SUNRISE ENGINEERING LTD v. WING HONG CONSTRUCTION LTD

HCA 1847/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1847 OF 2008

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REASONS   FOR   DECISION

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1.  The Defendant is applying to stay the proceedings in order to refer the dispute to arbitration.

2.  I stayed the proceedings and now give my reasons.

Background

3.  The Plaintiff was a sub-contractor and the Defendant was the principal contractor in a building project.

4.  The Plaintiff’s claims are two fold:

(1) amount of work done and materials;

(2) indemnity of Employees’ Compensation (“EC”) paid by the Plaintiff on behalf of the Defendant.

5.  The Defendant has taken out EC insurance for the workers.  The Plaintiff alleged the insurance taken out by the Defendant covered the Plaintiff’s workers.  The Plaintiff has settled compensation with its worker without the institution of proceedings under the Employees’ Compensation Ordinance (Cap. 282) (“ECO”).

6.  The contract between the Plaintiff and the Defendant incorporated the tender documents (in Chinese).  Clause 54 contained an arbitration clause to the effect that any party may refer to arbitration under the Arbitration Ordinance of the Laws of Hong Kong all disputes of whatever nature arising from or connected with the contract.

7.  The main contract between the Defendant and the employer also contained an arbitration clause as follows:

“35 Arbitration

(1) Provided always that in case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Main Contractor, either during the progress or after the completion or abandonment of the Works, as to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith (including any matter or thing left by this Contract to the discretion of the Architect or the withholding by the Architect of any certificate to which the Main Contractor may claim to be entitled or the measurement and valuation mentioned in clause 30 (5) (a) of these Conditions or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), then such dispute or difference shall be and is hereby referred to the arbitration and final decision of a person to be agreed between the parties, or, failing agreement within fourteen days after either party has given to the other a written request to concur in the appointment of an Arbitrator, a person to be appointed on the request of either party by the President or Vice-President for the time being of The Hong Kong Institute of Architects co-jointly with the President or Senior Vice President for the time being of the Hong Kong Institute of  Surveyors.”

Plaintiff’s case

8.  Mr. Ip, for the Plaintiff, submitted that:

(1) The Defendant failed to serve a written notice under the arbitration clause of the main contract as adopted in the sub-contract as a condition precedent for reference to arbitration;

(2) Arbitration is excluded from claim of indemnity arising from EC claim under 25 of ECO the by virtue of s.18A of ECO.

Defendant’s case

9.  Mr. Cheuk, for the Defendant, submitted that:

(1) The arbitration clause in the tenders documents contained no written notice provision and the arbitration clause in the main contact was not adopted as a term of the sub-contract;

(2) The indemnity claim is founded on contract and is not a claim for EC within the exclusive jurisdiction of the District Court.

Discussion

10.  There is no disputes that the arbitration clause under the tender documents (cl.54) is a binding on the parties.

11.  However, Mr. Ip submitted that the term allegedly requiring written notice for arbitration under the main contract was adopted in the sub-contract.

12.  Mr. Ip based his argument on a declaration by the Plaintiff in the tender documents that the tender price was based entirely on the terms, plans, engineering specifications, bills of quantities or price lists in the contract between the Defendant and the owner and there is no omissions upon careful inspection.

13.  I can see no basis for Mr. Ip’s argument:

(1) The declaration in the tender documents merely confirmed that the tender price covered prices of all relevant items in the specifications in the main contract and is not an adoption of the terms of the main contract in the sub-contract;

(2) The notice provision in the arbitration clause under the main contract merely related to the mechanism for appointment of the arbitrator in the event of disagreement between the Defendant and the owner;

(3) Even if there were requirement of any written notice for reference to arbitration, the application to stay the proceedings brought by the Plaintiff would have constituted sufficient notice  by the Defendant.

14.  Alternatively, Mr. Ip submitted that arbitration is excluded from an indemnity claim for EC paid by the employer against the principal contractor by virtue of ss.18A(1) and 25(1)(b) of ECO.

15.  There is common ground that subject to exception provided for in ECO, all EC claims are with the exclusive jurisdiction of the District Court by virtue of s.18A(1) of ECO:

“(1)   Except where otherwise provided under this Ordinance, all claims for compensation, except to the extent that such claims are determined-

(a)   by agreement under section 8[1]; or

(aa)   (Repealed)

(ab) by a Certificate of Compensation Assessment for Fatal Case or Review Certificate of Compensation Assessment for Fatal Case; or

(ac)  by a Certificate for Funeral and Medical Attendance Expenses or Review Certificate for Funeral and Medical Attendance Expenses; or

(b)  by certificate under section 16A; or

(c)   by agreement under section 16CA[2]; or

(d)  (Repealed)

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, and the Court may, for that purpose, call upon any person to give evidence, if the Court is of the opinion that such person is, by virtue of his expert knowledge, able to assist the Court.”

16.  In Paquito Lima Buton v Rainbow Joy Shipping Ltd Inc FACV 26/2007, [2008] HKCU 670, the Court of Final Appeal held that s.18A(1) confers exclusive jurisdiction on the District Court to deal with all ECO claims save in the cases expressly excepted, and arbitration is not such an exception and there is no power to stay ECO proceedings in favour of arbitration (para.55 per Ribeiro PJ).

17.  Mr. Ip submitted that the indemnity claim by the Plaintiff against the Defendant is based on s.25 of ECO:

“(1)   Where the injury in respect of which compensation is payable was caused in circumstances creating a legal liability in some person other than the employer (in this section referred to as the third party) to pay damages to the employee in respect thereof-

(a) the employee may both claim compensation under this Ordinance and take proceedings against the third party in the Court of First Instance or, subject to the provisions of the District Court Ordinance (Cap 336) relating to the limits of jurisdiction, in the District Court to recover damages:

Provided that where any such proceedings are instituted the court in which the action is tried shall, in awarding damages, have regard to the amount which, by virtue of paragraph (b), has become or is likely to become payable to the employer by the third party; and

(b) the employer by whom compensation is payable, and any person who may be called upon to pay an indemnity under section 24 in the case of an employee employed by a sub-contractor, shall have a right of action against the third party for the recovery of any sum which he is obliged to pay as a result of the accident, whether by way of compensation or indemnity or by virtue of any agreement made with the employee prior to the accident, and may exercise such right either by joining in an action begun by the employee against the third party or by instituting separate proceedings:

Provided that the amount recoverable under this paragraph shall not exceed the amount of damages, if any, which in the opinion of the court would have been awarded to the employee but for the provisions of this Ordinance.”

18.  Mr. Ip referred to a passage in Wong Leung-tak & anor v Hip Hing Constriction Co Ltd [1991] 2 HKLR 345 holding the employer’s claim against the principal contractor under s.25(1)(b) can only be brought in the High Court, and submitted as arbitration is excluded in EC claim, arbitration is also excluded from the indemnity claim in the High Court.

19.  With respect, Mr. Ip has taken the statute and authorities out of context, and his proposition is non sequitur.

20.  I view the position as follows:

(1) S.18A as held in the Rainbow case only confers exclusive jurisdiction on the District Court in relation to a EC claim;

(2)    S. 2 of ECO defines “compensation” to mean compensation payable under ss.6, 7, 8, 9, 10, 10A, 16I(3), 36MA, 36B, 36I of ECO which have no application to the present case;

(3) There is not and will never be any EC claim by the worker in any case as the claim was settled;

(4) S.25(1)(b) is an enabling provision for the employer to take separate proceedings in the High Court or District Court to recover damages against a third party (the principal contractor as the case may be) related to the EC claims and the holding in the Hip Hing case that those proceedings may only be taken in the High Court in the circumstances of that case was in the context of whether the employer could make a claim against the principal contractor in the EC proceedings;

(5) Neither the Rainbow nor Hip Hing case excluded arbitration in such separate proceedings.

Conclusion

21.  In the premises, the present proceedings were stayed for reference to arbitration.

Costs

22.  The Plaintiff shall pay the Defendant’s costs of the application for stay (including the hearing) assessed at the gross sum of $80,000.

[1] S.8 refers to agreement between the employer and employee with permanent attention requiring attention approved by the Commissioner for Labour.

[2] S.16CA refers to agreement between the employer and the employee for temporary incapacity exceeding 3 days but not exceeding 7 days.