In N v C  HKCFI 2292, the Hong Kong High Court dealt with an application to set aside part of a partial award arising out of a contract for the construction of a residential development in Macau involving N (as employer) and C (as contractor).
The dispute centered around the final account, in which the Architect:
- granted the contractor an extension of time of 269 days;
- granted the contractor an entitlement to loss and expense or prolongation costs for 181 days at MOP 100,000/day;
- refused to allow loss and expense for 88 days of the extension of time granted on the basis that there was no entitlement to loss and expense in relation to those matters for which that period of extension of time was granted.
The contractor challenged the Architect’s certification and in an Award conducted under Sch.2 of the Arbitration Ordinance, the Arbitrator found that loss and expense should be granted for 181 days as certified by the Architect and allowed a further 74 days of extension of time (arising out of the use of a licence).
The main complaint by the employer was that whilst the Arbitrator found that the contractor had no contractual entitlement to loss and expense for the 74 days extension of time, he nevertheless allowed the contractor’s claim on the basis of an agreement between the employer and contractor (called and Agreement on Entitlement) to the effect that any extensions of time granted would give rise to an entitlement to loss and expense. The employer argued that the Agreement on Entitlement was never pleaded nor identified as an issue and neither party had sought to adduce evidence on this issue. This, the employer argued, deprived it of the opportunity to present its case and the Arbitrator had exceeded its powers and failed to conduct the proceedings in accordance with the parties’ agreement.
Accordingly, the employer sought an order to set aside, or alternatively to remit, parts of the Award on the ground that there was serious irregularity by reason of the fact that:
- the Plaintiff was unable to present its case;
- the tribunal had exceeded its powers;
- the tribunal failed to conduct the proceedings in accordance with the procedure agreed by the parties, which was for the tribunal to decide on pleaded cases and agreed issues; and/or
- the tribunal failed to deal with all the issues which were put to it.
(In the alternative, the employer sought an order to set aside the Award under section 81 (1) of the Ordinance, on the same grounds that it was unable to present its case, that the Award contains decisions on matters beyond the scope of the submission to arbitration, and/or the arbitral procedure was not in accordance with the parties’ agreement, which was for the tribunal to decide on pleaded cases and agreed issues.
The Court did not set out the authorities and legal principles applicable to the setting aside of arbitral awards on grounds of serious irregularity but instead referred to Maeda Kensetsu Kogyo Kabushiki Kaisha v China State Construction Engineering (Hong Kong) Limited  HKCFI 1006, where the court had set them out (see the earlier post on the Maeda case, especially paragraphs 4-9 http://arbitration.site/hk-court-rejects-appeal-of-award/)
Dismissing the application, the Court focussed on the following two key issues.
Was the Plaintiff unable to present its case?
The Court found that the parties adduced extensive factual evidence on the scope and effect of the agreed daily rate in respect of the contractor’s entitlement to loss and expense; the contractor’s opening submissions made it clear to the employer that the daily rate was to apply “across-the-board”, not by reference solely to the extension of time which the Architect granted, but the extension of time which was eventually due, and that the agreed daily rate was to compensate the contractor for its loss and expense for any extension of time granted.
The Court noted the reference in s.46(3)(b) of the Ordinance to a party having a “reasonable opportunity” to present its case and to deal with the case of its opponent and also to the following comments by Popplewell J in Reliance Industries Ltd v Union of India  EWHC 822:
“It is always important to keep in mind the distinction between a lack of opportunity to deal with a case and a failure to recognize or take such opportunity… It is enough if the point is “in play” or “in the arena” in the proceedings, even if it is not precisely articulated… Ultimately the question which arises under s 33 (a), whether there has been a reasonable opportunity to present or meet a case, is one of fairness and will always be one of fact and degree which is sensitive to the specific circumstances of each individual case…”
Rejecting the employer’s arguments, the Court concluded :
“On my reading of the pleaded case, the substance of the submissions made before the tribunal, and the analysis made and reasons given in the Award, I am not satisfied that the Agreement on Entitlement was not pleaded, or could not reasonably have been envisaged by the Plaintiff as an issue arising in the Arbitration, such that the Plaintiff was not given the reasonable opportunity to present its case. The issue was in the arena, and the opportunity had been made available to the Plaintiff, to present and argue its case on the Agreement on Entitlement.”
Did the Tribunal fail to deal with all the issues?
The Plaintiff’s complaint was that in the Award, the Arbitrator did not deal with the time bar defence. The Court rejected this argument, stating that the Arbitrator dealt with and decided this issue in the Award on the basis of the parties’ Agreement on Entitlement. Accordingly, on the Arbitrator’s analysis and findings, the time limit prescribed under the relevant clause would not apply, as the Defendant’s claims were allowed by virtue of the Arbitrator’s findings on the existence and effect of the Agreement on Entitlement.
The Court noted the following:
- It was insufficient to say that the Arbitrator had not given adequate reasons or sufficiently clarified that the claim of time bar fell away because of his findings on the existence, meaning and effect of the Agreement on Entitlement, citing Secretary of State for the Home Department v Raytheon Systems Ltd  EWHC 4375 (TCC) at paragraph 33 (g), where the Court stated that “a failure by a tribunal to set out each step by which they reach its conclusion or deal with each point made by a party is not a failure to deal with an issue that was put to it.”
- Courts have emphasised that a failure to deal with an issue is not equivalent to failure to deal with an argument that had been advanced at the hearing and therefore to have omitted the reasons for rejecting it, citing Weldon Plant Ltd v The Commission for the New Towns  BLR 496, where the court explained that section 68 (2) (d) of the English Arbitration Act (the equivalent of section 4 (2) of the Schedule) is not to be used “as a means of launching a detailed inquiry into the manner in which the tribunal considered the various issues”, rather “It is concerned with a failure, that is to say where the arbitral tribunal has not dealt at all with the case of a party so that a substantial injustice has resulted, eg where a claim has been overlooked, or where the decision cannot be justified as a particular key issue has not been decided which is crucial to the result.”
- Whether the Arbitrator is right on his findings of facts and law, whether his decision is supported by evidence, whether he has given sufficient reasons for his finding, and the quality of the Arbitrator’s reasoning, are not matters of consideration in an application to set aside for serious irregularity, or under section 81 of the Ordinance, citing Warborough Investments Limited v S Robinson & Sons (Holdings) Limited  EWHC 2502 (Ch), at paragraph 64 of the judgment, where the court there stated: “The issue is not whether the arbitrator came to the right conclusion. The sole issue is whether he committed a serious irregularity in coming to the conclusion that he did”.
Accordingly, the Court found that there were no grounds to either set aside or remit the Award, whether for serious irregularity, or under section 81 of the Ordinance; the application was dismissed, with costs to the Defendant on indemnity basis.