XCHRX TAPBO CIVIL ENGINEERING CO. LTD. v. ROLLING DEVELOPMENT LTD.

HCA2468/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2468 OF 1999

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J U D G M E N T

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1. The Defendant by its summons dated 24th July 1999 seeks a stay of this action pursuant to s.6 of the Arbitration Ordinance. The Plaintiff opposes the stay. The grounds of their opposition gives rise to a short but unusual and interesting point.

2. On 10th February 1999 the Plaintiff filed its statement of claim seeking money due to it as certified by an architect pursuant to a building contract. In correspondence and by affirmation thereafter the Defendants made it clear that they wished the matter to go to arbitration pursuant to the arbitration clause contained in the contract. The Plaintiff does not dispute the existence of the clause, nor does it argue that it is invalid. By instituting proceedings by way of a writ of summons however it was plain that their forum of choice was the court, not arbitration.

3. On 31st March 1999 the Defendant served a so called Defence. I call it a "so called" Defence because it simply said that because of the arbitration clause the court had no jurisdiction to entertain the claim and they sought its dismissal. The Defence did not deny the claim nor did it make any reference to the merits of the case.

4. Miss Cheng for the Plaintiff submits that once the Defence was filed, even though it was not a defence on the merits and even though the Defendant's desire for arbitration was unequivocal, it had waived its right to go to arbitration because it had taken a procedural step which thereby invoked the jurisdiction of the court. Pleadings closed 14 days thereafter, on 14th April, and the Plaintiff did not consent to arbitration. Three months went by during which time no summons to stay was filed by the Defence (which, on Miss Cheng's argument would have been too late in any event because a Defence had been filed), the Plaintiff therefore issued a Summons for Directions on 12th July. Only then, did the Defendant issue a summons for a stay under s.6 of the Arbitration Ordinance, on 24th July which is the summons now before the court.

5. Article 8(1) of the Model Law states:

"(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."

6. Before the Model Law was incorporated into the Hong Kong Law, the Hong Kong Ordinance stated, (s.6A):-

"If any party to an arbitration agreement to which this section applies, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings;..."

7. Section 6A (as did s.6) referred to "pleadings", Article 8(1) does not. The question arises therefore, is this "Defence" the "first statement on the substance of the dispute". If it is the Defendant is in difficulty because the Hong Kong procedure for "requesting" a referral to arbitration is undoubtedly by a summons for a stay. In this case the Defendant's summons for a stay has come 3 1/2 months after the filing of the Defence and is clearly out of time if the Defence is the "first statement of the substance of the dispute". Normally the filing of a conventional Defence on the merits would have the effect of waiving all rights to arbitration.

8. There is no doubt that had the Defendant issued a summons for a stay instead of the "Defence" the Plaintiff would have been in difficulty resisting. That is not to say it would have been impossible but once the court was satisfied that a dispute existed between the parties, a stay would have almost inevitably been granted. However, a summons was not issued. What was served was a "Defence" which in fact was not a Defence at all. It was called a Defence but it did no more than refer to the arbitration. It made no statement about the substance of the dispute. At its highest it was a defective pleading.

9. The reason Article 8(1) uses the expression "the first statement on the substance of the dispute" is that the Model Law is used by many different nations who use different words to describe litigation documents. It is submitted by Miss Cheng that in our system the words used must mean the "Defence". It is further submitted that once any Defence is filed, no matter what it says, the right to request arbitration has been waived. The odd situation that has arisen here is that the document served does not include any statement about the substance of the dispute. Can it therefore be a document coming within Article 8(1)? In my judgment, as it is no more than a defective pleading which is a "Defence" in name only, it cannot be.

10. I have therefore come to the conclusion, not without difficulty, that this Defence, as filed, albeit a procedural step which should not have been taken, should not be construed as a "statement on the substance of the dispute". Consequently its filing did not mark the time after which the Defendant was precluded from requesting a stay. I am further satisfied that a dispute exists and make the order requested in paragraph 1 of the summons.

11. The Defendant was in error in filing the "Defence" as it did. It could have and should have issued a summons for a stay. In the absence of consent that is the only proper way to request a referral to arbitration after a statement of claim has been filed. By filing this "Defence" time has been wasted. The Plaintiff not surprisingly was at a loss to know what to do. It cannot be criticized for taking the steps it did. It never indicated a wish to arbitrate, neither did it feel it had to after the "Defence" was filed because the correct procedural step of issuing a summons for a stay had not been taken. Perhaps it should have applied to strike out the Defence. Had it done so, in my judgment, such an application would have been likely to succeed. Then, the Defendant would have either had to serve an amended Defence on the merits (which would have been a first statement on the substance of the dispute) or apply for a stay on the basis that the original Defence was in reality no defence at all and, as yet, no statement on the substance of the dispute had up to then been made. In other words, the position we are in today.

12. Because the "Defence" in this case was not a document envisaged by the words of Article 8(1) the Defendants can still rely on s.6 of the Arbitration Ordinance. Unfortunately, the "Defence" as filed achieved nothing, caused confusion and delay and was procedurally wrong. For the reasons stated above, however, it was not an error which irrevocably caused the Defendant to be submitted to the jurisdiction of the court against its wishes. In the circumstances therefore it seems to me that the just order on the costs is that there be no order and I make a costs order nisi to that effect.

13. The issue, helpfully argued by both counsel, has served to emphasize that the only proper procedure open to a Defendant seeking a referral to arbitration after the service of a statement of claim, in the absence of consent, is by a summons for a stay.