XCHRX HONEYWELL LTD. v. ALPHA-PROSPERITY TECHNIQUE LTD.

1998, No. A17690

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. In October 1998, the plaintiff commenced proceedings against the defendant in this court, and, on 13 November 1998, obtained judgment in the sum of $850,450.91 in default of a notice of intention to defend. I now have before me an amended summons by which the defendant seeks an order that the judgment be set aside. There are two grounds stated in the summons; defective service of the writ and "should there be any disputes between the parties it is mutually agreed to be dealt by arbitration in Shenzhen PRC, and be tried in China by China Foreign Trade Arbitration Committee".

2. The allegation of defective service is easily dealt with. The evidence is that the writ was properly served at the defendant's registered office. The only evidence from the defendant is that the service did not come to the attention of an officer of the defendant until judgment had been entered. There is no basis here for setting aside the judgment.

3. The other allegation has more substance.

4. The basis for the plaintiff's claim was a contract dated 17 August 1991 between the parties by which the plaintiff agreed to supply an automatic fire alarm system for a building owned by Shenzhen SEZ Development Centre Limited. The system was to be installed by Shenzhen Fire Services and Securities Limited. This contract contained the following provisions -

"9.1 All disputes should be settled through negotiation between both parties. If negotiation falls through, the case will be referred to the court for arbitration.

9.2 Arbitration will be tried in China Foreign Trade Arbitration Committee in conjunction with contract made between Shenzhen SEZ Development Centre Limited and Shenzhen Fire Services and Securities Limited.

9.3 The decision of the Arbitration committee will be final and binding on both parties.

9.4 Both parties should provide convenience for arbitration personnel.

9.5 The arbitration costs will be borne by the loser who shall also be responsible for any delay by the arbitration action.

9.6 Both the Buyer and the Supplier shall inform the Owner in writing of any disputes and the results of the arbitration decisions."

5. Whatever its deficiencies, this is undoubtedly an "arbitration agreement" as defined by the Model Law. Article 8 of that Law says that -

"A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

6. Mr Lam argues, in the first place, that the arbitration agreement "is void and of no effect under PRC law." For this, he relies on the evidence of Mr Zhang Guo Rong, a mainland lawyer, who says that "If the Court referred to in [clause 9.1] means the People's Court of China, I understand that it does not conduct arbitration. In that case, this clause is void under PRC law." Mr Zhang also says that there is no such arbitration body in China called the "China Foreign Trade Arbitration Committee". Mr Lam also relies on the evidence of another mainland lawyer, Mr Guo Zong Ze. Mr Guo says that because there is no arbitration between Shenzhen SEZ Development Centre Limited and Shenzhen Fire Services and Securities Limited, clause 9.2 does not apply. Mr Guo also says that an agreement to refer disputes to court and arbitration is invalid.

7. Against this evidence, there is an affirmation by another mainland lawyer, Mr Bai Tao. Mr Bai says that the arbitration clause reveals the parties intention to have disputes resolved by arbitration by the China International Economic and Trade Arbitration Commission, which is the present name of the body formerly known as the Foreign Trade Arbitration Commission, and that the reference to "court in China for arbitration" should be construed as "tribunal in China for arbitration".

8. When Mr Bai discovered that his office had already advised the plaintiff, he said that the court should "disregard" his affirmation. Mr Bai does not suggest that his opinion is wrong, just that it should be "disregarded" because his office had issued another opinion. I decline to disregard it. It is evidence, and it is properly before me.

9. So there is a conflict of evidence on the interpretation of the arbitration agreement. I prefer the evidence of Mr Bai. It seems abundantly clear to me that the parties to the contract intended that their disputes should be resolved by arbitration. There are, it is obvious, imperfections in the arbitration provisions arising, in all probability, from the fact that they were drafted by someone whose first language is not English, nevertheless, the intention of the parties is as clear as could be.

10. The reference to "court" in clause 9.1 is unfortunate, but clause 9.2 makes it perfectly clear that it is the intention of the parties that the arbitration should be conducted by a body called the "China Foreign Trade Arbitration Committee". The undisputed evidence is that the present name of this body is China International Economic and Trade Arbitration Commission, a body well known to this court. I am surprised that Mr Zhang Guo Rong did not see fit to say that this was the same body mentioned in the arbitration agreement with a different name.

11. I do not know what is intended by the use of the phrase "in conjunction with contract made between Shenzhen SEZ Development Centre Limited and Shenzhen Fire Services and Securities Limited" in clause 9.2. Perhaps it was thought convenient for all disputes concerning the project to be referred to arbitration at the same time. I do not think the parties meant that, if there was no dispute between the owner and the installer, any dispute between the parties could not be arbitrated. That part of the clause is not applicable to the present situation, but I do not think this affects the intention of the parties that disputes should be arbitrated not litigated.

12. Accordingly, it does not seem to me that there is any reason to find that the arbitration agreement "is null and void, inoperative or incapable of being performed."

13. But that is not the end of the matter. I do not have before me an application under Article 8. As Mr Lam submitted, even if it can be said that there is valid arbitration agreement, there are no proceedings to be stayed until the judgment is set aside. Mr Lam argues that the defendant should be required to establish a defence on the merits before the judgment should be set aside.

14. I think this is right. If there had been no judgment against the defendant, and it had applied under Article 8, I would have no discretion but to refer the parties to arbitration. But what I have before me is an application to set aside a regular judgment under Order 13, rule 9, and, until that judgment is set aside, no application under Article 8 can be made.

15. Order 13, rule 9 gives the court a wide discretion when considering the setting aside of a judgment. No particular requirement is imposed by the rule, although, of course, the courts have held that the defendant must show a defence that has real prospect of success. The defendant here has not applied to have the judgment set aside on the grounds that it has a good defence to the action. Indeed, the summons as issued did allege that "the defendant has a good defence to this action, and inter alia the plaintiff's action has been time barred", but, before this matter was argued, the defendant's solicitor applied for, and obtained, leave to amend the summons by deleting the words in parenthesis. So, any suggestion that the defendant had a good defence was expressly abandoned.

16. An allegation that a dispute should be determined by arbitration is not a defence. It is a special plea that must be taken before any defence is filed.

17. It seems to me that it would be quite wrong to exercise my discretion to set aside this judgment so that the dispute can go to arbitration in a situation in which the defendant has expressly abandoned in this application any suggestion that it has a good defence to the claim. That would be an exercise in futility.

18. Accordingly, I dismiss the application. There seems no reason why costs should not follow the event. I make an order nisi that the defendant pay the plaintiff's costs of this application.