XCHRX WO HING ENGINEERING LTD. v. CHATWIN ENGINEERING LTD.

HCCT109/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.109 OF 2000

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D E C I S I O N

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1. This is an application by the applicant that two arbitrations be either consolidated or heard together or heard consecutively by the same arbitrator, under section 6B of Cap.341 which provides as follows :

"(1) Where in relation to two or more arbitration proceedings it appears to the Court -

(a) that some common question of law of fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this section,

the Court may order those arbitration proceedings to be consolidated on such terms as it thinks just or may order them to be heard at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them."

2. One arbitrator, Mr Terence Cleary, has already been appointed by the Hong Kong Internation Arbitration Centre to hear both cases.

3. The court has a discretionary power under section 6B which may be exercised if sufficient commonality of issues has been shown. Mr Shaw, for the applicant submits both that there are common issues (under section 6B(1)(a)) and there are reasons which make an order desirable (under section 6B(1)(c)). Mr Paul Shieh, for the respondent, resists the application. He submits there are issues which are not common, and consolidation will complicate and delay the matter. He further submits that the applicant's contention that there has been collusion and bad faith by the respondent in relation to both contracts is not sustainable and that such a serious allegation should not be taken into account in exercising the discretion when it is no more than a mere assertion of collusion and bad faith.

4. Both Mr Shaw and Mr Shieh made succinct and helpful submissions. For the following reasons, I am satisfied that an order under section 6B should be made. The court has taken into account the following matters :

(a) The two contracts have the same parties. The applicant and respondent are the same in both arbitrations.

(b) The form of the contract which is material to the issues is common to both cases.

(c) The size and nature of the contracts, and the size and nature of the arbitrations, are similar.

(d) Both arbitrations have reached the same stage. They are in step with each other. The same arbitrator has been appointed. The contractual works were carried out at about the same time.

(e) There would be no inconvenience to the respondent to hear them together. There is no reason why they should not be ready for hearing at the same time. I do not agree that an order under section 6B will complicate matters. On the contrary, it is more likely that it will simplify matters and crystallize the issues.

(f) There are a significant number of witnesses who are common to both projects. Naturally, not all the witnesses are common. Those on site cannot be in two places at once. They had their respective responsibilities depending on which project they were involved in. However, some of those in the next band up in the managerial hierarchy are common to both. Given the important allegation of collusion and bad faith (see (i) below) these will be important witnesses. Issues of credibility will have to be faced and it is plainly desirable that the two arbitrations are not heard separately, in a vacuum possibly months apart.

(g) The employer, the architect and the respondent are all part of the same group of companies. The applicant is the nominated sub-contract of the respondent in both cases.

(h) There are common issues. A non controversial issue common to both cases is whether the sub-contract is a "pay when paid" contract. The court however recognizes that not all the issues are common. There are also non-common issues.

5. Before moving on to the final factor, namely, the controversial issues which are common to both cases, it should be said that the effect of the above factors is cumulative. Individually, many would not merit consolidation. The court, however, looks at the wood not the trees. Factors (a) to (h) above would probably be sufficient, taken together, to justify the court's discretion under section 6B being exercised. As to factor (i) below, Mr Shieh submits it should be ignored because it is a groundless allegation and the mere assertion of collusion should not prejudice the court's consideration of whether to consolidate or not. With respect, I do not agree. My brief reasons follow.

(i) Allegations of collusion and bad faith

6. In the affirmation of Mr Yu Fuk Kwong, a director of the applicant, two issues, common to both cases are described as follows :

"(2) Whether the non-certification or under-certification of the Architect's payment application was due to the instructions of the Employers/Respondent in the Yuen Long and Hotel Projects. In other words, whether the Employers, Architect and the Respondent have colluded together in bad faith to procure the non-certification or under-certification in order to avoid payment to the Applicant. The Applicant will rely on the Respondent's non-payment in one arbitration as evidence of the aforesaid collusion in the other arbitration.

(3) Whether the allegation of the Applicant's failure to rectify the defects was fabricated by the Respondent as an excuse to avoid payment to the Applicant."

7. No pleadings have yet been served. However, when asked by the court whether these issues would certainly form part of the applicant's cases, Mr Shaw fairly and properly, stated that "certainty" puts it too high but on present instructions, he had no doubt that they would be pleaded and should they not be pleaded, the applicant's credibility would be adversely affected. It is of course possible that things may change as the matter progresses. Mr Shaw does not have a crystal ball and so he was quite right to stop short of saying it was a "certainty". However, for the purpose of this application, he has informed the court that the applicant's allegations are, for present purposes, genuine and will be pursued. It is always open to the court to order consolidation before pleadings. Thus, the application is not premature in that sense. Moreover, if consolidation is the correct order to make, the sooner it is made the better.

8. Accordingly, I take the view that a serious allegation of collusion, made by affirmation and confirmed by the party's solicitors in court is more than a "mere assertion" which, Mr Shieh contends, should be simply ignored.

9. Having decided that, in its present form, it can be taken into account, I have no doubt that, in this case, it is a factor in favour of consolidation. At the end of the day, the arbitrator will decide either that the allegations are, at one extreme, a "true bill" or, at the other extreme are a hopeless misconceived point, as submitted by Mr Shieh. This court should not investigate which is correct. The fact that it is a live and real issue is sufficient.

10. I have no doubt that the arbitrator will be assisted in his task of determining this issue by hearing the cases together. In my judgment, an order under section 6B will facilitate a just outcome, one way or the other. If as Mr Shieh contends the allegation has no substance, a consolidated hearing should help his cause rather than hinder it. If it is a hopeless allegation, then the respondent will be anxious to put all the cards on the table.

11. As to the form of the order to be made, both parties agree that there would be no practical difference in this case between an order for consolidation and an order that the two cases be heard together. An order that the two cases be heard one immediately after the other is also a possibility. Mr Shaw's position on which order is preferable is neutral.

12. I consider the best order to be that the two cases are heard together. The tidiest way to proceed, given the issues to be addressed, is to have separate pleadings and one arbitration.

13. I therefore direct that the two notices of arbitration between the applicant and the respondent dated 4 and 9 September 2000 be heard together by Mr Terence Cleary and that the costs of this application be to the applicant.