XCHRX WELCO DEVELOPMENT LTD. v. YEUNG KANG LAM

HCA5984/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5984 OF 2000

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D E C I S I O N

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1. These proceedings have taken an unusual course. In short, the relevant background is as follows. A writ of summons was issued on 14 June 2000 and served personally on 23 June 2000. On 20 July 2000, the defendant sought an extension of time to file a defence. This was agreed to by letter. On 1 August 2000, they sought further time. This was not agreed to and a hearing for a further 14-day extension was heard by Master Barnes on 7 August 2000. At the hearing, a 14-day extension was granted on an "unless" basis.

2. At the 7 August 2000 hearing, the defence solicitor informed the plaintiff's solicitor that it intended to issue a summons to strike out the plaintiff's claim pursuant to Order 12, rule 8 on the basis that the agreement contained an arbitration clause and therefore the court had no jurisdiction to entertain the claim. It is now accepted that this procedure was misconceived. However, such a summons was taken out, on 14 August 2000, and no defence was filed, in spite of the "unless order". Accordingly, the plaintiff has taken out a summons for judgment in default.

3. At the hearing before this court, Mr Mullick, for the defendant, sought leave to amend the Order 12, rule 8 summons by, in effect, substituting an application for a stay pending arbitration. This was opposed but granted with costs to the plaintiff in any event.

4. The issues which now fall to be resolved are :

1. Should a stay be granted? If so, that is the end of the matter in this court.

2. If not, should judgment be entered forthwith on the "unless order"?

3. If not, should time be granted to file a defence and, if so, should conditions be attached?

Should a stay be granted?

5. Article 8 of the UNCITRAL model law provides that :

"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."

6. An application for time to file a defence, whilst it would be "a step in the proceedings" is not "the first statement on the substance of the dispute". It is a procedural step only and should not have the effect of shutting the defendant out from arbitration.

7. Mr So, for the plaintiff, next submits that a stay should be refused because there is no evidence of a dispute. He submits that the claim was first launched against the defendant in March 1999. Since then, the defendant has done little or nothing to answer the claim, which the plaintiff submits is, in any event, unanswerable. He points out that no affirmation has been filed, no replies to correspondence have been received and there has been no disclosure of the basis of any defence. All this is true. The plaintiff's difficulty, however, is that the circumstances in which a court will not grant a stay are narrow, as laid down by Bokhary JA (as he then was) in Tai Hing Cotton Mill Ltd v. Glencore Grain [1996] 1 HKC 363 :

"If a claim was made against him in a matter which was the subject of an arbitration agreement and he did not admit the claim, then there was a dispute within the meaning of the article. If he sought a stay of the action, the court must grant a stay unless the plaintiff could show that the arbitration agreement was null and void, inoperative or incapable of being performed."

8. As to the sufficiency of the evidence before the court that a dispute exists, at p.373, he says :

"Under art 8(1) of the Model Law, the court is not concerned with investigating whether the defendant has an arguable basis for disputing the claim."

9. Here, the defendant plainly does not admit the claim. It was known by the plaintiff that it was disputed from the time that an extension of time was sought to file a defence, or if not then, it was expressly conveyed to the plaintiff's solicitors at the hearing on 7 August 2000. There is a dispute.

10. Had there been no arbitration clause binding the parties the plaintiff may well have been on firm ground to bring an Order 14 application. However, the issues which would have been relevant in such an application do not apply here. It will now be for the arbitrator to determine if the plaintiff's case is indeed unanswerable.

11. Before turning to the question of costs, I add this. Had the stay been refused, I would have given the defendant a short period to file a defence and imposed a condition that the sum claimed was paid into court at the time of filing the defence. The reasons for this are the same for my decision on costs to which I now turn.

12. There is some force in the plaintiff's submission that the defence lacks bona fides. It is, on the face of it, a strong claim to which, as yet, no attempt has been made to disclose the nature of the defence. Moreover, the defendant erroneously took out a striking out summons under Order 12, rule 8, it only amended its summons to a stay application on the day before the hearing and filed no affirmation in support of the stay application. They ignored the "unless order". They made no attempt to vary it and their appeal against it was dismissed by consent on 27 September 2000.

13. At the outset of this hearing, I granted leave to amend the Order 12, rule 8 summons to a stay application with all costs arising to the plaintiff. It follows that the defendant's summons dated 14 August 2000 (Order 12, rule 8) and 19 September 2000 (to pursue the Order 12, rule 8 application and other relief) are dismissed with costs to the plaintiff. The defendant's amended summons for a stay is granted with costs in the arbitration. The plaintiff's summons to enter judgment in default dated 11 September 2000 is dismissed with no order as to costs.