ATKINS CHINA LTD v. CHINA STATE CONSTRUCTION ENGINEERING (HONG KONG) LTD

HCMP 1193/2020

[2020] HKCFI 2092

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1193 OF 2020

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D E C I S I O N

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Introduction

1.  The originating summons in this case seeks (i) a declaratory judgment that as a matter of construction a settlement agreement entered into between the parties have settled all claims and counterclaims arising under a design agreement; and (ii) a final injunction restraining the Defendant from taking further steps in the arbitration proceedings commenced in the name of the Defendant by its insurers.

2.  The originating summons was issued on 11 August 2020.  The present summons for an interim injunction to stay the arbitration proceedings pending resolution of the originating summons was also issued on the same date.

3.  However, the summons was served (with the originating summons) on 11 August 2020, at 6:00 pm.  There were less than 2 clear days before this hearing.  Accordingly, although the Defendant has appeared by counsel today, this can only be treated as an ex parte application on notice.

Background

4.  The Plaintiff and the Defendant had signed a design agreement dated 27 August 2012 (“Design Agreement”) whereby the Plaintiff was appointed to design permanent structures of certain sections of the Hong Kong Zhuhai-Macao Bridge, including reclamation works and construction of a seawall (“Project”). The Defendant would proceed with construction after approval of the Plaintiff’s design.  There was an arbitration clause which required the parties to refer disputes arising out of or in connection with the Design Agreement to arbitration.

5.  Pursuant to the Design Agreement, the Plaintiff did design and the Defendant did erect various structures.

6.  In October to November 2014, certain instability incidents occurred at the Project as a result of which part of the seawall in the area collapsed and was submerged in the sea.  The Plaintiff was owed money in respect of unpaid variation orders.

7.  Thereafter, negotiations ensued between the parties between 2015 and 2018 culminating in a settlement agreement on 23 December 2019 under which the Defendant would pay the Plaintiff HK$10,000,883.65 (“Settlement Agreement”). 

8.  It was a term of the Settlement Agreement that,

“[The Defendant] and [the Plaintiff] hereby unanimously and irrevocably agree[d] to the Final Design Agreement Value for the said Design Agreement, this being in full and final settlement of all Variation Works claims, counterclaims, and contra-charges between [the Defendant] and [the Plaintiff] howsoever arising under the Design Agreement.” (emphasis added)

The Settlement Agreement did not contain an arbitration clause.

9.  Upon execution of the Settlement Agreement, the ongoing settlement discussions and negotiations came to an end.  The payment had been made to the Plaintiff.

10.  Seven months later, the Defendant, by its insurers (China Overseas Insurance Limited) served on the Plaintiff a Notice of Arbitration dated 22 July 2020.  According to the Notice of Arbitration, the claims in the arbitration arise from a dispute between the Plaintiff and the Defendant in relation to the Plaintiff’s defective design under the Design Agreement which had caused collapse of certain sections of the seawall.  Damages of HK$240,000,000 are claimed against the Plaintiff.

11.  The Plaintiff seeks an interim injunction to restrain the Defendant from proceeding with the arbitration.

12.  The Defendant submits that the summons should be dismissed as there is no urgency for granting interim injunction relief.  The arbitration clause in the Design Agreement is binding on the parties and the current dispute falls within its ambit.  The same injunctive relief can be applied for under the arbitration process and the arbitral tribunal may determine its own jurisdiction.  Further, damages would be sufficient compensation and the balance of convenience is against the grant of an injunction.

Legal principles

13.  There is no dispute that the principles in American Cyanamid v Ethicon Ltd [1975] AC 396 applies.

14.  The Court has jurisdiction to grant an injunction to restrain arbitration proceedings upon consideration of the following factors: SA v KB [2016] 2 HKLRD 1249, at §§66, 84, DHCJ G Lam SC (as he then was):

(1)     The injunction does not cause injustice to the plaintiff in the arbitration;

(2)     The continuance of the arbitration would be oppressive, vexatious, unconscionable or an abuse of process; and

(3)     Delay in making an application for injunction may be fatal to the application.

The Court will exercise its discretion to grant such injunction sparingly.

Analyses

15.  The Plaintiff has shown a serious issue to be tried as to whether or not the Settlement Agreement was so broad as to have settled all disputes (including the negligence claim) between the parties so that nothing can be referred to arbitration.  Upon settlement, the Defendant has no justification for relying on the arbitration clause in the Design Agreement.

16.  The Settlement Agreement, which formed a separate and distinct contract to the Design Agreement and the Settlement Agreement should be construed on its own terms.  The Settlement Agreement did not contain an arbitration clause. Any dispute as to the validity or effect of the Settlement Agreement is not within the jurisdiction of an arbitrator appointed under the Settlement Agreement but is to be resolved by a court of competent jurisdiction.

17.  The Plaintiff is invoking the Court’s jurisdiction to restrain vexatious and oppressive arbitration and it may be justified in doing so if the Settlement Agreement is found to be valid and covers the subject matter of the arbitration.  The Plaintiff should not be asked to “incur endless time and costs” in defending an arbitration which should never have been commenced and which is abusive.

18.  The Plaintiff submits that the insurers’ move was financially driven. It contained a highly tactical move to bring the Plaintiff into the arbitration and have that arbitration consolidated with another one involving Arcadis under a Design Checker Agreement.

19.  According to the Plaintiff, the dispute involved events that happened 5 years ago.  The interim injunction is unlikely to cause injustice to the Defendant.  It would only push back the arbitration for a few months pending resolution of the originating summons.

20.  There was no delay on the part of the Plaintiff in taking out the summons.

21.  Despite the persuasive arguments of Mr Manzoni SC (leading Ms Elizabeth Cheung), I see no such urgency that the Defendant should even be deprived of an inter parte hearing of the summons and to file evidence in opposition beforehand. 

22.  The only urgency that the Plaintiff has shown is that the Arbitration Notice requires the Plaintiff to give a response by 19 August 2020. 

23.  Little prejudice would be caused to the Plaintiff before the next summons day for inter parte hearing that cannot be compensated for by costs or money even if the Plaintiff has to respond to the Arbitration Notice by 19 August 2000. 

Conclusion

24.  I decline to grant the interim injunction on ex parte on notice basis.  On a nisi basis, one hour’s hearing time for today shall be to the Defendant.

25.  The summons is adjourned to 21 August 2020 at 10 am before the summons judge.  The Defendant has leave to file and serve an affirmation in opposition on or before 4 pm on 20 August.  Costs of the summons are reserved.

26.  I thank counsel for their assistance.