Maeda Kensetsu Kogyo Kabushiki Kaisha Also Known As Maeda Corporation And Another v Bauer Hong Kong Ltd

Judgment Date18 April 2019
Neutral Citation[2019] HKCFI 1006
Year2019
Judgement NumberHCCT5/2018
Subject MatterConstruction and Arbitration Proceedings
CourtCourt of First Instance (Hong Kong)
HCCT5/2018 MAEDA KENSETSU KOGYO KABUSHIKI KAISHA also known as MAEDA CORPORATION AND ANOTHER v. BAUER HONG KONG LTD

HCCT 5/2018

[2019] HKCFI 1006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 5 OF 2018

______________

IN THE MATTER of the Arbitration Ordinance (Cap 609)

and

IN THE MATTER of an Arbitration

______________

BETWEEN
MAEDA KENSETSU KOGYO KABUSHIKI KAISHA
also known as
MAEDA CORPORATION
1st Plaintiff
(1st Respondent in the Arbitration)
CHINA STATE CONSTRUCTION ENGINEERING (HONG KONG) LIMITED 2nd Plaintiff
(2nd Respondent in the Arbitration)
(together as the “Plaintiffs”)

and

BAUER HONG KONG LIMITED Defendant
(Claimant in the Arbitration)

______________

Before: Hon Mimmie Chan J in Chambers

Date of Hearing: 21 November 2018

Date of Judgment: 18 April 2019

_______________

J U D G M E N T

_______________

1. This is an ongoing dispute between the Plaintiffs and the Defendant in relation to the Sub-Contract between them for the Defendant’s diaphragm wall works for the construction of the tunnels for the Hong Kong to Guangzhou Express Rail Link (“Sub-Contract”). In February 2018, the Plaintiffs applied to challenge the Second Interim Award, the Corrected Second Award, and the Third Interim Award as corrected and re-corrected, on the ground of serious irregularity under section 4 of Schedule 2 (“Schedule”) to the Arbitration Ordinance Cap 609 (“Ordinance”).

2. By the Re-Amended Originating Summons (“OS”) issued in these proceedings, the Plaintiffs seek orders to declare parts of the aforesaid awards to be of no effect on grounds of serious irregularity, to set aside parts of the Awards, and to remit the parts of the Awards to the Arbitrator for reconsideration. The grounds relied upon are that the Plaintiffs have been prevented from presenting their case; that the Arbitrator had dealt with a dispute not contemplated by or falling within the terms of the submission, had failed to deal with all issues that were put to the tribunal, or had made decisions on matters beyond the scope of the submission to arbitration; and that the arbitral procedure was not in accordance with the parties’ agreement.

3. As summarized in paragraph 3.2 of the Grounds of Application attached to the OS, the Plaintiffs complain of 3 material matters that were decided in the Awards. They are as follows:

“3.2.1 The Arbitrator’s finding at paragraph 415 of the Second Interim Award that the Defendant was entitled to recover for the idling of rebar and concreting resources on the basis that such resources would idle for 30% of the additional idling cutter hours thereby entitling the Defendant to additional payment of HKD5,278,482. There was no such pleaded case advanced by the Defendant nor is there any evidential basis for such a finding.

3.2.2 The Arbitrator’s finding at paragraph 519 of the Second Interim Award that the Defendant’s pleaded case that an instruction was issued on 14 July 2011 to change the design of the reinforcement cages in fact embraced all changes to the design of the reinforcement cages including changes made prior to 14 July 2011 thereby allowing the Defendant to recover inter alia additional costs incurred prior to 14 July 2011 amounting to HKD7,157,959.56. The Arbitrator failed to give effect to the pleaded case advanced by the Defendant, allowed the Defendant to expand beyond its pleaded case in circumstances where the Plaintiffs had not had any reasonable opportunity to investigate the underlying facts nor is there any evidential basis for such findings.

3.2.3 The Arbitrator’s finding at paragraph 1339 of the Second Interim Award that the Plaintiffs were not entitled to recover any additional costs in respect of defective works by Bauer at certain panels on the grounds that these defects would have been remedied by the toe grouting work that the Plaintiffs were required to do in any event. The Arbitrator failed to consider and give any decision in respect of a group of panels for which the evidence showed that only remedial grouting but not toe-grouting works were carried out.”

Claims of serious irregularity, setting aside and legal principles

4. As the decisions in Grindrod Shipping Pte Ltd v Hyundai Merchant Marine Co Ltd [2018] EWHC 1284 (Comm), Terna Bahrain Holding Co WLL v Bin Kamel Al Shamzi [2013] 1 Lloyd’s Rep 86, Reliance Industries Ltd v The Union of India [2018] EWHC 822 (Comm), and P v M [2018] HKCFI 2280, 9 October 2018 illustrate, the test of a serious irregularity giving rise to substantial injustice (the language used in section 4 (2) of the Schedule) involves a high threshold. In Reliance Industries Ltd v The Union of India, the English Court stated that only an extreme case justified the court’s intervention under section 68 of the Arbitration Act 1996, which adopts the same wording of “serious irregularity” giving rise to “substantial injustice” as in our section 4 (2). As this Court recognized in P v M, a balance is to be drawn between the need for finality of an arbitral award and the need to protect parties against the unfair conduct of the arbitration. The threshold for setting aside must be high, in line with the objectives of the Ordinance to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense, and upholding the parties’ choice to resolve their dispute by arbitration (section 3 of the Ordinance), which must require minimal intervention by the courts in the arbitral process.

5. “Serious irregularity” is set out in in section 4 (2) of the Schedule. These include failure by the arbitral tribunal to comply with its duties of independence, impartiality and the use of appropriate procedures, as provided for in section 46 of the Ordinance; the tribunal exceeding its powers; failure to conduct the proceedings in accordance with the procedure agreed by the parties; and failure to deal with all the issues that were put to it.

6. Setting aside of arbitral awards under Article 34 of the Model Law includes the ground of a party being unable to present his case; the award dealing with a dispute not contemplated by or not falling within the terms of the submission to arbitration or containing decisions on matters beyond the scope of the submission; and the arbitral procedure not being in accordance with the agreement of the parties.

7. It has to be borne in mind, as the courts have emphasized in many cases, that the setting aside remedy and any intervention by the Court under the Ordinance (other than a permitted appeal on a question of law under section 5 of the Schedule) is not an appeal against the arbitral award, on facts or on law. In Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1, which concerned an application under Article 34 of the Model Law to set aside an award on the ground of inability to present one’s case, and the arbitral procedure not being in accordance with the agreement of the parties, the Court of Appeal highlighted the fact that the Court is concerned with the structural integrity of the arbitration proceedings, and will not address itself to the substantive merits of the dispute, or to the correctness or otherwise of the award, whether concerning errors of fact or law. I cannot see any rationale for adopting a different approach in a case where an award is challenged on the ground of serious irregularity under section 4 of the Schedule, based on the same cause of the tribunal’s failure to conduct the proceedings in accordance with the procedure agreed by the parties, or its failure to deal with all the issues that were put to it, or its having failed to treat the parties fairly and impartially and giving them a reasonable opportunity to present their cases and to deal with the cases of their opponents (as required under section 46 (3) (b)) of the Ordinance). The Court should not be concerned with whether the arbitrator made errors of fact or law, but should only be concerned with the process of the arbitration, and whether it is fair.

8. When considering whether the applicants in question had been denied equality of treatment and the opportunity to present their case, Tang VP (as His Lordship then was) observed in Grand Pacific Holdings (at paragraph 94 of his judgment):

“…I gather that the conduct complained of must be serious, even egregious, before a court could find that a party “was otherwise unable to present his case”. It is unnecessary for me to decide, and I do not decide, how serious or egregious the conduct must be before a violation could be established. Nor, do I decide whether “the conduct… must be sufficiently serious to offend… basic notions of morality and justice”. I am inclined to the view that the conduct complained of must be sufficiently serious or egregious so that one could say a party had been denied due process.”

9. It must also be emphasized that under section 4 (2) of the Schedule, the serious irregularity alleged must have caused or will cause “substantial injustice” to the applicant. Section 68 of the Arbitration Act 1996 has the same wording. In Terna Bahrain Holdings Company WLL v Al Shamsi, Popplewell J set out the applicable principles on the court’s intervention for serious irregularity (paragraph 85 of the judgment), and in the context of substantial injustice, stated:

“… (vi) The requirement of substantial injustice is additional to that of a serious irregularity, and the applicant must establish both.

(vii) In determining whether there has been substantial injustice, the court is not required to decide for itself what would have happened in the arbitration had there been no irregularity. The applicant does not need to show...

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    ...has been admirably summarized by Madam Justice Mimmie Chan in Maeda Kensetsu Kogyo Kabushiki Kaisha & Anor v Bauer Hong Kong Ltd[2019] HKCFI 1006 wherein the learned judge “ Claims of serious irregularity, setting aside and legal principles 4. As the decisions in Grindrod Shipping Pte Ltd v......
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    ...Legal principles 12. The decision in Maeda Kensetsu Kogyo Kabushiki Kaisha v China State Construction Engineering (Hong Kong) Limited [2019] HKCFI 1006 sets out the authorities and legal principles applicable to the setting aside of arbitral awards on grounds of serious irregularity (in par......

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