CI v IU: Hong Kong Court considers appealability of domestic and foreign laws under Hong Kong seated arbitration

Overview

In CI v. IU [2025] HKCFI 4397, the dispute arose from back-to-back voyage charterparties governed by English law and subject to Hong Kong–seated arbitration under HKMAG 2021 Terms, with the parties expressly opting into Schedule 2 to the Hong Kong Arbitration Ordinance (Cap. 609).^[1]

The arbitration tribunal found in the owner’s favour, with the owner succeeding in its claims in respect of both its own loss of profits and the losses sustained from an upstream company in the charterparty chain, arising from the charterer’s breach. The charterer sought leave to appeal to the Hong Kong court on a question of law, challenging the tribunal’s error in law in ordering that the charterer should indemnify the owner for losses allegedly suffered by a third party. The owner resisted the application on a jurisdictional basis, contending that the question posed was not a “question of law” under the Arbitration Ordinance because Schedule 2 was intended “to encapsulate only questions of Hong Kong law” whereas any alleged error in the application of English law under the charterparties / fixture notes would effectively amount to a “questions of fact”.

The key question was therefore: are appeals on points of foreign law (English law in particular) permitted under Schedule 2 to the Arbitration Ordinance? The Hong Kong Court of First Instance gave an affirmative response, but with distinction between two categories of foreign law situations. On the one hand, where the arbitration is governed by a system of law which is “truly exotic such that foreign law can only be proved by expert evidence”, foreign law is a question of fact. On the other hand, where “the relevant legal system is one that applies an approach similar to that under English law” and the tribunal is composed of arbitrators “conversant with English law which is to all intents and purposes the same as Hong Kong law”, expert evidence is not required by the Hong Kong courts or Hong Kong arbitrators to understand and apply foreign legal principles. In the latter cases, when the lower courts / tribunals apply their own skills and experiences for legal reasoning rather than relying solely on evidence, such errors may be characterised as errors of law. The court cited Beard v R&C Commissioners [2025] EWCA Civ 385 to confirm that inherent in this thought process the reasoning provides scope for legal error.

The court rejected the assumption that a choice of English law as governing law in a contract precludes an appeal under Schedule 2 to the Arbitration Ordinance. Whether an appealable question exists depends on the nature of the tribunal’s reasoning and error, not on the governing law per se. Although the court affirmed the theoretical availability to appeal on foreign‑law questions, the charterer in this case failed to satisfy the applicable merit threshold in which the court held that was not a question of general importance and the tribunal’s reasoning was not “open to serious doubt”. As a result, the court’s observations and explanation herein were obiter dicta, albeit highly persuasive ones.

Implications

This judgment signifies a significant development for the maritime industry. Hong Kong-seated maritime arbitrations frequently involve charterparties or contracts governed by English law, Singapore law or other common law systems. For the first time, the Hong Kong Court has confirmed that appeal decisions on foreign law under Schedule 2 to the Arbitration Ordinance will not be automatically excluded simply because the substantive governing law is foreign.

As is well-known, the English Arbitration Act 1996 restricts appeals to questions of law of England and Wales only. By contrast, the Hong Kong Arbitration Ordinance contains no equivalent restriction. The Hong Kong courts therefore enjoy the liberty to adopt a broader approach, recognising that issues of foreign law may themselves constitute a “question of law”. By removing the artificial distinction between a “question of law” and a “question of fact” in relation to a foreign law issue, this decision provides greater certainty for parties assessing the prospect of a Schedule 2 appeal, enhancing Hong Kong’s attractiveness as a leading maritime arbitration hub worldwide, and reducing reliance on expert evidence for well-recognised common law principles.

Ending notes on HKMAG Terms and the Interim Measures Arrangement

The commercial pragmatism demonstrated by the Hong Kong courts is reflected not only in their supervision of arbitral awards, as seen in CI v IU, but it also reminds us of the wider institutional framework supporting Hong Kong–seated arbitrations. While CI v IU deals with post‑award appeals, parties arbitrating in Hong Kong may also benefit from a unique pre‑award mechanism – the ability to seek interim measures directly from Mainland courts under the Arrangement Concerning Mutual Assistance in Court‑Ordered Interim Measures in Aid of Arbitral Proceedings between Mainland China and Hong Kong (“Arrangement”). Many are aware that arbitration clauses making explicit reference to HKIAC-administered arbitrations automatically satisfy the Arrangement’s requirements. However, the situation is different for HKMAG Terms. There is a recurring misunderstanding that the mere reference to HKMAG Terms alone is sufficient to obtain the Arrangement’s benefits. It is against this backdrop that the following observations on HKMAG and the Arrangement should be understood.

Since the Arrangement came into force in 2019, Hong Kong has become the only jurisdiction where parties to Hong Kong-seated arbitrations may apply directly to Mainland courts for interim measures in support of an arbitration. Under Article 2 of the Arrangement, such applications are only available to arbitral proceedings in Hong Kong that are both seated in Hong Kong and administered by a qualifying arbitral institution.

Although HKMAG is included as a qualified arbitral institution, HKMAG Terms (which are derived from LMAA Terms) are fundamentally designed for ad-hoc arbitration. Ad-hoc arbitration proceedings alone apparently do not satisfy the Arrangement’s requirement of institutional administration. Essentially, since 2019, HKMAG has introduced the option of an administered arbitration and a model arbitration clause[2] for HKMAG administered arbitration.   The “HKMAG Procedures for the Administration of Arbitration under the HKMAG Terms” was published in 2022, enabling the parties to elect for HKMAG to administer the arbitrations that would otherwise be conducted on an ad hoc basis.

Accordingly, in maritime arbitrations, the mere adoption of the HKMAG Terms is insufficient to bring the arbitration into the scope of the Arrangement. The parties must expressly agree that the arbitration will be administered by HKMAG, usually by incorporating “HKMAG Procedures for the Administration of Arbitration under the HKMAG Terms” into the subject contract.  Given the prevalence of Mainland counterparties and PRC‑based assets in shipping disputes, parties who intend to make use of the Arrangement should ensure their arbitration clauses expressly incorporate both HKMAG terms and the HKMAG administrative procedures. Only this dual incorporation preserves access to Mainland interim measures and enhances the practical enforceability of maritime claims.

 

If Members have any questions in relation to the above issues they are invited to contact the Club for further information.

---

[1] Under the Hong Kong Arbitration Ordinance, the default position for arbitration agreements entered after 1 June 2017 is that there is no right to appeal on a point of law. This is different from that under the English Arbitration Act 1996 allowing appeal to court on a point of law by default.  In practice, parties under Hong Kong-seated arbitrations could agree to opt in Schedule 2 which provides rights of appeal on law and other circumstances, and offers an avenue to challenge serious procedural irregularities. The HKMAG Terms incorporate such an agreed opt-in regime under Article 26.

[2] See https://static1.squarespace.com/static/5c2e3f79da02bcf0960540ff/t/5d933f7dfb48423f80f73c04/1569931134049/HKMAG+Administered+Arbitration+Clause+Version+1.pdf