The defendant filed an application to stay the action pursuant to section 20 of the Arbitration Ordinance, Cap. 609 based on the ground that there existed a binding arbitration agreement which required the matter to be referred to arbitration.
In the contract between the parties, the dispute resolution clause stated that in the event of disputes, the matter “may” be referred to arbitration. The defendant’s argument was two-fold: 1) The clause constitutes an arbitration agreement as it demonstrates the parties’ clear intention both to arbitrate and for relief to be obtained from arbitration as opposed to litigation. 2) Where the clause gives an option for the parties to elect arbitration and one party does so, then it becomes mandatory for the other party to be bound by this and it cannot insist on carrying on with litigation which has already commenced. The defendant relied on the Privy Council case of Anzen Ltd v Hermes One [2016] UKPC 1. However, the learned judge held that the relevant clauses were “substantially different” from one another.
If the learned judge found that there existed an arbitration agreement in the present case, then the action ought to be stayed.
In deciding whether there was an “arbitration agreement”, the determining factor is whether the parties are compelled to have the dispute resolved by arbitration or whether they are given a choice. The learned judge made 3 observations: 1) The answer is based on the proper construction of the relevant clause by applying established contractual principles. 2) Where permissive words such as “may” or “can” appears in an arbitration provision, some cases have been interpreted so that these words are given their literal meaning such that the parties have a choice. However, there have been cases where the word “may” should really be construed as “shall”, such that the parties are compelled to submit to arbitration. Deputy Judge Winnie Tsui maintained however that the approach of the courts in the construction exercise remains consistent as the conclusions were reached based on the relevant “factual matrix” of each case. 3) Where the parties have agreed on specific provisions providing for a mechanism as to how to arbitrate, an assumption may arise (and can only be displaced by clear words to the contrary) that the parties do not intend to have a choice between litigation and arbitration when a dispute subsequently arises.
It was held that applying the aforementioned principles, the present clause does not compel or require the parties to submit any dispute arising out of the contract to arbitration. The present case was therefore a case where the word “may” should simply mean “may” and it should be given its literal meaning. As the parties are not compelled to arbitrate, the present clause is not an arbitration agreement for the purposes of the Arbitration Ordinance, Cap. 609, such that the plaintiff ought to continue with the present action. The defendant’s stay application was therefore dismissed.
The implication of this case is that parties should be careful when drafting their respective dispute resolution clauses and should ensure that the said clause accurately reflects the actual intention of the parties should any disputes arise between them. This case also reminds parties that even when the word “may” appears in an arbitration provision, it is not clear whether the parties will be compelled to arbitrate or are given a choice to do so as each case will depend on its own “factual matrix”.