China Merchants Heavy Industry Co., Ltd. v. Jgc Corporation
Read the full judgment text of HCCT 5/2000 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 12 December 2000 before Hon Burrell J in Chambers.
Construction and arbitration – Contractual arbitration clause under building contract – Clause 12 provided unilateral right for defendant to issue binding decision letter on disputes pending completion and limited plaintiff’s right to arbitrate disputes if notified in writing within 15 days – Defendant issued letters in March and June 1999 constituting decision letters under clause 12 – Plaintiff failed to notify arbitration within 15 days and commenced writ action instead – Court held plaintiff remained bound by defendant’s decision letter and clause 12 arbitration clause was valid and enforceable – Stay of writ proceedings ordered pending arbitration in Tokyo under Hong Kong law – Alternative application to set aside writ refused as mere procedural technicality without prejudice to plaintiff’s rights – Costs ordered against defendant. The plaintiff’s subsequent appeal was dismissed by the Court of Appeal under CACV112/2001 dated 4 July 2001.
Legal issues: Effect of failure to comply with 15-day period in arbitration clause · Whether letters of 29 March 1999 and 10 June 1999 constitute a decision letter under clause 12
Outcome: The court granted a stay of the plaintiff's writ action pending arbitration in Tokyo under clause 12 of the contract.
Cited by 1 case
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HCCT000005/2000 HCCT 5/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS -------------
------------- Coram: Hon Burrell J in Chambers Dates of Hearing: 6 September and 6 December 2000 Date of Decision: 12 December 2000 ------------------------ D E C I S I O N ------------------------ 1. By this summons, the defendant seeks a stay of proceedings commenced by writ by the plaintiff on 17 December 1999. The defendant's application is made under section 6 of the Arbitration Ordinance, Cap.341. It also applies for the writ to be set aside, as an alternative remedy. 2. The parties entered into a building contract on 13 December 1996. The defendant engaged the plaintiff as its contractor. 3. The clause of the contract which is at the core of this application is the arbitration clause, clause 12. Miss Teresa Cheng, SC for the plaintiff and Mr Denis Brock for the defendant invite the court to interpret the clause in different ways. The court's determination as to its meaning and effect will resolve the several issues between the parties. The entire clause reads as follows :
4. It should be noted, firstly, that this is not the usual bilateral arbitration clause giving both parties the right to arbitrate their difference. It is, nonetheless, a valid arbitration clause. Both parties have invited the court to break it down into its constituent parts in order to determine its meaning. Both sides agree that a dispute has arisen. What the clause then provides appears to be as follows :
5. The events and correspondence, which have been the subject of detailed analysis by both Miss Cheng and Mr Brock, have given rise to a number of issues. The primary issues seem to be :
6. Other sub-issues have emerged, but depending on the court's decision on issues (a) and (b) above, it may not be necessary to address them in this application. 7. I will deal with issue (b) first of all. Issue (b): The effect of a failure to comply with the 15-day period 8. I have found this a difficult issue. There is some merit in both of the competing submissions. 9. Miss Cheng submits, correctly, that only the plaintiff has the right to choose arbitration. It is a unilateral clause. She argues that if the 15-day period elapses, either by oversight or deliberately, the clause is of no effect and the plaintiff can commence a writ action. She submits that the court cannot compel the plaintiff to arbitrate, therefore, it cannot stay the action in favour of arbitration. The clause says "if" the 15-day period is complied with, "then" the matter shall be referred to arbitration. The argument continues, if it is not complied with, there can be no arbitration at all. That is what has happened here (assuming there was a "decision letter"). Therefore, there is nothing to go to arbitration, therefore, there is no purpose in staying proceedings. If the stay application fails, the writ action must proceed. 10. At first blush, Miss Cheng's argument is attractive. However, after careful analysis with the assistance of Mr Brock's submission, I have come to the conclusion that it is wrong. 11. As well as examining the constituent parts of clause 12, it is also helpful to consider it as a whole. The defendant is a Japanese company, it engaged the plaintiff, they wanted arbitration to be in Tokyo. The clause, read as a whole, is a strong clause in the defendant's favour. It gives the defendant the right to settle any dispute by giving a written decision. That decision binds the parties. It gives the plaintiff one opportunity to dispute the decision. That opportunity only arises if the plaintiff, within 15-days, says, in writing, it wishes to invoke the arbitration procedure. If it does so, both parties are bound by the outcome of the arbitration. There is no appeal. If it does not do so, it remains bound by the decision letter. It is to be noted that the first paragraph of clause 12, which binds the plaintiff, ends with the words "pending the outcome of any arbitration proceedings as outlined below". 12. The weakness of Miss Cheng's submission is that her interpretation suggests that after any decision letter from the employer, the contractor can simply deliberately allow the 15-day period to pass and then serve a Hong Kong writ on the defendant. This would completely defeat the purpose of clause 12 which was to put the defendant in the driving seat of any clause 12 dispute resolution, namely by either its own decision letter or by arbitration in Japan. The point is further enforced by the fact that the defendant has no right to arbitrate under clause 12. It does not want to and it does not have to because, failing arbitration, its decision letter is final and binding. If, on the other hand, a situation arose in which JGC was the plaintiff, it could bring an action in Hong Kong where the defendant (the plaintiff here) lived. Issue (a): Did the defendant write a "decision letter"? 13. Clearly if it did, given my decision on issue (b) above, the plaintiff's only avenue is arbitration, in which it will be faced with a preliminary time bar defence. If it did not, new issues arise for determination. I have decided that I should decide this issue but solely in relation to the issue of whether or not the 15-day period had started to run. This decision does not preclude the plaintiff from re-arguing the point in arbitration. 14. Counsel have referred the court to the whole history of the case as it appears in correspondence. I shall endeavour to confine this judgment to the material letters only. The first letter upon which the defendant relies is that of 29 March 1999. Miss Cheng submits that this letter was just another step in negotiations between the parties when trying to settle their differences. The differences were prompted by the plaintiff's draft final account submitted on 7 December 1997. At least 20 exchanges of letters followed, most of them were open correspondence. 15. The 29 March letter was a two-page document which summarized the recent history of the negotiations and concluded :
16. In support of the contention that this was the decision letter which triggered the 15-day period to run, Mr Brock relies on the finality of the words used. He submits that it plainly represents the end of negotiations. He further relies on the fact that the plaintiff's response was immediately to engage solicitors for the first time who, on 1 June, responded as follows :
17. Against the argument that a decision letter had been written, Miss Cheng submits that it should not be so regarded, firstly, because it did not say it was a decision letter pursuant to clause 12 and, moreover, correspondence continued thereafter. 18. In my judgment, the 29 March letter should be regarded as a decision letter. It was sufficiently final in its terms. There had been many previous letters but this one stated unequivocally that the defendant's position was that this assessment "is reasonable", the money "has been paid" and they have "no obligation to pay any more". Further, there is no requirement that a decision letter should specifically state that it is a clause 12 decision letter. 19. If the court's assessment of the 29 March letter as a decision letter is unduly harsh on the plaintiff, then the matter is put beyond doubt in the defendant's 10 June letter which I set out in full :
20. For the purposes of this application, therefore, I am satisfied that the defendant complied with clause 12, if not on 29 March, then certainly on 10 June. It does not matter which because the plaintiff's response did not come until November. 21. I have thus decided, on the whole of this summons, that the correct answer is the simplest one. Clause 12 is a valid arbitration clause which binds the parties. The defendant complied with its terms, the plaintiff did not. The issue of whether or not the arbitration clause was repudiated does not fall for consideration in this application; neither does the issue as to whether clause 12 included a time bar which was a claim bar or a remedy bar. 22. The clause is not null and void, inoperative or incapable of being performed; a dispute exists, therefore it is mandatory on this court to stay the writ action pending arbitration in Japan. 23. This ruling has unfortunate practical consequences. On the face of it, the parties now must go to Japan where the plaintiff will be faced with an immediate preliminary time bar defence. Even if that is successful, it may not be the end of the matter. This court is merely staying the action pending arbitration. The claim itself may not be described as small, but it certainly is not large either. Much effort has been put in to settle this matter, both between the parties themselves during 1998 and 1999, and between the solicitors during 1999 and 2000. Further attempts were made between the adjourned hearing of this application between September and December 2000. All attempts have so far failed. Setting aside the writ 24. The application to set aside is an alternative remedy sought by the defendant in the event that the court refuses the stay application. That has not happened. It is nonetheless appropriate briefly to state whether the court would have been minded to set the writ aside as an alternative remedy. It would not. 25. The application is based on a technical error in failing to accompany the writ with a properly numbered acknowledgement of service. I regard that as a mere technicality which should not defeat the plaintiff's rights to litigate. The error was rectified and there could have been no prejudice to the defendant. 26. My rejection of the defendant's submission on the alternative remedy sought, will however have no effect on my costs order which is that the costs of the summons be to the defendant in any event.
Representation: Miss Teresa Cheng, SC, instructed by Messrs Healy & Baillie, for the Plaintiff Mr Denis Brock of Messrs Clifford Chance, for the Defendant Plaintiff's appeal dismissed by Court of Appeal. Please refer to CACV112/2001 dated 4 July 2001 |
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