XCHRX SHELL HONG KONG LTD. v. ESA CONSULTING ENGINEERS LTD. AND ANOTHER

1997, No. CT 47

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. I have a summons before me dated 1 June 1998 by which the third defendant seeks that the action against it be stayed under section 6 of the Arbitration Ordinance (Cap. 341), or that the claim against the third defendant be struck out or dismissed. Mr Choi no longer pursues the striking out or the dismissal.

2. As to the stay, Mr Corbett, Mrs Newall and Mr Choi, in their skeleton submissions, spoke with one voice about the applicable law. They all agreed that the Ordinance as it stood before Arbitration (Amendment) Ordinance, 1996 should be applied. When I read these submissions overnight before the hearing, I thought that this conclusion might not be right. I thought this because of the terms of section 18 of the 1996 Ordinance. This reads -

18. Transitional provisions

(1) A provision of this Ordinance applies to and in relation to an agreement entered into before or after the commencement of the provision. However, such a provision does not apply to or in relation to an arbitration commenced before the commencement of the provision and in that case the provisions of the principal Ordinance that were in force immediately before that commencement continue to apply to and in relation to the arbitration in so far as it has not been completed.

(2) In this section "commenced", in relation to an arbitration, means commenced within the meaning of section 31(1) of the principal Ordinance.

3. The plaintiff originally commenced these proceedings only against the first and second defendants. It commenced arbitration proceedings "within the meaning of section 31(1)", against the third defendant on 9 May 1997. On 3 July 1997, the plaintiff amended the writ to include the third defendant. The commencement date for all the provisions of the 1996 Ordinance was 27 June 1997.

4. The question of which law is applicable is of importance because, under the unamended law, the court has a discretion, but, under the new law, if the matter falls within the relevant provision, the court is bound to order a stay.

5. Section 6(1) as amended directs the application of Article 8 of the Model Law. Article 8 says -

"A court before which an action is brought in a matter which is the subject of an arbitration agreement, 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. Section 18 of the 1996 Ordinance says, as I read it, that a provision of the new law that applies to an agreement applies to that agreement whenever it was entered into, but a provision of the new law that applies to an arbitration does not apply to an existing arbitration. The new section 6(1) applies to an agreement, not an arbitration. It would, in my view, be ludicrous to consider whether it was the new or the old section 6(1) that was "to apply to and in relation to the arbitration in so far as it has not been completed.". The provision is simply not applicable in that situation.

7. Accordingly, it is my view that this application must be considered by applying the new law.

8. But that is not the end of the matter. The strange thing about the third defendant's application, as Mr Corbett points out, is that, while seeking to have a dispute with the plaintiff referred to arbitration, says, at the same time, that it has no dispute with the plaintiff that is subject to an arbitration agreement. The third defendant's case is that its arbitration agreement, if one exists, is with Roger Lee Consultants Limited, not the plaintiff.

9. To bring its application within the parameters of Article 8, the third defendant must show that the plaintiff's "action is brought in a matter which is the subject of an arbitration agreement". But the third defendant says that the plaintiff's action is not in respect of a matter that is subject to an arbitration agreement; there is, it says, no arbitration or any other kind of agreement between the plaintiff and the third defendant. And if the matter were referred to arbitration, how is the arbitrator to decide the dispute as to whether or not there is a arbitration agreement? Under the new law, there may be less difficulty because the arbitrator has the power to decide his own jurisdiction. But, without statutory backing, from whence does an arbitrator acquire the power to decide if he has the power to decide? Whatever Continental jurisprudence says, I know of no Common Law decision that says that, where a person contends that there is no arbitration agreement, he is nevertheless entitled to have an arbitrator decide if there is such an agreement. The case of Harbour Assurance Co. (UK) Ltd v Kansa General International Insurance Co Ltd [1993] QB 701 is not relevant to this situation. There it was decided that a dispute as to illegality was within the ambit of the admitted arbitration clause.

10. Before I am able to exercise the power contained in Article 8, the third defendant must satisfy me that the pre-condition for the exercise of that power exists. It has not done so; indeed, its own contention is that it does not exist.

11. Accordingly, for these reasons, the third defendant fails in its application, and it is dismissed.

12. On costs, there seems no good reason why these should not follow the event. I make an order nisi that the third defendant pay the costs of this application.