When does "may" mean "shall"? Hong Kong Court rejects argument that permissive language creates either a binding arbitration agreement or a right to compel arbitration

In The Incorporated Owners of Wing Fai Building, Shui Wo Street v Golden Rise (HK) Project Company Limited DCCJ 225/2016, a Hong Kong court considered the effect of a dispute resolution clause that provided that parties "may" refer disputes to arbitration (click here for the full judgment).

The Defendant applied for a stay of proceedings under s.20 Arbitration Ordinance, on the basis that the clause constituted a binding arbitration agreement; or, in the alternative, the clause was an option to arbitrate that became mandatory when one party elected for arbitration (relying on the Privy Council decision in Anzen Ltd v Hermes One Ltd ("Anzen")). The Court rejected both arguments. Whilst recognising that there are cases in which "may" actually means "shall" in respect of obligations to arbitrate, the Court held that this was not one of those cases and the evidence suggested the parties did not intend to be bound to arbitrate disputes.

The Court held that the arbitration clause in Anzen was "substantially different" from the clause in the present case. Accordingly, the Court held that the finding in Anzen, that the clause gave the parties a right to compel arbitration after litigation had commenced, should be limited in application to cases with similar facts. The judgment is a useful reminder that, if parties intend to arbitrate all disputes under an agreement, the  arbitration agreement must be clearly and unambiguously drafted, to avoid any dispute as to its effect.

The Court awarded costs on the indemnity basis.

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