TRIBEST INVESTMENTS LTD v. HOREX LTD AND ANOTHER

DCCJ 2021/2022

[2023] HKDC 1518

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2021 OF 2022

-------------------------

BETWEEN

-------------------------

-------------------------

DECISION

-------------------------

1.  By a summons dated 17 January 2023, the 2^nd defendant seeks an order that the action brought by the plaintiff be stayed as against the 2^nd defendant and the dispute be referred to arbitration pursuant to section 20(1) of the Arbitration Ordinance, Cap 609 (“Stay Application”).

2.  At the hearing before me, the plaintiff is represented by Mr Billy Ma and the 2^nd defendant by Ms Terri Ha. The 1^st defendant is absent. I note that the 1^st defendant was represented by counsel at the directions hearing on 3 February 2023 but I do not receive any request from the 1^st defendant asking to be excused.

3.  After the hearing, I receive a letter from the 1^st defendant’s solicitors in the afternoon. In the said letter (dated 16 October 2023), the 1^st defendant’s solicitors explain that a solicitor of their firm did attend the court in the morning and observed the hearing at the Public Gallery. The solicitor heard my enquiry about the 1^st defendant’s absence and they immediately wrote to explain in the afternoon. The 1^st defendant’s solicitors apologize for not seeking permission to excuse their attendance. They confirm that they are neutral to the Stay Application and have no submissions to make. I accept their explanation and would regard it as an inadvertent omission on their part but I would like to remind the parties (and their legal representatives) that, if they wish to be excused from a hearing, they shall write to ask for the court’s permission in advance.

BACKGROUND

4.  The present case concerns a building known as South East Mansion, No 77 Kimberley Road, Kowloon (“Building”).

5.  The plaintiff is the tenant of the 1^st Floor of the Building (“the plaintiff’s Premises”) and carried on restaurant business thereat.

6.  The 1^st defendant is the registered owner of the 2^nd Floor and Flat Roof of the Building (“the 1^st defendant’s Premises”). The 2^nd defendant is the incorporated owners of the Building.

7.  The Building is governed by a Deed of Mutual Covenant dated 25 March 1968 (“DMC”)

8.  It is the plaintiff’s case that, since the time unknown to the plaintiff or about July 2017, water has been leaking from the 1^st defendant’s Premises and some common parts of the Building, namely the “building envelope” (ie the water proof-membrane of Flat Roof) and/or external walls, into the plaintiff’s Premises. The plaintiff alleges that the water leakage has adversely affected its use and occupation of the plaintiff’s Premises as well as the business of its restaurant.

9.  The plaintiff commenced the present action against the 1^st and 2^nd defendants on 1 June 2022 for injunction and damages. The causes of action relied on by the plaintiff are (a) negligence; (b) nuisance; (c) breach of the Building Management Ordinance, Cap 344 (“BMO”). It is noted that the plaintiff does not rely on breach of DMC as a cause of action.

10.  On 17 January 2023, the 2^nd defendant issued the summons for the Stay Application in the morning (at around 11:15 am) and filed its Defence in the afternoon (at around 3:35 pm).

11.  The 2^nd defendant relies on Clause 15 of the DMC which provides that:-

“All disputes and questions which shall thereafter arises between the parties hereto touching these presents or the constructions or adjudication thereof or whether these presents are still subsisting or not or touching any account or calculation to be made hereunder or as to any act deed or omission by any of the parties hereto or as to any other matter in any way relating to these presents or the rights duties or liabilities or any person hereunder shall be referred to a single arbitrator in case the parties agree upon one otherwise to two arbitrators one to be appointed by each party to the difference or to an umpire to be appointed by the Arbitrators in accordance with and subject to the provisions of the Arbitration Ordinance 1963 with any statutory amendment or modification thereof for the time being in force and the decision of the arbitrator arbitrators or umpire as the case may be on any of the matters and things aforesaid shall be final and absolutely binding upon all the parties hereto or the owners for the time being of the said premises and building”

12.  It is the 2^nd defendant’s argument that there is a prima facie case that Clause 15 of the DMC is a valid and enforceable arbitration agreement between the plaintiff and the 2^nd defendant, and the dispute between them falls within its ambit.

13.  The plaintiff opposes the Stay Application on several grounds. Firstly, the plaintiff argues that it is not a party to the DMC and therefore the DMC is not binding on it. Secondly, even assuming that the plaintiff is bound by the terms of the DMC, Clause 15, being a positive covenant, does not run with the land and therefore it still does not bind the plaintiff. Thirdly, the plaintiff does not rely on breach of DMC as a cause of action and therefore the dispute between the plaintiff and the 2^nd defendant does not fall within the ambit of Clause 15. Fourthly, Clause 15 is inoperative or incapable of being performed because the plaintiff, being a tenant, cannot enforce the positive covenant in the DMC to compel the 2^nd defendant to go for arbitration. Lastly, the 2^nd defendant’s conducts in the proceedings should be taken to have submitted to the jurisdiction of the court.

LEGAL PRINCIPLES

14.  Section 20(1) of Arbitration Ordinance (“AO”), which gives effect to Article 8 of the UNCITRAL Model Law, provides that:-

“Article 8. Arbitration agreement and substantive claim before court

(1) A court before 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 his 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.

…

(5) If the court refers the parties in an action to arbitration, it must make an order staying the legal proceedings in that action” (emphasis added)

15.  The relevant legal principles have been helpfully summarized by Marlene Ng J in Lau Lan Ying v Top Hill Company [2021] HKCFI 290. In essence:-

(a) Section 20 of AO provides for mandatory stay of legal proceedings in favour of arbitration where the action is the subject of (i) an arbitration agreement (ii) which is not null and void, inoperative or incapable of being performed, and (iii) there is a dispute between the parties; and (iv) the dispute is within the ambit of the arbitration agreement (Lau Lan Ying §26);

(b) The onus is on the applicant for a stay to show that there is a prima facie or plainly arguable case that there is a dispute between the parties, and an arbitrator ought to be appointed to arbitrate their dispute. The proper threshold test is whether there is a prima facie or plainly arguable case (Lau Lan Ying §36);

(c) The action before the court must be “in the same matter” that is the subject of the arbitration agreement, and not merely “related” to or “involved” in it. In ascertaining the “matter”, the court should consider the substance of the controversy as it appears from the circumstances and evidence, and not just the particular terms in which the claimant has sought to formulate its claim in court. The focus is on the dispute, and not the pleadings. In doing so, the court should undertake a practical and common-sense inquiry in relation to any reasonably substantial issue that is not merely peripheral or tangentially connected to the dispute in the court proceedings. The court should not characterise the “matter” in either an overly broad or an unduly narrow and pedantic manner (Lau Lan Ying §38); and

(d) Once the party seeking to stay for arbitration has brought himself within section 20(1) of AO, it is for the resisting party who contends the arbitration agreement is null and void, inoperative or incapable of being performed to establish so, and the standard of proof is a high one. The court should construe such bar to mandatory stay in Article 8 of the Model Law and section 20(1) of AO narrowly (Lau Lan Ying §27).

WHETHER THE DMC IS BINDING ON THE PLAINTIFF

16.  The first ground of objection raised by the plaintiff is that there is no arbitration agreement between the plaintiff and the 2^nd defendant because the plaintiff, being a mere tenant, is not a party to the DMC.

17.  It is Mr Ma’s contention that the term “the parties hereto” referred to in Clause 15 is expressly defined in the recital of the DMC as the “persons whose respective names addresses and descriptions are set out in the First Column of the First Schedule hereto”. Since the First Column of the First Schedule only mentions “owners of the said premises”, the term “the parties hereto” does not include tenants. It follows that the plaintiff is not a party to the DMC and Clause 15 has no legal effect on the plaintiff.

18.  On the other hand, Ms Ha argues that the definition of “the parties hereto” in the recital also includes their executors, administrators or successors and assigns. Ms Ha relies on Hicks v 89 Holland Park (Management) Ltd [2021] Ch 105 in which the English Court of Appeal held that, by section 78 of the Law of Property Act 1925, a covenant was deemed to have been made with, among others, the covenantee’s “successor in title” which included the owners and occupiers for the time being of the land of the covenantee intended to be benefitted.

19.  Ms Ha further refers to Citybase Property Management Ltd v Kam Kyun Tak [2003] 2 HKC 98 and Party for Civic Rights and Livelihood of the People of Hong Kong Limited v China-Tech Surveyors Limited, HCMP 603/2012, 16 October 2012, and argues that, as the tenant of the plaintiff’s Premises, the plaintiff must be bound to the covenants in the DMC including Clause 15.

20.  In Citybase Property Management, the 1^st defendant were owners of a flat in a development in Tin Shui Wai and the 2^nd defendant was the tenant. The plaintiff was the agent of the manager of the development. The plaintiff had obtained an interim injunction restraining the 2^nd defendant from using the flat for food manufacturing but the 2^nd defendant continued to operate the fast-food business from the flat despite the interim injunction. The plaintiff applied for committal of the 2^nd defendant for contempt of court. Ma J (as the former Chief Justice then was) said at paragraph 7 that:-

“Being a tenant of the premises, the second defendant was bound by the deed of mutual covenant applicable to Locwood Court”.

21.  In Party for Civic Rights, the plaintiff was a tenant and the 2^nd defendant was the incorporated owners of the building. The plaintiff sought a declaration that some beams and pillars within the private units in the building were common parts and should be repaired by the 2^nd defendant. The 2^nd defendant applied to stay the proceedings for the dispute to be submitted to arbitration in accordance with clause 14 of the deed of mutual covenant governing the building (which is almost identical to Clause 15 in the present case). Deputy Judge Seagroatt (as he then was) held that:-

“13. The Deed of Mutual Covenant binds incorporated owners, owners and tenants. I have never heard it argued otherwise. An owner or tenant cannot have the benefits of such an agreement without the burdens or obligations. A person who is not an original party to the Deed of Mutual Covenant and/or the Arbitration Clause, but who seeks to enforce Clause 4(b) cannot simply “cherry-pick” but is bound by all the provisions of the Deed of Mutual Covenant.” (emphasis added)

22.  Mr Ma is unable to cite any case in which the deed of mutual covenant was found not binding on the tenant on principle.

23.  In light of the two authorities cited by Ms Ha, ie Citybase Property Management and Party for Civic Rights, I am satisfied that it is plainly arguable that the DMC is binding on the plaintiff even though it is a tenant.

24.  Mr Ma however submits that I should not just be satisfied with a prima facie or plainly arguable case, and leave the issue of whether there is an arbitration agreement to the arbitrator. Mr Ma urges me to go further and make a definite ruling on whether the DMC is binding on the plaintiff. He refers to Bond Tak (Holdings) Limited v King Fame Trading Limited [2020] HKCFI 1509.

25.  In Bond Tak, the dispute was whether the arbitration clause in the transfer agreement had been superseded by the jurisdiction clause in the subsequent settlement agreement. Counsel for the defendant made the submissions that once it was established that there was a good prima facie case, or a plainly arguable case, that a valid arbitration clause exists between the parties, the court should refer the dispute to arbitration and allow the arbitral tribunal to determine the issue of jurisdiction (if raised before it). Deputy Judge Douglas Lam SC referred to PCCW Global Limited v Interactive Communications Service Limited [2007] 1 HKLRD 309 where the Court of Appeal observed at paragraph 52 that:-

“While I accept that is a possible course, it does not strike me as appropriate here. A decision by an arbitrator on his jurisdiction would still be open to challenge before this Court. The matter would simply return to me. Where (as here) a question of construction is involved and little (if any) extrinsic evidence is sought to be adduced in aid of construction, it would be conducive to saving time and cost to determine the question of jurisdiction now.”

26.  In PCCW Global, the Court of Appeal also referred to the following passage of Waller LJ in Ahmad Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyd’s Law Re 522 at 524:-

“… if it is clear on the evidence that a contract did or did not exist then the court should so decide for it cannot be right either to direct an issue pursuant to order 73, rule 6(2) or to leave the ‘dispute’ to be determined by an arbitral tribunal.”

27.  Mr Ma submits that this case involves little extrinsic evidence and the question whether the DMC is binding on the plaintiff is a matter of construction of the DMC. Therefore, the court should adopt the approach taken in PCCW Global and make a definite finding on whether there is an arbitration agreement between the plaintiff and the 2^nd defendant.

28.  In my view, there is no inconsistency between the approach taken by the Court of Appeal in PCCW Global and the general principles set out at paragraph 15 above. In fact, after referring to PCCW Global, the learned Deputy Judge in Bond Tak went on to say at paragraph 24 that:-

“In the light of the above, the proper approach to be adopted in this case is to determine whether it is clear on the evidence and the construction of the agreements that the Arbitration Agreement has been superceded by the Jurisdiction Agreement. If so, it would be inappropriate for me to leave the matter to the arbitral tribunal, which would only result in unjustifiable delay and expense. On the other hand, if the matter is less than clear or is fact sensitive, then the matter must be referred to the arbitral tribunal for determination, at least in the first instance.”

29.  Whether the court should make a definite ruling on whether there is an arbitration agreement depends on the facts of the case and the evidence adduced before the court. It is only when the case is so clear that there is no arbitration agreement that the court would make a definite ruling, instead of referring the matter to arbitrator for determination.

30.  For instance, in Link Wide International Investment (Hong Kong) Ltd v Devi Trading Co Ltd, DCCJ 3509/2010, 17 December 2010, the parties entered into a sales contract for supply of iron ore lumps. Subsequently, dispute arose and it was alleged that the parties had entered into a settlement agreement to settle their dispute. The plaintiff’s case is that the defendant was in breach of the settlement agreement and commenced the proceedings to enforce it. As the dispute was whether the parties had entered into a settlement agreement, it was clear to the court that the arbitration clause in the sales contract had no relevancy and there was no arbitration agreement between the parties.

31.  Likewise, in Sunglow Supplies & Engineering Ltd v Shing Hing Construction Company Ltd, DCCJ 1005/2013, 21 January 2014, the evidence was also clear that “We are dealing with a new and separate contract not intended to be covered by the arbitration agreement” (paragraph 53).

32.  In ZPMC-Red Box Energy Services Ltd v Philip Jeffrey Adkins [2021] HKCFI 3501, the evidence was clear that the substance of the dispute concerned the 1^st defendant’s breaches of duties and trust as the plaintiff’s director and CEO, and the CEO contract did not contain an arbitration clause. On the other hand, the 1^st defendant was not a party to the shareholders agreement or further shareholders agreement which both contained an arbitration clause.

33.  I cannot say that the present case is so clear that there is no arbitration agreement between the plaintiff and the 2^nd defendant. As indicated above, there is at least two Hong Kong authorities saying that a tenant is bound by DMC and Mr Ma is unable to cite any authority to show the contrary. As such, I believe that I only need to consider whether or not there is a “prima facie or plainly arguable case” and it is unnecessary for me to go further to make a definite finding on this issue.

WHETHER CLAUSE 15 IS A POSITIVE COVENANT

34.  The second ground of objection raised by the plaintiff is that, even assuming that the DMC is binding on the plaintiff, Clause 15 is not enforceable against the plaintiff because it is a positive covenant.

35.  Section 41(6) of Conveyancing and Property Ordinance, Cap 219 (“CPO”), defines a positive covenant as “a covenant to expend money, do something or which is otherwise positive in nature”. Mr Ma argues that Clause 15 falls squarely into this definition because it requires the parties to take positive steps to refer the matter to arbitration and to incur expense in the process. Therefore, it therefore cannot be enforced by reason of section 41(5) of CPO.

36.  Mr Ma relies on two Canadian cases to support his argument. In Brennan v Dole [2005] O J No 3904, the appeal was against an order appointing an arbitrator and delineating the terms of arbitration to resolve a dispute between neighbours about the costs of snow removal. In allowing the appeal, the Ontario Court of Appeal held at paragraph 7 that:-

“First, the arbitration clause is not merely incidental to other covenants in the Agreement. It is a separate covenant that takes away the appellant's right to civil litigation and imposes a positive obligation on her to proceed to arbitration. Such arbitration clauses have been specifically considered and held to be positive covenants: 4348037 Manitoba Ltd. v. 2804809 Manitoba Ltd., [2003] M.J. No. 210 (Q.B.); [2004] M.J. No. 207 (C.A.) This court has held that positive covenants do not run with the land and are therefore not binding on subsequent owners: Amberwood Investments Ltd. v. Durham Condominium Corp. 123, (2002), 58 O.R. (3d) 481 (C.A.).

37.  In 4348037 Manibota Ltd v 2804809 Manitoba [2003] M J No 210., the respondent commenced an arbitration regarding the claimant’s complaint. The claimant participated but challenged the arbitrator’s jurisdiction. The arbitrator found that he had jurisdiction and delivered an award. The claimant applied to set aside the award. In setting aside the arbitration award, Scurfield J said that:-

“18. A restrictive covenant may attach to a real property and bind future owners. But, can an individual who is not originally party to an agreement containing such a covenant be bound by an arbitration clause attached to that agreement?

19. I have identified neither law nor logic that supports the submission that a subsequent owner can be bound by the arbitration clause simply because he has notice that the original parties to the agreement preferred this method to adjudicate conflicts. An agreement to arbitrate disputes relating to a negative covenant affecting real estate is clearly different in character from the negative covenant itself. It requires positive acts not related to the real property. As such it is not enforceable as against anyone who is not privy to the original agreement: Amberwood Investments Ltd. v. Durham Condominium Corp. No. 123, supra. However, on the facts of this case the arbitration clause is clearly severable from the negative covenant relating to the building.

20. Consequently, I find that the arbitrator had no jurisdiction and that his decision is not enforceable.”

38.  In reply, Ms Ha observes that these two Canadian cases have never been cited in any English or Hong Kong cases. Ms Ha instead relies on a number of English and Hong Kong cases to submit that the 2^nd defendant is only enforcing the negative aspect of Clause 15 that is not caught by section 41(5) of CPO.

39.  The first case relied on by Ms Ha is AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] 1 WLR 1889 where the English Supreme Court said at the beginning of the judgment that:-

“1. An agreement to arbitrate disputes has positive and negative aspects. A party seeking relief within the scope of the arbitration agreement undertakes to do so in arbitration in whatever forum is prescribed. The (often silent) concomitant is that neither party will seek such relief in any other forum. If the other forum is the English court, the remedy for the party aggrieved is to apply for a stay under s 9 of the Arbitration Act 1996.” (emphasis added)

40.  AES Ust-Kamenogorsk was applied in two Hong Kong cases, namely Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi [2015] 2 HKLRD 866 and Re Lam Kwok Hung Guy [2022] 4 HKLRD 703.

41.  In Ever Judger, the plaintiff sought an anti-suit injunction against the defendant on the basis of an arbitration clause. In considering the jurisdiction to grant anti-suit injunction, G Lam J (as he then was) said at paragraph 30 that:-

“First, an arbitration agreement has a positive and a negative aspect. Positively, the parties agree that any dispute within the scope of the agreement will be determined by arbitration as prescribed, and, negatively (and often only implicitly), they undertake to each other that they will not bring such dispute to any other forum: AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] 1 WLR 1889 at §1; Pena Copper Mines Ltd v Rio Tinto Co Ltd (1911) 105 LT 846, 850-851. An anti-suit injunction seeks to enforce the negative aspect of the agreement. It is in form and substance a negative injunction, not concerned with the institution or prosecution of arbitral proceedings as such, but with restraint of the pursuit of other proceedings in breach of contract. It is more accurately described as a measure not in relation to any arbitral proceedings, but in relation to the arbitral agreement. It is therefore not evident to me that an anti-suit injunction in this context is an interim measure ‘in relation to’ actual or contemplated arbitral proceedings, as provided in s 45(2).” (emphasis added)

42.  In the more recent case of Re Lam Kwok Hung Guy, the parties to a loan agreement agreed to submit to the exclusive jurisdiction of the New York courts. The petitioner alleged that the debtor was in breach of the loan agreement and presented a bankruptcy petition against the debtor in Hong Kong. The debtor opposed the petition contending that there was no default and that the petitioner should have first commenced proceedings in New York to establish the debtor’s liability. The debtor then commenced proceedings against the petitioner in New York contending that there was no default. The Judge below made bankruptcy order against the debtor on the basis that the debtor failed to show that there was a bona fide dispute on substantial ground in respect of the petition debt. The debtor appealed. In considering whether the exclusive jurisdiction clause was engaged, G Lam JA said again at paragraph 63 that:-

“As with exclusive jurisdiction clauses generally, the clause in this case has both positive and negative aspects. The parties affirmatively agree that they submit to the exclusive jurisdiction of the specified forum for the purposes of all legal proceedings arising out of or relating to the Agreement or the other loan documents or the transactions contemplated thereby. The “silent concomitant” AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] 1 WLR 1889 at §1 is that neither party will bring such legal proceedings in any other forum. This proscription is engaged, in my view, where one of the parties seeks a judicial determination in another forum on the rights or obligations of one or both of them under the Agreement.” (emphasis added)

43.  Mr Ma argues that the English and Hong Kong cases cited by Ms Ha concern anti-suit injunction, rather than stay for arbitration. With respect, I do not see why the analysis in those cases should not be equally applied to an arbitration clause for the purpose of an application for stay. I agree with Ms Ha that Clause 15 contains both the positive aspect (ie to resolve the dispute by arbitration) and the negative aspect (ie not to bring legal proceedings in any other forum), and the 2^nd defendant is only enforcing the negative aspect of the covenant to stay the proceedings.

44.  In light of the authorities cited by Ms Ha, I am of the view that it is plainly arguable that the plaintiff is bound by the negative aspect of Clause 15.

45.  In the course of his oral submissions, Mr Ma makes a new point based on section 41(2) of CPO. Mr Ma’s argument goes like this. In order to take benefit of section 41 and become enforceable, a covenant must satisfy, inter alia, the requirement set out in section 41(2)(a), ie relates to land. The word “relate” carries the meaning of “touch and concern”. A covenant touches and concerns the land if it satisfies three conditions, namely (a) it is beneficial only to the reversioner for the time being; (b) it affects the nature, quality, mode of user or value of the reversioner’s land; and (c) it is not personal in nature; Swift Investments v CESG Plc [1989] 1 AC 632. Mr Ma argues that Clause 15 provides for the mode of resolving the disputes between the parties to the DMC and it does not concern “the nature, quality, mode of user or value of” the owner’s land. It follows that Clause 15 does not relate to the land and is not enforceable by virtue of section 41 of CPO. Mr Ma cites Lamaya Ltd v Supreme Honour Development Ltd [1991] 1 HKC 198.

46.  Lamaya is a case concerning the naming right of a building and the focus of the Court of Appeal was on section 41(2)(c), rather than section 41(2)(a). Therefore, the case does not assist Mr Ma.

47.  With respect, I have difficulty in accepting Mr Ma’s argument that the mode of dispute resolution provided at Clause 15 has no relationship whatsoever with “the nature, quality, mode of user or value of” the owner’s land. At the least, the provision in Clause 15, not just refers the disputes to arbitration but also provides that the decision of the arbitrator shall be final and binding, helps the owners resolve their disputes, which invariably relate to the use of their lands, in an expeditious manner and that would arguably affect “the nature, quality, mode of user or value of” the owner’s land. In my view, there is a prima facie or plainly arguable case that Clause 15 “relates” to land for the purpose of section 41 of CPO.

48.  It is perhaps convenient to also deal with Mr Ma’s submissions that Clause 15 is inoperative and/or incapable of being performed. Mr Ma argues that, since the positive aspect of the covenant does not run with land, the plaintiff cannot enforce or rely on it to compel the 2^nd defendant to go for arbitration even if it wishes to do so. This makes Clause 15 inoperative and/or incapable of being performed.

49.  With respect, I do not find any merit in Mr Ma’s argument. Given that it is the 2^nd defendant who applies for stay for arbitration, I do not think the 2^nd defendant can refuse to refer the dispute to arbitration if the plaintiff agrees. In fact, it has been confirmed in the supporting Affidavit of Kwok Wai Kwan Ricky that the 2^nd defendant is willing to submit to the jurisdiction of an arbitral tribunal in accordance with Clause 15.

WHETHER THE MATTERS WITHIN THE AMBIT OF CLAUSE 15

50.  Mr Ma argues that the plaintiff does not rely on DMC as its cause of action and therefore its claim does not fall within the ambit of Clause 15.

51.  Ms Ha makes three points in reply.

52.  Firstly, Ms Ha submits that Clause 15 is framed in wide terms which covers “all disputes and question” between the parties and “any act deed or omission by any of the parties hereto or as to any other matter in any way relating to these presents”.

53.  Secondly, even though the plaintiff does not rely on the DMC as a cause of action, this would be on the same factual basis of claims under the DMC; see clauses 4(o) and 8(c) of the DMC. Ms Ha refers to Silver King China Ltd v Huy Yun Shiu [2022] 4 HKC 238.

54.  The wordings of Clause 15 are very similar to the arbitration clause in Silver King. In that case, the plaintiff was the owner and it sued another owner (the 1^st defendant), the incorporated owners (the 2^nd defendant) and the management company (the 3^rd defendant) for the alleged water leakage. Insofar as the claim against the 2^nd and 3^rd defendants was concerned, the plaintiff relied on the causes of action of negligence, nuisance, breach of deed of mutual covenant and breach of Building Management Ordinance. The 2^nd and 3^rd defendants applied for stay for arbitration. One of the plaintiff’s grounds of objections was that the claim against the 2^nd and 3^rd defendants was not within the ambit of the arbitration agreement. District Judge MK Liu allowed the application and said at paragraph 24(2)(c) that:-

“In respect of P’s claim against D2 and D3 based upon negligence and breach of common duty of care, the factual basis in support of this claim is same as the factual basis in support of the claim based upon the DMC and the BMO. I am of the view that arguably the claim based upon negligence and breach of common duty of care is arguably covered by Clause 16 of the DMC.” (emphasis added)

55.  It was also held by the learned judge that an earlier decision on the meaning of a particular form of words is persuasive. The strength of the persuasive force depends upon the extent of the similarity between the contract and the surrounding circumstances in the earlier decision and the instant case; Silver King paragraph 15(4).

56.  Thirdly, the dispute of the present case would turn on whether the “building envelope” is a common part of the Building which turns on the construction of the DMC.

57.  I agree with Ms Ha. I also agree with her submission that the above comment of the learned judge in Silver King applies whether the plaintiff is a tenant or a co-owner or whether the plaintiff is relying on the DMC as a cause of action. As pointed out by Marlene Ng J in Lau Lan Ying, the court should consider the substance of the dispute and not the pleadings; see also ZPMC-Red Box Energy Services Ltd paragraph 37 per Ng J.

58.  Looking at the substance of the dispute between the Plaintiff and the 2^nd Defendant, I take the view that it is plainly arguable that the dispute falls within the ambit of Clause 15.

SUBMISSIONS TO JURISDICTION

59.  The last ground of objection is that the 2^nd defendant has by its conduct submitted to jurisdiction. Such conduct includes seeking extension of time for filing Defence, asking for specific discovery of documents, filing of Defence, engaging experts for investigation and site inspection. At the hearing, Mr Ma sensibly accepts that this may not be a strong ground.

60.  In Yip Chi Wan v Merry Court (IO) [2022] 5 HKLRD 529, District Judge MK Liu held that section 20(1) of AO is not subject to the regime under Order 12 rule 8.

61.  Section 20(1) of AO provides that the application for stay should be made “not later than when submitting his first statement on the substance of the dispute”. In the present case, the summons for the Stay Application was filed in the morning of 17 January 2023 which is before the filing of the 2^nd defendant’s first statement on the substance of the dispute (ie the Defence) in the afternoon of the same day.

62.  Further, it is trite law that seeking a time extension for filing a defence or making request for specific documents does not amount to submission of jurisdiction; Chan Hon (Administrator of the Estate of Poon Lai Ming (deceased) v Bayer Healthcare Ltd [2021] 3 HKC 39 and Hwoo Huang Linda v Fu Being San [2013] 1 HKLRD 259 (for extension of time); Shanghai Gopher Asset Management Co Ltd v China Base Group Ltd [2021] HKCFI 3216 (for request for documents).

63.  I also fail to see how the discussion on expert directions and joint inspections by the parties’ expert can be taken as the 2^nd defendant’s submission to jurisdiction particularly when the 2^nd defendant’s agreement to joint inspection was given after the issuance of the summons for the Stay Application.

64.  For the above reasons, I reject Mr Ma’s submissions and find that the 2^nd defendant has not submitted to the jurisdiction of the court.

CONCLUSION

65.  Despite Mr Ma’s able argument, I am of the view that the 2^nd defendant has demonstrated that there is a prima facie or plainly arguable case that the plaintiff and the 2^nd defendant are bound by an arbitration agreement, namely Clause 15 of the DMC, and the dispute between the parties falls within its ambit. I also find that the plaintiff has failed to show that Clause 15 is null and void, inoperative or incapable of being performed.

66.  Mr Ma urges me to take into account the scenario that, if I allow the stay in favour of the 2^nd defendant, the 1^st defendant is still a defendant in the present case and will not take part in the arbitration between the plaintiff and the 2^nd defendant. It means that the plaintiff would need to deal with two sets of proceedings, one in court and one in arbitration, for the same matters. Mr Ma submits that it is more cost effective, efficient and in the interest of all the parties to have the disputes resolved in the present action.

67.  It is trite law that once the conditions set out in section 20(1) are satisfied, the court has no discretion but shall refer the matter to arbitration and must stay the proceedings. Whether a party would suffer any inconvenience because of the stay is not a factor that would affect the outcome. In Lau Lan Ying, the defendant’s claim against the third party was stayed for arbitration but the plaintiff’s claim against the defendant remained in court proceedings. In ordering the third party proceedings be stayed, Marlene Ng J commented at paragraph 135 that “It is unfortunate that the main action between P and Ds will be pursued in court whilst the “difference” between D2 and TP will be stayed for arbitration, but in light of the unequivocal Clause, this is insufficient ground to decline a stay”.

68.  In any event, the 1^st defendant has confirmed, through its solicitors’ letter dated 16 October 2023 to the court (see paragraph 3 above), that it is willing to refer the dispute with the plaintiff to arbitration if the court allows the Stay Application. Therefore, the problem and inconvenience anticipated by Mr Ma does not exist.

69.  For the reasons above, I allow the Stay Application and order that all further proceedings in respect of the plaintiff’s claim against the 2^nd defendant be stayed and referred to arbitration.

COSTS

70.  There is no reason why costs should not follow the event. Ms Ha submits that, in the absence of special circumstances, indemnity costs would be awarded against a party who has unsuccessfully attempted to resist enforcement and recognition of the arbitration agreement; Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd [2016] 1 HKLRD 582 per Mimmie Chan J at paragraph 14.

71.  Mr Ma does not dispute the above principle but he submits that there are special circumstances in the present case that justify the departure from such principles. According to Mr Ma, the special circumstances include (a) this is not a commercial case but a “domestic” case involving water leakage; (b) the plaintiff is not a party to the DMC; (c) it is reasonable for the plaintiff to resist the application; and (d) there is a delay on the part of the 2^nd defendant to take out the present application; and (e) the 2^nd defendant has taken steps in the proceedings.

72.  Despite the admirable effort of Mr Ma, I must say that I am not with him. I do not see any of the matters mentioned by Mr Ma amounts to special circumstances. Firstly, I do not see the reason why it is necessary to make a distinction between commercial cases and non-commercial cases when deciding whether an order for indemnity costs should be granted. In fact, there are water leakage cases where an order for indemnity costs was made; eg Silver King. Secondly, the arguments that the plaintiff is not a party to the DMC and that the 2^nd defendant has taken steps in the proceedings do not help the plaintiff as I have already rejected them. Thirdly, the Stay Application was taken out before the filing of Defence and it is within the time allowed under section 20(1). I do not see any special circumstance in the present case that justifies a departure from the general rule of granting indemnity costs.

73.  I therefore make an order nisi that the plaintiff do pay the 2^nd defendant’s costs of the Stay Application, including the costs reserved, on an indemnity basis with Certificate for Counsel. The order nisi shall become absolute in the absence of application to vary within 14 days. For completeness, there is no order in respect of the 1^st defendant’s costs of the Stay Application.

74.  Ms Ha requests the costs to be summarily assessed and Mr Ma says that he has no instructions on it. Given the simple nature of the application, I am of the view that summary assessment is appropriate.

75.  I therefore direct that the 2^nd defendant shall submit its skeleton bill of costs within 7 days of this Decision and the plaintiff to file its list of objections within 7 days thereafter.

76.  Finally, I would like to thank Mr Ma and Ms Ha for their valuable assistance to the court.