Kong v Lau Wing Yan [2018] HKCA 1010:-
Question 1 – Is the arbitration clause an arbitration
agreement?
This question is satisfied on the basis that the arbitration
clause of the insurance policy (“Arbitration
Clause“) provided that all differences arising out of
the policy shall be determined by arbitration. Furthermore, the
Arbitration Clause specifies that an arbitration award is a
condition precedent for any right of action.
Question 2 – Is the Arbitration Clause null and void,
inoperative or incapable of being performed?
The plaintiff argued as the declaratory relief sought under s.10
(3) of the Motor Vehicles Insurance (Third Party Risks) Ordinance
(Cap.272) (“MVIO“) can only be granted
by the court, rendering any arbitration agreement purporting to
refer a dispute under s.10(3) inoperative and/or incapable of being
performed. The plaintiff also argued the policy was null and void
due to the breach of the “Clean Claims Warranty”.
Having considered the Singaporean case Tomolugen Holdings v
Silica Investors Ltd [2016] 1 SLR 373, the court ruled that
the fact that arbitral tribunal may not have powers to grant
certain relief exclusively reserved to the courts does not make the
subject matter non arbitrable. Further, the mandatory stay under
s.20 of AO was not in consistent with and did not undermine the
regime of s.10 of MVIO.
The court did not proceed to deal with the “Clean Claims
Warranty” as this is an arbitrable matter.
Question 3 – Whether there is a dispute or difference
between the parties?
Citing Re Lam Kwok Hung Guy [2022] 6 HKC 534, the court
held that even if the judge has perceived a lack of merits, that
does not imply that there is no genuine dispute between the parties
should be referred to their contractually agreed dispute resolution
forum (i.e., arbitration in this case).
The plaintiff argued that the defendant’s failure to respond
to the plaintiff’s disclaimer letter regarding the traffic
accident constituted a deemed waiver. The court held as no claim
has yet been made by the defendant, it is arguable whether the time
under the deemed waiver had started to run against the defendant,
which constitutes a dispute under the Arbitration Clause.
Question 4 – Is the dispute or difference within the
ambit of the Arbitration Clause?
The court noted that the Arbitration Clause was drafted in wide
terms which covered “all difference arising out of the
policy”. As such, the validity and enforceability of the
Policy were covered by the Arbitration Clause and this question is
satisfied.
Case Details
- Court: Hong Kong Court of First Instance (Miscellaneous
Proceedings) - Judge: B Chu J
- Date of Judgment: 28/4/2023
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