XCHRX S.Y. ENGINEERING CO. LTD. v. THE HONG KONG HOUSING AUTHORITY

1998 No. CT 101 & 120

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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Background

1. The proceedings before me concern an arbitration between the parties to resolve disputes arising out of a piling contract. There is an application by the applicant for leave to appeal under section 23(3)(b) of the Arbitration Ordinance (Cap. 341), and the parties have agreed that, in the event that leave is granted, I should then decide an appeal under section 23(2) of Chapter 341. There is also an application by the applicant for the setting aside of the award, or the removal of the arbitrator, under section 25 of the Ordinance. The applicant also applies for leave to appeal against the arbitrator's award of costs to the respondent on a common fund basis.

The Ordinance

2. Under section 23, an appeal lies only "on any question of law arising out of an award", and I should only grant leave to appeal if I consider that "having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of" the parties. Under section 25, I may remove the arbitrator if he has "conducted himself or the proceedings", and, in that event, I may set aside the award.

3. The Ordinance says that the question of law must arise from the award. An applicant cannot raise a question of law arising in the arbitration proceedings, but outside the award. If the award does not sufficiently set out reasons for the award to enable the question of law to be formulated and considered, the applicant may apply for an order that the arbitrator state his reasons for this purpose. The applicant does not so apply.

The First Allegation of Misconduct

4. I propose to deal with the points raised by the applicant in the order in which they appear in the notice of originating motion.

5. The first allegation relating to misconduct is that the arbitrator breached the rules to natural justice by taking a view of a report by a loss adjuster which was not either party's case, and which was not raised by the arbitrator during the course of the hearing.

6. The arbitrator came the conclusion that the loss adjuster's report was coloured by what he had been told by Mr Gilfeather, a witness for the applicant, and what he had been told by Mr Gilfeather "was not wholly impartial, was somewhat out of balance and, on occasion, over-dramatic." The arbitrator heard the evidence, and he was clearly entitled to come to this conclusion. It is also quite clear, from the material to which Miss Li drew my attention, that the respondent did not accept Mr Gilfeather's evidence, and attacked him in evidence on the matter of what he told the loss adjuster and of the accuracy of this. Thus, the possibility was fairly before the applicant that the arbitrator would find against the applicant on the accuracy and veracity of what Mr Gilfeather told the loss adjuster.

7. In these circumstances, it is quite wrong to say, as the applicant does, that the arbitrator should have warned the applicant that, in effect, he might draw inferences from the evidence of Mr Gilfeather adverse to the applicant. This is not the way a court works, and a court should not expect an arbitrator to follow such a procedure. The matter was ventilated by the respondent's questions, and the applicant had every opportunity of responding to this attack.

The Second Complaint of Misconduct

8. The next complaint of misconduct is that the arbitrator expressly declined to resolve a disputed issue of expert evidence. The dispute was as "to the impossibility of executing the Works by any other plant and/or method.". It is not so, as matter of fact, that the arbitrator "expressly declined" to do this. He said - "In the face of such diametrically opposed expert evidence, I looked elsewhere". He did look elsewhere, and came to the conclusion that the view taken by the respondent's expert was the correct one. There is nothing wrong with this. But even if the arbitrator had failed to resolve this issue, there is nothing wrong with that either. It is not uncommon for a court or arbitrator to find it cannot decide between the conflicting evidence given by witnesses. In that event, the matter is decided by reference to other evidence, or, if there is no other evidence, by the operation of the onus. That is a perfectly proper approach.

The Third Allegation of Misconduct

9. The last allegation of misconduct is that the arbitrator took into account that another contractor showed some interest in doing the work. The arbitrator said - "I suggest that one important feature offered was the indication that [this other contractor] could do the job. . . . [This other contractor] clearly thought the task was possible." The applicant says that this was not either party's case, and the applicant did not have the opportunity of meeting it. The issue as to whether or not the job was possible was one of the primary issues. The fact that other contractors were prepared to do the job was an adminicle of evidence showing that the job was possible. And this was treated as such, certainly by the respondent. I do not think that the arbitrator was bound to tell the applicant that he intended to take this evidence into account. The applicant had plenty of opportunity of seeking to show that this evidence was of little value. It may, indeed, may have had less value than the arbitrator placed upon it, but that is not misconduct.

10. Accordingly, I hold that none of the alleged grounds of misconduct has been made out.

The First Ground of Appeal

11. This ground of appeal is -

"The Arbitrator was wrong in law in holding on a true construction of GCC 15 that it was not legally or physically impossible for the [applicant] to execute the Works in strict accordance with the Contract to the satisfaction of the Contract Manager."

12. GCC 15 is a general condition of the contract between the parties. It says that "Save insofar as it is legally or physically impossible, the Contractor shall execute the Works in strict accordance with the Contract . . ."

13. It is very difficult to see this as a question of law arising out of the award. There was never any contest that, if it was legally or physically impossible, whatever construction is put on those words, the applicant was not bound to execute the works in strict accordance with the contract, and the arbitrator certainly did not challenge this. What the arbitrator did find was, on the facts of this case, it was not legally or physically impossible to so execute the contract. Now, that finding may be right or it may be wrong, but it cannot be said to be a decision on a question of law.

14. As far as legal impossibility is concerned, the arbitrator made it quite clear that he was making a decision on the facts. He said - "The burden of proof of impossibility is high and, in so far as legal impossibility is concerned, has not been discharged." A burden of proof, of course, applies to the facts, not law. He also said - "I am not persuaded that it was physically (whether absolutely or commercially) or legally impossible to carry out the Works in accordance with the contract design and specification.". In the context, it quite clear that this was also a decision of the facts of the matter.

15. This conclusion may be tested by considering what I should do if I were to set aside the award on this ground. I could not, of course, simply set aside the award; that would leave things undecided. I would be bound to remit the award to the arbitrator with my opinion on the question of law which is the subject of the appeal. What could that opinion be? I could not say to the arbitrator - "You have misconstrued GCC 15. Construe it in this way." He certainly did not misconstrue that clause. Because of his findings on the facts, he was not called upon to construe the finer points of the clause. All I could say, when remitting the matter, is - "You have wrongly found, on the facts, that it was not legally or physically possible to execute the works in strict accordance with the contract." That would not be an opinion on any question of law, but a finding on the facts, and that is the sole preserve of the arbitrator. I should say here that there is no suggestion that there was no evidence on which a reasonable arbitrator could so decide on the facts.

16. Accordingly, it is impossible to give leave to appeal on this point because it does not raise any question of law.

The Second Ground of Appeal

17. The second ground of appeal is -

"The Arbitrator was plainly wrong as matter of law in dismissing (as he did in paragraph 30 of the Award) as insufficiently certain a Method Statement for the performance of the Piling works when a written statement was expressly bound into the contract, stamped with the Respondent's chop and was incorporated by reference into the Piling contract."

18. What the arbitrator said in paragraph 30 of the award was -

"Having examined this correspondence and considered the evidence of witnesses from both sides, I have concluded that the degree of uncertainty in the series of method statements is such that there is no contractual method statement that can be construed."

19. I have to say that, from what little I know about the facts of this case, this conclusion is somewhat surprising. It does seem that both parties to this contract seemed to have assumed that there was some contractual method statement, although it might be said that they were not always of the same mind as to the precise provisions of that statement. I say "from what little I know of the facts of this case" because I have not examined all the facts, read all the papers or perused the evidence, nor, of course, have I had the advantage of hearing the witnesses. So, my impression may be totally erroneous. It is not my job to re-hear the arbitration and decide whether or not the arbitrator was wrong on the facts. That a provision of a contract may be so vague or uncertain that it cannot be given any contractual force as a matter of law cannot be doubted. Whether or not the evidence shows that the expression of such a provision in a contract is such is a matter of fact. Mr Westbrook has not taken me through all the evidence considered by the arbitrator in coming to this conclusion. He does not suggest, and the ground of appeal does not suggest, that there is no evidence on which the arbitrator could have reached this decision. In the light of this, Mr Westbrook was right not to take me through all the material considered by the arbitrator, because that would imply that I should come to a conclusion different from the arbitrator on the facts revealed by that material, and that is not my function.

20. Accordingly, I say that I cannot grant leave on this ground.

The Third Ground of Appeal

21. The next ground of appeal is -

"The Arbitrator was plainly wrong to distinguish the present case from Yorkshire Water Authority v Sir Alfred McAlpine & Son (Northern) Ltd (1985) 32 BLR 114 in the manner in which he did in paragraphs 36 and 37 of the Award."

22. That case deals with the effect of including a method statement in a contract. It is not necessary for me to decide whether or not the arbitrator was right or wrong in distinguishing this case. As he says himself - "In any event, I have already held that there was no method statement which became a term of the contract.". In these circumstances, the fact that the arbitrator might have been wrong in distinguishing the case is irrelevant to the outcome of the arbitration. If he was wrong, and had applied the case, it would have made no difference because he held it was inapplicable on the facts. In other words, the determination of the question of law concerned could not substantially affect the rights of the parties.

23. Again, there is no basis on which I can give leave to appeal on this point.

The Fourth Ground of Appeal

24. The fourth ground of appeal is -

"The Arbitrator was wrong in law in holding that the requirement of insurers to move plant and equipment from a portion of the site followed by advice from independent expert that that of the site could not be worked by methods that had been in use did not render it physically or legally impossible for the Claimant to execute the Contract Works."

25. I do not quite understand this ground. I think there is an error in framing it. However, it is essentially connected with the first ground of appeal, and, as far as I can see, raises nothing not considered under that ground.

26. There can be no leave to appeal on this ground.

The Fifth Ground of Appeal

27. The fifth ground of appeal is -

"The Arbitrator was wrong in law in failing to hold that the Claimant would have been in breach of GCC 20 had [he] continued with the work at the prescribed portions of the site."

28. This ground, as Mr Westbrook says, raises nothing not already considered in relation to the first ground of appeal.

The Sixth Ground of Appeal

29. The sixth ground of appeal is -

"The Arbitrator made an error of law in paragraph 71 of the Award in failing to resolve the conflicting views of the experts Mr Mackinley and Mr Pullen."

30. I have already dealt with this matter under the allegation of misconduct. There is no need to say anything more.

31. There is no basis for granting leave on this ground.

The Seventh Ground of Appeal

32. The seventh ground of appeal reads -

"The Arbitrator erred in law in arriving at a decision which no reasonable arbitrator could reach having regard to the evidence before him that the matters referred to in paragraphs 70 and 73 to 74 of the Award established that the piling works were possible."

33. It has not been demonstrated to me - indeed there has been no attempt to demonstrate to me by taking me through all the relevant evidence - that no reasonable arbitrator could have reached the decision reached by this arbitrator on that evidence. Indeed, I doubt whether it can ever be said that a ground that there was no evidence upon which an arbitrator could reasonably find a fact is a question of law arising out of an award, unless that appears from the face of the award. If there is an occasion when it appears that there is reasonable suspicion that an arbitrator has found a fact without evidence, the remedy is to ask the court to direct the arbitrator to furnish further reasons so it can be seen whether, on the award, that evidence exists. It cannot be the function of this court essentially to re-hear the arbitration in order to determine whether or not that evidence exists.

34. Leave to appeal on this ground is refused.

The Eighth Ground of Appeal

35. The eighth ground of appeal says -

"The Arbitrator was plainly wrong in paragraph 75 of the Award to hold that on their true construction GCC 13 and 14 of the Contract required the Applicant not to have tendered for the work in the circumstances, and to further hold expressly or by necessary implication that if it did so, the said provisions are to operate so as to preclude the Applicant from relying on the same."

36. In paragraph 75, the arbitrator made the point that, if a contractor thinks that he cannot do the work according to the specified design, he should not tender or contract to do that work. That seems to me to be nothing more than common sense, and I can see no proper ground for complaint here.

The Ninth Ground of Appeal

37. This ground is -

"The Arbitrator was plainly wrong and arrived at a decision which no reasonable arbitrator could have reached having regard to the evidence before him that Mr Mackinley's evidence in paragraph 4.4 of his report supported the Respondent's case and not the Claimant's (paragraph 76 of the Award)."

38. To summarise, what Mr Mackinley said in his report was that, while there were many ways of completing a pile or two satisfactorily - indeed, the arbitrator found that 126 piles "were acceptably installed" - he was of the opinion that the work could not be completed safely or in the time allowed. I doubt myself that it could fairly be said that Mr Mackinley's evidence "does more to support the Respondent's case than it does the Claimant's", but this is a minor point, and it cannot possibly be said, in the light of the whole of the award, that this made any real difference to the outcome of the matter.

39. Accordingly, there can be no leave here because the question of law, if there is one, could not substantially affect the rights of the parties.

The Tenth Ground of Appeal

40. The last ground reads -

"On their true construction the provisions of the Bill Of Quantities clauses 4.1/2(ii), 4.2/2(ii),4.3/2(ii) and 4.4/2(ii) and PS 19 39(3)(c) which formed part of the contract between the Applicant and the Respondent plainly require the Applicant to employ an under-reaming technique and the Arbitrator was clearly wrong as a matter of law to hold otherwise in paragraph 77 of the Award."

41. I am not persuaded that there is any point of law arising out of the award here. The arbitrator gives another reason here why he does not accept Mr Mackinley's opinion, and he points to some evidence. Without essentially re-hearing that evidence, I cannot possibly say that there was any error here, let alone an error of law. In any event, I am not persuaded that, even if the arbitrator is wrong, this makes any difference to the overall result.

Appeal on Costs

42. As to the costs of the arbitration, the arbitrator awarded costs to the respondent on a common fund basis. The applicant also seeks leave to appeal against the order on that basis. The arbitrator made this order because he thought that the applicant had unnecessarily occupied more time than was reasonable, and thus increased the costs. Broadly, the applicant says that the arbitrator misdirected himself and wrongly exercised his discretion. Here, as elsewhere, the applicant must pose a question of law arising from the award. I do not see such a question here. Essentially, the applicant is saying that the arbitrator exercised his discretion wrongly. Certainly, if the arbitrator was right in saying that the applicant had wasted time, there was justification for making the award of costs on a common fund basis. I cannot possibly say whether this is so or not without re-hearing the matter on the papers. That is not my function. In any event, that raises no question of law arising from the award. It may be that another arbitrator would not have made such an order. I am inclined to think that I would not have made an order on a common fund basis. That, however, is neither here nor there. I cannot ascertain any error of law made by the arbitrator.

43. Consequently, I decline to grant leave to appeal against this order.

General

44. Mr Westbrook made a great many submissions on the facts of this matter. These were useful in enabling me to understand the background of the case and the award. I mean no discourtesy by not referring to all these submissions. I find, however, that they did not, and could not, turn what were findings of fact into questions of law arising from the award so it is unnecessary to deal with them in detail.

45. Counsel also addressed me on the question of what category of case this was for the purpose of applying The Nema guidelines. In the result, because I have found that there are no questions of law arising out of the award, or, at least, no questions of law that could substantially affect the rights of the parties, it is not necessary to make a decision on this point.

Costs

46. There seems no obvious reason why costs should not follow the event. I make an order nisi that the applicant pay the costs of this matter.