Cpc Construction Hong Kong Ltd v. Harvest Engineering (HK) Ltd and Antoher
Read the full judgment text of HCA 2096/2013 on BabelCite. This High Court CFI judgment was delivered on 2 July 2014.
1. The plaintiff (“CPC”) was engaged as the main contractor under a contract dated 4 February 2010, the main contract for a construction project (“the project”), in which the employer was the Water Supplies Department of the Hong Kong Government (“WSD”). The contract sum was around $117,000,000.
Cited by 4 cases · Cites 1 case
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HCA 2096/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2096 OF 2013 ____________________
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_______________ D E C I S I O N _______________ Introduction 1.The plaintiff (“CPC”) was engaged as the main contractor under a contract dated 4 February 2010, the main contract for a construction project (“the project”), in which the employer was the Water Supplies Department of the Hong Kong Government (“WSD”). The contract sum was around $117,000,000. 2.By a subcontract dated 9 February and 11 May 2010 (“the subcontract”), CPC wholly sublet the main contract works to the 1st defendant (“Harvest”), essentially at the main contract sum, less 3 per cent. Harvest was not qualified to have been a direct bidder for the main contract and I accept that the arrangements between CPC and Harvest bear the hallmarks of licence borrowing. 3.The subcontract has an arbitration clause, being clause 23.1, in the following terms, as interpreted from the original Chinese:
4.The 2nd defendant (“Mr Lau”) was and is a shareholder and director of Harvest. 5.During the course of the subcontract, Harvest informed CPC that it was having internal financial difficulties, that is, cash flow problems such that the necessary works under the subcontract might be seriously affected. In circumstances and on terms which are the subject matter of dispute, CPC agreed to advance to Harvest various payments up to a ceiling of $16.7 million. 6.CPC says that the terms of the arrangements are set out in a loan agreement dated 20 March 2013 and made between CPC and Harvest (“the loan agreement”) and a guarantee of the same date provided by Mr Lau (“the guarantee”), under which he guaranteed and indemnified Harvest’s obligations under the loan agreement. 7.Subsequently, CPC and Harvest (by Mr Lau), signed a supplemental loan agreement dated 9 July 2013 (“the supplemental loan agreement”), which increased the total maximum sum to be lent to $21,000,000. But otherwise, it made no changes to the terms of the loan agreement. On the same day, Mr Lau signed a supplemental guarantee (“the supplemental guarantee”), under which he guaranteed and indemnified the increased loan amount. 8.CPC says that it has advanced the total of $20,254,049.10, although a higher figure of around $24 million was pleaded. On 11 October 2013, CPC demanded immediate repayment under the terms of the loan agreement, but it says no part of the sum has been repaid. 9.Therefore, by the specially endorsed statement of claim dated 31 October 2013, CPC has claimed the outstanding loan and interest against Harvest as principal debtor and Mr Lau as guarantor. 10.On 10 January 2014, Harvest and Mr Lau filed a defence and counterclaim. In short, the defence denies the existence or effectiveness of the loan agreement, supplemental loan agreement, guarantee and supplemental guarantee. Harvest says that any sums advanced to it by CPC were special payments made to ease its cash flow, it having been agreed that such payments would be set off against the interim payments received by CPC under the main contract and to be taken into account upon finalisation of the final accounts of the subcontract. 11.The counterclaim asserts that CPC owes a sum approaching $24 million under the subcontract, representing the value of work done, less payments already made prior to an asserted wrongful termination of the subcontract by CPC. 12.By summons dated 10 March 2014, CPC has applied for summary final judgment against Harvest and Mr Lau for the relief claimed in the statement of claim, albeit at a lower dollar figure, and a stay of the counterclaim in the favour of arbitration pursuant to section 20 of the Arbitration Ordinance Cap 609. 13.By cross-summons dated 21 May 2014, Harvest and Mr Lau have applied for a stay of the claim in favour of arbitration pursuant to section 6 of the Arbitration Ordinance Cap 341. In the affirmation of Mr Lau, filed in support of that application, however, he recognises that the counterclaim arises out of the subcontract and applies for an order that both the claim and the counterclaim in the action be stayed in favour of arbitration. 14.CPC’s application is supported by the two affirmations of its Commercial Manager, Man Shek Him Stephen. CPC’s application is opposed by, and Harvest and Mr Lau’s application are supported by, the affirmation of Mr Lau. 15.At this hearing, CPC has been represented by Mr Victor Dawes of counsel, and Harvest and Mr Lau have been represented by Mr Danny Choi and Mr Alan Fan of counsel. Applicable principles 16.The principles applicable on an application for summary judgment are well known. The burden is on the defendant to identify issues which ought to go to trial. Whilst what the defendant says does not have to be believed, it does have to be capable of belief to constitute a sufficiently arguable defence to meet the threshold onus. 17.In considering whether there are triable issues, the court does not just take the alleged defence at face value, but tests it against the evidence disclosed in the affidavits, including by reference to contemporaneous documents and the inherent probabilities or improbabilities. What the court should not do is to conduct a mini trial of complicated factual issues. 18.The principles applicable on an application for a stay of proceedings in favour of arbitration are also well known, whether under the provisions of the old or the new Arbitration Ordinance, both of which apply Article 8 of the of the Model Law. A stay is mandatory if there is a written arbitration agreement between the parties, unless it is null and void or inoperative or incapable of being performed, and if there are disputes or differences between the parties which fall within the ambit of the arbitration agreement. 19.It is also trite that an application summary judgment is not the obverse side of the coin of an application for a stay. Any actual dispute between the parties will fall to be dealt with in arbitration, if that dispute falls within the ambit of the arbitration clause. Therefore, on cross-applications for a stay and for a summary judgment, the stay application should be dealt with first. Issues to be decided 20.In the circumstances of the cross-applications and the applicable principles, the logical order for dealing with the issues as arise seems to me to be as follows:
Further background facts 21.Before turning to deal with these questions in that order, it would be helpful to fill in some further background facts. 22.As already stated, the main contract and the subcontract were entered into in February 2010 and Harvest was not qualified to have bid for the main contract. CPC was so qualified, because it was listed under category C of the Government’s list of approved contractors for public works. Once works began on the project, all site staff were Harvest staff, except Mr Man and a Mr Ko (“Patrick Ko”), who replaced a Mr Michael Ng of CPC as its site agent. I have already agreed that these arrangements bear the hallmarks of licence borrowing. 23.Sometime in 2012, Harvest experienced cash flow problems. There is a dispute between the parties as to when those problems were notified to CPC. Harvest says it was in the July, whereas CPC says it was in the November. In any event, on the basis that Harvest considered that the problems were caused by gross under-certification by the engineers and underpayment by WSD under the main contract and hence by CPC under the subcontract, Harvest employed the services of a company partly owned by Mr Man, to assist in its claims for interim payment. 24.By November 2012, CPC’s senior management was summoned by WSD and given a warning as to the slow progress of works. In subsequent discussions between CPC and Harvest, the question of a loan or advance payments was raised. 25.In late December 2012, CPC produced and showed to Harvest a professionally drawn loan agreement, together with a security document seeking security over a property owned by Mr Lau and/or his wife, the other shareholder in Harvest. I note that the draft loan agreement includes a governing law and jurisdiction clause providing for the non‑exclusive jurisdiction of the Hong Kong courts. 26.It seems that the provision of that security was not acceptable to Mr Lau and there was some discussion as to the provision of security over the equipment and plant at the project site. A list of equipment and plant was provided but, ultimately, this was not acceptable as security. 27.In January 2013, the engineer issued an adverse report on the progress of the project works. Any subsequent adverse report would have risked CPC’s removal from the approved Government list of contractors. CPC exhorted Harvest to accelerate progress by engaging more workers and deploying more resources. However, this was not possible without some financial assistance. 28.Before any formal loan arrangement or agreement was made between the parties, CPC made two advance payments to Harvest on 16 January and 4 February 2013 in the sums of $2,711,036 and $2,189,819 respectively. The payments were made by cheque payable to Harvest. The summaries of the breakdown of the payments identified the money was used for payment of wages of employees and Harvest’s subcontractors and suppliers. The summaries were signed by both CPC and Harvest and were noted with the statement, “Contractual and commercial arrangements to be decided.” 29.The two advance payments were sent under cover of a letter headed, “Special payment,” to Harvest and containing the sentence that, “The said sum shall be deducted from any of your entitlements under the subcontract.” 30.Negotiations as to any loan agreement and any security agreement continued. The next draft of a loan agreement, in substantially different form than the first draft shown to Harvest, was provided in around February 2013. That draft included a governing law and jurisdiction clause providing for the non‑exclusive jurisdiction of the courts of Hong Kong. The draft personal guarantee of Mr Lau had a similar clause. 31.One of the clauses in the draft loan agreement provided for CPC to have an overriding and unfettered right to demand immediate repayment of all outstanding parts of the loan at any time and to suspend the loan at any time, from time to time, without notice to Harvest. Harvest, through Mr Lau, sought the deletion of that clause, possibly on legal advice. But that was not acceptable to CPC. 32.The draft loan agreement also provided that the loan should be used through the operation of a designated bank account requiring the joint signatures of a person from each of CPC and Harvest. Steps were taken to open that new account. 33.Ultimately, the loan agreement was signed on 20 March 2013. The guarantee was signed on the same day. Mr Lau signed for himself and for Harvest. 34.The loan agreement contains, at clause 2, a series of conditions of the loan. Clause 2(a) and (b) identify CPC’s overriding and unfettered rights to demand immediate repayment and that Harvest undertook to repay all outstanding loans and interest payable under the agreement forthwith at the request of CPC. 35.Clause 2(c) and (d) identify that the loan must be used for the purposes under the subcontract, and that is not a loan of a one-off sum and each loan advanced will be subject to the unanimous approval and confirmation of the representatives of CPC and Harvest, that each loan shall only be used for such expenses and paid by the designated joint checking account. 36.Clause 2(e) provides that CPC is entitled to deduct and set off any amount payable by CPC to Harvest under the subcontract against any liability as is payable under the loan agreement at any time. Clause 2(h) provides that all the amounts to be paid by Harvest under the loan agreement shall be paid in full without any set off counterclaim, deduction or withholding. 37.Clause 5 provides for the loan agreement to be governed by and construed in accordance with the laws of Hong Kong, and that the parties irrevocably submit to the non-exclusive jurisdiction of the courts of Hong Kong in respect of any claims, disputes, matters or legal proceedings without prejudice to CPC’s right to enforce the loan agreement in any other courts of competent jurisdiction. 38.The guarantee provides for Mr Lau to give an irrevocable and continuing guarantee as principal obligor and principal debtor. Clause 9 provides that any payments payable by the guarantor under the guarantee shall be paid free of any restrictions or conditions and free of any deduction or withholding, whether by way of set off or otherwise. 39.Clause 14 of the guarantee is a governing law and jurisdiction clause providing for Hong Kong law and the non-exclusive jurisdiction of the courts of Hong Kong. 40.Between March and May 2013, advance payments number 3 to 6 were made. I note that the summaries continued to include the phrase, “Contractual and commercial arrangements to be decided,” and that each of the covering letters headed special payment, contained the sentence, “The said sum shall be deducted from any of your entitlements under the subcontract.” 41.In late May 2013, discussions began as to a potential increase in the loan amount. On 9 July 2013, CPC and Harvest (by Mr Lau) signed the supplemental loan agreement increasing the maximum loan amount to $21 million and Mr Lau gave the supplemental guarantee. 42.Between July and September 2013, CPC made 24 further advanced payments to Harvest. Again, each seems to have been made against the summary suggesting that the contractual and commercial terms were yet to be decided and under a covering letter stating that the sums advanced shall be deducted from Harvest’s entitlements under the subcontract. 43.It seems that the intended acceleration of progress of the project works was achieved. Certainly, the engineer did not issue a second or consecutive or adverse report. 44.Between April and October 2013, CPC received from WSD a total of around $28.5 million as interim payments for work carried out on the project, that is, carried out by Harvest. None of that sum was paid to Harvest. 45.On 3 October 2013, CPC gave notice of termination under the subcontract and evicted Harvest from the project site. By that date, Harvest says, approximately 95 per cent of the project works had been completed. 46.On 11 October 2013, CPC made the demands which led to the commencement of these proceedings on 31 October 2013. Stay of counterclaim 47.It is probably convenient first to deal with the question of whether or not to stay the counterclaim, as in essence, this is not a matter of controversy between the parties. 48.The subject matter of the counterclaim, as pleaded, undoubtedly arises out of the subcontract, and there is no suggestion that the arbitration agreement is invalid or incapable of being performed. There is, therefore, no reason not to stay the counterclaim. 49.As it happens, arbitration proceedings have already been commenced by CPC in relation to the dispute between the parties arising under the subcontract. Stay of claim 50.It is common ground that the court should ask itself four question. See, for example, Tommy CP Sze & Co Ltd v Li & Fung (Trading) Ltd [2003] 1 HKC 418 at 434-435:
51.In this case, the issue is simply whether the dispute is within the ambit of the arbitration agreement. 52.CPC says “no”; the payments advanced under the loan agreement and the supplemental loan agreement were stand alone and independent transactions and falling outside the arbitration clause as the dispute over repayment does not arise under the subcontract. Had it been otherwise, it is argued, the parties would have included an arbitration clause in the loan agreement and/or the guarantee and the supplements to them. 53.On the other hand, Harvest and Mr Lau say that the loan agreement is clearly not a stand alone or independent agreement. For example, reference is made to the terms of the loan agreement that the amounts loaned must be used for the expenses under the subcontract and that each loan must be made via the designated checking account of Harvest, operated through the joint signatures of the appointed representatives of both Harvest and CPC. 54.Because this identifies that Harvest was not allowed to withdraw money loaned without CPC’s approval and the money borrowed could only be used for the purposes of the subcontract, Harvest says that the loan agreement is connected to and wholly relates to the matter of Harvest’s entitlements or liabilities under the subcontract. On any view, the submission is made, it cannot be said that the disputes between the parties on this claim are entirely unrelated to the transaction covered by the arbitration agreement in question. 55.That test comes from the cases to which Harvest referred in argument. It was submitted that the modern approach is to interpret an arbitration agreement upon the assumption that unless they indicate clearly to the contrary, commercially minded parties are likely to want all disputes arising from their relationship to be decided by the same tribunal and will want to avoid different disputes being resolved by different tribunals or courts. Further, any doubts concerning the scope of arbitral issues should be resolved in favour of arbitration, and arbitration clauses should be construed as broadly as possible. See, for example, Fiona Trust & Holding Corporation v. Privalov [2008] 1 Lloyd’s Rep 254 at paragraphs 12 to 13 and 31. 56.Hence, the submission is made that because the arbitration agreement is simply that “all disputes” are to be referred to arbitration, that is very wide in scope and could cover each and ever dispute between the parties. 57.It is also argued that this case on all fours with the recent decision of Mimmie Chan J in Yinde Cases Investments Ltd v Shihlien China Holding Co Ltd (unreported, HCA 2059/2012, 20 January 2014) at paragraphs 21 to 39, where the relevant arbitration agreement provided for “all disputes connected to this agreement.” 58.However, I do not think that the relevant arbitration agreement in this case is so broad. It specifically provides for arbitration as the dispute resolution mechanism for “all disputes arising from” the subcontract. In my view, the words “arising from” a contract are probably more narrow in scope than the words “connected to” a contract. But I also do not think it necessary to become absorbed in minute semantic examination. 59.Hong Kong is usually regarded as an arbitration friendly jurisdiction. I am also conscious of the fact - and I confess to a personal judicial inclination in the same direction - that in an effort to provide for one-stop adjudication, the court will strive to construe a contract such that parties are taken to have intended to avoid the “forensic nightmare” of having different claims determined in different fora. See, for example, Harbour Insurance Co Ltd v. Kansa General International Insurance Co Ltd [1993] 1 Lloyd’s rep 455 at 470 and Continental Bank NA v. AeakosCompaniaNaviera SA [1994] 1 Lloyd’s Rep 505 at 593. 60.But it seems to me that in this case, CPC and Harvest and Mr Lau, as parties to the loan agreement and the guarantee and the supplemental loan agreement and supplemental guarantee, have indicated clearly a contrary intention than that any dispute or difference arising under those agreements should be dealt with in arbitration. None of the agreements are silent as to dispute resolution and rather than containing arbitration clauses, all of them contain clauses providing for dispute resolution in the non-exclusive jurisdiction of the Hong Kong courts. 61.Therefore, whilst it might have been thought, in the absence of any clear indication to the contrary, that these parties might sensibly have decided, and be taken to have decided, that any disputes arising between them on the loan arrangements, which were undoubtedly put in place to facilitate the better performance of the subcontract, would be dealt with in arbitration along with any disputes under the sub contract, they have actually expressly provided to the contrary. 62.Hence the precise scope of the phrase “arising from the subcontract” is not determinative in this case, even though it is probably entirely fair to say that the disputes on the claim appear to be connected to the matters arising under the subcontract, and to the disputes under the subcontract as will have to be dealt with on the arbitration. 63.I acknowledge that one of the intended defences to the claim is that the loan agreement and the guarantee did not exist. I can address later whether there is any oral collateral agreement which might affect their operation. But the loan agreement and the guarantee were negotiated between and signed by CPC, Harvest and Mr Lau, so were the supplemental agreements. Plainly, the documents exist. 64.Another intended defence relies upon the alleged representation that CPC would not rely on the loan agreement or the guarantee or the supplements to them, until after the final account on the subcontract. That intended defence obviously envisages there might come a time when reliance on the documents would come into play, and that there might be a claim under them, which might become the subject of a dispute between the parties to them. To cater for those circumstances, the parties expressly incorporated the non-exclusive Hong Kong court jurisdiction clause. 65.Mr Choi relies upon the fact that the reference to Hong Kong court jurisdiction is to non-exclusive jurisdiction. He says that simply removes any presumption that arbitration might have been intended but is just one of the factors to be taken into account in deciding whether or not clause 23 of the subcontract is wide enough to cover disputes arising under the loan agreement. 66.But it seems to me that the reference to jurisdiction of the courts in Hong Kong is inconsistent with an agreement to arbitrate in Hong Kong, whether the jurisdiction is exclusive or non-exclusive. The position might be different if the court referred to on a non-exclusive basis is not the Hong Kong court. But where the court is the Hong Kong court, viewed objectively that seems to me to be clearly inconsistent with an agreement that all disputes should be referred to Hong Kong arbitration. 67.I also accept Mr Dawes’ submission that there may be seen some commercial sense in deliberately choosing litigation, so that the claim to repayment of loaned money is not to be subject to the same arbitration process as other matters as might arise, perhaps not least because that would permit an application for summary judgment under the court rules if it were to be felt that there is no defence to the claim, or part of it. 68.I am, therefore, not persuaded that the claim falls to be stayed in favour of arbitration. Summary judgment 69.As was made clear in Mr Dawes’ oral submission, CPC is seeking summary judgment in respect of only part of its pleaded claim, though it maintains its full claim. The amount pursued is calculated by reference to an appendix to Mr Man’s first affirmation, which draws a line on the sums advanced after the special advance payment number 25 made on 19 September 2013. Added to the payments made directly to a subcontractor, Sunrise Enterprises Ltd (“Sunrise”) totalling $6.25 million, the total amount of loans pursued on a summary judgment basis is $20,254,049, to the nearest dollar. 70.Obviously this cut-off point has been decided upon because it provides a figure within the maximum amount of $21 million provided in the supplemental loan agreement. Any further amounts said to have been loaned are above that maximum. 71.I can focus on the claim against Harvest, as the claim against Mr Lau is contingent on it and will stand or fall, depending on proof of Harvest’s defaults. 72.On behalf of Harvest, Mr Choi submits that even the most casual reading of the lengthy affirmations filed on behalf of the parties readily reveals substantial or complicated factual disputes which cannot be resolved without trial. The core of the dispute is as to how much was paid by CPC to Harvest pursuant to the loan agreement and supplemental loan agreement and whether Harvest is entitled to a set off against sums due to it from CPC under the subcontract. 73.By way of summary, the following defences are put forward:
74.As to the existence of the loan agreement, Mr Choi’s submission is founded on a suggestion that it might not have been signed by CPC at the time. This is because the loan agreement had not been signed by CPC when Mr Lau signed for Harvest and a signed version was not returned to Harvest until these proceedings. 75.However, I do not see anything in this point. Even on Mr Lau’s evidence that the purpose of the loan agreement was explained to him as being to satisfy CPC’s internal auditors, it would have had to have been signed by CPC. Of course, it is also correct to point out that Mr Lau signed the guarantee, which did not need to be signed by CPC. 76.As to the alleged collateral oral agreement, it is common ground between the parties that such an agreement is capable of constituting a defence thwarting an application for summary judgment, depending upon the particular circumstances of the case. I accept Mr Dawes’ submission that such collateral contracts, which seek to vary or add to or negate the terms of the principal contract, are bound to be viewed with suspicion. 77.In this case, the particular collateral oral agreement put forward in Mr Lau’s evidence is as follows. In order to show WSD that CPC had taken measures to improve the rate of progress of the project works and to avoid the issuance of a consecutive second adverse report, Harvest was requested to engage more workers and to deploy additional resources on site. In return, Mr Man, on behalf of CPC, promised Harvest to make special payments to defray the expenses necessarily incurred. The special payments would attract an interest rate of 12 per cent per annum, and the special payments would be set off against the interim payments received by CPC under the main contract and be taken into account upon finalisation of the final accounts of the subcontract. 78.Mr Lau says that he was assured by Mr Man that CPC would continue to advance money to Harvest if the payments under the subcontract would not be able to cover the expenses incurred by Harvest and that CPC would only enforce the loan agreement against Harvest, if it was still indebted to CPC after a set off against Harvest’s entitlement under the subcontract at the final account stage, following completion of the project. 79.Bearing in mind the very close connection between the subcontract and the terms of the loan agreement, in particular that the loans, from time to time, have to be approved as being used specifically for the purposes of the project works and were intended to be operated through the joint designated account, and that a right of set off was allowed to CPC at least, I accept this aspect of the defence satisfies the test of being credible. That is, notwithstanding the suspicion that will be cast upon it, it is capable of being believed. 80.In so holding, I take into account the strong point made by Mr Dawes when he asked rhetorical questions as to why else Harvest would have opened a designated checking account, and why else would payments have been channelled through it? I accept those points show a consistency with the existence and operation of the loan agreement, but they do not seem to me to make incredible the assertion that even if the advance payments were loans made under the loan agreement or the supplemental loan agreement, there was a collateral oral agreement as to the circumstances in which an attempt to enforce those agreements would be triggered. 81.It seems to me that it is at least credible that where CPC expressly reserved to itself the right to exercise a set off against sums otherwise due from it to Harvest under the progress payments flowing from the main contract and the subcontract, that CPC would have agreed to look first to that source for repayment of any advance, before making any claim under the loan agreement for any sum outstanding upon final accounting between the parties under the subcontract. 82.I also take account of the fact that CPC received, between April and October 2013, around $28.4 million from WSD for work done by Harvest and none of it was passed on, nor was any of it used to set off the debt said to be owed under the loan agreement and the supplemental loan agreement. Though the relationship between these receipts and payments paid or payable under the interim payment mechanism is not wholly clear from the evidence, that fact seems to be a pointer to the need for a trial, rather than a pointer to summary judgment. 83.In any event, I would not have been minded to grant summary judgment to the full extent claimed. I think that there is an arguable defence that at least some of the advance payments were not made under the loan agreement. I have in mind the first two advance payments - though I accept that those advances specifically envisaged that the commercial and contractual arrangements for them were yet to be decided - and the advance payments which were not made through the designated checking account, such as those to Sunrise. I do not accept all of the points made by Mr Choi in relation to the payments made to Sunrise, but I do accept the fact that the payments were made direct, rather than through the designated checking account, allows a proper argument that these payments did not fall under the loan agreement. 84.It also seems to me that the very fact that CPC has had to limit its claim to summary judgment to a dollar figure which falls within the maximum loan amount of $21 million, notwithstanding that it says other amounts were loaned up to a total exceeding $24 million, raises a question as to which, if any, of the special advanced payments were under the loan agreement arrangements. 85.I am conscious that any payment made by CPC on behalf of Harvest is one for which Harvest will have to reimburse CPC, but the question is as to how and when. I am also conscious that the loan agreement contains clause 2(h), which excludes the right of set off, such that the alleged collateral oral agreement is contrary to an express clause, but that does not make such an agreement incapable of being believed. 86.I also take into account that none of the documentation which provides the advance payments identifies that any of them are being made pursuant to the loan agreement or the supplemental loan agreement, even though some of them are made by the designated checking account which was created as a result of those arrangements; and to the fact that a number of other advances were made by CPC direct to Harvest’s subcontractors or suppliers, which payments were certainly not the subject of the loan agreement, but rather, subject to an accounting contra-charge or set off procedure under the interim payment mechanics under the subcontract. 87.It seems to me that these are all matters which require ventilation at a trial and in the disclosure and other interlocutory process as ordinarily arises on the way to a trial. I would grant Harvest and Mr Lau unconditional leave to defend. Consequential matters 88.As a result, I have come to the view that whilst the counterclaim must be stayed in favour of arbitration, the claim does not fall to be stayed in favour of arbitration, but is not one for which summary judgment should be given. 89.As I have not given judgment on any aspect claimed, no question of any stay of execution arises. In any event, I think I would accept the submission from Mr Dawes, that were I to have given summary judgment on any part of the claim, I must have accepted that the alleged collateral oral agreement was incapable of belief, so that there would be no answer to clause 2(h) of the loan agreement, prohibiting any right of set off. 90.But, the overall result is nevertheless one which I reach, not without some reluctance, primarily because it leaves open the possibility that there will be litigation in this court and in an arbitration simultaneously, when there is bound to be a considerable overlap in the issues and evidence canvassed in each forum. In a way, this is precisely the forensic nightmare which it is the judicial bias to prevent by ordering one-stop adjudication. 91.During argument, and by reference to the possible permutations of decision on the various questions, I raised with counsel the possibilities as to what I might order in any given situation. Mr Dawes was, of course, alive to the judicial concern which I have, and he was quick to take instructions. He informed me that if I am minded to give summary judgment on a significant amount claimed, CPC would be content to refer the tail of its claim to arbitration by consent. However, if I am not minded to grant summary judgment at all, CPC would prefer to maintain its claim in this action, rather than to pursue it in the arbitration proceedings. 92.I have therefore asked whether it might be appropriate at least to consider ordering a stay of the claim pending the arbitration. That is not the same as staying the claim in favour of arbitration, rather it would be a case management decision, that to avoid duplication of time and resources and the possibility of inconsistent results, this action would be held in abeyance pending the result of the arbitration proceedings. 93.If I were to order such a stay, it would not require CPC to abandon its claim and to pursue it instead by consent in the arbitration. However, it might well think that on reflection that would be an appropriate course to adopt. 94.I think this is a matter on which CPC should be permitted a little more time for that reflection. Also, it seems to me, that whether or not this action is to continue may be relevant to the question of costs. 95.On costs, I am at present minded to make an order that there should be no order as to costs. This is on the basis that CPC failed to obtain any summary judgment, but succeeded in the stay of the counterclaim, whilst Harvest and Mr Lau failed to stay the claim, but succeeded in defeating judgment. But I can see that, if matters are all dealt with in an arbitration, I might order either that the costs of the applications and perhaps of the action, should be costs in the arbitration, or that they might be reserved to the arbitrator. 96.In those circumstances, I propose to reserve this position.
Mr Victor Dawes, instructed by ONC Lawyers, for the plaintiff Mr Danny Choi and Mr Alan Fan, instructed by Deannie Yew and Associates, for the 1st and 2nd defendants |
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