Facts
- In December 1990, Lucky-Goldstar International (H.K.) Ltd (Lucky-Goldstar) contracted to sell five sets of elevators to Ng Moo Kee Engineering Ltd (Ng Moo).
- The written contract contained a dispute-resolution clause stating that any dispute not settled amicably “shall be arbitrated in the 3rd Country under the rules of the 3rd Country and in accordance with the rules of procedure of the International Commercial Arbitration Association,” and that any award would be final and binding.
- The contract did not name the “3rd Country.” The parties agreed it meant a country other than Hong Kong and South Korea.
- The “International Commercial Arbitration Association” referred to in the clause did not exist.
- A dispute arose. Lucky-Goldstar (as plaintiff) commenced court proceedings in Hong Kong.
- Ng Moo (as defendant) applied to stay the court action and refer the parties to arbitration under Article 8 of the UNCITRAL Model Law (as in force in Hong Kong for the arbitration agreement at issue).
- Lucky-Goldstar resisted the stay, contending that the clause was not a binding arbitration agreement, or alternatively was inoperative or incapable of being performed because it identified no seat and relied on rules of a nonexistent institution.
Issues
- Whether the arbitration clause was “null and void” (including for common mistake) because it referred to the rules of a nonexistent “International Commercial Arbitration Association.”
- Whether the arbitration clause was “inoperative or incapable of being performed” under Model Law Article 8 because it did not specify the “3rd Country” and provided no workable institutional rules.
- If the clause was neither null and void nor inoperative nor incapable of performance, whether Article 8 required the Hong Kong court to stay the litigation and refer the parties to arbitration.
Decision
- The court granted Ng Moo’s application and stayed Lucky-Goldstar’s Hong Kong proceedings.
- The court held that the clause showed a clear agreement to arbitrate disputes arising from the contract, and it was not invalid merely because it referred to a nonexistent organization’s “rules of procedure.”
- The court held the clause was not inoperative or incapable of being performed: in the absence of the named institutional rules, the arbitration could be conducted under the law (and procedural rules) of the “3rd Country” selected for the arbitration.
- Because none of the Article 8 exceptions applied, the court was required to order a stay and refer the parties to arbitration.
Legal Principles
- Under Model Law Article 8, a court seized of an action concerning a matter covered by an arbitration agreement must stay the court proceedings and refer the parties to arbitration unless the agreement is “null and void, inoperative or incapable of being performed.”
- A clear intention to arbitrate is not defeated solely by a mistaken reference to an arbitral institution that does not exist; the institutional reference may fail without defeating the parties’ agreement to arbitrate.
- An arbitration agreement may remain workable even if it lacks usable institutional rules, where the arbitration can proceed under the arbitration law and procedural requirements of the place of arbitration.
- An agreement to arbitrate in an unspecified “third country” may still be enforceable where the clause contemplates selection of a place of arbitration outside the forum, and that selection supplies a governing procedural law for the arbitration.
Conclusion
The Hong Kong Court of First Instance stayed Lucky-Goldstar’s court action under Model Law Article 8, holding that the parties had agreed to arbitrate despite drafting defects: the reference to a nonexistent arbitral institution did not negate consent to arbitrate, and the arbitration could still proceed in a “third country” under that place’s law and procedures once the place of arbitration was chosen.