Linfield Ltd. v. Taoho Design Architects Ltd. and Others

HCCT000068A/2001

HCA7693/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.7693 OF 2000

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CONSTRUCTION & ARBITRATION PROCEEDINGS NO.68 OF 2001

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(HEARD TOGETHER)

Coram: Hon Ma J in Chambers

Dates of Hearing: 21 March 2002 and 4 June 2002

Date of Decision: 4 June 2002

Date of Handing Down of Reasons for Decision: 19 August 2002

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REASONS FOR DECISION

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BACKGROUND

1.On 2 May 2002, I handed down a Decision in HCCT68/2001 in relation to an application by the 4th named defendant in that action for a stay pending the outcome of various arbitrations involving the plaintiff and some of the parties in the present application.

2.In that Decision, I described the background to the disputes between the parties . I now simply set it out again as it provides the background to the present application as well (see [2002] 2 HKC 204 at 206G-207F) : -

"1. The plaintiff, Linfield Limited ("Linfield"), is the owner of a residential development comprising six town houses known as The Belvedere, 51 Plantation Road, the Peak, Hong Kong ("the Property"). The Property was constructed between 1994 and 1998. Linfield alleges that the Property has suffered from a number of serious defects which have required extensive remedial work.

2. These defects can be broken down into the following general complaints :

(1) Materials supplied not fit for their intended purpose.

(2) Defects in design and selection.

(3) Defects in supply and construction.

(4) Defective podium.

(5) Failure to effect any proper insurance.

(6) Failure to warn of defaults.

3. Linfield has made claims against :

(1) The architects, Taoho Design Architects Limited ("TDA").

(2) The building contractors, Progress Construction Limited ("PCL").

(3) The specialist supplier and installer of stonework, Michelangelo Marble Limited ("MML").

(4) The consulting engineers and project managers, Greg Wong & Associates Limited ("GWA").

(5) The property development and project consultants, Brooke Hillier Parker ("BHP").

4. On 1 August 2000, Linfield commenced proceedings against BHP in HCA 7693/2000. The Statement of Claim in this action was filed on 10 December 2001. On 14 September 2001, Linfield commenced proceedings against TDA, PCL, MML and GWA in HCCT 68/2001. The Statement of Claim in this action was also filed on 10 December 2001.

5. As one might expect, the contracts between Linfield and some of the parties contained arbitration agreements. The relevant parties here are TDA, PCL and BHP. No arbitration agreement existed as far as MML and GWA were concerned.

6. TDA, PCL and BHP have all issued summonses in their respective actions seeking a stay of the relevant proceedings in favour of arbitration. It is likely that Linfield will consent to these applications although orders have not yet been made."

3.In the present application, I will adopt the same abbreviations as I have used in the quoted passage.

THE PRESENT APPLICATION

4.By a summons dated 15 October 2001, amended on 30 January 2002, taken out in both actions, Linfield sought, inter alia, the following relief, namely orders that : -

(1) HCA7693/2000 be transferred to the Construction and Arbitration List ("the Transfer Application").

(2) A stay of all further proceedings in HCCT68/2001 between Linfield and PCL pursuant to section 6(1) of the Arbitration Ordinance ("the Stay Application").

(3) The arbitrations between Linfield and BHP, between Linfield and TDA and between Linfield and PCL be consolidated or alternatively to be heard at the same time pursuant to section 6B(1) of the Arbitration Ordinance ("the Consolidation Application").

(4) Consequent to (3), Mr John Scott, SC be appointed arbitrator in the consolidated arbitration ("the Appointment Application").

5.Linfield, BHP, TDA and PCL appeared at the hearings of the summons (on 21 March 2002 and 4 June 2002). Though served, MML and GWA did not appear as the matters contained in the summons did not substantially affect their interests.

6.BHP and TDA did not take an active part in the application : -

(1) BHP (represented by Ms Alice Hutchens) did not object to the transfer of HCA7693/2000 to the Construction and Arbitration List. Its position on the Consolidation Application was that, provided the other parties agreed to the consolidation or the court was minded to do so or make a similar order, it would consent. In other words, BHP was willing to be a part of any consolidated arbitration provided all the relevant arbitrations were consolidated. It was also prepared to consent to the appointment of Mr Scott, SC with of course the same proviso.

(2) TDA (represented by Mr Harris Chan and Mr Paul Chan) adopted the same position as BHP in relation to the Consolidation Application.

7.The main opposition to the Consolidation Application came from PCL (represented at the first hearing by Mr Andrew Aglionby of Messrs Baker & McKenzie, at the second hearing by Mr Charles Wong of Messrs Lo, Wong & Tsui). It supported the Stay Application (indeed Linfield brought the application following TDA's insistence that the disputes between them should be resolved by arbitration), but submitted that the costs of the action should be paid to it and not just the costs of that application.

THE OUTCOME OF THE SUMMONS

8.After the 4 June 2002 hearing, I made the following orders : -

(1) In terms of the Transfer Application.

(2) In terms of the Stay Application.

(3) That the arbitrations be consolidated.

(4) In terms of the Appointment Application.

9.As to costs, I made the following orders : -

(1) As to the Transfer Application and the Appointment Application, no order as to costs.

(2) As to the Stay Application, costs of and occasioned by the application to be to the 2nd defendant to be paid by the plaintiff but excluding the costs of and occasioned by the hearings on 21 March 2002 and 4 June 2002, such costs to be taxed if not agreed.

(3) As to the balance of the summons, the costs of and occasioned by the application of the plaintiff, TDA and BHP to be paid by the 2nd defendant, such costs to be taxed if not agreed.

10.I also said that the Reasons for my decision would be handed down at a later date.

THE MAIN ISSUES

11.There were really two substantially contested matters before me, namely the Consolidation Application and the costs of the Stay Application. As regards the Stay Application, while of course agreeing to the order being made, PCL, as I have said, wanted an order for the costs of the whole action and not only its costs in respect of the stay aspect. In relation to the Consolidation Application, PCL contended, first, that there was no jurisdiction to make an order under section 6B(1) of the Arbitration Ordinance ("the Ordinance"); alternatively, that if there was jurisdiction, the court should not do so as a matter of discretion. PCL also argued in relation to the Appointment Application that the court did not have the power to make the order as requested. However, Mr Aglionby submitted if I was against him on the Consolidation Application, he would concede this application as well.

12.I now deal with these matters in turn. Though I note PCL's somewhat odd position regarding the Appointment Application, I would deal with it as well out of completeness and particularly as a jurisdiction point is involved

THE CONSOLIDATION APPLICATION

The Law

13.Prior to the enactment of section 6B(1) of the Ordinance, there was no power to consolidate arbitrations. That section, however, only applies to domestic arbitrations or where in relation to international arbitrations, the conditions in section 2M of the Ordinance are met. It cuts across a basic tenet of arbitrations, namely the confidentiality and privacy of the arbitral process since persons other than the parties to an arbitration agreement may be permitted to participate alongside those parties in the hearing. I shall say more about this aspect later.

14.Section 6B(1) states as follows : -

" (1) Where in relation to two or more arbitration proceedings it appears to the Court -

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this section,

the Court may order those arbitration proceedings to be consolidated on such terms as it thinks just or may order them to be heard at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them."

15.Broken down into its constituent parts, the effect of this provision is that before an order for consolidation is made (and I use this term loosely to include orders for different arbitrations to be heard at the same time or one after the other - see section 6B(1)), the following must first be shown by the party making the application : -

(1) That there exist two or more "arbitration proceedings"; and

(2) That : -

(a) some common question of law or fact arises in those arbitrations; or

(b) the rights to relief claimed in the relevant arbitrations are in respect of or arise out of the same transaction or series of transactions; or

(c) for some other reason it is desirable to make an order for consolidation.

16.Even after the above have been shown, the court still has discretion whether or not to make the order sought.

17.There is therefore a three stage process that the court undertakes in determining applications under section 6B(1). These stages can be summarised by asking the following questions : -

(1) Stage 1 : Are there two or more arbitration proceedings in existence?

(2) Stage 2 : If so, in relation to those arbitration proceedings, do any or more of the factors specified in sub-paragraphs (a)-(c) of section 6B(1) apply?

(3) Stage 3 : If the answers to the above are yes, are there any other relevant considerations or factors that go to the court's discretion whether or not to make the order sought?

18.As to Stage 1 : -

(1) There must be two or more arbitration proceedings afoot at the time the application under section 6B is made. The mere existence of an arbitration agreement is insufficient. The arbitral process must be underway before section 6B takes effect. Order 4, rule 9 provides in relation to causes or matters in the High Court the equivalent of section 6B. Rhind J in Re Shui On Construction Co. Ltd and Schindler Lifts (HK) Ltd [1986] HKLR 1177 (probably the first decision dealing with section 6B and indeed one of the few decisions on this provision), remarked at 1185A that section 6B was indeed based on RHC, Order 4, rule 9. Both provisions assume the existence of proceedings.

(2) Accordingly, the question arises : when are arbitration proceedings in existence? In my judgment, this can only arise when the arbitration has been commenced. Here, section 31(1) of the Ordinance states, "An arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other party or parties a notice requiring him or them to appoint or concur in appointing an arbitrator, or, where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement, requiring him or them to submit the dispute to the person so named or designated."

(3) The provisions of section 31(1) equate to the commencement of proceedings in court by the issue of a writ, originating summons or other originating process. Indeed, from the point of view of limitation, the relevant event as far as arbitrations are concerned, is the commencement of the arbitration : see section 34(1) and (3) of the Limitation Ordinance, Cap.347 (which is in the same terms as section 31(1) of the Ordinance).

(4) The notice required to be served under section 31 of the Arbitration Ordinance and section 34(3) of the Limitation Ordinance must, apart from requiring the other party to do the things set out in those sections, also make a reference to and give particulars of the dispute between the parties : see Mustill and Boyd : Commercial Arbitration (2nd Edition) at 198-199. This is not an express requirement under either section but it is a matter of common sense that the recipient of the notice should know just in respect of what matter he has been told to appoint an arbitrator or concur in the appointment of one.

19.As to Stage 2 : -

(1) The three factors set out in sub-paragraphs (a)-(c) of section 6B(1) correspond almost exactly to the factors set out in Order 4, rule 9(1).

(2) The same factors therefore apply to a consideration of these factors under section 6B as they do to an application pursuant to Order 4, rule 9(1). This was the approach of Rhind J in Shui On and of the Court of Appeal in Dickson Construction Co. Ltd v. Schindler Lifts (HK) Ltd And Another, unreported, 5 March 1993, CACV 125/1992, Court of Appeal.

(3) One important rationale for the provision is the avoidance of inconsistent decisions even where the parties may be different, a fortiori if the parties are the same : see Shui On at 1186H-1187D; Dickson Construction Co. Ltd at 13. This is one of the more important factors that the court will therefore have to consider in the exercise of its discretion : see Stage 3 below.

(4) Lastly, I will just mention that in order to demonstrate the existence of common issues of fact, law or relief, while it is obviously helpful to have pleadings in the arbitrations concerned before the application for consolidation is made, this is not by any means essential. In Shui On, Rhind J said at 1185H-I,

"That the pleadings have not been closed in the two arbitrations is by no means a fatal objection to an order under s.6B. In the same way that, in litigation, the pleadings do not need to be closed in the two actions for an order under Order 4, rule 10, they need not be closed in the two arbitrations for an order under s.6B of the Arbitration Ordinance, so long as the court is sufficiently appraised of the issues which are likely to arise. Pleadings are not the only way of identifying issues : they can also be sufficiently identified by affidavit or by oral explanation to the court."

20.As to Stage 3 : -

(1) This is the final stage where the court has to decide whether despite being satisfied of the requisite elements in Stages 1 and 2, any factor nevertheless exists to prevent an order being made.

(2) Here, the discretion is a wide one, nothing in section 6B(1) or anywhere else limiting the scope of the exercise. While in no way seeking to enumerate exhaustively the factors that may be relevant here, I would just highlight some of the more usual ones :

(a) The risk of inconsistent decisions is of course a potent factor but it is nevertheless only a factor : see Dickson at 13. Its strength depends on the existence of other relevant factors and how it coexists with such other factors.

(b) One example of this is where the similarity in issues or relief, while it exists, only relate to a minor part of each arbitration. In other words, the overlap between the common issues is so small that the court may regard it as not being a factor of great weight at all even if the consequence is the risk of there being inconsistent decisions on the common issues. See here : Dickson at 11-15; Payne v. British Time Recorder Co. Ltd [1921] 2 KB 1, at 16.

(c) The timing of the application is also a relevant factor. Where the various arbitrations involved are at different stages, the court would have to consider whether the any unfairness or injustice will be caused (whether by way of delay, increased costs or otherwise) if a consolidation order were made. An arbitration may be at such an advanced stage that the disruption caused by an order for consolidation is unacceptable. In Harlifax Limited (formerly known as Vincor Shipping Company Limited) v. Transatlantic Schiffahrtskontor GmbH, unreported, 25 October 1988, HCMP1229/1998, Liu J provided an example of this. In Shui On, Rhind J said at 1185I-1186A : -

"... Under Order 4, rule 10, the normal practice is to apply for consolidation of actions at a stage well before the close of pleadings. Such an application should ideally be made at the earliest convenient moment : in... [this] way, unnecessary expense and effort can be saved from the outset, even on pleadings. Sometimes, depending on the nature of the actions and the vagaries of litigation, the application is not made till after the close of pleadings. Daws v. The Daily Sketch and Daily Graphic Ltd. was such a case. That case is not, however, any authority for the proposition that applications for consolidation should not be made till after the close of pleadings."

I respectfully agree. The application should be made as soon as practicable.

(d) Costs and inconvenience are also relevant factors. Here, account must be taken not only of the parties' own position but also that of other participants in the arbitration process such as the arbitrator himself and witnesses. Where the same parties are involved, albeit in different arbitrations, it may be easier to conclude that there will be a saving of costs and more convenience than in a case where the parties are different. In the latter case, the court would have to balance the aspect of costs and convenience as between the parties and the other participants in the arbitration.

(e) Against the existence of any other factors must also be taken into account the factor that arbitrations are intended to be private affairs. I have been referred to the decision of Leggatt J in The Eastern Saga [1984] 2 Lloyd's Rep.373, in which the point is made simply, but forcefully at 379(1), "The concept of private arbitrations derives simply from the fact that the parties have agreed to submit to arbitration particular disputes arising between them and only between them. It is implicit in this that strangers shall be excluded from the hearing and conduct of the arbitration and that neither the tribunal nor any of the parties can insist that the dispute shall be heard or determined concurrently with or even in consonance with another dispute, however convenient that course may be to the party seeking it and however closely associated with each other the disputes in question may be. The only powers which an arbitrator enjoys relate to a reference in which he has been appointed. They cannot be extended merely because a similar dispute exists which is capable of being and is referred separately to arbitration under a different agreement." That case was of course decided under a statutory regime that did not permit consolidation of arbitrations. Indeed, Leggatt J referred to a decision of the English Court of Appeal (Interbulk Limited v. Aiden Shipping Company Limited [1984] 2 Lloyds Rep.66) in which the statutory position in England was contrasted with that in Hong Kong. This factor then needs to be carefully put into context if it is a factor in the first place. Some may argue that it should not even be considered as a factor in the discretion at all once Stage 3 is reached, since it is implicit in the existence of section 6B of the Arbitration Ordinance that the privacy of arbitrations aspect is no longer a bar to an order for consolidation. In my view, while this aspect is not a bar to an order for consolidation, it nevertheless features as a relevant factor in the exercise of discretion. Its relevance is that, unlike court actions which are on the whole public and transparent in nature, arbitrations are private and it is therefore only if the court can see a real benefit or advantage that an order under section 6B will be made. The guiding light is what is practicable and just in the circumstances.

21.With these principles in mind, I now deal with the facts of the present case.

Application of law in present case

22.Stage 1 : -

(1) It is submitted on behalf of PCL that arbitration proceedings are not yet in existence as between it and Linfield.

(2) Against this submission, Linfield relies first on a letter dated 6 December 2001 from its solicitors (Messrs Lovells) to PCL's solicitors (then Messrs Baker & McKenzie). In that letter, PCL was asked to concur in the appointment of Mr John Scott, SC as sole arbitrator in the event PCL was unwilling to defend Linfield's claim in HCCT68/2001 (as opposed to in arbitration proceedings). This letter was therefore couched in conditional terms as Linfield still hoped at that stage that PCL would agree to litigate in court rather than in arbitration. In my view, this letter did not suffice to commence arbitration proceedings. The requisite notice under section 31 of the Arbitration Ordinance and section 34(3) of the Limitation Ordinance must in my view be clear as to its intentions. Just as there is no such document as a conditional writ of summons in High Court proceedings, so a conditional notice in arbitrations will not suffice.

(3) However, by a letter dated 28 December 2001 from Messrs Lovells to Messrs Baker & McKenzie, the position was made clear. There, PCL was clearly and unambiguously asked to concur in the appointment of Mr Scott as arbitrator. PCL was also specifically asked to consent to the consolidation of the proceedings with the arbitrations between Linfield and BHP and as between Linfield and TDA. This letter therefore in my view sufficed to commence an arbitration between Linfield and PCL.

(4) PCL then argued that there was insufficient reference to the dispute between the parties. While I accept that no details of the dispute were contained in the letter, it is clear when that letter is seen in context just what disputes it was referring to. At the time the letter was written, the parties' solicitors had already been in lengthy correspondence over the nature of the dispute between their clients. I need only refer to one letter. In a letter dated 20 November 2001 from Messrs Lovells to Messrs Baker & McKenzie, a draft Statement of Claim was enclosed. This Statement of Claim set out the detailed claims of Linfield against BHP, TDA, PCL, MML and GWA. Further, on 10 December 2001, PCL had been served a Statement of Claim in HCCT68/2001 detailing Linfiled's claim against it.

23.Stage 2 : -

(1) Both Mr Aglionby and Mr Wong urged upon me that it was premature for the court to arrive at any concluded view on whether there existed in the three sets of arbitrations any community or similarity of issues, relief or any other matter for the purposes of section 6B(1)(a)-(c). They submitted there was, as yet, no pleadings served in the arbitrations.

(2) While this is true, the existence of pleadings, while useful to the exercise to be undertaken by the court here, is not essential. I have already referred to the relevant passage in the judgment of Rhind J in Shui On at 1185H-I.

(3) In the present case, I am satisfied that there is a community or similarity of issues and relief in the three arbitrations, even taking into account that fact the Linfield's contracts with BHP, TDA and BCL are different. In the affirmation of Mr So Yui Chit, a solicitor at Messrs Lovells, reference is made to a draft consolidated Statement of Claim that was enclosed in letters from Messrs Lovells to the other parties. I have already referred to this consolidated Statement of Claim in paragraph 22(4) above. This draft sets out in detail Linfield's case against all five parties. In particular, it alleges in relation to five of the six complaints made by Linfield regarding the construction of the Property, defaults on the part of, inter alia, BHP, TDA and PCL. In relation to the complaint regarding the failure to effect proper insurance, the allegation is made against BHP and TDA only. For present purposes, it does not matter whether the allegations of default are made against these parties jointly or jointly and severally. The point is that they are made against each of them.

(4) PCL argues that the Statement of Claim is merely a draft and might not reflect the final product. I accept this, but nothing has been shown to me to indicate that it is not more or less Linfield's case. In this context, I would observe that the Statements of Claim which have actually been served in the two actions, support this.

24.Stage 3 : -

(1) The community and similarity of issues (both factual and legal) and relief give rise to a fair presumption that time and costs will be saved and that it will be more convenient if all are dealt with at the same time, not to mention the avoidance of the risk of inconsistent findings if the arbitrations were kept separate.

(2) No real evidence has been put before me by PCL to suggest otherwise or to suggest that it would be materially prejudiced should an order for consolidation be made. Nor was any evidence put before me to indicate that the community of issues was in respect of just a small part of the various arbitrations or, at least, the arbitration involving PCL.

(3) Rather, PCL's main argument centred on the privacy of the arbitration process aspect. Here, both Mr Aglionby and Mr Wong relied on general principles rather than anything specific. I readily assume that PCL wants any arbitration against Linfield to be private. However, it is important to bear in mind that if an order for consolidation were made, it would not be an arbitration open to the public. It would a consolidated arbitration involving only Linfield, BHP, TDA and PCL, all of whom were working together in the same project anyway. In my judgment, though a factor, this aspect does not be weigh heavily in the present case.

Conclusion on the Consolidation Application

25.For the above reasons, the Consolidation Application is granted.

THE APPOINTMENT APPLICATION

26.PCL contended here that as Linfield and PCL had not agreed to the appointment of any particular arbitrator, by reason of the arbitration agreement made between them, an appointment had to be made by "the President or Vice-President for the time being of The Hong Kong Institute of Architects co-jointly with the Chairman for the time being of the Royal Institute of Chartered Surveyors (Hong Kong Branch)". It was further argued that as neither of these organisations was in existence, section 12 of the Ordinance therefore required that the Hong Kong International Arbitration Centre, rather than the court, would have to appoint the arbitrator for these arbitrations.

27.This point can be dealt with shortly. Section 6B(2) is clear on this :

" (2) Where the Court orders arbitration proceedings to be consolidated under subsection (1) and all parties to the consolidated arbitration proceedings are in agreement as to the choice of arbitrator or umpire for those proceedings the same shall be appointed by the Court but if all parties cannot agree the Court shall have power to appoint an arbitrator or umpire for those proceedings."

28.Thus, when faced with an application for consolidation under section 6B(1) of the Arbitration Ordinance, where the parties have not agreed or cannot agree on the choice of arbitrator, the court will appoint one. Where the Court does so, the existing appointment of any other arbitrator in the arbitrations concerned will cease to have effect : see section 6B(3).

COSTS

29.In view of the fact that PCL has lost in its resistance to the Consolidation Application (which was in fact the main application before me), costs must follow the event. It is right that PCL has to bear the costs of TDA and BHP as well since these parties were willing to agree to the consolidation provided PCL did so as well.

30.As to the costs of the Stay Application, PCL was not entitled to its costs of the whole action anyway, this being the position it nevertheless maintained at the two hearings before me.

31.The grant of a stay by reason of an arbitration agreement (pursuant to section 6 of the Arbitration Ordinance in the case of a domestic arbitration agreement and section 34C and Article 8 of the UNCITRAL Model Law in the case of an international arbitration agreement) does not dispose of the action as a whole. Although the word "stay" is not mentioned in either section 6 or in Article 8 (the term is now "refer the parties to arbitration"), in my judgment this is effectively still the order that the court makes. The court, even where a reference to arbitration is made, still retains a residual role to play in the dispute. For example, it may be called upon to enforce any award : see section 2GG of the Ordinance. Further, many of the provisions in Part II of the Ordinance demonstrate this as well (in the case of domestic arbitration agreements). In the case even of international arbitration agreements, article 9 of the UNCITRAL Model Law states : "It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure."

32.It was therefore wrong in principle for PCL to have asked for the costs of the action rather than just of the stay. The costs order I have made reflects this.

Representation:

Mr Timothy Hill, of Messrs Lovells, for the Plaintiff

Ms Alice Hutchens, of Messrs Richards Bulter, for the Defendant (in HCA7693/2000)

Mr Harris Chan, of Messrs Paul K.C. Chan & Co., for the March 2002)1st Defendant (in HCCT68/2001) (on 21 March2002)

Mr Paul Chan, of Messrs Paul K.C. Chan & Co., for the 1st Defendant (in HCCT68/2001) (on 4 June 2002)

Mr Andrew Aglionby, of Messrs Baker & McKenize, for the 2nd Defendant (in HCCT68/2001) (on 21 March 2002)

Mr Charles Wong, of Messrs Lo, Wong & Tsui, for the 2nd Defendant (in HCCT68/2001) (on 4 June 2002)