OCEAN MORE ENTERPRISES LTD. v. COMMERCIAL UNION ASSURANCE CO. PLC and WAN CHUNG HOLDINGS LTD. (Third Party)

HCCT000012B/1997

1997, No. HCCT 12

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION & ARBITRATION PROCEEDINGS

NO. 12 OF 1997

____________

BETWEEN
	OCEAN MORE ENTERPRISES LIMITED	Plaintiff
	AND
	COMMERCIAL UNION ASSURANCE CO. PLC.	1st Defendant
	WAN CHUNG HOLDINGS LIMITED	2nd Defendant
	and
	WAN CHUNG HOLDINGS LIMITED	Third Party

____________

Coram: The Hon. Mr. Justice Sakhrani in Chambers

Date of Hearing: 23 June 1999

Date of Judgment: 23 June 1999

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J U D G M E N T

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1. I am satisfied that the 2nd Defendant is entitled to the order that it seeks for specific discovery of all correspondence between the architects and the Building Department including all submitted drawing/plans. An important issue in these proceedings is whether the 2nd Defendant has delayed completion of the works and if so, to what extent it has delayed the works.

2. The affidavit of Mr. Joseph Wong shows that the 2nd Defendant's expert requires all the correspondence and plans submitted by the Plaintiff's architect to the Building Department, to ascertain whether or not the delay was in fact caused by late submission of drawing and plans by the architect or whether the delay was caused by the 2nd Defendant in the completion of the works. These are documents which relate to the issues in the action and as such they ought to be disclosed.

3. I make an order in the terms of paras. 1 and 2 of the summons dated 11th June 1999. Costs of the application are to be reserved.

	(Arjan H. Sakhrani)
	Judge of the Court of First Instance

Representation:

Mr. Simon Wong of Messrs. Kwok & Chu for Plaintiff

Mr. Joseph Wong Kin of Messrs. Lee Chan Cheng for 2nd Defendant and Third Party

HCCT000012A/1997

1997, No. Con 12

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BETWEEN
	OCEAN MORE ENTERPRISES LIMITED	Plaintiff
	AND
	COMMERCIAL UNION ASSURANCE COMPANY PLC	First Defendant
	WAN CHUNG HOLDINGS LIMITED	Second Defendant
	WAN CHUNG HOLDINGS LIMITED	Third Party

Coram: The Hon Mr Justice Findlay, in Chambers

Date of hearing: 9 February 1999

Date of handing down of judgment: 11 February 1999

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JUDGMENT

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1. I have before me applications by the plaintiff for further and better particulars to be supplied by the first and second defendants, and an application by the first defendant for such particulars to be supplied by the third party.

2. As to the request for further and better particulars from the first defendant, the main point of contention between the parties is that the first defendant says that it has made it clear that, according to Mr Graham, it was not pursuing the allegations in respect of which the particulars are sought. This is not really so. What the first defendant said is that it was not able to particularise the allegations because it has not received these particulars from the second defendant. That does not say that the first defendant is abandoning the allegations. In fact, it says the opposite. I think the situation should be made clear. Accordingly, I order that that first defendant supply the particulars requested in requests (1), (2), (3), (7), (8), (9) and (14) of the plaintiff's request within 28 days, subject to the qualification that, if the first defendant says unequivocally that it is not pursuing the allegations in respect of which those particulars are requested, that will be a sufficient answer.

3. Subject to the matter of costs, the first defendant does not oppose an order that it supply the further particulars requested in paragraphs (5)(a) and (6)(a) and (b), so far as it refers to paragraph (5)(a), of the plaintiff's request. The first defendant is ordered to supply these within 28 days.

4. As to the plaintiff's request for particulars from the second defendant, the only requests pursued are those in paragraphs (1)(a), and (6) to (9). Miss Tsang does not oppose an order in these terms. Accordingly, the second defendant is ordered to supply those particulars within 21 days.

5. The first defendant is pursuing only the requests for further particulars contained in paragraphs (5)(a) and (6)(a) and (b), so far as it refers to paragraph (5)(a), of its request. Miss Tsang does not object to these. The third party is order to supply these particulars within 21 days.

6. There remains only the question of costs. Both Mr Graham and Miss Tsang say that many of requests were abandoned, as they were. This point would only have some merit if the particulars ordered had been supplied or, at least, offered. This was not done. Mr Graham repeats his point that the first defendant made the position clear to the plaintiff. I have not accepted that. Mr Graham's other point is that some of the particulars had already been ordered, and others should have been requested at the same time. That may be so but the first defendant did not supply the particulars concerned, and did not offer to supply the particulars it says should have been requested earlier. It seems to me that there is no reason why costs should not follow the event. The first defendant and the second defendant are ordered to pay the plaintiff's costs of its applications, and the third party is ordered to pay the costs of the first defendant's application.

	JK FINDLAY
	Judge of the High Court Court of First Instance

Representation:

Mr Peter Clayton, instructed by Messrs Kwok & Chu, for the plaintiff.

Mr Peter Graham, instructed by Messrs Deacons Graham & James, for the first defendant.

Miss Teresa Tsang, of Messrs Lee & Chan, for the second defendant and third party.

HCCT000012/1997

1997, No. Con 12

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

_______________

BETWEEN
	OCEAN MORE ENTERPRISES LIMITED	Plaintiff
	and
	COMMERCIAL UNION ASSURANCE COMPANY LIMITED	Defendant

_______________

Coram: the Hon Mr Justice Findlay, in Chambers

Date of hearing: 31 July 1997

Date of handing down of judgment: 5 August 1997

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JUDGMENT

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The Background

1. The plaintiff entered into a building contract with a contractor (the contractor). The defendant and the contractor entered into a "contract bond" under which they were "held and firmly bound unto" the plaintiff in the sum of $2 million. It was a condition of the bond that "on default by the Contractor the [defendant] shall satisfy and discharge the damages sustained by the [plaintiff] thereby up to the amount" of $2 million.

2. On 12 February 1997, the plaintiff issued a writ of summons against the defendant claiming that, as a result of the contractor's default, it had suffered damages under two heads -

the cost of completing the construction, being $1.65 million; and

liquidated damages for delay in completion, being $2.63 million, and that, under the contract bond, the defendant was obliged to pay $2 million.

3. In its defence, the defendant says, amongst other things, that, under the contract between the plaintiff and the contractor, any dispute or difference was to be referred to arbitration, and the plaintiff has given notice of the disputes to be so referred. The defendant says no award has been made under the arbitration, and, pending resolution of the arbitration, the plaintiff cannot establish that the contractor was in breach or that the plaintiff has suffered any damages as a result. The defendant alleges that, therefore, the plaintiff's claim is premature, and denies that any obligation under the bond has arisen. In the arbitration, the contractor is making a counterclaim against the plaintiff.

4. The defendant issued a summons on 5 May 1997 seeking an order that, pending the outcome of the arbitration, this action be stayed. The basis of this application is solely the existence of the arbitration between the plaintiff and the contractor. This is the summons before me.

How Does the Arbitration Affect the Litigation?

5. The arbitration is an irrelevance to the litigation in this court.

6. There is no arbitration agreement between the plaintiff and the defendant, nor is there any agreement between them that they are in any way bound by the outcome of the arbitration between the plaintiff and the contractor. If there were such an agreement under which both parties were bound, this application would be well founded. Clearly, in those circumstances, it would be quite wrong to allow litigation to proceed when the matter in issue would be decided by another tribunal. But the situation here is that, whatever the outcome of the arbitration - whether it is in favour of the plaintiff, or the contractor, or is evenly spit - both the plaintiff and the defendant are free to exercise their rights in this court.

7. In this action, the defendant pleads, in effect, that the plaintiff is bound by the outcome of the arbitration. I do not think this is the case. It seems to me that, if the arbitrator were to make an award against the plaintiff, for example, by reason of a mistake of fact in the arbitration about which the plaintiff can do nothing, finding that the plaintiff had suffered no damages, the plaintiff could still proceed in this litigation, and seek to establish that it had indeed suffered such damages. In other words, the bond obliges the defendant to pay damages suffered by the plaintiff, not what an arbitrator finds to be the damages suffered by the plaintiff.

8. Equally, the defendant is not bound by the outcome of the arbitration. If the arbitrator finds that the plaintiff has suffered damages, the defendant is still at liberty to seek to show that, in fact, the plaintiff did not suffer such damages. This much Mr Reyes concedes.

9. In Alfred McAlpine Construction Limited v Unex Corporation (1994) 70 BLR 26, Glidewell, L.J. found, in effect, that, on the construction of the guarantee there concerned, the maximum liability of the guarantor would be determined by the arbitration. This was because an express term of that guarantee provided that the liability of the guarantor would not be greater than the liability under the express terms of the main contract (which included the arbitration clause), and that liability was to be determined by arbitration. There is no such express term in the bond before me, and I doubt if one can be implied. Although, on the findings of Glidewell, L.J., the beneficiary under the guarantee was bound by the arbitration in that it could not recover more than the award to the contractor, the guarantor was not so bound. The court held that, in the absence of any acceptance by the guarantor that it would be bound by the award, it would not order a stay.

10. I would go further, and want such an acceptance by both parties to be so bound before I would find that a stay would be appropriate. It would not be reasonable to expect only one party to bind itself to the outcome of the arbitration.

11. Mr Clayton says that he accepts that there should be a stay in relation to the liquidated damages claim. He says that because this claim is based on the architect's certificate. The court may not have the power to open up such a certificate, but the arbitrator does. Mr Reyes responds by saying that it would not be right to stay proceedings in relation to only part of a claim. I agree with that submission. I can see no advantage to anyone in ordering a stay of the proceedings so far as they concern the liquidated damages claim, but allow the proceedings to continue on the claim on the cost of completion. This would be a procedural nonsense. What is to happen if the arbitrator finds that the liquidated damages claim is not made out, and the plaintiff does not accept this? I cannot see any basis on which the plaintiff could be prevented from pursuing this claim against the defendant. And the same applies to the defendant: If the arbitrator finds that the liquidated damages claim is established, why should the defendant accept this? The defendant is at liberty to seek to show in the litigation that, in fact, those damages are not claimable. We would then have lopsided litigation, with the issue as to liquidated damages lagging behind the other claim, or, possibly, having to be litigated afresh. The fact that the court and the arbitrator have different powers, and therefore may reach different results, demonstrates all the more that there are different issues in the arbitration and in the litigation. Both the plaintiff and the defendant are entitled to have their disputes between them resolved in this court according to the ordinary law, without regard to the special provisions of the arbitration agreement. It is only if they both waive those rights by agreeing to be bound by the outcome of the arbitration that one can say that the arbitration has any relevance to the litigation between the plaintiff and defendant. There is no need to emphasise that it would be a good thing if it were not necessary to have two sets of dispute resolution procedures over essential the same facts, but it is unnecessary only if the parties make it so.

The Result

12. Accordingly, it seems to me that, in spite of the concession made by Mr Clayton, I should not accede to an approach that would stay any part of the litigation. I appreciate, of course, that it is unusual not to fall in with a concession by counsel against his own case, but here I agree with Mr Reyes that it would not be helpful to either party to stay only part of the proceedings. It being my view that it would also not be productive to stay the whole proceedings, it follows that the application to stay should be refused. I dismiss the summons.

The Costs

13. The matter of costs has not been argued, but I do not see any argument against the usual order that costs follow the event. Accordingly, I make an order nisi that the defendant pay the plaintiff's costs in any event.

Representation:

Mr Peter Clayton, instructed by Messrs Kwok & Chiu, for the plaintiff.

Mr AT Reyes, instructed by Messrs Deacons Graham & James, for the defendant.