Kompetenz-kompetenz, or compétence-compétence, is a jurisprudential doctrine whereby a legal body, such as a arbitral tribunal, may have competence, or jurisdiction, to rule as to the extent of its own competence on an issue before it. This doctrine is reflected in Article 16 of the UNCITRAL Model Law on International Commercial Arbitration ("Model Law") and incorporated in section 34 of the Arbitration Ordinance (Cap. 341) ("Ordinance").
It is on the jurisprudential basis that parties typically ask or seek an arbitral tribunal to resolve their disputes, ranging from whether their dispute falls within the scope of the arbitration agreement to whether an arbitration agreement is binding.
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However, a party may oppose an application to have its proceedings stayed to arbitration, and seek judicial intervention, when it believes the arbitration agreement "null and void, inoperative or incapable of being performed", pursuant to Article 8 of the Model Law.
Article 8(1) of the Model Law, provides that: "A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."
It must be borne in mind that the objective of the Ordinance is to encourage the use of arbitration in Hong Kong to resolve domestic and international disputes. This objective accords with the general principle that the courts should adopt a broad interpretation of the language used in arbitration clauses so as to give effect to the intention of parties to submit disputes to arbitration.
Consequently, unless the point is clear, proceedings are stayed to arbitration, as the arbitrator ought to resolve these disputes. This is reflected in the Hong Kong decisions of Tommy CP Sze & Co v Li & Fung (Trading Ltd) [2003] 1 HKC 418, [18]-[23] and PCCW Global Ltd v Interactive Communications Ltd [2007] 1 HKLRD 309, [49]-[51].
When Forgery is Alleged?
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What level of review is appropriate when a party alleges that an arbitration agreement has been forged? At the heart of an arbitration is a consensual dispute resolution process. A forgery goes towards a jurisdictional issue that the claim should not be arbitrated due to a defect in or an omission to consent to arbitration.
When a party alleges that it never entered into an arbitration agreement, should it be forced to use arbitration (a dispute resolution mechanism they did not consent to) in order to resolve that dispute?
Article 8(1) does not provide any guidance on how far a court should go in determining whether there is an agreement to arbitrate, and, if so, whether the disputes are matters that the parties have agreed to refer to arbitration, such as when there is an allegation that the arbitration agreement was forged and thereby null and void.
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The issue of what the appropriate standard of proof to be adopted when there is an allegation of forgery was confronted by the Hong Kong courts in Haller AG & Anor v Vestey International Group Ltd & Ors [2022] HKCFI 652.
Madam Justice Linda Chan was asked to determine whether the Singaporean or English approach should be adopted in determining whether an arbitration agreement was null and void.
The Singaporean approach is set out in Malini Ventura v Knight Capital Pte Ltd [2015] SGHC 225.
In that decision Madam Justice Judith Prakash held that the Singaporean regime gives primacy to the arbitral tribunal, though the court has an important role to play. She further held that if an applicant is able to show on a prima facie basis that the arbitration agreement existed, the matter would then go to the tribunal to decide whether such existence could be established on the usual civil standard and then, if any party was dissatisfied with the tribunal’s decision, such party could come back to the court for the last say on the issue. Only in the clearest case should the court decide that there was no jurisdiction.
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Under the English approach, best set out in Joint Stock Company "Aeroflot Russian Airlines" v Berezovsky [2013] 2 Lloyd’s Rep 242, provides that the court shall grant a stay unless satisfied that the arbitration is null and void or inoperative. Once a party demonstrates that an arbitration agreement appears to have been concluded and that it covers the dispute, it is the responsibility of the party resisting the stay to convince the court that the arbitral agreement appears to be null and void. The relevant standard of proof that must be attained in order for the court to refuse a stay is one of the balance of probabilities. The court may adopt one of the following four options (known as the Birse options, eponymously named after Birse Construction Ltd v St David Ltd [1999] BLR 194) in terms of what determinations it may make or what should be left to the arbitral tribunal:
Option 1: Decide on the basis of written evidence that there is a valid and enforceable arbitration agreement and that the disputes fall within the scope of the arbitration agreement.
Option 2: Grant a stay under the court’s inherent jurisdiction in order to leave the issue as to existence/validity/scope to be determined by the arbitral tribunal.
Option 3: Order an issue to be tried as to, the existence/validity/scope of the arbitration clause.
Option 4: Decide on the basis of written evidence that there is no arbitration agreement or that the claim falls outside its scope and dismiss the application to stay.
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Madam Justice Linda Chan went on to find that the English and Singaporean regimes were "not so different". The Hong Kong courts need to ‘find’ whether or not an agreement is null and void, pursuant to section 20 of the Ordinance, i.e., Article 8(1) of the Model Law. Her Ladyship, having considered the evidence filed, determined there was no prima facie case that the arbitration agreement existed. Consequently, there was no basis to order a stay of the action in favour of arbitration.
The decision was appealed, and while leave to appeal could not be granted on this particular issue (the proper threshold of review), Mr Justice Godfrey Lam indicated that this was a question that may be of some "general significance", and the question should be dealt with in a case where it could be properly raised, and not in obiter. His Lordship also noted that there were several other authorities from other jurisdictions which may be highly relevant to the determination of the proper standard of review under section 20 of the Ordinance, when there is a claim that an arbitration agreement is null and void.
It remains to be seen if the approach taken in Haller AG is approved by the appellate courts.
Conclusion
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Considering that party autonomy is the ‘magna carta of arbitral procedure’, courts should determine whether an arbitration agreement exists or was forged. Forcing parties to have their dispute resolved before an arbitral tribunal where there is no true consent to arbitration flies in the face of that fundamental principle. Alternatively, or additionally, perhaps the words of the Federal Court of Australia in Hancock Prospecting Pty Ltd & Ors v Rinehart & Ors [2017] FCAFC 170 may suffice: "We think any rigid taxonomy of approach is unhelpful, as are the labels ‘prima facie’ and ‘merits’ approach. How a judge deals with an application ... will depend significantly upon the issues and context."
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