The Incorporated Owners of Sincere House v. Sincere Co Ltd

LDBM 52 OF 2005

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 52 of 2005

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BETWEEN

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Coram: Deputy Judge Wong, Presiding Officer of the Lands Tribunal

Date of Hearing: 26 April, 2005

Date of Handing of Decision: 18 May, 2005

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D E C I S I O N

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1.This is an application by the Respondent to stay the proceedings in the Lands Tribunal in favour of arbitration.  By virtue of section 6 of the Arbitration Ordinance, Article 8 of the UNCITRAL Model Law applies to a domestic arbitration agreement in the same way as it applies to an international arbitration agreement.  The effect of Article 8 is that a court must refer the parties to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed.  Article 2 of the Model Law defines the word “court” to mean “a body or organ of the judicial system of a State”.  There is no issue raised by either party on whether the word “court” covers the Lands Tribunal.  However, with the wide definition in Article 2, I have no doubt that Article 8 is applicable to proceedings in the Lands Tribunal.

2.The Applicant opposes to the Respondent’s application.  Referring to the authority of Tommy C.P. Sze & Company v. Li & Fung (Trading) Limited and others, HCCT29/2002, the Applicant submits that a court must generally deal with 4 questions in an application for stay as follows: -

(a) Is the clause in question an arbitration agreement?

(b) Is the arbitration agreement null and void, inoperative or incapable of being performed?

(c) Is there in reality a dispute or difference between the parties?

(d) Is the dispute or difference between the parties within the ambit of the arbitration agreement?

3.The Applicant further submits that a party applying for a stay must show that the plaintiff who has commenced the proceedings is a party to the arbitration agreement: Paragraph 25.036 of Halsbury’s law of Hong Kong.  The Applicant contends that the parties to the Deed of Mutual Covenant in question (“the DMC”), in which the arbitration agreement is contained, are: -

(1) The Respondent, its successors and assigns; and

(2) William Weiyin Wu, his executors, administrators and assigns.

4.As the Applicant does not fall into either one of the above categories, the Applicant submits that it is not a party to the DMC.  The Applicant is entitled to enforce the provisions in the DMC not because it is a party to the DMC but because it is conferred the power as well as obligations to do so by virtue of section 18 of the Buildings Management Ordinance (“the BMO”).  Relying on the case ofLam Wing Man, Fanny v. Harbour Cheer Limited, HCAL83/1997, the Applicant further submits that there must be an express provision empowering a non-party to the DMC to rely on the provisions of the DMC, otherwise a non-party could not reply on such provisions.  Since there is no such provision in the present case, the Applicant could not rely on the arbitration clause.  The arbitration clause is therefore not applicable to the present court proceedings commenced by the Applicant.

Is the clause in question an arbitration agreement?

5.I shall deal with the Applicant’s contentions in turn.  The 1^st question is whether the clause in question an arbitration agreement.  In making the present application, the Respondent relies on clause 23 of the DMC, which reads as follows:-

“All disputes and questions which shall hereafter arise between the parties hereto touching these presents or the construction or interpretation thereof or whether these presents are still subsisting or not or touching any account or calculation to be made hereunder or as to any act deed or omission by either of the parties hereto or as to any other matter in any way relating to these presents or the rights duties or liabilities of any person hereunder shall be referred to a single arbitrator in case the parties agree upon one otherwise to two arbitrators one to be appointed by each party to the difference and their umpire in accordance with and subject to provisions of the Arbitration Ordinance 1963 and the decision of the arbitrator arbitrators or umpire as the case may be on any of the matters and things aforesaid shall be final and absolutely binding upon the parties hereto.” (Underline added)

6.It is clear to me that clause 23 is an arbitration agreement between the parties to the DMC.  The words “shall be” in clause 23 show that the parties have no option but must go to arbitration to resolve their disputes.  The Applicant in fact does not dispute that clause 23 is an arbitration agreement.  

Is the arbitration agreement null and void, inoperative or incapable of being performed?

7.The Applicant raises no allegation at all that the arbitration agreement as contained in clause 23 is null and void, inoperative or incapable of being performed.  The Respondent has not taken any step in the present proceedings apart from making the present application for stay.  Thus, there is nothing to suggest that the arbitration agreement is no longer a valid and binding agreement between the parties.

Is there in reality a dispute or difference between the parties?

8.In the Notice of Application filed herein, the Applicant alleges that the Respondent has been in breach of clause 6 of the DMC by erecting or causing to be erected 2 advertising panels on the external walls of the building in question.  The Applicant therefore applies for an order relating to the enforcement of the contractual or proprietary rights enjoyed by the owners under the DMC.  There is no Notice of Opposition filed by the Respondent.  The supporting affirmation for the present application does not stipulate any proposed defence.  So it is not clear what matters the Respondent are disputing.  On the other hand, the Respondent has not made any admission at all.

9.Prior to the enactment of the present section 6 of the Arbitration Ordinance and Article 8 of the Model Law, the courts used to hold that a genuine dispute was one in which there was a substantial or arguable defence to the claim brought by the plaintiff in the action.  That approach no longer represents the law.  Many recent authorities confirm that a dispute will exist unless there is a clear and unequivocal admission not only of liability but also of quantum: see the case of Tommy C.P. Sze & Co., supra., Tai Hing Cotton Mill Limited v. Glencore Grain Rotterdam BV [1996] 1 HKC 363, Guangdong Agriculture Company Limited v. Conagra International (Far East) Limited [1993] 1 HKLR 113, Louis Dreyfus Trading Company Limited v. Bonarich International (Group) Limited [1997] 3 HKC 597 and F&D Buildings Services Engineering Company Limited v. Chevalier (E&M Contracting) Company Limited [2001] 3 HKC 403.

10.Thus, it is not necessary for the Respondent to state any defence.  As the Respondent has not made any admission, the Applicant’s claim is taken to be disputed.  It is not contended by the Applicant that no dispute exists between the parties.  There is, therefore, a dispute or difference between the parties.

Is the dispute or difference between the parties within the ambit of the arbitration agreement?

11.The dispute here clearly concerns the construction and interpretation of clause 6 of the DMC and also the enforcement of the rights and liabilities thereunder.  The Applicant’s contention is simply that the arbitration agreement as contained in clause 23 of the DMC refers to disputes arising between the parties and since the Applicant is not a party to the DMC, it is not bound by the arbitration agreement.

12.I do not accept the Applicant’s contention in this regard at all.  No doubt the Applicant is empowered by section 18 of the BMO to do all things reasonably necessary for the enforcement of the obligations contained in the DMC, but in exercising this power, the Applicant must observe all the provisions in the DMC, including clause 23, the arbitration agreement.  The Applicant is in fact exercising this power on behalf of all the owners.  Section 16 of the BMO stipulates that when the owners of a building have been incorporated, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by the corporation to the exclusion of the owners.  So the Applicant’s rights, powers, privileges and duties under the DMC should be the same as those of the owners.  The owners are clearly the parties to the DMC or such parties’ successors-in-title or assigns, and are bound by the arbitration agreement in clause 23 of the DMC.  Likewise, the Applicant will be bound by the arbitration agreement.

13.The Applicant refers to the case of Lam Wing Man, Fanny, supra., but that case in fact ruled that a provision in the management agreement is sufficiently wide enough to confer upon the manager the power to go to arbitration pursuant to a clause in the DMC and the parties should treat the manager as if it were made a party to the deed of mutual covenant.  In our present case, I think sections 16 and 18 have the same effect as the provision in the management agreement of the Lam Wing Man, Fanny’s case.  The Applicant should be treated as if it were made a party to the DMC.  Not only the Applicant can take advantage of the arbitration agreement in clause 23 of the DMC, it should in fact be bound by it.

14.The Applicant makes a distinction between common parts of the building and the parts belong to individual owners exclusively.  Mr. Cheng for the Applicant submits that the arbitration agreement in clause 23 of the DMC does not apply to common parts of the building, but only disputes concerning those parts of the building belonging to individual owners exclusively, such as water leaking disputes between 2 units of the building.  I think this submission is totally groundless.  Clause 23 does not make such a distinction at all.  It in fact refers to “all” disputes between the parties. 

15.Mr. Cheng further submits that the word “accordingly” in section 16 of the BMO and the following provisions in subsections (a) and (b) of section 16 explain that the proceedings concerning the common parts of the building have to be brought in the Lands Tribunal.  I do not agree with this contention either.  Section 16(b) simply states that any proceedings in the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation.  It does not stipulate that such proceedings must be brought or pursued in the Lands Tribunal.

16.Thus, I am of the view that the Applicant should be treated as a party to the DMC when exercising its power under section 18 of the BMO and is bound by the arbitration agreement, and that the arbitration agreement in clause 23 covers disputes concerning the common parts of the building.  In other words, the dispute between the Applicant and the Respondent falls within the ambit of the arbitration agreement.

The test applicable for this application

17.Mr. Lee for the Respondent submits that in fact the Respondent is not required to prove that an arbitration clause actually exists between the parties.  The correct test is whether there is a prima facie or plainly arguable case that the parties were bound by an arbitration clause: Pacific Crown Engineering Ltd v. Hyundai Engineering & Construction Co Ltd, [2003] 3 HKC 659, at 663, and     New Sound Industries Ltd v. Meliga (HK) Ltd [2005] 1 HKC 41 at 47-50.

18.When applying the test, the court should look at the evidence in support of the contention that there is a prima facie or plainly arguable case.  If that evidence is cogent and arguable, and not dubious or fanciful, then the test had been satisfied: see the case of Pacific Crown Engineering Ltd, supra., at 663-664.

19.Article 16 of the Model Law empowers the arbitral tribunal to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.  The court should do no more than forming a prima facie view on the existence of an arbitration agreement between the parties: Daily Win Engineering Ltd v. The Incorporated Owners of Greenwood Terrace, HCCT 133/2000.

20.I agree with the authorities cited by Mr. Lee.  I think clause 23 of the DMC clearly indicates a prima facie case that there is an arbitration agreement between the Applicant and the Respondent.  As aforesaid, I form the view that the Applicant should be treated as a party to the DMC because it is exercising the power on behalf of the owners, and clause 23 covers the common parts of the building.  I therefore find that the Respondent has established a prima facie case as required.

Conclusion

21.Since the Respondent has established a prima facie case that there is an arbitration agreement between the parties, the present proceedings in the Lands Tribunal must be stayed.  I therefore order that all further proceedings in the Application herein be stayed.

22.As to costs, the parties have indicated that there will be arguments on counsel’s certificate in any event.  I will not therefore make any costs order nisi, but adjourn the costs application to a date to be fixed by the Assistant Registrar.

Mr. CHENG Kai-cheong, of Messrs. Sit, Fung, Kwong & Shum, for the Applicant.

Mr. Victor LEE, instructed by Messrs. Ho & Partners, for the Respondent.