ATTORNEY GENERAL OF HONG KONG v. WANG CHONG CONSTRUCTION CO LTD

Civil Appeal No. 172 of 1990

HEADNOTE

Building contract - claim by employer against contractor - contractor arguing claim barred by maintenance certificate - employer arguing to contrary and asking Court to appoint arbitrator.

Held:-

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JUDMENT

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Fuad, V.P.:

1. I have asked Penlington, J.A. to give the first judgment.

Penlington, J.A;

2. On 26th November 1973 a contract was signed under  seal by the Government of Hong Kong ("Government") and Wang Chong Construction Co. Ltd. ("Wang Chong") for the construction of four blocks of low-cost housing known as the Lek Yuen Estate ("the contract").

3. The contract provided in Clause 68 that there should be a certificate of completion to be signed by "the Architect" when, in his opinion the works had been substantially completed. Following that there would be a 6 months' period of maintenance during which Wang Chong would be liable for any defect found in the buildings. At the end of that period if the buildings were, to the satisfaction of the Architect, in as good a condition, fair wear and tear excepted, as at the commencement of that period the Architect would issue a certificate of maintenance ("the maintenance certificate"). There is no dispute that such a certificate was issued on 23rd June 1977. This was followed by a final payment certificate dated 15th may 1979, pursuant to Clause 100 of the contract, whereby final payment was made by the Government to Wang Chong of all sums then owing:.

4. In 1985 some tests were carried out on the housing blocks relative to the quality of the concrete used in their construction. These tests were followed by a further investigation in 1988 (some 12 years after completion) and these tests concluded that the concrete which had been used in all four blocks was not up to the specified quality. The tests appeared to show that only 75% of the cement which should have gone into the concrete had in fact been used, an assumption which is however, we are informed by counsel for Wang Chong, strongly disputed. These investigations were carried out by the Housing Authority which had been established by Ordinance in 1973 with very wide powers to construct and maintain public housing in Hong Kong.

5. As a result of these investigations the matter was referred to the Attorney General, and Mr. K. Somerville, Senior Crown Counsel, wrote to Wang Chong on 13th October 1988 informing them that it was considered they had failed to comply with the terms of the contract and that, as it was possible that the applicable period of limitation would expire on the 30th November 1988 he had instructions to issue proceedings unless there was agreement as to damages to be paid to the Government by Wang Chong. On its side Wang Chong referred the matter to its then solicitors, Messrs. Baker and Mckenzie, and by an exchange of letters between Mr. Somerville and Mr. Geoffrey Shaw, then of that firm but now of Wang Chong's present solicitors, McKennas, it was agreed that there would be a waiver of this period of limitation ("the Limitation waiver Agreement").

6. On 22nd February 1989 Mr. Somerville wrote to the Chief Architect, Division 3 of the Architectural Services Department on the basis that he was the successor to "the Architect" referred in the contract and pursuant to Clause 117 of the contract required him to determine:

7. The officer who was at that time the Chief Architect, Division 3, of the Architectural Services Department, Mr. P.L. Kwan, furnished a determination that Wang Chong had failed in the performance of its obligations under the contract and was liable to compensate Government accordingly. He however stated that he was "incapable of  making a full determination" and that accordingly he could not state what the loss was. On 27th February Mr. Somerville wrote to Wang Chong enclosing a copy of Mr. Kwan's determination stating that Government wished to take the question of quantum of damages to arbitration and requesting them to concur in the appointment of an arbitrator. On the same day the Government also issued a writ endorsed with a claim for damages. On the following day Mr. Shaw replied to Mr. Somerville pointing out that the Limitation Waiver Agreement contained a provision that no writ would be issued without seven days' notice. He claimed that by its letter the Government had repudiated the agreement, which repudiation Wang Chong accepted.

8. On 5th January 1990 the Attorney General took out an originating summons seeking a declaration that the Limitation Waiver Agreement remained binding against Wang Chong and also seeking the appointment of an arbitrator. On 21st February 1990 Wang Chong took out its own originating summons seeking various declarations. Amongst those was that Mr. P.L. Kwan was not the Architect under the terms of the contract and therefore had no power to make any declaration as to failure to comply with its terms and that the maintenance certificate constituted conclusive evidence that the quality of materials and workmanship used by Wang Chong was as required by the terms of the contract. Government then took out a second summons seeking a stay of parts of Wang Chong's summons.

9. All these summons came before Nazareth, J. on 24th September 1990 and on 16th October 1990 he delivered a judgment in which he found:

Nazareth, J. declined to hold that Mr. Kwan's decision was not an independent one, i.e. an expression of his own opinion as to the quality of the concrete. He also rejected the grounds advanced that Mr. Kwan's decision was invalid as lacking particularity and that it had not been properly served on Wang Chong or on the Director.

10. He also considered other grounds advanced for Wang Chong out held that Government's claim was not "doomed to failure" so that it should not be permitted to go to arbitration and he declined to rule on the question of whether Government's claim was barred by Limitation.

11. In view of his other findings Nazareth J. also refused the Government's application to appoint an arbitrator and also to stay Wang Chong's summons.

12. In this court Government appeals against Nazareth, J. 's decision that Mr Kwan was not the Architect, that its claim is barred by the issue of the maintenance certificate and that the claim is an "excepted matter" to be decided under Clause 115 of the contract against which decision there is no right to arbitrate. Wang Chong cross-appeals against Nazareth, J.'s failure to make a declaration that Mr. Kwan's decision was independent and not properly served. It also cross-appealed against his decision not to grant a declaration that the decision lacked particularity but that is now abandoned. There was a cross-appeal and a respondent's notice in respect of Nazareth, J's refusal to declare that the Government had not in fact suffered any loss. That has not been argued by Mr. Jackson but is not abandoned. He also indicated that the question of limitation was only for consideration by us if the Government was successful on all the other grounds.

Is Mr. Kwan "the Architect"

13. This is the crucial issue in this matter and although at first sight it appears to be something of a technicality is by no means easy to resolve.

14. It was submitted by Mr. Rupert Jackson, Q.C., leading counsel for Wang Chong that the terms of the contract make the Architect a person of overwhelming importance in relation to the carrying out of its terms. After setting out the preliminaries, the Articles of Agreement, at p. 1 says:

"In consideration of the payments to be made at the times and in the manner set forth in the said Conditions the Contractor shall upon and subject to the said Conditions execute and complete to the satisfaction of the Architect the works and all such extra and additional works as may be ordered or required under the said Conditions within the period stipulated in the Tender or within such further time as may be determined by the Architect in accordance with the provisions of clause 65 of the said Conditions."

There are other clauses which clearly give the Architect extremely wide powers in relation to making decisions as to the quality of materials used and the standard of workmanship to be maintained during the carrying out of the construction. He is given similar powers as to the right of inspection.

15. The Architect is defined in Clause l of the contract as:

"the person named in the Articles or Agreement as Architect or such other person as may be authorized from time to time by the Director and notified in writing to the Contractor to act as Architect for the purpose of the Contract and the person so named or authorized may be described either by name or as the holder for the time being of a public office".

In pursuance of that the Architect for the contract was designated as "The Chief Architect, (Division Three), of the Architectural Office, Public Works Department". There is no dispute that at the time of the signing of the contract the Chief Architect, (division 3), of the Architectural Office, Public Works Department was Mr. J. Lei (who also signed the contract on behalf of the Government).,

16. "Public office" is defined in the Interpretation and General Clauses Ordinance, which the contract provides shall be applicable to it, as "any office or employment the holding or discharging of which by a person would constitute that person a public officer". "Public officer" is defined as "any person holding an office of emolument under the Crown in right of the Government of Hong Kong, whether such office be permanent or temporary". It is not disputed that the post of "Chief Architect, (division 3), of the Architectural Office, Public Works Department" in 1973 was a public office and that Mr. Lei was a public officer then holding that office.

17. What however  is also not in dispute is that there is no longer any Government department entitled "Public Works Department". In 1982 that department was split up and by a resolution of the Legislative Council (L.N. 76 of 1982), most of the functions previously carried out by the Director of Public Works were thereafter to be exercised by three officers the Director of Lands, the Director. of Engineering Development and the Director of Building Development. (The Director of Building Development had previously been head of a sub-department of the Public Works Department and was included within the definition of "Director" in the contract.) By a further resolution of the Legislative Council (L.N. 93 of 1986) the duties carried out by the Director of Building Development were transferred to a new officer the Director of Buildings and Lands Department. At that time another new Government department was set up called the "Architectural Services Department". It is not in dispute that the present head of that department is Mr. J. Lei, the holder of the public office designated as the Architect for the purposes of the contract and that under him there are various divisions. There are six such divisions in the Architectural Branch of the Department and three divisions under the Building Services Branch. However only the divisions in the Architectural Branch are headed by an officer designated as "Chief Architect" and there is therefore within that department only one officer who is "Chief Architect(division 3)", a fact heavily relied on by Mr. Michael Thomas, Q.C., leading counsel for the Government.

18. It is also not in dispute that while the definition clause in the contract provides that the Director may notify the contractor in writing that he has authorised another person to act as Architect for the purposes of the contact no such person has been so authorised although in letters dated 13th January, 2nd February and 12th February 1990 from Wang Chong to the Architectural Services Department, Mr. Kwan's authority to act under Clause 117(1) was certainly challenged. He replied to those letters, having taken advice, stating that he considered himself the successor to the officer who held the post designated as Architect under the terms of the contract.

19. Reliance is placed by the Government on an affirmation made by Mr. Kwan and also on s. 54 of the Interpretation and General Clauses Ordinance, Cap. 1. Mr. Kwan says:

"I am at present holder of the post of Chief Architect, (division 3), Architectural Services Department, Hong Kong Government. I Joined the Architectural Office of the Public Works  Department, Hong Kong Government, in 1975. As a result of the re-organisation of the Lands and Works Department of the Hong Kong Government the said office was re-structured to the Architectural Office of the Building Development Department and then to the present Architectural Services Department. I was appointed to my present post in March 1988."

He then. goes on:

"2. In my experience it is the practice with Government contracts to notify changes of architect to the contractors where those changes occurred when the contract are still current. Where contracts are completed, however, no notification of change of architect is given and the responsibility for dealing with any subsequent matters or disputes arising under completed contracts rests with the incumbent holder of the relevant post from time to time. I have had to deal with a number of such disputes in my role as successor in the post of Chief Architect, (division 3)."

20. Section 54 of the Interpretation and General Clauses Ordinance is contained in Part VIII under the heading, upon which Mr. Thomas to some extent relies, "Public Officers and Public Contracts". It reads as follows:

As regards the reliance on the Ordinance, Mr. Thomas argues here, as he did before Nazareth, J., that the contract is a deed under seal and is therefore an "instrument". He cites paragraph 1301 of Volume 12 of the Fourth Edition of Halsbury's Laws of England as authority for the proposition that a deed is an instrument. The paragraph says:

"Definition of a deed. A deed is an instrument which complies with the following requirements. Firstly it must be written on parchment or paper. Secondly it must be executed in the manner specified below by some person or corporation named in the instrument. Thirdly as to subject matter it must be expressed that the person or corporation so named makes confirms, concurs in or consents to some assurance (otherwise than by way of testamentary disposition) of some interest in property or of some legal or equitable right, title or claim or undertakes or enters into some obligation, duty or agreement enforceable at law or in equity or does or concurs in some other act affecting the legal relations or position of a party to the instrument or of some other person or corporation."

The paragraph goes on:

"Several classes of instrument under seal do not comply with all these requirements and are not therefore deeds."

Mr. Thomas also relies upon paragraphs 1436 and 1437 under the heading "Instruments under hand only". 'These paragraphs read as follows:

21. Nazareth, J. considered this question in the light of the context in which the word "instrument" is used in the ordinance. He said this:

22. Our attention has also been drawn to instances in the Interpretation and General Clauses Ordinance where there seems to be a clear distinction drawn between "a contract" and "an instrument". Section 55, relating to "change of title of office" provides that the Chief Secretary may, by notice, declare a change in title of any public officer or body and "the notice may contain provisions substituting the new title in any Ordinance relating to the public officer, public body or person in any instrument, contract or legal proceedings made or commenced before the date on which the notice takes effect" [my emphasis]. That the word "instrument" in the Ordinance means some form of statutory document gains further support from its use in several other sections. In s. 38 there is reference to "the subsidiary legislation or instrument exercising the power". Section 46 is headed "Power to make public instruments and perform acts" and provides that:

"Where any Ordinance confers power upon any person to make, issue or approve any proclamation, order, notice, declaration, instrument, notification, licence, permit, register or list, such power shall include power -".

As Nazareth, J. pointed out, the definition of the word "instrument" in s. 2 of the Ordinance "... includes any publication in the Gazette having legal effect" seems to suggest that the word "instrument" in the context of the Interpretation and General Clauses Ordinance does not cover a contract even if under seal.

23. The other argument put forward by the Government on this point is that the court should take a common sense and not overly technical approach and that although the Public Works Department has been replaced by several other departments this was purely a matter of administrative convenience and that it is clear that the functions and duties of the Chief Architect of division 3 of what is now the Architectural Services Department are the same as those previously carried out by the Chief Architect, (division 3), of the Architectural Office of the Public Works Department. There is undoubtedly merit in that view and if the Director were to now nominate an officer to carry out the duties of Architect under the contract Mr. Kwan  may well be the logical person to so nominate. However it seems to be not in dispute that shortly after the signing of the contract the Public Works Department ceased to be concerned with the provision of low-cost housing and this function was transferred to the Housing Department which has its own architectural department. There is within that department an architectural office divided into four sections and one is headed by an officer designated as "Chief Architect, section 3". This is not the same wording as is in the contract but it would be by no means illogical if the officer holding that post was to be nominated as the Architect for the purposes of this contract. It is also true that clearly Mr. Kwan considers himself to be the inheritor of the title of Chief Architect, (division 3), Architectural Office, Public Works Department and that the Deputy Director of the Architectural Services Department sent him the 1988 investigation report into the Lek Yuen Estate on that basis and therefore presumably he also was of that view.. These matters were considered by Nazareth. J. who however came to the conclusion that, because of the very crucial and important role of the Architect in this particular contract and the need for a contractor at all times to know without doubt who the Architect was, he was not prepared to hold on that basis that Mr. Kwan was the Architect. He also considered that the Government could not place reliance on the various provisions of the Interpretation and General Clauses Ordinance and came to the conclusion that it had not been established by the Government that Mr. Kwan should be considered as the Architect under the terms of the contract.

24. It is argued here by Mr. Thomas and Mr. Denis Mitchell, Q.C., leading counsel also for the Government, that the attitude taken by Nazareth, J. was wrong in that he appeared to be looking for absolute certainty and that all the Government had needed to show was that on a balance of probabilities Mr. Kwan was the Architect and on that the evidence was all one way. I cannot accept that submission. As was held by Nazareth, J. and emphasised here by Mr. Jackson, in view of the wide powers given to the Architect under the terms of the contract there should not be any real doubt as to who that person is at any time so long as the contract remains in force as, of course, it is the Crown's case it does. I agree with the conclusions reached by Nazareth, J. on this point and that it has not been established that Mr. Kwan is "the Architect".

The Effect of the Maintenance Certificate

25. In the light of the above finding it would seem that, as the matter now stands, an arbitrator cannot be appointed because the necessary mechanism for triggering such an appointment, i.e. the reference of the dispute to the Architect under Clause 117 of the contract, cannot be done. It may therefore not be necessary to decide any other point raised in the appeal. However Nazareth, J. has, in addition to declaring that Mr. Kwan was not the Architect for the purposes of this contract, also made other declarations which are relevant to the question of whether any arbitrator appointed would have jurisdiction to hear the dispute. These are that the maintenance certificate issued by the then Architect constituted an approval of the works and due performance of the contract which could not now be re-opened; that the decision made by Mr. Kwan was not within Clause 117 of the contract but related to "excepted matters" as defined in Clause 115 and that the Government was estopped from seeking to rely on the decision of Mr. Kwan as being a decision under Clause 115. Mr. Thomas has argued  that these were not matters which should have been decided by Nazareth, J. on a summons seeking declaratory relief but were matters to be settled by the arbitrator. It is also submitted however that in any event Nazareth, J.'s decisions on these points were wrong.

26. Mr. Thomas relies on Mayer Newman & Co. Ltd. v. Al Ferro Commodities Corporation [1990] 2 Lloyd's Rep. 290 (CA). In that decision Bingham, L.J. referred with approval to dicta of Saville, J. in Hayter v. Nelson and Another [1990] 2 Lloyd's Rep. 265 where he said:

Bingham, L.J. went on at 295:

"In the case of a commercial arbitration the above remarks apply with even greater force, perhaps especially when the dispute turns upon construction or the implication of terms or trade practice. Arbitrators and umpires in the same business or trade as the parties are certainly as well or better able than the court to judge what the parties must be taken to amend or intended by the words or phrases they have used to judge what the parties would at once have replied if an innocent bystander had asked what was to happen if a certain event not dealt with by the contract and to know what are the practices in the trade. Not only is the defendant entitled to have the dispute decided in the first instance by such persons but the court should not, in my view, save in the clearest of cases decide the question without the benefit of their views."

27. Bingham, L.J. also referred to Mustill & Boyd on Commercial Arbitration (2nd Edition), p. 123 and 124 upon which Mr. Thomas also relies here. There is clear authority that an arbitrator cannot decide his own jurisdiction but Mr. Thomas argues that all other matters of dispute between the parties must be resolved by the arbitrator, not by declaratory judgment. Here it is the case for the Government that it does have a claim against Wang Chong which it is now actively pursuing and which by the agreement of the parties should be referred to arbitration. It is wrong for Wang Chong to be permitted to obtain declaratory decisions regarding the merits of that claim in these courts.

28. The contract provides in Clause 117 for the settlement of disputes by arbitration. It was the case for Wang Chong before Nazareth, J. however that the Architect was functus officio and that therefore he had no power to refer the matter to arbitration. Clause 117 of the contract so far as it is relevant reads as follows:

29. It is the case for Wang Chong that once the maintenance certificate is issued by the Architect his official functions under the Contract are ended and it is an absolute bar to any referral by the Architect to arbitration thereafter, notwithstanding the wording of Clause 117(4).

30. Reliance for this proposition is placed on several clauses of the Contract. These are set out in the judgment of Nazareth, J. but for ease of reference I will repeat them here.

31. Clause 2(4) reads:

"(4)     The powers and authorities vested in the Architect and the duties of the Architect's Representative exercisable under the Contract shall continue and be in force until the granting by the Architect of the maintenance certificate referred to in clause 103 or the settling of the final payment certificate, whichever is the latter."

It is submitted that as the maintenance certificate was issued on 23rd June 1977 and the final payment certificate settled on or about 15th May 1979, the Architect had no power in February 1989 to make any decision under the terms of the contract.

32. Clause 103 is as follows:

"103.     The Contract shall not be considered as completed until a maintenance certificate shall have been signed by the Architect stating that the Works have been completed and maintained to his satisfaction. Such maintenance certificate shall be given by the Architect within twenty-eight days after the expiration of the Period of Maintenance or if different Periods of Maintenance shall become applicable to different parts of the Works the expiration of the latest such period or as soon thereafter as any works ordered during such period pursuant to clauses 69, 70, 71 and 72 shall have been completed to the satisfaction of the Architect and full effect shall be given to this clause notwithstanding any previous entry on the Works or the taking possession working or using thereof or any part thereof by Government."

33. It is the case for Wang Chong that the effect of these two provisions in the contract is that when the maintenance certificate was issued on 23rd June 1977 the Architect ceased to have any power and authority under the terms of the contract. The word "until" in each clause must mean that thereafter the Architect's powers cease and the contract shall be considered as completed once the maintenance certificate is issued.

34. Reliance is also placed on Clause 102 of the contract:

"102. No certificate other than the maintenance certificate referred in clause 103 hereof shall be deemed to constitute approval of any work or other matter in respect of which it is issued or shall be taken as an admission of the due performance of the Contract or any part thereof."

It is the case for Wang Chong that this must mean that the maintenance certificate shall be deemed to constitute approval of any work or other matter in respect of which it is issued

35. The other sections relevant to this matter are Clauses 104 and 105. These read as follows:

"104.     Government shall not be liable to the contractor for any matter or thing arising out of or in Connection with the Contract or the execution of the Works unless before the giving of the maintenance certificate under clause 103, the contractor shall have made a claim in, writing in respect thereof giving full and detailed particulars of the circumstances giving rise to the claim, of the amount of the claim and of the manner which such amount is calculated.

 

105.     Notwithstanding the issue of the maintenance certificate the Contractor and, subject to the provisions of clause 104, Government shall remain liable for the fulfilment of any obligation incurred under the provisions of the Contract prior to the issue of the maintenance certificate which remains unperformed at the time such certificate is issued and for the purposes of determining the nature and extent of any such obligation the Contract shall be deemed to remain in force between the parties hereto."

36. Nazareth, J. came to the conclusion that the certificate was conclusive and found that:

"Accordingly, having regard to Clauses 102 to 105 in the context of the whole Contract and the relevant scheme of the Contract, I think the conclusion is clear that the maintenance certificate constitutes approval of the works and an admission of due performance of the Contract in terms of Clause 102."

He went on:

"But if the maintenance certificate is conclusive in terms of Clause 102 it follows in my view that it must be conclusive in the terms sought, i.e. that. it constituted conclusive evidence that the quality of materials and workmanship used by Wang Chong was as required by the Contract that Government was not entitled to seek the architect's decision in respect of the matters referred to him by Mr. Somerville in his letter of 22nd February 1989 and likewise that Mr. Kwan was not entitled to decide that Wang Chong was in breach of contract."

37. Nazareth, J. relied in reaching that conclusion on Ata Ul Hag v. City Council of Nairobi (1962) 28 BLR 76. The contract in that case provided, as in the one under consideration here, that the work should be executed under the direction and to the satisfaction in all respects of the engineer (here the Architect) who should have full access at all times to the works and had wide powers of supervision. It then provided that when the works had been completed according to the provisions of the contract and to the satisfaction of the engineer he would certify the date of such completion and that would be the date of the commencement of the period of maintenance. At p. 94 Lord Morris said:

"The position was that by their contract the parties agreed that the engineer was to decide and was to be the final arbiter as to whether the works had or had not been completely executed in accordance with the provisions of the contract and also to his satisfaction. If he so decided and of course decided impartially and not in collusion with the contractor then as regards such of the works as he covered by his certificate the provisions governing the maintenance period then became applicable."

He went on at p. 95

"The various contractual documents taken as a whole contain very full and detailed and comprehensive provisions and their lordships considered that although 7(1v) does not specifically use such words as 'final' or 'conclusive' the certificate of the engineer, if given, was intended to record a decision which was binding upon the parties. The lordships cannot accept the submission that the certificate of the engineer was only a document which had to be given for administrative reasons or always one which merely recorded a personal opinion or provisional opinion. It seems to their lordships that the whole scheme of the contract involved that a certificate under 7(1v) was final subject only to the provisions in regard to the maintenance period and the rights given to the counsel in respect of defects either of material or of workmanship which might appear during the maintenance period."

38. Here it was argued by Mr. Thomas that this decision was based on its particular form and that the finality of the engineer's certificate could be deduced from the particular clauses of that certificate. There was also only a limited form of arbitration provided and that provision expressly excluded matters left to the engineer's determination. Clause 26 of the contract was as follows:

There is no similar provision in the contract now being considered here.

39. Mr. Thomas relies on Crestar Ltd. v. Carr and another (1987) 37 BLR 113. At p. 124 Bingham, L.J. said:

"Nor is there in this contract any express provision which makes a certificate of the architect (assuming it to be formally valid) conclusive as to proper, compliance by the builders with a provisions of the contract concerning work, materials or costs. There is therefore no express provision as to the conclusiveness of a certificate which would override the arbitration clause."

He then went on:

"Having regard to the width of the arbitration provision, in the absence of the any express provision as to the conclusiveness of certificates, I am not prepared to infer that the parties intended to prevent the owners referring matters to arbitration after the end of the 14-day period. Important defects in work or materials which were not apparent upon reasonable inspection prior to the expiration of the 14 days may become apparent later. ... Nor do I see any reason in principle where an arbitration provision should not continue to subsist for the purpose of determining whether the provisions of the contract have been duly performed or not even though the contract itself may have come to an end (see Mustill & Boyd on Commercial Arbitration at p. 8)."

He came to the conclusion that the owners could exercise their right under the contract to have the matter referred to arbitration despite the signing of the final certificate.

40. Reliance is also placed on Gilbert - Ash (Northern) Ltd. v. Modern Engineering (Bristol) Ltd. [1974] AC 689, and in particular Lord Diplock's speech at p. 717. He said:

"But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law and clear express words must be used in order to rebut this presumption. In the case of building contracts no question of usage arises to rebut the presumption.

He went on at p. 718:

"So when one is concerned with a building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law including the remedy of setting up a breach of warranty in diminution or extinction of the price of materials supplied or work executed under a contract. To rebut that presumption one must be able to find in the contract clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract."

41. Mr. Thomas asks us to compare the wording of Clauses 115(1) and 117(3) which provide that some decisions of the Architect are "final and binding" with the provisions of Clauses 102 and 103 where no such clear words are used.

42. In Robins v. Goddard [1905] 1 KB 294 at p. 303

Stirling, L.J. said:

"When we come to the arbitration clause the matter is free from doubt. The arbitrator is to have power (with certain exceptions not including the certificates in question) to open up review and revise among other things any certificate and to treat the matter before him as if no certificate had been given. These certificates therefore were not intended to be absolutely binding and conclusive."

43. Mr. Thomas finally submitted that Nazareth, J. had not correctly interpreted Clause 105 of the contract or given it the weight it deserves. He had taken what is submitted to be too narrow a view of this provision. He said that what was said in Clause 105: "any obligation incurred under the provisions of the contract prior to the issue of the maintenance certificate which remains unperformed at the time such certificate was issued" was of no assistance in addressing the question of whether the maintenance certificate was conclusive. The judge went on to say:

"I think there is clear difference between an obligation in the contract itself, i.e. imposed by the Contract, and an obligation incurred under the provisions of the contract. Thus the obligation to provide the 1,800 tons of cement seems to me clearly an obligation imposed by the Contract. On the other hand a liability of the contractor to indemnify the Government in respect of injury to the contractor's workmen or in respect of the infringement of patent or design rights under the indemnity provisions of Clauses 27 or 34 of the Contract would, I think, be a liability incurred under the provisions of the Contract and would be apt to fall within the language of the exception in Clause 105. However I do not think liability to pay damages for the failure to provide the 1,800 tons of concrete falls within the wording of the exception since that would be a liability incurred under the provisions of law and not under those of the Contract; more to the point, it would,, be substantially and essentially a question as to the quality of materials and workmanship. However that may be the basic conclusive nature of the maintenance certificate remains unaffected. Numerous if not most breaches of obligations in the Contract must give rise to some liability by virtue of the law and it seems to me it could not have been intended to so massively undermine the conclusive effect of the maintenance certificate in that way. Had that been intended, as Mr. Jackson submitted, reference is more likely to have been to breach of the Contract."

44. Mr. Jackson also relies, as he did below, on East Ham Corporation v. Bernard Sunley and Sons Ltd. [1966] A.C. 406. There the contract provided in clause 27 that:

"the arbitrator shall have power ... to open up, review or revise any certificate ... in the. same manner as if no such certificate had been given."

That wide power however was held by a majority of the House of Lords not to overrule clause 24(f) which said that:

"upon expiration of the defects liability period (also six months from the date of the practical completion) ... the architect shall issue a final certificate and such final certificate ... save as regards all defects and insufficiencies in the works or materials which a reasonable inspection would not have disclosed, shall be conclusive evidence as to the sufficiency of the work and materials."

Viscount Dilhorne said at p. 424:

"if the final sentence of clause 27 had been intended to make it possible for the arbitrator to treat the final certificate as not conclusive on the very matters which clause 24(f) said it was to be conclusive, one would have expected this to have been made clear beyond doubt."

He disagreed with the decision of Devlin, J. in Windsor Rural District Council v. Otterway and Try Ltd. [1954] WLR 1494 who had held to the contrary when considering the same form of contract. Lord Upjohn agreed with him and said at p. 441 that he found Robins v. Goddard a "rather difficult case: while not doubting the decision some of the observations of their Lordships are difficult to follow."

45. Mr. Jackson also points to Clause 116(2) of the contract which states that the Architect shall be considered at all times to be in possession of all facts necessary for him to form his own opinion, make his measurements or valuations, give his decisions or orders. He submitted that if there was a doubt on this point it should be resolved against Government (whose own employee, Mr. Lei, had been appointed as-the Architect) on the basis of the contra proferentem rule, see Mitsui v. A.G. [1984] 26 BLR 113, also Chitty on Contracts, 10th Ed., para. 836-7. Here Mr. Jackson says the form of contract used was the Government's then standard form and if there is an ambiguity which the normal rules of construction fail to remove, it should be resolved in favour of the other party, here Wang Chong.

46. It was also the submission for Wang Chong that no reliance could be placed by Government on Crestar Ltd. v. Carr as there was no clause there saying that the final certificate was conclusive evidence as, it was argued, Clause 102 does here (see the discussion of the final certificate by Fox, L.J. at p. 124).

47. We were also referred to a commentary by Mr. Ian Duncan-Wallace (the Editor of Hudson's Building Contracts) in 1969 where he refers to a clause in a standard form of contract very similar to 102 here. He says:

"This clause requires to be read with sub-clauses (2) and (3) of clause 62. These provisions seem almost deliberately obscure and self-defeating and touch, of course, on matters of overwhelming practical importance."

He goes on to say that the point had not then been decided by the courts. He referred to the East Ham case and said that while there the House of Lords disregarded a wide arbitration clause the wording of the contract was "shall be conclusive evidence". Those words are not used here. Against that is the argument that the words used "other than the Maintenance Certificate" are deprived of any practical effect if they do not mean that the certificate is conclusive.

48. Mr. Wallace finds that the arguments are finely balanced and considers it is not possible to put forward a view with any degree of confidence. Mr. Jackson suggests that is correct and for that reason relies on the contra proferentem rule.

49. If the maintenance certificate has the effect which is urged on us by Mr. Jackson it means that if, the day after that certificate is signed, a latent defect of a very serious nature is found in the building the employer has no remedy. That is a conclusion which I would only come to if it was set out in the contract in the clearest possible terms. It is very true that cash is the lifeblood of the construction industry. It is for that reason that architects' certificate are treated virtually as being cash. This is so that disputes shall be settled immediately and the work go on and that intention is reflected here in Clause 115. Similarly there is the provision that when a certificate has been signed by the architect that he is satisfied with the work this should be the trigger for the final payment to be made apart from the normal retention money. Here, however, I do not find that either Clause 102 or 103, as read with the other clauses in the contract, have the effect of making the maintenance certificate conclusive so as to bar any action being now taken by the Government under Clause 117. Paragraph (4) of that clause, being couched in the widest possible terms, does clearly indicate that it was the intention of the parties that the arbitrator would have full power to open up and review any decision of the Architect, including that contained in the maintenance certificate. If that was not the case the clause would have said so.

50. I am also of the view that Nazareth, J. has not given Clause 105 the wide meaning that it deserves. In Hudson's Building and Engineering Contracts, 10th Edition, at p, 489 this clause is referred to as "a bewildering provision". But it does seem clearly to provide that the maintenance certificate shall not be a bar to any claim arising from an obligation under the contract which remains unperformed by the contractor. I think Nazareth, J. in differentiating between an obligation in the contract itself, i.e. one imposed by the contract, and one incurred under the provisions of the contract has drawn too fine a distinction and in my view the alleged failure by the contractor to use the specified amount of cement in the contract is "an obligation incurred under the provisions in the Contract" which may be one which remains unperformed.

51. I would allow the Government's appeal against Nazareth, J.'s decision that the maintenance certificate was conclusive.

Excepted Matters

52. Nazareth, J. also made declarations that the purported decisions in the letter of 25th February from Mr. Kwan to Mr. Somerville did not fall within Clause 117 of the contract since they related to excepted matters as defined in Clause 115 which reads as follows:

53. Nazareth, J. held that the amount of cement which had been used in the concrete was a question arising as to the quality of materials and workmanship. He considered that on the wording of Clauses 115 and 117 it was therefore a matter to be finally settled by the Architect under Clause 115 and could not be taken to arbitration under Clause 117.

54. With respect I find myself unable to agree with that conclusion. It seems to me that these clauses taken together mean that during the course of the work being carried out there should be machinery whereby there can be an instant decision by the Architect as to technical matters such as the quality of materials, used binding on the parties so that they have to continue to carry out the works and to keep up payments. I do not however consider that this means that the question which has arisen and on which the Architect has given his decisions cannot thereafter be raised as a dispute under Clause 117. If that had been the intention it would have been reflected in Clause 117(4).

55. Wang Chong relies on Yip Kwong Construction Co. v. AG (MP 1981 No. 510), an unreported decision of Liu, J. However I consider the facts there were different from the facts before us as it involved a question of whether the excavation rate should be adjusted because of the finding of unexpected rock when excavating the site. I do not consider that Yip Kwong is authority for the proposition that disputes fall either within Clause 115 or Clause 117. It seems to me to be authority only for the proposition that where one side has accepted that there was a dispute falling within 117 it may not at a later date reverse that position and say that it was under 115 and therefore there was no question of going to arbitration under 117.

56. I am satisfied that Clause 115 provides machinery whereby technical matters arising during the construction can be settled immediately by the Architect.  This enables the work to continue. This however does not mean that such a dispute shall not be subject to eventual arbitration under Clause 117 which comes in another part headed "Settlement of disputes". Clearly this is a dispute. It may also be a "question arising" within Clause 115 but I do not consider that this prevents it coming also within Clause 117 notwithstanding the use of the words "save only as to excepted matters as defined in Clause 115". I think the use of those words in Clause 117 is simply to make it clear that any question arising during the construction work regarding technical matters as set out in Clause 115 shall be referred to the" Architect who shall make a decision then binding on the parties to the extent that the work is carried on.

57. Nazareth, J. also made a declaration that the Government is estopped from relying upon the letter of 21st February 1989 from Mr. Kwan to Mr. Somerville as being a decision made under Clause 115. In my view this is a matter which should be decided by the arbitrator if and when appointed. It is not a matter going to his jurisdiction

Wang Chong's Cross-Appeal

58. Wang Chong cross-appeals against the decisions of Nazareth, J. that the Architect was not functus officio that the decision of Mr. Kwan was an "independent" decision, that his letter giving notice of his decision had been properly served on Wang Chong and that the Government's claim was not one which was doomed to fail and therefore there was no point in going to arbitration. They also cross-appeal against his decision that the Government's claim was not hopeless because the period of limitation had expired.

59. Mr. Jackson conceded that if he was to succeed on the question of the Architect being functus officio it must be on the basis that the maintenance contract was conclusive. As he has failed on that point he must also fail on the question of the Architect being functus..

60. The questions of whether or not Mr. Kwan's decision was independent, whether it was properly served, whether the Government's claim was doomed to fail and whether it is in any event hopeless because of limitation are in my view matters to be decided in the arbitration. Again they are not matters going to the arbitrator's jurisdiction.

61. I would dismiss the Government's appeal against Nazareth, J.'s declaration that Mr. Kwan was not the Architect under the terms of the contract but allow the appeal upon the other declarations made by Nazareth, J. which are quashed. I would dismiss Wang Chong's cross-appeal.

Bokhary, J.:

62. Two crucial questions arise. The first is whether the Government has a claim which it can pursue. And the .. second is whether,. if it has, it is - as things stand at the moment - entitled to the appointment of an arbitrator before whom to pursue such claim. Both questions were decided against the Government by Nazareth, J. In common with my Lords, I am of the view that he was wrong on the first question but right on the second one.

63. The first question turns on whether the claim put forward by the Government is barred by the maintenance certificate. In my judgment, it is not. I am prepared to read clause 102 (2) as providing that the maintenance certificate shall be deemed to constitute approval of any work or other matter in respect of which it is issued and  shall be taken as an admission of the due performance of the contract. But in the absence of an estoppel - and none is alleged here - a party to a contract is not precluded from his remedy for the breach thereof merely because he had, Before discovering such breach, approved the work purportedly done or the materials purportedly supplied thereunder and had, in ignorance of mis-performance or non-performance, made an admission of due performance. What is more, clause 117(4) empowers the arbitrator to open up any certificate, not any certificate other than the maintenance certificate.

64. So the situation in the present case is the opposite of the one with which the Privy Council was faced in Ata Ul Haq v. City Council of Nairobi (1962) 28 BLR 76. In that case an engineer's certificate was held to be final. But the arbitration clause there expressly excluded from the scope of the arbitration matters left to the decision of the engineer.

65. I am not prepared to infer that the parties in the present case intended that the maintenance certificate be conclusive even though they did not say so. Nor am I prepared to read into the arbitration clause in the present case an exemption for the maintenance certificate from liability to being opened up by the arbitrator even though the clause contains no such exemption and speaks in terms of "any" certificate.

66. Having said why I determine the first question by holding that the Crown has a claim which it can pursue, I turn now to the second question, and give my reasons for holding that, as things stand at the moment, the Crown is not entitled to the appointment of an arbitrator before whom to pursue such claim.

67. It is common ground that clause 117 is so worded that no dispute or difference can be referred to arbitration in the absence of a prior referral to the Architect for his decision. So the second question turns on whether Mr P.L. Kwan, to whom the Government referred the matter for decision, is the Architect. In my judgment, he is not.

68. The person named in the Articles of Agreement as the Architect - and who therefore falls within the definition of the "Architect" in clause 1 - is the Chief Architect of Division 3 of the Architectural Office of the Public Works Department. At the time of the referral to him, Mr Kwan was - and he still is - the Chief Architect of Division 3 of Architectural Services Department. The Public works Department, which existed when the contract was entered into, had ceased to exist by the time of the referral to Mr Kwan. Other departments inheriting between them the Public Works Department's functions had come into existence by then. One of these departments is the Architectural Services Department.

69. Mr Kwan is not the public officer named as the Architect in the Articles of Agreement. He has inherited some of the functions of that officer. But he has not inherited all of them. Indeed, the Government does not assert that the holder of his office would be named as the Architect for a public housing development nowadays. Public housing is not within the Architectural Services Department's sphere. So I am not satisfied that he would be the Architect for the contract here in question even if that status is, by some rule of law or process of construction, to be conferred upon the public officer inheriting those functions or attributes of the Chief Architect of Division 3 of the Architectural Office of the Public Works Department which led to his being named as the Architect in the Articles of Agreement. But I do not in any event think that any such search for an heir or successor is a legitimate exercise. It is obviously essential, in order that everybody may always know where they stand, that there should never be any real doubt as to the identity of the Architect at any given time. I do not say that there would be such doubt if for example, the only change which had taken place was one under which the Architectural Office of the Public Works Department had been renamed "the Architectural Bureau" of that department. No one would attribute to the parties any intention to allow the position to be affected by mere re-labelling of that sort which would not confuse any sensible person.

70. But here we have a re-structuring - and a major re-structuring at that - which supports reasonable rival views as to who had inherited the relevant functions of the public officer named as the Architect or, put another way, upon whom the relevant functions of the public officer thus named had devolved. And it is not as if a successor has to be found by such process of devolution in order that the contract may remain workable after such re-structuring. There is machinery built into the definition of the Architect in clause l by which the employer can simply authorize someone to act as the Architect, describing him by name or by the public office he holds, and, equally simply, notify the contractor in writing of such authorization. In such circumstances there is no need to attibute to the parties - and no room for attributing to them - any presumed intention that the Architect is, in the event of a re-structuring such as we have in the present case, to be ascertained by an exercise such as the one which the Government says should be carried out. It could be - as the present litigation shows - a 'fairly involved exercise with room for real disagreement. Can the parties have intended, for example, that work under the contract grind to a halt while they quarrel or even litigate over its outcome? The answer must surely be an emphatic "No".

71. In my judgment, the Government must, if it wishes to pursue its claim in arbitration, first authorize someone to act as the Architect, then notify the contractor in writing of such authorization, and then refer to such person for his decision the disputes or differences which the claim involves. That disposes of the second question. Very little remains.

72. Wang Chong's attack upon Mr Kwan's decision on the ground that it lacks particularity has been abandoned. In any event, it would - like its attacks upon his decision on the grounds that it lacks independence and had not been properly served - simply fall away upon our decision that he is not the Architect.

73. Mr Jackson for Wang Chong concedes that his argument that the Architect is functus officio cannot succeed if his argument that the Government's claim is barred by the maintenance certificate fails.

74. As to his argument that the Government's claim pertains to "excepted matters" covered by clause 115,  Mr Jackson says that he would not wish to maintain that argument if we are with him on his argument that Mr Kwan is not the Architect but against him on his argument that Government's claim is barred by the maintenance certificate. So the Government's appeal against the learned judge's conclusion that its claim pertains to excepted matters covered by clause 115 and the declaration which he made to that effect has become unopposed.

75. In my judgment, the Government's claim does not pertain to excepted matters covered by clause 115. That clause, as I read it in its context, provides for questions arising during the carrying out of the works to be determined by the Architect in a summary fashion so that the project does not become bogged down while the parties squabble. That is not the situation in regard to the claim which the Government now puts forward or the disputes or differences which it involves.

76. Wang Chong had cross-appealed against the learned  judge's rejection of its argument that, even if it is not barred by the maintenance certificate, the Government's claim is doomed to failure for other reasons. But before us Mr Jackson merely reserved the point.

77. The learned judge having declined to make a declaration to the effect that wang Chong is free to plead limitation, Wang Chong had cross-appealed on the point. But it does not now arise because - as Mr Jackson was the first to point out - it would only arise if the reference to arbitration already made by the Government is good. As Mr Kwan is not the Architect, the reference already made is bad.

78. To summarise in my own words the result at which I arrive in agreement with my Lords, the appeal is allowed in part. We uphold the learned judge's decision that Mr Kwan is not the Architect and his refusal to appoint an arbitrator. But we reverse his decisions that the Government's claim is barred by the maintenance certificate and that it pertains to excepted matters covered by clause 115; and we set aside the declarations which he made to that effect. We dismiss the cross-appeal. So it only remains for us to hear the parties as to the proper order to be made as to costs here and below. Before concluding this judgment, I would like - speaking for myself but confident that my sentiments are shared by my Lords - to express my great indebtedness to counsel on both sides for their assistance.

Fuad, V.P.:

79. I agree that the learned judge was wrong on the "maintenance certificate" and "excepted matters" points but right on the "Architect" point, so that (leaving aside the question of costs here and below for the moment) the appeal should be allowed to the extent - but only to the extent - of setting aside his declarations to the effect that the claim is barred by the maintenance certificate and that it pertains to excepted matters. The appeal is allowed in part accordingly. I agree that the cross-appeal should be dismissed; and it is dismissed accordingly.

80. We invite the parties to make arrangements for the Court to be re-convened so that they may be heard on the appropriate order we should make as to costs here and below. As to the costs below, we note that there has been no appeal against the dismissal with costs of the Government's summons dated 15th September 1990 for a stay of certain parts of Wang Chong's originating summons. So there does not appear to be any question of disturbing the order for costs made against the Government on its unsuccessful summons for a stay. But we will certainly hear the parties as to the rest of the costs below and, of course, as to the costs before us.