DRAGAGES ET TRAVAUX PUBLICS AND OTHERS v. PRESERVATRICE FONCIERE TIARD AND ANOTHER

1988 M.P. No. 2305

IN THE HIGH COURT OF HONG KONG

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HEADNOTE

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The Plaintiffs failed under a construction contract with the Defendants to give a notice to refer a dispute between them to arbitration within the 12 months period after disclaimer of liability provided for by the contract. They applied for an extension of time under section 29 of the Arbitration Ordinance, claiming that they would be caused "undue hardship" if such an extension was refused. The Plaintiffs' failure to act within the prescribed period was due to the belief of the Plaintiffs' solicitors that the Defendants might be prepared to reconsider the initial disclaimer of liability.

1988 M.P. No. 2305

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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JUDGMENT

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1. This is an application under Section 29 of the Arbitration Ordinance, Cap. 341. Section 29 provides :

"Where the terms of an agreement to refer future disputes to arbitration provide that any claims to which the agreement applies shall be barred unless notice to appoint an arbitrator is given or an arbitrator is appointed or some other step to commence arbitration proceedings is taken within a time fixed by the agreement and a dispute arises to which the agreement applies, the court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may, on such terms, if any, as the justice of the case may require, but without prejudice to the provisions of any enactment limiting the time for the commencement of arbitration proceedings, extend the time to such period as it thinks proper."

2. It is to be observed that the section does not provide, as it might have done, that time may be extended if the Court is of opinion that in all the circumstances of the case it would be just to do so. The power is restricted. The test is this - Is the court of the opinion, in all the circumstances of the case, that undue hardship would be caused to the applicant if his application is refused?

3. The courts have spoken with more than one voice upon the question of "undue hardship".

4. In the only case cited to me in which those words have been considered by an appellate Court, the Court of Appeal in England, two judges took one view and one took another, Lord Denning, the Master of the Rolls, and Lord Justice Salmon being prepared to give a generous interpretation to the words "undue hardship", and Lord Justice Harman being less inclined so to do.

5. The case is the case of "The Pegasus", Liberian Shipping Corporation v. A. King & Sons Ltd. [1967] 1 All ER 934.

6. Lord Denning drew attention (at p.937) to the fact that the Courts had on occasion given a narrow meaning to "undue hardship". He referred to the argument which supported the narrower meaning; it had been submitted that commercial men must know where they stand and, as soon as the time is up, they are entitled to consider that all claims are barred save in very exceptional circumstances.

7. Lord Justice Harman, favouring this narrow view, said this (at p.936) : "I should like very much to feel that these people were not shut out of what really they may have by the terms on the contract into which they entered. I do not, however, think that we are at liberty, consistently with the view which our predecessors have taken of these matters, to be indulgent because we feel sypmathy with people who have made a blunder. That is all it is. " Lord Justice Harman, however, did enunciate the following proposition: "It is the duty of a Court of construction to try and produce a consistent body of doctrine, so that people should know where they stand and not be at the whim of the particular Court before whom they come. "

8. Since Lord Justice Harman found himself in the minority, it seems to me that, consistently with his own expression of opinion, it must be the duty of a Judge of first instance sitting in Hong Kong, and not constrained by any authority of the Court of Appeal in Hong Kong to take a different view, to follow the approach adopted by the majority of the Court of Appeal in England in the case cited.

9. This approach was summarized by Lord Justice Salmon (at p.940) in the following words (referring to the equivalent section of the English Act) :

"That section seems to me to state quite plainly that if, having considered all the circumstances of the case, the court comes to the conclusion that the hardship imposed by the form of the arbitration clause on the claimant is greater than that which, in justice, he should be called on to bear, the time within which to appoint an arbitrator may be extended by the court. "

10. Both parties before me are, I think, agreed on the proposition that prejudice to the respondent must be an important factor, probably the most important factor, to be taken into account in the exercise of this discretion.

11. In the "Al Faiha", a decision of Mr. Justice Parker reported in [1981] 2 Lloyd's Law Reports 99, Mr. Justice Parker (at p.104) said this :

"With regard to the matter of prejudice to the defendant there can be no doubt that the existence or absence of such prejudice is an important circumstance as, if it exists, is its extent. "

12. The Judge however added :

"There can also be no doubt that the absence of prejudice to the defendant, although important, is not itself a sufficient ground for granting an extension. The plaintiffs' conduct may be such that, although the defendant would be in no way prejudiced in his defence if the claim were allowed to proceed, it would not constitute excessive hardship if the plaintiffs application were refused. "

13. In The Simonburn (No.2), a decision of Mr. Justice Kerr reported in [1973] 2 Lloyd's Law Reports p.145. the Judge, referring to the "Pegasus" case, said this :

"In the light of that decision the question whether or not a case involves undue hardship cannot now be said to involve the application of any rule of law. "

14. Before me both parties were content to proceed on the footing that Mr. Justice Kerr was right in this.

15. Against that background, I come to consider the present case.

16. On 21st March 1984, the Plaintiffs entered into a contract with the Hong Kong Housing Authority, contract No. 92 of 1984, for construction works at Lam Tin North Extention Phase 1, Kowloon. On 9th April 1984, the Plaintiffs entered into a contract of insurance with the Defendants in respect of the Lam Tin North Project.

17. By the policy, the 'Period of Insurance' is defined as "From 30th July 1984 to 30th June 1987 (both dates inclusive) (including six months maintenance period). "

18. Section 1 of the policy is the "All Risks" section. There are nine categories of exception to the indemnity offered under this section. The last of these reads :

19. The policy contains, in Clause 7, the following provision material to the point which I have to decide :

"If the Company [i.e. the Defendants in the present case and the Respondents to this application] shall disclaim liability to the Insured for any claim hereunder and such claim shall not within twelve months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder. "

20. The Plaintiffs entered into a sub-contract for the electrical installations on the project with a nominated sub-contractor. The sub-contract deals with the liability of the parties in respect to the making good of defects and payment for such work.

21. On 27th January 1987, the Architect under the main contract certified that the works were substantially complete. The Defects Liability Period therefore commenced on that date and expired on 26th July 1987.

22. On 5th March 1987, a burglary occurred on the site, as a result of which a substantial number of electrical fittings installed by the sub-contractor were either stolen or damaged. The Defendants were duly notified, and loss adjusters made a site inspection on 7th March 1987 and reported on 10th March 1987.

23. The Housing Authority required the Plaintiffs to rectify the relevant works. On 23rd March 1987, the loss adjusters requested the Plaintiffs to provide details of the claim, and these were passed to the loss adjusters at the end of April.

24. On 12th June 1987, the loss adjusters wrote to the Plaintiffs indicating that the Defendants declined liability on the basis that the Plaintiffs were not covered by the policy at the relevant time. From that date, 12th June 1987, time to began to run against the Plaintiffs.

25. The Plaintiffs' solicitors were duly instructed in the matter; and, on 3rd November 1987, wrote to the loss adjusters disputing the grounds given for declining liability, and inviting them to reconsider their advice to the Defendants.

26. On 11th November 1987, the loss adjusters wrote to the Plaintiffs asking them for certain clarification. On 18th November 1987, the Plaintiffs' solicitors wrote again to the loss adjusters explaining the Plaintiff's position and requesting them to admit liability. The loss adjusters' response, of 24th November 1987, requested a number of contract and sub-contract documents, including some showing the contract prices of the stolen items. The documents requested were sent to the loss adjusters. No response was forthcoming for a long period.

27. On 13th April 1988, the Plaintiffs' solicitors wrote to the Defendants pointing out that over three months had passed without communication from them. By a letter dated 5th May 1988, the defendants noted that they had appointed Messrs. Sit, Fung, Kwong & Shum, solicitors, to act for them.

28. By now the time was getting very short. If by 11th June 1988 no claim had been submitted by the Plaintiffs, the clause to which I have referred would operate to bar them from recovery.

29. On 17th May 1988, the Plaintiffs' solicitors wrote to the Defendants' solicitors. The latter had in fact been instructed on 7th January 1988 but had not been in contact in any way with the Plaintiffs' solicitors. The Plaintiffs' solicitors wrote again to the Defendants' solicitors on 1st June 1988. On both occasions the Plaintiffs' solicitors asked whether the claim was admitted or denied.

30. The crucial date, 11th June 1988, came and went. The Plaintiffs' solicitors had received no response from anybody and they had themselves done nothing to procure the notice required by the contract to be given.

                (Some questions arose later as to whether or not the Defendants' solicitors had in fact received the letters from the Plaintiffs' solicitors to which I have referred, but in my judgment nothing turns on this. )

31. There can be no doubt that the Plaintiffs through the inadvertence of their solicitors failed to protect their position before the guillotine came down on 11th June 1988.

32. The question for me, then, is whether I am satisfied that in all the circumstances of the case undue hardship would be caused to the Plaintiffs if I refuse to accede to their application. The contract is substantial and involves a contract price in excess of $140,000,000.00. The claim itself, though not trivial, is small, involving as it does a claim for only some $180,000.00.

33. The amount of the contract, and the amount of the claim, and the proportion which the one bears to the other, appear to me to be relevant considerations, but not ones to which undue weight ought to be attached.

34. Justice requires that a man should not be shut out from pursuing a claim, all other things being equal, whether the claim be large or small (unless the claim is so small as to be de minimis).

35. It is an important feature of the present case that the Defendants do not claim to have suffered any prejudice as a result of the inadvertent omission on the part of the Plaintiffs. I remind myself of Mr. Justice Parker's observation that that in itself is not sufficient to conclude the matter in favour of the Plaintiffs. I am however relieved from the necessity of weighing in the balance, in the present case, whether there is any and if so what prejudice suffered by the Defendants which should be set in the scales against the claim for an extension of time made by the Plaintiffs.

36. The Plaintiffs rely on the following factors in favour of their application, apart from the lack of any prejudice to the Defendants to which I have already referred.

37. The Plaintiffs say that negotiations had begun before the time had expired. It is true that there were what seem to me somewhat inconclusive discussions as to the Plaintiffs' claim; but to describe these as "negotiations" seems to me to by going rather too far. No doubt if a party is lulled by the conduct of his opponent into believing that he need not concern himself with a particular time limit, some form of waiver or estoppel may arise which will weigh very heavily in his favour.

38. But in my judgment it is not necessary, on an application of this sort, to go so far as to show anything so formal as a waiver or an estoppel. In this case there are at any rate some reasons for accepting that the Plaintiffs had some reasonable ground for believing that this claim, although initially rejected, might be considered, further considered, or reconsidered by or on behalf of the Defendants. In this they were not discouraged. In fact they were encouraged by the responses they received (such as they were) from the Defendants' loss adjusters.

39. It is true that although the Plaintiffs became aware of their difficulties as early as July or August 1988, they delayed making this present application for several months. In a case in which such a delay causes prejudice to the other side that fact would carry great weight with the Court. But as I have already explained no such claim of prejudice has made here and I cannot think that a few months delay in those circumstances, when there is no real or even alleged prejudice, can matter in the least.

40. It is also true that it is up to the Plaintiffs to prove, on this present application, that they would in fact suffer undue hardship, and it is said that they have not really succeeded in establishing that they have lost any opportunity to recover anything, because (it is suggested) the loss in question would have to be borne by their sub-contractor in any event. I do not think this is a consideration into which it would be appropriate for me to go. I think that I must proceed on the footing that there is or may be some loss suffered by the Plaintiffs and recoverable under the policy unless the Plaintiffs are barred from prosecuting their claim as a result of their own failure to act timeously.

41. Upon the whole matter, I have come to the view that the Plaintiffs have proved undue hardship, giving the expression the generous interpretation which it seems to me it is my duty to do. The result of refusing this application would simply be a windfall bonus for the Defendants, the Plaintiffs being deprived of any opportunity to prosecute their claim, in circumstances in which their own solicitors' inadvertence was, at any rate to some extent, induced by their continuing discussions about the Plaintiffs' claim. In these circumstances, I would propose to allow this application; but only on terms as to costs to which I would expect the Plaintiffs to submit, that is to say, that the costs of this application of the Defendants be taxed as between solicitor and own client and paid by the Plaintiffs to the Defendants forthwith.

42. Whether as between the Plaintiffs and their own solicitors it will eventually be thought right for those costs to be borne by the one or the other is not for me in this judgment to say. It is sufficient if I indicate that unless the Plaintiffs are prepared to submit to those terms, I would refuse this application.