WANG & LEE CONTRACTING LTD v. YOUNG KWONG PUI trading as IN TECH ENGINEERING

DCMP 729/2024

[2025] HKDC 66

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 729 OF 2024

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DECISION

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A. Introduction

1.  By the summons dated 28^th June 2024, the Defendant seeks to stay the Plaintiff’s claims in the present proceedings in favour of arbitration pursuant to section 20 of the Arbitration Ordinance (Cap 609).

2.  This is the substantive hearing of the Defendant’s application.

3.  Mr Liu Chin Yu represents the Defendant.  Mr Anthony P W Cheung, together with Ms Joanna Wong, represent the Plaintiff.

B.   Background

The Parties and the Agreement

4.  Hip Hing Construction Co Ltd (“Hip Hing”)  was the main contractor engaged by Hong Kong Baptist Hospital for carrying out building and construction works at a worksite in Kwun Tong.

5.  Whilst Hip Hing engaged Hsing Cheong Aster Building Services Ltd (“Hsing Cheong”)  as a sub-contractor, Hsing Cheong engaged the Plaintiff to carry out works relating to electrical installation.

6.  By a Chinese agreement in writing entered on 24^th August 2022 (the “Agreement”), the Plaintiff engaged the Defendant as its sub-contractor for the said electrical installation works.  In colloquial terms, the Defendant was a sub-sub-sub contractor.

The Arbitration Clause

7.  The Agreement between the Plaintiff and the Defendant contains an arbitration provision (the “Arbitration Clause”).  The relevant contents are as follows:

“(32)  仲裁條款：

(32.1)  甲乙雙方如出現合約糾紛，必須依據最新之仲裁條例規定處理。

…

(32.3)   甲乙雙方必須服從仲裁員所作出之裁決，並視為最後定案，不得異議。”

The Events giving rise to the present Action

8.  According to the Plaintiff, it terminated the Agreement on 16^th August 2023.

9.  Meanwhile, the workers engaged by the Defendant complained to Hsing Cheong that they did not receive wages.

10.  The Defendant says that he was unable to pay wages to his workers because the Plaintiff did not make timely payment to him pursuant to the terms of the Agreement.

11.  The Plaintiff says that based on the terms of the Agreement, the wages should be released according to the progress of the work.  Since the Defendant did not adhere to the agreed schedule, the Plaintiff did not release the salaries.

12.  On 22^nd August 2023, a meeting took place amongst the representatives of Hip Hing, Hsing Cheong, the Plaintiff and the Defendant.

13.  On 30^th August 2023, a further meeting took place amongst representatives of Hip Hing, Hsing Cheong, the Plaintiff and the Defendant as well as the workers and a labour officer from the Labour Department.

14.  Following these meetings, the Plaintiff agreed to settle the outstanding wages owed to the workers engaged by the Defendant based on their market rate and attendance records, and the Plaintiff did pay an aggregate sum of HK$575,483.67 to the workers.

15.  In the letter to the Defendant dated 22^nd January 2024, the Plaintiff alleged that the sum of HK$575,483.67 was a loan provided to the Defendant pursuant to the agreement that was reached orally at the meeting on 22^nd August 2023[1]. On the alleged basis that an oral loan agreement existed, the Plaintiff demanded the Defendant to repay the sum of HK$575,483.67.

16.  Regardless of whether the parties entered into an oral loan agreement or not, it appears that the Plaintiff paid the said aggregate sum of HK$575,483.67 to the workers in accordance with section 43C[2] of the Employment Ordinance (Cap. 57). Thus, the Plaintiff is entitled to rely on section 43F(1)  to seek reimbursement from the Defendant.  Section 43F(1)  reads as follows:

“If a principal contractor or superior sub-contractor pays to an employee any wages under section 43C, the wages so paid shall be a debt due by the employer of that employee to the principal contractor or superior sub-contractor, as the case may be.”

17.  In these premises, on 5^th February 2024 the Plaintiff took out the originating summons herein.  It seeks (i)  an order that the Defendant do pay all monies due under the alleged loan agreement on 22^nd August 2023; and/or (ii)  an order that the Defendant do pay all monies due by virtue of sections 43C and 43F of the Employment Ordinance.

The Defendant’s Defences and/or Answers

18.  Whilst the Defendant denies that he has entered into any loan agreement with the Plaintiff at all, he emphasizes that the sum of HK$575,483.67 claimed by the Plaintiff is part of his contractual entitlement under the Agreement.

19.  Furthermore, relying on the final account annexed to the invoice dated 15^th September 2023 and the demand under the letter dated 5^th February 2024, the Defendant contends that the Plaintiff still owes him a sum of HK$1,477,631.91 pursuant to the terms and provisions of the Agreement.  Thus, even if he is liable to the Plaintiff for the sum of HK$575,483.67, he is anyhow entitled to rely on the Plaintiff’s indebtedness of HK$1,477,631.91 to set off against and/or extinguish the Plaintiff’s claims, and there is still an outstanding balance of HK$902,148.24 in his favour.

C.   Legal Principles

20.  Sections 20(1)  and (5)  of the Arbitration Ordinance (Cap 609), which give effect to Article 8 of the UNCITRAL Model law, provide that:

“(1)  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”

“(5)  If the court refers the parties in an action to arbitration, it must make an order staying the legal proceedings in that action.”

21.  As Ma J (as Ma CJ then was)  pointed out in Tommy CP Sze & Co v Li & Fung (Trading)  Ltd & Anors (HCCT 29/2002, 28^th October 2022)  at paras 18-22, in considering whether a stay should be granted, the four fundamental questions to consider are as follows: (i)  is the clause in question an arbitration agreement? (ii)  is the arbitration agreement null and void, inoperative or incapable of being performed? (iii)  is there in reality a dispute or difference between the parties? (iv)  is the dispute or difference between the parties within the ambit of the arbitration agreement?

22.  Insofar as question (iv)  is concerned, it has been suggested that the threshold for refusing a stay is high. In PCCW Global Ltd v Interactive Communications Service Ltd (CACV 18/2016, 16^th November 2006)  at para 61, Tang VP (as Tang PJ then was)  held that “only if it is clear that [the arbitration clause] does not cover the…dispute, should the court refuse a stay” (emphasis added).

23.  The task of the court is to ascertain objectively the intention of the parties.  It has been suggested that under the modern approach to construction of arbitration agreements, there is a presumption in favour of arbitrability, and the “one-stop” adjudication approach is, to say the least, a useful starting point.  In Houtai Investment Holdings Ltd v Leung Yat Tung & Ors [2021] HKCFI 2165 at paras 19-20, Mimmie Chan J stated:

“19.  The scope of an arbitration clause is to be construed and interpreted in the context of the agreement made by the parties in each particular case, and the exercise of construction is one of ascertaining objectively the intention of the parties at the time when the agreement was made.  As Lord Hoffman illustrated in his judgment in Fili Shipping Co Ltd and others v Premium Nafta Products Ltd [2007] BUS LR 1719 (at 1724), it may be artificial and futile to draw distinction between linguistic nuances.

20.  The modern approach to the construction of arbitration agreements is the presumption in favour of arbitrability and the “one-stop” adjudication approach (Fili Shipping Co Ltd and others v Premium Nafta Products Ltd [2007] BUS LR 1719), at least as a useful starting point.  In Fili Shipping, Lord Hoffman referred to the construction of an arbitration clause as “starting from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship in which they have entered or purported to enter to be decided by the same tribunal”.  There are of course reminders from the courts that the presumption may be rebutted and would not be applicable in particular cases, where the parties have entered into different interlinked agreements, relating to different aspects of an overall and often complex commercial transaction, and where there are differently expressed choices of jurisdiction and/or law in different agreements providing for different manner of resolution of disputes.  The Fiona Trust presumption and principles are always subject to consideration of the presumed intention of the parties, and what is required in each case is a careful and commercially minded construction of the agreement in question.”

24.  The court is not concerned with the substantive merits of the parties’ dispute.  In Tai Hing Cotton Mill Ltd v Glencore Grain Rotterdam BV (CACV 143/2015, 24^th November 1995)  at para 47 (page 16), Bokhary JA (as Bokhary PJ then was)  stated:

“…the court is not concerned with investigating whether the defendant has an arguable basis for disputing the claim. If a claim is made against him in a matter which is the subject of an arbitration agreement and he does not admit the claim, then there is a dispute within the meaning of the article. And if he seeks a stay of the action, the court must grant a stay unless the plaintiff can show that the arbitration agreement is null and void, inoperative or incapable of being performed.”

D.   Deliberation

25.  It is common ground that the Arbitration Clause is effective, operative and capable of being performed, and the only issue is whether the disputes amongst the parties fall within the ambit of the Arbitration Clause.

26.  Mr Cheung (for the Plaintiff)  contends that unlike those arbitration provisions that are drafted liberally, the Arbitration Clause in question is narrowly confined to “contractual disputes”.  Mr Cheung then goes on to contend that since the Plaintiff’s claims are based on a separate loan agreement and/or section 43F of the Employment Ordinance, the Arbitration Clause is not engaged.

27.  For the following reasons, I am unable to accept Mr Cheung’s contention that the Arbitration Clause is not engaged.  Instead of seeking to categorize the Plaintiff’s claims in a dogmatic manner, I am of the view that it is necessary to consider the substance of the parties’ dispute.

28.  As pointed out in paragraphs 18 and 19 above, the Defendant resists the Plaintiff’s claims along the following lines:

(1)  the sum of HK$575,483.67 represents his contractual entitlement and should have been paid to him pursuant to the terms and provisions of the Agreement at the outset; and

(2)  the Plaintiff owes him a sum of HK$1,477,631.91 pursuant to the terms and provisions of the Agreement, and he relies on this alleged indebtedness to set off against and/or extinguish the Plaintiff’s claims.

29.  It is plain that the Defendant’s defences or answers to the Plaintiff’s claims constitute “contractual disputes” in respect of the Agreement.  There is no room to suggest that the same fall outside of the ambit of the Arbitration Clause.

30.  In order to adjudicate whether the Plaintiff’s claims succeed or not, the court is inevitably bound to adjudicate whether the Defendant could make out the aforesaid defences.  I cannot see how the court may adjudicate the Plaintiff’s claims without adjudicating the Defendant’s defences.

31.  In other words, it is impossible to compartmentalize the parties’ disputes.  This exercise will be most artificial.  I am not persuaded the intention of the parties (who are rational businesspersons)  was such that the disputes should adjudicated by different tribunals in a truncated manner: see Houtai Investment Holdings Ltd (supra)  at paras 19-20 (per Mimmie Chan J); and Giorgio Armani SPA v Giorgio Armani (Shanghai)  Trading Co Ltd [2019] HKCFI 2983 at para 18 (per Mimmie Chan J).  Bearing in mind the risks of inconsistent findings, the duplication of legal expenses and the complications in relation to enforcement, this suggestion makes no commercial sense.

32.  Furthermore, based on the available materials, it appears to me that the outcome of the Plaintiff’s claims largely depends on whether the Defendant has been owed HK$1,477,631.91 (or a lesser amount)  under the Agreement.  This is plainly a “contractual dispute” to be resolved by arbitration pursuant to the Arbitration Clause.  This court should not usurp the functions of the arbitration tribunal and should not disrupt the parties’ contractual bargain.

33.  For completeness, it should be pointed out that Mr Cheung seeks to rely on Aggressive Construction Ltd v Data-form Engineering Ltd (HCA 2143/2008, 27 May 2021)  [2021] HKCFI 1504 at paras 26 and 27.  In the context of considering whether the party seeking stay of proceedings had waived the arbitration agreement, To J held that the claim brought by such party based on section 43F of the Employment Ordinance did not fall within the arbitration agreement in question, and as such the question of waiver did not arise.

34.  In my view, Aggressive Construction does not support the Plaintiff’s contention at all.  Each case has to be decided on its own facts, and the natures and landscapes of the disputes in each case are different.  Unlike the present case, in Aggressive Construction, To J was not invited to consider the implication of some defences that were inextricably tied to disputes on the underlying contract that contains the arbitration provision.  Aggressive Construction is plainly distinguishable from the present case.

35.  Mr Cheung also refers me to Lo Pui Fan & Anor v Hongkong United Dockyards Ltd (HCPI 171/2011, 29^th July 2013)  and Link Wide International Investmnet (Hong Kong)  Ltd v Devi Trading Co Ltd (DCCJ 3509/2010, 17^th December 2010).  However, the scenarios in these cases were wholly different from the scenario in the present case.  I cannot see how these decisions may avail the Plaintiff.

36.  For all the above reasons, I do not accept the Plaintiff’s contentions.  I am of the view that the Arbitration Clause is engaged, and the Plaintiff’s claims, which inextricably intertwine with the underling dispute in respect of the Agreement, must be referred to arbitration.

E.   Order and Disposition

37.  In the premises, I order that the proceedings in the present action be stayed and that the Plaintiff’s claims herein be referred to arbitration[3].

38.  Costs should follow the event.

39.  I order the Plaintiff to pay the Defendant’s costs in respect of the summons dated 28^th June 2024 to be summarily assessed on an indemnity basis.  I direct (i)  the Defendant to lodge and serve his statement of costs within 7 days; and (ii)  the Plaintiff to lodge and serve his statement of opposition within 7 days thereafter.

40.  I express my gratitude to Mr Cheung, Ms Wong and Mr Liu for their helpful assistance.