John Lok & Partners Ltd v. Wharf Properties Ltd

HCMP002955/1983

M. P. No. 2955 of 1983

Application for appointment of arbitrator. Objection that appointment would impede further application for consolidation under section 6B of the Arbitration Ordinance.

Held that a Court ordering consolidation of arbitrations under section 6B had jurisdiction both to appoint an arbitrator for the consolidated proceedings and if necessary to remove an existing arbitrator.

M. P. No. 2955 of 1983

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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BETWEEN

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Coram: The Hon. Mr. Justice Hunter in Chambers.

Date of Hearing: 7 March 1984

Date of Delivery: 7 March 1984

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JUDGMENT

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1. This is an application under section 12 of the Arbitration Ordinance where I am invited by the plaintiffs, John Lok & Partners Limited to appoint Mr. Justice Fuad as arbitrator under John Lok's building contract with Wharf Properties Limited.

2. John Lok were the main contractors on the construction of Phrase I of Harbour City; Wharf Properties are the owners. They are locked in a dispute which is calculated to take up a great deal of time and may involve another 18 or so parties.  One of the most beneficial side effects of my residence in Harbour City is that I can look upon this dispute with equanimity, and watch someone else sort it out, because it is something in which under no circumstances can I become involved.

3. Now I am really faced with two invitations: Mr. Kaplan says, please appoint Mr. Justice Fuad so that his services are then secured as the arbitrator. Conversely Mr. Lane says, no, do not. This is premature. Mr. Justice Mantell's decision directing a stay of the litigation is under appeal. There is a very real argument on that appeal. Adjourn this application until after the hearing of the appeal. So the choice before me is either appoint or adjourn.

4. Now in support of his application for an adjournment Mr. Lane takes two substantive points. First he says that if I now appoint Mr. Justice Fuad, there may be a real difficulty over removing him from that position should the Court of Appeal decide that Mr. Justice Mantell is wrong. I am not impressed with that point. First in the context of a judge arbitrator it has always seemed to me to be totally unreal. If Fuad J. A. sitting in the Court of Appeal (as I think he is perfectly entitled to do whatever I say today) decides that Mr. Justice Mantell is wrong, the idea of Mr. Justice Fuad thereafter continuing to insist upon acting as arbitrator when the litigation necessarily continues is so far fetched as to be beyond human contemplation. I have no doubt whatever that if this appeal is allowed the very first thing Mr. Justice Fuad will do will be to say that he will not act further in this matter.

5. Secondly it seems to me, having been taken through the authorities, that the power in the court exists in what is section 3 of our Ordinance (section 1 of the English Act). The two English authorities that I have been referred to; both make it clear that this is a power in the court; a residual power may be, and a power to be exercised sparingly, but it exists. Mustill & Boyd p.472, suggest that this is, what have might be described as a belt and braces type of clause; as being available when justice demands that something should be done and no other method of doing it is available to the court.

6. Thirdly, the decision in Doleman v. Ossett (1912) 3 K. B. 257 as it was commonly understood, may well have been reversed by the Court of Appeal in two recent decisions. The first is Lloyd and Others v. Wright (1983) 3 W. L. R. 223, where Lord Justice Dunn expressed the opinion that there was no problem about arbitration and litigation going on at the same time but that the court had the power to exercise control over the arbitration p.230. I would emphasis that both Doleman and that case were concerned with a very special situation, namely where there is both an existing arbitration and existing litigation, and the court in that litigation has either not to have been asked to stay the action or has refused to stay it.  In those special circumstance it is said that the power exists in the court to control the arbitrator. The same thought seems to me to have been expressed by the Master of the Rolls in the decision of the Court of Appeal in England in the Northern Regional Health Authority v. Derek Crouch Construction 17th February 1984, where according to the transcript the Master of the Rolls said this: "It is well settled that the court has jurisdiction to restrain an arbitrator from deciding issues which are being litigated before the court." So for those three reasons, and to say nothing of the right of appeal from any decision of mine which will no doubt be exercised, I can see nothing in the difficulty of removing Mr. Justice Fuad if it is right to appoint him as arbitrator.

7. The second objection taken by Mr. Lane is that if I were to appoint the learned judge now it may restrict or inhibit a future court which hears an application for consolidation under section 6B of the Ordinance. What is suggested here is that section 6B only operates when no arbitrator has in fact been appointed. Mr. Lane submits that if you look at the express words of sub-section 2 they empower the court "to appoint an arbitrator or umpire for those proceedings". "Those proceedings" clearly relate back to the consolidated proceedings. But he says that there is no express power to remove any existing arbitrator from either of the arbitration proceedings which are to be consolidated. It follows that this whole provision only applies where no arbitrator has been appointed.

8. Now I have considered that submission with some care because if it is right then section 6B seems to me to be a disastrous piece of drafting. It seems that the provision is of very very limited value indeed. There is no hint of this limitation in sub-section 1, which is taken from the relevant rule in the White Book providing a general power to consolidate Order 4 rule 10; for example where some common question of law or fact arises in both the actions or the rights to relief claim therein have the same foundation. Now this virtually assumes the existence of two arbitrations and the formulation of pleadings in the two arbitrations. It is almost impossible to envisage an arbitration where proceedings are formulated without the arbitrator being already appointed. This is a necessary part of this process. We all know that before proceedings start there can be all sorts of huffing and puffing on correspondence, when claims and counterclaims are made. It is a totally different matter when an arbitration starts, and parties have to sit down and decide what defenses they are going to raise or what claims they are going to advance. It is only upon the basis of those claims and those defenses that a decision ought to be taken under section 6B.

9. So I then turn to 6B(2). This is in two parts. The first is where "all the parties to the consolidated arbitration proceeding are in agreement as to the choice of arbitrator or umpire for those proceedings the same shall be appointed by the court." Now that seems to me clearly to envisage that the court having decided that there should be a consolidation, the question arises, as to who is to act e.g. when you have got Arbitrator A in one case and Arbitrator B in the other. The parties then have to consider whether they want A, B or C in the arbitration proceedings as consolidated. If they say, we want C then the court appoints C. It is plain that the parties, by agreement, can get rid of A and B. So that there is no difficulty when you look at the first half of this subsection to see that the provision is effective because the parties can by agreement create the necessary vacancy: can remove the two existing arbitrators in order that the third may be appointed as the arbitrator in the consolidated proceedings.

10. If that be the right way of looking at the first half of sub-section 2, it seems to me also the right way of looking at the second half, which is intended to deal with the situation where the parties cannot agree, and the court has to decide. Take the example I have given as to whether the joint arbitrator is to be A, B or C. I think that sub-section has got to be read upon the basis that if the court has the power to appoint A, B or C it must in case of need also have the power to remove A and B at the same time. I certainly hope that that is the right construction of this section because if it is not then it simply does not really start to achieve its intended purpose.

11. For those reasons therefore I do not, myself, see any real substance in Mr. Lane's two specific objections. I therefore come back to what seems to me to be a pure question of discretion, as to whether I should now appoint or whether I should now adjourn. The first thing there is that the court has ordered a stay. My obligation is to honour that decision. I should do nothing to inhibit or discourage any right of appeal from it; on the other hand it does not seem to me that I should do anything to encourage such an appeal. The stay order has been made. I know that it is under appeal. It does not seem to me that I should necessarily assume that that appeal is going to succeed.

12. Secondly I ask myself what I would have done if both applications had come before me at the same time, which could have happened before Mr. Justice Mantell. I frankly have no doubt at all what the answer to that would have been. If I had granted the stay I would have made the appointment; if I had refused the stay I would not. The two things go hand in hand as far as I am concerned. I suspect that Mr. Justice Mantell would have done the same thing if the present application had come before him. He would have been perfectly entitled to say; I think my decision is right; if my decision is right it necessarily follows that there has to be an appointment; if I am wrong the Court of Appeal will correct both parts of my decision.

13. The third factor here which I am totally unable to close my eyes to, is that since that decision was given by Mr. Justice Mantell there has been reported the Court of Appeal decision in England in the Derek Crouch case. I am myself convinced that that is going to have considerable ramifications in the United Kingdom. In that case the Court of Appeal has held that a judge, unlike an arbitrator, has no power such as it expressly given by the material arbitration clause, Cl. 105(4) to open up review and revise any certificate etc. of the architect. This means that as a result of this decision in the United Kingdom, a judge trying a building dispute has about 50% of the powers of the architect. He can only decide as a matter of law whether certain things should have been done. He cannot review the facts behind those decisions. If this does not result in a spate of applications by both parties in a string of pending cases in the Official Referee's corridor seeking to appoint the Official Referee, the arbitrator, for the purposes of that dispute, I shall be astonished. My personal belief is that the business in that corridor increased because contestants in the building field had greater confidence in the ability of the official referees, than they did in some of the arbitrators who might otherwise have been appointed. This produced the mounting business in that corridor which it is apparent from the decision the Master of the Rolls had very much in his mind. He said this: "If the view of the court is accepted, it will virtually give any party a right of veto on any attempt to by-pass the arbitration clause". It means that in England now, as I see it, it will be exceedingly difficult with a building contract in the form before me, for a court to refuse a stay under section 4.

14. Now this is not yet binding on the judges in Hong Kong, and I have no doubt that the judges in the Court of Appeal, hearing the appeal from Mr. Justice Mantell, will very carefully consider the appropriateness of this decision in Hong Kong. In Hong Kong we have at the moment a judge arbitrator system which is starting to work. We have no official referees corridor and never have had. It seems to me sitting here that the impact of this decision in Hong Kong is going to be very much less unpleasant than I am minded to think it will be in the United Kingdom. I say that by way of personal observation; but the matter is entirely one for the Court of Appeal. But it does seem to me now that I cannot shut my eyes to this that if the Crouch decision is right then it gravely impairs the appellants' chances of success on the appeal from Mr. Justice Mantell. I have a feeling that it goes as far as this, that unless they can persuade the Hong Kong Court of Appeal not to follow this decision, the appeal is hopeless. I have expressed those views because they have been in my mind from an early stage, and it is only fair that parties know them, and if they constitute a misdirection I have confessed.

15. For those reasons it seems to me that there is only one course that I should adopt here, and that is to appoint Mr. Justice Fuad as the arbitrator.

Representation:

Mr. Neil Kaplan, Q. C., Mrs. Jill Spruce instructed by M/s Denton Hall and Burgin for Plaintiff.

Mr. William Lane instructed by M/s McKenna & Co. for Defendants.