KAILAY ENGINEERING CO. (HK) LTD. v. CHARLES W. FARRANCE

CACV 33/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 33 OF 1999

(ON APPEAL FROM HCCT 80 OF 1998)

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REASONS FOR JUDGMENT

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Nazareth, V-P:

1. Having heard counsel, we dismissed the appeal with costs and now give our reasons.

2. This appeal is concerned with one single question: Does a court have jurisdiction under s.15(3) of the Arbitration Ordinance (Cap. 341) ("the Ordinance") to remove an arbitrator after he has become functus officio?

3. The question arises in the following way. The defendant was appointed arbitrator in an arbitration between the plaintiff and another party in December 1995. Nearly four years later, the award still not having been made, the plaintiff commenced these proceedings by originating summons issued on 8 August 1998 for removal of the defendant. The plaintiff's solicitors wrote to the defendant on the same day asking him not to publish his award. After the defendant received the summons and letter, he wrote to the plaintiff's solicitors saying "As I have not yet been removed I consider my duty to continue to act until the outcome of this action taken by the claimant." The plaintiff's solicitors wrote back on 14 August 1998 saying "it would be more sensible if you do not publish any award until the final outcome in the claimant's action". Notwithstanding that, the defendant wrote to the plaintiff's solicitors on 14 August 1998, inter alia observing that "whether it is sensible for the award to be published, this is for the claimant to decide". He added that his full and final award "is now ready for publication". In his affidavit subsequently filed in the proceedings, the defendant said that the sentiment expressed by the other party's solicitors "came too late, as the award had been published on 12 August 1998." That assertion was not made by the defendant in correspondence until his letter of 18 August 1998. It remains to be added that on the 11 August 1998, the day before he asserts that the award was published, and three days after the issue of the originating summons and the request not to publish, he had written to the parties informing them that he would be in a position to publish his award "in the course of the next few days".

4. Upon the basis that the defendant had made his award on 12 August 1998, his legal representative below argued that, from that date, the defendant no longer held the office of arbitrator, and, therefore, he could not be removed from it. His submission was that although the case might fall within s.15(3), the court had no jurisdiction to remove him as arbitrator because he was no longer the arbitrator.

5. The judge rejected that submission and made an order removing the defendant as arbitrator with effect from 8 August 1998. He said this in his judgment:

"I believe this point is not a good one. Generally, when a court is judging a case, it looks to the rights and wrongs of the matter as at the date of the commencement of the proceedings. There are, of course, exceptions to this, but none that I think are relevant here. If a plaintiff sues for breach of contract, but the breach did not occur until after the issue of the writ, the plaintiff is out of court. In this case, if there was no failure 'to use all reasonable dispatch' at the time of the issue of the originating summons, but only after, the power under section 15(3) could not be exercised. If the arbitrator is to be removed, he is to be removed as from the date of the issue of the summons because that is when his failure occurred. The question of whether or not the arbitrator is to be removed is to be resolved with regard to the time the plaintiff makes its application, not at the time I make my order. If it were otherwise, any arbitrator could unilaterally deprive the court of its power under section 15(3) by simply making his award, willy-nilly, good or bad, properly considered or not properly considered, before the order is made. As Mr Coleman said, the defendant could make his award today, as I sit in chambers considering this matter, and, if Mr Peard is right, that would an end to the matter, other than in respect of costs. Although I might already have found that the case fell within section 15(3), I could not make any order by the will of the defendant. That cannot be what the legislature contemplated in enacting section 15(3). The legislature cannot have intended that the purpose of section 15(3) was only to provide an application of the spurs to invite the arbitrator over the last jump, and, if he took the opportunity, he was free and clear. That approach would also encourage, contrary to the interests of the parties, an arbitrator to make a hasty, ill-considered award."

6. It is necessary to pause here to set out the terms of s.15(3) and s.25 of the Ordinance:

"15 ...

(3) The Court may, on the application of any party to a reference, remove an arbitrator or umpire who fails to use all reasonable dispatch in entering on and proceeding with the reference and making an award, and an arbitrator or umpire who is removed by the Court under this subsection shall not be entitled to receive any remuneration in respect of his services."

"25. Removal of arbitrator and setting aside of award

(1) Where an arbitrator or umpire has misconducted himself or the proceedings, the Court may remove him.

(2) Where an arbitrator or umpire has misconducted himself or the proceedings, or an arbitration or award has been improperly procured, the Court may set the award aside.

(3) Where an application is made to set aside an award, the Court may order that any money made payable by the award shall be brought into court or otherwise secured pending the determination of the application."

7. Mr Anselmo Reyes, for the defendant, submits that if there was any misconduct warranting removal of the arbitrator, it would fall to be dealt with under s.25. In the light of s.25, s.15(3) can be seen to be directed at the removal of an arbitrator who fails to use all reasonable despatch in proceeding with the reference and the making of an award. An order of removal under it has the draconian effect, he submits, of denying the arbitrator his remuneration however long the arbitration might have been. Indeed even if the award were subsequently published, the court would have no jurisdiction to order the remuneration or part thereof to be paid. There is no provision for appeal or relief. Moreover, he submits that s.15(3) has no teeth in that there is no power to compel the arbitrator to complete his task with despatch. He points also to the anomaly between s.15(3) and s.25 in the potentially draconian denial of remuneration for delay that might not amount to misconduct, while delay that might amount to misconduct under s.25 merely attracts the arbitrator's bare removal.

8. In the general context of that submission, Mr Reyes seeks also to rely upon Pratt v Swanmore Builders Ltd and Baker [1980]2 Lloyd's Rep 504 in particular upon the following passage in the judgment of Pain J at p.512 where he turned to the question of delay under s.13(3) of the Arbitration Act:

"Mr Spon-Smith submitted that for this purpose I had to look at the result of the arbitrator's activities. Had the reference proceeded with reasonable dispatch? In this case, it has not. That being so, if the arbitrator is responsible for the delay he should be removed. I do not think this is the right approach. I find that he has done so; whatever misconduct he has committed and whatever the consequent delays may have been, he should not be removed under this section. s.13(3) The distinction between this section and s.23(1) may be of importance because an arbitrator may be deprived of his remuneration under s.13(3), while s.23(1) is silent as to remuneration."

The equivalent provisions of the Ordinance are ss.15(3) and 25(1) which are in materially identical terms. It is clear from the foregoing passage, particularly in the context of the rest of the judgment and the facts, as highlighted in paragraph 4 of the matters held contained in the headnote, that Pain J was distinguishing removal for misconduct under s.23(1) from removal for failure by the arbitrator to use "reasonable despatch" in proceeding with the reference and making an award under s.13(3). He held that an arbitrator ought not to be removed under s.13(3) whatever the misconduct he had committed and whatever the consequent delay might have been, in that the delay which had thereby occurred would not have been due to any failure by the arbitrator to use "reasonable despatch". I pause to observe that we are not concerned here with any allegation, much less any finding of misconduct. I did not understand Mr Reyes to be seeking any support from this authority in that respect. However, it does emphasise the distinction Pain J pointed to between removal under the two provisions, about which I do not think there can be any question.

9. In addition, Mr Reyes is right in that there do appear to be anomalies of the nature he suggests. But however all that may be, s.15(3) very clearly provides that on the application of any party to a reference the court may remove an arbitrator who fails to use all reasonable despatch in entering and proceeding with the reference and making an award. I cannot see that the sort of anomalies that he pointed to could deny those words their plain effect. As to whether the jurisdiction became inapplicable upon the arbitrator becomesfunctus officio, I am not attracted by that submission and agree with the judge that the matter must be viewed at the time the originating summons was issued, i.e. 8 August 1998 (see e.g. the similar situation in Clough v Clough [1968]1 All ER 1179). At that time the arbitrator was clearly not functus officio and it cannot be the position that he should be able to oust the jurisdiction of the court by simply publishing his award whether or not it be fully or properly considered and completed, before the summons is determined.

10. I pause here to mention that Mr Reyes also drew attention to the judgment of the Court of Appeal in In re Keystone Knitting Mills' Trade Mark [1929]1 Ch 93 in which it was held, in a not dissimilar situation, that there was no necessity for the judge to ante-date his order. If he had jurisdiction when he made the order to remove the trademark there, no ante-dating was necessary. If he had not, he could not by ante-dating his order confer upon himself a jurisdiction which he did not otherwise possess. With respect, that must clearly be right. Mr Russell Coleman, for the respondent, did not dispute that. But upon my view that the judge was not functus officio in relation to the summons, the view of the Court of Appeal simply has no application.

11. At the end of the day, it can be seen that what the judge was addressing was s.15(3). It was conceded before him that the defendant had been guilty of undue and unreasonable delay, not that he had been guilty of misconduct. There was no suggestion that he was being penalised for misconduct. It is perfectly clear from page 2N of his judgment that the judge was clearly addressing the proper issue under s.15(3) in considering whether there was failure "to use all reasonable despatch".

12. As to whether the application for removal was properly made under s.15(3), it can be seen from those provisions that s.15 is concerned with the time for making an award and that it is subsection (3) that provides for the situation of an arbitrator who fails to use all reasonable despatch in making an award. In the face of the provision disentitling an arbitrator from receiving any remuneration in respect of his services for removal thereunder, it cannot be said that s.15(3) lacks teeth. Nor in the absence of any allegation of misconduct, can resort to it as opposed to s.25(1) be said to be improper.

13. In the result, there was plainly no merit in the appeal and for my part I had no hesitation in dismissing it.

Mortimer V-P:

14. I agree.

Sakhrani J:

15. I also agree.