XCHRX TERRAFORM ENGINEERING COMPANY LTD. v. FULL WEALTH INVESTMENT LTD.

1998, No. CON 28 & 42

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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REASONS FOR JUDGMENT

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The Applications

1. On 16 June 1998, I had two applications by the defendant before me. The first was an application for leave to appeal against an arbitrator's award on 27 January 1998. The other application was for an order that an order made by me on 23 April 1998 allowing the plaintiff to enforce the arbitrator's award be a set aside.

2. The parties agreed that, if I were to grant leave to appeal against the award, I should proceed immediately to decide the appeal.

3. On 16 June 1998, at the conclusion of argument, I made an order granting leave to appeal, allowed the appeal and setting aside the award. I ordered that the plaintiff pay the costs of the arbitration, the application for leave to appeal and the appeal itself. I said then that I would hand down my reasons later. These are those reasons

The Award

4. The arbitrator's award granted extensions of time to the plaintiff of two periods of 28 days and 34 days, awarded 56 days prolongation costs and the return of the 56 days liquidated damages.

Extensions of Time

5. It is important to appreciate that the plaintiff in this case did not, and could not, seek extensions of time on the basis of clause 14 of the contract, which makes provision for this. It is also important to know that the plaintiff expressly conceded that its claim for extension of time was not based on the time for completion being at large by reason of any breach of the defendant.

The First Ground

6. The arbitrator appeared to find that certain implied terms should be imported into the contract. He did find that the defendant was in breach of these. There can be no challenge to these findings. However, the arbitrator then went on to find that, on the authority of Percy Bilton v Greater London Council (1982) 20 BLR 1, that he could grant an extension of time where a delay was caused by an omission for which the defendant was responsible.

7. The position is, of course, that an arbitrator, or anyone else, cannot grant an extension of time for completion of a contract unless the contract makes provision for this. In this case, the arbitrator did not, and could not, act under any power in the contract. He purported to find the power under the authority of Bilton. Bilton is no authority for the proposition that an extension of time can be granted where the power to grant an extension under the contract is not applicable. On the contrary, the whole thrust of Bilton is that, to obtain an extension of time, a contractor must bring himself within the provisions of the EOT clause. I do not understand how the arbitrator could have read that case, which is admirably clear, as saying anything else.

8. On this ground, the arbitrator obviously wrong.

The Second Ground

9. This ground concerns two clauses in the contract. One says - "Any time required for the processing of the Building Authority shall be deemed to be allowed in the Contract Period.". The other says - "Any time required for processing for approval by the Building Authority shall be deemed to be allowed in the Contract Period.".

10. One might have thought that these clauses are as clear as could be, and their effect obvious. They clearly provide that the plaintiff must take the risk of delay in obtaining approval.

11. The arbitrator's finding on these clauses is - "I find that in order to give business efficacy to the clause the word reasonable must be implied into that clause."

12. That finding is wrong, and clearly, obviously and manifestly wrong. There is absolutely no reason at all, on the basis of business efficacy or otherwise, to imply anything into these clauses. They make entire sense. That is what the parties agreed. The arbitrator had no right at all to rewrite the contract. The plaintiff itself had more sense than to suggest to the arbitrator that the word "reasonable" should be imported into the clauses. That was never part of its case.

The Third Ground

13. This ground concerns a clause in a supplementary agreement. This clause reads -

"The time of the said revised Contract Period of 230 calendar days shall run notwithstanding any period required for obtaining approval of the alternative proposal and stage 2 consent application, or for any resubmission necessitated by the comments of Buildings Department on the method statement and all documents prepared by [the plaintiff]."

14. Again, no judge or arbitrator could wish for a clause in clearer terms. The plaintiff assumes the risk of delay involved in obtaining approval for -

i. the alternative proposal;

ii. the stage 2 consent, or

iii. any resubmission necessitated by the comments of the Buildings Department.

15. The arbitrator quotes the clause, but then proceeds as if he were concerned only with a resubmission necessitated by the comments of the Buildings Department. He totally ignores the fact that the plaintiff assumed responsibility for the period of delay involved generally for obtaining approval of the alternative proposal and the stage 2 consent.

16. I find that arbitrator misconstrued this clause, or did not apply it to the facts before him. In that he was clearly wrong.

The Fourth Ground

17. The fourth ground relates to clause 6.03 of the contract. This says -

"The Contractor shall submit to the Architect . . . any claims for direct loss and/or additional expense . . . to which the Contractor may consider himself entitled . . . within one month after the event and no claim for such additional expense . . . will be considered if submitted later than required herein."

18. It is common cause that the plaintiff did not submit any claim under this provision as required by it.

19. The arbitrator's finding on the effect of this clause was -

"Since I have found that the Claimant did not consider it was inevitable the contract would be delayed, I do not consider that [the clause] applied to the actual situation. Therefore I find that this time bar does not apply in such circumstances as are found when permitting the introduction of the implied terms into the Contract as I have introduced."

20. I do not know what this means.

21. The plaintiff must have known that the contract would be delayed, at the latest, when the contract was not complete on the due completion date. So I do not know why the clause did not apply "to the actual situation". I have difficulty in understanding what the implied terms have to do with this point.

22. In my view, it is quite clear that the arbitrator should have found that the clause did apply to the plaintiff's claim. The arbitrator was manifestly wrong not to so find, and to apply it.

The Result

23. On my findings, it does not matter how one wishes to classify the matters in respect of which the arbitrator went wrong. In my view, he went so wrong that this court is bound to interfere. Accordingly, I gave leave to appeal on all points, allowed the appeal and set aside the award.

Remittal?

24. I then had to consider whether the matter should be remitted to the arbitrator. It seemed to me that there was no point in doing this. The plaintiff's arguments had been fully presented, and, on my findings on the law, there was no basis, on the plaintiff's case, on which the arbitrator could find in the plaintiff's favour.

The Costs

25. The costs of the arbitration were dealt with on the usual basis of costs following the event. Mr Choi accepted that there were no factors that would be relevant in considering making an order other than this. It follows, in my view, that, if I were to remit the matter of costs to the arbitrator, he would find that costs should follow the event and award them to the defendant. There is no point in incurring the additional costs of doing this, so I ordered that the plaintiff pay the costs of the arbitration.

26. There was no basis on which the costs of the application for leave to appeal and the appeal should not follow the event. Accordingly, I ordered that the plaintiff pay these.

The Application to Set Aside

27. It followed from my findings recited earlier that my order enforcing the award could not stand. Accordingly, on 16 June 1998, I set aside my order of 23 April 1998.

28. I also ordered that the plaintiff pay the costs of the application to set aside on an indemnity basis. I did so because, in its ex parte application to enforce the award, the plaintiff failed to disclose matters relevant to the weighing exercise. Unusually, this application to enforce was not dealt with on the papers. Mr Choi appeared before me to make the application. Mr Choi did not mention to me any matter that did not appear in the plaintiff's affirmation. What the plaintiff failed to disclose was that the defendant had already filed an application for leave to appeal, the grounds on which leave was sought, and that the defendant has made entirely reasonable offers to secure the amount awarded to the plaintiff. It seems to me that it should have been obvious to anyone that these were relevant matters. Indeed, it is probable that, if they had been disclosed to me, I would have formed the view that the defendant's application had considerable merit and that there would be no prejudice to the plaintiff, in view of the defendant's offers to secure the amount awarded, in adjourning the application to enforce until the defendant's application had been decided. I can see no justification at all for the plaintiff failing to comply with its obligation to make full disclosure in an ex parte application.