P v. C

HCCT 27/2019

[2019] HKCFI 2625

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 27 OF 2019

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D E C I S I O N

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Background

1.  This is an application made by the Plaintiff for leave to appeal against the Interim Award of the Arbitrator published on 10 April 2019 (“Award”), in an arbitration in Hong Kong relating to the renovation and conversion of a building in Wanchai (“Arbitration”).  The application is made pursuant to s 6 (1) (b) of Schedule 2 (“Schedule”) to the Arbitration Ordinance (“Ordinance”), and 3 questions of law are identified for the intended appeal.  There is no dispute that the Schedule applies, as the agreement between the parties provides for the Arbitration to be domestic, and for the HKIAC Domestic Arbitration Rules to apply to the Arbitration.

2.  Under s 6 (3) of the Schedule, the Court “must” determine an application for leave to appeal without a hearing unless it appears to the Court that a hearing is required.  Under s 6 (4), leave to appeal is to be granted only if the Court is satisfied that (a) the decision of the question will substantially affect the rights of one or more of the parties; (b) the question is one which the arbitral tribunal was asked to decide; and (c) on the basis of the findings of fact in the award, the decision of the tribunal on the question is “obviously wrong”; or the question is one of general importance and the decision of the tribunal is “at least open to serious doubt”.

3.  Pursuant to directions of the Court, written submissions were filed on behalf of the parties in support of and in opposition to the application.  The Court further directed that no hearing is required, all in line with the objectives set out in s 3 of the Ordinance.

4.  It has to be borne in mind that an application for leave to appeal on a question of law arising out of an award is a filtering process.  As highlighted in the decision of Mustill J (as His Lordship then was) in Vinava Shipping Co Ltd v Finelvet AG (The “Chrysalis”) [1983] 1 Lloyd’s LR 503, the court at the first stage, of the application for leave, gives effect to the policy whereby “the interests of finality are placed ahead of the desire to ensure that the arbitrator’s decision is strictly in accordance with the law.” As His Lordship explained:

“Some examination of the merits takes place at this stage, because the stronger the applicant’s case for saying that the arbitrator was wrong, the better his prospect of obtaining leave to appeal. But the examination of the law is summary in nature, and does not lead to any definite conclusion. The exercise is discretionary throughout; the mesh of the filter is fine; and it must, I think, he recognized that some cases will be caught in the filter which would, if the appeal had been allowed to go forward, result in a decision that the award could not stand.”

5.  The judgment in The Chrysalis also contains a helpful summary on the 3 stages of an arbitrator’s process of reasoning, with the reminder that only the second stage of the process is the proper subject matter of any appeal on law:

“(1) The arbitrator ascertains the facts. This process includes the making of findings on any facts which are in dispute.

(2) The arbitrator ascertains the law. This process comprises not only the identification of all material rules of statute and common law, but also the identification and interpretation of the relevant parts of the contract, and the identification of those facts which must be taken into account when the decision is reached.

(3) In the light of the facts and the law so ascertained, the arbitrator reaches his decision.”

6.  The Plaintiff and the Defendant in this case had entered into an agreement (“Contract”), whereby the Plaintiff engaged the Defendant as the main contractor to carry out renovation and alteration works (“Works”) for a building in Wanchai, Hong Kong.  Commencement of the Works was on 1 November 2012, with a date for completion of 26 September 2013 under the Contract.  The Works were significantly delayed and handed over to the Plaintiff on 31 March 2015, at which point the Defendant vacated the site.

7.  The disputes referred to arbitration pursuant to the Contract related to the Defendant’s claims of payment for work done and materials supplied under the Contract, extensions of time, and loss and expenses or alternatively damages arising from delay.  By way of counterclaim in the Arbitration, the Plaintiff sought damages for defects, contra charges, liquidated damages for the Defendant’s failure to complete the Works within a reasonable time, and to open up and revise an extension of time (“EOT”) granted by the project manager.

8.  The questions for which leave to appeal is currently sought, as identified in this application for leave, relate to:

(1)  whether the Defendant is entitled to any extension of time for the delay of 105 days in respect of what has been referred to as the “KC Period” (“EOT Question”);

(2)  whether the Defendant’s loss and expense claim for 179 days was time-barred for non-compliance with the condition precedent set out in GCC 28.1 and GCC 28.2 of the Contract (“Time Bar Question”); and

(3)  whether on the true construction of the relevant provisions of the Contract, the responsibility for the condition of window openings to the Building and their reconstruction are to be borne by the Defendant, or the Plaintiff (“Risk Allocation Question”).

EOT Question

9.  Neither party has raised issue as to whether decisions on the questions on which leave to appeal is sought will substantially affect the rights of one or more of the parties, which is one of the conditions to be satisfied under s 6 (4) of the Schedule.  As the Award dealt with claims and counterclaims for substantial amounts in the Arbitration, I accept that if the arbitrator is shown to have erred in his decision on the questions, the Award would be reduced by a significant sum, to substantially affect the rights of both parties.

10.  The EOT Question is whether the Defendant is entitled to any EOT under the Contract for the relevant period of delay.  According to the Plaintiff, the issue on this question is whether there was evidence before the tribunal to support the arbitrator’s findings on the cause of the delay involved, and the fact that the relevant delay was a continuation of the issues afflicting the condition of the brickwork infill panels.

11.  First, this issue as framed is a determination on the facts of this case, and is a one-off event dependent on the particular facts.  It is not a question of general importance, and under s 6 (4) (c) of the Schedule, leave to appeal will only be granted if, on the basis of the findings of fact in the Award, the decision of the tribunal is “obviously wrong”.

12.  The Plaintiff has identified paragraph 656 of the Award, where the arbitrator states his finding “as a matter of fact that the substantial delay within the KC period was a continuation of the issues afflicting the condition of the brickwork infill panels”, and that all the critical delays are the liability of the Plaintiff.

13.  In context, the arbitrator stated earlier, from paragraph 655 of the Award, thus:

“655 Inexplicably, for a project in such dire straits and on a short programme, it took a further 68 days to appoint a replacement window specialist i.e. KC, the appointment of which was driven entirely by the Claimant [ie the Defendant]. There then ensured a further delay, according to Mr A, of 105 days due to the slow progress of KC. While Mr A criticizes the performance of KC he does so in only a general manner and identifies no specific points. Occurring contemporaneously with these delays was the overarching delay arising from the mismatch of windows due to the state of the Building. While Mr A has identified a period of 212 days I consider it occurred concurrently with other matters such that it is not appropriate to ascribe any specific period to the activity. Both Mr A and Mr B agree that a delay of at least 391 days arose from the windows activity. This was a matter which was intended to take a matter of months but in fact took almost 2½ years to complete.

656 I also find that due to the preponderance of the earlier (four) delaying events that it is inappropriate to try to single out anything within the KC period as being a culpable delay. Nothing occurring within this period had any effect upon the existing “massive and persistent” delay to the windows trade albeit there were some other, concurrently occurring, delaying events...”

14.  The Plaintiff has emphasized that it is not challenging the arbitrator’s findings of fact.  It only claims that there was no evidence to support the findings of the arbitrator, that the work of removing the loose brickwork infill panels and the work of repairing the window surrounds (“Repairs”) were proceeding concurrently with the installation of windows, and that the Repairs caused critical delays.

15.  The Plaintiff highlighted the fact that the event of the Repairs being a concurrent and critical delay was not so asserted by the Defendant.  The Plaintiff further claims that there was no evidence adduced to support the arbitrator’s findings that the Repairs were continuing and critical until 14 August 2014, when KC was in delay in the window installation, and in fact, there was evidence to contradict any such assumption by the arbitrator.

16.  The Plaintiff also referred to the post-award letter from the arbitrator dated 29 April 2019, in which he explained that it was the “more logical conclusion” to take the activities (of the ordering, repair and installation of the windows) to overlap, and accepted that there had been no submissions that all window surrounds were completed prior to the window installation, and that was why he had taken those activities to overlap.

17.  Whilst an appeal on points of law may, in limited circumstances, involve the court on appeal intervening in areas of law buried beneath conclusions of fact (see discussion in Kwong Mile Services Ltd v Commissioner of Inland Revenue (2004) 7 HKCFAR 275), it must be borne in mind that under s 6 of the Schedule, leave to appeal is to be granted only if the Court is satisfied that, “on the basis of the findings of fact in the award”, the decision of the tribunal on the question of law is obviously wrong.

18.  It is trite, that as the fact finding tribunal, the arbitrator is master of the facts (Mustill and Boyd (2^nd edition) p 596).  The tribunal’s findings of fact are conclusive (para 8-057, Russell on Arbitration, 21^st edition).  On an appeal, the Court decides any question of law arising from an award on the basis of a full and unqualified acceptance of the findings of fact of the arbitrator, and it is irrelevant whether the Court considers those findings of fact to be right or wrong.

19.  In the case of Ha Hau Kwan Fong Mary v IO of Golden Plaza [2002] HKCU 645, Ma J (as he then was) observed:

“In my view, 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 firmly be 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 evidence, the arbitrator should or should not have made the relevant findings. The finding must really be so bizarre that no reasonable arbitrator could have made it, such as, for example, when 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.”

20.  Viewed in this light, I fail to see how it can be said in this case that the arbitrator was obviously wrong in his findings as to the EOT to which the Defendant is entitled, on the evidence which was before him, and on the facts as he found. 

21.  The arbitrator set out his summary and analysis of the evidence on the period of delay and EOT entitlement, in paragraphs 645 to 655 of the Award.  He referred to the experts’ assessment and computation of time, noting the evidence of the Plaintiff’s expert that the window trade was on the critical path and was subject to “massive and persistent delays in its early phases”, causing a delay of 400 out of the total 551 days.  At paragraph 652 of the Award, the arbitrator expressed the view that the “predominant matters causing delay” were the mismatch over the window openings and structure coupled with the replacement of the 2 contractors.  The arbitrator then set out his findings and assessment of periods of delay in paragraphs 654 to 657 of the Award.  At paragraph 655 (cited in paragraph 13 above), the arbitrator referred to the different periods of delay and the experts’ evidence.  In particular, at paragraphs 656 and 657, the arbitrator classified the total EOT entitlement of 392 days, making the following observations:

“656 I also find that due to the preponderance of the earlier (four) delaying events that it is inappropriate to try to single out anything within the KC period as being a culpable delay. Nothing occurring within this period had any effect upon the existing “massive and persistent” delay to the windows trade albeit that there were some other, concurrently occurring, delaying events. I find as a matter of fact that the substantial delay within the KC period was a continuation of the issues afflicting the condition of the brickwork infill panels. In my judgment all these “critical” delays are the liability of the Respondent and, for convenience, I classify the EOT entitlement for this event in the following terms:

(1)	Change from AP to KC:	68 days
(2)	Design change to subsets of windows:	7 days
(3)	Mismatch of windows due to state of the Building:	212 days
(4)	KC period:	105 days
(5)	Total delays	392 days

657 I find and hold that for Event 2 of the following extension of time is due to the Claimant under the following provisions of the Contract which replace those awarded by the PM:

(1)	AP to KC [GCC 25.1(3)(1)]:	68 days
(2)	Design change to subsets of windows: [GCC 25.1(3)(h)]:	7 days
(3)	Condition of window surrounds [GCC 25.1(3)(h)]:	212 days
(4)	KC period [GCC 25.1(3)(h):	105 days
(5)	Total EOT for Event 2	392 days”

22.  The arbitrator also explained in his post-Award letter of 29 April 2019 (to which the Plaintiff has referred):

“I have not considered the KC period in isolation or indeed as a discrete period of 105 days but it does not follow that I have not had regard to it or accidentally omitted it as part of the delay period. I have considered the windows activities in their entirety which includes the “KC Period”. Having found the Respondent liable for the issues surrounding the delay to the “windows trade” I considered it inappropriate to single out anything within the delay period to amount to a culpable delay by the Claimant, particularly towards the end where the consequential effects were still being experienced. I hasten to add that Mr A did not identify anything culpable within the KC period of 105 days except that it was unexplained.”

23.  It therefore appears that the arbitrator had considered all delays within the windows trade collectively, as a continuum, and not in isolation, and found that as the responsibility for all these delays lay with the Plaintiff, there was no necessity to separate them. 

24.  In my view, it was open to the arbitrator to consider the evidence in the manner which he did, and his findings on the EOT entitlement cannot in any way be said to be “obviously wrong”, or such that no reasonable arbitrator could have made.  The arbitrator was considering the available evidence on the different work and the delays involved in the window trade, and their possible effect on one another, to conclude the overall effect and total delay.  As the court explained in the judgment of Weldon Plant Ltd v The Commission for the New Towns [2000] BLR 496:

“... in many arbitrations, especially those in the construction industry, there are many findings other than those which the parties have invited the tribunal to make. Matters of quantification and valuation frequently lead to the tribunal taking a course which is not that put forward by either party, but which lies somewhere between. ‘Doing the best one can on the material provided’ almost inevitably produces such a result.”

25.  Any complaint that the arbitrator had based his finding on an alleged error in his understanding of the evidence, or an erroneous assumption, that there was overlap between the reconstruction work on the window surrounds and the window installation work, is in essence an allegation of a mistake of fact having been made by the arbitrator.  A finding of fact, be it right or wrong, cannot be challenged and the Plaintiff cannot circumvent the rule, that such a finding is conclusive, by alleging that there was no or insufficient evidence to support the finding. 

26.  For these reasons, I refuse leave to the appeal on the first question.

The Time Bar Question

27.  I accept that this question substantially affects the rights of the parties.  However, the Plaintiff’s intended appeal is not on the proper construction of GCC 28 (“Clause 28”) of the Contract, only that the arbitrator had erred in his finding that the Defendant had, on the facts of the case, given adequate notice and particulars of its claim as required under Clause 28, such that the condition precedent for the Defendant’s entitlement to additional payment under Clause 28 had been complied with.  This is a one-off event turning on the facts of the case, and not a question of general importance.  Accordingly, leave to appeal is to be granted only if the decision of the arbitrator on this question is “obviously wrong”. 

28.  The relevant part of Clause 28.1 states that if the Contractor (i.e.  the Defendant) intends to claim any additional payment under the Contract, it “shall give notice” to the Architect of its intention to do so, “within 28 days of it becoming apparent to the Contractor that an event has occurred which gives rise to a claim and he shall include in the notice the contractual provisions upon which the claim is based”. 

29.  The material part of Clause 28.2 provides as follows:

“Contractor to submit particulars

28.2 (1) The Contractor shall keep such records as may reasonably be necessary to support the claim.

(2) The Contractor shall as soon as practicable but in any case within 60 days of giving notice under clause 28.1, submit to the Architect:

(a) particulars of the circumstances giving rise to the claim;

(b) the amount of the claim;

(c) a detailed build-up of the amount; and

(d) a copy of the records kept in accordance with clause 28.2(1).”

30.  Under Clause 28.3, the Contractor’s compliance with the provisions of Clauses 28.1 and 28.2 is stated to be a condition precedent to the Contractor’s entitlement to additional payment, and if the Contractor fails to comply with these provisions in respect of any claim, that claim “will be deemed to have been waived by the Contractor”. 

31.  The arbitrator found (in paragraph 559 of the Award) that the Defendant validly gave notice under Clause 28 of its intention to claim loss and expense under Clause 27, by its letters of 17 September 2014 and 12 November 2014.  He noted (in paragraph 541 of the Award) that the Defendant was required under Clause 28 to give notice within 28 days of it becoming apparent that an event has occurred which gives rise to a claim, and that Clause 28.2 required the Defendant to keep such records as may reasonably be necessary to support the claim, and to submit particulars within a further 60 days (paragraph 542).

32.  As the Plaintiff highlighted, the arbitrator recognized, and was in no doubt, that compliance with the notice provisions of Clause 28 is a condition precedent to payment claimed under Clause 27, and that the issue in dispute was whether the Defendant had failed to comply with such provisions (paragraph 544 of the Award).

33.  Whilst rejecting the Defendant’s letters of 2 July and 11 July 2013 and 31 August 2013 as notices which were compliant with Clauses 28.1 and 28.2, the arbitrator accepted that the Defendant’s letter of 17 September 2014, consolidated by its letter of 12 November 2014, did comply with Clause 28 (paragraph 549) of the Award.

34.  The letters of 17 September 2014 and 12 November 2014 state a list of the alleged delaying events, the sums claimed, and the clause relied upon, and the letter of 12 November 2014 enclosed a detailed “Extension of Time and Additional Payments Application Interim Submission”, with details and the alleged basis of the claim.  The 2 letters, and the details submitted with the 12 November 2014 letter, had been considered by the arbitrator, when he found that some of the events set out in the letter were time-barred, whilst others were not, and on that basis, firstly made his findings as to the extension of time entitlement for the delay events which were validly notified, and secondly, assessed the compensable delays.

35.  The arbitrator set out his analysis of the letters and their contents, at paragraphs 549 to 558 of the Award:

“549 I am satisfied that the letters of 17 September and 12 November 2014 comply with GCC 28. The latter is partly a consolidation of the former. They state the clause, the qualifying events and the sum claimed. It is not clear what records the Claimant kept at the time but it has produced records in these proceedings which suggest it maintained contemporaneous records at the time.

550 It is apparent that within the list of items cited in these letters one or more of the delaying events were subsisting from an earlier stage, beyond 28 days from when notified in September 2014, and ought therefore to have been notified earlier. For these events they remain time-barred. An example of this is the late re-naming of AP.

551 Despite the foregoing I must consider the letters of 17 September and 12 November 2014 in isolation including the events to which they refer. While some events notified are time-barred others are not in so far as they relate to matters coming to the attention of the Claimant from August 2014 being 28 days prior to the letter of 17 September 2014. It is immaterial that the delaying events cited are different to those I have determined, in retrospect, to have been the actual causative delays. The material point is that the Claimant considered these events to be the qualifying events at the time of its notice. This is particularly so given the degree of concurrency I have found to exist with other qualifying events. I would also add that while the requirement of GCC 28.1 is to provide notice within 28 days it runs from when the event becomes “apparent”. Hypothetically, events can materialise and manifest themselves before they become apparent although no evidence of that was adduced here.

525 I consider that the notices of 17 September and 12 November 2014 were validly relevant to delaying events that were occurring during 2014. While I did not receive submissions on this point I was nevertheless directed to the relevant correspondences and, having considered the letters it is clear there is no single answer to the matter. Some of the letters are time-barred where others remain valid. Some of the events within the valid letters are time-barred. I must therefore consider any entitlements that arise from the letters that are valid.

553 In the absence of precise information on the point I am obliged to make an assessment of the period of time in which the Claimant is entitled to recover loss and expense. In Issue No 18 at paragraph 702 I have concluded the overall EOT entitlement of 421 days of a total delay of 551 days. This is not only excusable but also compensable. The Claimant ought to have completed the Works by 21 November 2014. However, some of this compensable period is now non-compensable by virtue of the time bar.

554 I hold that compliance with the notice provisions of GCC 28 is a condition precedent to payment of additional sums claimed under GCC 27.

555 I find as a matter of fact the delay events that were validly notified for which an EOT was due were those covered by the KC period (105 days), the Podium (22 days) and the Fire Services (7 days) being 134 days. I also consider some of the events notified were concurrent with the subsisting delays to the window surrounds which, as explained previously, are allowable. I therefore allow a further 45 days. The total revised compensable period is therefore 179 days.

556 The non-compensable elements, being those which were not validly notified, are the AP change, design change to subsets of windows and the condition of the windows surrounds. This is the balance of 242 days (551 – 179). The compensable percentage of the excusable EOT period is 179 of 421 days which is 42.5%. Of the total delay this is 179 of 551 days which is 32.48%.

557 In terms of the authority of Obrascon Huarte :Lain SA v Her Majesty’s Attorney General for Gibralter from my reading of this case it applied to EOT and not to loss and expense. In this respect the decision of the court is in line with the “prevention principle” as it applies to questions of EOT. Accordingly, I find it is of no assistance.

558 As to the Claimant’s alternative claim for breach GCC 27.1(2)(1) states: “any other delay or disruption for which the Employer is responsible including an act of prevention or a breach of contract.” In my judgment this expressly provides for the events contended for by the Claimant as implied terms and as pleaded in the ASOC such that they fall within the notice requirements of GCC 28. Hence, notice is required for additional payment resulting from a delay or disruption for which the Employer is responsible including a breach of contract.”

36.  The Plaintiff complains that the Defendant’s September letter and November letter did not state when the relevant events occurred and became apparent to the Plaintiff, such that there was no evidence before the arbitrator to make his findings.  I do not agree that the Defendant was required, under Clause 28, to state when a relevant event had occurred, or when it became apparent to the Defendant that a relevant event which gave rise to the claim had occurred.  All that the Defendant was required under Clause 28.1 to do was to give notice of its intention to claim any additional payment, within the period of 28 days of it becoming apparent to the Defendant that an event which gives rise to a claim had occurred, and to state the contractual provisions upon which the claim is based.

37.  It was for the arbitrator to find, on the evidence adduced in the Arbitration, whether the notice given by the Defendant was within the time specified, which he did, as pointed out in paragraphs 545, 546 and 552 of the Award.  The arbitrator pointed out (at paragraphs 552 and 553) that he had not received submissions on whether the September letter and November letter were validly relevant to delaying events which were occurring in 2014, but he had been directed to the relevant correspondence to consider whether entitlements that arose from the letters were valid in terms of time. 

38.  In his post-award letter of 26 April 2019, the arbitrator further highlighted (in answer to the parties’ requests for correction and clarification of the Award) the following:

“The assessment of entitlement to loss and expense is not a precise science and, in the absence of detailed submissions, I have made a general assessment including GCC 28. The Respondent’s (ie the Plaintiff’s) closing submissions were predicated on a general premise of all written notifications time-barred but did not provide, in the alternative, for where I might find specific notifications or letters valid or, if I did, how I should deal with them...

I reiterate paragraph 551 to the Interim Award that the obligation to notify under GCC 28 is when a qualifying event becomes apparent to the contractor, not necessarily when it occurs. Furthermore, notice not be the eventual course. Hence, a delaying event might often only truly be determined retrospectively, as it has in this arbitration, with the benefit of computer-assisted programs undertaken by the experts. The purpose of such notice is to place the Employer on notice of the potential problem which may or may not be reflected in the accuracy of the said notices. Therefore, where there was a question over particular notice and compliance with GCC 28 I have construed it widely.

I would add, in so far as it is relevant, that where I found there was compliance under GCC 28.1 I was not requested, in the alternative and as a separate limb, to consider the sufficiency of the particulars provided by the Claimant for compliance with GCC 28.2. As an incidental point, and one not necessarily relevant to my findings, I do not consider the degree of information identified under GCC 28.2 is to be provided with accuracy for the purposes of strict compliance with the time bar proviso under GCC 28.3.” (Emphases added)

39.  It is accordingly clear, from the arbitrator’s analysis set out in the Award, and as explained or amplified in his letter of 26 April 2019, that the arbitrator had carefully considered the letters of 17 September 2014 and 12 November 2014 and the particulars and submission enclosed, together with the entirety of the documents and evidence placed before him in the Arbitration, in finding that the information and particulars furnished to the Plaintiff were sufficient to comply with Clause 28.1 and 28.2, adopting the broad construction of the clause as he did, and having been satisfied that the letters had achieved the purpose of placing the Plaintiff on notice of a potential problem. 

40.  The fact that the arbitrator rejected the adequacy of other, earlier letters of purported claims, on the basis of the absence of particulars of claim having then been submitted, cannot mean that the arbitrator must reject claims which he analyzed and accepted to have been validly served within time by the September letter and the November letter, on the basis of the particulars and information set out in the September letter, the November letter and its enclosure.

41.  In criticizing the arbitrator’s decision as to the adequacy of the notice of claims and his consideration of when an event might “become apparent”, the Plaintiff sought to place reliance on the arbitrator’s statement, in paragraph 551 of the Award, that “hypothetically, events can materialize and manifest themselves before they became apparent although no evidence of that was adduced here”.  The Plaintiff seems to suggest that the arbitrator was admitting that there was no evidence of when the events became apparent, or otherwise that he had made findings on the basis of a hypothesis.  I cannot see how the arbitrator’s statement can assist the Plaintiff’s case.  On my reading, the arbitrator was only referring to a hypothetical situation, and the reference to absence of evidence was a reference to events materializing and manifesting before they became apparent, as opposed to the absence of evidence as to when events became apparent.  In any event, it was a hypothetical situation stated by the arbitrator, which did not affect or form a part of his reasoning.  On a proper reading of paragraph 551, the arbitrator’s emphasis was that the 28 days for notice to be given run from when the event “becomes apparent”, as opposed to the hypothetical possibility of events manifesting and materializing before they become apparent, or when they first occurred or actually subsisted. 

42.  Overall, the arbitrator was in the best position to consider and analyze in detail the documents and evidence placed before him by the witnesses in the Arbitration, to decide whether the notice was given in time, whether sufficient particulars were given, and whether the condition precedent had been satisfied, and this Court is entitled to give weight to the analysis made of such evidence by the arbitrator, in its consideration of whether his decision in the Award is obviously wrong, or open to serious doubt, or not.  On my review of the Award, I do not find the arbitrator’s analysis of the evidence and his findings on the Time Bar Question to be obviously wrong.

Risk Allocation Question

43.  The third question of law relates to the arbitrator’s construction of the relevant provisions of the Contract, in determining that the Plaintiff was responsible for the condition of the window openings to the building, which extends to the condition of the fabric of the external panels of the building, and their reconstruction to meet the installation of the new windows (paragraph 216 of the Award).  This in fact follows from the arbitrator’s finding, in paragraph 135 of the Award, that the Defendant had no design responsibility under the Contract for the window and cladding works (“Window Works”). These 2 issues together formed Issue 3 in the Arbitration: “What is the Claimant’s design responsibilities, if any, under the Main Contract, and particularly whether the Claimant has any design responsibility in respect of the window and cladding works.” 

44.  The relevant contract provisions considered and construed by the arbitrator, in deciding the Risk Allocation Question, include in particular clause 4.05 of the Specification Preliminaries (“SP 4.05”), and Technical Specification Clause 18.1.1 of Section 18 - Window Works of the Contract (“TS 18.1.1”) (as identified in the Originating Summons).

45.  As in the case of the EOT Question and Time Bar Question, I accept that the arbitrator’s decision on the Risk Allocation Question substantially affects the rights of both parties.

46.  According to the evidence of the Plaintiff, SP 4.05 and TS 18.1.1 were inserted in the tender documents to cater for the Contract, and to address any potential or contingent condition of the existing window openings of the building.  As pointed out by the Defendant, these provisions were bespoke for the project which was the subject matter of the Contract.  The decision on the Risk Allocation Question turns on the particular language of SP 4.05 and TS 18.1.1 as applied to the facts of this case, turning on the condition of the building and the works to be carried out in the project.  It is a one-off event, and the threshold of “obviously wrong” is therefore applicable, for leave to appeal to be granted.

47.  The issue of the Defendant’s design responsibility for the Window Works under the Contract was an important question with significant bearing on the issues in dispute in the Arbitration. The risks to be borned by the condition of the building and its impact on the Window Works, and the party to bear such risks, are questions closely related to the Defendant’s design responsibility.  Together, they form Issue 3 for the Arbitration. 

48.  The Contract was for the conversion of an existing 50 year old building into a serviced apartment.  The renovation work involved substantial alterations, additions and upgrading of the layout and finishes of the residential tower, the building services installations and the façade of the whole building.  In particular, the pertinent project works included the replacement of the windows to the building. 

49.  The issues for determination in the Arbitration included the design obligations of the parties in relation to the Window Works, whether the specialist window subcontractor was a nominated or a domestic subcontractor, and what was the liability for the condition of the structural openings in which to fit the windows, and the making good of such openings.

50.  The Defendant was the main contractor, and there was a specialist window subcontractor.  Much of the problems encountered in the project related to the appointment of the specialist subcontractor, the original specialist subcontractor abandoning the works, delay in the appointment of a replacement, the problems encountered as a result of the condition of the building and the window openings, and the difficulties of designing the new windows to suit the existing condition of the building.  Hence, an important issue was whether the Defendant, as the main contractor, should be liable for the design of the windows, and (in gist) whether the Defendant, or the Plaintiff as the employer and owner of the building, should bear the risks arising from the different conditions actually encountered on site.

51.  It is clear from the Award that in deciding on the Risk Allocation Question, the arbitrator had carefully considered the relevant contract provisions, and the submissions made by both the Plaintiff and the Defendant, firstly on the questions of design liability generally, and specifically in respect of the Window Works, and secondly on the responsibility for the condition of the window openings in the building and their reconstruction to meet the installation of the windows under the Contract.  It is important that the arbitrator’s decision on the Risk Allocation Question has to be considered in the light of his decision on the Defendant’s responsibility and scope of work under the Contract, and his finding that the Defendant had no responsibility for designing the Window Works.

52.  The relevant TC 18.1.1 provides as follows:

“Section 18 – Window Works

18.1.1 Scope of Works

a. Supply and installation of new windows shall be provided by the Window Sub-Contractor. The Main Contractor shall be responsible for removal of the existing windows and associated fixtures/attachments, preparation of external wall, formation and making good of external wall openings suitable for the Window Sub-Contractor’s installation of new window.

...

c. The Sub-Contractor shall design, engineer, test, fabricate, supply, deliver, install, and guarantee all construction necessary to provide a complete system of works under this contract, all in conformity with the drawings, contract conditions, specifications and all relevant government requirements, regulations and practice notes (including PNAP APP-116) including any measures and incidental works that may be required to that end, notwithstanding any omissions or inadequacies of drawings and/or specification.” (Emphasis added)

53.  In relation to design responsibility, the arbitrator considered “the starting point” to be the position under the Contract, which expressly stated that the Defendant’s responsibility for design is as provided for in GCC 2.1 (e), (d) and (2): essentially, to carry out “any work involved in the development of the Architect’s design”.  At paragraphs 114 to 118, the arbitrator stated:

“114 The Contractor is obliged to carry out the Works which is work carried out in accordance with the Contract which is defined to include the Contract Drawings provided by the Architect. Unless expressly set out in the Contract the responsibility for design lies with the Architect/PM.

115 Areas where design is specified in the Contract include:

(1) GCC 29.6 in respect of NSC’s. Design work of the NSC is expressly excluded from the Contractor’s responsibility [CB/72].

(2) Specification Preliminaries Clause 3.02 proviso [CB/261]: The Contractor shall prepare all necessary design (to the extent specifically required by the Contractor). This appears consistent with GCC 2 above. No design is specifically stated.

116 As NDSC’s are not expressly provided for in the GCC, save in respect of the SOR, it follows there is no express requirement for design for NDSC works within the GCC.

117 The Technical Specification provides extensive provisions for the Window Works and for Aluminium Cladding. This commences at Section B – TS Section 18 [CB/136]. It is clear that the Windows are to be provided by the Window Sub-Contractor which obligation includes the design and installation of such windows i.e. Clause 18.1.1(a) and (g). By comparison, the Claimant’s obligation is for removing the existing windows and making good external wall openings suitable for the installation of the new windows to be fixed by the Windows sub-contractor.

118 The foregoing demonstrates a clear demarcation in responsibility for design between the Claimant and the Sub-Contractor in respect of the windows. In so far as any design liability exists it refers only to the Window Sub-contractor whereas there is no design responsibility upon the Claimant. However, a question mark remains as to whether such liability exists impliedly or otherwise under the Claimant’s relationship with the Window Sub-Contractor whether as a NCS or NDSC. Finally, how this impinges upon the design of the window openings in which to fix the Windows.” (Emphasis added)

54.  The arbitrator then considered the respective submissions made on behalf of the Plaintiff and that Defendant, as to the responsibility of a main contractor (such as the Defendant) for the design obligations of a named domestic subcontractor, or a nominated subcontractor.  His conclusion was set out in paragraph 133 of the Award:

“133 I conclude the following on the basis of the foregoing submissions:

(1) There is no express responsibility for design set out in the Contract in respect of the Claimant. The only express provision for design is in respect of the NDSC. I do not consider such a liability to be imposed by way of paragraphs 10 and 12 to the LOA. There is no necessity to imply such a term into the Contract. Liability for the design therefore remains with the Employer.

(2) Sinclair asserts emphatically that the Contractor cannot acquire design liability by virtue of entering into a sub-contract with a NSC carrying out design work. In the words of HHJ Coulson to do so would be contrary to common sense. As I have found above, the Claimant had no design liability at the outset so, on the basis of Sinclair, it could not acquire it later.

(3) Sinclair is specific where a sub-contractor provides “a specialist design function in addition to the actual carrying out of the works on site” which is precisely what the Window Sub-contractor did. While this applied to a NSC I see no reason why it would not apply equally to a NDSC. Neither party drew a distinction between NSC and a NDSC in this respect.

(4) Fairweather pertains to performance as opposed to design liability. The commentary cited in Hudson appears to be founded on Fairweather.

(5) The existence of warranties provides a direct route of action between the Employer and the Contractor/Sub-contractor but it is a mechanism and not of itself determinative of liability. The mere inference of design liability stemming from a warranty is, in my view, insufficient a basis upon which to rely and clear words would be needed to determine which party was responsible for design.

(6) Where the design of a NSC (or NDSC) is defective the Architect is obliged to issue a variation order. Holland Hannen & Cubitts v WHTSO [1981] BLR 80. The remedy of the Employer is against the NSC/NDSC under the warranty.

His conclusion and finding, in paragraph 135 of the Award, was that the Defendant had no design responsibility under the Contract for the Window Works.

55.  In proceeding to determine the key issue of the responsibility for the condition of the window openings, the arbitrator referred to the evidence on the condition of the building and the window openings, the fact that the building was constructed as a reinforced concrete frame, but the panels forming the external walls, between columns, slabs and beams were in brickwork with a rendered finish.  In brief, the Defendant’s position was that the Contract was not a design and build contract, and that its responsibility was simply to remove the old windows and make good the openings, and not to design, supply or install the new windows.  The Plaintiff’s position was that the Defendant should be liable for whatever material in the building fabric which it encountered, notwithstanding that forming or creating new openings in brickwork would be much more time-consuming than fitting windows to existing reinforced concrete surrounds.  There is no dispute that the brickwork to the infill panels surrounding the windows was, in reality, in a very fragile state with large parts becoming loose.  The brickwork fell away in places upon removal of the old windows, such that the façade brick panels had to be reconstructed, before windows could be measured and manufactured.

56.  In construing TS 18.1.1 and the scope of the Window Works which was the responsibility of the Defendant under the Contract, the arbitrator considered the words used: namely “removal of the existing windows”, “preparation” of external wall, and “formation and making good of external wall openings”.  At paragraph 180 of the Award, the arbitrator stated:

“Under 18.1.1(a) the NDSC is responsible for providing the new windows whereas the Claimant is responsible for removing existing windows and preparing, forming and making good external openings suitable within which to install the windows by the NDSC.  The reference to “formation” is imprecise and could apply alternatively to creating new window openings or to repairing the existing openings.  If the latter it would potentially duplicate/overlap with “making good”.  Formation does not expressly refer nor necessarily imply reconstructing window openings.  Making good is defined within Preamble Note 1.5 at 1.5.1 so “making good of external wall openings” suggests repairing something which is already in existence and does not go far enough to extend to reconstructing the infill panels or substantially modifying the window surround.  Part (c) applies to obligations of the NDSC so does not apply to the openings to be provided by the Claimant.”

57.  The Plaintiff argued that the arbitrator was wrong, in focusing on the “imprecise” and the “ambiguous” words used in the Contract, instead of considering the commercial and factual context and the commercial purpose of the contract provisions.

58.  Having considered the Award, and the arbitrator’s analysis, I cannot disagree with his construction of the provisions of SP 4.05 and TS 18.1.1, and GCC 2.1 (e), (d) and (2) of the Contract.  I refer again to the decision of Lam VP in Maeda Kensetsu Kogyo Kabushiki Kaisha (also known as Maeda Corporation) and China State Construction Engineering (Hong Kong) Limited v Bauer Hong Kong Limited HCMP 1342/2017, 4 September 2017, where His Lordship pointed out that the assessment of whether the decision of a tribunal is at least open to serious doubt (the test applicable in that case) can be subjective, and different judges can reasonably come to different views.  Such reminder illustrates that particularly in a matter concerning the construction of a contractual document, the Court dealing with an application for leave to appeal may well have a different view as to the possible meaning of a provision, but it does not follow from that, that the meaning ascribed by the tribunal to that provision was either “open to serious doubt”, or “obviously wrong”.  The “obviously wrong” threshold is high.

59.  I do not agree that the arbitrator can be criticized, for having approached the interpretation of the contractual provisions incorrectly, in failing to undertake a “unitary” exercise, or in failing to consider the commercial context and purpose of the relevant provisions.  As the decisions in Rainy Sky SA v Kookmin Bank [2011] UKSC 50 and Arnold v Britton [2015] AC 1619 have highlighted, the language used in the provision to be construed is important, notwithstanding the need to read such language in the proper factual and commercial context.  The arbitrator obviously considered that on its plain reading, “formation” and “making good” as used in the provisions exclude the duty to reconstruct the window openings, and do not extend to requiring the Defendant to reconstruct the infill panels, or to substantially modify the window surrounds. 

60.  From his analysis of SP 4.05 and the technical specifications which include TS 18.1.1, TS 18.1.3, TS 18.1.6 and 18.3.1, the arbitrator concluded that the new window system had to be designed to fit with the existing window openings, and that under SP 4.05, the contractor had to accept the risks only of unfavorable or difficult working conditions and obstructions which might impede the progress of its works, but that SP 4.05 does not render the contractor liable for the physical condition of the building.

61.  The relevant provisions of SP 4.05 are as follows:

“Specifically Preliminaries

4.05 Drawings of the existing building

Any drawings of the existing building or other information which may be available are given in good faith as a guide to Tenderers but no responsibility can be taken for their accuracy.

The Contractor shall be deemed to be aware of and to accept all ‘risks’ arising out of any unfavourable or difficult site conditions or may other obstructions whether foreseeable or unforeseeable and the Contractor shall not be entitled to any extension of time or extra payment in compensation in respect thereof.

The dimensions shown on the Drawings for works in the existing building are for indication only and the Tenderer shall check on site and satisfy himself as to the actual existing dimensions and the exact dimensions of the new works involved. No adjustment of the Contract Sum will be made for any discrepancy between the actually required dimensions and those shown on the Drawings.

7.09 Dimensions

Figured dimensions are to be taken in preference to scaled in all cases. Before commencing any work or ordering any materials the Contractor must verify all measurements. If any discrepancies are found they must be brought to the notice of the Architect immediately.

62.  On a review of paragraphs 159 to 218 of the Award, it is clear that the arbitrator had considered the Contract in its entirety, and all the relevant provisions, in a “unitary exercise”, in reaching his decision on the apportionment of the risks arising from the structure and the unforeseen condition of the building, and of the window openings.  He bore in mind the fact that the problems faced by the parties were of a building design, rather than arising from the design of the windows, or was a combination of both.  At paragraphs 212 to 216 of the Award, the arbitrator concluded:

“212 While there is little evidence on the point, it is reasonably apparent that the Claimant and AP decided to manufacture the window frames to suit the window openings. However, given the issues encountered with the openings it was not possible to provide accurate dimensions until the openings were re-formed. However, this is a design matter and not one of coordination.

213 I find and hold that the new windows were intended to be designed to fit within the existing openings of the building as best they could. The question remains as to what degree the Claimant was obliged to accommodate the installation of the new windows where the openings in the structure collapsed and had to be re-built. In my judgment clear words would be required in the Contract to impose such an obligation upon the Claimant and such words simply did not exist.

214 Importantly, as I have found, this is not a “design and build contract” and while the NDSC designs the windows the responsibility for overall design remains with the PM. If, as indeed was the case, there were design conflicts with the windows and the structure it is reasonably clear that the PM would have been required to step in and decide the matter. There is no design obligation upon the Claimant for the structure and any issues of compatibility between the windows and the structure would, ordinarily and save as to express terms to the contrary, fall to the PM to resolve. The only obligation upon the Contractor is to remove the windows and make good afterwards, making good having a limited application as in minimal repair and not reconstruction of the window surrounds or the infill panels, whether structural or otherwise, forming the façade.

215 There was certainly nothing to suggest the Claimant would be required to make the existing openings structurally stronger than the existing fabric of the building. Whatever obligations these are would be insufficient to transfer this risk to the Claimant. While no implied terms have been pleaded I would add that I can see no term implied that would apply to the repair of the infill panels to the degree that has been necessitated.

216 In respect of Issue No 3(2) I therefore find and hold that the responsibility for the condition of the window openings to the building, which necessarily extends to the condition of the fabric of the external panels of the building, and their reconstruction to meet the installation of new Windows is that of the Respondent.” (Emphasis added)

63.  From paragraph 217, it would appear that the arbitrator had considered the commercial purpose and consequences of the relevant clauses construed.  In any event, as the court sought to explain in Arnold v Britton (paragraphs 17, 19-20 of the judgment), commercial common sense should not be invoked to undervalue the importance of the language of the provision to be construed, and commercial common sense should not be invoked retrospectively, as it is not the function of the court when interpreting an agreement to relieve a party from the consequences of an imprudent term or arrangements which are ill advised, nor to rewrite the contract for the parties to achieve a result which the court considers more desirable.  Here, the arbitrator had considered the plain meaning of the language used in the Contract, the context of the building project and the Window Works, as well as the commercial sense of the construction he placed on the provisions.  I do not agree that the arbitrator’s interpretation of the Contract is one which does not make commercial sense, or one which no reasonable arbitrator could have made.

64.  In all, the arbitrator was not “obviously wrong” in reaching the conclusion which he did on the Risk Allocation Question.  Even if the threshold of “open to serious doubt” should be applicable, I do not consider that this threshold is met.

Disposition

65.  The Plaintiff’s application for leave to appeal on the 3 questions identified is refused.  The order nisi is that the costs of the application are to be paid by the Plaintiff to the Defendant, with Certificate for Counsel.