Attorney General v. Aoki Construction Co Ltd
Read the full judgment text of HCMP 1255/1981 on BabelCite. This High Court CFI judgment.
1. The Attorney General is the Respondent in an arbitration arising out of a Public Works Department Contract, 1971 edition, being Contract No. 413 of 1977, entered into by Aoki Construction Co., Ltd. and the Government of Hong Kong on 20th December, 1977. In this Matter the Attorney General applies qua Plaintiff by an Originating Summons issued on the 24th September, 1981 under the provisions of section 26(2) of the Arbitration Ordinance for Orders that, first, Clauses 120(3) shall cease to hav
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HCMP001255/1981
----------------- Coram: Jackson-Lipkin, J. in Court Date of judgment: 29th September, 1981 Appearances: Mr. Martin Graham, Q. C. ) for the Plaintiff Mr. William Lane) for the plaintiff Mr. Philip Nunn (Senior Crown Counsel) instructed by The Crown Solicitor) for the plaintiff Mr. David Hill Gardam, Q. C. ) for the Defendant Mr. Anthony Thonton) for the Defendant Mr. Ronny Tong instructed by Messrs. Denton, Hall & Burgin.) for the Defendant ----------------- JUDGMENT ----------------- 1. The Attorney General is the Respondent in an arbitration arising out of a Public Works Department Contract, 1971 edition, being Contract No. 413 of 1977, entered into by Aoki Construction Co., Ltd. and the Government of Hong Kong on 20th December, 1977. In this Matter the Attorney General applies qua Plaintiff by an Originating Summons issued on the 24th September, 1981 under the provisions of section 26(2) of the Arbitration Ordinance for Orders that, first, Clauses 120(3) shall cease to have effect and secondly that I grant leave to revoke the authority of the arbitrator, Mr. Kenneth Severn, who was appointed by an agreement entered into by the parties on 2nd March, 1981, made by virtue of Clause 120(3). 2. I do not propose to set out the background which counsel quite properly explained to me, as I was coming quite new and, I may say, unprepared to this dispute. I must, however, outline the history of the matter. 3. The Points of Claim were served on 20th February, 1981, the Points of Defence on 20th March, 1981. On 12th June, 1981 the Attorney General served his List of Documents, which was inspected in June and July of this year. As a result, the solicitors for the Defendant in this Originating Summons arranged a consultation in London with leading and junior counsel, which, I gather from Mr. Pope's affidavit, sworn on 28th September, 1981, lasted from 13th to 17th July, 1981. During that week, the Defendant's solicitors were informed by the Plaintiff's Counsel that he intended to amend his Points of Defence to allege, I gather for the first time, poor workmanship and that the ground treatment and tunnelling methods chosen by the Defendant were inadequate. Counsel for the Defendant advised that the Points of Claim should be amended to add. as a further, or as an alternative, claim, an allegation of negligence or innocent misrepresentation, and there I choose the words used by Mr. Pope in his affidavit, to which I have referred, in paragraph 8 thereof. Be that as it may, when the prepared proposed Amended Points of Claim were served on 27th July, 1981, they contained, in paragraph 19, an allegation which undoubtedly amounted to fraud, that is to say, a misrepresentation made by the Engineer, as defined in Clause 1(1) of the contract and named in the Articles of Agreement as "the Chief Engineer of the Railway Division of the Civil Engineering Office of the Public Works Department". 4. The proposed Amended Points of Defence were served on 14th August, 1981. A Consent Order for the amendments was made by the arbitrator on 12th August, 1981, but I was told by Mr. Graham, and it is accepted by all concerned, that that Order does not reflect the true situation, but no steps have yet been taken to get the order corrected; Mr. Gardam has assured me that he will do so at a convenient moment. Suffice it to say that Mr. Graham was left free to oppose the amendments of the Points of Claim when the arbitration commenced. The Consent Order appears at pp. 4 to 7 of Vol. 34 of the documents: The "Pleadings" appear in Vol. 6. 5. One other preliminary matter I should mention is this : none of the provisions of Order 28 relating to Originating Summons' procedure has been followed, but happily all procedural irregularities have been waived by everybody, and we were able to get straight on with the matters in issue without being held up by the Rules. The Rules are our servants, as I have said many, many times in the past, and not our masters. 6. The wording of paragraph 19 of the Amended Points of Claim, which appears on p. 14 of Vol. 6 was as follows :
Those words did not reflect the Claimant's case, or what counsel had intended, and on the first day of the arbitration, that is 16th September this year, Mr. Gardam made that quite clear to the arbitrator: see pp. 1/01 and 1/02 of the transcript. He asked for Leave, which was granted, to substitute for "knowing that it was false" the words "when the Respondents had no reasonable grounds to believe that the same was true". 7. Before the arbitrator, I am told, and before me, Mr. Gardam expressly disavowed any allegation of fraud or of intention to deceive and he also disavowed before me any allegation of recklessness by the Engineer in making the misrepresentations complained of in the amendments. 8. Section 26(2) of the Arbitration Ordinance has, as its origin, section 25 of the 1950 Act in England, which itself was derived from section 14 of the 1934 Act in England, and according to the learned author of Ressell on Arbitration, 19th edition, published in 1979, there is no authority on the operation of that section, and save for the judgment in T.F. Unwin & Co., Ltd. v. Wates Ltd. and Walter J. Jughes, a decision of the Court of Appeal in England given on 5th July, 1977, which I am told has not been reported, the researches of six counsel have not revealed any. I should say that Unwin's case does not touch on the point that I have to decide. Basically, the question which I have to decide is "What is the meaning of fraud?" in section 26(2). Because of the absence of authority and because of the general importance of the question, not only in Hong Kong, but in many parts of the Commonwealth, I have, with the encouragement and concurrence of Leading Counsel on both sides, adjourned into open Court to give my judgment. 9. As I have just said the matter turns on the definition of fraud in the subsection. Mr. Graham urges on me that as the Arbitration Ordinance was enacted before the Misrepresentation Ordinance, and that as the latter did away with the necessity to allege or to prove knowledge of falsity, fraud in section 26(2) of the Arbitration Ordinance should be more widely interpreted than it otherwise would be on a strict reading of the subsection under the ordinary canons of construction, especially as those canons in Hong Kong include section 19 of the Interpretation and General Clauses Ordinance. He urges on me a broader interpretation as there is no appeal on fact from an award by an arbitrator, and, by way of analogy, he referred me to the position with regard to Official Referees in England. 10. He takes as his starting point Charles Osenton & Co. v. Johnston [1942] A.C. 130 and invites my attention to certain passages in the speech of Viscount Simon, then Lord Chancellor, at p.137 of that report, dealing with the situation where one party wishes an action to be transferred to an Official Referee and the other opposes it because there is at stake his, or their, professional reputation. Mr. Graham reminds me that at that time there was no appeal from an Official Referee, save on a question of law and, consequently, equates that with the position of an arbitrator, from whom also there is no appeal on any findings of fact. 11. While that may have been the case between 1932 and 1962, certainly in the latter year the Rules provided in Order 36A rule 8(1)(b) that an appeal should lie on the question of fact relating to a charge of fraud or breach of professional duty. For reasons that it would be improper of me to adumbrate here, I have no access to my books or papers, which include the very early Rules of England and of Hong Kong, and also the Ordinances governing procedure over the whole history of the Supreme Court Ordinance in Hong Kong. As I have been strongly reminded, time is pressing for both parties, and, as Mr. Gardam has pointed but to me, the cost of time in these proceedings and in the arbitration is exceedingly large. I shall not delay by taking time to delve into the origin of Order 36A or the provisions of the Administration of Justice Act, 1932. Order 36A is now Order 58 rule 5 in England, but no such rule appears in the Rules of the Supreme Court of this Colony. Neither the Supreme Court Ordinance, 1964 edition, nor the Code of Civil Procedure provided for Official Referees, or obviously, appeals therefrom. 12. In 1966 provision was made for references to Special Referees (see Order 23A in Legal Notice 51/66), and by 1st September, 1967 the Rules provided for an appeal to the then Full Court from any judgment, order or decision of a Special Referee without restriction. 13. In 1970 that was superseded by section 29(2)(b) of the Supreme Court Ordinance, which was added by section 8 of Ordinance 9 of 1970. 14. The present position in Hong Kong is governed by section 14(2)(b) of the Supreme Court Ordinance. Our Order 58 contains no rule 5, jumping from rule 2 to rule 8. The only further comment that I should make on that analysis, perforce brief, is that section 17 of the present Supreme Court Ordinance would allow me to read rule 5 of the English Rules into our Rules of the Supreme Court if there were no section 14(2)(b) in the Ordinance. 15. Mr. Graham further urges on me the ratio decidendi in Radford v. Hair and Others [1971] 1 Ch. 758 from letter 'G' on p. 763 to letter 'A' on p. 764 and at letter 'D' on the same page and the decision of the Court of Appeal in England in Simplicity Products Co. (a firm) v. Domestic Installations Co. Ltd., [1973] 1 W.L.R. 837, which extended what I may describe as the "Osenton principle" from the reputation of persons to the suitability of products. 16. Mr. Graham says that, as it is so clear that a reference to an Official Referee (or a Special Referee in Hong Kong) will not be made where a professional reputation is at stake I should, and by virtue of section 19 of the Interpretation and General Clauses Ordinance that I am able to, so interpret the word "fraud" in section 26(2) of the Arbitration Ordinance as to include or attach to it a reference to professional reputation or integrity. 17. As to section 19 itself he very properly drew my attention to the dicta in the judgment of Wilson, J. in the Supreme Court of New Zealand in the case of Union Motors & Another v. Motor Spirits Licensing Authority & Another [1964] N.Z.L.R. 146 at p.150 from lines 24 to 35 and lines 36 to 54 and at p.151 lines 4 to 8, also to Mirchandani & Others v. Reg. [1977] H.K.L.R. 523 at pp. 528 and 529, and also to the speech of Lord Moulton in Bristol Corporation v. John Aird & Co. [1913] A.C. 241 from p.256 to the first break on p.259. 18. For my parts, I can see no ambiguity in section 26(2) such as to permit me to discard or to modify the ordinary meaning of "fraud" in accordance with the reasons of the Board in Robert Towns v. William Charles Wentworth (1858) 11 Moo. P.C.C. 526 given by Mr. Pemberton-Leigh, at p. 543. I can find no justification for such modification in section 19 of the Interpretation and General Clauses Ordinance. The true intent, meaning and spirit of the Act is to permit parties to submit their disputes to be heard in private by specialists in that particular field wherein a dispute has arisen without let or hindrance, save that, where an issue of fraud is made, the Court has power to order that the matter be not heard by the arbitrator and, if so desired, that it may be heard by a court of law, and save, of course, also for certain supervisory powers reserved to the Courts. 19. I am fortified in that view by the speech of Lord Wilberforce in Camilla Cotton Oil Co. v. Granadex S.A. and Tracomin S.A. : Shawnee Processors Inc. v. Same [1976] 2 Lloyd's Rep. 10 at p.16, wherein he said:-
and by the brief report by Mr. Norman Williams of Schaik v. Frederick C. Kane Ltd. in (1963) 107 Sol. Jo. 273, which decision is peculiarly apt in the light of the statements made by Mr. Gardam to the arbitrator and before me during the hearing in Chambers. I pause to observe here that the full transcript of that judgment is most probably available in the Supreme Court Library in London and should be obtained if my decision is to be taken to appeal, something which, in view of the general importance of this matter, I should very much welcome. 20. In my judgment the ordinary meaning of the word "fraud" in section 26(2) must prevail, and, in this context, I have considered the passages in Chap. V of the 3rd edition of Actionable Misrepresentation by Spencer Bower and Turner from pp. 114 to 129. Consequently this application must be dismissed. There is, therefore, no need for me here to decide whether or not I should exercise my discretion in favour of making an Order or Orders under the sub-section, or, if I did, in what manner I should so exercise that discretion. 21. In deference to the careful and thorough arguments of both Counsel I will mention certain other points. 22. The first is the question of the Engineer's professional skill and judgment and his reputation, his face, and his chances of not being promoted. Those were clearly before the arbitrator from the outset: see for example, paragraph 8 of the original Points of Claim, Vol. 6, p. 7 yet no objection was taken to arbitration on that issue there, either then or even now. 23. The second is the danger of leaving those matters relating to the Engineer to this particular arbitrator, in view of the passages in the transcript at Day 1, pp. 38 to 42 and at Day 5, pp. 1 to 2. To that there are two answers. First, that the Legislative Council must have had in mind the amendment relating to Special Referees, the English provisions of Order 58 rule 5, the authorities I have referred to and the effect of the Misrepresentation Ordinance, when they amended the Arbitration Ordinance twice in 1975, yet the Legislative Council chose not to alter or to modify the strictly limited wording of section 26(2), for example, by adding, as in the English Order 58 rule 5(1)(b) the additional words "or breach of professional duty" or words to that or similar effect. Secondly, both Leading Counsel can repeat to the arbitrator their explanation of the burden of proof, and go on repeating it until such time as they are satisfied that he understands it and that he has adopted the correct approach. The parties chose Mr. Severn and it lies ill in their mouths now to cast doubt on his ability and, I may add, there is not before this Court any application under section 25 of the Arbitration Ordinance nor, I am assured by Mr. Graham, is such contemplated by the Attorney General. 24. The third matter is the significance of the commas at the end of the fourth and sixth lines of section 26(2) of the Arbitration Ordinance. The learned author of Russell on Arbitration has no comment on the significance of these commas. Mr. Gardam urges upon me that they mean that the Court's power to order that the agreement to refer to arbitration cease to have effect and to revoke the authority of the arbitrator is limited to the single issue of fraud, and that the arbitration would continue before the same arbitrator on all the other issues, leaving the issue of fraud to be tried by a Court if the parties so desired. Mr. Graham contends for a different construction. It is, he says, a general power, and the Court, if it exercises discretion in favour of the applicant, should order that the whole of Clause 120(3), should cease to have effect and should give leave to revoke the authority of the arbitrator in toto. If it were necessary for me to decide the point, I should do so in favour of the defendant. The commas act as parentheses in the context of section 26(2), and the powers of this Court are circumscribed by the words "so far as may be necessary to enable that question to be determined by the Court", that is to say, so far but no further, and only to enable that single issue, that is of fraud, to be determined by the Court. 25. A question did arise as to my powers to give consequential directions if I found for the Attorney General, but I do not consider it necessary to decide that point in the light of my decision. 26. Leading Counsel and, I believe, Junior Counsel are both aware of four difficulties confronting me. First, a physical handicap in that I cannot at the moment sit or work for any length of time continuously. Secondly, that I have no access to my own library. Thirdly, the poor, almost non-existent facilities in this building, I add, for the time being. And, fourthly, that, as the main library is a very long way from this building, it is not easy to get to and it is very difficult to get books late in the evening or quickly. 27. If there are any of the other subsidiary points that counsel feel it would be of benefit to them for me to deal with in this judgment (drawn from notes, of necessity brief and sketchy) no doubt they will so indicate to me before I adjourn because it is now my intention to adjourn into Chambers to hear Leading and Junior Counsel on questions of costs.
Representation: Court adjourned to resume in Chambers Mr. Martin Graham, Q. C. ) for the Plaintiff Mr. William Lane) for the plaintiff Mr. Philip Nunn (Senior Crown Counsel) instructed by The Crown Solicitor) for the plaintiff Mr. David Hill Gardam, Q. C. ) for the Defendant Mr. Anthony Thonton) for the Defendant Mr. Ronny Tong instructed by Messrs. Denton, Hall & Burgin.) for the Defendant |