Wharf Properites Ltd and Another v. Eric Sumine Associates, Architects Engineers & Surveyors (A Firm) and Others

HCA013431D/1983

BETWEEN

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Coram: Hon. Mantell J.

Dates of Hearing: 6, 7, 8 & 13 February 1984

Date of Delivery of Judgment: 17 February 1984

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JUDGMENT

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1. These have been two applications in the same High Court action, each to stay proceedings in favour of a reference to arbitration. They were heard together in Chambers, but because they raised questions of principle, I have decided to give my judgment in Court. No one objects.

2. Harbour City is a complex in Kowloon which includes shops, apartments, offices and an hotel. The development of Harbour City took place between 1976 and 1st May 1978. The developers were the plaintiffs; the architects were the 1st defendants; the consulting mechanical and electrical engineers were the 2nd defendants; the contractors responsible for site preparation were the 3rd defendants; the main contractors were the 4th defendants. There were 24 nominated sub-contractors, of which 14 are defendants numbers 5 to 18. The 3rd and 4th defendants each had arbitration clauses in their contracts with the plaintiffs. So had the 1st defendants and by virtue of side agreements with the plaintiffs, so too had had most of the nominated sub-contractors. The 2nd defendants did not.

3. The 3rd defendants' arbitration clause, which is clause 35 of the contract, reads in its material parts as follows:-

That of the 4th defendants, which is clause 105 of their agreement with the plaintiffs is not quite in the same terms and it is also necessary to set it out fairly fully:

It will be seen that a major difference between the two clauses is that the second provides for the settlement of any dispute by two stages, the first stage being a reference to the architect for his decision and in the event of that being unacceptable to either party the second stage provides for a reference to arbitration.

4. Both the 3rd and 4th defendants' contracts contained liquidated damages clauses which were to apply in case of any delay for which they were responsible. There were delays. But who was responsible for them is very much in contention. The 3rd defendants have said that their failure to keep to schedule was largely the fault of the architects and/or the consulting engineers and, therefore, far from being liable to the plaintiffs, they should have been allowed extensions of time with the result that they would have a claim against the plaintiffs. Similarly, the 4th defendants say that the fact that they failed to complete the work by 22nd October 1980 as provided in the contract was due to their being given late and fragmented access to the site. They contend, therefore, that the delayed completion is not to be blamed on them or their sub contractors. On the contrary, they too say that they should have been granted extensions of time which would result in their recovering substantial additional payments.

5. In September 1979, the 3rd defendants agreed with the plaintiffs to vacate the site notwithstanding that their part of the contract had not been fully performed, thereby leaving the site preparation to be finished off by the main contractors, the 4th defendants. It is said on behalf of the 3rd defendants that an agreement made at that time compromised any claim the plaintiffs may have had against the 3rd defendants with regard to delay; but that is not conceded by the plaintiffs. Throughout the 4th defendants have maintained their claims for extensions of time both in their own behalf and in behalf of the sub-contractors. In January 1983, they submitted to the plaintiffs the case for extensions in relation to themselves and in March 1983, they put forward the case on behalf of some of the sub-contractors. In each case, the claims were fully set out and supported by documents. On 14th April 1983, the 4th defendants asked the architects to reach their decision by 14th May, otherwise, they would resort to the procedures contained in the arbitration clause. The architects were not able to comply and by letter of 16th May 1983, the 4th defendants invoked the provisions of the arbitration clause giving the architects until 14th August 1983 to reach their decision. In June 1983, unbeknown to any of the defendants, the plaintiffs engaged other consultants to investigate the performance of the architects and the consulting engineers, and also to look into the standard of workmanship achieved by the contractors. On 2nd August 1983, the plaintiffs requested the 4th defendants to allow the architects a further 90 days in which to reach their decision. They said that they thought that there might be more claims forthcoming from the sub-contractors, that they needed more time to study the claims already submitted and that, in any event, it was their intention to deal with all the claims on a friendly basis, which must have been intended to mean, I think, that they were not at that time contemplating litigation. The 4th defendants were persuaded, and in the event did allow the architects a further 90 days. They refrained from giving Notice of Arbitration as they would have been otherwise entitled to do on or after 14th August. So, the deadline for the architects' decision became 16th November. On 4th November, the plaintiffs issued the writ. So far, it has been served on the 1st to 4th defendants, of whom the 2nd and 3rd are the applicants. Of the other two, the 2nd defendants have no arbitration clause and the 1st defendants, who have an arbitration clause with the plaintiffs at a very early stage, acquiesced in the High Court proceedings. The 14 sub-contractors who have been made defendants but up to now who have not been served with the writ are those of the sub-contractors who have intimated that they wish to make claims against the plaintiffs. Curiously, or perhaps only coincidentally, the 10 nominated sub-contractors who have not put forward any claim are not made parties to the action. The Statement of Claim, which runs to 489 pages, was filed on 18th January 1984.

6. That is the barest outline of the history of this matter. To put flesh on the bones, one needs to go to the various affidavits and their exhibits, but I deem it unnecessary to reproduce the contents here.

7. Section 6(1) of the Arbitration Ordinance follows section 4(1) of the English Arbitration Act of 1950 in terms. It provides:-

The Court's discretion to grant a stay will only arise if the conditions set out in the section have been fulfilled. This distinction between "jurisdiction" and "discretion" is one noted by the learned authors of Mustill and Boyd on Commercial Arbitration but it is not one which seems to have been in the forefront of the minds of those judges to whose decisions I have been referred. In this case, it is not contested that the applicants are able to satisfy all the conditions necessary to the exercise of the Court's discretion save as to one. That question is whether or not I should be "satisfied that there is no sufficient reason why the matter should not be referred in accordance with the agreement". The wording has been described as "somewhat peculiar" ⁽¹⁾ and indeed, it is. At face value, it seems to cast the burden of establishing a negative proposition upon the applicant for a stay and not just in relation to a particular circumstance but at large. But that is not how the judges have interpreted the section. It is true that Lord Atkinson in Bristol Corporation v. John Aird, ⁽²⁾ seemed to place the burden on the applicant in stating that the Court is entitled to say in answer to an application under section 4 "we are not satisfied that there is not some reason for not submitting this question to the arbitrator" but in the same case, Lord Moulton put it that "a Court may well take the view that there is good reason why this matter should not be referred to arbitration as provided by the contract", so abandoning the double, negative of the section and placing the burden upon the party opposing a stay, as did Lord Parker of Waddington ⁽³⁾ in saying "it will certainly not be enough to allege that the arbitrator is not an independent person". In so expressing themselves, Lord Mouton and Lord Parker of Waddington impliedly adopted the view of the Court of Appeal in Hodgson v. Railway Passengers Assurance Company.⁽⁴⁾ In that case, the Master of the Rolls treated the plaintiff as being in the position of applicant which, were it right to do so, would amply support his rule of thumb that when a party applying cannot adduce a reason in support of his application, the judge may be satisfied that no such reason exists. Whatever may be thought of the premiss upon which the Court of Appeal proceeded in that case, the conclusion that it is for the party opposing the stay to adduce some sufficient reason why the application should not be granted seems to have been followed consistently ever since whenever the Courts have addressed their minds to the question of burden of proof. So in Metropolitan Tunnel and Public Works v. London Electric Railway Company, ⁽⁵⁾ Lord Hanworth felt able to say quite categorically that the onus of showing that an agreement which has provided in clear terms that any question in connection with the contract shall be referred to arbitration ought not to be carried out lies upon the plaintiff, ⁽⁶⁾ with which proposition, Lord Justice Scrutton found himself in agreement. So too Brandon J., as he then was in the Eleftheria⁽⁷⁾ does not distinguish between the question of jurisdiction and the exercise of discretion but says that the discretion should be exercised by granting a stay unless strong cause for not doing so is shown. In the Pine Hill⁽⁸⁾ McNair J. regarded the burden as being on the party opposing the stay and more recently still, in the Bulk Oil case, ⁽⁹⁾ Mr. Justice Kerr, as he then was, said:

"It is clear, and accepted by the defendants, that the burden is on the party seeking to litigate in defiance of an arbitration clause to satisfy the Court that there is sufficient reason why the matter should not be referred to arbitration. If one reproduces the double negative in the section, if the Court is satisfied that there is no sufficient reason why the matter should not proceed to arbitration, then a stay will be granted".

Against this weight of authority, the one dissentient voice might be said to be that of Pearson L.J. in Taunton-Collins v. Cromie, ⁽¹⁰⁾ where he appears to treat the burden as resting upon the applicant. For my part, and with the greatest possible humility in the light of such high authority, I have not found it easy to understand the process by which the words of the section can be said to impose a burden of establishing a good reason upon the plaintiff, unless that is, recognising that put the other way about the burden is almost impossible to discharge, one adopts the fiction employed by Sir George Jessel in the Hodgson case. Alternatively and perhaps preferably, the logic of it might be that the existence of the arbitration clause together with the fulfilment of all the other conditions of the section raises a presumption, rebuttable of course, that there is no reason why the matter in dispute should not be referred. It would then be for the party opposing the stay to displace the presumption. That approach has some support, I think, in the way sometimes put that the applicant is "prima facie" entitled to a stay. (per Somervell L.J. in W. Bruce Limited v. J. Strong,⁽¹¹⁾ Lawrence L.J. in Green Star Shipping v. London Assurance and others, ⁽¹²⁾ and Brandon J. in the Eschersheim). ⁽¹³⁾ But whatever the basis, the question would seem to be well settled by authority so as to have the practical result that I shall have discretion to act on the application unless the plaintiff shows some sufficient reason why I should not. The question of what is a sufficient reason is also concluded by authority. It is to be a very strong reason to adopt the words of Scrutton L.J. in the Metropolitan Tunnel and Public Works case or a "very good reason" to follow Cons J.A. in the Hong Kong Court of Appeal,⁽¹⁴⁾ and I must carry in mind throughout the injunction of Lord Moulton⁽²⁾ to consider all the circumstances of the case but to consider them with a strong bias in favour of maintaining the special bargain between the parties, at the same time being vigilant to see that I am not driving either of the parties to a tribunal where it will not get substantial justice. Neither must I overlook the fact that the parties must be presumed to have had due regard to the overriding jurisdiction of the Court at the time when they agreed to refer any dispute to arbitration.

8. So what reason might there be for refusing a stay in either case with which I am concerned? By their Statement of Claim, the plaintiffs have a direct claim against the architects, clearly severable, for not making as much of the site as they should have done, but in addition, they seek to throw off against the architects and the consulting engineers, the 3rd defendants claim for extensions of time, and against the first three defendants, the claim of the 4th defendants. The way it is done is by setting up the previously intimated claims of both 3rd and 4th defendants in the Statement of Claim in anticipation, so to speak, of their being made and then to seek indemnity. It is then said that because there is no enforceable arbitration agreement between the plaintiffs and the 1st defendants or between the plaintiffs and the 2nd defendants, the claims for indemnity relief would have to be decided in separate proceedings. Next, it is said, that separate proceedings might become necessary against the sub-contractors either because they have a claim for general damages for delay against the sub-contractors which goes beyond any sum recoverable from the main contractor, or because the main contractor, at the end of the day, might not be in a position to satisfy the award. Also, it is contended that the plaintiffs have direct claims against sub-contractors either under the side agreements or in tort and that it is no answer to say that those disputes could all be resolved in arbitration because not all of the sub-contractors are party to an agreement to arbitrate.

9. Lastly, the reason is put forward that as alleged in the Statement of Claim, there are claims in the alternative for bad workmanship and that the respective liabilities of the parties can only be thrashed out satisfactorily in the same action. These arguments, of which I have only attempted a summary, are fully developed in the affidavit of Mr. Brunner and accurately anticipate the excellent submissions made by Mr. Butcher. In short, it is said that the grant of a stay in either case will result in a multiplicity of proceedings which could have undesirable consequences, not the least of which might be inconsistent findings of fact and I have been referred to a number of cases in which that has been held in itself to be a sufficient reason for refusing a stay.

10. I can see that there might be very good reasons for the plaintiffs wanting to continue the action but that is not the same thing as saying that there are good reasons for granting a stay. No doubt, the plaintiffs had in mind the advantages to them of proceeding in the High Court when they made their pre-emptive strike 11 days before the architects" decision was due; and whilst one might deprecate the means by which they achieved it, one must applaud the strategy. If it succeeds, it will mean that they are in the driving seat; they will have set the defendants at each other throats and, if I may be permitted yet another metaphor, they are in a position in protracted and expensive proceedings to pick off the sub-contractors one by one. On the other hand, if they are forced to arbitrate, they may be obliged to undertake separate proceedings against their architects and consulting engineers and possibly also against some of the sub-contractors. In the latter event, I acknowledge the possibility of there being inconsistent findings of fact. But the hardship, if it arises, is not such in my judgment as to amount to any injustice to the plaintiffs. They entered into their bargain with the 3rd defendants and the 4th defendants on what were at least equal terms, and whereas the parties are presumed to have in mind the overriding jurisdiction of the Court so too must they have had within their con-templation the very kind of dispute which has now arisen. It is a common place in major building contracts that disputes over time and workmanship are to be expected and almost as inevitably that such disputes will involve more than one party. It is to the end, in part at any rate, of avoiding this kind of monster action with its attendant, costs and delays, that building owners and contractors agree to arbitrate. I do not doubt that many contractors and, perhaps, the applicants in this case would never commit themselves to an undertaking of this kind if they thought that there was even a risk of being involved in the kind of action now lodged by the plaintiffs. The contractors are entitled to look to the plaintiffs to compensate them for the shortcomings of the architects and consulting engineers and it is not a sufficient answer to their claim to be entitled to do so to say that the plaintiffs own right of redress will be deferred. Nor am I impressed by the argument that there are separate sustainable claims against the subcontractors. The side agreements were entered into without the knowledge or concurrence of the main contractor and any claim in tort has only a doubtful basis in law. In any event, the same considerations arise as regards any claim against the sub-contractors as arises with regard to the right of redress against the 1st and 2nd defendants. The plaintiffs must have recognised the possibility of their separate claim, indeed, the side agreements themselves bear witness to the fact that they did. The dilemma or difficulty is entirely of their own making and, in my judgment, the fact that, in the light of events which should have been within their contemplation at the time those agreements were entered into, the plaintiffs now repent of their agreements to arbitrate cannot be a sufficient or strong enough reason for refusing a stay.

11. The matter might have stood differently if parties other than the plaintiffs were to suffer hardship as a result of a stay being granted and that might have been something going both to the question of jurisdiction and the exercise of discretion. But the sub-contractors stand behind the 4th defendants in their application for a stay and I cannot see how either the 1st or 2nd defendants would be prejudiced if a stay were to be granted. The 1st defendants have not contended as much and it was only at the eleventh hour that Mr. Walker for the 2nd defendants lent his support to the plaintiffs' case. For my part, I should think that it is greatly to the advantage of the 2nd defendants to have the issues between the plaintiffs and the 3rd and 4th defendants arbitrated before having to expose themselves to the risks of litigation. From their point of view, the position can only get better. And so obvious did that seem to me that I did at one time entertain the suspicion that there has been collaboration between the plaintiffs and the 2nd defendants.

12. I am satisfied that there is no sufficient reason for not granting a stay in the case of each applicant and that establishes what has been called the jurisdiction to exercise discretion. Without more, I am prepared to exercise my discretion in favour of the applicants as I think that must almost always result from a finding that there is no reason not to do so. But there are two further matters which point to the exercise of discretion in the applicants' favour which propel me in the same direction. If this action were to proceed in its present form, it could not possibly come on for trial within 12 months and the hearing itself might last as long again. There are 19 parties and counsel involved might number twice as many, the pleadings have already reached epic proportions and all in all, if not untriable, the action would impose great hardship upon a number of parties and, in particular, upon some of the smaller sub-contractors. The second matter to affect my mind is one to which I have made reference already. I do not criticize the plaintiffs for their tactics but it is clear to me that in asking the 4th defendants to allow the architects further time, they were making themselves the opportunity to be first in the field. At the same time, they gave the 4th defendants to believe that they were going along with the agreed procedures. Moreover, I am not entirely convinced, partly because none of the sub-contractors without claims has been made a defendant that the action itself has not been mounted for tactical reasons. Those, as I say, would have been matters which I would have thought it right to take into consideration had it been necessary to do so but I am, in the event, able to exercise my discretion to grant a stay in each case without paying regard to them. I have not taken into account at any stage what are said to be the procedural advantages of arbitration over action as to which I remain unconvinced. Nor have I had any regard to what I described as "the whiff of collusion" as to which, of course, I accept Mr. Walker's repudiation.

(1)    per Cozens/Hardy M.R. [1911] 1 K.B. 783 at p.790

(2)    [1913] A.C.241 at p.248

(2a)    Bristol Corporation case [1913] A.C. 241 at p.259

(3)    at page 260

(4)    [1882] 9 Q.B.D. p.188

(5)    [1926] 1Ch. 371

(6)    at page 385

(7)    [1969] 1 L.L.R. 237 at p.242

(8)    Halifax Overseas Freighters. Ltd. v. Rasno Export; Techno-prominport; and Polskie linie Oceaniczne P.P.W.     [1958] 2L.L.R. 146

(9)    Bulk Oil (Zug) A.G. v. Trans-Asiatic Oil Ltd. S.A. [1973] 1 L.L.R.129 at p. 135

(10)   [1964] 1 W.L.R. 633 at p.637

(11)    [1951] 2 K.B. 447 at p.451

(12)   [1928] L.L.R. Vol.31 p.4 at p.6

(13)    [1974] L.L.R. Vol.2 188 at p.198

(14)    Sing Tao Nevspapers Ltd. v. Hong Hua Machinery Works Ltd. Civil Appeal No.69 of 1981

Representation:

A.  Butcher,Q.C. & W Lane (McKenna & Co.) for the Plaintiffs.

N. Pirie & Miss J. Pinto (Munro & Co.) for the 3rd defendants.

N. Kaplan,Q.C. & Mrs. J. Spruce (Denton, Hall & Burgin) for the 4th defendants.