XCHRX COLLECTIONS INTERIOR LTD. v. FELIX CONSTRUCTIONS SA

HCCT 62/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.62 OF 2000

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D E C I S I O N

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1. The original summons before the court was for a stay of these proceedings pending the outcome of arbitration proceedings (which have not yet been commenced) between "Felix HK" and the plaintiff.

2. The plaintiff's position has always been that the application for a stay of these "guarantee" proceedings between itself and Felix SA was misconceived and was certain to fail but, nonetheless, agreed at an early stage to consent to a stay provided the Defence gave an undertaking in the following terms :

"If in any award, awards, or costs orders, made in an arbitration under the Sub-Contract between the Plaintiff and Felix HK, and in any order of the Court arising from such award

(a) Felix HK is found liable to make any payment to the Plaintiff, and/or

(b) Felix HK is ordered to pay any of the Plaintiff's costs of the arbitration.

Then the Defendant irrevocably undertakes to indemnify the Plaintiff against any non-payment by Felix HK including costs. The Defendant further irrevocably undertakes that should Felix HK fail to make payment in full of any sum due to the Plaintiff pursuant to such award, awards, or orders (including costs), and any order of the Court arising from such award, within 28 days of such sum or sums finally falling due, then the Defendant hereby consents to judgment being entered in this Action for all the amounts which remain unpaid."

3. The Defence had offered, in correspondence, an undertaking but in simpler and shorter terms as follows :

"For the avoidance of doubt, we add that Felix SA specifically accepts that, if in an award made in arbitration between CIL and Felix HK pursuant to Clause 31 of the Sub-Contract Felix HK is found liable to make payment to CIL, then Felix SA will be liable under the Guarantee to indemnify CIL against non-payment by Felix HK to the extent stated in the award."

4. On the day of the hearing the parties came to an agreement that the proceedings would be stayed upon the undertaking being given by the defendant in the terms requested by the plaintiff. The one issue, however, upon which the parties were not able to agree was the appropriate order as to costs.

5. Both counsel helpfully referred me to a number of authorities on the issue relating to costs and also the issues that would have been before the court had the parties not agreed to a stay.

6. It seems to me that the issue of costs is best resolved by the application of basic principles. In so doing, I take into account the following factors :

(i) The defendant agreed to the plaintiff's undertaking only at the door of the court.

(ii) The plaintiff's undertaking differed from the defendant's undertaking in three respects; firstly, in relation to the costs of the arbitration, secondly, that the defendant would consent to judgment if Felix HK lost in the arbitration and thirdly, that a time frame for the proceedings be agreed and followed.

(iii) These are not minor differences and terms upon which the plaintiff was entitled to insist.

(iv) The plaintiff was entitled to insist upon them because they had chosen to issue proceedings against Felix SA (Felix HK's parent company) under a guarantee. Under that contract of guarantee, the defendant had no right to arbitration.

(v) Under the contract between the plaintiff and Felix HK no arbitration proceedings have been issued.

(vi) The Defence would have faced an uphill, if not insurmountable, task in persuading the court to exercise a discretion under its inherent jurisdiction to stay proceedings in favour of an arbitration between different parties which had not commenced.

(vii) The "additional" terms in the plaintiff's undertaking were properly insisted upon. I do not accept the Defence argument that their undertaking was sufficient and they only agreed to the plaintiff's undertaking at the door of the court to avoid unnecessary argument. The fact of the matter is that had they not accepted the plaintiff's undertaking, there would have been no agreement as to the stay, it would have been contested and the plaintiff had clear and strong arguments to resist it. It is true to say that the Defence have ultimately got what they wanted, namely a stay, but the plaintiff has been able to dictate the terms of the stay and, in reality, the defendant has had no choice but to comply.

7. In all these circumstances I have concluded that the proper order as to costs is that they be to the plaintiff in any event.