GOLDEN SAND MARBLE LTD v. HSIN CHONG CONSTRUCTION CO LTD

HCCT69/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO.69 OF 2004

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

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

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

D E C I S I O N

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

The Application

1. By Notice of Originating Motion dated 23 September 2004, Golden Sand Marble Limited (“the applicant”) seeks to appeal against an award of an arbitrator made and published on 2 September 2004 (“the Award”) in an arbitration between the applicant, as Claimant, and Hsin Chong Construction Company Limited (“the respondent”).

2. The Award is contained in an Order for Directions No.3 whereby he ordered and directed inter alia that :

(1)	The Claimant do within one month provide security for the respondent’s costs, for these proceedings up to the stage of exchange of open experts’ reports, in the amount of HK$300,000 (“the Secured Amount”), by way of :
	(a)	providing to the respondent a guarantee, or a bond, for the Secured Amount issued by a licensed bank or insurer in Hong Kong, with validity up to 31 December 2006, and on terms reasonably acceptable to the respondent; or
	(b)	depositing the Secured Amount with the Claimant’s solicitors, to be held by the Claimant’s solicitors in a separate client’s account for the express purpose as the security for the respondent’s costs.
(2)	In the meantime, all further proceedings in this arbitral reference be stayed until such time as the said security for the respondent’s costs be provided by the Claimant or further order by the Arbitrator.
(3)	The respondent’s costs of and occasioned by this Application, including those in relation to Order for Direction No.2, be paid by the Claimant to the respondent in any event.

3. The Notice of Originating Motion seeks :

(1)	An order granting leave to appeal on the questions of law hereinafter set out pursuant to Section 23(3)(b) Arbitration Ordinance, Cap.341 (“the Ordinance”);
(2)	An order setting aside the Award of the Arbitrator pursuant to Section 23(2) and/or Section 25(2) of the Ordinance; alternatively
(3)	An order remitting the Award for the further consideration of the Arbitrator pursuant to Section 23(2)(b) and Section 24(1) of the Ordinance in the light of the Court’s opinion on the subject matter of this appeal;
(4)	An order that the costs of and incidental to this application for leave to appeal, this appeal, the application to set aside and remit be paid by the respondent to the applicant.

4. Although the application was by way of Notice of Originating Motion, I acceded to a request by the solicitor for the respondent, which was not opposed by the applicant, that I make a direction under section 2D of the Arbitration Ordinance to enable the application to be heard in chambers.

The arbitral proceedings

5. The arbitration arises out of a construction project relating to the Hong Kong Society’s Senior Citizen Residence at Jordan Valley, Ngau Tau Kok.  The respondent is the main contractor of that project and the Claimant was the sub-contractor in respect of the design and fixing method and supplying and laying granite marble work for the project.

6. The Claimant made demand for payment under two Demand Notes.  Initially proceedings were commenced in the District Court but, on the application of the respondent, these were stayed in favour of arbitration proceedings.  Mr Yeung Ming Tai, a qualified barrister and Chartered Civil Engineer, was appointed as sole arbitrator on 10 March 2004.  The following brief chronology sets out the main procedural steps in the arbitration and the request for security for costs leading to the Award now sought to be appealed against :

(1)	On 12 May 2004 the arbitrator made his Order for Directions No.1 setting out the timetable for the service of pleadings.
(2)	On 18 May 2004 the respondent made an initial request for security for costs.
(3)	On 1 June 2004 the Claimant declined to provide security for costs.
(4)	On 9 June 2004 the Claimant served its Statement of Claim.
(5)	On 14 July 2004 the respondent served its Defence and Counterclaim.
(6)	On 14 July 2004 the respondent made a formal application by a letter to the arbitrator for security for costs and served its evidence in support.
(7)	On 22 July 2004 the arbitrator made his Order for Directions No.2 in respect of the service of evidence relating to the security for costs application.
(8)	On 28 July 2004 the arbitrator directed by consent that the hearing of the security for costs application would be held at 2.30 pm on 24 August 2004.
(9)	On 14 and 17 August 2004, out of time, the Claimant served by fax its evidence in opposition to the security for costs application.
(10)	On 19 August 2004 the respondent served its evidence in response.
(11)	On 24 August 2004 the hearing of the security for costs application took place.
(12)	On 30 August 2004 the Claimant served its Reply and Defence to Counterclaim.
(13)	On 2 September 2004 the arbitrator published his Order for Directions No.3, i.e. the Award.

7. The application for security for costs was made pursuant to section 2GB(1)(a) of the Arbitration Ordinance and Article 11.1(n) of the HKIAC Domestic Arbitration Rules.  The basis of the respondent’s application was that the Claimant is a limited company and there were reasonable grounds to believe that the Claimant could not, or would not be caused to, pay its costs if unsuccessful in the arbitration.  The arbitrator gave written reasons for his decision embodied in a document annexed to his Order for Directions No.3.

The grounds for the appeal

8. In the Notice of Originating Motion, the applicant seeks three things :

(1)	First, it seeks leave to appeal “on the questions of law hereinafter set out”;
(2)	Second, it seeks to set aside the Award pursuant to section 23(2) of the Ordinance or to remit the Award pursuant to section 24(1) of the Ordinance on the grounds, in summary, that there was insufficient evidence on which the Arbitrator could conclude that there was a real possibility that if the respondent were to succeed in the arbitration the applicant would likely be unable to pay its costs.
(3)	Third, it seeks to set aside the Award pursuant to section 25(2) of the Ordinance on the grounds, in summary, that the arbitrator dismissed or ignored evidence of the applicant’s on-going contracts and that by failing to ask for copies of those contracts he misconducted himself.

Discussion

Leave to appeal

9. An appeal may lie on a question of law arising out of an award made on an arbitration agreement.  Under section 23(4) of the Arbitration Ordinance, the Court only has jurisdiction to entertain an appeal if, having regard to all the circumstances, the determination of the question of law could substantially affect the rights of one or more parties to the arbitration agreement.

10. The principles governing the grant of leave to appeal are well-settled.  There is a presumption of finality in arbitration awards.  That presumption may be rebutted and the Court approaches the matter by reference to a notional sliding scale or spectrum of cases: see Lee Chang Yung Chemical Industry Corp. v. PT Dover Chemical Co. [1991] 1 HKLR 71.  The presumption of finality is strongest where the question of law in relation to which leave is sought is a one-off question.  At the other end of the scale are cases of a general character affecting similar transactions between many other persons engaged in the same kind of commercial activity.  However, even in cases of the latter type, the Court will not grant leave to appeal unless it considers that a strong prima facie case has been made out that the arbitrator was wrong : see Pioneeer Shipping Ltd v. BTP Tioxide Ltd (The Nema) [1982] AC 724 at 743.

11. In the present case, counsel for the applicant accepted that the matter is one-off and that leave to appeal should only be granted if it can be shown that the arbitrator was plainly or obviously wrong.

12. The application for leave to appeal is against an award of security for costs.  It involved a consideration of the legal criteria upon which the arbitrator should exercise his discretion to order security for costs under section 2GB(1)(a) of the Ordinance.  The arbitrator in the present case agreed with the applicant’s contention that the proper test was that the respondent had to satisfy the arbitrator “that the Claimant will be unable to pay the respondent’s costs if the claim is unsuccessful”.  The arbitrator exercised his discretion having considered the specific evidence filed by the parties and the submissions at the hearing before him on 24 August 2004.  He concluded that there was “a real possibility that if the respondent succeeds in this arbitration, the Claimant will unlikely be able to pay the respondent’s costs in this arbitration”. 

13. In ordering the provision of security for costs, the arbitrator was providing security for the respondent in case it is successful in the arbitration and has an award of costs in its favour.  In that event, the security will simply ensure that the respondent gets the costs to which it is entitled.  If the applicant is successful, on the other hand, the security will be returned to it.  There was no suggestion made at the application for security for costs that the request for security was oppressive or would likely stifle the applicant’s claim in the arbitration.

14. I am unable to identify from the Notice of Originating Motion what specific question of law arising out of the award is sought to be the subject of the application for leave to appeal.  Grounds 1 to 9 simply identify matters of fact which the applicant asserts should not have been taken into account by the arbitrator, or to which different weight should have been given by him, in exercising his discretion as to whether or not to order security for costs.  None of these complaints seem to me to constitute a question of law, let alone a question of law which would substantially affect the rights of the parties, upon which the Court should give leave to appeal under section 23(3)(b) of the Ordinance.  In any event, I am not persuaded that the arbitrator was plainly or obviously wrong in ordering the applicant to provide security for costs.

15. As Ma J (as he then was) said in Ha Hau Kwan Fong Mary v. The Incorporated Owners of Golden Plaza, HCCT 9/2002, 28 May 2002, unrep., at §24 :

“… while it is possible to classify as a question of law arising out of an award, an argument that the arbitrator has made a finding without any evidence to support it (and therefore no reasonable arbitrator could have made such a finding: cf. Edwards v. Bairstow [1956] AC 14), the following must be firmly borne in mind:-
(1)	Such an appeal would invariably be a “one-off” type of situation, since a question of fact is ultimately involved.
(2)	In most, if not in all, such cases, it will simply not be sufficient for the applicant merely to demonstrate that on the preponderance of the evidence, the arbitrator should or should not have made the relevant finding.  The finding must really be so bizarre that no reasonable arbitrator could have made it, such as, for example, where there was simply no evidence or reason for the finding of fact to be made.  But for this scenario, it will not in my view be possible to obtain leave to appeal based merely on findings of fact made by an arbitrator, whether primary or secondary.”

16. More recently, in Hong Kong Institute of Education v. Aoki Corp. [2004] 2 HKLRD 760 at 789-790, Reyes J said this :

“76.   Second, I doubt that ‘perverse’ findings of fact in an Edwards (Inspector of Taxes) v Bairstow [1956] AC 14 sense are capable, without more, of forming a ground for leave to appeal against an arbitration award. My concern is that almost any finding of fact can be transformed into an Edwards (Inspector of Taxes) v Bairstow question of law. One need only suggest that the evidence did not merit a finding of primary fact or an inference of secondary fact which an arbitrator drew. There is a real danger in allowing Edwards (Inspector of Taxes) v Bairstow unreasonableness as a ground for judicial review that the Court will be encouraging a detailed trawl through the evidence adduced before an arbitrator and a micro-reading of awards in order to justify submissions that the arbitrator acted without any or any sufficient evidential foundation. This is plainly not what applications for leave to appeal against awards were intended to be. Nor would a detailed review of evidence by the Court on a leave hearing be conducive to endowing arbitrations with finality.

77.  Swire Properties Ltd & Others v SJ (2003) 6 HKCFAR 236 does not expressly mention Edwards (Inspector of Taxes) v Bairstow [1956] AC 14 unreasonableness as a ground for giving leave. But, in stating that ‘each case ... will have its own particular features bearing upon the discretion to grant or refuse leave to appeal from an arbitral award,’ the Court of Final Appeal may arguably have left open the door to other grounds for appeal on questions of law and thereby did not rule out appeals on Edwards (Inspector of Taxes) v Bairstow grounds. Nonetheless, the tenor of present day thinking, including that of Hong Kong Courts, is to hold parties to the consequences of their decision to proceed by arbitration. One such consequence is that an arbitrator may get some or all of the law or the facts wrong. I therefore do not think that the Court of Final Appeal intended its judgment in Swire Properties Ltd & Others v SJ to be read as completely open-ended (if at all) on factors justifying leave to appeal. Indeed, implicit in Swire Properties Ltd & Others v SJ must be an assumption that not every error of law made by an arbitrator will merit judicial review, only serious or obvious errors as the case may be.

78.  AO s.23 itself recognises that not every question of law arising from an award is justiciable in Court. AO s.23(1) explicitly deprives the Court of jurisdiction to set aside an award on the ground of “errors of ... law on the face of the award” except as permitted by AO s.23(2). The general rule against revisiting errors of law in AO s.23(1) must have some purpose. It cannot just be said that AO s.23(2) allows appeals on questions of law generally and therefore the proscription in AO s.23(1) can be ignored. Swire Properties Ltd & Others v SJ (2003) 6 HKCFAR 236 lists at least some situations when an error of law would qualify for the grant of leave to appeal under AO s.23(2). Given then that not all errors of law are susceptible to judicial review, where does one draw the line between situations where appeal is permissible (albeit possibly not expressly identified in Swire Properties Ltd & Others v SJ) and those where pursuant to the general rule in AO s.23(1) there is no jurisdiction for the Court to intervene?

79.  One answer may be that leave to appeal on an Edwards (Inspector of Taxes) v Bairstow [1956] AC 14question should only be given when the consequences of the error to a party’s interest are significant. What is significant would then be left to judicial discretion. But such answer would be unsatisfactory. The criterion would only repeat AO s.23(4). Once again, implicit in Swire Properties Ltd & Others v SJ (2003) 6 HKCFAR 236 is a proposition that, however significant the likely impact on a party of an adverse award, if the latter does not appear seriously or obviously wrong, leave should not be granted. This means the granting of leave under AO ss.23(2) and (3)(b) cannot simply be a question of the degree of impact alone, but must be subject to some additional qualification not already encompassed by AO s.23(4).

80.  Given my conclusion that the Arbitrator did not seriously or obviously go wrong in holding that Aoki consented to the omission of the turf, I do not need finally to decide the question I have posed in respect of Edwards (Inspector of Taxes) v Bairstow [1956] AC 14 unreasonableness. To my mind, there is no such unreasonableness on the facts of the present case.

81.  For what it is worth, my tentative view is that the Court should not rule out a possibility of granting leave to appeal where a finding of fact (primary or secondary) is so egregious as to offend against a sense of justice. See, for example, Fence Gate v NEL Construction (2001) 82 Con LR (at sub-paragraph 43) and note the contrary view of Steyn LJ in Geogas SA v Trammo Gas Ltd (The Baleares) [1993] 1 Lloyd’s Rep 215 at p.232.”

17. Applying the dicta from the cases referred to in the preceding two paragraphs, and for the reasons set out in paragraphs 12 to 14 above, I have no hesitation in concluding that there is no proper basis for the Court to exercise its discretion to grant leave to appeal against the Award in the present case.

Setting aside or remitting the Award pursuant to sections 23(2) and 24(1) of the Ordinance

18. As I decline to grant leave to appeal, the question of whether the Court should set aside the Award pursuant to section 23(2) does not arise.

19. As to the alternative application to remit the Award to the arbitrator pursuant to section 24(1) of the Ordinance, the Court will only grant an application under section 24 if there has been an obvious error and that error was so exceptional that a failure to remit would constitute a serious injustice : see CCECC (HK) Ltd v. Might Foundate Development Ltd, HCCT 26/2001, 6.8.01, unrep. per Burrell J at §18.

20. In M.F. King t/a Robinsons Garage M.F. King Holding (UK) Ltd v. Thomas McKenna Ltd & Anor (1990) 54 BLR 48, Lord Donaldson MR when he was considering section 22 of the English Arbitration Act 1950, which is in identical terms to section 24 of the Ordinance, said (at p.61) :

“  In my judgment the remission jurisdiction extends beyond the four traditional grounds to any cases where, notwithstanding that the arbitrators have acted with complete propriety, due to mishap or misunderstanding, some aspect of the dispute which has been the subject of the reference has not been considered and adjudicated upon as fully or in a manner which the parties were entitled to expect and it would be inequitable to allow any award to take effect without some further consideration by the arbitrator.  In so expressing myself I am not seeking to define or limit the jurisdiction or the way in which it should be exercised in particular cases, subject to the vital qualification that it is designed to remedy deviations from the route which the reference should have taken towards its destination (the award) and not to remedy a situation in which, despite having followed an unimpeachable route, the arbitrators have made errors of fact or law and as a result have reached a destination which was not that which the court would have reached.  This essential qualification is usually underlined by saying that the jurisdiction to remit is to be invoked, if at all, in relation to procedural mishaps or misunderstandings.  This is, however, too narrow a view since the traditional grounds do not necessarily involve procedural errors.  The qualification is however of fundamental importance.  Parties to arbitration, like parties to litigation, are entitled to expect that the arbitration will be conducted without mishap or misunderstanding and that, subject to the wide discretion enjoyed by the arbitrator, the procedure adopted will be fair and appropriate.  What they are not entitled to expect of an arbitrator any more than of a judge is that he will necessarily and in all circumstances arrive at the ‘right’ answer as a matter of fact or law.  That is why there are rights of appeal in litigation and no doubt would be in arbitration were it not for the fact that in English law it is left to the parties, if they so wish, to build a system of appeal into their arbitration agreements and few wish to do so, preferring ‘finality’ to ‘legality’, to adopt Lord Diplock’s terminology.”

21. In his skeleton argument and at the hearing, counsel for the applicant says that the arbitrator erred in law in having taken the following four matters into consideration :

(1)	First, the fact that the applicant did not suggest at the hearing that there is a reasonably good prospect of success of the applicant’s claim.
(2)	Second, the fact that the applicant was set up to take on new business of Golden Sand Marble Factory Limited which appeared to be saddled with potentially substantial liabilities upon delivery of the court judgment by Deputy High Court Judge Gill on 2 February 2001.
(3)	Third, that there was no evidence to support the applicant’s assertion it had many active contracts in hand and was in the course of negotiating other contracts.
(4)	Fourth, the fact that the applicant’s current assets would be easily set off by some loans and/or financial arrangements between the applicant and its holding company/subsidiary companies.

22. These matters all go the question of whether the arbitrator was correct in reaching his conclusion that there was a real possibility that if the respondent were to succeed in the arbitration, the applicant would unlikely be able to pay the respondent’s costs.  I do not discern from the applicant’s submissions any complaint that there was any procedural mishap or mishandling of the application for security for costs by the arbitrator.  A summary of the chronology of events leading to the Award is set out in paragraph 6 above.  The applicant was clearly given a full and fair opportunity to file evidence in opposition to the respondent’s application for security for costs.  The hearing proceeded in the usual manner with both parties having the opportunity to make submissions to the arbitrator.  I can discern no procedural mishap or misunderstanding at all in relation to the application for security for costs by the arbitrator, let alone an error that was so exceptional that a failure to remit would constitute a serious injustice.

23. Accordingly, I conclude that there is no proper basis on which to exercise a discretion to remit the Award pursuant to section 24(1) of the Ordinance.

Setting aside under section 25(2) of the Ordinance

24. The final basis on which the applicant seeks to have the Award set aside is on the grounds of misconduct on the part of the arbitrator.

25. In the Notice of Originating Motion, the applicant’s grounds for setting aside on this basis are that the arbitrator did not accept the evidence of its deponent Mr Gordon Tso as regards on-going contracts.  The applicant relied on the fact of those on-going contracts in support of a contention that, because of the retention monies and profits under those contracts, it would have assets from which to meet an order for costs against it in the arbitration.  The applicant complains that, if the arbitrator had any reservations or doubts about the truthfulness of the contracts, he could and should have raised the matter with the applicant at the hearing and asked for copies of the contracts, and that by not doing so the arbitrator misconducted himself.

26. I have no hesitation in concluding that the allegation of misconduct is wholly without merit.

27. In Halsbury’s Laws of Hong Kong Vol.1(2), 2003 Reissue, at §25.160, it is stated that, “Misconduct has been described as such a mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice”.  Examples are given in that paragraph of eleven different instances which have been found to be misconduct.  None of those examples is a case of an arbitrator rejecting an assertion of fact made by a party in an affirmation or of giving less weight to that assertion of fact in the exercise by him of a discretion.

28. In an adversarial process, whether litigation or arbitration, it is a matter for the parties to prepare and present such evidence that they consider to be material and of assistance to their case.  In the present case, the arbitrator was not prepared to regard the bare assertion of the on-going contracts as sufficient evidence to dissuade him from reaching the conclusion, based on the other matters to which he referred in his Reasons for Decision, that there was a real possibility that if the respondent were to succeed in the arbitration, the Claimant would unlikely be able to pay the respondent’s costs in the arbitration.  It was not for the arbitrator to take on an inquisitorial role to ascertain whether or not there were in fact on-going contracts as alleged and what sums of money might be earned by the applicant under those contracts.

29. I therefore conclude that there is no basis for setting aside the Award under section 25(2) of the Ordinance.

Conclusion

30. For the above reasons, I dismiss the applicant’s Notice of Originating Motion. 

31. As to costs, the application having been dismissed, the respondent is entitled to an order for costs in its favour.  The respondent submitted, however, that it would be appropriate to order that such costs be taxed on an indemnity basis.  It was submitted that this application has simply been an attempt to re-argue before the Court a case which the arbitrator has rejected.  I agree that the application is devoid of merit and this is reflected in the fact that I have dismissed it.  I do not, however, consider that the applicant’s conduct has reached the point of being “disgraceful” or “an abuse of the process of the court” or “contemptuous” or “contumelious”, to use terms which were applied to the defendant’s conduct in the case of Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) [1996] 3 HKC 570 relied upon by the respondent.  Nor do I agree that the allegation of misconduct was “bizarre, grotesque, extraordinary, and preposterous” as was submitted by the solicitor for the respondent.  In the circumstances, I simply order that the costs of the Notice of Originating Motion should be paid by the applicant to the respondent, to be taxed if not agreed.  The basis of taxation, if any, will be the usual party and party basis of taxation.