XCHRX W.M. CONSTRUCTION LIMITED v. CHI LIK WINDOW WORKS LIMITED

1996, Con List No. 77

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

CONSTRUCTION AND ARBITRATION LIST

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JUDGMENT

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Background

1. The applicant seeks leave to appeal against an arbitration award made on 10 September 1996. The parties are agreed that, if I grant leave, I should proceed immediately to determine the appeal.

2. The applicant was the main contractor in a building contract. The respondent was the nominated sub-contractor. The contract between them was in the standard form of building sub-contract for nominated sub-contractors 1968 edition.

3. The statement of claim in the arbitration was very short. The only cause of action was pleaded in these terms -

"The claimant claims against the Respondent the sum of HK$260,000.00 being the outstanding fee due to the claimant as approved and certified under Final Certificate referenced no. 10068/458 issued on 16 August 1993 by the appointed architect. . ."

4. The defence dealt with this single allegation, and, in effect, denied that the certificate mentioned was a certificate upon which the respondent could base a claim. The defence also relied on a "pay-when-paid" clause, saying that the applicant had not been paid the claimed sum of $260,000 by the employer, and alleged that the sub-contract works were completed late. The applicant made a counterclaim in respect of the delay.

5. On 17 May 1996, the respondent's solicitors wrote to the arbitrator asking for an extension of time within which to file a reply. The applicant's representative wrote to the arbitrator on the same day saying, amongst others things, that the purpose of a reply was to support the claim, not to "bolster a deficient claim".

6. A reply dated 4 June 1996 was filed. This document was much longer and much more detailed than the statement of claim. It sought to rely on new facts and further documents.

7. On 10 June 1996, the applicant's representative wrote to the arbitrator complaining that the reply set-up new causes of action and new facts, as indeed it did. He asked the arbitrator to strike out those parts of the reply that contradicted or departed from the statement of claim, and asked the arbitrator to bear in mind that the respondent's sole cause of action was that based on the document of 16 August 1993.

8. Apparently in response to this, the arbitrator issued a direction saying -

"That the cause of action on which the Claimant and the Respondent rely in respect of their claim and counterclaim be limited to those respectively pleaded in the Statement of Claim and in the Counterclaim."

The Grounds on which the Applicant seeks Leave

9. The applicant seeks leave to argue three grounds on appeal -

1. An error of law in a failure to give a fair hearing;

2. An error of law in failing to find, against the evidence, that the respondent was in delay: and

3. An error of law in finding, against the evidence, that the employer had paid the applicant.

I will deal with the second and third grounds before the first ground.

Delay

10. The arbitrator dealt with the applicant's allegation of delay by the respondent fully and carefully. He considered all the material available to him. He found as a fact that he could not be satisfied that the respondent "was in culpable delay". He also found as a fact that the respondent had "completed in accordance with the time obligations as they have been revised by the Architect". One could argue, if one chose, about the validity of these findings, but they are not, in my view, such that one could say with any justification that they could not have been arrived at properly by any reasonable arbitrator. This ground cannot, in my view, be allowed as a ground of appeal.

Pay-when-paid

11. The applicant says it has not been paid by the employer, and, therefore, is not liable to pay the respondent. The arbitrator found, however, as a matter of fact, on the materials before him that "there is no doubt that the [applicant] has . . . been in receipt of payment from the Employer for the purposes of the sub-contract . . ." Again, one might, as Mr Shaw did ably, argue that the arbitrator's finding is not correct, but I cannot find that that the finding was plainly wrong. Leave cannot be granted to argue this ground.

Absence of Fair Hearing

12. There is, in my view, more substance in this ground.

13. In spite of what the arbitrator said in the direction I have quoted above, it is quite clear from his Reasons for Award that he did not limit the respondent to its cause of action pleaded in the Statement of Claim. He found that the certificate relied upon in the Statement of Claim was not such that the respondent could rely upon it as a cause of action. He went on to say that the respondent was entitled to the "outstanding fee due . . . if a certificate had been issued and paid by the Employer in accordance with clause 11 of the sub-contract". It appears that the arbitrator found that the certificate upon the claim properly rested was one dated 8 February 1994, which was a certificate mentioned only in the reply.

14. It may well be that the respondent was entitled to be paid on this or some other certificate, but the problem is that the applicant was told by the arbitrator that the respondent was to be held to the cause of action pleaded in the Statement of Claim. Intentionally or not, the applicant was led to believe that the arbitrator would not have regard to any other possible causes of action; particularly causes of action raised in the reply.

15. If the applicant had known that the arbitrator was going to take the approach he did take, the evidence is, and this seems likely in the circumstances disclosed by the contemporaneous correspondence, that the applicant would have sought to be heard on the allegations made in the reply.

16. In these circumstances, it seems to me that the applicant has been denied a fair hearing. Where a party to an arbitration has not received a fair hearing, he is entitled to have the award set aside so that he may have the right he was entitled to expect when he agreed to submit his dispute to arbitration.

17. Accordingly, I grant leave to appeal on this ground. In this event, the parties agreed that I should determine the appeal itself. The appeal is allowed on this ground.

The Result

18. The award by the arbitrator in favour of the respondent is remitted to the arbitrator for reconsideration. My opinion of the question of law on which the applicant has succeeded appears from this judgment. I believe that the arbitrator should invite the respondent to amend its Statement of Claim so that it pleads all the facts and causes of action on which it relies. The applicant should then have the opportunity of amending its Statement of Defence to respond to any new facts and causes of action pleaded by the respondent. The respondent should have the opportunity of replying. The parties should have the opportunity of submitting further evidence and making further submissions on the new facts and causes of action raised by the respondent.

The Costs

19. I have not heard argument on costs, but it seems that the applicant has been substantially successful, and should get its costs. I make an order nisi that the respondent pays the applicant's costs.