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L v M N And Another

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date21 September 2021
Neutral Citation[2021] HKCFI 2829
Judgement NumberHCCT6/2021
Subject MatterConstruction and Arbitration Proceedings
CourtCourt of First Instance (Hong Kong)
HCCT6/2021 L v. M N AND ANOTHER

HCCT 6/2021

[2021] HKCFI 2829

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 6 OF 2021

____________________

BETWEEN
L Plaintiff
and
M 1st Defendant
N 2nd Defendant

____________________

Before: Hon Mimmie Chan J in Chambers

Date of Hearing: 11 June 2021

Date of Decision: 21 September 2021

_____________

D E C I S I O N

_____________

Background

1. On 14 January 2021, the Plaintiff issued these proceedings against the Defendants for damages of $54,369,814.10, for the Defendants’ breach of a Surety Bond dated 3 February 2016 (“Bond”), and/or as damages for the 2nd Defendant’s breach of a contract made between the Plaintiff and the 2nd Defendant dated 21 April 2016 (“Contract”) for construction of the main contract works for the Plaintiff at a development in Yuen Long (“Works”).

2. By summons issued on 1 March 2021 (“Summons”), the 2nd Defendant applied for the proceedings to be stayed pursuant to section 20 of the Arbitration Ordinance (“Ordinance”), or pending the publication of an award in an arbitration already commenced by the 2nd Defendant by its Notice of Arbitration dated the 5 January 2021 (“Arbitration”), pursuant to an arbitration agreement between the Plaintiff and the 2nd Defendant as contained in the Contract.

3. The legal principles applicable to the determination of an application for stay under section 20 of the Ordinance are not disputed. They are summarized in Tommy CP Sze v Li & Fung (Trading) Ltd [2003] 1 HKC 418, and in PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309, and need not be repeated here. The onus is on the applicant for stay to show that there is a prima facie or plainly arguable case that the parties are bound by an arbitration clause, which extends to the dispute in the subject matter of the action sought to be stayed. Unless the point is clear, the action should be stayed for the arbitral tribunal to decide whether it has jurisdiction over the dispute formulated and identified.

4. It is also clear that if there is an agreed procedure for resolution of disputes, the appropriate forum to determine whether the procedure has been duly followed, or if the reference to arbitration is premature, is the tribunal itself (C v D [2021] 3 HKLRD 1). Both questions of admissibility and of jurisdiction in relation to arbitral disputes are matters for the tribunal.

5. As between the Plaintiff and the 2nd Defendant, there is no dispute that there is an arbitration clause contained in the Contract for the Works. The application for stay is made pursuant to that clause, but the Plaintiff claims that the arbitration agreement had been abandoned and terminated between the parties and therefore ceased to be operative.

6. As between the Plaintiff and the 1st Defendant, there is no arbitration clause in the Bond to which the 1st Defendant is a party. In essence, the 2nd Defendant seeks a case management stay on the basis that it would be just to stay the Plaintiff’s claims against the 1st Defendant in the event of a stay of the Plaintiff’s action against the 2nd Defendant. The 1st Defendant has given a written undertaking that it will abide by any award made in the Arbitration as to the 2nd Defendant’s liability for breach or non-performance of the Contract.

The section 20 stay

7. Article 8 of the Model Law incorporated into section 20 (1) of the Ordinance provides as follows:

“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party 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.”

8. Clause 41 of the Contract sets out the procedure for settlement of disputes. In essence, it provides that the parties “shall follow” the dispute settlement procedure outlined, which provides firstly for each party to designate one of its own senior executives as its representative, and for the respective “Designated Representatives” to settle disputes that arise during the carrying out of the Works. If a dispute “arises under or in connection with the Contract”, the Architect shall, at the request of either party, refer the dispute to the Designated Representatives. If the dispute is not resolved by the Designated Representatives within 28 days of the reference, either party may give a notice to the other to refer the dispute to mediation. If the dispute is not settled by mediation within 28 days of the commencement of mediation, either party may give notice to the other and refer the dispute to arbitration which shall take place in Hong Kong. Clause 41.5 provides for the timing of the arbitration, and clause 41.6 provides for the powers of the arbitrator.

9. There is no serious dispute that the claims made by the Plaintiff in these proceedings, for damages payable by the 2nd Defendant in respect of what the Plaintiff claims to be the 2nd Defendant’s breach of obligations under the Contract, and claimed to be due from the 1st Defendant under and pursuant to the Bond for such breach, falls within the scope of the disputes contemplated to be settled in accordance with the procedures set out in clause 41 of the Contract. The Plaintiff’s case is that as evidenced by an exchange of correspondence between the Plaintiff and the 2nd Defendant in June 2020, the parties had agreed to abandon the arbitration agreement, such that it is no longer operative.

10. On the evidence, it appears that disputes having arisen between the Plaintiff and the Defendants in relation to the Plaintiff’s allegations of (inter alia) delay in the 2nd Defendant’s execution of the Works and failure to duly perform its obligations under the Contract, and the 2nd Defendant’s claims of (inter alia) entitlement to extensions of time and for unpaid variation claims, the 2nd Defendant had attempted to initiate mediation.

11. Neither party had appointed its Designated Representative upon the Plaintiff’s acceptance of the 2nd Defendant’s tender (pursuant to clause 41.1 (2)), but the 2nd Defendant proceeded to appoint its Designated Representative on 25 March 2020 and requested the Plaintiff to appoint its Designated Representative, which the Plaintiff did so on 31 March 2020. The Plaintiff then served notice on the Architect on 1 April 2020, and requested for a reference to the Designated Representatives of the dispute as to the Plaintiff’s entitlement to deduct liquidated damages under the Contract. After further correspondence had been exchanged and two meetings had been held, the Plaintiff disagreed with the 2nd Defendant as to whether the disputes between the parties should proceed to mediation as the 2nd Defendant wanted, the Plaintiff claiming that mediation was premature under the dispute settlement procedure provided for in clause 41 (“Procedure”), and as such was invalid.

12. Against the background of such dispute, the Plaintiff wrote to the 2nd Defendant on 2 June 2020. In an open letter, the Plaintiff first claimed that the 2nd Defendant had failed to comply with the Procedure, but disputed the 2nd Defendant’s claim that the Plaintiff had refused to mediate, pointing out that the Plaintiff was actively considering the candidates proposed by the 2nd Defendant for the mediation. In the open letter, the Plaintiff stated that it had separately issued a without prejudice letter to propose a proper procedure for resolving the disputes between them, in order to avoid unnecessary jurisdictional disputes later.

13. In the Plaintiff’s without prejudice letter of 2 June 2020 (“WP 2/6 Letter”), it made a “proposal for resolution of disputes under the Contract”. The Plaintiff asserted that the Procedure under the Contract did not apply as the parties had failed to appoint their Designated Representatives within the time contemplated under clause 41.1 (2), and that such failure was “irremediable”, absent any express variation agreement. The Plaintiff proceeded to state in the WP 2/6 Letter, as follows:

“However, with a view to simplifying matters and avoiding unnecessary jurisdictional disputes between the parties in resolving their disputes, we put forward the following dispute resolution provision in place of parts of Clause 41 (namely Clauses 41.1 to 41.4) of the Contract for your consideration:

‘The parties hereby agree that Clauses 41.1 to 41.4 of the Conditions of Contract, in the contract between L and N dated 21 April 2016 (the “Contract”) for the construction of Main Contract Works for L New Factory Development, shall be deleted and superseded and instead any dispute or difference arising out of or in connection with the Contract shall first be referred to mediation in accordance with the Hong Kong International Arbitration Centre (“HKIAC”) Mediation Rules. If the mediation is abandoned by the mediator or is otherwise concluded without the dispute or difference being resolved, then such dispute or...

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