Dickson Construction Co. Ltd v. Schindler Lifts (HK) Ltd And Another

1992, No.125
(Civil)

IN THE COURT OF APPEAL

(On Appeal from High Court Action No.MP545 of 1992)

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J U D G M E N T

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Nazareth, J.A. :

1. This is the judgment of the Court.

2. On 29th May 1985, the Government of Hong Kong, the 2nd respondent, as employer entered into a main contract with the appellant ("Dickson") as main contractor for certain works to be carried out at Kai Tak Airport. It was a substantial contract, and on 21st October 1986, Dickson entered into a nominated sub-contract with the 1st respondent ("Schindler") in relation to various lift and escalator works at the airport.

3. Disputes arose out of both the main contract and the sub-contract. On 19th June 1991, His Honour Judge Leonard (as he then was) appointed Dr John UFF, Q.C. as the arbitrator in the sub-contract arbitration. Subsequently Kaplan J. appointed Dr Uff as the arbitrator in the main contract arbitration. By a summons dated 25th February 1992, Dickson applied under s.6B of the Arbitration Ordinance (Cap. 341) for an order that the arbitration proceedings be consolidated, i.e. be heard together. The judge having heard the submissions of Mr K.M. Chong for Dickson and of Mr John Scott for Schindler, who also appeared for Schindler below, dismissed Dickson's application.

4. Before addressing the submissions of Mr Richard Mills-Owens for Dickson, who appears with Mr K.M. Chong and Mr Walter Lau, it is helpful to indicate the nature of Schindler's and Dickson's respective cases in the sub-contract and the main contract arbitrations.

5. In the former, Schindler alleged that it suffered loss and damage as a result of delay and disruption to sub-contract works due to breaches on the part of Dickson of express and implied terms of the sub-contract including postponement of work, late provision of access for delivery of equipment to the site, late handover to it of lift shafts, machine rooms and other work areas, delayed performance by Dickson of interfacing work, general failure by Dickson to co-ordinate work, late provision of temporary and/or permanent power, and variation of the time and sequence of works. Schindler also averred that there were implied terms in the sub-contract the breach of which would entitle it to monetary compensation, but conceded that there was no express term in the sub-contract providing for compensation for loss due to delay.

6. Dickson admitted delay but averred that the delay was caused by Schindler, by the Government, and by the Government's specialised contractor.

7. Dickson denied the existence of the implied terms, and averred that if it had been in breach of the implied term, having regard to other provisions in the sub-contract, an extension of time would have been an exhaustive contractual remedy.

8. In the main contract arbitration Dickson claimed against Government for loss and damages and an indemnity against Schindler's claim by reason of :-

(1) Disruption and delay in the execution and completion of the main contract work (and the sub-contract work) caused by breach of the main contract by Government -

(a) in failing to give possession of the site for the main contract work;

(b) in preventing, hindering or otherwise obstructing the execution of the main contract work;

(c) by ordering cessation of the main contract work; and

(d) by issuing variation orders varying the nature, sequence, timing and progress of the main contract work.

(2) Breach of an implied term of the main contract that the Government would not directly or indirectly prevent, hinder or otherwise obstruct Dickson or the Government's nominated sub-contractors from executing the main contract works, or cause Dickson to be in breach of its sub-contract with nominated sub-contractors.

9. The Government, while admitting granting extensions of time due to variation orders made by its architect which affected the nature, sequence, timing and progress of the main contract work, denied that -

(1) Government was responsible for the delay in the execution of the main contract work;

(2) There was the implied term as pleaded.

The Government's case was that the grant of extension of time and the award of prolongation costs provide an exhaustive contractual remedy.

10. Sub-section (1) of s.6B of the Arbitration Ordinance, under which Dickson's summons was taken out, is in the following terms -

"Where in relation to two or more arbitration proceedings it appears to the Court -

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this section,

the Court may order those arbitration proceedings to be consolidated on such terms as it may think just or may order them to be heard at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them."

11. The grounds upon which Kaplan J. refused the order sought, as conveniently adumbrated in Mr Mills-Owens' skeleton argument, were as follows :-

(a) that there was a large gap between the quantum of claim involved in the main contract arbitration ($7 million); and in the sub-contract arbitration ($0.7 million);

(b) the time required for hearing of the main contract arbitration would be 2-3 months, while the time required for hearing of the sub-contract arbitration would only be 2 weeks;

(c) there was insufficient factual and legal connection between the main contract arbitration and the sub-contract arbitration, and Dickson had failed to establish sufficient connection between the two;

(d) the two arbitrations were out of step. The sub-contract arbitration was then ready for setting down but the main contract arbitration was then not ready and it might perhaps take two years before it was ready. The arbitrator was only able to sit a few weeks a year;

(e) if an order were made under s.6B, there would be considerable delay to Schindler who would be forced to sit through a considerable amount of evidence and submissions which did not concern it and it would inevitably increase their exposure to costs.

12. Mr Mills-Owens submitted that the judge erred in relying on the foregoing grounds, or in coming to the conclusions embodied in them, and that this vitiated the exercise of his discretion in refusing to grant the order sought; also that on a proper exercise of discretion it would be appropriate to have one hearing. Mr Mills-Owens embarked upon his justification of those contentions by submitting that there was a fundamental misunderstanding or misdirection on the part of the judge as to the nature of the order sought by the appellant. What was sought, he contends, was not an order to join Schindler as a party to the main contract arbitration, but for the two arbitrations to be heard at the same time. Such an order, he submits, would enable issues of law and fact common to both arbitrations to be heard together resulting in all parties being able to present their case on such common issues and to be bound by any findings upon them. Appropriate directions would be sought from the arbitrator so that issues not common to both arbitrations would be heard separately. The arbitrator, being the master of his own procedure, could determine the time when the issues common to both arbitrations should be heard and that therefore there would be no question of Schindler being forced to sit through a considerable amount of evidence and submissions which did not concern it, nor of being forced to incur expenses for the hearing of issues on matters not concerning it. He pointed to the approach of the judge in Re Shui On Construction Co. Ltd. v Schindler Lifts (HK) Ltd. [1986] HKLR 1177 at pp 1187, 1188.

13. However, we are satisfied from what we were told by Mr Scott for Schindler, and from the skeleton argument of Mr K.M. Chong who appeared for Dickson below, that what was sought from the judge was somewhat different from that put to this Court as the nature of the joint hearing envisaged. As we have indicated, before us it was suggested that an order that the two arbitrations be heard at the same time would enable the learned arbitrator to try and determine issues common to both arbitrations at the same time and thus to save two attendances by counsel and witnesses. On this basis, it appears to be envisaged that the common issues would be carved out of the two arbitrations and heard together, the other issues apparently being dealt with at other times with it then being necessary for only the two parties concerned and their witnesses to attend.

14. It is not entirely clear to us how this was to be achieved with, at the same time, considerable savings in the amount of evidence, submissions, attendance and expenses. Originally, on 1st January 1992, in writing to seek Mr Uff's services as arbitrator, Dickson's solicitors stated that "in order to save time and expense for two arbitration proceedings involving common issues of law and facts, counsel has advised our client to apply for consolidation of the two arbitration proceedings so that the disputes amongst the three parties may be proceeded at one going". From Mr Chong's skeleton arguments at the hearing below, it seems that this theme was maintained, at any rate, so far as the issues of liability were concerned for they contemplated an order being made for both actions to be tried up to the determination of the issue of liability leaving the issue of quantum to be dealt with separately in the two arbitration proceedings. Dickson, therefore, itself does not appear to have been entirely clear on what it proposed or was seeking, and could hardly have been in a position to complain had the judge misunderstood. However that may be, the judge was particularly knowledgeable and experienced in arbitration and, we have no reason to doubt, would not have overlooked the scope under a consolidation order for the arbitrator to arrange for common issues to be heard together, and others howsoever with due regard to mutual convenience, economy, and so forth. In short, we are not persuaded that there was such a misunderstanding or misdirection as contended for, or, if there were, that it would have had any significant effect upon the judge's exercise of his discretion.

15. Mr Mills-Owens also submitted that there was a fundamental misunderstanding by the judge of counsel's estimate of the extra time required if a joint hearing were ordered under s.6B. His complaint arose out of the following passage at p 3 of the judgment (upon which other complaints are also made) :

" The main contract arbitration involves a claim of approximately $7,000,000. Mr O'Sullivan, [counsel for the Government below] supported by Mr Scott, estimates that it is likely to last some 2 to 3 months. Mr Chong takes issue with this estimate but his counter estimate is so absurdly short that I can give it little credence. I prefer to rely on Mr O'Sullivan's estimate.

The sub-contract arbitration involves a claim for some HK$700,000. Mr Scott estimates that it would take weeks rather than months. On behalf of his clients he is horrified at the prospect of being joined into a larger and longer arbitration which may last for some 3 to 4 months."

16. It seems that counsel for Dickson had estimated that, if an order for a composite hearing under s.6B were made, an extra 3-4 days would be required. It is submitted before us that this estimate was made on the basis that in any event as between Dickson and Schindler, the issues as to first, who and to what extent caused the delay, and second, the existence of the implied term would require the same, or substantially the same evidence, and that therefore the joinder of the Government for the determination of the same issues (as between Dickson and the Government) would not substantially increase the time required for the hearing of the sub-contract arbitration. Mr Scott rejects the suggestion that there was any such misunderstanding on the part of the judge. He points to the uncertainty on Dickson's part of precisely what was envisaged by way of a joint hearing and to the present being the third version. He points also to the following passage in a letter addressed by Dickson's solicitors to Dr Uff's clerk in January 1992 :

"In the event our application for consolidation before Mr Uff was successful, it is our view that the consolidated hearing need not at most be 3-4 days over the estimated length of the arbitration hearing between our client and Schindler Lifts."

17. Mr Mills-Owens also complains that the judge was in error as to the time Dr Uff would be available to sit each year. He refers to the following at p 4 of the judgment:

"I have been shown correspondence from Dr Uff's clerk which indicates that, due to his other commitments, he will be unable to sit on either arbitration (or a consolidated one) for more than a few weeks each year. If I were to order consolidation, I would effectively be preventing Schindler from getting their arbitration determined for some considerable time perhaps some two years."

Dr Uff's clerk had in fact written:

"Mr Uff has various commitments over the next two years that would not allow him to be out of the U.K. for periods longer than 2/3 weeks at any one time."

18. Clearly the judge was in error in taking the view that Dr Uff would not be available for more than a few weeks each year. Although it may be that it was upon that basis that he concluded that consolidation would effectively prevent Schindler from getting their arbitration determined for perhaps 2 years, all the evidence points to that conclusion being right, whatever the basis upon which it was reached.

19. In a related context the following passage also at p 4 of the judgment is referred to:

"Another feature of this application that has caused me considerable concern is that although neither arbitration has been set down for a hearing, the sub-contract arbitration is virtually ready for dates to be fixed."

Mr Mills-Owens submits that the latter conclusion is erroneous in that even after the judgment of Kaplan J., particulars have been sought and furnished in the sub-contract arbitration. We are not persuaded that this materially affected the judge's conclusion. On the contrary, having heard counsel's submissions and addressed the evidence referred to, we have come to the view that the judge was right in concluding that the sub-contract arbitration was virtually ready for the dates to be fixed. Moreover, which is more to the point, we are satisfied that consolidation even in the sense sought will result in very considerable delay in Schindler getting its arbitration determined.

20. Finally it was submitted that the judge misunderstood or misdirected himself in taking "into account that if these two arbitrations were heard together Schindler would be forced to sit through a considerable amount of evidence and submissions which did not concern them and which would inevitably increase their exposure to costs" in the judge's own words (at p 5 of the judgment). For the reasons already indicated in relation to Dickson's unclear indications of how the joint hearing was to proceed, and the arbitration experience of the judge, we reject this complaint.

21. Reverting to Mr Mills-Owens' submissions, with reference to the two paragraphs we have quoted from p 3 of the judgment, it is submitted that the gap between the quantum of the claims between the two arbitrations was not a relevant consideration. We accept that the gap does not necessarily establish a lack of connection between the issues of the two. Nonetheless, it is indicia of a sort, as Mr Scott put it, and there is no indication that the judge attached any undue weight to it. In approaching his conclusions, at p 5 of the judgment, the judge said :

"At the end of the day, the major factors that persuade me not to make the order are the delay the consolidation will cause to Schindler and the insufficiency of the factual and legal connection between the two arbitrations. Mr O'Sullivan estimated that the main contract arbitration, which is nowhere near ready, would not in fact be ready for some two years. This would cause considerable hardship to Schindler and I am not prepared to permit this."

We have already indicated our view of how far out of step the two arbitrations are, and the delay which consolidation will cause to Schindler in obtaining determination of the sub-contract arbitration. Before the judge, Mr Scott had submitted that there was both delay and obstruction on the part of Dickson. He renewed those submissions before us. They were resisted by Mr Mills-Owens. Having considered the submissions and evidence, we do not find it necessary to do more than refer to the way in which the judge dealt with those submissions, and to say that there is clear evidence of delay on the part of Dickson. We do not find it necessary to express any view on the alleged obstruction. The judge dealt with the matter in the following way:

"I think there is some force in Mr Scott's submissions on this point, but they do not weigh too heavily with me."

22. We turn then to what emerged clearly as the major question in this appeal, i.e. the sufficiency of the factual and legal connection between the two arbitrations. It was not in dispute "that some common question of law or fact arises in both" the arbitration proceedings in terms of s.6B(1)(a) of the Arbitration Ordinance such as to empower the court to order consolidation under that provision. The basic question, correctly identified and pursued before us, was whether there was sufficient "commonality" to enable the judge properly to exercise his discretion to make an order for consolidation. Mr Mills-Owens, in his skeleton identified the common issues of fact and law as:

"(a) whether Dickson, Schindler and the Government or the specialised contractors or any of them were responsible for the delay in the execution of the main contract work (which includes the sub-contract work);

(b) to what extent did Dickson, Schindler and the Government or the specialised contractor cause or contribute to the delay in the execution and completion of the main contract work and the sub-contract work and, what loss and damage was suffered by Dickson and Schindler resulting from such delay; and

(c) whether there was the implied term pleaded by Schindler the breach of which would entitle Schindler to claim for loss and damages and whether there was an identical or similar implied term in the main contract as would entitle Dickson to be indemnified by Government against Schindler's claim against Dickson."

23. Counsel took us, at some length, through the relevant pleadings and evidence. Mr Mills-Owens pointed to the sequence of work provided, whereby work was not to commence in one zone before that in another had been completed, emphasising the potential for the knock-on effect of delay. He submitted that this, particularly in the context of the implied term pleaded by Schindler, created a substantial legal connection between the main contract arbitration and the sub-contract arbitration. In the latter regard he referred us to The Jardine Engineering Corporation Limited & Ors v. Shimizu Corporation (C.L. No.1 of 1992, unreported at pp 70, 71 and 84-93). Given the Government's averment of a supplemental agreement by which the Government contends Dickson abandoned all claims for extension of time and prolongation costs associated therewith, we are not persuaded that this is a common issue of significance. In any case, it is only one of the many matters that have to be addressed. Moreover, as Mr Scott pointed out, it is the fact of delay that Schindler relies upon; it is not concerned with who caused the delay, particularly as the works it was concerned with were completed within extended time. The amount of the claim for indemnity in the main contract shows that it goes beyond Schindler's claim. It is apparent from the main contract arbitration pleadings that the bulk of the claim has nothing or very little to do with Schindler, and moreover that there is no counterclaim by Government. A significant part of Dickson's claim in the main contract arbitration is founded upon daily notional costs, much of which has nothing to do with Schindler, whose sub-contract was but a fraction of the main contract.

24. Mr Houghton for the Government pointed out that substantial allegations and issues of delay do not involve the Government, that the issue of quantum also did not involve Government, and that the implied term was pleaded between Schindler and Dickson and not between Dickson and Government. He submitted, not without justification in our view, that there was no commonality in these major respects.

25. We do not find it necessary to review the relevant evidence and submissions further. While there clearly were common issues of fact and law, which was not disputed, there were also very significant issues of fact and law which were not common. In referring to "the insufficiency of the factual and legal connection between the two arbitrations", we have no doubt that the judge was referring to the extensive lack of commonality between the issues of fact and of law in the two arbitrations notwithstanding that there was some commonality of such issues.

26. Finally Mr Mills-Owens placed considerable reliance upon the possibility of inconsistent decisions in the two arbitrations, and upon the views of Rhind J. in that respect in Re Shui On Construction Co. Ltd. v Schindler Lifts (H.K.) Ltd. [1986] HKLR 1177 at 1186:

"Clearly, the prospect of two separate arbitrations, even before the same arbitrator, is intolerable, because of the possibility of inconsistent decisions. The witnesses on the common matters of fact might not give their evidence the same each time, and the submissions on the law might not be the same for the common points in the arbitrations. Hence, inconsistent verdicts might occur. How the Courts recoil from the prospect of inconsistent findings in situations involving common issues is illustrated by a wealth of authority ..."

The judge then proceeded to list a number of authorities which it is not necessary to specify here. He went on at p 1187:

"There is also the point that the claimant in the arbitration heard second might feel that the arbitrator had already pre-judged the issues in the first arbitration without the claimant in the second arbitration having had any opportunity to influence him. That was a risk deplored in Abu Dhabi Gas Liquefaction Co. Ltd. v Eastern Bechtel Corporation [by] Lord Denning M.R. ..."

Clearly the risk of inconsistent decisions is a potent factor. But it nonetheless is only a factor, and the decision to make an order of consolidation, it is not in dispute, remains in the discretion of the judge. There is no suggestion that he did not take into account the risk of inconsistent decisions or that he did not appreciate the decision was a matter within his discretion. In his judgment he stated at p 2:

"The grounds of the application are in common form. Mr K.M. Chong for Dickson submits that consolidation will be cheaper for his clients and will avoid inconsistent findings of fact and multiplicity of proceedings.

To some extent, the risk of inconsistent findings of facts is greatly reduced by the fact that the arbitrator in both arbitrations is the same person. I accept, of course, that the evidence might be different, but nevertheless, I think it appropriate to attach only a little weight to this consideration."

27. We accept that there is a risk of inconsistent decisions in the sub-contract arbitration being heard first. But in having the same arbitrator, and we observe an arbitrator of great experience and distinction, we do not feel able to say that the judge was wrong in attaching what he referred to as "only a little weight" to this consideration, particularly as it was only one of the factors that he had to weigh in the exercise of his discretion.

28. In the latter regard, we find it helpful to refer to Payne v British Time Recorder Company [1921] 2 KB 1, a case concerned with the joinder of parties to which counsel referred. Scrutton L.J. observed, at p 16, that :

"It is impossible to lay down any rule as to how the discretion of the Court ought to be exercised. Broadly speaking, where claims by or against different parties involve or may involve a common question of law or fact bearing sufficient importance in proportion to the rest of the action to render it desirable that the whole of the matters should be disposed of at the same time the Court will allow the discretion as to how the action should be tried."

Lord Sterndale M.R. at p 11 said:

"I agree that as regards the question of discretion this case is not the same as any of the decided cases. It is very near the line. Questions are raised between the plaintiff and one of the defendants which are not raised between him and the other defendants, but there is one very important question which is common to both defendants - namely, whether the cards were up to sample. If that is decided the rest of the case is mere fringe."

The latter is far from being the situation here. The non-common issues could arguably be said to be the more important. Indeed, Mr Houghton for the Government submits with some force that the common issues are mere fringe.

29. To come to our conclusions then, as we have indicated, we are not persuaded that there were any misunderstandings or misdirections on the part of the judge that would vitiate the exercise of his discretion. Accordingly, what we are being invited to do, is to interfere with the judge's exercise of his discretion. In that regard this Court has a limited function. Its function -

"is not to exercise an independent discretion of its own. It must defer to the judge's exercise of his discretion and must not interfere with it merely upon the ground that the members of the appellate court would have exercised the discretion differently. The function of the appellate court is initially one of review only. It may set aside the judge's exercise of his discretion on the ground that it was based upon a misunderstanding of the law or of the evidence before him or upon an inference that the particular facts existed or did not exist, which, although it was one that might legitimately have been drawn upon the evidence that was before the judge, can be demonstrated to be wrong by further evidence that has become available by the time of the appeal; or upon the ground that there has been a change of circumstances after the judge made his order that would have justified his acceding to an application to vary it. ... there may also be occasional cases where even though no erroneous assumption of law or fact can be identified the judge's decision to grant or refuse the injunction is so aberrant that it must be set aside upon the ground that no reasonable judge regardful of his duty to act judicially could have reached it. It is only if and after the appellate court has reached the conclusion that the judge's exercise of his discretion must be set aside for one or other of these reasons, that it becomes entitled to exercise an original discretion of its own." (per Lord Diplock in Hadmor Productions v Hamilton [1983] 1 AC 191 at p 220 B-F.)

We are satisfied that none of such reasons has been shown. Nor do we find ourselves in a position to say, in terms of the submission made to us, that it is appropriate to have one arbitration, or that this would meet Lord Diplock's foregoing criteria. We have no hesitation in concluding that the judge was fully entitled on the material before him to exercise his discretion in the way he did. Moreover, in expressing that conclusion we do not say, as appeal courts sometimes do, that we might not have exercised our discretion in the same way. Accordingly, the appeal fails and is dismissed.

30. We make an order nisi that the respondents are to have their costs of the appeal.