The recent case of Schindler Lifts (Hong Kong) Ltd v Sui Chong Construction and Engineering Co Ltd concerned a lift contractor, Schindler Lifts, claiming outstanding debts for works done from the main contractor, Sui Chong. There were two disputes between the parties, namely:-
- An allegation that despite the substantial completion certificate having been issued, Sui Chong failed to make the Penultimate Payment (“the 1st Dispute”).
- An allegation that despite the relevant 12 month period having passed, the Architect did not issue the defects rectification certificate and Sui Chong failed to pay the Final Payment despite an implied term to the effect that it must pay the Final Payment to Schindler Lifts within a reasonable period (“the 2nd Dispute”).
Sui Chong applied to stay the District Court proceedings on the ground that the parties had agreed to submit the dispute to arbitration. The issues before the Court were:-
- whether Sui Chong had before the present proceedings, by participating in Small Claims Tribunal (“SCT”) proceedings in respect of the parties’ previous dispute relating to the same contract, waived its right to arbitrate (“the 1st Issue”); and
- if so, whether a discretionary stay should nonetheless be ordered (“the 2nd Issue”).
Section 20 of the Arbitration Ordinance, Cap 609 provides for a mandatory stay of court proceedings in favour of arbitration where the action is the subject of an arbitration agreement, as follows:-
“(1) Article 8 of the UNCITRAL Model Law, the text of which is set out below, has effect:
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
…… (4) If the court refers the parties in an action to arbitration, it must make an order staying the legal proceedings in that action.” [emphasis added]
Thus, the three requirements of Article 8(1) must be complied with before a mandatory stay can be ordered. The first requirement i.e. that the applicant must request the court to refer the parties to arbitration not later than when submitting his first statement on the substance of the dispute was one of the key issues to be resolved in this case. The question was whether by filing a defence in the SCT Proceedings, Sui Chong had submitted its “first statement on the substance of the dispute” within the meaning of Article 8(1) of the Model Law.
The Court held that Sui Chong had not waived its right to arbitrate because:-
- According to the language of Article 8(1) of the UNCITRAL Model Law, the correct principle was that the defendant’s “first statement” must be submitted in the action sought to be stayed and not in another action. It was clear that a “statement” in this context did not mean a statement in another action before another court or tribunal.
- It would be wrong to construe Article 8(1) narrowly to mean that a defendant was debarred from invoking the mandatory stay in other proceedings if he had made a statement in other proceedings before another court.
- In the present case, the only opportunity for Sui Chong to have done an act constituting a submission of a first statement would occur after the commencement of the present District Court action.
The Court also rejected Schindler Lift’s argument that the arbitration agreement was null, void, inoperative or incapable of being performed. It also found that the disputes fell within the ambit of the arbitration clause. Accordingly, the Court held that the action be stayed pending arbitration.
The Court held that even if wrong on the 1st issue, it would have exercised its discretion to allow the proceedings to be stayed under section 48(5) of the District Court Ordinance, Cap.336 because:-
- Schindler Lifts had agreed to arbitrate its disputes with Sui Chong and this was a sufficient reason to stay the action under the Court’s inherent jurisdiction.
- Sui Chong had not waived its right to arbitrate. The fact that it submitted a first statement so as to disentitle it from a mandatory stay under the Arbitration Ordinance did not mean it had waived its right to arbitrate.
- Without a stay, the 1st and 2nd Disputes may have to be resolved in two different tribunals. Since the defence that Sui Chong had filed in the SCT only related to the 1st Dispute, and the 2nd Dispute did not arise until the 2nd SCT Proceedings, nothing in Article 8(1) prevented Sui Chong from requesting a referral to arbitration of the 2nd Dispute, in respect of which Sui Chong had not filed a defence on the substance of the dispute (that had yet to arise) in any proceedings.
- It was highly undesirable to have the 1st Dispute heard by the court and the 2nd Dispute heard by an arbitrator, as it would cause added delay and expense and a risk of inconsistent findings.
- It was necessary to have the 1st and 2nd Disputes heard together with Sui Chong’s potential dispute against the employer in a single arbitration pursuant to clause 43 of the HKIA Conditions. Sui Chong had yet to be paid by the employer in respect of the Penultimate and Final payments. If Sui Chong was found by the court liable to pay Schindler Lifts those sums, it would need to claim those sums against the employer in a separate arbitration.