XCHRX SECRETARY FOR JUSTICE v. AOKI CORPORATION

1998, No. CT 135

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. The government (the HKG) and the respondent (Aoki) are involved in an arbitration over a claim by Aoki. The arbitrator published an interim award on 27 November 1998. The applicant (HKG) is unhappy with aspects of that award, and seeks leave to appeal against it. The HKG says that the arbitrator was wrong in holding that -

a) no time had been saved in relation to dredging works, when it was common ground between the parties that a minimum of 36 days had been saved;

b) only 7 days had been saved in relation to rockfill and rock armour works, when it was common ground between the parties that a minimum of 166 days had been saved; and

c) as a result, only a total of 7 days had been saved, when it was common ground between the parties that a minimum of 202 days had been saved.

2. The case argued by Mr Coleman, in its essence and using the most simple example, is that if a claimant says - "The respondent owes me $1000.", and the respondent says - "No; I only owe $500.", the arbitrator must decide whether the respondent owes $1000, $500 or something in between. The arbitrator cannot find that the respondent owes $1100 or $450. He says that, if the HKG alleged that the saving was a total of 202 days and Aoki alleged that it was 267 days, the arbitrator was bound to find one or the other, or some period in between, not the 7 days he found in his award.

3. But Mr Scott says that the matter is not as simple as that. And indeed it is not.

4. The form of this arbitration was a review by the arbitrator of the engineer's decision. The arbitrator had jurisdiction by virtue clause 86 of the General Conditions of Contract. The matter in dispute, as extracted by the arbitrator from Aoki's amended statement of claim, was whether or not Aoki was entitled to an extension of time (EOT) and prolongation costs due to suspension and subsequent variation to the works concerned. The engineer had not awarded any EOT or additional costs.

5. In his interim award, the arbitrator analysed the different aspects of the work involved, pointing out that the programme of work showed the critical path running through each activity in turn. The arbitrator saw it as his task, correctly I think, as comparing the time required to do the work under the original design with that required to do the work under the revised design. He said that Aoki had not done the work sequentially as shown in the programme, but carried out some activities concurrently. The arbitrator said that it appeared to him, on the evidence, that the option of carrying out the some of the activities concurrently was available under the original design. What the arbitrator said, in essence, was that, in making the comparison I have mentioned, one must compare like with like. That seems beyond dispute. He then said that this point had not been fully argued before him, although alluded to, so he invited the parties to make further submissions on the issue of criticality and the effect of carrying out the activities concurrently. He did this in a letter dated 26 October 1998. In this, the arbitrator said that the questions he was "considering relate to the critical path and the relationship between the critical path and the reductions in time". Very carefully, the arbitrator made his point quite clear. He said - "The quantities of rubble and armour were reduced but, as these activities appear to have been carried out intermittently in parallel with the rock dredging, did the reduced quantities reduce the actual time for completion?".

6. Both parties accepted the arbitrator's invitation. Mr Coleman, on behalf of the HKG, made a written submission. In this, Mr Coleman said that the pleaded cases did not permit the arbitrator to follow the path indicated, but he went on to make submissions on the merits. The HKG did not ask for a further hearing or leave to adduce further evidence.

7. Having taken the submissions into account, the arbitrator decided that "the revision of the design cannot justify a reduction in the time available to [Aoki] to carry out the dredging work.". He found that "the only period when the activities with the reduced quantities were critical was during the short period after completion of the rock dredging when the final sections of armour were placed before the outfall works were able to start." He concluded - "I thus find that a saving of only 7 days can be allowed as a result of the reduced quantities in the redesigned revetment seawall."

8. The arbitrator went on to consider other aspects of Aoki's claim for EOT, finding in Aoki's favour on some aspects, but against it on others; most significantly, reducing Aoki's claim for EOT in relation to excavation of rock from 261 days to 63 days. In the final result, taking into account time savings and additional time required under the new design, the arbitrator found that Aoki was entitled to an EOT of 177 days, whereas Aoki had claimed 306 days and the HKG had maintained that there was a time saving of 116 days.

9. As I have said, this was a contract arbitration; the arbitrator did not find his jurisdiction in an ad hoc reference by the pleadings. The pleadings of a party in this case were for the purpose of informing the arbitrator and the other party of the case being put forward. On its view of its case, Aoki pleaded that, in relation to dredging, 36 days had been saved, and, in relation to rockfill and rock armour, 166 days had been saved. Mr Coleman says that Aoki and the arbitrator were bound by this plea, and the arbitrator was not entitled to find that, in relation to dredging, no time was saved, and in relation to rockfill and rock armour, only 7 days were saved.

10. That, I accept, would have been the position if the arbitrator had proceeded to his award without giving the parties the opportunity of addressing him on the approach that he thought was the correct one and which I believe was undoubtedly the correct one. But he did give the parties that opportunity. Mr Coleman submitted to the arbitrator that he should not adopt the approach concerned because this was not open to him on the pleaded cases. The arbitrator must be taken to have rejected that submission, as he was entitled to do in the exercise of his discretion. The arbitrator clearly did not think that he needed any additional evidence in order to decide the matter on the approach he favoured, and, indeed, the reasoning in his award shows that he did not. The HKG did not suggest that he needed any further evidence, and did not ask to adduce any.

11. This is a case in which the arbitrator, using his expert knowledge and experience, proposed what he thought was the correct approach to the matter. The parties had selected an expert arbitrator for his specialist knowledge, and what the arbitrator did here is just, I would have thought, what an expert arbitrator should do in this situation; that is, to ensure that he is deciding the substantive dispute in a fair and just manner. The only real question, as I see it, is whether or not the arbitrator acted fairly in adopting this approach. I think he did. He might, of course, have adopted a different way of doing things. He might have suggested that Aoki amend its pleadings to adopt the approach he thought was the right one. What happened is that Aoki, not surprisingly, adopted the arbitrator's approach. The HKG had fair notice of the way things had shifted, and had a full opportunity of dealing with the new situation. I see nothing wrong in the way the arbitrator handled this matter. It may be that it could be said that his approach was robust, that he was imaginative, that he was somewhat unorthodox. It may also be said that a judge would not have done what the arbitrator did, but one of the reasons for this would have been that the judge might not have had the expert knowledge to enable it to see that something was wrong in the parties approach; that the wrong comparison was being made. But none of this is to the point. The parties chose arbitration. It should be expected that arbitration is less formal and more flexible that litigation; that is why it is chosen. And I can envisage situations in which a judge might have done something similar to that done by the arbitrator. A judge may feel that a case is going off the rails because the approach of the parties is quite wrong. In that situation, a judge is fully entitled to say - "Look, this is not the right way to see things. This is the real dispute. You should deal with that." As long as the judge gives the parties adequate opportunity to deal with the matter properly, there is nothing wrong with this sort of intervention.

12. Even if it could be said that there is some doubt about the legitimacy of the arbitrator's decision in this matter, this is a case that arises from its own peculiar facts. There is no question here of the construction of a standard contract in general use, or the interpretation of a point of law that is likely to arise frequently. I do not think that a decision on an appeal would provide the answer to a question of law that is of general importance to a substantial section of the commercial community. I believe this case is as near to a "one-off" as makes no difference, and, therefore, the presumption of finality is strong. I cannot say that the arbitrator was plainly wrong, or anywhere near that test. The parties chose an expert arbitrator and he used that expertise to come to what he regarded as a fair decision. The arbitrator also adopted a flexible procedure; something inherent in arbitration. This method of resolving their disputes was chosen by the HKG; it cannot now legitimately complain that things have not worked out as it wished. There was, in my view, no unfairness and no injustice done.

13. In the result, leave to appeal is refused.

14. There seems no good reason why costs should not follow the event. I make an order nisi that the HKG pay Aoki's costs.