The dispute at the centre of the case arose from a loan agreement between a moneylender and a borrower. After the borrower defaulted, the moneylender commenced an online arbitration to recover the debt.
The agreement contained a dispute resolution clause that allowed the moneylender to initiate online arbitration administered by the Hong Kong Arbitration Society (HKAS) under its online arbitration rules, or through the Hong Kong courts.
HKAS sent the borrower an SMS in Chinese containing a link to the notice of arbitration. When the borrower did not respond or participate in the arbitration, an award was issued in the moneylender’s favour.
The borrower then challenged the enforcement of the award, citing, among various other arguments, that proper notice of arbitration had not been given as dictated by the HKAS arbitration rules.
The Hong Kong Court of First Appeal, rejecting the application, ruled in favour of the moneylender because proper notice was given to the borrower, based on the evidence that the SMS containing the link to the notice of arbitration had been received.
Jennifer Wu, an expert in technology disputes at Pinsent Masons, said: “While SMS is recognised as a valid method for delivering arbitral notices, this case serves as a reminder that timely and clear documentation of all notification attempts is essential, not just to meet the procedural rules, but to demonstrate actual efforts to ensure procedural fairness.”
“Practitioners, parties and arbitral institutions should exercise caution when using electronic transmission methods and take proactive steps to mitigate associated risks,” she said.
“An award obtained without ensuring the other party had a fair opportunity to participate remains vulnerable to challenge. In the end, the goal of proper notice is not simply to deliver notice, but to ensure every respondent has a meaningful opportunity to participate in the arbitration.”
In its decision, the court reiterated the difference between “proper notice” of arbitration and “actual notice”, stating that proper notice is satisfied if the method used is “likely to bring the relevant information to the attention” of the notified party, taking into account any contractual provisions, agreed dispute resolution mechanisms and relevant institutional rules.
Technical logs from the HKAS platform showed that the SMS was successfully delivered to the borrower’s mobile number, with no bounce-back or error. This, combined with subsequent SMS communications acknowledged by the borrower, allowed the court to conclude that the SMS was received.
Wu said: “The court, however, expressed caution over the potential shortcomings of using SMS. SMS can be overlooked, perceived as spam or fraud attempts, or blocked.”
“The court specifically observed that a party may miss an SMS for good reasons and may understandably hesitate to click on unfamiliar links,” she said.
“The court reminded arbitrators and claimants to take active steps to ensure that any non-participation by the respondent is not simply due to overlooked or distrusted SMS messages on notice of arbitrations.”
Denise Cheung of Pinsent Masons said: “It is also important to update the non-participating respondent at each step of the ongoing arbitration.”
BBC
