XCHRX HIP HING CONSTRUCTION CO. LTD. v. HOLYROOD LTD.

HCA15907/99 and
HCA16242/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.15097 and 16242 OF 1999

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J U D G M E N T

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1. The Plaintiff has served two Statements of Claim on the Defendant. By one it claims approximately $11 million on three invoices supported by Certificates from the Defendant's architect in connection with a Building Contract. By the second, it claims approximately $17 million as interim payments for work done, also supported by the Architect's Certificates, in relation to the same Building Contract. By this summons the Defendant seeks a stay of all future proceedings pursuant to s.6 of the Arbitration Ordinance, Cap.341. Section 6(1) states that Article 8(1) of the Model Law applies to both domestic and international arbitrations. Article 8(1) states :-

"A court for 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 its 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."

2. Mr P Yeung, who appeared for the Defendant, submitted that the law is clear. He submitted that once it is established that the contract contains a valid arbitration clause and that there is a dispute between the parties, then the matter must be referred to arbitration and the court has no discretion not to. He helpfully referred the court to a number of recent authorities. In short, he said the court is bound by the decision in Tai Hing Cotton Mill Ltd. v. Glencore Grain Rotterdam BV & Anor [1996] 1 HKC 363 which held :-

" (1) Under art 8(1) of the Model Law, the court was not concerned with investigating whether the defendant had an arguable basis for disputing the claim. If a claim was made against him in a matter which was the subject of an arbitration agreement and he did not admit the claim, then there was a dispute within the meaning of the article. If he sought a stay of the action, the court must grant a stay unless the plaintiff could show that the arbitration agreement was null and void, inoperative or incapable of being performed.

(2) In the present case, neither defendants admitted any part of the claim, and neither defendants had ever unequivocally admitted the right asserted by the plaintiff. Therefore, unless it was shown that the arbitration agreement was null and void, inoperative or incapable of being performed, the judge should have stayed the action and refused the plaintiff any relief therein."

3. Thus a "dispute" is to be construed very widely. The consequence of the Tai Hing Cotton case and Louis Dreyfus Trading Ltd. v. Bonarich International (Group) Ltd. [1997] 3 HKC 597 is that a dispute is assumed to exist until an unequivocal and complete admission is made. Absent such an admission the parties are in dispute. The latter case stated :-

" Held, ordering a stay of the plaintiff's action:

(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."

4. In my judgment, it follows from this that the burden of proving that there has been an admission and therefore no right to arbitration is on the party who seeks to rely on it, namely the Plaintiff. Support for this is gained from the decision of Henry L.J., giving the majority decision in Halki Shipping v. Logex Oil [1998] 2 All ER at p.40 :-

" The charterers having asked for a stay, it is then for the plaintiff shipowners to demonstrate that no such dispute arises in this case. The charterers say that it is clear that there is such a dispute. They were not admitting liability ... "

5. As to the court's approach generally on the issue of whether a dispute exists or not, it is useful to refer to a later passage from Henry L.J.'s decision in the same case when he said :-

" My reasoning would be that, by their arbitration clause referring all disputes to arbitration, the parties were, without qualification, agreeing on a form of dispute resolution alternative to that provided by the courts. And, as arbitration procedures make their own provision for the possibility of obtaining prompt interim awards for the minimum sum plainly due, I would not be immediately impressed by a submission that I should construe 'dispute' with so artificial a narrowness as to be restricted to such disputes (as to liability or quantum) as are found by the court to merit the grant of leave to defend - after a contested hearing for summary judgment under Ord 14, which often takes hours and sometimes takes days. ... To put it another way, when the parties have chosen arbitration for their dispute resolution, I would not (if unconstrained by statute or authority) interpret their choice as being restricted to referring only those disputes that cannot be resolved by the courts' summary judgment procedures."

6. Miss Teresa Cheng, Counsel for the Plaintiff, in her valiant attempt to persuade the court not to stay the proceedings relied heavily on the dissenting judgment in the same case from Hirst L.J. I hope I do her case justice by saying it comes down to three points :-

1. The burden of proof is on the Defendant to prove that a dispute exists.

2. It is arguable in this case that the existence of a "dispute" had not arisen.

3. The Tai Hing Cotton case is wrong.

7. I have already dealt with the burden of proof point in the Defendant's favour. In this case the Defendant has made no admissions and by affidavit has said "The Defendant disputes that claim both in terms of liability and on quantum". That, as the law presently stands, is sufficient.

8. As to her second point, she realistically conceded that such force that it had, applied only to the claims under the Architect's Certificates. She referred to the Arbitration clause itself, namely Clause 35 of the agreement. By Clause 35(1) :-

"If any dispute or difference of any kind whatsoever shall arise between the Employer and the Contractor in connection with or arising out of the Contract or the carrying out of the Works including any dispute as to any decision, instruction, order, direction, certificate of the Architect or certificate or valuation by the Quantity Surveyor whether during the progress of the Works or after their completion and whether before or after the termination, abandonment or breach of the Contract, it shall be referred to and settled by the Architect who shall state his decision in writing ..."

Later, it continues :-

"... Such Architect's decision shall be final and binding upon the Contractor and the Employer unless either of them shall require that the matter be referred to mediation or arbitration as hereinafter provided."

9. In the present case, she submitted that as no dispute arising out of the Architect's Certificates was ever referred to the Architect, then no dispute arising out of the contract has arisen and the Defendant therefore cannot insist on arbitration. For my part, I consider this argument, which suggests that a referral to the architect of a dispute is a condition precedent to the existence of a dispute is without merit. The use of the words "unless either of them shall require ..." in the passage quoted above includes the possibility of the matter being referred to arbitration at any time after the dispute has arisen.

10. In support of this submission and also her more general contention that the Tai Hing Cotton decision was wrong, she directed the court's attention to many passages in Hirst L.J.'s dissenting judgment, referred to above.

11. This court cannot overlook the fact that that judgment, learned as it is, did not reflect the decision of the court. This court follows both the majority judgment in that case and also the unanimous decision in the Hong Kong case of Tai Hing Cotton.

12. Even if it was the opinion of the court that one party's right to arbitration could be ousted by the other party's right to pursue an Order 14 application for summary judgment so that, in practical terms, a court could and should entertain an Order 14 summons and an application to stay together and determine the Order 14 summons first, in the usual way which, if successful, would effectively dismiss the application for a stay, it could not make such an order because a defendant in a stay application does not have to show he has an arguable defence, he merely has to identify the existence of a dispute.

13. It is however worthy of note that where a plaintiff does have a sound and meritorious Order 14 claim, the arbitration clause can, ironically work against speedy and cost free resolution of the dispute. If a plaintiff truly says "but I can't lose", Order 14 proceedings would provide such a Plaintiff with a fast judgment and costs. If there is an arbitration clause, however, the defendant can slow down the process by saying "I dispute that" and then the costs of the arbitrator will have to be met.

14. The preceding two paragraphs are commentary only. They are not intended to reflect this court's opinion upon the merits of the parties' respective submissions in this case.

15. I make the order as requested by the Defence that both actions be stayed and referred to arbitration. The Defendant shall have its costs of the action including these applications.