YUEN CHONG FIRE ENGINEERING CO LTD v. NGO KEE CONSTRUCTION CO LTD

DCCJ 3761/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3761 OF 2004

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DECISION

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1. This is an application by the Defendant for an order that all further proceedings be stayed and referred to arbitration pursuant to Section 6(1) and Article 8 of the Fifth Schedule to the Arbitration Ordinance.

2. In this action the Plaintiff claims against the Defendant for an outstanding payment of $152,855 for certain works (“the Works”) done by the Plaintiff at the Defendant’s request.  The Defendant contends that the Works were performed pursuant to a sub-contract (“the Sub-Contract”) entered into between the parties in August 2002, and that Clause 22 of the Sub-Contract contains an arbitration clause, requiring that the Plaintiff’s claim in the present action be stayed and referred to arbitration.  The Plaintiff argues that the Works were performed pursuant to a separate contract which contains no arbitration clause; hence Clause 22 has no application to that contract.

3. The Works to be performed under the Sub-Contract works formed part of the building works of a service apartment on Prince Edward Road, Kowloon.  The Sub-Contract works had been sub-contracted to the Plaintiff by the Defendant, which was the main contractor of the building works.

4. On or about 18 July 2003, there was a flood in the project site, resulting in serious damage to the fire services installation built by the Plaintiff.  By letters dated 21 July 2003, pursuant to the Defendant’s request, the Plaintiff submitted quotations for repairing the damage caused by the flood.  By a letter dated 25 July 2003, the Defendant confirmed instructions for the Plaintiff to commence the said Works forthwith.  After completion of the said Works, the Plaintiff issued an invoice to the Defendant for the sum of $152,855, the subject matter of the present action.

5. The Plaintiff submitted, inter alias, that the said Works were performed under a separate contract from the Sub-Contract because practical completion of the Sub-Contract works had already been achieved on 19 July 2003 and instructions for the said Works were only given by the Defendant to the Plaintiff on 25 July 2003.  Fresh quotations were submitted by the Plaintiff and separate instructions were given to the Plaintiff to carry out the said Works, at a price in addition to the sum due for the Sub-Contract Works.

6. Clause 22 of the Sub-Contract governing settlement of disputes between parties provides as follows :-

“In the event of any dispute or difference between the Main Contractor and the Sub-Contractor, whether arising during the excution or after the completion or abandonment of the Sub-Contract Works or after the determination of the employment of the Sub-Contractor under this Sub-Contract (whether by breach or in any other manner), in regard to any matter or thing of whatsoever nature arising out of this Sub-Contract or in connection therewith, then either party shall give to the other notice in writing of such dispute or difference and such dispute or difference shall be and is hereby referred to the arbitration of such person as the parties hereto may agree to appoint as Arbitrator….”

7. When the Architect issued the Certificate of Practical on 19 July 2003, he must have inspected the Works concerned; before this date, he must have been satisfied that the Works concerned were practically completed.  The meaning of “practical completion” is analysed by the authors of Keating on Building Contracts (7^th edition) (2001) as follows :-

(a)   the Works can be practically complete notwithstanding that there are latent defects;

(b)   a Certificate of Practical Completion may not be issued if there are patent defects.  The Defects Liability Period is provided in order to enable defects not apparent at the date of Practical Completion to be remedied;

(c)   practical Completion means the completion of all the construction work that has to be done;

(d)   however, the Architect is given a discretion under clause 17.1 to certify Practical Completion where there are very minor items of work left incomplete, on “de minimis” principles.

Applying the meaning of “practical Completion” under (c), by 19 July 2003, the Plaintiff had practically completed the Works required to be done under the Sub-Contract.  In this case there are no issues of latent or patent defects to be remedied.  That puts an end to the contractual obligations on the part of the Plaintiff.  Whatever work done subsequently in the same site can only be the subject-matter of a separate contract.  The Defendant’s argument that the Works done by the Plaintiff formed part of the Sub-Contract Works therefore cannot stand.

8. Clause 22 of the Sub-Contract provides, inter alias, that “…..any dispute or difference……. in regard to any matter or thing of whatsoever nature arising out of this Sub-Contract or in connection therewith……” shall be referred to arbitration.  In order to be covered by Clause 22, the dispute or difference must arise out of the Sub-Contract; hence it was not intended that Clause 22 was to cover a contract which is separate and independent of the Sub-Contract.  Therefore Clause 22 is not applicable to the separate contract.

9. By reason of the matters aforesaid, I dismiss the Defendant’s application with costs, to be taxed, if not agreed, with Certificate for Counsel.