XCHRX UDL KENWORTH ENGINEERING LTD. v. POLLARD CONSTRUCTION CO. LTD.

HCCT121/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION

PROCEEDINGS NO.121 OF 1999

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REASONS FOR DECISION

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1. There are three summonses before the court. Chronologically they are, firstly, the plaintiff's summons for summary judgment pursuant to Order 14 dated 24 September 1999. Secondly, the defendant's counter-summons for the proceedings to be stayed for the purposes of referring the case to arbitration dated 27 September 1999. Thirdly, the defendant's summons for security for costs dated 16 December 1999. After preliminary arguments on the proper order in which the summonses should be heard, the application for a stay was heard first. At the conclusion of the hearing, I gave the court's decision that the application for a stay would be granted. I now give brief reasons.

2. The plaintiff has sued the defendant for breach of a sub-contract in the sum of $1,353,768 for electrical and mechanical works carried out at the KCRC station at Fanling. The sub-contract contains an arbitration clause, the relevant part of which states :-

"If any dispute arises between the Contractor and the Sub-Contractor in connection with this Sub-Contract, it shall, subject to the provisions of this clause, be referred to the arbitration and final decision of a single arbitrator in accordance with and subject to the provisions of the Arbitration Ordinance or any statutory modification thereof for the time being in force and any such reference shall be deemed to be a submission to arbitration within the meaning of such Ordinance."

3. As I understand it, Mr Chiu, who appeared for the plaintiff, makes two submissions in support of his argument that this clause does not apply. Firstly he contends that because the defendant took out a summons in December 1999 for security for costs in the plaintiff's case generally and particularly with regard to its Order 14 summons, the defendant has repudiated the arbitration agreement and/or has evinced an intention no longer to be bound by the arbitration clause. Secondly, and alternatively, the defendant has not shown that a dispute exists between the parties and therefore the matter cannot be referred to arbitration. Both submissions must fail and I will deal with each briefly.

1. Repudiation of the arbitration clause by virtue of taking out an Order 23 summons

4. Mr Chiu submits that because the defendant is asking for security for costs in the High Court action, they are demonstrating a desire to be a party to a court hearing in which the judge will have to consider, amongst other things, the relative merits of the plaintiff's and the defendant's cases in order to decide whether or not to order security. Even though, the argument continues, the defendant's summons for a stay was the first step taken by it in a prompt response to the plaintiff's Order 14 summons and even though the defendant's first affirmation dated 3 November 1999 was to seek the plaintiff's consent to a stay (which predates its Order 23 summons by six weeks) and even though the purpose of the Order 23 summons was to protect the defendant's position on costs in the High Court should the stay be refused, Mr Chiu maintained that the mere taking out of the summons should be construed as an unequivocal demonstration of an intention not to pursue the arbitration.

5. There can be no doubt in my judgment that the defendant has taken all the proper steps expeditiously and in the correct order. I find no merit in the plaintiff's argument. It is plain and unarguable that the defendant has consistently expressed and maintained its intention to arbitrate. It cannot be said that the 16 December 1999 Order 23 summons extinguishes, affects or even dilutes that intention.

2. No dispute?

6. Since the amendment of s.6 of the Arbitration Ordinance, Cap.341, the law on this issue is clearly stated in Tai Hing Cotton Mill Ltd v. Glencore Grain Rotterdam BV & Anor. [1996] 1 HKC 363 at p.373 :

"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. 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."

By s.6(1) of Cap.341 :-

" (1) Subject to subsections (2) and (3), article 8 of the UNCITRAL Model Law (Arbitration agreement and substantive claim before court) applies to a matter that is the subject of a domestic arbitration agreement in the same way as it applies to a matter that is the subject of an international arbitration agreement."

Article 8(1) of the Model Law reads :-

"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."

7. The law is that there is a dispute until the defendant admits the sum is due and payable. There is an abundance of evidence that the defendant does not admit the sum claimed. There is no evidence that it does admit it.

8. In a forlorn attempt to persuade the court that the definition of "a dispute" was defined too narrowly, Mr Chiu, for the plaintiff, referred the court to authorities which pre-dated the Tai Hing decision and which were decided on different considerations which have no application to the issue to be resolved in this case. He then went on to argue that if the notion of "a dispute" should be defined more widely, then the court should consider whether the defendant had an arguable defence and if not, there was no dispute and the stay application should be refused and the Order 14 summons allowed.

9. This court does and must apply the Tai Hing authority which deals with the Arbitration Ordinance as it now is. That being the case, there is no room for argument. There is simply no basis for the plaintiff's contention that there are no grounds upon which the court should refer the matter to arbitration.

10. I heard the parties also on two consequential matters. Firstly the effect of this decision on the appropriate orders in all three of the summonses before the court. Secondly, the proper order as to costs.

Orders to dispose of the remaining summons

11. As far as the Order 23 summons is concerned, the defendant very properly applied to withdraw it. There is no further need for it in the High Court proceedings.

12. As far as the Order 14 summons is concerned, I agree with Mr Harris for the defendant that it should be dismissed. Mr Chiu suggested I should consider giving conditional leave to defend. The logic of this proposal was difficult to discern given that there was no cause to defend in the High Court proceedings following my decision on the stay application.

Costs

13. I was asked by Mr Harris to award indemnity costs on the stay application and the Order 14 summons. He also asked the court to assess the costs at a future hearing to be scheduled for that purpose. I decline both of these requests. His request for indemnity costs was not without substance but on balance I consider it not to be a case which merits such an order. The final orders are therefore as follows :

(a)	Defendant's summons to stay the proceedings pursuant to s.6 of Cap.341 is granted with costs to the defendant, to be taxed if not agreed.
(b)	Plaintiff's summons under Order 14 is dismissed with costs to the defendant, to be taxed if not agreed.
(c)	Defendant's summons under Order 23 is withdrawn with no order as to costs.