Hwang Chi Kong Albert v. Hong Kong Solicitors Indemnity Fund Ltd
Read the full judgment text of HCCT 73 OF 2003 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 30 September 2003 before Hon Sakhrani J.
Arbitration — statutory arbitration — Solicitors (Professional Indemnity) Rules — Legal Practitioners Ordinance — Section 26(2) of Arbitration Ordinance — Jurisdiction of the Court — Whether Court may set aside arbitration agreement involving questions of fraud under section 26(2) of Arbitration Ordinance. The claimant, a solicitor, claimed indemnity under the Solicitors (Professional Indemnity) Rules following a judgment against his firm for professional negligence. The respondent refused indemnity on exclusions related to fraudulent acts by an employee. The claimant referred the dispute to arbitration pursuant to rule 13 of the Rules, which provides for arbitration by a single arbitrator appointed by agreement or failing that by the President of the Law Society. The claimant then applied to the Court under section 26(2) of the Arbitration Ordinance to set aside the arbitration agreement on the basis that fraud was involved. The Court held that the arbitration constituted a statutory arbitration under the Legal Practitioners Ordinance and rule 13 of the Rules. Section 2AB of the Arbitration Ordinance excludes section 26 from application to statutory arbitrations. The Court relied on the Court of Appeal's decision in English Schools Foundation & Another v. Bird which held that subsidiary legislation having legislative effect includes the Rules made under the Legal Practitioners Ordinance. Accordingly, the Court held it had no jurisdiction under section 26(2) to grant relief sought by the claimant and dismissed the application with costs to the respondent.
Legal issues: Jurisdiction under section 26 of the Arbitration Ordinance
Outcome: Claimant's application dismissed; court held it has no jurisdiction under section 26 of the Arbitration Ordinance for statutory arbitration
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HCCT000073/2003 HCCT 73 OF 2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. HCCT 73 OF 2003
Coram: Hon Sakhrani J in Court Date of Hearing: 22 September 2003 Date of Reasons for Judgment: 30 September 2003 _________________________________ REASONS FOR JUDGMENT _________________________________ 1.At the outset of the hearing before me on 22 September 2003, Mr. Whitehead S.C., for the respondent, raised a preliminary issue that the Court had no jurisdiction to order the relief sought by the claimant under the Notice of Originating Motion. He asked for the preliminary issue to be decided first as in his view it was determinative of the application. I acceded to Mr. Whitehead's suggestion and heard arguments on the preliminary issue. I then gave judgment in favour of the respondent and dismissed the claimant's application with costs to the respondent. I indicated at the time that I would give my reasons in writing. This I now do. 2.The claimant is a solicitor practising in Hong Kong. He sues on behalf of himself and the former firm of Albert Hwang, David Chung & Co. ("the firm") under O.15, r.12. His former partner was David Chung. 3.The claimants claim against the respondent is for an indemnity out of the Solicitors (Professional Indemnity) Fund in accordance with rule 10 of the Solicitors (Professional Indemnity ) Rules ("the rules"). That this is the claimant's claim is made abundantly clear in the points of claim filed in the arbitration proceedings. By High Court Action No. 1114 of 1999, the National Commercial Bank Ltd. which subsequently merged with the Bank of China (Hong Kong ) Ltd. ("the BOC") brought proceedings against the firm for professional negligence in respect of a number of conveyancing transactions in or about 1998. Those proceedings were tried by Deputy High Court Judge Lam (as he then was). By a judgment given on 6 June 2002 the judge gave judgment to the BOC against the firm for damages in the sum of HK$4,614,739.78 and the sum of HK$784,967.34 with interest on the said sums and he also made an order nisi as to costs of the action to be paid by the firm to the BOC . 4.As there was this judgment against the firm the claimant lodged a claim for indemnity against the respondent by the claims form dated 6 November 1998. Indemnity was refused by the respondent under schedule 3 to the rules which deals with exclusions and conditions. Paragraph 1(2)(c)(iiia) of schedule 3 provides that the respondent will not provide indemnity in respect of losses arising out of any claim :
5.As set out in the letter from Messrs. Wilkinson & Grist dated 21 October 1999, the former solicitors for the respondent, addressed to the firm, it was asserted that the claim was brought about by the "dishonest or fraudulent acts of your former clerk, Mr. Paul Chiang, and you have not been able to show to the satisfaction of the [respondent] that these fraudulent or dishonest acts did not occur as a result of recklessness on the part of a principal in the conduct or management of your practice". Hence indemnity was refused. 6.The claimant referred the matter to arbitration under the Rules. It was agreed between the parties that Mr. Russell Coleman would be the arbitrator and the matter proceeded to arbitration. 7.By the Originating Motion issued on 4 August 2003, however, the claimant seeks, inter alia, an order that the arbitration agreement shall cease to have effect pursuant to section 26(2) of the Arbitration Ordinance (Cap. 341). This provides as follows :
8.On the same day that it issued the Originating Motion the claimant obtained an interim stay of the arbitration proceedings from Hartmann J. who also adjourned the matter to the Summons Judge on 8 August 2003 for directions. At the hearing on 8 August 2003, Hartmann J. gave directions and ordered an expedited hearing of the Notice of Motion which was then fixed before me on 22 September 2003. 9.The preliminary point raised by Mr. Whitehead is that the Court has no jurisdiction to grant the relief sought by the claimant in the Notice of Motion. 10.It was his submission that the arbitration proceedings before Mr. Russell Coleman, the arbitrator, was a statutory arbitration. Section 2AB of the Arbitration Ordinance provides as follows :
Subsection (3) provides as follows :
11.It was Mr. Whitehead's contention that the arbitration before Mr. Coleman as the arbitrator was a statutory arbitration under the Legal Practioners Ordinance and its subsidiary legislation. Section 2AB of the Arbitration Ordinance makes it plain that section 26 of the Arbitration Ordinance does not apply to statutory arbitrations. Hence the Court has no jurisdiction to grant the relief sought under section 26 of the Ordinance. 12.Section 73A of the Legal Practitioners Ordinance (Cap. 159) provides for the making of the indemnity rules. Section 73A provides that :
13.It is clear that the rules were made pursuant to the provisions of section 73A. Sections 73 and 73A of the Ordinance are specifically referred to under the title to the rules. 14.By section 3 of the Interpretation and General Clauses Ordinance (Cap. 1) , "Ordinance" means
And "subsidiary legislation" means "any proclamation, rule, regulation, order, resolution, notice, rule of court, bylaw or other instrument made under or by virtue of any ordinance and having legislative effect. 15.The word "Ordinance" includes any provision of the subsidiary legislation namely, the rules. It is abundantly clear that the rules are subsidiary legislation made under the Legal Practioners Ordinance having legislative effect. 16.Mr. Whitehead referred me to Court of Appeal's decision in English Schools Foundation & Another v. Bird [1997] 3 HKC 434. The court was there concerned with the conditions of employment of a teacher the relevant parts of which were specified in the English Schools Foundation Ordinance (Cap. 1117). It was held, inter alia, that the proceedings before the Arbitration Board constituted a statutory arbitration within section 2J of the Arbitration Ordinance. Section 2J has now been replaced by section 2AB. The two sections are almost identical and, in my view, to the same effect. It was held in that case that section 10 of the English Schools Foundation Ordinance provided for direct and specific powers to make regulations and that regulations made pursuant to that section were subsidiary legislation having legislative effect. 17.Le Pichon J (as she then was ) said at page 438 :
18.Nazareth V.P. agreed with Le Pichon J. 19.It seems to me that the above decision of the Court of Appeal does provide support for Mr. Whitehead's contention that in this case the arbitration was a statutory arbitration. 20.Rule 10 of the Rules deals with entitlement to indemnity. Rule 10(1) provides that:
21.The rules provide for the resolution of disputes by a single arbitrator. Rule 13 provides that :
22.Indemnity was refused by the respondent under the provisions of paragraph 1(2)(c)(iiia) of schedule 3 to the rules. There was therefore a dispute concerning a claim to be provided with indemnity in accordance with rule 10. By rule 13 this dispute had to be referred to a single arbitrator. 23.It was Mr. Chow's submission that rule 13 was not applicable as the parties did not invoke the provisions of rule 13 in appointing Mr. Coleman as the sole arbitrator. The evidence shows that there was agreement between the parties as to the person to be appointed as the sole arbitrator. This was agreed to be Mr. Coleman. Mr. Chow contended that the proper construction of rule 13 was that if there was an agreement between the parties as to the identity of the arbitrator then rule 13 was not applicable. He further submitted that the arbitration before Mr. Coleman was a private agreement to arbitrate and not a statutory arbitration. He relied on the words in rule 13 "shall be referred to a single arbitrator to be appointed in default of agreement by the President of the Society for the time being". As there was agreement between the parties as to the person to be appointed as the arbitrator it was contended that rule 13 was not applicable. Rule 13, it was argued, only applied to the situation where the arbitrator was appointed by the President of the Society in default of agreement. 24.I am unable to accept Mr. Chow's submissions. As a matter of proper construction of rule 13 it is, in my judgment, plain that any dispute concerning a claim to be provided with indemnity under rule 10 has to be referred to a single arbitrator. That is the statutory scheme for resolving such disputes. The statutory scheme is, in my view, clear. The dispute has to be referred to a single arbitrator. The arbitrator is to be appointed "in default of agreement by the President of the Society". These words mean that if there is agreement as to which person should be appointed as the arbitrator then the President of the Law Society does not have to appoint any one and if there is no agreement, then the President of the Society will appoint an arbitrator. That is the proper construction of rule 13 and I see no difficulty in this construction. 25.There was also no merit in the arguments advanced by Mr. Chow. It was brought to my attention by Mr. Whitehead in the course of the hearing that both the claimant and the respondent had appointed Mr. Coleman as the sole arbitrator on the basis of rule 13. I was informed that Mr. Coleman had specifically asked both parties to give him the basis of his appointment as arbitrator and that rule 13 was the basis of his appointment as given to him by both parties. Also, at a preliminary meeting of the parties before the arbitrator, both parties had told the arbitrator that the basis of his appointment was under rule 13. This was not challenged by Mr. Chow. 26.The claimant relied on rule 10 of the Rules to claim indemnity. This is beyond dispute. By para. 4 of the points of claim in the arbitration proceedings counsel for the claimant pleaded that :
27.I would observe also that in the correspondence that I was shown in particular, the letter dated 8 November 2002 from Essar Insurance Services Ltd., the managers of the Fund addressed to the claimant, the managers specifically referred to rule 13 in the reference to arbitration. In the 1st affirmation of Albert Hwang Chi Kong in these proceedings the claimant himself relied on rule 10 in the claim for indemnity and referred also to rule 13 when dealing with the arbitration. 28.Mr. Chow also referred to the receipt issued by the respondent to the claimant for payment of contribution in support of his submission that rule 13 was inapplicable. The receipt dated 7 November 1997, however, only evidences payment of contribution made by the claimant. As is stated in the said receipt, it was a receipt from the claimant for the sum paid "being payment of contribution pursuant to paragraph 2 of Schedule 1 to the above Rules". This refers specifically to the rules. It is also stated in the receipt that "Indemnity is hereby provided to the abovenamed indemnified in accordance with the above rules". It is clear that indemnity was provided in accordance with the rules. The receipt that was issued was the receipt referred to in rule 9 of the rules and upon issue of the same there was the entitlement to indemnity under rule 10. The receipt does not, in my view, provide any assistance to the claimant in seeking to show that rule 13 was inapplicable. 29.There can be no doubt that the parties have all along proceeded with the arbitration on the basis of rule 13 and nothing else. That being so, there is no merit in the submissions made by Mr. Chow that rule 13 did not apply and that the arbitration was not a statutory arbitration but a private agreement to arbitrate. 30.I accept Mr. Whitehead's submissions and reject Mr. Chow's submissions. I am satisfied that the arbitration was a statutory arbitration. The provisions of the Arbitration Ordinance apply to statutory arbitrations save for the exceptions provided in section 2AB(1) and (3). This includes section 26 of the Arbitration Ordinance and the Court has no jurisdiction to make an order under section 26. 31.I therefore gave judgment in favour of the respondent and dismissed the claimant's application with costs to the respondent.
Representation: Mr. Kenneth Chow and Mr. Kevin Hon instructed by M/s Albert Hwang & Co. for claimant Mr. Robert Whitehead S.C. instructed by M/s Herbert Smith for respondent |