HUMPHREYS ESTATE (FORRESTDALE) LTD v. UNISTRESS BUILDING CONSTRUCTION LTD

HEADNOTE

    Arbitration - Payment into Court - 0.73 rr.11-18 Hearing commenced - Application to take out money paid in after 2-day period expired - Whether consent of payer in required - Whether risks of litigation had substantially altered since payment in - Procedure for reducing payment in.

1991 No. MP 3268 & 3311

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. I have before me two cross summonses which raise interesting points under that part of order 73 which deals with payments into court in arbitrations. It will be recalled that there is no similar provision relating to arbitration in England and to some extent this jurisprudence is new, save of course, for the fact that Order 73 rules 11-18 are based on the provisions of Order 22 of the Rules of the Supreme Court.

2. On 29th October 1991, Unistress applied to this court to take out of court the sum of $3.3m paid into court by Humphreys at about 3.15 p.m. on the 22nd October 1991,the arbitration hearing having commenced on Monday 21st October 1991.

3. On 2nd November 1991, Humphreys applied to this court to reduce the payment into court from $3.3m to $2,719,582.20.

4. Although it is unfortunate that the parties have fallen out in relation to the subject matter of the dispute, this has, most regrettably, been compounded by a difference of opinion as to what was going to happen when the arbitration adjourned in order for Unistress to apply to take the money out of court. This case illustrates the dangers of leaving matters up in the air with both sides, thinking at the time, or later, that matters were going to progress in different directions. Let me say at once that I acquit all concerned of any allegations of deception or professional misconduct. However, the fact remains that there is a large divide between the parties' respective positions and I must try, as best I can, to sort the matter out having regard to my interpretation of the relevant rules and what I perceive to be the justice of this case.

5. The basic facts are unremarkable. Humphreys owned a building on the Peak which they wanted renovated. They entered into a contract with Unistress on 24th October 1989. The contract was terminated on 12th June 1900 and a Notice of Arbitration was served by Unisress on 12th October 1900. Pleadings, discovery and schedules followed. Both parties accused the other of delay in providing discovery. On 18th October 1991, Unistress served its opening submission. The arbitration had been fixed to commence on Monday, 21st October 1991 before Mr. Michael Charlton FRICS, FCIArb. With a number of days reserved.

6. The hearing did commence on 21st October. On that day an error in one of the certificates was pointed out by Mr. Graham who appeared for Unistress. Mr. Scott who appeared for Humphreys indicated that he did not consider that the error would make any difference to the quantum of the claim. This view was apparently shared by Humphreys' solicitor Mr. Stone and also the architect who was present at the hearing. Subsequently Mr. Scott came to the view that this error in a decimal point did make a difference to the value of the claim. (The certificate showed work completed at $519,750 when it should have been $51,975).

7. Unistress called two witnesses. Mr. Ng was an expert and Mr. Chan was a witness of fact. Both were cross-examined and Humphreys submit effectively cross-examined because they go on to suggest that various concessions made by these witnesses substantially weakened Unistress' case.

8. The payment into court was made on Tuesday, 21st October at 3.15 p.m. The arbitration continued until the end of Friday's hearing. Over the weekend the Unistress team gave thought to the payment into court especially in the light of the slow progress to date and the availability of other dates. The arbitrator had reserved 15 days between the 23rd October and the 8th November. Mr. Ernest Kwok, Unistress' solicitor, was of the view that it seemed unlikely that the arbitration would finish by the 8th November. Mr. Scott for Humphreys had expressed concern about time to the arbitrator and had made a number of suggestions. On 25th October, Mr. Scott informed the other side that he was not available after the 8th November. Mr. Graham and Mr. Kwok both had a court committment on 11th November for 9 days. The arbitrator was also thought to be unavailable after the 8th November. It therefore appeared to the Unistress team that the arbitration would have to be adjourned for some time and this caused concern to them. In the light of all these problems the Unistress team gave careful thought over the weekend to the payment into court in the sum of $3.3m.

9. On Monday 28th October, 1991, Mr. Graham informed Mr. Scott that Unistress were minded to accept the money paid into court subject to being able to agree the question of costs. No agreement on costs was reached. During the morning on Monday 28th October, both parties requested the arbitrator to adjourn until the Tuesday, but they did not tell him why this adjournment was required. On the morning of Tuesday 29th October, Mr. Scott told Mr. Graham that it was not possible to agree the question of costs. Mr. Scott indicated that he would not object to the arbitration being adjourned to enable Unistress to apply to the court for leave to take the money out provided such an application was made within 24 hours. It was therefore agreed to invite the arbitrator to adjourn the matter sine die without telling him the real reason.

10. The Unistress team feel very strongly that they have been unwittingly misled. Although they accept that the Humphreys team did not indicate one way or the other whether they would oppose the application to take the money out of court, they formed the very clear impression, rightly or wrongly, that no opposition would be made to the application save in relation to the precise order for costs consequent upon the acceptance of the money paid into court.

11. The Humphreys team accept that they never indicated that it was their client's intention to oppose the application nor did they ever mention the possibility that a counter application would be made to reduce the sum paid into court. At the time that the arbitration was adjourned, the Humphreys team had received no instructions from their client as to what course of action they should adopt.

12. It was therefore with considerable surprise and regret that the Unistress team discovered that the application to accept the money into court was to be opposed and that a cross-application was taken out to reduce the sum paid in.

13. As I have already said I acquit all concern of any impropriety. The misunderstanding stemmed from a failure to discuss a11 the possible ramifications of the proposed course of action. I am sure that if the Unistress team had been told that their application was to be opposed and that an application was to be made to reduce the sum paid into court, they would not have agreed to the arbitration being adjourned. I am also satisfied that the Humphreys' legal team did not have any instructions from their clients and did not expressly mislead the Unistress team. The mutual indignation expressed before me stems solely from leaving too much unsaid.

14. How do I assist the parties in getting out of this impasse? I have to start with the rules, namely Order 73 rules 11-18 which I have said mirror Order 22. Mr. Scott's primary submission is that I have no jurisdiction to consider Unistress' application because:

(1) The arbitration hearing has begun;

(2) The 2-day period for acceptance specified in 0.73 r.13(2) elapsed before Unistress indicated its acceptance; and

(3) Humphreys oppose the application for payment out.

15. It is common ground that the arbitration had commenced and that the 2-day period for acceptance had expired. What is not agreed is whether Humphreys' consent to payment out is essential.

Order 73 Rule 14(3) provides as follows:

"(3) Where after the hearing of the arbitration proceedings has begun a claimant party accepts any money paid into court and all further proceedings in the arbitration proceedings or in respect of the matter in dispute or matters in dispute, as the case may be, to which the acceptance relates are stayed by virtue of rule 13(4), then, notwithstanding anything in paragraph (2), the money shall not be paid out except in pursuance of an order of the Court, and the order shall deal with the whole costs of the arbitration proceedings or with the costs relating to the matter in dispute or matters in dispute as the case may be, to which the arbitration proceedings relate."

16. In support of his proposition that without Humpreys' consent to this application, I have no jurisdiction to grant the relief sought, Mr. Scott relies upon the case of Gaskins v. British Aluminium (1976) 1 Q.B. 524. In that case, the plaintiff claimed damages for personal injuries and £5,500.00 was paid into court well before the hearing commenced. On the second day of the trial, the plaintiff's counsel recognizing that matters had not gone too well for the plaintiff made an application to the trial judge for leave to take the money out of court. The defendant opposed the application and the judge refused it. The plaintiff appealed.

17. Lord Denning M.R. was clearly much impressed with the fact that if such an application could be made without the defendant's consent "a door would be opened to abuse of the worst description." He referred to Order 22 rule 7 which provides that the court of trial shall not be informed of a payment in nor should that fact be pleaded. He expressed anxiety that if the defendant's consent was not needed, a plaintiff seeing things going badly could sabotage the hearing by asking the judge for leave to take the money out of court and if unsuccessful, the plaintiff would then invite the judge to recuse himself in order to try his luck elsewhere. In the light of these fears, Lord Denning at page 533 said:

"So much so that we should now lay down a positive rule that no such application should be made at trial without the consent of the defendant."

18. Orr L.J. stated that he approached the problem as one of construction of the rules. He read the rule relating to non-disclosure of the payment into court with the rule relating to leave to take the money out and concluded, in agreement with Lord Denning, that such an application during the hearing should only be granted if the defendant consented. He too expressed fears about abuse if consent was not required

19. Browne L.J. dissented on the construction of the rules but agreed with the result. He considered the matter in greater detail than his brethren and concluded:

"As rule 7 is only directory and not compulsive, it cannot in my judgment override what I think is the clear meaning of rule 5 and in my view a plaintiff is entitled to make application during the trial for payment out whether or not the defendant consents."

20. As to the suggested abuses, Browne L.J. was of the view that these would be reduced if it was appreciated that the trial judge had a discretion to go on with a trial if he refused leave to take the money out. Going on before the same judge in a case going badly would be a disincentive to such an application. However, he went on to make what I think is a most valuable comment, namely,

"But if the danger is felt to be serious I think the right solution is to amend the rules not to give what I regard as a wrong construction to the existing rule."

21. Having considered these three judgments very carefully, I have come to the very clear conclusion that I find Browne, L.J.'s judgment by far the most persuasive. It seems to me that Lord Denning's judgment states a policy which he thinks is desirable to avoid abuse, but with respect, it does not even attempt to deal with the construction argument. Orr L.J. sought to put the matter as one of construction, but in essence, I take his judgment to be no less a policy judgment than that of Lord Denning.

22. The matter does not end there because there is a crucial distinction between the rule under consideration in Gaskins and the rule I have to consider. I am dealing with an arbitration and the application to take the money out is made to me and not to the arbitrator. There can be no question of the arbitrator being informed of the payment into court. The fact that I know about it is irrelevant. It follows, therefore, that none of the fears expressed by Lord Denning and Orr L.J. can possibly apply to a consideration of Order 73, rule 11-18. The policy ground falls away and insofar as Orr L.J.'s construction was affected by the risk of abuse, this too cannot stand up. There are, therefore, no practical problems in construing rule 14(3), otherwise than on its own language. There is nothing in the rule which detracts from the court's discretion to allow or refuse payment out and I find no need to read into the rule words not there to show that the defendant's consent is required. The court's discretion is unfettered and the defendant's lack of consent is but one of a number of factors that the court must take into account.

23. I, therefore, reject Mr. Scott's submission that Unistress' summons should be dismissed in limine on the grounds that I do not have any jurisdiction. I decline to follow Gaskins for the reasons set out above.

24. Having decided that I have an unfettered discretion to consider Unistress' application, on what basis should I approach the matter? I propose to consider both summonses together.

25. In Cumper v. Pothecary (1941) 2 KB 58, the defendant paid a sum into court on the basis of the law relating to damages for death and personal injury, as it stood at the time of payment in. The money was not accepted. In December 1940, the House of Lords delivered judgments in a leading case of Benham v. Gambling (1941) A.C. 157 in which their Lordships disapproved the large awards being made for loss of expectation of life. The plaintiff applied to take the money out of court which the Master allowed only as to £10.00 and he gave the defendant leave to amend his notice of payment into court so as to limit it to £10.00 for damages for loss of expectation of life. The plaintiff appealed and the judge reversed the Master by allowing the plaintiff to take out the original sum paid in and he further struck out the amendment to the notice of payment into court. The Court of Appeal reversed the judge on the first ruling, but upheld him as to the second. In the course of delivering the judgment of the court, Goddard L.J. (as he then was) said this;

" We do not, however, propose making this order now. The defendant sought an order which resulted in his serving a bad notice, and the learned judge was right in allowing the appeal and setting aside the master's order. If the defendant now wants to amend his notice he had better first take steps to amend his defence and start again, and we express no opinion whether the application, if made, should or should not be granted. Indeed, we think it is desirable to say that it must not be thought that a defendant who has paid a sum into court is entitled, as of right, to resile from that step. He must, in our opinion, show that there are good reasons for his application - for instance, the discovery of further evidence, which puts a wholly different complexion on the case, as in the two cases cited, or a change in the legal outlook brought about by a new judicial decision, as in the present case, and there may be others. Having once put a valuation on the plaintiff's case, the defendant ought not to be allowed to alter it without good reason. We think the same considerations apply if the matter comes before the court on an application by the plaintiff to have the money paid out to him. The court is not to consider merely whether the amount paid in is large or small, nor is it called on to take into accunt the sort of circumstances which would be proper if, for instance, it were asked to approve a settlement on behalf of an infant. Apart from matters such as fraud or mistake affecting the original payment, it should consider whether there is a sufficient change of circumstance since the money was paid in to make it just that the defendant should have an opportunity of withdrawing or reducing his payment."

26. In W.A. Sherratt Ltd v. John Bromley (Church Stretton) Ltd (1990) 1 AER 216, the Court of Appeal were concerned with the question whether a plaintiff was a secured or unsecured creditor in regard to moneys paid into court in satisfaction of his claim. There were two conflicting decisions of the Court of Appeal, namely, Dessau v. Rowlev (1916) W.N. 238 and Pearl Furniture Co. Ltd v. Adrian Share (Interior) Ltd (1977) 1 WLR 464. The court decided not to follow Pearl's case and held that the plaintiff was a secured creditor. In the course of his short judgment agreeing with the judgment of Oliver and Goff, LJJ (as they then were), Sir John Donaldson M.R. after referring to part of the passage cited above from Goddard L.J.'s judgment in Cumper said this;

In Pearl's case shop premises were temporarily unusable and the plaintiffs assessed their loss at 10% of the normal level of takings. Later they, or the receiver appointed by the bank revised that figure to 43% on the basis, no doubt, that overhead expenses continued to be incurred. This does not seem to me to be a change of circumstances either objectively or as reasonably known the plaintiffs. It amounted to a simple misappreciation of circumstances well-known to the plaintiffs. If this were a ground for permitting a reduction in the amount of money in court, it seems to me that there could be applications whenever counsel reviewed the case and took a more favourable view than he had hitherto."

27. It is clear, therefore, that the test I have to apply is "whether there is a sufficient change of circumstances since the money was paid in to make it just that the defendant should have an opportunity of withdrawing or reducing his payment".

28. One of the problems in the situation before me is that the one person who is ideally placed to decide this issue is the arbitrator who is, quite rightly, in blissful ignorance of all that has been going on. He has made a large number of orders. He has read with his trained surveyor's eye, the opening submissions, and I have no doubt some of the relevant documentation. He has had two witnesses appeared before him and be cross-examined. I have none of these advantages. I am placed in a most difficult position. I would go so far as to say that it would be intolerable to expect a judge hearing an application such as this to make himself as au fait with the case as the tribunal before whom the case is proceeding. This principle applies even more so, the longer the case has been continuing. Further, this case is very different to Gaskins' case. There the trial judge, in a fairly straightforward personal injury case, was ideally placed to appreciate how badly the plaintiff's case had gone. Not only am I not so placed, but I have enough experience of construction disputes to appreciate the ebb and flow of evidence and the fact that this arbitration had only just started and that it was premature to make a judgment as to the likely outcome after such a short time. Further, it sometimes happens that a point which appeared to be crucial at an early stage of a case pales into insignificance in the light of subsequent evidence.

29. However, despite all these points, I am charged with deciding these two summonses. Whether it would have been better to give this role to the arbitrator under the rule is something which I feel ought to be looked at again by the Attorney General.

30. Doing the best I can on the materials placed before me, my conclusions are as follows. In relation to the error in the certificate, I am by no means convinced that this justifies the relief sought. Unistress pointed this error out on the first day and if the Humphreys' team misappreciated its significance that is unfortunate but it is not enough to justify the reduction of the payment in made after this disclosure. This error was, of course, pointed out before the payment into court was made.

31. In relation to the evidence of the two witnesses, the arguments and counter arguments are canvassed extensively in the solicitors' affidavits and exhibits. It is accepted that both these witnesses were called after 3.15 p.m. on 22nd October. I do not propose to repeat all these matters in this judgment, but I have considered them very carefully as well as the respective written and oral submissions of counsel. Taking all these matters into account and bearing in mind that the onus is on Humphreys to satisfy me that a substantial alteration of the risks has occurred, I have come to the very clear conclusion that they have not discharged this burden. It may well be that these two witnesses did not give precisely the evidence that Unistress hoped for and expected and, indeed, this is a common enough experience in litigation. But I cannot grant Humphreys the relief they seek unless the alteration has been substantial. I am not so satisfied on the materials placed before me. I, therefore, conclude that in the exercise of my discretion, it would not be right to permit Humphreys to reduce their payment into court.

32. Should I give Unistress leave to take out the money in court notwithstanding that the two-day period has expired? Having satisfied myself that the risks have not substantially changed since the payment in, would it be unjust to permit Unistress now to take the money out? The only alternative course of action open to me now that I have refused Humphreys' application to reduce the payment in is to refuse Unistress the order they seek, thereby ensuring that the arbitration resumes whenever dates can be found and continues to a conclusion. The $3.3m would remain in court and would be a crucial factor on the question of costs when the arbitrator had decided quantum.

33. This payment into court was an offer to dispose of the claim on terms. I am quite satisfied that it is only just that the defendant should not be permitted to resile from this offer bearing in mind my conclusion that the risks have not substantially changed. In those circumstances, it seems right to exercise my discretion under Order 73 rule 14(3) and permit Unistress to take out the money paid into court.

34. Mr. Graham also took the point that Humphreys had adopted the wrong procedure. He reminded me of the following observation of Goddard L.J. in Cumper:

"We think it right to say what we conceive to be the proper procedure to adopt when a defendant desires to obtain leave to withdraw or reduce his payment into court. In our opinion, he should ask, if he wishes to withdraw the whole payment, for an order that he be at liberty to withdraw his notice of payment in, and that the sum in court should be paid out to him or be otherwise dealt with as the court may direct. The court will then, if it grants the application, consider whether ... the money should still remain in court as security or whether ... it should be returned to the defendant. If he wishes to reduce the payment he should apply for an order that he be at liberty to withdraw the notice already served and substitute therefor a notice containing the reduced amount, and for an order that the difference between the two sums should be paid to him, or be otherwise dealt with as the court may direct."

35. In the Sherratt case referred to above, Oliver L.J. decided that although the rules were recast in 1965, there was nothing which detracted from the authority of the line of cases under the relevant rules. (see page 226.) It seems to me that the procedure outlined by Goddard L.J. is still applicable and is the procedure which should be adopted when dealing with a situation such as this. In the end, it makes little difference that this procedure was not adopted as I have been able to rule on the merits of the two opposing applications.

36. Counsel have sensibly agreed the form of costs order I should make if I decided this matter in Unistress' favour. The agreed terms are as follows:

"Insofar as costs have not already been dealt with by previous arbitrator's directions the costs of the claimant's claim in the arbitration be to the claimant up to close of business on 22nd October 1991. Costs of the counterclaim and the costs of the claim after 22nd October 1991 be to the respondent. Any interest accrued on the sum in court be paid out to the respondent solicitors."

37. As to the costs of these two originating sumonses, I propose to make the following costs order nisi, namely that Unistress should have the costs of their originating summons as well as the costs of Humphreys' originating summons.