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Court dismisses contractor’s application to set aside enforcement order

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Authored by: KK Cheung

In IO v Contractor [2024] HKCFI 1802, the court dismissed the Respondent’s (Contractor’s) application to set aside the Enforcement Order whereby the Applicant (IO) had been granted leave to enforce an arbitral award made in an arbitration commenced by the Contractor against IO in Hong Kong. The court remarked that the application was “totally baseless” and that the Contractor obviously did not receive proper legal advice on whether or not to apply to oppose enforcement of the arbitral Award. The court added that if the Contractor had been advised to pursue these proceedings on the basis that it had a good cause of action, then its legal advisers had utterly failed in their duties to the court and had caused its client to incur totally unnecessary legal costs and to engage in conduct amounting to abuse of process.

Background

In the arbitration, the Tribunal had dismissed the Contractor’s claims and ordered it to pay to IO HK$6.5 million under IO’s counterclaim. IO obtained the court’s leave to enforce the Award as a judgment of the court (Enforcement Order).

The Contractor applied to set aside the Enforcement Order, on several grounds, but the court said that the only possible ground which could be raised (given the facts set out in the Contractor’s supporting affirmation) was whether the arbitrator had dealt with a dispute not contemplated by or falling within the terms of the submission to arbitration, or that the Award contained decisions on matters beyond the scope of the submission to arbitration (s.86(1)(d) of the Arbitration Ordinance).

Grounds of application to set aside Enforcement Order

It was argued on the Contractor’s behalf that by the Award, the arbitrator had sought to reopen or had set aside the Substantial Completion Certificate (Certificate) issued by the Architect for the relevant works, when he had no power to do so under the terms and conditions of the relevant Contract between IO and Contractor. Counsel for the Contractor referred to the language of Article 41.6 of the Standard Conditions of Contract (SCC 41.6) governing the power of the arbitrator in the event of disputes between the parties under the Contract. SCC 41.6(d) provides: “The arbitrator’s powers include: … (d) opening up, reviewing and revising, without limitation, the giving, submitting or issuing of any agreement, approval, assessment, authorization, certificate…. determination, and endorsement, instruction, notice, notification, opinion… or Valuation.” It was contended for the Contractor that the power of the arbitrator under SCC 41.6(d) is only related to the “giving, submitting and issuing” of the Certificate, but does not extend to the interpretation of the Certificate or making election of the possible interpretations of the Certificate.

Court’s Decision

The court rejected Counsel’s distinction between the arbitrator’s power to review or decide on the submission or issue of the Certificate, and the power to interpret the effect of the Certificate. SCC 41.6(d) clearly conferred power, the court said, on the arbitrator to review the architect’s submission or issue of any certificate, confirmation, opinion or valuation. The arbitrator cannot review the correctness of the certificate or valuation without deciding on the proper meaning and effect of the certificate, choosing between alternate or possible interpretations if there are any, and deciding how it affects the works under the Contract, or the rights and obligations of the parties under it.

The court said that the Certificate is not conclusive evidence of practical completion of the works covered by the Certificate, and the arbitrator was conferred with the power under SCC 41.6 to review, and if necessary, revise, the Certificate. The court said that in the arbitration, the arbitrator heard and considered all the evidence on the works carried out under the Contract, and in the Award, the arbitrator found on all the evidence and having heard the parties’ submissions, that the Contractor had not completed the waterproofing works in accordance with the Contract.  This was after the arbitrator had considered the meaning of “Substantial Completion” and “Substantial Completion Certificate” as defined in the Contract, and having reviewed all the available evidence as to whether the works had been carried out and satisfactorily completed.

The court added that the issue of whether the Contractor had actually performed the waterproofing works and completed the said works in accordance with its obligations under the terms of the Contract was one of the key issues submitted to the tribunal for determination in the arbitration.  This obviously included the arbitrator’s consideration of the meaning of the Certificate, whether it was conclusive, and whether all the evidence supported and established a finding of substantial completion, and the final completion, of the works. Even if the arbitrator was wrong in his interpretation of the meaning of the Certificate, or if he had misunderstood the factual or expert evidence on the completion of the works, these, the court said, were simply errors of law or facts made by the arbitrator, and did not constitute any ground to set aside the Award.

The court also failed to see how the arbitrator could be criticized, when he explained that he accepted that the Certificate was issued not because the works were completed to the extent of substantial completion, but because of IO’s application of subsidy from the Housing Authority (which he considered to be a justifiable reason). There was no inconsistency in such finding, the court said, and even if there was, it could again only amount to mistakes in findings of facts or law, which are outside the court’s review.

The court said that a claim that an award is outside the terms of the submission to arbitration is construed narrowly, to only include those decisions which are clearly unrelated to or not reasonably required for the determination of the issues that have been submitted to arbitration. In deciding whether the Contractor’s works had been completed under the Contract, the construction of the Certificate was clearly necessary for the determination and was clearly related to the arbitrator’s determination of the issues of the Contractor’s entitlement to payment on the basis of its completion of the contract works.  The court concluded that the arbitrator’s findings on the effect of the Certificate and as to the non-completion of the works were clearly not beyond the scope of the submission to arbitration.

Comments

An arbitral award can only be set aside on very limited grounds as set out in the Arbitration Ordinance. Errors of law and fact made by the arbitrator are expressly excluded from those grounds, by virtue of Article 34(3) of the Model Law, given effect by Section 81 of the Arbitration Ordinance.

The Contractor in this case framed its application on the narrow ground that the arbitrator had no power to interpret the Certificate and therefore lacked jurisdiction in dealing with the claim. Given the recent judgments such as C v D which emphasized the difference between the admissibility of a claim and the jurisdiction of the arbitral tribunal, such ground was doomed to fail.

Key Contacts

Kwok Kit (KK) Cheung

Consultant | Litigation and Dispute Resolution

Email or call +852 2825 9427

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