Enter to open, tab to navigate, enter to select
Plaintiff seeks to stay its own court proceedings in favour of arbitration
Practical Law UK Legal Update Case Report 6-503-2093 (Approx. 3 pages)
Plaintiff seeks to stay its own court proceedings in favour of arbitration
by Practical Law
| Published on 01 Sep 2010 • Hong Kong - PRC |
Peter Yuen (Partner) and John Choong (Senior Associate), Freshfields Bruckhaus Deringer
Where the parties have agreed to arbitration, it is common for a Hong Kong court to stay court proceedings brought in breach of that agreement, and to refer the parties to arbitration. In a recent case, the court dealt with the unusual situation where the applicant itself was also the plaintiff which was seeking to stay its own court proceedings.
Background
Article 8 of the UNCITRAL Model Law provides that:
"(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.
(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court."
Section 16(3) of the High Court Ordinance (Cap 4) provides that:
"Nothing in this Ordinance shall affect the power of the Court of Appeal or the Court of First Instance to stay any proceedings before it, where it thinks fit to do so, either of its own motion or on the application of any person, whether or not a party to the proceedings."
Order 1B Rule 1(2)(e) provides that the Court "may by order stay the whole or part of any proceedings or judgment either generally or until a specified date or event."
Facts
The parties had agreed to submit their disputes under a construction contract to arbitration. Notwithstanding that, the plaintiff commenced two separate sets of court proceedings (which were later consolidated). The defendant filed a counterclaim and the plaintiff filed a reply and defence to the counterclaim.
At around the same time, the plaintiff commenced arbitration by issuing two notices of arbitration against the defendant. It then applied to stay the court proceedings, pending determination of the arbitration. The court was therefore confronted with the issue of whether to grant a stay of the court proceedings, even though these had been brought by the applicant, and it had already filed a reply and defence to counterclaim.
Decision
The court granted a stay of the court proceedings.
The court appeared to accept that it did not have jurisdiction under Article 8 of the UNCITRAL Model Law (and section 6 of the Arbitration Ordinance) to grant a stay, as the applicant was the party which had commenced the court proceedings. This point, however, was ultimately not argued by counsel.
Instead, the applicant argued that the court had inherent jurisdiction to grant such a stay. The court accepted that it did, in reliance on the general power under section 16(3) of the High Court Ordinance (Cap 4). The court found further support for this, by reference to the court's general powers of case management contained in Order 1B Rule 1(2)(e) in which a specific power to stay the whole or part of any proceedings is granted to the court.
The court then considered if it should exercise its discretion in favour of granting a stay. It decided that it should, based on several factors including the following:
- Both contracts in question contained arbitration clauses.
- Even though the applicant had commenced court proceedings, the court held that it had not necessarily waived the arbitration agreement by doing so.
- It was clear from the pleadings that the dispute involved "nuts and bolts" issues, which were more appropriate for determination by an experienced building arbitrator, than for litigation in the High Court.
The court acknowledged that the applicant had already taken a step in the proceedings. However, it held that this in itself was not a bar to the exercise of the court's inherent jurisdiction to stay, or the case management power to allow the matter to go to arbitration.
Comment
This decision represents an unusual case of the applicant seeking to stay court proceedings which it had commenced. The court's judgment underscores the strong pro-arbitration stance taken by the Hong Kong courts. However, given that the applicant had already filed a reply and defence to counterclaim, there might be room for suggesting that the court had gone rather far. In any event, each application will be decided on its own facts, and it will be at the court's discretion whether to grant a stay in future situations.
It is also interesting that the court apparently considered that Article 8 of the Model Law was not relevant, seemingly on the basis that the applicant was the party which had commenced the court proceedings. It might in fact be possible to contend that the article is relevant even in such a situation.