Costain International Ltd and Another v. Attorney General
Read the full judgment text of CACV 22/1983 on BabelCite. This Court of Appeal judgment.
1. This appeal is concerned with the interpretation of an arbitration clause in a building contract entered into between the Government and a building contractor. Clause 120(1) of the Contract provides for the settlement of disputes by arbitration and the question is whether a dispute which has arisen between the parties should, under sub-clause (2), go to arbitration immediately or only after completion of the works to which the Contract relates. Prima facie no arbitration is to be opened until
Cited by 1 case
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CACV000022/1983 contract - construction summons - I.C.E. General Conditions - arbitration clause (clause 120) - Contractor sought extension of time for performance - Engineer by order in writing under clause 65(3) allowed shorter period than that sought but did so on basis that part of claim was bad - an order under clause 65(3) was not a "certificate" within meaning of clause 120(2), and Contractor not entitled to arbitration until after completion of works or termination of contract - further, (Sir Alan Huggins, V.- P. dissenting) even if an order under clause 65(3) were a certificate, the word "certificate" in clause 120(2) was qualified by the words "under clause 102" and no certificate had been withheld such as would entitle Contractor to early arbitration. Practice - skeleton arguments of great assistance to the Court of Appeal.
BETWEEN
---------- Coram: Sir Alan Huggins, V.-P., Leonard, V.-P. and Fuad, J.A. Dates of hearing: 22, 23 March 1983 and 6 May 1983 ___________ JUDGMENT ___________ Sir Alan Huggins, V.-P. : 1. This appeal is concerned with the interpretation of an arbitration clause in a building contract entered into between the Government and a building contractor. Clause 120(1) of the Contract provides for the settlement of disputes by arbitration and the question is whether a dispute which has arisen between the parties should, under sub-clause (2), go to arbitration immediately or only after completion of the works to which the Contract relates. Prima facie no arbitration is to be opened until the works have been completed and any Defects Liability Period has passed, but the Contractor seeks to bring itself within one of the stated exceptions. 2. What has happened is this. The Contract, which incorporates the General Conditions approved by the Institution of Civil Engineers, called for piling and contemplated the possibility that obstructions might be found. The Contractor says that more obstructions have been found than were provided for in the Bills of Quantities and it applied to the Engineer for an extension of 92 weeks for the performance of the Contract. The Engineer allowed only 64 extra days. The Contractor contends that this raises a dispute which should go to immediate arbitration. There were other matters argued before the court below, but we are not concerned with them here. 3. Clause 120(2) is in these terms:
The clause dealing with extensions of time is clause 65, which reads:
4. We were referred to an affidavit of Robert Andrew Cochrane, a partner in the firm which was appointed as the Engineer, and I understand it to be common ground that the dispute between the parties is (to use the words of Buckley, J. in A.E. Farr Ltd. v Ministry of Transport 1960 1 W.L.R. 956, 965) not "about measurements" but rather whether "[the] Engineer has refused to include certain claims in his certificate at all and may be said pro tanto to have withheld a certificate". Thus only two questions arise:
5. The trial judge thought that the order was a "certificate" and emphasized that the court would look to the substance of the document rather than to the label which the parties attached to it. Whilst I agree that a label is not conclusive, it cannot be ignored, and I think one should start by assuming that the pasties meant what they said, and the greater the apparent care with which the draftsman has chosen his language the more one should be disposed to construe that language strictly. Thus in clause 119(1) one finds the words "measuring", "valuing", "deciding" and "certifying" but not "ordering". In clause 119(2) there is the passage, "to form his own opinion, make his measurements or valuations, give his decisions and orders, make his requisitions or give or refuse his certificate". This would suggest that where an "order" is intended that word is used. 6. Nevertheless I accept that a document may sometimes be a certificate even though it is not described as such. As I understand it, a certificate is basically a document which speaks to the truth of some existing fact. Often the fact will be that a person other than the certifier has done something, but it may equally be that the certifier himself has done something or has come to some opinion. Thus in clause 1.38 of the "Particular Specification" annexed to the present Contract we find that
That part of the proforma which is to be filled in by the inspector is as follows:
It seems to me beyond question that a document in this form, which could properly be described as "an inspection report" or "notice of approval", is none the less a certificate. That view is supported by paragraph (b) of the same clause 1.38, which reads:
7. Of course, an order may include a certificate but, fundamentally, it is a document of quite a different character: it does not speak to the truth of an existing fact but directs the doing of some act in the future. No form is prescribed for an order under clause 65(3). One could have been prescribed which incorporated not only the order for variation but also a certificate of the facts justifying the making of the order. That was not done. To comply with the terms of the Contract an order under clause 65(3) should direct the variation of the Contract by substituting a new date for completion. Although the Engineer's order of the 25th November 1982 was not in precisely that form, what was withheld was an order in the correct form for the substitution of the date alleged by the Contractor to be appropriate. That order would have certified nothing and accordingly no ground for an immediate arbitration under clause 120(2) was established. I cannot accept that the word "order" in clause 65(3) is not entirely apt in the context. 8. Mr. Justice Fuad suggested in argument that the fact that clause 120(2) contains an express reference to clause 110(1) indicated that a wide construction of the word "certificate" was impossible. Clause 110 provides for forfeiture of the Contractor's construction plant, temporary works and materials where, inter alia, the Engineer has informed the Director of Public Works that one of a number of specified events has occurred. It was suggested that the withholding by the Engineer of "information to the Director of his opinion" on one of the matters specified in clause 110(1) would then be the withholding of a certificate and the reference to clause 110(1) would be unnecessary. Mr. Kaplan submits that, if Rhind, J. . was right in holding that "certificate'' was wide enough to include an cider under clause 65(3), a record by the Engineer of any decision by him would be a certificate. That, of course, is true, but it does not necessarily follow that, because an order under clause 65(3) is not a certificate, then (for example) the Engineer's "information to the Director of his opinion" under clause 110(1) is not a certificate. Whether it is must depend upon whether "certificate" in clause 120(2) should be construed so narrowly as to include only documents which are expressly referred to in the Contract as certificates or more widely so as to include any document which speaks to the truth of an existing fact. I am satisfied that an "information to the Director of his opinion" could be a "certificate" in the sense that it will speak to the truth of an existing fact namely the Engineer's opinion. If that be the right interpretation then the withholding of a certificate under clause 110(1) would be as much a "withholding of a certificate" as would the withholding of any other certificate and would give a right to an immediate arbitration. However, a dispute which arose from the granting of such a certificate would still have required express mention in clause 120(2) and I derive no assistance from the fact that clause 110(1) is mentioned expressly in clause 120(2): it does not seem to me that the wider construction has the effect of making the reference to clause 110(1) superfluous. Nevertheless, the precision with which clause 119(1) was drafted leads me to believe that the narrower construction of the word "certificate" in clause 120(2) was intended. 9. In deference to the argument of Mr. Clayton I must refer expressly to some of the points which he sought to make. As I understood him he suggested that clause 105 of the Contract (which provides for the correction of certificates) must have entitled the Engineer to correct an order under clause 65(3) because there was no other power conferred to amend such an order and it was inconceivable that he should be left without this power: that indicated that "order" under clause 65(3) was included within the term "certificate" elsewhere in the Contract and should be so construed in clause 120(2). This argument seems to me to be based upon too sweeping an assertion. 10. Mr. Clayton sought to explain the express exception from the limiting words of clause 120(2) of a dispute as to "the exercise by the Engineer of his power under sub-clause (1) of clause 110 in respect of any of the matters referred to in sub-paragraphs (a) to (f) inclusive in that sub-clause". He pointed out that clause 110(1) refers to the Engineer's "informing" the Director of "his opinion" and does not refer to a "certificate". Notification of the Engineer's opinion was not, he submitted, a "certificate", because the opinion was not binding on both parties, and he cited the statement in Hudson's "Building and Engineering Contracts" (10th ed.) at p. 479:
With respect, it cannot be right to treat that passage as if it were a definition written into the Contract. For the reason that a document issued pursuant to clause 110(1) speaks to the truth of the existing fact that the Engineer holds the stated opinion, I think it is a certificate (albeit not one within clause 120(2)). Moreover, it is binding on both sides in the sense that, armed with the document, the Director may after giving 14 days' notice in writing to the Contractor enter the site and the works and expel the Contractor, and the Contractor is obliged to permit him to do so. In my view the express inclusion in clause 120(2) of a reference to clause 110(1) is a strong indication that an order under clause 65(3) was not intended to be the subject of a possible early arbitration. 11. There is nothing in the other provisions of the Contract which appears to me to be incompatible with a strict interpretation of the word "certificate" and I have no hesitation in rejecting the artificial construction for which the Contractor contends. 12. It follows that in my view the second issue, whether the word "certificate" is or is not qualified by what follows, does not arise. However, in deference to the argument of counsel I will express my view upon it on the assumption that a wider construction is possible. 13. Clause 120(2) is not drafted in the most felicitous manner. To begin with, it speaks of a "reference... as to". That must mean "a reference of a dispute as to ...". Then it is possible, although not strictly correct grammatically, that the words "under clauses 102 and 104" could qualify the word "withholding" (in one or both of the places where it was used) and not the word "certificate". Thus prima facie the first two lines of the paragraph could be read in any of the following ways:
14. At this point it is appropriate to mention that in A.E. Farr Ltd. v Ministry of Transport (supra) a contract based upon a previous edition of the I.C.E. General Conditions of Contract was under consideration. Its provisions were, of course, not identical. The four sub-clauses of clause 60 of that Contract have been replaced by clause 102(l), clause 104, clause 103 and clause 105 respectively. As it seems to me, the only material difference lies between the old clause 60(2) and our clause 104, and I will discuss this in a moment. For the time being I merely point out that Buckley, J. stated the three alternative constructions which I set out in the previous paragraph in these terms:
15. First it is necessary to consider whether alternative (c) is possible having regard to the terms of clauses 102 and 104. Clause 102 is concerned with interim payments and clearly provides for the issue of "interim certificates". Such a certificate could be withheld, but could it be withheld "under clause 102"? There is one case where it could be, because proviso (i) entitles the Engineer to refuse to issue an interim certificate for a sum less than that named in the Tender. 16. The question remains whether the clause relates to the "withholding of any portion of Retention Money" and, if so, whether it is a withholding as to which a dispute within clause 102(2) could arise. Can one "withhold any portion of Retention Money" by lawfully retaining money as Retention Money or by retaining money after it has ceased to be lawfully retained as Retention Money? I understood it to be argued that to retain money after it had ceased to be lawfully retainable as Retention Money would not be to withhold "Retention Money", because that phrase is defined as "the amount retained as Retention Money in accordance with the provisions of the Contract" (emphasis supplied). It could equally be said that the lawful retention of money as Retention Money was not the "withholding of Retention Money", because it was not "Retention Money" until after it was withheld. Both arguments appear to me to be over subtle and I think that a dispute as to the amount which might properly be retained as Retention Money, either initially or as the work progressed, would be a dispute "as to the withholding of any portion of Retention Money". 17. Would the money be withheld "under clause 102"? Although the amount of "Retention Money" is apparently laid down in the Tender (which is not before us), clause 102 appears to be the clause under which money may be retained or withheld as "Retention Money". No other clause authorising retention has been pointed out to us and, although the percentage to be retained monthly is apparently "named in the Tender", we do not know where "the limit of Retention Money" is laid down. Be that as it may, I would expect the authority for withholding the Retention Money to be set out in the Contract and clause 102(1) seems to be that authority, for it provides that the Contractor shall be paid monthly, on the certificate of the Engineer, specified amounts "subject to the retention of the percentage named in the Tender unless the amount retained shall reach the limit of Retention Money." Accordingly I think that a dispute as to the amount which might properly be retained as Retention Money under clause 102(1) would be a dispute "as to the withholding of any portion of Retention Money ... under clause 102". 18. Clause 104 deals with the eventual payment of Retention Money and provides that it is to become due "when the Engineer shall certify in writing ...". Clearly the Engineer could withhold his certificate and there could be a dispute about that, but would it be a dispute about the "withholding pursuant to clause 104 of any portion of Retention Money"? It was argued before us that, by reason of the words "unless otherwise .. ." in the proviso to our clause 104, the clause might enable Retention Money to be demanded by the Contractor before the expiration of the latest of several Defects Liability Periods and that this might create a situation where an early arbitration was not inappropriate. That may be so, but the clause is concerned with payment and in no way authorises withholding retention. No doubt the Government could withhold Retention Money in circumstances which raised a dispute whether the money should be paid under clause 104, but such withholding could not be "under clause 104": as we have just seen, it would be withholding the money under clause 102 - and, possibly, contrary to clause 104. If alternative (c) were to be adopted, the result is, of course, that the draftsman of the 1977 Institute Clauses, by merely adapting the language of the previously existing clause 60 (in force when A.E. Farr Ltd. v Ministry of Transport 1960 1 W.L.R. 956 was decided) would not merely have continued a phrase which was probably otiose but (although understandably) would have made part of it nonsensical unless one added at the end of the clause as it stands "in so far as those clauses or either of them authorise the withholding of any certificate or of any portion of Retention Money" or words to that effect. This difficulty makes it unlikely that alternative (c) is the correct interpretation of clause 120(2). 19. Alternative (b) must be rejected for the same reason. The necessity for reading in the word "respectively" would, in any event, have been a further objection to this interpretation. 20. Although at first sight construction (a) also appears to do violence to the language used by reason of the draftsman's omission of a third "as to", I am of opinion that it is the right one. I referred to the probability that the phrase "under clauses 102 and 104" was "otiose". On construction (a) I think it would be otiose, but that does not seem to me to be a fatal objection, for this is not a statute but a commercial contract, which does not fall to be construed with the same strictness. It would be convenient, if unnecessary, to include a reference to those parts of the Contract which the draftsman had in mind as giving a right to withhold a portion of Retention Money. 21. Under clause 60(2) of the contract which Buckley, J. had to consider in A.E. Farr Ltd. v Ministry of Transport half the Retention Money was payable on substantial completion of the works and half upon the expiry of the defects liability period. Proviso (i) related only to the second payment and entitled the developer to withhold payment of the whole or part of the second half of the Retention Money beyond the date when the defects liability period expired if there remained to be executed any works ordered during that period. Buckley, J. accepted the argument of counsel for the plaintiff contractor that this provided a strong reason for not adopting construction (b) or (c), because such withholding could only occur 12½ months or more after the certificate of completion of the works, yet "proviso (i) to clause 66 says that the giving of a certificate of completion shall not be a condition precedent to arbitration". The argument seems to have involved construing proviso (i) as meaning that the giving of a certificate of completion was to be a bar to arbitration, whereas its natural meaning was that arbitration (whether early or not) could begin after completion of the works even if the engineer had not yet certified that the works were complete. It was similarly argued before us that, although, by virtue of the proviso to clause 104 in our Contract, Retention Money might be demanded by the Contractor before the expiration of the latest of several Defects Liability Periods (which might create a situation where an early arbitration was not inappropriate), yet the proviso to clause 120(2) said that the giving of a certificate of substantial completion of the works should not be a condition precedent to the opening of an arbitration. I think that argument is liable to the same criticism as I have made of the argument in the earlier case, but, more important, it must be remembered that clause 104 is not in the same terms as clause 60(2) of the A.E. Farr Ltd. contract and, if my view be right, there could under our contract never be a withholding "under clause 104" of any portion of Retention Money. Buckley, J. recognised that the words "the Retention Money under clause 60" might not be very artistic language but thought that to construe them as meaning either "the Retention Money referred to in clause 60" or "the Retention Money retained under clause 60" would not do violence to them. Whilst he did not mention the omission of a third "as to", it was something which was so obvious that I do not believe that he could have failed to notice it. Although initially I had grave doubts as to the correctness of his conclusion, I am now satisfied that he was right. 22. Rhind, J. in the court below was impressed by the fact that A.E. Farr Ltd. v Ministry of Transport was decided well before 1977 when the relevant Institute Clauses incorporated into this Contract were drafted, and he thought the draftsman of those Institute Clauses (who should be regarded as the real draftsman of clause 120(2)) must have intended that the new clause should be interpreted in accordance with that decision. That seems to me, with respect, to be sound reasoning, and not necessarily to involve any suggestion that Buckley J.'s construction had become an established interpretation among commercial men: it is reasonable to assume that any draftsman asked to amend a set of Institute Clauses would acquaint himself with judicial decisions on the existing clauses and, if he thought those decisions were contrary to the desires of those who would be likely to use the amended clauses, to make such changes as he hoped would produce the desired result. Persons who adopt Institute Clauses cannot, it seems to me, be heard to say that they were unaware of decisions of which the draftsman must be assumed to have had knowledge. 23. Mr. Clayton has submitted that to reverse the trial judge on either of the issues we have been considering would defeat the intention of the parties. He starts by asserting that the major reason for providing for possible arbitration before the completion of the works was to maintain the cash flow of the Contractor and to prevent the Contractor's being placed in a financial position which made it impossible for the company to continue. From that he argues that, if the withholding of an order under clause 65(3) does not entitle the Contractor to immediate arbitration, the cash flow may be interrupted by the deduction from future interim payments due under clause 102 of liquidated damages for delay under clause 67(1), since clause 67(2) gives express power to make such deductions. I think this submission must fail because the intention of the parties is to be ascertained from the Contract itself and not by asking what the court thinks the parties would have been wise to intend and thereafter assuming that that was what they did in fact intend. Moreover, Mr. Kaplan is right when he says that the Contractor's difficulty may be no more than theoretical, because the company may be able to speed up the work and avoid liability under clause 67. Not every decision of the Engineer which may affect the cash flow of the Contractor is automatically the subject of immediate arbitration. 24. It was then urged upon us that at least there was ambiguity as to the meaning of Clause 120(2) and that, by applying the maxim verba fortius accipiuntur contra proferentem, we should be driven to interpret the clause in favour of the Contactor. This argument never gets off the ground because the word "certificate" is not ambiguous. Secondly, the Contract is not in a form prepared by the Crown but in a form drafted at the instance of a professional institute. It is unnecessary to discuss whether this is a case where the rule is, in any event, reversed in favour of the Crown. 25. For these reasons I think that Rhind, J. came to the right conclusion on the second issue but that he was wrong on the first issue, so that the appeal ought to be allowed. 26. We take this opportunity to draw attention to a statement which was recently made by the Master of the Rolls in England and in which he expressed the approval of the Court of Appeal for the submission of skeleton arguments in writing: see The Times Newspaper 1983, April 13. We, also, welcome the assistance afforded in suitable cases by a written outline setting out the steps in counsel's argument and, where appropriate, chronologies of events, lists of dramatis personae and other information which will. make for a clearer and quicker presentation of the case and which the judges might be expected to take down in detail. Thus in the present appeal we were helpfully supplied with a list of the clauses in the Contract in which the word "certificate" appeared. 27. We emphasise that the provision of a skeleton argument is not obligatory and in no way usurps the function of oral argument or limits the extent of the argument. Nevertheless, experience has shown that a skeleton argument is of great value in saving time and expense, and the more so when it is submitted to the court and to counsel on the other side in advance. Leonard, V-P. : 28. I have had the advantage of reading in draft the judgment of Fuad J.A. in which the facts are fully set out. The grounds of appeal as presented to us appear to me to require decision on two questions.
In approaching both these questions I think it is significant to note and advisable to bear in mind that the main purpose of Clause 120(2) is to prevent references to arbitration being opened until after the completion of the works. The words we have to consider form an exception to that general rule and it is for the respondents to bring themselves within that exception. Secondly, I think it is significant that the exception is specific; it refers to the withholding of any certificate or the withholding of any portion of Retention Money and to specific clauses 102, 104 and subparagraphs (a) to (f) inclusive in subclause (1) of Clause 110. This particularity indicates to me an intention on the part of the draftsman to narrow the matters falling within the exception. 29. I pass then to the first question I have posed. 30. The respondents by their letter of the 21st September 1982 gave notice that they required that the following issue (among a number of others irrelevant to my considerations) be referred to arbitration while the works were still uncompleted. "The extension of time to which the Contractor is entitled under Clause 65(2) of the Conditions of Contract as a consequence of the (said) quantities of obstructions and rubble mounds encountered." They stated that they had been advised that this reference related to the withholding of a certificate and requested confirmation that the government was agreeable to reference being opened forthwith. When government failed to agree the present proceedings commenced. 31. The trial judge when considering the first question I have posed having noted that there was no definition of "certificate" in the Conditions suggested that the Engineer's order "falls squarely within the definition" in Hudson on Building Contracts at page 479 as 'the expression in a definite form of the exercise of the judgment, opinion or skill of the engineer, architect or surveyor in relation to some matter provided"' which he regarded as doing "no more than set out one of the natural meanings of the word" (emphasis supplied). He found support from an indication at page 640 that an engineer performs a 'certifying function' when he, grants an extension of time and from a passage at page 639 suggesting that the "status of the person nominated to exercise the power, usually of course the architect or engineer is almost invariably that of the certifier, namely, quasi-arbitral in character" (emphasis added). With the greatest of respect I cannot agree that this approach is a valid one. The definition quoted from page 479 is preceded by the words "as generally understood in building contracts" and the words to which I have added emphasis in the passage quoted from page 639 indicate that the learned author was concerned in general terms with the status of a person extending time with a view to considering whether the parties should be bound by the decision made rather than with the question whether his decision falls within the meaning of the word "certificate" as that word is used in Clause 120(2). 32. Exercising the ordinary canons of construction I think there are several indications why the word should not receive so wide an interpretation as that suggested by the adoption of the "definition" in Hudson. Firstly, the ordinary meaning of the word. A certificate is something which certifies an existing state of affairs. It is not something which grants an extension of time and thereby alters the completion date of a contract. 33. Secondly, Clause 65 which deals with extension of time nowhere uses the word "certificate" or the word "certify". In subclause (1) the extension is something to which the Contractor is entitled "for each whole or part calendar working day during which any storm signal or signals from No.8 to No.10 inclusive have been hoisted". The engineer might well certify the number of days during which such storm signals have been hoisted after consultation with the Observatory but he would not extend the time by certificate as Clause 65(3) makes quite clear "Every variation in time for completion of the Contract shall be by order in writing". 34. Thirdly, the word "certify" or the word "certificate" appears, we are assured, in twenty-four places in the General Conditions. In the majority of cases it is used with reference to payment of sums to which the Contractor has become entitled or for which he has become liable. I can find no case in which the certificate if given will not refer to a state of affairs which has come about. Thus interim certificates are issued after the end of each month on the Contractor's statement showing the estimated value of permanent work executed and the Contractor is paid "on the certificate" various sums on the estimated contract value of the work, the value of materials delivered on site etc. (Clause 102); a certificate of completion is issued "as soon as in the opinion of the engineer the works shall have been substantially completed (Clause 68)". Nowhere throughout the Conditions is the word used unless the certificate to be issued relates to an existing state of affairs. 35. Fourthly, the phrase "measuring, valuing, deciding or certifying" is used in Clause 119; the clause immediately preceding that in which reference to arbitration is dealt with. If "certifying" was to bear the wide meaning accepted by the trial judge the words "measuring", "valuing" and "deciding" would have been unnecessary; in each the engineer would have been "expressing in a definite form the exercise of his 'judgment opinion and skill"'. 36. Finally, I would note that while the action of the engineer in ordering a variation may be preceded by his determination of existing facts the order does not certify anything. It varies the Contract. 37. For these reasons I would hold that, while the behaviour of Maunsell Consultants Asia may have amounted to the withholding of the extension sought or the withholding of an order for an extension it did not amount to the withholding of any certificate. That is sufficient to allow this appeal but in case I am wrong I pass to consider the significance (if any) of the phrases following the word "certificate" in Clause 120(2). 38. The trial judge held, following Farr v. Ministry of Transport,(1) that the word "certificate" was unqualified by the succeeding words. Mr. Kaplan suggests that Farr's case should not be followed in Hong Kong. 39. In Farr's case Buckley J. was considering an arbitration clause being Claus 66 of the I.C.E. General Conditions of Contract then in use in England. There was no doubt that the engineer had withheld a certificate. The question was whether his so doing entitled the contractors to avail themselves of the exception so as to have the reference opened without waiting until after completion of the works. The relevant words in Clause 66 read "Such reference except as to the withholding by the engineer of any certificate or the withholding of any portion of the retention money under Clause 60 hereof to which the Contractor claims to be entitled ... shall not be opened until after the completion or alleged completion of the works ...". Clause 60 was similar in effect to a combination of Clauses 102 and 104 in the General Conditions which I have to consider. I do not propose to set out Clause 60 verbatim. It is to be found at page 960 of [1960] 1 W.L.R. Suffice it to say at this juncture that it deals both with the giving or withholding of interim certificates and with the withholding of retention money. Our Clauses 102 and 104 are to the same effect as Clause 60. Clause 102 provides for interim payments on the certificate of the engineer subject to a retention of the percentage named in the Tender until the amount retained shall reach the limit of Retention Money. [Retention Money is defined as meaning the amount of money retained as retention money in accordance with the provisions of the contract; presumably its "limit" is specified in the Tender as is the percentage to be retained.] There can be no question of withholding Retention Money under Clause 102. The accrual of Retention Money is governed by that Clause. 40. Clause 104 provides for payment of retention money. It "shall become due when the engineer shall certify in writing that the works have been maintained satisfactorily and that the Defects Liability Period has expired". 41. [The term "Works" is defined as meaning all the work and things to be executed or supplied by the Contractor under the Contract and the "Defects Liability Period" is by definition "calculated from the date of completion of the Works certified by the engineer in accordance with Clause 68 or in the event of more than one certificate having been issued by the engineer under that Clause, from the respective date so certified". (1) [1960] 1 W.L.R. 956. 42. Clause 68 obliges the engineer to issue a certificate of completion in respect of the works as soon as in his opinion the works shall have been substantially completed on receiving a written undertaking by the Contractor to finish any outstanding work during the Defects Liability Period. The proviso to it enables the engineer to give such a certificate with respect to any part of the works which has been completed to his satisfaction and is capable of occupation before the completion of the whole and obliges him to do so upon the written application of the Contractor. There may thus be several Defects Liability Periods.] The proviso to Clause 104 (that in the event of different Defects Liability Periods having become applicable to different parts of the works pursuant to Clause 68 the expression "Defects Liability Period has expired" shall for the purpose of this Clause be deemed to mean the expiration of the latest of such periods) is subject to the qualification "unless otherwise provided for in the Bill of Quantities or Specification". 43. Unless that qualification is applicable Retention Money does not become due until after expiry of the Defects Liability Period so that the question of arbitration being opened as to the withholding of Retention Money could not arise before the completion of the works. The question might arise if the engineer was obliged by Clause 68 to issue a certificate of completion with respect to a part of the works completed to his satisfaction and capable of occupation before completion of the whole if, but only if, the Bill of Quantities or Specification provided that the expression "Defects Liabilities Period expired" should be deemed to mean the expiration of, for example, the first of such periods insofar as that part of the works was concerned. If, for example, the works contemplated the erection of several blocks of flats each to be completed before the next was to be commenced and the engineer was satisfied on the completion of the first block that it was fit for occupation he would be obliged by Clause 68 to issue a certificate of completion with respect to it. As far as that block was concerned the Defects Liability Period would be calculated with reference to that certificate of completion so that Retention Money might by the operation of a Clause in the Bill of Quantities or Specification be due by virtue of the provisions of Clause 104 long before the last block was completed. I have no doubt but that the exception in Clause 120 was worded as it was to cover this eventuality and that it would be effective so to do if the word "respectively" was implied after "under Clause 102 and 104". Unless the word "respectively" is understood the inclusion of the words "under Clause 102 and 104" seems to me to be otiose. As to the words "under Clause 60" n the English General Conditions Buckley J. had this to say in Farr's(1) case:
This reasoning seems to me to ignore the general purpose of Clause 120(2). It is to restrict arbitration before the completion of the works. An exception to the general rule is made and the cases where an early arbitration is acceptable are set out. If the interpretation adopted by Buckley J. is adopted that exception might as readily be read without the words "under clause 102 and 104" for those words would have no effect. The draftsman has been meticulous in his approach to Clause 110 in that he has omitted reference to the exercise by the engineer of the power of the engineer referred to in subparagraph (g) to inform the Director that in his opinion the Contractor has failed to proceed with works with due diligence the exercise of which power (like those referred to in subparagraphs (a) to (f) respectively) may result in the expulsion by the Director of the Contractor from the site. The result of this (on the face of it, deliberate) omission is that the Contractor will come within the exception and be entitled to early arbitration if the engineer informs the Director that in his opinion the Contractor "(d) is not executing the works in accordance with the Contract or is persistently or flagrantly neglecting to carry out his obligations under the Contract" but will not come within the exception if the engineer informs the Director that in his opinion the Contractor "(g) has failed to proceed with works with due diligence". This is a fine distinction the reason behind which escapes me. That it is made does however convince me that the words "under clauses 102 and 104" do not mean merely "the retention money referred to in clauses 102 and 104." They cannot mean merely "the Retention Money retained under clauses 102 and 104" because retention money is not retained under Clause 102. What is "retained" under Clause 102 goes to form the Retention Money. Retention Money is payable under Clause 104 on the Certificate of the Engineer. If the Engineer does not give such a certificate then Retention Money may be said to be withheld under that Clause. For these reasons I would not follow Farr's(1) case but would hold that the words "under clauses 102 and 104" must mean "pursuant to or in accordance with clauses 102 and 104 respectively and qualify both 'the withholding of any certificate' and the "withholding of any retention money". 44. I would therefore allow the appeal on both grounds. Fuad, J.A.: 45. This appeal concerns the proper construction of an arbitration clause in a Public Works Department contract. The contract, dated the 16th December 1980, was between Costain International Ltd. and Pension Bridge (Hong Kong)O Ltd., trading together as Costain-Penson Bridge Joint Venture ("the Contractors") and the Government of Hong Kong. The works undertaken formed part of a dual carriage highway, known as the Hong Kong Island Eastern Corridor Route, between Causeway Bay and Shau Ki Wan, and involved the construction of a section of the highway to run between Victoria Park and Healty Street, at North Point, and associated works. Maunsell Consultants Asia were appointed by the Government as "the Engineer" for the works. 46. The affidavit of Mr. Gordon Trayling, the Contractors' Project Manager, explains that during the execution of the extensive piling work necessitated by the contract, they encountered obstructions and rubble mounds "far in excess of the quantities provided by the Bill of Quantities for such items". The works began in January 1981, and by a letter dated the 13th March 1982, the Contractors notified their claim for extra payment to the Engineer. Five days later the Engineer replied indicating his preliminary view that the Contractors were neither entitled to extra payment nor to an extension of time for completion of the works. Further correspondence ensued and the Contractors particularised and quantified their claim; and in May ammeeting was held to discuss the matter. For the purposes of this appeal it is not necessary to review the subsequent history of the Contractors' efforts to substantiate their claim, its rejection by the Government and the stand taken by the Government over the right to immediate arbitration. It is only necessary to state that by the end of July 1982 the Contractors' claim for extra work had reached $154.5m and that they were asking for a 92 weeks' extension of time to complete the contract. 47. By what was termed "Variation Order No. 5", dated the 25th November 1982, the Engineer wrote to the Contractors as follows -
TITLE Main Contract - Victoria Park to Healthy Street CONTRACT N0. 551/78 VARIATION ORDER NO. 5 (Five)
48. Please execute Works as set out below. 49. This Variation Order amounts to an estimated increase in the contract sum of $ Nil. The time for Completion is increased by 64 (Sixty Four) days. Revised Date for completion of Works 21st March, 1984 DESCRIPTION OF WORKS: - EXTENSION OF TIME 50. In accordance with the provisions of Clause 65 of the Conditions of Contract an extension of time for the completion of the Works of 64 (sixty four) days is granted. This extension is granted for the presently assessed effect of the actual quantities of obstructions requiring to be broken out in cast-in-place piling exceeding the quantities included in the Bills of Quantities during the period from commencement of Works until 25th July, 1982" 51. Since the Government continued to dispute the Contractors' right to arbitration before the completion of the works, they took out an Originating Summons on the 21st October 1982 seeking the following principal relief - "Declarations that:
52. On the 4th January 1983 a Judge of the High Court granted the declarations sought by paragraphs (a) and (b) of the Summons; his judgment is dated the 21st January. Before the Judge, the Attorney General had resisted the Contractors' contention that they were entitled to immediate arbitration in respect of both matters referred to in the Summons. However, there is now no appeal against the decision relating to the withholding of certificates for payment. The appeal is limited to that part of the Judge's Order by which he declared that the Contractors were also entitled to an immediate reference to arbitration in respect of the "withholding of a certificate for extension of time for completion". 53. On this issue, the Judge discussed the provisions of General Condition 65 ("Extension of time for completion") and 120 ("Settlement of disputes - arbitration'') and came to the conclusion that the word "certificate" used in clause 120 was not to be interpreted as if it were some term of art, with a meaning confined to one of the 18 types of certificate referred to elsewhere in the General Conditions. Rather, the word should be interpreted in accordance with the definition of the word "certificate" given at p.479 of HUDSON'S BUILDING AND ENGINEERING CONTRACTS (10th Edition): "the expression in a definite form of the exercise of the judgment, opinion or skill of the engineer, architect or surveyor in relation to some matter provided for by the terms of the contract.", adopted by the English Court of Appeal in Token Construction Co. Ltd. v. Charlton Estates Ltd. (1973) 1 BLR 48. He also drew some support for his view by what was said about an engineer's "certifying function" in granting extensions of time for delays at p.p. 639-640 of HUDSON. The Judge also rejected the submission made on behalf of the Attorney General that the words "any certificate" in clauses 120(2) were qualified by the words "or the withholding of any portion of Retention Money under clauses 102 and 104", adopting the approach of Buckley J. to the construction of a clause in somewhat similar terms in Farr (A.E.) v. Ministry of Transport [1960] 1 W.L.R. 956. 54. It is now necessary to read certain provisions of the General Conditions which formed part of the contract. Clause 65 is in the following terms -
55. The arbitration clause (clause 120) is in these terms -
56. While the documents are voluminous (and some criticism of their unnecessary bulk could be made) the question in dispute can be stated in simple enough terms: does the proper construction of clause 120, read in the context of the agreement as a whole, allow the Contractors to insist upon immediate arbitration when the Engineer refuses to grant them an extension of time for completion for as long a period as they request? Unless the Engineer's refusal comes within one or other of the express exceptions in sub-clause (2) of clause 120, then if the parties do not signify their mutual consent in writing to an earlier reference to arbitration, this must await the occurrence of one of the specified events for which provision is made at the end of the sub-clause: the actual or alleged (a) abandonment or completion of the works (b) the termination of the Contractors' employment. 57. Arbitration clauses in contracts such as the one we are called upon to interpret are common enough but, as is only to be expected, they vary greatly in their scope and effect. Some will include all disputes which might arise without qualification; others will permit arbitration only in respect of particular matters. Some will allow a reference to arbitration only to be opened at the abandonment or completion of the works or on the termination of the Contractors' employment; others, as here, will enable one of the parties to insist upon arbitration when particular disputes or differences arise while the works are still in progress and the contract still alive. In the last mentioned type of arbitration clause it is, of course, for the party contending for a right to go to "early arbitration" (if I may so call it) to bring himself squarely within the stipulated exceptions unless he can persuade the other party to agree. What is quite clear here is that the parties agreed severely to limit references to arbitration during the currency of the contract. 58. In the forefront of Mr. Clayton's submissions seeking to support the Judge's decision was that the words "any certificate" in clause 120(2) were not limited to documents that were expressed to be certificates in the rest of the General Conditions. He contended that what the Engineer was required to do under clause 65 was essentially to reach a decision which he would then express by an order in writing. He was not in fact "ordering" in the sense that he would be making orders for variations in the circumstances envisaged, for example, by clause 73. And so the word "order" meant different things in different contexts. Mr. Clayton said that what was meant by the word "certificate" in clause 120(2) was ambiguous and therefore it was legitimate to look at the intention of the parties. In view of the fact that the Engineer's decisions upon extensions of time would affect entitlement to, and the amount of liquidated damages, and therefore permit the deduction by the Government of such damages from amounts otherwise due to the Contractors (by virtue of clause 67(2)), in certain circumstances, this could create serious "cash flow" problems for them. The parties, it was argued, could not have intended to exclude decisions with such far-reaching consequences ("horrendous" was the word used), from the ambit of the early arbitration provisions. 59. Mr. Clayton also relied on what he and the learned Judge chose to call the "definition" of certificates at p.479 of HUDSON which I have already mentioned. He referred us, in particular, to para. 1.38 of one of the contract documents (the Particular Specification) which speaks of applications for inspection and approval and, later, the necessity for "appropriate certification", as indicating that there was no significance in the use of the word "certificate" and its derivatives. That word could not be regarded as a term of art. 60. Before I deal with the other submissions made as to the true construction of clause 120(2), I will discuss what meaning should be given to the word "certificate" in that sub-clause. Clearly if what the Engineer supplies under clause 65(3) cannot be regarded as falling within the proper meaning of that word, the construction of the words that follow, giving rise to a right to early arbitration, will become, in a sense, academic. 61. Our attention has been drawn to a number of other clauses in the General Conditions where the word "certificate" is employed, rather more in number than 18, the figure given to the trial Judge. In the exercise of the Engineers functions under the Contract, apart from the use of the word "order" in clause 65(3), that word is used in a few other places, of which clauses 34, 57-59, 61, 73 and 76 are examples. He may also give "written consents" (e.g. clauses 4 and 84); he may issue "instructions" (e.g. clauses 6, 17, 35 and 53); he may nuke "requirements" (e.g. clauses 7, 20-23, 38, 52, 69, 70 and 72); he may give "approvals" (e.g. clauses 8, 19 and 55); he may give "directions" (e.g. clause 17); he may make "notifications" (e.g. clause 18); he may make "requests" (e.g. clauses 38 and 82); certain things have to be done to his "satisfaction" (e.g. clauses 40, 45, 56 and 66); he may give "notices" (e. g 50, 64, 75 and 92); he may grant "permission" (e.g. clause 64); he may "authorise" (e.g. clause 76(5)); he may give his "opinion" (e.g. clause 110) and he may "agree" (e.g. clause 115). 62. It seems to me that if the argument about the definition of the word ''certificate" which found favour with the Judge (and which is being urged before us) is to be accepted, then whenever the Engineer refused at the request of the Contractor to give his consent, or his approval, or his permission, or his authorisation, or to signify his agreement, he could be said to have withheld a certificate to which the Contractor claimed to be entitled. If it is necessary to discern the intention of the parties, I have to ask myself, could they possibly have intended the availability of early arbitration in so many and varied sets of circumstances concerning which disputes could notionally arise on an almost day-to-day basis? But in my judgment, such an exercise is not necessary, for by the use of different terms for the expression of the exercise of the Engineer's various powers and duties, it is plain that when the parties used the word "certificate" they meant a certificate for which provision is expressly made in the General Conditions. If that is so then, of course, no definition would be necessary. Everything will depend on the meaning which can be extracted from the contract read as a whole, and in my view the one we have to construe is not to be read as if what I might call the "Hudson definition" of the word "certificate" were engrafted upon clause 120. 63. That the draftsman had in mind the differing ways by which the Engineer's decisions were to be communicated under the General Conditions is shown, I think, by the particularity with which reference is made in clause 120(2) to "the exercise by the Engineer of his power under sub-clause (1) of clause 110 in respect of any of the matters referred to in sub-paras (a) to (f) inclusive in that sub-clause". And it is to be noted that in the very clause that precedes that clause (clause 119) there are express references to the Engineer's "opinion", "decisions" and "orders" as well as to his "certificates". It is difficult, against this background of precision, to comprehend that there would have been no mention of an order under clause 65(3) if the parties really had intended that dissatisfaction with the terms of such an order would entitle the Contractors to immediate arbitration. It would have been so simple so to provide. I have reached the conclusion, with the utmost respect to the persistence and ingenuity with which Mr. Clayton made his submissions before us and to the decision of the trial Judge, that the word "certificate" in clause 120(2) does not embrace anything not so described in the General Conditions, whether or not any certificate that can be said to have been withheld allows recourse to early arbitration. 64. For these reasons alone, therefore, I would hold against the Contractors, but in deference to the arguments addressed to us by Mr. Kaplan (for the Attorney General) and by Mr. Clayton, I now turn to consider the meaning to be attached to the words in clause 120(2) that immediately follow "any certificate". Mr. Kaplan sought to challenge, and Mr. Clayton to support, the Judge's conclusion that the expression "any certificate" was not limited to certificates covered by clause 102. As has been seen, the learned Judge adopted Buckley 'J. 's construction of a similar clause in Farr's case. To interpret the clause in the way contended for by the Crown would be, he felt, to do violence to the language used. He found it inconceivable that any draftsman would have set about expressing his intention in such an obscure way. 65. In referring to Farr's case, the learned Judge had this to say -
66. Mr. Clayton did not expressly rely on this passage, and no argument was addressed to us on the matter. While I perfectly understand why the Judge found Farr's case helpful and, indeed, why he decided that Buckley J. s conclusions were apposite and correct, I am bound to say that I do not consider that he had sufficient material before him to infer that the draftsman must have intended that the word "any certificate" should be unrestricted in their context as interpreted by Buckley J. in that case. In the construction of commercial documents in standard form, it is well settled that a long standing and unchallenged interpretation by a court must not hastily be disturbed (because such documents will have been drawn up with the decisions in mind) but in my view this doctrine must be applied with considerable caution. With very great respect to Buckley J., his decision in Farr should not have been elevated so readily into a construction accepted amongst commercial men; the learned trial Judge's judgment certainly does not suggest that he was told that the decision had become so. I do not think it is irrelevant to remark that although the General Conditions were in standard form and had their genesis in the United Kingdom, the contract was signed here and it is far from certain that those concerned, had they been asked, would have said that they knew all about a first instance decision on an earlier version of standard form conditions, reached in another jurisdiction. 67. I now return to the relevant words in clause 120(2) that follow "any certificate". It was urged before us that to construe those words in the way contended for by the Crown would be to re-write the clause. Mr. Clayton suggested that the circumstances covered by clause 104 would not be apt for early arbitration (an argument on similar lines was advanced with success before Buckley J. in Farr's case), and submitted that since retention money was mentioned both in Clauses 102 and 104, the reference to those clauses qualified only the withholding of retention money. I accept that in most cases an early reference to arbitration will not be apt where disputes under clause 104 arise, but where the proviso to that clause applies, in view of the words "unless otherwise provided for in the Bills of Quantities or Specification", the General Conditions do envisage circumstances in which retention money can be released before the completion of the entire works. I note that words of this kind do not appear at the end of the proviso to the clause 60(2) that Buckley J. had to consider. 68. I find sub-clause (2) of clause 120 clear in its meaning. Without adding words or changing their order, by the use of paragraphing, the relevant part of the sub-clause can be expressed as follows - " ... except -
It seems to me that to set out the words in that way, and by observing that the words "as to" do not occur between the word "or" and the word "the" in my paragraph (a), it becomes apparent that the words "any cer tificate" are qualified by what comes thereafter; the true structure of the sentence is thereby revealed, and any possible syntactic ambiguity removed. And then when one notes that clause 102 deals with interim certificates (although mention is made of retention money it cannot be "withheld" under that clause) and that clause 104 sets out when retention money is due, it can be seen that paragraph (a) must be read as if references to clause 102 and to clause 104 are made respectively in relation to the withholding of a certificate under the first mentioned clause and of retention money under the second. 69. I would not presume to conjecture if Buckley J. would have come to a different conclusion in Farr's case had argument been addressed to him on the possible significance of the omission of the words "as to" in the place I have pointed out. 70. In my judgment the parties clearly intended, by the words they used, to limit recourse to early arbitration to events that might occur under clauses 102, 104 or 110(1)(a) to (f) and so I unhesitatingly accept the contentions put forward by Mr. Kaplan on behalf of the Crown. I would therefore allow the appeal. (1) [1960] 1 W.L.R. 956 6th May, 1983. Representation: N.T. Kaplan, Q.C. & P.T. Nunn for Appellant/Defendant. Clayton (McKenna & Co.) for Respondents/Plaintiffs. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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