Hong Kong – Challenging Arbitral Awards On The Ground Of Serious Irregularities.

4 September, 2019

 

In Maeda Kensetsu Kogyo Kabushiki Kaisha & Anor v Bauer Hong Kong Ltd [2019] HKCFI 1006 (see article above), the Plaintiffs also challenged several of the Arbitrator’s interim awards, on the ground of serious irregularities giving rise to substantial injustice.

 

Idling of rebar and concreting resources

 

In the arbitration, the Defendant claimed that the rebar and concreting resources idled “one-for-one” with the additional cutter hours. The Arbitrator found that a one-for-one approach was not appropriate without any factual record of particular idling.  However, the Arbitrator allowed the Defendant’s claim for additional payment at 30% of additional cutter hours.

 

The Plaintiffs challenged the Arbitrator’s decision on the ground that:

 

(1)	they had been deprived of a reasonable opportunity to present their case on the 30% allowance;
(2)	it was not either party’s  pleaded case  that there could be any assessment of the idling rebar and concreting  resources on a sliding scale; and
(3)	the Arbitrator gave no finding or reasons as to why 30% was appropriate.

 

The judge quickly rejected ground (3), since a failure by the Arbitrator to set out the detailed reasons for his decision, by itself, is not a ground for challenging the award based on serious irregularities. It should either be dealt with by an appeal on law or under section 7(2) of Schedule 2 of the Arbitration Ordinance.

 

The judge also rejected grounds (1) and (2), holding that:

 

(1)

There is a distinction between a party having no reasonable opportunity to address a point or his opponent’s case, and a party failing to recognize or take the opportunity which existed. If an issue is raised, however briefly, the opposing party would have had an opportunity to address it.  If he chooses to invite the tribunal to reject it without addressing it in detail, he does so at his own risk.

(2)

Here, the Plaintiffs clearly had notice of the Defendant’s claim for idling of rebar and concrete resources from the pleadings, List of Issues, and submission and had not taken the opportunity to make submissions on the extent of idling and chose to put the Defendant to strict proof. Thus, they could not now complain if the Arbitrator allowed part of the Defendant’s claim.

 

Instruction to change the design of the reinforcement cases

 

Under the sub-contract, the Defendant had to construct reinforcement cages for installation into the diaphragm wall panels prior to concreting. The Plaintiffs issued new design information (July Drawings) and in the arbitration, the Defendant claimed that this required the reinforcement cages to be of substantially greater quantity and weight than shown in initial tender drawings, and as a result of it having to use higher capacity cranes to lift those cages, sought additional costs.

 

The Arbitrator found that the Defendant was entitled to additional costs on the basis that the weight of the panels had increased by 105% between the tender stage and July Drawings, and 116% between the tender stage and as-built stage.

 

While accepting that there had already been changes to the works before the July Drawings, the Plaintiffs argued that the Defendant’s only pleaded case was variation by the July Drawings, so its entitlement to additional costs should only be based on changes brought about by the July Drawings. Therefore, the Arbitrator’s findings by reference to matters before the July Drawings were based on unpleaded factual matters. The Plaintiffs also argued there was no evidential basis for such findings.

 

The judge rejected the Plaintiffs’ arguments, taking the view that the Arbitrator had reached his conclusion after considering the Defendant’s Statement of Claim as a whole and submissions by the parties, and his conclusion was not wrong. The Judge said that if the Plaintiffs’ complaint was that the Arbitrator was wrong in allowing the Defendant’s claim as a variation in the absence of any written instruction as required by the sub-contract, or that there was no credible evidence to support the claim, the proper avenue for challenge was by way of an appeal on law, upon obtaining leave of the court.

 

Defective works at certain panels where toe grouting works were not carried out by the Plaintiffs

 

The Plaintiffs counterclaimed against the Defendant in the arbitration for costs of remedial grouting works they had to carry out, because of the Defendant’s defective works.

 

The Arbitrator dismissed the Plaintiffs’ counterclaim upon finding that the defects would have been remedied by the toe-grouting works that the Plaintiffs would have to carry out in any event.

 

The Plaintiffs argued that the Arbitrator failed to address and give any decision in respect of its case and evidence, which showed that additional remedial works were indeed required.

 

The judge held that the Plaintiffs had already raised extensive evidence for its argument before the Arbitrator. Therefore, in rejecting the Plaintiffs’ counterclaim, the Arbitrator must have also rejected their evidence. If the Plaintiffs’ complaint was that the evidence did not support the Arbitrator’s findings or that the Arbitrator overlooked a particular piece of evidence, they should have applied for leave to appeal on a question of law instead.

 

Comments

 

This decision demonstrates the high threshold for challenging an arbitral award based on serious irregularities. For example, if there is a possibility on the pleadings for the Arbitrator’s decision, the court will likely hold that the decision was based on a pleaded case and reject the argument that the other party had been deprived of an opportunity to present their case. Therefore, it is advisable for parties to plead to and make submissions on every issue which arises on the face of the pleadings during the arbitration. 

 

Moreover, the judge repeatedly emphasized that a challenge against an arbitral award based on serious irregularities focuses on due process, not the correctness of the arbitrator’s decision. Unless the challenges involve very clear procedural irregularities, the court tends to characterise them as challenges on the correctness of the award.  If a party feels aggrieved, its primary recourse should be to identity legal errors in an arbitral award and apply for leave to appeal on questions of law. In this regard, one should note that an appeal on a question of law is only permissible if Schedule 2 of the Arbitration Ordinance is opted into by the parties.