China Harbour Engineering Co Ltd v. The Secretary for Justice of the Hong Kong Special Administrative Region

Case No.CACV 138/2006
Court
高等法院上訴法庭
Date23 Jan 2007
JudgeHon Le Pichon JA, Sakhrani J, A Cheung J
Case Document
100%

cacv 138/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 138 of 2006

(on appeal from HCCT NO. 44 of 2004)

 ______________________

BETWEEN

 

CHINA HARBOUR ENGINEERING COMPANY LIMITED
(formerly known as CHINA HARBOUR ENGINEERING COMPANY (GROUP))

Plaintiff

 

and

 

THE SECRETARY FOR JUSTICE OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION

Defendant

Before: Hon Le Pichon JA, Sakhrani and A Cheung JJ in Court

Date of Hearing: 16 January 2007

Date of Handing Down Judgment: 23 January 2007

 ______________________

J U D G M E N T

 ______________________

Hon Le Pichon JA:

1.This is an appeal by China Harbour Engineering Company (Group) (“the plaintiff”) whose claim against the Secretary for Justice (“the defendant”) for damages for breach by the government of a contract between the plaintiff and the Territory Development Department (“the TDD”) was dismissed by Burrell J on 6 March 2006.  At the end of the appeal hearing judgment was reserved which we now give.

Background

2.The plaintiff was one of five pre-qualified tenderers tendering for works in a contract known as Central Reclamation Phase III comprising:

(a) an 18 hectare area of reclamation of the harbour between Central and Wanchai (the “CRIII works”);

(b) a 500 m tunnel known as the Wanchai bypass (the “CWB” tunnel);

(c) an Extended Overrun Tunnel (“EOT”) for the Airport Railway Station comprising (i) 40 m (the “40 m EOT”), and (ii) a further 460 m;

(d) the North Island Line Protection Works.

Only items (a) and (c)(i) were guaranteed to the successful bidder.  The remaining items were excisable.  The entire project was worth some $3.7 billion and item (b) alone was worth some $1 billion.  In order to simplify matters, in his judgment, the judge mentioned only 3 items ((a), (b) and (c)) which correspond to items (a), (b) and (c)(i) above.

3.Attached to the tender document were “Notes for Tenderers”.  Section B(2) stated as follows:

“Tenderers should note that tenders will be evaluated in accordance with the marking scheme at Annex B.  Normally, a tender with the highest overall mark would be recommended for acceptance, subject to the usual requirement that the Employer is satisfied that the recommended tenderer is fully (including technically and financially) capable of undertaking the contract.”

Annex B, in pertinent part, read as follows:

“3. After the Technical Submissions have been evaluated and the Tender Price Documents have been examined and corrected in the normal manner, an overall score for each of the technically acceptable tenders will be computed.  The respective weights for price and technical score are 70/30.  The method of computing the overall mark is illustrated below:

3.1 Only those conforming tenders will be considered.

3.2 For weightings of price and technical score at 70 and 30, the overall mark for each conforming tender is determined according to the following formula as

  the lowest tender price among
those conforming tenders
  the technical score
= 70 x -------------------------------------
the tender price
+ 30 x ------------------------------
the highest technical score
among those conforming tenders

4. The successful tender will be selected based on the overall marks of the conforming tenders.  Government however is not bound to accept the tender with the highest overall mark or any tender.”

4.As for the Tender document itself, special conditions of tender (“SCT”) were set out in Part B.  SCT 2 read:

“PRICING OF CENTRAL WAN CHAI BYPASS WORKS

The tenderer shall price the Bill Nos. A2, N1 and N2 such that the following condition is complied with:

The total of Bill Nos. A2, N1 and N2    
-----------------------------------------------------------------------
Grand Total – the total of Bill Nos. A3, A4, A5, P1,P2 and P3 –
Contingency Sum
≥33.7%  

Failure to price the tender in accordance with the above condition may invalidate the tender.”

5.The reason for having such a provision is explained by Atkins, the consultants engaged by the government to advise on the tenders, in their report dated 28th of January 2003 (“the report”):

“The rationale behind this pricing condition was to ensure that competitive prices were obtained for the committed CRIII works since, in the absence of the pricing condition, there would have been a strong commercial incentive for tenderers to price the CRIII works high (and the CWB low) in order to maximize their profits in the event that the CWB was excised from the contract.

The 33.7% minimum limit was calculated based on the pre-tender estimate of the works and is considered to be reasonable.”

6.Of the five tenders, only the plaintiff’s complied with the pricing specification or formula set out in SCT 2.  Its tender priced the CWB works at 34.21% whereas the other tenders were all below the stipulated 33.7%.

7.Prior to the production of their report, Atkins were advised by TDD that “any tender that did not comply with the pricing condition in SCT 2 should not be recommended”.  Not surprisingly, Atkins recommended the plaintiff:

Recommended Tender

We recommend that the tender submitted by China Harbour Engineering Company (Group) in the sum of $3,785,728,856.00 be accepted.  The recommended tender obtains the second highest overall score in respect of the CRIII + CWB + 40m EOT scenario, based on the net present values of the tender sums.

The tender with the second highest overall score rather than the tender with the highest overall score (i.e. Leighton – China State  – Van Oord Joint Venture) is recommended because the highest scoring tender does not comply with the CWB pricing condition stipulated in SCT 2 (refer to para.E (xvii) above).

Moreover, if the tenders are assessed on the basis that the CWB will be excised from the contract for any unpredicted reasons (i.e. CRIII + 40m EOT scenario referred to in para.E (xiii) above), the recommended tender attains the highest overall score and is the lowest tender.

Based on the net present values of the tender sums (refer to para.E (xiv) above), the recommended tender is the second lowest for the CRIII + CWB + 40m EOT scenario and the lowest for the CRIII + 40m EOT scenario, being $16M and $112M lower than the tender submitted by Leighton  – China State – Van Oord Joint Venture for each respective scenario.

We confirm that the recommended tender complies with all the tender terms, conditions and specifications.  The recommended tender was signed by HU Jian Hua who is authorized to sign contracts on behalf of the tenderer.”

8.However, it will be seen from Atkins’s report that they evaluated the plaintiff’s tender along with the other tenders that did not comply with the pricing requirement.  The judge summarised the salient facts emerging from Atkins’s recommendation in paragraph 14 of his judgment:

“(a) Atkins followed its instructions from TDD and recommended the only compliant tender.

(b) The highest score was achieved by Leightons.  (The scoring system awards points for many different factors, price being merely one of them.)

(c) China Harbour was alone in complying with SCT-2.

(d) China Harbour’s bid was $3.786 billion; Leightons was $3.788 billion.

(e) If all three works ((a), (b) and (c) supra) went ahead Leightons’ was the best bid.  If only (a) and (c) went ahead (i.e. CWB being excised) China Harbour’s was the best bid.”

As mentioned above, the 3 items of work (a), (b) and (c) referred to in the judgment correspond to (a), (b) and (c)(i) of the items set out in paragraph 2 above.

9.The Central Tender Board (“CTB”) considered the recommendation at two meetings held on 30 January 2003 and 6 January 2003 respectively and awarded the tender to Leightons on 8 February 2003.  The plaintiff commenced these proceedings on 28 June 2004.

10.The judge dismissed the plaintiff’s claim and concluded that all bidders had been treated equally and fairly; that Leightons’ bid, whilst not compliant with SCT 2, had not been invalidated and on reasonable grounds; and that SCT 2 read as a whole did not create a mandatory or essential requirement.

This appeal

11.The plaintiff’s skeleton submission took issue with the judgment below in several respects.  However by the hearing of the appeal, Mr Wong SC confined his submissions to a single issue – the true construction of SCT 2.

12.In essence, Mr Wong SC’s submissions on behalf of the plaintiff may be summarised as follows: it was a term of the process contract that only conforming tenders will be assessed; the only conforming tender was the plaintiff’s; the underlying rationale of the approved marking scheme was to compare like with like and as there was only one conforming tender, namely the plaintiff’s, the government acted in breach of contract by comparing the plaintiff’s conforming tender with other non-conforming tenders and awarding the contract to the bidder with the highest overall score but whose tender had not complied with the pricing formula.

13.The short question for decision is the meaning of a “conforming” tender in Annex B to the Notes.  Was the defendant in breach of contract in evaluating the plaintiff’s tender together with the other tenders that did not comply with the pricing formula?  The answer turns on this true construction of SCT 2.

14.It is trite law that in construing a contractual provision, the entire provision has to be considered and, where possible, every part should be given effect.  The judge was not persuaded that in the context of the contract the word “may” in the final sentence of SCT 2 means “must”.  I agree with the judge that the final sentence of SCT 2 would be rendered otiose if, as suggested by the plaintiff, the word “may” means “must”.  If the final sentence in SCT 2 is read as addressing the consequence of failing to comply with the pricing formula, it would not be rendered otiose because its effect would be to confer on the government a discretion to invalidate any tender that did not comply with the pricing formula.  Unless and until a tender that otherwise complies with all the requirements is invalidated through the exercise of the discretion, it remains a valid or conforming tender.  Apart from not complying with the pricing formula in SCT 2, it is not suggested that any of the other tenders to which Atkins applied the approved marking scheme were non-compliant in any other respect. 

15.Read as a whole, the judge concluded (at paragraph 20 of his judgment) that the message of SCT 2 to the tenderers was this: “do your sums according to this equation, if you do not you run the risk of being disqualified however good the rest of your bid is”.  In my view, the judge’s approach to the construction of SCT 2 is irreproachable.  Not only did the judge read that provision as a whole, he also read it in the context of all the tender documents.  In paragraph 27 of his judgment, he listed the many examples of the tenderers being directed that they “shall” do something and, in the same clause, being told that if they do not, their bid “may” be disqualified.  Those examples had been extracted from the tender documents by Ms Cheng SC who appeared for the defendant.  Then at paragraph 29, the judge set out other examples (again extracted from the tender documents) of mandatory provisions where non-compliance have an automatic or inevitable consequence:

“(1) SCT1(1) provides that ‘The tenderer shall complete the forms given in the Appendix C to these Conditions of Tender and provide the information as may be required… The submission of any required information or additional information relating to the technical submission after the tender closing time will not be considered in the tender evaluation.’

(2) SCT1(3)(B)(c) provides ‘For each private sector or overseas contract, the tenderer shall provide documentary evidence… to demonstrate the existence of the contract.  Any private sector or overseas contract without the documentary evidence will not be considered in the tender evaluation.’

(3) SCT9(b) provides ‘A tenderer in breach of this clause shall have its tenders disqualified.  The joint venture or joint ventures in which any participant or shareholder is found to be in breach of this clause shall also have its or their tender or tenders disqualified.’

(4) SCT16 provides that ‘If, by the tender closing date, the tenderer… is under suspension from tendering for public works, his tender will not be considered unless the suspension is lifted within 40 days from and including the tender closing date.’ ”

At the hearing Ms Cheng also drew attention to SCT 5(2) which read:

“Tenderer’s design must comply with the minimum conditions specified in the Specification, Drawings and the Schedules of Particulars contained in Booklet 2 of the tender documents.  A tender incorporating a design which does not comply with the minimum conditions or which design requires substantial amendments in order to conform to the Specification shall be considered as a non-conforming tender.”

The very different consequence of a failure to comply with the pricing formula in SCT 2 is immediately apparent when juxtaposed with the above provisions.

16.For these reasons I am unable to accept Mr Wong’s submissions that the only conforming tender was the plaintiff’s.  The other tenders considered by Atkins have not been invalidated.  That being so, they were “conforming” tenders for the purposes of Annex B.  I would add that it is implicit from the minutes of the meetings of the CTB set out in the judgment that the discretion not to invalidate the other tenders that did not comply with the pricing formula was exercised.

17.I would dismiss this appeal.  I would also make an order nisi for costs in favour of the defendant.

Hon Sakhrani J:

18.I agree.

Hon A Cheung J:

19.I agree.

Hon Le Pichon JA:

20.There will accordingly be an order in terms of paragraph 17.

(Doreen Le Pichon)
Justice of Appeal

(Arjan H Sakhrani)
Judge of the Court of First Instance

(Andrew Cheung)
Judge of the Court of First Instance

Mr Ronny Wong SC, Mr Kenneth C.K. Chow and Ms Anny Chak, instructed by Messrs Huen & Partners, for the Plaintiff/Appellant

Ms Teresa Cheng SC and Mr Douglas Lam, instructed by the Department of Justice, for the Defendant/Respondent

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