'No Dispute, No Jurisdiction' Principle In Arbitration: An Analysis In CMB v. Fund & Cattle Case

Arbitral tribunals often face jurisdictional challenges concerning whether there is a valid arbitration agreement or if a dispute falls within the scope of the arbitration agreement. However, a crucial yet sometimes overlooked pre-condition for establishing the jurisdiction of an arbitral tribunal is the actual existence of a “dispute” between the parties. This was affirmed by the Hong Kong Court of Appeal CMB v. Fund & Cattle [2024] HKCA 516, which highlights the importance of a clearly formulated dispute as the foundation of a tribunal’s jurisdiction.

Background Facts

CMBICDHAW Investments Limited (“CMB”) entered into a co-investment agreement (“Agreement”), which included an ICC arbitration clause, with CDH Fund V Limited Partnership (Fund) and CDH Grand Cattle Holdings Limited (Cattle) in 2014. Under the Agreement, CMB agreed to invest US$10 million for a minority equity stake in a company (“HC”). The Agreement was negotiated between Li Lei and Xiong Fei, on behalf of Fund and Cattle, and, a Mr Qiu on half of CMB.

In June 2020, CMB commenced legal proceedings at the High Court of Hong Kong (“HCA”) against Li Lei, Xiong Fei, CDH Investments Management Limited (“HCA defendants”) and a Chen Yangyou, claiming that they had made fraudulent misrepresentations to CMB with respect to the Agreement. Notably, Fund and Cattle were not defendants and no claims were made against them in the HCA.

In July 2020, Fund and Cattle, along with the HCA defendants, commenced ICC arbitration proceedings against CMB, seeking an anti-suit injunction and a declaration of non-liability in respect of the HCA. In March 2022, the arbitrator issued an arbitral award finding that he had no jurisdiction over the HCA defendants as they were not parties to the arbitration agreement, but he had jurisdiction to issue a declaration that Fund and Cattle had “no liability to CMB” regarding the allegations arising out of the Agreement. CMB then successfully applied to the Hong Kong Court of First Instance (“CFI”) under section 81 of the Hong Kong Arbitration Ordinance (“AO”), which gives effect to Article 34 of the Model Law, to set aside parts of the Award on the basis that the arbitrator had no jurisdiction. Later on, Fund and Cattle sought to appeal against the CFI’s Decision. The Hong Kong Court of Appeal dismissed the appeal on the grounds that the arbitrator lacked jurisdiction due to the absence of a dispute, and further held that the arbitral award was in conflict with public policy in Hong Kong.

Court’s Ruling

In CMB v. Fund & Cattle, the Court of Appeal addressed the absence of a dispute between the parties. First, the Court of Appeal adopted a broad and inclusive approach to identifying a “dispute”, holding that it was unnecessary to have a “claim” in the sense of a legal claim or legal cause of action asserted by one party against the other. However, there must be “something in the nature of an assertion by one party, and a situation in which the parties neither agree nor disagree about the true position is not one in which there is a dispute”. In the case at hand, Fund and Cattle were seeking a declaration of non-liability while CMB had never asserted that they were liable. In addition, CMB had not included either Fund or Cattle as defendants in the HCA, nor had CMB made any relevant allegation or assertion against them in that action. This made it challenging for the court to establish the existence of any dispute that would fall within the scope of the arbitration agreement.

The Court of Appeal further observed that the arbitrator conflated two questions: whether it had jurisdiction, and whether Fund and Cattle had a legitimate interest in seeking a negative declaration of non-liability. The mere existence of a legitimate interest for Fund and Cattle to seek the declaration could not by itself establish the existence of a dispute. A contrary conclusion conflated two separate questions, or “puts the cart before the horse”. In the court’s view, the correct position was that since CMB had not asserted any liability, and had subsequently expressly confirmed that it was not asserting any such claim to liability, there was no relevant dispute between CMB and Fund and Cattle that could have established jurisdiction for the arbitrator.

It is worth noting that the Court of Appeal further held that the award was contrary to public policy on two grounds. First, there was a “clear abuse of process”, as non-contracting parties to the arbitration agreement had commenced the arbitration with the clear purpose of arbitrating issues that were the subject of the HCA proceedings and fell within the exclusive jurisdiction of the Hong Kong courts. Second, the arbitrator proceeded to determine the allegations made in the HCA and further offered his “notes” on matters he deemed unnecessary and improper to decide, thereby risking the perception that the arbitrator was attempting to “poison the well” for the HCA proceedings.

Defining A Genuine “Dispute” In Arbitration: Past Cases

CMB v. Fund & Cattle adds to the line of previous rulings in which the Hong Kong courts have affirmed that a formulated dispute must exist in order to establish the jurisdiction of the arbitral tribunal.

In the leading authority Tommy CP Sze & Co v. Li & Fung (Trading) Ltd [2003] 1 HKC 418, the judge ruled that a dispute would exist unless there is a clear and unequivocal admission not only of liability but also quantum. In Bank A v. Bank B [2024] HKCFI 2529, which applied the Tommy test, the notice of arbitration referred to the defendant's breach of the arbitration agreement under a termination and settlement agreement (“TSA”), which had not been admitted by the defendant. The court was satisfied that there was a dispute between the parties, which fell within the scope of the arbitration clause that covered any controversy, difference or claim arising out of or relating to the TSA, including the validity, interpretation, performance, breach or termination of it. Therefore, the existence of a dispute can be defined as a situation where one party asserts or adopts a position that is expressly or implicitly rejected, or at least not accepted, by the other party, resulting in a difference of opinion about central issues.

However, some cases have identified that silence in the face of a claim or assertion does not raise a dispute, as the existence of a dispute normally requires a rebuttal or denial of the claim or assertion. In Chu Kong v. Lau Wing Yan & Ors [2018] HKCA 1010, the plaintiff’s complaints against the first to third defendants did not concern the fourth defendant. All that the plaintiff sought was a declaration that a supplemental agreement, to which the fourth defendant was a party, was void and unenforceable, and no consequential relief is sought against the fourth defendant. The CFI found that there was no substantive dispute between the plaintiff and the fourth defendant because the fourth defendant was joined essentially as a nominal defendant.

Conclusion

The Court of Appeal’s decision in CMB v. Fund & Cattle emphasized the importance of the existence of a genuine dispute in establishing and forming the basis of an arbitral tribunal’s jurisdiction. It is not sufficient if the parties initiating the arbitration have legitimate interest in seeking reliefs in respect of the underlying transaction in the absence of any dispute between the parties to the arbitration agreement. As highlighted by the CFI, the essential difference between the court and the arbitral tribunal is that the court has unlimited inherent jurisdiction, whereas the tribunal must rely on the existence and scope of the arbitration agreement to exercise its jurisdiction and powers.