Nehlsen Hong Kong Ltd v. China State Construction Engineering (Hong Kong) Ltd
Read the full judgment text of HCCT63/2003 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 6 November 2003 before Hon Burrell J.
Arbitration — Interpretation of arbitration clause — Construction of dispute resolution provision under a Sub-Contract — Whether disputes over payment shortfalls and prolongation costs are covered — Application of Article 8 of UNCITRAL Model Law — Mandatory stay of court proceedings in favour of arbitration. The court examined Clause 15 of the Sub-Contract's dispute resolution provisions, rejecting the narrower construction limiting disputes to construction issues or to arbitration commencing only after contract completion. Instead, the clause was held to encompass any dispute arising under or in connection with the Sub-Contract, subjected to Hong Kong law, and mandated arbitration after determination, abandonment, or completion of the Sub-Contract Works. The Court relied on authoritative precedent to uphold this broader interpretation. The Court ordered a stay of proceedings, deferring questions of arbitrator jurisdiction and possible earlier arbitration commencement to the arbitrator. No sentencing was involved.
Legal issues: Interpretation of arbitration clause in Clause 15
Outcome: Stay of proceedings granted in favour of arbitration pursuant to the arbitration clause; arbitration to be commenced only after determination, abandonment, or completion of the Sub-Contract Works
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HCCT000063/2003 HCCT63/2003 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 Date of Hearing: 3 November 2003 Date of Decision: 6 November 2003 ----------------------- D E C I S I O N ----------------------- 1.This is an application to stay proceedings brought by the plaintiff by writ in favour of arbitration pursuant to section 6 of the Arbitration Ordinance, Cap.341. 2.Article 8 of UNCITRAL Model Law applies :
3.In the present case the fact that a dispute exists is not challenged. Neither is it challenged that there is an arbitration clause in the sub-contract. The wording of the arbitration clause is important. It says :
4.Article 8 provides for a mandatory stay if "the matter" i.e. the dispute, "is the subject of an arbitration agreement". 5.The dispute in this case concerns alleged shortfalls in payments by the defendant to the plaintiff and for prolongation costs. The dispute is not about the construction of the sub-contract. 6.Mr John Scott SC, for the plaintiff, submits as his first argument, that the arbitration clause only provides for "construction of the sub-contract" issues to be referred to arbitration. 7.He analyses the four sentences in Clause 15 separately. The first sentence, he submits, provides that Hong Kong law shall apply to any dispute concerning :
8.Accordingly, the choice of law sentence applies to construction issues only. What law is to be applied to other disputes it does not say. 9.I reject this analysis. I am satisfied that the plain meaning of the first sentence is that "any dispute" shall be resolved by Hong Kong law which arises on :
10.This is the submission advanced by Mr Charles Manzoni for the defendant. Thus, any matter "of whatsoever nature" is subject to Hong Kong law. Thus, the first thing the arbitration clause does is to state the applicable law. 11.The second sentence in clause 15 has no application to this issue. 12.Mr Scott's second argument concerns the third sentence. I set it out again :
13.Mr Scott submits that even if his argument on the first sentence is unsuccessful, this sentence means that only disputes which arose after the end of the sub-contract, not during it, can be referred to arbitration. 14.Again I disagree. Again Mr Manzoni's interpretation is the correct one. This sentence plainly says that the time when "the dispute" (which can only be a reference to the expressions "any dispute" and "such dispute" in the first sentence) shall be referred to the Arbitration Centre is "after" ... the completion of the contract. 15.The result of Mr Scott's interpretation of both sentences, taken together, would be that only issues of the construction of the sub-contract which arise after the completion of the contract shall be referred to arbitration. Everything else may be commenced by writ. The purpose of such a narrow arbitration clause defies commercial common sense. 16.In my judgment there can be no real argument but that Mr Manzoni's submissions are correct. Similar words have been considered in previous cases. For example, in Ashville Investments v. Elmer Contractors Ltd [1988] 2 Lloyd's Reports 73, Balcombe L.J said, quoting an almost identical clause :
17.Mr Scott's point that our Clause 15 is different from the above, because it does not immediately say, at the conclusion of the first sentence, that "then such dispute shall be referred ... etc." is a point without substance. One only has to look two lines further on in the same single paragraph, 10 line, clause for such information. 18.The plain meaning of Clause 15 does however result in a possible injustice to the plaintiff. By agreeing to Clause 15 a party cannot refer an arbitration to the Arbitration Centre until the determination, abandonment or completion of the sub-contract (whichever is the later). 19.This sub-contract originally concerned the supply, operation, maintenance and dismantling of a rock crushing machine. In the event, and within the terms of the contract, the plaintiff's role was limited to the supply, initial construction and ultimate dismantling of the machine. The dismantling may not occur until November 2005 at the earliest. The plaintiff may have to wait some time before the dispute is resolved. 20.However, having decided the issue of the proper meaning of Clause 15 it is not for this court to say more. If the plaintiff attempts to commence arbitration proceedings at an earlier stage (which Mr Scott has said they will, should they be unsuccessful on the stay application) it will raise issues for the arbitrator to decide not the court. 21.I deliberately used the expression "a possible injustice" because Mr Manzoni has briefly suggested why there is in fact no injustice and why there were good commercial reasons for the clause being drafted in the way it was. However, I agree that the court is not concerned with such matters on the hearing of this summons. 22.The decision on this summons is confined to this court's interpretation of Clause 15. It does not fetter the Arbitrator's power to rule on his or her own jurisdiction under Article 16 of the Model Law. 23.I grant an order in the terms of the summons dated 25 July 2003.
Representation: Mr John Scott, SC, instructed by Messrs Wong & Fok, for the Plaintiff Mr Charlie Manzoni, instructed by Messrs Lovells, for the Defendant |