Background
G (“the Defendant”/Claimant in the arbitration), a property developer, entered into a building contract (“Contract”) with H (“the Plaintiff”/Respondent in the arbitration) wherein H agreed to carry out certain building works (“Building Works”) for G’s project in Hong Kong (“Project”). The Contract contained a dispute resolution clause (“Clause 35”), whereby the parties agreed to refer any dispute to arbitration for final resolution under the Domestic Arbitration Rules in accordance with the procedures of Hong Kong International Arbitration Centre.
As part of the specification preliminaries of the Contract, H was to provide a 10-year Warranty (“Warranty”), under seal and in a specified form appended to the Contract, guaranteeing the defect-free performance of a waterproofing system. The Warranty was to be executed by both H and its Sub Contractor with joint and several liability, and was necessary for obtaining the Certificate of Practical Completion.
On 20 June 2011, H and Subcontractor jointly executed the Warranty, which included a clause (“Clause 11”) subjecting it to Hong Kong law and the non-exclusive jurisdiction of Hong Kong courts. The Certificate of Practical Completion was issued on 20 January 2012. Then, years later, on 10 February 2020, G initiated arbitration proceedings against H alleging various construction defects like render cracking and sealant failures, which G claimed resulted from H’s negligence and breaches of both the Contract and the Warranty. G claimed damages of approximately HK$24.9 million.
H challenged the tribunal’s jurisdiction over claims based on the Warranty, citing the separate jurisdiction clause in Clause 11. However, the tribunal, in its 29 July 2021 decision, held that considering the Contract and Warranty as a series, disputes regarding Main Contract which also amounts breach of Warranty fall within the scope of Clause 35, and therefore, could be resolved through the same arbitration. Thus, H approached the Court with an application under Section 34 (1) of the Arbitration Ordinance, Cap 609 to set aside the tribunal’s decision.
Extract of Relevant Clauses
Clause 11: “This Warranty shall be construed and governed in accordance with the Laws of Hong Kong Special Administrative Region and the Warrantors hereby agree to submit to the non-exclusive jurisdiction of the Courts of Hong Kong Special Administrative Region.”
Issues and Decision
Whether the claim of G is amenable to arbitration under Clause 35 of the Contract or not.
H criticised the Tribunal’s approach of not reconciling the Clauses when there was no inconsistency or conflict between the two clauses. It further argued that since the Warranty had its own jurisdiction clause, there was contrary intention of the parties to have Warranty disputes be resolved through Clause 11 and not under Clause 35.
Further, it was also submitted that the Warranty was a standalone agreement also involving H’s subcontractor (who was not a party to the Contract), making it inappropriate to refer Warranty disputes to arbitration. In addition to this, H also contended that the Contract and the Warranty covered separate and independent matters, with the Warranty creating distinct obligations, and the tribunal’s broad reading of the arbitration clause ignored the parties’ contrary intention to provide a different forum for claims arising from the Warranty.
G contended that Clause 11 operates parallelly and not inconsistent to Clause 35, and that since the language of Clause 35 is wide enough to include disputes arising under the Warranty, Clause 11 does not preclude G from referring the dispute to arbitration. Further, G relied on Fiona Trust v Privalowv[1] for the presumption that the parties, as rational businessmen, intend to have disputes resolved through the same forum, and that it makes no commercial sense for the claims relating to the same subject matter to be decided separately. Lastly, it was also contended that even if the approach is to identify the contract which gave rise to the dispute, it clearly arose out of the Contract and should be referred to arbitration in accordance with Clause 35.
The Court observed that Fiona Trust is not applicable as only one contract was made between the parties in the case, and it was held that the parties had clearly intended to separate the specific Warranty disputes under Clause 35 from the general provision for disputes under the Contract, i.e., Clause 11 [¶18]. It relied on Amtrust Europe Ltd v Trust Risk Group SpA[2] as well as Credit Suisse First Boston (Europe) Ltd v MLC Bermuda Ltd[3] for these observations [¶33, 34], and reasoned that “the presumption advocated in Fiona Trust is clearly displaced by the language expressed in Clause 11 [¶32].” The Court also emphasized on factors such as Sub Contractor not privy to the Contract, joint and several liability of Sub Contractor, as displacing the presumption [¶ 19 & 20].
It further cited Deutsche Bank AG v Comune di Savona[4] and held that in cases where multiple agreements have different jurisdiction clauses, each should govern its own subject matter to avoid overlap and inconsistency [¶36]. Therefore, the specific provision under Clause 11 of the Warranty would prevail over the general provision under Clause 35 of the Building Contract.
In addition to above, the Court also observed that extending Clause 35 to claims made under the Warranty would lead to an undesirable outcome where G could arbitrate against H, but H would have to litigate against the subcontractor for contribution or indemnity. This would result in multiplicity of proceedings along with risks of inconsistent findings and duplication in costs, which is “the exact mischief rational businessmen are assumed to be desirous of avoiding [¶38].” Moreover, it was held that even if it is presumed that overlap between the two clauses exists, the “centre of gravity” of the dispute lay in the Warranty as the claims arose most naturally from the Warranty [¶39].
Significance
The decision affirms the principle that where multiple related agreements contain different dispute resolution clauses, each must be interpreted with context, rather than applying the Fiona Trust presumption broadly. It highlights the importance of respecting parties’ express choices and upholds a contractual construction approach rooted in commercial wisdom , reasoning that rational parties are unlikely to intend conflicting jurisdiction clauses, and tribunals should be cautious not to override specific agreements by reading in general arbitration clauses from related contracts.
Case Details
Citation Codes: [2022] HKCFI 1327
Date of Judgement: 10 May 2022
Forum: High Court of the Hong Kong Special Administrative Region
Bench: Hon Mimmie Chan J
[1] [2007] Bus LR 1719
[2] [2016] 1 All ER (Comm) 325
[3] [1999] 1 All ER (Comm) 237
[4] [2018] 4 WLR 151
Author(s)
Tejas Jain
Student at Vivekananda Institute of Professional Studies