TAI HING (ASIA) PROMOTION CO. LTD. v. TRINITY (CHINA) SUPPLIES LIMITED

1987, No. A6585

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. The plaintiff and the defendant are both Hong Kong companies. On the 1st April 1986, an agreement was entered into between them for the construction of the Mandarin Hotel in Guilin. The arrangement made under the 1986 Agreement was somewhat peculiar. Suffice it for me to say that under it, US$157,500, being advanced deposit payment, was paid by the plaintiff to the defendant.

2. It is the allegation of the plaintiff that the 1986 Agreement has been abandoned or otherwise rescinded by consent. Construction of Mandarin Hotel in Guilian is said to have been taken over by another contractor. By this action, the plaintiff claims against the defendant for the return of the advanced deposit payment together with interests thereon. The defendant applied to the Master for the proceedings to be stayed. The Master decided in favour of the plaintiff. From that determination of the Master, the defendant now appeals.

3. The issue between the plaintiff and the defendant revolves around Clause 35.1 of the 1986 Agreement, which reads as follows :

"In case any dispute or difference shall arise between the Employer and the Contractor either during the progress or after the completion or abandonment of the Works as to the construction of the Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith (including any matter or thing left by the Contract to the discretion of the Architect or Project Manager or the withholding by Project Manager of any certificate to which the Contractor may claim to be entitled) then such dispute or difference shall be and is hereby referred to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade, Beijing for arbitration in accordance with its Provisional Rules of Procedure."

4. The contention advanced on behalf of the defendant before the Master was, as it is before me today, that Clause 35.1 is not, by virtue of section 6A(3) of the Arbitration Ordinance, a domestic arbitration agreement, hence, only section 6A(1) applies, leaving the Master with no discretion but to accede to the defendant's application for a stay of the proceedings in this action.

5. It is not disputed that the Foreign Trade Arbitration Commission has been abolished, but it is argued, on behalf of the defendant, that the matter could be salvaged under section 12(1) (b) of the Arbitration Ordinance.

6. It would be convenient to reproduce the relevant sections of the Arbitration Ordinance under consideration.

Section 6A(3) is set out below:

"6A(3) In this section 'domestic arbitration agreement' means an arbitration agreement which does not provide, expressly or by invitation, for arbitration in a State of territory other than Hong Kong and to which neither -

(a) an individual who is a national of, or habitually resident in, any State or territory other than in Hong Kong; nor

(b) a body corporate which is incorporated in, or whose central management and control is exercised in, any State or territory other than Hong Kong,

is a party at the time the proceedings are commenced."

Section 12(1)(b) reads:

"12(1) In any of the following cases -

(b) if any appointed arbitrator refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied and the party do not supply the vacancies;

any party may serve the other parties or the arbitrators, as the case may be, with a written notice to appoint, or, as the case may be, concur in appointing, an arbitrator, umpire or third arbitrator, and if the appointment is not made within 7 clear days after the service of notice the court or a judge thereof may, on application by the party who gave the notice, appoint an arbitrator, umpire or third arbitrator who shall have the like powers to act in the reference and make an award as if he had been appointed by consent of all the parties."

7. On behalf of the plaintiff, Mr Hartley invites this Court to take a realistic, more grammatical approach to section 6A(3). Properly read, so Mr Hartley contends, sub-section (3) preserves the status of an arbitration agreement as being a domestic arbitration agreement if either one of the two factors laid down in sub-section (3) is absent. These factors may be loosely described as "foreign arbitration" and "foreign party". On the other hand, Mr Kwok, counsel for the defendant, implores the Court to address itself directly to the given definition of "domestic arbitration agreement" which calls for the exclusion of both these elements.

8. Drafting is not an easy task. A reader is often tempted to criticise. Although it must be accepted that in most cases, he can himself lay claim to no better expertise. Sub-section (3) is, in my view, reasonably clear. It defines "domestic arbitration agreement". In order to constitute a domestic arbitration agreement, the two requirements, as submitted by Mr Kwok, shall have to be satisfied, without one or both of which there can be no domestic arbitration agreement. Put in another way, a domestic arbitration agreement would involve no foreign arbitration nor a foreign party.

9. Both the plaintiff and the defendant are companies incorporated in Hong Kong but their agreement provided for foreign arbitration in Beijing. One of the factors so laid down in sub-section (3) of section 6A of the Arbitration Ordinance has not been excluded. Their agreement, I agree with Mr Kwok, is not a domestic arbitration agreement. Hence, section 6(1) the Arbitration Ordinance does not apply. The only relevant section is, therefore, section 6A(1). Section 6A(1) would be applicable "unless [the Court is] satisfied that the arbitration agreement is null and void, inoperative and incapable of being performed".

Section 6A(1) reads :

"6A(1) if any party to an arbitration agreement to which this section applies, or any person claiming through or under him, commences any legal proceeings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, unless satified that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the manner agreed to be referred, shall make an order staying the proceedings".

10. The Foreign Trade Arbitration Commission of the China Council for the promotion of International Trade bas been admittedly abolished. It has not been shown that the Foreign Trade Arbitration Commission is otherwise replaced or substituted and if so, what rules or other rules the new entity, if any, has seen fit to adopt. No adjournment is being sought to have the fate or successor, if any, of the Foreign Trade Arbitration Commission clarified. To all intents and purposes, that Commission is to be regarded in the instant appeal as no longer subsisting.

11. Mr Hartley places emphasis not only on the identity of the appointing arbitral tribunal, the Foreign Trade Arbitration Commission, but also on the specified Provisional Rules of Procedure then in force. It is pressed upon this Court that whilst the plaintiff was willing, ready and prepared to accept arbitration via the media of the Foreign Trade Arbitration Commission under its Provisional Rules of Procedure, no other form of arbitration was agreed to or indeed contemplated by Clause 35.1 of the 1986 Agreement.

12. Turning to section 12(1)(b), it is predicated upon there being an appointed arbitrator who has in some way been inactivated. Mr Hartley is plainly right that the Foreign Trade Arbitration Commission is merely an appointing arbitral tribunal, no arbitrator bad in fact been appointed effectively for the plaintiff and the defendant. I hold that in the absence of any appointed arbitrator, section 12(1)(b) cannot be invoked.

13. Evidently, in whatever capacity it had served, the Foreign Trade Arbitration Commission is now incapable of acting by reason of its abolition. Section 12(1)(b) envisages an alternative appointment only for the purposes of an arbitration of the same nature. Section 12(1)(b) cannot be a provision whereby parties may be peremtorily thrown into a wholly different type of arbitration which is into one of their own choosing and which they may even find objectionable. There is no evidence before this Court that the replacement or substitute or any new or other entity for the suggested arbitration would conduct itself on the like pattern or in accordance with the like procedural or other rules hitherto adopted or practised by the now defunct Foreign Trade Arbitration Commission. Section 12(1)(b) can, therefore, offer no comfort to the defendant.

14. There is yet a further hindrance to the application of section 12(1)(b) : the Court is not informed as to whether arbitration facilities, if any, now available in China, Beijing, would be extended by the authority to a dispute involving principally legal liability, a question more of law than facts. Most arbitral bodies prefer facts. This Court is virtually invited to find in section 12(1)(b) a workable alternative on matters which this Court is left to assume without information. It would he uncomfortable for any court to even begin to consider a stay without any assurance that some one in Beijing could be prevailed upon to accept a reference.

15. For all these reasons, I take the view that section 12(1)(b) is not applicable. Alternatively, the Court has not been satisfied that it can be resorted to as a practical solution.

16. In conclusion, sectin 6A(1) cannot assist the defendant. In an application for a stay, in absence of any statutory inhibition, the Court enjoys a residual discretion. The dispute between the plaintiff and the defendant is essentially one of liability. There does not seem to be any real advantage to be gained for these matters not to be adjudicated in a court of law or to be otherwise determined outside the jurisdiction of Hong Kong. Counsel for the defendant can suggest none and is silent on discretion. There can be little doubt that on a question of liability in matters tolerably free from technicalities, the venue here seems to have been well-chosen by the plaintiff. The conclusion arrived at by the Master, I share. The appeal of the defendant stands dismissed with the decision of the Master affirmed. Costs of the appeal, subject to what Mr Kwok has to say, be costs for the plaintiff against the defendant.