LING YAN TEMPLE LTD v. NG YOOK MAN AND OTHERS

HCA 2574/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2574 OF 2009

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BETWEEN

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REASONS  FOR  DECISION

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Background:

1.  At the hearing of this matter on 11 May 2010, I ordered that there be a stay of proceedings against the 2^nd defendant, Albert Liu & Associates Ltd, (ALA), and that the issues between the plaintiff (the Temple) and ALA be referred to arbitration.

2.  These are my reasons for that decision.

The facts:

3.  The Temple is the owner of land on Lantau Island. It is managed by two aged nuns who have limited education and do not speak English. In 1996, the Temple received a Building Order from the Buildings Department requiring it to executing and complete certain slope remedial works on its land.

4.  In October 2001, Mr Albert Liu was in practice as a geotechnical engineer together with Ms Denise Kwong. The practice operated through a company known as Liu Kwong & Associates Ltd. By letter dated 26 October 2001, on the letterhead of Liu Kwong & Associates Ltd, addressed to an agent of the Temple, Mr Liu set out the nature of the professional services that he would be able to provide in respect of the remedial works. The letter was captioned in the following terms:

“RE: Proposed Investigation and Remedial works For Feature No 9.SW-D/R1 and the Adjoining Grassed Cut Slope at Ling Yan Monastery, Keung Shan, Lantau Island.

Professional Services Proposal For Geotechnical Engineering Services”

5.  The letter contained an arbitration submission in the following terms:

“Except for dispute on payment, any dispute or difference arising out of or in connection with this Agreement shall be referred to and determined by arbitration in Hong Kong using Hong Kong law as the governing law and in accordance with the Domestic Arbitration Rules of the Hong Kong International Arbitration Centre.”

6.  On 1 November 2001, the seal of the Temple was endorsed on the letter indicating agreement and acceptance to its terms, and signed by the two elderly nuns.

7.  On 19 January 2004, the Buildings Department gave approval for the remedial works. However the approval required the removal and demolition of two existing water tanks. It was necessary to employ a Building Services Engineer for those relocations.

8.  Sometime prior to 17 May 2004, Mr Liu and Ms Kwong had parted company, and Mr Liu had re-formed his business as ALA.

9.  On 17 May 2004, on ALA letterhead, Mr Liu wrote to the agent for the Temple in respect of the additional services that would be required as a result of the Building Department’s additional requirements. The letter was captioned in the following way:

“RE: Feature No 9SW-D/R1 and the Adjoining Grassed Cut Slope at Ling Yan Monastery, Keung Shan, Lantau Island

Professional Consultancy Fees (Additional Services) ”

It will be noted that the first part of this caption is virtually identical to that in the  letter dated 26 October 2001.  This letter contained an identical arbitration submission.  Although provision was made for formal acceptance by the Temple, no signed copy has been located.

10.  It will also be noted that the caption to letter made it clear that the service is being provided were additional to those being provided in terms of a letter of 26 October 2001. The opening paragraph of the letter referred first to the requirement of the Buildings Department, and then went on to say:

“As Messrs Liu Kwong & Associates Ltd. has resigned from the previous consultancy contract Albert Liu & Associates Limited will continue to provide professional services to you in completing the project.  We propose the following scope of services and professional fees:-

1.1  (omitted)

1.2  Geotechnical Consultancy (Previously Agreed)”

11.  On 4 March 2005, Mr Liu submitted an invoice, captioned in identical terms to the letter of 17 May 2004, for the sum of $10,000. That sum was duly paid on 19 March 2005.

12.  On 24 April 2008, Mr Liu sent a third letter, again on ALA letterhead, to the agent for the Temple. This letter was captioned in the following way:

“RE: Order No. DH33/NT/196/C & DH26/NT/96/C Feature No 9.SW-D/R1 and the Adjoining Grassed Cut Slope at Ling Yan Monastery, Keung Shan, Lantau Island Lot 747 in DD311 & Lot 760 in D.D. 311.

Additional Consultancy Fees ”

The opening paragraphs read as follows:

“As discussed, there have been substantial changes of requirements imposed by the government departments since our appointment in May, 2004.  The major changes include the followings:-

a)  The services of Registered Geotechnical Engineer (RGE) are required to monitor and to supervise the works.

b)  Additional site supervision requirements include T5 (weekly) and T3 (full-time) from the RGE stream.

The above services were not include in our original proposal to you dated 17^th May 2004.  Also there has been substantial inflation since 2004, so we have no alternative but to request additional fees from the Client.” (sic)

The letter did not contain an arbitration submission, but was duly confirmed and accepted under the seal of the Temple and signature of the two elderly nuns.

The application for a stay and reference to arbitration:

13.  A dispute has subsequently arisen between the parties, and the Temple has issued a writ against its own agent, ALA, and two construction companies who were engaged to undertake the work on the site.

14.  Now, ALA seeks to stay those proceedings, in so far as it is concerned, in reliance upon what it contends is a valid agreement to refer disputes between the parties to arbitration.

15.  There is no doubt at all, and it is not in any way in dispute, that following the dissolution of the arrangement between Mr Liu and Ms Kwong, ALA took over the arrangement previously being undertaken by Liu Kwong & Associates Ltd. Throughout the whole of the transaction, Mr Albert Liu was the individual dealing with matters.

16.  It is the contention of Mr Lam that notwithstanding the lack of signature on the part of the Temple to the letter of 17 May 2004, there is in force an arbitration agreement between the parties. On that basis ALA seeks to have the proceedings stayed and referred to arbitration.

The grounds for opposition to stay:

17.  Mr Lee, for the Temple opposes the application, saying first, that any arbitration provision in the letter of 26 October 2001, is irrelevant and not binding on the parties to these proceedings, because it was made between the Temple and a different legal entity, not ALA. Second, he says that it was a deliberate decision of the Temple not to sign the letter of 17 May 2004, and accordingly there can be no arbitration agreement, particularly as there was no submission to arbitration in the letter of 24 April 2008. Third, he says that notwithstanding the payment made following the letter of 17 May 2004, there has been no acceptance by the Temple of the terms of that letter by its conduct.

The applicable principles:

18.  A party applying for a stay only needs to establish a good prima facie, or plainly arguable case that there is an arbitration agreement and that the dispute falls within the agreement: PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309 at §§49-51, per Tang VP, and Pacific Crown Engineering Ltd v Hyundai Engineering & Construction Co Ltd [2003] 3 HKLRD 440 at §§6-12, per Burrell J. The approach to be adopted by the court is succinctly described by Burrell J in Pacific Crown at §16 in this way:

“When applying the test - has the defendant shown a prima facie case that it did - the court should look at the evidence in support of the contention first.  If, cumulatively, that evidence is cogent and arguable, and not dubious or fanciful, then the test has been satisfied.”

19.  If that test is met, the matter is referred to arbitration, and the arbitrator must decide if there is a binding arbitration agreement covering the dispute.

The change in corporate identity:

20.  Mr Lee was obliged to acknowledge that had it not been for the need on the part of Mr Liu to re-form his business under a different corporate style, and the letter of 17 May 2004 had been written on the letterhead of Liu Kwong & Associates Ltd, he could not make the argument now put to the court. It must follow from that, in the circumstances of this case, where the change in the corporate identity arose solely through the dissolution of the previous partnership, and that Mr Liu was the person undertaking the work throughout, there being no other change other than the formal corporate identity under which he operated, that it is arguable that the continuation of the work on the part of ALA for the Temple, a fact that is undisputed, must have been on the same terms as that of the previous corporate identity.

21.  It is arguable that such terms would be implied from the continuing relationship between Mr Liu and the Temple through its agent. There is a strong argument that this was a continuing arrangement in the course of which one party merely changed its corporate identity, but with no change in the terms of the contract.

22.  That is particularly so bearing in mind the consistency of the captions to the various letters, the variations in caption merely identifying the various stages of the work being undertaken, and the continuing presence of Mr Albert Liu, as the geotechnical engineer involved.

23.  The reference in the letter of 17 May 2004, to the “previously agreed” geotechnical consultancy, adds significantly to the strength of the implication.

The lack of signature to the letter of 17 May 2004:

24.  Mr Lee relies upon an assertion in an affidavit by the two elderly nuns that it was a deliberate decision on the part of the Temple not to sign the letter of 17 May 2004. The affidavit contains the following statement:

“Having considered (the letter of 17 May 2004 and) the proposed cost, Mr Mok Ho Yuen of the Plaintiff (“Mr Mok”) discussed with the (Temple’s agent) and expressed to the (Temple’s agent) that the quoted cost was too high. The 1st Defendant then verbally advised  Mr Mok and such circumstance, the Plaintiff should directly arrange for the relocation and demolition of the said water tanks by itself in order to avoid incurring the high cost as quoted by the 2^nd Defendant.  Accordingly, the Plaintiff did not sign the 2004 Letter and ultimately it was the Plaintiff itself who arranged for the relocation and demolition of the said water tanks.”

25.  But that is not what Mr Mok says in his affidavit. Far from asserting that there had been a deliberate decision, Mr Mok puts it in this way:

“The services covered in the 2004 Letter mainly related to the demolition and removal of a water tank at Ling Yan Temple.  However, it was ultimately the Plaintiff themselves (and not ALA) who had to demolish and remove the water tank thus evidencing the fact that the Plaintiff would not have agreed to the terms of the 2004 Letter.”

26.  That is a long way from corroborating what is otherwise an entirely self-serving statement made on the part of the two elderly nuns. It is particularly significant that Mr Mok says, not that they “decided not to agree”, but that they “would not have agreed”. Such an expression is entirely inconsistent with a deliberate decision.

Acceptance by conduct:

27.  As far as the payment, arguably evidencing acceptance is concerned, Mr Lee is obliged to look at subtleties in the wording of the invoice to mount an argument that it is not related to the letter of 17 May 2004.

28.  Then he says that the two elderly nuns assert that because they did not read English they did not know what they were paying for it, and so could not be said to be agreeing to the terms of the letter merely by making a payment. They may not be able to read English, but that does not help them. It may be argued that as far as ALA was concerned, on the face of it, Mr Liu was providing services in terms of the letter of 17 May 2004 and was being paid for those services. In those circumstances an argument for acceptance by conduct is open.

29.  This argument may be put in another way.

30.  The letter of 17 May 2004, contained an arbitration clause, but was not signed by the Temple. The letter of 24 April 2008, plainly a continuation of the provision of geotechnical engineering services that had begun as long ago as 2001, did not contain an arbitration clause but referred back to the letter of 17 May 2004. The letter of 24 April 2008, was signed. When reading the correspondence as a whole, in my view it is arguable that the acceptance on by the Temple on 24 April 2008, referring as it did to the letter of 17 May 2004, was sufficient to import the arbitration agreement in that letter, into the parties arrangement.

Conclusion:

31.  Although it is not a decision for me, but for the arbitrator, it is not difficult to see, in the light of the foregoing paragraphs, that the arguments in resistance mounted by the Temple to the contention that the arrangement between the present parties continued on the same terms as the 2001 terms, including the arbitration submission, may be readily dismissed. Those arguments are not such that it can be said that ALA’s contention that the arbitration submission still governed the parties conduct, is dubious or fanciful.

32.  I am satisfied that Mr Lam for ALA has shown a prima facie, or plainly arguable, case that there is an arbitration agreement between the parties. Mr Lee did not contend that if there was an arbitration agreement, that the dispute did not fall within that agreement.

33.  For foregoing reasons I ordered a stay of proceedings and that the matter be referred to arbitration. Whether or not there is an arbitration agreement as required by law will be a matter for the arbitrator.

Costs:

34.  Mr Lam sought an order for the costs of the action including the cost of and occasioned by the application. In my view, the question of costs should be dealt with following any determination made by the arbitrator as to whether or not there was an arbitration agreement.

35.  Costs are accordingly reserved.