WH-SCG JV LTD v. HONG KONG CONSTRUCTION (HOLDINGS) LTD

HCCT 48/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 48 OF 2006

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J U D G M E N T

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I. INTRODUCTION

1.  In November 1999 AP City as Employer engaged Hong Kong Construction (HKC) as Main Contractor for a Stubbs Road residential development.  HKC sub-contracted the work to WH-SCG. 

2.  WH-SCG claims that certain amounts are due under its sub-contract with HKC.  HKC denies this.  WH-SCG accordingly commenced this action against HKC for the amounts said to be due and unpaid.

3.  By its application today, HKC seeks to stay WH-SCG’s action to arbitration.  According to HKC, under the Sub-Contract, WH-SCG agreed that disputes would be referred to arbitration.  The question is whether HKC is right.

II. BACKGROUND

4.  Clause 1 of the Particular Conditions of the Sub-Contract (the Particulars) provides as follows:-

“	{Paragraph 1}
	[WH-SCG], being the Sub-Contractor, shall assume, observe, perform and comply with all obligations and liabilities of the Main Contract between AP City (hereinafter called ‘the Employer’) and [HKC] (hereinafter called ‘the Main Contractor’) on the captioned Hang Lung Project.
	{Paragraph 2}
	Wherever the term Main Contractor is used in the Contract Document between the Employer and the Main Contractor, it shall refer to [WH-SCG] (hereinafter called ‘the Sub-Contractor’) as described in these documents.
	{Paragraph 3}
	Wherever the term Contract is used in the Contract Document between the Employer and the Main Contractor, it shall refer to [WH-SCG’s] Sub-Contract as describe in these documents.
	{Paragraph 4}
	The Sub-Contractor shall be allowed to use the Main Contractor’s name o comply and perform with the obligations and liabilities of the Main Contract and to obtain any rights or benefits available to the Main Contractor under the Main Contract or at law.
	{Paragraph 5}
	Under the Main Contractor’s requirement in execution of the Main Contract, the Sub-Contractor shall be given overall control of the project and be allowed to make any decision and agreement for all matters in relation to the Main Contract provided that there will not be any damages to the Main Contractor.
	{Paragraphs 6 and 7 concern arrangements among HKC, WH-SCG and nominated sub-contractors}”

5.  The Conditions of Contract (the Conditions) forming part of the Main Contract were annexed to the Sub-Contract. 

6.  Clause 35 of the Conditions provided for the arbitration of disputes under the Main Contract as follows:-

“	(1)	Provided always that in case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Main Contractor, either during the progress or after the completion or abandonment of the Works, as to the Construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith (including any matter or thing left by this Contract to the discretion of the Architect or the withholding by the Architect of any certificate to which the Main Contractor may claim to be entitled or the measurement and valuation mentioned in clause 30(5)(a) of these Conditions or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), then such dispute or difference shall be and is hereby referred to the arbitration and final decision of a person to be agreed between the parties, or, failing agreement within fourteen days after either party has given to the other a written request to concur in the appointment of an Arbitrator, a person to be appointed on the request of either party by the President or Vice-President for the time being of The Hong Kong Institute of Architects co-jointly with the President or Senior Vice President for the time being of the Hong Kong Institute of Surveyors.
	(2)	Such reference, except on article 3 or article 4 of the Articles of Agreement, or on the questions, whether or not the issue of an instruction is empowered by these Conditions, whether or not a certificate has been improperly withheld or is not in accordance with these Conditions, or on any dispute or difference under clauses 32 and 33 of these Conditions, shall not be opened until after Practical Completion or alleged Practical Completion of the Works or termination or alleged termination of the Main Contractor’s employment under this Contract, or abandonment of the Works, unless with the written consent of the Employer or the Architect on his behalf with the Main Contractor.
	....”

III. DISCUSSION

7.  Mr. Simon Westbrook SC (appearing for HKC) argues that, under the Sub-Contract, it was intended that WH-SCG should perform HKC’s obligations under the Main Contract. 

8.  This plainly means (Mr. Westbrook submits) that the parties intended by Particulars cl. 1 that WH-SCG’s and HKC’s names should be substituted for the words “Main Contractor” and “Employer” respectively wherever they appear in the Conditions (including cl. 35).

9.  The result (Mr. Westbrook says) is that Conditions cl. 35 (as modified by Mr. Westbrook’s interpretation of the effect of Particulars cl. 1) would constitute an arbitration agreement between WH-SCG and HKC.

10.  Mr. Westbrook accepts that, taken literally, Particulars cl. 1 would not have the result for which he contends.  Particulars cl. 1 only provides at most for the substitution of WH-SCG’s name for that of HKC in the Conditions.  Nothing is said in Particulars cl. 1 about reading HKC’s name in place of references to the Employer in the Conditions.

11.  But (Mr. Westbrook reasons) to read Particulars cl. 1 so literally would lead to an absurd result as far as Conditions cl. 35 is concerned.  That is because (Mr. Westbrook points out) WH-SCG as Sub-Contractor has no contractual relationship with either the Employer or the Architect.  Absent a direct contractual nexus, there could be no dispute arising out of the Sub-Contract which was capable of arbitration between WH-SCG and the Employer.

12.  I am not persuaded by Mr. Westbrook’s argument.  I think that the meaning and effect of Particulars cl. 1 are plain.

13.  By the 1st paragraph of Particulars cl. 1 WH-SCG agreed to assume “all obligations and liabilities” of HKC under the Main Contractor.

14.  As far as arbitration is concerned, it would be odd to describe arbitration as either an “obligation” or “liability” of HKC under the Main Contract. 

15.  Arbitration is rather a means of resolving disputes relating to the performance of HKC’s obligations and liabilities under the Main Contract. 

16.  Thus, it would be straining language to say that by the 1st paragraph of Particulars cl. 1 WH-SCG agreed to undertake HKC’s “obligation” or “liability” to arbitrate under Conditions cl. 35.

17.  The 2nd paragraph of Particulars cl. 1 provides that whenever the term “Main Contractor” is used in the Main Contract (including the Conditions) it shall be treated as referring to WH-SCG.  It seems to me that this paragraph has to be read as impliedly subject to the 1st paragraph.  It is the means by which the parties have chosen to implement the responsibilities assumed by WH-SCG under the 1st paragraph.

18.  Thus, in the absence of clear words, I do not think that the 2nd paragraph necessarily applies to all appearances of the term “Main Contractor” in the Conditions.  The 2nd paragraph must be read as implicitly subject to a qualification.  The expression “Main Contractor” in the Main Contract is to be treated as a reference to WH-SCG insofar as it makes sense to do so, in light of the obligations and liabilities which WH-SCG has agreed to undertake under the 1st paragraph.

19.  The 3rd paragraph of Particulars cl. 1 must be read as similarly qualified.  The expression “Contract” wherever it appears in the Main Contract should be deemed to refer to the Sub-Contract, insofar as it makes sense to do so in light of WH-SCG’s undertaking in the 1st paragraph.

20.  The 4th paragraph of Particulars cl. 1 gives WH-SCG a means of redress against the Employer in the event of any dispute over its performance of HKC’s obligations as Main Contractor.  By the 4th paragraph HKC agrees (among other matters) to allow WH-SCG to use HKC’s name to obtain any rights available under the Main Contract. 

21.  The right to have disputes arbitrated is one such right of HKC under the Main Contract with the Employer.  To circumvent the fact that no privity of contract exists between WH-SCG and the Employer, HKC will lend its name so that WH-SCG can (say) arbitrate disputes relating to its performance of relevant works with the Employer.

22.  Nothing in the remaining paragraphs 5, 6 and 7 of Particulars cl. 1 affects the foregoing analysis.  I do not find any absurdity (contrary to what Mr. Westbrook suggests) in reading Particulars cl. 1 along the lines which I have sketched out.

23.  I appreciate that it is tempting to read Conditions cl. 35 in the way that Mr. Westbrook advocates.  But I do not see how I can do so without clearer words to such effect. 

24.  The particulars fail to specify that references to “the Employer” in the Conditions should be taken to mean HKC.  It is not the Court’s function to make up for the alleged deficiency in drafting without much stronger indication that such is actually what the parties here intended.  This is especially the case where the parties have chosen to adopt a precise mechanism (reflected in Particulars cl. 1) for imposing HKC’s obligations and liabilities under the Main Contract on WH-SCG.  This is not a case where the parties have used vague, general words and the Court is asked to do its best to construe those words.

25.  It seems to me that in this case Mr. Westbrook is effectively asking me to rectify the parties’ agreement.  He is saying that the specific mechanism of Particulars cl. 1 fails to reflect the parties’ true intentions.

26.  I bear in mind the test for rectification.  Before it can rectify, the Court requires “irrefragable” evidence that what has been recorded in a written contract does not reflect the parties’ true agreement.  I do not think that the evidence here comes anywhere near meeting the test for rectification.

27.  Both sides have referred to background material indicating that HKC and WH-SCG intended the Sub-Contract to be “back-to-back” with the Main Contract.  The words “back-to-back” were actually used in negotiations between HKC and WH-SCG.

28.  But “back-to-back” is at best a vague expression.  It is neither a legal nor a technical term.  I derive little help from it as an aid to construing Particulars cl. 1.

29.  “Back-to-back” can mean many things.  It may simply mean, for example, that it was envisaged that WH-SCG would undertake, “back-to-back,” all HKC’s performance obligations and liabilities under the Main Contract.  Use of the expression does not necessarily imply that the arbitration agreement in Condition cl. 35 was intended to apply between HKC and WH-SCG.

IV. CONCLUSION

30.  HKC’s application for a stay is dismissed.  I shall now hear the parties on costs.