Chun Wo Building Construction Ltd. v. Tai Fong Engineering Co. Ltd.
Read the full judgment text of HCCT71/1998 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 1 February 2000 before Hon Burrell J in Chambers.
Construction Contract — Subcontract Dispute — Clause 19 Decision — Summary Judgment Application — Proper Construction of a 'Decision' — Arbitration Trigger — The plaintiff served on the defendant a letter dated 2 February 1998 claiming it was a binding 'decision' under clause 19(a) of the subcontract related to disputed payments. The defendant rejected the plaintiff's claim and counterclaimed a larger sum. The court analysed the letter's content and the decision-making process behind it. The court held the letter was not a proper 'decision' as required by clause 19(a) because it failed to address all disputed claims comprehensively and did not show adequate consideration was given to the defendant’s counterclaims. Consequently, the plaintiff’s summary judgment application was refused. The court further considered the role and duties of the decision-maker under clause 19(a), distinguishing it from a mere statement of a bottom-line figure and underscoring the necessity for proper engagement with the dispute's entirety. Costs were ordered in favour of the defendant. The court invited parties to consent to arbitration to resolve the dispute without delay, as the arbitration process had not been triggered due to the lack of a valid decision letter.
Legal issues: Whether the letter dated 2 February 1998 was a 'decision' within clause 19(a)
Outcome: Plaintiff’s application for summary judgment refused; no binding decision under clause 19(a) was found.
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HCCT000071/1998 HCCT71/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 71 OF 1998 ---------------
-------------- Coram: Hon Burrell J in Chambers Date of Hearing: 21 January 2000 Date of Judgment: 1 February 2000 ------------------------ J U D G M E N T ------------------------ 1. By this summons the plaintiff seeks a determination of a question of law and consequent upon that determination, an order for summary judgment pursuant to O.14A, r.1 of the Rules of the High Court. The question of law is framed in the schedule to the summons as follows :
2. The relevant part of clause 19 is sub-paragraph (a) :
3. It is necessary also to set out the terms of the letter of 2 February 1998, the material parts of which are :
4. In outline the relevant correspondence which had preceded this was as follows :
5. Mr Kat, for the plaintiff, in an extensive and carefully prepared analysis of the facts and the law submits that the defendant's failure to respond to the clause 19 letter shuts them out from any form of resolution of the dispute between the parties. I confess I have found this to be a difficult issue to resolve. On the one hand, it is desirable that there is an element of certainty in contractual terms. The clause itself is intrinsically valid and is designed to bring the parties to the arbitral process speedily. It is fair to say that both parties agreed to the claim, were under no illusions as to its existence and should be strictly bound by it. In practice it normally acts as a short circuiting device to curtail lengthy and fruitless attempts to negotiate. It places an obligation on one of the contracting parties to state what it will accept. If it is not accepted, without further ado and without further offers and counter offers, the parties place themselves in the hands of the arbitrator. In other words, one party states its bottom line, take it or leave it. If the other party leaves it, an arbitration is automatically triggered. The rejection has to be notified to the other side. 6. Mr Graham, for the defendant, very properly concedes that such clauses are unobjectionable even though the initial "decision-maker" is one of the contracting parties. He submits, however, in a nutshell, that one party to what is an obvious and considerable dispute cannot be automatically shut out from its claim or counterclaim by the failure to notify the other side of its rejection of its opponent's "decision" on the matter. I put the word "decision" in quotation marks because it is fundamental to his submission that the mere statement of the minimum which the other party will accept should not be construed as a "decision" within the meaning of clause 19. 7. He submits that his lay client should only be shut out from pursuing its defence to the known and obvious dispute by a failure to respond within 28 days, if the letter purporting to be a "decision" under clause 19(a) is a decision as contemplated by the parties and not merely, as he describes it, part of a debt collecting mechanism. 8. At first blush there is a temptation to sympathise with the plaintiff's position. The terms of clause 19(a) are strict but both parties consented to them. What amounts to a "decision", the plaintiff would say, need not be a matter of legal niceties. It is not a difficult word to define and should not be given a restrictive and narrow meaning. It is simply a final resolution or conclusion. A statement to that effect is all that is required. Mr Kat submits that provided there is evidence that the decision-maker has considered the relevant material relating to the dispute between the parties, then a mere statement of his conclusion will suffice. 9. I have come to the conclusion, after careful consideration of the various authorities cited in support of the submissions advanced and not without some difficulty, that Mr Graham's argument on the defendant's behalf is correct. 10. I have concluded that the decision-maker's letter of 2 February 1998 does not qualify as a "decision" as envisaged by the contracting parties for two reasons. Firstly because the contents of the letter itself fall short of the requirements for such a letter to be construed as an adequate "decision". Secondly, because there is insufficient evidence to demonstrate that a proper decision making process preceded the writing of the letter. 1. The letter itself : 11. It is not sufficient to say "Your letter of 7 January refers ..." and then merely say "this is our decision - you pay us $x, $y and $z". The basic requirements of such a letter are firstly, a list of the various items in dispute on both sides and each party's most recent stated position, if any, in relation thereto. Secondly, a list (albeit in an abbreviated form) of the documents and correspondence which have in fact been read and considered by the decision-maker. The letter need not give reasons for the decision but must at least record the fact that the relevant material has been considered and that the decision-maker is correctly aware of all the heads of claim made by his side, together with the heads of counterclaim made by the other side. In other words, the full ambit of the dispute which the "decision" purports to resolve. 2. The decision making process : 12. It would be pointless simply to list the relevant documents and issues without some evidence that they had been examined and considered. Where a decision-maker, as here, is acting as a judge in his own cause, there is an implied requirement that, not only did he act reasonably and in good faith but it can be shown by evidence that he so acted. Either the letter itself or an affidavit or affirmation must reveal that it was a properly considered decision of all the matters actually in dispute between the parties. Mr Kat submits that the decision-maker is not required to give a decision on all the matters in dispute because clause 19(a) starts "if there is any dispute between ....". Therefore he can give a decision on anything not everything that is in dispute. In my opinion this is neither a helpful nor a correct interpretation. In this case the plaintiff is claiming $3.053 million, the defendant is counterclaiming $3.644 million. The written decision only makes specific reference to its claim of $3.053 million. It is of course true that the claim and counterclaim are inter-related but Mr Graham's complaint that there is a lack of evidence that issues which form part of his $3.644 million counterclaim have been properly addressed is well founded. I simply set out below, an extract from the defendant's affidavit which list those matters which they say were not dealt with by the decision-maker which renders his decision defective. It is firstly necessary to refer to certain brief passages in the affidavit evidence which illustrate the cause of the complaint. 13. In his first affirmation the decision-maker, Mr Ricky Law stated :
14. It is to be noted that he did not say what correspondence he examined. He did not say what were the matters in dispute. He did not mention the fact of or the basis of the defendant's competing claim of $3.644 million. 15. The defendant's affirmation in reply was more specific, both as to the nature of the dispute and which correspondence was relevant. It contained the following statements :
(here the deponent then lists those factual matters not dealt with which are set out below). 16. Mr Ricky Law's response was :
17. Of this, complaint is rightly made that, given that the expression "for the purpose of this proceedings" means for the purpose of the action generally (which I accept) and not for the purpose of the specific O.14A summons (as contended by Mr Kat), it is for the court to determine whether the correspondence is relevant. In fairness, Mr Law then continues to refer to other documents which fell for his consideration but this cannot convert the defective written decision into a proper one after the event. 18. As earlier indicated, I now recite those matters which the defendant contended, and reasonably so, were apparently not dealt with or may not have been dealt with in Mr Law's decision.
19. To conclude, the role of the decision-maker is more than that of a mere asserter of what his party's bottom line is. He has obligations to both sides and a duty to perform. Of the numerous characters who feature in the hierarchy of construction and arbitration cases from filing clerks to arbitrators, their status falls just above a certifier but below an arbitrator. There is probably a higher duty on them than on a certifier. The role of a certifier is described in Hudson's Building and Engineering Contracts in this way :
and then :
20. This approach lends support to the view that a mere assertion of an acceptable figure should not be constructed as a "decision", as contemplated by the parties, under clause 19(a). 21. That his role is lower than the arbitrator is obvious and need not be elaborated on. 22. For the above reasons I refuse the plaintiff's application for summary judgment under O.14A Rules of High Court. The answers to the three questions posed in the schedule are :
23. I make an order nisi for costs of the application in the defendant's favour, to be taxed if not agreed. 24. I finally address the question of the way forward following this decision. Technically, as there was no clause 19 decision, then arbitration has not been triggered. However I invite the parties to consent to arbitration without the necessity of the plaintiff writing a supplementary "decision" letter. An arbitration would have flowed had either :
It seems to me that, failing summary judgment, arbitration is what both parties want. Further time should therefore not be wasted.
Representation: Mr Nigel Kat, instructed by Messrs Lovell White Durrant, for the Plaintiff Mr Peter Graham, instructed by Messrs William W. L. Fan & Co., for the Defendant |