Construction Arbitration in Hong Kong

Two recent decisions of the Hong Kong courts have looked at important aspects of the law of arbitration. The first decision concerned the scope of an arbitration clause and the second when a party can appeal against an arbitrator’s award.

On 22 June 2002 the Court of Appeal gave its decision in Lui Man Wai & Another v Chevalier (Hong Kong) Ltd. The court had been asked to decide whether a contract between Lui Man Wai and Chevalier provided for arbitration of a dispute arising out of variations.

Lui Man Wai had started court proceedings suing for, amongst other things, HK$3,176,540 for variations. However, the contract contained a clause providing for arbitration in the following circumstances:

Chevalier asked for a stay of the court proceedings so that the dispute could be referred to arbitration. However, the court agreed with Lui Man Wai that the contract only provided for arbitration of disputes on the value of variations and/or additional works where the parties had failed to agree an adjustment of the contract price. As Lui Man Wai claimed that the parties had agreed the value of the works, that claim did not fall within the arbitration clause. Consequently, Chevalier’s application for a stay of the action was dismissed.

This decision is one of many where the court has been required to consider the scope of an arbitration clause. The parties to construction contracts often assume that including any arbitration clause will mean that all disputes must go to arbitration. That assumption is wrong. Before the court will stay litigation proceedings it must be satisfied that the particular dispute which has arisen falls within the scope of the clause. In this case, Chevalier could have avoided litigation if the arbitration clause had been drafted differently. Simply put, if you want all disputes on a project to go to arbitration, it is important to ensure that your contract says this.

The second decision considered here, Mak’s Construction Co Ltd v. Sun Fook Kong (Civil) Ltd, concerned a dispute on an arbitration award where the unsuccessful claimant, Mak’s Construction, asked for the court’s permission to appeal against the award.

Although the grounds for an appeal against an arbitration award are limited, an appeal can be made under the Arbitration Ordinance on a question of law where the question substantially affects the rights of one or more of the parties.

The court explained, however, that there is "a presumption of finality in arbitrations…. Where a one-off event or clause is involved, the applicant for leave must demonstrate quickly and easily that the arbitrator was plainly or obviously wrong. Where, on the other hand, the event or clause is not one-off or … the case has important repercussions, all that needs to be demonstrated is that the arbitrator was arguably wrong or that the point on appeal is capable of a serious argument".

Was the clause or event in question a one-off? The dispute related to the proper method of measurement for pipes laid by Mak’s Construction under a sub-contract. Mak’s Construction argued that although the contract was not a standard form of sub-contract published by a professional body, it Construction arbitration was nevertheless commonly used by Sun Fook Kong in many Government sub-contracts. They also argued that, as Sun Fook Kong was a related company of Great Eagle Company Limited, this form of sub-contract might well be used in numerous sub-contracts in Hong Kong and as a consequence it was not a one-off. In reply, Sun Fook Kong argued that the form was a one-off as:

1. the form was one of a number of forms used by them;
2. that since commencement of the arbitration the wording of the relevant clause had been amended to put its meaning beyond doubt; and
3. that existing contracts had been amended accordingly.

The court agreed that the claim related to a one-off term. Therefore, the court would only allow Mak’s Construction to appeal the award if they could show that the arbitrator was plainly or obviously wrong. They could not do so and the court refused leave to appeal.

There is a sliding scale from unique contracts and events to the commonplace. In unique cases, the Court will not grant leave to appeal against an award unless it is readily apparent that the arbitrator was wrong. In cases on the construction of standard forms, leave to appeal is more likely to be granted. However, the simple fact that a major contractor has used the form in question does not mean that the case sits at the commonplace end of the scale.

© Herbert Smith 2002

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