XCHRX CHARTERYARD INDUSTRIAL LTD. v. THE INCORPORATED OWNERS OF BO FUNG GARDENS

1998, Nos. MP 897 and CON 37

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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The Facts

1. There is a deed of mutual covenant dated 31 August 1972 governing the relationship between the parties regarding Bo Fung Gardens. This deed provides that "All disputes and questions . . . touching . . . the rights duties or liabilities [of the parties] shall be referred to a single arbitrator in case the parties agree upon one otherwise to two arbitrators one to be appointed by each party to the difference and their umpire . . .". Such a dispute did arise between the parties. It is described in a notice of arbitration dated 5 May 1992. This says that the claimant is entitled to the exclusive use occupation and enjoyment of part of the property described a Store No. 1, but the respondent asserts that this is subject to a right of way. The dispute was referred to a single arbitrator (the arbitrator).

2. The arbitration commenced on 5 May 1992. The statute governing this arbitration is the Arbitration Ordinance (Cap. 341) before it was amended by the 1996 Ordinance.

3. On 19 December 1996, the arbitrator directed that the Domestic Arbitration Rules published by the Hong Kong International Arbitration Centre (the Rules) would apply to the arbitration. The parties did not dissent from this.

4. On 14 January 1997, the statement of claim was filed and, on 4 February 1997, the respondent filed a statement of defence and counterclaim. In the counterclaim, the respondent sought declarations regarding a dispute not only in relation to Store No. 1 but also in relation to Store No. 6.

5. On 24 October 1997, the arbitrator heard the parties. The question arose as to whether the respondents were entitled to seek an interim injunction. On 6 November 1997, the arbitrator gave directions about this. On 12 February 1998, the arbitrator gave further directions. He directed an oral hearing on whether there should be an interim injunction. He wrote "Whilst I am satisfied that I do have the power to order an injunction if a party wishes to address me on the issue I wish to be addressed on that issue first. Subsequently if I am satisfied that I may continue I will hear the substantive issue." The arbitrator also dealt with the respondent's counterclaim. The arbitrator knew that the claimant did not object to a counterclaim relating to Store No. 1, but that it did object to the respondent making a claim in relation to Store No. 6. He also appreciated that the respondent's claim in relation to Store No. 6 formed a different dispute not falling within the existing arbitration. However, the arbitrator decided that the respondent had, by raising the issue, served a notice of arbitration. He then consolidated the two arbitrations and ordered that the arbitration relating to Store no. 6 be heard "immediately following the existing arbitration". Although he does not say so expressly, it is clear that the arbitrator contemplated that the arbitration regarding Store No. 6 would be heard by him. The arbitrator seems to have completely overlooked the fact that no one had appointed him to hear this quite separate arbitration.

6. On 13 February 1998, the claimant's solicitors wrote to the respondent's solicitors urging them to make progress on the interim injunction, although the claimant's solicitors said they thought it was misconceived.

7. On 20 February 1998, the claimant's solicitor was told by the arbitrator's secretary that the respondent's solicitors wanted an urgent meeting with the arbitrator the following day. The secretary was unable to tell the claimant's solicitor the purpose of the meeting. The solicitor told the secretary that he was not available the next day, but, in any event, he did not agree to attending a meeting without knowing its purpose and without knowing if counsel was needed. On the same day, the claimant's solicitor wrote to the respondent's solicitors saying the same thing, and saying that they objected to such a meeting without knowing its purpose.

8. We know now that the purpose of the meeting with the arbitrator was to obtain an interim injunction to restrain the claimant from carrying out some building works at Store No. 1. The details of this work do not matter because Mr Woo, who appeared for the respondents before me and appeared for the respondents before the arbitrator, now concedes that the work did not make the slightest bit of difference to the parties' rights or to the existing dispute. Mr Woo was quite unable to explain to me why this application to the arbitrator was necessary at all, and certainly there was absolutely no basis for an urgent application without proper notice to the claimant. As far as I could understand the matter, the application was brought solely because the respondent wanted to stop the claimant demolishing a wall. It seems that the respondent's legal advisers did not apply their minds to whether or not the application was justified. Objectively, as Mr Woo now concedes, the application on an urgent, or any basis, had no justification.

9. The application should never have been brought on any basis, and, having been brought should not have been considered by the arbitrator without proper notice to the claimant, let alone granted. The arbitrator's notes do not reveal why he granted the application. He gave no reasons. He should have given reasons. The notes say "I grant exparte in terms sought - if I am wrong sure S. W. [presumably the claimant or its solicitor] will be before me Monday or Tuesday."

10. "S. W." was not before the arbitrator on Monday or Tuesday because the arbitrator did not inform the claimant of the award in spite of the fact that the Rules require the arbitrator to notify the parties when an award is ready for collection. The respondent's solicitors did not inform the claimant's solicitors of the award either. It is very odd that the respondent's solicitors thought it was necessary to obtain an award so urgently, but did not think it necessary to inform the claimant that the arbitrator had ordered the claimant to desist from the building works. In fact, the claimant knew nothing about the award until some ten days later, when, on 3 March 1998, the respondent's solicitors sent to the claimant's solicitors a court order granting leave "to enforce the injunction" made by the arbitrator.

11. It appears that the award in the form granted by the arbitrator was not acceptable to the court because, on 2 March 1998, the arbitrator amended the award, again without any notice to the claimant and again without informing it what he had done.

12. On 6 March 1998, the claimant's solicitors wrote to the arbitrator asking for the materials on which he acted and his notes. The arbitrator replied on 11 March 1998. In this letter, the arbitrator said that "I did not grant an exparte injunction" on 21 February 1998. Not surprisingly, the claimant's solicitors could make no sense of this. Apparently, the terms of this letter were a mistake. The arbitrator said also that "I understand that the respondent has now served upon the claimant all the documents served upon me." He does say from whence he gained this understanding. He said that he was not prepared to release his notes "at this time".

13. On 16 March 1998, the claimant issued a summons seeking the setting aside of the order granting leave to enforce the arbitrator's award. On the same day, the claimant issued a originating motion asking that the arbitrator "ex parte injunction" be set aside, that the arbitrator be removed and that another arbitrator be appointed in his place. These applications are now before me. They first came before me on 2 April 1998, and were then adjourned.

14. On 15 June 1998, the arbitrator gave further directions. These related mostly to the service of pleadings. The respondent served another statement of defence and two statements of claim on 10 June 1998. The claimant's reply and defences were due 21 days thereafter.

15. On 16 July 1998, the respondent's solicitors wrote to the arbitrator asking for an order that, unless the claimant serve the defences within 7 days, a default award be entered against the claimant. On the same day, the arbitrator duly obliged. Without seeking any representations from the claimant or giving it an opportunity of making any, he made the order requested by the respondent, saying that, if the defences were not duly served, "default awards will be entered against the claimant.". The claimant's solicitors wrote protesting about this. They also pointed out deficiencies in the statements of claim, and asked for more time. The arbitrator allowed more time. The defences were filed within that time.

16. The defence in relation to claim concerning Store No. 6 challenged the arbitrator's jurisdiction to deal with an arbitration on that dispute. That plea was raised as required by Article 11.4 of the Rules.

17. On 31 July 1998, the claimant amended its notice of motion to add complaints about the arbitrator's usurpation of the arbitration relating to Store No. 6 and his making of the unless order.

Application to Set Aside Leave to Enforce

18. This application is based on the grounds that the arbitrator had no jurisdiction to grant an ex parte injunction and that leave may only be granted to enforce an award, whereas the arbitrator purported to grant an injunction.

19. The remedies that an arbitrator may grant are not unlimited. He may make awards granting remedies provided by law; for example, the Ordinance allows him to order specific performance of some contracts. And under the amendments introduced by the 1996 Ordinance, the arbitrator may grant interim injunctions. He may also make awards granting remedies as agreed by the parties. As Mustill & Boyd (Second Edition) at page 390 says - "There would seem to be no reason in principle why an arbitrator should not be given power to make an award in the form of an interim or final injunction."(My emphasis).

20. Mr Woo did not, after debate, suggest that there was any statutory power for the arbitrator to make the award of the ex parte injunction. He had to fall back on the agreement of the parties as embodied in the Rules. In particular, he relied, as the arbitrator did, on Article 11.2. This says -

"By agreeing to arbitration under the Rules, the parties hereby agree to apply to the Arbitrator, and not to any court of law or other judicial authority, for any order which, but for the Rules, would normally be made by a court of law or other judicial authority."

21. Both Mr Woo and the arbitrator want to read this Rule as if the words "but for the Rules" were not there. But that cannot be done. They have to be given a meaning. And the meaning that these words give to the Article as a whole is that, where there is a duplication of the powers of the court and the arbitrator by virtue of the Rules, the parties should apply to the arbitrator. Article 11.2 appears in the Rules under the heading "Powers and Jurisdiction of the Arbitrator". The immediately preceding sub-Article, Article 11.1, provides for the arbitrator to have certain specific powers and jurisdiction. Amongst these powers is one enabling the arbitrator to order the provision of security for costs. But for that Rule, such an application would normally be made to the court. Article 11.2 says the parties agree to make such an application to the arbitrator.

22. However, within that long list of powers and jurisdiction, there is no mention of making awards in the form of injunctions, ex parte, interim or final. It follows, in my view, that Article 11 does not give an arbitrator the power to make an award in the form of any kind of injunction. That being the only source of the power relied upon by the respondent, I must find that the power did not exist in this case. The arbitrator not having the power to make the award, it is void, and the leave to enforce it must be set aside.

The Motion

23. The motion seeks, firstly, that the award in the form of an injunction made by the arbitrator be set aside. In the light of what I have already said, this must be granted. That award is set aside.

24. The motion also seeks the removal of the arbitrator. I am not concerned here, of course, with any question of moral turpitude of the arbitrator. The claimant says that it has lost confidence in the arbitrator's ability to do justice in this arbitration. I have to decide whether or not, in view of the arbitrator's conduct, the claimant has reasonable justification for feeling that there is a real likelihood that the arbitrator cannot or will not fairly determine the dispute on the evidence and arguments put before him. I have to bear in mind that the parties have chosen, for good reason I think, a legally qualified arbitrator.

25. The fact that, in my view, the arbitrator misread Article 11 of the Rules would not, of course, provide an adequate ground for removing him. But that is not all the claimant points to as the basis for its lack of confidence. What the arbitrator did was to hear an urgent application without any proper basis for doing so. The matter, as Mr Woo now concedes was not urgent, and, indeed, was not necessary at all. That should have been clear to the arbitrator. He knew, or should have known, that what the claimant was doing made no difference to the situation that had existed for months. That situation was the very subject of the arbitration. He heard that unnecessary application without any proper notice to the claimant, without hearing any evidence, without making any reasoned award, without advising the claimant of his award and, to add insult to injury, thereafter refused to co-operate with the claimant when the claimant's solicitors asked him, perfectly reasonably, to help them understand what had happened. By carelessness, he even told the claimant that he had not granted an injunction at all. And to cap it all, he got it wrong. In all likelihood, he would not have got it wrong if he had required the respondent to give proper notice to the claimant. The claimant would have explained the situation to him. I must say, even if this was all that had happened, I would not think it unreasonable that the claimant had lost confidence in the arbitrator.

26. But this was not all that happened that might cause a party to arbitration to lose confidence in an arbitrator. There is the very strange conduct in relation to Store no. 6. The arbitrator recognised that this dispute had to form the subject of a separate arbitration. And yet he assumed jurisdiction, without justification, on the basis of the same Article 11, to consolidate the arbitrations and to decide them both, without seeming to understand that no one may presume to appoint himself arbitrator to decide disputes without the agreement of both parties or appointment by proper authority. He seems to have thought that he could acquire jurisdiction to decide this dispute simply by assuming it.

27. And there is more. At a time when the arbitrator must have known that he was being attacked for deciding a matter without hearing the other side, he made an unless order without giving the claimant any opportunity of making representations, and tells the claimant that, if it does not comply, default awards "will be entered" against it. The arbitrator should not have made that order without hearing the claimant. And the threat that default awards would be entered was without any justification. The arbitrator had no power to enter default awards in those circumstances under the Rules, and, if he had no power under the Rules, or otherwise by agreement of the parties, he should have known that section 23C of the Ordinance applied.

28. It is, of course, a serious step to remove an arbitrator. That step affects not only the parties to the arbitration, but also the arbitrator himself. It may affect his reputation. For this reason, an arbitrator should have notice of the application. In this case, notice was given. The notice of motion was served on him. And he has taken the opportunity to have his say. He has filed an affidavit. There are some points that emerge from this affidavit that are significant.

29. The arbitrator says that the claimant "had previously agreed that in the case of an Interim Injunction could be determined by me". This is not so. I have already quoted the words used by the arbitrator himself on this issue. I repeat them -"Whilst I am satisfied that I do have the power to order an injunction if a party wishes to address me on the issue I wish to be addressed on that issue first. Subsequently if I am satisfied that I may continue I will hear the substantive issue." The claimant had made it perfectly clear that it did wish to address the arbitrator on the issue of his power, and that it did challenge the arbitrator's power to order an injunction.

30. The arbitrator says that the application was to prevent building works that would have prevented access to the pump room, but it should have been clear to the arbitrator that the claimant had locked a door and thus prevented access to the pump room months before. That was what the arbitration was about. As Mr Woo told me, the building works made absolutely no difference at all.

31. The arbitrator says that he expected an immediate request by the claimant for an inter partes hearing. But how could he have expected that if he did not tell the claimant of his award of an injunction? He should have told the claimant that he had made this award.

32. The arbitrator says that he did refuse the claimant's request for copies of the material on which he had acted and his notes. He says he thought there was no duty on him to comply. But it should have been occurred to the arbitrator that it is quite clear that a party against whom an ex parte order has been made is entitled to know on what basis the judge or arbitrator acted. The request was perfectly reasonable, and there was no proper basis on which the arbitrator could have refused the request. The arbitrator says that he could have asked why the claimant wanted a copy of his notes, and, if he were satisfied with that reason, could have supplied them. I think it must have been obvious to the arbitrator why the claimant wanted the material and the notes. Indeed, the letter by the claimant's solicitors says, by clear implication if not in express words, that they wanted to know what had happened at the ex parte hearing before the arbitrator. What better reason than that could there be?

33. I regret to say that there is nothing in the arbitrator's explanation that would give the claimant confidence in him. The arbitrator does not accept that he did anything wrong. He maintains his position. If anything, the arbitrator's explanations would be likely reasonably to increase the claimant's lack of confidence.

34. In the circumstances I have recited I cannot conclude that the claimant's lack of confidence in the arbitrator is in any way unjustified or unreasonable. As I put it to Mr Woo: How can I say reasonably to the claimant, in the light of all that has happened, that it must swallow all that, and continue with this arbitration before the same arbitrator? That, in my view, would be expecting too much of a party to an arbitration. Accordingly, although I regret having to do this, it is my duty to remove the arbitrator from this arbitration, and I do so.

35. Another arbitrator has to be appointed under section 27 of the Ordinance. If the parties agree on who should be appointed, I will appoint that person. If the parties cannot agree, I will appoint one, but I suggest that, when application is made to this end, the applicant submits a letter from the Hong Kong International Arbitration Centre stating its recommendation.

Publication

36. There may be some general interest in this judgment. The parties have agreed that this judgment may be published, and I order accordingly.

Costs

37. There seems to be no reason why costs should not follow the event. I make an order nisi that the respondent pay the claimant's costs of both applications. The parties have agreed that this order will remain open to challenge for 28 days from today.

JK FINDLAY

Judge of the High Court
Court of First Instance