XCHRX RAYMOND PAO AND ANOTHER v. CHAN PUI TAK, PETER

1997, No. Con 115

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. This is an appeal from an award of an arbitrator following the grant of leave by me on 8 January 1998.

2. The award concerned is that the plaintiffs pay the sum of $150,000 to the defendant. This sum represented damages for unpaid wages for the months of April to June 1996. The defendant was employed by a company called Cheerline Shipping Limited (Cheerline). In his reasons, the arbitrator makes it clear that he understood that he could not make an award under this contract of employment, but he justifies it by reference to a joint venture agreement between the plaintiffs and the defendant. He refers only to clauses 2.4 and 6.1 of that agreement.

3. The relevant parts of clause 2.4 read -

"The parties hereto agree that [the defendant] shall act as managing director of [Cheerline] upon such terms and conditions as set out in the contract of employment (in such form as the parties hereto may agree) to be entered into by [the defendant] and [Cheerline] containing, inter alia, an initial term of employment of 2 years to be extended at the option of [Cheerline] for a further term of 2 years upon expiration of the initial term."

4. This contract was employed in accordance with this clause.

5. Clause 6.1 of the joint venture agreement provided that the joint venture would continue until the parties agreed on its termination. The arbitrator found as a fact that the parties agreed that the joint venture would terminate on 30 June 1996.

6. The arbitrator reason for finding the plaintiffs liable to pay damages for the wages unpaid is contained in a single paragraph. He said -

"Mr Chan was not paid for the months of April to June 1996 and it must follow that he was entitled to be employed under the Joint Venture Agreement for these months. Therefore he must succeed in his claim for damages for unpaid wages for this period."

7. I did not understand this reasoning I granted leave, and I do not understand it now, even after assistance from Mr Harris. Indeed, Mr Harris was as succinct as the arbitrator in addressing this point. In his written submission, which he did not take any further in oral argument, he said this -

"As it is, by clause 2.4 the plaintiffs had agreed that the defendant would be employed for two years on terms, which included payment of a salary of $50,000 per month. Necessarily this meant that the plaintiffs had agreed that the defendant would be paid $50,000 per month. The second plaintiff clearly acted inconsistently with this term by instructing Cheerline to cease payment of the salary and thereby breached clause 2.4."

8. What clause 2.4 says in clear terms is that the parties agreed that the defendant would be employed by Cheerline on agreed terms. That agreement was fully implemented. After implementation, there remained no obligation on the plaintiffs to ensure, in some way, that Cheerline paid the wages under the contract of employment. Certainly, there was no such obligation contained in the express words, and nothing that could be implied was ever suggested to, or considered by, the arbitrator. Nor was there any suggestion or consideration of the point made by Mr Harris; that the clause had to be read as implying or importing an obligation on the second plaintiff not to instruct Cheerline to cease payment of the salary. It may be, of course, that, on this basis, the defendant has some kind of claim against the second plaintiff in tort for procuring a breach of contract or wrongful interference with contractual relations, but this is far outside anything pleaded, argued or considered in the arbitration, and, indeed, may not have been within the jurisdiction of the arbitrator.

9. Accordingly, I conclude that there is nothing contained in clauses 2.4 or 6.1 of the joint venture agreement, on their proper construction, that could possibly justify the finding that the plaintiffs were liable to the defendant in damages or justify the award.

10. That would be the end of the matter, but for a respondent's notice filed as recently as 17 November 1998 asking that the award be affirmed on the basis that the plaintiffs had breached clause 3.1(o) of the joint venture agreement "and/or" a term to be implied into the joint venture agreement that the plaintiffs would not prevent the payment of remuneration to the defendant.

11. Clause 3.1(o) of the joint venture agreement says this -

"Subject as otherwise provided herein, all decisions in relation to the Business shall be taken by majority decision of the parties hereto except for the following matters which shall require unanimous approval :-

(o) the paying of any remuneration to the directors or variation to the sum paid to the managing director of either of the companies. . .".

12. The jurisdiction of this court to interfere with an arbitrator's award is limited to "any question of law arising out of the award made on an arbitration agreement". Unlike the notice of appeal, the respondent's notice does not attempt to formulate any question of law arising out of the award. Indeed, it would have been difficult to formulate such a question because the arbitrator simply did not deal with the matters sought to be raised by the notice. He did not deal with those matters because he was not asked to do so as part of the dispute submitted to him for arbitration. The defendant's amended points of claim sets out his side of the dispute in detail. This did not ask the arbitrator to consider and decide the effect of clause 3.1(o) or whether a term should be implied into the joint venture agreement to the effect now advanced. And at no stage during the hearing or closing submissions did the defendant's counsel ask the arbitrator to decide these points. It is quite clear that the defendant based his case on clause 2.4; clause 3.1 or any implied term is never even mentioned.

13. This point is of importance because, as Mr Bell argued, the parties agreed to refer their disputes to arbitration. Having done so, the parties cannot now ask this court to decide a dispute not referred to the arbitrator.

14. But, in any event, the new points raised have, in my judgment, no merit. Clause 3.1(o) has no relevance to the defendant's claim. That clause requires that any decision to vary the remuneration mentioned be unanimous. If it is not unanimous, it has no effect. It says nothing at all about the plaintiffs being liable if Cheerline fails to pay the defendant. As to the suggested implied term, there is no basis that I can see to justify it. Mr Harris submitted that it should be implied as being so obvious that it goes without saying. It seems to me that if the officious bystander had asked the Shirlaw question, the plaintiffs would have said - "Well, that depends on the circumstances." - and, if it depends on the circumstances, the term cannot be implied as obvious. This court cannot examine the unstated circumstances and say, because of those, the term should be implied.

15. For these reasons, I decline to grant leave to the defendant to rely on the respondent's notice.

16. In the result, paragraphs 4(a), (b), (d) and (e) of the award are set aside.

17. The matter of costs has not been argued, but it seems to me that there is no obvious reason why the costs should not follow the event. I make an order nisi that the defendant pay the costs of the arbitrator and the award so far as they relate to the defendant's claim, the plaintiffs' costs of application for leave, the appeal and the application for leave by the defendant.