LIU MAN WAI AND ANOTHER v. CHEVALIER (HONG KONG) LTD.

CACV 152/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 152 OF 2002

(ON APPEAL FROM HCA NO. 2946 OF 2001)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment of Ma J given on 29 January 2002 whereby he dismissed the defendant's application for a stay of the action so that the dispute between the parties may be referred to arbitration pursuant to section 6 of the Arbitration Ordinance, Cap. 341 and article 8 of the UNCITRAL Model Law, which is the Fifth Schedule of the Ordinance.

Background

2. The plaintiff was the sub-sub-contractor of the defendant in respect of electrical installation works at Gateway II Project. The defendant itself was a sub-contractor. There were five separate contracts which were contained in purchase orders. For present purposes they can be treated as one since they were all identical.

3. The plaintiff's claim is for $5,615,920.68 said to be the amount outstanding in respect of its performance of the contracts. The statement of claim makes clear that $3,176,540 of that amount is in respect of variation works. It is said that latter amount was agreed by a letter dated 13 July 1999 from the defendant and countersigned in confirmation by the plaintiff and the letter of 16 November 2000 from the plaintiff where the plaintiff "gratuitously allowed a further discount in the amount of HK$234,903.30." The remainder of the sum, namely $2,439,380.68, is claimed as the outstanding balance on the original contracts and further purchase orders for variation works. Although, in the court below, the defendant put its case on the basis that all claims should be submitted to arbitration, on this appeal the defendant restricts its case to the variation claims only. They amount to a total of $3,838,553.50.

4. The defendant's case that the plaintiff's claim should be dealt with by arbitration is based on clauses 4(a) and (b). For convenience they are set out below:

"4(a) The Company shall have full power from time to time to direct the Contractor to alter, amend, omit, add to, or otherwise vary any of the said works, and the Contractor shall carry out such variations, and be bound by the same conditions (the expression of 'the said works' in this agreement shall include all variation and/or additional works to be carried out by the Contractor under this agreement). If the said variations and/or additional works result in an increase or decrease in the contract price, the difference in price shall be adjusted with reference to and on the basis of the Schedule of unit rates as stipulated in clause 39 to be agreed between the Company and the Contractor and failing which the difference shall be submitted to arbitration as provided hereinafter Provided Always That irrespective of any failure of the parties to agree on the increase or decrease in the contract price, the Contractor shall forthwith continue to carry out the said works as varied and/or any additional works without delay and to complete the same on or before the completion date or within such time as the Company may reasonably extend.

(b) If there is any dispute in respect of the increase or decrease in the contract price occasioned by the variation thereof, it shall be referred to the arbitration of a person to be agreed upon, or failing such agreement, to some person appointed on the application of either of the parties hereto by the Chairman for the time being of in accordance with the subject to the provisions of the Arbitration Ordinance and with reference to on the basis of the Schedule of unit rates annexed hereto. Provided Always, it is expressly agreed that the carrying out of the said works as varied shall continue pending the arbitration." (emphasis added)

The judgment below

5. The judge below analysed clause 4 in terms that clause 4(a) provided that there should be arbitration in circumstances where the parties had failed to agree any increase or decrease as a result of variations or additional works. He then went on to say that clause 4(b) had to be read in the light of clause 4(a). Thus the words "any dispute in respect of the increase or decrease in the contract price" meant disputes which existed because the parties had failed to agree an adjustment of the prices. In my view, the judge was entirely correct in this.

6. Mr Clayton attempted to argue that clause 4(b) was the operative clause in respect of arbitration and that clause 4(a) only:

(1) provided the power to vary the original contract;

(2) identified the procedure to be followed for the valuation; and

(3) mandated that the work should continue whilst the dispute was resolved.

In my view, this simply ignores the effect of the sentence which has been emphasised in the quotation of clause 4(a) above.

7. As a subsidiary argument Mr Clayton sought to argue that it was for the arbitrator to determine his own jurisdiction. Thus, it was said that even if it were correct that the agreement to arbitrate was solely in respect of disputes as to quantum consequent upon a failure to agree the quantum, it was for the arbitrator to decide whether or not there had been an agreement as to quantum.

8. In my view, this subsidiary argument of the defendant is clearly wrong. The plaintiff's claim is based solely upon the averment that there was an agreement as to quantum. The plaintiff's claim will succeed or fail dependent upon whether or not an agreement can be established. Once, it has been decided as a matter of law that clause 4 only provides for arbitration in circumstances where there has been a failure to agree there can be no arbitration of the plaintiff's claim and the action turns solely on whether or not quantum has been agreed. To put the matter in a slightly different way, if the contrary to the above were assumed to be correct and the matter were put to the arbitrator, if the arbitrator were to decide that there had been an agreement as to quantum then he would have to decide that he had no jurisdiction and hence could make no award. If, on the other hand, the arbitrator were to decide that there had been no agreement again he could make no award because the only claim which the plaintiff has made is based on an agreement.

9. Mr Clayton sought to rely on the case of Star (Universal) Co. Ltd and Another v Private Company 'Triple V' Inc [1995] 2 HKLR 62 for the proposition that it was for the arbitrator to determine whether he had jurisdiction. That, however, was a case where the Court of Appeal decided that it was arguable that the contract which contained the arbitration clause still subsisted. If it still subsisted then the dispute between the parties would have been subject to that arbitration clause. In the present case the scope of the arbitration clause simply does not cover the dispute between the parties.

10. The appeal must therefore in my view be dismissed with an order nisi as to cost in favour of the plaintiff.

Hon Le Pichon JA:

11. I agree.

Hon Rogers VP:

12. There will therefore be an order as set out in paragraph 10 above.