XCHRX SKY MOUNT INVESTMENT LIMITED v. EAST WEST-UMI INSURANCE LTD

1994, MP No.2897

________________

H E A D N O T E

________________

ARBITRATION - CENTROCON CLAUSE - WHETHER ARBITRATION COMMENCED WITHIN TIME UNDER S.31 OF THE ARBITRATION ORDINANCE - ALTERNATIVELY WHETHER EXTENSION OF TIME SHOULD BE GRANTED UNDER S.29 OF THE ARBITRATION ORDINANCE.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS NO. 2897 OF 1994

________________

________________

J U D G M E N T

________________

Background

1. In this application, the Plaintiff is seeking a determination on whether it has referred its claim against the Defendant to arbitration, in respect of a motor vehicle under a policy of insurance covering the vehicle, within the time limit specified by the said policy or alternatively, an order pursuant to s.29of the Arbitration Ordinance (Cap.341) that the time within which to refer the claim to arbitration be extended for 14 days.

2. By a policy of insurance dated 8th January 1992 made between the Plaintiff and the Defendant ("the policy"), the Defendant agreed to indemnify the Plaintiff against loss and damage to a vehicle belonging to the Plaintiff.

3. On 29th August 1992, during the currency of the policy, the vehicle was stolen while in the custody of an authorised driver under the policy.

4. By a Motor Accident Claim Form to the Defendant, the Plaintiff made a claim on the policy. By a letter dated 17th November 1992, the Defendant declined to provide an indemnity under the policy.

5. By a letter dated 6th May 1993, the Plaintiff's solicitors informed the Defendant that it would issue a writ unless the Defendant gave a favourable reply within 5 days. On 24th August 1993, the writ was issued in the High Court.

6. By a letter dated 8th September 1993, the Defendant's solicitors replied that they had instructions to apply to stay the High Court proceedings and invited the Plaintiff to refer the matter to arbitration in accordance with Condition 10 of the policy.

7. By a letter dated 15th September 1993, the Plaintiff's solicitors replied that in the circumstances "we have no alternative but to discontinue the captioned action and bring this matter before an arbitrator".

8. On 30th November 1993, the Plaintiff's solicitors wrote again to the Defendant referring to the dispute and stating that they were triggering the arbitration clause.

9. By a letter dated 8th December 1993, the Defendant's solicitors informed the Plaintiff's solicitors that the Plaintiff's claim was time-barred under Condition 10 of the policy.

10. By a letter dated 5th January 1994, the Plaintiff's solicitors wrote to the Defendant's solicitors contending that by the letter of 15th September 1993, the Defendant was advised that it required the claim to be brought to arbitration and the letter was within the time limit specified by Condition 10.

11. By a letter dated 6th January 1994, the Defendant's solicitors stated that the Plaintiff's reference of the dispute to arbitration was outside the time limit.

Was the dispute referred to arbitration within time?

12. Condition 10 of the policy stated that :-

"All differences arising out of this Policy shall be referred to the decision of an Arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single Arbitrator to the decision of two Arbitrators one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties or in case the Arbitrators do not agree of an Umpire appointed in writing by the Arbitrators before entering upon the reference. ... If the Defendant shall disclaim liability for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder."

13. The clause dealing with the time bar was a "Centrocon" clause.

14. It is common ground that the Defendant had disclaimed liability on 17th November 1992. The issue is whether the claim has been referred to arbitration within 12 months from that date. Section 31 of the Arbitration Ordinance provided that an arbitration is deemed to have commenced when one party to the arbitration agreement serves on the other party a notice requiring him to appoint or concur in appointing an arbitrator. Miss Pinto, Counsel for the Plaintiff, contended that the Defendant's letter of 8th August 1993 was a notice requiring the matter to be submitted to arbitration and, by implication, a request to agree to the appointment of an arbitrator. This letter was not exhibited to the affirmations, however, part of the letter was quoted in the Affirmation of Chan Shuk Lin filed on behalf of the Defendant. It reads:-

"We have instructions to apply to stay the [said High Court Action] and to invite your client to refer the matter to arbitration in accordance with condition 10 of the Policy. You are hereby invited to discontinue [the said High Court Action] with costs to our client within 7 days from the date of this letter, ..."

15. Alternatively, Miss Pinto argued that the Plaintiff's letter of15th September 1993 was a notice requiring the matter to be submitted to arbitration. Paragraph 2 of the letter reads:-

"Thank you for your enlightenment. In the premises, since your client prefers to have arbitration as stated in the policy, we have no alternative but to discontinue the captioned action and bring this matter before an arbitrator."

16. In Nea Agrex S.A. v. Baltic Shipping Co. Ltd. & another [1976]1 QB 933 the terms of a chartered party provided for arbitration of the disputes. By a letter of 31st May 1972, the charterers' agent wrote to the owners' agent saying: "Please advise your proposal in order to settle this matter, or name your arbitrators" and asking for a reply. Lord Denning M.R. held that:-

"In order to commence the arbitration, there must, I think, be a notice in writing served by one party on the other party. This notice must contain a requirement. It must require the other party to do one or other of two things: either (1) 'to appoint an arbitrator' or (2) 'to agree to the appointment of an arbitrator'."

"The first alternative (1) is appropriate in a case where the reference is to two arbitrators, one to be appointed by each party. In such a case the arbitration is deemed to commence when the one party, expressly or by implication, requires the other party to appoint his arbitrator. If he simply says 'I require the difference to be submitted to arbitration in accordance with our agreement' that is sufficient to commence the arbitration: because it is by implication a request to the other to appoint his arbitrator."

"The second alternative (2) is appropriate when the reference is to be to a single arbitrator. In such a case the arbitrator is deemed to commence when the one party, expressly or by implication, says: 'the time has come when we must submit the difference to arbitration in accordance with our agreement. I must ask you to agree to the appointment of an arbitrator.' Now he cannot compel the other party to agree, or even to reply to the requirement. It seems to me that a notice which says 'I require the difference between us to be submitted to arbitration' is sufficient to commence the arbitration: because it is by implication a request to agree to the appointment of an arbitrator."

"So in any case a simple notice in writing requiring the difference to be submitted to arbitration is deemed to be a commencement of the arbitration."

17. Goff L.J. at p. 950 held that:-

"... although I agree with Lord Denning M.R. that the necessary request may be implied. However, it is not necessary to reach a final decision on that point."

"In the case of a single arbitrator the sensible course would be either to submit a name or names for approval, or to ask the other side to do so, but I am inclined to think that a formal notice, merely calling upon him to agree to the appointment of an arbitrator, would suffice to commence the arbitration, and so save the claim from becoming time barred, but this again we need not I think decide."

18. Shaw L.J. held at p.954 that:-

"The giving of such notice is a matter inter partes and is a procedural and not a decisive step. Accordingly, its form and terms do not call for an excessively strict scrutiny. If, in substance, a party communicates (i) an intention to resort to arbitration and (ii) a requirement that the other party should do something on his part in that regard, this will in general suffice to define the commencement of arbitration or, for the purposes of article III, r. 6, of the Hague Rules, the date when 'suit is brought.'"

19. In Surrendra Overseas Ltd v. Government of Sri Lanka [1977]2 All ER 481, a chartered party provided that any dispute concerning it should be referred to arbitration. By a letter dated 6th November 1968, the owners' agent wrote to the charterers' agent that:-

"In view of the attitude taken by Charterers in their calculation of Laytime, Owners will be putting the matter to Arbitration. We will be advising you concerning details of the Arbitrator appointed in due course."

Kerr J. held that at p.485:-

"In my view the letter in the present case neither contained nor implied a requirement that the charterers or their agent were to do anything, at any rate for the time being. It clearly contained no express requirement that they should appoint an arbitrator. Did it contain an implied requirement that they should do so?"

Then at p.486, he held that:-

"To my mind the only implication of the letter is that, at any rate for the time being, the charterers could sit back and await developments. It may be that if the owners had simply said: 'We hereby require this dispute to be referred to arbitration.' the position would be different. It might then be said that they had also impliedly added: 'We therefore require you to appoint your arbitrator.' I will assume that this would be so, though I do not so decide, any more than did the majority of the Court of Appeal in Nea Agrex SA v. Baltic Shipping Co Ltd. But even on this assumption I think that this letter does not go far enough. It merely referred to an arbitration in the future and contains no present requirement of any kind. For the purposes of limitation the commencement of an arbitration must be clear and unequivocal. This letter is vague and couched in the future tense. I therefore hold that this contention fails."

20. Mr Graham, Counsel for the Defendant, argued that in order to comply with s.31 of the Arbitration Ordinance, the notice must require the Defendant to agree to the appointment of an arbitrator. He submitted that the letter of 8th September 1993 did not comply with s.31. It was not a notice whereby the Defendant required the Plaintiff to agree to the appointment of an arbitrator. It was only a proposal to carry out the correct course in the future. Similarly, the letter of 15th September 1993 could not be treated as the Plaintiff requiring the Defendant to agree to the appointment of an arbitrator. It only stated the way to proceed in the future. It did not commence the arbitration.

21. In the present case, the reference is to be to a single arbitrator. I am satisfied the letter from the Defendant's solicitors dated 8th September 1993was a notice requesting the Plaintiff to agree to the appointment of an arbitrator within s.31 of the Arbitration Ordinance. This letter stated that the Defendant's solicitors "have instructions to apply to stay [the High Court Action] and to invite your client to refer the matter to arbitration in accordance with s.10 of the policy." Although Mr Graham reserved his position regarding the correctness of the decision in Nea Agrex v. Baltic Shipping Co., I am satisfied that this is a case I should follow in the absence of any Hong Kong Court of Appeal decisions to the contrary. While the letter was dealing with the state of proceedings at that time, the Defendant by this letter communicated an intention to resort to arbitration. This is clear from the letter itself because of the intention to stay the High Court proceedings which must be the first step towards the commencement of the arbitration. The letter contained a request to discontinue the High Court action within a specified time. The request was made for one purpose only, namely, for the matter to be referred to arbitration. The discontinuance of the High Court action was a necessary step before the commencement of the arbitration. Furthermore, the letter communicated a requirement that the Plaintiff should do something on his part in that regard. This requirement is apparent from these words: "and to invite your client to refer the matter to arbitration in accordance with Condition 10 of the policy." Although the word "invite" instead of "request" was used, one must bear in mind the words of Lord Denning MR that:-

"In a commercial dispute, a letter requesting an arbitration should not be construed too strictly. The writer should not be impaled on a time bar because he writes in polite and courteous terms, or because he leaves open the possibility of settlement by agreement."

By implication, the letter is a request to the Plaintiff to agree to the appointment of an arbitrator. As such, the arbitration was commenced within 12 months from the date of the disclaimer of liability on 17th November 1992.

22. In respect of the letter dated 15th September 1993, I do not construe that as a request to refer the matter to arbitration. The Plaintiff's solicitors stated that:-

"We have no alternative but to discontinue the captioned action and bring this matter before arbitrator."

This letter was made in reply to the Defendant's request. While communicating an intention to resort to the arbitrator it did not require the Defendant to do anything in that regard.

Extension of time

23. Having decided that the arbitration was commenced within time, it is strictly not necessary for me to express an opinion as to whether extension of time should be granted if the arbitration was not commenced within time.

However, in the event that my view on the first issue was held to be wrong, I will state my view regarding the extension of time.

24. Section 29 of the Arbitration Ordinance provided that the court has a power to extend time for bringing of arbitration if it is of the opinion that in the circumstances of the case undue hardship would otherwise be caused. This section has been considered by a number of Hong Kong decisions and they include Ching Yick Manufactory v. The Tai Ping Insurance Co. Ltd. (High Court Action No.A2857 of 1987), Dragages v. Preservatrice Fonciere Tiard Compagnie D'Assurances (High Court MP No.2305 of 1988), Guangdong Water Conservancy and Hydro-Power Engineering Development Co. Ltd. v. Ming An Insurance Company (HK) Ltd. ([1992] HKLR 557), Wenden Engineering Service Co. Ltd. v. Wing Hong Contractors Ltd. ([1993]2HKLR 352) and T.S. Wong & Co. Ltd. v. Compagnie Europenne D扐ssurances Industrielles SA, (HCMP No.683 of 1993).

25. The principle regarding extension of time under s.29 was set out in the Aspen Trader [1981]1 Lloyd's Rep 273 in which Brandon L.J. held that :-

"(1) The words 'undue hardship' in s.27 (which is the same as s.29 of the Arbitration Ordinance) should not be construed too narrowly.

(2) 'Undue hardship' means excessive hardship and, where the hardship is due to the fault of the claimant, it means hardship the consequences of which are out of all proportion to such fault.

(3) In deciding whether to extend the time or not, the Court should look at all the relevant circumstances of the particular case.

(4) In particular, the following matters should be considered: (a) the length of the delay; (b) the amount at stake; (c) whether the delay was due to the fault of the claimant or to circumstances outside his control;(d) if it was due to the fault of the claimant, the degree of such fault;(e) whether the claimant was misled by the other party; (f) whether the other party has been prejudiced by the delay, and, if so, the degree of such prejudice."

26. In the present case, the 12 month time limit for arbitration expired on 17th November 1993. The application for extension of time was only filed on 17th October 1994, which was 11 months after the expiration of the time limit. This is a substantial delay. No explanation was offered as to the delay other than what Miss Pinto informed the court, namely that it was due to the inadvertence of the Plaintiff. Under the policy, the estimated value of the vehicle was $440,000. Miss Pinto relying on various cases set out in Modern Insurance Law 3rd Edition by John Birds, submitted that the Plaintiff has a good claim against the Defendant.

27. The Defendant submitted that they had reserved a sum of money in respect of the claim. This sum of money had since been released after the expiration of the time limit for the arbitration. In my view, the Defendant has not suffered any prejudice in this matter. As far as the reserved fund is concerned, it really is a matter of accounting policy within the control of the Defendant. Even if the Defendant had released the reserved fund back to its general coffer, it does not mean that it has suffered any prejudice in this regard. It is not further suggested that there is prejudice by way of destruction of documents or lost of witnesses due to passage of time.

28. However, notwithstanding the absence of prejudice on the part of the Defendant, this is not an appropriate case where the discretion to extend time should be exercised in favour of the Plaintiff. The Plaintiff has offered no explanation whatsoever for the delay. In Thamboo Ratnam v. Thamboo Cumarasamy and Cumarasamy Ariamany D/O Kumarasa [1965]1 WLR 8 Lord Guest held that:-

"The rules of court must prima facie be obeyed, and in order to justify a court in extending the time during which some step in procedure requires to be taken, there must be some material upon which the court can exercise its discretion. If the law were otherwise, a party in breach would have an unqualified right to an extension of time which would defeat the purpose of the rules, which is to provide a time table for the conduct of litigation."

This is a case where the time limit was provided in the agreement, however, the reasoning of Lord Guest would apply. Similar sentiment was expressed by the Court of Appeal in Revici v. Prentice Hall Incorporated and Others [1969]1All ER 772. While it was said that the delay was due to the inadvertence on the part of the Plaintiff, no facts were supplied as to the cause of the in advertence. The court must have material upon which it can exercise its discretion. On this ground alone, the court should not exercise its discretion in favour of the Plaintiff. However, what is more important in this respect is the application of the principle in Irish Agricultural Wholesale Society Ltd. v. Partenreederei:M.S. "Eurotrader" (the "Eurotrader") [1987]1 L1 LR 418, Kerr L.J. at p.423held that:-

"... as soon as a time point is taken, alarm bells should be heard to ring for those on the side of the cargo, and they must then act accordingly. If they still fail to do so, then I see nothing wrong with the Judge's conclusion that the delay becomes 'culpable to a high degree', in the sense that it is likely to have very serious consequences in the context

At p.421 he held that :-

"The time limit forms part of the contract between cargo and ship and is designed to ensure that claims are dealt with quickly. The jurisdiction under s.27 falls to be exercised in that context, not in the context of insurers or lawyers on either side."

29. The Defendant's solicitors had on two occasions informed the Plaintiff that the claim was time-barred. The first was contained in the letter dated 8th December 1993 and the second in the letter dated 6th January 1994. Notwithstanding the taking of the time point, the Plaintiff had done nothing in this regard until the present application was taken out. Again no explanation was offered as the delay. The discretion should not be exercised in favour of the Plaintiff.

Costs

30. Although the Plaintiff had succeeded in the first part of its application, and while the general principle is that costs should follow the event, I do not consider it appropriate in the present case to award costs in favour of the Plaintiff in respect of the summons. The Plaintiff had not succeeded in the second part of its application and there was a long delay in the bringing of this application. I will make no order as to costs in respect of this application. This order is, of course, an order nisi, and if the parties wish to argue further on the costs order, they are at liberty to restore the matter before me.