LINFIELD LTD. v. TAOHO DESIGN ARCHITECTS LTD. AND OTHERS

HCCT68/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.68 OF 2001

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

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

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

J U D G M E N T

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

Background

1. The plaintiff, Linfield Limited ("Linfield"), is the owner of a residential development comprising six town houses known as The Belvedere, 51 Plantation Road, the Peak, Hong Kong ("the Property"). The Property was constructed between 1994 and 1998. Linfield alleges that the Property has suffered from a number of serious defects which have required extensive remedial work.

2. These defects can be broken down into the following general complaints :

(1) Materials supplied not fit for their intended purpose.

(2) Defects in design and selection.

(3) Defects in supply and construction.

(4) Defective podium.

(5) Failure to effect any proper insurance.

(6) Failure to warn of defaults.

3. Linfield has made claims against :

(1) The architects, Taoho Design Architects Limited ("TDA").

(2) The building contractors, Progress Construction Limited ("PCL").

(3) The specialist supplier and installer of stonework, Michelangelo Marble Limited ("MML").

(4) The consulting engineers and project managers, Greg Wong & Associates Limited ("GWA").

(5) The property development and project consultants, Brooke Hillier Parker ("BHP").

4. On 1 August 2000, Linfield commenced proceedings against BHP in HCA 7693/2000. The Statement of Claim in this action was filed on 10 December 2001. On 14 September 2001, Linfield commenced proceedings against TDA, PCL, MML and GWA in HCCT 68/2001. The Statement of Claim in this action was also filed on 10 December 2001.

5. As one might expect, the contracts between Linfield and some of the parties contained arbitration agreements. The relevant parties here are TDA, PCL and BHP. No arbitration agreement existed as far as MML and GWA were concerned.

6. TDA, PCL and BHP have all issued summonses in their respective actions seeking a stay of the relevant proceedings in favour of arbitration. It is likely that Linfield will consent to these applications although orders have not yet been made.

The present application and the issues

7. GWA, the 4th named defendant in the present proceedings, seeks by a summons dated 14 February 2002, a stay of the action against it pending the outcome of the arbitrations between Linfield and TDA, PCL and BHP. The ground stated in the summons is that :

"a multiplicity of concurrent proceedings in arbitration and litigation would involve additional and unnecessary costs and the risk of inconsistent findings."

8. Mr Paul Carolan, who appears for GWA, submitted, based on this ground, that justice demanded that the present proceedings against his client be stayed.

Principles governing stays of proceedings

9. The power to stay proceedings is discretionary and is stated in wide terms in section 16(3) of the High Court Ordinance :

" (3) Nothing in this Ordinance shall affect the power of the Court of Appeal or the High Court to stay any proceedings before it, where it thinks fit to do so, either of its own motion or on the application of any person, whether or not a party to the proceedings."

10. This is a statutory codification of an inherent jurisdiction that the court has exercised for many years : see The Nedlloyd Colombo [1995] 2 HKC 655, at 662D-I.

11. Sometimes, the court is called upon to stay proceedings where there exists an arbitration agreement, exclusive jurisdiction clause or on the basis of forum non conveniens or lis alibi pendens. The present summons approximates roughly to the latter category of application in which, briefly put, a party seeks a stay of proceedings on the basis that there are concurrent proceedings elsewhere dealing with the same or similar subject matter.

12. I say "approximates roughly" because there is an important distinction between the present application and an application for a stay based on lis alibi pendens. In lis alibi pendens cases, there is not only identity of subject matter but also identity of parties. Even when both these features exist, a stay is not automatically ordered if it can be shown that there is a legitimate purpose in proceeding with two sets of proceedings : see The Abidin Daver [1984] AC 398, at 411G-412A.

13. In the present case, a stay is sought when there exist multiple proceedings but not involving the same parties. What then are the applicable principles in such type of applications?

14. One starts with the basic principle : what would serve the ends of justice between the parties to the litigation and as far as the administration of justice is concerned? This recurrent theme can be found in all cases involving stays on the basis of lis alibi pendens : see The Abidin Daver at 412B-D (noting in particular the well known words of Lord Diplock, "It is a recipe for confusion and injustice"). I have also found helpful a statement of principle contained in the judgment of Sellers LJ in Compagnie Nouvelle France Navigation SA v. Compagnie Navale Afrique Du Nord [1966] 1 Lloyds Rep. 477, where at 487(1), he said :

"The guiding principles are :

(1) that the stay must not cause injustice to the claimant in the arbitration, and

(2) that the applicant for a stay must satisfy the Court that the continuance of the arbitration would be oppressive or vexatious to him or an abuse of the process of the Court : in short, that it would be unjust."

I would add that where a plaintiff institutes proceedings as of right (and not in breach of an arbitration agreement or exclusive jurisdiction clause) he is not to be deprived of carrying on those proceedings unless very good reasons exist to the contrary.

15. In Paladin Agricultural Limited v. Excelsior Hotel (Hong Kong) Limited [2001] 2 HKC 215, Burrell J dealt with an application similar to GWA's in the present case. There, proceedings had been commenced by a tenant (the 1st plaintiff in that case) against its landlord (the defendant) in relation to a tenancy of restaurant premises. The complaint was in relation to the fact that the premises became infested with vermin, although it is not clear from the report just what the cause of action against the plaintiff was since it was the tenant's obligation to keep the premises free of pest and vermin. The business carried on at the premises was in the name, not of the tenant, but of the 2nd plaintiff. No contractual relationship existed between the 2nd plaintiff and the defendant and it is significant as well that the Tenancy Agreement did not permit the use or occupation by any one other than the 1st plaintiff. Both plaintiffs, however, joined in an action against the defendant. The proceedings as between the 1st plaintiff and the defendant were stayed upon the 1st defendant's application owing to the existence of an arbitration agreement. This therefore gave rise to an application by the 2nd plaintiff to stay the proceedings until after the final award had been given in the arbitration between the 1st plaintiff and the defendant. Burrell J granted the stay in the exercise of the court's inherent jurisdiction, taking into account five factors, namely (see page 224 of the report) :

(1) The 2nd plaintiff only came into the litigation relatively late and after there had been a change of solicitors.

(2) The 2nd plaintiff's existence as a separate legal entity operating the restaurant appeared to be in breach of the Tenancy Agreement between the 1st plaintiff and the defendant.

(3) The 2nd plaintiff's claim, in money terms, was about 4% of the amount of the 1st plaintiff's claim.

(4) There were many common issues and although the claims were not similar, the root cause was the same and the majority of consequential issues were the same.

(5) The duplication of proceedings created the risk of inconsistent findings and the inevitability of increase costs.

16. Although there was apparently no identity of parties in the two proceedings, in my view what was obviously of significance to the learned judge was the fact that the 2nd plaintiff's existence as a "separate legal entity" appeared to be in breach of the Tenancy Agreement. As I understand the learned judge's reasoning, he must have treated the two sets of proceedings as more or less involving the same parties. It was for this reason that the existence of common issues, the risk of inconsistent findings and the inevitability of increase costs therefore became important features. These would not have been important features at all if the parties had been completely different. Even if there are multiple sets of proceedings involving similar or even the same issues, if there is no identity of parties, I fail to see how it is desirable or even possible for one or more of such proceedings involving different parties to be stayed pending the resolution of any other set or sets of proceedings. The determination of any issues in proceedings between different parties would not be binding on any other party in another set of proceedings. I recognize immediately that this may give rise to a risk of inconsistent findings, but where findings made in earlier proceedings (even on the same issues) are not binding in later proceedings, the risk is inevitable. However desirable it may be to have consistency, findings made in different proceedings between different parties cannot be made binding on other persons.

17. Of course where High Court proceedings are involved, the court has powers under RHC Order 4, rule 9 to try to ensure, even as between different parties in different proceedings, a fair measure of consistency (eg., by trying the actions at the same time or one after the other). However, where the proceedings involve on the one hand court proceedings and on the other, arbitration proceedings, there is simply no equivalent power to Order 4, rule 9. This is because the juridical foundation for the two types of proceedings is different : one is based on the constitutional right of all persons to have access to the courts to resolve disputes; the other is based on a contractual right to resolve disputes by reference to an agreed tribunal.

18. With these principles in mind, I now approach the present application.

Ought a stay to be granted in the present case?

19. In my judgment, GWA's application for a stay must be refused :

(1) First, the various arbitrations between Linfield and TDA, Linfield and PCL and Linfield and BHP, do not involve GWA. There is therefore no identity of parties such that any findings in any of these arbitrations will, as a matter of law, bind either Linfield (or GWA for that matter) in the present proceedings between them. There is, moreover, no evidence before me either to suggest that Linfield and GWA have agreed to be bound by any findings made in the arbitration proceedings between Linfield and anyone else. The way that it is put by GWA's solicitor in his affidavit in support of the stay application is "If the Plaintiff's claims against those Defendants they are now or will be pursuing in arbitrations are successful, there may be no need for the claims against my client and/or MML to be revived" (emphasis added). I accept that based on the Statements of Claim served in the two actions (assuming that these reflect the claims made by Linfield against the various other parties), many similar issues may well arise and many similar facts will have to be dealt with in the proceedings against the various parties, but if any findings made by an arbitral tribunal will not bind Linfield or GWA in the proceedings between them (indeed I doubt that such findings will even be admissible as evidence), there is simply no point in awaiting the outcome of the arbitral proceedings. I also fully accept that the risk of inconsistent findings may exist but this is unavoidable and is not a weighty factor (or even a factor at all) that enters into the exercise of discretion in these circumstances.

(2) Secondly, as particularized in the Statement of Claim in the present action, the complaints made against GWA are also made against TDA and MML or both. It is to be noted that there is no arbitration agreement between Linfield and MML either. Therefore, the action between Linfield and MML will in any event have to proceed in the High Court. This then gives rise to the possibility of a wholly unacceptable situation were a stay to be granted in the present application, in which the proceedings as between Linfield and GWA are stayed and yet the action between Linfield and MML, involving similar issues, is proceeded with.

(3) Thirdly, although similar issues may arise in the proceedings against the various parties, it should not be forgotten that Linfield's claim against GWA is based at least in part on a contract (dated 16 August 1994) between GWA and Linfield's parent company (which has assigned its rights under the contract to Linfield). There is no other party to this contract. Thus, although there may be similarities in the duties owed by the various parties to Linfield, it does not necessarily follow that they are identical (and no such arguments were advanced to this end) as those owed by GWA to Linfield.

(4) Fourthly, insofar as GWA's case may involve casting blame on other parties (and this seems to be alleged : see the affirmation of Wong Chak Yan, the principal of GWA), it is able to bring any such parties into the present action by instituting third party or contribution proceedings. The fact that Linfield and these parties may have arbitration agreements between them does not in any way prevent GWA from issuing third party or contribution proceedings. There is therefore no prejudice in this regard to GWA continuing with the present proceedings even where there are arbitration proceedings afoot.

(5) Fifthly, and in my view not to be forgotten, is the risk of injustice to Linfield if the present stay were granted. Linfield has brought the present proceedings against GWA as a matter of right. There is no breach of an arbitration agreement or jurisdiction clause. Therefore to deprive Linfield of its right to proceed in this action against GWA would require very good reasons. The case against GWA is a significant one - Mr Carolan does not suggest otherwise. This is not like Paladin Agricultural Limited in which the claim against the 2nd defendant represented only 4% of the claim against the 1st defendant : see page 224D-E of the report. If a stay were granted in the present case, there is in my view a significant risk of injustice to Linfield, not least in being unable to pursue its claims against GWA, a party which owed duties to it not necessarily overlapping with the duties owed by other persons against whom it has also instituted proceedings. As Mr Peter Clayton (for Linfield) put it, GWA should not be permitted to be taken "out of the loop".

Outcome of present summons

20. For the above reasons, the application for a stay is dismissed. Justice does not demand such a result.

21. I also make an order nisi that GWA is to pay the costs of and occasioned by the present summons to Linfield in any event, such costs to be taxed if not agreed.