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HCA 2141/2020
[2021] HKCFI 2503
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2141 OF 2020
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| BETWEEN |
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KINLI CIVIL ENGINEERING LIMITED |
Plaintiff |
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and
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GEOTECH ENGINEERING LIMITED |
Defendant |
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Before: Hon Mimmie Chan J in Chambers
Date of Hearing: 11 August 2021
Date of Decision: 26 August 2021
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D E C I S I O N
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1. These proceedings were instituted by the Plaintiff (“K”) against the Defendant (“G”) for $4,055,696.83, as the sum claimed to be owing from G and due under a written contract dated 15 September 2016 (“Contract”). K is the subcontractor of G, for works to be carried out on a project for site formation, drainage and pile cap works (“Works”) in relation to a public housing development project at Shek Kip Mei Estate Phase 6 (“Project”). The Housing Authority is the employer, and Shui On Building Contractors Limited is the main contractor (“MC”) under a contract between them for the Project Works (“Main Contract”). G is the MC’s sub-contractor for the Works, and one Union Link is K’s sub-contractor, and G’s sub-sub-contractor.
2. The claims made by K in these proceedings are on the basis that the Works under the Contract had been completed on about 31 August 2020, but G wrongfully deducted a sum of $3,160,199.15 from the amount certified to be payable to K under an interim payment certificate (“IP Certificate 12”), and that a further sum of $895,497.68 is payable to K under another interim payment certificate (“IP Certificate 14”), making a total amount of $4,055,696.83 due and unpaid.
3. On 9 February 2021, G applied for the action to be stayed on the ground that the dispute between the parties should be submitted to arbitration in accordance with the arbitration clause contained in Clause 8 of the Contract (“Clause”). The Clause (as translated) reads:
“If in the course of executing the Contract, any disputes or controversies arise between (G) and (K) on any question and the parties are unable to reach agreement, both parties may in accordance with the relevant arbitration laws of Hong Kong submit the dispute or controversy to the relevant arbitral institution for resolution, and the arbitral award resulting from arbitration in the HKSAR shall be final and binding on both parties, and unless otherwise agreed by both parties, the aforesaid arbitration shall not be conducted before either the completion of the main contract or the determination of the subcontract.”
The Chinese text reads:
“若在執行分判合約的過程中，甲乙雙方在任何問題上產生任何爭端或糾紛而以不能達成協議時，雙方可按照香港有關仲裁法例提交有關仲裁機構解決，並在香港特別行政區進行而仲裁之裁決將是最終決定及對雙方具有約束力，除非雙方另有協定，否則在總工程合約完成或分判合約終止前皆不得進行上述仲裁。”
4. The dispute between the parties is firstly, whether the Clause provides for permissive arbitration, or whether arbitration is mandatory; and further, whether the text of the proviso to the Clause (“Proviso”) has the effect that arbitration cannot be conducted until the Main Contract has been completed and the Contract has also been terminated or determined. Although “or” (“或”) is used in the Proviso, K contends that the use of “皆” means that completion of the Main Contract and determination of the Contract have both to be satisfied, before there can be any arbitration.
5. There is no serious dispute as to the approach to be adopted by the Court in dealing with an application for stay of an action to arbitration. Under s 20 (1) of the Arbitration Ordinance (“Ordinance”), which gives effect to Article 8 of the Model Law, a court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a parties 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.
6. As set out in Tommy CP Sze & Co v Li & Fung (Trading) Ltd [2003] 1 HKC 418, the 4 questions for the court are: (1) Is there an arbitration agreement between the parties? (2) Is the clause in question capable of being performed? (3) Is that in reality a dispute or difference between the parties? (4) Is the dispute or difference between the parties within the ambit of the arbitration agreement?
7. As held in PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309, the onus is on the applicant for stay to demonstrate only that there is a prima facie case that the parties were bound by an arbitration clause, and unless the point is clear, the Court should not attempt to resolve the issue and the matter should be stayed in favour of arbitration, as it is for the tribunal to decide first on its jurisdiction.
8. As the Court found in C v D [2021] HKCFI 1474, the question of whether a party has complied with the procedure or conditions as to the exercise of the right to arbitrate, as set out in an arbitration agreement, is a question of admissibility of the claim, and the Court has no role to play in relation to such a question, as it does not go to the question of the jurisdiction of the tribunal. It is for the tribunal to decide on admissibility and such decision of the tribunal is final, and not for review by the Court.
9. The dispute between K and G, as to whether there are sums due and payable to K under the Contract, clearly falls within the scope of the arbitration clause, as a dispute or controversy arising in the course of the execution of the Contract, on which the parties were not able to reach agreement. There is also clearly a dispute between K and G.
10. K contends that the Clause uses “可” meaning “may” or “can”, as opposed to “須”, “shall” or “must”. This means that the parties only have the option to elect arbitration, and the Clause does not take away the right of K to litigate the dispute in court. Counsel for K relies on the decisions of the District Court in IO of Wing Fai Building, Sui Wo Street v Golden Rise (HK) Project Co Ltd DCCJ 225/2016, unreported, 23 June 2016, and of the Court of Appeal in Thorn Security (Hong Kong) Ltd v Cheung Kee Fung Cheung Construction Co Ltd [2005] 1 HKC 252. Counsel for K argued that on the proper construction of the Contract and the Clause, the parties could not have intended that arbitration was compulsory, since the Clause provides that arbitration should not be commenced before the 2 conditions stated in the Proviso have been fulfilled, namely the completion of the Main Contract and the determination/termination of the Contract.
11. In China State Construction Engineering Corp Guangdong Branch v Madiford Ltd [1992] 1 HKC 320, Kaplan J (then the Arbitration judge) considered the authorities and texts on the use of “may” in arbitration clauses, and held that that does not detract from the existence of an arbitration agreement made between the parties. The clause in question in the case provided that “if settlement cannot be reached through consultation, the matter may be submitted for arbitration”. Kaplan J reviewed the decisions of the English, Hong Kong as well as US courts, and observed as follows:
“It seems clear to me that the parties in the case before me had agreed on arbitration as opposed to litigation in the courts in any particular country. The fact that the permissive word ‘may’ was used does not in the end detract from this agreement. It seems to me that once one party or the other has opted for arbitration (as by taking out this application for stay) the other party is obliged to honour the agreement to arbitrate. It follows, of course, that if both parties agreed not to arbitrate but to litigate, they would be perfectly free to do so but I do not think the word ‘may’ in the context of this clause entitles the plaintiffs to negate the defendants’ wish to arbitrate by the issue of court proceedings. At the end of the day, it seems clear to me that this is one of those cases where the word ‘may’ in effect means ‘shall’. I do not think that the defendants are prevented from insisting upon arbitration merely because the plaintiffs issued their proceedings before any steps could be taken by the defendants to commence the arbitration.” (Emphasis added)
12. In the US decisions which were considered by the Court in China State, the US District Court considered that an arbitration clause which employs “may” provides for permissive arbitration until one of the parties chooses to invoke the arbitration clause, and when such an election is made by the party, the arbitration then becomes mandatory for both parties.
13. In Guangdong Agriculture Co Ltd v Conagra International (Far East) Ltd HCA 3032/1992, 24 September 1992, Barnett J construed an arbitration clause which provided that disputes “can” be submitted to arbitration if they cannot be settled by negotiation, and found that taken as a whole, the parties had plainly agreed by the clause to arbitrate their disputes.
14. Hermes One Ltd v Everbread Holdings Ltd [2016] 1 WLR 4098 is a more recent decision, where the Privy...
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