YIELD WORTH ENGINEERS & SUPPLIERS LTD. v. ARNHOLD & CO. LTD.

IN THE COURT OF APPEAL

1994, No.52
(Civil)

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REASONS FOR JUDGMENT

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Rogers, J.:

1. This is the judgment of the Court.

2. This is an appeal from that part of a decision of Mr. Justice Leonard given on the 16th February 1994 whereby he refused leave to appeal on Grounds 1 and 4 of the Amended Notice of Originating Motion against the second interim award of the quantum arbitrator given on the 22nd July 1993.

3. The arbitration arose out of a dispute following the carrying out of works in relation to the wet fire service system at the Shun Tak Centre when it was built in the 1980's.

4. Before his appointment to the Bench, Mr. Justice Kaplan accepted the appointment as arbitrator to deal with the issues of entitlement to an award, the parties having agreed that, if necessary, Mr. Michael Charlton would be invited to assess the quantum of such entitlement. Subsequent to his appointment Mr. Justice Kaplan continued as judge-arbitrator. His award is dated the 27th March 1992. By letter dated the 22nd June 1992 Mr. Charlton was invited to take the appointment as the arbitrator "to assess quantum based on the Interim Awards."

5. The nub of the application for leave to appeal under Section 23(3) of the Arbitration Ordinance (Cap. 341) is that the quantum arbitrator did not follow the findings and determination made in the award by the liability arbitrator. It is pertinent to point out, at the outset, that there is no dispute in this Appeal that the quantum arbitrator was required to so do. Indeed when the terms of his appointment are considered that is the only matter he is appointed to do.

6. The Appellant is the Applicant for leave to appeal namely Arnhold & Co. Ltd. who was the Respondent to the arbitration. This party has been referred to as A throughout the various arbitrations and subsequent litigation and for convenience that nomenclature will be retained. The Respondent is Yieldworth Engineering & Supplies Ltd. and has been referred to as Y throughout and that will be continued herein.

7. It will be convenient to divide the issues arising into the 2 constituent parts.

Ground 1 of the Appeal

8. Mr. Justice Kaplan found the following facts relevant to Ground 1 of the Appeal:-

1. There was a quotation for the works which was limited to labour and tools by Y in November 1983 of $3,922,588.

2. In December 1983 there was a reduction of that figure to $3,770,000 which represented a 3.89% reduction.

3. That quotation was replied to by letter of the 2nd December and

4. On 15th December 1983 there was purchase Order issued by A in the sum of $3,770,000. The Purchase Order was subject to A's specialist Conditions of Contract. Those included provisions as to Variations in clause 9.1 and 9.2 and in clause 25.1 provisions as to Addition and Deletion in the following terms:

We reserve the right to add to or deduct from the contract sum for those works which will be added or deleted or those which are provisional to the contract.

5. In March 1984 the developer changed his intention as to the use of East Tower of the Shun Tak Centre. That has been referred to as Zone 5. As a result on 26th November Y was asked to submit a price deduction for the deletion of Zone 5 work.

6. On the 20th December 1984 Y submitted a quotation for the work less the Zone 5 work. We have seen this quotation, it is clearly based on the same rates as the December 1983 quote. The figure was $3,032,153.

7. On the 21st May 1985 A issued a revised Purchase Order for $3,332,153. This we have not seen although the bundles contain just about every other document whether relevant or not. It is pertinent to note here that the quantum arbitrator held that the difference of $300,000 was intended to be for variations not itemised. He went on to hold that these must have been included elsewhere in the matters he had to consider. There was a lack of satisfactory evidence before him on this point but the fact that the Purchase Order was exactly $300,000 more than the quote must mean that they were related.

8. The key finding of Mr. Justice Kaplan is in paragraph (4)(a) of his award where he says that he is satisfied that there was no superseding agreement made in May 1985. He goes on to say that the existing contract with its terms and conditions remained. He then says "This was an amendment of or an alteration to an existing contract."

9. In respect of Zone 5 work it was held that Y was obliged to undertake it and that Y should be paid

a. at Unit rates contained in the original contract

b. a reasonable sum for materials

c. for variations at the rates set out in the first quotation of November 1983, namely the $3.9 million quotation which was not accepted.

9. In summary therefore it can be seen that Mr. Justice Kaplan's conclusions can be taken to be that by May 1985 there was an amended or altered agreement. Unfortunately he does not spell out in precise terms what that agreement was although it is clear that as a basis it must have included the obligation to undertake the original work.

10. The difference between the parties is as to the nature of that agreement. Mr. Huggins Q.C. on behalf of A says that the Agreement was that Y would carry out the contract less the Zone 5 works at the original contact amount namely $3,770,000 less the amount attributable to Zone 5. It was for the arbitrator to quantify what that Zone 5 work was worth. As a result it is said the Arbitrator was clearly wrong in finding the Original Contract sum for the remainder of the work other than the Zone 5 work was $3,032,135 namely the quotation of December 1984.

11. It is pointed out that the quantum arbitrator himself says in paragraph 1.10 of his award "I consider that Mr. Justice Kaplan's award states no more than that the terms and conditions of the original quotation apply."

12. In our view it is clearly open for the quantum arbitrator to find that the effect of paragraph (4)(a) of Mr. Justice Kaplan's award which has been quoted above is that there was an amended or altered agreement and that inevitably the contract sum was altered. It can therefore be argued that it was for the quantum arbitrator to find what that amended or altered contract was and in so doing he has held the agreement related to the original works less the Zone 5 work and the sum he has ascribed to that is $3,032,135.

13. There is no dispute between the parties as to the law to be applied in applications of this sort. Where leave is sought to appeal against a finding of an arbitrator on a point of law there is a sliding scale test. Hunter J.A. in Re P.T. Dover Chemical Company and Lee Chang Yung Chemical Industry Corporation [1990] 2 HKLR set out the test to be used. In particular where the question of law arises in a "one off" case it is described as being near the top of the spectrum of presumption of finality. In other words it is unlikely that leave to appeal will be given unless the strength of the case that the arbitrator was wrong is plain or very obvious.

14. We have no doubt that this is a one off case. The dispute between the parties arises from a specially drawn contract and the difficulty that arises stems not so much from the contract and a question of construction thereof but on the basis as to whether the quantum arbitrator has followed the decision of the liability arbitrator. In so far as A has attempted to bring the case within the legal question of whether the quantum arbitrator was bound by the decision of the liability arbitrator the matter is conceded by Y.

15. Hence the test that we apply is whether the quantum arbitrator was "plainly wrong (per Lord Donaldson The Kelaniya [1989] 1 Lloyd's Rep 30 @32)" or "so obviously wrong as to preclude the possibility that he might be right (per Lord Diplock The Antaios [1985] AC 191 @ 206)". This was a test which Mr. Huggins said that A was prepared to meet.

16. For the reasons which we have outlined, the decision which the quantum arbitrator reached is not plainly wrong. At the very least it is arguably correct.

Ground 4

17. The issue arising under this head relates to the question of payment for what is termed tenant's work. Quite simply Mr. Justice Kaplan held:

In my judgment, Y are entitled to be paid a reasonable sum for all tenants works carried out and that reasonable sum should have regard to the cost of labour, the cost of any materials supplied and should include a reasonable sum for overheads and profit.

18. The criticism levelled at the quantum arbitrator is that it is said by A that the quantum arbitrator was bound to look only at those factors namely the cost of labour, the cost of any materials supplied and a sum for overheads and profit. It is said that in coming to his conclusion the arbitrator did not have before him any evidence whatever, at any rate which he accepted, relating to these items. It is said that instead of following Kaplan J's directions as to the manner in which the tenant's work should be assessed the quantum arbitrator took a figure of 65% of the amount which A had been paid by the tenants. That, it is said, is wholly wrong because Kaplan J had expressly found at paragraph (12)(a) of his award, that the 65% figure was not agreed to or accepted.

19. There is it seems to us a short answer to this criticism. What the quantum arbitrator was required to do was to assess a reasonable sum. Kaplan J said that the sum should have regard to the factors listed. If the parties either by design or by default fail to put forward any evidence relating to those factors that cannot preclude a specialist arbitrator coming to a conclusion as to what is a reasonable sum. In doing so he will no doubt take into account his own knowledge and experience. In paragraph 2.7.12 of his award the quantum arbitrator expressly refers to Kaplan J's rejection of the alleged agreement between the parties of a 65% figure but says that nevertheless he regards that 65% of the amount claimed by Y, which happens to be the same as that paid by the tenants to A, as a reasonable sum. We cannot say that the quantum arbitrator was not doing the best he could with the evidence he had at the time. Nor can we see that the decision he came to was unreasonable.

20. In conclusion we see no ground for criticising the quantum arbitrator.

21. In reaching our conclusion that this Appeal fails we have not referred to the Judgment below. In not doing so it should not be taken that we have in anyway disregarded the basis on which an appeal as to the Judge's discretion should be considered. The route which we have taken demonstrates that even if we were wrong and the right conclusion were that the Judge had wrongly exercised his discretion it is clear that in exercising our own discretion we would have reached the same conclusion as the Judge has in fact reached.