CHINA LINK CONSTRUCTION CO. LTD. v. CHINA INSURANCE CO. LTD.

HCCT44/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.44 OF 2001

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D E C I S I O N

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The issue before the court

1. In what circumstances will the court strike out or dismiss for want of prosecution an application seeking leave to appeal from an arbitration award under section 23 of the Arbitration Ordinance ("the Ordinance")? This is the question raised in the present application brought by the defendant's summons dated 14 December 2001.

Background and relevant chronology

2. In the evening of 12 September 1996, a fire broke out at the basement level of a building project known as Hok Un Redevelopment Phase I. The plaintiff was a subcontractor who became entitled to claim under an All Risks policy issued by the defendant, who is an insurer.

3. No settlement being possible, the disputes between the plaintiff and the defendant were referred to arbitration and the parties appointed Ms Teresa Cheng, SC, as sole arbitrator on 11 December 1998. The substantive hearing of the arbitration took place in June and July 2000, lasting altogether some eight days. The plaintiff (the claimant) was represented by Mr John Scott, SC, while the defendant (the respondent) retained Mr Barrie Barlow.

4. On 4 May 2001, the Arbitrator published an Interim Award ("the Award") whereby the plaintiff's claim was dismissed. Only the question of costs was left outstanding.

5. On 25 May 2001 (the last day for service of an application to appeal the Award under section 23(2) of the Ordinance : see RHC Order 73, rule 5(2)), the plaintiff issued a Notice of Originating Motion. This Notice of Originating Motion was taken out by Messrs K.F. Wong & Co., who had taken over from Messrs Kwok & Chu as the plaintiff's solicitors. I pause here to note that under RHC Order 73, rule 3(3), the correct form of originating procedure seeking leave to appeal from an arbitration award is an originating summons in expedited form (i.e. Form No.10 of Appendix A to the RHC). Order 73, rule 2(1), however, stipulates that applications for leave to appeal should be by way of originating motion. This provision is clearly at odds with Order 73, rule 3(3). In Carl International (H.K.) Ltd v. Ernest Komrowski & Co. [1996] 2 HKC 490, at 494, Leonard J referred to the inconsistency between two provisions, the need to amend the Rules (with which I fully agree and regret to note, as yet unheeded) and then also said that the procedure under Order 73, rule 2(1) ought in future be followed. It is not necessary for me to resolve the correctness of this because whether the procedure in Order 73, rule 2(1) or the procedure in Order 73, rule 3(3) is the correct one, the plaintiff was in breach. Both the originating summons (in expedited form) and the Notice of Originating Motion (in accordance with Form 13 in Appendix A of the RHC) require a date to be inserted. The purpose of this is to allow the matter to proceed as expeditiously as possible. This ensures compliance with Order 73, rule 5(2) which states, "In the case of an appeal to the court under section 23(2) of the Arbitration Ordinance (Cap.341), the notice must be served, and the appeal entered, within 21 days after the award has been made and published to the parties." (emphasis added). The necessity to expedite where applications for leave to appeal are made, is crucial in the present application. As I have remarked, the plaintiff was in breach by using the form of Originating Motion it did : it did not provide for a date for the hearing of the plaintiff's application.

6. I also at this stage draw attention to Order 73, rule 5(5) which states, "In the case of every appeal or application to which this rule applies, the notice or originating motion, or as the case may be, the originating summons, must state the grounds of appeal or application and, where the appeal or application is founded on evidence by affidavit, or is made with the consent of the arbitrator or umpire or of the other parties, a copy of every affidavit intended to be used, or as the case may be, of every consent given in writing, must be served with that notice.".

7. As will presently become apparent, the plaintiff had every intention of serving affidavit evidence in support of its application for leave. It was thus in further breach of the Rules by not serving such affidavit evidence together with the Notice of Originating Motion.

8. On 15 June 2001, the plaintiff's solicitors wrote to the defendant's solicitors suggesting that the substantive application for the appeal be heard immediately after the application for leave to appeal. This was rejected by the defendant's solicitors on 27 June 2001.

9. It was not until 13 July 2001 that the plaintiff's solicitors wrote to the court seeking an appointment to fix a one-day hearing for the originating motion. This, however, never took place. The plaintiff's solicitors cancelled the appointment (which had been scheduled for 17 July 2001) though this was with the consent of the defendant as it was indicated that the plaintiff would serve its affidavit evidence by 31 July 2001.

10. During this time, the parties were also in correspondence with the learned Arbitrator as regards the outstanding question of costs. By a letter dated 1 June 2001, the defendant's solicitors requested the Arbitrator to make an order for costs in the defendant's favour. By a letter dated 15 June 2001 from the plaintiff's solicitors to the Arbitrator, the plaintiff's position was that the question of costs should only be determined after the resolution of the application for leave to appeal (which application, it was stated, was anticipated to be heard in two to three months' time, i.e., August to September 2001). Reference was made in that letter to section 2GA(1)(b) of the Ordinance stating the responsibility of an arbitrator to avoid "unnecessary delay and expense". The learned Arbitrator, by a letter dated 18 June 2001, said this :

"In K.F. Wong & Co.'s letter, I have not been informed as to when the application for leave to appeal would be heard. Has a date been fixed? If so, please inform me accordingly before I decide whether or not to deal with costs now."

The defendant for its part continued to request that the issue of costs be dealt with while the plaintiff maintained its position that it should be dealt with only after the resolution of the application for leave to appeal. In the letter from Messrs K.F. Wong & Co. dated 20 June 2001, the plaintiff repeated its two to three month time-frame for the hearing of the application for leave. In a second letter of that date, the plaintiff's solicitors informed the Arbitrator that if the application for leave to appeal were to be separated from the hearing itself, "we should be able to obtain an earlier date for a short hearing for the application for leave to appeal and it is even clearer that the costs issue should at least await the outcome of this short hearing.".

11. Accordingly as at mid-July, the position was this :

(1) The defendant was pressing for the arbitration to be finalised as soon as possible.

(2) The Arbitrator herself was also eager to have the arbitration finalised as soon as possible, no doubt aware of her responsibility under section 2GA(1)(b) to avoid unnecessary delay. Although she was in the end amenable to the determination of costs being made after the hearing of the application for leave, she was only prepared to defer the determination of the issue of costs no later than 15 October 2001.

(3) The plaintiff accepted that the Arbitrator was obliged to avoid unnecessary delay and expense, but wanted the final resolution of the arbitration (by the determination of the question of costs) to await the hearing of the application for leave. To this end, the plaintiff represented to both the defendant and the Arbitrator that the hearing of the application for leave to appeal would take place in August or September 2001, perhaps even earlier if only leave was sought.

(4) Accordingly, the plaintiff was going to serve its affidavit evidence by 31 July 2001.

12. The plaintiff could therefore not have been under any illusion but that it had to proceed expeditiously.

13. However, the plaintiff's affidavit evidence, promised to be served by 31 July 2001, was not served on that date. By a letter dated 24 October 2001, the defendant's solicitors wrote to the Arbitrator (copied of course to the plaintiff) renewing the application for the determination of costs. They stated in the letter, "Some 3 months later the Claimants [the plaintiff] have still failed to serve their affidavit evidence and failed to take any other steps to pursue their application for leave to appeal.".

14. The plaintiff's solicitors responded by a letter dated 27 October 2001 in the following terms :

"We refer to Mason's letter to you dated 24 October 2001.

Because of the demand from other current projects undertaken by the client and the complexity of the matters involved in the arbitration which were handled by the client's former solicitors, further time is required to serve the affidavit in relation to the appeal and it will be served shortly.

In the meantime, on the basis that Masons do not intend to make further submission other than what has been stated in their letter to you dated 1 June 2001, we request that you allow 14 days from the date of your direction for the Claimant to make its submission on the Respondent's application."

15. On 2 November 2001, the Arbitrator gave directions for the resolution of the question of costs. She was not prepared to wait any longer. At that time, still there was no affidavit evidence from the plaintiff, despite the indication in the 27 October 2001 letter that it would be served shortly.

16. On 15 November 2001, the defendant's solicitors sent a letter to the plaintiff's solicitors in the following terms :

"It is now six months since the arbitrator's award in the arbitration was collected by the parties and your client lodged its application for leave to appeal the award.

In that time your client has failed in any way to progress their application for appeal. This delay is grossly excessive and is a breach of your client's obligations to prosecute their appeal expeditiously.

On 16 July, you indicated that your client intended to serve affidavit evidence in support of its application for leave to appeal. That affidavit evidence ought to have been served at the same time as your client's application for leave to appeal. During the conversation in July, you advised that an affidavit would be served within 14 days (two months later than it should have been).

No affidavit has ever been received and nor has your client taken any other step to progress its application.

Indeed since our discussion in July, the only reference your client has made to its application for leave to appeal was in your letter of 27 October 2001 to the arbitrator in response to our request that the arbitrator no longer defer dealing with the costs of the arbitration pending the outcome of appeal process. As we made clear in our letter to the arbitrator of 3 November 2001, we reject any notion that it takes 6 months to draft an affidavit in support of an application for appeal.

Indeed, even after the exchange of letters with the arbitrator, your client has continued to take no action whatsoever to prosecute its application.

In the circumstances, we expressly reserve our client's right to apply to the Court to strike out for want of prosecution your client's application for leave to appeal the arbitration award - irrespective of whether your client now takes steps to progress its application or not."

17. There was quite surprisingly no response to this letter. Worse still, there was no reaction to it. On 14 December 2001, the defendant applied by the present summons before me to strike out the Notice of Originating Summons for want of prosecution. On 17 December 2001, the defendant served the affidavit of Julian Andrew Cohen in support of the summons.

18. It was not until 12 January 2002 that an affidavit was served by the plaintiff in support of its Notice of Originating Summons. This was therefore :

(1) 7 1/2 months since the Notice of Originating Motion was issued and accordingly 7 1/2 months since the time it should have been served.

(2) 5 1/2 months from the time that the plaintiff through its solicitors said it would serve its affidavit evidence.

(3) Nearly 2 months from the 15 November 2001 letter from the defendant's solicitors in which it could not have been made any plainer that the defendant was seriously contemplating a strike out application.

(4) Nearly a month from the issue of the strike out summons.

19. I have dealt at length with the chronology because, as will presently become apparent, when seen against the relevant legal principles I must apply, there can be very little doubt as to the correct order to make on the defendant's summons.

Law

20. One starts with the statutory scheme for arbitration codified in the Ordinance.

21. It is commonly accepted that the philosophy behind the provisions in the Ordinance is the promotion of what has frequently been called "party autonomy", i.e., where parties have agreed to refer disputes to arbitration, the court will interfere as little as possible. This is expressly provided for in section 2AA(2) of the Ordinance. The public policy behind this is that arbitrations provide a viable and often preferable alternative to proceedings in court. One of the accepted characteristics of arbitration is speed : arbitration provides a means whereby the disputes between parties (usually commercial disputes) are resolved relatively quickly. In this context, I refer to the judgment of Rogers JA in Downer & Co. Ltd v. The Airport Authority [2000] HKLRD 556 where he said at 560C-D, "I would only add to this that it also emerges that the notion of finality in respect of arbitration stems from the fact that arbitration is an alternative to court proceedings chosen by the parties and that the court should interfere as little as possible. If arbitration is to be successful, it should also be speedy and appeals to the court not only detract from the finality of arbitration but also inevitably lengthen the decision-making process considerably" (emphasis added).

22. The importance of speed is emphasized in the Ordinance itself :

(1) Section 2AA(1) provides that the object of the Ordinance "is to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense".

(2) I have already referred to section 2GA(1)(b) of the Ordinance imposing a duty on arbitrators "to use procedures that are appropriate to the particular case, avoiding unnecessary delay and expense, so as to provide a fair means for resolving a dispute to which the proceedings relate".

(3) Section 2GE(1) imposes a statutory implied term in the arbitration agreement to the effect that a party who has a claim under the agreement will prosecute the claim without delay.

(4) Where an award is made which does not deal with costs, an application must be made within 30 days after notification of the award or within such further period as the arbitrator would allow. This provision emphasizes the need to finalise arbitration proceedings as soon as possible.

(5) I have also already referred to the provisions in Order 73, rule 2(1) and Order 73, rule 3(3). Whether or not an originating summons (in expedited form) or a Notice of Originating Motion is used, both documents require a date to be fixed which envisages that the application is to be expeditiously dealt with.

(6) Order 75, rule 5(5) also requires an affidavit to be served together with the application for leave. This ensures that there is minimal delay in the application for leave.

23. In my judgment, the need for a party to prosecute an application for leave to appeal with expedition is readily apparent from the foregoing provisions. Insofar as any more authority may be required to make the point that the object of the Ordinance is to achieve finality in arbitration proceedings as swiftly as possible, one needs to look no further than the important case of Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] AC 191 and the speech of Lord Diplock in it.

24. I now turn to the case of Secretary of State for the Environment v. Euston Centre Investments Ltd [1995] 1 All ER 269, an authority relied on heavily by the defendant in support of its application to strike out. In that case, which dealt specifically with an application to strike out an application for leave to appeal from an arbitral award for want of prosecution, although there were substantial and culpable delays, the English Court of Appeal did not strike out in view of the uncertain state of the law and of the fact that some of the delay was due to an administrative error by the court.

25. It is, however, the principles of law dealt with in that case which are important. In my judgment, the following principles going to the jurisdiction to strike out for want of prosecution in circumstances such as the present case emerge from Euston Centre Investments :

(1) In applications to strike out for want of prosecution applications for leave to appeal under section 23(2) of the Ordinance, the court does not apply the principles in Birkett v. James [1977] AC 287 as if the proceedings were an ordinary action in court. There is therefore no need for the applicant to demonstrate prejudice.

(2) The reason for this is that in appeals from arbitration awards, the court is dealing with the matter from the point of view of arbitrations. As Steyn LJ said at 274j, "But the 1979 Act [which contains provisions similar to the Ordinance] is certainly relevant. The objective of the Act was to reduce the scope of the supervisory jurisdiction of the English courts. Contrary to the initial submission of Mr Gaunt, it is not only the private interests of the parties that are relevant. There are wider interests at stake, notably the proper functioning of our arbitration system". As he also remarked at 275b-c, "One of the aims of the 1979 was to promote speedy finality in the enforcement of arbitration awards (see Re Antaios [1985] AC 191 at 199, 208-209 per Lord Diplock and Lord Roskill. Since nobody can prevent the losing party in an arbitration from applying for leave to appeal even in the most unmeritorious cases, it is of supreme importance as to the proper working of our arbitration system that there must be an effective procedure to ensure that applications for leave are promptly made. That is the policy of the 1979 Act". These words apply with equal force to our Ordinance.

(3) Without the need therefore to follow Birkett v. James, the practical consequence is that while inexcusable delay is still obviously required to be shown, there is no need for the applicant seeking to strike out for want of prosecution to demonstrate that prejudice has been caused to him consequent on the delay. This arises from the nature of arbitrations and the importance of speed.

(4) As stated by the authors of Mustill & Boyd : Commercial Arbitration (2nd Edn) at page 275, "It is the duty of the appellant to prosecute his application for leave to appeal and, if leave is granted, the appeal itself with proper despatch. Failure to do so may lead to the application or the appeal being struck out". This passage was expressly referred to with approval by Steyn LJ at 275d-e.

26. The principles articulated in Euston Centre Investments are appropriate in Hong Kong. The statutory scheme contained in the Arbitration Ordinance which I have earlier described strongly supports this view. I also derive support for this view from the following :

(1) In Re H.Y. & H.T. Lee Brothers & Co. Ltd, unreported, 29 May 2001, Court of Appeal, reference was made in the judgment of Keith JA to Euston Centre Investments without disapproval. What was contrasted in that case were the respective regimes applicable in applications to strike out appeals to the Court of Appeal and in applications to strike out applications for leave to appeal from arbitration awards.

(2) Euston Centre Investments is cited as authority for the court's jurisdiction to strike out for want of prosecution applications for leave to appeal from arbitration awards : see Robert Morgan The Arbitration Ordinance of Hong Kong : A Commentary at paragraph 23.21; Halsbury's Laws of Hong Kong Vol.1 at paragraph 25.176.

27. The above principles establish the jurisdiction to strike out and the rationale behind it. In considering any application to strike out in this context, the court will of course be required to exercise a discretion. The exercise of discretion will necessarily have to take into account factors germane to the particular case. Like Steyn LJ in Euston Centre Investments, I do not wish to lay down guidelines on how the discretion is to be exercised, but obviously the reasons for the delay and the period of delay itself are relevant. While the existence of prejudice is not a requisite factor to be shown in such applications, nevertheless the existence of prejudice resulting from delay may of course be relevant.

28. Nevertheless, the court's discretion, although wide, must be exercised with the principles to which I have referred, firmly in mind.

Should an order for striking out be made in the present case?

29. For the reasons that follow, I am of the view that such an order should be made in the present case.

30. The chronology of events I have earlier set out, shows in my judgment an unacceptable delay in the prosecution of the plaintiff's application for leave to appeal from the arbitration award. The following matters are to be noted :

(1) If the plaintiff's application had been prosecuted with "all due despatch" (using the term sometimes adopted to describe the duty to prosecute proceedings with expedition), I would have expected the hearing on the plaintiff's application for leave to appeal to have taken place at the very most two to three months from the time the Notice of Originating Motion was issued, even taking into account any delay on the court's side in giving dates. This, I note, was the time-frame given to the learned Arbitrator and to the defendant by the plaintiff itself.

(2) If the plaintiff had used the correct form of originating motion, a date would already have been given for the hearing when the application was first issued. Further, any delay would have been cut down if the plaintiff had also complied with the requirement stated in Order 73, rule 5(5) of serving its affidavit evidence with the Notice of Originating Motion.

(3) Instead, the affidavit was not served until 12 January 2002. I have already referred to the applicable periods of delay in this regard : see paragraph 18 above.

31. The delay is aggravated by the conduct of the plaintiff. The plaintiff, having as I have recorded, indicated that it was expecting a hearing in August or September 2001 and that it would serve its affidavit evidence by 31 July 2001, failed to do so without any real explanation provided at all. The defendant was pressing for a hearing, the Arbitrator was pressing to finalise the arbitration (as was her duty) and yet the plaintiff did nothing to progress the hearing of its application. Even more surprising was the lack of a response to clear indications from the defendant that its patience was wearing thin : see the said letter dated 15 November 2001 from the defendant's solicitors to the plaintiff's solicitors. There was simply no reaction to that letter. Indeed, there was not even any reaction by the plaintiff to the present summons to strike out when it was first issued on 14 December 2001. As I have said, the affidavit in support of the plaintiff's Notice of Originating Motion was not served until 12 January 2002.

32. The plaintiff served an affirmation of Ip Tak Kong to explain its position. In my view, this affirmation does not go anywhere near far enough to explain, much less justify, the delays I have referred to :

(1) Reliance is first placed on the fact that Messrs K.F. Wong & Co. were not the solicitors who had originally represented the plaintiff at the arbitration. While I accept that some reasonable amount of time should be given to new solicitors to be acquainted with the matter, nevertheless, the leeway here is very limited. The need for due despatch in arbitration proceedings is first a matter of public policy and secondly, something that all parties to an arbitration agreement are entitled to expect. A change of solicitors should not be permitted to cause much, if any, delay in these circumstances. In the present case, I note that the Notice of Originating Motion contains detailed grounds of appeal (as is of course required by Practice Direction No.6.2). Coupled with the fact that experienced counsel (Mr John Scott, SC) was retained for the arbitration, I see little reason for any delay in serving the affidavit or in fixing a date for the hearing of the application for leave. It is of course the plaintiff's privilege to change its legal team but this is no excuse for causing delay to the defendant.

(2) Reference is also made to the fact that the person who was originally in charge of providing instructions to the plaintiff's solicitors, left the plaintiff's employment in August 2001. Thereafter, the plaintiff's solicitors had to take instructions from another person who was fully occupied with other projects. I am not impressed by this explanation. First, it begs the question why full instructions could not have been taken and provided before the first employee left the plaintiff's employment in August 2001. Secondly, it seems to me that the plaintiff did not appreciate any real sense of urgency or even expedition as far as its proposed appeal was concerned. Things were simply allowed to drift along as the periods of delay accumulated. I have already referred to the letter dated 27 October 2001 from the plaintiff's solicitors to the defendant's solicitors. The fact that the plaintiff was engaged in other projects and that the issues in the arbitration were complex (even assuming these statements to be correct) provided no excuse for the previous delay nor for the delays yet to come.

33. In my judgment, the plaintiff has not provided any justification for the delay. This is precisely the sort of lax attitude to applications for leave to appeal that the court would regard as unacceptable given the principles which I have set out above.

34. Mr Ip, who appears for the plaintiff in this application, submitted that Euston Centre Investments did not necessarily represent good law in Hong Kong or if it did, since it was the first time that it had been applied in Hong Kong, some indulgence should be given to the plaintiff. I do not accede to these arguments. Euston Centre Investments, in my view, does represent good law in Hong Kong for the reasons I have given. Further, given the statutory scheme and the public policy behind arbitrations, I cannot envisage how there could be any misunderstanding as to the applicability of these principles. True that in Euston Centre Investments, the Court of Appeal granted an indulgence partly on the basis that there was uncertainty in the law (the question being whether Birkett v. James applied) but no such uncertainty exists in Hong Kong. The decision in Euston Centre Investments and the textbooks I have referred to, make this clear. In any event, even if there were any doubts over the applicability of Birkett v. James, this cannot provide any excuse for the delays that have occurred in this case. I do not, however, understand that Mr Ip was actually saying that the uncertainty in the law (as he had submitted) provided an excuse for the delays but if he was so submitting, I do not accept it.

35. For the above reasons, I exercise my discretion in favour of the defendant. For the sake of completeness, I should also say that I have taken a neutral view on the merits of the proposed appeal by the plaintiff. I accept that it is arguable. However, I do not accept that the merits are overwhelmingly in the plaintiff's favour either. Unless the merits are such that the plaintiff has an overwhelming case so that there might well be injustice were the appeal not to be allowed to proceed (and even then I would have doubts as to whether this is necessarily a decisive factor against a strike out in the face of delay), this factor is neutral. Certainly, it is not enough to tilt the balance in favour of the plaintiff in the present case.

Order

36. In the circumstances, I therefore order that the plaintiff's Notice of Originating Motion dated 25 May 2001 be struck out for want of prosecution. I also order that the costs of and occasioned by the present summons be to the defendant, such costs to be taxed if not agreed.