Lee Cheong Construction & Building Materials Ltd v The Incorporated Owners of The Arcadia, HCA 21/2012, 30 March 2012
This was the Defendant's application for an order staying proceedings in favour of arbitration, pursuant to section 20 of the Arbitration Ordinance (Cap 609). The contract in question contained a Clause 25, stating that the contract shall be interpreted in accordance with the laws of Hong Kong and governed by the same and that both parties submit to the exclusive jurisdiction of the Courts of Hong Kong. The contract also included a Clause 27, stating that the contract was governed by and shall be construed according to the laws of Hong Kong and that the parties would refer all disputes in connection with the contract to arbitration, which shall be conducted in a way recognized by the Hong Kong International Arbitration Centre.
Counsel for the Plaintiff argued that Clauses 25 and 27 of the contract were inconsistent, the effect of which (applying the basic principles of contract construction and contra proferentum) was that Clause 25 came first and must prevail and therefore Clause 27 had no effect; once the parties had submitted themselves to the non-exclusive jurisdiction of the Courts of Hong Kong, there could be no referral to arbitration. The Court rejected this argument, holding that Clause 25 was no more than a submission to the Hong Kong jurisdiction. It did not, the Court said, impose a positive obligation to resolve all disputes only in the Hong Kong courts. The Court said that if the effect of Clause 25 was as contended for by Counsel for the Plaintiff, there would be no reason to include Clause 27 in the contract at all. Clause 25, the Court said, submitted the parties to the Hong Kong jurisdiction, not their disputes. The Court also rejected Counsel for the Plaintiff's argument that Clause 27 merely granted an option for the parties to arbitrate and no more. Accordingly, the Court granted the stay.
Although the arbitration clause was upheld in this case, as a matter of good drafting, we usually expressly provide in the contract that the submission to the jurisdiction of the Hong Kong Court is subject to the arbitration clause. If the parties to the case had done that, the costs and time spent arguing the point could have been saved.