Arbitrator “Not Obviously Wrong” – Refuses Leave to Appeal

In P v C [2019] HKCFI 2625, the Hong Kong High Court dealt with an application for leave to appeal against an Interim Award in an arbitration relating to the renovation and conversion of a building.

The application was made pursuant to s 6 (1) (b) of Schedule 2 to the Arbitration Ordinance (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). Under s 6 (4) of the Schedule, leave to appeal is to be granted only if the Court is satisfied that:

  • the decision of the question will substantially affect the rights of one or more of the parties;
  • the question is one which the arbitral tribunal was asked to decide; and
  • 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”.

The Plaintiff engaged the Defendant as the main contractor to carry out the renovation and alteration work with commencement of the Works being 1 November 2012 and a date for completion of 26 September 2013; the works were significantly delayed and handed over to the Plaintiff on 31 March 2015, at which point the Defendant vacated the site. The disputes referred to arbitration related to the Defendant’s claims of payment for work done and materials supplied, 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 granted by the project manager.

Leave to appeal was sought in respect of the following questions:

  • 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”);
  • 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
  • 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”).

Refusing leave to appeal in relation to the EOT Question, the Court stated [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.”

And [24]:

“…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.”

Refusing leave to appeal in relation to the Time Bar Question, the Court stated [42]:

“…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.”

Refusing leave to appeal in relation to the Risk Allocation Question, the Court stated [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.”

At [63], the court observed that common sense should not be invoked to undervalue the importance of the contractual language:

“…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.”

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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