Attorney General v. Shimizu Corporation
Read the full judgment text of HCMP 2895/1995 on BabelCite. This High Court CFI judgment was delivered on 22 March 1996.
1. Mr. Brian Knight Q.C., who had been appointed as Arbitrator in a dispute between Shimizu Corporation ("Shimizu") and the Hong Kong Government ("the Government") issued a 4th Interim Award ("the Award") dated 19th September 1995. The Arbitration was concerned with claims for delay and disruption in relation to construction work in the Queen Mary Hospital Stage 2 project.
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HCMP002895/1995 MP No. 1169, 2892, H E A D N O T E Arbitration interim award - application for leave to appeal - application for remission to Arbitrator - Arbitration Ordinance Cap. 341 ss. 23 & 24 - construction contract - prolongation costs valuation - disruption - arbitrator's exercise of discretion to award compound interest - finality - quantum of damages - global claims. (The Attorney General appealed by consent against arbitrator's finding that he had power to order payment of compound interest. See judgment of Seagroatt J. dated 6th August 1996 in MP No. 1169 of 1995 & MP No. 1519 of 1996.) IN THE SUPREME COURT OF HONG KONG HIGH COURT MISCELLANEOUS PROCEEDINGS NOS. 1169, 2892, 2893 AND 2895 OF 1995 _____________
_____________ Coram : The Hon. Mr. Justice Leonard in Chambers Dates of Hearing : 12, 13, 14 and 15 December 1995 Date of Handing Down of Judgment : 22 March 1996 _______________ J U D G M E N T _______________ 1. Mr. Brian Knight Q.C., who had been appointed as Arbitrator in a dispute between Shimizu Corporation ("Shimizu") and the Hong Kong Government ("the Government") issued a 4th Interim Award ("the Award") dated 19th September 1995. The Arbitration was concerned with claims for delay and disruption in relation to construction work in the Queen Mary Hospital Stage 2 project. 2. The Government, which is the Respondent in the arbitration, applies in MP 2892 of 1995 for leave to appeal, under s. 23 of the Arbitration Ordinance Cap. 341 ("the Ordinance"). 3. The originating notice of motion filed on behalf of the Government set out 8 grounds of appeal and the particulars occupied 14 pages of typescript. By the time that the matter came on for hearing the grounds had been reduced to 3. 4. In addition, the Government applies in MP No. 2893 of 1995 for the remission of the award to the Arbitrator under s. 24 of the Ordinance on 6 grounds, alleging procedural irregularity and, in the case of ground 5 only, misconduct. 5. Shimizu opposes the Government's applications and itself applies in MP 2895 of 1995 for the award to be remitted to the Arbitrator under s. 24 of the Ordinance on 3 grounds, all alleging misconduct. 6. MP1169 is an application by the Government for leave to appeal the Arbitrator's finding that he had power to award compound interest. Shimizu having consented, the only remaining issue is that of costs. 7. I will deal with the applications in turn. The Government's Application for Leave to Appeal. (MP 2892 of 1995) Ground 1. 8. Ground 1 reads:
9. There was an issue between the parties at the arbitration hearing as to how to value prolongation costs. Having considered the arguments put forward, the Arbitrator said, at paragraph 39 of the Award:
10. In paragraph 37 of the award, the Arbitrator said that Mr. Cleary (an expert witness called by the Government)
11. As to the proper test to be applied when considering whether to grant leave to appeal, Mr. Fernyhough Q.C. for the Government submits that the present case is towards the lower end of the scale described by Hunter J.A. inPT Dover Chemical Co. v. Lee Chang Yung [1990] 2 HKLR 257. He points to the fact that the contract in question is a standard form; the dispute, relating as it does to delay and disruption, is of a kind frequently occurring in the construction industry and both parties are in Hong Kong. 12. There has not yet been a decision on the interpretation of the relevant part of the contract in question. 13. The experienced Arbitrator is legally qualified and is skilled in the construction field. Those facts cannot be ignored and it cannot be said that this case lies at the bottom of the scale. The Government no longer enters into contracts in the form presently under consideration, though there is evidence that some work is still going on under contracts in that form. Though Mr. Fernyhough contends that the Clauses in question have survived in later forms, Mr. Goldblatt Q.C. for Shimizu maintains that in the later contracts the government has deleted any reference to fair valuation which, in his submission, makes a vital difference. 14. For a party to succeed on an application for leave, even if the case is at the bottom end of the scale, he must show that the decision of the question of law in the particular case would add significantly to the clarity and certainty of Hong Kong Commercial Law and that a strong prima facie case of error by the Arbitrator is made out - PT Dover (supra). 15. Clause 73 deals with the question of the measurement and valuation of variations: rules are prescribed for valuation. Sub-clauses 73(1)(c) and (d) are in the following terms:
16. Clause 76 deals with direct loss and expense suffered by the Contractor, for which he would not be reimbursed by a payment made under any other provision in the Contract by reason of disruption. It provides that the Architect shall ascertain the amount of such loss and/or expense upon receipt by him from the Contractor of particulars, as full and detailed as possible, of such loss and/or expense. 17. It is clear from the Award that the Arbitrator gave careful consideration to the decisions inJ. Crosby and Sons Ltd. v. Portland UDC 5 BLR, 121 as well as London Borough of Merton v. Stanley Hugh Leach Ltd. 32 BLR 51. He found that all the prolongation events with which he was concerned fell within one or other head of the contract which attracts reimbursement. He found that, as in Crosby (supra) extra costs are a factor common to all the clauses and goes on to find that the prolongation costs should be valued on a loss or loss and expense basis, setting out his reasons at paragraphs 38 and 39 of the Award. 18. Mr. Fernyhough submits that in making his findings, the Arbitrator lost sight of Clause 73(1). Whilst, however, the rates in the Bills of Quantities are mentioned, Clause 73(1)(d) provides that
19. Another complaint by Mr. Fernyhough is that Issue 1 in the 2nd Interim Award was:
20. The Arbitrator said at paragraph 12 of the 2nd Interim Award:
21. Mr. Fernyhough says that Issue No. 1 set out above should have been dealt with in the award but, he says, the Arbitrator did not adjudicate upon it. Mr. Goldblatt has, however, pointed out that in the 2nd Interim Award, the Arbitrator concluded that in valuing variations it is permissible and often appropriate to arrive at a resources-based valuation in making a fair valuation. He says that for the purposes of the 2nd Interim Award the Government accepted that delay and disruption costs can be valued under Clause 73(b). Mr. Goldblatt submits that the Respondent did not challenge the conclusion that a fair valuation allows a valuation on a resources basis and that it was right for the Arbitrator to hold that Clause 73 attracts reimbursement. The Arbitrator's decision to value prolongation costs and such disruption costs as he was prepared to allow on a cost or a loss and expense basis was simply, according to Mr. Goldblatt, an application of an established principle. 22. Mr. Goldblatt also contends that the determination of any question of law raised by the respondent could not substantially affect the rights of any party to the arbitration agreement. 23. Mr. Goldblatt maintains that the Respondent has not challenged the Arbitrator's finding in the 2nd Interim Award that
24. Mr. Humphrey, Shimizu's Surveyor, saw no difficulty in using section 73(1)(b) to arrive at a resources based valuation and saw no difficulty in using it to value the cost of delay and disruption. It is contended for Shimizu that the Arbitrator has explained his treating of sections 72 and 76 in the same way, holding that both allow for recovery of cost in appropriate circumstances. In treating all claims in the same way, says Shimizu, he has the authority ofCrosby (supra) and, in relation to Clause 73, a declaration of Kaplan J. in Jardine Engineering v. Shimizu Corporation (1992) 63 BLR 96 but I note that that declaration was tendered by way of an agreed draft by the parties to the matter there before him. 25. Mr. Goldblatt submits that the Respondent is for the first time advancing an argument not raised before the Arbitrator, i.e. that Clause 73 does not permit full cost recovery, whereas it should have been raised at the time of the 2nd Interim Award. He says that the Arbitrator did not depart from his observations in his second award. He there charted the principles, examined the evidence in the light of those principles and came to a conclusion after considering authorities and hearing argument. Mr. Fernyhough pointed out that in the record of his closing address to the Arbitrator he said:
26. After considering the arguments both written and oral and perusing the documents placed before the Court, I am not satisfied that it is necessary in order to provide clarity and certainty to the Commercial Law of Hong Kong to grant leave to appeal on Ground 1. The Government has failed to make out a strong prima facie case that the Arbitrator was wrong. There is no reason to suppose that the few remaining contracts in this obsolete form are likely to throw up difficulties in the interpretation of Clause 73 or 76. 27. The application for leave to appeal on Ground 1 accordingly fails. Ground 6. 28. It is the Government's case that the Arbitrator failed to adjudicate upon items 1A-20 and 1A-21 (global claims for the costs of cleaning the site and removing rubbish during the prolongation period). 29. The paragraph complained of is paragraph 84 where the Arbitrator says: -
30. The Government contends that since these were matters concerning the global claims about which he was not satisfied at the time of the Award, the Arbitrator should have dismissed the claims as a whole. 31. The parties had, according to Mr. Fernyhough asked the Arbitrator to adjudicate in the arbitration on all matters referred to him at the main hearing, so that he had no jurisdiction to "propose to direct" for further submissions so as to re-open this claim for further evidence and argument. Moreover, if there was to be fresh evidence, the Government had a right to an oral hearing so as to be able to test it. A documents only arbitration was never agreed by the parties. 32. Mr. Fernyhough says that the parties had agreed that the hearing in January/February would dispose of all questions of liability and quantum. 33. Mr. Goldblatt has argued (and it does so appear to me from the transcript) that so far as Shimizu was concerned, there was only qualified agreement that the parties would aim to deal with all issues in the time contemplated. Mr. Goldblatt was saying before the Arbitrator, it seems to me, "It may not work. Let us see how it goes". 34. In paragraph 8 of the 2nd Interim Award, the Arbitrator speaks of the parties' intention rather than a binding agreement to complete all issues during the hearing. The discussions were, according to Mr. Goldblatt, on the basis that the issues would have crystallized by the time of the hearing but in fact the Respondent during the hearing was continually changing direction. By the time of the close of argument, the amendments of points of defence had gone into orange. Shimizu, according to Mr. Goldblatt, was being deluged with new material up to and including the Government's closing submissions. As against that, Mr. Fernyhough says that Shimizu could have asked for the matter to be removed from consideration but it did not do so. It was ready to let the Arbitrator go to final determination. According to him, the Arbitrator did not consult the parties and went beyond his jurisdiction. 35. Mr. Goldblatt says that this ground gives rise to an one-off point of argument which will be of no future use to arbitrators. It was merely a matter of the exercise by the Arbitrator of his judgment. Even if, to some degree, he may have misjudged the agreement of the parties, it would not necessarily be a ground for appeal any more than any other misjudgment. 36. Mr. Goldblatt has repeatedly pointed out that the Award in question is not a final award. As it stands, it is broadly equivalent to a declaration of entitlement, to be followed by an enquiry as to quantum. Section 16 of the Arbitration Ordinance confers upon the Arbitrator power to make interim awards and the 4th Interim Award is expressed to be just that. 37. I hold that no substantive issue of law arises which would merit the grant of leave to appeal on this ground. The Award is an interim award: it is open to the parties to make representations to the Arbitrator as to how he should proceed to resolve the outstanding issues and if the Respondent desires an oral hearing, it can ask for one. The Arbitrator has not made a direction: he has proposed to make one. He would be wise to consider any application for leave to make further submissions. Ground 8. 38. The parties have agreed that the question whether there was jurisdiction in the Arbitrator to award compound interest is to go to appeal. In case it be held that there was such jurisdiction, the Respondent wishes to appeal against the Arbitrator's exercise of his discretion in granting compound interest. 39. I am not persuaded by Mr. Fernyhough's submission that leave should be granted in order to afford to the Court an opportunity of giving guidance to Arbitrators on the exercise of their discretion. The Respondent has failed to show a strong prima facie case that the Arbitrator acted capriciously or arbitrarily. The Arbitrator heard submissions on the issue and satisfied himself that his approach was not inconsistent with practice and reflected the merits. There is nothing to show that his decision was so unreasonable as to be plainly wrong. The application for leave to appeal on this ground accordingly fails. 40. The application for leave to appeal is dismissed and there will be an order nisi that Shimizu's costs in MP 2892 of 1995 be taxed if not agreed and paid by the Government. The Government's Application for Remission: HCMP No. 2893. 41. The Government seeks remission of certain matters to the Arbitrator under section 24 of the Ordinance which reads (in terms identical to those of section 22 of Arbitration Act 1950):
42. It is now recognized that the Court has a broad discretion to remit matters to an arbitrator. See Mutual Shipping Corporation v. Bayshore Shipping Co. Ltd. [1985] 1 WLR 625. See also M.F. King trading as Robinsons Garage M.F. King Holdings (U.K.) Ltd. v. Thomas McKenna Ltd. and Holbeach Plant Hire Ltd. 54 BLR 48 at p. 61 where Lord Donaldson M.R. said:
43. In that case, an arbitrator in making an award of costs failed to take account of a sealed offer in circumstances where neither the fact that a sealed offer existed nor the amount of that offer was brought to the notice of the Arbitrator until after he had made his Award. 44. It was conceded before the Court that, if the Arbitrator had learnt of the offer, he would have made a different order. The Court of Appeal upheld a decision by Hobhouse J. to remit the Award. I note that in agreeing with the judgment of the learned Master of the Rolls, Ralph Gibson L.J. said:
45. In London Borough of Islington v. Turriff Construction Ltd., an unreported case of the Court of Appeal in England, Mustill L.J., giving the judgment of the Court on 16th March 1990, referred to the case of Soc. Franco-Tunisienne v. Government of Ceylon ("The Massalia") [1959] 1 WLR 787. In that case, according to Mustill L.J., the Arbitrator had conceived and applied a view of the law which was entirely new as against the view on which both sides had been content to proceed. As a result, the matter was remitted to the Arbitrator for further consideration. In the Turriff case, the Court of Appeal held that a situation had arisen where in the interest of justice, the Court should exercise its powers, not to compel a change in the Award, but simply to afford the parties for the first time the chance to express their opinions on how the change in the situation should be reflected in the monetary remedy. Lord Mustill said:
46. Later he said:
47. At p. 37 of the transcript of the judgment, Lord Mustill said:
48. At p. 38, Lord Mustill said:
49. Prior to the development to which I have referred above, it was formerly considered that the power to remit applied only in four situations namely:
See Montgomery, Johns & Co. v. Liebenthal & Co. [1898] 78 L.T. 406. 50. The Government in the present case contends that it is open to this Court to remit the Award if there has been "a misunderstanding leading to injustice, even though the Arbitrator has not committed misconduct". Another way of putting it is that there has been "a procedural mishap". See Indian Oil Corporation Ltd. v. Coastal (Bermuda) Ltd. [1990] 2 L.R. 407. 51. The Government seeks remission to the Arbitrator on six grounds. Grounds 1, 2, 3, 4 and 6 relate to alleged procedural irregularities or mistakes or misunderstandings made by the Arbitrator. It is the Government's case that the Arbitrator has not consistently applied principles which he decided from time to time and has thus allowed excessive recovery under certain items. It is also submitted that there are accounting matters which the Arbitrator should be invited to reconsider after hearing the parties. According to the Government, the sums at stake are significant and involve alleged double-recovery or over-recovery by Shimizu to the extent of something over $3m. On Ground 5, the Government submits that the Arbitrator has committed misconduct in failing to dismiss the claimant's claim under items 1A-20 and 1A-21. 52. In deciding upon the correct approach to the Government's submissions and support of the application for remission, I must have regard to what was said by Sir John Donaldson M.R. in Moran v. Lloyd's [1983] 2 All E.R. 200. The learned Master of the Rolls said at p. 204, in giving the judgment of the Court,
53. At p. 204, Lord Donaldson says:
54. Mr. Goldblatt places particular reliance on the last quoted passage, submitting that if the Government asked this Court to look behind the figures to try to ascertain how the Arbitrator arrived at them and so to undermine them, such an exercise would be illegitimate. Ground 1.
It is the Government's case that in respect of any gross sums awarded under schedules 1A and 1B, which sums are set out in Appendix 2 to the Originating Notice of Motion, credit has to be given for the sum of $9,174,741.17 paid by the Government to Shimizu under the 3rd Draft Final Account. At least, that was the case but Mr. Fernyhough has accepted during the hearing that the amount to be credited should be reduced by $214,200.00 to $8,960,541.00. The complaint is that, though the Government had paid to Shimizu $8,960,541.00, the Arbitrator only credited $7,846,234.10, as shown in Appendix 1 to the Originating Notice of Motion, to the Government. The gross award amounts to $25,004,545.00. 55. It is submitted on behalf of the Government that the alleged error by the Arbitrator is one where justice requires that it be corrected so that the amount paid may be credited in full. According to the Government, the sum of $8,960,541.00 was paid in respect of the whole of the schedules 1A and 1B and must be credited against the total sums awarded under those schedules. It is pointed out that even the figures provided to the Arbitrator by Mr. Humphrey, Shimizu's expert, do not add up to the sum of $8,960,541.00 paid. 56. It is submitted on behalf of Shimizu that the case now put by the Government cannot be found in the pleadings, was not in terms advanced to the Arbitrator, would allow the Government without making a counter-claim to claw back money paid in relation to 1A-3 and 1A-4 where the Arbitrator made no award and contradicts the Government's pleaded position which was to propound and rely upon the validity of all items recommended and paid in the 3rd Draft Final Account. 57. There was evidence from the experts for both sides at the hearing before the Arbitrator as to the actual breakdown of the sum of $9,174,741.17. In calculating his individual awards, the Arbitrator has taken that evidence into account in relation to each relevant item so as to arrive at the final figure. According to Mr. Goldblatt, that method of calculation was invited by the Government's closing submissions which sought to demonstrate item by item how much the Government has paid. Yet now, according to Mr. Goldblatt, the Government wants the Court to go behind the Arbitrator's final figures, recalculate the arithmetic and re-assess the breakdown of figures and in so doing to prefer the evidence of the Government expert over that of Shimizu. It also invites the Court to treat the Arbitrator's individual awards as one collective award for the purpose of making a wholesale set-off and deduction. 58. It is contended for Shimizu that the Arbitrator has treated payments by the Government to Shimizu in a manner entirely consistent with the manner in which the case was conducted, the way in which expert reports were prepared on each side, and the Arbitrator's observation on Day 35 of the hearing when in reference to a table of payments made by the Government he said:
59. Mr. Goldblatt says that the way in which the Arbitrator dealt with the matter shows that no other treatment of sums allocated as having been paid against particular items would have been appropriate or acceptable. Therefore, he says, the awards under each individual head of assessment have to be treated as factual assessments which bind the parties, right or wrong. 60. In his written submissions, Mr. Fernyhough refers to item 1A-17. This was a claim adjudicated in the 3rd Interim Award and related to extra costs for rock excavation and allied temporary works incurred as a result of out-of-sequence working. In his 3rd Interim Award, the Arbitrator said:
He then pointed out that the claim was originally pleaded in two parts, one for $209,108.10 and one for $8,102.30. He said that the Respondent did not dispute the claim for $8,102.30. In the event he found that it would not be necessary to decide the quantum on claim 1A-17 but, it being common ground that the Government had paid $29,773.23 and that the Government did not dispute the claim for $8,102.30, he awarded the latter sum. 61. Mr. Fernyhough's submission was that no credit would be expected in the 3rd Interim Award as the total sum paid by the Government was in respect of the whole of schedules 1A and 1B and thus any credit ought to have been taken into account or given only in the 4th Interim Award when the whole of those schedules were dealt with. He says that in relation to item 1A-17 the Arbitrator has overlooked the fact that sums have been paid or ought to be taken into account to avoid double recovery or overpayment. Mr. Goldblatt, however, submits that it follows from the way in which the Arbitrator dealt with that item that the method now complained of was used by the Arbitrator and accepted by both parties in respect of the 3rd Award. Mr. Goldblatt adds that by the time of the 4th Award, the Arbitrator was functus officio as regards any aspect of item 1A-17. Thus there was an acceptance that the sum paid by the Government on account had to stand untouched by the matters of difference in the reference. 62. In respect of claim 1A-16, the Government complains that though the Arbitrator has made an award under that item, he has failed to give credit for the payment made by the Government under the same item whether it be the figure put forth by Mr. Humphrey of $354,627.12 or Mr. Cleary's $452,528.99. Mr. Goldblatt has pointed out, however, that on Day 35 of the hearing Mr. Fernyhough conceded that the figure of $452,000.00 odd should be reduced to $238,328.00 by reason of an error on the part of the Government. It is clear from the 4th Award that the Arbitrator arrived at his figures after considering the evidence and making allowance item by item as he considered appropriate. 63. In a letter dated 4th December 1995 addressed to the Government's solicitors, the Arbitrator commented on suggestions that the 4th Interim Award contained a number of errors relating to double recovery and double-counting. In relation to Ground 1, he comments as follows:
64. It is submitted on behalf of the Government that during the hearing before the Arbitrator the Government maintained that 5% head office overheads had been included in amounts paid for variations and hence ought to be deducted. The Arbitrator rejected the claim for head office overheads made by Shimizu under items 1A-3 and 1A-4. Yet, according to the Government, the Arbitrator has not deliberated upon whether the 5% head office overheads which the Government contends as having been paid in valuations for variations ought to be deducted from the variations paid. This was raised before the Arbitrator in the Government's closing submission. 65. Mr. Goldblatt characterizes the above argument as an attempt to counter-claim an overpayment of head office overheads and to re-open sums agreed and paid for variations which have never been in issue in the reference. In fact, in his submissions to the Arbitrator, Mr. Fernyhough was addressing his mind to the situation which might arise if the claims for head office overheads in items 1A-3 and 1A-4 were allowed whereas in the end they were not allowed. It is the case for Shimizu that the suggestion that the Arbitrator's findings with regard to 1A-3 and 1A-4 would preclude the Claimant from normal recovery of overheads and profit on variations is not arguable. 66. The Government contends that the failure to give full credit for sums paid under schedules 1A and 1B would clearly result in injustice and double recovery and is an error that can be corrected by way of remission. 67. Having considered the arguments advanced by both parties and the documents to which the Court's attention has been drawn, I am not satisfied that the matter which is the subject of Ground 1 should be remitted to the Arbitrator. In theMontan (supra), Sir Roger Ormerod said:
68. I respectfully adopt those words as being equally applicable to section 24 of the Ordinance. In a long and difficult arbitration, which was not made any easier by the Government's constant shift of ground throughout the hearing, right up to the final submissions, the Arbitrator approached with care the task which he had to perform. Prima facie, both parties are saddled with the Arbitrator's findings of fact, whether they be right or wrong. A party cannot obtain an order for remission simply by demonstrating an error on the part of the Arbitrator unless the circumstances are so exceptional as to override the principle of finality. There are no such circumstances in relation to Ground 1. No ground for remission has been made out. I do not accept that the Award is bad on the face of it. There has been no misconduct demonstrated and there is no additional evidence. The Arbitrator in his letter has made it clear that he does not admit any mistake. Nor do I consider that this is a case which falls into the new category of "procedural mishap". 69. The application for remission on Ground 1 therefore fails. Ground 2. 70. The Government seeks remission of the following matter:
71. Items 1A-1 and 1A-2 relate to site overheads which have been allowed by the Arbitrator. The Arbitrator accepted that there should be a reduction in respect of site overheads included in amounts already paid for variations. That is necessary to avoid double-counting. He took a figure of $1,357,958.00 as the figure to be deducted. The Government contends that the Arbitrator took the wrong figure. Because the total amount of site overheads to be deducted cannot yet be calculated some variations are yet to be valued. It is therefore submits that the matter should be remitted to the Arbitrator so that he may qualify his award so as to show that the figure of $1,357,958.00 is provisional. The Government desires him to state that the exact amount to be deducted will be determined after the valuation of variations exercise has been completed by the Technical Assessor and awarded by the Arbitrator. 72. In his letter of 4th December 1995, to which I have already referred, the Arbitrator comments as follows on Ground 2:
73. Shimizu says that it is not open to the Respondent now to contend that the Arbitrator ought to have rejected the Respondent's own figure and substituted a different and far higher figure of his own. Insofar as there is an on-going process of assessment, it is by reference to that and not to the 4th Interim Award that any other adjustment would fall to be made. 74. In his closing submissions, Mr. Fernyhough argued that the 5% mark-up in respect of site overheads fell to be credited in total against claims 1A-1 and 1A-2. It should not be limited only to the variations which in fact caused delay and gave rise to an extension of time. He asserted that full credit should be given against this particular claim in order to avoid double recovery. 75. There is no doubt that the Arbitrator had double recovery very much in mind and intended to avoid it. 76. It is evident from the Arbitrator's letter that he has, through inadvertence, failed to complete his task as he sees it and he desires to correct his oversight. I have come to the conclusion that he should be permitted to do so and that the matter of calculation of the proper amount to be deducted for the 5% site overheads paid under variations when making awards under 1A-1 and 1A-2 should be remitted to the Arbitrator for further consideration. Mr. Goldblatt would wish, in those circumstances, to have an opportunity to re-argue the question of full deduction which was fully argued before. The Arbitrator having made up his mind, after argument, how to approach the question, it is not appropriate to require him to hear further argument on the same issue and it will be for him to complete his task as he sees it. That is not to say that he may not accept the assistance of the parties on the question of calculation, if he so chooses. Ground 3. 77. The matter which the Government wishes to have remitted under Ground 3 is:
78. It is common ground between the parties and obvious from the Award that the Arbitrator had double recovery much in mind. The Government says, however, that the Arbitrator has failed to apply the double-recovery principle in relation to items 1A-16 and 1B-1 and that the whole of the claims made under those heads were allowed by the Arbitrator, the gross sums awarded being set out in para. 9 of the 4th Interim Award. The Arbitrator has, according to the Government, made an accounting error which has resulted in a double-recovery amounting to $1,420,990.84. It is contended that plant (including plant operators) and supervision costs form part of the Preliminaries Bill under the contract and payments in respect of those elements during the original contract period were made under the Preliminaries Bill. Under items 1A-1 (Phase 2 site overheads), 1A-8 (general plant additional costs for Phase 2), and 1A-9 (extra sundry preliminaries for Phase 2), the Arbitrator has compensated Shimizu in respect of supervision, plant and plant operators costs for the prolongation period. Thus Shimizu has received full compensation for the matters the subject of Ground 3. Yet, the Arbitrator has awarded the gross sums set out in para. 9 of his 4th Interim Award. It does appear from MJD-1 at pages 433 to 435 of bundle C that the gross sums claimed and awarded under items 1A-16 and 1B-1, plant, plant operators and supervision costs were included. 79. It is contended for the Government that the Award complained of results from a "procedural mishap" or a "technical misconduct" which ought to be rectified. 80. The Government's solicitors wrote to the Arbitrator about this matter on 14th November 1995 suggesting that the Arbitrator had committed an accidental slip resulting in a credit wrongly attributed to the Claimant (Shimizu) and hence should be corrected under the slip rule. The Arbitrator's reply on 4th December is as follows:
81. Shimizu submits that this is a classic example of a tribunal selected by the parties arriving at the determination of an issue of fact in which it would be unreasonable for the Court to make its own enquiries. 82. The Arbitrator does not admit that there was any slip on his part. He heard the evidence and arguments and had the advantage of advice from the Technical Assessor. He made a finding of fact. If he has made an error, the Government must live with it. There will be no order for remission under this head. Ground 4. 83. This ground reads:
84. This relates to a claim for fluctuations on the cost of additional formwork due to disruption to the Tower block. The Government says that the claim should have been disallowed. 85. In para. 52 of his 4th Interim Award, the Arbitrator deals with the question of increased cost of materials as follows:
86. The claim made by Shimizu was for fluctuation for costs of additional formwork caused by the alleged disruption to the Podium and Tower. The claim did not distinguish between Podium disruption costs and Tower disruption costs. 87. There was a claim for the disruption of the Tower under item 1A-16 and it was rejected by the Arbitrator. Referring to item 1A-18 at p. 80 of his 4th Interim Award, the Arbitrator said:
88. The Government's case is that there was no way in which the Arbitrator could segregate the sum claimed into that which relates to the Podium and that which relates to the Tower disruption, so that the whole sum claimed of $231,082.85 should be rejected. It is pointed out that no reasons are given for the Award in para. 52. It is submitted that to make an award in the absence of any basis for it amounts to technical misconduct or is the result of a "procedural mishap". The Government seeks the remission of item 1A-18 to the Arbitrator for correction since it can be severed from the rest of the Award and is, in the view of the Government, a mistake. 89. In his letter of 4th December 1995, the Arbitrator says, in relation to Ground 4:
90. The Government contends that the claim was not in respect of prolongation. 91. The response of Shimizu is to say that the Award is for increased materials costs. There was evidence that the prolongation of the contract period involved the Claimant in paying additional sums for materials used in the works. The Award in para. 52 represents that element of the claim under item 1A-18 and it has nothing to do with the Arbitrator's rejection of the much larger productivity loss which was claimed in the same item. In the Respondent's own written closing submissions appears the following passage:
92. On the material before me I am not satisfied that the Government has made out a case for remission under this head. The Government has disregarded the distinction between the different parts of the claim. There is a distinction to be made between the global claim for loss of productivity and the claim for increased costs of materials due to prolongation. Even if the Arbitrator fell into error as suggested by the Government, it would not be such as to override the principle of finality. Ground 5. 93. This ground relates to items 1A-20 and 1A-21 in connection with site cleaning and rubbish removal expenses for Phases 2 and 3 respectively. This is the claim in relation to which the Arbitrator declined to make a final adjudication. I have already quoted para. 84 of the 4th Interim Award in which after expressing the view that an element of cost is recoverable under these heads he said that in relation to the claims he requires more investigation and analysis, particularly of costs, before reaching a determination. He went on to say:
94. The Government says that under the guillotine procedure it was not open to the Arbitrator to refrain from making a decision and if he did not have the material upon which to make it, he should have dismissed the claim. It is further submitted that the proposal contained in para. 84 rendered the Award defective because it was uncertain, incomplete and therefore unenforceable. It was, according to the Government, the intention and expectation of the parties that the Award would dispose of all disputes referred to him in the main hearing and it amounts to technical misconduct. The Government complains that it is unjust to impose on the parties' extra costs in dealing with the two claims when the parties have addressed the matter at a full hearing. 95. Nevertheless, the Government submits that the Award in respect of 1A-20 and 1A-21 should be remitted to the Arbitrator so that he may adjudicate upon them in the light of the findings he has already made. It is the Government's view that he must determine the claims or dismiss them on the evidence which he has already heard. 96. As has already been seen in relation to the application for leave to appeal, the argument of Shimizu, which I have accepted, is that the Award is not and does not purport to be a final award and does not preclude the Arbitrator from reserving a decision pending receipt of further evidence. Shimizu does not read para. 84 of the Award as precluding the possibility of a further oral hearing if requested by either party on proper grounds and I am of the opinion that Shimizu is correct. In fact, as I have said, all the Arbitrator does in para. 84 is to propose that he make a direction and there is no reason to suppose that he would refuse a request by either party for an opportunity to make oral submissions as to the directions which ought to be made for the further investigation of the outstanding claim. 97. Shimizu has indicated that it sees no reason why it should not submit to the task imposed upon it by the Arbitrator of bringing out the additional facts which he needs in order to complete his task. I decline to remit this matter to the Arbitrator with instructions to make an award without receiving further evidence. It would not be in the interest of justice to do so. The arbitration is not yet over. There are a number of outstanding matters to be dealt with and it would be wrong to deny the Arbitrator the opportunity of putting himself in a position to make a proper award. Ground 6. 98. The complaint here is that in respect of items 1A-9, 1A-10, 1A-19 and 1B-1, the Arbitrator has awarded sums which included one hour of overtime for the labour rates. When he made the Award under the Podium disruption claim of item 1A-16, the Arbitrator excluded one hour of overtime from the labour rates claimed. The Government says that, in order to be consistent, he ought to have made a similar deduction in respect of the four claims with which Ground 6 deals. It says that the amount which ought to have been deducted amounts to $207,452.64. No express reason was given for failing to deduct overtime in relation to the four items. 99. It is the Government's case that the failure to deduct the overtime must result from an oversight on the part of the Arbitrator. It seeks remission so that the alleged accounting mistake may be corrected and so that the Award may be rendered internally consistent. 100. In his letter of 4th December 1995, the Arbitrator says:
101. Items 9 and 10 of 1A were dealt with in the 4th Interim Award at para. 49 as follows:
102. Item 1A-19 is dealt with at para. 81 of the 4th Interim Award as follows:
103. Item 1B-1 is dealt with in para. 55 as follows:
104. Shimizu contends that this Court is being asked to go behind the calculations made by the Arbitrator and to investigate contentious matters of fact in order to ascertain how the Arbitrator has treated overtime for the purpose of these heads. Whilst, according to Shimizu, the actual sums included by Mr. Humphrey for overtime were incorporated in the evidence, the Respondent did not investigate those sums in cross-examination or raise a positive case, by pleading or in some other way, that overtime could not be claimed in respect of these items. 105. Where overtime was investigated, it was, according to Shimizu, in the different context of Tower disruption. Overtime was also specifically deducted in respect of item 1A-16 (Podium disruption). Shimizu contends that the Arbitrator was fully entitled to take the view in relation to the much smaller claims now under consideration that Shimizu's calculations supported by the evidence of Mr. Humphrey were an appropriate way of calculating the losses. It is pointed out that the Government did not challenge that part of Mr. Humphrey's evidence nor did it raise as part of its case even in its closing submissions the contention that overtime was deductible in respect of the four items. 106. It would appear that whether or not the Arbitrator was entitled to arrive at his finding, he has made it clear in his letter that he did not consider the question whether the rate used in the calculation of the four items should exclude overtime. He does not now know whether that resulted from a conscious decision on his part. 107. Shimizu has included in its written submissions extracts from the closing submissions of the Respondent before the Arbitrator from which it does appear that in relation to 1A-9, 1A-10, 1A-19 and 1B-1, no suggestion was made on the part of the Respondent that there should be an adjustment in the figures to take account of the overtime. By contrast, in relation to 1A-16, the Respondent's submissions contained the following passage:
108. Nevertheless, Mr. Fernyhough says that Mr. Humphrey applied the same labour rate to all heads of claim so that it goes without saying that the Arbitrator should have taken it into account in relation to all of them. Emphasis is placed on the fact that the amount at stake is $207,452.64, as calculated for the purpose of the hearing before this Court. Mr. Goldblatt says that it is not surprising that the Arbitrator only addressed his mind to overtime when expressly invited to do so by the Respondent and if the Respondent chose not to raise the matter in relation to a particular claim, it is saddled with the Arbitrator's decision whether it be right or wrong. He says that the Respondent cannot establish that there was an accidental omission by the Arbitrator. In order to do so, it would have to show that the matter was presented to the Arbitrator in such a way that an accidental omission is the only possibility. 109. On the point of internal inconsistency, Mr. Goldblatt refers to Moran v. Lloyd's (supra) which distinguishes between the operative part of the Award and the non-operative part. 110. If the amount at stake under this head is relevant, it must be viewed against the totality of the Award which is some $25m. 111. It does not necessarily follow that in excluding overtime from the calculations by Mr. Humphrey of disruption costs in respect of the Podium (para. 70 of the 4th Interim Award), the Arbitrator was laying down a principle to be applied in relation to all other heads of claim. The Government has failed to establish that there is, on the face of the Award, an inconsistency which justifies a remission on the ground of technical misconduct. The deduction was made in relation to the one head of claim where it was urged by the Government. In making his award under the items which are the subject of Ground 6, the Arbitrator evidently took into account the evidence in the light of the submissions which were made to him. The Respondent cannot now seek to re-open the argument and raise points in relation to these heads which it could have raised before the Arbitrator. There will be no order for remission on Ground 6. 112. In the result, the application for remission will be allowed to the extent that there will be an order remitting to the Arbitrator for reconsideration the question of the proper amount to be deducted for the 5% site overheads paid under variations when making awards under items 1A-1 and 1A-2. There will be an order nisi that the costs of each party be taxed if not agreed; that Shimizu do pay one-sixth of the Government's costs and that the Government do pay five-sixths of Shimizu's costs. MP2895 of 1995 113. I now turn to the notice of originating motion of Shimizu in which it applies for an order that the 4th Interim Award be remitted for reconsideration by the Arbitrator on 3 grounds. 114. All three grounds are based upon alleged misconduct on the part of the Arbitrator in that, having found for Shimizu on the issue of liability, he declined to calculate quantum. The First Ground 115. The first ground reads:-
116. In paragraph 80 of his Award the Arbitrator says :-
117. In fact in the re-re-amended points of claim Item 1A-18 is described as "formwork: Phase 2 Loss of Productivity and Increased Material Costs not on Main Contract Clause 119 basic price list". 118. It appears that in the arbitration the Applicant put forward two categories of Phase 2 disruption claims: the first was disruption to the Podium of Phase 2; the second was disruption to the Tower. 119. In paragraph 70 of his Award the Arbitrator said that he had little doubt that construction of the Podium was subject to extensive and serious disruption which had substantial cost consequences for Shimizu. He went on to make an award of the amount of disruption costs in respect of the Podium. In paragraph 77 he says:
120. In paragraph 79 he says "I am unable to quantify the effect of disruption to stair drums to L6 and I do not think that in the circumstances it is encumbent (sic) upon me to estimate a figure for disruption, a fortiori, when the Tower disruption claim is presented as a global claim. Accordingly the disruption claim for the Tower fails. It seems to me that the claim for additional reinforcement must also be disallowed, as it is global for Podium and Tower." 121. The above quoted passages form the background to the decision in paragraph 80 quoted above. 122. Shimizu submits that the Arbitrator has committed misconduct in that, having made his findings on liability, he declined to make an award in view of his perceived difficulty in calculating quantum. 123. Mr. Paul Anthony Starr, a partner in the firm of solicitors acting for Shimizu, in his affidavit filed on the 5th of October 1995 sets out the evidence which was before the Arbitrator and which, Shimizu contends, could have been used by him or his Technical Assessor to make an allocation for formwork between Podium and Tower. 124. In particular Mr. Starr refers to Shimizu's main claims letter for Item 1A-18, (plus appendices) which is dated 22nd of April 1992 and was relied upon by Shimizu in its pleadings at all stages of the hearing. He says that it comprised a prominent part of the 10 volume Quantum Hearing Bundle which was prepared for the main hearing. It was also reproduced, without appendices, in the "Final Core Bundle" prepared by the parties for the Arbitrator following conclusion of the main hearing. Appendix 1 of the letter quantifies separately the total measure of formwork for the Podium. The argument is that that sum can be taken as a fraction of the total measured formwork for all areas shown in the same Appendix 1. The resulting figure can be applied to the total pleaded loss and expense claim so as to distinguish between plywood and timber. Thus the total formwork loss and expense claim for disruption to the Podium may be ascertained. Interest on that sum may then be calculated. The Arbitrator has already awarded compound interest, at 1% above prime, for other claim items and if he maintains that figure all he has to do is decide upon the appropriate date from which interest is to run. 125. Shimizu submits that where the Claimant's figures are readily susceptible of fractional analysis and apportionment it is inappropriate to characterise the claim as a "global claim". It is submitted that where a Claimant has established a right to relief, the absence of an absolute measure of damages or other quantification does not entitle the tribunal to decline to assess a figure. The law requires him to do the best he can on the material before him even where a substantial measure of estimation, guess work or judgment may be involved. See Chaplin v. Hicks [1911] 2 K.B. 786 and Penvidic Contracting Co. Ltd. v. International Nickel Co. of Canada Ltd. 53 DLR (3d) 748. As Mustill J. said in Thompson v. Smiths Shiprepairers (North Shields) [1984] QB 405:
126. It appears in the present case that the claims letter was not specifically drawn to the Arbitrator's attention at the arbitration hearing but it was part of the material placed before him. 127. The Government's position on this issue is that the case of Chaplin v. Hicks (supra)is irrelevant for it concerns the assessment of damages consequent upon a breach of contract whereas the claims under consideration were for precisely quantified sums of money recoverable under express contractual conditions. This is a case, in the view of the Government, of one of the parties to an arbitration who has not put the necessary material before the Arbitrator by way of analysis and submission seeking to do so after the Award, which is final as to its contents. It is submitted that the task of calculation, contrary to what Shimizu says, is anything but straightforward and could not be carried out by the Arbitrator, even with the assistance of the Technical Assessor, without hearing evidence and submissions. Shimizu's contentions as to the appropriate method of calculation are not accepted. 128. Mr. Fernyhough pointed to the case of Anglo-Cyprian Trade Agencies, Ltd. v. Paphos Wine Industries, Ltd. (1951) 1 All E.R. 873 as being more relevant to the present case since there Lord Devlin said that special damages have to be specially pleaded with accuracy. In fact, as Mr. Goldblatt points out, that was a case where the Court was concerned with the question of costs and pleadings. The facts and circumstances were quite different from those of the present case. Here we have a situation where the outstanding issue is not one of causation or liability but of the quantum of loss. I am satisfied on the material before me that the Arbitrator could have and should have made an allocation between Podium and Tower in relation to the claim for additional plywood and timber. There is, among the vast mass of material accumulated during the arbitration, documentary evidence which would have enabled him to make a calculation. The Arbitrator's finding with regard to the Tower was not anticipated and it is not surprising, in the circumstances of this protracted arbitration, that the question of calculation as it now falls to be considered, was not addressed. 129. The issue of quantum must be remitted to the Arbitrator for consideration. There has been technical misconduct. 130. The Arbitrator will have the aid of the Technical Assessor but I have no doubt that he will also welcome the assistance of the parties in identifying the material already before him upon which he will base his decision. The Second Ground 131. The second ground for remission is as follows:-
132. This ground arises from paragraph 79 of the Award but it is helpful here to set out the contents of paragraph 77, 78 and 79 which read:-
133. In his affidavit of the 5th of October 1995 Mr. Starr observes that the Arbitrator was satisfied that Shimizu did suffer some disruption to the Tower, but that it ceased or should have ceased to have effect by Level 6 ("L6"). He goes on to point to evidence which was before the Arbitrator which, he submits, would enable the necessary apportionment to be made. He also suggests the appropriate method of calculation. 134. The Government contends that it is fanciful to suggest that the Arbitrator should have carried out that exercise without any request from Shimizu or guidance from the witnesses. Mr. Downey in his affidavit of the 8th of December 1995 observes that the Arbitrator treated the claim for block K Tower disruption in Item 1A-16 as a global claim. He refers to the findings which I have already set out and he observes that paragraph 77 of the Award indicates that the Arbitrator found that only some (but not all) of the stair drums (e.g. SD2) were affected by disruption. He also criticizes, with reasons, the calculation suggested by Mr. Starr. He submits, and the argument is relied upon by the Government, that the Arbitrator could not have carried out the apportionment exercise suggested by Mr. Starr and therefore correctly rejected the claim. 135. Mr. Fernyhough submits that the all three of Shimizu's applications for remission relate to global claims. He argued throughout the hearing of the arbitration that a global claim must either succeed in full or fail. He says that the Arbitrator has adjudicated upon fact and law. Decisions of fact are not challengeable: therefore Shimizu's applications for remission must fail. Shimizu did not put forward this claim on an alternative basis. 136. Mr. Goldblatt agrees with the submission that his three complaints stand or fall as a whole. 137. Being satisfied that Shimizu did suffer some disruption to the Tower, in particular delay to the construction of SD2, but that it ceased, or should have ceased, to have effect by L6, the Arbitrator was under a duty to assess quantum. He declined to do so on the basis that calculations were lacking. He could have either found a figure, doing his best on the material available or invited the further assistance of the parties. Having found a right he could not deny a remedy. I have already rejected the suggestion that the Arbitrator was bound to make a final adjudication on all matters pursuant to an alleged agreement between the parties. Just as the Arbitrator indicated that he was going to seek further written submissions in relation to Items 1A-20 and 1A-21, he was entitled to invite written submissions to assist him in a calculation of quantum in regard to the matters which Shimizu seeks to have remitted. The quantum of the disruption to the Tower will be remitted to the Arbitrator for further consideration. In addition to any submissions which may be made to him by the parties, it may be that he will decide to hear further evidence. The arbitration did not conclude with the publication of the 4th Interim Award. The Third Ground 138. This ground relates to the finding in paragraph 79 of the Award that the claim for additional reinforcement must be disallowed as it is global for Podium and Tower. 139. Mr. Starr in his affidavit of the 5th of October 1995 draws attention to documentary evidence which was before the Arbitrator and submits that it is possible to make a calculation apportioning between Podium and Tower. Mr. Downey in his affidavit of the 8th of December 1995 says that the suggested method of calculation was not raised at the arbitration and therefore not tested. He also criticized the method, with reasons. 140. The Arbitrator, having found disruption in relation to the Podium work, was under a duty to assess quantum. There does appear to be material upon which he can make an assessment, however imperfect it may be. 141. There will accordingly be an order that all three matters set out in the Shimizu's application for remission will be remitted to the Arbitrator for further consideration and an order nisi that Shimizu's costs of the application in MP2895 of 1995 be taxed if not agreed and paid by the Government. The Costs of the Government's Summons for Leave to Appeal in 1995 MP1169 142. Shimizu having consented to the bringing of the appeal shortly before the summons for leave was to be heard, leave was no longer required, for under S. 23(3)(a) an appeal may be brought with the consent of all the other parties to the reference. I have heard submissions on the question of costs. There will be an order that the costs of the summons be costs in the appeal.
Representation: Mr. R. Fernyhough, Q.C., and Ms. T. Cheng, instructed by Messrs. Denton Hall assigned for Attorney-General (Applicant/Respondent in Arbitration) Mr. S. Goldblatt, Q.C., and Mr. P. Clayton, instructed by Messrs. Mallesons Stephen Jaques for Respondent/Claimant in Arbitration |