PARKSON HOLDINGS LTD v. VINCENT LAI & PARTNERS (HK) LTD

HCCT 27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION

PROCEEDINGS NO. 27 OF 2008

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D E C I S I O N

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1.  This is an application by the defendant to stay all further proceedings pursuant to section 6 of the Arbitration Ordinance, Cap. 341.

2.  The claim is by an owner of property against an architect following extensive alteration works at the plaintiff’s property.

3.  There are two issues to be resolved.  The first is whether or not the agreement between the parties incorporated an arbitration clause.  If it did, the second issue is whether the particular dispute between the parties comes within the scope of the arbitration clause.

4.  The relevant contractual provisions are as follows :

(i)  Article 8 of the agreement between the parties states :

“8.       If any question, difference or dispute shall at any time arise between the parties in respect of the construction of this Agreement or concerning anything herein contained or arising out of this Agreement or as to rights, liabilities or duties of the parties hereunder the same shall be resolved in accordance with the provisions of Sections 6.4and 6.5 of the said HKIA Conditions of Engagement.”

(ii)  Section 6.4 of the HKIA Conditions states :

“6.4  Disputes

6.4.1  Any difference or dispute on the application of these Conditions to fees charged by a member of the HKIA may be agreement between the parties be referred to the HKIA for an opinion, provided always that such opinion is sought on a joint statement of undisputed facts and the parties undertake to accept it as final.”

(iii)  Section 6.5 states :

“6.5  Arbitration

6.5.1  Where any difference or dispute arising out [of] these Conditions cannot be resolved in accordance with Clause 6.4.1, 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, except that in a difference or dispute arising out of the provisions of Section 1.5 the arbitrator shall, unless otherwise agreed, be a member of the HKIA.”

(iv)  For the sake of completeness the letter of intent between the parties dated 17 February 2003 concluded with :

“[4.3]  Our Conditions of Engagement under this Agreement shall be based on those described in the Agreement between Client and Architect issued by the Hong Kong Institute of Architects.”

THE ISSUES

(1)  Is the arbitration clause (6.5) incorporated into the contract?

5.  Mr Calvin Cheuk, counsel for the plaintiff, submits that it has not been incorporated.  He relies on two arguments.

6.  Firstly, that the parties never discussed an arbitration clause at the time of entering into the contract.  The only discussions were about the scope of the defendant’s works and the fees due.  Moreover, the letter of intent of 17 February 2003 only deals with those two matters and so the concluding reference (cited above at (iv)) should be limited to those parts of the HKIA terms which are concerned with scope of works and fees.  Thus the incorporation of an arbitration clause would be excluded.

7.  He relies also on an extract from Hudson on Building and Engineering Contracts, 11^th Edition which states that the intention to incorporate an arbitration clause must be clear and the provisions of it sufficiently certain.

8.  Contrary to Mr Cheuk’s submissions, I am satisfied that the arbitration clause was incorporated into the parties’ agreement.

9.  The lack of specific discussion on the clause is not sufficient to remove it from the contract.

10.  A clear reading of Article 8 and Item 4.3 of the letter of intent, taken together, leave no room for doubt.  In fact the memorandum of agreement from which Article 8 covers has numerous references to the HKIA Conditions of Engagement.  It would have been normal and sensible to provide for its incorporation (as indeed it does) and it is not open to the plaintiff to later claim that he did not appreciate the actual terms of one or another of the articles so included.  The same edition of Hudson states as follows :

“… in a case where reference was made in correspondence to the RIBA Conditions of Engagement, which might well have been intended to regulate the amount of and entitlement to remuneration only, the Court of Appeal held that this did successfully incorporate the arbitration clause into an architect’s contract of employment.  IN that case the document to be incorporated was accurately identified …”

(In this extract case referred to was Sidney Kaye & others v. Leon Joseph Bronesky (1973) 4 BLR 1.)

11.  I thus accept the submissions made by Mr James Lee, counsel for the defendant, that the arbitration clause was incorporated into the agreement.

(2)  Does the arbitration clause apply to the particular dispute in question?

12.  There is no issue that the law on this issue is as set out in Halsbury Laws of Hong Kong, Volume 1(2), para. 25-35 :

“Matter which is a subject matter of arbitration

The matter in question in the legal proceedings of which a stay is sought must be within the scope of the arbitration agreement.  If nothing is in dispute, then where the arbitration clause is limited to disputes or differences, there is no matter to be referred to arbitration …  Where the dispute is not of a type which was envisaged by the arbitration agreement, a stay will not be granted.  It is no obstacle to an applicant that he has not disputed the plaintiff’s claims prior to issuance of the writ.”

13.  Again, Mr Cheuk advances two submissions that this arbitration clause does not apply to this dispute.

(i)    “Fees only” submission

14.  It is accepted by Mr Lee that Clause 6.4 deals only with disputes concerning the architect’s fees.  Mr Cheuk submits that Clause 6.5 should be read as follows.  Clause 6.5 states that a dispute shall go to arbitration if it cannot be resolved by Clause 6.4.  In other words, if Clause 6.4 does not work, then apply Clause 6.5.  It follows therefore, according to Mr Cheuk’s argument, that Clause 6.5 can only be invoked once Clause 6.4 has failed and as Clause 6.4 is limited to “fees only” disputes, Clause 6.5 must be subject to the same limitation.

15.  Mr Lee, on the other hand, submits that a common sense and business-like approach is that if “… any” difference or dispute has not been dealt with by Clause 6.4 (either because it was a fees issue which could not be resolved under Clause 6.4 or because it was not a fees issue at all) then Clause 6.5 applies. 

16.  He submits also that the arbitration clause must be intended to cover a wide scope of disputes and it would make no sense to limit it to “fees only” disputes.  Clause 6.5 was incorporated into the contract by virtue of Article 8 which itself stated : “If any question, difference or dispute shall at any time arise …” (set out in full at page 2 herein).

17.  I agree with Mr Lee.  I am sure that if Clause 6.5 had been intended to be limited to fees only, it would have been drafted differently to clearly reflect that intention.  I am satisfied that the proper construction is equally clear in not so limiting it. 

(ii)  Does the dispute “arise out of these Conditions”?

18.  Mr Cheuk submits that even if a wide interpretation is given to Clause 6.5, the dispute should still not be stayed in favour of arbitration because only disputes which are “arising out of these Conditions” are covered.  He argues that thrust of the claim against the architect is that he is responsible for delaying the completion of the project by failing to do a number of different things timeously.  There is no specific allegation that he was in breach of any particular term of the HKIA Standard Agreement.  Accordingly, the “dispute” does not “arise out of” the Conditions.

19.  Again, I disagree with this submission.  In my judgment a dispute which “arises out of” the Conditions is not confined to a dispute which makes specific allegations of a breach of a particular clause.  The expression “… any … dispute arising out of these Conditions” should be given a wide meaning.  It is clear that the complaints made (which relate to matters such as the obtaining of plan approval, obtaining consent for the commencement of work, obtaining quotes from the main contractor, etc.) are issues which come within the scope of “Normal Services” as defined in Part 2 of the Conditions of Engagement.

20.  To say that a failure to apply for an approval should go to arbitration but a failure to apply for it in good time should not makes little sense and is not consistent with the true meaning of Clause 6.5.

21.  In all the circumstances, I am satisfied that the defendant’s summons should be granted and accordingly I make an order in terms.