WO HING CONSTRUCTION CO. LTD. v. YUE HING LAND INVESTMENT CO. LTD.

HCCT52/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.52 OF 2001

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D E C I S I O N

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1. This is an application by the Third Party to stay proceedings between itself and the defendant, pursuant to section 6(1) of the Arbitration Ordinance, Cap.341.

2. The action between the plaintiff (the main contractor in a substantial residential development) and the defendant (the developer) has been settled. There is no question therefore of there being parallel proceedings in court and in arbitration. The Third Party was the architect and engineer, against whom the defendant seeks to be indemnified for its liability to the plaintiff.

3. If the Third Party can establish that a valid arbitration agreement exists between the parties and that such agreement applies to the circumstances of this case, then the matter must be stayed for arbitration.

The existence of an arbitration agreement

4. The Third Party relies on its letter to the defendant dated 14 January 1991. It said :

"This is to confirm that you have appointed us as Architect, Structural Engineer and electrical and mechanical engineer for the above project."

The defendant countersigned the letter.

5. The defence submit that this is merely a confirmation of an appointment but not the letter of appointment itself. They further submit that the letter then goes on to deal with the fee structure and that any arbitration agreement in it, relates solely to the matter of fees and not to any wider matters arising out of the appointment "as architects ...". The letter concludes with the arbitration provision :

"Where any difference or dispute arising out from the above terms cannot be resolved it shall be referred to the arbitration of a person to be agreed between the parties, or, failing agreement within 14 days after either party has given to the other a written request to concur in the appointment of an arbitrator, a person to be nominated at the request of either party by the President of the Institute of Arbitrators."

6. In this application, the first burden on the Third Party is to show that there is at least an arguable case that an arbitration clause within the wider consultancy agreement (i.e. not merely concerning the level of fees) exists. I am satisfied that they have satisfied this burden. In my judgment, the defence argument that the words "This is to confirm that you have appointed us ..." should not be construed as the appointment must fail because, firstly this is the only evidence of the appointment and secondly it is a technical and unattractive argument. I am satisfied that the letter is prima facie evidence of the consultancy agreement, which is not limited to the question of fees and other related matters. It follows that the arbitration clause covers such disputes as may arise from the appointment of the Third Party as architect and engineer to the project.

7. The defence argument continues that, in any event, a letter was written by them, in January 1999 which supercedes any earlier provision for the parties to arbitrate and, effectively, revokes it making it inoperative. The 1999 letter states :

" We agree to all your proposals set out above which naturally supersede all previously agreed arrangements by our company for payment of fees to yours regarding our redevelopment at the above site."

8. Again, I accept the Third Party's submission concerning the proper approach to this letter. I am satisfied that they have discharged the burden on them to show they have a prima facie case (to be determined by the arbitrator) that this letter merely supercedes the earlier fee arrangements and does not supercede the earlier consultancy appointment or the arbitration agreement that was included in it. Put simply it is a letter of fee variation not arbitration revocation. The arbitral tribunal may rule on its own jurisdiction. This court is satisfied that these particular points on jurisdiction should properly be placed before the arbitrator, because I am satisfied that a valid arbitration agreement exists which (subject to the defence's final submission below) applies to the disputes presently existing between the parties.

Conduct of Exemption Clauses, Cap.71

9. The defence submit that in view of section 15(1) of Cap.71 the arbitration provision, even if existing and valid, cannot be enforced on them. The Third Party's application is based on section 6(1) of the Arbitration Ordinance. Section 6(1) is subject to section 6(3). Section 6(3) makes section 6(1) subject to section 15 of Cap.71 which provides :

"(1) As against a person dealing as consumer, an agreement to submit future differences to arbitration cannot be enforced except-

(a) with his written consent signified after the differences in question have arisen; or

(b) where he has himself had recourse to arbitration in pursuance of the agreement in respect of any differences.

(2) Subsection (1) does not affect-

(a) the enforcement of an international arbitration agreement within the meaning of section 2(1) of the Arbitration Ordinance (Cap 341);

(b) the resolution of differences arising under any contract so far as it is, by virtue of Schedule 1, excluded from the operation of section 7, 8, 9 or 12."

10. Potentially, this gives rise to a number of points. However, the Third Party, simply submits that section 15(1) has no application because it is plain and obvious that the defendant is not "dealing as consumer" which section 15(1) requires. The expression "dealing as consumer" is defined by section 4 of Cap.71 as :

"4. 'Dealing as consumer'

(1) A party to a contract 'deals as consumer' in relation to another party if-

(a) he neither makes the contract in the course of a business nor holds himself out as doing so;

(b) the other party does make the contract in the course of a business; and

(c) in the case of a contract governed by the law of sale of goods or by section 12, the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.

(2) Notwithstanding subsection (1), on a sale by auction or by competitive tender the buyer is not in any circumstances to be regarded as dealing as consumer.

(3) It is for the person claiming that a party does not deal as consumer to prove that he does not."

11. Section 4(3), once again, puts the burden of proof on the Third Party. In my judgment the Third Party, in this application, has amply discharged that burden, without the need for recourse to further affirmations, to prove that the defendant either did make the contract in the course of business or held himself out as doing so (section 4(1)(a)). It is open to the Third Party to point to :

(a) the pleadings between the plaintiff and the defendant, to which they have been joined; and

(b) the defendant's affirmation resisting this application for a stay.

12. As far as the pleadings are concerned, the defendant in its defence, admits that it was a company incorporated in Hong Kong which carried on business as a developer of residential premises and was the employer of the development in question. If more is need the defence affirmation is littered with facts, allegations and information which is consistent with such a position. In short, I find the defendant cannot rely on section 15 of Cap.71 to escape the mandatory stay in favour of arbitration.

13. For the above reasons, I grant this application for a stay pursuant to section 6(1) of Cap.341. It has been possible to state the reasons with comparative brevity due to the succinct and helpful submissions made by Ms Liza Cruden for the Third Party and Mr Andrew Hart for the defendant. There will be an order in the terms of the Third Party's summons dated 4 April 2002.