RONDABOSH INTERNATIONAL LTD v. CHINA PING AN INSURANCE (HONG KONG) CO LTD

HCA 581/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 581 OF 2009

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BETWEEN

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J U D G M E N T

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I. INTRODUCTION

1.  Rondabosh was the insured under a Policy issued by Ping An. The Policy covered stock (whether Rondabosh’s stock in trade or stock held by Rondabosh in trust for others) in a Warehouse. In June 2008 flooding damaged the stock in the Warehouse. In July 2009 Rondabosh issued a Statement of Claim seeking some $1.5 million from Ping An under the Policy in respect of the damaged stock.

2.  In connection with Rondabosh’s claim, there are presently two applications before me.

3.  Ping An has applied to stay Rondabosh’s claim to arbitration pursuant to an Arbitration Agreement in the Policy. Rondabosh has applied to the Court for an interim payment of $800,000 from Ping An.

II. DISCUSSION

A. Ping An’s stay application

4.  The Arbitration Agreement in the Policy reads:-

“If the difference shall arise as to the amount to be paid under this Policy, such difference shall independently of all other questions be referred to the decision of an arbitrator, to be appointed in writing by the parties in difference....

And it is hereby expressly stipulated and declared that it shall be a condition precedent to any rights of action or suit upon this Policy that the award by such arbitrator or Umpire of the amount of the loss or damage if disputed shall be first obtained.”

5.  Where there is a written agreement to arbitrate, the Court normally has no discretion. It must hold the parties to their agreement and stay a pending action to arbitration. The Court can only refuse a stay of pending proceedings if it finds that the arbitration agreement is “null and void, inoperative or incapable of being performed”. See Arbitration Ordinance (Cap.341) s.6 and Article 8 of the UNCITRAL Model Law.

6.  Rondabosh does not suggest that the Arbitration Agreement in the Policy is “null and void” or “incapable of being performed”. Instead, Rondabosh argues that the Agreement is “inoperative” in the sense that it does not cover the present situation.

7.  That is because, according to Rondabosh, the Arbitration Agreement only covers disputes as to quantum. Here (Rondabosh contends) there is a dispute as to Ping An’s liability under the Policy. Rondabosh says that Ping An does not accept that Rondabosh had an insurable interest in some of the damaged stock. It follows (Rondabosh submits) that the action against Ping An, not being solely on a question of “the amount to be paid under [the] Policy,” goes beyond the limited ambit of the Arbitration Agreement.

8.  I disagree.

9.  In two open letters, Ping An’s solicitors have made it clear that their client does not dispute liability and that only quantum is at issue.

10.  On 12 January 2009, Ping An’s solicitors wrote: “We are instructed to admit policy liability leaving the amount of compensation to be determined.”

11.  Prompted by Rondabosh’s solicitors for clarification, Ping An’s solicitors replied thus on 26 March 2009:-

“We have unequivocally informed you in our previous letter dated 12^th January 2009 that our client admitted liability in the above matter leaving the amount of compensation to be determined.  It is also clear from the relevant Insurance Policy (‘the Policy’) that the property insured covers both stock held in trust and stock in trade of your client at the above premises.  Therefore, the only issue between the parties is the amount of compensation which, according to the Policy, shall be resolved by arbitration....”

12.  Rondabosh maintains that the foregoing is still ambiguous. But I do not see how Ping An’s solicitors could be plainer.

13.  Given Ping An’s admission of liability, the dispute is solely over quantum. For instance, there is an issue between the parties as to how the damaged property should be valued. Rondabosh suggests that the market value of the stock is the appropriate measure. Ping An disagrees, proposing instead that the cost of manufacture is the correct measure. That dispute is well within the compass of the Arbitration Agreement. Such question and others like it should therefore be referred to an arbitral tribunal in accordance with the parties’ bargain.

14.  There is no basis for refusing a stay to arbitration.

B. Rondabosh’s application for interim payment

15.  It follows that I have no jurisdiction to determine this application.

16.  Rondabosh argues that, in light of Ping An’s admission as to liability, it is clear that at the end of the day Rondabosh will receive a significant award of damages. That award (Rondabosh submits) will at least amount to $800,000.

17.  Rondabosh may or may not be right as to how much it will eventually receive. The fact remains that, although liability has been admitted, quantum has not. Damages may be nominal or they may be significant. That is for the arbitral tribunal to decide.

18.  Rondabosh can make its application for interim payment to that tribunal if it sees fit. It would be wrong for this Court in any way to impose its views on quantum in advance of the appointment of such tribunal. That would be contrary to what the parties have agreed by way of a mechanism to resolve their disputes on quantum.

19.  Rondabosh’s application fails.

III. CONCLUSION

20.  Ping An’s application succeeds. There will be a stay of Rondabosh’s action to arbitration. Rondabosh’s application for interim payment is dismissed.

21.  Before concluding, I should remind practitioners of Practice Direction 6.1 para.10. That provides that applications relating to arbitration (including applications in actions within the General List) should normally be listed to be heard by a judge in the Construction and Arbitration List.

22.  Ping An’s application was initially listed to be heard before Master Ng. She transferred the application to me in keeping with the Practice Direction.

23.  Practitioners should note that all applications relating to arbitration ought to be listed for hearing before a judge in the Construction and Arbitration List in the first instance, not before the master. This practice is long-established. It insures that applications concerning arbitration are dealt with expeditiously and in a uniform manner by specialist judges. It will only be in exceptional cases that applications relating to arbitration will be entertained by a master.

24.  Parties and (where appropriate) lawyers who fail to follow Practice Direction 6.1 para.10 without good reason, may have to bear any wasted costs arising from a master adjourning an application to a specialist judge.