YEE SANG METAL AND BUILDING SUPPLIES CO. LTD. v. SHANGHAI JIN JIANG SHIPPING CORPORATION LTD.

H E A D N O T E

Arbitration - security for costs - Section 14(6)(a) of the Arbitration Ordinance Cap.341 - whether Court has power to stay Arbitration pending provision for security for costs

1990, No. M.P. 4010

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiffs in this Originating Summons are respondents in an arbitration and they seek an order for security for costs under Section 14(6)(a) of the Arbitration Ordinance, Cap.341. The defendants, who are claimants in the arbitration, did not appear before me although it is fair to say that they are actively pursuing the arbitration.

2. Mr Hughes persuaded me to make an order for security in the sum of $222,000. and the only issue which has been argued is whether, as ancillary to that order, I have jurisdiction to stay the arbitration pending compliance with the order for security for costs.

3. I should add that this is a non-domestic arbitration agreement entered into before 6th April, 1990 and is thus governed by the Arbitration Ordinance prior to the coming into effect on the 6th April, 1990 of the Arbitration (Amendment)(No.2) Ordinance 1990.

4. Section 14(6) of the Ordinance provides, so far as is material as follows :

" The Court shall have for the purpose of and in relation to a reference, the same power of making orders in respect of :

(a) Security for costs ;

(b)-(h) ...........

Provided that nothing in this sub-section shall be taken into prejudice any power which may be vested in an arbitrator or umpire of making orders with respect to any of the matters aforesaid. "

(this section is identical to Section 14 of the Arbitration Act 1950.)

5. The sub-section is thus silent about a stay. Section 6 of the Ordinance, which deals specifically with stays, relates only to stays of Court proceedings brought in defiance of an arbitration agreement and does not relate to stays of arbitration proceedings properly commenced.

6. Order 23 of the Rules of the Supreme Court deals with security for costs. One of the grounds of application is where the plaintiff is ordinarily resident outside the jurisdiction which is the ground upon which I ordered security in this case. Order 23 rule 2 provides:

" where an order is made requiring any party to give security for costs the security shall be given in such manner, at such time and on such terms (if any) as the Court may direct." (my emphasis)

7. Mustill and Boyd's "Law and Practice of Commercial Arbitration" (Second edition) page 337 states that :

" it is usually a term of an order for security that all further proceedings in the arbitration shall be stayed until the security has been provided."

The authors then go on to make the point that :

" The Court does not have a general discretion to stay an arbitration as distinct from restraining the parties by injunction from proceeding with it. "

8. It seems clear to me that the jurisdiction to grant a stay of the arbitration pending compliance with a Court order for security is derived from a combination of Section 14(6)(a) and Order 23 Rule 2. If the Court has the same powers for making orders for security for costs in relation to a reference then the usual Court order for a stay pending compliance is just as applicable to an arbitration as it is to litigation. It may not be a stay in the ordinary sense of that word for it is intended only to "freeze" the arbitration for the limited time necessary to comply with the order for security. Without such provision, the Court's order could be ignored and there would be no sanction whatsoever. The granting of a stay in these circumstances has no effect on the authority of the arbitrators or the arbitration agreement.

9. Happily, the matter is not free from authority. In Dorval Tankers v. Two Arrows Maritime (the Argenpuma) (1984) 2 Lloyd's Rep. 563, Eveleigh L.J. said at page 555/6 in relation to a similar factual situation :

" the stay of proceedings is an integral part of the order for security for costs and consequently whether or not there should be a stay is a question relating to or connected with the relief claimed by the plaintiff. "

10. Kerr L.J. at 567 said this :

" The second issue is whether Mr Justice Leggat had jurisdiction to order a permanent stay of the arbitration. In my view, he did. Bremer Vulkan Schiffbau and Maschinenfabrik Corporation Ltd. v. South India Shipping Corporation Ltd. [1981] 1 Lloyd's Rep. 253; [1981] A.C. 909 decided that the Court has no power to dismiss an arbitration for want of prosecution. The present case illustrates the need for a statutory power to this effect, as has recently been enacted in Hong Kong : Arbitration Ordinance, Ch. 341, s.29A. In the absence of such a power an arbitration can remain in a permanent state of coma. The limiting powers under s.5 of the Arbitration Act, 1979, such as they are, provide no answer in theory : since the arbitration is stayed, there is no order which the arbitrator, appointed nearly six years ago, could in any event make to provide a foundation for the operation of this provision.

        The present case differs radically from the position in Bremer Vulkan and The "Hanah Blumenthal", [1983] 1 Lyoyd's Rep. 103; [1983] 1 A.C. 854, since it turns on express powers of the Courts concerning arbitrations which are conferred by statute and under the Rules of Court Part I of the Arbitration Act, 1950, confers a number of powers upon various parts of our Court system to make orders in relation to arbitrations. The present case is concerned with s.12(6)(a) which confers power upon the High Court to make orders for the security for the costs of arbitrations in the same way as in relation to actions in the High Court Section 28 of the Act provides :

Any order made under thus Part of Act may be made on such terms as to costs or otherwise as the authority making the order thinks just.

In relation to orders for security for costs R.S.C., 0.23, r.2 provides for a similar discretion to impose terms. A stay of the proceedings in relation to which an order for security is made, pending the provision of the security, is commonplace, if not invariable in the absence of consent, because further unsecured costs may be incurred in the interim. The power to impose a stay of the arbitration in this case, which was exercised ex parte on Feb. 5, 1982 and inter partes on Apr. 2, 1982, is therefore not open to doubt.

Having ordered a stay of the arbitration, it is equally within the power of the Court to decide whether the stay should be lifted or maintained if - as happened here - the security is not provided within the prescribed time. This is reflected in par. (2) of the order made on Apr. 2, 1982, that

... the arbitration not be proceeded without the leave of the Court. "

11. I am satisfied that I do have jurisdiction to grant a stay of the arbitration pending compliance with my order for security for costs and that in the circumstances of this case it was appropriate to so order.

12. The order I propose to make is as follows. The defendants do by 4.30 p.m. on 19th February, 1991 provide security for the plaintiffs costs of the arbitration in the sum of $222,000.00 in a form acceptable to the plaintiffs or to the Court and that all further proceedings in the arbitration be stayed pending compliance with this Order. I also order that the plaintiffs do have the costs of this application.