Introduction

Oftentimes ancillary contracts are executed to supplement the main contract, sometimes annexed to or specifically referred to in the main contract. As these contracts serve a bigger common purpose, such as the same construction project, parties may expect that any dispute arising therefrom will be settled by the same dispute resolution mechanism, be it litigation or arbitration. However, that is not always the case. In the case of H v G [2022] HKCFI 1327, the Hong Kong Court explored the jurisdictional issue of the arbitral tribunal when the main contract contains an arbitration clause but the ancillary contract contains a different dispute resolution clause.

Facts

G is a property developer and entered into a building contract (“Building Contract”) with H, a building contractor on 1 March 2010.

The Building Contract contains a dispute resolution clause whereby the parties agreed that if any dispute could not be resolved by a specified mechanism, it shall be referred to and finally resolved by arbitration under the Domestic Arbitration Rules in accordance with the Hong Kong International Arbitration Center procedures for domestic arbitrations (“Building Contract DR Clause”).

Part of the Building Contract expressly provided that H shall give a guarantee or warranty that the waterproofing system to be installed and produced would be free from defects for 10 years from practical completion. The submission of satisfactory guarantee or warranty was stated to be one of the pre-requisite requirements for issuance of the certificate of practical completion for the project.

There is also a specific form of Deed of Warranty (“Warranty”) set out and appended to the Building Contract itself, to be executed by H as the main contractor and by H’s subcontractor or supplier on joint and several liability basis.

On 20 June 2011, 15 months after the Building Contract was signed, H and its subcontractor (“Subcontractor”) jointly executed the Warranty.

The Warranty contains an express choice of law and jurisdiction clause:

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.

(“Warranty DR Clause”)

The dispute

Disputes arose between the G and H because of the defects in the building works. G thus commenced arbitration against H. The claims submitted to the arbitral tribunal (“Tribunal”) include a claim for breach of the Warranty.

H contended that the arbitral tribunal did not have jurisdiction over any claims made by G under the Warranty. The Tribunal determined as a separate issue that the true construction of the dispute resolution clauses in the Building Contract and the Warranty is that issues which are also alleged to constitute breaches of the Warranty are within the scope of the matters referred to arbitration.

H applied to set aside the determination of the arbitral tribunal pursuant to section 34(1) of the Arbitration Ordinance (Cap. 609). It was not disputed that the Warranty DR Clause is a non-exclusive jurisdiction clause. H argued that:

1. The Tribunal had erred by deciding the question of jurisdiction solely on the basis that the language of the Building Contract DR Clause was wide enough to encompass matters contended to be breaches of both the Building Contract and the Warranty.

2. The Tribunal had failed to properly consider and reconcile the two dispute resolution clauses when there was no conflict between the two.

Decision

The Honourable Madam Justice Mimmie Chan allowed H’s application, determined that the Tribunal has no jurisdiction over the claims made under the Warranty and set aside the determination of the Tribunal.

Her Ladyship distinguished the present case from the English case of Fiona Trust v Privalov [2007] Bus LR 1719. In Fiona Trust, it was held that the construction of the arbitration clause should start from the assumption that the parties, as rational businessmen, were likely to have intended that disputes arising out of their relationship should be decided by the same tribunal. The factual difference from H v G is that there was only one contract made between the parties in Fiona Trust, the dispute being whether claims as to the validity of that contract should be determined separately to the rest of the claims made in the arbitration. There was no clear language in the clause to exclude disputes as to the validity of the contract. The English Court in Fiona Trust also noted that the presumption has no role to play if there is language in the relevant contract which makes it clear either that certain disputes are to be excluded, or that the parties did not intend to have all their disputes resolved by one tribunal, but to have them determined separately.

Her Ladyship found that:

1. At the time when the Building Contract was made, to which the form of the Warranty was appended, H and G contemplated and agreed for there to be a different manner of resolving claims under the Warranty distinct from the resolution of the claims under the Building Contract by arbitration.

2. The Building Contract DR Clause and the Warranty DR Clause deal separately with the claims made under the Building Contract on the one hand, and the guarantee claims made under the Warranty on the other hand.

3. A construction that the Building Contract DR Clause extends to G’s claim for breach of the Warranty would bring about the unattractive result that while G would be entitled to claim against H either in arbitration or by litigation, H would only be able to pursue its claims for contribution and indemnity against the Subcontractor by litigation.

Takeaway

When preparing multiple contracts for a commercial or construction project, parties should be mindful of the dispute resolution clause in each and every contract. If the dispute resolution clause in the ancillary contracts are expressly different from that of the main contract, the Court may take the view that parties intend different dispute resolution mechanisms. In particular, it should be noted that the dispute resolution clause of the main contract does not necessarily extend to claims under the ancillary contracts. It is advisable for parties to seek legal advice when preparing the contracts.