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Arbitrators in Hong Kong have a Broader Discretion on Calderbank Offers than the Courts: Chinney Construction Co Ltd v Po Kwong Marble Factory Ltd

In actions for claims other than "debt or damages", a defendant in Court proceedings in Hong Kong may make an offer in a letter marked "without prejudice save as to costs" or "without prejudice" but subject to an express reservation of the right to refer to the letter on the issue of costs should the action proceed to judgment (commonly known as a "Calderbank" letter). A Calderbank letter is not appropriate in Hong Kong Court proceedings where the defendant can protect his position by a payment into Court eg, in simple debt or damages claims.

Similarly, in arbitration proceedings, a respondent may issue a Calderbank letter, or make a payment into Court, with a view to protecting himself on costs. However, in Chinney v Po Kwong (and in contrast to the position in Court proceedings), the Court of First Instance in Hong Kong held that a Calderbank letter in arbitration proceedings may be appropriate even if a payment into Court could have been made, and that there was no inflexible rule preventing an arbitrator taking such a letter into account when he turns to the issue of costs.

Chinney wrote four Calderbank letters to Po Kwong in an arbitration. All four offers were rejected. When the arbitrator made his award, it was apparent that Po Kwong had failed to beat three of the four offers. However, Chinney failed to bring any of the four Calderbank offers to the arbitrator's attention prior to the publication of the award. The arbitrator thus refused to award Chinney its costs, and Chinney sought leave to appeal.

The Court held that there was nothing in the High Court Rules to prevent an arbitrator from taking a Calderbank offer into account in debt and damages claims. The Court decided to exercise its general jurisdiction under the Arbitration Ordinance to reopen the award and remit it to the arbitrator on the ground of procedural mishap. The procedural mishap was held to have arisen from Chinney's mistaken belief that the arbitrator would entertain further submission on costs because of the Calderbank offers. The Court held that what protection (if any) a Calderbank offer would afford a party to an arbitration would depend on the facts of the case and the discretion of the arbitrator.

Hebert Smith - Recent International Arbitration Developments
January 2006

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