MAEDA KENSETSU KOGYO KABUSHIKI KAISHA (also known as MAEDA CORPORATION) AND ANOTHER v. BAUER HONG KONG LTD

HCMP 1342/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 1342OF 2017

(ON AN INTENDED APPEAL FROM HCCT NO 35 of 2016)

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BETWEEN

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Lam VP (giving the Reasons for Judgment and Decision on Costs of the Court):

1.  By an order of 7 April 2017, Deputy High Court Judge Lee gave leave to the Plaintiffs to appeal against the First Interim Award of an arbitrator on points of law.

2.  The leave was granted pursuant to section 6(1)(b) of Schedule 2 of the Arbitration Ordinance Cap 609, parties having agreed in the arbitration agreement that Schedule 2 shall apply.

3.  The relevant provisions of Schedule 2 concerning appeals on question of law are as follow:

“ 5. Appeal against arbitral award on question of law

(1) Subject to section 6 of this Schedule, a party to arbitral proceedings may appeal to the Court on a question of law arising out of an award made in the arbitral proceedings.

(2) An agreement to dispense with the reasons for an arbitral tribunal’s award is to be treated as an agreement to exclude the Court’s jurisdiction under this section.

(3) The Court must decide the question of law which is the subject of the appeal on the basis of the findings of fact in the award.

(4) The Court must not consider any of the criteria set out in section 6(4)(c)(i) or (ii) of this Schedule when it decides the question of law under subsection (3).

(5) On hearing an appeal under this section, the Court may by order—(a) confirm the award; (b) vary the award; (c) remit the award to the arbitral tribunal, in whole or in part, for reconsideration in the light of the Court’s decision; or (d) set aside the award, in whole or in part.

(6) If the award is remitted to the arbitral tribunal, in whole or in part, for reconsideration, the tribunal must make a fresh award in respect of the matters remitted—(a) within 3 months of the date of the order for remission; or (b) within a longer or shorter period that the Court may direct.

(7) The Court must not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the arbitral tribunal for reconsideration.

(8) The leave of the Court or the Court of Appeal is required for any further appeal from an order of the Court under subsection (5).

(9) Leave to further appeal must not be granted unless—(a)the question is one of general importance; or (b) the question is one which, for some other special reason, should be considered by the Court of Appeal.

(10) Sections 6 and 7 of this Schedule also apply to an appeal or further appeal under this section.

6. Application for leave to appeal against arbitral award on question of law

(1) An appeal under section 5 of this Schedule on a question of law may not be brought by a party to arbitral proceedings except—(a) with the agreement of all the other parties to the arbitral proceedings; or (b) with the leave of the Court.

(2) An application for leave to appeal must—(a) identify the question of law to be decided; and (b) state the grounds on which it is said that leave to appeal should be granted.

(3) The Court must determine an application for leave to appeal without a hearing unless it appears to the Court that a hearing is required.

(4) Leave to appeal is to be granted only if the Court is satisfied— (a) that the decision of the question will substantially affect the rights of one or more of the parties; (b) that the question is one which the arbitral tribunal was asked to decide; and (c) that, on the basis of the findings of fact in the award—(i) the decision of the arbitral tribunal on the question is obviously wrong; or (ii) the question is one of general importance and the decision of the arbitral tribunal is at least open to serious doubt.

(5) The leave of the Court or the Court of Appeal is required for any appeal from a decision of the Court to grant or refuse leave to appeal.

(6) Leave to appeal from such a decision of the Court must not be granted unless— (a) the question is one of general importance; or (b) the question is one which, for some other special reason, should be considered by the Court.

7. Supplementary provisions on challenge to or appeal against arbitral award

(1) An application or appeal under section 4, 5 or 6 of this Schedule may not be brought if the applicant or appellant has not first exhausted—(a) any available recourse under section 69; and (b) any available arbitral process of appeal or review.

(2) If, on an application or appeal, it appears to the Court that the award—(a) does not contain the arbitral tribunal’s reasons for the award; or (b) does not set out the arbitral tribunal’s reasons for the award in sufficient detail to enable the Court properly to consider the application or appeal, the Court may order the tribunal to state the reasons for the award in sufficient detail for that purpose.

(3) If the Court makes an order under subsection (2), it may make a further order that it thinks fit with respect to any additional costs of the arbitration resulting from its order.

(4) The Court-(a) may order the applicant or appellant to give security for the costs of the application or appeal; and (b) may, if the order is not complied with, direct that the application or appeal is to be dismissed.

(5) The power to order security for costs must not be exercised only on the ground that the applicant or appellant is -(a) a natural person who is ordinarily resident outside Hong Kong;(b) a body corporate-(i) incorporated under the law of a place outside Hong Kong; or (ii) the central management and control of which is exercised outside Hong Kong; or (c) an association-(i)formed under the law of a place outside Hong Kong; or (ii) the central management and control of which is exercised outside Hong Kong.

(6) The Court-(a) may order that any money payable under the award is to be paid into the Court or otherwise secured pending the determination of the application or appeal; and (b) may, if the order is not complied with, direct that the application or appeal is to be dismissed.

(7) The Court or the Court of Appeal may impose conditions to the same or similar effect as an order under subsection (4) or (6) on granting leave to appeal under section 4, 5 or 6 of this Schedule.

(8) Subsection (7) does not affect the general discretion of the Court or the Court of Appeal to grant leave subject to conditions.

(9) An order, direction or decision of the Court or the Court of Appeal under this section is not subject to appeal.”

4.  The judge considered that the Plaintiffs had satisfied the criteria under Section 6(4) for leave to be granted. In particular, he accepted that the decision of the question will substantially affect the rights of the parties (s6(4)(a)), the questions of law were ones which the arbitrator was asked to decide (s6(4)(b)), and the decision of the arbitrator was obviously wrong (s6(4)(c)(i)).  As an alternative to the last limb, he was also satisfied that the question is one of general importance and the decision of the arbitrator is at least open to serious doubt (s6(4)(c)(ii)).

5.  The judge explained his reasons for coming to these conclusions in a judgment of 7 April 2017.

6.  The Defendant applied for leave to appeal against the decision of the judge.  On 26 May 2017, the judge refused to grant leave.  The judge held that in addition to s6(6) of Schedule 2, the Defendant must also satisfy the requirement in Section 14AA (4) of the High Court Ordinance Cap 4.  The judge did not find any special reasons for granting leave.  Though he was of the view that the questions of law are of general importance, he was not satisfied that the Defendant’s proposed appeal had a reasonable prospect of success.

7.  By a summons of 9 June 2017, the Defendant applied to this Court for leave to appeal against the decision of 7 April 2017.  Written submissions were lodged in accordance with Practice Direction 4.1. 

8.  We heard and dismissed the application on 24 August 2017.  The following are our reasons for dismissing the Defendant’s application for leave.

9.  It should be stated at the outset that the statutory design in Schedule 2 is that an appeal on a question of law (with leave being granted) will be determined by the Court of First Instance.  The Court of Appeal has no jurisdiction to determine such question other than in the context of an appeal brought against a determination of the same by the Court of First Instance.  Further, section 5(8) of Schedule 2 provides that leave is required for an appeal to be brought against such determination by the Court of First Instance.

10.  Hence, at this stage, this Court cannot determine the questions of law identified by the Plaintiffs in respect of which leave to appeal had been granted by the judge.  If leave were granted to appeal against the decision of 7 April 2017, the subject matter of appeal would be the decision to grant leave itself.  If the Court of Appeal agrees with the judge (that leave should be granted), the questions of law have to be reserved for determination by the Court of First Instance. 

11.  On the other hand, if the Court of Appeal overturns the judge’s decision on leave, there would not be any appeal at all. Mr Pennicott SC (appearing for the Defendant together with Mr Niehorster) therefore submitted that the Defendant sought to have an appeal so that the full course of a substantive appeal on points of law (including possible appeals from such determination) could be avoided.  

12.  Though Section 6(5) of Schedule 2 provides for the possibility of an appeal against the leave decision both in cases where leave is granted as well as cases where leave is refused, the implication from the point of view of access to court is different.  In a case where leave was granted, the parties can argue the substantive points of law in the Court of First Instance in the substantive appeal and there is no question of any party being denied any access to court.  On the other hand, where leave is refused, the party who failed to obtain leave would not be able to have a substantive appeal.  The courts must bear in mind such difference in considering an application for leave to appeal against a leave decision under Section 6(5).

13.  Mr Pennicott rightly reminded us that the application is made in the context of an intended appeal against an arbitration award and in line with the underlying rationale for arbitration, there should be a presumption of finality for arbitration.  We wholeheartedly endorse arbitration as an alternative dispute resolution process and there are regimes in the Arbitration Ordinance substantially limiting the rights of the parties coming to court to challenge an arbitration award.  Such regimes have been held repeatedly by this Court to be proportionate and constitutionally sound, see China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK) Ltd [2015] 4 HKLRD 609; American International Group Inc v Huaxia Life Insurance Co Ltd HCMP 3417 of 2016, 18 July 2017.  

14.  However, the extent of finality depends on the regime adopted by the parties in the arbitration agreement.  In the present case, the parties chose to adopt the regime in Schedule 2 which inherently provides for the avenue of appeal on points of law in specified circumstances.

15.  We agree with the submission of Mr Clayton SC (appearing for the Plaintiffs), as did the judge, that Section 14AA is applicable.  Mr Pennicott submitted that Section 6(6) of Schedule 2 was enacted after Section 14AA.  As there was no reference to the criteria in Section 14AA, counsel submitted that Section 6(6) has overtaken the effect of the former.  We cannot accept this submission.  There is nothing in Section 6 of Schedule 2 which expressly exclude the operation of Section 14AA in respect of an application for leave to appeal brought under Section 6(5).  On its face, Section 14AA is a general provision governing all interlocutory appeals from decisions of the Court of First Instance.  Section 6(6) is couched in wording providing for some necessary conditions (which must be fulfilled) before leave could be granted.  However, it does not provide that those are the only conditions that need to be fulfilled.  We cannot see any ground for suggesting that by setting such conditions in Section 6(6), the legislature has impliedly abrogated the requirement in Section 14AA.  To the contrary, we cannot see any reason in principle why an appellant should be able to obtain leave by simply showing that a question of general importance is involved even if the court is of the view that the appeal has no reasonable prospect of success (which would be the outcome if Section 6(6) is the sole governing provision).   

16.  In the present case, we do not see any reasonable prospect of success in this Court overturning the judge’s decision to grant leave.  There cannot be any dispute that the requirements in Section 6(4)(a) and (b) are satisfied.  The Defendant conceded that Ground (ii) is a question which substantially affect the rights of the parties.  They said that if the arbitrator was correct, the other questions do not matter.  However, they did not say that if the arbitrator were incorrect on Ground (ii) these other questions would not substantially affect the rights of the parties.  

17.  We agree with the judge’s analysis that the questions involved are of general importance at [32] to [36] of the judgment of 7 April 2017.  

18.  The remaining criterion in Section 6(4)(c)(ii) is that the decision of the arbitrator is at least open to serious doubt.  As we said in the course of hearing, the assessment of that criterion could be quite subjective and different judges could reasonably come to different views.  In an assessment of that nature, particularly bearing in mind that we are dealing with a decision to grant leave, the Court of Appeal should not intervene unless it can readily be demonstrated that the judge had been plainly wrong in coming to the conclusion that the criterion had been satisfied.  As acknowledged by Mr Pennicott, it is an onerous task.

19.  It must also be remembered that the grant of leave to appeal under Section 6(4) is meant to be a filtering process.  As the judge rightly observed, the court should not condescend into detail arguments on the substantive merits in a judgment granting leave.  In our judgment, the judge had already discussed the relevant arguments in the judgment of 7 April 2017 in a manner which is greater than what is necessary for the purpose of granting leave.

20.  Despite the diligent efforts of Mr Pennicott, we are not persuaded that the judge was plainly wrong in coming to the conclusion that the arbitrator’s decision is at least open to serious doubt.

21.  This Court will guard against saying anything more than necessary in terms of the substantive merits of the arguments.  The leave process should not be an occasion to obtain some preliminary views of this Court to pre-empt the course of the substantive appeal to be heard in the Court of First Instance.   

22.  There is no other reason in the interest of justice for leave to be granted by us to challenge the leave decision of the judge.

23.  In light of the above, we refused to grant leave and the summons of 9 June 2017 was dismissed with costs on indemnity basis accordingly.

24.  Having considered the Plaintiffs’ up-dated statement of costs (asking for $427,400 of which $115,500 is counsel’s fee) and the written submissions of the parties on the same, we agree that even in respect of costs awarded on indemnity basis, the fees of the solicitors for the Plaintiffs are unreasonable (in terms of the number of partners and time involved in the works, particularly in light of very experienced counsel being retained on behalf of the Plaintiffs) and clearly excessive.  Gross sum assessment is not a mini-taxation and we are not minded to go through the statement of costs item by item in this judgment.  We have studied the statement of costs carefully in light of the submissions of the parties.  We do not accept that it was reasonable to engage Dr Lewis in an application of this nature in light of the seniority and experience of the other partner Mr Clayton and the team of supporting solicitors engaged.  We bear in mind that junior counsel was not instructed and solicitors have to undertake some of the works usually undertaken by junior counsel.  Having regard to the complexity of the matter and the works involved, we shall fix the costs of the Plaintiffs at $315,240.