CHINNEY CONSTRUCTION CO LTD v. PO KWONG MARBLE FACTORY LTD

bjbj HCCT 7/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 7 OF 2005 ____________ IN THE MATTER of the Arbitration Ordinance Cap. 341 and IN THE MATTER OF an Arbitration ____________ BETWEEN CHINNEY CONSTRUCTION COMPANY LIMITED Applicant (Respondent in Arbitration) and PO KWONG MARBLE FACTORY LIMITED Respondent (Claimant in Arbitration) ____________ Before: Hon A Cheung J in Court Date of Hearing: 30 May 2005 Date of Further Submissions: 6 June 2005 Date of Judgment: 8 July 2005 _______________ J U D G M E N T _______________ Facts The parties, whom I will refer to as Chinney and Po Kwong , were parties to a domestic arbitration conducted by a single arbitrator, Mr Peter Caldwell. Po Kwong was the claimant and Chinney the respondent in the arbitration. On 26 September 2002, the arbitrator published an award, known as Award No. 1 (Final Award save as to Costs) , dealing with liability and quantum. On 27 December 2003, the arbitrator made a further award, Award No. 2 (Final Costs Award) , dealing with costs. Amongst other things, he gave the costs of the claim and the additional costs of the counterclaim to Po Kwong. On the other hand, he ordered Po Kwong to pay costs to Chinney in respect of some items of counterclaim. The costs so awarded required taxation in the absence of agreement. On 23 February 2004, 3 March 2004, 18 March 2004 and 30 March 2004, Chinney wrote altogether four Calderbank letters to Po Kwong, with a view to settling its costs liability under Award No. 2. All these offers were rejected by Po Kwong. The parties thus went before the arbitrator again for taxation of the costs payable. Following directions given by the arbitrator, both parties submitted their bills of costs and written submissions. On 10 December 2004, the arbitrator rendered a Taxation of Costs pursuant to Award No. 2 (Final Costs Award) , setting out the respective amounts of taxed costs payable by Chinney to Po Kwong ($1,255,420) and by Po Kwong to Chinney ($50,110), i.e. a net amount of $1,205,310 payable by Chinney to Po Kwong. The arbitrator also dealt with his own fees and expenses in carrying out the taxation exercise. He taxed them in the sum of $58,110. He ordered that the same be borne equally by the parties. He was of the view that the manner in which Po Kwong had conducted the taxation exercise had significantly increased the costs and delayed taxation. Despite some initial disputes, it has since been accepted that Po Kwong did not beat the Calderbank offers, except the first one (at $1.1 million). The second to fourth ones ranged between $1.5 million and $1.8 million. Not surprisingly, after the taxation, Chinney wrote to the arbitrator, drawing his attention to the Calderbank letters and the fact that Po Kwong had failed to beat the offers contained in the letters, and asking the arbitrator to award the costs of the reference (i.e. Chinney s costs in the taxation exercise) to Chinney. The arbitrator refused. He took the view that he had finally dealt with all matters, including the costs of the taxation exercise, in his Taxation of Costs dated 10 December 2004. In his letter dated 18 January 2005, the arbitrator set out his reasons in some detail: It was my expectation and intention that my Taxation of Costs Pursuant to Award No 2 (Final Costs Award) dated 10 December 2004 dealt with all remaining matters within my jurisdiction and that I was, with its publication, functus officio. Accordingly, I issued an invoice marked final on 4 January 2005. I did not ask the parties to top up the deposit held by HKIAC nor did I include in my invoice for any time I spent in reading the further correspondence or replying. It appears from the continuing correspondence from both parties that each considers that I have a residual jurisdiction to deal with further applications. In my previous experience, parties have accepted that the award of costs brings the arbitration to a close except that, if the quantum of costs is not agreed, it may be taxed either by the arbitrator or by the courts. The question of the costs of costs beyond the preparation of a bill of costs has not been pursued. If one examines the procedures both in arbitration and in the courts, an offer of settlement is brought to the attention of the arbitrator or court before the question of costs is considered but after the substantive award or judgement has been made. Absent an indication from an arbitrator that he or she intends to reserve costs the arbitrator must be asked for an award excluding costs or be presented with an envelope containing a sealed offer. If no such action is taken the arbitrator can deal with costs in his or her substantive award. Any amounts not claimed at that time may not be claimed later as the arbitrator has adjudicated on all of the disputes referred to him and is functus officio. I know of no precedent for a second round where the costs of dealing with costs have been in issue. However, if the primary costs are to be considered as a matter in dispute, which is in essence what taxation amounts to, the same rules should apply to the secondary costs (the costs of the taxation) as apply to the primary costs. That is to say, the arbitrator should be asked to reserve his decision on the secondary costs. This was not done in the present case. Indeed both parties in their respective bills of costs included for their costs of preparation of their bills of costs and these have been allowed for in my Taxation. If the Respondent is correct that after taxation of costs an arbitrator retains a residual jurisdiction to entertain an application for costs of the taxation this would appear to allow an never-ending process where, having dealt with this application, a third application to deal with the costs of the costs could be made and so on. As a matter of public policy such an avenue appears to me unlikely to be available. It is thus to this issue I was referring in my previous letter when I said: It is unclear on what legal basis the Respondent asserts that I may revisit taxation after I have published my Taxation of Costs. Appeal Dissatisfied with the arbitrator s refusal to deal with the question of costs as requested, Chinney took out the present proceedings pursuant to section 23(2) of the Arbitration Ordinance (Cap. 341). Chinney asks for leave to appeal on a question of law, namely that the arbitrator erred in failing to hear the parties submissions and/or refusing to take into account Chinney s Calderbank offers before determining by whom, to whom and to what extent the costs of the taxation proceedings should be borne. Chinney asks for an order varying or setting aside the arbitrator s decision on costs pursuant to section 23(2)(a) of the Ordinance, or alternatively, an order remitting the decision on costs for the further consideration of the arbitrator pursuant to section 23(2)(b) of the Ordinance. Issues substantive and procedural The present proceedings raise two substantive questions: first, whether the Calderbank letters are relevant or can be taken into account at all by the arbitrator in considering the question of costs so that if the answer is in the negative, the whole substratum of Chinney s application will be gone; second, whether the arbitrator has already made a final award and decision on the costs of the taxation exercise so that it cannot or should not be re-opened either by him or by the court. These are the substantive questions raised. So far as procedure is concerned, of course an appeal under section 23(2) can only be brought with the leave of the court. The governing principles for granting leave have been authoritatively set out by the Court of Final Appeal in Swire Properties Ltd v. Secretary for Justice [2003] 2 HKLRD 986. Regard must also be had to section 23(4) of the Ordinance which limits the power of the court to grant leave. In due course, I will also refer to section 24 of the Ordinance, which has not been relied on by Chinney in its notice of motion as such. I prefer to deal with the substantive questions first, which when dealt with, will also enable the court to more properly answer the procedural questions. Can Calderbank letters be taken into account? First, whether the letters are relevant at all or can be taken into account by the arbitrator in considering the question of costs (of the taxation exercise). Calderbank letters or Calderbank offers is by now a well-established feature of civil litigation, and hardly needs any introduction or explanation. Convenient summaries of the law and practice relating to Calderbank letters can be found in Hong Kong Civil Procedure 2004, vol. 1, paras. 22/14/1, 62/5/3 and 62/21/5. According to the editors of Arbitration in Hong Kong: A Practical Guide (2003 edition), Calderbank offers are also often encountered by arbitrators in international trade and shipping arbitration (para. 21-302). As in litigation, a common but by no means easy question in arbitration is whether a Calderbank letter can be taken into account in considering costs when a payment-in can be made. In Cutts v. Head [1984] 1 Ch 290, where the English Court of Appeal authoritatively extended the use of Calderbank letters (and similar devices) from matrimonial disputes and others specific areas of law to civil litigation generally, Oliver LJ sounded the following word of caution (at page 312F to G/H), with which Fox LJ specifically agreed (at page 317A/B): I would add only one word of caution. The qualification imposed on the without prejudice nature of the Calderbank letter is, as I have held, sufficient to enable it to be taken into account on the question of costs; but it should not be thought that this involves the consequence that such a letter can now be used as a substitute for a payment into court, where a payment into court is appropriate. In the case of the simple money claim, a defendant who wishes to avail himself of the protection afforded by an offer must, in the ordinary way, back his offer with cash by making a payment in and, speaking for myself, I should not, as at present advised, be disposed in such a case to treat a Calderbank offer as carrying the same consequences as payment in. The Calderbank procedure was given statutory recognition in England in the form of Order 22, rule 14 and Order 62, rule 9(1)(d) by S.I. 1986, No. 632. The same was followed in Hong Kong in the form of Order 22, rule 14 and Order 62, rule 5(d). The local rules read as follows: 14. Written offers without prejudice save as to costs (O. 22, r.14) A party to proceedings may at any time make a written offer to any other party to those proceedings which is expressed to be without prejudice save as to costs and which relates to any issue in the proceedings. (2) Where an offer is made under paragraph (1), the fact that such an offer has been made shall not be communicated to the Court until the question of costs falls to be decided: (L.N. 404 of 1991) Provided that the Court shall be take such offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a payment into court under O. 22. 5. Special matters to be taken into account in exercising discretion (O. 62, r. 5) The court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account (d) any written offer made under Order 22, rule 14, provided that the Court shall not take such an offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a payment into court under Order 22. By an amendment under S.I. 1990, No. 1689, the proviso to Order 22, rule 14(2) in the English rules was deleted but this did not affect the question of whether a Calderbank letter could be taken into account in cases where a payment-in could be made, given the continued existence of Order 62, rule 9(d) in England: Singh v. Parkfield Group PLC (1996) 5 PIQR Q110. It is clear from the authorities that on the one hand, the above rules give statutory recognition to the Calderbank practice in civil litigation; on the other, they limit its use to cases where no payment-in can be made pursuant to the provisions in Order 22. In cases where a payment-in can be made, both the proviso to Order 22, rule 14(2) and Order 62, rule 5(d) in Hong Kong or Order 62, rule 9(1)(d) in England prohibits the court from taking a Calderbank offer into account in considering the question of costs: Singh, supra; The Hong Kong & Shanghai Hotels Ltd v. Choy Bing Wing [1999] 1 HKLRD 473; Lai Hing-tong v. Attorney General [1990] 1 HKLR 56. So far as civil litigation is concerned, the payment-in procedure is only applicable to an action for a debt or damages : Order 22, rule 1(1). Notably, Order 22 does not permit a payment into court in respect of taxation proceedings: Leung Cheung Hong v. Golden Pond Restaurant Ltd, No. 5399 of 1989, J Chan J (21 March 1997). As a result, in respect of the costs of taxation before taxing masters, Calderbank offers are very often made and are taken into account: Hong Kong Civil Procedure 2004, vol. 1, para. 62/21/5; see also Chrulew v. Borm-Reid & Co. [1992] 1 All ER 953 and Platt v. GKN Kwikform Ltd [1992] 1 WLR 465. Unique position in Hong Kong payment-in in arbitration Turning to arbitration, the position in Hong Kong is unique. Unlike many jurisdictions including England, our Order 73, rules 11 to 18 establish a regime in respect of arbitration proceedings similar to that contained in Order 22, governing payment into court. Order 73, rule 11(1) reads: In any arbitration proceedings any party to the reference may at any time pay into court a sum of money in satisfaction of any claim against him under the reference. Order 73, rule 17 reads: Except in arbitration proceedings in which all further proceedings are stayed after the hearing has begun by virtue of rule 13(4), the fact that the money has been paid into court under the foregoing provisions of this Order shall not be communicated to the arbitrator until he has published his award, whereupon the arbitrator may amend his award by adding thereto such directions as he may think proper with respect to the payment of the costs of the reference. In short, in Hong Kong, a party to arbitration proceedings may make a payment into court in satisfaction of any claim against him under the reference . Unlike the Order 22 procedure applicable to litigation, the payment-in procedure under arbitration proceedings in Hong Kong is applicable in respect of any claim that is made against the party making the payment into court under the arbitration reference in question. More importantly for present purposes, unlike the payment-in procedure in civil litigation, there is nothing in the rules relating to arbitration which provides that a Calderbank offer cannot be taken into account in considering costs if a payment into court with respect to the claim under the arbitration reference can be made. There is no equivalent of Order 22, rule 14(2) proviso or Order 62, rule 5(d). In those circumstances, the question arises as to whether, in a case where a payment into court can be made pursuant to the provisions in Order 73, rule 11, the arbitrator may nonetheless take into account a Calderbank offer in considering the question of costs. Order 73, rules 11-18 an exclusive regime? As has been reflected by counsel s respective arguments, this appears to be a mooted question. The editors of Hong Kong Civil Procedure 2004 say in vol. 1, para. 73/11/3 as follows: Order 73, rr. 11-18 an exclusive regime? It is unclear whether an arbitrator s discretion as to costs may be affected by a sealed offer or a Calderbank letter (based on the procedure first approved by the Court to Appeal in Calderbank v. Calderbank [1976] Fam 93; [1975] 3 All E.R. 333). There is no express recognition of the costs effect of written offers marked without prejudice save as to costs in O. 73 as there is in O. 22, r. 14 (see 22/14/1). It is submitted that, following the principles enunciated in Hong Kong & Shanghai Hotels Ltd v. Choy Bing Wing (t/a Bing Choy & Associates) [1999] 1 H.K.L.R.D. 473; [1998] 4 H.K.C. 555, CA, Shun Fung Ironworks Ltd v. Director of Buildings and Lands [1994] 1 H.K.C. 35 at 104, CA, Cutts v. Head & Another [1984] 1 Ch. 290, CA and Singh v. Parkfield Group plc (1994) The Times, May 27 (affirmed by English CA (1996) The Times, March 20) an arbitrator exercising his discretion on costs judicially should not make reference to an offer made by way of a letter where that offer could have been, but was not, backed by a payment in. See also Lai Hing Hong v. Att. Gen.[1990] 1 H.K.L.R. 56. On the other hand, the learned editors of Arbitration in Hong Kong: A Practical Guide express two different views in para. 12-276 and paras. 21-301 to 21-305 respectively as follows: Para. 12-276 It is submitted that generally speaking, a tribunal should consider the following matters before issuing an award on costs: whether the respondent has made any payment into court. It would appear that given that payments into court are allowed under Hong Kong procedure in respect of arbitration proceedings, generally speaking, the tribunal should not place any reliance on Calderbank letters if the respondent could have protected its position by making a payment into court. Paras. 21-301 to 21-305 Under Order 73, rule 11 of the RHC, there is a provision for payment into court in arbitration. It is causing quite a bit of controversy amongst the Hong Kong arbitrators and lawyers. Some argued that without the payment in, hence not having cash to back the sealed offer of Calderbank offer, the offers are not effective to protect costs. The authors are of the view that there are problems with this argument. Firstly, the law did not say so. There is no such requirement in the Arbitration Ordinance. The common law is clear. Mr Justice Donaldson (as he then was) in The Tramountana did not call for cash/money to back up the sealed offer. Secondly, upholding the argument will cause difficulties to other important principles of Hong Kong arbitration like welcoming foreign lawyers/claim consultants to participate in Hong Kong arbitrations, and, the staying away of Hong Kong arbitration from the High Court unless in situations where it is expressly stated in the Arbitration Ordinance that the High Court has to be involved. Until this uncertainty is clarified, the authors do not consider that the sealed offers or Calderbank offers must be backed by payment into court. Enactment history The enactment history of our Order 73, rules 11 to 18 is not in dispute. They originated from a recommendation made by the Law Reform Commission of Hong Kong in its Report on Commercial Arbitration (Topic 1) dated 11 December 1981. Membership of the Law Reform Commission comprised, amongst others, the (then) Chief Justice as well as the (then) Attorney General. Report on Commercial Arbitration was essentially the work of a sub-committee chaired by Mr Andrew Li of counsel, as he then was. Paragraphs 8.27 and 8.28 of the report dealt with offers to settle and payment into court. They read: Offers to settle and payment into Court 8.27 In legal proceedings a defendant can make a payment into court. It is a strict rule that a Judge cannot be informed even of the fact of payment-in, let alone the amount involved, until he has given judgment. If the plaintiff accepts this offer within a limited period in satisfaction of his claim, he is entitled to be paid his legal costs by the defendants. But if he defends in the hope of recovering more, but fails to do so, he will only be entitled upon judgment to costs up to the date of payment-in, and will have to pay the defendant s costs after that date. 8.28 Such a procedure is obviously useful. There is difficulty in adapting it directly to arbitrations since the award usually deals with all relief, including costs, in the same document and the parties have no opportunity of making submissions about costs after the other issues have been determined. The practice that has grown up in arbitrations is for the respondent to make a sealed offer of settlement. If the claimant rejects it, it is placed in a sealed envelope and handed to the arbitrator on terms that it shall not be opened until after he has decided upon all issues other than costs. This is open to the objection that the arbitrator will know that some offer has been made. The Commercial Court Committee recommended that the arbitrator should make his award on all issues including costs without being told that any offer of settlement has been made, but that he should have the power to re-open so much of the award as relates to costs upon subsequent proof that an offer of settlement was made before or during the hearing. It is, of course, one thing to make an offer of settlement, but quite another to produce the necessary money to back that offer. It was therefore recommended that, as with legal proceedings, respondents in arbitration proceedings who wish to make an offer of settlement should be obliged to pay the amount offered into court. Following the recommendation of the Law Reform Commission, section 54(2)(j) of the then Supreme Court Ordinance (Cap. 4) was added to give the Rules Committee the power to make rules of court for the purpose of prescribing the procedure for the payment of money into court by parties to arbitration proceedings: Ord. No. 43 of 1982, section 2. Pursuant to that express power, as mentioned above, rules 11 to 18 were added to Order 73 by the Rules Committee. Pausing here, I should note that it is perfectly legitimate to look at the report of the Law Reform Commission to identify the mischief that the relevant provisions in the Ordinance and Rules was intended to remedy, so as to give the right purposive construction to the relevant provisions: Bennion, Statutory Interpretation (4th ed.) 524 to 526; c.f. Director of Lands v. Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1. It should be remembered that the Calderbank practice derived its name from a matrimonial case, Calderbank v. Calderbank [1976] Fam 93, decided in 1975. However, as Megarry V-C noted in Computer Machinery Co. Ltd v. Drescher [1983] 1 WLR 1379, 1382-1383, there were uncertainties back in those days as regards whether the Calderbank procedure was only applicable to matrimonial cases and specific areas of law and the relevant cases did not appear to have been given the prominence which they deserved in leading textbooks. It was only by virtue of the English Court of Appeal decision in Cutts v. Head, supra, that the practice was given the prominence that it deserved and established as a settlement device of general application. Against that background, it should come as no surprise that the relevant paragraphs in the Law Reform Commission s report reproduced above did not make any reference to the Calderbank procedure in arbitration proceedings at all. The only procedure that it mentioned was the sealed offer procedure. This accorded with a description of the practice in arbitration given by Donaldson J (as he then was) in the well-known case of Tramountana v. Atlantic [1978] 1 Lloyd s Rep 391, 396 to 397 where his Lordship explained that offers of settlement in arbitral proceedings could be of three kinds, namely without prejudice sealed and open offers. The learned judge s reference to without prejudice offers must not be confused with Calderbank offers which are offers made without prejudice save as to costs . In other words, in those days when the judgment was written, Calderbank offers were not something commonly encountered in the arbitration world. All this leads to my point that not surprisingly in the report of the Law Reform Commission, the focus of discussion was on the shortcomings of a sealed offer and on the desirability of extending the payment-in procedure to arbitration proceedings. As explained above, Calderbank offers became generally applicable to civil litigation following the decision of the English Court of Appeal in Cutts v. Head in 1984. In 1986, the rules in England were changed and as explained above, Order 22, rule 14 as well as Order 62, rule 9(1)(d) were made. These changes were followed in Hong Kong. As pointed out above, those rules give statutory recognition to the Calderbank practice but limit its use to situations where no payment-in could be made. In my judgment, this limitation goes beyond what the Court of Appeal said by way of a word of caution in Cutts v. Head about the utility of a Calderbank offer in a case where a payment-in can be made. For as has been reproduced above, all Oliver LJ was saying in that case was that a Calderbank offer may not be treated as carrying the same consequences as payment in where a payment-in can be made (at page 312G/H). His Lordship (with whom Fox LJ agreed on this point) did not say that in that type of situations, in considering costs, the Calderbank offer cannot be taken into account at all in any circumstances. That is not what the proviso to Order 22, rule 14(2) or the provisions in Order 62, rule 5(d) say. In those rules, the court is expressly prohibited from taking a Calderbank offer into account in considering costs. The hands of the court are tied: The Hong Kong & Shanghai Hotels Ltd, supra, at p. 479E/F to H, per Mortimer VP. The significance of all this for our present discussion is that whilst in England where they did not have the equivalent of our Order 73, rules 11 to 18 providing for a payment-in procedure in respect of arbitration proceedings, so that when the Calderbank procedure was given statutory recognition all they needed to do was to add provisions to Order 22 and Order 62, when those similar provisions were added in the mid 80s in Hong Kong where we already got a payment-in procedure in respect of arbitration proceedings in Order 73, rules 11 to 18, no similar prohibition against the taking into account of a Calderbank offer was added in relation to the payment-in procedure in Order 73, rules 11 to 18. Was this due to a deliberate decision not to impose a similar restriction on the arbitrator in relation to costs, or was it a case of oversight? I do not have any direct answer from the materials before me. Costs is a matter of discretion For my part, I would proceed along the following lines: whether in litigation or arbitration, costs is a matter of discretion. The discretion can only be exercised judicially after taking into account all relevant considerations. Authorities aside, a Calderbank offer (including the fact that it has been made, the circumstances under which it was made, the content of the offer etc.), the refusal of such an offer (including the circumstances under which the offer was refused and the reasons behind), what happened subsequent to the refusal (e.g. continued negotiations, if any), other related matters (such as why a payment-in was not made including whether it could be made as a matter of law and whether it was reasonable to make it as a matter of practical realities), and so forth, are or may be (depending on the facts of each case) relevant circumstances and considerations that should be taken into account before the discretion on costs can be exercised judicially. In short, these are matters that may or may not be relevant at all, depending on the facts, and if they are relevant, their weights on the weighing scale may vary depending on individual circumstances. All these are matters to be dealt with by the one who has to exercise the discretion. As I see it, so far as common law is concerned, the English Court of Appeal in Cutts v. Head, supra, in sounding the caution discussed above, was doing no more than pointing out the inherent uncertainties relating to the protection, if any, that may be afforded by a Calderbank offer to the offeror in relation to costs, as compared with the payment-in procedure if it is applicable. For in the payment-in procedure, the normal question to ask is whether the payment-in has been beaten by the opposite party, whereas in a Calderbank situation, the statutory prohibition aside, the pertinent question to ask is whether the opposite party ought reasonably to have accepted the proposal in the [Calderbank letter] : Butcher v. Wolfe [1999] 1 FLR 334, 340A/B to D (per Mummery LJ), followed in Luk Kwan Hung Nelson v. Victory Mark Investment Ltd [2004] 2 HKC 305, 311 (paragraph 14). So much for the position at common law, free from the statutory prohibition in the rules both in England and Hong Kong against taking a Calderbank offer into account where a payment-in can be made (in civil litigation). All the cases that I have had the opportunity of reading, which were decided post Cutts v. Head, and which decided that a Calderbank letter cannot be taken into account in considering costs where a payment-in can be made (in litigation) turned on, in my reading, this statutory prohibition in the rules. Sentiments have been expressed that the hands of the courts are tied rather inflexibly: see, for instance, Mortimer VP in The Hong Kong & Shanghai Hotels Ltd, supra, at page 479H; Stuart Smith LJ in Singh, supra, at page Q113; and District Judge Lam (as he then was) in Wealthy Plus Ltd v. Lai Man Ho [2001] 4 HKC 691, 711A to D. Certainly one can see the good sense of requiring the offeror of a settlement proposal to back his offer with money. As has been pointed out by the Law Reform Commission in its report (para. 8.28), it is one thing to make an offer of settlement, but quite another to produce the necessary money to back that offer. It seems to me that it all depends on the facts. For instance, in Director of Buildings and Lands v. Shun Fung Ironworks Ltd [1995] 2 HKLR 501, the Privy Council was concerned with Calderbank offers made by the government in relation to a huge land resumption compensation claim before the Lands Tribunal. The Privy Council took both a short route and a longer one to explain why the claimant should have accepted the Calderbank offers. The short route was that the case did not fall within Order 22, rule 1 and therefore the payment-in procedure was not applicable. The longer route was that the Calderbank offers in that case were in substance no different from a payment of money into court. Lord Nicholls explained the position at page 519 as follows: The effect of Order 22, rule 14 and Order 62, rule 5 of the Rules of the Supreme Court is that Calderbank offers shall be taken into account by the court when exercising its discretion as to costs, but not if the party making the offer could have protected his position as to costs by means of a payment into court under Order 22. Order 22, rule 1 provides for a defendant making a payment into court in any action for a debt or damages . A claim for compensation is not such an action. Thus on a strict reading of the rules this is not a case to which the bar on taking into account a Calderbank offer applies. Accordingly the Court of Appeal erred in holding that the Calderbank letters could carry no weight on questions of costs in this case. Their Lordships recognise this is a strict, even a literal, interpretation of the rules. However, viewing the matter more broadly, it is difficult to see why the Calderbank letters should not have consequences as to costs in this case. Parties are to be encouraged to settle their disputes and assisted in their attempts to do so. By accepting the first offer Shun Fung would have received a significantly larger sum than it was awarded by the tribunal at the end of an enormously protracted and expensive hearing. Interest would have followed automatically, and there is no reason to doubt the tribunal would have made a costs order in favour of Shun Fung. Had the Crown made a payment into court, assuming this is possible, Shun Fung s position would have been much the same, neither better nor worse. It is not as though a payment of money into court would have given Shun Fung some advantage over and above an offer by the Crown to settle for a like amount. In my judgment, in short, everything depends on the facts. If a Calderbank offer by the Crown or government is as good as a payment-in, what about an offer by a bank? In my view, there is no necessity for an inflexible rule against taking into account a Calderbank offer where a payment into court can be made. Whether on the facts of the particular case, that offer is a relevant consideration, and if it is, what weight, if any, should be given to it, and what effect it should have on the actual order as to costs both in relation to the costs of the offeror and in relation to that of the offeree (and in an arbitration, the costs of the award as well i.e. the costs and expenses of the arbitrator etc.), must vary from case to case. All this can be left to the discretion of the person who is charged with the responsibility of exercising it. The mischief targeted by the Law Reform Commission report Bearing all this in mind, I approach the provisions in Order 73, rules 11 to 18. In my view, nothing in the report of the Law Reform Commission regarding the mischief that the provisions seek to remedy requires the court to adopt a construction, in the absence of any express or specific wording, to the effect that an arbitrator cannot as a matter of law take into account a Calderbank offer when a payment-in can have been made. Unlike a sealed offer, the fact that a Calderbank offer has been made will not be revealed to the arbitrator before he reaches his decision on the substantive issue to which the offer relates. The objection associated with a sealed offer that the arbitrator will know that some offer has been made by virtue of the fact that there is before him a sealed envelope containing the offer is not present in the case of a Calderbank offer. On the other hand, the Calderbank procedure is fully consistent with the rationale behind the payment-in procedure recommended by the Law Reform Commission in its report, in that it would encourage and facilitate settlements, without at the same time having the undesired effect of making known to the arbitrator that some offer has been made. It has been suggested during argument that as it is common practice in arbitration for an arbitrator to deal with the question of costs in the same award where he deals with the substantive issue, and in the absence of a specific power such as the one given under Order 73, rule 17 to re-open and amend the award in the case of a payment-in (as to which see below), it is necessary in order for the Calderbank procedure to work, to ask the arbitrator to reserve the question of costs for further arguments. It was therefore said that that would have the effect of alerting any experienced arbitrator to the fact that some sort of offer had been made behind the scene which could affect the question of costs. In those circumstances, the same objection against sealed offers would be encountered in the Calderbank procedure. This may or may not be so. Russell on Arbitration (22nd ed.) has the following discussion in relation to sealed offers that are also apposite to Calderbank offers (in this regard), at paras. 6-187 to 6-189: A sealed offer may be given to the tribunal for it to open and consider only after it has decided upon the substantive award. This may avoid the expense of reconvening for a further hearing to deal with costs, but it does of course mean that the tribunal will know that some offer has been made, even though it does not know the amount. Rightly or wrongly, parties are sometimes concerned that this knowledge might colour the tribunal s thinking in reaching its decision. The alternative, therefore, is to invite the tribunal to make an award dealing with the substantive issues and to postpone determining the question of costs pending further submissions and/or a further hearing. The extent to which such a request will itself suggest the existence of a sealed offer will depend upon the circumstances of the case and whether, for example, potentially complex costs issues may not need to be addressed at all if the tribunal s decision goes a particular way. For my part, I do not see the need to safeguard an arbitrator from any possible inference or speculation on his part that some sort of offer has been made behind the scene so as to preserve the integrity of his decision on the substantive issue as being so overwhelmingly strong that I should read into Order 73, rules 11 to 18 a prohibition, where there is none expressly, against taking into account a Calderbank offer in relation to costs when a payment-in could have been made under those provisions, regardless of the circumstances of the case. An additional argument that the mischief that the recommendation in the report of the Law Reform Commission sought to remedy does not require the imposition of a blanket prohibition against taking into account a Calderbank offer where a payment-in could be made is that notwithstanding the amendment of the principal Ordinance and the making of the rules in Order 73, parties have continued to make sealed offers in arbitration in Hong Kong, as per the editors of Arbitration in Hong Kong: A Practical Guide, in the passages already reproduced in full above. Certainly, the Law Reform Commission s report did not recommend, in terms, the prohibition of taking into account sealed offers. No such rule can be found in Order 73 or elsewhere. If a sealed offer can continue to be made notwithstanding the mischief identified, one could legitimately ask: why should there be a blanket prohibition against taking into account a Calderbank offer? Statutory construction of Order 73, rules 11 to 18 Leaving aside the Law Reform Commission s report, and focusing on the rules and the statutory prohibition in relation to taking into account Calderbank letters in civil litigation, my approach is that unless there is an express or specific prohibition to that effect in relation to the payment-in procedure in Order 73, it would take an extremely strong case for the court to read, as a matter of construction, a similar prohibition into the rules in relation to arbitration. I can see no such overwhelming justification. It is not for the court to rewrite the rules. For one reason or another, when the prohibition was introduced in relation to civil litigation, the Rules Committee did not see fit to impose a similar prohibition in relation to arbitration. I must assume that the Rules Committee did so for a good reason. And even if I were to assume that it was due to an omission that such a prohibition had not been imposed in relation to arbitration, I do not think it is the role or function of the court to fill in the gap in the name of construction. In summary, I see no sufficient justification under either common law or the rules to impose such a blanket prohibition against taking into account a Calderbank offer in considering costs in a case where a payment-in could have been made. It all depends on the facts, and the matter can and should be left to the discretion of the arbitrator. Thus far I have been discussing the matter on the assumption that an award for costs, subject to taxation, in arbitration proceedings, which is what this case is about, can be satisfied by a payment into court under Order 73, rule 11. As mentioned above, so far as taxation of costs in litigation is concerned, it cannot be dealt with by a payment into court under Order 22, rule 1, and therefore Calderbank offers are applicable. However, as noted above, Order 73, rule 11 is couched in wide terms, and in my judgment, it is applicable to a taxation of costs by the arbitrator. In other words, it is open to a party to make a payment into court in satisfaction of his liability for taxed costs under the relevant award, so as to protect his position in relation to the costs of taxation before the arbitrator. Conclusion on Calderbank offers But as I have also concluded above, that notwithstanding, a party may, if he so chooses, make a Calderbank offer instead. How much protection, if any, that Calderbank offer will afford him as regards the costs of taxation before the arbitrator will depend on the facts and is in the discretion of the arbitrator. For all these reasons, I reject Po Kwong s argument that the Calderbank offers in question are wholly irrelevant and cannot be taken into account by the arbitrator in considering the costs of the taxation exercise at all. Re-opening the final award on costs I now move on to deal with the second substantive question, namely whether the arbitrator has (rightly) made a final decision on costs, so that costs cannot or should not be re-opened either by him or by the court. Unlike the courts in litigation, arbitrators usually deal with the substantive matter under reference and the attending costs (including both the costs of reference and the costs of the award) in the same award: see Tramountana, supra, at p. 396 (per Donaldson J). Indeed it is his duty to deal with costs: Harrison v. Thompson [1989] 1 WLR 1325, 1330B (per Knox J). However, as has been pointed out by Russell on Arbitration, op. cit., it is open to a party to ask the arbitrator to reserve the question of costs pending the hearing of further arguments (para. 6-187 6-189). Furthermore, the practice has grown up, at least in Hong Kong, for arbitrators to issue an order nisi concerning costs (Arbitration in Hong Kong: A Practical Guide, para. 12-276), similar to costs orders nisi made by the courts pursuant to Order 42, rule 5B(6). However, if no such request for reservation of the question of costs for further argument is made, and if the arbitrator is not minded to make a costs order nisi, it is perfectly open and proper for him to make an award dealing at one and the same time both with the parties claim(s) and the question of costs. There is, in those circumstances, no question of the arbitrator being guilty of any misconduct, even of a technical nature: Harrison v. Thompson, supra, at page 1330B/C. Two English decisions In Harrison, there were Calderbank negotiations between the parties. Both sides expected to be given the opportunity of addressing the arbitrator after the award dealing with the substantive dispute between the parties was made. Naturally, no one told the arbitrator about the existence of the Calderbank negotiations. Nor, unfortunately, did anybody ask the arbitrator to make an award dealing with the substantive dispute separately from and before making his award on costs. To the parties surprise, the arbitrator, in accordance with the customary practice, dealt with both the substantive dispute and the question of costs by way of a final award. He refused to re-open the matter after the Calderbank correspondence was drawn to his attention by the parties, considering himself to be functus officio. Knox J said in his judgment that the arbitrator s position was entirely correct (at page 1331E/F) and the error that had taken place was of the parties making and it was a common error (at page 1330B/C). Whilst the court was therefore of the view that the arbitrator had done nothing wrong and he had no power to re-open the final award (on costs), the court went on to consider whether it had jurisdiction to re-open the matter and if there was such jurisdiction, whether the same should be exercised on the facts of the case. After reviewing the authorities both for and against the existence of jurisdiction in a case of the type in question, Knox J concluded that there was indeed jurisdiction to re-open the matter under section 22 of the Arbitration Act 1950 (which is equivalent to section 24 of the Arbitration Ordinance) in a case where there had been a procedural mishap, not involving misconduct, in the conduct of the arbitration and the applicant could show that the mishap had, or might have, caused him injustice, following what Bingham J (as he then was) had said in Bulk Oil (Zug) AG v. Sun International Ltd (No. 2) [1984] 1 Lloyd s Rep 531, 533 (at pages 1338D to 1339G/H). His Lordship then dealt with the case before the court thus (at page 1339A to G/H): For present purposes I take injustice to refer to a decision made where material was not before the arbitrator due to a procedural mishap and where that material would have caused the arbitrator s decision to be different. I therefore exclude entirely situations where all that can be said is that the arbitrator s decision, objectively considered, was wrong. The note in Mustill and Boyd is plainly right on that. The other concept, which is of particularly crucial importance here, is that of procedural mishap. It must exclude all deliberate choices, however erroneous they are shown to be. A difficult question, not significantly addressed in argument before me, is how far it is right to equate a misapprehension regarding the way the arbitrator was bound to act with an accident and how far it should be equated with an erroneous choice? Another question which is not without its difficulties is the extent to which one party s misapprehension is affected by the circumstance that the other party made the same error. In principle, so long as there was no question of one party misleading the other (and there is none at all here) it should not affect the quality of a party s error that the other side independently reached the same erroneous conclusion. On the other hand the existence of a common mistake will lead to both parties being treated equally, whether relief is given against it or refused, so that there is no inequality as between the parties in granting relief. The purchasers were, in my judgment, potential candidates for the relief now sought had the arbitrator s award been more in their favour, though no admission was made to that effect on their behalf. The seller relies on accidental deprivation of two things: one, the opportunity to make submissions on costs; two, the opportunity to rely on the Calderbank letters. It is not submitted that either would definitely have led to a different result. The Calderbank letter in particular was directed to a different and wider dispute and I do not propose to try to analyse the extent to which the seller could legitimately rely on it in argument on costs beyond saying that the letters were clearly potentially relevant. On balance I have reached the conclusion that what happened in this case can be objectively described as a procedural mishap and that I have jurisdiction to remit, and that I should in these circumstances exercise that power. I do not regard the distinction between a certainty and a possibility of injustice in the sense in which I use the term as being a helpful one. In so far as it is a distinction that matters, I prefer the view that a risk of injustice suffices. In my judgment, in many aspects, the present case is not materially different from what has happened in Harrison. It is true that in Harrison, both parties were under the misapprehension that the arbitrator would not deal with the question of costs without a further hearing after the award on the substantive dispute was made, whereas in the present case, the evidence only permits me to say that such an anticipation only existed in the mind of Chinney. Knox J dealt with the relevance of the error or misapprehension being a common one in the case before him in the passage reproduced above. In my reading of his Lordship s judgment and analysis of the position, the fact that it was a common error certainly played some part in the court s deliberation on whether to exercise the jurisdiction in question. But in my judgment, it was only one of the many relevant considerations that the court could and should take into account. In the present case, I fully bear in mind the fact and distinction that the error in question only existed on the part of Chinney, but not Po Kwong, and I specifically consider whether it would be unfair to Po Kwong, particularly given the importance attached to finality in arbitration, for the court to intervene in a final award by remitting it to the arbitrator for reconsideration. Another material distinction in the present case is this: both parties have in their respective bills of costs sent to the arbitrator for taxation purpose included the costs of preparing the bills as items of costs claimed in the taxation process. Moreover, in the objection raised by Chinney to the costs of preparing the bill claimed by Po Kwong, Chinney only raised objections regarding the quantum of the claim but did not ask the arbitrator to reserve the question of costs for further argument after the taxation exercise. Did it amount to a positive representation (as opposed to mere silence in failing to ask the arbitrator to reserve the question of costs) that the arbitrator could and should deal with the question of costs of the taxation exercise, of which the costs of preparing Po Kwong s bill of costs formed part, without any further ado? In my judgment, almost by definition one is concerned with a unilateral mistake and error committed by Chinney in the taxation process, i.e. Chinney s unjustified misapprehension that costs would be dealt with separately and subsequently. That is an important fact against Chinney that must be fully taken into account, particularly when one is concerned with a unilateral mistake or error. However, to say that on top of that, one should also hold against Chinney for having made a false representation to the arbitrator and the other side that the costs of the taxation should be dealt with there and then requires, in my judgment, something much more than the failure to mention in its objection to the relevant item of costs claimed by the other side that the costs of the taxation exercise should be reserved. After all, it was an equivocal representation, which could be read as meaning only that Chinney had no objection to the arbitrator determining, in advance, the quantum of Po Kwong s claim for the costs of taxation, if at the end of the day, costs were to be awarded in favour of Po Kwong notwithstanding the Calderbank offers. Another case of significance is the English Court of Appeal decision in King v. Thomas McKenna Limited [1991] 2 QB 480. In that case, a sealed offer had been made by one party (the building owners) to settle the case. Counsel for that party reached two tactical decisions. The first was to make no reference to the sealed offer before the arbitrator. The second was to indicate in a low key way that the issue of costs should be held over . She thought that any indication that an offer of settlement had been or might have been made might influence the arbitrator in his decision, adverse to her client s interest. But the subtlety of her low key approach was lost on the arbitrator, who dealt with both the substantive issue and the question of costs in his final award. An application was made pursuant to section 22 of the Arbitration Act 1950 to remit the award for reconsideration of costs by the arbitrator. Lord Donaldson MR said (at page 497X A- E): I find it impossible to generalise. In the field of litigation errors by lawyers will sometimes be visited upon the client, e.g. striking out for want of prosecution or for failure to serve a writ within the time limits. On the other hand a default judgment is more likely to be set aside, if it resulted from inaction or inattention on the part of the party s lawyer rather than of the party himself. Again in the field of arbitration, account should and would be taken of the fact that a procedural mishap occurred as a result of ignorance of procedure by a disputant acting in person, which might not be so explicable or excusable in the case of one who was represented. It is a very sensitive jurisdiction which has to be exercised in the light of well established principles, but with a careful regard to all the facts in particular cases. If in this case counsel for the building owners had deliberately decided for tactical reasons neither to disclose the fact that a sealed offer had been made nor to ask the arbitrator to hold over any decision on costs until after he had made his award, however inexplicable such a decision might have been, there would have been little or no case for remission. But that is not this case. On a fair reading of the facts as found by the judge, counsel reached two tactical decisions. The first was to make no reference to the sealed offer. The second was to indicate in a low key way that the issue of costs should stand over. The second decision was prompted by the same consideration as the first, namely, that she thought that any indication that an offer of settlement had been or might have been made might influence the arbitrator in his decision, adversely to her client s interests. In this I have no doubt that she did the arbitrator s a grave injustice. But that is beside the point. What matters is that the tactical decision was indeed to ask that the issue of costs should stand over and counsel, mistakenly, thought that she could and would achieve this result by attaching this sotto voce request to a discussion on the costs of an amendment in the pleadings. In the result the building owners have in this one respect not received a fair trial as a matter of procedure and, if it matters, I think that this can properly be described as a procedural mishap. His Lordship then dealt with the appeal before the court thus (at page 497- 498E): I gratefully adopt the words of Brandon J., at pp. 463 - 464 [in Sokratis Rokoponlons v. Esperia S.p.A. [1978] 1 Lloyd s Rep. 456]: It was contended for the shipowner that, if and in so far as the charterers had suffered from a procedural mishap in this case, that was entirely due to their own fault, in that Professor Balestra failed to tell the arbitrators that he wished to put further material before them and to ask them to allow him a reasonable time for doing so. It was further contended that a party should never be entitled to have an award remitted on the ground of a procedural mishap which was entirely due to his own fault. I do not think it would be right to lay down any general rule to that effect. The court does not necessarily refuse to assist a party out of a difficulty because he has got into it by his own fault, although it may impose strict terms, with regard to costs or other matters, as a condition of giving such assistance. This is certainly the approach adopted by the court in relation to applications to set aside a default judgment, and I see no reason why it should not also be adopted, in appropriate cases, in relation to applications to remit an award: see the observations of Donaldson J. in The Aristides Xilas [1975] 2 Lloyd s Rep. 402, 410. I would not therefore in this case refuse the charterers application to remit solely on the ground that the need for it is of their own making. That circumstance is, no doubt, one of the factors to be taken into account. The crucial question, however, seems to me to be whether the charterers have shown that the procedural mishap which occurred caused, or at least may well have caused, injustice to them. It is accordingly to that question, which I regard as the most important one in the case, that I now turn. Brandon J. held that there had been no injustice. In this case there is no issue as to that. A grave injustice has indeed occurred. Ralph Gibson LJ said in his short concurring judgment as follows (at pages 498E/F to 499A/B): In summary, therefore, I agree that, as a matter of procedure but through no fault of the arbitrator or the other party, the building owners on the facts of this case did not on the last issue of costs receive a fair trial; that that resulted from what can properly be described as a procedural mishap; and that it would be inequitable to allow the award as to costs to take effect without further consideration by the arbitrator. In reaching that conclusion I took into account as a fact of significance that the failure by counsel to make clear to the arbitrator that she was in fact asking for the issue of costs to be stood over while intending to achieve that effect by her reference to holding costs over in the context of the costs of an amendment was, in the context of this case, very obviously either an unclear application to that effect or it was a blunder by counsel who must have forgotten that the sealed offer had been made. Mr Fernyhough acknowledged that there was no conceivable explanation for a failure to ask that the issue of costs be stood over other than an obvious blunder by counsel. The making of a considered decision not to secure an opportunity for consideration by the arbitrator of the sealed offer by asking for the issue of costs to be stood over can, therefore, be ruled out with a sufficient degree of certainty to justify the order of remission. I regard that as important because the jurisdiction to remit should not, in my judgment, be available to enable a party to an arbitration to repent of a considered decision by himself or his legal representatives with reference to such a matter in order for him to pursue a different course on remission to the arbitrator. King v. Thomas McKenna is, in one sense, a stronger case than the present one in that there counsel did intend to ask the arbitrator to hold over the question of costs, albeit in a low key manner. By a blunder, she failed to get the message across. In the present case, there was no such attempt. However that case is helpful to Chinney in the sense that it concerned a unilateral mistake on the part of one party only, unlike the situation in Harrison v. Thompson where a common error was involved. Present case Understandably, given the nature of the Calderbank offers, they were not mentioned to the arbitrator at all before the outcome of the taxation exercise was known. There is no material before this Court to justify any suggestion that the failure to ask the arbitrator in the present case to reserve the question of costs was a deliberate tactical decision on the part of Chinney. In my judgment, Chinney s failure was not due to anything other than its belief that the arbitrator would, after the outcome of the taxation was known, entertain further submission on the question of costs by reason of the Calderbank offers. I need consider this possibility no more in this judgment. I have borne in mind all relevant factors. I have in particular borne in mind the importance of parties to proceedings, whether judicial or arbitral ones, being afforded an adequate opportunity to address the court or the arbitrator before a final decision is made, or alternatively, to address the same after an interim decision (in the form of a decision nisi) has been announced. It is an important principle of natural justice. In my judgment, such a fundamental right should not be lightly deprived of save in exceptional circumstances, even in the case of arbitral proceedings where considerations of certainty and finality play a significant role. A party s mistake about the procedure that the arbitrator may follow, unless it is a substantively culpable one, should not have such an effect, particularly when the prejudice to the opposite party can be adequately compensated by a suitable order as to costs. Tentative conclusion on re-opening the final award on costs For these reasons, as a matter of substance (as opposed to jurisdiction and procedure: see below), having borne in mind all relevant considerations and looked at the matter in the round, I would be prepared to exercise the court s jurisdiction to re-open the matter by remitting the decision on the costs of the taxation exercise to the reconsideration of the arbitrator. I have deliberately refrained from saying anything on how the arbitrator s discretion on the question of costs, after considering the Calderbank offers in question, should be exercised. I express no view whatsoever on the same. That is entirely the function of the arbitrator. A side paint section 2GJ(4) I would deal with a side point raised in arguments before I turn to the jurisdictional and procedural issues. Ms Cruden, appearing for Chinney, argued that in any event, the arbitrator only dealt with some of the items of costs in question, namely the costs of the award, and part of the costs of reference (i.e. Po Kwong s costs in preparing its bill of costs and similarly Chinney s costs of preparing its bill of costs). The arbitrator did not deal with the costs of Chinney in defending the amount of costs claimed by Po Kwong in the taxation process, nor any other items of costs incurred by Chinney that were pertinent to the taxation exercise and the Calderbank negotiations. In those circumstances, Ms Cruden argued that section 2GJ(4) requires the arbitrator to deal with those items of costs that had not be dealt with upon the application of Chinney that had been made within 30 days of the Taxation of Costs dated 10 December 2004. Section 2GJ (4) reads: If an award does not provide for payment of the costs of the relevant arbitration proceedings, any party to the proceedings may apply to the arbitral tribunal for an order directing by whom and to whom those costs are to be paid. Such an application must be made within 30 days after the notification of the award or within such further period as the arbitral tribunal allows. The operation of the section (which is equivalent to section 18(4) of the English Arbitration Act 1950) has been succinctly explained in Mustill and Boyd, Commercial Arbitration (2nd ed.), 401 as follows: Section 18(4) of the 1950 Act provides that if an award does not make provision with respect to the costs of the reference, any party to the reference may within fourteen days of the publication of the award or such further time as the Court may direct, apply to the arbitrator for an order directing by and to whom the costs are to be paid. The arbitrator must then, after hearing any party who may desire to be heard, amend his award to deal with the costs. The provision was no doubt intended to deal principally with the case where the arbitrator has simply overlooked the question of costs. But it is also of practical value in cases where it is convenient to defer argument on costs until after the award has been published, for example where there are a number of different disputes or issues to be decided, or where one party wishes to draw the arbitrator s attention to the terms of a sealed offer . In order to avoid misunderstanding the arbitrator should state in his award that he has not provided for the costs of the reference so as to enable the parties to address him on costs under section 18(4), and remind the parties that they must do so within fourteen days of the publication of the award. Mr Rimsky Yuen SC (leading Mr Victor Dawes) asked me to read the arbitrator s decision to mean that apart from those items of costs that he had dealt with, he made no order as to costs regarding the remaining items. Having considered the materials before me, including the letters of reply written by the arbitrator explaining why he refused to re-visit the question of costs, I am in agreement with Mr Yuen. In all fairness to the arbitrator, he must be taken to have made no order as to costs regarding the so-called missed-out items of costs raised by Ms Cruden, when there was no request by the parties to defer argument on costs, nor was there made any claim for any such items of costs. Appeal under section 23(2) and remission under section 24 I now deal with jurisdiction and procedure. As mentioned at the outset, this application by notice of motion is based on section 23(2), which provides for an appeal by leave to this court on any question of law arising out of an award. The threshold tests have been set out in the leading case of Swire Properties Ltd, supra. However, as has been pointed out above, Harrison v. Thompson was decided in favour of the applicant in that case pursuant to section 22 of the Arbitration Act 1950, which is equivalent to section 24 of the Arbitration Ordinance. So was King v. Thomas McKenna. Section 24(1) reads: (1) In all cases of reference to arbitration the Court or a judge thereof may from time to time remit the matters referred, or any of them, to the reconsideration of the arbitrator or umpire. The notice of motion does not place any reliance on section 24(1). Ms Cruden in her further submission filed at the request of the Court after counsel s attention had been drawn to Harrison and King v. Thomas McKenna referred me to a number of Hong Kong authorities dealing with the inter-relationships between sections 23, 24 and 25 of the Arbitration Ordinance. In particular, my attention was drawn to a first instance decision of the late Hunter J (as he then was) in Kong Kee Brothers Construction Co. Ltd. v. Attorney General [1986] HKLR 767 where the learned judge placed a strict construction on section 24(1) of the Ordinance regarding the jurisdiction of the court to remit awards, thereby departing from the English jurisprudence in this respect. His Lordship was not attracted to procedural mishap as a ground in itself for exercising the court s jurisdiction under section 24, but he accepted that breach of the rules of natural justice could justify intervention. On the other hand, Liu JA in Attorney General v. Shimizu Corp [1997] 1 HKC 417, 440G-441G clearly thought that the jurisdiction to remit an award under section 24, as explained by the English Court of Appeal in King v. Thomas McKenna, supra, as well as other relevant English authorities, was flexible and unlimited. It is true that apparently the Court of Appeal in that case was not referred to Hunter J s decision in Kong Kee. Nonetheless, what Liu JA has said remains a highly persuasive if not binding view on this court. Ms Cruden in her further submission also referred to many other local as well as English cases on the relevant provisions. As she pointed out, the position in Hong Kong is detailed in Arbitration in Hong Kong: A Practical Guide, 204, 268-273 and 468-473. Question of law All this is very interesting. But for the purpose of disposing of the application before me, all I need say is that in my view, the present case is covered by the appeal procedure under section 23(2) of the Ordinance. In my judgment, on the facts, a question of law arose out of the taxation award. It is an appealable question of law, subject to the court granting leave. The question of law, put in the form of a legal proposition, is: the failure to hear a party on some unsuccessful Calderbank offers that that party had made, which was caused by that party s failure by mistake (as opposed to a deliberate tactical decision) to ask the arbitrator to reserve the question of costs (or make a costs order nisi), who therefore in accordance with customary practice made a final award on costs at the same time as the award on the reference (in this case, the taxation of costs) without any reference to those Calderbank offers, thereby resulting in injustice or possible injustice to that party, does not amount to a breach or sufficiently serious breach of procedural fairness (or natural justice) in the arbitration proceedings justifying intervention by the court. (This formulation is different from the one set out in the notice of motion. But in substance, the same issue is raised. Indeed I can think of several other ways of formulating the same question.) In my judgment, this is a question of law of general public importance, and following Swire Properties, supra, I should grant leave to appeal from the award when, but only when, there is at least a serious doubt as to its correctness. In my judgment, the test is satisfied in the present case for the reasons analysed above. Even if I was wrong and the more stringent alternative test laid down in Swire Properties should be used, I would have concluded that this is a case where something obviously wrong had happened, thus justifying the grant of leave. I do not see section 23(4) as posing any difficulty to the grant of leave. The right of Chinney is substantially affected by the question of law. Grant of leave and allowing the appeal I have discussed in some detail the decisions of Harrison v. Thomson and King v. Thomas McKenna in the judgment above, not only for the purpose of discussing in general the jurisdiction of the court under section 24 of the Ordinance (or section 22 of the Arbitration Act 1950) at least from the perspective of the English courts, but also for the purpose of exploring how the court should deal with a similar factual situation like the present one assuming that there is jurisdiction on the part of the court to intervene and such jurisdiction is exercisable. For the reasons discussed above, which to a substantial extent was influenced by the reasons given in the English decisions for the court s intervention, I have come to the conclusion that in the present case, not only should leave be granted under section 23(2), the appeal should also be allowed. Like section 24, the court in exercising its jurisdiction under section 23 has the power to remit an award to the reconsideration of the arbitrator: section 23(2)(b). Thus, by a different route, I have come to the same result as that reached in the two English decisions referred to in the earlier part of this judgment. For that reason, I do not need to decide the interesting question of whether in Hong Kong, the jurisdiction to remit under section 24 covers the type of situations that I face in the present case. For the sake of completeness For the sake of completeness, I should add that Mr Yuen in his supplementary written submission focused his argument on section 23(1) of the Ordinance. He argued that by virtue of that subsection, the court does not have jurisdiction to remit an award, and therefore the jurisdiction to remit an award under section 24 has been curtailed after the enactment of section 23. I do not accept the argument because section 23(1) only deprives the court of the jurisdiction to remit an award on the ground of errors of fact or law on the face of the award . In the present case, I am not concerned with an error of fact or law on the face of the award . Rather I am concerned with what an English court would call a procedural mishap in the arbitration proceedings leading to the making of the award. In any event, Mr Yuen s argument becomes irrelevant once it is realised that the present case falls within the appeal procedure under section 23(2), to which section 23(1) is subject. Again, for the sake of completeness, I would indicate that if I had to decide the matter, I would be prepared to say that the case also falls within section 24 of the Ordinance for two reasons. First, Liu JA s view in the Court of Appeal decision of Shimizu, supra, follows the approach in the English cases and gives section 24 a flexible and unlimited construction. Whilst the view may not be strictly binding on this court, it must be accorded much weight. Second, even if I should apply the more restrictive approach of Hunter J in Kong Kee (which was, strictly speaking, only a first instance decision), I would accept Ms Cruden s argument that this case involves a breach of natural justice as a type of technical misconduct , which the learned judge accepted as a recognised ground for remitting an award under section 24 (at pp. 777H to 778G/H). Furthermore, if I had to decide the matter, I would be prepared to give Chinney leave to amend the notice of motion, so as to enable it to place reliance on section 24. As an amendment would speak from the date of the notice of motion itself, the time limit imposed by Order 73, rule 5(1)(a) on making an application to remit an award under section 24 would not pose any problem. So far as possible prejudice is concerned, in my judgment, the factual matters have been placed before the court by the original application. No real prejudice would be caused to Po Kwong if I were to allow an application to amend, which could not be compensated by a suitable award as to costs. Order For all these reasons, I order that the award and decision on the costs of the taxation exercise (including the costs of reference and the costs of the award) be remitted to the reconsideration of the arbitrator. I should reiterate once again that the arbitrator has acted perfectly properly in the present arbitration. It was proper for him to render his decision on taxation as well as the costs of taxation in one and the same award. He was also correct in saying subsequently, after his attention had been drawn to the Calderbank correspondence, that he was functus officio, and it was not open to him to re-visit the question of costs. He did not rely on the ground that the Calderbank offers were not relevant and could not be taken into account in considering costs (a proposition rejected by me in this judgment) to justify his refusal to re-visit the question of costs. His reasoning was impeccable. But this does not mean that the court is in the same position as the arbitrator. The court does have the jurisdiction to remit the matter to the arbitrator for reconsideration under section 23(2)(b) (and also section 24). However, this Court s exercise of its discretion to remit is, I should emphasise, no reflection at all on the conduct of the arbitrator of the taxation exercise. As regard costs, as foreshadowed in my discussion above, Chinney must bear the responsibility for what has happened before the arbitrator. Its own error in not asking the arbitrator to reserve the question of costs gave rise to all the difficulties that have since been encountered. It is true that Po Kwong has opposed the present appeal unsuccessfully. But Po Kwong s arguments, though eventually rejected by this Court, were highly arguable and reasonable, particularly when the issues raised were mooted ones. In substance, Chinney comes to the court to ask for relief from its own mistake. It must pay for it. I note that in King v. Thomas McKenna, Hobhouse J. in ordering remission, required the building owners to pay the contractor s costs in or about the remission. There was no cross appeal on that aspect. The Court of Appeal referred to that costs order without disapproval or adverse comment (at page 498D/E). In those circumstances, I make a costs order nisi that Chinney pay to Po Kwong the costs of the present proceedings, to be taxed if not agreed. Unless either party should apply to this Court to vary the costs order nisi within 14 days after this judgment is handed down, the same shall become absolute upon the expiry of the 14 days period. (Andrew Cheung) Judge of the Court of First Instance High Court Ms Liza Jane Cruden, instructed by Messrs Wong & Fok, for the Applicant Mr Rimsky Yuen SC and Mr Victor Dawes, instructed by Messrs Au Yeung, Cheng, Ho & Tin, for the Respondent PAGE - A B C D E F G H I J K L M 1udk 1udk i$&> 7N!h lUc~] iNBJ B>xbt user HCA.dot setup Microsoft Word 9.0 Judiciary Hong Kong Title Microsoft Word Document MSWordDoc Word.Document.8