ACME METAL WORKS LTD. v. SHUN SHING CONSTRUCTION AND ENGINEERING CO. LTD.

M.P. No. 84/1990

HEADNOTE

Termination of arbitration proceedings.

Arbitration Ordinance (Cap. 341) Section 29A

                Principles applicable to termination of arbitration proceedings under section 29A of the Arbitration Ordinance (Cap. 341).

                Held that since the criteria for terminating arbitration proceedings for delay have been prescribed precisely in the terms of the principles applied by the courts in the dismissal of civil proceedings for want of prosecution, the authorities in respect of the latter apply equally to the former.

1990. No. M.P. 84

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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BETWEEN

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JUDGMENT

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1. This judgment is delivered in open court in response to Counsel's suggestion, there apparently not have been any earlier case concerning the principles applicable to the termination of arbitration proceedings under section 29A of the Arbitration Ordinance (Cap. 341).

2. This is an application made by originating summons taken out by the Plaintiff for termination of arbitration proceedings and an order prohibiting the Defendant from commencing further arbitration proceedings in respect of the same matter. The underlying facts are these. The Defendant ("Shun Shiny") was the main contractor for the construction of the Shun Lei Chuen Cinema. The Plaintiff was subcontractor for the supply and installation of a curtain wall in the cinema building. The work was commenced in April 1979 and completed in December 1980. The certificate of practical completion of the main contract was issued in January 1982.       

3. About 1983, a dispute arose between the Plaintiff ("Acme"), Shun Shing, and the Hong Kong Housing Authority about whether the curtain wall leaked and was improperly installed, as contended by Shun Shing. Acme denied this saying that what was defective was the design, for which it was not responsible. Nevertheless, in March 1984 it extended the defects maintenance period under the subcontract to 31st December 1984, because, it says, it wished to maintain its reputation. The leakages continued. In accordance with the subcontract, Shun Shing then sent a notice to Acme terminating the subcontract on 21st December 1985.

4. On the 24th January 1987, Shun Shing issued a writ. However, the subcontract contained an arbitration clause and Shun Shing consented to a stay of the proceedings in March 1987. Then there followed some desultory action and exchanges between Shun Shing and Acme. No appointment of an Arbitrator has yet been made. Ultimately on 8th January 1988, Acme initiated the present proceedings by filing its originating summons. Section 29A under which Acme makes its application is in the following terms :-

 

29A (1)    In every arbitration agreement, unless the contrary be expressly provided therein, there is an implied term that in the event of a difference arising which is capable of settlement by arbitration it shall be the duty of the claimant to exercise due diligence in the prosecution of his claim.

 

        (2)     Where there has been undue delay by a claimant in instituting or prosecuting his claim pursuant to an arbitration agreement, then, on the application of the arbitrator or umpire or of any party to the arbitration proceedings, the Court may make an order terminating the arbitration proceedings and prohibiting the claimant from commencing further arbitration proceedings in respect of any matter which was the subject of the terminated proceedings.

 

        (3)     The Court shall not make an order under subsection (2) unless it is satisfied that

 

             (a)     the delay has been intentional and contumelious; or

 

             (b)   (i) there has been inordinate and inexcusable delay on the part of the claimant or his advisers; and

 

                  (ii) that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the arbitration proceedings or is such as is likely to cause or to have caused serious prejudice to the other parties to the arbitration proceedings either as between themselves and the claimant or between each other or between them and a third party.

        (4) ...........

5. Unlike the greater part of the Cap. 341, section 29A(3) is new and is not derived from the United Kingdom Arbitration Act, which does not have a corresponding provision. But it can manifestly be seen to adopt the principles on which the inherent jurisdiction of the High Court to dismiss an action for want of prosecution laid down by the Court of Appeal in England in the McAlpine cases [1968] 2QB 229, is exercised. Those principles were recognised by the House of Lords in Birkett v. James [1978] A.C. 297 as being correctly set out in the Supreme Court Practice 1976. Indeed, section 29A(3) is as nearly as possible, identical to their Lordship's formulation of those principles. Accordingly it seems clear that the intention of the legislation is to apply to the termination of arbitration proceedings under section 29A(3), the principles that apply to dismissal of civil proceedings for want of` prosecution. I should add that this also accords with Counsel's view of the position. Accordingly in my judgment, the authorities upon dismissal of civil proceedings for want of prosecution apply equally to the termination of arbitration proceedings under section 29A(3).

6. I turn then to the submissions of Counsel. Mr. John Scott for the Plaintiff submits, first, that there has been inordinate and excusable delay on the part of Shun Shing's advisers; and, second, that the delay is such as is likely to cause serious prejudice to Acme.

7. The following are the facts relied upon in support of and in opposition to those contentions. Beginning first with inordinate and inexcusable delay, on 2nd May 1987, some 2 months after Shun Shing's action was commenced, Shun Shing's solicitors ("JSM") sent a letter marked urgent to Acme's solicitors ("IW") in effect asking for an Arbitrator to be nominated. On 11th May 1987, IW replied with a nomination. After an exchange of different nominations on each side ending with one made on 19th June, nearly 4 months later, on 15th October 1987, JSM nominated Mr. Mumford Q.C. setting out his terms. On 25th January 1988 some 3 months later, JSM sent re-negotiated terms and raised the matter of the number of Acme's witnesses and the length of its case. IW replied on 1st February 1988 stating that it had 2 withesses, its case would take two days and seeking corresponding details from Shun Shing. The matter of Mr. Mumford's nomination was not mentioned. Some 10 months later on 22nd November 1988 JSM faxed IW seeking written acceptance of Mr. Mumford's revised terms. This, IW provided by fax next day the 23rd November, at the same time repeating its request of 1st February for Shun Shing's details. On 23rd February 1989, IW wrote at length on Mr. Mumford's terms, as to how the fees should be split, and how the client should put them in funds and that no reservation should be made until it was ascertained that Mr. Mumford and the witnesses were available.       

8. About that time Mr. Charles Yuen, an assistant solicitor with JSM, who was handling Shun Shing's case left JSM and joined IW. JSM was concerned about a conflict of interest and a whole year was lost in the matter being resolved.       

9. On the 16th November, JSM informed IW that they were ready to proceed. On 8th January 1990 Acme took out its originating summons.       

10. Mr. Scott contends that the above delays cumulatively were inordinate and compounded Shun Shing's delays that occurred before it filed its own action. Undoubtedly there were delays, but given the circumstances I do not think  they could be said to be inordinate, notwithstanding that the carriage of the proceedings rested with Shun Shing. The 4 month and 3 month delays in nomination of an Arbitrator between June 1987 and January 1988, were not devoid of action during the former, when Mr. Mumford was decided upon and his terms secured, and in the latter, when re-negotiation was completed. The 10 month delay following IW's letter of 1st February 1988, might in part, I think, be excused by the nomination of Mr. Mumford being overlooked by IW. As to the year lost in relation to Mr. Charles Yuen, that was a sufficiently serious matter for JSM to be concerned about. For those same reasons I do not think the delay could be said to be inexcusable.       

11. As to whether such delay (whether inordinate and inexcusable or not) is likely to cause serious prejudice to Acme, it is deposed by one of IW's assistant solicitors that Acme's Senior Project Manager, and Assistant Project Manager associated with the installation of the curtain wall, the Project Manager since 1987 and finally the General Manager who inspected the building, have all since 1985 left Acme and that 2 of them are abroad. However, it is not stated when they left, whether their whereabouts are known or not and that they are unavailable. It is also deposed that the building is now relatively old on Hong Kong standards and clearly would have begun to suffer wear and tear, but Acme has an expert's report on the curtain wall and the leakage problem, with photographs.  In that   context no suggestion is made that aging or wear and tear have complicated the preparation of the report. Besides, the matters in contention e.g. the design which apparently is Acme's main point in defence, must be reasonably well documented; certainly Acme appears to have its drawings.       

12. It is of significance that when IW, in February 1989, stated they only intended to call 2 withesses on behalf of the Plaintiff, they made no complaint that there was any difficulty about withesses or any potential prejudice from withesses leaving.       

13. Mr. Scott was severely critical of IW's concern about securing the Arbitrator's fees and suggested that such undue concern contributed to inordinate delay. However, the suggestion that the Arbitrator's fees be secured, clearly emanated from IW. Moreover, I do not think a great deal or time would have been saved by proceeding to appointment of the Arbitrator ahead of securing the Arbitrator's fees, for that would have had to be done that before he commenced the arbitration proceedings.       

14. Although the 4 employees who have left, may have been able to help, the indications do not point to anything like serious injustice or denial of a fair trial in consequence.        

15. Accordingly in my judgment the Plaintiff's application must fail.       

16. However, there is one other submission made by Mr. Westbrook for the Defendant that I think I ought to deal with. It is this. In the McAlpine cases, the irrelevance of the expiration of the limitation period was left undecided, as Lord Diplock pointed out at p. 319C of Birkett. He then went on at p. 322D to say :

"I am of opinion that the fact that the limitation period has not yet expired must always be a matter of great weight in determining whether to exercise the discretion to dismiss an action for want of prosecution where no question of contumelious default on the part of the plaintiff is involved, and in cases where it is likely that if the action were dismissed the plaintiff would avail himself of his legal right to issue a fresh writ, the non-expiry of the limitation period is generally a conclusive reason for not dismissing the action that is already pending."

17. Lord Simon and Lord Edmund-Davies agreed, the latter adding at p. 334B :

"I respectfully concur with my noble and learned friend, Lord Diplock, that, where there appears any likelihood that a plaintiff will issue a second writ, the case must be quite exceptional (and difficult to imagine) where the court should within the limitation period dismiss an action simply for want of prosecution."

18. In the context of the foregoing dicta, Mr. Westbrook submits that the limitation period in respect of Shun Shing's claim has not yet expired and that accordingly the arbitration ought not to be terminated. In substance he submits that since Acme extended the defects maintenance period to 31st December 1984, the subcontract could not have expired before then. Oh the other hand, Mr. Scott submits that the limitation period began to run from the date of completion or purported completion of the sub-contract, i.e. the installation of the curtain wall which he says on the evidence was about December 1980 and certainly no later than January 1981 when the certificate of practical completion was issued. The defects maintenance period which ordinarily would be one year after the completion of the contract, he submits, does not operate to defer the date of completion of the subcontract. He relies upon the following passage in the Fourth Edition of Keating's Engineering and Building Contracts at p. 165 :

"Actions must be brought within six years of the date of the cause of action accruing ..... Time runs from the date of breach of duty and not from its discovery. In the case of a contractor who is liable under an entire contract to complete works the limitation period in respect of defect runs, it is submitted, from the date of completion or purported completion, and not from the date, if it is earlier, when that part of the works, the subject matter of the defects, was carried out."

I confess that I do not find it very helpful. The authorities cited in support of the second sentence, which were not referred to by Counsel, do not support it in the unqualified way stated. And for the third sentence no authority is cited! However whether time runs from the date of the breach of the duty in not installing the curtain wall efficiently (circa 1980) or when the damage manifested itself (circa 1983), the 6 year period has long expired. I do not accept that the extension of the defects maintenance period extended the subcontract and so its completion to 31st December 1984. I conclude that the period of limitation has expired and does not avail the Defendant. However, as I have said, the application fails upon the first ground I considered i.e. that it has not been shown that there has been inordinate and inexcusable delay or that such delay will give rise to a substantial risk that it is not possible to have a fair trial. It is accordingly dismissed.

19. I will now hear the parties as to costs.