XCHRX PHARMAKON INTERNATIONAL LABORATORY LTD. v. LOTUS ARCHITECTS LTD.

HCCT106/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION

PROCEEDINGS NO.106 OF 1999

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J U D G M E N T

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1. By a Notice of Originating Motion dated 3 November 1999, the applicant seeks leave to appeal an arbitration award made by Mr Philip Nunn on 11 October 1999 pursuant to section 23 of the Arbitration Ordinance, Cap.341.

2. The appeal, if leave is granted, would be concerned with how certain fees should be calculated when only partial service has been provided. It is not necessary for me to give a detailed background to the dispute. I find myself able to give a decision on this motion by applying the basic principles in leave applications to appeal arbitrators' awards. Counsel for both parties agree what those principles are.

3. Mr Coleman, for the applicant, correctly submitted that where leave to appeal to the court is sought, there is a presumption in favour of finality and against granting leave. However, that presumption is to be reviewed on a sliding scale. At one end of the scale are questions of law arising in "one off" cases giving rise to no question of construction or involving peculiar or special facts or in which the general market and the commercial community has no interest. At the other end of the scale are questions arising from standard form contracts, relating to events which are likely to recur and which have given rise to a question of law, decided or to be decided by non-legal arbitrators.

4. Mr Bartlett submitted on the respondent's behalf, also correctly, that the principles are well settled and embodied in the "Nema" guidelines (as per Lord Diplock in Pioneer Shipping Ltd v. BTP Tioxide, The Nema [1982] AC 724), namely, where the question of law in relation to which leave is sought is a one-off question because e.g. it depends upon construction of a non-standard contractual term or upon application of a legal principle to an unusual set of facts, leave will not normally be given unless it is apparent to the court upon a mere perusal of the reasoned award itself that the arbitrator was plainly or obviously wrong. The court must also bear in mind the observations of Lord Diplock in the Nema that, save in circumstances such as those mentioned above, the parties should be left to accept, for better or for worse, the decision of the tribunal that they had chosen to decide the matter in the first place.

5. In this case, leave to appeal will not be granted. On the sliding scale to which Mr Coleman refers, I find it is not at the end he submits. I accept Mr Bartlett's submission that, at best it is a "one off" case which does not merit intervention by an appellate court.

6. Putting the matter briefly, the arbitrator's decision centres on whether or not a contract letter between the parties should be construed as containing an "agreed cost limit" because if it did it would be that "agreed cost limit" which would apply to Clause 3.3.8 in the standard form contract which provided as follows :-

"Where partial service is provided in respect of work for which the executed cost is not known and no tender has been accepted, percentage fees shall be based either on the architect's estimate total construction costs or the most recent cost limit agreed with the client whichever is the lower."

7. The arbitrator's first task therefore was to interpret the contract letter, not the standard form contract. The letter plainly gave rise to a "one-off" situation between these two parties only and did not give rise to "questions arising from standard form contracts generally". The question was, what, if anything, was "the most recent cost limit agreed" in this case? He found that the letter in question did not contain any agreed cost limit. It merely contained an estimated budget which should not and could not be construed as an agreed limit.

8. That being the case, this application for leave is plainly at the other end of the sliding scale contended by Mr Coleman.

9. In these circumstances, leave will only be granted if the applicant can show the arbitrator was plainly or obviously wrong in concluding that the original contract letter should not be construed as containing an agreed costs limit. The arbitrator's conclusion that it could not be so construed cannot be faulted. He said :-

"The difficulty in this case is that the total construction cost was never ascertained as the Project was suspended before completion. ...

... Mr Chia (the applicant's witness) says that the only figure he ever agreed for the total construction cost was HK$80 million. This figure is mentioned in the letter of agreement of 22 September 1993 as being the budget for construction.

I do not, however, read the letter of 22 September 1993 as fixing the total construction cost at HK$80 million. Paragraph 3.1 of the letter makes it clear that the fees are to be 6% of the total construction cost for the works and there is no reference in the letter to HK$80 million being the total construction cost.

That being the case, when looking at Clause 3.3.8 of the conditions of engagement, one must look at either the Architect's estimated total construction cost or the most recent cost limit agreed with the client whichever is the lower. If there is no cost limit agreed with the client then the Architect's estimate will prevail. I do not believe that a cost limit was agreed with Pharmakon. Even if it was, by 1996 the budget discussed in 1993 was clearly out of date and had been overtaken by events. To the knowledge of the Respondent, the Project was continuing with a much higher estimated total construction cost. It is my opinion that the Architect's estimate of HK$112 million as the total construction cost is realistic and probably generous to Pharmakon."

10. It is worthy of note also that the reference to "HK$80 million" in the letter is in the following context - "The Budget for the construction is about $80 million excluding manufacturing equipment". (emphasis added)

11. In short, the applicant's case on this leave application must fail unless it can show that the arbitrator was plainly and obviously wrong in construing the letter in the way he did. Having found that it has failed to discharge that burden, no further issues fall to be determined on this application and it is dismissed.

12. For the sake of completeness, even if this had been a case, as submitted by Mr Coleman, at the other end of the scale, I would have come to the same conclusion because those matters already referred to above, in addition to further matters dealt with by the arbitrator, would have led this court to the conclusion that the applicant had failed to establish a strong prima facie case that the arbitrator was wrong.

13. I finally make an order nisi that the costs of this application be the respondent's.