IO v. CONTRACTOR

HCMP 30/2024

[2024] HKCFI 1802

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 30 OF 2024

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REASONS FOR DECISION

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Background

1.  By order made on 18 January 2024 (“Enforcement Order”), this Court granted leave to the Applicant (“IO”) to enforce an arbitral award made on 1 December 2023 (“Award”) in an arbitration commenced by the Respondent (“Contractor”) against the IO in Hong Kong (“Arbitration”). By the Award, the tribunal dismissed the claims made by the Contractor, and ordered it to pay to the IO a sum of HK$6,506,903.98 under the IO’s counterclaim, with interest and costs.

2.  On 7 February 2024, the Contractor issued its summons to set aside the Enforcement Order, on grounds which were set out in an affirmation which was only filed on 22 February 2024 (“Affirmation”). According to paragraphs 13 and 14 of the Affirmation, the grounds for opposing enforcement of the Award are as set out below:

“13. I believe that the enforcement of the Award should be refused on the following two main grounds.

(1) I had not been advised to attend the arbitration hearing after my delivery of evidence. In those circumstances, the Applicant was unable to present their case.

(2) The Award should be set aside under Article 34(2)(a)(iii) of the Model Law, for dealing with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or containing decisions on matters beyond the scope of the submission to arbitration, and under Article 34(2)(a)(ii), as the Applicant has not been able to present their case. As such, it would be contrary public policy to enforce the Award. It would be otherwise unjust to do so.

14. I believe that the Award should be set aside on the following grounds:-

(1) In deciding whether the Waterproofing Works has been completed in accordance with the Contract, the Arbitrator failed to place weight or sufficient weight to the SC Cert, which evinced the Applicant’s due performance of the Contract.

(2) The Arbitrator wrongly placed full weight to the Minutes of the Meetings, assuming the contents therein being the truth.

(3) On the issue of the cause of the water leakage, the Arbitrator misunderstood the evidence of the Applicant’s expert witness Mr Leung Wai Tat Henry.

(4) On the issue of the Applicant’s claim to the Retention for the Works and the VO from the Respondent, the Arbitrator found that the Applicant was not entitled to damages by way of quantum meruit or unjust enrichment. The Arbitrator applied an incorrect approach to the issue.

(5) In determining the Respondent’s counterclaims, the Arbitrator found that the legal principle of transferred loss was applicable. The Arbitrator failed to take into account the challenge of the Applicant, and in any event applied an incorrect approach to the issue.

(6) By reason of the foregoing matters, the Award should be set aside under Article 34(2)(a)(iii) of the Model Law, for dealing with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or containing decisions on matters beyond the scope of the submission to arbitration, and under Article 34(2)(a)(ii), as the Applicant has not been able to present their case.

(7) By reason of the matters outlined in paragraphs (1) to (5) above, the Award is in conflict with the public policy of Hong Kong.”

3.  On 29 December 2023, the Contractor had applied by separate proceedings to set aside the Award on the same grounds, which application was on 22 February 2024 dismissed for failure to comply with Order 73 rule 5(4) RHC.

Opportunity to present case

4.  For the ground set out at paragraph 13(1) of the Affirmation, the Contractor made no claim that it had not been given notice of the arbitral proceedings, and did not dispute that it was represented by solicitors and counsel at the hearing of the Arbitration – as reflected in the Award. The only assertion made in the Affirmation was that Mr Choi, the Managing Director of the Contractor, “had not been advised to attend the arbitration hearing after his delivery of evidence” and that in those circumstances, the Contractor was unable to present its case.

5.  The facts set out in paragraph 13(1) of the Affirmation fail to disclose any ground to oppose enforcement of the Award under section 86(1)(c) of the Arbitration Ordinance (“Ordinance”), and this ground should never have been raised at all by those acting for the Contractor in these proceedings.

Errors of fact and law

6.  As the Court explained at the first hearing of the Contractor’s summons, the matters set out in paragraph 14 (1) to (5) of the Affirmation all deal with alleged errors of law or of facts made by the arbitrator, whether as a result of his misunderstanding of the evidence or the law, the lack of evidence to support his findings, or inadequate weight having been given to the evidence, or applying the wrong legal principles or tests, none of which constitutes a ground to refuse enforcement of an award (or to set aside an award) under the Ordinance. It is trite, that the court does not sit on appeal against findings made by the arbitrator.

7.  Again, no ground for setting aside the Enforcement Order can be discerned from paragraph 14(1) to (5) of the Affirmation.

Beyond the scope of the submission

8.  The only possible ground which may be raised was whether the arbitrator had dealt with a dispute not contemplated by or falling within the terms of the submission to arbitration, or that the Award contains decisions on matters beyond the scope of the submission to arbitration, and opportunity was given to the Respondent to argue this ground only at the hearing on 8 July 2024.

9.  For the ground under section 86(1)(d) of the Ordinance, it was argued on behalf of the Contractor that by the Award, the arbitrator had sought to reopen or had set aside the Substantial Completion Certificate (“Certificate”) issued by the Architect for the relevant works, when he had no power to do so under the terms and conditions of the relevant Contract between the IO and the Contractor.

10.  In her submissions, Counsel for the Contractor referred to the language of Article 41.6 of the Standard Conditions of Contract (“SCC 41.6”) which governs the power of the arbitrator in the event of disputes between the parties under the Contract, and SCC 41.6(d) provides:

“The arbitrator’s powers include:

…

(d) opening up, reviewing and revising, without limitation, the giving, submitting or issuing of any agreement, approval, assessment, authorization, certificate…. determination, and endorsement, instruction, notice, notification, opinion… or Valuation.” (Emphasis added)

11.  It was contended for the Contractor that the power of the arbitrator under SCC 41.6(d) is only related to the “giving, submitting and issuing” of the Certificate, but does not extend to the interpretation of the Certificate or making election of the possible interpretations of the Certificate.

12.  I do not understand the submission, and reject Counsel’s distinction between the arbitrator’s power to review or decide on the submission or issue of the Certificate, and the power to interpret the effect of the Certificate.

13.  SCC 41.6(d) clearly confers power on the arbitrator to review the architect’s submission or issue of any certificate, confirmation, opinion or valuation. The arbitrator cannot review the correctness of the certificate or valuation without deciding on the proper meaning and effect of the Certificate, choosing between alternate or possible interpretations if there are any, and deciding how it affects the works under the Contract, or the rights and obligations of the parties thereunder.

14.  As the arbitrator rightly pointed out in the Award, the Certificate is not conclusive evidence of practical completion of the works covered by the Certificate, and the arbitrator was conferred with the power under SCC 41.6 to review, and if necessary revise, the Certificate. In the Arbitration, the arbitrator heard and considered all the evidence on the works carried out under the Contract, and in the Award, the arbitrator found on all the evidence and having heard the parties’ submissions that the Contractor had not completed the waterproofing works in accordance with the Contract. This was after the arbitrator had considered the meaning of “substantial completion” and “Substantial Completion Certificate” as defined in the Contract, and having reviewed all the available evidence as to whether the works had been carried out and satisfactorily completed.

15.  The issue of whether the Contractor had actually performed the waterproofing works and completed the said works in accordance with its obligations under the terms of the Contract was one of the key issues submitted to the tribunal for determination in the Arbitration. This obviously included the arbitrator’s consideration of the meaning of the Certificate, whether it was conclusive, and whether all the evidence supported and established a finding of substantial completion, and the final completion, of the works.

16.  Even if he was wrong in his interpretation of the meaning of the Certificate, or if he had misunderstood the factual or expert evidence on the completion of the works, these are simply errors of law or facts made by the arbitrator, and do not constitute any ground to set aside the Award.

17.  I also fail to see how the arbitrator can be criticized, when he explained that he accepted that the Certificate was issued not because the works were completed to the extent of substantial completion, but because of the IO’s application of subsidy from the Housing Authority (which he considered to be a justifiable reason). There is no inconsistency in such finding, but even if there was, it can again only amount to mistakes in findings of facts or law, which are outside the review by this Court.

18.  In Grant Thornton International Limited v JBPB & Co (A Partnership) unreported, HCCT 13/2012, 5 April 2013, it was held that a claim that an award is outside the terms of the submission to arbitration is construed narrowly, to only include those decisions which are clearly unrelated to or not reasonably required for the determination of the issues that have been submitted to arbitration. In deciding on whether the Contractor’s works had been completed under the Contract, the construction of the Certificate is clearly necessary for the determination and is clearly related to the arbitrator’s determination of the issues of the Contractor’s entitlement to payment on the basis of its completion of the contract works. The arbitrator’s findings on the effect of the Certificate and as to the non-completion of the works were clearly not beyond the scope of the submission to arbitration.

Disposition

19.  For all the above reasons, the Contractor’s application to set aside the Enforcement Order was totally baseless, and was dismissed at the conclusion of the hearing, with costs (including all costs reserved) to be paid by the Contractor to the IO on indemnity basis with Certificate for Counsel.

20.  The Contractor obviously did not receive proper legal advice on whether or not to apply to oppose enforcement of the Award, and its legal costs of these proceedings (including the costs in HCCT 104/2023 which was dismissed by this Court on 22 February 2024) have been incurred in vain and have been totally wasted. If the Contractor had been advised to pursue these proceedings on the basis that it has a good cause of action, then its legal advisers have utterly failed in their duties to the Court and have caused its client to incur totally unnecessary legal costs and to engage in conduct amounting to abuse of process.