NEHLSEN HONG KONG LTD v. CHINA STATE CONSTRUCTION ENGINEERING (HONG KONG) LTD

HCCT63/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.63 OF 2003

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D E C I S I O N

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1. This is an application to stay proceedings brought by the plaintiff by writ in favour of arbitration pursuant to section 6 of the Arbitration Ordinance, Cap.341.

2. Article 8 of UNCITRAL Model Law applies :

"A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, 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."

3. In the present case the fact that a dispute exists is not challenged. Neither is it challenged that there is an arbitration clause in the sub-contract. The wording of the arbitration clause is important. It says :

"DISPUTE RESOLUTION

Any dispute that arises between the Main Contractor and the Sub-Contractor, either during the progress or after the completion or abandonment of the Sub-Contract Works, on the construction of the Sub-Contract or any matter or thing of whatsoever nature arising thereunder or in connection therewith, then such dispute or difference shall be resolved according to the law of the HKSAR. Unless the Sub-Contract has been determined or abandoned the Sub-Contractor shall continue to proceed with the Sub-Contract Works. After determination, abandonment or completion of the Sub-Contract Works (whichever is the later) the parties to this Sub-Contract shall refer the dispute or difference to arbitration which shall be submitted to the Hong Kong International Arbitration Centre to be proceeded under its Domestic Arbitration Rules. The award of the arbitration shall be final and binding on the parties to the Sub-Contract."

4. Article 8 provides for a mandatory stay if "the matter" i.e. the dispute, "is the subject of an arbitration agreement".

5. The dispute in this case concerns alleged shortfalls in payments by the defendant to the plaintiff and for prolongation costs. The dispute is not about the construction of the sub-contract.

6. Mr John Scott SC, for the plaintiff, submits as his first argument, that the arbitration clause only provides for "construction of the sub-contract" issues to be referred to arbitration.

7. He analyses the four sentences in Clause 15 separately. The first sentence, he submits, provides that Hong Kong law shall apply to any dispute concerning :

(a) the construction of the sub-contract;

(b) any matter arising under the construction of the sub-contract;

(c) any matter in connection with the construction of the sub-contract.

8. Accordingly, the choice of law sentence applies to construction issues only. What law is to be applied to other disputes it does not say.

9. I reject this analysis. I am satisfied that the plain meaning of the first sentence is that "any dispute" shall be resolved by Hong Kong law which arises on :

(a) the construction of the sub-contract;

(b) any matter arising under the sub-contract;

(c) any matter in connection with the sub-contract.

10. This is the submission advanced by Mr Charles Manzoni for the defendant. Thus, any matter "of whatsoever nature" is subject to Hong Kong law. Thus, the first thing the arbitration clause does is to state the applicable law.

11. The second sentence in clause 15 has no application to this issue.

12. Mr Scott's second argument concerns the third sentence. I set it out again :

"... After determination, abandonment or completion of the Sub-Contract Works (whichever is the later) the parties to this Sub-Contract shall refer the dispute or difference to arbitration which shall be submitted to the Hong Kong International Arbitration Centre to be proceeded under its Domestic Arbitration Rules."

13. Mr Scott submits that even if his argument on the first sentence is unsuccessful, this sentence means that only disputes which arose after the end of the sub-contract, not during it, can be referred to arbitration.

14. Again I disagree. Again Mr Manzoni's interpretation is the correct one. This sentence plainly says that the time when "the dispute" (which can only be a reference to the expressions "any dispute" and "such dispute" in the first sentence) shall be referred to the Arbitration Centre is "after" ... the completion of the contract.

15. The result of Mr Scott's interpretation of both sentences, taken together, would be that only issues of the construction of the sub-contract which arise after the completion of the contract shall be referred to arbitration. Everything else may be commenced by writ. The purpose of such a narrow arbitration clause defies commercial common sense.

16. In my judgment there can be no real argument but that Mr Manzoni's submissions are correct. Similar words have been considered in previous cases. For example, in Ashville Investments v. Elmer Contractors Ltd [1988] 2 Lloyd's Reports 73, Balcombe L.J said, quoting an almost identical clause :

"... in case any dispute or difference shall arise between the Employer ... and the Contractor ... as to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith ... then such dispute or difference shall be and is hereby referred to ... arbitration ...

Thus there are referred to arbitration :

(i) Any dispute or difference as to the construction of the contract.

(ii) Any dispute or difference as to any matter or thing of whatsoever nature arising under the contract.

(iii) Any dispute or difference as to any matter or thing of whatsoever nature arising in connection with the contract."

17. Mr Scott's point that our Clause 15 is different from the above, because it does not immediately say, at the conclusion of the first sentence, that "then such dispute shall be referred ... etc." is a point without substance. One only has to look two lines further on in the same single paragraph, 10 line, clause for such information.

18. The plain meaning of Clause 15 does however result in a possible injustice to the plaintiff. By agreeing to Clause 15 a party cannot refer an arbitration to the Arbitration Centre until the determination, abandonment or completion of the sub-contract (whichever is the later).

19. This sub-contract originally concerned the supply, operation, maintenance and dismantling of a rock crushing machine. In the event, and within the terms of the contract, the plaintiff's role was limited to the supply, initial construction and ultimate dismantling of the machine. The dismantling may not occur until November 2005 at the earliest. The plaintiff may have to wait some time before the dispute is resolved.

20. However, having decided the issue of the proper meaning of Clause 15 it is not for this court to say more. If the plaintiff attempts to commence arbitration proceedings at an earlier stage (which Mr Scott has said they will, should they be unsuccessful on the stay application) it will raise issues for the arbitrator to decide not the court.

21. I deliberately used the expression "a possible injustice" because Mr Manzoni has briefly suggested why there is in fact no injustice and why there were good commercial reasons for the clause being drafted in the way it was. However, I agree that the court is not concerned with such matters on the hearing of this summons.

22. The decision on this summons is confined to this court's interpretation of Clause 15. It does not fetter the Arbitrator's power to rule on his or her own jurisdiction under Article 16 of the Model Law.

23. I grant an order in the terms of the summons dated 25 July 2003.