A AND OTHERS v. THE HOUSING AUTHORITY

HCCT 54/2017

[2018] HKCFI 147

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 54 OF 2017

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REASONS FOR DECISION

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Background

1.  This is an application made by the Plaintiffs for leave to appeal against the Partial Award and Reasons for Award dated 4 September 2017 (“Award”), made by the Arbitrator in 26 arbitrations which were heard together.  The Award relates to the construction of provisions of the Special Conditions for Trade No 10 of the Schedule of Rates (“SOR”) published by the Defendant, which govern the measurement and valuation of Work Orders issued by the Defendant for the replacement of existing window hinges for aluminum windows in housing estates (“Relevant Works”), under 21 contracts made between the Defendant and the Plaintiffs (“Contracts”).   

2.  The Contracts were for the Plaintiffs to carry out various maintenance, improvement and refurbishment works in the housing blocks managed by the Defendant.  From time to time, Work Orders would be issued by the Defendant, whereby the Plaintiffs were instructed to carry out specific tasks.  The tasks which are the subject of the dispute between the parties were for the replacement of sliding window hinges which were used to affix aluminum window sashes to the window frames of units within the housing blocks managed by the Defendant. These hinges had to be replaced as a result of accidents which had occurred, when the window sashes of certain units in the buildings fell onto passing pedestrians, as a result of the hinges having become worn and fatigued by usage. The window hinges in the housing blocks had to be systematically replaced, under the Contracts made with various contractors which include the Plaintiffs. 

3.  The dispute concerns the interpretation of provisions in the Contracts governing the measurement and valuation of the Work Orders for the Relevant Works.  The parties agree that the Work Orders should be valued pursuant to the SOR, but there is disagreement as to which specific rates specified in the SOR should be used, in valuing the Relevant Works.  The Plaintiffs consider that the Relevant Works should be valued by SOR items 10183B, 10183C, 10184B, 10146A and 10147A (“Rate 1”, “Rate 2”, “Rate 3”, “Rate 4” and “Rate 5” respectively, and together “Rates”).  The Defendant considers that only Rates 1, 2 and 3 are applicable.

4.  The Rates in the SOR provide as follows:

Rate 1: “Supply and fix sliding shoes, pivots and friction side arms for projecting casement.”

Rate 2: “Take down and clear away sliding shoes, pivots and friction side arms for projecting casement.”

Rate 3: “Extra over last item for fixing with and including stainless steel rivets and/or stainless steel screws with plastic plugs and/or stainless steel coupler including pointing corroded holes with approved sealant.”

Rate 4: “Take out and set aside for re-use metal sash, ventilator or door of any size including cutting hinges away from frame.”

Rate 5: “Re-fix only sash, ventilator or door to existing frame including welding or riveting hinges.”

5.  After a hearing on 9, 10 and 11 July 2017, the Arbitrator ruled that only Rates 1, 2 and 3 apply to the valuation of the Relevant Works.  By their originating summons issued on 3 October 2017, the Plaintiffs applied for leave under s 6 (1) (b) of Schedule 2 to the Arbitration Ordinance Cap 609 (“Ordinance”), to appeal against the Award on a question of law.  The question of law identified is whether on the proper construction of the SOR, the Relevant Works should be measured and valued under Rates 1 to 3 only, or under Rates 1 to 5 inclusive.

6.  At the conclusion of a hearing on 8 January 2018, I dismissed the Plaintiffs’ application for leave.  The following are the reasons for my decision.

Applicable legal principles

7.  The legal principles governing applications for leave to appeal against an arbitral award are clear.  Under s 6 (4) of Schedule 2 to the Ordinance, leave to appeal is to be granted only if the Court is satisfied that, on the basis of the findings of fact in the award, the decision of the arbitral tribunal on the question is “obviously wrong”; or the question is one of general importance and the decision of the arbitral tribunal is “at least open to serious doubt”.

8.  In the decision of the Court of Final Appeal in Swire Properties v Secretary for Justice (2003) 6 HKCFAR 236 (which was decided under the repealed Arbitration Ordinance, Cap 341), some guidance can be found as to questions which are considered to be “of general importance”.  At paragraph 31 of the judgment, the Court stated:

“Leave should not normally be given in ‘one-off’ disputes unless the arbitral tribunal’s construction is ‘obviously wrong’; but leave can sometimes be given in ‘standard clause’ disputes as long as there is at least ‘a strong prima facie case’ that the arbitral tribunal’s construction is wrong.”

9.  As to the meaning of the phrase “obviously wrong”, the dicta in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 was cited with approval by the Court of Final Appeal in Swire Properties:

“Where, as in the instant case, a question of law involved is the construction of a ‘one-off’ clause the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong. But if on such perusal it appears to the judge that it is possible that argument might persuade him, despite first impression to the contrary, that the arbitrator might be right, he should not grant leave; the parties should be left to accept, for better or for worse, the decision of the Tribunal that they had chosen to decide the matter in the first instance.”

10.  The Plaintiffs argued in this case that there is a huge number of Work Orders for the Relevant Works instructed under the Contracts, involving a total value in excess of HK$100 million, to substantially affect the rights of the Plaintiffs.  They further argued that the question of law identified in the proposed appeal affects the meaning of terms such as “repair”, “temporary works” and “temporary measures”, which are terms commonly employed in standard forms of contracts used by the Defendant and in the industry.  The construction of these terms and of the relevant SOR used to measure works under the standard form contract is a question of general importance which will affect not only the Plaintiffs, but the entire industry.  As such, they argued that the relevant test should be whether the decision of the tribunal is “at least open to serious doubt”.  Even if the “obviously wrong” test is applicable, the Plaintiffs argued that such test is satisfied in this case.

11.  On the Defendant’s part, it was emphasized that the special conditions of the Contracts which are the subject of the dispute between the parties have been amended since early 2014, to expressly exclude resort to Rates 4 and 5 for valuing the Relevant Works.  Accordingly, as the Defendant argued, the Award has no relevance to contracts which were entered into with the Defendant after early 2014, nor to future contracts.  The Defendant further pointed out that the number of contractors who dispute the Defendant’s valuation, and who may be affected by the Award, is small.  Other contractors accept the Defendant’s method of valuation.

12.  Whether the appropriate test to be applied is “obviously wrong”, or “open to serious doubt”, the threshold is high.  It is not sufficient for it to be shown that the decision of the tribunal is arguably wrong, or that it is arguable that the decision is open to some doubt.  The decision has to be clearly seen to be obviously, or demonstrably, wrong, or that the correctness of the decision is seriously in doubt.  Leave to appeal would only be granted in exceptional cases, where it can be demonstrated that the arbitrator was plainly wrong.  As Lam VP indicated in Maeda Kensetsu Kogyo Kabushiki Kaisha (also known as Maeda Corporation) and China State Construction Engineering (Hong Kong) Limited v Bauer Hong Kong Limited HCMP 1342/2017, 4 September 2017, the assessment of whether the decision of the tribunal is at least open to serious doubt can be subjective, and different judges can reasonably come to different views.  In a matter concerning the construction of a contractual document, the Court dealing with the application for leave to appeal may have a different view as to the possible meaning of a provision, but it does not follow from that, that the meaning ascribed by the tribunal to that provision was “obviously wrong”.

13.  What has to be demonstrated to the Court, quickly and easily, without meticulous legal argument, is that the decision of the tribunal simply cannot be right, or that there are serious doubts as to the correctness or reasoning of the Award.

The decision of the tribunal

14.  The Arbitrator’s Reasons for Award in the present case are clear, and succinct.  He identified Rates 1, 2 and 3 as falling under the section of the SOR headed “Ironmongery and fittings to metal window and doors”, and that Rates 4 and 5 are in a section headed “Repairs, etc to metal windows and doors”.  It is relevant to note that the section of the SOR which sets out “ironmongery and fittings to metal window and doors” specifically states that items of the metal windows include all ironmongery and fittings, and further states specifically that ironmongery and fittings to metal windows include “all drilling, tapping, riveting, welding, providing screws, rivets, cutting holes, mortices, slots, etc in metal frames”. 

15.  The Arbitrator then outlined the 4 steps in the procedure involved in the Relevant Works of replacing existing window hinges, noting that the process was summarized in Clause 12.53 of the Particular Specification for the Relevant Works.  Broadly, the work steps are:

(1) taking down (cutting away) hinges from the transom and sill of the window frame, the securing of the window sash, and the removal of the rivets or screws which attach the legs of the window hinges to the transom and sill of the window frame;

(2) taking down hinges from the window sash, detaching the sliding shoes from the window sash, and clearing away the window hinges;

(3) supplying and fixing hinges to the window sash;

(4) re-fixing the window sash to the window frame, by fixing hinges to the transom and sill of the window frame, drilling new holes into the transom and sill of the window frame, securing the window sash and then re-fixing the sash into the window frame.

16.  The parties’ competing contentions are summarized in paragraphs 14 to 16 of the Award.  The Plaintiffs claim that each of the steps undertaken should be valued and paid for.  The work required to remove the existing hinges from the transom and sill of the window frame should be valued under Rate 4; the work required to remove the existing sliding shoes and hinges from the top and bottom of the window sash should be valued under Rate 2; the supply of the new sliding shoes and the attachment to the top and bottom of the window sash should be valued under Rates 1 and 3; and the re-fixing of the window sash to the window frame by attaching the new hinges to the transom and sill of the window frame should be valued under Rate 5.

17.  The Defendant’s case is that absent any specified method of measurement to the contrary, a rate for a measured item is deemed to cover all work indispensably necessary to complete the item of work to which the rate relates. The Relevant Works are the replacement of existing window hinges for aluminum windows.  Tasks relating to the setting aside and re-fixing of the window sash is ancillary to the replacement of the existing window hinges.  The Relevant Works do not involve any repairs to window sashes, as opposed to merely supplying and fitting hinges to windows.  According to the Defendant, the only relevant section of SOR No 10, for valuation purposes, is that on “ironmongery and fittings to metal windows and doors”, and not that on “repairs, etc to metal windows and doors”.

18.  The Plaintiffs emphasized at the hearing before this Court that up until November 2013, the Defendant had in fact applied Rates 1 to 5 to the valuation of the Relevant Works, albeit without any consistency.  It was only after November 2013 that the Defendant insisted that only Rates 1, 2 and 3 were applicable to the replacement of window hinges.  According to the Plaintiffs, this supports the correctness of their contention that Rates 4 and 5 are relevant and applicable to the Relevant Works.  According to the Defendant, the application of Rates 4 and 5 prior to November 2013 had been a mistake.  In any event, the Defendant emphasized that although different combinations of Rates 1 to 5 had been adopted, there is no evidence that all Rates 1 to 5 had been applied and paid in any one case.

19.  The Arbitrator set out (at paragraph 18 of the Award) the principles for construing a contract, citing the judgment of Lord Neuberger PSC in Arnold v Britton [2015] UKSC 36, and the 7 factors which a court should bear in mind when construing a commercial contract.  The Arbitrator highlighted the references made by Lord Neuberger to the importance of the language of the provision which is to be construed, the identification of what the parties meant through the eyes of a reasonable reader as at the date when the contract was made, and that it is not the function of the court when interpreting an agreement to relieve a party from any consequences of his imprudence or poor advice. 

20.  From the Award, it can be seen that the Arbitrator had considered the emphasis placed by the Plaintiffs on General Conditions of Contract (“GCC”), and clause 61(1), which provides that “All Works shall be measured in accordance with the rules contained in the Schedule of Rates and valued at the rates therein”.  Significantly, he had heard the evidence adduced by the parties in the arbitration, as to the factual context of the Contracts, and what the Relevant Works involved.  Having considered the contentions made by the parties as to the meaning and construction of the SOR and the Rates, the Arbitrator concluded that the Relevant Works cannot be characterized as involving any “repair”, in whole or in part.  He considered that the Relevant Works were purely the replacement of window hinges, and that it would be artificial to describe the work undertaken as involving any “partial repair” of the window (as the Plaintiffs argued), and on that basis, to introduce Rates 4 and 5, merely because the Relevant Works necessarily involved the steps of removing and taking down the hinges from the window frame and window sash.

21.  The Arbitrator accepted that as a matter of construction, the words “take down and clear away” in Rate 2 and “supply and fix” in Rates 1 and 3, by their natural and ordinary meaning, “envisage the whole of the operation of removing the window hinge from the window frame and sash, supplying a new hinge, and fixing the same to the window sash and frame”.  The Arbitrator considered that “the removal and brief storage of the window sash in the course of such operation” were merely necessary temporary works, which are not to be measured and valued separately.  The Arbitrator pointed out that provided that the clear words of the contract lead to a particular outcome, a tribunal should not strive to read the parties’ agreement in some other way.

Whether Award wrong or open to doubt

22.  Far from taking the view that the Arbitrator’s decision is “obviously wrong” or “open to serious doubt”, I tend, on perusal of the Reasons for the Award, to agree with his reasoning and decision.  The fine arguments made by the Plaintiffs, on the basis of the alleged lack of commercial sense in parts of the Reasons for the Award, only go to arguments which had been raised by the Defendant and which the Arbitrator accepted as being consistent with or in support of his Award and his reasons.  The basis of the Award remains and flows from the Arbitrator’s findings that the Relevant Works comprised the replacement of window hinges, and not repairs, that the removal of the hinges from the window sash, the supply of a new hinge and fixing the new hinge to the window sash and frame are all incidental to and included in the Relevant Works. In my view, the Arbitrator is justified and perfectly entitled to reach such a conclusion on the meaning of the Contract provisions and the applicable SOR.

23.  The inclusive price principle, that in the absence of express provision, the quoted price or rates for works described are inclusive of all incidental, contingent or necessary work which is required to bring about the completion of the described work, is not a novel concept, and I cannot see how it can be said that it makes no commercial sense.  Nor is there any evidence that the Defendant would in practice permit any contractor to be engaged only to do the “taking down and setting aside” step, to make it unfair for a contractor to undertake the supply and replacement part of the work, who would (on the Plaintiffs’ case) be paid less for doing more, ie including the taking down and setting aside of the replaced item.  In any event, the Arbitrator heard the evidence on the relevant factual matrix of the Contracts, including evidence on the work procedures and steps, and came to his conclusion on the meaning to be ascribed to the SOR and the Rates, upon construction of the Contracts as a whole. It was open to him to come to such a conclusion, and I do not agree that the Award has been shown to be either obviously wrong, or open to serious doubt.

24.  The Plaintiffs argued that the Arbitrator was erroneous in equating “temporary measures” with “Temporary Works”, in coming to his conclusion that the removal and brief storage of the window sash were merely necessary “Temporary Works” which were not to be measured and valued separately. Leading Counsel relied on the fact that “Works” and “Temporary Works” are defined terms under the General Conditions of Contract, emphasizing that under the General Regulations of the Contract, all items of works are to be measured and paid for under the SOR. “Temporary Works” are defined to mean “all temporary work of every kind required for the construction, completion and maintenance of any Works”, and “Works” are defined to mean the work to be completed and as instructed in a Works Order, and include Temporary Works.

25.  On the other hand, the Steel and Metal Work Special Conditions, which are part of the SOR, contain specific provisions as to the rates payable, and how works are to be paid for. Under “Temporary works”, Special Condition I of Trade No 10 states that rates in the SOR include “all temporary measures necessary for the execution of the work”, and that such measures “will not be paid for separately under any circumstances unless they are ordered in the works order as Special Temporary Works”.  In the light of these express and specific provisions governing the measurement and payment for steel and metal work, I cannot see how it can be said that the Arbitrator’s analysis, leading to his conclusion on the proper interpretation of the Contracts as a whole, can be said to be “obviously wrong” or “open to serious doubt”.

26.  The Award is on the construction of specific words in provisions of the Contracts, in the context of the facts and particular work procedures of this case. I am not persuaded that the Award has binding effect on the general meaning of these provisions, to render the question of law raised to be one of general importance, beyond the Plaintiffs who dispute the valuation of the Defendant.  The test should be whether the decision of the Arbitrator is “obviously wrong”, and I find that it is not.  Even if the question is one of general importance, I am not satisfied that the decision of the Arbitrator in this case is open to “serious doubt”.

27.  For the above reasons, the application for leave to appeal was dismissed, with costs to the Defendant.