Interpretation Of Arbitration Clauses: Does "may" Arbitrate Actually Mean You "must" Arbitrate? Are "no Arbitration Until Completion/termination" Clauses Valid?

• Published date: 17 September 2021
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Bryan Cave Leighton Paisner LLP
• Author: Mr Glenn Haley and Ian Cheng

Where an arbitration clause provides that parties "may" submit their disputes to arbitration, does this mean that arbitration is mandatory or merely permissive? What is the effect of a proviso in an arbitration clause which provides that arbitration cannot be conducted until the construction works have been completed or contract has been terminated?

These two issues - which arise often - were dealt with by Mimmie Chan J of the Court of First Instance (the "Court") in Kinli Civil Engineering Limited v Geotech Engineering Limited [2021] HKCFI 2503 (Date of Decision: 26 August 2021).

Background

The plaintiff ("K") was the subcontractor of the defendant ("G") in a public housing development project. K commenced court proceedings against G to claim for alleged unpaid contract sums.

G then applied for the court proceedings to be stayed on the ground that the dispute should have been submitted to arbitration in accordance with the dispute resolution clause in the subcontract between the parties, the English translation of which was:

"If in the course of executing the Contract, any disputes or controversies arise between (G) and (K) on any question and the parties are unable to reach agreement, both parties may in accordance with the relevant arbitration laws of Hong Kong submit the dispute or controversy to the relevant arbitral institution for resolution, and the arbitral award resulting from arbitration in the HKSAR shall be final and binding on both parties, and unless otherwise agreed by both parties, the aforesaid arbitration shall not be conducted before either the completion of the main contract or the determination of the subcontract." (emphasis added)

Submissions by the plaintiff (applicant) K to oppose arbitration

Opposing to G's stay application, K made three main submissions:

1. As a matter of contractual interpretation, the use of "may", instead of "shall" or "must" meant merely that the parties had the option to elect arbitration and did not take away the right of K to litigate the dispute in court. The parties could not have intended that arbitration was compulsory.
2. If there were disputes as to performance of the contract, or as to interim payments due, or regarding delay and liability for liquidated damages, a proviso in the dispute resolution clause that these disputes be arbitrated only after completion of the main contract and termination of the subcontract would create hardship on the parties, and render the subcontract "unworkable".
3. Under...