XCHRX YIU WING CONSTRUCTION CO. LTD. v. RYODEN ENGINEERING CO. LTD.

HCCT62/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.62 OF 2001

--------------------------

--------------------------

---------------------------

D E C I S I O N

---------------------------

1. This is an application for leave to appeal against an arbitrator's award. The award, dated 27 July 2001, followed a "documents only" arbitration, before Mr Anthony Houghton. It concerned a claim by the sub-contractor, "Ryoden", for full payment under two interim payment certificates, whereas the main contractor "Yiu Wing" had only made partial payment.

2. Mr Geoffrey Shaw for Yiu Wing concedes that the issue on appeal is a "one-off" issue (as described in the P.T. Dover Chemicals case [1990] 2 HKLR 257) and that the arbitration was heard by a lawyer, Mr Houghton being an experienced counsel in this field. He therefore faces a steep gradient on the uphill task ahead of him. In short he must demonstrate to this court that the arbitrator was "so obviously wrong as to preclude the possibility that he might be right".

3. The grounds of appeal as set out in the notice of originating motion are as follows :

"4. The arbitrator erred in law in finding (in paragraph 38 of his reasons for award) that the applicant (respondent) had been paid by the employer, despite the fact that the evidence was that the employer had not paid the applicant (respondent) and that there was no evidence of why the employer had failed to pay the applicant (respondent), save that that evidence was that the reason for non-payment was not that liquidated damages had been set-off.

5. The arbitrator erred in law in finding (in paragraph 36 of his reasons for award) that the applicant (respondent) had not

(i) made a claim for breach of contract; or

(ii) established delay by the respondent (claimant); or

(iii) satisfied the arbitrator that it had a claim for delay damages,

despite the fact that the respondent (claimant) had admitted being in delay by 161 days and that the respondent (claimant) had neither obtained from the architect, nor sought from the arbitrator, any extension of time for completion.

6. The arbitrator erred in law in finding (in paragraphs 42 to 44 of his reasons for award) that the claimant had succeeded in its claim and was entitled to all its costs (save for two exceptions), without affording the applicant (respondent) an opportunity to make submissions as to costs."

4. Each of the three grounds above commence with the words "The arbitrator erred in law ...". Only matters of law are appealable. Mr Simon Westbrook, SC submits, first of all, that in truth this is an attempt to appeal findings of fact, which have been dressed up as findings of law.

5. Mr Shaw's contention is that if a finding of fact has been made for which there was no evidential basis then, as a matter of law, the finding should not have been made. In the present case, I consider the complaints set out in paragraphs 4 and 5 above, do involve matters of fact only. The line between law and fact is often a difficult line to draw. Often, it is not a line at all, but a grey area involving mixed law and fact. If I am right that these are purely findings of fact, no more need be said. The issues would be unappealable and the application dismissed.

6. However, as the line between law and fact is sometimes blurred and it is arguable that Mr Shaw's complaints are of a type described by Lord Radcliffe in Edwards v. Bairstow [1956] AC 36 :

"If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been error in point of law."

a safer course for this court to adopt is to consider the submissions in full and decide the application on its merits.

7. I now turn therefore to each of the three complaints.

(1) Pay when paid clause

8. The arbitrator made two findings of law on this issue, neither of which are being appealed. Firstly he decided that clause 11(b) (the "pay when paid" clause) only obliged the main contractor to pay the sub-contractor within 14 days after receipt of payment (as opposed to within 14 days of certification). On this question he found in favour of Yiu Wing's submissions. Secondly, he decided that "receipt of payment" did not mean mere transfer of money but also included situations where a set off had been made or other deductions had been made by the employer. On this question he found in favour of Ryoden's submission.

9. He then went on to find as a fact that Yiu Wing had been "paid" by the employer and was therefore obliged to pay Ryoden in full on the interim certificate. He prefaced his decision by saying "In the circumstances it seems clear to me that the Respondent has been 'paid'... ". Mr Shaw submits that there was no evidence as to which "circumstances" made it "clear".

10. In my judgment Mr Shaw's submissions taken at their highest fall well short of demonstrating that the arbitrator was plainly and obviously wrong in making the finding that he did.

11. Yiu Wing's case was that there was no evidence that the employer had made any deductions or set off. Reliance is placed on the statement in the Quantity Surveyor's certificate which stated that the certificate was issued "without prejudice to the right of the Employer to claim at a future date Liquidated and Ascertained Damages ... ". The submission being that as its right to claim LAD in the future was mentioned it may be inferred that no set off had been made at the time of the certificate.

12. Even taken in isolation I do not think that this submission could be sufficient to persuade a court that the arbitrator was plainly wrong. The point being made is further diluted by the following observations relied on by Ryoden.

(i) The undisputed fact was that Yiu Wing's payments were only partial payments of the certified amounts. It was not clear why lesser sums were paid but deductions were plainly made.

(ii) The statement in the Quantity Surveyor's certificate merely records a right to make a claim in the future. It cannot be inferred that that right has not yet been exercised. The words "to claim at a future date" do not appear in the Architects certificates.

(iii) The arbitrator had 400 pages of documents to consider. Taken together they constitute the "circumstances" which led him to make the conclusion that he made. He was alive to the fact that the reasons for the deductions were not clear. However it seems to me unsurprising that he was able to say with confidence that Yiu Wing had been "paid" based on his unappealed definition of the word. In particular Mr Westbrooke points to two letters in the bundle before the arbitrator. On 23 August 2000 the employer wrote to Yiu Wing saying :

"Release of any moneys being withheld as Liquidated and Ascertained Damages would be subject to the recommendations of the project architect ..."

This, it is submitted with some force, is evidence that money was being withheld - as LAD - which might be released later.

Also, on 15 January 2001 Yiu Wing produced a schedule explaining the part payment to Ryoden in which it referred to "amounts held up by employer".

(iv) Certificates before and after the certificates which were only partially paid were paid in full. It is inherently unlikely therefore that the shortfalls in the certificates in question were due to a temporary shortage of money.

13. In all the circumstances it is not difficult to understand why the arbitrator was clear in his own judgment that as a matter of fact, Yiu Wing had been "paid".

(2) Counterclaim

14. Yiu Wing claimed a set off against the monies claimed. The basis of the set off was Ryoden's liability for delaying the progress of the works. For Yiu Wing to have such a claim under the contract they had to have an architect's certificate in support. It was common ground that no such certificate had been issued. The legal issue was therefore whether or not Yiu Wing had a common law right to set off.

15. The arbitrator's approach was to assume the legal issue in Yiu Wing's favour (that the common law right to set off survived in spite of the absence of an architect's certificate) but then went on to decide, as a matter of fact, that Yiu Wing had done no more than merely assert a potential future entitlement to damages for delay by Ryoden. Ryoden had never denied the fact of delay but had never admitted responsibility for it. Future arbitrations may well decide the issue. For present purposes however the arbitrator's decision cannot, in my judgment, be faulted. Once again, it is far short of being obviously wrong. In essence the decision recognizes that full payments on interim certificates provide the life blood for sub-contractors. The blood supply should not be halted by mere unparticularized assertions of a claim for delay, the liability for which has never been admitted.

(3) Costs

16. Mr Shaw submits that Yiu Wing's submissions on matters of law were largely successful and he thus had an argument for a costs order other than the one determined by the arbitrator. His complaint is that he was denied the opportunity of making submissions as to costs.

17. The problem with this ground of appeal is that, as a matter of fact, Ryoden succeeded in getting every dollar it asked for. On the question of quantum it was 100% successful.

18. I accept that it might have been preferable to have invited further written submissions on costs however, it must be observed that the prospects of persuading the arbitrator to make a different order from the one he made are indeed remote.

19. The parties had agreed on a documents only arbitration. They entrusted the issues to an experienced arbitrator. Their complaint now, that the failure to invite submissions before ordering costs to follow the event was plainly wrong, must also fail.

20. For all the above reasons leave to appeal is refused with costs of the application to the respondent.