ASIA CONSTRUCTION COMPANY v. CROWN PACIFIC LIMITED

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Headnote

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                Setting aside of interim award and removal of an arbitrator following a party's loss of confidence in the arbitrator as a result of misconduct of the proceedings by the arbitrator through a breach of the rules of natural justice on his part. Choice between remission, on the one hand, and setting aside and removal, on the other hand. Removal a remedy of last resort.

                Objective test to be applied in determining whether loss of confidence justifies removal: Modern Engineering v. Miskin [1981] 1 Lloyd's Rep. 135; The Elissar [1984] 2 Lloyd's Rep. 84.

                 Observations of McNair, J in Rotheray (E) & Sons Ltd v. Carlo Bedarida & Co. [1961] 1 Lloyd's Rep. 220 at p. 255 considered.

                 All circumstances to be taken into account, including the extent to which the arbitrator recognises his error once it has been pointed out to him.

                 Arbitrator correct to offer assistance to the Court hearing application.

1988 No. MP 2404

IN THE MATTER OF THE ARBITRATION ORDINANCE

AND

IN THE MATTER OF AN ARBITRATION

_______________

___________

JUDGMENT

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1. This is an application, by way of originating notice of motion, to set aside an interim award made by an arbitrator, and to remove him.

2. The Applicant before me is the Claimant in the arbitration, while the Respondent before me is also the Respondent therein.

3. It is desirable, I think, that I say as little about the arbitration dispute as possible. Suffice it to say that it arises out of a building contract under which the Applicant/Claimant constructed a warehouse cum office in Shatin for the Respondent, and that it involves, among other things, a claim by the Applicant/Claimant for extensions of time for completion of the works.

4. On Wednesday, the 23rd of last month, the Arbitrator, a chartered surveyor; held a meeting at which the parties attended before him by their legal advisors.

5. The hearing of the arbitration itself was due to commence on Monday, the 28th of last month.

6. At the meeting on the 23rd, Counsel for the Respondent pressed the Arbitrator for a ruling that a set of questions concerning 16 of the claims for extension made by the Applicant/Claimant be dealt with as a preliminary issue at the outset of the hearing when it commenced on the 28th. He said that the issue   would not take more than 2 hours' argument.

7. The Applicant/Claimant's Solicitor opposed the idea of a preliminary issue. He said that around 2 weeks might be required for the preliminary issue.

8. Unfortunately, the Arbitrator mistook the submissions which he heard on the question of whether there should be a preliminary issue for submission on the merits of the issue.

9. On the day following the meeting of the 23rd, the Arbitrator sought further information from the parties. He wanted such information to help him determine the merits of the issue. The parties thought that he wanted the same to help him to decide whether it was appropriate to have a preliminary issue. The Solicitors for the Respondent responded to the Arbitrator's request on the same day, the 24th. The Solicitors for the Applicant/Claimant responded on the following day, the 25th. The letter (dated the 25th) from the Applicant/Claimant's Solicitors to the Arbitrator reiterated their submission that there should be no preliminary issue, concluded thus: 'Were you to decide in the Respondent's favour then we would require an adjournment to prepare for the preliminary issue of at least 3 days. We would seek an order that the Respondent bear the costs of any adjournment. '

10. Thus, while the parties were awaiting, and expecting, a decision on whether there was to be a preliminary issuer, the Arbitrator was making up his  mind on the issue itself.

11. On Saturday, the 26th the Arbitrator, having determined the merits of the issue, made an Interim Award embodying his decision thereon, and communicated the same to the Solicitors for the parties by fax. This is the Interim Award I am asked to set aside.

12. On the same day, the Applicant/Claimant's Solicitors, having received the Interim Award, sent a letter by fax to the Arbitrator. In this letter they expressed their astonishment that an interim award had been made since the application was only for the hearing of a preliminary issue; informed the Arbitrator that they had been advised by Counsel to seek an order under section 25 of the Arbitration Ordinance, Cap 341 setting aside the Interim Award and removing him as arbitrator; and expressed their view that the hearing should stand adjourned. They wrote along the same lines to the Respondent's Solicitors on the same day.

13. On Sunday, the 27th the Arbitrator wrote to the Solicitors for the parties. He referred to the Applicant/Claimant's Solicitors' letter of the previous day; said that the Interim Award was 'fit, and proper'; and ordered that the hearing commence at 10 o'clock on the following morning as scheduled.

14. On the Monday, the Arbitrator declined to adjourn the arbitration. But on the following day, upon the joint application of the parties, he adjourned the arbitration to enable the Applicant/Claimant to apply to this Court for the setting aside of the Interim Award and the removal of the Arbitrator.

15. The application came before me yesterday morning, and lasted the whole day.

16. Among the cases cited by Mr Stone for the Applicant/Claimant is the decision of the Court of Appeal in Modern Engineering v. Miskin [1981] 1 Lloyd's Rep. 135. That case involved an application to remove an arbitrator for misconducting the proceedings in the following circumstances. The dispute before him involved a question as to whether the main contractors, who were in arbitration with their sub-contractors, were able to re-open the architect's certificate. Both parties had told the arbitrator on the Monday that this question required argument. The arbitrator continued to sit on the Tuesday; did not sit on the Wednesday; and then on the Thursday - without having heard argument on the question - made an interim award by which he decided the question in favour of the main contractors. The sub-contractors application to remove the arbitrator was refused by Mr. Justice Robert Goff, but allowed on appeal to the Court of Appeal (Lord Denning, the Master of the Rolls, and Lord Justice Dunn). The Master of the Rolls laid down the test in these terms (at p. 138):-

 

'The Judge put this test to himself in his judgment: Are the circumstances such as to demonstrate that the arbitrator is not a fit and proper person to continue to conduct the arbitration proceedings? I do not think that was the right test. I would ask whether his conduct was such as to destroy the confidence of the parties, or either of them, in his ability to come to a fair and just conclusion.

 

    The question is whether the way he conducted himself in the case was such that the parties can no longer have confidence in him. It seems to me that if this arbitrator is allowed to continue with this arbitration one at least of the parties will have no confidence in him. He will feel that the issue has been pre-judged against him. It is most undesirable that either party should go away from a Judge or an arbitrator saying, "I have not had a fair hearing".

 

    I know the inconveniences to which the removal of the arbitrator may give rise - the delay, the extra expense, and the like. But it seems to me that it is far more important that this Court should see that arbitrations are properly conducted so that the arbitrator can have the confidence of those who appear before him. Arbitration is now one of the most important spheres of activity in the system of administering justice in this land. The Courts, I feel, must show an example and see that arbitrations are properly conducted so as to earn and deserve the confidence of those who appear before them. I am afraid that the conduct of this arbitrator was such as to lose that confidence-at least of one of the parties. '

Lord Justice Dunn, who agreed, said that quite plainly the case was one'

... where there was a serious breach of an essential rule of natural justice.

17. In The Elissar [1984] 2 Lloyd's Rep. 84, cited by Mr Scott for the Respondent, it was suggested by counsel for the owners that Lord Denning MR had, in Modern Engineering v. Miskin (supra), laid down a subjective test so that the only question was whether the party had lost confidence, however unreasonable that may be, in the arbitrator because of his conduct. Lord Justice Ackner said (at. p. 88) that he did not think that the Master of the Rolls had applied his mind to whether the test was objective or subjective, and that this omission was understandable since the result in that case would have been the same whichever test one applied. The learned Lord Justice then went on to accept (at p. 89) counsel for the charterers' formulation of the test in these terms: 'Do there exist grounds from which a reasonable person would think that there was a real likelihood that [the arbitrator] could not, or would not, fairly determine [the issue in question] on the evidence and arguments to be adduced before him?'. In my judgment, this is the test to be applied. As I understand them, both Counsel agree.

18. It is also necessary to bear in mind that there can be situations in which an arbitrator, having once committed himself to a particular view, could not, as Mr Justice McNair said in E. Rotheray & Sons Ltd v. Carlo Bedarida & Co. [l961] 1 Lloyd's Rep. 220 at p. 225, '. . . with the best will in the world approach the matter with an entirely free mind.

19. I should mention that in Modern Engineering v. Miskin (supra) the arbitrator there made no statement of any kind to assist the Court. In the present case, the Arbitrator has filed an affirmation and attended the hearing before me in the company of his Solicitor, who addressed certain points to me (which I sat as in chambers to receive). I would like to express my thanks to the Arbitrator and his Solicitor for their courtesy and assistance.

20. Mr Stone very fairly and properly informed me that, had the Arbitrator not made any statement to the Court, he would have relied on such omission. That line of argument is no longer available to him. But, says Mr Stone, that is not the end of the matter, because the Court is not concerned simply with whether the Arbitrator has said anything but, if he says something, what he says. I agree. Thus, one finds this statement (at p. 86) of the commentary on Modern Engineering v. Miskin (supra) in Volume 15 of the Building Law Reports: 'Had the arbitrator explained how he had come to make the error, then, depending obviously upon the explanation given, it is quite possible that the Court of Appeal would not have ordered his removal. ' (emphasis supplied). Mr Stone says that his client is disturbed by the fact that even in his Affirmation filed yesterday the Arbitrator adheres to his view that there has not been any 'breach of the basic rules of natural justice' (although he is, of course, prepared to re-open his award if it is remitted).

21. In my judgment, it is necessary to consider all the circumstances, including things which took place after the breach of the rules of natural justice of which complaint is made.

22. There was, in my judgment, a serious violation of a basic rule of natural justice here.

23. I asked Mr Scott whether his case would be stronger if, upon being told that he had decided a preliminary issue when all that the parties had asked him to do was to decide whether there should be a preliminary issue, the Arbitrator had, instead of adopting the stance that what he did was 'fit and proper', said that he was terribly sorry and was keen to re-open his interim award provided that he was not functus and was free to do so. Mr Scott, while maintaining that his case was strong enough as it is, answered my question in the affirmative. I am sure that he was right in so answering. If an arbitrator has decided an issue without a proper hearing, and the question then arises whether there is any real likelihood that he could not, or would not, fairly determine it if it is re-submitted to him for a proper hearing, a reasonable man is inherently less likely. to be apprehensive if the arbitrator fully recognised, rather than denied or minimized, his error upon it being pointed out to him.

24. Having said all that, I must bear in mind that removal is a remedy of last resort.

25. These matters are never easy, still less are they ever pleasant. The difficulty and unpleasantness of my task have been alleviated, although not eliminated, by the care and ability with which the parties have prepared and presented their respective cases.

26. Mr Scott accepts that the application is made bona fide. He submits, however, that the Applicant/Claimant is being 'over-sensitive'. And he points out the inconvenience which would be caused by setting aside and removal as opposed to remission, which he puts forward as a preferrable alternative.

27. Mr Stone accepts that considerable inconvenience would be caused if his applications granted. But he says that his client has lost all confidence in the Arbitrator, and submits that this attitude is reasonable in light of the Arbitrator's conduct in determining a preliminary issue when all he was asked to do was to rule that the hearing of one be held, and in refusing even now to admit any, or any basic, error.

28. After giving this matter the most anxious consideration, I have come to the conclusion that the Applicant/Claimant has satisfied the objective test formulated in The Elissar (supra) and that the proper course is to make the orders for setting aside and removal sought. It is true that the Arbitrator has indicated his willingness to take legal advice in future, or even sit with a 'legal assessor' (as he puts it), if that is desired by the parties. But in deciding the reasonableness of the Applicant/Claimant's attitude, and what the proper course for me to take is, I must not forget that the Arbitrator's view that there has not been any 'breach of the basic rules of natural justice' is one he adheres to even after the legal advice which he has received.

29. Needless to say, I order setting aside and removal with great reluctance. And I would like to make it clear that my decision is not to be taken as an adverse reflection on the Arbitrator's ability in general. I am concerned with what happened here, the Applicant/Claimant's reasonable reaction thereto, and what it is proper for me to do in all the circumstances of this case.

30. In the result, I make the orders for setting aside and removal; and I will now hear the parties as to costs. [Argument as to costs heard. Order : each party to bear its own costs]