F & D BUILDINGS SERVICES ENGINEERING CO LTD v. CHEVALIER (E & M CONTRACTING) LTD

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9327 OF 2000

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DECISION

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1. This is an application to stay proceedings in favour of arbitration pursuant to section 6 of the Arbitration Ordinance. Section 6 provides that :

"... article 8 of the UNCITRAL Model Law ... applies to a matter that is the subject of a domestic arbitration agreement ..."

2. Article 8 states that the court :

"shall refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

3. The present case concerns three contracts between the parties. There is no dispute that each contains a similar arbitration clause as follows :

4. There is no dispute either that the plaintiff's claims all relate to the value of variations completed by the plaintiff.

5. The plaintiff resists the application for a stay in this case on the basis that there is "no dispute" between the parties which is referable to arbitration.

The plaintiff's case

As evidence that the parties have reached an agreement in relation to the sum claimed (and therefore there is no dispute), the plaintiff points to a letter from the defendant dated 4 September 1999 which stated as follows :

"Further to the meeting held on Aug 30, 1999 between your goodself and our Mr K H Ting, Mr Duncan Lee and Mr Lewis Fong, we would like to record the following :

6. Enclosed was a schedule which stated : "outstanding amount to be issued $1,287,624". The sum claimed under the 1^st contract is $2,120,394.30. The plaintiff says the balance in issue has also been settled by agreement.

$1,096,245 is claimed. The plaintiff points to a similar letter dated 27 August 1999 :-

"Further to the meeting held on Aug 27, 1999 between your goodself and our Mr K H Ting, Mr Duncan Lee and Mr Alex Chan, we would like to record the following :

A smaller sum of $108,275 is claimed. Although there is no letter in relation to this claim, the plaintiff submits that the defendant had agreed with the costs for the variations by amending the figures in the quotations and returning them to the plaintiff. Also, some of the retention money for their work has been released which can only occur after the issue of the Practical Completion Certificate. It is argued that the defendant would not have released any retention money if they disputed the value of the works.

7. Counsel for the plaintiff also relied on the decision in Peter Leung Construction v. Tai Poon Co. Ltd [1985] 1 HKC 285 which held that :

"(1) A stay could only be granted under s6 of the Arbitration Ordinance (Cap 341) if there was a dispute or difference in existence on the date of the issue of the writ."

8. In the present case, it is submitted that at the time of the writ, 4 October 2000, there is no evidence that the defendant had disputed the value of the works claimed, nor had it indicated an intention to arbitrate.

The defendant's submission in favour of a stay

9. I have come to the conclusion that the submissions advanced by the defendant, through its counsel Mr Anthony Houghton, are correct and that, accordingly, a stay will be granted in this case. The key points made are these :

(a) The present law is that if there is a "dispute", as currently defined, the stay is mandatory. The law leans heavily in favour of stays pending arbitration being granted. In Louis Drefrus Trading v. Bonarich International [1997] 3 HKC 597, Waung J held :

"(1) In order to deprive a party to an arbitration agreement of its right to mandatory stay, there had to be proof of an unequivocal admission as to liability and quantum ..."

10. In Zhan Jiang E & T Dev Area Service Head Co. v. An Hau Co. Ltd [1994] 1 HKC 539, Kaplan J held :

(b) In respect of all three contracts, it cannot be said that there is no dispute. The plaintiff does not deny that the variations were done as a result of the defendant issuing purchase orders to the plaintiff. The purchase orders showed the "assessed amount" in each case which was ultimately always subject to certification by the consultant or project quantity surveyor. Each purchase order stated :

"This is a provisional order, unit rates, quantity and final amount will be subjected to the certification/approval of Consultant and Project Q.S...."

11. Each order was expressly stated to be "provisional". The practice was that 75% of the estimated amount was allocated, then the exact final amount would depend on the consultant's certification. The defendant contends, and this is the issue in dispute, that the "assessed amount" was not a fixed lump sum but an estimated sum which might vary depending on the consultant's certification.

(c) Thus the meaning of the "assessed amount" is in dispute, the amount of works done is not agreed and neither is the appropriate rate of payment. All this leaves the plaintiff well short of showing that there is an unequivocal admission on liability and quantum.

(d) The defendant also notes in support, that no admission of liability is clamed in the Statement of Claim and no Order 14 summons has been filed, to be heard immediately following the stay application. Should a stay application fail on the grounds that there is "no dispute", a successful Order 14 summons is usually a formality.

(e) In answer to the Peter Leung's case (supra), Mr Houghton invites the court to consider and apply the decision of Kaplan J in Big Island Construction (HK) Ltd v. Abdoolally Ebrahim & Co (HK) Ltd [1994] 3 HKC which expressly did not follow the Court of Appeal's decision in Peter Leung v. Tai Poon. Kaplan J held :

"The fact that a defendant had not raised a dispute prior to the issue of proceedings would not disentitle him from relying upon an arbitration clause in the contract. The modem trend is for courts to enforce the party's contractual bargain to arbitrate and it is worth noting that, in relation to international arbitrations, there is nothing in art 8 of the Model Law which would warrant the refusal of a stay merely because the terms of the dispute had not previously been articulated by the defendant. It was accepted that there has to be a dispute or difference to trigger the operation of the arbitration clause, but that has to be decided by the court asked to grant the stay and the matter has to be decided on the evidence presented at that stage. Peter Leung Construction Co v Tai Poon Co [1985] 1 HKC 285 not followed."

12. The law, in 1986 when the Peter Leung's case was decided and in 1994 when the Big Island's case was decided, was different to the present law. Even in 1994, however, Kaplan J made the following observations :

(f) Even if it could be said that some of the sums claimed are indisputably due, it would be wrong to refuse a stay for part of the claim and allow the balance to go to arbitration. It would be wrong in principle and impossible to calculate in this case.

13. In all the circumstances, the mandatory stay will be granted with costs of the summons to the defendant.