A court may stay proceedings brought against a contractor to repay wages paid by the counterparty to subcontractors in accordance with employment legislation, even when the amount payable is not in dispute, if the payments were “inextricably interwoven with the dispute”. If both parties have given notice of arbitration (under separate contracts) it may tip the balance in favour of a stay of court proceedings.
This article discusses a decision of the Hong Kong High Court, which in a departure from other precedents, granted a stay of proceedings in a claim for payments made to subcontractors under the Employment Ordinance. The parties were involved in two different projects. The parties agreed that the plaintiff would make direct payments to the employees of the defendant. The defendant served notice of arbitration under one agreement, and the plaintiff served notice of arbitration under the other.
In the meantime, the plaintiff initiated a suit for repayment of the amounts paid under the Employment Ordinance. The court held that the issues were inextricably bound together, and the fact that both parties had served notice of arbitration, and had been in discussions about the selection of an arbitrator, militated against permitting the action to proceed.
The author opined that this decision was not consistent with previous decisions, and that the court could have dealt with the wages issue separately from the issues subject to the arbitration.
Takeaway:
- If litigation has commenced but both parties have also given notice of arbitration, it is likely a court will grant a stay of proceedings in favour of arbitration.