XCHRX THE SECRETARY FOR JUSTICE v. AOKI CORPORATION

1998, No. CT 118

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. The government (the HKG) and the respondent (Aoki) are involved in an arbitration over a contract for the construction of roads connected with the new airport. The arbitrator made a partial award on 22 October 1998. The HKG seeks leave to appeal against two decisions of the arbitrator in that award.

2. Both decisions arise from a supplemental agreement (SA3) between the HKG and Aoki made on 9 January 1997.

3. This agreement recites that there were delays in the works, that Aoki "has agreed to adopt measures to substantially complete Section 20 of the works as set out" in the agreement, that the HKG has agreed to make financial concessions to Aoki and that the parties have agreed to vary the main contract to give effect to SA3.

4. Clause 1.1 of SA3 says -

"Subject to GCC 15(1), [Aoki] agrees to do whatever is necessary to substantially complete Section 20 of the Works by 5 February 1997, subject to the provisions of Schedule 1 to this agreement."

5. I am told that GCC 15(1) has no relevance to the matter before me.

6. Schedule 1 to SA3 is in the following terms -

"SCHEDULE 1.

(1) Pursuant to Clause 1.1 of this agreement, and subject to paragraph 2 of this Schedule 1 the date of substantial completion of Section 20 of the Works shall be certified as 5 February provided that,

(a) the Expressways north and southbound and the connecting roads from Jordan Road contract interface are substantially complete at 5 February 1997,

and provided that

(b) the remainder of the Section 20 Works are substantially complete at 19 February 1997.

(2) The works listed below under items (i) and (ii) of this Schedule 1 are not required for substantial completion of Section 20 of the Works and shall be treated as outstanding works under the contract.

(i) Roads D11, Y, Z, U, V and JR Roundabout

(ii) Landscaping works.

Substantial completion of roads shall mean that the roads can be used as public highways.

Failure to achieve the requirements set out in items (1)(a) and (1)(b) of this Schedule 1 for substantial completion at 5 February 1997 and 19 February 1997 shall mean that Certificates of Completion shall be issued in accordance with GCC Clauses 57(4)(a) and 57(3)(a) respectively."

7. There was a "Failure to achieve the requirements set out in items (1)(a) and (1)(b) of this Schedule 1" so the engineer issued a certificate of completion under the GCC clauses mentioned. When he did this, he treated the items mentioned in paragraph (2) of Schedule 1 as outstanding work.

8. The first question before the arbitrator was whether, by reason of the provisions of SA3, he was entitled to do this.

9. I see the short point of construction before the arbitrator as this -

"Is SA3 to be construed as meaning that paragraph (2) of Schedule 1 is to operate generally for the purposes the contract regardless of whether or not there is a failure to meet the targets stipulated in paragraph (1), or is it to operate only for the purposes of paragraph (1)?"

10. The arbitrator found, in essence, that paragraph (2) operates only for the limited purposes of paragraph (1). It seems obvious to me that this conclusion is perfectly correct.

11. One needs none of the tools of construction to come to this conclusion because this what Schedule 1, read as a whole, says in clear terms. And one must, of course, read Schedule 1 as a whole.

12. Paragraph (1) deals with fixing a new, somewhat artificial, date of substantial completion. It is to have effect subject to Paragraph (2). The final, unnumbered, paragraph refers back to Paragraph (1). Paragraph (2) is sandwiched between two paragraphs expressly dealing with the new date of substantial completion. Without more, the natural construction of the Schedule as a whole is that it is dealing with the new date of substantial completion. Any other construction would be artificial. To reach the conclusion advocated by the HKG, one must say that, although Paragraphs (1) and the final paragraph obviously deal with the specific topic, the only other provision in the Schedule - Paragraph (2) - does not only deal with this topic, but speaks generally. This, to my mind, is a totally unacceptable construction of the Schedule.

13. Paragraph (1) says that, when considering whether there is substantial completion, account must be taken of paragraph (2); it says "subject to paragraph 2 . . . the date of substantial completion . . . shall be . . .". The drafter of the clause might have omitted the reference to paragraph (2) in paragraph (1), and included a reference to paragraph (1) in paragraph (2), by saying something like "For the purposes of paragraph (1), the works listed below . . .", but, in my view, the "subject to" device adopted by the drafter is, in the context of the Schedule taken as a whole, equally effective to make it absolutely clear that these two paragraphs complement each other and must be read together, and are not to be treated as independent provisions.

14. The final provision of Schedule 1 also makes this construction quite apparent. This, paraphrasing it to include the context of the whole Schedule, says that "Failure to achieve the dates of substantial completion as stipulated by paragraph (1), as qualified by paragraph (2), means that the main contract will apply to the issue of certificates of completion.". It would not quite wrong to read this provision as saying that "Failure to achieve the dates of substantial completion as stipulated by paragraph (1), as qualified by paragraph (2), means that the main contract will apply to the issue of certificates of completion, but the main contract shall so apply by reading the qualification in paragraph (2) to paragraph (1) as applying also to the main contract.".

15. If paragraph (2) is not to be treated as an independent provision, but effective only for the purposes of paragraph (1), as it must be, the engineer was clearly not entitled to list the works mentioned in paragraph (2) as outstanding works in a certificate issued under the main contract.

16. If anything more were needed to reinforce this conclusion, it is to be found in paragraph 3.2 of SA3. This reads -

"Unless expressly stated in this Agreement, or the schedules to this Agreement nothing on this Agreement shall have any effect upon the rights, duties and obligations of the parties under the contract."

17. It is expressly stated in Schedule 1 that, if Aoki achieves the targets mentioned in paragraph (1), as qualified by paragraph (2), consequences ensue that do have an effect on the rights, duties and obligations of the parties under the main contract. It is not expressly stated in Schedule 1 that, otherwise, those rights, duties and obligations will be affected. The most that the HKG is able to argue is that it is implied that paragraph (2) should have effect independently of paragraph (1), and affects the parties' rights under the main contract. This is not enough.

18. Miss Li cites a passage in the award, which reads - "Paragraph 2, Schedule 1 of SA3 makes it perfectly clear that the works therein listed are not required for substantial completion of Section 20 of the Works and shall be treated as outstanding works under the contract", and says that this is inconsistent with the arbitrator's eventual finding. It is not so. The arbitrator is reciting the terms of paragraph (2), and those terms alone do not answer the question, but beg it. The arbitrator then goes on to decide the question; whether or not the provision he recites is to be read independently or as a clause dependent on paragraph (1). He was clearly right to find that it was dependent on paragraph (1).

19. It is not necessary for me to examine the reasons given by the arbitrator for concluding as he did. It does not matter whether these reasons were valid or not. Even if I were to conclude that none of his reasons properly supports his decision, that would not make his decision wrong and justify a grant of leave to appeal.

20. I have decided that, in my view, the arbitrator made the right decision. It is not, of course, necessary to come to that conclusion for the purposes of refusing leave to appeal. It is accepted by Miss Li that the HKG has to show that the decision was plainly wrong. It is certainly not that. I believe that the construction adopted by the arbitrator is the only possible construction, but, if I am wrong in that, the arbitrator's finding is most certainly a perfectly reasonable and acceptable construction that he was entitled to accept on the material before him.

21. Having come to this conclusion, it is not necessary to decide if there should be leave to appeal on the second decision by the arbitrator. That was that rectification of SA3 to reflect that Aoki's construction was the common intention of the parties was not barred by the "entire contract" clause in that agreement.

22. Nor is it necessary to decide if Mr Thomas is right in contending that this is not a case where "the question of law concerned could substantially affect the rights of . . . the parties.", although I am inclined to think that it could.

23. In the result, leave to appeal is refused.

24. In this event, counsel are agreed that costs should be awarded to Aoki. I so order.