N v C

CourtHigh Court (Hong Kong)
Judgment Date16 September 2019
Neutral Citation[2019] HKCFI 2292
Subject MatterConstruction and Arbitration Proceedings
Judgement NumberHCCT3/2019
HCCT3/2019 N v. C

HCCT 3/2019

[2019] HKCFI 2292

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 3 OF 2019

________________________

IN THE MATTER OF AN ARBITRATION
AND
IN THE MATTER OF THE ARBITRATION ORDINANCE, CAP 609

________________________

BETWEEN

N Plaintiff
(Respondent in the Arbitration)
and
C Defendant
(Claimant in the Arbitration)

________________________

Before: Hon Mimmie Chan J in Chambers
Date of Hearing: 13 June 2019
Date of Decision: 16 September 2019

________________________

D E C I S I O N

________________________

1. By its Originating Summons issued on 14 January 2019, the Plaintiff seeks to set aside in part an arbitral award made on 5 December 2018 and corrected on 20 December 2018 (“Award”), in an arbitration in Hong Kong between the Plaintiff and the Defendant.

2. The Plaintiff was the employer and the Defendant was the main contractor engaged for the construction of a residential development in Macau under a contract dated 28 March 2007 (“Contract”). Dispute arose concerning the Defendant’s claim for extensions of time and payment on the basis of the final account under the Contract. The final account showed an extension of time (“EOT”) of 269 days which had been granted by the Architect, and an entitlement to loss and expense or prolongation costs for 181 days of that EOT at MOP 100,000 per day, and for delay related fluctuation costs of MOP 12 million. The Architect did not allow loss and expense for 88 days of the EOT granted, on the basis that there was no entitlement to loss and expense under the Contract in relation to the matters for which that period of the EOT was granted.

3. The Defendant challenged the Architect’s certification under the final account, and claimed in the Arbitration for loss and expense at MOP 100,000 per day, for the whole period of 360 days after the original completion date of 27 December 2008 to 22 December 2009, and for its delay related fluctuation in reinforcement costs of MOP 12 million.

4. The dispute was referred to arbitration pursuant to the arbitration clause in the Contract. A sole arbitrator was appointed. The parties agreed that Hong Kong procedural law including the Arbitration Ordinance (“Ordinance”) and Schedule 2 of the Ordinance (“Schedule”) should apply to the Arbitration, which was to be conducted in accordance with the HKIAC Domestic Arbitration Rules (2014 edition), subject to amendments.

5. The Arbitrator awarded to the Defendant delay related loss and expense (prolongation costs) of MOP 25,500,000, and delay related loss and expense (fluctuation costs) of MOP 12 million.

6. The Plaintiff now seeks an order to set aside, or alternatively to remit, parts of the Award under section 4 (1) and (3) of the Schedule, on the ground that there was serious irregularity by reason of the fact that: (1) the Plaintiff 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/or (4) the tribunal failed to deal with all the issues which were put to it.

7. Alternatively, the Plaintiff seeks 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 relevant pleadings

8. In the Arbitration, the Plaintiff as Respondent had denied the Defendant’s entitlement to recover any loss and expense. In paragraph 45 of its Defence, the Plaintiff admitted that the daily rate of MOP 100,000 for loss and expense was agreed for the period of EOT granted by the Architect up to 22 September 2009, but claimed that the Defendant had failed to make any timely application for loss in accordance with Clause 24 (1) of the Conditions of Contract (“Clause 24”). Clause 24 requires the Defendant to submit its detailed application for loss and expense, supported by evidence, within 2 months from the date of the event giving rise to the loss claimed. The Plaintiff pleaded that this was a condition precedent for any entitlement under the Contract. The Plaintiff pleaded (in paragraphs 45 and 46 of the Defence) that as the Defendant did not submit any application for its alleged loss and expense within the time prescribed under Clause 24, the Defendant was not entitled to any loss and expense incurred until 22 December 2009, nor to any fluctuations in the costs of labour and materials.

9. In reply, the Defendant’s pleaded case was that the application period specified in Clause 24 did not give rise to a condition precedent to recovery. It further relied on waiver. The material part of paragraph 26 (1) to (5) of the Reply states:

“(1) The Claimant specifically denies that the 2-month period is a condition precedent to any loss and expense claim under CC Clause 24(1) as alleged by the Respondent.

(2) The Claimant avers that at the time when it submitted the loss and expense claims during and after the parties’ negotiation, the Respondent had not raised any alleged time-bar issue but focused on assessing the quantum of such claim.

(3) In fact, the Respondent had assessed a sum for the Claimant’s loss and expense claim and included such sum in the proposed final account.

(4) Even if, which is denied, the alleged 2-month period constitutes a condition precedent, the Claimant avers that the Respondent has by conduct waived any such condition precedent and proceeded to assess the Claimant’s loss and expense claim.

(5) In paragraph 45 the Respondent now seeks to resile from an admission that the daily rate for loss and expense is MOP 100,000 by seeking to limit the scope of the acceptance to a particular period of the extension of time granted by the Architect up to 22 September 2009. Given the long-standing nature of the Respondent’s admission, and the lack of proportionality and prejudice to the Claimant in it now having to address loss and expense on a different basis, the Respondent ought not to be permitted to resile from the admission made (which was not limited to the period of extension of time granted by the Architect). Moreover, it would be wholly artificial for time-related costs to be MOP100,000 per day for a sustained period, and then to be calculated on a different basis from 23 September 2009.

10. The Arbitrator found that loss and expense under Clause 24 should be granted for 181 days as certified by the Architect in his final certificate, but he allowed a further 74 days of EOT for delays in the period between 9 October 2009 and 22 December 2009 (arising out of licence of use (“LoU”) and land grant modification delays). The Plaintiff’s complaint is that although the Arbitrator found that the Defendant had no contractual entitlement to loss and expense under Clause 24 for this EOT (paragraph 423 of the Award), he nevertheless allowed the Defendant’s claim on the basis of an agreement having been reached between the parties, that the EOTs which were awarded would give rise to an entitlement to loss and expense (“Agreement on Entitlement”). The Plaintiff argued that this was contradictory to the Arbitrator’s own summary of the parties’ agreed position (in paragraph 413 of the Award), that any agreement was “subject to matters on entitlement”. The Plaintiff also claims that the Arbitrator’s allowance of the Defendant’s claim, on the basis that there was a separate agreement, whereby the Defendant could recover loss and expense of MOP 100,000 per day, was on a basis which had not been advanced by either party. The Plaintiff argued that as the Agreement on Entitlement was never pleaded, nor identified as an issue, neither party had sought to adduce evidence on this issue. In making the Award on the Defendant’s entitlement in this manner, the Plaintiff claims that it had been deprived 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.

11. The Plaintiff further contends that the Arbitrator had failed to deal with an essential issue raised in the pleadings, that the Defendant had failed to submit any application for its loss and expense within the time prescribed under Clause 24, such that its claims should be time-barred.

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 paragraphs 4 to 10 of the Judgment). Neither party disputes the application of these principles, and they will not be repeated here.

Was the Plaintiff able to present its case?

13. The parties’ respective case on: (1) the submission of applications for loss and expense pursuant to Clause 24; (2) whether the Defendant’s claim was time-barred for non-compliance with Clause 24; and (3) waiver; are set out in paragraphs 45 and 46 of the Defence, and 26 of the Reply filed in the Arbitration.

14. As a matter of construction, I cannot agree with the Plaintiff that the Agreement on Entitlement, or more specifically, the parties’ agreement relating to the daily rate of MOP 100,000 (and its effect) was not raised in the pleadings.

15. In paragraph 45 of the Defence, the Plaintiff admitted that a “daily rate of MOP 100,000 for loss and expense was agreed for the period of EOT granted by the Architect up to 22 September...

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