Expert commentary: Applications for leave to appeal on question of law

Edward Liu, Maggie Lee and Nicole Wong of Hill Dickinson Hong Kong look at the recent cases of Chun Wo Construction and Engineering Co Ltd and Others -v- The Hong Kong Housing Authority and Maeda Kensetsu Kogyo Kabushiki Kaisha (Maeda Corporation) and Another -v- Bauer Hong Kong Ltd  in which parties apply for leave to appeal.

Chun Wo Construction and Engineering Co Ltd and Others -v- The Hong Kong Housing Authority [2019] HKCA 369 

The defendant (D) managed housing estates and entered into 21 contracts with the claimants (P), requiring P to carry out maintenance and refurbishment works in the housing estates (the Contracts). A dispute arose between the parties in relation to the valuation of the works for replacement of sliding window hinges used to affix aluminium window sashes to window frames of flats in the estates. The arbitrator made an arbitral award in favour of D. 

P applied to the Court of Appeal to appeal against the decision of the Court of First Instance (CFI) refusing to grant P the leave to appeal an award on the point of law under section 6(1)(b) of schedule 2 of Cap 609. Under section 6(4) of schedule 2 of Cap 609, leave to appeal was granted only if the court was satisfied: 

‘(a) that the decision of the question will substantially affect the rights of one or more of the parties;
(b) that the question is one which the arbitral tribunal was asked to decide; and
(c) that, on the basis of the findings of fact in the award:

• the decision of the arbitral tribunal on the question is obviously wrong: ‘the obviously wrong test’; or
• the question is one of general importance and the decision of the arbitral tribunal is at least open to serious doubt: “the serious doubt test”.’ 

There was no dispute that the criteria contained in section 6(4)(a) and (b) were satisfied. The main question was when deciding whether to grant leave to appeal an arbitral award on a question of law, whether the court should apply (1) the obviously wrong test or (2) the serious doubt test. 

The Court of Appeal upheld the CFI decision that in this case concerning a ‘one-off’ dispute, where P challenged the award in relation to the interpretation of the clause concerning the valuation of the works, the proper test is the ‘obviously wrong test’ and P’s appeal was dismissed. 

For ‘one-off’ disputes (i.e. disputes that the general market and the commercial fraternity has no interest in), the proper test is the ‘obviously wrong test’. The resolution of a ‘one-off’ question of construction merely affects the rights and liabilities of the parties to the contract concerned. It is no longer appropriate to rely on the strong prima facie case approach for the ‘serious doubt’ test in section 6(4)(c)(ii) of schedule 2 as it has been held in CMA CGM SA -v- Beteiligungs-Kommanditgesellschaft MS “NORTHERN PIONEER” Schiffahrtgesellschaft mbH and Co [2003] 1 Lloyd’s Rep 212 to be inconsistent with the wording of the 1996 Arbitration Act. 

However, the court still needs to consider whether the judge’s decision was plainly wrong as the assessment of the ‘serious doubt test’ could be quite subjective and different judges could reasonably come to different views. When dealing with a decision to grant leave, the Court of Appeal should not intervene unless it could readily be demonstrated that the judge had been plainly wrong in coming to the conclusion that the criterion had been satisfied. There was no finding that the CFI judge had been plainly wrong in arriving at his decision. 

The present case was a ‘one-off’ situation, as the relevant contractual provisions did not possess an already established meaning of which each party was entitled to assume the other knew when he entered into the contract. The tribunal’s interpretation was only applicable to the replacement of aluminium window hinges and there was no wider industrial application since the general market and the commercial fraternity has no interest in the dispute. It was unlikely to be used in future by others because the relevant provisions had been changed in early 2014 and thereafter, the award did not have any relevance to this specific type of contract. As such, the ‘obviously wrong’ test was the applicable test for the resolution of a ‘one-off’ question of construction, which merely affects the rights and liabilities of the parties to the contract concerned. 

Maeda Kensetsu Kogyo Kabushiki Kaisha (Maeda Corporation) and Another -v- Bauer Hong Kong Ltd [2019] HKCFI 1427 

The defendant applied for leave to appeal against the decision of the court allowing the claimants’ appeal against the second interim award on the question of law. The claimants were the main contractors to construct tunnel and subcontracted the diaphragm wall works to the defendant under a sub-contract. The defendant argued that it was entitled to receive additional payment for extra works as there were unforeseen ground conditions different to those described in the geotechnical baselines and gave rise to a variation of the scope of works. In the arbitration, the defendant claimed against the claimants on two alternative basis: (1) variation; and (2) the additional payments or loss and expenses were due to any circumstances or occurrence as a consequence of which the main contractor was entitled to additional payment or loss and expense under the main contract (‘the “like rights” claim’). 

Under the sub-contract, the defendant must give the claimants: (1) a prior notice of intention to claim within 14 days after the event or occurrence or matter giving rise to the claim became apparent to the defendant as a condition precedent (the first notice); and (2) submit ‘the contractual basis together with full and detailed particulars and the evaluation of the claim’ within 28 days after the first notice respectively. 

Although the tribunal found that: (1) there was no variation as there was no change in the scope of works; and (2) the defendant only gave notice to the claimants for the variation claim but not the ‘like rights’ claim, the tribunal awarded in favour of the defendant by finding that the defendant had complied with the notice requirement and allowed ‘the “like rights” claim’ (the second interim award). 

The claimants sought leave to appeal against the second interim award on the basis of two questions of law, namely: (1) whether the defendant gave notice for ‘the “like rights” claims’ (the first question of law); and (2) the valuation of variation works under the sub-contract (the second question of law). 

On 9 April 2019 the court allowed the claimants’ appeal on the first question of law as the defendant had failed to give proper notice and the plaintiffs’ appeal on the second question of law was dismissed (the 9 April Decision). 

During the hearing for the substantive appeal, the parties did not address the court on the consequence of the second interim award after the claimants’ appeal was allowed. It was until 24 May 2019, the court made an order remitting the second interim award to the tribunal in accordance with section 5(5) of the Schedule (the order of remission). 

On 30 April 2019 the defendant took out an application for leave to appeal against the 9 April Decision (the Appeal Application). The court had to decide the following two issues: 

1. whether the intended appeal was out of time, such that leave to appeal out of time was required; and
2. whether section 14AA of the High Court Ordinance (governing appeals against interlocutory judgments and orders of the court) applied—such that the defendant had to show the intended appeal had a reasonable prospects of success, or the only condition to be satisfied for obtaining leave to appeal was those contained in the section 5 (9) of the schedule to the Arbitration Ordinance (Cap 609). 

Issue 1: was the intended appeal out of time? 

Section 5 (5) of the schedule states, for an appeal against an arbitral award on question of law: ‘On hearing an appeal under this section, the Court may by order - (a) confirm the award; (b) vary the award; (c) remit the award to the arbitral tribunal, in whole or in part, for reconsideration in the light of the Court’s decision; or (d) set aside the award, in whole or in part.’ 

Section 5(8) of the schedule provides that:

‘The leave of the Court or the Court of Appeal is required for any further appeal from an order of the Court under subsection (5).’ 

Considering sections 5(5) and 5(8) together, the court observed that Appeal Application was an application for leave to appeal against the order of remission. Since the order of remission was made on 24 May 2019, the Appeal Application made on 30 April 2019 was not out of time. 

Issue 2: whether section 14AA or 5(9) of schedule 2 applies 

Mimmie Chan J ruled that section 14AA was not applicable as it governs the interlocutory judgments or orders of the court. The order of remission was a final order and the applicable law should be section 5(9), which states that: 

‘(9) Leave to further appeal must not be granted unless (a) the question is one of general importance; or (b) the question is one which, for some other special reason, should be considered by the Court of Appeal.’ 

When deciding whether grant leave to the defendant, the court cited the earlier decision of the Court of Appeal in Maeda Corporation -v- Bauer Hong Kong Ltd HCMP1342/2017, 4 September 2017. The case of Maeda Corporation concerned about section 6(6) of schedule 2, which provided for certain necessary conditions should be fulfilled before the court grants leave. However, section 6(6) did not provide that those were the only conditions must be fulfilled. There was no reason why the appellant was able to obtain leave by simply showing that a question of general importance was involved but the court viewed that the appeal had no reasonable prospect of success. The language of sections 5(9) and 6(6) were identical. 

In this case, the court ruled that sections 5(8) and (9) of the schedule were intended to be a filtering process for any further appeal. Section 5(9) set out the essential conditions which must be satisfied before leave to appeal can be granted.

It was held that it was appropriate to adopt the ‘reasonable prospects of success’ threshold for the filtering process in the grant of leave to further appeal under section 5(8) of the schedule. 

Applying the above, given that the ‘reasonable prospects of success’ threshold was not high and the judge was satisfied that the question of law on the construction of clauses 21.1 and 21.2 of the sub-contract in relation to the notice compliance were of general importance and granted leave to the defendant to appeal against the order of remission. 

This case reaffirms that for an application to seek leave to further appeal pursuant to section 5(8) of the schedule 2, the parties must show that the appeal has a ‘reasonable prospects of success’ and the conditions set out in section 5(9) are satisfied.