XCHRX WONG YU HING v. TONG PAK WING

1994, No.M.P.3104

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H E A D N O T E

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ARBITRATION ORDINANCE - REFERENCE IN DEED OF MUTUAL COVENANT TO 1963 ORDINANCE MEANS THE ORDINANCE AS SUBSEQUENTLY AMENDED - WHERE ONE PARTY FAILS TO APPOINT AN ARBITRATOR, OTHER PARTY MAY MAKE OWN APPOINTMENT UNDER SECTION 9 OR APPLY TO COURT UNDER SECTION 12.

1994, No.M.P.3104

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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REASONS FOR JUDGMENT

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1. By an amended originating summons the plaintiff sought an order, pursuant to section 12 of the Arbitration Ordinance, that a fit and proper person be appointed as the defendant's arbitrator under an arbitration agreement dated 15th April, 1965. On 29th November, 1994, I made the order sought and awarded the plaintiff costs on an indemnity basis. I now give my reasons.

2. The plaintiff owns the 10th floor of 24 Caine Road, Hong Kong. The defendant is the owner of the 11th floor. A Deed of Mutual Covenant ("the DMC") was made between the various co-owners of the building, Clause 17 of which provides that all disputes and questions between the parties be referred to arbitration. A dispute has arisen between the parties regarding water leakage on the 11th floor, which has damaged the property of the plaintiff on the 10th floor. The defendant denied that the damage was due to his defective pipeworks. The plaintiff has carried out an inspection, following which the surveyors, Messrs Chesterton and Petty, concluded that the leakage that caused the damage to the plaintiff's property was from the defendant's pipeworks on the 11th floor.

3. Clause 6 of the DMC provides that the registered owner shall keep in good and tenantable repair and condition the interior of each floor and all the fixtures and fittings therein or appertaining thereto.

4. Clause 17 of the DMC reads :

"All disputes and questions which shall hereafter arise between the parties hereto touching these presents or the construction or adjudication thereof or whether these presents are still subsisting or not or touching any account or calculation to be made hereinunder or as to any other matter in any way relating to these presents or the rights duties or liabilities of any person hereunder 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 in accordance with and subject to the provisions of the Arbitration Ordinance 1963 and the decision of the arbitrator, arbitrators or umpire as the case may be on any of the matters or things aforesaid shall be final and absolutely binding upon all the parties hereto."

5. The plaintiff's complaint is set out in a letter to the defendant from her solicitors dated 11th April, 1994, in these terms :

" Since a date which our client cannot specify save and except that it was in December 1993, it has come to our client's attention that you have caused and/or allowed the seepage of a significant amount of water from the bathroom area of your premises so as to seep through and cause extensive water marks to

(1) the ceiling and wall area of the sitting room;

(2) the ceiling and wall area of the bedroom; and

(3) the ceiling of the corridor adjacent to the bathroom.

By reason of the matters aforesaid, the ceiling fittings and wall covers at the affected area were seriously damaged and our client is put to considerable trouble, inconvenience and expense and have suffered loss and damage.

However, despite our client's repeated requests and demands, beginning from a phone call to you on 10th January 1994 and a letter dated 12th January 1994 in which you were advised inter alia that our client's premises have just been completely refurbished in April 1993, you have failed and/or refused and still fail and/or refuse to take any remedial measures whatsoever to save our client's premises from further damage. Up to the date hereof, the situation remains deplorable and damage to our client's premises continued and is still deteriorating.

In the premises, we are instructed to give you notice, which we hereby do that, unless you shall within the next 7 days from the date hereof (i) refrain forthwith from causing and/or allowing water seeping through and falling upon our client's premises; and (ii) undertake in writing to reinstate our client's premises for the damage caused as mentioned hereinbefore, legal proceedings including but not limited to an application to the court for an injunction order will be instituted against you without further notice."

6. The defendant's solicitors replied demanding proof that the seepage was caused by the defendant. The plaintiff's solicitors then suggested a joint surveyor's report should be sought. The defendant's solicitors refused to participate in a joint survey, on the basis that the burden of proof was on the plaintiff.

7. On 9th August the plaintiff's solicitors sought to refer the dispute to arbitration under clause 17 and invited the defendant to approve one of two named persons to act as sole arbitrator, or alternatively to submit a list of suggested arbitrators, on one of whom the parties might agree.

8. To this the defendant's solicitors replied that clause 17 was not relevant because the dispute was a question of fact not governed by the DMC. When the plaintiff's solicitors insisted that arbitration was the best way to resolve the dispute, the defendant's solicitors suggested that the plaintiff await the result of a report by the defendant's own surveyor, who estimated repair costs at $14,000.

9. That was on 22nd September. By 17th October the plaintiff's solicitors had not heard further from the other side and wrote again stating that, if the defendant refused to agree to the appointment of a sole arbitrator, the plaintiff would appoint Mr Simon Law as the plaintiff's arbitrator and apply to the Court for the appointment of an arbitrator on the defendant's behalf pursuant to the Arbitration Ordinance. The letter concluded by stating that this could be avoided by the defendant agreeing to the appointment of a sole arbitrator, or by the defendant appointing his own arbitrator pursuant to clause 17.

10. On 21st October the defendant's solicitors complained that the plaintiff had not responded to the defendant's proposal to instruct his own surveyor to prepare a report and stated that the defendant was still prepared to do so. The letter stressed the defendant's readiness to co-operate to resolve the dispute. Further correspondence ensued, but no agreement was reached and a summons was issued on 4th November, 1994.

11. I have set out the correspondence at length in order to show that, irrespective of the merits of the defence, the defendant has been unco-operative from the beginning over a trivial dispute, which could have been resolved at an early stage, at minimal expense, given a degree of good will on both sides. This, of course, has considerable bearing on the costs order subsequently made against the defendant.

12. The application is made under section 12(1), which reads :

12. Power of Court in certain cases to appoint an arbitrator or umpire

(1) In any of the following cases-

(a) where an arbitration agreement provides that the reference shall be to a single arbitrator, and all the parties do not, after disputes have arisen, concur in the appointment of an arbitrator;

(b) if an appointed arbitrator refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied and the parties do not supply the vacancy;

(c) where a party or an arbitrator is required or is at liberty to appoint, or concur in the appointment of, an umpire or an arbitrator and does not do so;

(d) where an appointed umpire or third arbitrator refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or arbitrators do not supply the vacancy,

any party may serve the other parties or the arbitrators, as the case may be, with a written notice to appoint, or, as the case may be, concur in appointing, an arbitrator, umpire or third arbitrator, and if the appointment is not made within 7 clear days after the service of the notice, the Court or a judge thereof may, on application by the party who gave the notice, appoint an arbitrator, umpire or third arbitrator who shall have the like powers to act in the reference and make an award as if he had been appointed by consent of all parties.

13. When the ordinance came into being in July, 1963, subsection (1)(c) read :

(1)(c) where the parties or two arbitrators are at liberty to appoint an umpire or third arbitrator and do not appoint him, or where two arbitrators are required to appoint an umpire and do not appoint him;

It was amended in 1984 and it is on the amended subsection that the plaintiff relied. Mr Ng, for the defendant, submitted that, since clause 17 specified the 1963 ordinance, the amended subsection (1)(c) had no relevance to these proceedings.

14. In that case the only relevant statutory provision that could avail the plaintiff, in the absence of an agreement, was section 9. That section provides :

9. Power of parties in certain cases to supply vacancy

Where an arbitration agreement provides that the reference shall be to 2 arbitrators, one to be appointed by each party, then, unless a contrary intention is expressed therein--

(a) if either of the appointed arbitrators refused to act, or is incapable of acting, or dies, the party who appointed him may appoint a new arbitrator in his place;

(b) if, on such a reference, one party fails to appoint an arbitrator, either originally, or by way of substitution as aforesaid, for 7 clear days after the other party, having appointed his arbitrator, has served the party making default with notice to make the appointment, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference and his award shall be binding on both parties as if he had been appointed by consent:

Provided that the Court or a judge thereof may set aside any appointment made in pursuance of this section.

15. Mr Ng pointed out that this section empowers a party, in certain circumstances, to supply a vacancy but does not confer jurisdiction on the Court to appoint an arbitrator.

16. What the plaintiff should have done, Mr Ng submitted, is to have followed the procedure prescribed by section 9(b). Clause 17 provides that the reference shall be to two arbitrators, one to be appointed by each party. If the plaintiff had appointed her own arbitrator and served a notice asking the defendant to appoint his arbitrator, then if the defendant had failed to do so seven clear days after being served with the notice from the plaintiff, the plaintiff could have appointed her arbitrator to act as sole arbitrator in the reference and his award would be binding on both parties as if he had been appointed by consent. However, the plaintiff failed to follow the procedure prescribed by section 9.

17. Mr Ng submitted that the parties to the DMC must have intended to be bound by the ordinance as it stood at the date of the agreement. I do not think that is right. Section 34, which was incorporated in the 1963 ordinance from the 1950 English Act, provides :

34. Transitional -- Part II

This Part shall not affect any arbitration commenced, within the meaning of section 31(1), before the commencement of this Ordinance, but shall apply to an arbitration so commenced after the commencement of this Ordinance under an agreement made before the commencement of this Ordinance.

18. Section 12 is procedural. It sets out the various procedures and mechanisms that parties to arbitration are to take. It is dependent on the agreement of the parties to arbitration, but the substantive rights of the parties are not governed by the ordinance but by the contract and the proper law of the contract. The presumption against retrospection does not apply to legislation concerned merely with matters of procedure or of evidence. It is presumed that procedural statutes are intended to be fully retrospective in their operation, that is to say, are intended to apply not merely to future actions in respect of existing causes, but equally to proceedings instituted before their commencement. Thus, provisions regulating, or empowering the Court to regulate, the course of proceedings affect proceedings pending at their commencement, unless an intention to the contrary is clearly shown. New provisions relating to costs and evidence have been similarly construed. (See Halsbury 4th Ed. Vol.44, para.925).

19. Miss Cheng, who appeared for the plaintiff, submitted that ordinances are bound to be amended as the law develops and by agreeing to such a transitional provision as section 34, the parties must have allowed for amendments to take place and have agreed to be bound by the same. Furthermore, there is a presumption that an updating construction is to be given : an ordinance is "always speaking". (Bennion s.288).

20. It seems to me that to construe narrowly the words "The Arbitration Ordinance 1963" would tend to stifle the development of arbitration law and practice by inhibiting recourse to amendments to the ordinance. Moreover the Court would have to refer to repealed sections and perhaps to superseded textbooks. It is sensible and reasonable that the Court should employ a construction that caters for the development of arbitration law as reflected in amendments to the ordinance. Any other construction should only be the result of very clear language. That is not the case here. In my judgment, given the nature of the DMC and the clear intention to arbitrate, it cannot be right, in the absence of a contrary intention, to construe clause 17 that arbitration is to be conducted under repealed sections in the 1963 enactment.

21. I also rejected Mr Ng's second submission, namely that section 12(1)(c), as amended, could not apply to clause 17 in the light of section 9. He argued that section 12(1)(c), as with other subsections of section 12, deals with the situation where the arbitration agreement provides for the appointment of an arbitrator, or an umpire, or a third arbitrator. It has no application where the arbitration agreement provides for the appointment of two arbitrators, one to be appointed by each party. Instead, section 9 will apply to such an agreement.

22. In Medov Lines S.P.A. v. Traelandsfos A/S [1969]2 Ll.R.225 Donaldson J. held that section 10(a) of the Arbitration Act 1950 (section 12(1)(a) of the Arbitration Ordinance) had no application to an agreement which provides an alternative method of arbitration, which is to take effect if the parties fail to agree upon the appointment of a single arbitrator.

23. Mr Ng submitted that the Court's power of appointment contained in the amended section 12, had no application to clause 17, since the latter provides an alternative method of arbitration, which is to take effect if the parties fail to agree upon the appointment of a single arbitrator, and the principle in Medov Lines S.P.A. applies. I would point out that the Court in that case was not dealing with section 12(1)(c) or any similar provision.

24. In Philips Hong Kong Limited v. Hyundai Electronics Industries Ltd. [1993]1 HKLR 263 at 268 Kaplan J. held that if an applicant has not exhausted the contractual mechanism for appointment of an arbitrator, then any application to the Court for appointment was premature and the Court should refuse it. Mr Ng argued that the plaintiff had not exhausted the contractual mechanism for appointment of an arbitrator stipulated in clause 17, which provides that if the parties cannot agree upon one arbitrator then there should be two arbitrators, one to be appointed by each party to the difference and their umpire. The plaintiff, in order to exhaust the contractual mechanism for appointment, must first appoint her own arbitrator. This the plaintiff had not done. Had the plaintiff done so, she could then, there being no response from the defendant, have gone on to appoint her sole arbitrator under section 9. My view of that argument is that the plaintiff had exhausted the contractual mechanism and there remained only the statutory mechanism.

25. Mr Ng submitted that his interpretation of section 12(1)(c) and section 9 brings consistency to the interpretation of the two sections. Otherwise section 9 would be otiose, since a plaintiff could ignore it and apply to the Court to appoint an arbitrator.

26. Miss Cheng's answer to this was that a plaintiff has a choice. He may proceed under section 9 but, if he does so, there is a risk that the appointment may be set aside under the proviso, even after arbitration has commenced. Section 12 provides an alternative, and more reliable, procedure without such a risk. Moreover, in the event of a successful defence application under section 9, a plaintiff is entitled to apply to the Court under section 12. I could see no flaw in this argument and I accepted Miss Cheng's submissions in toto and was satisfied that she was entitled to an order under section 12.

27. The plaintiff having undertaken to appoint Mr Simon Law, I ordered that Mr Anthony Houghton be appointed as the defendant's arbitrator, unless the defendant should submit the name of another person acceptable to the plaintiff within three days of the order herein.

28. Having regard to the defendant's obstructive attitude from the beginning of the dispute as adumbrated above, which has unnecessarily prolonged adjudication and increased the cost both of the latter and also presumably the repairs themselves, I considered this a proper case for the award of indemnity costs.