Solicitors Beware: Not All Arbitration Agreements between Solicitor and Lay-client are Enforceable

Solicitors should not expect an automatic referral to arbitration because they had signed an arbitration agreement with their clients.

In Fung Hing Chiu Cyril v. Henry Wai & Co (a firm) [2018] 1 HKLRD 808 a costs dispute arose between the lay-client (‘Mr. Fung’) and his previous firm of solicitors. The firm started arbitration proceedings pursuant to an arbitration clause. Mr. Fung started taxation proceedings in court.

Mimmie Chan J ultimately ruled that the firm could rely on the arbitration agreement to stay the court proceedings. But the following three points should be noted:-

  • Mr. Fung was (a) expressly found not to be “dealing as a consumer”, and (b) in any event he provided his written consent to arbitration after the parties’ differences had arisen. This meant that he did not have the protection pursuant to s. 15(1) of the Control of Exemptions Ordinance, Cap. 71 (‘CECO’). If the Court’s factual finding had been different, the arbitration agreement would have been unenforceable. So for eg if a lay-client goes to solicitors with personal issues such as divorce, preparation/litigation of wills or family trusts, residential tenancy issues (non-professional landlords and tenants), etc. he could still have recourse to the Courts despite signing an arbitration agreement.
  • The phrase “in the course of business” is used to define “dealing as a consumer” under s. 4 of CECO. Since the English Court of Appeal in R & B Customs Brokers Co Ltd v. United Dominions Trust Ltd [1988] 1 WLR 321, “in the course of business” has meant that the transaction in question had to be “integral”. Incidental matters are not included. This narrow meaning helps protect consumers. To this end, it is questionable whether para. 50 of Fung Hing Chiu Cyril is reconcilable with R & B Customs Brokers Co Ltd. It is perhaps a stretch to say that an investment company’s dispute in regards to its tenancy is “integral” to its business. The business concerned are investments. The tenancy litigation is incidental to the business.
  • Walker J in Assaubayev v. Michael Wilkinson & Partners Ltd [2014] 6 Costs LR 1058 at §8 held that there are three types of jurisdiction the court has to tax its solicitors’ bills. The first relates to its statutory jurisdiction. The second relates to its supervisory jurisdiction. The third relates to “ordinary” jurisdiction. An arbitrator cannot exercise the court’s supervisory jurisdiction. In this regard, as cited by Mimmie Chan J at para. 24, Assaubayev has expressly recognized that although an arbitrator’s findings would prima facie bind the parties, “it may be that the doctrine of issue estoppel is inapplicable in so far as the appellants seek to invoke the court’s own [supervisory] jurisdiction.” Further, it is perhaps arguable that a hearing by the Court on its supervisory jurisdiction is technically not an appeal. This presents an interesting case management issue, and serious thought should be given whether a court ought to insist the parties proceed with arbitration first every time in such instances. One way around the s. 20 Arbitration Ordinance argument would be to view that the “matter” viz. the supervisory jurisdiction of the Court is not the “subject of an arbitration.”

Kevin and Raymond were both involved as representing the Plaintiff in Fung Hing Chiu Cyril v Henry Wai & Co (a firm) [2018] 1 HKLRD 808.

Jurisdictions: 

Bernacchi Chambers

Bernacchi Chambers