MECHTLER (FAR EAST) LTD v. ELEGANT INTERIORS CONTRACTING CO LTD

DCCJ1965/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1965 OF 2007

______________________

______________________

______________________

D E C I S I O N

______________________

Background

1.  At all material times, the Defendant as main contractor entered into a main contract with Tak How Investment Limited as employer (“Employer”) for the renovation works for the hotel.  The main contract used is a standard form which according to the Defendant is the only standard form used in the Hong Kong construction industry.

2.  The project manager was InterContinental Grand Stanford Hotel Hong Kong who took over the roles of the architect under the main contract and issued architect’s instructions from time to time.

3.  The Plaintiff now claims against the Defendant for balance of contract sum due for the work he had performed for the Defendant as a sub-contractor to the main contract.

4.  This is an application by the Defendant to stay the proceedings in this action pursuant to section 6 of the Arbitration Ordinance, Cap. 341.

Applicable law - the applicable principles

5.  Section 6(1) of the Arbitration Ordinance provides:

“	6.	Court to refer matter to arbitration in certain cases
		(1)	Subject to subsections (2) and (3), article 8 of the UNCITRAL Model Law (Arbitration agreement and substantive claim before court) applies to a matter that is the subject of a domestic arbitration agreement in the same way as it applies to a matter that is the subject of an international arbitration agreement.”

6.  Article 8 of UNCITRAL Model Law provides:

“	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 the 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 and incapable of being performed.
		(2)	Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.”

7.  The position of the court when faced with defendant applying for a stay of proceedings under section 6 of the Arbitration Ordinance or Article 8 of UNCITRAL Model Law is clear.

8.  It must refer the dispute or the difference to arbitration unless one of the following conditions occur:

(a)	there is no arbitration agreement at all;
(b)	the arbitration agreement is null and void, inoperative or incapable of being performed;
(c)	there is in fact no dispute or difference to be referred to arbitration;
(d)	the relevant dispute or difference is not one that is covered at all by the arbitration provisions in the arbitration agreement (Dah Chong Hong (Engineering) Limited v Boldwin Construction Company Limited, HCA1291/2002, page 8 to page 9).

The Application

Defendant’s case

9.  It is the Defendant’s case that the Plaintiff and Defendant had by agreement in writing entered into the nominated sub-contract and that by reason of clause 22 of the nominated sub-contract, they had agreed to refer to arbitration the matters in dispute between the parties.

10.  Clause 22 of the nominated sub-contract provides inter alia that:

“

In the event of any dispute or difference between the main contractor and the sub-contractor, whether arising during the execution or after the completion or abandonment of the sub-contract works or after the determination of the employment of the sub-contractor under this sub-contract (whether by breach or in any other manner), in regard to any matter or thing of whatsoever nature arising out of this sub-contract or in connection therewith, then either party shall give to the other notice in writing of such dispute or difference and such dispute or difference shall be and is hereby referred to the arbitration of such person as the parties hereto may agree to appoint as arbitrator or failing such agreement as may be appointed on the request of either party by ... and in accordance with and subject to the provisions of the Arbitration Ordinance or any statutory modification thereof for the time being in force, and in either case, the award of such arbitrator shall be final and binding on the parties.”

11.  The Defendant also says that by reason of the defective contract works and delay in completion of works by the Plaintiff, the Defendant suffered loss and damages as part of the contract sum due to the Defendant had been deducted and/or withheld by the Employer.

Plaintiff’s case

12.  The Plaintiff says that whilst he had accepted the purchase order of the Defendant, it had never been brought to the attention of the nominated sub-contract nor was he aware of the terms and conditions of the same.  The Plaintiff said that he had no idea that there is to be an arbitration clause in the nominated sub-contract.  He had never consented to the terms of the nominated sub-contract and therefore, was not bound by the terms therein.

13.  Again the Plaintiff denied the alleged loss and damage to the Defendant resulting from the alleged defective workmanship and late completion of contract work by the Plaintiff.

14.  He admitted having received the Letter of Intent dated 13 July 2005 roughly at or about the time of the purchase order.

Analysis and Conclusion

15.  There is no doubt that there is a dispute between the parties, the Defendant saying the Plaintiff’s workmanship is defective and there is delay in completion leading to loss and damages to him whereas the Plaintiff says otherwise and denies such allegation.

16.  The main issue before this Court is really whether there is in existence this arbitration clause in the contract between the Plaintiff and the Defendant.

17.  It is clear that in the purchase order of the Defendant, under “Remarks”, it says, “All terms and conditions are subject to the Letter of Intent on nomination dated 13 July 2005 from InterContinental Grand Stanford Hong Kong to Mechtler (Far East) Limited.”  There is no dispute that the Plaintiff had accepted the purchase order.  He must, therefore, have accepted the same subject to the said terms and conditions of the Letter of Intent on nomination.

18.  In this Letter of Intent on nomination, (P.74 of Bundle), issued by the InterContinental Grand Stanford Hong Kong to Mechtler (Far East) Limited, it says the quotation of the Plaintiff has been accepted subject to the condition that the Plaintiff shall be required to enter into the nominated sub-contract with the Defendant.

19.  Under paragraph 5 of the said Letter of Intent, it says payment shall be paid to the Plaintiff by the Defendant in manner which included 5 per cent retention money until the end of the defect liability period in the main contract.

20.  Under paragraph 3 of the said Letter of Intent, it says, “You shall complete the whole of the sub-contract works all in accordance with the sub-contract requirements.”

21.  Paragraph 4 of the said Letter of Intent also mentioned that the Plaintiff shall complete the whole of the sub-contract works all in accordance with the sub-contract requirements.

22.  On Plaintiff’s own admission, he was aware of and had received this Letter of Intent although Plaintiff said that he was not aware of the terms of this Letter of Intent, that he had just chopped and signed on the purchase order as he was in a hurry to accept the order and also in a hurry to purchase materials for the performance of the order.

23.  The fact remains that he had accepted the purchase order as per the conditions stipulated therein, i.e. subject to the terms and conditions as in the said Letter of Intent on nomination.

24.  The Plaintiff’s case now is that he is not aware of the terms and conditions of the nominated sub-contract.

25.  The Defendant, on the other hand, said that the Plaintiff is all along aware of the same as his conduct in the performance of the said sub-contract had indicated that he was within knowledge of the terms and conditions of the sub-contract.  He said that the Plaintiff had applied for extension of time to complete pursuant to section 8(b) of the nominated sub-contract and that therefore he must be aware of the contract requirements in this sub-contract in his performance of his sub-contract works.

26.  In this case, the Plaintiff, save and except for denying knowledge of terms and conditions of this nominated sub-contract, did not tell the Court what were the other terms and conditions listed in this contract between the parties.

27.  It would be bizarre for the Court to believe that a merchant had entered into a contract whilst he was totally unaware of any other terms and conditions of the contract except the contract sum.  At least he would have to know the standard of contract work required of him, the completion date and if there was delay in completion, the alternative that is open to him or what legal consequence he would be subject to.  There are numerous terms and conditions that one can think of which is basic in a contract of this sort between the parties.

28.  When one reads the Letter of Intent and the purchase order, these documents repeatedly refer the Plaintiff to the nominated sub-contract which the Defendant says is the only standard form in Hong Kong.  To say that the Plaintiff accept the purchase order from the Defendant but not subject to the terms and conditions of the same, then what are the other terms of the agreement between them?  What are the contract works requirement?  What is the agreed payment method?

29.  On balance and on evidence before this Court, although it remains a fact that the Plaintiff did not sign the said Letter of Intent, by accepting the purchase order, he has done so subject to the terms and conditions therein, and having received the Letter of Intent, the Plaintiff must be well aware of the terms and conditions of the nominated standard sub-contract and would be bound by them.

30.  Section 2A of the Arbitration Ordinance, Cap. 341 states that the arbitration agreement must be in writing.

31.  Clause 22 of the nominated sub-contract clearly satisfies this requirement.  The same clearly is an arbitration clause.

32.  We then apply the four-question test in the case of Tommy C.P. Sze & Company v Li & Fung (Trading) Limited & Others, [2003] 1HKC 418.

33.  Firstly, is the clause in question an arbitration agreement?  The answer is yes.

34.  Secondly, is the arbitration agreement null and void, inoperative or incapable of being performed?  The answer is no.  There is no evidence before me pointing to such direction.

35.  Thirdly, is there in reality a difference between the parties?  The answer clearly is yes.

36.  Lastly, does the dispute or difference between the parties fall within the ambit of the arbitration agreement?  Again, the answer is yes as all the dispute or differences in this action are within the ambit of clause 22 because the arbitration clause in this standard form of nominated sub-contract included those disputes arising out of or during the execution or after the completion of the sub-contract works between the Plaintiff as sub-contractor and Defendant as main contractor.

37.  Accordingly, I order that all further proceedings in this action be stayed pursuant to section 6 of the Arbitration Ordinance, Cap. 341.

38.  I also order that costs of and occasioned by the Summons dated 4 June 2007 be to the Defendant (including all costs reserved), the same to be taxed, if not agreed, with certificate for counsel.