GUANGDONG WATER CONSERVANCY AND HYDRO POWER ENGINEERING DEVELOPMENT CO.LTD v. THE MING AN INSURANCE CO (HK) LTD

Application to stay all further proceedings on the grounds that there is an agreement to refer all differences to arbitration - Scott v. Avery Clause considered - application granted.

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JUDGMENT

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1. This is an application by the defendant to stay all further proceedings on the grounds that there is an agreement to refer all differences between the parties for arbitration.

2. The plaintiff company carries on business as building and civil engineering contractors, and the defendant is an insurance company.

3. By a building contract dated the 10th May 1983 made between the Hong Kong Housing Authority and the plaintiff the plaintiff agreed to carry out work in connection with a house ownership scheme on Tsing Yi Island.

4. Under a contract of insurance made on the same date between the plaintiff and the defendant the defendant agreed to indemnify the plaintiff against loss of or damage to the contract works subject to the terms and conditions set out in the policy.

5. On the 28th October 1984 the contract works were damaged by fire.

6. By a letter dated the 28th December 1984 the plaintiff submitted a claim to McLaren Dick & Co. (Asia) Ltd. loss adjusters acting for the defendant for the sum of $7,623,089.00 in respect of the damage caused by the fire.

7. McLaren Dick & Co. (Asia) Ltd. replied on the 18th January 1985 that the claim was adjusted to $1,733,389.91. However, the plaintiff has not accepted this figure as a final adjustment, but claims this sum on the grounds that the amount is not the subject of any dispute between the parties. The plaintiff intends to refer the balance of the claim of $5,889,699.09 to arbitration pursuant to clause 7 of the policy. Clause 7 provides:-

"7. It is agreed that the clause is a Scott v. Avery clause. In this case reported in (1855-56) V. H. L. C. 809 it was held that the award of an arbitrator is a condition precedent before an action can be instituted to enforce any rights under a contract. Accordingly no cause of action arises under the clause until an award has been made by the arbitrator. In support of his submission on behalf of the defendant Mr. Waung cited the following authorities Elliott v. Royal Exchange Assurance Co. (1867) L. R. 2 Exch. 237, Viney v. Bignold (1887) Vol. XX Q. B. D. 172, Caledonian Insurance Company v. Gilmour (1893) A. C. 85, and Board of Trade v. Cayzer Irvine and Company Limited (1927) A. C. 610."

8. Mr. Waung also submitted that whereas a bare arbitration clause enables the court to exercise a discretion to stay proceedings under Section 6 of the Arbitration Ordinance no such discretion rests with the court under a Scott v. Avery clause until an award is made.

9. On the other hand Mrs. Spruce counsel for the plaintiff contended that there was no difference between the parties with regard to the sum of $1,733,389.91, but only as to the balance. She also submitted that clause 7 was a collateral term, and not a condition precedent with the result that the court has a discretion whether to grant a stay under Section 6 of the Arbitration Ordinance. I was referred to several cases, but apart from Collins v. Locke (1879) 4 App. Cas. 674 they all related to bare arbitration clauses, and not to a Scott v. Avery clause.

10. Essentially the only matter for decision in this case is the construction of clause 7. It is clear from the evidence that the offer made by the defendant to the plaintiff was in full and final settlement of the claim whereas the plaintiff regards the offer as an interim payment. Subsequently the plaintiff in a letter headed without prejudice reduced the claim to $3,875,834.76. Apart from the issue of liability which is denied by the defendant, there is a difference between the parties as to quantum. I am unable to accept the submission that there is only a difference with regard to the balance. The construction of clause 7 is perfectly plain with the result that I am quite satisfied that no right of action will accrue to the plaintiff unless and until the matter is referred to arbitration and an award is made. The term provided by clause 7 is not collateral, but is a condition precedent. Therefore the court has no discretion in this case under Section 6 of the Arbitration Ordinance.

11. Accordingly the defendant is entitled to a stay of all further proceedings with costs.