Paul Lee Engineering Co Ltd v. Hong Kong Telephone Co Ltd

HCA000910/1969

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.910 OF 1969

-----------------

Coram: Briggs, J. in Court.

Date of Judgment: 29th May, 1970.

-----------------

JUDGMENT

-----------------

1. In March 1966 the plaintiff agreed to construct certain foundation works for the defendant. The agreement made between the parties contained an arbitration clause. It is the contention of the defendant that a dispute has arisen between the parties and that it is of such a nature that the arbitration clause applies. The arbitration clause states that the arbitrator shall be the Engineer appointed by the defendants under the building agreement. And so the defendants have referred the matter to Messrs. Palmer & Turner, their Engineers.

2. The plaintiff denies that what they call 'the claim' of the defendant comes within the arbitration clause. And by their statement of claim they pray for a declaration to that effect. They also ask for an order to restrain the defendant from continuing their submission to the arbitrator.

3. That was the sole point in issue between the parties when this case came on for trial. However on that date the plaintiff sought to amend their statement of claim by adding an entirely new claim. The necessity for this arose in this way.

4. After the close of pleadings there was the usual summons for direction and lists of documents were exchanged. One Edward Hicks Wilson, who is stated to be the secretary of the defendant company, supplied the list of documents of the defendant, and he swore an affidavit in the usual form in which he indicated that he had made a full disclosure of documents and that the defendant was not in possession of any other relevant document. This affidavit is dated 20th March, 1970.

5. On the day of the trial, the 21st May, 1970 the same person swore a second affidavit also in the usual form, despite the wording of his previous affidavit. In this he disclosed some twenty two new documents. This took the plaintiff completely by surprise.

6. Counsel for the plaintiff having read these newly disclosed documents saw that the whole complexion of the dispute between the parties was altered.

7. With leave of the court he amended his statement of claim alleging want of impartiality or at least a possibility of want of impartiality in the arbitrator, the Engineer. And he added a prayer in the alternative for an order to revoke the authority of the Engineer as arbitrator.

8. It is with this new issue that this judgment is concerned. And it was tried as a preliminary issue. I am not here dealing with the merits of the case namely whether or not the claim of the defendant is one coming within the arbitration clause in the agreement. No evidence was called, both parties rely upon the documents in the two agreed bundles of correspondence. All I am deciding here is whether the documents show evidence that the arbitrator is not or may not be impartial.

9. The relevant section of the Arbitration Ordinance reads as follows:

"26(1) Where an agreement between any parties provides that disputes which may arise in the future between them shall be referred to an arbitrator named or designated in the agreement, and after a dispute has arisen any party applies, on the ground that the arbitrator so named or designated is not or may not be impartial, for leave to revoke the authority of the arbitrator or for an injunction to restrain any other party or the arbitrator from proceeding with the arbitration, it shall not be a ground for refusing the application that the said party at the time when he made the agreement knew, or ought to have known, that the arbitrator, by reason of his relation towards any other party to the agreement or of his connexion with the subject referred, might not be capable of impartiality."

10. It is admitted that the foundation works constructed by the plaintiff were defective. And that remedial work was necessary to correct the faulty workmanship. This was effected by a firm called Asia Company who had also contracted with the defendant to do structural work on the same premises.

The plaintiff paid this firm for the cost of the work done. However, Asia Company alleged that the remedial work resulted in a loss to them due to delay in their being able to start the structural work. They made a claim against the defendant which after a long delay was satisfied by the defendant. And the essence of the present dispute, not of course to be decided here and now, is whether the defendant can claim from the plaintiff the sum which they have paid to the Asia Company.

11. The plaintiff says that the evidence of the documents, particularly those only recently disclosed by the defendant, and which are contained in the second bundle, shows that the mind of the Engineer, the arbitrator under the agreement has already been made up. And in addition that he has been improperly influenced by the defendant.

12. The Engineer has a dual capacity under the contract being both Engineer and Arbitrator. As Engineer he is the employee of the defendant and he will naturally do all he can to please his employer. This indeed is his duty. But this is only true during the progress of the work under the contract. When that has been completed and especially if a dispute has arisen between the parties, he must act with impartiality between the parties because he must know that any such dispute will be referred to him for arbitration.

13. The correspondence between the Engineer and the defendant certainly shows that the Engineer was at the time of writing of the opinion that the plaintiff was liable to the defendant. More than once this is stated bluntly. [See for example the notes of a meeting held between the Engineer and the defendant on 9th October, 1968] This correspondence covers a long period of time and most of it took place long after the completion of the contract by the plaintiff. Yet it was not until March 1969 that the defendant referred the matter to arbitration.

14. Not only are there statements made by the Engineer holding the plaintiff liable for the claim of the defendant, but the engineer actually prepared a draft letter for the defendant to discuss with their solicitors before sending it to the plaintiff. I do not think that the Engineer was acting in his capacity as Engineer at that time. Further although the Engineer had previously accepted that the correct cost of the remedial work was the sum computed by the plaintiff, they included in the claim which was prepared by them and sent by the defendants with a covering solicitor's letter to the plaintiff, an additional sum representing the cost of the work, which sum was included at the request of the defendant. The plaintiff relies on this incident to show that the Engineer was influenced by the defendant, one of the parties to the dispute.

15. It is true that since the submission to arbitration the Engineer has not re-stated their view that the plaintiff is liable. They wrote to the plaintiff in June 1969 asking the solicitor for the plaintiff to submit "any reasons for which you or your client considers that they are not liable". And they stated that they would arrange a meeting if one was wanted.

16. Counsel for the defendant has pointed out that the correspondence between the Engineer and the defendant occurred before the submission to arbitration of the matter in question. He says that the parties freely contracted and agreed that the Engineer should be the arbitrator. At the same time they knew he was the Engineer of the defendant and was employed by him. It is perfectly proper for the Engineer to express his views to his employer and that is what was done in this case. He asks the court to read the correspondence as merely indicating the opinions of the Engineer.

17. The defendant admits that it has been shown that the Engineer was and is an interested party but only by reason of his being both Engineer and arbitrator. It is admitted that the plaintiff was in breach of contract. The only question for the arbitrator is what damages flow from such breach and how far they, the plaintiff, are liable for any consequential loss.

18. In support of this argument the defendant relied on certain cases. One of these, Jackson v. Barry Railway Co. [1893 1 Ch.238], is of but little assistance. It was a decision under the Arbitration Act 1889 which did not contain a section the equivalent of section 26 of the Hong Kong Ordinance. I cannot help thinking that were that case to be tried today the views expressed in the dissenting judgment of L.J. Smith would prevail.

19. The case of Panamena Europea etc. v. Leyland [1947 A.C. 428] was also relied upon. That case deals with the consideration of a specific contract. For our purposes all it decided was that parties to a contract who agree that a certain person shall have dual capacities, that of an expert and that of a quasi arbitrator, cannot claim that when exercising his powers as a quasi arbitrator he must be in the position of an independent arbitrator, who had no other duty which involved acting in the interests of one of the parties. No relief of the nature of that referred to in section 26 of the Arbitration Ordinance was claimed.

20. It is obvious that the parties in this case agreed that the Engineer was to be both Engineer and arbitrator. In my view, that of itself is no ground for the exercise of the power of the court to give relief under the section. I think that this is the true ratio decidendi of the Panamena case so far as we are here concerned. But that does not mean to say that the court will not grant relief when it is proved that the conduct of the person who is to be arbitrator is such that it may be properly inferred that he will not act in an independent manner.

21. In referring to the section in the Arbitration Act 1950 equivalent to section 26 of the Arbitration Ordinance the learned editor of the 9th edition of Hudson on Building Contracts says:

"the appearance of this section does much to explain the comparative rarity in modern times of clauses appointing the employer's architect or engineer as arbitrator, since the section makes possible an application for his removal on the ground of the fact of his employment alone."

No authority is quoted for this proposition and I do not think it is right. The learned editors have gone too far. I think it is essential to prove something more than the fact that the person in question is employed in a dual capacity.

22. Each case must depend upon its particular facts. I have reached the conclusion that the plaintiff has made out his case and is entitled to the order sought. I do not intend to set out the various occasions on which the Engineer accepted that the plaintiffs were liable. It is enough to say that the whole tenor of the letters of the Engineer shows that the issue has been prejudged. I think the time element is important. The documents cover a period of two years. Two years after the completion of the contract. There is nothing before me to show that the Engineer ever considered the contention of the plaintiff: indeed on one occasion when the plaintiff disclaimed any liability other than the cost of the remedial work done by the Asia Company, the Engineer refused to implicate themselves.

23. The Engineer actually went so far as to prepare a draft letter for the defendant to send to the plaintiff, after solicitors had been consulted. This was a demand that the plaintiff do settle the claim. It unequivocally appears that the plaintiff is liable. There is also the incident to which I have referred above where the Engineer agreed with the defendant to include a certain term in the claim against the plaintiff.

24. I am not saying that the integrity or honour of the Engineer is in any way questioned in this judgment: it is not. However, the evidence is such that in my view the plaintiff is entitled to the relief sought.

29th May, 1970.

Representation:

John Swaine (T.S. Tong & Co.) for Plaintiff.

Mills-Owens (Deacons) for Plaintiff.

Written Judgment read in Court.