THE INCORPORATED OWNERS OF CASIO MANSION v. LEUNG YAU BUILDING LTD

HCCT55/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.55 OF 2006

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J U D G M E N T

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Introduction

1. In this judgment, I will call the Applicant and the Respondent, who are the respondent and claimant in the arbitration proceedings respectively, the IO and the Contractor.

2. The IO is the incorporated owners of Casio Mansion, 209-233 Shau Kei Wan Road, Shau Kei Wan, Hong Kong.  Between November 2002 and January 2003, the IO received from the Building Authority four Building Orders.  After a tender exercise, the IO engaged the Contractor by a contract dated 25 July 2003 (“the Contract”) to carry out renovation works at Casio Mansion for a sum of HK$3,351,875.90.

3. Disputes subsequently arose.  On 6 August 2004, the Contractor commenced the arbitration proceedings.  By an interim award dated 17 July 2006 (“the Award”), the Arbitrator made any award in favour of the Contractor, ordering the IO to pay HK$997,248 with interest. 

4. The IO now seeks leave to appeal against the Award.

Grounds of appeal

5. The Notice of Originating Motion dated 31 July 2006 contains four grounds of appeal.  The IO seeks to challenge the jurisdiction of the Arbitrator in hearing and determining the Contractor’s claim in the arbitration proceedings : see Grounds 1 and 2.  The jurisdictional challenge is now abandoned.  Ground 4 alleges that the Contractor having conceded that it is liable for HK$8,000 under a particular item of work, the Arbitrator had erred in failing to decide on the consequential loss and damage that flowed from it.  This is also abandoned.  So what remains is Ground 3.

6. Ground 3 alleges that the Arbitrator had erred in holding that the works specified under each of the four Building Orders were not implied terms of the Contract.

The test

7. The test for granting leave to appeal a domestic arbitral award has been authoritatively laid down by the Court of Final Appeal in Swire Properties Ltd & Others v. Secretary for Justice [2003] 2 HKLRD 987 per Bokhary PJ at pp.996-1003.  The test has been summarized at para.73/2/2 at p.1040, Hong Kong Civil Procedure 2006, Vol.1 thus :

“In considering whether to grant leave, the court considered that there was a distinction between ‘one-off’ and ‘standard’ disputes, the former arising out of (for example) a uniquely worded contract and the latter arising out of standard from contracts.  In a one-off dispute, leave to appeal should not normally be granted with respect to an award, unless it was apparent that the arbitrator was ‘obviously wrong’ in law.  However, leave could be granted in respect of an award made in a ‘standard’ dispute, provided that there was at least a ‘serious doubt’ as to its correctness.”

This is plainly a one-off dispute.  Unless the IO can demonstrate that the Arbitrator was obviously wrong, leave will not be granted. 

Discussion

8. Mr Siu, counsel for IO, first submitted that the Arbitrator had erred in taking upon himself to determine if the implied terms existed when the Contractor did not take any issue on it.  It is true that the Arbitrator did say that the Contractor did not take issue on the existence of the implied terms contended for by the IO : see paragraph 36 of the Reasons for Interim Award (“the Reasons”).  But the Contractor did make its position clear to the Arbitrator.  That can be found in paragraph 38 of the Reasons where the Arbitrator said :

“I agree with [the Contractor] that the obligations of [the Contractor] are clearly specified in the Contract.  Had it been the intention of [the IO] to require [the Contractor] to discharge all 4 Building Orders, why was it not specifically spelt out in the Contract?”

9. In the circumstances, I am of the view that the Arbitrator is quite entitled to deal with the existence of the implied terms as contended for by the IO.

10. The test for implying a term is well settled.  In Kensland Realty Ltd v. Whale View Investment Ltd & Another [2002] 1 HKLRD 87, Ribeiro PJ recited it at para.59, at pp.106J-107B thus :

“…for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’  BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) ALJR 20 at p.26”

11. The reasoning of the Arbitrator as to why he found against the IO on the existence of the implied terms contended for can be found at paragraphs 31 to 44 of the Reasons.  I shall not repeat it here.  In my view, the Arbitrator had applied the correct test and took into account the relevant matters in coming to his determination.

12. Mr Siu submitted that the Arbitrator had failed to take into account the genesis of the Contract.  I disagree.  The Arbitrator did take that into account when he dealt with the question why the Building Orders were not included expressly included in the Contract.

13. Mr Siu next submitted that the Arbitrator had failed to take into account Clause 7.4.2 of the Contract, which provided that :

“The completion certificate issued by the project consultant only represents the project consultant is satisfied with the installation of the system.  The contractor’s responsibility is only fulfilled on obtaining approval or certification from the relevant government department and to obtain certification on operation of the system as required.”

14. Assuming but without deciding that the Arbitrator did err in failing to take Clause 7.4.2 into account, I do not think that the Clause of itself will be of such significance as to compel the Arbitrator to come to a different conclusion on the existence of the implied terms, when he took into account all the relevant circumstances.

15. I further note that from the materials before me, the implied terms contended for by the IO lack precision.  Even Mr Siu, who did not appear for the IO in the arbitration proceedings below, was at pains when he tried to formulate the implied terms precisely before me.  This offends the requirement for implying a term into a contract that the term must be capable of clear expression.

16. I am not satisfied that the Arbitrator was obviously wrong when he found that the implied terms contended for by the IO did not exist.  On the contrary, I quite agree with him on his finding.

17. There is a further hurdle that the IO is unable to surmount, which is this.  The IO complained that three of the Building Order were not discharged.  But the Arbitrator found that those Building Orders were not discharged because Architect had not submitted the relevant form, that is, Form BA14.  It is not his finding that the Building Orders were not discharged because the works thereof had not been satisfactorily complied with.  This finding in not challenged before me.  And there is no suggestion that it is the Contractor’s responsibility to complete the formality in order to obtain a discharge of the Building Orders.  So even if it were an implied term that the works under the Building Orders had to be carried out by the Contractor satisfactorily, the failure to discharge of them could not be laid at the Contractor’s door.  It follows that the existence of the implied terms is an academic question the determination of which could not substantially affect the parties’ rights.  It offends section 23(4) of the Arbitration Ordinance, Cap.341.

Conclusion

18. For the above reasons, leave to appeal must be refused.  And I dismiss the IO’s application accordingly.

[Submissions on costs]

19. Costs are to follow the event.  The Contractor will have the costs, to be taxed if not agreed.