Judgment Name: H v. G
Citation: HCCT No. 71 of 2021. Court: The Hong Kong Court of First Instance
Coram: Hon’ble Mimmie Chan, J.
Date: 10th May 2022.
Keywords: Jurisdiction of an Arbitral Tribunal, Non-Exclusive Jurisdiction, Deed of Warranty, HKIAC Domestic Arbitration Rules.
The Hong Kong Court of First Instance contemplated whether issues challenged before an arbitral tribunal were covered by the arbitration clause of the main contract or the non-exclusive jurisdictional clause provided under a separate warranty deed entered into between the parties. Consequently, the Court set aside the Arbitral Tribunal’s determination of jurisdiction by highlighting the distinct nature of claims in question as well as the parties’ intention to have two separate dispute resolution clauses in otherwise related contracts.
G, a property developer, entered into a building contract with H, a building contractor, on 1st March 2010, whereby H, as the main contractor agreed to carry out certain building works for G’s project in Hong Kong. The building contract between G and H contained a dispute resolution clause providing for arbitration according to the Hong Kong International Arbitration Center (“HKIAC”) procedures for domestic arbitrations. The Contract also provided for a guarantee/warranty by H in respect of installing a waterproofing system that would be free from defects for ten years after the date of completion. A deed of warranty was appended to the building contract itself and jointly executed by H and his subcontractor/supplier, assuming joint and several liabilities thereunder. The warranty contained a jurisdiction clause specifying the non-exclusive jurisdiction of the Courts of Hong Kong Special Administrative Region over any disputes arising out of the warranty deed.
Subsequently, several disputes arose between the parties claiming inter alia structural issues, debonding of external façade and adhesion failure of the joint sealant. Thus, G commenced arbitration proceedings against H, claiming the faults to have arisen from the negligence and breach of the building contract and/or the warranty by H or his agents and sought damages worth HK$ 24.9 million. H contended that the Arbitral Tribunal did not possess adequate jurisdiction over the claims made under warranty due to the separate jurisdiction clause in the deed of warranty. However, the Tribunal rejected the contention on the grounds that the arbitration clause in the building contract was wide enough to encompass matters which could be construed as breaches of both the Contract and the warranty. Consequently, H filed an application before the Hong Kong Court of First Instance to set aside such determination of jurisdiction by the Arbitral Tribunal.
Whether the Arbitral Tribunal erred in interpreting the jurisdictional extent of the two dispute resolution clauses provided in the building contract and the deed of warranty?
The Court concurred with H and the arguments put forth by his counsel and set aside the Tribunal’s jurisdictional ruling. G contended that the arbitration clause must be widely construed based on the presumption in Fiona Trust v. Privalowv, which posited that the parties as rational business entities were likely to have intended their disputes arising out of the same relationship to be determined by the same Tribunal. However, the Court stated that such presumption was not directly applicable in the given case as Fiona Trust involved only a single contract. The presumption was also clearly displaced by the non-exclusive jurisdictional clause highlighting the parties’ explicit intention and agreement to have two separate dispute resolution mechanisms.
Moreover, although H’s subcontractor was a warrantor, he was not a party to the building contract and could not be compelled to submit disputes to arbitration. Thus, the Court found a logical reason behind G and H having excluded arbitration and instead contemplating a separate clause for disputes arising from the warranty such that all relevant parties could gather at the same forum. Citing Credit Suisse First Boston (Europe) Ltd v. MLC Bermuda Ltd, it reiterated that ignoring such careful selection of jurisdictional palette by the parties would be presumptuous and indiscriminate. Additionally, the Court highlighted that extending the arbitration clause to G’s claims of breach under warranty would cause commercial mischief since G would be entitled to both arbitration and litigation, while H would be able to pursue claims of contribution and indemnity against the subcontractor only under litigation leading to a multiplicity of proceedings and duplication of costs for the same issues. It also went to the extent of stating that even if it were necessary to identify the “centre of gravity” of the claims considering the overlap between the two clauses, the Court would still find the deed of warranty to be the contract out of which the claims in dispute most naturally arose.
Thus, the Hong Kong High Court acceded to H’s application and set aside the Tribunal’s determination of jurisdiction over the claims made under warranty. The Court also remarkably distinguished the landmark case of Fiona Trust by recognising the primacy of parties’ intention and agreement in commercial disputes. Thus, the Court successfully detangled the issue of potentially overlapping dispute resolution clauses in related contracts that are sure to arise in the near future.
[This case note has been authored by Ishita Agrawal, a Junior Editor at Mapping ADR.]