N v C Arbitration Case Analysis

[2019] HKCFI 2292
Court of First Instance
Construction and Arbitration Proceedings No. 3 of 2019
Hon Mimmie Chan J
13 June 2019, 16 September 2019

Arbitration – arbitral award – set aside – serious irregularity – whether plaintiff was able to present its case – whether tribunal failed to deal with all the issues

Employer P engaged main contractor D to construct a residential development in Macau. P and D entered into a contract that inter alia entitled D to claim payment for extensions of time (“EOT”) (the “Contract”). The parties disagreed D’s submission of claim EOT and the dispute was referred to arbitration. The parties agreed that Hong Kong procedural law would apply to the arbitration, including, specifically, the Arbitration Ordinance (the “Ordinance”) and Schedule 2 thereto.

In the arbitration, P denied that D was entitled to payment because D had failed to make an application within the time limit contained in the Contract and that this was a condition precedent for any entitlement under the Contract. D argued that it was not a condition precedent and in any event, P had waived any condition precedent by conduct by failing to raise the time-bar issue when D submitted its claims to P. The arbitrator ordered P to pay D MOP 25,500,000 for prolongation cost and MOP 12 million for delay-related fluctuation cost (the “Award”).

P applied to set aside the Award under section 4(1) and (3) of Schedule 2 on the ground that there was serious irregularity because:

  1. P was unable to present its case;
  2. The tribunal had exceeded its powers;
  3. 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
  4. The tribunal failed to deal with all the issues which were put to it.

Alternatively, P relied on section 81 of the Ordinance to set aside the Award, arguing that it was unable to present its case, the Award contains decisions or 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.

Held, dismissing P’s application that:

  1. P argued that while the arbitrator found that D had no contractual entitlement to the loss and expense for EOT, he still allowed D’s claim based on an agreement between the parties that the EOT which were awarded would give rise to an entitlement to loss and expense (the “Agreement on Entitlement”). P averred that this was contradictory to the arbitrator’s finding that the parties’ agreed position was that any agreement was “subject to matters on entitlement”. Further, P claimed that the Agreement on Entitlement was neither pleaded, nor identified as an issue, and neither party had sought to adduce evidence on that issue. The judge rejected this argument. In the pleadings, P confirmed that there was an agreement to pay D’s loss and expense at a daily rate, the contention point was whether the parties intended that agreement to apply to EOT after the agreement was made, and the arbitrator resolved the factual dispute in D’s favour. The judge considered the arbitration proceedings and concluded that P had been given full opportunity to present its case.
  2. In any event, the judge was not satisfied that the arbitrator’s dealing with and deciding on the Agreement on Entitlement is so far removed from what could reasonably be expected from the arbitrator, that justice calls out for it to be corrected as a serious irregularity, or as an egregious denial of due process.
  3. The judge also rejected P’s argument that the arbitrator had failed to deal with the time-bar defence. On the arbitrator’s analysis and findings, the time limit under the Contract would not apply as D’s claims were allowed by virtue of the arbitrator’s findings on the existence and effect of the Agreement on Entitlement. The judge opined that the arbitrator may not have given adequate reasons or sufficiently clarified that the time-bar defence fell away because of his findings on the Agreement on Entitlement, but established authorities indicate that a failure to provide any or any sufficient reasons for the decision is not the same as failing to deal with an issue.
  4. The judge reiterated that it was not proper to consider in an application to set aside for serious irregularity: (a) whether the arbitrator was right on his findings of facts and law; (b) whether his decision was supported by evidence; (c) whether he gave sufficient reasons for his findings; or (d) the quality of the arbitrator’s reasoning. The judge would only consider whether the arbitrator committed a serious irregularity in coming to the conclusion that he did.

APPLICATION

This was an application to set aside an arbitral award on the grounds of serious irregularity under section 4(1) and (3) of the Schedule or, alternatively, section 81 of the Ordinance. The facts are set out in the judgement.

ANALYSIS

This is an interesting case as it clarifies that a failure to provide adequate reasons in the award does not mean that the arbitrator has failed to deal with all the issues in the case. The court relied on Secretary of State for the Home Department v Raytheon Systems Ltd [2014] EWHC 4375 (TCC) and explained that “[a] failure to provide any or any sufficient reasons for the decision is not the same as failing to deal with an issue…. 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…. A tribunal does not fail to deal with issues if it does not answer every question that qualifies as an ‘issue’. It can ‘deal with’ an issue where that issue does not arise in view of its decisions on the facts or its legal conclusions. A tribunal may deal with an issue by so deciding a logically anterior point such that the other issue does not arise…. If the tribunal decides all those issues put to it that were essential to be dealt with for the tribunal to come fairly to its decision on the dispute or disputes between the parties, it will have dealt with all the issues….

It also highlights the court’s unwillingness to interfere with arbitral awards unless in the case of clear serious irregularity and a reminder to all that such applications should not be used “as a means of launching a detailed inquiry into the manner in which the tribunal considered the various issues” but rather to deal with the situation where “the arbitral tribunal has not dealt at all with the case of a party so that a substantial injustice has resulted…” (¶36, quoting from Weldon Plant Ltd v The Commission for the New Towns [2000] BLR 496).

Jurisdictions: 

Associate, Morrison & Foerster

Associate, Morrison & Foerster