Lee Shing Yue Construction Co. Ltd. v. Director of Architectural Services and Another

HCAL 226/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO. 226 OF 2000

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Coram: Hon Hartmann J in Court

Dates of Hearing: 7, 8, 9 February 2001

Date of Handing Down Judgment: 16 February 2001

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J U D G M E N T

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Introduction

1. The Applicant in these judicial review proceedings has for some 30 years specialised in constructing, renovating and maintaining public works. As such, it has long been approved by Government to tender for contracts. Indeed, in 1992 it was classified by Government as a 'Group C' contractor; that is, a contractor eligible to tender for public works no matter what the value of the contracts. At or about the time when these proceedings were commenced, I am told that some 90% of the Applicant's turnover was generated through public works contracts.

2. The reason why building contractors seeking to obtain Government work must be approved is to ensure that those who are awarded contracts are, in the assessment of Government, possessed of the necessary technical and management capabilities to undertake the work and are in addition financially sound. It is obvious, I believe, that a prudent organization seeking to enter into a contract with a third party for the provision of services will require some assurance that the third party is capable of efficiently supplying those services.

3. In early 1998, the Applicant successfully tendered for what is commonly called a 'maintenance term contract'. The contract was to run for a term of 3 years calculated from 1 April 1998. In terms of the contract, which is identified by the code TCG-003, the Applicant is obliged, when so instructed by Government, to carry out a variety of maintenance and repair works to public buildings in its contracted area. These buildings include hospitals, schools, police stations, courts and the like. As for the contracted area, this extends from Yau Ma Tei through Mongkok all the way out to Sai Kung in the New Territories. The contract is of considerable value, the tendered sum for the 3-year term being well in excess of HK$500 million. It transpires, however, that demand within the Applicant's contracted area for maintenance and renovations has significantly exceeded expectations. This has placed additional strains on the managerial resources of the Applicant while at the same time, of course, adding to its gross revenue.

4. As earlier indicated, the Applicant discharges its contractual obligations to carry out maintenance and repair works when it receives instructions to do so from Government. Those instructions are received in the form of written documents called works orders. An 'MWO'; that is, a minor works order, relates to work valued at less than HK$3,000 while a 'WO'; that is, a works order, relates to all work over that sum. All works orders give a brief statement of the nature of the work required and state a target date by which that work should be completed. To give an indication of the scale and complexity of the Applicant's obligations under contract TCG-003, I am told that in the 15-month period from June 1998 to November 1999 it responded to a total of 70,332 minor works orders and 6,537 works orders.

5. The persons issuing these works orders are in the present case members of the Architectural Services Department ('the ASD'). The ASD is headed by a Director, the 1st Respondent in these proceedings. The ASD is what is called the 'managing department' and, as such, it liaises with and supervises contractors such as the Applicant to ensure that all work is completed satisfactorily.

6. The ASD, however, is just one of 7 departments falling under the control of what is now called the Works Bureau. The head of that Bureau is the Secretary for Works, the 2nd Respondent in these proceedings.

7. To ensure a regular assessment of the capabilities of building contractors who successfully tender for public works, the Works Bureau has in place a system of adjudication ('the monitoring system'). Under this system regular reports on performance are prepared. If an individual contractor is subjected to a series of 'adverse' reports the contractor may be suspended for a set period from tendering for further work or, in the most extreme cases, may be removed altogether from the Government's list of approved contractors.

8. The Applicant commenced its duties under its maintenance term contract on 1 April 1998. However, within a period of some 21 months it had been made the subject of 7 adverse reports issued by ASD. After the issue of the sixth adverse report a decision was made by ASD to recommend to the Secretary of Works that the Applicant be suspended from tendering for further public works. The matter was considered by the Secretary for Works who duly made a suspension order, that order to endure for a period of 6 months calculated from 6 January 2000. As a result of that suspension, although the Applicant continued to be employed in terms of its 3-year maintenance contract, it was prevented from tendering for other public works contracts during the period of suspension.

Will any order granted in favour of the Applicant be sterile?

9. Although the period of suspension imposed upon the Applicant in January 1998 has now expired, it is not disputed that the Applicant still has a legitimate interest in pursuing the proceedings. Historically, the Applicant has specialised in public works contracts and still wishes to do so, a wish which may be adversely affected by the 'black mark' of the suspension. More to the point perhaps, the Applicant's present 3-year maintenance term contract still endures and it therefore remains subject to the constraints of the monitoring scheme which is under challenge. If an order is granted in favour of the Applicant, that order may still be of clear benefit to it.

The Applicant's grievance

10. Expressed broadly, it appears that the reason for the Applicant's suspension stemmed from a finding by ASD (confirmed by the Secretary for Works) that the Applicant had been persistently guilty of delays in completing work. The starkest illustration of this appears in the first adverse report dated 7 September 1998 which reads:

'There was a major change in contractor's organisation structure under this contract in June/July 1998 which had seriously affected the progress of works, in particular the repair projects in schools during the summer vacation. A total of 473 warning letters issued from 1 June 1998 to 31 August 1998 expressing dissatisfaction with rate of progress of works (including both minor works orders and works orders). Although the contractor has taken some actions to catch up the programme, there are delays in a lot of jobs and progress is not satisfactory.' [my emphasis]

11. The second adverse report dated 15 March 1999 persists with the same form of complaint, reading as follows:

"250 warning letters have been issued to the Contractor expressing dissatisfaction with rate of progress of works, workmanship and others (including both minor works orders and works orders). There are over 1,000 works orders which are overdue or not completed on time. Overall progress is not satisfactory. [my emphasis]

12. Subsequent adverse reports were not specific as to the number of warning letters despatched to the Applicant but still complained of work orders being behind schedule. For example, the fifth adverse report dated 8 September 1999 reads:

"The progress of major repair project at schools was slow, in particular Kwun Tong and Sai Kung District. The labour resource was generally inadequate and a lot of works orders are behind schedule.

13. Warning letters are the first 'formal' means employed under the monitoring system to alert contractors to the fact that their performance in respect of any single matter is not considered satisfactory.

14. As is apparent from the contents of the adverse reports, the need by supervising officers in ASD to despatch a large number of warning letters is a factor, and often a material factor, in deciding whether a report is to be classified as 'satisfactory' or 'adverse'.

15. In these proceedings, the Applicant complains, however, that the great majority of warning letters issued to it were unjustified. They were unjustified because either they were patently in error or because they were despatched without care for all the surrounding circumstances which, if viewed with reasonable discretion, would have made their despatch unnecessary. It is the Applicant's case that it did its best to investigate and answer all warning letters. But, despite being able to show in the majority of cases that there had been no justification for the issue of those letters, ASD took no steps (or at best only the most desultry) to amend or endorse their records so that, when reports were prepared, they were, in respect of warning letters, based only on those justifiably sent and not those shown to have been sent in error.

16. For example, in respect of the first adverse report in which it was mentioned that a total of 473 warning letters had been sent, it is the Applicant's case that it was able to demonstrate that 267 had been patently sent in error leaving a balance of only 207 warning letters which were 'conceded' to the extent that at that time the Applicant could not point to clear and obvious reasons why they had been wrongfully issued. But when those 'conceded' warning letters were considered in the light of the number of works orders being completed at the relevant time, they represented such an insignificant percentage of the total work that they could not rationally be material grounds for an adverse report. In the period under review in the first adverse report, complains the Applicant, 16,086 works orders were issued. The 'conceded' warning letters, therefore, related to just 1.28% of those works orders.

17. In a letter to ASD dated 22 September 1998, the Applicant provided a list of 8 reasons why it contended that warning letters had been issued in error. These included the following; namely, that the letters alleged delay when in fact -

i) the works had already been completed;

ii) the works order had already been cancelled;

iii) the works had been completed but not yet reported as such through appropriate channels;

iv) extensions of time to complete the work had already been granted;

v) the works had called for specialised materials which ASD itself had not yet approved or which were still awaiting delivery;

vi) the institutions for whom the work was being done (i.e. the relevant hospital, school or public office) were not able to offer access to the work site within the time allocated.

18. While the Applicant accepts that it was able to make representations before the issue of adverse reports and also before the suspension order was made, the core of its grievance lies in the allegation that ASD ignored the representations related to the unjustified issue of warning letters. As a result, the adverse reports and the suspension decision, to the extent that they were founded on adverse inferences drawn from the number of those warning letters, were fundamentally flawed.

19. As I understand it, that is why the Applicant seeks to set aside not only the decision of the Secretary of Works imposing the 6-month period of suspension but also all the adverse reports upon which, it is said, the decision was ultimately (and materially) founded. In summary, what is challenged is not, in the main, the nature and extent of the monitoring scheme but rather, in respect of the Applicant, the arbitrary and irrational manner in which the scheme was executed. The Applicant therefore seeks the following orders:

(i) against the 1st Respondent, the Director of ASD, an order of certiorari quashing his decisions to issue the 7 adverse reports;

(ii) also against the 1st Respondent, an order of certiorari quashing his decision to recommend to the 2nd Respondent, the Secretary for Works, that the Applicant be suspended, and

(iii) against the 2nd Respondent, an order of certiorari quashing his decision to impose the period of suspension;

(iv) further, or alternatively, declarations are sought that all the decisions under challenge are null and void.

A brief consideration of Respondents' contentions.

20. It should be said that the Respondents, while they accept that a percentage of warning letters may have been sent in error, dispute that the monitoring scheme was, in respect of the Applicant, administered in either an arbitrary or irrational manner. Broadly, the Respondents dispute the Applicant's assertions on a number of grounds which may be summarised in the following manner.

21. As to the Applicant's assertions concerning the number of unjustified warning letters, the Respondents contend that the factual background to many of those letters is not as clear cut as the Applicant would have the Court accept. For example, it may be correct to say that an institution would not allow access to the work site in the time specified in a works order. But if the Applicant only sent its workmen to the site on the last day allowed under the works order it must anticipate the possibility of delay, especially if the required works involve a disruption to water or electricity supplies or something of that nature. Prudent management procedures dictate that the approach should be made much earlier so that a suitable date can be arranged within the time specified in the works order.

22. While the number of warning letters was, of course, a consideration in the compilation of the adverse reports and the decision by the Secretary of Works to impose a period of suspension, it was not the only consideration. Matters were viewed on a much broader basis, taking all relevant circumstances into account.

23. In any event, the monitoring scheme had built into it checks and balances designed to ensure fairness. The Applicant was advised of impending adverse reports and was always given an opportunity to make representations, an opportunity which it accepted. Those representations were duly considered, both in the ASD and by the Secretary of Works.

24. In this regard, Mr Chow, appearing for the Respondents, set out a chronology of events concerning the actions taken in respect of the recommendation that the Applicant be suspended. After the recommendation had been made by ASD, he said, the Secretary of Works invited the Applicant to make representations why it should not be suspended. This was done. ASD was asked to comment on those representations and thereafter Mr Lawrence Poon, an Assistant Secretary of the Works Bureau, prepared a detailed summary setting out the contentions of both the ASD and the Applicant and adding his own comments for consideration by the Deputy Secretary of Works who was delegated to make the final decision. Thereafter, independently, and on the basis of all the material available at that time, the Deputy Secretary considered the matter and came to his decision.

25. The detailed summary prepared by Mr Lawrence Poon was placed into evidence and makes it plain, for example, that, in respect of the first adverse report dated 15 September 1998, the Applicant's contentions as to the very high number of unjustified warning letters were taken into account. In the summary, the following appears under the heading of the Applicant's 'argument':

"- 267 out of the 473 warning letters issued were not justifiable as pointed out in LSY's [Applicant's] letter dated 22.9.9. That 101 schools were included in last summer's programme, which grossly exceeded the normal 60 schools scheduled for that period.

- Completed works in all those 101 schools and only minor defects and outstanding work were subsequently dealt with and there was no sign of any school not being able to commence the school term by 9/98 or any school whose operation was affected." [my emphasis]

26. Under the heading of ASD's 'response' the following is said:

"- Monthly reports submitted by SPSMs showed that the performance of LSY [Applicant] was deteriorating.

- After receipt of LSY's letter dated 22.9.99, DarchS [ASD] interviewed LSY on 28.9.99 with a summary of performance prepared by CPSM/1. Following the interview, a detailed investigation had been carried out by CPSM/1 who reported in writing on 12.10.98.

- Although LSY had been given adequate warning during the reporting period of their slow progress of works, they had not performed satisfactorily to meet ArchSD's requirements." [my emphasis]

27. Thereafter, under the heading of 'comments', Mr Poon has written:

"- There is evidence that the progress of LSY [Applicant] during the reporting period was slow and failed to meet ArchSD's requirements.

- LSY in a way admitted that 206 out of the 473 warning letters issued were justifiable." [my emphasis]

Deciding the factual merits: the limitations of judicial review

28. For reasons which appears later in this judgment, I am satisfied that this Court has no jurisdiction to consider whether the decision to suspend the Applicant, together with the earlier reports upon which it was based, were Wednesbury unreasonable. But, having said that, if it had been necessary to resolve that issue, I believe it would have presented a number of difficulties. I say so because it is apparent from the broad outline that I have given that the Applicant's assertions as to the majority of warning letters being unjustified is not accepted by the Respondents. Nor is it accepted that the various adverse reports and the decision to suspend were themselves fatally flawed because they were based upon the fatally flawed management of the monitoring scheme.

29. The difficulties may be better understood by stating the following questions. First, how is this Court to stigmatize the decisions under challenge when, in order to do so, it must come to a finding of fact on a matter that is contested? Second, how is this Court to come to any finding of fact concerning the administration of the monitoring scheme when, in order to do so, it must examine the minutiae of matters in contention?

30. In this regard, Griffiths LJ sounded a warning in his oft quoted dicta in R. v. Chief Registrar of Friendly Societies, ex parte New Cross Building Society [1984] QB 227, at page 260, when he spoke of the duties of a court seized of an application for judicial review:

"The court must take a broad view of the decision and not allow itself to be bogged down in minutiae, or led into the error of taking over the role of a fact finding tribunal ... Particular care must be taken before stigmatising a decision as one at which no reasonable person could have arrived, for this is coming dangerously close to the court substituting its own discretion for that of the tribunal."

31. Mr Griffiths, for the Applicant, would argue no doubt that the refusal of the ASD to investigate and consider the Applicant's objections or, put at its lowest, to record the fact at least that consideration had been given by amending their records, is self-evident. In this regard, no doubt, he would rely on the principle so concisely stated by Bokhary J (as he then was) in Chan Sau Mui and others v. Director of Immigration (1992) 6 HKPLR 479, at page 488:

"It would, in my judgment, be going too far to say that no mistake of fact on the part of a decision maker can ever be brought within the scope of judicial review. Certain such mistakes can. Two conditions must be satisfied. First, it must be obvious - either because it is not denied or because the denial is palpably untenable - that the decision maker has made a mistake of fact. Secondly, it must also be obvious that the fact was of such importance that the decision might well have gone the other way if the decision maker had not been mistaken about it. If those two conditions are satisfied, the court can quash the decision by way of certiorari and, by way of mandamus, compel a reconsideration. That does not involve the court in the evaluation of evidence or the substitution of its decision for that of the decision maker. All it means is that the court will not shut its eyes to the obvious."

32. However, I do not believe the matter ends there. The Applicant made representations and protested its position as it understood it at the time. It must be presumed that those protests were considered. Whether they were accepted or not is, of course, the point in issue. Was such consideration sufficient to rectify the position? Logically, it may be argued that this can only be decided by going back to the merits; namely, to what extent in the first place were the warning letters justified or unjustified and therefore to what extent was any later consideration capable of rectifying any initial oversight or failure on the part of ASD?

A consideration of the monitoring scheme

33. The true nature and extent of the monitoring scheme lies at the heart of these proceedings, the more so as the Respondents submit that the scheme in any event is purely commercial in nature and is therefore not amenable to the public law remedies available under judicial review.

34. In an internal circular dated 13 December 1996, the then Deputy Secretary for Works defined the reasons why the monitoring scheme contemplated action against contractors who received adverse reports:

"The purpose of removal, suspension, downgrading or demotion of contractors from the Lists following an ADVERSE report is to ensure that:-

(a) only suitable competent contractors are allowed to tender for contracts;

(b) pressure is put on the contractor to improve his performance; and

(c) contractors are all treated alike; firmly, but with consistency and fairness."

35. In the same circular, the Deputy Secretary emphasised the need for fairness when he wrote:

"Government must act fairly when taking regulating actions. Contractors must, therefore, be provided with the gist of Government's case and be given adequate warning of proposed actions so that they may have the opportunity to present their view of the matter. Full consideration must be given to any points raised by contractors before action is taken."

36. It was further emphasised in the circular that, although a set of procedures was outlined, there was no requirement that they be rigidly followed:

"Because the circumstances of contracts and contractors vary greatly, the following actions to be taken for consecutive ADVERSE reports are not rigid requirements, but if they are not followed, written justification is required on file."

37. How then, in broad terms, is the monitoring scheme designed to function?

38. First, monthly progress meetings take place. These are attended by representatives of the contractor and site supervisory staff. Problems generally are discussed and if the performance of the contractor is considered inadequate, the contractor is told of ASD's concerns.

39. Second, monthly reports are prepared by the Senior Property Services Manager who is responsible for supervising the contractor.

40. Third, these monthly reports are consolidated into quarterly reports and the contractor's performance appraised by reference to a number of grounds of appraisal. These include: workmanship, progress, site safety, environmental control and managerial competence. A 'poor' rating under any one of the grounds just mentioned results in an overall 'adverse' report.

41. Fourth, to ensure that adverse reports are 'properly reviewed', they are referred to a performance review committee which is chaired by a directorate officer chosen from within ASD. Prior to this, the contractor will have received an advance copy of the adverse report and will be able to make representations. The performance review committee will, therefore, have 'both sides of the story' if the contractor chooses to make representations.

42. Fifth, if the report remains adverse, it is further reviewed by a managing review committee. The function of this committee is described in an internal circular dated 11 November 1987 in the following terms; namely to -

"Review the overall performance of each Contractor who receives an ADVERSE report by referring to all the current reports on that Contractor's performance in the relevant category or list. After considering the action being taken and the recommendations made by the Reporting Review Committee, the Committee is to decide what action it considers appropriate and recommend accordingly."

43. Sixth, although the system is not rigid, confirmed adverse reports will usually lead, in the first instance, to a warning letter from the chairman of the performance review committee; in the second instance, to an interview with the chairman of that committee and, in the third instance, to a further interview with the chairman at which the 'voluntary' suspension of the contractor will be sought. If the contractor does not agree to a voluntary form of suspension, steps are then taken in respect of a mandatory suspension.

44. Seventh, the imposition of a mandatory period of suspension may only be made by the Secretary for Works (or his authorised deputy) who independently considers the matters after receiving representations from the contractor.

45. It appears that, in addition to the monitoring scheme, a complementary form of scheme exists in terms of which - as a purely 'internal administrative measure' - the performance of contractors is assessed. This scheme encompasses a 'demerit point system'. Although this scheme is for internal administrative measures only, contractors come to learn of it in the form of warning letters. In a memorandum dated 29 March 1998 addressed to all professional and supervisory staff in the ASD, it was said that each demerit point assessed to be properly due must be accompanied by a warning letter. However, the decision to award demerit points is 'final and no appeal by the contractor is allowed'. Contractors, however, should be informed of the total number of demerit points awarded against them at the monthly progress meetings.

46. It is not certain how, or to what degree, this collateral demerit point system influences the central monitoring system. Clearly, however, it must have some impact in the sense that it must to some degree influence the overall assessment of whether or not adverse reports are merited.

Amenability of the Respondents' various decisions to judicial review

47. Mr Chow, on behalf of the Respondents, submits that in administering the monitoring scheme and making decisions under it, the Respondents were not carrying out a function in the public domain. They were carrying out a purely commercial function and as such those decisions are not amenable to judicial review.

48. There is, of course, a fundamental division between private law and public law. But exactly where this division is drawn differs from country to country. Nor often is it easy to identify where, in any particular case, it should be drawn. The authors of de Smith, Woolf and Jowell, Judicial Review of Administrative Action (5th ed at 3-016), recognise that today many large private corporations exercise power over individuals comparable to that exercised by state institutions and their actions as a result may have profound effects on society. But while the power (and bureaucracy) of private corporations has grown, Government and public authorities are more and more conducting their activities in accordance with techniques adopted in the private sector to promote and regulate interests of a purely commercial nature. This employment of private sector techniques arises especially when public authorities, using tax payers' money, seek to achieve the greater public good by contracting out the provision of services to the private sector. By entering into contractual arrangements, coupled with private sector techniques of monitoring performance, the public authorities seek to fulfil their public mandate.

49. How then is the division to be identified? There is no universal test. Each case will depend on its own facts. While the actions of public authorities are prima facie subject to judicial review, our law recognises that not all decisions of public authorities should be governed by public law principles. The formal source of an authority's power may sometimes determine the issue. For example, if a public authority is specifically enjoined by statute to take certain matters into consideration when deciding with whom to contract, a failure in that regard will be subject to public law remedies. But if the formal source of power is not determinative then, I believe, what must be examined is the function being exercised by that public authority. In this regard, for example, see: R v. Panel on take-overs and Mergers ex parte Datafin [1987] 1 All ER 564, the headnote of which reads (in part):

"In determining whether the decisions of a particular body were subject to judicial review, the court was not confined to considering the source of that body's powers and duties but could also look to their nature. Accordingly, if the duty imposed on a body, whether expressly or by implication, was a public duty and the body was exercising public law functions the court had jurisdiction to entertain an application for judicial review of that body's decisions."

50. The authors of Judicial Review of Administrative Action (supra) also favour this approach, described by Mr Griffiths as the 'functional approach'. At 3-041, they say the following:

"It is submitted that the court ought to have regard to the function being performed by the body whose decision is being impugned, rather than the formal source of its power ..."

51. If what is being performed by a public authority is a 'public' function then public law remedies will be available. If what is being performed is a 'private' function then, in my judgment, an aggrieved party must look to its private law remedies, if any.

52. In Matteograssi SpA v. The Airport Authority [1998] 2 HKLRD 213, our Court of Appeal recognised that in exercising a 'purely commercial function' a public authority performs a 'private' function governed by private and not public law. In this regard, the Court cited with approval the obiter dicta of Lord Templeman in the Privy Council case of Mercury Ltd v. Electricity Corporation of New Zealand [1994] 1 WLR 521 (at 524B):

"It does not seem likely that a decision by a state enterprise to enter into or determine a commercial contract to supply goods or services will ever be the subject of judicial review in the absence of fraud, corruption or bad faith."

53. The authors of Judicial Review of Administrative Action (at 3-042) also recognise that if the decision being made by a public authority is a 'purely commercial decision' it is unlikely that there will be any ground of domestic judicial review for a court to intervene.

54. The difficulty, of course, arises in identifying whether a function is 'purely commercial' or whether, while clothed in the robes of commerce, it is nevertheless in truth a public function. Mr Griffiths has accepted on behalf of the Applicant that the present case is a borderline one. That being so, as our Court of Appeal has accepted in Matteograssi SpA (supra), the answer must fall to be decided as one of overall impression and one of degree.

55. In this regard, Mr Griffiths sought to persuade me that the Respondents, in making their decisions under the monitoring scheme, were, despite the presence of a contractual arrangement, performing a public function. He pointed to the fact that the Works Bureau and its various departments are part of Government, using tax payers' money to ensure the interests of the public. The design and administration of the monitoring scheme, he argued, involved Respondents in deciding with whom they would or would not contract, decisions clearly considered to be in the public interest. These were decisions, however, which directly affected the rights and liabilities of private individuals without affording them any redress.

56. Mr Griffiths extended his argument by saying that, in deciding who should or should not be on their approved list of contractors (and who should be suspended from it) the Respondents were effectively employing an administrative technique equivalent to licensing and through such licensing were attempting to regulate the commercial activities of a section of the public. This, he submitted, was further evidence of the public nature of the respondent's decisions made under the monitoring scheme.

57. However, despite these most persuasive submissions, and while accepting fully that this has not been the easiest of matters, I am satisfied that, in designing the monitoring scheme and making their decisions under it, the Respondents have carried out a purely commercial function and not one so influenced by public elements as to make those decisions subject to judicial review.

58. On a true analysis, I believe that the essential purpose of the monitoring scheme has always been to try and ensure that contractors fulfil their obligations under their existing agreements in an efficient manner. After all, the monitoring scheme only applies to those contractors who have already secured an agreement to do building work for Government and are discharging their obligations under that agreement. The various procedures - the 'checks and balances' to which I earlier referred - all relate to contractors' performances under existing contracts. The internal circular of 13 December 1996 to which I have referred gives as one of the 3 reasons for the monitoring scheme the need to ensure that contractors improve their performances. That can only mean performances under existing contracts for it is those performances which are judged.

59. In summary, at the risk of labouring the point, the monitoring scheme seeks to do no more than secure the efficient discharge of contractors' obligations within the parameters of individual commercial agreements. If there is, in a broad sense, any statutory underpinning, it is an underpinning that relates to all works contracts whether concluded by public or private bodies: for example, the requirement to ensure adherence to standards of safety or pollution control.

60. I accept that the internal circular of which I have just spoken mentions directly the 'removal downgrading or demotion' of contractors. But I believe it would be misconceived to identify these sanctions as being in any way the purpose of the monitoring scheme. They are simply what I have described them as being: sanctions. They exist to penalise contractors, such as the Applicant, who in the opinion of the Respondents persistently fail to honour the terms of their contracts. The penalties therefore arise directly out of existing contracts and relate to the performance of contractors under those contracts. To express it in plain language, I am of the opinion that the Respondents are entitled to say to contractors who have failed to show acceptable standards of management and workmanship, just as any private corporation would be entitled to say: "You are not honouring your obligations under our present agreement. As a result we no longer have faith in your commercial capabilities. Accordingly, we do not intend to enter into any further agreements with you until such time as we feel that you have put your managerial house into order and will then be in a position to properly discharge your obligations under any future contract you may secure with us." In acting in that manner, I believe the Respondents are not performing any kind of public function. Their concerns, on each occasion, relate to nothing more than the commercial capabilities of a contractual partner and how those capabilities may affect performance of future work.

61. If there was some form of 'policy' involved then my views would be different. But there is no suggestion of that. The reports on performance compiled by the ASD relate solely to commercial considerations: to the degree to which individual contractual partners - in the discharge of their contractual obligations - display acceptable standards related to timeous completion of works, managerial capabilities, quality of workmanship, site safety and the like. Of course, any method of approach, when generally applied, may be described as a policy. But when I speak of 'policy' in the present context, I refer to considerations extending beyond the purely commercial into the public domain. For example, if the ASD performance reports required evidence of whether contractors were permitting trade union membership or whether they were perhaps meeting some sort of quota unilaterally decided upon by the Respondents related to ethnic minorities in their workforces, those, in my opinion, would amount to matters of public policy reviewable by this Court.

62. In his recent decision in Ngo Kee Construction Co Ltd v. The Hong Kong Housing Authority HCAL 1927/2000, Cheung J, in considering the same issue of amenability to judicial review, sought guidelines from a comprehensive study of the authorities. In so doing, he identified 3 instances in which the decisions of a public authority are not amenable to judicial review; namely, in instances where -

"(1) The decision is commercial in nature, such as the purchase of goods or services or a tendering process, so the public body is acting like a private body.

(2) There is no statutory underpinning of the decision and the public body is left to decide on the substance and procedure of the decision-making process.

(3) There is no allegation of fraud, corruption or bad faith."

63. As to the third instance identified by Cheung J, when there are allegations of fraud corruption or bad faith made against a public authority, what is being suggested is that the decision of the authority is not a 'purely commercial' one founded on bona fide commercial considerations but goes beyond that into matters indicating ulterior motives, abuse of power and the like. This, in my view, is identified by the authors of Judicial Review of Administrative Action (at 3-042) when they write:

"If it is a purely commercial decision it is unlikely that there will be any ground of domestic judicial review for a court to intervene but if there is some ulterior purpose or excess or abuse of power the court will do so. The court is entitled to examine the motives of a public body. When, for example, a local authority resolves not to contract in future with a company, on the ground of its links with South Africa during the apartheid era, or to boycott the publications of a particular news company on the ground of the company's labour practices or attitudes such a decision is far from being a purely commercial decision and will therefore be required to comply with public law principles. If it uses its powers in order to punish a body who has done nothing wrong according to English law or, in a manner which is procedurally improper or unfair, the courts may intervene."

64. In the present case, there is no doubt that the Applicant, by reason of its suspension, has been penalised. But I see nothing procedurally unfair or improper in the monitoring system designed by the respondents. In a purely commercial context, a public authority must be free to contract with whom it wishes and most certainly, in the absence of some statutory underpinning which directs what must or must not be taken into account, must be free to refuse to contract with persons it considers incapable of carrying out the terms of the contract.

65. Mr Griffiths, in advancing the Applicant's case, has sought to identify what he calls 'administrative impropriety' on the part of the Respondents in their dealings with the Applicant. This, he suggests, is equivalent to bad faith in that, to use the words of Lord Greene in Mercury Ltd v. Electricity Corporation of New Zealand (supra) at 527H, it is 'so unreasonable that it might almost be described as being done in bad faith ...'. In his skeleton argument, Mr Griffiths expressed it thus:

"An adjudicatory system may be so badly flawed that it amounts to, or is akin to, the bad faith which may permit judicial review to impugn a purely commercial contract (e.g. for purchase) by a public body which is prima facie susceptible to judicial review."

66. On the facts of the present case, however, I have been unable to identify any area of the Respondents' conduct in respect of which a substantial argument could be put forward that such conduct amounted to bad faith, as that term is normally understood, or was so unreasonable; that is, so perverse, that it was akin to bad faith. The monitoring scheme itself is not criticised, it is the administration of that scheme which is the focus of criticism. But, in my judgment, faulty administration, or even administration which fails to take into account certain factors which should be taken into account, is not by those facts alone administration conducted in bad faith or in a manner akin to bad faith. It may be subject to attack on the basis that it is Wednesbury unreasonable but the instances identified by Cheung J where the courts will have the power of review do not extend beyond 'fraud, corruption or bad faith' into the broader area of Wednesbury unreasonableness. This distinction was argued before Cheung J, counsel for the Applicant submitting that fraud, corruption and bad faith are only different aspects of Wednesbury unreasonableness. It was an argument which was rejected and I respectfully associate myself with the reasoning employed by the learned judge in that regard .

67. This brings me to a consideration of 3 decisions of this Court which I believe are of persuasive authority and which indicate a generality of approach; this, in turn, creating at least a degree of certainty in this often most difficult area. This latter point, in my view, is material in that different jurisdictions have adopted different approaches to the issue. As Cheung J noted in Ngo Kee Construction (supra):

"In relation to decisions of other jurisdictions, the need for caution is apparent. Even in jurisdictions which apply the common law, diametrically opposed views are often found. This does not mean that the view of one jurisdiction is necessarily right or wrong. All that it means is that the jurisprudence of that particular country chooses to proceed in that direction. Cross-fertilization is a healthy development, but ultimately there is bound to be differences in the approach."

68. The first decision to which I refer is a 1997 judgment of Keith J (as he then was) in Kwok & Chu (a firm) v. The Hong Kong Housing Authority MP 4346 of 1996. The Applicant in that matter was aggrieved by the refusal of the Housing Authority to place it on a panel of solicitors eligible to undertake conveyancing under the Home Ownership Scheme. In considering whether the decision of the Housing Authority was susceptible to review, the following was said:

"There is no doubt that in operating the Home Ownership Scheme the Authority is performing a public function, namely the provision of low-cost housing to lower and middle-income earners. The question therefore is whether the engagement of solicitors to undertake conveyancing under the Home Ownership Scheme comes within the public functions of the Authority. I do not think that this question is susceptible to detailed analysis. In my view, the engagement of solicitors to undertake conveyancing under the Home Ownership Scheme does not come within the public functions of the Authority. It is merely an administrative step, albeit an important one, in the lengthy and complicated process by which low-cost housing is provided to the public. The conveyancing which has to be performed to achieve that is not the subject of any statutory underpinning greater than that which applies to private sector conveyancing. Nor are there any statutory restrictions on which firms of solicitors the Authority can engage. It follows that in engaging solicitors to undertake conveyancing under the Home Ownership Scheme the Authority is no different from any other developer which engages solicitors to undertake the conveyancing to which its developments relate. Such developers can choose whichever firms of solicitors they want. It would be illogical if the Authority was in a different position, simply because the provision of low-cost housing was one of its public functions."

69. Upon a consideration of relevant authorities, Keith J said:

"I believe that the view I have reached in this case is supported by R v. The Lord Chancellor ex p. Hibbit & Sanders [1993] COD 326. Following a tendering process, the Lord Chancellor decided to award the contract for court reporting for a group of local courts to a particular contractor. The Divisional Court held that the decision was not amenable to judicial review. There is, of course, a difference between an unfair tendering process for court reporters which results in the tenders of some reporters having a better chance of success than others, and the application of unfair criteria for determining which solicitors should undertake public sector conveyancing which results in some firms of solicitors not being eligible to undertake the work at all. But what principally persuaded the court that judicial review was not available was the fact that court reporters who sought work in the private sector would have to pursue such remedies in private law as were available to them, and there was no sufficient basis for putting court reporters who sought work in the public sector in a different position. That reasoning applies equally to solicitors who wish to undertake conveyancing. It may be that solicitors who do not satisfy the criteria laid down by the Authority have no remedies in private law, but that is immaterial to the question of whether a public law remedy exists: see, for example, R v. Derbyshire County Council ex p. Noble [1990] ICR 808 at p. 823G."

70. The second decision to which I make reference related directly to what I have called a monitoring scheme. This was a decision of mine in Woo Cheng Mechanical Engineering Factory Ltd v. The Director of Marine HCAL 1008/2000. In this case, the Applicant, having been placed on a list of private contractors approved to carry out repair works on vessels operated by the Marine Department, was penalised under a monitoring scheme operated by the Department. The penalty placed it in danger of being suspended from tendering for further work. I confess that, in my view, I can see little, if any, difference between the nature and effect of that scheme and the one operated by the Respondents in this present case. In that decision I said:

"A private organization, dissatisfied with work done for it, is entitled in its own commercial interests to refuse to deal further with that contractor either permanently or until sufficient time has been given to allow the contractor to put its house in order. In my judgment, the Respondent's performance appraisal system attempts to do no more than that."

71. I come finally to Ngo Kee Construction (supra), the decision of Cheung J, to which reference has already been made. In this case, the Housing Authority removed the Applicant company from its list of approved contractors when it discovered that the Applicant's associated company, sharing a common management, had been the piling contractor in a project in which short piling had been discovered. Cheung J, having reviewed a great many authorities on the subject of amenability to judicial review, and said:

"In my view, one must look at the function that was being challenged. If the function is a commercial one, then the matter is not subject to judicial review. The fact that the Housing Authority has adopted rules for the administration of the List of Contractors does not create a liability for judicial review. Other private bodies also have rules in relation to the tendering process. In the absence of statutory underpinning, judicial review is not applicable."

72. He continued:

"The case of Matteograssi [supra] is binding on me and according to it, unless it can be shown that the commercial decision is tainted with fraud, corruption or bad faith, public law challenge is not open to the applicant."

73. Mr Griffiths has sought to distinguish both Woo Cheng Mechanical Engineering and Ngo Kee Construction. But, while I accept that there are differences, I am persuaded by the reasoning in those cases as to the essentially commercial nature of monitoring schemes. By that I mean schemes imposed by public authorities in an attempt to ensure that persons who enter into commercial contracts with them for building or other services, or are placed on an approved list in order to do such work, are capable of doing so honestly and efficiently.

74. In all the circumstances, I am satisfied that the monitoring scheme designed and administered by the Respondents in the present case was, in respect of the Applicant, purely commercial. I am further satisfied that, even if it is shown that the Respondents were guilty in their administration of the scheme of certain errors, omissions or faults, such culpability has not been shown to be of such a nature that it can substantially be argued that they reveal any form of fraud, corruption or bad faith or conduct akin to bad faith.

Conclusion

75. For these reasons, the monitoring scheme not being amenable to judicial review, the application must fail. At this time I see no reason why the Applicant should not pay the costs of the Respondents. There will accordingly be an order nisi awarding costs to the Respondents, such order to be made final at the expiration of 30 days from the date of the handing down of this judgment if there is no earlier application to argue the matter.

Representation:

Mr John Griffiths SC & Mr Richard Leung, instructed by Messrs Robin Bridge & John Liu, for the Applicant

Mr Anderson Chow, instructed by the Department of Justice, for the 1st and 2nd Respondents