Vigour Ltd v. Hyundai Engineering and Construction Co Ltd

HCCT 24/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 24 OF 2008

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BETWEEN

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Before:  Hon Reyes J in Court

Date of Hearing:  23 August 2008

Date of Judgment:  23 August 2008

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J U D G M E N T

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I.       INTRODUCTION

1.In about 2000 Vigour was the Employer and Hyundai the Main Contactor for a KCRC development at Hung Hom.  The works were covered by Contracts A, B and SA. 

2.These proceedings concern Contract A which involved the construction of a commercial development (including hotel tower and 2 podium levels underneath with car park and retail spaces), a footbridge and a building services installation for a seawater pumping system.  Contract B concerned the construction of an office block and associated works.  Contract SA concerned the construction of serviced apartments and associated works.

3.Disputes arose in relation to Contracts A, B and SA.  Each set of contractual disputes went to separate arbitrations.  But the same arbitrator, Mr. Colin Wall, was appointed to hear the 3 arbitrations.  The present application relates to Mr. Wall’s 4th Interim Award in the Contract A Arbitration.

4.During the Contract A Arbitration, Vigour contended that Hyundai had not achieved practical completion until 28 June 2002. Hyundai argued that practical completion had been attained at some point between 14 and 31 December 2001.  Mr. Wall held that practical completion took place on 21 December 2001.

5.Vigour now seeks leave to appeal against that Interim Award on essentially 2 grounds.  The grounds are:-

(1)     Mr. Wall wrongly construed the term “occupants” in the definition of practical completion found in Contract A.

(2)     Mr. Wall did not address Vigour’s case that Hyundai could not have obtained a certificate of practical completion in December 2001 because Hyundai had not by then met all the “final tests” required by Contract A.

6.I shall assume that the grounds raised concern matters of law or, at any rate, questions of mixed law and fact.

7.This case indisputably concerns one-off provisions specially tailored to the KCRC Hung Hom development.  The test for granting leave is thus whether Mr. Wall’s award appears to be obviously wrong on the matters queried by Vigour.

II.      DISCUSSION

A.      Ground 1: The meaning of “occupants”

8.The key provision (GCC 1(1) (as amended by SCC 2)) provides as follows:-

“‘Practical Completion’ means the proper and effective completion of the Works to the Architect’s satisfaction so as to be fully available for possession and use, subject only to items of minor works listed and authorized by the Architect for later completion during the Maintenance Period.  For the avoidance of doubt ‘minor works’ shall not include work which would otherwise inconvenience or unreasonably disturb occupants in their possession and use of the Works following Practical Completion.”

9.During the Arbitration, Vigour submitted that the expression “occupants” in GCC 1(1) plainly referred to “hotel guests or staff”.  Such persons (Vigour suggested) would have a low tolerance for inconvenience and disturbance arising from work conducted by Hyundai.  It followed (Vigour reasoned) that, if there was any incomplete work which Hyundai had to do, such work could not be “minor work” within GCC 1(1) and “practical completion” could not be attained if such work remained outstanding.

10.Mr. Wall rejected Vigour’s submission.

11.He pointed out that, from the definition of the relevant works and work scope, Hyundai was “not contracting to build an operational hotel”.  Following completion by Hyundai of its contracted work, “[f]urther work would need to be done to the hotel to take it ... to the state of completion needed for an operational hotel”. 

12.Mr. Wall noted that Contract A provided for the engagement of direct contractors (other than Hyundai) to undertake this additional work.  Thus, for instance, following completion by Hyundai, extensive works would be executed by other contractors to make hotel guest rooms fit for occupation.

13.Mr. Wall continued:-

“276.   [Vigour] tries, in my view, unsuccessfully to say that occupants must mean one particular group of people i.e. hotel guests and hotel staff, rather than occupants who may [be] in occupation from time to time.  To my mind, this again goes back to how the Contract would be construed by the Parties at the time that it was made.  As well as leading to the conclusion noted above, that this was not a finished hotel capable of occupation by guests and hotel staff, ‘occupant’ would very much depend on which part of the hotel was being considered.

277.    For example, in the case of certain back of house areas, it might be that it was the hotel staff who were going to be the next occupiers.  In the plant rooms this would be maintenance staff but in the back of house lift lobbies and kitchens there would be no permanent occupation. Those particular areas would only get occupied and used just prior to hotel opening. A different situation would apply to Level 8 cafés, which were only to be constructed by [Hyundai] as an empty shell, to be fitted out by others.  The same situation applies to the Level 7 health club where again the next occupant would be a fitting out contractor of some description.  The hotel smoke lobbies would not really have a permanent occupant at all and members of the public would, eventually[,] occupy the car par parks.  As already noted, the next occupier of the hotel guest rooms would not be the guests themselves but Direct Contractors and possibly Harbour Plaza management staff readying the rooms for eventual occupation.

278.    Therefore [‘]occupant,[’] should be given its natural meaning that is to say whoever is likely to occupy a particular part of the hotel following the completion of [Hyundai’s] works in that part or area of the hotel.

279.    As set out in paragraph 269 above, [Vigour] has argued that as the Maintenance Period is not sub-divided into different periods then [Hyundai’s] contention that occupants would be different at different times cannot be correct.  I disagree.

280.    As I have already noted, [Hyundai] did not contract to build an operational hotel.  Therefore in the initial part of the Maintenance Period (or indeed perhaps all of the Maintenance Period if there is no hotel operator), there will be no hotel guests or hotel staff.  That would change when others completed the remainder of the work required to make the hotel operational.  Furthermore, GCC Clause 53(3) requires the Contractor to ‘carry out any outstanding items of minor work as soon as practicable after the issue of the certificate of completion or as reasonably directed by the Architect and in any event before the expiry of the Maintenance Period.’  Therefore the Contract does envisage minor work being carried out at the same time as further works by others to take the Works from the level of completion envisaged by the Contract up to that required by an operational hotel.

281.    I would also add that ‘minor work’ can only mean known outstanding and patent defects.  Any latent defects which may manifest themselves during the Maintenance Period would also need to be rectified by [Hyundai] and those works, could, perhaps be messy and noisy, thus causing inconvenience to the then occupants.

282.    Based on all of the above, I FIND as a FACT that [Hyundai] was not required to build an operational hotel.

283.    Accordingly, I FIND as a FACT that ‘occupants’, as that term is used in the definition of Practical Completion, does not necessarily mean hotel guests and hotel staff but means whoever would next occupy that particular part or area of the hotel, given the scope of the Claimant’s work under the Contract.”

14.Mr. Philip Boulding QC (appearing for Vigour) submits that Mr. Wall misconstrued “occupant”.  He says that Mr. Wall was obviously wrong for the following reasons:-

(1)     In a hotel context the “occupants” who were most likely to be “inconvenienced” or “unreasonably disturbed” by ongoing works were hotel guests.

(2)     Hotel guests may be said to be “in possession” and making “use” of Hyundai’s works as described by GCC 1(1).  The same could not be said of “whoever is likely to occupy a particular part of the hotel following the completion of [Hyundai’s] works in that part or area of the hotel”.  The words used in GCC 1(1) to describe “occupant” therefore pointed to hotel guests.

(3)     If just any particular occupant was being referred to, there would be no benchmark by reference to which “inconvenience” or “disturbance” might be assessed.  Different persons would have varying tolerances of inconvenience and disturbance.

(4)     Mr. Wall’s construction would lead to absurd results.  For example, it was envisaged that “minor works” could be carried out during the 12 month Maintenance Period.  Mr. Wall’s reading of “occupant” would potentially divide up the Maintenance Period so that it could be used to carry out different categories of “minor works” at different times.  Hyundai would not be able to programme its “minor works”.  Correspondingly, Vigour would not be able to determine when the hotel could be put into commercial operation.

(5)     In coming to his conclusion, Mr. Wall took account of facts and matters which took place after Contract A was made.  Contracts should be construed in light of the factual matrix at the time of contracting.

15.I am not persuaded by Mr. Boulding’s submission.  Indeed, I think that, far from appearing to be wrong, Mr. Wall (for the reasons stated by him) most probably construed the word “occupant” in GCC 1(1) correctly.

16.First, like Mr. Wall I do not see why GCC 1(1) should be read purely in the context of an operational hotel where staff serve guests. 

17.Mr. Wall found that Hyundai was not meant to hand over works which could immediately be used as an operational hotel.  Additional works would be necessary to reach such stage. 

18.In the context of a development (comprising more than just a hotel tower in any event) where other contractors would need to go in and out of occupation of particular areas in the course of further works, Mr. Wall’s reading of “occupants” would seem to make eminent sense.

19.Second, hotel guests might be said to make “use” of hotel facilities.  But it is odd in English to refer to hotel guests as being in “possession” of any given area of a hotel.

20.The expression “in their possession and use of the Works” may be more naturally read as a reference (among others) to contractors who come into “possession” of particular areas to make “use” of the work which Hyundai has already done and bring that work to the standard required of an operational hotel.

21.Consequently I do not see the words “possession” and “use” as supportive of Vigour’s case.

22.Third, I do not see how the possibility of varying levels of tolerance among occupants falsifies Mr. Wall’s conclusion.

23.In Hong Kong different sets of contractors typically work simultaneously in a confined space.  Work schedules are routinely devised to ensure that one set of contractors does not unduly get into the way of other contractors.  It should therefore be a relatively straightforward exercise to assess the extent to which any work to be done by Hyundai would or would not inconvenience direct contractors working in the same areas.

24.Fourth, for the reason just given, I do not see Mr. Wall’s reading of “occupant” as leading to absurdity.

25.Fifth, as far as I can see, fairly read, Mr. Wall confined himself in construing GCC 1(1) to the factual matrix in existence at the time of contracting.

B.      Ground 2: The significance of “final tests”

26.GCC 53 (as amended by SCC 22) provides:-

“(1)   When the Works have reached a state of Practical Completion and have satisfactorily passed any final test that may be prescribed by the Contract, the Contractor may serve notice in writing to that effect together with an itemised list of any outstanding items of minor work to the Architect ... requesting the Architect to issue a certificate of completion in respect of such Works.  The Architect shall, within 21 days of the date of receipt of such notice either:-

(a)     issue a certificate of completion ..., or

(b)     give instructions in writing specifying all the work which, in the Architect’s opinion, is required to be done by the Contractor before such certificate can be issued...

(2)     Notwithstanding the provisions of sub-clause (1) of this Clause, as soon as in the opinion of the Architect the Works have been practically completed and satisfactorily passed any final test which may be prescribed by the Contract, the Architect shall issue a certificate of completion in respect of the Works and the Maintenance Period shall commence from the date of Practical Completion stated in such certificate.

....”

27.Vigour says that a practical completion certificate could not have been issued on 21 December 2001 because not all “final tests” prescribed by the Contract had been “satisfactorily passed” by then.  It argues that Mr. Wall went obviously wrong in failing to consider this matter.

28.In relation to “final tests” Mr. Wall’s Interim Award stated:-

“257.   Before leaving this particular subject, I should also deal with the ‘final tests’ provision.  As noted elsewhere in this award, during the hearings for Contracts B and SA, I asked to be addressed on this point.  I did so because Mr. Sunny Yeung [Vigour’s expert] had mentioned this as a possible ground for the Architect refusing to issue a Certificate of Practical Completion in his PC Expert Report.  However, as [Hyundai] has pointed out, it is not [Vigour’s] pleaded case that the Architect withheld the Certificate of Practical Completion on the basis that the Works had not passed some final tests as prescribed in the Contract.  I therefore do not need to consider this matter further, notwithstanding the further information on this topic set out in the Reply Submission [of Hyundai].”

29.Later in the Interim Award Mr. Wall added:-

“312.   I should also note that [Vigour] has attempted, albeit faintly, to state that testing required by the terms of the Contract had, on [Hyundai’s] own admission, not been completed when [Hyundai] applied for a Practical Completion certificate.  However, as already noted, this is not a pleaded issue and in any event, the ‘final tests’ envisaged by GCC Clause 53 need to be specifically described as such and such be distinguished from other forms of tests.”

30.Mr. Boulding advances 2 complaints against Mr. Wall’s conclusions on “final tests”.

31.First, Mr. Boulding submits that it was plainly a live issue in the Contract A Arbitration whether practical completion could be certified if final tests (including water tests) had not been satisfactorily passed.  That the issue was before Mr. Wall ought to have been apparent (Mr. Boulding suggests) not least because:-

(1)     The matter was specifically raised in Vigour’s pleading.

(2)     Vigour’s factual and expert evidence had been directed to the issue of whether final tests had been satisfactorily passed; and,

(3)     Mr. Tuffin (Hyundai’s expert) had been cross-examined by Mr. Boulding on the basis that water tests required by Contract A had to be passed before practical completion could be certified.

32.Second, Mr. Boulding criticises Mr. Wall for holding that all relevant “final tests” had to be specifically described as such (and thereby distinguished from other types of tests) in Contract A.

33.In support of this latter contention, Mr. Boulding points to clauses 10.7, 10.8, 12.0 and 12.1 of Particular Specification for Architectural Works PS 30 (Quality Assurance and Quality Control).  According to Mr. Boulding these clauses:-

“required the final inspection and testing to incorporate all earlier tests with the result that all testing required, whether or not it was described specifically as a final test, to be completed satisfactorily before the Works could be said to have been satisfactorily tested”.

34.The clauses mentioned provided as follows:-

“10.0   Construction Control

....

10.7    Test and inspect all completed works as required by the various specifications progressively throughout the construction period.

10.8    Monitor testing and inspection on a continuing basis, and issue monthly reports to the Architect.

....

12.0    Completed Work Inspection and Testing

12.1    Establish the procedure for final inspection and testing to incorporate earlier inspection reports with evidence that the information contained therein was acceptable.

....”

35.I am not persuaded by Mr. Boulding.  Again I see no obvious error of law on Mr. Wall’s part.

36.On the 1st complaint, Vigour relies on the following paragraphs from its Amended Statement of Defence and Counterclaim as raising the need to pass “final tests” under GCC 53:-

“95.   In or about mid 2001, RLP begam to isse lists of defects which it required Hyundai to rectify prior to Practical Completion.  In the month of June 2001, RLP gave written notifications to Hyundai regarding problems with the expansion joint installation, the oversized window openings and the aluminium window installation….

96.    On 2 July 2001, RLP wrote ... and advised Hyundai to complete all outstanding work and defect rectification as scheduled in the attached non-exhaustive ‘Site Staff Report’.  Hyundai was also required to submit the outstanding testing reports/ statutory forms before final inspection such that outstanding testing reports/ statutory forms before final inspection such that certification of Practical Completion could be carried out.”

“104. Defect rectification at the Level 9 and 10 Guestroooms was the subject of a further ‘Ultimatum’ letter from RLP on 12 June 2002 ..., and a general complaint as to the continued existence of un-rectified water leakage through the aluminium windows and sliding doors at the Guestrooms on typical floors was made on 20 June 2002...

105.  A further defects list was issued on 27 June 2002...  By that date Hyundai had rectified the majority of the major defects.  However, as demonstrated by the issue of the defects list on 27 June 2002, the question of other defects remained.

106.  The Works were certified as Practically Completed on 28 June 2002 ... by which date most of the major defects and outstanding work, the non-completion of which would otherwise preclude the normal functioning of the building in its intended use as a Hotel, were rectified or completed...  Vigour avers that the defect rectification work that was required to Hyundai’s work was extensive as a result of the extensive non-compliances with the contract requirements and that the existence of such defects constituted the principal reason why Practical Completion could not be certified any earlier than 28 June 2002.”

37.None of the paragraphs highlighted squarely pleads that by GCC 53 a practical certificate of completion could not have been issued as contended for by Hyundai because “final tests” (whatever that expression might mean) had not yet been satisfactorily passed.

38.None of the paragraphs identifies any particular test or tests with the phrase “final tests” in GCC 53.

39.Defence §§95-6 pleads the contents of letters, notices and defects lists.  Presumably, those were being pleaded because it was being alleged that as mid-2001 defects still existed.  But such a pleading would not bring home to any reasonable reader of the Defence that Vigour was mounting a case that no practical completion certificate could have been given before June 2002 because “final tests” (as required by GCC 53) had not been passed.

40.Defence §104 refers to water leakage in certain guest rooms.  Again it is far from clear what (if anything) this has to do with the “final tests” mentioned in GCC 53.  It is possible, for instance, for works satisfactorily to pass any (say) “final” water tests, although later certain rooms are found to have leaking windows.

41.For what it is worth, I note in this connection that, from Vigour’s witness statements and written submissions in the arbitration, it appeared that:-

(1)     Water tests were scheduled to be completed on or before 20 December 2001.

(2)     Water leakage was found around particular windows in around June 2002.

(3)     A practical completion certificate could be issued even though the problem of water leakage around such particular windows might not yet be resolved.

42.In any case, in my view, even an astute reader would not have had any idea of Vigour’s alleged case on “final tests” from §104.

43.Defence §105 takes the matter no further.  It pleads the issue of a defects list without making any attempt to identify the particular defects in the list which are said to constitute a failure to comply with the “final tests” requirement in GCC 53.

44.Defence §106 suffers from the same difficulty as §105.

45.Mr. Wall seems to me, therefore, to have been right in his reading of the Defence.

46.An important function of pleadings is to identify (and thereby narrow down) the issues in a litigation or arbitration.  If an issue is not pleaded, an arbitrator is entitled, in the interests of fairness, to ignore the alleged issue as one that has not been properly flagged in the pleadings.

47.Further, the mere fact that there has been reference to water tests or any other tests in the course of an arbitration would not make it apparent that the passing of “final tests” (whatever those may be under GCC 53) was a relevant issue.  Parties habitually throw up all sorts of matters in the course of examination, cross-examination and submission.  But that would not be enough to turn irrelevant matters into relevant issues.

48.If the alleged issue were truly to be regarded as “live” within the Contract A Arbitration, the following facts and matters ought to have been pleaded at a minimum:-

(1)     That on a true construction of GCC 53(2) a practical completion certificate could not have been issued before 28 June 2002 because it was not until then that “final tests” had been satisfactorily passed as required by GCC 53(2).

(2)     That on its true construction the expression “final tests” in GCC 53(2) included the following tests: [A list of the particular tests which had to be passed].

49.That was simply not done.

50.This is not an arid technical concern in the circumstances of this case.

51.A proper pleading would have enabled Hyundai to know precisely what Vigour’s case was and (if it saw fit) to marshall evidence to rebut that case.  Hyundai could not fairly be expected to know the parameters of Vigour’s actual case on “final tests” and GCC 53 merely because “tests” were mentioned here and there in the course of the arbitration.

52.Mr. Boulding refers me to Indian Oil Corporation v. Coastal(Bermuda) Ltd. [1990] 2 Lloyds Rep 407.  There Evans J stated (at 411 (col.1);-

“(1)   The function of pleadings

There is, as Mustill & Boyd in Commercial Arbitration (2md ed 1989) observe, a range of possible uses for pleadings in a commercial arbitration.  At most, they will have the same status as the pleadings in Commercial Court litigation.  I will assume that they had this status in the present arbitration, though with the reservation that in my view arbitrators should be more ready to emphasize the practical advantages of pleadings, in terms of notifying the opposite party (and the tribunal) of the factual matters which will be relied upon, rather than what may be called the negative function of preventing a party from raising issues which he has not pleaded.  Nevertheless, treating the pleadings in the arbitration as ones which were governed by the rules of the Supreme Court, there is no strict requirement that issues of law, as distinct from material facts, shall be pleaded, except for some particular purpose, e.g. to define a preliminary issue (see O.18, rr.7 and 11 and AP 18/7/2); moreover, where the material facts have been pleaded or admitted in evidence the Court should give judgment in accordance with the legal consequences of those facts, whether expressly pleaded or not....”

53.I do not think the passage assists Vigour.  The real question here is one of fairness.  I do not think that the Defence squarely identified the facts and matters being relied upon in support of the “final tests” case now being alleged.  It would be unfair to have treated Hyundai as having been made fully aware by the Defence of Vigour’s case on “final tests”.

54.It is true that some parts of Hyundai’s Opening and Closing Submissions were devoted to the suggestion in Mr. Sunny Yeung’s evidence that not all “final tests” were satisfied. 

55.But Hyundai’s remarks were simply as follows:-

(1)     Opening Submission:-

“The Contractor is not entitled to a PCC [Practical Completion Certificate] if the Works have not satisfactorily passed any final test prescribed by the Contract (see clause 53(1)).  Hyundai does not understand any such failure to have been relied upon by RLP at the time as a ground for refusing a PCC after mid-December 2001 but Mr. [Yeung], Vigour’s agent, seeks to suggest that the completion of a water test may have been an impediment.  But the facts will show that these tests were irrelevant after December 2001.”

(2)     Closing Submission:-

“The Contractor is not entitled to a PCC if the Works have not satisfactorily passed any final test prescribed by the Contract (see clause 53(1)).  Again, Vigour has neither pleaded nor did it open its case on the basis that any such failure was relied upon by RLP at the time as a ground for refusing a PCC after mid-December 2001.  In any event, the only evidence led by Vigour on this issue was that of Mr. Yeung, Vigour’s expert, who sought to suggest that the completion of a water test may have been an impediment.  But the evidence showed that these tests were irrelevant after December 2001.  Consequently, even were this now to be contended for it would fail on the evidence.”

56.Given the absence of any pleading or particulars on the matter, Hyundai’s response could at best only be in the limited manner just quoted.  Otherwise, it had no clear idea from the pleadings just what “final tests” Vigour had in mind as relevant.

57.I draw no help from the clauses referred to by Mr. Boulding from the Particular Specification.  Those clauses relate to the establishment by a contractor of a system of quality control and testing.  They do not identify just what “final tests” Vigour says ought to have been (but were not) passed as at the end of December 2001.

58.On the 2nd complaint, in light of my view that Mr. Wall was likely right on the consequences of an absence of a pleading on “final tests”, his remarks on the need for Contract A to have spelled out what (if any) “final tests” had to be passed may be treated as obiter.  Mr. Wall was entitled to ignore (as he did) the alleged issue of “final tests”.

59.Mr. Wall did not have to go further.  Thus, whether he was or was not right in his remark that any “final tests” would have to be specifically identified in Contract A, could have no material effect on the outcome of the arbitration. 

60.The correctness of Mr. Wall’s construction of the expression “final tests” being academic for the purposes of this leave application, I will say little more on the matter.  In this connection, I bear in mind Arbitration Ordinance (Cap.341) s.23(4) which provides that:-

“The Court shall not grant leave unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement.”

61.I confine myself to observing here that Mr. Wall’s construction of the “final tests” requirement in GCC 53 is a possible reading. It may not be the only reading.  But I am unable to say that it is an obviously wrong reading.

III.     CONCLUSION

62.I do not see any obvious error by Mr. Wall calling for the grant of leave to appeal. 

63.Mr. Boulding asks in the alternative for the Interim Award to be set aside or remitted to Mr. Wall for reconsideration.  It follows from my Judgment that neither course of action is apposite.

64.Vigour’s motion is dismissed.  I shall now hear the parties on costs and any other matters.

Mr Philip Boulding, QC and Mr Calvin Cheuk, instructed by Messrs Woo, Kwan, Lee & Lo, for the Applicant

Mr Peter Clayton, SC, instructed by Messrs Pinsent Masons, for the Respondent