Paul Y.-itc Construction Ltd. v. Sundart Engineering Ltd.
Read the full judgment text of HCCT124/1999 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 6 March 2000 before Hon Burrell J.
Construction Law — Arbitration — Jurisdiction — Nominated Sub-Contractor — Whether mandatory use of 'name borrowing' procedure to sue employer under clauses 8(b), 8(c), and 11(d) — Interpretation of subcontract provisions — Jurisdiction to hear claims for loss and expense — Arbitration Ordinance (Cap. 341). Paul Y.-ITC Construction Limited, as main contractor, appealed against an interim award order by the arbitrator Michael Charlton, Esq., who ruled the nominated sub-contractor Sundart Engineering Ltd was entitled to elect to sue either the main contractor or the employer and that the name borrowing procedure was optional. The main contractual issue was whether Sundart, under clauses governing extension of time (8(b)) and loss/expenses (8(c)) had to borrow the main contractor's name mandatorily before suing the employer or whether they could claim directly against the main contractor. The court upheld the arbitrator's decision that the name borrowing procedure was optional rather than mandatory, and that Sundart could properly proceed against the main contractor without being compelled to use name borrowing for claims under clause 8(c). The court reasoned that the contractual terms did not impose any obligation restricting Sundart’s choice, and forcing mandatory name borrowing risks denying a sub-contractor the right to sue the liable party. The court also dismissed the contention that the procedural differences would cause inconsistent findings, noting procedural flexibility and possible consolidation of arbitrations. Consequently, the court dismissed the appeal and ordered costs against the applicant.
Legal issues: Jurisdiction to hear claims under clause 8(c) of the Sub-Contract · Interpretation of name borrowing procedure under clauses 8(b), 8(c), and 11(d)
Outcome: The court dismissed the applicant's motion to set aside the interim award on jurisdiction and upheld the arbitrator’s ruling.
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HCCT000124/1999 HCCT124/1999 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO.124 OF 1999 ----------------------
----------------------- Coram: Hon Burrell J in Chambers Date of Hearing: 22 February 2000 Date of Judgment: 6 March 2000 ------------------------- J U D G M E N T ------------------------- 1. By this notice of originating motion dated 16 December 1999, the applicant ("Paul Y.") appeals against a ruling made in an interim award made by the arbitrator, Michael Charlton, Esq. on 18 November 1999. His ruling relates to a preliminary point of jurisdiction unsuccessfully taken by the applicant. 2. Paul Y. was the main contractor for a development of which Agrila Ltd was the employer. The respondent ("Sundart") was the dry-wall nominated sub-contractor. As the nominated sub-contractor, they had been selected by the employer. The main contractor was bound to engage Sundart on terms negotiated by the employer. Nonetheless, the contract is between the main contractor and the sub-contractor. 3. By a letter dated 27 July 1999, Sundart issued a notice of arbitration against Paul Y. The sole issue to be determined is whether or not Sundart's contract permits a nominated sub-contractor an option to sue either the main contractor or the employer. The learned arbitrator ruled that it did have the option. Mr John Griffiths, S.C. for Paul Y., submits that that ruling was wrong. The proper construction of the contract, he submits, is that the nominated sub-contractor must use the "name borrowing" procedure as provided by the contract and, accordingly, can only sue the employer, having borrowed the main contractor's name. For Sundart, Mr Westbrook commends both the arbitrator's ruling and reasons. 4. For a proper understanding of the issue, it is necessary to set out the relevant clauses of the contract :- (1) Clause 8(b) is the "extension of time" clause :-
The "name borrowing" clause appears for the first time in the proviso to clause 8(b) :-
Thus the main contractor can only grant extension of time with the architect's permission. (2) Clauses 8(c) together with 11(d) relate to the loss and/or expense resulting from delay :-
(3) The only other relevant clause for present purposes is clause 22, the "arbitration" clause :-
5. On 27 July 1999, Sundart issued an arbitration notice, following various exchanges of correspondence in the following (abbreviated) terms :-
6. After hearing submissions on the preliminary issue of jurisdiction, the learned arbitrator determined that as, under clause 8(b), the main contractor can only grant extension of time with the permission of the architect, he did not have jurisdiction to hear an arbitration arising out of the nominated sub-contractor's complaint relating to extension of time. He put it as follows :-
7. Thus, he decided on the facts that the stage of a dispute between the main contractor and the nominated sub-contractor had not been reached. Sundart has not cross-appealed this ruling. The issue before me relates to his ruling in relation to clause 8(c). In short, he ruled that he did have jurisdiction to hear Sundart's claim against Paul Y., the main contractor for loss and/or expenses associated with the non-certification of extension of time by the architect. 8. On this issue, the arbitrator made the following (selected) observations :-
9. Thus, he found that the contract did not compel Sundart to use the name borrowing procedure, it merely gave them the option to use it when it was desirable and practical. 10. Mr Griffiths, in advancing his submission that "name borrowing" is mandatory makes the following points :- (i) The respondent's notice of arbitration, namely, the letter of 27 July 1999 and the correspondence which preceded it frames the claim under clauses 8(b) and (c) of the nominated sub-contract. Therefore, it is bound to observe the name borrowing procedure contained in those clauses. In fact the references to clauses 8(b) and (c) are all contained in the earlier correspondence. I agree that this forms part of the notice, however, the letter of 27 July 1999 makes no reference to 8(b) and (c) and specifically states, "we give you notice ... in accordance with Clause 22 ...". 11. Both counsel referred to the wording of the pre-notice letters as to their meaning and effect. I do not propose to recite them all. It is plain to me that words cannot be construed to mean that the author was writing himself into a straightjacket which would preclude him from taking proceedings against the main contractor under clause 22. The references merely serve to identify the clauses under which the complaints arise. It does not follow that those complaints must always be made against the employer. The learned arbitrator stated as follows :-
12. In my judgment the letter of 27 July 1999 has been carefully and correctly drafted. It starts in the following terms :-
and continues :-
13. The words are wide but clear. The purpose of the notice is to identify the dispute. It should not be limited as a result of "pleading points". In any event, as Mr Westbrook points out, only two of the six letters referred to (some of which are lengthy) even mention clause 8(c). (ii) Mr Griffiths' next submission is that to rule that there is no jurisdiction under clause 8(b), but that there is under clause 8(c) is inconsistent. The argument is simply that if the name borrowing procedure is to be used for clause 8(b), then the same procedure must be followed for claims for loss (8(c)) which flow from the 8(b) claim. Otherwise the issues, which he says are related, may ultimately be determined by different people leading to the risk of inconsistent findings. 14. I do not accept this argument for the same reasons given by the arbitrator. It does not follow that all the nominated sub-contractor's complaints will be against the employer. It may be difficult or even impossible to say with certainty who is liable. Sundart should not be compulsorily shut out from proceeding against the party who may be liable. If there are common issues, one party may join another and/or arbitrations may be considered or heard at the same time. In any event, the risk of inconsistency, which is a minor risk bearing in mind the procedural flexibility, is much the lesser of an evil than a party being compelled to sue someone who it does not want to sue and who may be entirely innocent of blame. (iii) The next point made is that it is not right to allow the nominated sub-contractor to claim against the main contractor when in reality, the nominated sub-contractor has contracted to submit its work-payment applications and claims to the employer following the issue of the architect's certificate. I do not accept that simply because the nominated sub-contractor in the normal situation submits its work-payment applications to the employer, it should be prevented from making a claim against the main contractor. This pays scant regard to the contractual chain. The main contractor chose to enter into contractual relation with the employer on terms which clearly preserve the contractual chain. In particular, clauses 27(a) and (f) of the main contract stipulate :-
By the same token, the contract which is being sued upon is between Paul Y. and Sundart. The sub-contract contains the following clause 3 :-
15. The argument is further diluted by the words of the name borrowing provisions. Given that the sub-contract is a detailed document setting out the rights and liabilities between Paul Y. and Sundart, and given the parties' knowledge that Sundart has been nominated by the employer, it would have been open to the parties to state unequivocally that under 8(b), 8(c) and 11(d) Sundart had no option who to claim against. The only mandatory provision is that Paul Y. must allow its name to be borrowed. It would be dangerous and wrong to read into a contractual provision a mandatory duty which is plainly absent. It would have the effect of imposing restrictions on Sundart to which it had not contracted. 16. In order to succeed on this originating notice, the applicant, Paul Y. must satisfy the court that the contractual intention was that if the main contractor is not at fault, then the sub-contractor must borrow his name to claim against the employer. If the main contractor is at fault, then section 22 applies. In my judgment, for the reasons given and for the reasons given by the learned arbitrator, such an approach is over simplistic and not the correct interpretation. Such an interpretation could very easily result in the main contractor avoiding a liability which is truly his by forcing the nominated sub-contractor to omit him from its claim. 17. No such mischief would result from the interpretation given in this judgment and by the arbitrator because if the sub-contractor chose to claim initially against the main contractor whereas liability was ultimately determined to fall at the hands of the employer, the only mischief created would be that it had taken two steps to get to a just conclusion instead of one. Finally, the interpretation advanced by Mr Griffiths would place on the sub-contractor the often impossible task of splitting up its claim where liability may fall on both the main contractor and the employer, at an early stage, into a clause 22 arbitration where the main contractor was at fault and a name borrowing arbitration where the employer was at fault. 18. I am satisfied that the interim award of the preliminary point of jurisdiction was correctly decided. I therefore decline the motion to set it aside. I see no reason why costs should not follow the event. Accordingly, the costs of and arising from the applicant's Notice of Motion dated 16 December 1999 be the respondent's.
Representation: Mr John Griffiths, SC, leading Mr William M.F. Wong, instructed by Messrs Simmons & Simmons, for the Applicant (Respondent in Arbitration) Mr Simon Westbrook, instructed by Messrs Shadbolt & Co., for the Respondent |