KENWORTH ENGINEERING LTD v. NISHIMATSU CONSTRUCTION CO LTD

HCCT 25/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 25 OF 2004

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J U D G M E N T

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I.       Introduction

1.  On 15 May 2004 I gave Kenworth leave to appeal against the 7th Interim Award dated 8 March 2004 of Mr. James Findlay OBE QC ("the Arbitrator").  Today I heard Kenworth's appeal.

2.  The facts are set out in my earlier Judgment ("Judgment I").  There I held that the Arbitrator had been "obviously wrong" in barring Kenworth from adducing a case on §§26A and 28 and parts of §43 of its Amended Statement of Claim ("AMSOC").

3.  More particularly, I found as follows:-

(1)     On AMSOC §26A, the Arbitrator seems to have overlooked the revised AMSOC Schedule 2.  In Judgment I §§13-16, I noted that the Arbitrator had not stated in his 7th Award why the new information in columns 4, 5 and 6 of Schedule 2 did or did not satisfy Nishimatsu's Request 2.3 for Further and Better Particulars.

(2)     On AMSOC §28, I explained in Judgment I §§24-25 why I did not think that Kenworth could be barred from relying on a piece of evidence which one did not have to plead in the first instance.  The question was not one of particularising what works were comprised by an Interim Certificate, but of assessing the legal consequences arising from the certificate's issue.

(3)     On AMSOC §43, I noted in Judgment I §§30-32 that the Arbitrator did not refer in the 7th Award to a new Schedule 3A and appears to have misconstrued Schedule 2A.  It was not clear that the Arbitrator had considered whether Schedule 3A provided sufficient particulars of Schedule 3 pursuant to Nishimatsu's Request 2.9(d).

4.  Kenworth had also sought leave to appeal insofar as the 7th Award barred it from advancing a case in respect of:-

(1)     AMSOC §61; and,

(2)     those parts of AMSOC §43 which were either:-

         (a)    the subject of Nishimatsu's Requests 2.9(a)-(c); or,

(b)   connected with Schedule 9 of Kenworth's Reply and Defence to Counterclaim.

Nishimatsu and the Arbitrator recognised that in disallowing those aspects of Kenworth's claim, the 7th Award had been mistaken.  Accordingly, I gave leave to apply against those specific matters and ordered that to such extent at least the appeal be instantly allowed.

5.  I am therefore only concerned here with the appeal against the 3 aspects of AMSOC mentioned in §3 of this Judgment.  To avoid repetition of the phrase "parts of AMSOC §43", I shall simply refer below to those parts of AMSOC §43 involving Schedules 2A, 3A and 3 as "AMSOC §43".

II.      Discussion

6.  Mr. Whitehead SC (appearing for Nishimatsu) in a clear and detailed analysis of AMSOC §§26A, 28 and 43 and their particulars, submitted that the Arbitrator had come to the right conclusion.  Mr. Whitehead suggested that Kenworth had substantially failed to identify (among other things) periods of delay, the nature of delay (whether critical or not) or the manner in which particular conduct is said to have caused actual delay.

7.  Mr. Whitehead stressed that there had been no appeal against the Arbitrator's 4th Interim Award dated 12 December 2003.  That had directed that, to the extent it failed to comply with Nishimatsu's Request for Particulars, Kenworth "shall not be allowed to present any case in support of those paragraphs to which those requests relate". 

8.  Mr. Whitehead contended that, there having been substantial non-compliance by Kenworth, the appeal should be dismissed.  In keeping with the 4th Award, the Arbitrator (Mr. Whitehead said) had been right to treat the offending paragraphs in AMSOC as struck out.

9.  Mr. Whitehead also said that his submissions as to the inadequacy of Kenworth's new particulars were identical to those which had been made before the Arbitrator.  It followed (Mr. Whitehead reasoned) that the Arbitrator must have considered them when coming to his conclusions.

10.  I am unable to accept Mr. Whitehead's submissions.

11.  On AMSOC §26A, it is far from evident on reading the 7th Award that the Arbitrator took the new material in Schedule 2 into account.  What the Arbitrator said in the 7th Award was this:-

"At the time my fourth interim award was made, the Claimant's allegations in paragraph 26 of the statement of claim regarding an entitlement to an extension of time were based on 134 notices of delays and disruptions particulars of which were said to be set out in Schedule 2 to the statement of claim.  These particulars were inadequate, and the Claimant never suggested otherwise.  It is not open to the Claimant to argue now that the particulars were adequate.  Further particulars were ordered by me.  These particulars have not been supplied.  Instead, the Claimant amended its statement of claim to rely on extensions of time granted to the Respondent....  The amended statement of claim then goes on to allege 'further or alternatively' that the Claimant was delayed, but gives no better particulars of these delays than previously, in respect of which I held, without any demur from the Claimant, were inadequate.  In the Claimant's submissions, it talks of a primary and secondary case.  I can see only one case -- that there were delays in the execution of the sub-contract works and the Claimant is entitled to the same extensions of time in respect of these delays.  The inadequacy of the particulars of the alleged delay remains and has not been cured by the amended statement of claim...."

The 7th Award is ambiguous as to whether the Arbitrator was aware that what he called Kenworth's secondary case was meant to be supported by further particulars in the new AMSOC Schedule 2.

12.  Mr. Whitehead may or may not be right that the new material in Schedule 2 is wholly inadequate and Kenworth should be barred from putting a case based on AMSOC §26A pursuant to the 4th Award.  However, that is not something that I can decide in the present circumstances.

13.  All that I can say on an appeal is that, since the Arbitrator disallowed a case on AMSOC §26A without apparent consideration of Schedule 2, his decision must to that extent be wrong.  It is draconian to disallow a claimant from adducing a case.  A claimant is entitled to know with reasonable clarity the reasons for being prevented from presenting a claim.  There should be no ambiguity in an award.  Kenworth should not be left speculating whether the Arbitrator has had proper regard to pertinent material in Schedule 2.

14.  What I cannot do is to substitute my view on the adequacy or otherwise of the particulars in Schedule 2.  Nor should I purport to assess whether any inadequacy of particulars merits the sanction directed in the 4th Award. 

15.  I cannot substitute my views because the parties have agreed to refer their disputes to arbitration.  It is for the Arbitrator and not for this Court to take a view on the matters in dispute and to exercise any discretionary power consequent upon such view.

16.  To put it more directly, I do not think that it is open to me to conclude that the Arbitrator came to the right decision for the wrong reasons. 

17.  Mr. Whitehead has directed me to a passage in Professor Rhidian Thomas' The Law and Practice Relating to Appeals from Arbitration Awards.  At §8.6.7 the author states:-

"In the exercise of its reviewing function the court is primarily concerned with the decision of the arbitrator and not the reasoning underpinning the decision.  Provided that the ultimate decision is right in law, it matters not that the reasoning is erroneous, or at least that the judge is of a mind to come to the same decision as the arbitrator but for different reasons: and conversely, an erroneous decision cannot be saved by unimpeachable reasoning.  It is unexceptional for an appellate court to affirm the decision of a lower court, but for reasons different from those adopted by the lower tribunal.  But although for the purposes of review the arbitral decision and reasoning must be kept distinct, it will nonetheless frequently be the case that erroneous reasoning will result in an erroneous decision."

A footnote to the 2nd sentence in the passage quoted cites in support: "Cf. Uni-Ocean Lines Pte Ltd. v. C-Trade SA (The Lucille) [1983] 1 Lloyd's Rep 387 (first instance)".  But I have not found anything in Uni-Ocean which explicitly backs the proposition which Professor Thomas has advanced.

18.  I doubt that it is correct to infer how courts should approach appeals from arbitrators by drawing analogies with the practice of appeal courts when reviewing decisions of lower tribunals.  In a run-of-the-mill appeal against the decision of the a first instance judge, the Court of Appeal does not have to concern itself with the fact that parties have contracted for their disputes to be resolved by arbitration.  In proceeding by analogy with conventional appeal processes, Professor Thomas' reasoning seems to me to be flawed.

19.  What I have just described must be the Court's approach even if (as I assume to be the situation) Mr. Whitehead is merely repeating submissions on the inadequacy of Kenworth's particulars which were put before the Arbitrator.  It does not follow from the fact that arguments were made that the Arbitrator took them on board and agreed with them, despite saying little or nothing about those specific submissions in the 7th Award.

20.  As far as AMSOC §26A is concerned, I remain of the view that the Arbitrator's stated reason in the 7th Award is obviously wrong.  I do not think then that I can or should go further.

21.  Mr. Whitehead has suggested that there is no point in remitting the matters in contention to the Arbitrator for reconsideration.  If he is right and any particulars are grossly inadequate, then (he says) the sanction in the 4th Award must surely apply as night follows day.

22.  Time consuming as remission to the Arbitrator may be, I am afraid that there can be no short-cut.  I should not second guess the Arbitrator's thinking, much less the exercise of any discretion held by him.  The parties have agreed to arbitration.  The Court must respect that bargain. 

23.  The situation is different where (as (say) with AMSOC §61) all parties (including the Arbitrator) acknowledge that the 7th Award was in error.  In such case, there may be no point in wasting time and remitting the matter for reconsideration by the Arbitrator.  The Court might correct the error of its own motion.  Here, in contrast, the adequacy of the particulars and the extent to which they are inadequate (if at all) are hotly in dispute.

24.  On AMSOC §28, Mr. Whitehead argues that "[t]he only issue is whether KEL's particulars properly satisfy the Arbitrator's order for KEL to answer Request 2.5".  He submits that particulars had been properly ordered, not in respect of the evidentiary certificate, but of the factual allegation that over 95% of the work had been completed.

25.  Again I cannot accept this.  For the reasons set out in Judgment I, I remain of the view that the Interim Certificate is only a piece of evidence.  All Kenworth wishes to do is to put forward an argument that it is entitled be paid some 95% of the contract value on the strength of the Interim Certificate.

26.  On AMSOC §43, I come to a similar conclusion as that in respect of AMSOC §26A.  It is far from clear in coming to his decision that the Arbitrator had regard to Schedule 3A.  That is even ignoring the question of any misunderstanding of Schedule 2A.  In those circumstances, for the reasons which I have already mentioned, it would be wrong for me on an appeal to speculate how the Arbitrator would react if he had considered Schedule 3A and whether he would have applied the sanction in the 4th Award as a result of such consideration.

27.  Given that the Arbitrator appears not to have taken account of Schedule 3A, I think that the appeal in connection with AMSOC §43 must be allowed.  On the grounds expressly stated in the 7th Award, the Arbitrator was obviously wrong.

III.     Conclusion

28.  Kenworth's appeal is allowed.  The question whether Kenworth should be allowed to advance a case based on AMSOC §§26A, 28 and (in the sense defined above) 43 is remitted to the Arbitrator for reconsideration.

29.  I shall now hear the parties on costs and consequential orders.