WHARF PROPERTIES LTD AND ANOTHER v. ERIC CUMINE ASSOCIATES, A RCHITECTS, ENGINEERS & SURVEYORS (a firm) AND OTHERS

Action No. 13431 of 1983

                1st plaintiff as building owner entered into direct contractual relationship, through a Side Agreement, with defendant sub-contractor. Side Agreement provided that a Certificate of Final Sub-Contract Completion thereunder should "be conclusive that the Sub-Contractor has duly performed all his obligations in respect of the Sub-Contract Works" save for specified exceptions. After issue of a Certificate of Final Sub-Contract Completion, defendant applied to struck out plaintiff's Statement of Claim claiming damages in contract and in tort in relation to the Sub-Contract Works. Held:-

No. 13431 of 1983

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. This is an application by the Jardine Engineering Corporation Limited, the 8th defendants, to strike out those parts of the Statement of Claim which concern it. The applicant relies upon paragraphs (b) and (d) of O.18 r.19(1), and particularly upon the inherent jurisdiction. The facts put in evidence in support of the application are not in issue.

2. The action concerns a development .'known as Phase I of Harbour City. The 1st plaintiffs, and the effective plaintiffs as far as this defendant is concerned, were the developers. The 4th defendants were the main contractors. This defendant became sub-contractor to the main contractors under four separate sub-contracts in respect of certain mechanical and electrical works. Before each sub-contract was made, this defendant entered into what were called Side Agreements with the 1st plaintiffs, each in identical terms. Each Side Agreement recited that this defendant had been invited to tender for the works specified in the material sub-contract which are thereafter called "the sub-contract works The Side Agreement was to take effect if and when the particular sub-contract was made. So each sub-contract was backed by its own Side Agreement covering the same works.

3. This application depends upon the true meaning and effect of these Side Agreements. It is therefore necessary to set out or summarise its material terms. They are:-

4. 6      Contains provisions for arbitration.

5. The Schedule Above Referred To

1.    "The Consultant for building services to be performed under the Main Contract is Messrs. J. Roger Preston & Partners ....."

6. Completion

7. Having regard to the references to Contract Specifications and Sub-Contract Specifications in this Schedule, it should be noted that these documents specified (inter alia) the Sub-Contractor's time table and completion date.

8. The plaintiffs commenced this action on 4th November 1983 before the issue of any Certificates of Final Sub-Contract Completion under any of these Side Agreements. 18 defendants were named in the writ. To date only 7 defendants, excluding this defendant, have been served with the proceedings. On 18th January 1984 the plaintiffs served on the live defendants a Statement of Claim which pleaded its case against all 18 defendants. As against this defendant, the lst plaintiff, in summary, pleads the following in section 17:-

9. On 16th February 1984 the Consultants named in the Side Agreements issued under each Agreement a Certificate in the following terms:-

 

"This is to certify that the Jardine Engineering Corporation Limited has duly performed all his obligations in respect of the Sub-Contract Works on 15th February 1984 save and except for the items provided in clause 5(e)(i), (ii), (iv) of the Side Agreement."

In the light of these documents this defendant decided to bring matters to a head against itself. It made itself a party to the action by voluntarily acknowledging service of the writ under O.10 r.1(5) to enable it to make the present application.

10. On the applicant's behalf Mr. Robin Auld Q.C. makes three submissions namely:-

11. For the p1aintiffs Mr. William Lane sought to meet these submissions as follows, namely:-

(1)	On the true construction of clause 5(e) of the Side Agreement a Final Certificate was not conclusive:-
	(a)	as to any consequential loss; and
	(b)	as to defects by reason of a conflict between this clause and clause 1(b).
(2)	That the Certificates had no effect on the claim in tort.
(3)	That the matters raised were not sufficiently "plain and obvious" to justify this defendant's application.

I shall consider each of these submissions in turn.

(1)          On the question of construction, much of the argument was directed to a consideration of the reasoning of the House of Lords in P & M Kaye Limited v. Hosier & Dickinson Limited (1972) 1 W.L.R. 146 upon the meaning of the conclusive evidence clause, c1. 30(7) which for some time appeared in the RIBA form of contract in England. In the Court below the argument had proceeded upon the basis that that clause was conclusive in the contractor's favour, unless certain special arguments prevailed. These had failed below, and failed again in the House of Lords. But during the course of the argument Lord Diplock suggested a fresh construction of this clause to the appellant's counsel. This was to the effect that the Certificate only operated at its date, and did not relate back or exclude all liability for consequential loss. In the event the majority declined to receive or pronounce upon so novel and late an argument, although both Lord Wilberforce and Lord Pearson made useful comments upon it. Lord Diplock dissented and gave his reasons for preferring his construction, which was that the Certificate did not exclude a particular head of consequential loss, namely loss consequential to a defect arising after practical completion and suffered before the same was remedied by the contractor.

12. It is, I think, quite unnecessary for me to express any view on clause 30(7) or upon the differing views of H.H. Judge Stabb Q.C. in H. Fairweather Limited v. Asden Securities Limited (1979) 12 BLR 40 and H.H. Judge Newey Q.C. in H.W. Nevill (Sunblest) Limited v. William Press & Son Limited (1981) 20 BLR 78. But the authority is of value in two ways. The first is the reasoning of the Law Lords who considered the argument. The second is Lord Diplock's reasons for drawing a distinction between pre and post practical completion consequential loss. Lord Diplock found no necessary implication excluding post practical completion loss, p.166. But he did in respect of the earlier period relying in part upon the liquidated damages clause. He did not think that the preservation of any right in damages made "business sense". "Provided", he said, "that the contractor puts it right timeously I do not think that the parties intended that any temporary disconformity should of itself amount to a breach of contract by the contractor." This approach would be insufficient to save the present Statement of Claim, and Mr. Lane invited me to reject it. He asked me to apply Lord Diplock's post practical completion reasoning to the whole period, and conclude that these certificates have no conclusive effect upon any consequential loss.

13. Having carefully considered all that was put before me, I have no hesitation in concluding that the arguments in favour of Mr. Auld's construction are overwhelming. The words used in the Side Agreement, and especially the phrase "the Sub-Contractor has duly performed all his obligations in respect of the Sub-Contract Works save and except for" (my emphasis) could hardly be broader or more specific. Unlike the RIBA Clause 30(7), the relationship between the Certificate and the state of the premises is clear and explicit. The change of tense between clause 3(b) of the Schedule "are in all respects"; and clause 5(e) "has duly performed" seems to negative any semantic argument. There is a direct pointer to the past. Four exceptions are expressly named, and consequential loss of any kind is not one of them.

14. I accept the force of Mr. Lane's criticism of Lord Diplock's temporal split, and that the necessary implication argument applied to clause 30(7) can more readily attach either to the whole period or not at all. But in relation to clause 5(e) this same approach leads inexorably I think to a whole period conclusion. The adoption of Mr. Lane's argument (and to a considerable extent Lord Diplock's also) would lead to the conclusion that a Certificate of apparent value to a Sub-Contractor, and deliberately provided for by the plaintiffs in their own documentation, is in truth almost completely valueless. Its issue is the condition precedent to the release of the retention monies. This suggests what Lord Wilberforce called in J. Jarvis and Sons v. Westminister Corporation (1971) W.L.R. 637, at-p.650: "Such final and verified completion as enables certificates to be given, final payment to be made and the party cleared of all obligations under the Contract". It also suggests in Lord Pearson's words in Kaye v. Hosier at p.163 the conveying of "approval and absolution not only in respect of the final result, but also in respect of the series of operations leading up to the final result". But if Mr. Lane is right there would in fact be no finality, no absolution, and no release of the retention monies at all. The employer could at once meet any claim for the retention monies with his set off for consequential loss.

15. In my judgment therefore the issue of a Certificate to a Sub-Contractor under clause 5(e) is conclusive evidence in his favour that he has performed all his obligations in respect of the Sub-Contract Works, which phrase must at least cover the contractual obligations under that Side Agreement and the rrelevant Sub-Contract referred to, unless one of the given exceptions applies.

16. Mr. Lane sought to rely upon exception (i) and clause 1(b) and an alleged conflict between the two. The argument fails. The type of warranty envisaged by clause 5(e)(i) is a continuing warranty or one given for some future period under for example clause 1(a). No such warranty is alleged to have been given here. There is no conflict between clause 1(b) and clause 5(e). The former simply supplements the latter, and picks up post Certificate defects (if any) which emerge during the succeeding year.

17. These Certificates of 16th February 1984 therefore operate conclusively against all the plaintiffs claims in Contract. I shall turn now to the claim in tort.

(2)             This defendant did not seek to argue. that these Side Agreements were inconsistent with the existence of any duty in tort, or deny that under such authorities as Anns v. Merton London Borough Council (1978) A.C. 728 and Junior Books v. Veitchi (1983) A.C. 520, the proximity created by the Contracts might justify the imposition of a duty in tort. The contention was that assuming Lord Wilberforce's first question. in Anns at p.571 might be answered in the plaintiff's favour, when one came to consider his second question the terms of the Side Agreements operated "to reduce or limit the scope of that duty".

18. This submission seems to me prima facie to be well founded. There is now ample authority for the proposition that notwithstanding the existence of a contractual duty relationship, the law can impose a parallel duty in tort. But his is usually "one and the same duty" in the words of Lord Denning M.R. in Esso Petroleum Limited v. Mardon (1976) Q.B. 801, 820: and not one which conflicts with the express or implied terms of the contract per Shaw L.J. in Esso at p.833 and Midland Bank v. Hett Stubbs & Kemp (1979) Ch. 384. Lord Roskill's dictum in Junior Books at p.546 supports this approach. Equally significant to my mind is Lord Fraser's observation in the same case at p.533 that a duty not to produce a defective article "has to be judged largely by reference to the Contract". If, as must be the case here, the standard by which this defendant's workmanship is to be judged is the same whether the duty is expressed in contract or in tort, and is the reasonable satisfaction of the named consultant: it is not easy to see why an expression of satisfaction by such consultant should Not equally apply to the performance of both duties.

19. However the precise point has already been decided in the defendant's favour by the Court of Appeal in England in William Hill Organization Limited v. Bernard Sunley & Sons Limited (1982) 22 BLR 1.  I need, therefore, do no more than gratefully adopt the reasoning of Cumming-Bruce L.J. in that decision at pps. 29-30. The following observations are particularly apposite:-

 

"The short answer to this case (in tort) is that the breaches relied upon arose out of the Contract. ..... There is no pleaded allegation of any fact which added to or modified the defendant's contractual duty. (The same is admittedly true here) ..... The Contract itself circumscribed the boundaries of that duty and defined its content ..... It is not open to the plaintiffs in effect to disregard those clauses of the Contract which provided for the conclusive effect of the Final Certificate but to claim a remedy for breaches which were only capable of ascertainment by reference to the Contract itself ..... The plaintiffs are not entitled to claim a remedy in tort which is wider than the obligations assumed by the defendants under their Contract. So (the relevant) clause of the Contract has the effect of limiting and restricitng the plaintiff's right to a remedy for the defendant's failure to comply with their obligation to perform the Contract according to its terms."

20. In my judgment, therefore, these Certificates operate conclusively against the plaintiffs in tort.

(3)            Finally Mr. Lane argued that it was not open to the court to construe clause 5(e) on a striking out application. This defendant's proper course, he submitted, was to file a defence and then ask for and argue the matter upon a preliminary issue. It was not suggested that the court or the parties would then have been in any better or different position. But on the authority of Hubbuck and Sons Limited v. Wilkinson, Heywood and Clark Limited (1899) 1 Q.B. 86 it was said, in the words of Lindley M.R., that the preliminary issue procedure "is appropriate to cases requiring argument and careful consideration. The second and more summary procedure (striking out) is only appropriate to cases which are plain and obvious". Therefore submitted Mr. Lane the court should do no more than say that the matter was not plain and obvious and defer its decision. on construction to some future date. The submission echoes the discussion in other authorities, when the court's summary powers are invoked purely on a question of law, as to whether the court is free to decide the point, or whether it has first to decide whether it is a sufficiently ''plain case" to be decided in that particular manner, see for example Bigg v. Boyd Gibbins (1971) 2 A.E.R. 183.

21. Whilst recognising the value of the warning given in Hubbuck's case, I cannot accept that it can be said literally to represent the modern practice. A glance at some of the major rulings given on striking out applications in recent years such as Rondel v. Worsley  (1969) 1 A.C. 191 and Arenson v. Arenson (1977) A.C. 405 shows the Court's readiness not to postpone, but. to decide difficult questions on such an application, when appropriate. In a case where all the relevant, facts are known and undisputed, and were the point in issue is purely one of law or construction, I think that the court can and should decide the point at any convenient stage in the proceedings. If all the necessary material is before the court, it would be lamentable to postpone a decision and force the parties to incur further costs. I think that Lord Denning M.R.'s observations in Tiverton Limited v. Wearwell Limited (1975) Ch. 145, 156, about the futility of repeating the same argument at a trial, and the court's practice of deciding "difficult and arguable points" under both O.14 and O.86 are really of general application, and apply in proper circumstances to O.18 r.19. Carl- Zeiss-Stiftung v. Rayner (No.3) (1969) 3 All E.R. 397, per Buckley J. at p.908. In my judgment this application is a proper time to decide the points of law raised, and further to decide them without any preliminary claim or assertion to the effect that they were "plain and obvious"; see Forster v. Outred & Co. (1982) 1 W.L.R. 86, per Dunn L.J. at p. 98.

22. The very peculiar nature of this action supports and encourages this approach. By naming 18 defendants and by producing a Statement of Claim over 500 pages long, the plaintiffs have launched something which may prove to be uncontrollable and (without radical severance) untriable. If the claim pleaded against this defendant is representative, essential particulars will increase the documentation many times over. Considerations such as these may explain the failure to serve so many defendants. Although I have very real reservations about the permissibility of this practice, I will say no more because the first anniversary of the writ is just round the corner. But given this background, a court, should, I think, hesitate long before dismissing an application like this as premature.

23. In these circumstances in my judgment this application succeeds. I direct that as against the 8th defendant the Statement of Claim be struck out and that the action do stand dismissed with costs.