Background

In this case, the Plaintiff was a sub-contractor engaged to carry out electrical installation works. By a written Chinese agreement (the “Agreement”), the Plaintiff engaged the Defendant as its sub-contractor for the said works. The Agreement contains, inter alia, an arbitration clause (the “Arbitration Clause”) as follows:

 “  (32) 仲裁條款： (32.1) 甲乙雙方如出現合約糾紛，必須依據最新之仲裁條例規定處理。

…

(32.3) 甲乙雙方必須服從仲裁員所作出之裁決，並視為最後定案，不得異議。”

(“(32) Arbitration Clause: (32.1) If any contractual dispute arises between Party A and Party B, it shall be handled in accordance with the latest arbitration regulations.

…

(32.3) Party A and Party B must abide by the arbitrator’s decision, which shall be regarded as final, and no objection shall be raised.”)

The dispute arose when the Plaintiff was accused of failing to make timely payment under the Agreement, leading to the Defendant’s inability to pay wages to his workers. On the other hand, Plaintiff contended that it withheld funds because the Defendant failed to adhere to the agreed schedule based on the terms of the Agreement. Following a series of meetings, the Plaintiff settled outstanding wages of HK$575,483.67 for the Defendant’s workers but later claimed that such sum was a loan to the Defendant based on an alleged oral loan agreement (the “Loan Agreement”) entered into during the meetings.

The Plaintiff took out the originating summons seeking (i) an order that the Defendant do pay all monies due under the Loan Agreement; and/or (ii) an order that the Defendant do pay all monies due by virtue of sections 43C[1] and 43F[2] of the Employment Ordinance. The Defendant denied the existence of the Loan Agreement, asserting that the claimed sum was part of his contractual entitlement, and further claimed against the Plaintiff for the outstanding balances owed under the Agreement. In addition, by the summons dated 28 June 2024, the Defendant sought to stay the Plaintiff’s claims in the present proceedings in favour of arbitration pursuant to section 20 of the Arbitration Ordinance (Cap. 609) (the “Ordinance”).

Legal principles

Pursuant to sections 20(1) and (5) of the Ordinance, 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. If the Court refers the parties in an action to arbitration, it must make an order staying the legal proceedings in that action.

In considering whether a stay should be granted, the Court referred to the case of Tommy CP Sze & Co v Li & Fung (Trading) Ltd & Anors (HCCT 29/2002, 28 October 2022), setting out four fundamental questions:

1.      Is the clause in question an arbitration agreement?

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

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

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

Insofar as this case is concerned, there is no dispute that there was a dispute  between the parties, and the Arbitration Clause was effective, operative and capable of being performed. Thus the key issue left is question 4 – whether the dispute fell within the ambit of the Arbitration Clause. To determine so, the Court was tasked to construct and interpret the scope of the Arbitration Clause and ascertain objectively the intention of the parties by the modern approach, starting from the presumption in favour of arbitration, and the “one-stop” adjudication approach.

The Plaintiff’s stance was that the Arbitration Clause was narrowly confined to “contractual disputes”, which was not applicable in the present proceedings because its claims were based on a separate loan agreement and/or section 43F of the Employment Ordinance. Nevertheless, the Court did not accept such contention on the basis that the Defendant’s defence or answers to the Plaintiff’s claims constituted “contractual disputes” related to the Agreement and fell within the scope of the Arbitration Clause. The Court highlighted that adjudicating the Plaintiff’s claims without considering the Defendant’s defence would be impractical and artificial to compartmentalize the parties’ disputes. The Court was not persuaded that the intention of the parties was such that the disputes should be adjudicated by different Courts / Tribunals in a truncated manner, which would result in inconsistent findings,  duplication of legal expenses and complications in relation to enforcement. On the basis that the outcome of the Plaintiff’s claims largely depended on whether the Plaintiff owed to the Defendant under the Agreement, the dispute was plainly a “contractual dispute” within the scope of the Arbitration Clause and hence the Court ordered the proceedings in the present action be stayed.

Conclusion

This case is another example of the judiciary’s commitment to upholding arbitration agreements while ensuring that disputes are resolved efficiently and consistently. As parties increasingly rely on arbitration for dispute resolution, understanding the nuances of arbitration clauses becomes crucial. This case demonstrates the importance of drafting clear and comprehensive arbitration provisions in contracts to avoid future litigation and ensure a streamlined dispute resolution process. Parties should be well informed as to the enforceability of arbitration clauses and the potential implications of contract disputes before entering into any agreement. If in doubt, it is advisable to seek legal advice.