Hong Kong Court gives (further) guidance on appealing a question of law arising from an arbitral award

Case note – Employer v Contractor [2023] HKCFI 2911; HCCT 22/2023 (13 November 2023)

Introduction

In Employer v Contractor (the Decision), the Hon. Mimmie Chan J had dismissed an application for leave to appeal brought by the Employer (the Respondent in the Arbitration) on a question of law arising out of a partial award (the Award). The Decision underscores the importance of ensuring the question of law that is made subject matter of an appeal must first have been submitted to the arbitral tribunal to decide, before it may be appealed.

In general, an arbitral award may not be appealed unless parties have opted into provisions set out in Schedule 2 to the Arbitration Ordinance (Cap. 609) (the AO) which provides (amongst others) a right to appeal to the Court on a question of law under sections 5, 6 and 7 of Schedule 2 to the AO.

The test for leave to appeal

Under section 6(4) of Schedule 2 to the AO, leave to appeal an arbitral award on a question of law can only be granted if the Court is satisfied:

1. that the decision of the question will substantially affect the rights of one or more of the parties;
2. the question is one which the arbitral tribunal was asked to decide; and
3. that, on the basis of the findings of fact in the award – the decision of the arbitral tribunal on the question is obviously wrong; or the question is one of general importance and the decision of the arbitral tribunal is at least open to serious doubt.

The Decision provides a practical guidance on how the Court approaches the second limb of the test, i.e. “the question is one which the arbitral tribunal was asked to decide” and how the Court determines the third limb of the test, i.e. “the obviously wrong” test.

Facts

The Employer engaged the Contractor to carry out certain construction works in Hong Kong pursuant to a civil engineering contract (the Contract), which provided for the application of Schedule 2 to the AO. The Arbitration was described as a final account dispute relating to the Contractor’s entitlement to (and quantum of) a number of items of work.

One of the disputes identified by the Employer (in its application for leave to appeal) concerns the valuation of cables works not included within the bills of quantities (the BQ). The Contract set out how variations are to be valued at GCC 61(1):

“61. (1) The Engineer shall determine the sum which in his opinion shall be added to or deducted variations from the Contract Sum as a result of an order given by the Engineer under Clause 60 in accordance with the following principles:

1. Any item of work omitted shall be valued at the rate set out in the Contract for such work.
2. Any work carried out which is the same as or similar in character to and executed under the same or similar conditions and circumstances to any item of work priced in the Contract shall be valued at the rate set out in the Contract for such item of work.
3. Any work carried out which is not the same as or similar in character to or is not executed under the same or similar conditions or circumstances to any item of work priced in the Contract shall be valued at a rate based on the rates in the Contract so far as may be reasonable, failing which, at a rate agreed between the Engineer and the Contractor.”

In the Award, the arbitrator found that the cables works should be valued based on GCC 61(1)(c) because the varied work is of a dissimilar character or to be executed under dissimilar conditions.

In the application for leave to appeal, the Employer contends (amongst others) that:

1. valuation of the cables works should be based on GCC 61(1)(b), i.e. at the BQ rates; and
2. the arbitrator should have ruled that the Contractor had failed to discharge its burden of proof in respect of the quantum of the cables works because neither of the parties’ experts had made valuation on the basis of GCC 61(1)(b).

However, in the Arbitration, the Employer’s pleading did not rely on GCC 61(1)(b) specifically, no submissions had been made by either party under GCC 61(1)(b), and no expert evidence was adduced in respect of the application of GCC 61(1)(b) to the case. In fact, the Employer’s expert had based its valuation on the BQ rates with an uplift in relation to the Schedule of Rates published by the Architectural Services Department of the HKSAR Government, in apparent reliance on GCC 61(1)(c)).

The Court therefore found that a valuation under GCC 61(1)(b) was not a question which the tribunal had been asked to decide in the Arbitration.

The Third Limb of the Test: “The Obviously Wrong Test”

In the Decision, the Hon. Mimmie Chan J also touched upon the third limb of the test, i.e., an “obviously wrong” decision and referred to Chun Wo Construction & Engineering Co Ltd v Hong Kong Macau (Asia) Engineering Co Ltd [2019] HKCA 369¹ where the Court of Appeal confirmed in “no uncertain terms the test which are applicable”. To recap, an award is “obviously wrong” if it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong. Furthermore, the assessment of whether the decision of the tribunal is at least open to serious doubt can be subjective, and different judges can reasonably come to different views. In a matter concerning the construction of a contractual document, the Court dealing with the application for leave to appeal may have a different view as to the possible meaning of a provision, but it does not follow from that, that the meaning ascribed by the tribunal to that provision was “obviously wrong”².

Key Takeaway

The Decision serves as a reminder that the threshold for granting leave to appeal on an award is a (very) stringent one. Parties must ensure that they refer question of law that will substantially affect the rights of the parties (or a party) to the arbitral tribunal in pleadings, evidence and/or submissions, rather than subsequently seek to bring new questions of law before the Court.

Lastly, the Court is not tasked to consider merits of an alternative interpretation of a clause or the law – leave to appeal will be refused unless the decision is “obviously wrong” (or at least open to serious doubt).

The Decision can be accessed here.

¹Chun Wo Construction & Engineering Co Ltd v Hong Kong Macau (Asia) Engineering Co Ltd [2019] HKCA 369
²A v Housing Authority [2018] HKCFI 147, at [12].