XCHRX CHUN WO BUILDING CONSTRUCTION LTD. v. CHINA MERCHANTS TOWER CO. LTD.

HCCT107/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.107 OF 1999

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J U D G M E N T

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1. This is an application by Chun Wo Building Construction Ltd (the applicant) who seeks an order that three arbitrations in which it is involved be heard together pursuant to s.6B of the Arbitration Ordinance, Cap.341.

2. The first arbitration arises out of a construction contract between the applicant as the main contractor and China Merchants Tower Co. Ltd as the employer (the 1st respondent).

3. The second arbitration arises out of a contract between the applicant and one of two nominated subcontractors, Chevalier (HK) Ltd (the 2nd respondent).

4. The third arbitration arises out of a contract between the applicant and the other nominated subcontractor, Cerberus Hong Kong Ltd (the 3rd respondent). All the contracts relate to the same development. The two subcontracts were for air-conditioning and fire safety installations respectively.

5. The 1st respondent opposes the application on the ground that the applicant has failed to show sufficient commonality of issues to be determined. The 2nd respondent opposes on the ground that the application is premature and should be adjourned because the issues have not yet sufficiently crystallized for the court to be able to determine whether or not there is sufficient commonality. The 3rd respondent does not oppose the application and consents to concurrent hearings.

6. Section 6B of Cap.341 provides as follows :-

"(1) Where in relation to two or more arbitration proceedings it appears to the Court-

(a) that some common question of law of fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this section,

the Court may order those arbitration proceedings to be consolidated on such terms as it thinks just or may order them to be heard at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them."

7. This confers a discretion on the court but the discretion should not automatically be exercised merely because there is some commonality of issues however small. The applicant must show sufficient commonality. In Dickson Construction Co. Ltd v. Schindler Lifts (HK) Ltd, CA 125/92, Nazareth JA said :-

"We do not find it necessary to review the relevant evidence and submissions further. Whilst there clearly were common issues of fact and law, which was not disputed, there were also very significant issues of fact and law which were not common. In referring to 'the insufficiency of the factual and legal connection between the two arbitrations', we have no doubt that the judge was referring to the extensive lack of commonality between the issues of fact and of law in the two arbitrations notwithstanding that there was some commonality of such issues."

8. The principal factors which are relevant to the court's determination and which were advanced one way or the other by counsel in this application are as follows :-

1. The terms for payment under the subcontracts were "back to back" with the terms in the main contract. Clause 11 (to which I shall refer later) is common to all three. One of the two main issues between all the parties is the question of delay, namely, was there delay giving rise to liquidated damages, if so, how much and who was responsible for it? Mr Pow, for the applicant, contends these issues are inter-related. Mr Shaw, for the 2nd respondent, submits they are not. He submits that any issues of delay in the main contract are not relevant to arguments about delay in the subcontracts. It is not necessary to recite his argument further because one thing is clear, namely, that the parties do not agree on the proper legal effect of the material terms concerning the question of delay in their respective contracts. To this extent, there are clearly common issues in the legal argument on the question of delay. Mr Pow submits there is a claim of indemnity between all parties. He argues that if the applicant is liable to the 1st respondent and the applicant successfully argues that the 2nd and 3rd respondents are liable to him, then the 2nd and 3rd respondents would be liable to indemnify the applicant. In my judgment, the fact that Mr Shaw may not agree with this is not the point. It is one of the matters which the arbitrator will have to determine.

2. As with many construction disputes, much will depend on the architect's evidence and the certificates he issued. It is the same architect in all three sets of proceedings. The proceedings, taken together, are two subcontracts flowing from a main contract. They can and should be regarded as the same series of transactions about which it would be desirable and sensible for the architect to give evidence on one occasion only.

3. In the main action between the applicant and the 1st respondent, the respondent is firstly counterclaiming about $30 million in liquidated damages for delay. Its second counterclaim relates to alleged defects. It counterclaims specific defects against the applicant only but also unspecified defects generally. The 2nd and 3rd respondents are not specifically excluded from responsibility for the alleged unspecified defects. They should therefore not be excluded from the arbitration when evidence of defects is being given. If the first arbitration is heard separately, they would be.

4. Section 11(b)

9. As referred to earlier, this applies to all three contracts. It states :-

"(b) Within fourteen days of the receipt by the Main Contractor of payment from the Employer against any certificate from the Architect the Main Contractor shall notify and pay to the Sub-Contractor the total value certified therein in respect of the Sub-Contract Works and in respect of any authorised variations thereof and in respect of any amounts ascertained under clause 8(c) hereof less:-

(i) Retention Money, that is to say the proportion attributable to the Sub-Contract Works of the amount retained by the Employer in accordance with the Main Contract; and

(ii) The amounts previously paid."

10. It is not necessary to recite the factual issues between the parties arising out of this provision. The issues of the calculation of liquidated damages, set-off and the liability to indemnify will be common issues. In my judgment it does not seem realistic to divorce these arguments in the main contract from the same arguments in the subcontracts. A similar situation arose in Re Shui On Construction Co. Ltd v. Schindler Lifts (H.K.) Ltd [1986] HKLR 1177 where Rhind J at page 1186 said :-

" Those interlocking claims for indemnities in the two arbitrations would by themselves sufficiently justify a regulatory order under s.6B of the Arbitration Ordinance, in my view."

5. Convenience

11. This on its own is not a ground to order concurrent hearings. However, if sufficient commonality is made out, the fact that the advantages in hearing the arbitrations together clearly outweighs the disadvantages is a factor to be taken into account.

12. During this hearing the court was informed that a very experienced and respected arbitrator, Mr Bruce Humphreys, was available and acceptable to all parties as the arbitrator for all three cases. The same arbitrator conducting one set of proceedings will prevent inconsistent findings on law or fact. Furthermore, it eliminates concerns such as those expressed by Lord Denning MR in Abu Dhabi Gas v. Eastern Bechtel Corporation [1982] 2 Lloyd's Rep. 425 :-

"The sub-contractors, for instance might say that the arbitrator's decision in the first arbitration might affect his decision in the second arbitration. If he had already formed his view in the first arbitration, they would be prejudiced. It would be most unfair to them: because he would be inclined to hold the same view in the second arbitration."

and :

"On the other hand, it is equally desirable that it should be done so that neither party should feel that any issue had been decided against them beforehand: or without their having an opportunity of being heard in the case."

13. Once the same arbitrator is seized of the whole matter, consistent and practical directions and interlocutory orders will also inevitably follow.

6. Time and cost

14. There is no doubt that the first arbitration between the applicant and the 1st respondent involves the greatest amount of money and would last significantly longer than the other two, if heard separately. What is also inevitably true is that the time for hearing them together would be significantly shorter than the total time for hearing them individually.

15. I am satisfied that the costs to be incurred by the two subcontractors by being involved in a concurrent hearing need not be very much greater (or even need not be greater at all) than if each case were heard separately. In concurrent hearings (unlike with a consolidated hearing) the different parties need not attend the hearing on every day. The arbitrator will be able to regulate the proceedings so that the parties need only be present at the relevant times. Indeed the 3rd respondent does not oppose this application on the basis that it wishes to keep its costs to a minimum. It has not incurred costs in this application and it will only attend the combined arbitration when that part of the proceedings which concerns it is being heard. The same considerations apply to the 2nd respondent.

16. As far as the 1st respondent is concerned, Mr Ip readily concedes that, as the main party, its liability to costs will be effectively the same whether the 2nd and 3rd respondents are included or not. He also concedes that their inclusion will not lengthen the duration of his case by a significant amount. There is no prejudice to the 1st respondent by including the 2nd and 3rd respondents. His sole submission is on the sufficiency of the commonality.

17. Mr Shaw's sole submission is that the application is premature. (It follows therefore that the order sought may be the proper order in due course). With respect I do not agree that it is premature. A substantial amount of paper has already been generated, affidavits have been filed, issues have been identified in correspondence and in reality no significant mysteries remain about what will be the arbitrator's task. Rhind J in the Re Shui On case dealt with this argument in the following way :-

" That the pleadings have not been closed in the two arbitrations is by no means a fatal objection to an order under s.6B. In the same way that, in litigation, the pleadings do not need to be closed in the two actions for an order under Order 4, rule 10 ('consolidation of causes or matters'), they need not be closed in the two arbitrations for an order under s.6B of the Arbitration Ordinance, so long as the court is sufficiently appraised of the issues which are likely to arise. Pleadings are not the only way of identifying issues: they can also be sufficiently identified by affidavit or by oral explanation to the court. Under Order 4, rule 10, the normal practice is to apply for consolidation of actions at a stage well before the close of pleadings. Such an application should ideally be made at the earliest convenient moment: in the way, unnecessary expense and effort can be saved from the outset, even on pleadings. Sometimes, depending on the nature of the actions and the vagaries of litigation, the application is not made till after the close of pleadings."

18. In conclusion and for the above reasons, I am satisfied that I should exercise my discretion in the applicant's favour. I am satisfied that sufficient common issues have been made out and that this is an appropriate time to make the order. I therefore make the order as sought by the applicant in its originating summons dated 3 November 1999. I further make an order nisi as to the costs of the application that they be paid by the 1st and 2nd respondents.