Rondabosh was insured under a policy issued by China Ping, which covered stock in a warehouse. The stock was damaged by flooding in June 2008. In July 2009, Rondabosh issued a Statement of Claim seeking some HK$1.5 million from China Ping in respect of the damaged stock. In connection with Rondabosh’s claim, there were two applications before the court: (i) China Ping’s application to stay Rondabosh’s claim, pursuant to an arbitration agreement in the policy, and (ii) Rondabosh’s application to the Court for an interim payment of HK$800,000.
Where there is a written agreement to arbitrate, the court normally has no discretion and must hold the parties to their agreement and stay a pending action and refer it to arbitration. The court can only refuse to grant a stay in circumstances where the arbitration agreement is “null and void, inoperative or incapable of being performed” (section 6 Arbitration Ordinance (Cap. 341) and article 8 of the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006)).
Rondabosh contended that there was a dispute as to China Ping’s liability under the policy because China Ping had not accepted that Rondabosh had an insurable interest in some of the stock. Rondabosh argued that, in such circumstances, the arbitration agreement was “inoperative” as it only covered disputes as to quantum and not liability. Mr Justice Reyes found that China Ping had unequivocally accepted liability in two open letters and that, given the admission of liability, the dispute was only as to quantum and so well within the scope of the arbitration agreement. Therefore, Reyes J found that the court had no jurisdiction to determine Rondabosh’s application and the dispute as to quantum should be decided by an arbitration tribunal as agreed.
This decision reaffirms the principle that when an insurance policy incorporates an arbitration clause, the court must stay any pending action and refer it to arbitration. The court should only refuse such a stay if it finds the arbitration agreement to be “null and void, inoperative or incapable of being performed“. Moreover, the High Court’s decision emphasises the need to draft arbitration clauses in insurance policies as precisely as possible.