Aggressive Construction Co Ltd v. Data-form Engineering Ltd

HCA 2143/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2143 OF 2008

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BETWEEN 

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Before: Deputy High Court Judge To in Chambers (Open to Public)

Date of Hearing: 4 August 2009

Date of Decision: 4 August 2009

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D E C I S I O N

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Background

1.This is the Plaintiff’s application to have the Defendant’s counterclaim stayed in favour of arbitration pursuant to the arbitration agreements contained in two sub-contracts made between the parties.  The Plaintiff was the main contractor and the Defendant was its sub-contractor of a construction site in Tin Shui Wai.  The two sub-contracts were a system formwork sub-contract (“System Formwork Sub-contract”) and a timber formwork sub-contract (“Timber Formwork Sub-contract”) dated 27 March 2008 and 17 April 2008 respectively.   

2.Dispute arose between the parties over the performance of the two sub-contracts in August 2008.  On 5 September 2008, the Plaintiff served two notices to terminate the two sub-contracts and took possession of the construction site.  In relation to the System Formwork Sub-contract, the termination notice is in the following terms:

“Your persistent failure to execute your contract obligations in due diligence to undertake the Subcontract works and carry out the works in satisfactory progress has caused serious disruption and disturbance to our works.  According to the clause 17 a) v, vi, vii, xi and xiii of the Subcontract document with a copy of the extract as attached, we serve hereby in writing that your captioned subcontract is terminated with immediate effect.”

In relation to the Timber Formwork Sub-contract, the termination notice is in the following terms:

“Your failure to control your employees, agents or subcontractors has caused disruption or disturbance to our site progress.  There were even three days of works suspension of your timber formwork fixing activities at your own accord from 30 August to 2 September 2008 as recorded on site.  You have not properly executed your obligations in due diligence for the Subcontract Works.  In accordance with the clause 10i of the “Letter of Award for the subcontract” [ref. AGG/TSW24/LOA/QS0050 dated 17 April 2008), and clause 17 a) v, vi, vii, xi and xiii of the subcontract document with a copy of the extract as attached], we serve hereby in writing that your captioned subcontract is terminated with immediate effect.”

3.Subsequent to the termination, the Defendant did not pay its workers engaged in the Timber Formwork Sub-contract.  The Plaintiff, as the main contractor, paid their outstanding wages in the amount of $1,517,587.50 on 10 and 12 September 2008 in accordance with section 43C of the Employment Ordinance.  By a letter dated 12 September 2008, the Plaintiff demanded the Defendant to repay the said sum (“Statutory Claim”), but the Defendant did not respond.

4.In the course of September 2008, the parties wrote to each other making allegations and counter-allegations as to who was to blame for the termination of the two sub-contracts (“Contractual Issues”).  By a letter dated 30 September 2008, the Defendant asked for the dispute on the contractual issues in relation to the System Formwork Sub-contract to be put forward for arbitration under clause 19 of the System Formwork Sub-contract.  They wrote:

“We refer to your letter ref. AGG-TSW24-LTR-QS-00068 of 5 September 2008 in which you alleged that the Sub-Contract was terminated according to the sub-clause 17 a) v, vi, vii, xi and xiii of the General Conditions of Subcontract.

We disagree with all of your allegation and determination on the above Sub-Contract termination.

We consider that all the disputes related to this Sub-Contract have to be put forward and to be resolved in the arbitration pursuant to sub-clause 19 a) of the General Conditions of Sub-Contract which states:

…”

In another letter of the same date, the Defendant made a similar request for arbitration in respect of the dispute on the contractual issues in relation to the Timber Formwork Sub-contract.  The Defendant wrote:

“We refer to your letter ref. AGG-TSW24-LTR-QS-00067 of 5 September 2008, AGG-TSW24-LTR-PM-00077 of 17 September 2008 and AGG/TSW24/LTR/GM-00078 of 18 September 2008 in which you alleged that the Sub-Contract was terminated according to the sub-clause 17 a) v, vi, vii, xi and xiii of the General Conditions of Subcontract ….

We reiterate our disagreement on all of your allegation and determination on the above Sub-Contract termination and self-explanatory in our letter ref. DF/L08080/EY dated 5 September 2008.

There are disputes between us regarding the above Sub-Contract and we therefore consider that the disputes have to be put forward and to be resolved in the arbitration pursuant to sub-clause 19 a) of the General Conditions of Sub-Contract which states:

…”

5.The parties have no dispute that both sub-contracts contain an arbitration agreement.  The arbitration agreement is contained in clause 19 (a) of the System Formwork Sub-contract which is also incorporated into the Timber Formwork Sub-contract by clause 2 of the Timber Formwork Sub-Contract.  Clause 19(a) provided as follows:

“If any dispute in relation to the Sub-Contract arises between the Main Contractor and the Sub-Contractor, the said dispute must be determined in writing by the Main Contractor according to this clause, and the said determination shall be the final determination in terms of contract and in law with binding effect in law and in terms of contract.  The Sub-Contractor must abide by it and cannot overturn it by arbitration, litigation or any other means, unless within 28 days after the Main Contractor issues the written determination the Sub-Contractor requests the Main Contractor to resolve the said dispute by arbitration.  The matter would then be referred to one single arbitrator who would, according to the Arbitration Ordinance or any amended version of that Ordinance in force at that time arbitrate and make a final determination.  Any such kind of referrals shall be deemed to be an acceptance of arbitration within the meaning of the Ordinance.”

6.On 29 October 2008, the Plaintiff took out the present action in relation to the Statutory Claim against the Defendant.  The Defendant filed its defence and counterclaim on 16 January 2009.  In the counterclaim, the Defendant alleged that the Plaintiff was to blame for the termination of the two sub-contracts and sought damages for the Plaintiff’s breach of contract.  In other words, the Defendant raised the Contractual Issues in their counterclaim.  But the Plaintiff has so far not filed any defence to the counterclaim.  On 5 March 2009, the Plaintiff took out the present summons seeking to stay the Defendant’s counterclaim in favour of arbitration.

The issues

7.The parties have no dispute on the above factual background.  The Defendant’s stance is that the arbitration agreement contained in clause 19(a) was null and void and, if not, the Plaintiff has waived the arbitration agreement by taking out the present action.  Hence, the Defendant is entitled to proceed with its counterclaim in the present action.  The Plaintiff’s position is that the arbitration agreement was valid and binding, the Statutory Claim is a dispute outside the scope of the arbitration agreement and, even if not, the arbitration agreement has not been waived.  By virtue of article 8 of the UNCITRAL Model Law, the Plaintiff is entitled to stay the counterclaim for arbitration.

8.The issues are:

(1)  whether the arbitration agreement contained in clause 19(a) was null and void;

(2)  if not, whether the dispute over the Statutory Claim falls outside the scope of the arbitration agreement;

(3)  whether arbitration proceedings have been commenced; and

(4)  if yes, whether the Plaintiff has waived the arbitration agreement by taking out the present action.

Whether the arbitration agreement is null and void

9.The Defendant has no dispute that clause 19(a) of the System Formwork Sub-Contract was incorporated into the Timber Formwork Sub-contract.  The effect of clause 19(a) is that all disputes under the sub-contracts shall be determined in writing by the main contractor, i.e. the Plaintiff, whose determination shall be final and binding unless the sub-contractor, i.e. the Defendant, makes a written request within twenty-eight days of the determination to refer the dispute to arbitration.  Mr Wong, counsel for the Defendant, takes the view that the clause was void for ousting the jurisdiction of the court. 

10.Firstly, Mr Wong argues that under clause 19(a) the determination by the main contractor cannot be challenged by the sub-contractor by any means including litigation.  Hence, clause 19(a) is void as being contrary to public policy.  He quotes Chitty on Contracts Vol 1, 30^th edition, paragraph 16-045 which reads:

“If the parties seek by agreement to take the law out of the hands of the courts and into the hands of a private tribunal, except as permitted by the Arbitration Act 1996, then the agreement, to the extent that it deprives recourse to the courts in case of errors of law, is contrary to public policy.”

The above passage does not in any way assist Mr Wong where the arbitration agreement is permitted by the Arbitration Ordinance.

11.On the face, clause 19 does not fall within the definition of an “international arbitration agreement” in article 1(3) of the UNCITRAL Model Law set out in the 5^th Schedule to the Arbitration Ordinance.  It is therefore a domestic arbitration agreement by virtue of section 2 of the Ordinance to which Part 1A and Part II of the Ordinance apply.  The Ordinance does not prohibit arbitration agreement.  Indeed, the object of the Ordinance as unequivocally stated in section 2AA is to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense.  The Ordinance is based on the principles that subject to the observance of such safeguards as are necessary in the public interest, the parties to a dispute should be free to agree how the dispute should be resolved and the court should interfere in the arbitration of a dispute only as expressly provided by this Ordinance.

12.In submitting that the sub-contractor could not seek any legal redress by way of litigation in court or arbitration, Mr Wong simply turned a blind eye to the “unless provision” under which the sub-contractor may invoke arbitration within twenty-eight days of the written determination.  Arbitration agreements are usually exclusive.  In a sense all exclusive arbitration agreements have the effect of ousting the jurisdiction of the court.  In my view, so long as such safeguards as are necessary in the public interest are observed, there is actually a legal bias in favour of arbitration as a fair and speedy means of dispute resolution.  In my view, twenty-eight days to invoke arbitration proceedings is not an unreasonable safeguard.  Many procedures in formal litigation have to be performed within twenty-eight days.  Besides, section 2GD(1) of the Ordinance gives the arbitral tribunal or the court power to extend time in, inter alia, commencing arbitration proceedings or to take such steps in the arbitration proceedings.  I am quite unable to see how clause 19(a) could be read as ousting the jurisdiction of the court, if the sub-contractor could invoke the arbitration procedure within twenty-eight days of the main contractor’s written determination or how the twenty-eight day period to initiate arbitration could be offending. 

13.Furthermore, section 2GD(1) provides:

“(1)  This section applies to an arbitration agreement to refer future disputes to arbitration that provides for a claim to be barred, or for a claimant’s right to be extinguished, unless the claimant, before a time or within a period fixed by the agreement, takes a step –

(a)      to commence arbitration proceedings; or

(b)      to commence some other dispute resolution procedure that must be exhausted before arbitral proceedings can be commenced.”

This provision clearly envisages that parties to an arbitration agreement may impose limitation as to the time within which a party may proceed to arbitration.  This demonstrates that clause 19(a) is the type of arbitration agreement expressly recognised by the Ordinance as being valid.  There is absolutely no substance in Mr Wong’s submission.

14.Secondly, Mr Wong argues that this clause gives the main contractor the exclusive decision whether to issue a written determination and that if the Plaintiff does not issue a written determination, the sub-contractor could not seek any legal redress, whether by way of litigation in court or arbitration.  I think Mr Wong’s fear is more illusory or theoretical than real.  If a dispute arose, the parties must resort to some action or inaction.  If the main contractor is not satisfied with the sub-contractor’s performance, he must make known his dis-satisfaction by words and if not effective, in writing as in the present case.  Alternatively, if the sub-contractor is not satisfied with the main contractor’s discharge of its contractual obligation, it could request for a written determination at the threat of withholding his own performance of the sub-contract.  The main contractor would be bound to do so.  There is no substance in this submission.

15.Thirdly, Mr Wong argues that the clause infringes the rule of natural justice in that “no man shall adjudicate in his own cause” and is therefore also contrary to public policy.  This argument is also misconceived because the determination of the main contractor is only preliminary and would not be binding unless the sub-contractor agrees to be bound by not invoking the arbitration procedure.  If the sub-contractor invokes the arbitration procedure, there is no question of the main contractor being the judge of his own cause. 

16.Except by quoting the above passage from Chitty on Contracts, Mr Wong has utterly failed to show in what way clause 19(a) offends the principles under section 2AA of the Ordinance.  His submission on this ground is plainly untenable.  Indeed, arbitration agreements of this nature are not uncommon in engineering and building contracts.

Whether arbitration proceedings have been referred to or commenced

17.Next, Mr Wong argues that arbitration proceeding has not commenced as there was no determination by the Plaintiff, no acceptance or deemed acceptance of arbitration by the Defendant and no arbitrator was referred to in accordance with clause 19(a).  On the other hand, the Plaintiff relied on the two letters dated 30 September 2008 from the Defendant as requests for arbitration within the meaning of clause 19(a).  The material parts of those two letters have been quoted in paragraph 4 above.

18.In response to Mr Wong’s submission that there were no determinations, Mr Chiu, counsel for the Plaintiff, refers to the Defendant’s two letters of 30 September 2008 in which the Defendant specifically referred to the Plaintiff’s various letters alleging breach of contract on the part of the Defendant and stated that it disagreed with the Plaintiff’s determinations.  Mr Chiu submits that those letters referred to by the Defendant were the written determinations.  Mr Wong then argues that the Plaintiff’s various letters were just notice of termination of the two sub-contracts.  He submits that the Defendant is a layman, the use of the word “determination” was unfortunate and it would be wrong to read too much into that word. 

19.Sub-clause 19(a) did not specify the form which a determination should take.  I do not think a determination has to be in any particular form, so long as it is in writing and conveys to the recipient a decision of the person making the determination.  In the Defendant’s two letters of 30 September 2008, the Defendant specifically referred to the Plaintiff’s various letters alleging breach of contract on the part of the Defendant.  Those letters were in writing.  The Plaintiff’s letters of 5 September 2008 expressly stated that the Defendant was in persistent failure in executing the sub-contracts, failed to control its employees and caused disruption or disturbance to site progress and failed to carry out works with due diligence: see paragraph 2 above.  Those letters clearly conveyed the decision or the determination of the Plaintiff.  I think those letters are sufficient as written determinations.  In fact, in the two letters of 30 September 2008, the Defendant referred to the Plaintiff’s letters and used the word “determination”, which is a technical term under the sub-contracts.  The Defendant clearly expressed its understanding that the Plaintiff’s letters were written determinations. 

20.Mr Wong argues that the letters did not even come close to a notice requiring the Plaintiff to appoint or to concur in appointing an arbitrator as envisaged in section 31 of the Arbitration Ordinance.  It is true that the disputes have not been referred to an arbitrator.  However, Mr Chiu prays in aid of section 31(1) of the Ordinance, which provides:

“An arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other party or parties a notice requiring him or them to appoint or concur in appointing an arbitrator, or, where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement, requiring him or them to submit the dispute to the person so named or designated.”

21.The Plaintiff’s two letters were similar.  After referring the Plaintiff’s letters and the Defendant’s disagreement with the determinations, the Defendant stated its view that the dispute be put forward to be resolved in arbitration pursuant to clause 19(a).  The Defendant used technical terms, such as “determination” and “all the disputes have to be put forward and to be resolved in the arbitration pursuant to sub-clause 19(a)”.  Again, clause 19(a) did not specify the form which a request for arbitration must be made.  The meaning which the two letters read as a whole conveys to a reasonable reader having knowledge of the factual matrix is that the Defendant was disagreeing with the determinations and intended to put the disputes forward to be resolved by arbitration pursuant to clause 19(a).  I think that is sufficient notice by the Defendant to the Plaintiff requiring the Plaintiff to put forward the dispute to an arbitrator or to refer to an arbitrator, the effect of which is to appoint an arbitrator to adjudicate on the disputes.  Accordingly, arbitration is deemed to have commenced by virtue of section 31 of the Arbitration Ordinance.

Whether the dispute over the Statutory Claim fallsoutside the scope of the arbitration agreement

22.It is the Defendant’s argument that if the Statutory Claim falls within the scope of clause 19(a), then by taking out proceedings in the High Court in respect of the Statutory Claim, the Plaintiff has waived arbitration in relation to all of the disputes, including dispute over the Contractual Issues.  On the other hand, it is the Plaintiff’s argument that if the Statutory Claim falls outside the scope of clause 19(a), the Plaintiff is entitled to have the counterclaim stayed for arbitration by virtue of article 8(1) of the UNCITRAL Model Law.  Therefore, the issue is what is the scope of clause 19(a) on the true construction of the entire sub-contract.

23.I have quoted the full text of clause 19(a) in paragraph 5 above.  It purports to cover any dispute in relation to the sub-contract which arises between the parties.  However, Mr Chiu argues that the disputes to which clause 19(a) applies must be those  in respect of which the main contractor may make a written determination pursuant to that clause.  That determination is one which shall be final “in terms of contract and in law”.  Mr Chiu then submits that the words “in law” should be read as being qualified by the words “in terms of contract” so that the preliminary determination made by the main contractor, which is subject to arbitration, is only final in relation to the legal effect of the terms of the sub-contract.  The words “in law” should not be construed to mean that the main contractor has the preliminary right, subject to arbitration, to determine what is the effect of the general law unrelated to the terms of the sub-contract, such as provisions in the Employment Ordinance which was not part of the terms of the sub-contract.

24.That must be right.  The purpose of arbitration is to facilitate the fair and speedy resolution of disputes without unnecessary expense.  This objective is usually achieved by having specialist arbitrators to arbitrate on issues in which their expertise is called for.  Engineers and architects, for example, are usually appointed as arbitrators to adjudicate on disputes arising from engineering and building contracts.  While arbitrators usually have a good general knowledge of the law, that is, nevertheless, not their expertise.  It is usually not their function to determine what is the effect of the general law which is not related to the issues for which their expertise is called for.  With this as the matrix in which the two sub-contracts came to be made, the above construction contended by Mr Chiu is the only meaning which clause 19(a) could convey to a reasonable reader.

25.Under clause 28(a) of theSystem Formwork Sub-contract, the Defendant was under a contractual obligation to the Plaintiff to apply the periodical payments towards payment of the wages of its employees engaged on the site.  The clause imposed on the Defendant the obligation to maintain certain records and gave the Plaintiff the right to withhold the periodical payments and pay the Defendant’s employees out of the periodical payments due or to be due to the Defendant.  Under clause 28(a), if the Plaintiff was required to pay the wages of the Defendant’s employees in accordance with the Employment Ordinance, the Plaintiff may recover the same plus 5% administration fee from the Defendant.  Sub-clause 28(a) of the sub-contract provided as follows:

“To ensure the Sub-Contractor complying with relevant employment ordinance relating to its employees, the Sub-Contractor shall firstly apply the received periodical payment to pay the wages of the employees of the sub-contract project.  The Sub-Contractor should within the next 7 days from the commencement of each project submit the names and correspondence addresses of sub-sub-contractors, sub-sub-sub-contractors, etc. to the Main Contractor for registration, and to submit the same information to the Main Contractor within the next 7 days from the change of the any sub-sub-contractor.  Within the next 7 days after the payment of the wages, the Sub-Contractor shall submit a complete list of employees hired by the Sub-Contractor for the sub-contract project and such list shall be signed by all employees next to their names to acknowledge receipts of wages in the relevant period.  The format of the list is designated by the Main Contractor.  If the Sub-Contractor fails to submit such list to the Main Contractor, the Main Contractor could withhold any periodic payment or any other payment due or to be due to the Sub-Contractor, and to pay the employees’ wages with such money on behalf of the Sub-Contractor.  For the claim of wages or instalments of wages arising from or according to the Employment Ordinance, any relevant payment, costs or expenses paid by the Main Contractor (including 5% being the administration fee), shall be reimbursed by the Sub-Contractor.”

26.Quite independent of clause 28(a), the Plaintiff is also under a statutory obligation imposed on it by section 43C of the Employment Ordinance as the main contractor responsible for the construction site to pay the wages of the employees of his sub-contractor engaged on the site.  Section 43F entitles the main contractor to recover against his sub-contractor the wages which he has so paid in the discharge of his statutory obligation under section 43C.

27.According to the statement of claim filed by the Plaintiff in this action, the Plaintiff is pursuing its claim under sections 43C and 43F of the Employment Ordinance and not pursuant to the terms of the Timber Formwork Sub-contract.  In the defence and counterclaim filed by the Defendant, the Defendant’s pleaded defence is one of denial.  In paragraph 4 of the defence and counterclaim, the Defendant denied that the employees in question were its employees.  Hence, the determination of Plaintiff’s claim in this action turns on the existence or non-existence of any contract of employment between the employees in question and the Defendant.  This matter does not relate to the terms of the Timber Formwork Sub-contract.  Had the Plaintiff sought to rely on clause 28(a) and claimed in addition to the wages so paid plus the 5% administration fee, then the claim would have been a dispute in relation to the sub-contract, which would be within the scope of clause 19(a).  I, therefore, come to the conclusion that the dispute over the Statutory Claim does not fall within the scope of clause 19(a).

28.Accordingly, the Plaintiff’s bringing of the present action is irrelevant to the question whether the arbitration agreement has been waived by the Plaintiff.  In any event, the Plaintiff has not filed any defence to the counterclaim.  By its counterclaim, the Defendant has raised the disputes over the Contractual Issues.  The counterclaim is a matter which is the subject of an arbitration agreement.  The Plaintiff does not admit the claim.  There is clearly a dispute between the Plaintiff and the Defendant over the Contractual Issues embodied in the counterclaim.  The Defendant has failed to show that the arbitration agreement is null and void, inoperative or incapable of being performed.  As the Plaintiff has never submitted any “first statement on the substance of the dispute” in relation to the counterclaim within the meaning of article 8 of the UNCITRAL Model Law as applied by section 6(1) of the Ordinance, there is no discretion not to order a stay of the counterclaim: see Tai Hing Cotton Mill Limited and Glencore Grain Rotterdam BV and Another CACV 143 of 1995 at page 16.  For these reasons, I grant a stay of the counterclaim sought by the Plaintiff.

Whether the Plaintiff has waived the arbitration agreement

29.The above reasons are sufficient to dispose of the application.  Out of caution, Mr Chiu argues further on the assumption that the Statutory Claim falls within the scope of clause 19(a) that the Plaintiff has not waived the arbitration agreement in relation to the whole of the dispute including the dispute over the Contractual Issues by instituting the present action.

30.As a general principle, a party may unilaterally waive his right under a term of an agreement if the effect of that contractual term is entirely to his benefit: see Chitty on Contracts, Vol 1 30^th ed, para 22-046.  In the present case, the terms of the arbitration agreement contained in clause 19(a) are clearly for the benefit of both parties.  There could not be any waiver.

31.Waiver is a unilateral act by one party not supported by consideration moving from the other party.  The basis of waiver is best explained on principles analogous to those of equitable forbearance or promissory estoppel.  Waiver is regarded by Chitty on Contracts, Vol 1 30^th ed, para 22-044 as “waiver by estoppel”.  Thus, where a waiver is alleged by one party of a contract, he must prove some promise or conduct by the other party, which is sufficient under the doctrine such as equitable estoppel or promissory estoppel.  To be sufficient to amount to a waiver, such promise or conduct must be clear and unequivocal, and that the claimant must have suffered detriment by having altered his position in reliance on such a promise such that it would be unjust to allow the promisor to go back on his promise.

32.In the present case, the Defendant is quite unable to refer to any promise or conduct on the part of the Plaintiff which was sufficient to raise an estoppel.  The only conduct which the Plaintiff has committed was to bring the present action on the Statutory Claim against the Defendant.  That could hardly be said to be a clear and unequivocal promise to the Defendant that it has waived its right to have the Contractual Issues to continue to be dealt with by arbitration.  The Defendant is also unable to show it had somehow by reliance on the Plaintiff’s conduct altered his position to its detriment or why it would be unjust to allow the Plaintiff to go back on his promise.

33.Mr Chiu referred me to article 8(2) of the UNCITRAL Model Law which provides:

“Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issues is pending before the court.”

He submits that this provision makes it clear that even if a party has brought an action in court on an arbitrable issue, there is nothing to prevent a parallel arbitral proceeding from being conducted, or an award being made, on the same issue.  It is therefore wrong to argue that the mere act of taking out legal proceeding in relation to a matter which can also be dealt with by arbitration would invalidate or nullify the operation of the arbitration agreement.

34.Mr Chiu also quoted the case of Wan Chung Construction Company Ltd and Lingnan University and another HCCT 43 of 2001 in support of his contention that a party may elect to select one issue among several arbitrable issues to be dealt with by the court and to leave the others to be dealt with by arbitration.  I do not think that authority supports that proposition.  That case was concerned with the court’s power under section 26 of the Ordinance to order an arbitration agreement to cease to have effect and under that circumstance to refuse to stay any action brought in breach of the arbitration agreement.

35.However, I agree with Mr Chiu’s submission that article 8(2)permits an arbitrable issue to proceed in parallel with arbitral proceedings on the same issue.  Thus, if the Plaintiff’s Statutory Claim continues in this action and the Defendant’s counterclaim is stayed, article 8(2) of the UNCITRAL Model Law would enable the parties to continue with the arbitration proceedings in relation to the Statutory Claim notwithstanding that it is an issue pending before the Court.  The Defendant would not be prejudiced for it may continue to bring forward the Statutory Claim before the arbitrator if it was relevant.  I also agree with Mr Chiu that multiplicity of proceedings does not necessarily result in conflicting decisions.  If an adjudication is reached in one forum, the principle of issue estoppel would operate and the action in the other forum will almost as a matter of course be stayed with attendant cost consequences: see Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 at 642.  Article 8(2) should not be construed to mean that once the Plaintiff has brought an action on one arbitrable issue, separate and distinct arbitrable issues raised by the Defendant cannot be stayed as of right at the instance of the Plaintiff under section 6 of the Ordinance.

36.In the present case, assuming that the dispute over the Statutory Claim is an arbitrable issue within the scope of clause 19, if the Defendant does not agree to have that claim dealt with in the present action, it would have been open to the Defendant to apply under section 6 of the Ordinance, as has the Plaintiff, to have the action stayed for arbitration so that the Statutory Claim may be dealt together with the dispute over the Contractual Issues.  In that case, the Court would have no discretion but to grant a stay.  However, by filing the defence and counterclaim, the Defendant has submitted its “first statement on the substance of the dispute” within the meaning of article 8 of the UNCITRAL Model Law.  It has since lost its right to seek a stay of the Plaintiff’s action. 

37.Even if I were to find the dispute over the Statutory Claim within the scope of the arbitration agreement, the Defendant has, by filing in its defence and counterclaim, lost its right to seek a stay of the Plaintiff’s claim in this action.  Article 8(2) of the UNCITRAL Model Law permits the disputes over the Contractual Issues to proceed in parallel by way of arbitration while the Statutory Claim is pending in this action.  The disputes are so separate that I do not think the Defendant would suffer any prejudice if a stay of the counterclaim is allowed.  If I had to proceed down this route, I would still exercise my discretion by granting a stay of the Defendant’s counterclaim in favour of arbitration.

Conclusion

38.For the above reasons, all the issues are answered in favour of the Plaintiff.  The Defendant has failed to show that the arbitration agreement contained in clause 19(a) is null and void.  The dispute over the Statutory Claim is outside the scope of the arbitration agreement.  The Plaintiff has not waived the arbitration agreement by taking out the present action.  Arbitration proceedings have commenced.  As the Plaintiff has never submitted any “first statement on the substance of the dispute” in relation to the counterclaim within the meaning of article 8 of the UNCITRAL Model Law, the Court has no discretion not to order a stay of the counterclaim.  Accordingly, I order the Defendant’s counterclaim be stayed for arbitration.  The Defendant shall pay the Plaintiff’s costs of this application, which I assess at $105,000.

Mr. Simon Chiu, instructed by Messrs To, Lam & Co., for the Plaintiff

Mr. Philip Wong, instructed by Messrs May Cheng & Co., for the Defendant