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The Guide to Construction Arbitration - Second Edition

Construction Arbitration in Mainland China and Hong Kong

Construction arbitration in mainland China

Introduction

China has the world's largest construction market. According to official data from China's National Bureau of Statics, the added value of the China's construction industry in 2017 reached 5,568.9 billion yuan, and accounts for 6.73 per cent of China's GDP in 2017. General contracting and professional contracting construction enterprises with national qualifications have realised a profit of 766.1 billion yuan, with growth of 9.7 per cent.2

The continued growth of the construction industry naturally leads to a large amount of disputes, many of which to be resolved with arbitration. These arbitrations often involve legal issues and risks with Chinese features such as the actual constructor, Yin-Yang contracts, and right of priority. This chapter intends to briefly introduce some typical topics in order to allow readers to have a better understanding of the arbitration practices in China's construction field.

Issues on legal entity

Qualification requirement and recent reforms

Construction companies in China are required to apply for construction enterprise qualifications according to their assets, past experiences, technical capacities, etc., and can only undertake construction activities within the scope permitted by such qualifications.3 Moreover, as provided by the Supreme People's Court (SPC) in its Judicial Interpretation on the Application of the Law to the Trial of the Dispute of the Construction Contract (the Interpretation), in 2004, construction contracts in which the contractors do not have the required qualifications are invalid.

The original purpose of the qualification requirement is to better regulate the construction market, but excessive involvement by the government creates or exacerbates a range of issues, including the actual contractor issue to be discussed below, and dissatisfactions in the construction industry.

In February 2017, China's State Council issued a new rule requiring simplification of qualification class and grade systems, reducing unnecessary qualification recognition. At the same time, it also required to narrow down and strictly define the scope of construction projects that must be subject to bidding.4

Further, in April 2017, China's Ministry of Housing and Urban-rural Development released the 13th five-year plan for the development of the construction industry. In the next five years, one of the major tasks is to reduce the scope of construction projects that must be subject to bidding and allow the employer of private housing construction project to independently decide on the contracting mode.5

In March 2018, the National Development and Reform Commission decided to downsize the scope and funds of construction projects subject to bidding.6 This was the first time in the past 18 years that the government reduced its interference on the scope of construction projects subject to bidding.

China is undergoing a reform of streamlining administration and delegating power, and China's construction market is expected to be more free in the future. The types and the number of enterprises involved in the construction industry are predicted to increase as well.

The actual constructor and its effect on arbitration

The 2004 Interpretation of the SPC put forward the concept of actual constructor but fails to provide a clear definition of this concept.7 The general consensus is that it means the legal or natural person actually in charge of construction activities in the events of illegal subcontracting of whole or part of the construction or borrowing of qualifications.

For instance, if Company B, which did not have the required qualifications, bid for and got a construction project in the name of Company A, which had appropriate qualifications and then a group of migrant construction workers, with no qualifications at all, led by natural person C, who was not an officer or employee of Company B, did the majority of the construction work for Company B, person C would be the actual constructor.

The Interpretation allows the actual constructor to claim arrears in project payment directly from the employer.8 As the actual constructor has no contractual relationship with the employer, the Interpretation effectively allows a breach of the privity of contract doctrine and leads to a range of issues. In subsequent rulings, the SPC made many clarifications and limitations. For instance, in Dalian Hengda Machinery Factory v. Pulandian Hongxiang Real Estate Development Co. Ltd.,9 the SPC clarified that the right of the actual constructor to directly claim from the employer is an exception intended to protect the interests of migrant workers when the contractor is unable to make payments to the actual constructor and should not be granted lightly.

There are at least two independent legal relationships in cases involving actual constructors: (1) the legal contractual relationship between the employer and the contractor; and (2) the illegal subcontracting or qualification borrowing relationship between the contractor and the actual constructor.

The parties of each legal relationship mentioned above may provide for the settlement of disputes by means of litigation or arbitration. In Xiong Daohai v. Qinghai Senko Salt Industry Group, the Supreme People's Court held that even if the employer and contractor had agreed to solve the dispute through arbitration, the actual constructor cannot directly claim against the employer via arbitration since the actual constructor was not a party to the arbitration clause.10 In these circumstances, the actual constructor should resort to the dispute resolution clause between it and the contractor to claim rights from contractor, or to bring claims against the employer in court pursuant to the Interpretation.

Substantive issues over construction disputes in China

Yin-yang contracts

Definition of yin-yang contracts11

Yin-and-yang contracts or black-and-white contracts mean that when a construction project is subject to compulsory bidding, the employer and the contractor may enter into two substantially different contracts for the same project in order to evade bidding supervision, one of which is for filing with the competent authority (the yang contract or 'white' contract) and the other is the contract that the two parties intend to actually follow (the yin contract or 'black' contract).

Reasons for signing the yin-yang contracts

Parties may conclude yin and yang contracts for the followings reasons:

  • to lower the contract price in the yang contract to pay less taxes (tax evasion);
  • to raise the contract price in the yang contract to obtain more bank loans;
  • to avoid legal prohibitions such as advance-fund construction.12 The parties will present their real intention in the yin contract; and
  • sometimes the construction drawings cannot be prepared before the bidding process, so the work quantity, contract price and construction period can only be determined by using a yin contract after the completion of construction drawings.

Validity of the yin-yang contracts

For the construction projects subject to compulsory biding, there are two main situations concerning the validity of the yin and yang contracts. The first situation is that the yang contract is valid but the yin contract is invalid. The second situation is that both the yang contract and yin contract are invalid.

In the first situation, when the yang contract is signed prior to the yin contract and is filed with competent authority, the yang contract shall be valid. After the yang contract is filed, if the parties sign a yin contract that substantially change the terms and conditions of the yang contract, such yin contract is invalid owing to the violation of the provisions of Article 46 of the Bid Invitation and Bidding Law of China (the Bidding Law) on the prohibition of supplementary agreement of deviating from the substantive content of the filing contract.13 On this occasion, the court or tribunal will regard the yang contract (the filing contract) as the performing contract.

In the second situation, where the yin contract is signed prior to the yang contract, the yin contract is invalid owing to the violation of Article 3 of the Bidding Law on the scope of compulsory bidding projects.14 Moreover, the yang contract is invalid owing to the violation of Article 55 of the Bidding Law on illegal negotiations before the biding process.15 In cases where both yin and yang contracts are invalid, the court or tribunal shall determine which contract is actually performed according to the true intentions of the parties (which is normally the yin contract), and use such contract as the basis for construction fee settlement. For example, in a construction project that is subject to bidding, the employer has signed a construction contract (the yin contract) with a contractor before the bidding process with a normal price. During the bidding process, the employer managed to make the contractor win the bid by signing another contract (the yang contract) with a contract price much lower than that of the yin contract to evade taxes and filed it with competent authority. Under this circumstance, the yin contract and the yang contract will both be invalid owing to violation of the mandatory provisions of the Bidding Law. The court or arbitral tribunal tend to rely on the yin contract when hearing the case.

Right of priority for compensation

According to the Contract Law of China, the right of priority for compensation generally refers to the right enjoyed by the contractor in a construction project to be paid in priority out of proceeds from the liquidation or auction of the project in the case that the employer fails to pay the construction price in accordance with the construction contract.16 The Supreme People's Court further released the Reply on Issues Concerning the Right of Priority of Construction Price (the Reply) in 2002, providing a more detailed regulation on the right of priority. The purpose of right of priority is to provide better protection to contractors so that they may get compensated prior to general creditors of the employers, but this regulation encounters difficulties and controversies in judicial practice as to who may enjoy the right of priority, the issue of statute of limitation and the scope of construction price.

Subject of the right of priority

Some argue that the subject of the right of priority should include surveyors and designers because Article 269 of the Contract Law of China provides that construction contracts include contracts for survey, design and construction. Others contend that the subject should be limited to constructors in a construction project because the purpose of the right of priority is to protect socially disadvantaged groups such as construction workers.17 Although there is no nationwide consensus on this matter, several high people's courts released opinions refusing to grant the right of priority to surveyors or designers.18 For example, Article 6 of the Answers to Several Issues Relating to the Right of Priority on Construction Contract Price formulated by the Enforcement Division of Zhejiang High People's Court provides that courts should rule against surveyors or designers if they claim right of priority for the survey or design fees.

Another question relates to whether actual constructors are entitled to the right of priority. The mainstream view is that since actual constructors may bring claims against employers according to Article 26 of the Interpretation, they should also enjoy the right of priority against employers. This opinion was upheld by the Supreme People's Court in SABIC Innovative Plastics v. Fujian Civil Construction Industry Co.19 Further, the First Civil Division of the Supreme People's Court addressed its opinion that an actual constructor is 'conditionally' entitled to the right of priority under the circumstances that it has fulfilled its obligations and the quality of the construction project is up to standard. The actual constructor may claim the right of priority within the amount of the construction price owed by the employer.20

The Supreme People's Court is currently in the process of drafting a second judicial interpretation on disputes over construction contracts, which hopefully will have a final say on the subject of the right of priority.

Statute of limitation

The Contract Law of China requires a contractor to first demand payment from the employer before entering into the liquidation agreement or asking for judicial auction. However, the law does not provide a specific time limit for a contractor to exercise its right. Article 4 of the Reply stipulates that the contractor shall exercise the right of priority within six months, starting from the date of completion of the construction project or the completion date as stipulated in the construction contract. Furthermore, in Xincheng Construction Ltd. Co. v. Leibang Technology Ltd. Co., the Supreme People's court ruled that if the two parties terminated the performance of the construction contract, the date on which the performance was terminated would be the starting point for the contractor to exercise the right of priority.21 It has been proven in judicial practice that the statute of limitation is too short and the starting date for the limitation is unreasonable, significantly effecting the intended protection for contractors.

Scope of construction price

Contractors may claim the right of priority for compensation only to the extent of the outstanding construction price, so it is crucial to define the scope of construction price. Article 3 of the Reply provides that the construction price includes the expenses actually incurred by the contractor for the construction project such as remuneration for workers and payment for materials, and does not include the loss suffered by the contractor owing to the employer's breach of construction contract. Also, according to several opinions issued by high people's courts in China, a contractor cannot claim the right of priority out of proceeds from auction of the land use right.22

For losses beyond the scope of construction price, the contractor may bring a civil suit or apply for arbitration against the employer in due course, but may not be compensated in priority.

Procedural issues in construction arbitration in China

Ad hoc arbitration: a breakthrough in China's arbitration

One of the most important features of China's arbitration system is its long-lasting prohibition of ad hoc arbitration. This is articulated in the Arbitration Law of China, which sets forth that a specified arbitration institution is indispensable to a valid arbitration agreement.23 The restriction was rooted in the history of administrative arbitration and the overdependence on institutions.24 However, since the reform and opening of China, the force made up of scholars and practitioners championing introduction of ad hoc arbitration into China has been gaining momentum. Eventually, in December 2016, the Supreme People's Court of China released the Opinion on Providing Judicial Protection for the Development of the Pilot Free-Trade Zones (the Opinion), partially lifting the ban on ad hoc arbitration to the extent that companies registered within the Pilot Free-Trade Zones may agree to arbitration in certain locations in mainland China, with certain arbitration rules, and by certain persons.25 In March 2017, the Management Committee of Hengqin New Zone and Zhuhai Arbitration Commission jointly published the Ad hoc Arbitration Rules of (Guangdong) Pilot Free Trade Zone Hengqin Area of Zhuhai (the Rules), which are the first ad hoc arbitration rules in China. The Rules apply when two companies registered in any free-trade zones agree to arbitration under the Rules. The arbitral tribunal is capable of deciding on its jurisdiction in the case (introducing the concept of competence-competence) and the parties may directly appoint arbitrators, or agree on a method of appointing arbitrators, or agree on an appointing authority.

In practical terms, there are some concerns arising from the Opinion. Firstly, according to the Legislation Law of China, the mechanism of litigation and arbitration can only be set forth in the form of law. That is to say, only the legislative branch (i.e., the National People's Congress or its standing committee) has the power to create or recognise a new form of arbitration in China. Without clear authorisation from the legislative branch, the Supreme People's Court overstepped its power to initiate the Opinion, which made the Opinion appear to be flawed from the start. Therefore, the Arbitration Law of China needs to be amended to resolve the legitimacy issue of ad hoc arbitration. Secondly, the Opinion is too general to provide practical guidance to parties or arbitrators. Thirdly, the Opinion only allows ad hoc arbitration in China to be conducted under certain arbitration rules, while ad hoc arbitration in essence means arbitration conducted fully in accordance with parties' agreement, which does not have to follow certain arbitration rules. As a consequence, ad hoc arbitration in China is limited and a lot has to be done before ad hoc arbitration can truly become a practical dispute resolution mechanism in China.26

Application of the emergency arbitration procedure

Emergency arbitration procedure may offer a better protection for the seeking party in a construction dispute to maintain the status quo of the construction project and to prevent the other party from derogating or transferring assets in bad faith. The China International Economic and Trade Arbitration Commission (CIETAC) promulgated a set of rules on emergency arbitration in its newly revised arbitration rules, and the Beijing Arbitration Commission (BAC) also regulated on emergency arbitration when revising its arbitration rules in 2015.27

It should be noted that in the context of the arbitration law of mainland China, only courts have the power to grant interim relief.28 For now, there is no legal basis for courts in mainland China to enforce interim measures rendered by an emergency arbitrator, but there is successful precedent where the decision made by the emergency arbitrator applying the arbitration rules of BAC was enforced in Hong Kong.29

As emergency arbitration is a newly introduced mechanism, many concerns have to be addressed before it becomes truly effective in construction disputes. For instance:

• An emergency arbitrator cannot grant relief involving the performance of a third party. For example, when a subcontractor intends to remove disputed equipment from the work site, an employer cannot request the emergency arbitrator to prohibit the subcontractor from doing so if there is no contractual relationship between the employer and the subcontractor.

• The interaction between emergency arbitration and Dispute Adjudication Boards (DAB) under FIDIC contracts is uncertain. The question arises as to which mechanism should be the proper forum to grant emergency relief if the construction contract provides for a DAB decision as pre-arbitral procedure and one party intends to apply for emergency arbitration.

Guidance on evidence and appraisal

While there is no uniform legislation on evidence in arbitration, several arbitration institutions have promulgated rules to that effect. For instance, the Rules on Evidence of CIETAC would become applicable in a case if the parties so agree. The parties may choose to apply in whole or in part, and they could modify certain provisions of the rules. However, the rules are not specific to construction disputes. The Permanent Forum of China Construction Law (PFCCL), co-founded by the Applied Law Research Center of the Supreme People's Court and eight major arbitration institutions in China, released the Guidance on Evidence in Disputes Over Construction Contracts in July 2018, offering practical and detailed references on evidence in domestic litigation and arbitration cases over construction disputes.

Furthermore, owing to the difficulty of fact-finding in construction cases, construction appraisal is widely used to resolve issues related to the cost, quality and delay of construction projects. Arbitrators may form their judgments taking into consideration the result of appraisal. However, concern exists that the excessive dependence on appraisal result will undermine the arbitration process and thus affect the jurisdiction of arbitrators. The nature of appraisal result is auxiliary and appraisal should not always be relied on as decisive evidence. Efforts have been made to standardise the procedure and improve the quality of appraisal. The PFCCL promulgated the Guidance on Appraisal in Dispute over Construction Contracts (the Guidance) in 2017. Although having no binding force, the Guidance provides useful references to arbitrators and parties when applying appraisals in construction cases.

Online management of arbitration cases (e-filing system)

Online management of litigation cases has been successfully utilised in several jurisdictions such as the United Kingdom, the United States and the Republic of Austria. Recently in China, some arbitration institutions have also tried to provide online case management services. For example, the Guangzhou Arbitration Commission established the China Internet Arbitration League in September 2015, and further launched the Online Arbitration Platform the following year, with which parties may register cases and submit their documents and evidence and arbitral tribunals may conduct hearings and render arbitral awards. The BAC and the Shanghai Arbitration Commission have also built online registration systems through which a party can file its application for arbitration. Shenzhen Court of International Arbitration set up an Online Arbitration Center (OAC) to provide full-range online management services to parties. The online management or e-filing system helps to save tremendous costs of parties, andimprove and enhance the efficiency, transparency and credibility of arbitration proceedings.

Construction arbitration in Hong Kong

Introduction

The unique position of Hong Kong within China

Under the 'One Country, Two Systems' doctrine, Hong Kong has a high degree of autonomy and enjoys executive, legislative and independent judicial power.30

Hong Kong is the only common law jurisdiction within China.31,32 The Court of Final Appeal is the highest local court exercising the power of final adjudication.33,34 Hong Kong prospers as a free port, a separate customs territory and an international financial centre, with a free flow of capital and under the policy of free trade.35

The construction industry in Hong Kong

A few figures suffice to demonstrate the socio-economic importance of the construction industry in Hong Kong. According to the latest available statistics, the construction industry accounted for 5.2 per cent of the gross domestic product in 2016.36 The gross value of construction works performed by main contractors in nominal terms hit a record high of HK$65.9 billion for the first quarter of 2018, an increase by 12.1 per cent over the preceding year.37 Within that, residential buildings projects amounted to HK$17.9 billion and transport projects HK$12.8 billion.38

Compliance and management

There is no consolidated code of law regulating the construction industry. Various ordinances and ancillary regulations govern different aspects of a construction project such as Buildings Ordinance (Cap 123), Building (Minor Works) Regulation (Cap 123N), Fire Service (Installation and Equipment) Regulations (Cap 95B) and Waterworks Ordinance (Cap 102). The Building Management Ordinance (Cap 344) is the primary legislation that regulates building management.39

Contract practice

Standard forms of contract are widely in use in the construction industry in Hong Kong,40 such as the Agreement and Schedule of Conditions of Building Contract (Standard Form of Building Contract) for Use in Hong Kong41 (the Standard Form of Building Contract) frequently adopted in private projects. For the public sector, the past few years have seen the introduction of the New Engineering Contract42 since 200943 in a shift away from the Government's General Conditions of Contract for Building Works (1999) in line with the trend towards collaborative management of construction projects.

Apart from the conventional building contracts, there are also standard form design-and-build contracts such as the Government's General Conditions of Contract for Design and Build Contracts (1999),44 and a number of projects used them. The Drainage Services Department first used the design-build-operate form of contract in an upgrading project that commenced in mid-2014.45 In contrast, and unlike the situation in Mainland China, the FIDIC series of contracts including the EPC Turney Projects version are not commonly in use in the construction projects in Hong Kong.

Some stakeholders in private and public sectors adopt their own standard forms of contract.46

Subcontracting is sometimes facilitated with back-to-back contracts, which are prone to ambiguity.47 There are also standard-form subcontracts in use, such as the Government's Subcontract for Building Works (2000),48 the Agreement and Schedule of Conditions of Nominated Subcontract for Use in HKSAR (2005)49 (Standard Form of Nominated Subcontract) and the Hong Kong Construction Association's Standard Form of Domestic Subcontract (2008).

Dispute resolution

Standard forms of contract often contain a multi-tiered dispute resolution mechanism where one party has to give timely notice of the disputed matter for an internal arbiter to decide.50 When the internal mechanism fails, parties are ultimately required to submit their dispute for arbitration.51

When a simplistic 'back-to-back' subcontract is used, an issue frequently arises as to whether the dispute resolution mechanism under the main contract would apply as between the parties to the subcontract (or sub-subcontract).52 Standard forms of subcontract can have a well-drafted dispute resolution clause that resembles its counterpart under the main contract. For instance, the Standard Form of Nominated Subcontract provides for referral of the dispute to the parties' designated representatives and for mediation, failing which either party may refer the dispute to arbitration, which shall be a domestic arbitration under the Ordinance.53

Hong Kong's arbitration regime

The current Hong Kong legislation governing arbitration-related matters is the Arbitration Ordinance (Cap 609) (the Ordinance), which repealed the predecessor legislation (Cap 341) in 2011 and has undergone several amendments to keep up with the latest international practice.54 The Ordinance is based on the UNCITRAL Model Law as amended in 2006, with a majority of the provisions given the force of law verbatim or with minor amendments.55 At present, the Ordinance does not have separate regimes for international arbitrations and domestic arbitrations, and the unitary regime regulates Hong Kong-seated and foreign-seated arbitrations where expressly provided for.56

As noted above, standard forms of contract provide by default for domestic arbitration under the Hong Kong International Arbitration Centre (HKIAC) Domestic Arbitration Rules,57 which is a short and convenient set of arbitration rules for ad hoc arbitration in Hong Kong.58 The latest rules were revised in 2014. Unlike Mainland China, Hong Kong allows for ad hoc arbitration.59

The enforcement of arbitral awards under the Ordinance mostly follows the New York Convention 1958, with four similarly-worded divisions for enforcing arbitral awards, Convention awards, Mainland awards and Macau awards respectively.60

Construction arbitration is by no means an entirely different species from any general commercial arbitration in Hong Kong. As the construction industry has its own trade usages as mentioned above, there are issues peculiar to construction arbitration, which will be discussed in the following sections.

Incorporating an arbitration agreement in back-to-back subcontracts

In interpreting a subcontract, general principles of contract law such as contextual construction of the terms at the time of the contract61 are applicable. Whether a term has been incorporated into the subcontract by reference is a question of construction, namely a task to 'ascertain the parties' intention when they entered into the contract by reference to the words used'.62

'Back-to-back' is not a legal or technical term and can have different meanings.63 It depends on the circumstances of an individual case whether a specific clause in the main contract applies to the subcontract made on a back-to-back basis. Take two cases that arrived at different conclusions, for example.

The Court derived little help from the use of the phrase 'back-to-back' in background materials in construing an express clause that the subcontractor 'shall assume, observe, perform and comply with all obligations and liabilities of the Main Contract between [the Employer] and [the Main Contractor] on the … project', and refused a stay application to refer to arbitration on the ground that 'obligations and liabilities' did not normally include the dispute resolution mechanism of arbitration.64 In this case, a specific clause entitling the subcontractor to use the main contractor's name in relation to the latter's rights and obligations under the main contract against the employer featured as an important counter-factor for a simplistic substitution-of-name argument.65

On another occasion, the Court found that where the benefits and obligations of the employer and the main contractor were expressly vested in the subcontractor and the sub-subcontractor on a back-to-back basis, the benefits of the employer including the benefit of the agreed mechanism for settlement of dispute, namely, an arbitration agreement, were likewise vested in the subcontractor.66

Although the two cases seemed to hinge on obligations and benefits, the author submits that the distinction should by no means depend on any mechanic classification. As illustrated above, the whole contractual instrument should be analysed as to the parties' intention on a case-by-case basis.

Stay for arbitration under construction contract

The general principles governing an application for stay of court proceedings to refer to arbitration under Section 20, Cap 609 are well settled in Hong Kong.67

The onus is on the applicant for stay to demonstrate that there is a prima facie case that the parties were bound by the arbitration clause, and unless the point is clear the court should not attempt to resolve the issue but should stay the matter in favour of arbitration.68 Each case should be decided on its own facts.

Where an arbitration clause is deleted from the standard form of contract, a new arbitration clause that the parties 'may' submit to arbitration may be held as permissive only, thus not binding the parties to submit to arbitration.69

Where a multitiered dispute resolution mechanism is built in the contract, as in standard forms of contracts commonly used in the construction industry in Hong Kong, compliance with the mechanism is generally a precondition for arbitration.70

The arbitration agreement must not be null, void, inoperative or incapable of being performed, and the onus is on the opposing party to prove on a high standard.71

The matter in the action must fall within an arbitration agreement, not related to it or involved in it, and the Court should consider the substance of the controversy as it appears from the circumstances in the evidence but not just the particular terms in which the claimant has sought to formulate its claim.72 In certain circumstances, a non-contractual claim also falls in the ambit of the arbitration clause.73 For instance, a claim by a contractor seeking reimbursement of a labour tribunal's award against its subcontractor may fall into the wide wording of an arbitration clause in the subcontract.74

The time limit for requesting a stay of proceedings for arbitration is no later than when submitting his or her first statement on the substance of the dispute, either in the arbitral process or in the action sought to be stayed.75 In the related argument of a waiver of the right to arbitrate, it seems there can be no unilateral waiver as the arbitration is intended for the benefit of both parties.76

Finally, the Court has an inherent jurisdiction by virtue of Section 16 of the High Court Ordinance (Cap 4) or Order 1B r1 of the Rules of the High Court (RHC) to grant a discretionary stay even if a mandatory stay under Section 20 is precluded.77

HKIAC domestic arbitration rules

As noted above, the HKIAC Domestic Arbitration Rules (2014) seek to solve domestic disputes in ad hoc arbitrations in Hong Kong, and its provisions make express reference to and are construed in accordance with the Ordinance.78

The duty of confidentiality in the HKIAC Domestic Arbitration Rules is:

[S]ubject to the exception, [inter alia], that disclosure is permitted when, and to the extent to which it is reasonably necessary for the protection of the legitimate interest of an arbitrating party, and that means reasonably necessary for the establishment or protection of an arbitrating party's legal rights vis-à-vis a third party in order to found a cause of case against that third party or to defend a claim (or counterclaim) brought by the third party.79

In this case, the Court found that the whole scheme of the sale and purchase agreement made by the shareholder of one party to arbitration contemplated that the right to claim under the main contract would remain with that party, and thus the shareholder and other professionals were acting as that party's agent committing no breach of the duty of confidentiality.

Schedule 2 as applied to construction contracts

As noted above, standard forms of contract provide by default for domestic arbitration. Local users with their places of business in Hong Kong would thus by default commence a domestic arbitration under the predecessor legislation,80 subject to any opt-out agreement.81 Under the current Ordinance, some features of the domestic arbitration regime with a wider scope of court intervention are retained in Schedule 2, whereby Section 99 allows for opt-in.

Subject to express agreement to the contrary,82 Section 100 prescribes automatic application of Schedule 2 to an arbitration agreement, which has provided or provides that 'arbitration under the agreement is a domestic arbitration'83 that was entered into before or within six years after the commencement of the current Ordinance (i.e., 1 June 2011). Hence, Schedule 2 remains relevant if the main contract or the subcontract84 included an arbitration agreement for domestic arbitration entered into on or before 2 June 2017.

Schedule 2 is deemed to apply to an arbitration agreement under a subcontract of a construction contract where it automatically applies to that main contract,85 unless the express agreement provides otherwise,86 or where the subcontractor or the operation under subcontract lacks connection with Hong Kong.87 This deeming provision applies mutatis mutandis to a further subcontract.88

This Schedule has seven sections, providing for:

  • sole arbitrator;
  • consolidation of arbitrations;
  • the Court's decision of preliminary question of law;
  • the challenge of an arbitral award on ground of serious irregularity;
  • appeal against arbitral award on question of law;
  • application for leave to appeal against arbitral award on question of law; and
  • supplementary provisions on challenge or appeal against an arbitral award.

Under Section 3, an application may not be made except with all parties' agreement or the tribunal's permission in writing.89 The court must satisfy itself that the decision of the question might produce substantial savings in costs to the parties before it can entertain the application.90

An application of challenge on the ground of serious irregularity under Section 4 or for leave to appeal on a question of law under Section 6 must be made and the originating summons or summons must be served within 30 days 'after the award is delivered'.91 If the challenge is found, the Court can remit the award for reconsideration, and only if remit is inappropriate set aside the award or, in the case of a challenge on ground of serious irregularity declare the award ineffective and in the case of an appeal vary the award.92

For all applications intervening in substance of the tribunal's award or decision, leave is required for an appeal from a decision.93

Serious irregularity

'Serious irregularity' is statutorily defined and set out in full:

[A]n irregularity of one or more of the following kinds which the Court considers has caused or will cause substantial injustice to the applicant –

(a) failure by the arbitral tribunal to comply with section 46;94

(b) the arbitral tribunal exceeding its powers (otherwise than by exceeding its jurisdiction);

(c) failure by the arbitral tribunal to conduct the arbitral proceedings in accordance with the procedure agreed by the parties;

(d) failure by the arbitral tribunal to deal with all the issues that were put to it;

(e) any arbitral or other institution or person vested by the parties with powers in relation to the arbitral proceedings or the award exceeding its powers;

(f) failure by the arbitral tribunal to give, under Section 69,95 an interpretation of the award the effect of which is uncertain or ambiguous;

(g) the award being obtained by fraud, or the award or the way in which it was procured being contrary to public policy;

(h) failure to comply with the requirements as to the form of the award; or

(i) any irregularity in the conduct of the arbitral proceedings, or in the award which is admitted by the arbitral tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the arbitral proceedings or the award.96

Internal inconsistency between two awards or rulings of the tribunal may potentially constitute a ground for serious irregularity,97 although it might be said to go to the tribunal's substantive jurisdiction or the substantive merits of the claim.

The Court will not accede to a challenge if the conduct of the tribunal in allowing some issues to be raised and making findings against a party on these issues is not 'so serious or egregious' as to justify the award being set aside.98 Even if a party was unable to present its case or there had been some serious procedural irregularity that undermined the due process, the Court retains a discretion not to set aside the arbitral award if it is not satisfied that the outcome of the dispute would have been affected by such irregularity or breach of due process, or if it is satisfied that the arbitral tribunal could not have reached a different conclusion.99

Appeal on a question of law

Before a party can appeal under Section 5, Section 6 requires the leave of the Court or the agreement from all parties, the latter of which is rarely forthcoming in practice. Order 73 rule 5(5) of RHC allows the appeal under Section 5 to be included in the application for leave to appeal.

The threshold for granting leave to appeal on question of law is high, namely, only if the Court is satisfied that on the basis of the findings of fact in the award, either the decision of the arbitral tribunal on the question is 'obviously wrong',100 or the question is one of general importance and the decision of the tribunal is 'at least open to serious doubt'.101 The law applies different tests to a 'one-off' dispute102 and a question of general importance, but the distinction is not solely based on whether the subject clause of the construction is a provision in a standard form of contract.103

In addition, the Court must be satisfied that the decision of the question will 'substantially affect the rights of one or more of the parties' and that the question is one that the arbitral tribunal was asked to decide.104

Further leave is required for an appeal from the decision of the Court to grant or refuse leave to appeal,105 and leave will be granted only if the question is one of general importance or for some other special reason should be heard.106 Section 14AA of the High Court Ordinance (Cap 4) imposes additional conditions for an interlocutory appeal107 from an interim award.

Recent development

Third-party funding

Hong Kong has passed its legislative amendments allowing for third-party funding in arbitration,108 pending full implementation. As rightly observed by a professional body in the Law Reform Commission Report:

As most construction disputes are commercial in nature, whether Third Party Funding for arbitration is available would naturally form part of the commercial consideration when parties pursue their claims in arbitration. Hong Kong is known for its multitiered subcontracting arrangements in the construction industry. Many of the smaller subcontractors may not necessarily have the financial means or flexibility in resource allocation to pursue their claims against the larger, more resourceful contractors or project employers despite having meritorious claims. A third party may also have a vested interest in a dispute. Take the example when progress of work is disrupted when a small scale subcontractor is having a dispute with his supplier. It would be of genuine interest to the main contractor if he could fund the subcontractor's case. Third party funding for arbitration in Hong Kong should provide these less resourceful contractors or subcontractors with alternative options when considering whether they should pursue their claims.109

With members appointed for a new term in March 2018 to the Advisory Committee on the Promotion of Arbitration,110 which was recommended to steer the third-party funding regime, local users are poised to see how the new legislative move will change the landscape of construction arbitration in Hong Kong.

Security for payment

The proposed Security for Payment Legislation for the Construction Industry spearheaded by the Development Bureau was released in June 2015, with the Report on public consultation compiled in April 2016.111 The proposed legislation included the provisions such as that 'pay when paid' clause and similar clauses are ineffective and unenforceable under the law, that interim and final payments must be paid within 60 and 120 calendar days counting from receipt of the payment applications and that interim amounts decided by an adjudicator must be paid pending litigation or arbitration.

While there is not yet a detailed schedule, initiatives might be taken to introduce a new legislation in this regard.


Footnotes

1 Wei Sun is a partner at Zhong Lun Law Firm and Adela Mao is a barrister in Tower Chambers.

2 See 'Statistical Communique of the People's Republic of China on National Economic and Social Development in 2017', available at: http://www.stats.gov.cn/tjsj/zxfb/201802/t20180228_1585631.html?from=singlemessage&isappinstalled=0.

3 See Article 2 of the Regulations on Qualification Administration of Construction Enterprises.

4 See 'Opinions of the General Office of the State Council on Promoting Sustained and Sound Development of the Construction Industry'.

5 See 'Circular of the Ministry of Housing and Urban-Rural Development on Issuing the 13th Five-year Plan for the Development of the Construction Industry'.

6 See 'Regulations on Projects Subject to Bidding'.

7 See 'Interpretation of the Supreme People's Court of the PRC about the Application of the Law to the Trial of the Dispute of the Construction Contract'.

8 See Article 26 of the Interpretation of the Supreme People's Court of the PRC about the Application of the Law to the Trial of the Dispute of the Construction Contract.

9 See Supreme People's Court Ruling (2015) Min Shen Zi No. 919.

10 See Supreme People's Court Ruling (2015) Min Yi Zhong Zi No.170..

11 This article only discusses the yin and yang contracts issue of the construction project of compulsory biding. There are, of course, other uses of yin and yang contracts in other scenarios for other purposes.

12 Advance-fund construction is a contracting method that has existed in the construction field in China for a long time. It means that during the construction of the project, the contractor uses its own money to fund the construction activity until the project is completed or the contractual payment terms are met.

13 Article 46 of the Bid Invitation and Bidding Law of the PRC provides 'the bid inviter and the bid winner shall, within 30 days beginning from the date the notification is sent out, sign a written contract on the basis of bid invitation documents and the bid documents of the winner. They may not conclude any other agreement contrary to the substantive matters of the contract.'

14 Article 3 of the Bid Invitation and Bidding Law of the PRC provides: 'the following construction projects to be undertaken within the territory of the People's Republic of China, including the surveying, design, construction and supervision of such projects as well as the purchase of key equipment and materials for such projects, shall be subject to bid invitation: (1) large infrastructure and public utility projects that concern public interests and security; (2) projects invested completely or partly with state-owned funds or financed by the state; and (3) projects using loans or aid funds from international organisations or governments of other countries'.

15 Article 55 of the Bid Invitation and Bidding Law of the PRC provides: 'Where a bid inviter for a project for which bid invitation is required by law, in violation of the provisions of this law, negotiates with bidders on such substantive matters as the bid prices and bidding plans, it shall be given a disciplinary warning and the persons who are directly in charge and the other persons who are directly responsible shall be given sanctions in accordance with law. If any of the acts mentioned in the preceding paragraph affects the bidding result, the bid won shall be nullified.'

16 Article 286 of the Contract Law of the People's Republic of China provides: 'if the employer fails to pay the price in accordance with the contract, the contractor may demand payment from the employer within a reasonable period. Where the employer fails to pay the price at the end of such period, the contractor may enter into an agreement with the employer to liquidate the project, and may also petition the People's Court to auction the project in accordance with the law, unless such project is not fit for liquidation or auction in light of its nature. The construction project price shall be paid in priority out of proceeds from the liquidation or auction of the project.

17 Xianwei Wang: 'Subject of Right of Priority on Construction Contracts', China Construction Law Review Volume 6 (Construction Lien under PRC Law), Law Press China, 2017.

18 There are four levels of court system in China: local courts at district level, intermediate courts at prefecture level, high courts at provincial level and supreme court at national level.

19 See Supreme People's Court Civil Ruling (2013) Min Shen Zi No. 39.

20 Wanhua Du and First Civil Division of the Supreme People's Court, China Trial Guide: Reference and Guide to Civil Trial Volume 65, People's Court Press, 2016.

21 See Supreme People's Court Civil Ruling (2015) Min Shen Zi No. 1815.

22 See Article 22 of the Anhui High People's Court Guidance on Dispute over Construction Contract (II) and Article 4 of the Answers to Several Issues Relating to the Right of Priority on Construction Contract Price formulated by the Enforcement Division of Zhejiang High People's Court.

23 Article 16 of the Arbitration Law of the People's Republic of China (2017) provides 'An arbitration agreement shall contain the following particulars: . . . (3) a designated arbitration institution.'

24 Tietie Zhang, 'Enforceability of Ad Hoc Arbitration Agreements in China: China's Incomplete Ad Hoc Arbitration System', 46 Cornell International Law Journal 385 (2013).

25 Article 9.3 of the Opinion on Providing Judicial Protection for the Development of the Pilot Free-Trade Zones provides: 'In case companies registered within the Pilot Free-Trade Zones agree to arbitration in certain locations in mainland China, with certain arbitration rules, and by certain persons, such arbitration agreement may be recognised as valid. In case a people's court finds such arbitration agreement to be invalid, it shall report the matter to a higher court for review. In case the higher court agrees with the lower court, it shall further report the matter to the SPC and shall only decide on the matter upon the SPC's reply.'

26 Wei Sun, 'Recent Development of Ad hoc Arbitration in China: SPC Guidance and Hengqin Rules', Kluwer Arbitration Blog, 19 December, 2017, available at: http://arbitrationblog.kluwerarbitration.com/2017/12/19/recent-development-ad-hoc-arbitration-china-spc-guidance-hengqin-rules/.

27 Appendix III of China International Economic and Trade Arbitration Commission Arbitration Rules and Article 63 of Beijing Arbitration Commission Arbitration Rules (2015).

28 Article 28 and 46 of the Arbitration Law of the People's Republic of China (2017).

29 The author was appointed as the emergency arbitrator in that case, which was also the first emergency arbitration case in mainland China.

30 The Basic Law of the Hong Kong Special Administrative Region, Article 2.

31 The laws previously in force in Hong Kong, that is, the common law, rule of equity, ordinances, subordinate legislation and customary law are maintained, except for any that contravene the Basic Law and subject to any amendment by the local legislature (Ibid, Article 8).

32 Chinese national laws are not applied in Hong Kong except for those listed in Annex III to the Basic Law relating to defence and foreign affairs as well as other matters outside the limits of the autonomy of the special administrative region (ibid, Article 18).

33 Ibid, Article 82.

34 The case law adjudicated by the UK courts or other common law courts are only persuasive where appropriate: A Solicitor v. the Law Society of Hong Kong, FACV No. 24 of 2007, [2008] 2 HKLRD 576

35 The Basic Law, Articles 109, 112, 114–116.

36 Gross Domestic Product (GDP) by major economic activity – percentage contribution to GDP at basic prices, the Census and Statistics Department of HKSAR, last accessed at https://www.censtatd.gov.hk/hkstat/sub/sp250.jsp?tableID=036&ID=0&productType=8 on 10 July 2018.

37 Report on the Quarterly Survey of Construction Output, first quarter of 2018 (published in June 2018), Census and Statistics Department of HKSAR, last accessed at https://www.statistics.gov.hk/pub/B10900022018QQ01B0100.pdf on 10 July 2018.

38 Ibid, Table 3.

39 See Building Management in Hong Kong, 3rd edition (2016), LexisNexis and A Guide on Building Management Ordinance (Cap 344), 9th ed. (Jan 2017), published by the Home Affairs Department of the Government at https://www.buildingmgt.gov.hk/en/bmo_guide/bmo_guide.htm (last accessed on 10 July 2018).

40 For an outline, see Chapter 19 – Standard Form of Contract, Construction Law and Practice in Hong Kong, 3rd edition (2013), Sweet & Maxwell.

41 With quantities (2005) or without quantities (2006) editions published by the Hong Kong Institute of Architects, the Hong Kong Institute of Construction Managers and the Hong Kong Institute of Surveyors.

42 Promulgated by the Institution of Civil Engineers in the United Kingdom, now in the fourth edition, (i.e., NEC4 as revised in 2017).

44 Supplemented by the Government's Administrative Procedures 2015 for Use with General Conditions of Contract for Design and Build Contracts 1999, last accessed at https://www.devb.gov.hk/en/publications_and_press_releases/publications/standard_contract_documents/administrative_procedures_2015/administrative_procedures_2015_content/index.html on 10 July 2018.

45 LC Paper No. PWSC143/15-16(01), the Drainage Services Department of HKSAR Government, last accessed at http://www.legco.gov.hk/yr15-16/english/fc/pwsc/papers/pwsc20160217pwsc-143-1-e.pdf on 10 July 2018.

46 Such as the Conditions of Contract for Civil Engineering and Building Works Construction and Conditions of Contract for Engineering Works (Minor) of the MTR Corporation Ltd.

47 For an illustration, see Brington Engineering Ltd v. Cheerise Asia Ltd [2011] HKCFI 567; HCCT 2/2010 (18 August 2011).

48 To be used in conjunction with the General Conditions of Contract for Building Works (1999).

49 Published by the Hong Kong Institute of Architects, the Hong Kong Institute of Construction Managers and the Hong Kong Institute of Surveyors.

50 For instance, Clause 25 of the Standard Form of Building Contract (2005 edition, with quantities) where the architect first decides the extension of time.

51 Ibid, Clause 41 provides by default for a 'domestic arbitration' in accordance with the repealed Cap 341 under the Domestic Arbitration Rules of HKIAC.

52 See Section below

53 Clause 42.

54 Ordinance No. 28 of 2012 (consequential changes pursuant to the enactment of a new Companies Ordinance), Ordinance No. 7 of 2013 (including provisions for enforcement of emergency relief and introduction of provisions for enforcement of Macau awards), Ordinance No. 11 of 2015 (including changes to provisions for application of Schedule 2), Ordinance No. 5 of 2017 (introduction of provisions in relation to IPRs), Ordinance No. 6 of 2017 (introduction of provisions in relation to third-party funding).

55 Schedule 1 of the Ordinance sets out in full the UNCITRAL Model Law (as amended in 2006) and underlines the provisions that were not adopted verbatim.

56 Section 5, the Ordinance; and it is an underlying principle that the court will only interfere where expressly provided for in the Ordinance (Section 3(2)).

57 Footnote 54; see also the Government's General Conditions of Contract (1999), Clause 86(5).

59 'Arbitration' is defined as 'any arbitration, whether or not administered by a permanent arbitral institution' under Section 2, the Ordinance.

60 Divisions 1-4, Part 10, the Ordinance.

61 Fully Profit (Asia) Ltd v. Secretary for Justice (2013) 16 HKCFAR 351, 361 (per Ma CJ), as recently cited in Kim Hung Construction & Engineering Co Ltd v. Standard Refrigeration & Engineering Co Ltd, CACV 90/2015 (7 January 2016) (Hong Kong Court of Appeal), Paragraph 4.7.

62 Ho Fat Sing t/a Famous Design Engineering Co v. Hop Tai Construction Co Ltd, DCCJ 3600/2007 (23 December 2008) (per Mimmie Chan J as her Hon HC Judge in charge of the construction and arbitration list then was).

63 WH-SCG JV Limited v. Hong Kong Construction (Holdings) Limited [2006] HKCFI 912, Paragraphs 28–29.

64 Ibid, Paragraphs 14–16.

65 Ibid, Paragraph 20.

66 Ho Fat Sing, ibid.

67 Tommy CP Sze & Co v. Li & Fung (Trading) Ltd [2003] 1 HKC 418, 425 (per Ma J as the Hon Chief Justice then was), namely there are four questions: (1) whether there is an arbitration agreement between the parties; (2) whether the clause in question is capable of being performed; (3) whether there is in reality a dispute or difference between the parties; and (4) whether the dispute or different between the parties within the ambit of the arbitration agreement.

68 PCCW Global Ltd v. Interactive Communications Service Ltd [2007] 1 HKLRD 309 (Hong Kong Court of Appeal).

69 Ibid, in respect of a standard form service agreement.

70 Lim Choon Hock otherwise known as William Lim and Anor v. Hung Ka Hai Clement and Ors, HCA 1282/2016 (24 August 2016), Paragraph 19 where the court seemed to have considered pre-arbitral steps without explicit discussion; in contrast with Sulamerica CIA Nacional de Seugros S.A. v. Enesa Enenharia S.A. [2012] EWCA Civ 638 where the pre-arbitral mediation requirement did not constitute a binding obligation and hence no condition precedent to arbitration as the clause was not sufficiently precise.

71 Schindler Lifts (Hong Kong) Ltd v. Sui Chong Construction and Engineering Co Ltd, DCCJ 2784/2014 (26 November 2014), Paragraph 26, citing Klockner Pentaplast GmbH v. Advance Technology [2011] 4 HKLRD Paragraph 19.

72 Bluegold Investment Holdings Ltd v. Kwan Chun Fun Calvin, HCA 1492/2015, 4 March 2016 (Mimmie Chan J).

73 Fili Shipping Co Ltd v. Premium Nafta Products Ltd [2007] UKHL 40 (Fiona Trust) where the court held that '… the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to have entered to be decided by the same tribunal' (paragraph 13).

74 Chevalier (Construction) Co Ltd v. Universal Aluminium Industries Ltd, HCA 2338/2013 (18 June 2014); see also Pollard Construction Co Ltd v. Lee Kwong Kong and To Chun Yin t/a Hung Chong (Foundation) Construction Ltd, DCCJ 5635/2016 (27 October 2017).

75 Section 20(1), the Ordinance; Schindler Lifts (Hong Kong) Ltd, ibid, paragraphs 28–30, citing Bab Systems v. McLurg [1994] Carswell Ont 4426 (Canada) and Paladin Agricultural v. Excelsior [2001] 2 HKC 215 at 222F-223D where the court found the applicant's defence filed in a small claim tribunal proceeding that was subsequently discontinued for the present district court action did not constitute a 'statement' within section 20, the Ordinance.

76 Schindler Lifts (Hong Kong) Ltd, Ibid, Paragraphs 60–62, citing Aggressive Construction v. Data-Form Engineering, HCA 2143/2008 (4 August 2009).

77 Chok Yick Interior Design & Engineering Ltd v. Fortune Works Enterprises Ltd [2010] 2 HKC 360 (at Paragraph 8) and Marshall-Karson v. Kowloon Canton Railway, HCCT 38/1994 (9 June 1995), as cited by Schindler Lifts (Hong Kong) Ltd, ibid

78 Preamble

79 Article 20.1; Hong Kong Housing Authority v. Sui Chong Construction & Engineering Co Ltd & Anor, HCCT 47/2007 (28 November 2007) (at Paragraph 18) under the then Rule 26 of the HKIAC Domestic Arbitration Rules (1993).

80 Under the repealed Cap 341; the corresponding notion of 'domestic arbitration agreement' was defined in contrast with 'international arbitration agreement', that is 'an arbitration agreement pursuant to which an arbitration is, or would if commenced be, international within the meaning of Article 1(3) of the UNCITRAL Model Law' (see Section 2, Cap 341).

81 Section 2L, Cap 341.

82 Section 102, the Ordinance.

83 The Court in A and Ors v. D, HCMP 1014/2016 (22 December 2016) interpreted this requirement (at Paragraphs 17–24) as referring to an express provision in the arbitration agreement that such arbitration would be a domestic arbitration or that Schedule 2 would apply, but that any arbitration under the arbitration agreement would or might have been a domestic arbitration under the repealed Cap 341 would not suffice.

84 Section 101(2), the Ordinance.

85 Section 101(1), the Ordinance; 'construction contract' means 'a contract between an employer and a contractor under which the contractor carries out construction operations but does not include a contract of employment' under Section 2(1), and 'construction operations' is defined under Schedule 1, respectively, of the Construction Industry Council Ordinance (Cap 587).

86 Section 102, the Ordinance.

87 Such as that the subcontractor is resident, incorporated or managed outside Hong Kong, does not have a place of business in Hong Kong, or a substantial part of the subcontracted operation is performed outside Hong Kong; see Section 101(2), the Ordinance.

88 Section 101(3), the Ordinance.

89 Section 3(2), Schedule 2, the Ordinance.

90 Section 3(3), Schedule 2, the Ordinance.

91 Order 73, Rules 5(1) and (2), the Rules of the High Court (Cap 4A) (RHC); the Court in Po Fat Construction Co Ltd v. IO of Kin Sang Estate [2014] 2 HKC 254, HCCT 15/2013 and 23/2013 (6 November 2013) decided that 'delivered' had the same meaning with the terms 'made and published' under the former O 73 r5(2) applicable to the repealed Cap 341, that is, when the arbitrator informed the parties that the award had been made and was ready for collection, with or without the prior payment of fees.

92 Sections 4(3) and (5), Section 5(5) and (7), Schedule 2, the Ordinance.

93 Section 3(5), 4(6), 5(8) and 6(5), Schedule 2, the Ordinance.

94 Section 46 deals with equal treatment of parties, as required under Article 18 of the UNCITRAL Model Law.

95 Section 69 deals with correction and interpretation of award or issuance of additional award, as required under Article 33 of the UNCITRAL Model Law.

96 Section 4(2), Schedule 2, the Ordinance; cf. Section 68, the English Arbitration Act 1996.

97 A and Ors v. D, Ibid, footnote 86; the court proceeded to consider the issue of serious irregularity but did not find the alleged inconsistency proved on the facts.

98 Po Fat Construction Co Ltd, ibid, at Paragraph 28, applying Grand Pacific Holdings Ltd v. Pacific China Holdings Ltd (in liq) (No 1) [2012] 3 HKC 498; [2012] 4 HKLRD 1; the setting aside application was not expressly made on the ground of serious irregularity but on the arbitrator's alleged breach of due process (at Paragraph 3).

99 Ibid, at Paragraph 29, applying Brunswick Bowling & Billiards Corp v. Shanghai Zhonglu Industrial Co Ltd & Anor [2009] 5 HKC 1; [2011] 1 HKLRD 707, etc.; the court similarly retains a residual discretion even if sufficient grounds are made out either to refuse enforcement or to set aside under the general provisions of the Ordinance, see KB v. S & Ors HCCT 13/2015, [2016] 2 HKC 325, 328-329.

100 Dicta in Pioneer Shipping Ltd v. BTP Tioxide Ltd (The Nema) [1982] AC 724 was cited with approval in Swire Properties v. Secretary for Justice (2003) 6 HKCFAR 236: 'where, as in the instant case, a question of law involved is the construction of a 'one off' clause the application of which to the particular facts of the case is an issue in the arbitration. Leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of the adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously. But if on such perusal it appears to the judge that it is possible that argument might persuade him, despite first impression to the contrary, that the arbitrator might be right, he should not grant leave; the parties should be left to accept, for better or for worse, the decision of the Tribunal that they had chosen to decide the matter in the first instance.'

101 Section 6(4), Schedule 2, the Ordinance.

102 Swire Properties, Ibid (under the repealed Cap 341), Paragraph 31: 'Leave should not normally be given in 'one-off' disputes unless the arbitral tribunal's construction is 'obviously wrong'; but leave can sometimes be given in 'standard clause' disputes as long as there is at least 'a strong prima facie case' that the arbitral tribunal's construction is wrong.'

103 A and Ors v. The Housing Authority [2018] HKCFI 147, HCCT 54/2017 (26 January 2018) where the court held that the award concerned construction of 'specific words in provisions of the Contracts, in the context of the facts and particular work procedures of this case' (at Paragraph 26) where the defendant adduced evidence that the special conditions of the contracts in dispute were amended in early 2014 and thus had no relevance to subsequent contracts and that the number of contestants was small.

104 Section 6(4), Schedule 2, the Ordinance.

105 Section 6(5), Schedule 2, the Ordinance.

106 Section 6(6), Schedule 2, the Ordinance.

107 Leave may be granted subject to conditions as the court considers necessary in order to secure the just, expeditious and economical disposal of the appeal (Section 144A(3)(b)) and only if the appeal has a reasonable prospect of success or there is some other reason in the interest of justice why the appeal should be heard (Section 14AA(4)); Maeda Kensetsu Kogyo Kabushiki Kaisha (also known as Maeda Corporation) and Another v. Bauer Hong Kong Ltd, HCMP 1342/2017 (Hong Kong Court of Appeal) (4 September 2017).

108 Part 10A, the Ordinance; Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, Ordinance No. 6 of 2017.

109 The Law Reform Commission of Hong Kong, Report on Third Party Funding for Arbitration (October 2016), Paragraph 3.13.

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