T v A
Court of First Instance
Construction and Arbitration Proceedings No 57 of 2017
Anderson Chow J in Chambers
30 July 2018

Arbitration - proceedings - authority to commence arbitration - settlement agreement between insurer and assured for claim under cargo insurance policy - insurer purportedly commenced arbitration against carrier with assured as co-claimant - no authority as subrogated insurer to commence arbitration using assured's name - equitable assignment of cause of action by assured to insurer - joinder of assured as party to arbitration proceedings required under agreement between insurer and assured - arbitration commenced in assured's name with its authority

Insurance - right of subrogation - arbitration - whether subrogated insurer had authority to commence arbitration using assured's name

The 2nd respondent (V) acknowledged by a bill of lading the carriage of a cargo of nickel ore (the Cargo) from Indonesia to the PRC on board its vessel (the Vessel). The applicant (T) was the holder of the bill of lading and the Notify Party therein. T as assured and C (now known as "A", the 1st respondent) as insurer entered into a cargo policy (the Policy) in respect of the Cargo which was governed by English law. In December 2011, the Vessel carrying the Cargo sank off the Philippines, resulting in the loss of the Cargo and the Vessel. In June 2012, T commenced legal proceedings in the Shanghai Maritime Court against C under the Cargo Policy. In November 2012, T and C entered into a settlement agreement (the Agreement) under which C agreed to pay USD3.4 million to T. The Agreement also provided that it shall be governed by PRC law and that any inconsistency between the Chinese and English versions of the Agreement should be resolved in favour of the Chinese version. Subsequently, "A" paid USD3.4 million to T as agreed and T executed a document entitled " (Subrogation Form)" (the Subrogation Form) in accordance with the Agreement. The Form provided that "[i]n consideration of … the … Settlement Amount … [T] agree[d] that [A] are subrogated, assigned, and transferred with all our rights, interests and remedies in respect of the subject matter insured … and agree to allow any proceedings to be taken in [our] name for recovery against any third parties, if required, and to assist in such proceedings …" In December 2012, "A" and T purportedly commenced arbitration against V claiming the loss of the Cargo. T contended that it was unaware of the commencement of the arbitration in its name until around May 2017. The Arbitral Tribunal (the Tribunal) rejected T's challenge to the authority of "A" to use its name as a claimant in the arbitration. T commenced the present action against "A" and V, seeking a declaration that the Tribunal had no jurisdiction over T.

Held, dismissing the application, that:

(1) In deciding whether an arbitral tribunal had jurisdiction in respect of any particular reference under art.16(3) of the Model Law, the court determined the matter afresh and was not in any way bound by the tribunal's decision. An absence of authority to commence arbitral proceedings in the name of a party was a matter which went to the jurisdiction of the tribunal, in so far as that party was concerned (SEB Trygg Holdings Aktiebolag v Manches [2005] 2 Lloyd's Rep 129, S Co v B Co [2014] 6 HKC 421 applied). (See paras.20-21.)

(2) The subrogation of an insurer to the rights of the assured was governed by the proper law of the contract of insurance. The proper law of the Cargo Policy was English law. In the absence of evidence to the contrary, English law was presumed to be the same as Hong Kong law for present purposes. On the payment of USD3.4 million to T in November 2012, "A" became entitled to the right of subrogation in respect of T's claim against V under the Bill of Lading, but "A" as subrogated insurer had no right or authority to commence the Arbitration using the name of T (Edwards (John) & Co v Motor Union Insurance [1922] 2 KB 249, Yorkshire Insurance Co Ltd v Nisbett Shipping Co Ltd [1962] 2 QB 330, Esso Petroleum Ltd v Hall Russell & Co [1989] AC 643 applied). (See paras.23-27.)

(3) The proper law of the Subrogation Form was PRC law. This was the inferred choice of law of the parties in view of the fact that it was issued and delivered to "A" pursuant to the Settlement Agreement which (a) prescribed the precise form and contents of the Subrogation Form, and (b) contained an express choice of law clause providing for PRC law as the governing law of the Settlement Agreement. In any event, the residual rule of the closest and most real connection would point to the same result. (See paras.29-32.)

(4) The Subrogation Form effected an assignment of the entirety of T's rights and remedies to recover compensation or damages for the loss of the Cargo from third parties (including, in particular V) to "A". Clause 8 of the Settlement Agreement provided that any inconsistency between the Chinese and English versions should be resolved in favour of the Chinese version and this principle was equally applicable to the Subrogation Form. The title and body of the Subrogation Form suggested an assignment, instead of subrogation, of rights. However, no notice of assignment of T's right and remedies under the Subrogation Form was given to V prior to the commencement of arbitration and the assignment was not binding on V under art.80 of the Contract Law of the People's Republic of China. (See paras.36-45.)

(5) "A" expressly agreed before the execution of the Subrogation Form that it would only use T's name to pursue recovery proceedings against third parties if it was a requirement of the applicable law that the proceedings must be brought in the name of T. Such agreement was binding on "A" on the basis of a collateral warranty or estoppel, or upon the true construction of the Subrogation Form, since evidence of pre-contractual negotiation was admissible for the purpose of the interpretation of a written contract under the principle of "good faith" referred to in art.125 of the Contract Law of the People's Republic of China (See para.53.)

(6) There was a long-standing practice of the court that before giving final judgment in an action at the suit of an equitable assignee, the court would normally require him to bring the assignor before the court, either as plaintiff or as defendant, in order that the assignor would be bound by the result. This practice was a procedural, not substantive, requirement. On the basis that the Subrogation Form took effect as an equitable assignment of T's right of action against V to "A", the joinder of T as a party to the arbitral proceedings against V could fairly be said to be "required" under the Subrogation Form.  The arbitration was commenced in the name of T with its authority and the Tribunal had jurisdiction over T (Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, The Aiolos [1983] 2 Lloyd's Rep 15, Sim Swee Joo Shipping Sdn Bhd v Shirlstar Container Transport Ltd [1994] CLC 188, Allson Classic Hotel (HK) Ltd v Harvest Star International Ltd [1996] 2 HKLR 330, Robert v Gill & Co [2011] 1 AC 240, Kapoor v National Westminster Bank Plc [2012] 1 All ER 1201, Secretary for Justice v Global Merchant Funding Ltd (2016) 19 HKCFAR 192 applied). (See paras.45, 54-60.)

Application

This was an application for a declaration that the arbitral tribunal, in arbitration proceedings commenced in the name of the applicant and the first respondent against the second respondent, had no jurisdiction over the applicant. The facts are set out in the judgment.

Jurisdictions: 

Thomson Reuters – Sweet & Maxwell are the publishers of the Authorised Hong Kong Law Reports & Digest ("HKLRD") and the Authorised Hong Kong Court of Final Appeal Reports ("HKCFAR"), and providers of Westlaw HK (www.sweetandmaxwell.com.hk / www.westlaw.com.hk).