Attorney General v. Technic Construction Co Ltd

HCMP001429/1984

BETWEEN

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Coram: Hon. Mantell J.

Dates of Hearing: 12, 13, 14, 16 & 17 July 1984

Date of Delivery of Judgment: 30 July 1984

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JUDGMENT

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1. This is an application under section 23(3)(b) of the Arbitration Ordinance for leave to appeal against an Interim Award made by His Honour Edgar Steward Fay, Q.c. on 30th April 1984. It is the first application of its kind in Hong Kong. By it the question is raised as to what extent if at all the guidelines laid down by the House of Lords in Pioneer Shipping Limited & Others v. B.T.P. Tioxide Limited ⁽¹⁾ ("The Nema") with regard. to applications for leave under section 1(3)(b) of the Arbitration Act 1979 should be followed in Hong Kong.

2. The applicant is the Hong Kong Government. The respondent is the Technic Construction Company Limited (Technic). On 12th November 1979, Technic were engaged by the Hong Kong Government to build the new teaching hospital at Sha Tin. The contract was in the usual form for building work on this scale. Articles of agreement incorporated the Bills of Quantities and the general and special conditions of contract. Prime cost sums were included to cover the work of nominated sub-contractors, including those who were to provide specialist services. During the progress of the work considerable delays occurred partly because Government and Technic could not agree who should provide drawings showing the relative position of various services to be provided by nominated sub-contractors. In the end, the work was completed but leaving unresolved the question of payment for the work and the wasted time. Another question arose as to who should pay for electricity used on site during the construction period and yet a third as to whether the architect could grant extensions of time under clause 64(2) of the conditions in relation to delays caused by the Government's own breaches of contract. It is not to be supposed that those were the only matters of dispute between the parties; but they are the three questions upon which the parties sought an early determination from the Arbitrator once all the matters of dispute had been referred to the Arbitrator under the Arbitration Clause in the contract. They were treated as preliminary issues and formed the subject of the Interim Award. The Arbitrator found for Technic on the first and third issues and against them on the second. The hearing took more than six weeks, I am told, and the reasoned award runs to some 44 pages of typescript. It is hardly necessary to say that in choosing His Honour Edgar Steward Fay, Q.C. as their tribunal, the parties could not have chosen anyone with greater experience or a higher reputation in the field of building law.

3. The first issue was decided upon the basis of examples selected by the parties: they were air conditioning and ventilation, electric installation, medical gas installation, fire service installation and plumbing. The precise question put to the Arbitrator was: Was the Government obliged to provide Technic with information as to where each of the services to be provided should be placed in relation to the other and in relation to the structure or other building works? His answer was: Yes, the Government was obliged to provide Technic with the information specified in the issue. The Arbitrator defined the problem succinctly and clearly at paragraph 5 of the Interim Award. He went on to review what he considered to be the relevant provisions of the contractual documents and on the way to a conclusion, he noted how it was in England, at any rate, that the employment of an engineer to prepare co-ordination drawings was a relatively recent development and that, previously, the matter had been one for the main contractor. He grappled with Mr. Auld's submissions that to impose the duty upon the main contractor was necessary to give business efficacy to the contract and that in any event the undoubted design obligation undertaken by the nominated sub-contractors became those of the main contractor by application of what Mr. Auld has termed the principle in North West Metropolitan Regional Hospital Board v. T.A. Bickerton & Son Limited.⁽²⁾ But in the end, as it appears to me, he found that taking all the contractual documents together and having particular regard to the fact that the main contract document does not "convey any hint of the nominated sub-contractors' work including design" (see paragraph 22 at page 26 of Interim Award), the obligation to provide design remained, where it started, with the Government.

4. In attacking the Arbitrator's conclusion, Mr. Auld developed his argument in a manner which would have been more appropriate to the appeal than to the application for leave: but, for that, I must take the blame. Nevertheless, as I see it, it is incumbent upon me to treat the argument in a manner appropriate to the application for leave and not as though I were entertaining the appeal. Broadly, Mr. Auld says that the Arbitrator paid too little regard to provisions in the main contract which cast a co-ordinating role upon Technic and much too little regard to his argument based upon Bickerton to the effect that the obligations of the nominated sub-contractors to provide design were, to use his expression, "uplifted" into the main contract. In my view, there is force in Mr. Auld's argument and for my own part, I have some difficulty in understanding the proposition which seemed to play a role in the Arbitrator's reasoning that in matters of design arising out of the sub-contract, the sub-contractor is the agent of the architect and, therefore, of the employer. But whatever difficulty I may have had in following all the steps in the learned Arbitrator's reasoning, I do not find myself able to disagree with his conclusion. It may be that there is something in Mr. Kemp's submission that since all the nominated sub-contracts postdate the main contract, the "Bickerton" argument will not run, or it may be, as I prefer and as I  believe was the real basis of the Interim Award that in taking the contract documents as a whole which would be to include the sub-contracts of the specialist sub-contractors, it is not possible to read them as divesting the employer of his responsibility to provide detailed information as to the placing of these various services. That is not to say, as I hope I have indicated that Mr. Auld, does not have a substantial argument which could prevail if developed on appeal but for the moment, I am not able to say that I can form a tentative or prima facie view that the Arbitrator was wrong.

5. The second preliminary issue which occupied the Arbitrator is not the subject of application. So I turn to the third. It relates to the true construction of clause 64(2) of the Conditions of Contract. Clause 64(1) and (2) read as follows:

By reason of other provisions, the words in brackets in sub-clause (2) are to he disregarded. The issue before the Arbitrator was:-

"What is the answer to the question or issue raised by paragraph 30 of the Points of Claim namely whether the architect could grant an extension of time under clause 64(2) of tine Conditions for delays caused by the respondents' breaches of the contract and whether in consequence thereof time is at large."

The question would have been clearer if there had been a disjunctive between "contract" and "whether" but everybody seems to have understood what was meant by the question. The answer is important because if extensions may be granted in relation to delays caused by breaches on the part of the Government, clause 66 which provides for the recovery of liquidated damages from the contractor for any period of delay not covered by extensions will continue to bite. Otherwise, Government will be put to proof of loss of damage resulting from such delay which, it is conceded, is less advantageous from its point of view. For one thing Government would lose the right to deduct the amount of the liquidated damages from any monies due to the contractor under this or any other contract with Government. The Arbitrator's conclusion was that on a true reading of clause 64(2), the architect cannot grant extensions of time for delays caused by. the Government's own breaches of contract. That, submits Mr. Auld, is plainly wrong. He submits that the Arbitrator was over much influenced by the views of the leading textbook writers on Building Contracts who could offer no other authority in support of their views than those decisions, namely Wells v. Army and Navy Co-operative Society, ⁽³⁾ Peak Construction (Liverpool) Limited v. McKinney Foundations Limited ⁽⁴⁾ and Perini Pacific Limited v. Greater Vancouver Sewerage and Drainage District, ⁽⁵⁾ which turned on the application of the ejusdem generis rule to clauses distinguishable in their terms from that under consideration. Once it is conceded, says Mr. Auld, that the ejusdem generis rule can have no application to clause 64(2) and it is acknowledged that the words are apt to cover breaches by the employer then, since the words are not ambiguous, no question of construing the clause contra proferentum arises. The Arbitrator found helpful to his task the presence in clause 60(2) of a provision which at page 43 of the Interim Award, he says:

"demonstrates that when the parties to this contract wish to allow an extension of time for an employers' breach they do so expressly."

Mr. Auld contends that the provision referred to, relating as it does to delay or expense arising from Government's failure to give possession of the site cannot help in construing a clause which has to do with the rights between the parties once time for completion has begun to run. Hesitant though I am, and ought to be, to question the views of such eminent authorities on the subject as Mr. Keating, Mr. Duncan Wallace, Q.C. and the learned Arbitrator himself, I have formed the tentative view that the construction contended for by Mr. Auld is correct. That must mean, I suppose, that I do find at this stage a strong prima facie case that the Arbitrator was wrong.

6. Jurisdiction to grant leave to appeal is confined to those cases where the Court considers, having regard to all the circumstances, that the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration. agreement. ⁽⁶⁾ In my judgment, both questions here are such as could substantiallv affect the rights of either the Government, Technic or both - a view which is not contested by Mr. Kemp for Technic. As I read section 23(3), that still leaves the grant or refusal of leave to the discretion of the Court. But whether or not I had formed that view, I think I would have been bound by the decision of the House of Lords in the "Nema" dealing with a parallel provision in the 1979 Arbitration Act to treat the giving of leave as a matter of discretion. What is less clear, contends Mr. Auld, is whether the strict guidelines laid down in that case for the exercise of discretion are to be applied in Hong Kong. They are, he says, obiter and in any event are not concerned with the interpretation of a statutcry provision but with the giving of effect to legislative policy which, he argues, may not be the same in Hong Kong as in England. The policy behind the Arbitration Act as divined by the House of Lords is "to give effect to the turn of the tide in favour of finality in arbitral awards"^(1a) but, argues Mr. Auld, that has particular reference to the continuance and promotion of London as an international commercial arbitration centre. But why should it be thought that similar considerations do not apply in Hong Kong which harbours an ambition to emulate London. Because says Mr. Auld, the House of Lords placed emphasis upon Section 1(7) of the English Act as a provision pointing to the object of reaching finality as soon as possible. That sub-section limits the right of appeal to the Court of Appeal from a decision of the High Court on appeal from the Arbitrator to those cases where either the High Court or the Court of Appeal have given leave and the High Court has certified that the question of law to which its decision relates is either one of general public importance or one which for some other special reason should be considered by the Court of Appeal. Mr. Auld might also have pointed to section 1(6)(a) of the English Act by which leave of the judge is required to appeal his decision to grant or refuse leave to appeal from the Arbitrator. In this connection, I think it is worth remembering that in England all applications for leave go in the first place to a judge of the Commercial Court. Judges of the Commercial Court are in the nature of things highly experienced in the subject matter of commercial arbitrations and no doubt by virtue of their experience, Parliament felt able to repose in them a high degree of confidence. In Hong Kong, there is no Commercial Court as such and judges of the High Court usually have a less specialised background. So perhaps, it is not surprising that the rule is different; but I cannot read into those differences, any divergence from the English policy with regard to finality in Arbitration proceedings. To my mind, the absence from the Hong tong Ordinance of any equivalent to section 4 of the English Arbitration Act is equally persuasive in the opposite direction and for my part, I am quite unable to see why in relation to provisions which have been modelled on the English Act, it should be thought the intention of the Hong Kong legislature was any different from that of Parliament. In my judgment, the guidelines laid down by the House of Lords in "The Nema" do apply in Hong Kong with equal rigour.

7. As to what those guidelines are, I am content to accept the far from crude paraphrase of Lloyd J. in Marrelaeza Compania Naviera S.A. v. Tradax Export S.A. ⁽⁷⁾:

"in what is called a one off case the discretion should normally only be exercised by granting leave when the Court can see that the arbitrator is obviously wrong in law. In all other cases the discretion should normally only be exercised if two conditions are fulfilled: first that the decision on the point of law in issue will add significantly to the clarity and certainty of the law; and secondly if there is strong prima facie reason to suppose that the arbitrator is wrong."

Although the guidelines impose strict conditions upon the exercise of discretion in favour of granting leave, they do not seem, as has been suggested to me, to be in the least unworkable. Nor does it seem to me to be necessary to resort to the conclusion that Lord Diplock meant something different from what he said in order to deal with exceptional or abnormal cases. The guidelines are intended to apply only to normal cases whether of the one-off or standard term variety. Disputes which arise out of abnormal circumstances, which contain abnormal features as in, for example, a dispute affected by international crisis or where there is question of law upon which there is a pronunced difference of judicial opinion may be classified as abnormal cases. This is not one such and in my judgment, the guidelines are to be applied faithfully.

8. It would follow from what I have said that with regard to the first issue, leave must be refused. I cannot say that its resolution would add significantly to the clarity and certainty of the law of Hong Kong; nor have I been able to say that a strong prima facie case has been made out that the Arbitrator was wrong in his construction. It may well be true that there are in existence a great many Government building contracts in which the question may arise as to whose responsibility it is to provide the design for essential services. It is doubtful, to say the least, that the contractual provisions taken as a whole and involving not only the documents in the main contracts but the terms of the sub-contracts themselves will be precisely the same as have arisen in this dispute nor is the use of the form of contract in the present case one of commercial necessity. It is an easy matter with regard to future contracts to make plain if it is not already so whose responsibility it is to provide design. It may be done at the stipulation of Government - and I am told has been done already.

9. With regard to the third issue, I have felt greater difficulty. If one accepts, as I do, the view of the English commercial judges that there is in reality a spectrum of cases ranging from the extreme one-off kind of case with a unique term applying to special circumstances at the one end to standard terms imposed or accepted as a matter of commercial necessity in general international use at the other, clause 64(2) must fall somewhere in between. It is a standard term in the sense that it has been included in Government contracts for many years; at the same time when one relates it to its English model, it is already many years out-of-date and it is susceptible of amendment to put its meaning beyond doubt. I am doubtful that the resolution of that issue would add anything to the clarity or certainty of the law. So, after some hesitation, I again refuse leave. Tipping the scales has been the consideration that the parties chose for themselves a tribunal which to paraphrase Lord Denning, M.R. was just as likely to be right as the judge - probably more likely. ^(1b)

(1) [1982] A.C. 724

(1a) Pioneer Shipping v. B.T.P. Tioxide [1982] A.C. 724 per Lord Diplock at 739

(1b) Pioneer shipping Limited & Others v. B.T.P. Tioxide Limited [1980] Q.B. 547 at 564g

(2) [1970] 1 W.L.R. 607

(3) page 342 Vol. 2 Hudson on Building Contracts 4th edition

(4) [1970] 1 B.L.R. 111

(5) [1966] 57 D.L.R. (2nd) 307

(6) Section 23 (4) Arbitration Ordinance 1982

(7) The "Nichos A" [1982] Vol. 1 Lloyd's Law Reports p.52

Representation:

Robin Auld, Q.C. & Miss Gladys Li instructed by Attorney General - Applicant.

David Kemp, Q.C., Oswald V. Cheung Q.C. & William Lane (McKenna & Co.) for Respondents.