PAQUITO LIMA BUTON v. RAINBOW JOY SHIPPING LTD INC

CACV 243/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 243 OF 2006

(ON APPEAL FROM DCEC NO. 1032 OF 2005)

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J U D G M E N T

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Hon Yeung JA :

1. I have read the draft judgment of Sakhrani J and I agree with his judgment.  An order is therefore made in terms of paragraphs 56 and 57 hereof.

Hon Sakhrani J :

2. This is an appeal against the order of Deputy Judge A. Kot dated 13 June 2006 whereby she ordered that the applicant’s claim in these proceedings should not be stayed and referred to arbitration.  She also made an order nisi that the respondent do pay the applicant his costs of the application with certificate for counsel, to be taxed if not agreed.

Background

3. The applicant was employed by the respondent as a Second Engineer on board its vessel “Rainbow Joy” (“the vessel”).

4. On 3 September 2003 the vessel was in the high seas between Chittagong and Singapore.  In the course of his employment with the respondent the applicant was ordered by the Master of the vessel to repair the starboard accommodation ladder with the Chief Engineer of the vessel.  While the Chief Engineer was using a sledge hammer to knock and straighten a bent portion of the accommodation ladder, a piece of metal shrapnel hit the applicant’s right eye and caused it to bleed profusely.  The applicant sustained injuries to the right eye’s cornea, retina and lens resulting in total loss of vision in his right eye.

5. The applicant commenced arbitration proceedings before the National Labour Relations Commission in the Philippines on 5 November 2003.  He also commenced an admiralty action in rem against the vessel in Singapore for damages for personal injuries.

6. The applicant subsequently applied to withdraw the arbitration proceedings in the Philippines.  On 15 January 2004 the arbitration proceedings were dismissed without prejudice to his claim.

7. The admiralty action in Singapore was stayed upon the respondent’s application on the ground that the Philippines was a more appropriate forum to try the applicant’s claim than Singapore.  There was an appeal from that decision which was dismissed on 27 April 2004.

8. On 29 August 2005 the applicant commenced these proceedings in the District Court for compensation under the Employees’ Compensation Ordinance, Cap. 282 (“the ECO”).

9. On 23 September 2005 the respondent applied for an order that the Hong Kong proceedings be stayed and that the claims of the applicant be referred to arbitration pursuant to the Arbitration Ordinance, Cap. 341 (“the AO”).

10. The respondent’s application was determined by Deputy Judge A. Kot who on 13 June 2006 ordered that the applicant’s claim should not be stayed and referred to arbitration.  She effectively dismissed the application for stay.

The contract of employment

11. It is common ground that the applicant’s contract of employment with the respondent is set out in three documents :

(1)	a contract dated 9 August 2002 between the applicant and Cleene Maritime Corporation as sub-agent of the respondent (“the POEA Contract”);
(2)	a contract dated 17 August 2002 between the applicant and the respondent entitled “Agreement and Lists of the Crew” (“the Hong Kong Contract”); and
(3)	a contract dated 2 October 2002 entitled “The Collective Bargaining Agreement between Hang Woo Ship Management Limited and Merchant Navy Officers’ Guild Hong Kong, Amalgamated Union of Seafarers and the Hong Kong Seamen’s Union (“the Collective Bargaining Agreement”).”

The arbitration agreement

12. The arbitration agreement is contained in the POEA Contract.

13. Section 29 of the POEA Contract provides :

“In cases of claims and disputes arising from this employment, the parties covered by a collective bargaining agreement shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of arbitrators ………………….........…………………………………….”

The Model Law

14. It is clear that this was an international arbitration agreement.  That being so, Part IIA of the AO applies (section 34A of AO).  By section 34C(1) of the AO such an arbitration agreement is governed by Chapters I to VII of the UNCITRAL Model Law (“the Model Law”).  The Model Law is contained in the Fifth Schedule to the AO.

15. Article 8 of the Model Law provides :

“

(1)

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.”

16. Thus, where a party to the arbitration agreement so requests there will be a mandatory stay of court proceedings in favour of arbitration unless the court finds that the agreement is null and void, inoperative or incapable of being performed.  There is no question of the exercise of a discretion as there is to be a mandatory stay unless it is found that the agreement is null and void, inoperative or incapable of being performed.

The judgment below

17. The judge held, correctly in my view, that the claim of the applicant was a claim arising from the employment within the meaning of the arbitration clause in Section 29 of the POEA Contract.

18. The judge further held that the District Court cannot exercise its jurisdiction under Article 8(1) of the Model Law over employees’ compensation claims as it is inconsistent with section 18A of the ECO.  She held that the District Court has exclusive jurisdiction to deal with claims under the ECO irrespective of the existence of an arbitration agreement between the parties.

19. The judge said at paragraph 16 of her judgment :

“To stay the proceedings and referred the claim for arbitration is effectively taking the whole claim out of the hands of the District Court.  This is clearly inconsistent with the provisions of S. 18A and an usurpation of the exclusive jurisdiction of the District Court.”

20. The judge also held that a stay would not deprive the applicant of his rights under the ECO and that the agreement was not in violation of section 31 of the ECO.  She considered that should the case go for arbitration then by Article 10 of the Collective Bargaining Agreement the applicant’s entitlement under the ECO was safeguarded without any deprivation and the respondent was still required to pay compensation under the ECO.

The appeal

21. The questions arising in this appeal are :

(1)	whether a claim under the ECO is a claim which must be determined in the District Court and is therefore rendered inarbitrable; and
(2)	whether the arbitration agreement is null and void.

Exclusive jurisdiction of the District Court over EC claims?

22. Mr Coleman S.C., for the respondent, submitted that the judge was wrong to hold that to stay the proceedings and refer the claim to arbitration under Article 8(1) of the Model Law is inconsistent with section 18A of the ECO and an usurpation of the exclusive jurisdiction of the District Court.

23. Mr Duncan S.C., with Ms Chow, for the applicant, submitted that the judge was right to so hold.  He submitted that the true construction of section 18A of the ECO is that the determination of claims for employees’ compensation is, save for two matters, exclusively the domain of the District Court and hence not arbitrable.  The two matters are :

(1)	those claims which may be recovered in the Small Claims Tribunal (section 10 (11) of the ECO); and
(2)	those matters which can be determined by the Commissioner for Labour which are provided for under the ECO.

24. Mr Duncan further submitted that the ECO provided a scheme for the statutory claim for compensation and that the ECO was a piece of legislation to protect employees.  To stay proceedings in favour or arbitration would, he argued, defeat the general spirit or object of the legislation which was to provide a scheme for payments to injured employees at low cost and high speed.  Hence he submitted that employees’ compensation claims under the ECO were not arbitrable as they were exclusively the domain of the District Court.

25. The answer in my view lies on a proper construction of sections 18A and 21 of the ECO.

26. It is clear that a claim for employees’ compensation under the ECO is a claim for statutory compensation (per Ma JA, as he then was, in Li Kwok Shing v Law Ka Fu & Anor. [2003] 4 HKC 543 at 559F).  However, it is necessary to consider the provisions of sections 18A and 21 of the District Court Ordinance to see if the jurisdiction of the District Court is exclusive of anything other than judicial or court proceedings.

27. Section 18A of the ECO provides :

“	(1)	Except where otherwise provided under this Ordinance, all claims for compensation, except to the extent that such claims are determined---
		(a)	………………………………………………………………………
		and any matter arising out of proceedings in respect of such claims shall be determined by the District Court, whatever may be the amount involved……………………………….”

28. Section 21 of the ECO provides :

“	(1)	Save as is provided in this Ordinance and any rules made thereunder, the District Court shall, upon or in connection with any question to be investigated or determined thereunder, have all the powers and jurisdictions exercisable by the District Court in or in connection with civil actions in such Court in like manner as if the Court had by the District Court Ordinance (Cap. 336) been empowered to determine all claims for compensation under this Ordinance whatever the amount involved and the law, rules and practice relating to such civil actions and to the enforcement of judgments and orders of the Court shall mutatis mutandis apply.
	(2)	The Court shall have jurisdiction to hear and determine any action notwithstanding that the amount claimed exceeds the sum mentioned in section 33 of the District Court Ordinance (Cap. 336)”.

29. Section 18A provides that all claims for compensation, except to the extent that they are determined in the manner set out in subsection (1), shall be determined in the District Court “whatever may be the amount involved”.  Section 21(2) confers on the District Court jurisdiction to hear and determine such claims notwithstanding that the amounts claimed exceeds the sum mentioned in section 33 of the District Court Ordinance, Cap. 336.  Thus, the District Court has jurisdiction to hear such claims even if the amount exceeds the monetary jurisdiction of the District Court.

30. Mr Coleman also referred us to the dicta of Woo JA (as he then was) in Li Kwok Shing at page 547E :

“The District Court has almost exclusive jurisdiction in dealing with claims under the ECO insofar as such claims are made through judicial proceedings.”

31. It seems to me that the combined effect of sections 18A and 21 of the ECO is to provide that claims for compensation for whatever amount shall be determined by the District Court to the exclusion of all other courts, the only exception being the Small Claims Tribunal as provided for in section 10(11) of the ECO.  And in determining such claims, the District Court shall have all the powers and jurisdiction that it exercises in connection with civil actions in the District Court and the law, rules and practice relating to such civil actions shall mutatis mutandis apply.

32. I accept Mr Coleman’s submission that neither section 18A nor section 21 identifies exclusivity of jurisdiction by reference to anything other than judicial or court proceedings.

33. The nature of the claim being a statutory claim to compensation does not, in my view, prevent the claim from being determined by the arbitral process.

34. The employer is obliged by the contract of employment to pay compensation in accordance with the ECO.  Article 10 of the Collective Bargaining Agreement provides that :

“Compensation for death or injury by accident arising out of and in the course of employment ………… shall be payable by the employer in accordance with the ECO.”

35. And the following term is also contained in the Hong Kong Contract :

“Any terms and conditions of service annexed to this agreement should not be less favourable than those under the provisions of the laws of Hong Kong.”

36. I see no reason why the parties cannot agree to refer such a dispute to arbitration and why the matter cannot be determined by the arbitral process.

37. Ultimately, the answer lies in the proper construction of sections 18A and 21 of the ECO.  In my judgment the judge was wrong to hold that the District Court has exclusive jurisdiction over EC claims irrespective of the existence of an arbitration agreement between the parties.  She was wrong to hold that an EC claim is inarbitrable.

Is the arbitration agreement null and void?

38. It is important to bear in mind that the challenge to the mandatory stay of the proceedings in favour of arbitration under Article 8(1) of the Model Law is that the arbitration agreement is null and void.  It is not suggested that it is inoperative or incapable of being performed.

39. The question to consider is whether the arbitration agreement is null and void so that there should not be a stay in favour of arbitration under Article 8(1) of the Model Law.

40. By the respondent’s notice the respondent contends that the applicant’s claim should not be stayed as the arbitration clause is in violation of section 31 of the ECO.

41. Section 31 of the ECO provides :

“(1)

Any contract or agreement whether made before or after the commencement of this Ordinance, whereby an employee relinquishes any right to compensation from an employer for personal injury by accident arising out of and in the course of his employment, shall, subject to subsection (2), be null and void in so far as it purports to remove or reduce the liability of any person to pay compensation under the provisions of this Ordinance.”

42. The judge held that the applicant’s contention that a stay would deprive the applicant of his rights conferred by the ECO and in violation of section 31 of the ECO was unfounded.  She relied on Article 10 of the Collective Bargaining Agreement which is set out above at paragraph 34.  In my judgment, the judge rightly came to the view that should the case go for arbitration the applicant’s entitlement under the ECO was safeguarded without any deprivation and that the respondent was still required to pay compensation under the ECO.

43. Mr Duncan relied on Article 15 of the Collective Bargaining Agreement and submitted that it was in direct contradiction to section 5(3) of the ECO.

44. Article 15 of the Collective Bargaining Agreement provides that :

“Further to Article 10-13, the company shall not be held responsible for liabilities if the seaman dies or sustains his injury or illness through his own willful (sic.) carelessness or misconduct.”

45. Section 5 of the ECO deals with the employer’s liability for compensation for death or incapacity to an employee resulting from an accident arising out of and in the course of employment.

46. Section 5(1) provides :

“Subject to subsections (2) and (3), if in any employment, personal injury by accident arising out of and in the course of the employment is caused to an employee, his employer shall be liable to pay compensation in accordance with this Ordinance.”

47. However, by subsection (3) it is provided that :

“In any proceedings under this Ordinance where it is proved that the injury to an employee is attributable to the serious and wilful misconduct of that employee, or……….......................….any compensation claimed in respect of that injury shall be disallowed; except that where the injury results in death or serious incapacity, the Court on consideration of all the circumstances may award the compensation provided by this Ordinance or such part thereof as it shall think fit.”

48. Thus by subsection (3) compensation under the ECO is disallowed where the injury to the employee was caused by ‘serious and wilful misconduct’.  This, in my view, is a higher threshold than ‘wilful carelessness or misconduct’ under Article 15 of the Collective Bargaining Agreement.  Even where there is ‘serious and wilful misconduct’ subsection (3) of section 5 of the ECO provides that the Court may still award compensation under the ECO where the injury results in death or serious incapacity.  Here, the applicant lost the vision in one eye which must, in my view, be serious incapacity.  So the liability of the employer to pay compensation is not removed as the Court still has a discretion to award compensation under the Ordinance.

49. There were other provisions in the underlying contractual arrangement between the parties which Mr Duncan drew our attention to which could be said to have the effect of removing or reducing the liability of the employer under the provisions of the ECO e.g. in Section 20D and G and Section 32 of the POEA Contract.

50. In my judgment Article 15 of the Collective Bargaining Agreement was a contractual provision which, in terms of section 31 of the ECO, was null and void in so far as it purports to remove the liability of the employer to pay compensation under the ECO.  The same could be said of the other provisions referred to by Mr Duncan.

51. However, Article 15 of the Collective Bargaining Agreement and those other provisions referred to by Mr Duncan do not, in my judgment, have the effect of rendering the whole contract including the arbitration agreement null and void.  By section 31 of the ECO the contract is rendered null and void only “in so far as it purports to remove or reduce the liability” of the employer to pay compensation under the provisions of the ECO.  That is not the same thing as saying that the arbitration agreement is rendered null and void.

52. The arbitration agreement is a separate matter.  It is important to bear in mind the distinction between the arbitration agreement and the remaining provisions of the contract.

53. Lord Macmillan said in Heyman v Darwins, Ltd [1942] AC 356 at page 373 :

“I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract.  It is quite distinct from the other clauses.  The other clauses set out the obligations which the parties undertake towards each other hinc inde, but the arbitration clause does not impose on one of the other parties an obligation in favour of the other.  It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution.  And there is this very material difference, that whereas in an ordinary contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages, the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts .......………………………….

I am, accordingly of opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party.  The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease.  It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of settlement.  The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.”

54. On a proper construction of section 31of the ECO I am unable to accept that the arbitration agreement is null and void.

55. It follows that under Article 8(1) of the Model Law as the arbitration agreement is not null and void, the Court has no discretion in the matter.  There has to be a mandatory stay.

Conclusion

56. I would allow the appeal and set aside the judge’s order.  I would make an order that the proceedings be stayed and that the claims of the applicant be referred to arbitration pursuant to the AO.

57. I would also make an order nisi that the costs of the hearing below and the appeal be costs to the respondent.  The applicant’s own costs are to be taxed in accordance with Legal Aid Regulations.