RE CHAN YU NAM AND ANOTHER

HCAL 77/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 77 OF 2005

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D E C I S I O N

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I. Introduction

1.  Mr. Chan and Mr. Poon are taxi drivers.  They seek leave for judicial review to set aside a Final Interim Award dated 20 January 2005 by Mr. Kenneth Rokison QC and Mr. Barry Mortimer QC as arbitrators.  The Award was made pursuant to Eastern Harbour Crossing Ordinance (Cap.215) (EHCO) s.55(3).  It held (among other things) that New Hong Kong Tunnel Company Ltd. (NHKTC) could raise the toll for private cars and taxis using the Eastern Harbour Tunnel (EHT) from $15 to $25.

2.  The question is whether I should grant leave to apply for judicial review.  The following issues arise:-

(1)	Does the Court have jurisdiction to review the Award on the application of persons not parties to it?
(2)	If the Court has jurisdiction, do the parties have sufficient interest or standing to bring judicial review proceedings.
(3)	If the applicants have standing, is their application arguable or is it so clearly hopeless that leave should be refused at this liminal stage.

3.  If I believe the applicants' case to be arguable, there is a subsidiary issue whether, in light of delay in bringing this application, leave should still be refused.

II. Discussion

A. Jurisdiction

4.  EHCO s.55(3) provides that the tolls levied by the NHKTC on vehicles using the EHT may be varied:-

"	(a)	by agreement between the Governor in Council and the Road Company [NHKTC]; or
	(b)	in default of agreement by submission of the question of the variation of tolls to arbitration under the Arbitration Ordinance (Cap.341) by either the Governor in Council or the Road Company."

5.  EHCO s.55(4) provides:-

"	On submission to arbitration under subsection (3), the arbitrators shall be guided by the need to ensure that the carrying out by the Road Company of its obligations, or the exercise of its rights, under this Ordinance is reasonably but not excessively remunerative to the Road Company, having regard to:-
	(a)	any material change in the economic conditions of Hong Kong since the enactment of this Ordinance or, as the case may be, since tolls were last determined under this section;
	(b)	...
	(c)	any material change in any other circumstances affecting the exercise by the Road Company of its rights under the franchise granted by section 4(1);
	(d)	...
	(e)	...
	(f)	any other relevant matter."

6.  The applicants were not parties to the arbitration which resulted in the award.  The arbitration was conducted in private between NHKTC as Claimant and Government as Respondent.  NHKTC sought a toll increase.  Government thought that an increase was not justified since NHKTC was in relatively good financial position and Hong Kong had experienced deflation (4.0% in 1999).

7.  The applicants say that this case involves a "statutory arbitration" which "affects the general public ... with a drastic impact on their living".  The applicants submit that the Court can intervene by judicial review to ensure that the arbitrators carry out their duties properly within the terms of the EHCO.

8.  In support, the applicants rely on a dictum of Lord Goddard CJ in R. v. National Joint Council for the Craft of Dental Technicians (Disputes Committee), ex p. Neate [1953] 1 QB 704 (at 707-8):-

"[T]he bodies to which in modern times the remedies of these prerogative writs have been applied have all been statutory bodies on whom Parliament has conferred statutory powers and duties which, when exercised, may lead to the detriment of subjects who have to submit to their jurisdiction.  Where a statute, for instance, gives power for the compulsory acquisition of land and an arbitrator is set up by Parliament to assess the compensation, or where, as in Rex v. Electricity Commissioners; Ex parte London Electricity Joint Committee Co. (1920) Ld. [[1924] 1 KB 171], the tribunal were a body on whom a great many powers had been conferred by Parliament, it is essential that the courts should be able to control the exercise of their jurisdiction strictly within the limits which Parliament has conferred upon them."

9.  The applicants also cite Lord Diplock’s approval of the dictum in Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. Ltd. [1981] AC 909 (at 978F-H):-

"In that case [Neate] it was held by the Divisional Court that the general supervisory jurisdiction of the High Court over the proceedings of inferior courts and tribunals extended only to 'bodies on whom Parliament has conferred statutory powers and duties which, when exercised, may lead to the detriment of subjects who may have to submit to their jurisdiction.' (p.708).  These bodies would include arbitrators appointed to conduct a statutory arbitration to whose jurisdiction parties to a particular kind of dispute are compelled to refer it for determination, but they do not include arbitrators appointed pursuant to private arbitration agreement.  In relation to private arbitrations the jurisdiction of the High Court to supervise the conduct of the arbitration is confined to exercising the powers conferred upon it by the Arbitration Acts 1950 and 1979 (though the latter Act does not apply to the arbitration in the instant case).  The reason for this distinction is that the jurisdiction of an inferior court or statutory tribunal or arbitrator over the person who wishes to resist the claim is compulsory whereas the jurisdiction of an arbitrator over both parties to a private arbitration agreement is consensual only."

10.  I think that neither Neate nor Bremer Vulkan assist the applicants.  Read in context, the dicta just quoted concern the situation where a party to an arbitration by a body set up by statute applies to the court to review the decision of the body. The cases say nothing about an outsider being able to review an arbitration (statutory or otherwise) to which he is not a party.

11.  The Government can (and routinely does) enter into commercial contracts with private corporations.  By the EHCO the Government granted the franchise for the EHT to NHKTC.  EHCO s.55(3) simply provides that disputes between the Government and NHKTC in relation to the tolls charged under the franchise are to be arbitrated in accordance with the Arbitration Ordinance (Cap.341) (AO).

12.  AO s.2AB(1) stipulates that arbitrations under any ordinance are to be treated as domestic arbitration agreements and the relevant enactment (here the EHCO) is to be treated as if it were an agreement to arbitrate.  Arbitrators are then privately appointed ad hoc at the instigation and choice of the parties (here the Government and NHKTC) as and when circumstances require.

13.  This arrangement is in distinction to that which Lord Goddard and Lord Diplock appear to have in mind of a particular body endowed by statute with jurisdiction (possibly exclusive) to arbitrate certain types of dispute (for example, wage disputes) between particular parties.

14.  The applicants suggest that the foregoing analysis is inconsistent with EHCO s.55(3)(b).  But I am unable to see why.  The situation here is little different from that where the Government contracts with a private body and the contract requires particular disputes between the parties to go to arbitration.  Arbitrations under such contracts are not susceptible to judicial review.  By similar token, I do not believe that I have jurisdiction to entertain the proposed judicial review, merely because arbitration of differences arising under the franchise is provided for by statute.

15.  I note in passing that Mr. Dykes SC (appearing for the applicants) said in submission that, with the exception of a right to seek judicial review, it was not his case that EHCO s.55 conferred substantive rights on the applicants.  More specifically, Mr. Dykes stated that it was not his case that the applicants had a right to have material changes to Hong Kong’s economic conditions considered in any arbitration under EHCO s.55.

B. Interest

16.  But assume that I am wrong on the question of jurisdiction.  I think that the applicants would still be in difficulty, as I do not believe that they have a sufficient interest to bring this application.

17.  The applicants say that they have standing because as taxi drivers they have been materially affected by the $10 rise in EHT toll.

18.  The applicants say that they have been affected because potential passengers now choose to take the MTR rather than taxis.  Further, their customers now opt to travel between Hong Kong Island and Kowloon by the Cross Harbour Tunnel (CHT), rather than by the EHT.  There is greater congestion on the CHT and thus longer queuing time.  It is asserted that the longer a taxi has to wait to cross the CHT the fewer hires overall it can take.  As a result, Mr. Chan says that his income has dropped by 20%, while Mr. Poon says that he has lost 15%.

19.  The grounds on which the applicants claim to be affected strike me as tenuous.  The quality of the evidence on the matter is poor.  Let me give examples of the doubts which I have on the evidence. 

20.  First, I do not see how the applicants can complain, if more people take the MTR.  The latter mode of transport is likely to be more fuel efficient and environmentally friendly than private cars.  I do not think that the applicants can insist that commuters travel by taxi instead of MTR. 

21.  Second, I do not understand the complaint about queuing time at the CHT.  The proposition assumes that the taxis are in fact being hired by passengers to cross the harbour.  It is unclear from the applicants' evidence whether such passengers would have used the EHT instead of the CHT, but for the fare increase. 

22.  Third, the queuing time at the CHT may or may not mean fewer hires.  No numbers are given in the evidence of the extent to which waiting time at the CHT has increased since higher fares were introduced in May 2005 at the EHT.  No numbers are given of how many fewer passengers the applicants have been able to pick up as a result of the EHT toll rise and waiting at the CHT.

23.  Fourth, taxis earn not just from mileage covered, but for time spent idling in traffic.  It is not apparent from the evidence by how much (if at all) the applicants are compensated by the extra fare accruing as a result of the longer time (including waiting) which it takes to carry a passenger across the harbour via the CHT.

24.  Fifth, the affidavit evidence asserts that "as a consequence" the applicants have sustained 15%-20% drops in income.  It is unclear how precisely these figures have been calculated.  How do the applicants know, for instance, that the decline in income is not due to the drastic deterioration of the Hong Kong economy since 1997?

25.  Leave for judicial review is an ex parte application.  There is a duty on an applicant to make full and frank disclosure of all material circumstances.  I would accordingly have expected much fuller explanation of the extent to which the applicants' business was specifically affected by the EHT fare increase.  On the cursory evidence provided, I do not think that a sufficient case on standing has been made out.

C. Merits

26.  Let me now assume that I am wrong on both the questions of jurisdiction and standing.  The applicants' case is still fraught with difficulty.  On the merits, I do not believe that the applicants' case is arguable.  In my opinion, any judicial review would be bound to fail.

27.  The applicants say that the arbitrators erred because they failed to appreciate that, since the last EHT toll review in March 1997, there has been a “material change” in the economic conditions of Hong Kong.  In discounting such a change, the arbitrators (the applicants contend) failed to take a relevant factor into account contrary to EHCO ss.55(4)(a) and (f).  The arbitrators (the applicants submit) therefore acted ultra vires.

28.  In the Reasons for their Award, the arbitrators certainly appreciated that since March 1997 economic conditions in Hong Kong had "drastically deteriorated, due largely to the Asian financial crises starting in the second half of 1997 and the SARS outbreak in Hong Kong in 2003".  The arbitrators also refer to 2 stock market crashes since 1998.

29.  But the arbitrators conclude (at Reasons §§14.7 and 14.8):-

"	In considering whether the economic downturn or changes since 1997 are 'material' within the meaning of section 55(4)(a) of the Ordinance it is relevant to put these changes into the context of the life of the project. First, that there is a possibility (no more) that based on the Government's forecast the GDP for 2004 will be positive. Further, that in spite of the unprecedented downturn, the CPI for 2003 was still 28% higher when compared to that in 1992 and that the CPI for 2003 was almost exactly the same as that for 1995. Similarly, reference is made to the increase in the Hang Seng Index since the beginning of the project. In spite of crashes in August 1998 when it was 6,545 and in September 2001 when it was 8,894 in December 2003 the level had risen to 12,576. Further, at the end of 2003 the index stood at 12,240 whereas at the end of 1995 it was 10,073.
	Even the GDP for 2003 was slightly higher than in 1996 and substantially higher than in 1995."

30.  Professor Francis Lui, an economist giving evidence on behalf of the applicants, criticises the arbitrators' reasoning in 2 respects.

31.  First, he believes that the arbitrators were wrong to take an internal rate of return (IRR) of between 15% to 17% as the reasonable band of remuneration for NHKTC over the life of the EHT franchise.  Based on his analysis of the average rates of return for capital investment in Hong Kong between 1986 and 2004, Professor Lui suggests that something like 12.9% or 13% would be reasonable and anything higher excessive.

32.  Second, he believes that Reasons §§14.7 and 14.8 are wholly illogical.  He states (at §§14-16):-

"	Now I proceed to show that the criteria used by the Arbitrators to evaluate the significance of the economic change between 1997 and 2004 are totally misguided. Paragraphs 14.7 and 14.8 of the Arbitrators' 'Reasons for Award' reveal the criteria they have used.  Essentially, they say that the Consumer Price Index (CPI) for 2003 was almost the same as that for 1995, and GDP for 2003 was slightly higher than in 1996. Even though the Arbitrators have failed to mention that both the Hang Seng Index and the CPI in 2003 were actually LOWER than those in 1997, when the previous arbitration took place, I do not want to be harsh on the details they provide. The implicit logic behind their conclusion is very clear. Since today's GDP, CPI and Hang Seng Index are not too much different from those in 1997, the changes in economic conditions should be regarded as immaterial. The previous arbitration in that year concluded that the reasonable rate of return was 15% to 17% for the Company. Therefore, the same rate of return should apply today.
	This logic is totally incorrect. The rate of return of an investment does NOT depend on the LEVELS of GDP, CPI or Hang Seng index. Rather, it depends on the RATES of CHANGE in these variables. If today's GDP were the same as before, then economic growth would be zero. The rate of return of an investment would also be very low, or even negative. In this regard, I refer to paragraph 21 of the Form 86A and confirm that the statement about the GDP growth rate and the inflation rate are correct according to my expertise and calculations.
	If today's Hang Seng Index were the same as before, it would mean that very little had been made from investing in the stock market. If the CPI of today were equal to or lower than before, then there would have been zero inflation or even deflation, and the nominal rate of return would have to be reduced. From 1986 to 1997, average annual real GDP growth rate was 5.9%, average inflation rate was 8.5% per year, and the rate of increase of the Hang Seng Index was around 18% per year. The corresponding figures for the period 1997 to now are 3%, -1.9% and -1%, respectively. If drastic changes of this order of magnitude were regarded as immaterial, it would be a mockery of section 55(4)(a) of the Ordinance. Had the Arbitrators been able to use the appropriate criteria for evaluating the significance of the changes in economic conditions, they would have come up with just the opposite conclusion with the evidence they cited."

33.  The applicants have recently filed a supporting Affirmation by Dr. Law Cheung Kwok.  In addition to agreeing with Professor Lui, Dr. Law states (at §8):-

"[T]he Hong Kong economy indeed changed or deteriorated very significantly during the 1997 to 2004 period as compared with 1986 to 1997.  In terms of employment, the unemployment rate increased very sharply from an average of 2.0% during 1986 to 1997 to 5.6% during 1997 to 2004. In terms of the financial position of the Hong Kong Government, a surplus fiscal position (annual average) was equivalent to 2.6% of GDP during the 1986-1997 period, and it turned into a deficit fiscal position (annual average) of -0.9%  during the 1997-2004 period."

34.  I have not found the evidence from either Professor Lui or Dr. Kwok helpful.  It seems to me that they misunderstand the thrust of the arbitrators’ reasoning.

35.  In the March 1997 toll review, Mr. Rokison QC (then sitting as sole arbitrator) determined that an IRR of 15% to 17% was the reasonable band of remuneration for NHKTC over the life of the franchise. 

36.  In determining this, he took into account as a starting point the parties' contemplation in or around the time when the franchise was granted, of what a reasonable (but not excessive) IRR ought to be.  Although he took such factor into account by the agreement of the parties in the arbitration, that method of proceeding was entirely consonant with general contract law principle. 

37.  The EHT franchise was a commercial contract between NHKTC and Government.  To arrive at the IRR which the parties would have deemed to be "reasonable but not excessive", contract law first requires that one objectively assess the parties' intentions at the time when the franchise was granted. 

38.  Obviously, the assessment exercise just described is only a starting point.  On a submission to vary tolls, the arbitrators must further consider whether any of the factors in EHCO s.55(4) affect the IRR originally contemplated.

39.  The simple point, however, is that determination of a reasonable IRR is not purely an economic exercise.  It also requires an investigation of fact, including the contemplation of the parties at the time of contracting. 

40.  Neither Professor Lui nor Dr. Law are qualified to say what as a matter of fact the parties contemplated at the time of entering into the franchise.  This is because neither Professor Lui nor Dr. Law were involved in the franchise negotiations at the time.  Indeed, strictly (in contrast to the arbitrators) neither are even in a position to compare NHKTC's cash flows at the time of a specific toll review and the time when the franchise was granted.  All that Professor Lui and Dr. Law can speak to is what historically the average IRR on capital has been in Hong Kong over any given period.

41.  I do not see how Professor Lui or Dr. Law can pronounce on the reasonableness or unreasonableness of the arbitrators' conclusion on the basis of their economic expertise alone.  The arbitrators' exercise was one that involved, not just the consideration of economic data, but also the evaluation of law and fact (for instance, the parties’ contemplations on the one hand and NHKTC’s cashflow and cumulative profit information on the other).

42.  All the arbitrators were saying in Reasons §§14.7 and 14.8 is that despite pronounced "deterioration" in Hong Kong's economic conditions between 1997 and 2003, leading indices suggest that Hong Kong was no worse off in 2003 (perhaps it was even marginally better), than it was in 1995.  Note that May 1995 was the time when NHKTC previously applied for an increase.

43.  Since in 1995 an IRR of 15% to 17% was reasonable in all the circumstances then prevailing, it follows that the same IRR should hold good in 2003.  The changes to the Hong Kong economy between 1997 and 2003, although serious and significant, were not "material" within the terms of EHCO s.55(4)(a).

44.  The arbitrators were not (as Professor Lui asserts) saying that IRR depends on the levels of GDP, CPI or the Hang Seng Index.  The arbitrators were merely comparing and contrasting Hong Kong's overall economic position in 1995 with that in 2003. 

45.  I cannot see how it can be argued that the arbitrators conducted themselves wrongly or unreasonably in what they did.  On the contrary, their reasoning is impeccable and wholly within the terms of their mandate under EHCO s.55(4). 

46.  I therefore am not persuaded that the applicants' position is arguable.

47.  I would make a further observation on the expert evidence from Professor Lui and Dr. Law. 

48.  The "IKARIAN REEFER" [1993] 2 Lloyds Rep 68 (at 81) gives useful and well-known guidance on expert evidence in civil cases. Cresswell J's guidelines in that case include the following:-

"	1.	Expert evidence presented to the Court should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of the litigation.
	2.	An expert witness should provide independent assistance to the Court by way of objective unbiased opinion in relation to matters within his expertise… An expert witness in the High Court should never assume the role of an advocate.
	3.	An expert witness should state the facts or assumptions upon which his opinion is based. He should not omit to consider material facts which could detract from his concluded opinion…
	4.	An expert witness should make it clear when a particular question or issue falls outside his expertise.
	5.	If an expert's opinion is not properly researched because he considers that insufficient data is available, then this must be stated with an indication that the opinion is no more than a provisional one… In cases where an expert witness who has prepared a report could not assert that the report contained the truth, the whole truth and nothing but the truth without some qualification, that qualification should be stated in the report…"

49.  Although Cresswell J was specifically dealing with expert evidence at trial, similar principles should apply to expert evidence in civil cases generally.  This must especially be the case in ex parte applications, where there is a duty of full and frank disclosure on an applicant.

50.  From the passages from Professor Lui's affirmation already quoted, it will be seen (and Mr. Dykes accepted in submission) that Professor Lui was not giving evidence as an independent expert, but as an advocate.  His evidence and that of Dr. Law do not comply with the requirements of "IKARIAN REEFER".

51.  Assertions were made in the course of Professor Lui's affirmation with little or any supporting material.  The Court was therefore in some difficulty in evaluating his evidence, even if only in a preliminary way.

52.  Further, Professor Lui freely ventured into matters outside his economic expertise, expressing unqualified personal views (for example) on matters of law.

53.  Let me give examples.

54.  At Affirmation §7, Professor Lui says:-

"However, for all practical purposes, [NHKTC] has only to face lower-than-average risks.  Thus, a 'reasonable' expected rate of return for the Company should be one that is LOWER than the average rate of return in the economy." 

It is not apparent on what facts and matters Professor Lui is relying when he asserts that NHKTC only faces "lower-than-average risks".  Nor is it clear to me how Professor Lui can state any useful opinion on what is or is not "reasonably but not excessively remunerative" within the terms of EHCO s.55(4).  That would be a matter of law.

55.  At Affirmation §10, Professor Lui refers to his calculations of IRR based on the "celebrated Solow Growth Model". But he does not condescend to details about the model and its assumptions.  There is little material for the Court to evaluate, even in a preliminary way, whether the Solow model is or is not relevant.

56.  At Affirmation §11, Professor Lui states: "In other words, given the average performance of the Hong Kong company from 1986 to now, the Company has already been enjoying an expected rate of return that should be regarded as excessively high".  One asks: "Regarded by whom?"  Not only is the statement partisan, but it also constitutes an opinion (which Professor Lui is not qualified to give) on the legal interpretation of "excessive" in EHCO s.55(4).

57.  In Affirmation §16, Professor Lui makes the statement already quoted that "[i]f drastic changes of this order of magnitude were regarded as immaterial, it would be a mockery of section 55(4)(a) of the Ordinance."  Again the statement is partisan.  Once more it imports a legal interpretation, this time through the word "material" in EHCO s.55(4)(a).

58.  Dr. Law adopted Professor Lui's evidence, thereby subjecting his own affirmation to similar criticism.

59.  These derogations from the standards summarised by Cresswell J, undermine the reliance which a judge can place on the evidence.  The experts are advocates and cannot be regarded as independent or impartial.  This is potentially fatal in an ex parte application which calls for a fair and balanced presentation of a case.

D. Delay

60.  In light of my conclusions, the issue of delay does not arise.  I merely note that, even if I had found that the applicants' case was arguable, I would have held that there had been undue delay.

61.  The Award was made on 20 January 2005.  It was amended on 28 February 2005.  On 11 March 2005 the Award was made public and Government announced that it would not appeal against it.  The judicial review was not brought until 21 July 2005, more than 4 months after the Government's announcement.  This is more than 1 month outside the 3 month limit for bringing judicial review.

62.  The applicants say that they only learned of the award in late March 2005, when they became aware that the EHT toll was likely to come into effect on 1 May 2005.

63.  The applicants say that it took them "a substantial amount of time to consult lawyers and find the necessary finance for instituting these proceedings".  They say that they received contradictory legal advice.  They only obtained "secure formal legal representation" in mid-June 2005 and have been represented by leading counsel since mid-July 2005. 

64.  Time was also spent looking for an expert.  Professor Lui, although “formally” instructed in mid-June 2005, only produced a draft statement on 6 July 2005.

65.  The incidents described by the applicants are insufficient to explain their delay.  In response to a question from me in the course of his submissions, Mr. Dykes singled out the time required to prepare Professor Lui's evidence as the key contributor to the delay.  But, in my view, the time taken to consult lawyers or experts is an ordinary incident of any litigation and cannot by itself excuse delay.

66.  Mr. Dykes’ skeleton asserts that "no prejudice arises".  But in submission he acknowledged that there may or may not be prejudice to NHKTC as a result of the late application here.  There is no evidence one way or the other on the point.

III. Conclusion

67.  For the reasons canvassed above, leave to apply for judicial review is refused.