P v. M

HCCT 6/2019

[2019] HKCFI 1864

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 6 OF 2019

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D E C I S I O N

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Introduction

1.  This is the second time that matters arising from the underlying two consolidated arbitration proceedings (“Arbitration”) have come before the Court.  As on the previous occasion, P is represented by Ian Pennicott SC, instructed by Mayer Brown, and M is represented by Julian Cohen, instructed by Hogan Lovells.

2.  The Arbitration came about as follows.  P had engaged M as its main contractor to carry out construction works.  The parties entered into a construction contract (“Contract”), which incorporated an arbitration agreement which provided for domestic arbitration.  Accordingly, Schedule 2 of the Arbitration Ordinance Cap 609 (“Ordinance”) applied to the arbitration agreement.

3.  Disputes arose under the Contract, and M as claimant commenced the Arbitration against P as respondent.  The claims made by M were for its financial entitlements under the Contract, including claims for loss and expense.  After a hearing in November 2017, an Interim Award was published dated 11 April 2018 (“First Award”), whereby the tribunal ordered P to pay to M a total sum of HK$6,246,535.16 for loss and expense, plus interest.  This amount has been paid into court.

4.  P disputed parts of the First Award, which relate to a sum of HK$4,002,919.58 representing M’s site expenses and overheads for the period from 1 October 2013 to 8 March 2014, and a sum of HK$1,628,926.38 representing M’s extended CAR and EC insurance costs for the period from 1 October 2013 to 8 March 2014, making a total sum of HK$5,631,845.96 (“Disputed Amount”).

5.  The matter first came before the Court when P made an application to challenge parts of the First Award, on the ground of serious irregularity, under section 4 (2) (b) and/or 4 (2) (c) and 4 (3) (c) of Schedule 2 of the Ordinance, alternatively under Article 34(2)(ii) of the Model Law.  The application was heard by Mimmie Chan J.

6.  The application succeeded, in that a serious irregularity was found to have occurred.  Mimmie Chan J was not satisfied that it would be inappropriate to remit the matters in question to the arbitral tribunal for reconsideration, so ordered the matters to be remitted for reconsideration.  Paragraphs 169, 170, 172, 174 and 175 of the First Award were declared to be of no effect pending until further order of the tribunal, after hearing and considering the directed submissions from the parties.  Though headed as a Decision I shall adopt the definition used by the parties and refer to it as the “Judgment”.

7.  Subsequently, the Arbitrator directed various further submissions and then made his Second Interim Award dated 27 December 2018 (“Second Award”).  In the Second Award, the Arbitrator maintained his conclusion as to the Disputed Amount, but for reasons differing from those provided in the First Award.

8.  By Originating Summons dated 25 January 2019, P makes an application to challenge parts of the Second Award, also on the ground of serious irregularity, under section 4 (2) (b) and/or 4 (2) (c) and 4 (3) (c) of Schedule 2 of the Ordinance, alternatively under Article 34(2)(ii) of the Model Law.

9.  Following various directions made, the substantive hearing of the Originating Summons has come on for hearing before me this morning.

The First Challenge

10.  In the challenge to the First Award, P sought an order to set aside the challenged parts of the First Award, or an order declaring those parts of the Award to be of no effect.  The grounds relied upon were that the arbitral tribunal had exceeded its powers, or alternatively had failed to conduct the arbitral proceedings in accordance with the procedure agreed by the parties.  The alternative order to set aside the First Award under Article 34(2)(ii) of the Model Law was on the ground that P had been denied a reasonable opportunity to present its case in the arbitration.

11.  P claimed that the tribunal exceeded its powers and/or failed to conduct the arbitration in accordance with the procedure agreed by the parties, by finding in the First Award that M’s letter of 30 September 2013 (“September Letter”) and its email dated 20 November 2013 attaching a breakdown of costs (“November Breakdown”) constituted notification of M’s claims for site overheads and insurance costs, pursuant to and as required by GCC clauses 27 and 28 of the Contract (“GCC 27 and 28”), so as to entitle M to claim for and recover the Disputed Amount.

12.  P’s complaint was that the tribunal made such finding, notwithstanding the fact that M had never claimed in the Arbitration that any notice of claim had ever been given, or was relied upon by M.

13.  In its Statement of Defence and Counterclaim served in the Arbitration, P had pleaded that M had failed to give any notice of its loss and expense claim, as required under GCC  27 and 28, that such notice was a condition precedent under the Contract, and that M’s claim for its loss and expense was deemed to be waived under the express provisions of GCC 27 and 28.  This pleading was denied in M’s Statement of Reply and Defence to Counterclaim, but with only an averment that P had waived and/or was estopped from relying upon any notice provisions in respect of its entitlements for direct loss and expense because of the delay and disruption to the Works.

14.  In various submissions by its Counsel at the arbitration hearing, M confirmed its case was that: (a) M is not required, pursuant to GCC 28.1(2), to give notices either for its claims for the cost of extended insurance, or for the site and head office overheads, as these were instructed as a variation; and (b) only in the alternative that, if notice was required, P had waived any requirement to give notices under GCC 28, or is estopped from asserting M’s failure to give such notices.  M neither corrected nor addressed P’s particular submission which highlighted that M had not given any notice pursuant to GCC 28, and P’s emphasis that M itself did not allege that it had done so.

15.  In the Judgment, Mimmie Chan J thought it pertinent that in the First Award, the tribunal made it clear that it rejected M’s claim of waiver and estoppel, in the absence of any satisfactory evidence of representation by P and reliance by M.  She also noted that: (a) the tribunal did not accept M’s claim that the contractual machinery for claims submission and certification had broken down, so that it was not possible for M to give notification of its claims; and (b) the tribunal did not accept that M’s loss and expense claim was a valuation of a variation claim, to fall within GCC 28 (2).  Instead, the tribunal had found that GCC 27 clearly applies to M’s claim for loss and expense arising from the prolongation of the project, and the tribunal in fact rejected M’s claim for head office overheads and profit, for lack of proper notification pursuant to GCC 27 and 28.

16.  Nevertheless, the tribunal had allowed the Disputed Amount representing M’s costs of insurance and its site overheads and expenses for the extended period of work, by finding that the September Letter and November Breakdown constituted M’s notification of claim under GCC 27 and 28.

17.  From her review of the relevant extracts of the pleadings, Opening Submissions, and Closing Submissions served in the Arbitration, Mimmie Chan J noted that the submissions made on behalf of P were on the content and effect of GCC 28, the necessity for notice to be served thereunder in relation to the claims made by M, and whether representations had been made for waiver or estoppel to be applicable.  As M had unequivocally pleaded in its Statement of Reply, and maintained in its Opening and Closing submissions, that no notice was either required or served, P did not address the tribunal on whether the September Letter, the November Breakdown, or any document relied upon by M constituted adequate and sufficient notice as required under GCC 28.  She did not accept M’s argument that there was no need for any averment of a positive case that M had given notice as an adequate answer to P’s complaint, not least against the previous procedural directions given in the Arbitration and the applicable Rules.

18.  Mimmie Chan J held that if it had been made clear to P, either by M in the course of the hearing of the Arbitration, or by the tribunal prior to its publication of the Award, that the September Letter and/or the November Breakdown was to be relied upon or considered to be a notification of claim as required under GCC 27 and 28, P would have addressed the tribunal as to whether these letters were compliant with the contractual provisions and could be relied upon.  In the absence of such notice, she considered that P had been deprived of the fair opportunity to present its case and to make submissions to the tribunal on the effect and adequacy of the September Letter and November Breakdown as proper notices under the Contract.  She thought it possible that the tribunal might have reached a different decision on M’s claim for the Disputed Amount, after hearing submissions from P.

19.  I interject at this point that I read her reference to “P [having] been deprived of the fair opportunity to present its case and to make submissions to the tribunal on the effect and adequacy of the September Letters and November Breakdown as proper notices under the Contract” as a reference not just to the deprivation of a chance to make submissions. The reference to presenting a case must include the possibility of calling evidence or challenging evidence called by the other side.

20.  Balancing the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration, and noting that that only an extreme case would justify the court’s intervention, Mimmie Chan J nevertheless held that there was a serious error which had affected due process and the structural integrity of the arbitral proceedings. She found that a fair opportunity to deal with the matter and to make submissions to meet such a claim and case had not been given, and this resulted in substantial injustice to P, with an award against it for payment of the Disputed Amount.

21.  In choosing the remit the First Award to the Arbitrator for reconsideration, she noted that no bias or misconduct was alleged against the Arbitrator.  The complaint was that P had been deprived of a fair opportunity to make submissions to the tribunal on whether the September Letter and November Breakdown can constitute (as found) valid notification of claims under the relevant provisions of GCC 27 and 28.

22.  For present purposes, it is also important to note that Mimmie Chan J then specifically identified the scope of the intended reconsideration.  She stated that based on the findings already made in the First Award, and the challenge being confined to the issue of whether notification of claim had been given of the Disputed Amount, she could not see how and why it would not be appropriate to remit the matter to the tribunal, for the purpose only of enabling directions to be given by the tribunal for P to make proper submissions to the tribunal on the meaning and effect of the September Letter and November Breakdown, and whether they may constitute valid notification of claims as required under the Contract, on the case of the parties as pleaded in the Statement of Claim, Statement of Defence and Counterclaim, and Statement of Reply and Defence to Counterclaim, already served in the Arbitration.  Submissions in reply could then be made by M.

23.  As I read her Judgment and Order together, Mimmie Chan J was identifying and requiring that: (1) the remitted matter was strictly confined; (2) the procedure was for the Arbitrator to direct proper submissions first from P, and then from M in reply; (3) the submissions were to be limited to the meaning and effect of the September Letter and the November Breakdown and whether they constituted valid notification of claims as required under the Contract; (4) the submissions and consideration of them would be based on, and only on, and so limited to (a) the factual findings already made in the First Award, and (b) the case of the parties as already pleaded in the Arbitration.

24.  To my mind, as against the serious irregularities she had found to have occurred, Mimmie Chan J was essentially putting the parties into the position they would have been if during oral closing submissions the Arbitrator had suggested that he had in mind a possible conclusion that the September Letter and the November Breakdown could constitute a valid notification of claims as required under GCC 27 and 28 of the Contract.  Obviously, in such circumstances P as respondent would have been able to make submissions as to that possibility, and M as claimant would have been able to make reply submissions on that point.  But both sets of submissions would have been limited by the facts as found, or to be found, on and only on the evidence which had already concluded, and limited also by the scope of the issues framed by the parties’ respective cases on the pleadings (unless the submissions from M included an application to amend, which was then allowed).

25.  Mimmie Chan J referred expressly to the parties’ pleaded cases because, as I have already briefly mentioned, she had noted the Arbitrator had ordered that the Domestic Arbitration Rules (2014 Edition) of the HKIAC (“Rules”) applied to and governed the Arbitration, and she had set out Article 6 of the Rules, which (with her emphasis) states that a respondent has to send to the arbitrator a Statement of Defence “setting out a full description in narrative form of the factual matters and contentions of law in the Statement of Claim which he admits or denies, on what grounds, and specifying any other factual matters”.  So she noted that if M should rely on any fact which supports its denial of the lack of compliance with GCC 28 as claimed by P, or any fact which supports its denial of the absence of any notice of claim, it should state such facts, and the grounds of its denial, in the Statement of Defence.  But M did not do so, making no mention of the fact that notice had been given by the September Letter and November Breakdown or any other document, and P was entitled to conduct the Arbitration on the basis that M did not seek to rely on the September Letter, the November Breakdown or any other document for the purpose of pursuing its claim for loss and expense.

26.  The scope of the intended reconsideration was also made clear by Mimmie Chan J in her Decision dated 18 December 2018 refusing M’s application for leave to appeal from the Judgment.  She refused to permit the scope of the remitted issues to be enlarged to include questions of waiver or estoppel.

The Second Award

27.  In accordance with the Judgment, the Arbitrator first directed that P should make written submissions by 4 December 2018 and M should make written submissions in reply by 11 December 2018.

28.  P provided written submissions dated 4 December 2018, which included the identification of what it called “threshold issues” regarding the scope of the remission with reference to the pleaded cases, evidence adduced and submissions advanced in the substantive arbitration.  P pointed out that the Court had determined that a serious irregularity had occurred because the Arbitrator had decided an issue in M’s favour, on a basis that at no material time had been pleaded or otherwise advanced, and that remained the position, it being far too late for M to alter it.  That being the case, P submitted that M did not get past first base and the claim must necessarily fail.  Without prejudice to this preliminary point, P also made its argument as to the meaning and effect of the September Letter and the November Breakdown with reference to GCC 27 and 28.

29.  M provided submissions dated 11 December 2018. Whilst stated to be “in reply”, it cannot be seriously doubted that those submissions in fact raised matters not previously raised in the substantive arbitration.  This was recognised by the Arbitrator, who subsequently directed P to make further submissions by 20 December 2018 noting that he thought it “inevitable that given [P’s] case on the Notification Question has been put for the first time, [M’s] response will also include new points not previously canvassed”.

30.  I would pause at this point simply to note that, though the language used by the Arbitrator might have been loose, neither P nor M had a “case” on the notification question as raised, as neither had pleaded such a case.  What was in reality occurring through the submissions (as intended by Mimmie Chan J) was providing both P and M an opportunity to address something raised by the Arbitrator himself as a possible line of thought and conclusion.

31.  In giving his directions for “final reply” submissions from P, the Arbitrator did not appear to take on board and/or accept the points made for P in its solicitors’ letter of 14 December 2018, including that M’s submissions make little real attempt to reply to P’s submissions but instead consisted primarily of entirely new points not included in any previous pleadings or submissions in the arbitration, and in circumstances where it was now too late to re-open the evidence or submissions in the arbitration.

32.  On 20 December 2018, P made its further submissions, first concentrating again on the “threshold issues” regarding the scope of remission, including by reference to the case of Interbulk Ltd v Aiden Shipping Co Ltd (The “Vimeira”) (No. 3) [1986] 2 Lloyd’s Rep 75.  P then set out precise objections to those parts of M’s submissions as had related specifically to the September Letter and the November Breakdown.

33.  In P’s submissions on the remission, P contended that the September Letter could not have been a notice under GCC 27 or 28, and was only a notice of delay under GCC 25; the subject matter of the September Letter demonstrated that it was apparent to M by that date that a qualifying event had occurred which gave rise to a claim for loss and/or expense, so that M was required to give notice by 28 October 2013 if it was to comply with GCC 28.1; the November Breakdown was out of time, being 23 days after 28 October 2013; the November Breakdown could not have been a notice under GCC 28.2(2) as such a notice could only be given within 60 days after a compliant notice had been given under GCC 28.1(1), which had not occurred; so that the submission of particulars in the November Breakdown had no contractual significance.

34.  It was only in M’s submissions, said to have been “in reply”, that it suggested for the first time that the November Breakdown may have effect as a “stand-alone” notification pursuant to GCC 28.1 and GCC 28.2.  Nevertheless, M also accepted that the event which had occurred which gave rise to a claim for loss and expense could have occurred only when the expense was incurred, being no earlier than 1 October 2013.

35.  I accept as accurate the description of the gist of the findings made by the Arbitrator in the Second Award as set out in the Originating Summons, as follows.  The Arbitrator found that:

(1)  the September Letter was a notice of delay under GCC 25.1 and not (as found in the First Award) a claim for loss and/or expense under GCC 27;

(2)  the November Breakdown and its covering email were of themselves a notification of claim under GCC 28.1(1) and, because the November Breakdown was information submitted in response to a request from P’s Project Manager in relation to the re-configuration works, which stated the amount of the claim and gave a build-up of the amount of the claim, it was not necessary for M to provide particulars of the circumstances giving rise to the claim, as such circumstances were known to all relevant parties;

(3)  the re-configuration works had been discussed earlier “as is clear from the September Letter”, but these works were not actually the subject of a Project Manager’s Instruction until 11 December 2013 under PMI-AS001.  The event giving rise to the claim did not actually occur until 11 December 2013 and the November Breakdown was therefore compliant with GCC 28.1(1).

36.  As to these three points, it might be noted that: (a) the Arbitrator changed his mind as to one of the 2 documents previously held by him to constitute the valid notice under GCC 28 (which is perhaps not surprising as the September Letter specifically identifies on its face that it is in fact a notice of delay under GCC 25); (b) the Arbitrator held that the November Breakdown constituted and was compliant valid notice of both elements required under GCC 28, even though he at the same time seemed to hold that the relevant information which was necessary for compliance was not contained in the November Breakdown; and (c) he found that the event giving rise to the claim occurred on 11 December 2013, when M had not advanced any such contention, even in its remission submissions, but rather had conceded the relevant event had occurred by 30 September 2013.  It might also be thought at least odd that it might be found that a compliant notice was given 21 days before the “qualifying event” even occurred.

37.  In the First Award, the Arbitrator found that the conditions precedent of GCC notice requirements applied to M’s claims, rejecting all of M’s contentions that the GCC notice requirements did not apply.  He rejected one element of the claim specifically because of the failure to comply with the conditions precedent, and the lack of proper notification pursuant to GCC 27 and 28.  However, in the Second Award, the Arbitrator departed from this approach.  In my view, this was clearly problematic where the question of compliance with conditions precedent was a fact-sensitive matter, and where the substantive hearing had simply not addressed the relevant question (for obvious reasons).

38.  The Arbitrator rejected P’s extensive submissions on the “threshold issues” relating to the scope of the matters remitted.  Whilst accepting that M did not plead a positive case on notices and instead relied on alternative arguments that failed, the Arbitrator held that “the real injustice” to P had been rectified by P having had an opportunity to make submissions on remission.

39.  As a result, the sums awarded under paragraphs 174-175 of the First Award (which had been declared of no effect pending the reconsideration on remission) were reinstated.

The Second Challenge

40.  As already identified, P’s challenge to the Second Award is made by reference to the same provisions of the Ordinance and the Model Law as was the first challenge.

41.  First, P argues that the Arbitrator exceeded his powers and/or failed to conduct the proceedings in accordance with the procedure agreed by the parties or directed by the Court in the Judgment, in (a) summarily rejecting its submissions on the “threshold issues”, and finding that the injustice to P had been rectified by the submissions on remission, whereas injustice had in fact occurred because matters not raised in the substantive arbitration could not be rectified without a further evidentiary hearing; (b) taking into account submissions made by M which were not “in reply” to P’s submissions on the remission, and matters which had not been raised by either P or M and were inconsistent with both, and matters which went beyond the scope of the remitted issues and had not been pleaded or dealt with in evidence in the arbitration; (c) directing further submissions on matters which could only properly and fairly be addressed by a further evidentiary hearing; (d) embarking on his own enquiry and making findings in the absence of contentions of M to that effect including that the qualifying event giving rise to the claim occurred only on 11 December 2013, and that the November Breakdown complied with both GCC 28.1(1) and GCC 28.2(2) as a “stand-alone” notice; (e) failing to give P any opportunity to address those matters, and in particular the inconsistency of the finding with the award of sums for loss and expense commencing on 1 October 2013, 72 days before the event now identified as the trigger for the initial notice; and (f) finding P sought an overly strict and onerous interpretation and application of GCC 28.1 and GCC 28.2.

42.  Secondly, P argues that it was denied a reasonable opportunity and/or was unable to present its case in that the Arbitrator wrongly entered onto his own assessment, referring to matters not raised by either P or M in their submissions on remission (or in the substantive arbitration) and wrongly proceeded on his own further to develop and expand their submissions by adding material find it is in fact not suggested by M at any time and of which P had no notice.

43.  P argues that the further directions by which the Arbitrator required P to respond to new points raised for the first time in M’s submissions on remission, and which were not “in reply” to P’s earlier submissions, were inconsistent with and outside the contemplation of the procedure directed in the Judgment; the new points raised by M were beyond the scope of the matters remitted because M had not pleaded or otherwise advanced them in submission or by way of evidence in the substantive arbitration, and P was therefore denied a reasonable opportunity to adduce its own evidence and to cross-examine M’s witnesses on those new matters; factual evidence would have been critical as to the date on which a qualifying event commenced, and therefore the application of GCC 27 and 28; those matters had not been explored in the witness statements or at the evidentiary hearing; no one had suggested previously that M was unaware on 1 October 2013 that a delay event had occurred and that the loss and/or expense caused by that delay event had commenced accruing on that day; the Arbitrator simply failed to consider P’s extensive submissions on the limited scope of the matters remitted, and acted contrary to settled authority in considering a claim based on a new case not previously put forward by M.

44.  P further argues that the point upon which the remission was supposed to enable the parties to address the Arbitrator was his suggestion (made a finding in the First Award) that the September Letter and the November Breakdown together satisfied the requirements of GCC 27 and 28, but the Arbitrator did not forewarn P that it should address the idea that the November Breakdown on its own met the requirements of both GCC 28.1(1) and GCC 28.2(2), in circumstances where the event giving rise to the claim did not occur until 11 December 2018 and it was accepted that the September Letter did not operate as a notice under either GCC 27 or GCC 28.

45.  P submits that there is no further benefit in remitting the matters again to the Arbitrator, and it would certainly now be inappropriate for the same questions to be remitted again.  Once the submissions are identified, and limited as intended by the Judgment, the findings in paragraphs 169, 170, 172, 174 and 175 of the First Award cannot possibly be reinstated and should be held now finally to be of no effect.

The Evidence

46.  Many of the materials now before the Court were before Mimmie Chan J at the hearing leading to the Judgment.  Obviously, materials which have come into existence since the date of the Judgment have been added to the bundle.

47.  Further, directions were given for the exchange of evidence in the context of this application.  The application was led by the 2^nd affirmation of Jessica Sien Wai van der Kamp, which essentially produced the previous bundle, and the new documents since the Judgment.

48.  In response, M filed the affirmation of Chan Wai Ying Emily.  Much of that affirmation contains Ms Chan’s summary of matters of history, including procedural matters relating to the underlying Arbitration. The affirmation also contains a perhaps understandable expression of disappointment that the arbitration process – apparently the first in which she and M have been involved – has given rise to two sets of court proceedings, and has not been as speedy, practical and cost-effective a process as she had understood that arbitration would provide.

49.  In reply Ms van der Kamp filed her 3^rd affirmation, essentially objecting to some of Ms Chan’s affirmation as inadmissible because irrelevant to the issues to be determined on the Originating Summons, and containing new evidence.

50.  In response, M has filed the affidavit of its solicitor Timothy Charles Hill, who respectfully disagrees with Ms van der Kamp’s description of the quality of Ms Chan’s affirmation, stating that it was intended to provide a succinct summary of parts of the evidence and to set out context and relevant information, but in light of the criticism he exhibits various source materials.  I accept that the intention behind Ms Chan’s affirmation was to assist the Court with a summary, rather than to introduce new evidence, but summaries can sometimes inadvertently re-state matters in a manner not previously stated.

51.  Anyway, I do not think I need to resolve arguments of relevance or admissibility of the affidavits/affirmation material for the purposes of dealing with the current application.  Insofar as is necessary, I can have regard to the primary source materials, rather than any particular individual’s view as to what they say.  But much of the key factual material necessary for understanding and answering the questions posed by the Originating Summons is not in dispute, or cannot reasonably be disputed.

52.  In the hearing bundle, and by further pages passed up to me this morning, I have been provided with extracts of the various submissions made and transcripts of some of the oral evidence in the original arbitration hearing.  It is common ground that whilst those documents identify that there was some evidence touching on, and some submissions dealing with, possible dates for the relevant “event” and the September Letter and the November Breakdown, all of that was in the context of the case as it was framed at the time of the Arbitration by reference to the pleaded cases as unequivocally explained.

Applicable principles

53.  The principles applicable on a challenge such as is made by P in this application are reasonably well-settled, and need not be rehearsed at any length.

54.  It is for the applicant to establish both serious irregularity and substantial injustice.  The test of a serious irregularity giving rise to substantial injustice involves a high threshold to be met.  The threshold is deliberately high, as one main intended effect of the Ordnance is to reduce drastically the extent of intervention by the Court in the arbitral process.

55.  A balance has to be drawn between the need for finality of the award and the need to protect parties against unfair conduct in the arbitration.  In striking this balance, only an extreme case will justify the Court’s intervention.

56.  In deciding whether there has been substantial injustice, the court is not ordinarily required to decide for itself what would have happened in the arbitration had there been no serious irregularity.  It is enough to show that absent the irregularity, the tribunal might well have reached a different view and there might well have been a significantly different result.

57.  However, it seems to me that there may be circumstances in which an applicant may be able to show that the result would necessarily have been different had the structural integrity of the process been maintained and the serious irregularity avoided.  In such a case, the Court might be able to proceed on the basis of the result which would necessarily follow from the correct application of principle to the circumstances without procedural defect.

58.  The Court is concerned with the structural integrity of the arbitration proceedings, and not with the substantive merits of the dispute.  Ultimately, the question is one of basic fairness in the arbitral process, to be assessed with the principle of finality and comity in consensual arbitration firmly in mind.

59.  The effect of setting aside an award or declaring an award, or part of it, to be of no effect is that the award, or the relevant part, is a nullity.  The arbitration can revive or carry on as necessary to deal with the matters that were set aside or declared to be of no effect.  The parties are put back in the position they were in prior to the relevant award be made, at least to the relevant extent flowing from the Court order.

60.  As to the scope of remission, and arbitrator’s revived authority following a remission extends only to the matters that are remitted to him.  He cannot go beyond the scope of the revived jurisdiction, and if he does so he exceeds his jurisdiction.

Analysis

61.  Mr Cohen submits that the Arbitrator did not exceed his jurisdiction by going beyond the permissible scope of the issues remitted, and that P’s argument is based on an incorrect construction of the Judgment.  Indeed, he says P’s construction produces peculiar consequences, which would render the remission for procedural unfairness hollow and lead to further procedural unfairness being introduced, to the prejudice of M.

62.  Mr Cohen submits that in the Judgment, Mimmie Chan J did not find that the Arbitrator exceeded his jurisdiction by considering and ruling upon whether the September Letter and the November Breakdown constituted valid notifications on GCC 27 and 28 despite the lack of prior reference in the pleadings and submissions, or that M was shut out from advancing such a case despite the lack of prior reference in the pleadings and submissions.  He also submits that the Judgment did not include any finding that the Arbitrator had erred in law or in fact on his ruling on the September Letter and the November Breakdown.

63.  The last point is obviously correct, as the challenge made to the First Award was properly a challenge to the integrity of the arbitral process, and not one as to the merits of the decision in law or fact, which would not have been open to P.  However, it seems to me that the first points are not correct.  Specific reference was made in the Judgment to the procedural directions and the governing Rules, and the failure of M to have advanced any case based on either of the September Letter or the November Breakdown constituting a valid notice under GCC 27 and 28.  By those references, Mimmie Chan J was identifying that (absent any amendment to its pleaded case) M was shut out from advancing such a case, and that the Arbitrator did exceed his jurisdiction by considering such a case.

64.  I do not think the reference in the Judgment to the fact that it might have been open to the Arbitrator on his own initiative to raise the point, which would have triggered the requirement to give adequate notice and warning to P and a fair opportunity to deal with it, was saying that the Arbitrator had the jurisdiction to determine whether the September Letter and/or the November Breakdown were valid notice of claims under GCC 27 and 28 without prior reference to that point in the pleadings or previous submissions.  As I read the Judgment, Mimmie Chan J had firmly determined that the point was outside the issues properly raised by the parties’ agreed procedure.  She was not holding that the procedural unfairness amounting to a serious irregularity was limited to the fact that the Arbitrator had decided a point on his own initiative without first giving the parties the opportunity to make submissions.

65.  It is correct that she identified that if the Arbitrator wished to raise the point, the parties (and in particular P) must be given the opportunity to address that point.  But, precisely because she remitted that point to the Arbitrator identifies that she was not pre-supposing how that point might be addressed, or what consequences might flow from that. She was not pre-supposing that the submissions the parties might make could not include the point she herself had previously emphasised, namely the absence of a case on the September Letter and the November Breakdown having been raised in the form required by the procedure agreed between the parties.

66.  Indeed, that seems to me to follow from the proposition that the purpose of remission is to remedy the unfairness and injustice by putting the parties back in the position they were in before the error occurred.  It may well be, as Mr Cohen submits, that the Judgment did not circumscribe the content and procedure of the submissions envisaged.  But that only emphasises my view as to the effect of the remission, and the procedural defects which led to it.

67.  Put simply, the procedural defects led to the remission, but were not necessarily cured simply by the fact of remission.  In short, I do not accept Mr Cohen’s submissions that the error found was procedural unfairness error and not a jurisdictional error.  In my view it was both.

68.  Therefore, I do not accept Mr Cohen’s submission that P’s problem is self-inflicted, arising from its failure to have sought leave to appeal from the Judgment (to seek a wider form of remission) or its failure to have sought leave to appeal from either the First Award or the Second Award.

69.  Mr Cohen also says that the Arbitrator’s determinations in the Second Award were not only within the scope of the issues remitted to him, but within the four corners of P’s Statement of Defence and M’s Statement of Reply.  The problem with that submission is that a similar argument has already been rejected by Mimmie Chan J.  Indeed, she also rejected the submission that the “essential building blocks” were all in play.

70.  I do not accept the submission that, if P considered that there was fact sensitivity on the point as to whether or not the September Letter and/or the November Breakdown constituted valid notices under GCC 27 or GCC 28, P should have itself made an application to open up the evidentiary hearing.  As had been identified in the Judgment, on the state of the issues between the parties which the Arbitrator had jurisdiction to determine in accordance with the procedures agreed and directed, no such fact sensitivity arose.  Rather, if M wished to avail itself of the idea raised by the Arbitrator, it fell to M to make the appropriate application which would have permitted it properly to do so.

71.  I accept Mr Pennicott’s submissions that if the remission procedure leading to the Second Award was not in compliance with the Judgment, then the previously identified serious irregularity was not complied with, and a further serious irregularity has occurred.  The Arbitrator would have exceeded his powers upon remission.  In my view, that is what occurred.

72.  Further consideration is only necessary if I were to form the view that the remission procedure leading to the Second Award was made in compliance with the Judgment.  Because of my finding that the procedure was not complied with, and because the previous serious irregularity was held give rise to a substantial injustice, that substantial injustice remains.  On one view, it has been exacerbated.

73.  With the benefit of hindsight, it seems to me that remitting matters to the Arbitrator on the basis clearly identified in the Judgment significantly risked leading, at least potentially, to the current situation.  Stepping back, once it is identified and directed that the parties are bound by their pleaded cases, and by the evidence already traversed at the arbitration hearing, and by the findings of fact made on that evidence, then there was really only one proper conclusion which the Arbitrator could have reached (unless an application had been made successfully by M to amend its case).

74.  Unfortunately, despite being given the opportunity, he did not reach that conclusion.  The one conclusion to which the Arbitrator was, in my view, inexorably forced arises simply from the fact that it was no part of M’s case in its pleadings or in its submissions or in the evidence which introduced that the arbitration that it had in fact given the relevant notice.  Indeed, M’s case was predicated on the basis that either it did not need to give notice (for one of 2 reasons, both of which were rejected by the Arbitrator) or even if it did need to give notice, that need was waived by P or an estoppel arose which prevented P asserting otherwise (which arguments were also rejected by the Arbitrator).  It is therefore wholly unsurprising that it was never part of M’s case that either the September Letter or the November Breakdown, or one of them, constituted the necessary notice.

75.  If, in response to the raising of the suggestion by the Arbitrator, M thought that it wished to advance a case based upon the giving of notice by the September Letter and/or the November Breakdown, it seems to me it could only properly have done so by making an application to amend its pleadings, which if allowed would almost certainly have required re-opening the evidentiary hearing.  Indeed, the timing and the consequences of any application to amend would almost certainly, applying usual principles, have resulted in the application to amend being refused.

76.  That seems to me to be the end of the analysis. But to put it another way, in the hypothetical oral submissions scenario I have identified above, if the Arbitrator had suggested to P that perhaps M might be thought to have given notice by the September Letter and/or the November Breakdown, P’s obvious response would have been something along the lines: “That cannot be right.  Not only has M not pleaded or asserted anywhere that it gave valid notice by either or both of those documents, M has in effect specifically disavowed giving any notice at all.  M’s argument proceeds on the basis that it did not give notice, because it did not need to give notice for one of various reasons.  It cannot now suggest after the close of the evidence, and contrary to its pleaded case and all its submissions up to this point, that after all in fact it did give notice, and it did so by those documents.”

77.  In his argument before Mimmie Chan J, Mr Pennicott identified a similar line of response as would have been put, had the Arbitrator made the suggestion earlier.  I venture to suggest that faced with that submission in that hypothetical scenario, that would also have been the end of the analysis.  Faced with such as an answer on the spot, most arbitrators would not have further raised this point for any serious consideration.

78.  Of course, I fully accept that there is no basis to challenge the good faith of this highly experienced Arbitrator. Various paragraphs in the Second Award identify that he is mindful of the Judgment, and fully intending to comply with it. He says in terms that he recognises the procedural defect which has led to the remission, albeit that he thinks that he has provided a proper opportunity to P to make submissions so as to cure that defect, including by giving P the last word or “final right of reply”. But, in my view, he has mistaken the extent of the defects found by Mimmie Chan J. The defects have not been cured, and could not have been cured, by the route taken by the Arbitrator.

79.  I am naturally conscious of the previous statements of the Hong Kong Courts as to the extremely limited circumstances in which it would be felt necessary or appropriate to intervene in the arbitral process.  The intended finality of arbitration is important, and the authorities identify the need for serious irregularities in the procedure for the court to be able to exercise a discretion to intervene.  But it seems to me that it is just as important for the maintenance of integrity in the arbitration process for the Court to intervene in appropriate cases, as it is for the Court not to intervene when the high threshold for doing so has not been reached.

80.  As regards this Arbitration, the Court has already considered that intervention is justified and necessary. Unfortunately, the points rendering that intervention justified and necessary have not, in my view, been overcome by the remission of matters to the Arbitrator.  Hence, I disagree with Mr Cohen’s submission that M is entitled now to have the benefit of finality and the determinations that have now been twice made in its favour; both determinations are the result of serious irregularity and both create substantial injustice.

Result

81.  Section 4(5) of Schedule 2 of the Ordinance stipulates that a Court must not exercise its powers to set aside an award or to declare an award to be of no effect unless it is satisfied that it would be inappropriate to remit the matters in question to the arbitral tribunal for reconsideration.

82.  As indicated above, although P’s primary submission on its challenge to the First Award was that the Court should set aside or declare the impugned parts of the First Award to be of no effect and be set aside, Mimmie Chan J took the view that the matters should be remitted for reconsideration by the Arbitrator.

83.  That reconsideration having failed to cure the substantial injustice caused by the serious irregularity, which continues, I can see no purpose in further remitting the matter for further reconsideration. In other words, I am satisfied that it would be inappropriate to remit the matters.

84.  In reaching that conclusion, I have taken note of, but given no weight to, P’s submission that whilst it does not go so far as to say that the Arbitrator has lost his impartiality, P has lost all confidence in an arbitrator who has not just once, but twice, formulated a case for M which had not been advanced by M, and without giving a proper opportunity to deal with it.  My reason for noting this submission is simply to recognise that there may be reason for both parties to this particular Arbitration to be disappointed that it has not achieved the speedy, efficient and expeditious finality that arbitration is usually intended to achieve.

85.  I do not accept Mr Cohen’s submission that the effect of setting aside the Second Award or declaring part of it of no effect would be that M faces the prospect of yet another arbitration to determine the claims that it is now won twice.  It may be correct that the effect of setting aside paragraphs of the First Award and the Second Award would mean that there is no award formally pronounced on these aspects of the claim.  But, the effect of my decision is that those particular claims are bad; M has unequivocally chosen the basis of how to run its claim, and it lost on that basis.  When the matter was remitted to the Arbitrator, it was open to M to have made an application to amend its case, with whatever would have been the consequences of that application, but it chose not to do so.  In my view, those claims have come and gone, and I see no basis upon which they could ever be resurrected.

86.  In the circumstances, I set aside paragraphs 169, 170, 172, 174 and 175 of the First Award and paragraphs 15 to 29 of the Second Award.  They are declared to be of no effect.

Costs

87.  I see no reason why cost should not follow the event.  The costs of the application shall be paid by M to P, to be summarily assessed if not agreed.  P will provide its Schedule of Costs by 31 July 2019, and M will provide its objections (if any) by 9 August 2019.  I will then make the summary assessment.