YAU LEE CONSTRUCTION CO LTD v. CHINA STEEL ENGINEERING CO., LTD AND ANOTHER

HCCT 49/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 49 OF 2010

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J U D G M E N T

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1.  Yau Lee was the Head Contractor and China Steel the Sub-Contractor on a project. The Sub-Contract in cl. 16c contained the following provision (in agreed translation):-

“If the Sub-Contractor does not receive within a reasonable period (approximately 45 days) the interim payment formally certified by the Main Contractor, the Sub-Contractor is entitled to interest at bank’s Prime Rate and the Sub-Contractor has a right to request both parties to jointly appoint a neutral arbitrator to arbitrate in relation to the unpaid income payment and quality of works, progress and etc. Once an award is made, both parties promise to be jointly bound by the decision of the arbitrator.”

2.  Yau Lee commenced this action against China Steel.  By the action, Yau Lee claims about $10 million.  That amount comprises a claim of nearly $5 million for material wastage, $1.15 million for extra administrative costs incurred in relation to the payment of wages to China Steel’s workers, and some $3 million in restitution.  Yau Lee further sues Mr Siu as Guarantor of China Steel’s performance.

3.  Relying on cl. 16c, China Steel has applied to stay Yau Lee’s action against it to arbitration. China Steel itself claims that it has not been paid $10 million by Yau Lee upon the completion of the project.

4.  I do not think that cl. 16c is applicable on its plain terms.

5.  That clause comes into play when an interim payment certified by Yau Lee has remained unpaid for 45 days.  China Steel’s right to request arbitration only crystallises on the happening of that event. China Steels’ right to arbitration arises in that single limited situation.

6.  Here all interim certificates issued by Yau Lee have been duly paid.  There is no suggestion that the interim certificates have been paid out of time.  So the requisite crystallising event has not occurred.

7.  It is true that China Steel contends that monies remain due and owing from Yau Lee on the taking of a final account.  But, even if that is correct, cl. 16c does not deal with a claim for monies due to China Steel after the taking of a final account, including after the assessment of any alleged set-off or cross-claim by Yau Lee.

8.  Therefore, I refuse a stay and dismiss China Steel’s application.

9.  I note that Mr Siu is not party to an arbitration agreement with Yau Lee.  In that circumstance, the claim against Mr Siu would have to proceed in any event before this Court.  Insofar as I have any residual discretion whether or not to stay Yau Lee’s claim to arbitration, the fact that the action would still have to proceed in Court against Mr Siu militates against the exercise of my discretion.

10.  I shall now hear the parties on consequential matters.