XCHRX GARDEN CO. LTD. v. ON LEE GENERAL CONTRACTORS LTD.

Con. No. 24 of 1994

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Construction and Arbitration List

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J U D G M E N T

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1. This is an application for leave to appeal against the Interim Award made by an Arbitrator, Philip T. Nunn Esq. who is a solicitor. Under section 23 of the Arbitration Ordinance Cap. 341, an appeal may, subject to certain conditions, be brought, with leave of the court, on any question of law arising out of an award made on an arbitration agreement. Subsection (4) of that section so far as is material reads as follows : -

"(4)	The court shall not grant leave . . . unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement. . . ."

2. In considering this application I will follow the well known guidelines (the 'Nema' guidelines) given in the line of cases leading to In re P.T. Dover Chemical Co. and Lee Chan Yung Chemical Industry Corporation [1990] 2 HKLR 257.

The First Question

3. The first question posed in the notice of motion is "whether the implied term found by the Arbitrator and set out in paragraph (1) of the Interim Award ("The implied term") was to be implied as part of the contract between the parties dated 15th February 1990, ("the contract")

4. The parties agreed before the Arbitrator that in the contract were certain implied terms, which are set out in the Schedule to the Interim Award.

5. After hearing submissions on implied terms contended for but not agreed, the Arbitrator found that the following terms were implied : -

"(a)	If instructions or nominations are required by On Lee to enable it to carry out the works under the contract

(i)	They must be supplied by the Architect at reasonable times
(ii)	They must be given as such times and in such manner as not to hinder or prevent On Lee from performing its duties under the contract.

(b)	If instructions, nominations, information, plans, drawings or details are required by On Lee to enable it to carry out the works under the contract

(i)	They must be correct
(ii)	They must be supplied with reasonable skill and care."

6. I have heard detailed submissions from counsel for the Applicant and the Respondent, who have cited numerous cases where terms have been implied, as to whether the Arbitrator was correct in law in holding that those implied terms existed.

7. Whether or not a particular term is to be implied in a given case will depend upon the factual situation.

8. In the present case, the Arbitrator was asked to rule, before carrying out his task of fact-finding, upon the question whether certain terms were to be implied in relation to the issues of fact pleaded.

9. The question was hypothetical in the sense that it had to be assumed that at the end of the day facts would be found which required certain terms to be implied.

10. I note that neither party sought to apply to this court under section 23A of the Arbitration Ordinance for a decision on the preliminary points of law raised. They both submitted to the Arbitrator's jurisdiction and there was full argument before him. I do not criticise them for that. On the contrary, the parties to an arbitration agreement are to be encouraged to leave the decisions to the Arbitrator.

11. In terms of the 'Nema' guidelines, this is a case where the dispute arises between Hong Kong parties in connection with a standard form contract, the HKIA Building Contract, 2nd Edition. The Arbitrator was not asked to construe one of the standard clauses in the contract. Nor was he asked to say that a certain term must be implied in all HKIA Building Contracts. He was dealing with the question whether in the light of the factual issues in this case certain terms were to be implied in this contract between these parties.

12. The dispute does arise in the context of events which are commonplace or likely to occur, i.e. delay and extensions of time.

13. The Arbitrator is legally qualified.

14. I have been taken through a number of cases in which terms similar to those in question have been implied. See, e.g. Neodox v. Borough of Swinton and Pendlebury [1958] 5 BLR 34 at p.41 and Merton v. Leach [1985] 32 BLR 51 at p.78. See also Keating on Building Contracts (5th Ed.) at p.50.

15. I find that the first question lies towards but not at the bottom of the scale referred to in the "Nema" guidelines (as I have defined them above). The presumption of finality of the Arbitrator's decision still stands but may be displaced if the applicant can make out a "strong prima facie case of error" (P.T. Dover Supra at p. 264).

16. However, for a party to succeed in an application for leave even in a case which lies at or near the bottom of the scale he must show that a decision on the question of construction raised would add significantly to the clarity and certainty of Hong Kong Commercial Law. This is made clear in a passage in the judgment of Hunter J.A. in P.T Dover at pp.264G to 265E. It also appears from that passage that when they referred to cases at the bottom of the scale both Lord Diplock in Pioneer Shipping Limited v. B.T.P. Toxide Limited, the Nema [1982] AC 724 and Hunter J.A. in P.T. Dover had in mind the construction of particular clauses in standard form contracts rather than the implication of terms.

17. This being an application for leave and not the appeal itself, I do not propose to rehearse in detail the ten grounds of appeal on the first question, which cover nearly 6 typewritten pages and which contain a good deal of repetition. The burden of the applicant's complaints is that in the light of the express terms and the agreed implied terms of the contract, the additional implied terms are not necessary in that the contract works without them or they are in conflict with the existing terms or wrongly import a novel principle (implied term b(ii).) My attention was drawn to the observations of Kaplan J., as he then was, on the subject to implied terms in Jardine Engineering v. the Shimizu Corporation 63 BLR 102. There the judge states and applied the principles set out by the Privy Council in B.P. Refinery (Westernport) Pty. Ltd. v. Shire of Hastings [1977] ALR 363 at p.376. He also referred to the further guidance to be found in the speech of Lord Wilberforce in Liverpool C.C. v. Irwin [1977] AC 239. The applicant says that the Arbitrator has not observed the correct principles in reaching his decision. The applicant also referred to Codelfa Construction Propriety Limited v. State Rail Authority of New South Wales [1989] 149 CLR 337.

18. Counsel for both parties tendered written submissions which they described as skeleton arguments, and elaborated upon them at the hearing.

19. Having considered the detailed submissions and the authorities cited I find that the applicant has failed to make out a strong prima facie case that the Arbitrator was wrong in his finding the implied terms set out in paragraph 1 of the Interim Award. Even if a strong prima facie case had been made out and although it can be said that the first question posed could substantially affect the rights of the parties, I do not consider that the first question of law is fit for appeal. No assistance would be given to the construction industry as to the construction of any particular part of the text of the standard form contract.

The Second Question

20. The second posed is this : -

"(ii)

the formal validity or otherwise of the third extension of time dated 29th August 1991 ("the Third Extension")."

21. Clause 23 of the contract deals with extension of time. It provides in essence that if in the opinion of the Architect the completion of the works is likely to be or has been delayed beyond the contractual date for completion or beyond any extended time fixed under Clause 23 or 33 (which deals with war damage) "Then the Architect shall so soon as he is able to estimate the length of the delay beyond the date or time aforesaid make in writing a fair and reasonable extension of time for completion of the works."

22. It is common ground that the Architect purported to give three extensions of time. The Respondent claimed before the Arbitrator that the second and the third extensions were not formally valid.

23. The validity of the first extension was not in issue. It was held by the Arbitrator that the second extension, up to the 24th April 1991 lacked formal validity. That decision is not one upon which leave to appeal is sought.

24. The Arbitrator held that the third extension was formally valid and the Applicant seeks leave to appeal against that finding.

25. It is necessary to refer to the terms of the Architect's letter granting the extension. That letter is dated the 29th August 1991 and it is addressed to On Lee General Contractors Limited. The material parts of the letter are in the following terms : -

"The contract period was extended to the 25th of April 1991 via my letter dated 2nd April 1991. Your letter dated 30th May 1991 confirmed that Garden Company Limited has taken over the areas as listed below : "(there follows a list of areas and dates all after the 25th April)

"As large area of the building has been in use since the above dates and a great amount of additional works has been ordered carried out since 25th April 1991, which would justify a further extension of contract period right up to the time of issue of the occupation permit. The date of the occupation permit is expected to be between 15th September 1991 to 30th September 1991. The contract period is hereby further extended to 30th September 1991 for administrative convenience."

26. The Applicant says that the extension is invalid.

27. In terms of the Nema guidelines, the Applicant is saddled with the burden of showing a strong prima facie case that the Arbitrator was plainly wrong - so obviously wrong as to preclude the possibility that he might be right in holding that the third extension was formally valid. The Architect's letter is said to be in very unusual terms; the question of extension of time in a construction contract is not confined to standard form contracts though the present case happens to relate to a standard form contract; the construction of the peculiar terms of the letter is a matter in which in my judgment the general construction industry has no interest : (it merely affects the rights of the particular parties). Here the point of law was decided by a legally qualified experienced Arbitrator.

28. The Notice of Motion contains eight grounds of appeal in relation the second question. I will refer to the gist of the Applicant's complaints.

29. First, the Arbitrator held that the 3rd extension was not based upon the second. The argument seems to be that, the 2nd extension having gone, the 3rd extension must fall with it, for extensions cannot be granted for a period of culpable delay. Moreover, says the Applicant, since the 3rd extension named specific dates it cannot be regarded as referring to other dates.

30. It remains to be seen whether the Arbitrator will hold that any period up to 25th April was a period of culpable delay. The Arbitrator made it clear that the 3rd extension dealt with events after 25th April and he found that it was given for events which could justify an extension of time under Clause 23 of the contract. He accepted the Respondent's argument that though the Applicant was entitled under Clause 4.04 of the preliminaries to enter into possession, that would not exclude the possibility of an extension relating to the use of the building by the Applicant or its agents. The Architect does refer in the letter to "a great amount of additional works" ordered and carried out after 25th April. It was not disputed before the Arbitrator that the ordering of additional works carries an entitlement to an extension of time.

31. The Applicant complains that the Architect fixed a date rather than stating the extension in terms of a number of days or weeks. The Architect gave an extension from 25th April to 30th September. That extension was read by the Arbitrator as amounting to a certain number of days. Informality of language does not necessarily invalidate an Architect's Certificate - see Amalgamated Building Contracts Limited v. Waltham Holy Cross UDC [1952] 2 All ER 452.

32. In my view it cannot be said that it is plainly wrong to hold that the period in terms of days of the 3rd extension can be added to whatever previous extensions are eventually held by the Arbitrator to have been given or which he finds should have been given. The Applicant argues that, the 2nd extension having been found to lack formal validity the 3rd extension as given after a period of default and is therefore invalid in terms of section 23. It is suggested that where one a series of extensions is invalid, all subsequent extensions fall and the question of delay and extension of time is at large. In terms of practicality and business common sense, that approach is an unattractive one.

33. Complaint is also made as to the Architect's use of the phrase "for administrative convenience." At paragraph 16 of the Interim Award the Architect says about that phrase : -

"Whilst I believe that the insertion of the words by the Architect was ill advised, the words are not in my view sufficient to render the third extension invalid. I believe that all the Architect intended by those words was that the occupation permit was expected to be issued between 15th September 1991 and 30th September 1991 and as he had decided that he would grant an extension of time up to the date of the occupation permit, he therefore granted an extension of time up to the latest possible date for the occupation permit, namely 30th September, 1991."

34. The Claimant says that the Architect was not, as he was required by Clause 23 ". . . estimating the length of the delay . . ." but was estimating when he thought the works might be complete. It is alleged that in doing that he was departing from his instructions given by the parties under Clause 23, by reason of the principle in Jones and Others v. Sherwood Computer Service Plc. [1992] 1 WLR 277. In fact what the Architect is required by section 27 to do is to make in writing a fair and reasonable extension of time for the completion of the works as soon as he is able to estimate the length of the delay.

35. It seems to me that although of the Applicant's points this is the strongest, it has not been shown that the Arbitrator is plainly wrong in saying that the 3rd extension was formally valid. I do not consider in all the circumstances of this case and bearing in mind the principles to be applied when considering an application of this sort, that the second question is fit for appeal.

36. I have considered the argument that a reversal of the Arbitrator's finding on the second question could change the course of the Arbitration and in that sense could substantially affect the rights of the parties. Such a reversal would be likely to increase greatly the length and cost of the proceedings since the merits of the third extension could become the subject of detailed examination. That would not however be a reason for refusing leave in a case fit for appeal. I am inclined, though, to think that the "rights of the parties" contemplated in s.23(4) are their rights under the contract rather than the prospect of a tactical advantage in the arbitration.

37. It is worth repeating, as I did in another case, the words of Lord Donaldson in the Kelaniya [1981] 1 Lloyds Rep. 30 at p. 32, in reference to an Arbitrator and the parties to a dispute : -

"There is a strong presumption that they have also accepted him for better or worse in relation to questions of law. This is not, however, to say that, even in a one-off case, an Arbitrator is allowed to cavort about the market carrying a small palm tree and doing what he thinks appropriate by way of settling the dispute. What it does amount to is that the courts will normally leave him to his own devices and leave the parties to the consequences of their choice. They will only intervene if it can be demonstrated quickly and easily that the Arbitrator was plainly wrong."

38. I emphasise the words "quickly and easily". This court has been provided with seven lever arch files containing bundles of affidavits, copies of law reports, skeleton arguments and so on. The Notice of Motion runs to eleven pages. The hearing occupied 9 hours 5 minutes of the court's time on three separate dates, whereas the estimate of time endorsed on the Notice of Motion was not exceeding two hours. Part of the 9 hours 5 minutes was taken up by an application for an order to the Arbitrator to give reasons. The estimate of time for that was not exceeding 15 minutes. So a total estimate of 2 hours 15 minutes was followed by a hearing of 9 hours 5 minutes.

39. It may not be realistic in a complex case to expect the 10 to 15 minute hearing contemplated by Lord Diplock in Antaios Compania Naviera S.A. v. Salen Rederierna AB, the Antaios [1985] AC 191. That length of hearing may be sufficient where there is a simple dispute on the meaning of a single clause or phrase. More time may be needed in some cases. However, an application for leave should normally be short. This is the second case of its kind in a row where I have been treated to elaborate submissions more appropriate to a substantive appeal than to an application for leave. The previous case occupied 8½ hours of the court's time.

40. By now it should have dawned upon the profession that leave to appeal will be granted only in exceptional cases and clients involved in arbitration should be so advised. If it cannot be demonstrated quickly and easily that the Arbitrator is wrong, elaborate arguments are unlikely to succeed.

41. In future, applicants for leave to appeal against an Arbitrator's finding on a point of law are likely to find that limits on the time allowed for submissions will be imposed by the court. Where arbitrations are delayed and costs increased by unmeritorious applications for leave to appeal especially on Interim Awards, the taxation of costs on an indemnity basis may in future have to be considered.

42. The application for leave to appeal is dismissed.

43. I will now hear counsel on the question of costs.