N v. W

HCCT 39/2018

[2018] HKCFI 2405

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 39 OF 2018

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D E C I S I O N

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Background

1.  On 13 September 2018, I handed down my Decision dismissing the Plaintiff’s application, made under section 23 (2) of the Arbitration Ordinance Cap 341 (“Ordinance”), for leave to appeal against an Award.  The background to the arbitration involving the Plaintiff and the Defendant (“Arbitration”) and the dispute are briefly outlined in the Decision, and the abbreviations used therein are adopted.  The remaining issues to be decided under the Originating Summons issued by the Plaintiff on 20 June 2018 (“OS”) are the Plaintiff’s application to (1) remit the Award for reconsideration by the arbitrator under section 24 of the Ordinance, by reason of defect or error patent on the face of the Award and/or misconduct of the proceedings on the part of the arbitrator, and (2) to set aside the Award under section 25, on the ground of the misconduct of the arbitrator.

2.  The basis of the Plaintiff’s application for remission and setting aside of the Award, and its claim of the arbitrator’s misconduct, is premised on the fact that WL had acted as the lawyers for the Plaintiff’s parent company (“Parent”) in an arbitration between the Parent and the Government of the HKSAR as employer (“Government Arbitration”) in the same project in which the Defendant commenced its Arbitration against the Plaintiff (“Project”) and which led to the making of the Award against the Plaintiff.  The Government was the employer of the Project, the Parent was the main contractor, the Plaintiff was the administrator of the Project, and the Defendant was a sub-contractor in the Project.  The Government Arbitration was commenced by the Parent in 2008, and settled in 2014.  The Arbitration was commenced by the Defendant in 2010 against the Plaintiff and (initially) the Parent, although the Parent ceased to be a party in May 2013. 

3.  The principal of WL, Mr X, and his associates acted for the Parent in the Government Arbitration.  The complaint now made is that unbeknownst to the Plaintiff, since the lawyers on the record for the Defendant in the Arbitration were TC, TC were in fact working in collaboration with WL in the Arbitration, as WL had been instructed by the Defendant to do the drafting work for the Defendant in the Arbitration, and there is evidence unearthed by the Plaintiff to show that the documents used in the Arbitration, such as the list of issues and index to the hearing bundle, had been drafted, revised and finalized by the lawyers of WL.

4.  The Plaintiff therefore claims that there is an established case of WL having acted in a position of conflict of interests, of WL having been in possession of confidential information of its former client, the Parent, and/or of the Plaintiff, and there was a risk that WL had disclosed to the Defendant and the Defendant had received such confidential information of the Parent/the Plaintiff, so as to prejudice the Defendant’s interests as well as the fairness of the Arbitration.  The Plaintiff’s claim is that the arbitrator had misconducted the Arbitration in “failing to address” the professional misconduct of the Defendant’s legal representatives and the credibility of the Defendant itself, causing substantial injustice to the Plaintiff.  The Plaintiff complains that the arbitrator did not accede to its request to postpone the making of closing submissions, or to stay the Arbitration, pending the outcome of the investigation by the Law Society of Hong Kong (“Investigation”) into the alleged misconduct of the Defendant’s legal representatives.

5.  The submissions made by Counsel for the Plaintiff, that the Award had been “improperly procured”, were not allowed to be pursued at the hearing before this Court, since the OS did not state improper procurement as a ground for remission or setting aside of the Award.

6.  Further, in view of the express findings made in my Decision of 13 September 2018, as to the alleged mistakes of law made by the arbitrator in the Award, there is no further basis for the Plaintiff to argue that the Award should be remitted under section 24, for the arbitrator to consider whether the Plaintiff had accepted the Defendant’s repudiation of the Sub-Contract by conduct, or by reason of any defect or error patent on the face of the Award.  Further, it is clear on reading the Award that despite the arbitrator’s finding of the lack of proper pleadings, he had considered and dealt with the Plaintiff’s claim of alleged acceptance of repudiation by conduct, but found that there was no repudiation at all on the part of the Defendant, as alleged by the Plaintiff, for there to be acceptance, whether by conduct or otherwise.  There is no basis to claim that the Plaintiff had been unable to present its case.

7.  The sole issue is whether there was misconduct of the proceedings on the part of the arbitrator.

Remission under s 24

8.  It is important to bear in mind that the Ordinance expressly provides for its objectives and principles in section 2AA.  This states that the object of the Ordinance is to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense (section 2AA (1)), and that the Court should interfere in the arbitration of the dispute only as expressly provided by the Ordinance (section 2AA (2) (b)).

9.  Section 24 of the Ordinance simply provides that in all cases of reference to arbitration, the Court may remit the matters referred, or any of them, to the reconsideration of the arbitrator.  However, since section 23 of the Ordinance provides expressly that the Court shall not have jurisdiction to set aside or remit an award on the ground of errors of fact or law on the face of the award, section 24 should not be invoked as a back door method of circumventing the restrictions on the power of the Court (para U2/24/2 of Hong Kong Civil Procedure 2019 Vol 3).  There is also authority that the Court would not exercise its power to remit under section 24 for any alleged mistake of law made by the arbitrator, unless the error is so obvious and exceptional that a failure to remit would constitute serious injustice (CCECC (HK) Ltd v Might Foundate Development Ltd HCCT 26/2001, unreported, 6 August 2001).

10.  The only ground on which the Plaintiff can seek to set aside or remit the Award in this case is by establishing that there was misconduct of the proceedings on the part of the arbitrator.

Whether there was misconduct

11.  Cases in which awards have been set aside for misconduct include instances of corruption, bribery, and the arbitrator calling witnesses or taking evidence in secret without giving the parties an opportunity of dealing with the evidence.  The arbitral tribunal is of course required, when conducting arbitration proceedings or exercising any of the powers conferred on it, to act fairly and impartially, giving the parties a reasonable opportunity to present their cases and to deal with the cases of their opponents (section 2GA (1) (a) of the Ordinance).  Failure by the tribunal so to act may also amount to misconduct.  However, the mere fact that the arbitrator made errors of fact or law does not constitute “misconduct” (Gingerbread Investments Limited v Wing Hong Interior Contracting Limited HCCT 75 of 2007, 4 March 2008). 

12.  In the case of Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1, Tang VP (as he then was) considered the ground for setting aside an arbitral award on the basis of inability to present one’s case, and concluded that in this context, the conduct of the tribunal complained of “must be serious, even egregious”, such that one could say that a party had been denied due process.

13.  Bearing in mind the objectives of the Ordinance and the policy of the Court to uphold the validity of arbitration agreements and the finality of arbitral awards, the Court would only exercise its discretion to set aside an award for the arbitrator’s misconduct under section 25 of the Ordinance, if there was likewise serious, even egregious, conduct of the arbitrator which offends the Court’s most basic notions of justice, morality, and fairness, and which results in a denial of due process and serious prejudice to a party.  Generally speaking, the Court is only concerned with the structural integrity of the arbitration proceedings.  The remedy of setting aside is not an appeal, and the Court will not address itself to the substantive merits of the dispute, or to the correctness or otherwise of the award, whether concerning errors of fact or law (per Tang VP, Grand Pacific Holdings Ltd, at paragraph 7).

14.  In the present case, the Plaintiff seeks to rely on the fact that the arbitrator had erred and had failed to appreciate that the Plaintiff had shown a prima facie case of WL having acted in breach of its professional duty not to put itself in a position of conflict or risk of conflict of interests, having acted for the Parent in the Government Arbitration and then acting for the Defendant (in collaboration with TC) against the Plaintiff in the Arbitration.  The Plaintiff claims that the arbitrator had simply rejected the Plaintiff’s claim on the basis that it had failed to establish the precise confidential information or documents WL had obtained from the Parent or the Plaintiff, which could be used or had been used against the Plaintiff in the Arbitration to the prejudice of the Plaintiff.  Relying on para 9.01 of The Solicitors’ Guide to Professional Conduct 2^nd Edition (1998), the Plaintiff argued before this Court that it was sufficient for the Plaintiff to establish that there was a conflict or a significant risk of conflict between the interests of WL’s former client, the Parent or the Plaintiff, and those of WL’s current client, the Defendant, and that a solicitor must refuse to act for a client whose interests conflict or appears likely to conflict with those of the solicitor’s former or other existing client. 

15.  The Plaintiff’s case is that since the Plaintiff and the Defendant are opponents in the Arbitration concerning the Project, and WL had acted for the Plaintiff’s parent as the main contractor in the same Project against the employer in the Government Arbitration, the interests of the Plaintiff obviously conflict with and are opposed to the interests of the Defendant, and any information which had been obtained by WL whilst acting for the Parent, including tactics, facts of the dispute relating to the Project, and even settlement terms involving the Parent and the Plaintiff, would all be confidential information imparted to WL from the Parent/Plaintiff, and which WL would be contractually bound, by its duty to act in the best interests of the Defendant, to disclose to the Defendant in the Arbitration.  There would be an obvious risk of misuse and disclosure of such confidential information, which would entitle the Plaintiff to seek from the court in litigation an injunction to restrain WL from acting for the Defendant.

16.  In failing to appreciate this, and by refusing to postpone the Arbitration proceedings and/or to withhold publication of the Award pending the outcome of the Investigation by the Law Society into the complaint made by the Plaintiff against WL, the Plaintiff argued that the arbitrator had failed to address the professional misconduct of the Defendant’s legal representatives, and had misconducted the Arbitration proceedings.

17.  First, even if, as the Plaintiff claims, the arbitrator had made a mistake of law or of fact, in applying the wrong test for ascertaining whether the Plaintiff had valid grounds to complain of WL working in collaboration with TC for the Defendant in the Arbitration, that does not by itself constitute misconduct.  The Court is not entitled to review the merits of the arbitrator’s decision, and has no jurisdiction to set aside or remit an award on the ground of errors of fact or law (section 23 (1) of the Ordinance, Grand Pacific Holdings).

18.  Significantly, at the time when the Plaintiff made its complaint concerning WL acting for the Defendant in the Arbitration, it only requested the arbitrator to adjourn or postpone the closing submissions to be made by the parties.  Its case to the arbitrator was that it had discovered the irregularity and had made a complaint to the Law Society, in relation to WL’s acting in breach of its professional duties, and that the closing submissions should be postponed whilst the Law Society’s Investigation was pending. 

19.  The arbitrator refused the Plaintiff’s request to postpone and adjourn the hearing for closing submissions.  He was of the view, and informed the parties in his letter of 27 January 2017, that the Investigation could not be completed in one or 2 months’ time, and the closing submissions and publication of the Award should not be indefinitely delayed.  The arbitrator further explained that it was not known how and in what way the Plaintiff might have been prejudiced by the collaboration between TC and WL, and there was no suggestion as to what documents produced in the Arbitration had been improperly obtained, what evidence should be struck out or given little weight in view of their having been obtained improperly.  The arbitrator pointed out that if there was further development in the Investigation and new matters should be raised or discovered in the Investigation which would materially affect the admissibility of evidence because of any breach of confidentiality, the Plaintiff could raise those matters with the arbitrator before publication of the Award. 

20.  The arbitrator had raised enquiry as to whether he had jurisdiction to investigate any impropriety of the solicitors involved, and pointed out that the Plaintiff had decided to address such concerns “in another venue”.  What the Plaintiff apparently had done was to apply to the Court, ex parte, on 12 December 2016 for an injunction: (1) to restrain TC from continuing to act for the Defendant in legal proceedings against the Plaintiff; (2) to restrain WL from continuing to advise the Defendant in the Arbitration; and (3) to restrain TC and WL from making use of confidential information of the Parent obtained by WL in the Government Arbitration.  For reasons not explained by the Plaintiff, such injunction was refused by the Court.

21.  The Plaintiff did not pursue any further relief from the arbitrator, after its failed application to the Court for injunctive relief against TC and WL, and after the arbitrator refused its application for adjournment of the hearing to make closing submissions.  It did not apply for any further adjournment of the Arbitration proceedings, nor did it seek any order from the arbitrator that the Arbitration should be generally stayed, or that the Defendant should make any form of disclosure of its dealings with any confidential information obtained of the Parent or the Plaintiff, or any order as to the Defendant’s representation in the Arbitration.  The Plaintiff could have made submissions to the arbitrator, when the hearing resumed after its failed application for adjournment, on the prejudicial effect of WL and TC continuing to act for the Defendant in the Arbitration, on WL’s breach of professional duties, and on the credibility of the Defendant’s witnesses, if the Plaintiff claims (as it now suggests) that the Defendant had knowledge of WL’s role and had lied about WL’s collaboration with TC and/or WL’s possession of confidential or other information of the Plaintiff.  This was not done.  The Plaintiff was simply content to proceed with making the closing submissions as it did make.  Nor did the Plaintiff apply further to the arbitrator to withhold or stay the publication of the Award. 

22.  If the Plaintiff had taken any steps in the Arbitration, with the view of protecting its interests which it claims had been violated, by making the necessary application to the arbitrator (other than the request to adjourn the hearing for closing submissions), the arbitrator would at least have had the opportunity to address the genuine concerns of the Plaintiff, and to deal with or correct any serious prejudice, or unfairness, of which the Plaintiff now complains to be the result of WL’s representation of the Defendant.  Since the Plaintiff did not give the arbitrator the opportunity to deal with and cure the alleged irregularity now said to constitute misconduct, it is unfair to permit the Plaintiff now to set aside the Award on the basis of such irregularity.  It can be said that the Plaintiff had waived any alleged irregularity that may have arisen by virtue of WL’s involvement in the Arbitration (Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKLRD 627).

23.  In any event, the Plaintiff has failed to demonstrate before this Court the serious prejudice it sustained as a result of the alleged misconduct of the arbitrator.  If there was evidence of any actual misuse or wrongful disclosure of the Plaintiff’s confidential information which had affected the Award, the Court might be more prepared to exercise its discretion in favor of the Plaintiff.  On the face of the Award, it cannot be seen how the arbitrator’s findings on repudiation could have been affected.  The claims of the Defendant’s alleged lies and credibility could have been made in the closing submissions to the arbitrator, irrespective of whether he acceded to the Plaintiff’s request for adjournment.

24.  On the evidence, I reject the claim that the arbitrator had misconducted himself in the arbitral proceedings, or that there is any defect or error patent on the face of the Award by virtue of his failure to address the existence of the Investigation and the issues arising from the Investigation.

Disposition

25.  It follows that the Plaintiff’s application is dismissed, with costs to be paid by the Plaintiff to the Defendant on indemnity basis (A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389).