A v. C

HCCT 16/2022

[2023] HKCFI 804

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 16 OF 2022

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D E C I S I O N

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Background

1.  On 4 March 2022, the Plaintiff commenced these proceedings against the Defendant, seeking payment of $17,552,350.26, as the sum owing by the Defendant to the Plaintiff in respect of the Plaintiff’s execution of electrical installation works (“Works”)  for Harmony Mansion at Hennessy Road, Hong Kong (“Project”)  under and pursuant to a Subcontract made between the Plaintiff and the Defendant on about 2 May 2013 (“Subcontract”). It is not disputed that the Subcontract was concluded by a letter of acceptance issued by the Defendant to the Plaintiff on 2 May 2013 (“LA”). The Plaintiff claims that the payment sought is for variation works completed and prolongation costs incurred under the Subcontract.

2.  The Defendant was the Main Contractor for the renovation works of the Project, and was appointed as such by the Employer under the Main Contract concluded between the Employer and the Defendant by a letter of acceptance issued by the Employer to the Defendant dated 30 October 2012 (“MC Letter of Acceptance”).

3.  On 11 July 2022, the Defendant applied by its summons for the action to be stayed to arbitration, pursuant to section 20 of the Arbitration Ordinance (“Ordinance”). The Defendant’s claim is that the Plaintiff is bound by an arbitration agreement contained in the Subcontract which incorporated an arbitration clause contained in clause 41 of the General Conditions of the Main Contract (“Clause 41”).

4.  The Plaintiff denies that the arbitration clause had been validly incorporated, and denies that it had agreed under the Subcontract to arbitrate disputes which may arise thereunder.

5.  The legal principles applicable to the determination of a stay application made under the Ordinance are not disputed by the parties. They are as set out in Tommy CP Sze & Co v Li & Fung (Trading)  Ltd [2003] 1 HKC 418, and in PCCW Global Ltd Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309, and will not be repeated here. The issues in dispute between the parties in this case are whether there is an arbitration agreement between the parties, and if yes, whether the arbitration clause in question is capable of being performed.

Whether there is arbitration agreement by incorporation

6.  It is not disputed, that the Defendant bears the burden of proving the existence of a valid arbitration agreement applicable to the dispute. As held in PCCW Global, what the Defendant as the applicant for stay has to demonstrate is only that there is a prima facie or plainly arguable case that the parties were bound by an arbitration clause. A prima facie case is one supported by cogent and not dubious or fanciful evidence. As Tang VP (as His Lordship then was)  explained in PCCW Global, unless the point is clear, the proceedings should be stayed for arbitration as the court does not usurp the function of the arbitrators.

7.  The Defendant has pointed to various documents to contend that the parties had incorporated Clause 41 into the Subcontract.

8.  The Plaintiff had been directly invited by the Employer to tender for the relevant electrical installation works for the Project. This was prior to the Defendant’s involvement in the Project and prior to the award of the Main Contract to the Defendant.

9.  On 13 April 2012, the Plaintiff submitted to the Employer’s Project Manager/Architect its tender for the Works at the offer price of $8,746,083, under cover of its letter dated 13 April 2012 addressed to the Project Manager/Architect. The letter enclosed a Form of Tender for Nominated Sub-Contract for the Works (“Form of Tender”), signed by the Plaintiff. Clause 1 of the Form of Tender states:

“Having inspected the Site, examined the drawings, Sub-Contract Conditions, Main Contract Conditions and Specification for the above named Sub-Contract Works, I/we offer to carry out, complete and maintain the whole of the said Sub-Contract Works in conformity with the drawings, Sub-Contract Conditions, Main Contract Conditions (insofar as they refer to the Sub-Contractor)  and Specification for the sum of … HK$8,746,083, or such sum as may be ascertained in accordance with the Sub-Contract Conditions and relevant Main Contract Conditions.” (emphases added)

10.  On 28 June 2012, the Defendant submitted its own tender to the Project Manager/Architect for the Main Contract, and this was accepted by the MC Letter of Acceptance of 30 October 2012. The MC Letter of Acceptance referred to the Contract Sum, which was calculated by reference to the Defendant’s tender sum of $152,324,824, less provisional sums for works to be carried out by Named Domestic Sub-Contractors (“NDSCs”), including a provisional sum for the Plaintiff’s Works. The MC Letter of Acceptance stated, at clause 10, that the NDSCs shall be employed by the Contractor at his own expense and act as the Contractor’s own domestic sub-contractors. Clause 10 further stated that “the term ‘the Contractor’ referred to in this Contract shall include also NDSCs unless the context otherwise required”.

11.  Following that, the Defendant issued the LA to the Plaintiff on 2 May 2013. It is not disputed that this forms the basis of the Subcontract between the Plaintiff and the Defendant. Clause 2 of the LA states:

“2. Tender Document

2.1 This shall be a Named Domestic Sub-contract.

2.2 Unless otherwise specified, it is expressly agreed that only the scope of works, alternative options, specification preliminaries / technical specifications, tender drawings under the tender document and subsequent contract correspondences (refer to Appendix B)  shall form part of this Sub-contract.

2.3 In case of any discrepancy between the terms as stated in the various contract correspondences, the latest contract correspondence shall take precedence.

2.4 For sake of clarify (sic), the Standard Conditions of Nominated Sub-contract shall no longer be applicable and shall be replaced by the terms and conditions set in this Letter of Acceptance.” (Emphasis added)

12.  The case submitted for the Plaintiff is that there must be a clear and unambiguous reference to the contract documents or terms to be incorporated, before the parties can be considered to have intended to be bound by any term in the document sought to be incorporated as part of the agreement between the parties (relying on Colmat Construction and Engineering Co Ltd [2021] HKCFI 2184 and Hudson’s Building and Engineering Contracts (14^th ed, paras 9-066 to 9-067). In this case, Counsel for the Plaintiff argued that there is no clear reference in the LA to Clause 41 of the Main Contract containing the arbitration agreement which is sought to be incorporated into the Subcontract. Mere knowledge of the conditions of the Main Contract would not be sufficient to amount to agreement to incorporate such conditions.

13.  Mr Cheuk pointed out that clause 1 of the Form of Tender only referred to the Works being carried out “in conformity with the drawings, Sub-Contract Conditions, and Main Contract Conditions (in so far as they refer to the Sub-Contractor)”. It was emphasized that Clause 41 made no reference to the Plaintiff as Sub-Contractor. Counsel also pointed out that Clause 41 itself contains a multi-tiered dispute resolution mechanism which makes no provision for the participation or involvement of the Plaintiff in the designation of a senior executive as a representative for the reference in the first tier, nor for the Plaintiff’s reference to the Architect for mediation in the second tier.

14.  It was also argued for the Plaintiff that the Defendant’s contention, of incorporation of Clause 41, is in fact inconsistent with the express terms of clause 2.2 of the LA, which provides that only the scope of works, alternative options, specification preliminaries/technical specifications, tender drawings under the tender document and subsequent contract correspondence shall form part of the Subcontract. Clause 41 is not a specification of the scope of works, nor specification preliminaries, nor tender drawings.

15.  However, as Counsel for the Defendant pointed out, clause 2.2 of the LA is expressed to include, as part of the Subcontract, “subsequent contract correspondence” by reference to Appendix B of the LA. The contract correspondence set out in Appendix B includes “Tender Submission as submitted by (the Plaintiff)  on 13 April 2012”. The Tender Submission of 13 April 2012 was the Form of Tender, and this Form specified, in clause 1, that the Plaintiff had examined the Main Contract Conditions, and agreed to carry out the Works in conformity with (inter alia)  the Main Contract Conditions in so far as they refer to the Sub-Contractor, and that the tender price was $8,746,083, “or such sum as may be ascertained in accordance with the Sub-Contract Conditions and relevant Main Contract Conditions”. The Form of Tender is expressly included as part of the Subcontract. There is no inconsistency, as Mr Cheuk argued.

16.  Moreover, Clause 41, being part of the conditions of the Main Contract, refers to “the Contractor”. This is at Clause 41.1(2)  (in its reference to the designation of “Designated Representatives” as defined)  and at Clause 41.5(1)(e)  and (f)  in the references to the jurisdiction and powers of the arbitrator. Since the MC Letter of Acceptance expressly provides for the term “Contractor” to include NDSCs, Clause 41 refers in effect to the Sub-Contractor as well.

17.  There is cogent, and not fanciful or dubious, evidence that Clause 41 of the Main Contract had been incorporated by the parties’ references to the conditions of the Main Contract, and that they intended that these conditions would govern the Defendant’s execution of the Works and that its claims for payment were to be ascertained, and assessed, in accordance with the Subcontract and Main Contract conditions.

18.  I accept the submissions made for the Defendant, that there is clearly a plainly arguable prima facie case of the existence of an arbitration agreement, which extends to the present disputes as to the amounts due and payable under the Subcontract. It is up to the arbitral tribunal to decide questions of jurisdiction and admissibility under Clause 41.

Capable of being performed?

19.  I do not accept that the arbitration agreement contained in Clause 41, and as extended to the Subcontract, is inoperative or incapable of being performed, as contended for the Plaintiff.

20.  As explained in Kinli Civil Engineering Limited v Geotech Engineering Limited [2021] HKCFI 2503 at para 23, an arbitration agreement can be held to exist so long as the intention to arbitrate is sufficiently clear. If it can be said that objectively, the parties had intended to arbitrate their disputes by their express agreement to incorporate Clause 41, the clause will be construed in a way to render the arbitration agreement to be operable. Even if it can be argued that Clause 41.1 to 41.4 cannot extend to the subcontractor or that Clause 41.1 to 41.3 cannot somehow be performed, Clause 41.5 to 41.7 can operate and be performed on their own to give effect to the parties’ intention to arbitrate.

21.  In conclusion, I consider that the Defendant has succeeded in this case in discharging its burden of showing a prima facie case of the existence and operability of the arbitration agreement contained in Clause 41 incorporated into the Subcontract.

Disposition

22.  The application for stay is granted in terms of the Defendant’s summons of 11 July 2022, and the order nisi is that the Plaintiff is to pay the costs of the application (including any costs reserved)  on indemnity basis, with certificate for counsel.