Golden Sand Marble Ltd v Hsin Chong

[2005] 1 HKC Construction Co Ltd (Recorder Joseph Fok SC) 261

A GOLDEN SAND MARBLE LTD v HSIN CHONG

CONSTRUCTION CO LTD
COURT OF FIRST INSTANCE
CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 69 OF 2004
RECORDER JOSEPH FOK SC
B 17 DECEMBER 2004

Arbitration – Interlocutory orders – Order for security for costs – Matters

taken into account or disregarded by arbitrator – Exercise of discretion to
order security – Review of discretion – Arbitration Ordinance (Cap 341)
C s 2GB

Arbitration – Awards – Appeal against award – Remission of award –

Setting aside of award – Applicable principles – Arbitration Ordinance
(Cap 341) ss 23, 24, 25

D Civil Procedure – Costs – Unmeritorious challenge to arbitrator’s

interlocutory order – Unsuccessful allegation of misconduct against
arbitrator – Whether party and party or indemnity costs appropriate

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G The parties entered into a sub-contract relating to the construction of the Hong
Kong Society’s Senior Citizen Residence at Jordan Valley, Ngau Tau Kok. The
applicant, Golden Sand Marble (GSM) (the claimant in the arbitration) sub-
contracted to design, supply and lay granite marble. The respondent, Hsin Chong
Construction (HCC) was the main contractor. Disputes arose between the parties
and were referred to arbitration. The present application followed the making of
H
the arbitrator’s Order for Directions No 3 (the Order), which (i) ordered GSM to
provide security of HK$300,000 for HCC’s costs in the arbitration, and (ii)
ordered a stay of all further arbitral proceedings until security had been provided.
The order was made pursuant to s 2GB(1)(a) of the Arbitration Ordinance
(Cap 341).1
I
1 Contributor’s note: The further power to order a stay of proceedings is conferred by
s 2GB(5) of the Ordinance. This provision is not mentioned in the judgment.
262 Hong Kong Cases [2005] 1 HKC

GSM sought to challenge the Order on the basis that it was an ‘award’2. It A
made the following three alternative applications under the Ordinance.

Appeal against the ‘award’

GSM applied for leave to appeal against the ‘award’ on a question of law,
B
pursuant to s 23(3)(b) and, if leave were granted, either the setting aside of the
award or remission of the award to the reconsideration of the arbitrator, together
with the court’s opinion on the question of law arising, pursuant to s 23(2)(a) and
(b) respectively. The question of law concerned matters which, GSM argued,
should not have been taken into account by the arbitrator, or which should have
been given different weight, in exercising his discretion as to whether to order C
security for costs.

Remission of the ‘award’

GSM applied for the ‘award’ to be remitted to the arbitrator, pursuant to
s 24(1), on the ground that the arbitrator had mishandled the application or that D
there had been procedural mishap. GSM argued that there was insufficient
evidence on which the arbitrator could conclude that there was a real possibility
that GSM would be unable to pay HCC’s costs in the arbitration. Specifically, he
had allegedly erred in the following respects: (i) by taking into account (a) that
the applicant had not suggested at the hearing that it had a reasonably good
prospect of success in the arbitration; and (b) that the applicant had been E
established to take on new business of a predecessor company which had been
made subject to a court judgment; and (ii) by concluding that (a) there was no
evidence to support GSM’s assertion that it had many active contracts in hand
and was in the course of negotiating others, all of which would have generated
sufficient profits to meet any award; and (b) that GSM’s assets would be easily set F
off by loans or other financial arrangements made with its holding company or
subsidiary companies.

2 Contributor’s note: It is submitted that the court had no jurisdiction to entertain any
of the present applications for the following reasons. (i) The Arbitration Ordinance
does not confer any general right of appeal or other recourse against interlocutory G
decisions of an arbitrator and the court has no inherent power to take any action to
correct alleged procedural errors: see Kong Kee Bros Construction Co Ltd v A-G
[1986] HKLR 767, K/S A/S Bill Biakh and K/S A/S Bill Brali v Hyundai Corp [1988]
1 Lloyd’s Rep 187 at 189 per Steyn J. (ii) Provisions of the Ordinance providing for
rights of appeal or other recourse against awards do not avail challenges to
interlocutory decisions, even if such decisions are expressed as an ‘award’ (see Three
H
Valleys Water Committee v Binnie & Partners (a firm) (1990) 52 BLR 42, Resort
Condominiums International Inc v Bolwell (1993) 118 ALR 655 (Qld SC)) or, as in
the present case, are treated as such by both parties. (iii) The Ordinance does not in
any case confer jurisdiction on the court to intervene in relation to orders for security
for costs. (iv) The only application that could properly have been made in this case
was for the removal of the arbitrator, pursuant to s 25(1) of the Ordinance, on the
ground that he had misconducted himself or the proceedings. The use of the term I
‘award’ in this headnote and in the judgment should therefore be read subject to these
observations.
 Golden Sand Marble Ltd v Hsin Chong
[2005] 1 HKC Construction Co Ltd (Recorder Joseph Fok SC) 263

A Setting aside of the ‘award’

GSM applied for the ‘award’ to be set aside, pursuant to s 25(2), on the ground
that the arbitrator had misconducted himself in ignoring or rejecting GSM’s
evidence about its ongoing contracts. GSM argued that if the arbitrator had any
reservations about the truth of this evidence, he could and should have raised his
concerns at the hearing and asked for copies of the contracts.
B
Held, refusing the applications:
Appeal against the ‘award’ (s 23)
(1) GSM’s Notice of Originating Motion did not identify what specific
question of law arose out of the ‘award’. It simply identified nine matters of fact
C which GSM asserted should not have been taken into account by the arbitrator in
deciding the application. Whilst almost any finding of fact could be transformed
into an Edwards v Bairstow unreasonableness question of law, this was not what
was intended by the provisions governing leave to appeal and the detailed review
of the evidence that this would require of the court in such applications would not
promote finality. In any event, none of the complaints in the present case
D constituted a question of law, let alone a question of law which could
substantially affect the rights of the parties, upon which leave to appeal should be
given. Furthermore, the court was not persuaded that the arbitrator was plainly or
obviously wrong in ordering GSM to provide security for costs. As leave to
appeal was refused, it was unnecessary to consider the setting aside and
remission applications under s 23(2) of the Ordinance. Edwards (Inspector of
E Taxes) v Bairstow [1956] AC 14, Ha Hau Kwan Fong Mary v The Incorporated
Owners of Golden Plaza [2002] 3 HKLRD I1 and Hong Kong Institute of
Education v Aoki Corp [2004] 2 HKLRD 760 considered (at 269A-271C).

Remission of the ‘award’ (s 24)

(2) The court would only remit an award where there had been an obvious
F error and that error was so exceptional that a failure to remit would constitute a
serious injustice. Nothing in GSM’s application suggested either a mishandling
of the application for security for costs by the arbitrator or any procedural mishap
or misunderstanding. The parties were afforded a full and fair opportunity to file
evidence and to make submissions at the hearing of the security for costs
G application. CCECC (HK) Ltd v Might Foundate Development Ltd (HCCT 26/
2001, Burrell J, 6 August 2001, unreported) and MF King Holdings Ltd v Thomas
McKenna Ltd (1990) 54 BLR 48 considered (at 271G-272C, 272H-273A).

Setting aside of the ‘award’ (s 25)

(3) The allegation of misconduct was wholly without merit. In an adversarial
H process, it was for the parties to prepare and present such evidence as they
considered material and of assistance to their case. It was not for the arbitrator to
take on an inquisitorial role to ascertain whether or not the alleged ongoing
contracts existed and what sums of money might be earned under those contracts
(at 273F-274A).

I Costs
(4) Although the application was without merit, an order for indemnity costs
was not appropriate because GSM’s conduct fell short of being disgraceful, an
264 Hong Kong Cases [2005] 1 HKC

abuse of the process of the court, contemptuous or contumelious. The allegation A

of misconduct was not, as alleged by HCC, bizarre, grotesque, extraordinary and
preposterous. Costs should therefore be taxed on the usual party and party basis.
Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 considered (at 274C-
E).

Cases referred to B
CCECC (HK) Ltd v Might Foundate Development Ltd (HCCT 26/2001,
Burrell J, 6 August 2001, unreported) (CFI)
Edwards (Inspector of Taxes) v Bairstow [1956] AC 14, [1955] 3 All ER 48,
[1955] 3 WLR 410 (HL)
Fence Gate Ltd v NEL Construction Ltd (2001) 82 Con LR 41 (QBD) C
Geogas SA v Trammo Gas Ltd, The Baleares [1993] 1 Lloyd’s Rep 215 (CA)
Ha Hau Kwan Fong Mary v The Incorporated Owners of Golden Plaza
(HCCT 9/2002, Ma J, 28 May 2002, unreported) (CFI), digested at [2002] 3
HKLRD I1
Hong Kong Institute of Education v Aoki Corp [2004] 2 HKC 397, [2004] 2
HKLRD 760 (CFI) D
King (MF) (Holdings) (UK) Ltd v Thomas McKenna Ltd [1991] 2 QB 480,
[1991] 1 All ER 653, [1991] 2 WLR 1234, (1990) 54 BLR 48 (Eng CA)
Pioneer Shipping Ltd v BTP Tioxide Ltd, The Nema; sub nom BTP Tioxide Ltd
v Pioneer Shipping Ltd, The Nema [1982] AC 724, [1981] 2 All ER 1030,
[1981] 3 WLR 292, [1981] 2 Lloyd’s Rep 239 (HL)
E
Lee Chang Yung Chemical Industry Corp v PT Dover Chemical Co [1991] 1
HKLR 71 (CA)
Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 (CA)
Swire Properties Ltd v Secretary for Justice [2003] 3 HKC 347, (2003) 6
HKCFAR 236, [2003] 2 HKLRD 986 (CFA)
F
Legislation referred to
Arbitration Ordinance (Cap 341) ss 2D, 2GB(1)(a), 23(1), 23(2), 23(3)(b),
23(4), 24, 25(2)
Arbitration Act 1950 [UK] s 22

Other sources referred to G

Halsbury’s Laws of Hong Kong Vol 1(2) (2003 Reissue) [25.160]
Hong Kong International Arbitration Centre Domestic Arbitration Rules
(1993 Ed) art 11.1(n)

[Editorial note: As to the jurisdiction of the court generally in relation to H

recourse against interlocutory orders, see Robert Morgan The Arbitration
Ordinance of Hong Kong: A Commentary (1997) pp 310-311. As to appeals
against awards generally, see Halsbury’s Laws of Hong Kong Vol 1(2) Arbitration
(2003 Reissue) [25.171]-[25.176]; Morgan, op cit pp 206-238, 248-253. As to
remission of awards under s 24 of the Arbitration Ordinance, see Halsbury’s
Laws of Hong Kong Vol 1(2) Arbitration (2003 Reissue) [25.156]-[25.166]; I
Morgan, op cit pp 261-280. As to the setting aside of awards under s 25(2) of the
Ordinance, see Halsbury’s Laws of Hong Kong Vol 1(2) Arbitration (2003
 Golden Sand Marble Ltd v Hsin Chong
[2005] 1 HKC Construction Co Ltd (Recorder Joseph Fok SC) 265

A Reissue) [25.156]-[25.166]; Morgan, op cit pp 281-312. As to orders for costs

generally in arbitration-related court proceedings, see Halsbury’s Laws of Hong
Kong Vol 1(2) Arbitration (2003 Reissue) [25.087], [25.187]; Morgan, op cit
pp 357-359.]

B Application
By a Notice of Originating Motion dated 23 September 2004, the applicant
sought (i) leave to appeal against an ‘award’ (actually an arbitrator’s Order for
Directions), (ii) remission of the ‘award’ to the reconsideration of the arbitrator,
and (iii) the setting aside of the ‘award’, pursuant to, respectively, ss 23, 24 and
25 of the Arbitration Ordinance (Cap 341). Subject to Contributor’s Note 2
C above, the facts appear sufficiently in the following judgment.

Paul Wu (Chung & Kwan) for the applicant.

Christine Mak of J Chan, Yip, So & Partners for the respondent.

D Recorder Joseph Fok SC: THE APPLICATION

1. By Notice of Originating Motion dated 23 September 2004, Golden
Sand Marble Ltd (the applicant) seeks to appeal against an award of an
arbitrator made and published on 2 September 2004 (the Award) in an
E
arbitration between the applicant, as claimant, and Hsin Chong
Construction Co Ltd (the respondent).
2. The Award is contained in an Order for Directions No 3 whereby he
ordered and directed inter alia that:
(1) The claimant do within one month provide security for the
F respondent’s costs, for these proceedings up to the stage of exchange
of open experts’ reports, in the amount of HK$300,000 (the Secured
Amount), by way of:
(a) providing to the respondent a guarantee, or a bond, for the
Secured Amount issued by a licensed bank or insurer in Hong
G Kong, with validity up to 31 December 2006, and on terms
reasonably acceptable to the respondent; or
(b) depositing the Secured Amount with the claimant’s solicitors, to
be held by the claimant’s solicitors in a separate client’s account
for the express purpose as the security for the respondent’s costs.
H (2) In the meantime, all further proceedings in this arbitral reference be
stayed until such time as the said security for the respondent’s costs
be provided by the claimant or further order by the arbitrator.
(3) The respondent’s costs of and occasioned by this application,
including those in relation to Order for Direction No 2, be paid by the
I claimant to the respondent in any event.
3. The Notice of Originating Motion seeks:
266 Hong Kong Cases [2005] 1 HKC

(1) An order granting leave to appeal on the questions of law hereinafter A

set out pursuant to s 23(3)(b) Arbitration Ordinance (Cap 341) (the
Ordinance);
(2) An order setting aside the Award of the arbitrator pursuant to s 23(2)
and/or s 25(2) of the Ordinance; alternatively
(3) An order remitting the Award for the further consideration of the B
arbitrator pursuant to s 23(2)(b) and s 24(1) of the Ordinance in the
light of the court’s opinion on the subject matter of this appeal;
(4) An order that the costs of and incidental to this application for leave
to appeal, this appeal, the application to set aside and remit be paid by
the respondent to the applicant. C
4. Although the application was by way of Notice of Originating Motion,
I acceded to a request by the solicitor for the respondent, which was not
opposed by the applicant, that I make a direction under s 2D of the
Arbitration Ordinance to enable the application to be heard in chambers.
D
THE ARBITRAL PROCEEDINGS
5. The arbitration arises out of a construction project relating to the Hong
Kong Society’s Senior Citizen Residence at Jordan Valley, Ngau Tau Kok.
The respondent is the main contractor of that project and the claimant was
the sub-contractor in respect of the design and fixing method and E
supplying and laying granite marble work for the project.
6. The claimant made demand for payment under two Demand Notes.
Initially proceedings were commenced in the District Court but, on the
application of the respondent, these were stayed in favour of arbitration
proceedings. Mr Yeung Ming Tai, a qualified barrister and Chartered Civil F
Engineer, was appointed as sole arbitrator on 10 March 2004. The
following brief chronology sets out the main procedural steps in the
arbitration and the request for security for costs leading to the Award now
sought to be appealed against:
(1) On 12 May 2004 the arbitrator made his Order for Directions No 1 G
setting out the timetable for the service of pleadings.
(2) On 18 May 2004 the respondent made an initial request for security
for costs.
(3) On 1 June 2004 the claimant declined to provide security for costs.
(4) On 9 June 2004 the claimant served its statement of claim. H
(5) On 14 July 2004 the respondent served its defence and counterclaim.
(6) On 14 July 2004 the respondent made a formal application by a letter
to the arbitrator for security for costs and served its evidence in
support.
(7) On 22 July 2004 the arbitrator made his Order for Directions No 2 in I
respect of the service of evidence relating to the security for costs
application.
 Golden Sand Marble Ltd v Hsin Chong
[2005] 1 HKC Construction Co Ltd (Recorder Joseph Fok SC) 267

A (8) On 28 July 2004 the arbitrator directed by consent that the hearing of
the security for costs application would be held at 2:30 pm on 24
August 2004.
(9) On 14 and 17 August 2004, out of time, the claimant served by fax its
evidence in opposition to the security for costs application.
B (10)On 19 August 2004 the respondent served its evidence in response.
(11)On 24 August 2004 the hearing of the security for costs application
took place.
(12)On 30 August 2004 the claimant served its reply and defence to
counterclaim.
C (13)On 2 September 2004 the arbitrator published his Order for
Directions No 3, ie the Award.
7. The application for security for costs was made pursuant to s 2GB(1)(a)
of the Arbitration Ordinance and art 11.1(n) of the HKIAC Domestic
Arbitration Rules. The basis of the respondent’s application was that the
D claimant is a limited company and there were reasonable grounds to
believe that the claimant could not, or would not be caused to, pay its
costs if unsuccessful in the arbitration. The arbitrator gave written reasons
for his decision embodied in a document annexed to his Order for
Directions No 3.
E
THE GROUNDS FOR THE APPEAL
8. In the Notice of Originating Motion, the applicant seeks three things:
(1) First, it seeks leave to appeal ‘on the questions of law hereinafter set
F out’;
(2) Second, it seeks to set aside the Award pursuant to s 23(2) of the
Ordinance or to remit the Award pursuant to s 24(1) of the Ordinance
on the grounds, in summary, that there was insufficient evidence on
which the arbitrator could conclude that there was a real possibility
G that if the respondent were to succeed in the arbitration the applicant
would likely be unable to pay its costs.
(3) Third, it seeks to set aside the Award pursuant to s 25(2) of the
Ordinance on the grounds, in summary, that the arbitrator dismissed
or ignored evidence of the applicant’s on-going contracts and that by
failing to ask for copies of those contracts he misconducted himself.
H
DISCUSSION

Leave to appeal
I 9. An appeal may lie on a question of law arising out of an award made on
an arbitration agreement. Under s 23(4) of the Arbitration Ordinance, the
court only has jurisdiction to entertain an appeal if, having regard to all
268 Hong Kong Cases [2005] 1 HKC

the circumstances, the determination of the question of law could A

substantially affect the rights of one or more parties to the arbitration
agreement.
10. The principles governing the grant of leave to appeal are well-
settled. There is a presumption of finality in arbitration awards. That
presumption may be rebutted and the court approaches the matter by B
reference to a notional sliding scale or spectrum of cases: see Lee Chang
Yung Chemical Industry Corp v PT Dover Chemical Co [1991] 1 HKLR
713. The presumption of finality is strongest where the question of law in
relation to which leave is sought is a one-off question. At the other end of
the scale are cases of a general character affecting similar transactions C
between many other persons engaged in the same kind of commercial
activity. However, even in cases of the latter type, the court will not grant
leave to appeal unless it considers that a strong prima facie case has been
made out that the arbitrator was wrong: see Pioneer Shipping Ltd v BTP
Tioxide Ltd (The Nema) [1982] AC 724 at 743. D
11. In the present case, counsel for the applicant accepted that the
matter is one-off and that leave to appeal should only be granted if it can
be shown that the arbitrator was plainly or obviously wrong.
12. The application for leave to appeal is against an award of security
for costs. It involved a consideration of the legal criteria upon which the
E
arbitrator should exercise his discretion to order security for costs under
s 2GB(1)(a) of the Ordinance. The arbitrator in the present case agreed
with the applicant’s contention that the proper test was that the respondent
had to satisfy the arbitrator ‘that the Claimant will be unable to pay the
respondent’s costs if the claim is unsuccessful’. The arbitrator exercised
his discretion having considered the specific evidence filed by the parties F
and the submissions at the hearing before him on 24 August 2004. He
concluded that there was ‘a real possibility that if the respondent succeeds
in this arbitration, the claimant will unlikely be able to pay the
respondent’s costs in this arbitration’.
13. In ordering the provision of security for costs, the arbitrator was G
providing security for the respondent in case it is successful in the
arbitration and has an award of costs in its favour. In that event, the
security will simply ensure that the respondent gets the costs to which it is
entitled. If the applicant is successful, on the other hand, the security will
be returned to it. There was no suggestion made at the application for H
security for costs that the request for security was oppressive or would
likely stifle the applicant’s claim in the arbitration.

3 Contributor’s note: This citation is an error. The case cited concerned rights of appeal
to the Privy Council, not the principles governing rights of appeal from arbitral
awards. The judgment should have referred to PT Dover Chemical Co v Lee Chang I
Yung Chemical Industry Corp [1990] 1 HKC 132, sub nom Lee Chang Yung
Chemical Industry Corp v PT Dover Chemical Co [1990] 2 HKLR 257 (CA).
 Golden Sand Marble Ltd v Hsin Chong
[2005] 1 HKC Construction Co Ltd (Recorder Joseph Fok SC) 269

A 14. I am unable to identify from the Notice of Originating Motion what

specific question of law arising out of the award is sought to be the
subject of the application for leave to appeal. Grounds 1 to 9 simply
identify matters of fact which the applicant asserts should not have been
taken into account by the arbitrator, or to which different weight should
B have been given by him, in exercising his discretion as to whether or not
to order security for costs. None of these complaints seem to me to
constitute a question of law, let alone a question of law which would
substantially affect the rights of the parties, upon which the court should
give leave to appeal under s 23(3)(b) of the Ordinance. In any event, I am
C
not persuaded that the arbitrator was plainly or obviously wrong in
ordering the applicant to provide security for costs.
15. As Ma J (as he then was) said in Ha Hau Kwan Fong Mary v The
Incorporated Owners of Golden Plaza (HCCT 9/2002, 28 May 2002,
unreported), digested at [2002] 3 HKLRD I1, at §24:
D … while it is possible to classify as a question of law arising out of an award,
an argument that the arbitrator has made a finding without any evidence to
support it (and therefore no reasonable arbitrator could have made such a
finding: c.f Edwards v. Bairstow [1956] AC 14), the following must be firmly
borne in mind:—
E (1) Such an appeal would invariably be a ‘one-off’ type of situation, since a
question of fact is ultimately involved.
(2) In most, if not in all, such cases, it will simply not be sufficient for the
applicant merely to demonstrate that on the preponderance of the
evidence, the arbitrator should or should not have made the relevant
F finding. The finding must really be so bizarre that no reasonable arbitrator
could have made it, such as, for example, where there was simply no
evidence or reason for the finding of fact to be made. But for this
scenario, it will not in my view be possible to obtain leave to appeal
based merely on findings of fact made by an arbitrator, whether primary
or secondary.
G
16. More recently, in Hong Kong Institute of Education v Aoki Corp
[2004] 2 HKLRD 760 at 789-790, Reyes J said this:
76. Second, I doubt that ‘perverse’ findings of fact in an Edwards (Inspector
of Taxes) v Bairstow [1956] AC 14 sense are capable, without more, of
H forming a ground for leave to appeal against an arbitration award. My
concern is that almost any finding of fact can be transformed into an
Edwards (Inspector of Taxes) v Bairstow question of law. One need only
suggest that the evidence did not merit a finding of primary fact or an
inference of secondary fact which an arbitrator drew. There is a real
danger in allowing Edwards (Inspector of Taxes) v Bairstow
I unreasonableness as a ground for judicial review that the Court will be
encouraging a detailed trawl through the evidence adduced before an
arbitrator and a micro-reading of awards in order to justify submissions
270 Hong Kong Cases [2005] 1 HKC

that the arbitrator acted without any or any sufficient evidential A

foundation. This is plainly not what applications for leave to appeal
against awards were intended to be. Nor would a detailed review of
evidence by the Court on a leave hearing be conducive to endowing
arbitrations with finality.
77. Swire Properties Ltd & Others v SJ (2003) 6 HKCFAR 236 does not B
expressly mention Edwards (Inspector of Taxes) v Bairstow [1956] AC 14
unreasonableness as a ground for giving leave. But, in stating that ‘each
case … will have its own particular features bearing upon the discretion
to grant or refuse leave to appeal from an arbitral award,’ the Court of
Final Appeal may arguably have left open the door to other grounds for
appeal on questions of law and thereby did not rule out appeals on C
Edwards (Inspector of Taxes) v Bairstow grounds. Nonetheless, the tenor
of present day thinking, including that of Hong Kong Courts, is to hold
parties to the consequences of their decision to proceed by arbitration.
One such consequence is that an arbitrator may get some or all of the law
or the facts wrong. I therefore do not think that the Court of Final Appeal
intended its judgment in Swire Properties Ltd & Others v SJ to be read as D
completely open-ended (if at all) on factors justifying leave to appeal.
Indeed, implicit in Swire Properties Ltd & Others v SJ must be an
assumption that not every error of law made by an arbitrator will merit
judicial review, only serious or obvious errors as the case may be.
78. AO s.23 itself recognises that not every question of law arising from an E
award is justiciable in Court. AO s.23(1) explicitly deprives the Court of
jurisdiction to set aside an award on the ground of ‘errors of … law on the
face of the award’ except as permitted by AO s.23(2). The general rule
against revisiting errors of law in AO s.23(1) must have some purpose. It
cannot just be said that AO s.23(2) allows appeals on questions of law F
generally and therefore the proscription in AO s.23(1) can be ignored.
Swire Properties Ltd & Others v SJ (2003) 6 HKCFAR 236 lists at least
some situations when an error of law would qualify for the grant of leave
to appeal under AO s.23(2). Given then that not all errors of law are
susceptible to judicial review, where does one draw the line between
situations where appeal is permissible (albeit possibly not expressly G
identified in Swire Properties Ltd & Others v SJ) and those where
pursuant to the general rule in AO s.23(1) there is no jurisdiction for the
Court to intervene?
79. One answer may be that leave to appeal on an Edwards (Inspector of
Taxes) v Bairstow [1956] AC 14 question should only be given when the H
consequences of the error to a party’s interest are significant. What is
significant would then be left to judicial discretion. But such answer
would be unsatisfactory. The criterion would only repeat AO s.23(4).
Once again, implicit in Swire Properties Ltd & Others v SJ (2003) 6
HKCFAR 236 is a proposition that, however significant the likely impact
on a party of an adverse award, if the latter does not appear seriously or I
obviously wrong, leave should not be granted. This means the granting of
leave under AO ss.23(2) and (3)(b) cannot simply be a question of the
 Golden Sand Marble Ltd v Hsin Chong
[2005] 1 HKC Construction Co Ltd (Recorder Joseph Fok SC) 271

A degree of impact alone, but must be subject to some additional

qualification not already encompassed by AO s.23(4).
80. Given my conclusion that the Arbitrator did not seriously or obviously go
wrong in holding that Aoki consented to the omission of the turf, I do not
need finally to decide the question I have posed in respect of Edwards
B (Inspector of Taxes) v Bairstow [1956] AC 14 unreasonableness. To my
mind, there is no such unreasonableness on the facts of the present case.
81. For what it is worth, my tentative view is that the Court should not rule out
a possibility of granting leave to appeal where a finding of fact (primary or
secondary) is so egregious as to offend against a sense of justice. See, for
C example, Fence Gate v NEL Construction (2001) 82 Con LR (at sub-
paragraph 43) and note the contrary view of Steyn LJ in Geogas SA v Trammo
Gas Ltd (The Baleares) [1993] 1 Lloyd’s Rep 215 at p.232.
17. Applying the dicta from the cases referred to in the preceding two
paragraphs, and for the reasons set out in paras 12 to 14 above, I have no
D hesitation in concluding that there is no proper basis for the court to
exercise its discretion to grant leave to appeal against the Award in the
present case.

Setting aside or remitting the Award pursuant to ss 23(2) and 24(1) of the
E Ordinance
18. As I decline to grant leave to appeal, the question of whether the court
should set aside the Award pursuant to s 23(2) does not arise.
19. As to the alternative application to remit the Award to the arbitrator
pursuant to s 24(1) of the Ordinance, the court will only grant an
F application under s 24 if there has been an obvious error and that error
was so exceptional that a failure to remit would constitute a serious
injustice: see CCECC (HK) Ltd v Might Foundate Development Ltd
(HCCT 26/2001, 6 August 2001, unreported) per Burrell J at §18.
20. In MF King (t/a Robinsons Garage MF King Holding (UK) Ltd) v
G Thomas McKenna Ltd & Anor (1990) 54 BLR 48, Lord Donaldson MR
when he was considering s 22 of the English Arbitration Act 1950, which
is in identical terms to s 24 of the Ordinance, said (at p 61):
In my judgment the remission jurisdiction extends beyond the four traditional
grounds to any cases where, notwithstanding that the arbitrators have acted
H with complete propriety, due to mishap or misunderstanding, some aspect of
the dispute which has been the subject of the reference has not been
considered and adjudicated upon as fully or in a manner which the parties
were entitled to expect and it would be inequitable to allow any award to take
effect without some further consideration by the arbitrator. In so expressing
myself I am not seeking to define or limit the jurisdiction or the way in which
I it should be exercised in particular cases, subject to the vital qualification that
it is designed to remedy deviations from the route which the reference should
have taken towards its destination (the award) and not to remedy a situation in
272 Hong Kong Cases [2005] 1 HKC

which, despite having followed an unimpeachable route, the arbitrators have A

made errors of fact or law and as a result have reached a destination which was
not that which the court would have reached. This essential qualification is
usually underlined by saying that the jurisdiction to remit is to be invoked, if
at all, in relation to procedural mishaps or misunderstandings. This is,
however, too narrow a view since the traditional grounds do not necessarily
involve procedural errors. The qualification is however of fundamental B
importance. Parties to arbitration, like parties to litigation, are entitled to
expect that the arbitration will be conducted without mishap or
misunderstanding and that, subject to the wide discretion enjoyed by the
arbitrator, the procedure adopted will be fair and appropriate. What they are
not entitled to expect of an arbitrator any more than of a judge is that he will
C
necessarily and in all circumstances arrive at the ‘right’ answer as a matter of
fact or law. That is why there are rights of appeal in litigation and no doubt
would be in arbitration were it not for the fact that in English law it is left to
the parties, if they so wish, to build a system of appeal into their arbitration
agreements and few wish to do so, preferring ‘finality’ to ‘legality’, to adopt
Lord Diplock’s terminology. D
21. In his skeleton argument and at the hearing, counsel for the applicant
says that the arbitrator erred in law in having taken the following four
matters into consideration:
(1) First, the fact that the applicant did not suggest at the hearing that E
there is a reasonably good prospect of success of the applicant’s
claim.
(2) Second, the fact that the applicant was set up to take on new business
of Golden Sand Marble Factory Ltd which appeared to be saddled
with potentially substantial liabilities upon delivery of the court F
judgment by Deputy High Court Judge Gill on 2 February 2001.
(3) Third, that there was no evidence to support the applicant’s assertion
it had many active contracts in hand and was in the course of
negotiating other contracts.
(4) Fourth, the fact that the applicant’s current assets would be easily set G
off by some loans and/or financial arrangements between the
applicant and its holding company/subsidiary companies.
22. These matters all go to the question of whether the arbitrator was
correct in reaching his conclusion that there was a real possibility that if
the respondent were to succeed in the arbitration, the applicant would H
unlikely be able to pay the respondent’s costs. I do not discern from the
applicant’s submissions any complaint that there was any procedural
mishap or mishandling of the application for security for costs by the
arbitrator. A summary of the chronology of events leading to the Award is
set out in para 6 above. The applicant was clearly given a full and fair I
opportunity to file evidence in opposition to the respondent’s application
for security for costs. The hearing proceeded in the usual manner with
 Golden Sand Marble Ltd v Hsin Chong
[2005] 1 HKC Construction Co Ltd (Recorder Joseph Fok SC) 273

A both parties having the opportunity to make submissions to the arbitrator.

I can discern no procedural mishap or misunderstanding at all in relation
to the application for security for costs by the arbitrator, let alone an error
that was so exceptional that a failure to remit would constitute a serious
injustice.
B 23. Accordingly, I conclude that there is no proper basis on which to
exercise a discretion to remit the Award pursuant to s 24(1) of the
Ordinance.

Setting aside under s 25(2) of the Ordinance

C
24. The final basis on which the applicant seeks to have the Award set
aside is on the grounds of misconduct on the part of the arbitrator.
25. In the Notice of Originating Motion, the applicant’s grounds for
setting aside on this basis are that the arbitrator did not accept the
D
evidence of its deponent Mr Gordon Tso as regards on-going contracts.
The applicant relied on the fact of those on-going contracts in support of a
contention that, because of the retention monies and profits under those
contracts, it would have assets from which to meet an order for costs
against it in the arbitration. The applicant complains that, if the arbitrator
had any reservations or doubts about the truthfulness of the contracts, he
E could and should have raised the matter with the applicant at the hearing
and asked for copies of the contracts, and that by not doing so the
arbitrator misconducted himself.
26. I have no hesitation in concluding that the allegation of misconduct
is wholly without merit.
F
27. In Halsbury’s Laws of Hong Kong Vol 1(2) (2003 Reissue) at
§25.160, it is stated that, ‘Misconduct has been described as such a
mishandling of the arbitration as is likely to amount to some substantial
miscarriage of justice’. Examples are given in that paragraph of eleven
different instances which have been found to be misconduct. None of
G those examples is a case of an arbitrator rejecting an assertion of fact
made by a party in an affirmation or of giving less weight to that assertion
of fact in the exercise by him of a discretion.
28. In an adversarial process, whether litigation or arbitration, it is a
matter for the parties to prepare and present such evidence that they
H consider to be material and of assistance to their case. In the present case,
the arbitrator was not prepared to regard the bare assertion of the on-
going contracts as sufficient evidence to dissuade him from reaching the
conclusion, based on the other matters to which he referred in his reasons
for decision, that there was a real possibility that if the respondent were to
I succeed in the arbitration, the claimant would unlikely be able to pay the
respondent’s costs in the arbitration. It was not for the arbitrator to take on
an inquisitorial role to ascertain whether or not there were in fact on-
274 Hong Kong Cases [2005] 1 HKC

going contracts as alleged and what sums of money might be earned by A

the applicant under those contracts.
29. I therefore conclude that there is no basis for setting aside the
Award under s 25(2) of the Ordinance.

CONCLUSION B
30. For the above reasons, I dismiss the applicant’s Notice of Originating
Motion.
31. As to costs, the application having been dismissed, the respondent
is entitled to an order for costs in its favour. The respondent submitted,
however, that it would be appropriate to order that such costs be taxed on C
an indemnity basis. It was submitted that this application has simply been
an attempt to re-argue before the court a case which the arbitrator has
rejected. I agree that the application is devoid of merit and this is reflected
in the fact that I have dismissed it. I do not, however, consider that the
applicant’s conduct has reached the point of being ‘disgraceful’ or ‘an D
abuse of the process of the court’ or ‘contemptuous’ or ‘contumelious’, to
use terms which were applied to the defendant’s conduct in the case of
Sung Foo Kee Ltd v Pak Lik Co (A Firm) [1996] 3 HKC 570 relied upon
by the respondent. Nor do I agree that the allegation of misconduct was
‘bizarre, grotesque, extraordinary, and preposterous’ as was submitted by E
the solicitor for the respondent. In the circumstances, I simply order that
the costs of the Notice of Originating Motion should be paid by the
applicant to the respondent, to be taxed if not agreed. The basis of
taxation, if any, will be the usual party and party basis of taxation.

Reported by Robert Morgan F