DCCJ15011/2001 E. BON BUILDING MATERIALS CO. LTD. v. CHINA STATE CONSTRUCTION ENGINEERING CORPORATION - LawHero
DCCJ15011/2001
區域法院（民事）Deputy District Judge S.M. Sham6/3/2002
DCCJ15011/2001
DCCJ 15011/2001
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 15011 OF 2001
BETWEEN
E. BON BUILDING MATERIALS COMPANY LIMITED Plaintiff
And
CHINA STATE CONSTRUCTION ENGINEERING Defendant
CORPORATION
CORAM: Deputy District Judge S.M. Sham in Chambers
Date of Hearing: 22nd and 27th February 2002
Date of Handing Down Decision: 7th March 2002
DECISION
INTRODUCTION
1. The plaintiff has commenced legal proceedings claiming against the
defendant for the sum of HK$ 562,562.00, being the price of goods
sold and delivered. The plaintiff is a building materials supplier and
the defendant is a building work contractor. The goods in question
were delivered to the defendant at different sites on various
occasions during the period from December 2000 to June 2001.
2. In the present hearing, the defendant applies for a stay of all
proceedings in this action and asks the matter be referred to
arbitration pursuant to Section 6 of the Arbitration Ordinance and /or
under the inherent jurisdiction of the court.
3. The goods forming the plaintiff’s claim could be divided into two
groups; one group being delivered pursuant to purchase contracts
issued by the defendant which were signed by both parties whilst the
other group were governed by purchase contracts which were
unsigned. The purchase contracts were all of the same form and on
the back of each purchase contract, there were printed the same
terms and conditions including an arbitration clause.
4. At the hearing, the plaintiff no longer argued against the existence of
an arbitration agreement between the parties and conceded that the
governing contract between them was the purchase contract issued
by the defendant whether singed or unsigned and the arbitration
clause was one of the terms of their agreement. And the plaintiff
further conceded that the new Section 6 of the Arbitration Ordinance
as amended in 1996 is mandatory in nature.
2
EFFECT OF ARTICLE 8
5. Section 6 of Arbitration Ordinance governs the court’s power to
refer matter to arbitration in certain cases, subsection (1) reads:
“ Subject to subsection (2) and (3), article 8 of the UNCITRAL
Model Law ( Arbitration agreement and substantive claim before
court) applies to a matter that is the subject of a domestic arbitration
agreement in the same way as it applies to a matter that is the subject
of an international arbitration agreement.” Subsections (2) and (3)
are not relevant to our present consideration. The new Section 6 has
adopted article 8 of the UNCITRAL Model Law as part of the law.
The relevant part of the terms of article 8 is that: “ 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.” Comparing
with the old Section 6, the new section uses the word “ shall”, by
virtue of the terms in article 8, instead of “may” as in the old section
for the court to make an order staying the proceedings.
6. In view of the amendment made to Section 6 by adopting article 8 of
the UNCITRAL Model Law, in my view, the court would now be
3
more readily in holding the parties to their bargain by referring the
dispute to arbitration once the court is satisfied that there is a written
clause evidencing the parties’ intention to refer their dispute to
arbitration unless the party seeking a stay of proceedings has
admitted the claim or the party opposing the stay could show that the
arbitration agreement is null and void, inoperative or incapable of
being performed.
POWER OF COURT TO GIVE RELIEF WHERE THE DISPUTE
INVOLVES QUESTION OF FRAUD
7. Section 26(2) of Arbitration Ordinance provides that “ where an
agreement between the parties provides that disputes which may
arise in the future between them shall be referred to arbitration, and a
dispute so arise involves the question whether any such party has
been guilty of fraud, the Court shall, so far as may be necessary to
enable that question to be determined by the Court, have power to
order that the agreement shall cease to have effect and power to give
leave to revoke the authority of any arbitrator or umpire appointed
by or by virtue of the agreement.”
8. This is the ground, in fact the sole ground, relied upon by the
plaintiff in opposing the defendant’s application. The plaintiff
4
argued that as the defendant has made allegation of fraud against the
plaintiff, the court should refuse a stay pursuant to Section 26 of the
Arbitration Ordinance and allow the matter go to trial so that its
name could be cleared in public. The plaintiff submitted that the
defendant had made allegation of fraud against the plaintiff by
alleging that the Bonco products supplied by the plaintiff were fake
in that they were not from a source of origin from Japan. The basis
for the plaintiff’s contention is that in the affirmation of the
defendant witness, Miss Hilda Wong, she said that :
“ para.35- In or about early April 2001, the Hong Kong Housing
Authority, which was the employer for the Tseung Kwan O project,
suspected that some of the Bonco products supplied by E Bon ( the
plaintiff) did not have a source of origin from Japan. This was
inconsistent with all the purchase contracts and inconsistent with the
sample provided by E Bon.
Para.36- On 17 April 2001, there was a newspaper report stating
the there were fake Bonco products which did not have a source of
origin from Japan and that there were investigations by the ICAC
against E Bon and /or its associated companies.
Para.37- Accordingly, during the period from 25 April to 13 July
2001, China State ( the defendant) wrote 5 letters to E Bon to
confirm that all Bonco products supplied by E Bon had a source of
5
origin from Japan, otherwise China State would reject all Bonco
products ( which would include removal of all Bonce products
installed), in which case China State would hold E Bon liable for all
loss and damages caused to China State as a result.”
LEGAL PRINCIPLES REGARDING OPERATION OF
PROVISIONS OF SECTION 26
9. Madam Justice Kwan in Wan Chung Construction Co. Ltd. V
Lingnan University & Another HCCT 43/ 2001 ( Unreported) has
summarised the legal principles regarding the operation of the
provisions of Section 26 of Arbitration Ordinance as follows;
(1)- For the court’s power to be invoked under these provisions, it is
necessary that the dispute involves the question whether any party to
the arbitration agreement has been guilty of fraud. To satisfy this
requirement, a “ concrete and specific issue of fraud” must be
raised. There must be “ sufficient prima facie evidence of fraud”
with “ convincing evidence to support the allegations”, not a mere
bandying about of allegations.
(2)- If the stay of proceedings to arbitration is opposed by the party
charged with the fraud, then almost as a matter of course the court
will refuse a stay so that the matter can proceed to trial. This is a
reflection of the view that when an allegation of fraud is made
6
against a person, he is entitled to have that issue heard in public, so
that his name may be cleared in public.
(3)- Where the party making an allegation of fraud opposes a stay of
proceedings to arbitration and wishes the action to proceed in the
court, the court has a discretion to refuse or grant a stay of
proceedings. Whether it does so or not will depend on all the
circumstances of the case.. the court’s normal approach is to grant a
stay of proceedings to arbitration, when the “ sole matter relied upon
is the charge of fraud”. Even if there is a strong prima facie case of
fraud in specific respects made out, that is not by itself enough to
warrant refusing a stay.
THE PLAINTIFF’S CASE
10. The plaintiff argued that their case fell within the situation as
described in paragraph (2) above, here the plaintiff was the party
charged with fraud, it was therefore entitled to clear its name in
public. The court should as a matter of course refuse a stay.
11. In my judgment, whether the party charged with fraud or the party
making an allegation of fraud, the party concerned must show that
their dispute involves question of fraud and have to pass the test as
set out in Paragraph (1) above by showing sufficient prima facie
7
evidence of fraud with convincing evidence to support the
allegations. The defence put forward in the present case does not, in
my view, amount to any allegation of fraud. What the defendant was
saying in effect is that the Bonco products supplied by the plaintiff
were not corresponding to the samples as provided. The fact that the
defendant mentioned about the investigations by ICAC into the
plaintiff’s supply of alleged fake Bonco products in the newspapers,
in my view, it was only given as the reason why the defendant would
write to the plaintiff asking for proof of source of origin. The
defendant did not allege that the Bonco products were fake, it simply
said that they were not from Japan, and thus they were not the same
kind of products as defendant had contracted for.
CONCLUSION
12. For the reasons given, I conclude that the dispute between the
plaintiff and the defendant involves no question of fraud and since
parties had provided for arbitration in their contract, I therefore grant
the defendant’s application for a stay of all further proceedings in
this action.
COSTS- INDEMNITY BASIS
13. Regarding the question of costs, the defendant has asked for costs on
an indemnity basis on the grounds that the plaintiff have pursued a
8
hopeless case. The court of Appeal in Choy Yee Chung v Bon Star
Development Limited H.K.L.R.D. 1327 has summarized the law
relating to the award of indemnity costs as follows: “ A taxation of
the successful party’s costs on an indemnity basis could properly be
ordered where the proceedings were scandalous or vexatious or had
been initiated or prosecuted maliciously or for an ulterior motive or
in an oppressive manner. The circumstances in which an indemnity
award might properly be made were not restricted to circumstances
such as those described.” In Glyne Investments Ltd. V Hill Samuel
Life Assurance Ltd., June 17, 1997 ( unrep.), the English court said
that where the court found that the conduct of the litigation was
deserving of moral condemnation an order for costs on the
indemnity basis was appropriate. In the present case, parties were
just arguing on different interpretation of the law, I see no reason to
award indemnity costs. I therefore refuse to grant such costs.
14. Costs of this action including the costs of and occasioned by this
application be to the defendant on a party to party basis, to be taxed
if not agreed. I shall make it an order nisi, it is to be made absolute at
the expiration of 14 days from the date of handing down decision.
9
Sham Siu-man
Deputy District Judge
Mr. Richard Leung inst’d by Messrs. Pang, Wan & Choi for the Plaintiff
Mr. Terence Wong of Messrs. Lovells for the Defendant
10
E. BON BUILDING MATERIALS CO. LTD. v. CHINA STATE CONSTRUCTION ENGINEERING CORPORATION
DCCJ 15011/2001
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 15011 OF 2001
BETWEEN
E. BON BUILDING MATERIALS COMPANY LIMITED Plaintiff
And
CHINA STATE CONSTRUCTION ENGINEERING Defendant
CORPORATION
CORAM: Deputy District Judge S.M. Sham in Chambers
Date of Hearing: 22nd and 27th February 2002
Date of Handing Down Decision: 7th March 2002
DECISION
INTRODUCTION
1. The plaintiff has commenced legal proceedings claiming against the
defendant for the sum of HK$ 562,562.00, being the price of goods
sold and delivered. The plaintiff is a building materials supplier and
the defendant is a building work contractor. The goods in question
were delivered to the defendant at different sites on various
occasions during the period from December 2000 to June 2001.
2. In the present hearing, the defendant applies for a stay of all
proceedings in this action and asks the matter be referred to
arbitration pursuant to Section 6 of the Arbitration Ordinance and /or
under the inherent jurisdiction of the court.
3. The goods forming the plaintiff’s claim could be divided into two
groups; one group being delivered pursuant to purchase contracts
issued by the defendant which were signed by both parties whilst the
other group were governed by purchase contracts which were
unsigned. The purchase contracts were all of the same form and on
the back of each purchase contract, there were printed the same
terms and conditions including an arbitration clause.
4. At the hearing, the plaintiff no longer argued against the existence of
an arbitration agreement between the parties and conceded that the
governing contract between them was the purchase contract issued
by the defendant whether singed or unsigned and the arbitration
clause was one of the terms of their agreement. And the plaintiff
further conceded that the new Section 6 of the Arbitration Ordinance
as amended in 1996 is mandatory in nature.
2
EFFECT OF ARTICLE 8
5. Section 6 of Arbitration Ordinance governs the court’s power to
refer matter to arbitration in certain cases, subsection (1) reads:
“ Subject to subsection (2) and (3), article 8 of the UNCITRAL
Model Law ( Arbitration agreement and substantive claim before
court) applies to a matter that is the subject of a domestic arbitration
agreement in the same way as it applies to a matter that is the subject
of an international arbitration agreement.” Subsections (2) and (3)
are not relevant to our present consideration. The new Section 6 has
adopted article 8 of the UNCITRAL Model Law as part of the law.
The relevant part of the terms of article 8 is that: “ 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.” Comparing
with the old Section 6, the new section uses the word “ shall”, by
virtue of the terms in article 8, instead of “may” as in the old section
for the court to make an order staying the proceedings.
6. In view of the amendment made to Section 6 by adopting article 8 of
the UNCITRAL Model Law, in my view, the court would now be
3
more readily in holding the parties to their bargain by referring the
dispute to arbitration once the court is satisfied that there is a written
clause evidencing the parties’ intention to refer their dispute to
arbitration unless the party seeking a stay of proceedings has
admitted the claim or the party opposing the stay could show that the
arbitration agreement is null and void, inoperative or incapable of
being performed.
POWER OF COURT TO GIVE RELIEF WHERE THE DISPUTE
INVOLVES QUESTION OF FRAUD
7. Section 26(2) of Arbitration Ordinance provides that “ where an
agreement between the parties provides that disputes which may
arise in the future between them shall be referred to arbitration, and a
dispute so arise involves the question whether any such party has
been guilty of fraud, the Court shall, so far as may be necessary to
enable that question to be determined by the Court, have power to
order that the agreement shall cease to have effect and power to give
leave to revoke the authority of any arbitrator or umpire appointed
by or by virtue of the agreement.”
8. This is the ground, in fact the sole ground, relied upon by the
plaintiff in opposing the defendant’s application. The plaintiff
4
argued that as the defendant has made allegation of fraud against the
plaintiff, the court should refuse a stay pursuant to Section 26 of the
Arbitration Ordinance and allow the matter go to trial so that its
name could be cleared in public. The plaintiff submitted that the
defendant had made allegation of fraud against the plaintiff by
alleging that the Bonco products supplied by the plaintiff were fake
in that they were not from a source of origin from Japan. The basis
for the plaintiff’s contention is that in the affirmation of the
defendant witness, Miss Hilda Wong, she said that :
“ para.35- In or about early April 2001, the Hong Kong Housing
Authority, which was the employer for the Tseung Kwan O project,
suspected that some of the Bonco products supplied by E Bon ( the
plaintiff) did not have a source of origin from Japan. This was
inconsistent with all the purchase contracts and inconsistent with the
sample provided by E Bon.
Para.36- On 17 April 2001, there was a newspaper report stating
the there were fake Bonco products which did not have a source of
origin from Japan and that there were investigations by the ICAC
against E Bon and /or its associated companies.
Para.37- Accordingly, during the period from 25 April to 13 July
2001, China State ( the defendant) wrote 5 letters to E Bon to
confirm that all Bonco products supplied by E Bon had a source of
5
origin from Japan, otherwise China State would reject all Bonco
products ( which would include removal of all Bonce products
installed), in which case China State would hold E Bon liable for all
loss and damages caused to China State as a result.”
LEGAL PRINCIPLES REGARDING OPERATION OF
PROVISIONS OF SECTION 26
9. Madam Justice Kwan in Wan Chung Construction Co. Ltd. V
Lingnan University & Another HCCT 43/ 2001 ( Unreported) has
summarised the legal principles regarding the operation of the
provisions of Section 26 of Arbitration Ordinance as follows;
(1)- For the court’s power to be invoked under these provisions, it is
necessary that the dispute involves the question whether any party to
the arbitration agreement has been guilty of fraud. To satisfy this
requirement, a “ concrete and specific issue of fraud” must be
raised. There must be “ sufficient prima facie evidence of fraud”
with “ convincing evidence to support the allegations”, not a mere
bandying about of allegations.
(2)- If the stay of proceedings to arbitration is opposed by the party
charged with the fraud, then almost as a matter of course the court
will refuse a stay so that the matter can proceed to trial. This is a
reflection of the view that when an allegation of fraud is made
6
against a person, he is entitled to have that issue heard in public, so
that his name may be cleared in public.
(3)- Where the party making an allegation of fraud opposes a stay of
proceedings to arbitration and wishes the action to proceed in the
court, the court has a discretion to refuse or grant a stay of
proceedings. Whether it does so or not will depend on all the
circumstances of the case.. the court’s normal approach is to grant a
stay of proceedings to arbitration, when the “ sole matter relied upon
is the charge of fraud”. Even if there is a strong prima facie case of
fraud in specific respects made out, that is not by itself enough to
warrant refusing a stay.
THE PLAINTIFF’S CASE
10. The plaintiff argued that their case fell within the situation as
described in paragraph (2) above, here the plaintiff was the party
charged with fraud, it was therefore entitled to clear its name in
public. The court should as a matter of course refuse a stay.
11. In my judgment, whether the party charged with fraud or the party
making an allegation of fraud, the party concerned must show that
their dispute involves question of fraud and have to pass the test as
set out in Paragraph (1) above by showing sufficient prima facie
7
evidence of fraud with convincing evidence to support the
allegations. The defence put forward in the present case does not, in
my view, amount to any allegation of fraud. What the defendant was
saying in effect is that the Bonco products supplied by the plaintiff
were not corresponding to the samples as provided. The fact that the
defendant mentioned about the investigations by ICAC into the
plaintiff’s supply of alleged fake Bonco products in the newspapers,
in my view, it was only given as the reason why the defendant would
write to the plaintiff asking for proof of source of origin. The
defendant did not allege that the Bonco products were fake, it simply
said that they were not from Japan, and thus they were not the same
kind of products as defendant had contracted for.
CONCLUSION
12. For the reasons given, I conclude that the dispute between the
plaintiff and the defendant involves no question of fraud and since
parties had provided for arbitration in their contract, I therefore grant
the defendant’s application for a stay of all further proceedings in
this action.
COSTS- INDEMNITY BASIS
13. Regarding the question of costs, the defendant has asked for costs on
an indemnity basis on the grounds that the plaintiff have pursued a
8
hopeless case. The court of Appeal in Choy Yee Chung v Bon Star
Development Limited H.K.L.R.D. 1327 has summarized the law
relating to the award of indemnity costs as follows: “ A taxation of
the successful party’s costs on an indemnity basis could properly be
ordered where the proceedings were scandalous or vexatious or had
been initiated or prosecuted maliciously or for an ulterior motive or
in an oppressive manner. The circumstances in which an indemnity
award might properly be made were not restricted to circumstances
such as those described.” In Glyne Investments Ltd. V Hill Samuel
Life Assurance Ltd., June 17, 1997 ( unrep.), the English court said
that where the court found that the conduct of the litigation was
deserving of moral condemnation an order for costs on the
indemnity basis was appropriate. In the present case, parties were
just arguing on different interpretation of the law, I see no reason to
award indemnity costs. I therefore refuse to grant such costs.
14. Costs of this action including the costs of and occasioned by this
application be to the defendant on a party to party basis, to be taxed
if not agreed. I shall make it an order nisi, it is to be made absolute at
the expiration of 14 days from the date of handing down decision.
9
Sham Siu-man
Deputy District Judge
Mr. Richard Leung inst’d by Messrs. Pang, Wan & Choi for the Plaintiff
Mr. Terence Wong of Messrs. Lovells for the Defendant
10