ATTORNEY GENERAL OF HONG KONG v. VIANINI LAVORI S.P.A.

1991, No. M.P.80

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HEADNOTE

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SECURITY FOR COSTS UNDER SECTION 14(6) OF THE ARBITRATION ORDINANCE.

1991 No. M.P.80

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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BEWTEEN

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JUDGMENT

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1. I have before me an application by the Attorney General (the plaintiff) for security for costs under section 14(6) of the Arbitration Ordinance (the ordinance) in an arbitration that has been instituted by Vianini Lavori S.P.A. (the defendant) in which the sum of $2,886,250.00 has been claimed. The arbitration is fixed to commence on the issue of liability on the 6th May. There is also cross summons, issued by the defendant, for a stay of the proceedings under section 6 of the Ordinance.

2. The facts emerge from the affidavits of Mr Sutton, the plaintiff's solicitor and Mr Hill, the defendant's solicitor.

3. The defendant is a civil engineering contractor incorporated in Italy with its head office in Rome. The defendant also has a registered place of business in Hong Kong. The defendant acted as the main contractor for the Hong Kong Government in the construction of the Junk Bay Tunnel and submitted claims to Maunsell Consultants Asia Limited, the engineer appointed under the contract. By a decision dated the 24th August, 1989, the bulk of the claims were rejected. Pursuant to clause 86 of the General Conditions of Contract for Civil Engineering Works (1985 Edition), the defendant has referred the claims to arbitration in Hong Kong and Sir Edward Eveleigh, who lives in England, was appointed to be the sole arbitrator.

4. The defendant resists the application on the ground that there is no jurisdiction or in the alternative that if this ground should fail that the Court should exercise its discretion by refusing to make an order. Jurisdiction has been challenged under Rule 19 of the Lands and Works Branch Model Arbitration Rules 1985 (the Rules), on the grounds that the application should be made to the arbitrator. Rule 19 where relevant reads :-

"19 SECURITY FOR COSTS

(a)    If, upon the application of a party to the arbitration after due notice to the other parties, it appears to the Arbitrator that a Claimant (or Respondent making a Counterclaim) may be unable to meet any order for costs made against such party in the arbitration the Arbitrator must consider whether to make an order providing for or securing payment of the costs of the other parties which have already been incurred or are still to be incurred. Such an order shall not be made unless it appears to the Arbitrator to be just to do so.

(b)     ..............

(c)    ................"

5. Mrs Spruce, counsel for the plaintiff, submitted that Rule 19 does not oust the jurisdiction of the court. However there was correspondence between the parties' solicitors with regard to security prior to the issue of the originating summons, in which the defendant contends that they had all along believed that any application would be made to the arbitrator and not to the Court.

6. Nevertheless the plaintiff asserts that it should have been clear that it was intended to make the application to the court and relies upon a waiver by the defendant in failing to comply with Rule 20 of the Rules which reads:-

"20 WAIVER OF RULES

A party who in the opinion of the Arbitrator knows or ought to have known that any provision of or requirement under these Rules has not been complied with and does not submit a written objection to such non compliance to the other party within 28 days after such party knew or ought to have known shall be deemed (unless the Arbitrator orders otherwise) to have waived the right to object to such non compliance."

However, the matter of waiver is an issue for the arbitrator to decide and does not, in my judgment, enable the Court to exercise such power.

7. Mrs Spruce has drawn by attention to the following cases, Colonial Trustees (Gibraltar) Ltd v. James Robertson Mullion & Ors, [1961] HKLR 138; The Leslie Fay Companies Incorporation trading as Breckenridge Sportswear Division v. Cheerio Ltd, unreported, No.A4505 of 1989; Insurance Co of the State of Pennsylvania v. Grand Union Insurance Co Ltd and Another [1988] 2 HKLR 541; Mavani v. Ralli Bros Ltd [1973] 1 WLR 468; Hudson Strumpffabrik GmbH v. Bentley Engineering Co Ltd [1962] 3 All ER 460; Yee Sang Metal and Building Supplies Co Ltd v. Shanghai Jin Jiang Shipping Corporation Ltd, unreported, MP4010 of 1990; Standard Civil Engineering Co v. Attorney General (1986) HKLR 1142; Kohn v. Rinson & Stafford (Brod) Ltd(1947)2 KB 839 and Porzelack K.G. v. Porzelack(U.K.) Ltd (1987)1 All ER 1074.

8. In particular, she has relied upon the Mavani case where at page 472, Kerr, J said:-

"It is settled law that unless a submission to arbitration expressly empowers an arbitral tribunal to order security for costs the tribunal has no such power."

9. Mr Hartley, for the defendant, submits that as the defendant is an overseas company, the arbitration is a non-domestic arbitration within the meaning of section 6A(3) of the Ordinance, so that the proceedings should be stayed under Section 6. Section 6A has now been revoked, but by virtue of the transitional provision set out in section 34 of the Ordinance still applies to the present proceedings. Section 6A(3) provides:-

Upon a construction of the sub-section, I am satisfied that the present arbitration is a non-domestic arbitration as the defendant is an overseas corporation.

10. Mr Hartley also relies upon Mavani and emphasised a passage also cited by Mrs Spruce at page 473 when Kerr J. had this to say:-

"In my view the jurisdiction of the Court under R.S.C Ord: 23 is not ousted by a provision such as rule 6(a). This is not to say that the parties cannot incorporate into their agreement or submission to arbitration provisions which would make it obviously unjust in all the circumstances to order security. If for instance, a contract provided that in the event of proceedings neither party will apply for security, then although the court would still technically have jurisdiction to exercise its discretion under Order 23, it would obviously decline to make the order because in the face of the agreement of the parties it would be unjust to do so. The question whether or not there should be security for costs is one which only affects the parties inter se, not the administration of justice in general. The court would therefore in my view give effect to any clear agreement between the parties which regulated that question."

11. I accept that the court here has jurisdiction, but I am quite satisfied that it would be inappropriate to entertain the application having regard to the express wording of Rule 19 in which the parties intended that such issue would be referred to the arbitrator for determination. It would be clearly unjust not to give effect to the agreement made by the parties particularly as the Rules were prepared by the plaintiff as Standard Rules for parties contracting with the Hong Kong Government.

12. With regard to the second ground of objection that of discretion, the defendant has submitted there are sufficient assets within the jurisdiction. This includes the requirement of the Hong Kong Government for the defendant to maintain a minimum working capital in Hong Kong of $4.7 million. Reference was also made to certain credit lines available to the defendant, a contract for the construction of a sewage tunnel at Tolo Harbour that is said to be worth $157 million and an award of damages which is due to be made in favour of the defendant later this year. The amount of working capital alone is more than sufficient to cover the amount of security that has been claimed although I have not heard any argument on quantum.

13. Although Mrs Spruce mounted an argument that the plaintiff would not have a right to set off for monies payable under other contracts, I am unable to agree for such monies would clearly form part of the defendant's assets against which any unpaid judgment could be enforced. The assets available in Hong Kong in any event exceed the amount sought by way of security.

14. If I had rejected the defendant's first submission, I would, in any event, have exercised my discretion in refusing the application on the second ground as there are sufficient assets within the jurisdiction. In view of my decision it is unnecessary for me to consider the other matters that were raised.

15. The summons of the plaintiff will, therefore, be dismissed with costs. There will be an order in terms of the defendant's summons for a stay with costs.