PAUL Y. - CONSTRUCTION LTD AND OTHER v. GOLIK METAL INDUSTRIAL CO LTD AND OTHERS

HCA4758/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4758 OF 2002

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J U D G M E N T

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1. The arbitration clause in this case reads as follows. It is a clause found in an employees compensation policy - clause 10 of that policy:

"All differences arising out of this Policy shall be referred to the decision of an Arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single Arbitrator the decision of two Arbitrators one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties or in case the Arbitrators do not agree of an Umpire appointed in writing by the Arbitrators before entering upon the reference. The Umpire shall sit with the Arbitrators and preside at their meetings and the making of an Award shall be a condition precedent to any right of action against the Company. If the company shall disclaim liability to the Insured for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder."

2. The 3rd plaintiff is the insurer under the insurance policy. It brings an action against the 1st defendant in its own name as well as in the names of the 1st plaintiff (Paul Y. - ITC Construction Ltd) and the 2nd plaintiff (Lau Fau trading as Wah Tat Transportation Company). The 1st plaintiff is brought in as the main contractor covered by the policy and the 2nd plaintiff as a subcontractor covered by the policy. The policy covers the main contractor and subcontractors of the main contractor.

3. The 1st defendant is sued for a contribution in respect of damages paid by the 3rd plaintiff on behalf of the 1st and 2nd plaintiffs for an injury arising out of work done at a construction site. The 1st defendant says that it is a co-insured under the policy and therefore cannot be sued by the insurer using its rights of subrogation.

4. The insurer disputes the 1st defendant's contention that it is a subcontractor covered by the terms of the policy. Nevertheless, the matter is a difference arising out of the arbitration agreement and therefore I have no discretion in this matter. Under the Arbitration Ordinance (Cap. 341) I must stay the matter to be determined by arbitration.

5. It may be the case that the arbitrator will agree with the 3rd plaintiff's case that the 1st defendant is not covered by the arbitration agreement and that there is no reason for the arbitrator to consider the substantive defence that the 1st defendant cannot be sued by the insurer, whether acting by himself or through use of his subrogated rights. But that is a matter which must first go to the arbitrator. The 1st defendant has raised a good arguable case that he is within the terms of the policy as a subcontractor of the 1st plaintiff.

6. Mr Gidwani argues that the 1st defendant has taken a step in the action which precludes recourse to arbitration. I am not persuaded that is so. Under the Arbitration Ordinance the 1st defendant is entitled to apply to stay the action before the delivery of its substantial defence in the matter. That is precisely what the 1st defendant has done here. The fact that the 1st defendant has sought an extension of time for the service of defence or has sought discovery of the policy does not amount to delivery of a defence in this matter. Therefore the 1st defendant is entitled at this stage to challenge the action brought by the plaintiff and seek a stay.

(Submission re costs)

15. I order that (1) the present action be stayed for arbitration and that (2) the 1st defendant is to have the costs of the application for a stay to be taxed, if not agreed, in any event.