TSANG YUK CHING t/a TSANG CHING KEE ENG CO v. FU SHING RUSH DOOR JOINT VENTURE CO LTD

HCA987/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 987 OF 2003

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D E C I S I O N

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1. The plaintiff is suing the defendant for $1,182,703 being the balance of payments due to it for steel frame work done on a building project known as the Science Park at Pak Shek Kok. The defendant was a 3rd sub-contractor, and the plaintiff was a 4th sub-contractor in a contractual chain headed by the Architectural Services Department. The main contractor was Hong Kong Construction (Holdings) Ltd. Neither party to this action was a nominated sub-contractor.

2. The defendant seeks a stay of these proceedings for the purpose of having the disputes settled by arbitration. The plaintiff opposes on the basis that the written sub-contract between them contains no specific arbitration clause. The main contract does however contain a standard valid arbitration clause. The issue is whether or not that arbitration clause is incorporated into the sub-contract between these two parties.

3. There is no challenge to the fact that there is a dispute between the parties; also, it is accepted that the arbitration clause in the main contract is not null and void, inoperative or incapable of being performed and would therefore trigger a mandatory stay by virtue of section 6(1) of the Arbitration Ordinance and Article 8 of the Uncitral Model Law, were it incorporated into the sub-contract.

The sub-contract

4. The written Chinese sub-contract contains the following clause 3 (English translation) :

"All details, items, provisions, regulations and explanation in respect of the Works contained in this contract shall be referred to the Contract No.SSH363, Construction of Science Park at Pak Shek Kok, Phase 1a entered into between Hong Kong (Holdings) Construction Limited and the Architectural Services Department as a basis; in the event of inconsistency, the documents as enclosed in this Contract shall take precedent."

5. It is not disputed that Contract No. SSH363 includes Special Conditions of Contract Clause 81 (an amendment of the General Conditions of Contracts) sub-clause 14 of which is a standard arbitration clause.

6. The defendant submits that on a proper construction of clause 3 above, the parties bound themselves to the arbitration provision in the main contract. The defendant also relies on Article 7(2) of the Model Law which states as follows :

"... The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract. ..."

7. Quite simply, the defendant submits, the sub-contract contains a reference to the main contract which contains the standard arbitration clause.

Conclusion

8. Before the parties can be bound by the arbitration clause in the main contract, the reference to it (by virtue of the reference to the main contract in the sub-contract) must be construed as an incorporation of the arbitration clause into the sub-contract.

9. The following factors combine to satisfy me that clause 3 is to be construed so as to bind the parties to the main contract arbitration provision :

(a) The sub-contract is in writing and signed by both parties. The reference to the main contract in clause 3 does not oblige the defendant to bring all the relevant provisions therein to the attention of the plaintiff. A copy of the main contract was always available to the plaintiff to examine, had it wished to do so, before binding itself to the provision of clause 3.

(b) The words of clause 3 are comprehensive. It is not open to the plaintiff to say that it only binds them to the main contract in respect of the carrying out of the works but not in respect of the arbitration clause. Moreover, clause 3 makes the main contract the "basis" of the sub-contract.

(c) Clause 3 goes on to say that the sub-contract shall only prevail over the main contract if there are provisions in both contracts which are inconsistent with each other. The absence of a specific arbitration clause in the sub-contract is not such an "inconsistency".

(d) Three statements by Kaplan J (the first two from Astel-Peiniger J.V. v. Argos Engineering & Heavy Industries [1994] 3 HKC at 335 and 339 and the third from Gay Construction Pty Ltd v. Caledonian Techmore (Building) Ltd [1994] 2 HKC at 562) support this approach :

1. "...I am satisfied that it is possible under art 7(2) to incorporate an arbitration clause into a written agreement between A and B, by reference to an arbitration clause contained in an agreement between B and C, or for that matter, between X and Y or by reference to an unsigned standard form of contract."

2. "...The task before the court in determining whether or not there has been incorporation by reference is one of construction, namely, to ascertain the parties' intentions when they entered into the contract by reference to the words that they used."

3. " It was possible to comply with the last sentence of art 7(2) without an explicit reference to the arbitration clause. To require a specific reference to the arbitration clause would be far too restrictive and, clearly, was not intended by those drafting the Model Law."

(e) The two parties to this sub-contract were both commercial entities who knew they were negotiating some way along a contractual chain. It was part of a large construction project, with the Architectural Services Department as the employer. An arbitration clause in such a main contract would be the norm. An arbitration clause was, in fact, included. In such circumstances the plaintiff, by its acceptance of clause 3 of its own contract, cannot turn its back on clause 81 sub-clause 14 of the main contract. In my judgment, the reference to the main contract and therefore the arbitration clause is plainly more than a mere "mention" but amounts to an incorporation.

10. I therefore grant the stay sought by the defendant pursuant to its summons dated 14 April 2003 together with an order for the costs of and occasioned by the summons.