ASSOCIATED INTERNATIONAL HOTELS LTD. v. PYROK INDUSTRIES LTD.

1996, MP No. 2842

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The parties have become involved in a dispute over the painting by the respondent of the exterior of the applicant's hotel. This dispute was submitted to arbitration. The arbitrator has made an interim award. The applicant is unhappy with that award. It now seeks leave to appeal against it and for the award to be set aside.

2. Some of the grounds in respect of which the applicant seeks leave to appeal are identical, or similar, to those on which it seeks that the award be set aside. It is not necessary, at this stage, to distinguish between them. I will need to do this only if I find that a complaint is justified, and the question of remedy arises.

The Warranty

3. One of the findings of the arbitrator that the applicant does not like is that a warranty entered into after the contract was executed was "a distinct agreement which varies the contract". The arbitrator held that the parties negotiated this warranty and finalised a "deal" as to its terms. This warranty, the arbitrator decided, so far as it was inconsistent with the terms of the original contract, varied that contract.

4. The importance of this is that the warranty includes a clause that says -

"This warranty and undertaking is in lieu of all other conditions warranties or representations whatsoever whether express or implied."

5. I have read carefully what the arbitrator said about this, and I find myself in complete agreement with his findings. What happened, as the arbitrator found, was that there was a straightforward variation of the contract. Far from the applicant being able to overcome even the least difficult of the spectrum of hurdles placed in his way by the law, I find that it does not have any kind of arguable case that it could advance on appeal to demonstrate that the arbitrator was wrong in making this finding.

Was the Respondent a Specialist Paint Contractor?

6. The arbitrator found that the respondent was not a specialist paint contractor. The respondent says that in this the arbitrator erred.

7. The arbitrator reviewed the evidence on this issue carefully. It is not suggested that, in this respect, the arbitrator ignored any evidence. What is suggested is that, on that evidence, he came to the wrong conclusion. I have considered the arbitrator's approach. It may be that I would not have come to the same conclusion as he did, but, in my view, it cannot be said that it is a conclusion that no reasonable arbitrator, properly directing himself and considering the evidence, could not have reached.

8. In any event, this finding is relevant only to an implied term. If the arbitrator's finding that the warranty replaced any implied term must stand, as I have found it must, the finding is not relevant.

Strict Compliance

9. The applicant complains further that the arbitrator failed to consider or apply the principle that a party is bound to comply with his contractual obligations strictly. I cannot find any sound basis for this complaint. The arbitrator knew that the respondent had to fulfill its contractual obligations. He found that the respondent had not breached them.

Erroneous Findings of Fact

10. The applicant cites a long list of findings of fact that, it is said, no reasonable arbitrator, correctly directing himself on the evidence, could have found. In respect of most of these, it is said that, when the arbitrator said there was no evidence to support a particular allegation, there was, in fact, evidence. In respect of others, it is alleged, or I infer it is alleged, that the finding is against the weight of evidence. In respect of another of these, the applicant complains that, when the arbitrator made a specific finding of fact, there was no evidence to enable him to make such a finding. In respect of yet another finding, the complaint is that the finding was inconsistent with another finding.

11. All these complaints relate to the way the arbitrator considered the evidence. In his award, the arbitrator referred to the twelve days transcripts of the hearing. He then said "The fact that I have not ... mentioned evidence received ... does not mean I have not considered [it]." I have no doubt that the arbitrator did consider the evidence carefully. What he says in his award and further reasons makes it quite clear that he did what he says he did. I do not see it as my function in an application for leave to appeal or to set aside an award to consider the evidence that was considered by the arbitrator to see whether or not his findings of fact are justified. If it was thought by the applicant that the reasons that the arbitrator was asked to give, and did give, were inadequate in some respect, or did not address a particular issue, it should have asked for further and better reasons to amplify what he has said.

12. The applicant complains that the arbitrator found that there was no evidence to support some allegations when, in fact, there was evidence. The arbitrator's standard finding in these matters was "I find as a fact that there is no evidence to support the allegation". I suggested to Mr Aiken that this statement was not to be taken literally, but that what the arbitrator was saying was that, in his view, there was no evidence that he believed which supported the allegation. Mr Aiken submitted that the statement was to be taken literally, but when one considers the arbitrator's further reasons it becomes clear that he has considered the available evidence before reaching the finding. For example, in respect of one complaint highlighted by Mr Aiken, the arbitrator says he found no evidence regarding the allegation of "ill-timed coat applications". Mr Aiken points to evidence in this regard, but it appears from the arbitrator's further reasons that he considered this and other evidence.

Technical Misconduct

13. The applicant complains that the arbitrator "misconducted" himself in that he refused to receive expert evidence from one of the applicant's experts, Mr Trevor Gregory, on the cause of the defects in the painting.

14. The arbitrator explains that on 16 October 1995 the applicant applied to appoint a second expert witness - Mr Graham Souch - and this was granted. On 7 February 1996, the applicant said that a second expert witness would not be required. On 17 February 1996, the applicant applied again for the appointment of a second expert witness - Mr Trevor Gregory. At a hearing on 1 March 1996, the arbitrator ruled that Mr Gregory would be allowed only to give limited evidence. The arbitration hearing commenced on 6 March 1996.

15. The applicant's solicitor says that the applicant was advised to get a second expert. Mr Souch was appointed. It was decided that Mr Souch would not be called and Mr Gregory was approached. When the arbitrator was told that a second expert was not required, the applicant did not have the benefit of Mr Gregory's advice. They received advice from Mr Gregory "in or around mid February 1996" and came to know his evidence would be helpful to the applicant's case, so the applicant applied for his appointment.

16. Mr Aiken says that Mr Gregory's evidence was "crucial" to the applicant's case. If this is so, one would have thought that, when it was decided that Mr Souch would not be called, which, I am told, was about mid December 1995, the applicant must have known that the evidence was crucial, and the statement to the arbitrator that a second expert was not required is inexplicable. This is especially so when, as I am told, in early January 1996, that is before the arbitrator was told that a second expert would not be required, Mr Gregory had already been approached and had agreed to render advice. There has been no attempt to explain this.

17. Now, it may be that if I had been faced, as a judge, with a similar situation, I might well have leaned in favour of hearing what Mr Gregory had to say. But that is irrelevant. The arbitrator exercised a discretion given to him by the parties in clear terms. It cannot be said, in my view, that to exercise that discretion by refusing to allow some of the evidence of a second expert into the proceedings so close to the time when the hearings were due to start was so wrong that I have jurisdiction to interfere. All the arbitrator did was that he was appointed to do, and I do not think that the applicant has any legitimate complaint.

Breach of the Warranty

18. During the hearing, Mr Aiken, with leave, amended the applicant's Notice of Motion to raise another complaint. This complaint is, in effect, that the arbitrator, having found that the warranty was part of the contract, failed to consider the respondent's liability under it.

19. It seems to me to be clear from the arbitrator's award and further reasons that he did consider this, and came to conclusion that the respondent was not liable.

20. Under the warranty, the respondent warranted that "the materials and workmanship ... are of good quality and applied in a workmanlike manner". It undertook "to make good any defects which exist at or may appear within ten (10) years from 6 June 1989 ... if proved to arise from workmanship or materials not being in accordance with the foregoing warranty, including failures or defects for which the causes cannot be determined".

21. The arbitrator stated in his award that the applicant's case was that the defects were caused by "defective, inferior or poor workmanship" by the respondent or that the "causes of the failures or defects cannot be determined". By referring to this latter phrase, the arbitrator must have had in mind liability under the warranty. It has no other relevance.

22. There was no suggestion that the materials were not of good quality. The arbitrator determined that he could "find no evidence that bad workmanship by the respondent caused or contributed to the defects". In the ordinary situation, one might have expected the arbitrator to stop there. If the arbitrator had thought that applicant's case was based solely on an allegation that the respondent was at fault, I have no doubt that the arbitrator would have done so. But he was, in my view, clearly conscious of the fact that the applicant was also relying on liability for undeterminable causes based on the warranty. So he went on to determine the cause. In essence, the arbitrator found that the cause to be "excessive moisture, an outward pressure and a barrier caused by the Ceramicoat" for which the respondent was not responsible. So, the arbitrator found, the cause was not undeterminable and the respondent was not liable.

Result

23. In the result, I hold that the applicant's complaints are not justified. The application is dismissed. There seems no reason why costs should not follow the event. I make an order nisi that the applicant pay the respondent's costs.

(J.K. Findlay)

Judge of the High Court