MAK'S CONSTRUCTION CO. LTD. v. SUN FOOK KONG (CIVIL) LTD.

HCCT20/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION LIST NO.20 OF 2002

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REASONS FOR DECISION

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The issue before the court and its determination

1. By an originating motion dated 27 February 2002 made under RHC Order 73, rule 2(2), the applicant, Mak's Construction Company Limited (formerly known as Wang On Construction Engineering Limited), gave notice of its appeal from a Final Award Save As to Costs dated 8 February 2002 made by Mr Colin Wall ("the Award"). The applicant was the claimant in the arbitration, and the respondent, Sun Fook Kong (Civil) Limited, also the respondent in those proceedings.

2. By the same originating motion, the applicant sought leave to appeal under Order 73, rule 2(1)(d), this being a requisite step to the launching of an appeal from an arbitration award : section 23(3)(b) of the Arbitration Ordinance, Cap.341 ("the Ordinance").

3. On 30 May 2002, I dealt with only the application for leave and after hearing submissions from Mr John Griffiths, SC for the applicant, I refused to leave to appeal and consequently dismissed the originating motion with costs. I now set out the reasons for my decision.

The dispute leading up to the award

4. The respondent was the principal contractor under a contract dated 10 November 1994 (No.DC/94/01) with the Hong Kong Government for certain sewerage improvement works in Tsuen Wan ("the Principal Contract"). By a sub-contract No.00020330503 dated 6 February 1995 ("SC 503"), the respondent engaged the applicant as its sub-contractor in relation to a part of these works. By another sub-contract No.00020330504 dated 3 July 1995 ("SC 504"), the respondent further engaged the applicant as its sub-contractor in relation to what may be referred to as Pipe-Crossing Works in the same project.

5. Disputes having arisen between the parties under both sub-contracts, Mr Wall was appointed arbitrator to adjudicate on the disputes. The hearing before him took place on 26 November 2001, concluding on 30 November 2001.

6. As a result of the parties narrowing the issues before the arbitrator, eventually, the only issue left to him to decide was in relation to the Pipe-Crossing Works undertaken by the applicant under SC 504 (in the award, this is referred to as the Pipe-Crossing Works sub-contract).

7. Here, in brief, the dispute was over the correct method of measurement of the length of pipes laid by the applicant in the Pipe-Crossing Works. The applicant contended that it should be paid in accordance with the quantities actually measured by the Engineer under the Principal Contract whereas the respondent's contention was that, regardless of what the Engineer actually measured, the applicant should only be paid in accordance with the quantities measured objectively under what it regarded as the proper method of measurement stipulated in the sub-contract, which was that in accordance with the Standard Method of Measurement for Civil Engineering Works 1992 ("the SMM").

8. In practical terms, the dispute can be summarised in the following passage from the affidavit of Mr Chan Chun Hong, a director of the applicant :-

"The parties were in agreement that SMM was to govern the final determination of the quantities, but the difference between them was that the Respondent contended that the Measurement should occur under both the Principal Contract and again (by a different person) under the Sub Contract, whereas the Claimant contended that the Measurement should occur only once, under the Principal Contract and that it was the Engineer who should carry out that measurement. The issue in this case is important because the Engineer has used one interpretation of the SMM when valuing under the Main Contract and the Respondent has used a different interpretation when using SMM to measure the Sub Contract. As a result, the Respondent has been paid by the Government for one set of Quantities (a high quantity) to value the Sub Contract Works under the Principal Contract, whereas on their remeasure under the Sub Contract, the Respondent has used a lower quantity to value the same Sub Contract Works."

9. In monetary terms, the difference in valuation was said to be just over HK$17 million.

The Award

10. The arbitrator identified the critical provision in SC 504 as that part of clause 2 which read :-

"The quantities entered in the Bills of Quantities and Schedule of Rates are provisional and final quantities under the Sub-contract shall be those measured and valued in accordance with the terms of the Principal Contract as defined in the Schedule hereto or as otherwise specified."

11. The arbitrator held that the pipes should be measured in accordance with the SMM, irrespective of how in fact they were measured by the Engineer under the Principal Contract. In other words, he held that on a true construction of clause 2 of SC 504, the appropriate method of measurement was that as provided in the applicable terms of the Principal Contract (namely the SMM) and not necessarily the measurement actually adopted by the Engineer under the Principal Contract, as the applicant had contended.

12. The arbitrator also held that, even if this was not the true construction of the relevant provision, the applicant was estopped from contending otherwise by reason of what was said at a meeting before SC 504 was entered into and also the subsequent conduct of both parties. He found in favour of the respondent in terms of representation, reliance and detriment. The relevant representation was that the applicant would not make a claim based on the measurement it sought to make in the arbitration, that is, it would not make a claim for pipes to be measured in individual lengths rather than group lengths. The arbitrator also found in favour of the respondent on the basis of estoppel by convention.

13. This being his view of how the measurement exercise should have been undertaken, the arbitrator then considered the evidence as to what were the appropriate measurements of the pipes by reference to the SMM. He concluded that the respondent had already paid to the applicant what was due and therefore dismissed the applicant's claim in that regard.

14. Before dealing with the applicant's contentions, I should just point out that the arbitrator also dealt with the respondent's contention that there was a collateral contract between the parties to the effect of the construction of clause 2 contended by the respondent. He found that there was no intention to create a legally binding contract and therefore rejected the respondent's contentions in that regard.

The applicant's contentions on appeal

15. In seeking leave to appeal, Mr Griffiths contended that the arbitrator's decision was plainly wrong :-

(1) in his construction of that part of clause 2 I have earlier set out (Issue 1 : Construction);

(2) in his conclusions on estoppel (Issue 2 : Estoppel).

16. No complaint was made as to the finding that the measurements of the pipes contended by the respondent were in fact in accordance with the SMM. Nor was the collateral contract raised by the respondent under the informal respondent's notice provisions of paragraph 2 of Practice Direction 6.2 dealing with applications for leave to appeal against arbitration awards.

Principles governing applications for leave to appeal from arbitration awards

17. These are well-known. The principles are summarised in Hong Kong Civil Procedure 2002 Volume 2 at paragraph H1/23/3 and recently reiterated by the Court of Appeal in Swire Properties Limited v. Secretary for Justice, unreported, Civil Appeal No.1058 of 2001, 11 June 2002. I have also tried to summarise the relevant principles in Ha Hau Kwan Fong, Mary v. The Incorporated Owners of Golden Plaza, unreported, HCCT 9/2002, 28 May 2002. As I said in the Golden Plaza case, there is a presumption of finality in arbitrations. The strength of this presumption depends on whether the clause in question or issue in dispute is a one-off event or term of contract. I ventured a practical guide as follows (at paragraph 22 of the Judgment) :-

" ...Where a one-off event or clause is involved, the applicant for leave must demonstrate quickly and easily that the arbitrator was plainly or obviously wrong. Where, on the other hand, the event or clause is not one off or that the case has important repercussions, all that needs to be demonstrated is that the arbitrator was arguably wrong or that the point on appeal is capable of a serious argument."

18. As Rogers VP said in the Swire case at paragraph 26, the presumption of finality in arbitrations carries with it the approach that the court should not interfere with an arbitration award, specifically in a one-off case, unless it was clear that there had been an error of law. He also said there may be some leeway for mitigating the full rigour of this where the seriousness of the result of the arbitration to the parties made it right to do so : see also paragraph 26 of the Judgment. My only observation here is that the learned Vice President must have intended this latter statement to refer only to those exceptional situations where the justice of the case required a relaxation of what he termed the "full rigour" of the doctrine. Given the applicable principles from cases which are binding on this court, I find it difficult to envisage leave being granted otherwise than in accordance with the Nema guidelines, as I have outlined above, unless exceptional circumstances exist.

19. I now move on to the present case.

Is the clause in question or event one off?

20. The applicant submitted that although SC 504 was not a standard form of sub-contract published by professional bodies, it was nevertheless commonly used by the respondent in many Government sub-contracts. Further, it was submitted that as the respondent was a related company of Great Eagle Company Limited, one of the largest construction companies in Hong Kong, this form of sub-contract (including clause 2) might well be used in numerous sub-contracts in Hong Kong.

21. Against this, in an affidavit of Mr Paul Barrett of Messrs Denton Wilde Sapte (the respondent's solicitors), it is said that the form of SC 504 is one of a number of forms the respondent used for sub-contracts. It is further said that since the commencement of the present arbitration, the wording of clause 2 has been amended to put beyond doubt that the meaning intended by it was that as found by the arbitrator in the Award. Even existing contracts have been amended in this way.

22. In these circumstances and also in the absence of any evidence to suggest that clause 2 (in it unamended form) is the subject matter of any on-going proceedings or of any general interest, I am of the view that it is a one-off term of contract.

23. As for the estoppel issue, it was not suggested that this was somehow not a one-off matter. While of course questions of estoppel commonly arise in legal disputes, in the present case, it is the application of established principles of law to the facts that is in issue. In my view, this is clearly a one-off situation.

24. Ultimately though, as will presently be made clear, it does not really matter whether the case is one-off or not : on whichever test, the applicant fails.

Issue 1 : Construction

25. I have already earlier set out that part of clause 2 of SC 504 which was the subject matter of the construction issue facing the arbitrator.

26. In my view, the arbitrator's construction of that clause was clearly right. It follows a fortiori it simply cannot be demonstrated that the arbitrator was plainly or obviously wrong.

27. To recap, the applicant's contention was that on a true construction of that clause, the final quantities, on the basis of which it would be paid under SC 504, would be measured and valued in exactly the same way as it was actually measured and valued under the Principal Contract by the Engineer.

28. I am unable to accept this contention for the following reasons :-

(1) As its most basic level, if it had been intended that the work performed by the applicant would be measured or valued in exactly the same way as it was actually measured and valued under the Principal Contract, this would simply have been stated in that clause. For example, the clause could just have read, "... shall be those [final quantities] as actually measured and valued under the principal contract ...". (emphasis added)

(2) Instead, the clause states, "... shall be those [final quantities] measured and valued in accordance with the terms of the principal contract as defined in the Schedule hereto or as otherwise specified". (emphasis added)

(3) In my view, the clear intent of the clause was to subject the measurement and valuation of the final quantities under SC 504 to those terms of the principal contract (obviously relevant to measurement and valuation) as defined in the Schedule (to the sub-contract) or those terms (again relevant to measurement and valuation) as otherwise specified in the sub-contract.

(4) Accordingly, it is to those terms of the principal contract (as defined in the Schedule) or those terms as otherwise specified in SC 504 to which one has to turn in order to discover the applicable methodology for the measurement and valuation of the work carried out by the applicant.

(5) The principal contract as defined in the Schedule to the sub-contract is the Principal Contract itself, No.DC/94/01. The appropriate method of measurement under the Principal Contract for pipes was, as I have already stated, that in accordance with the SMM. The applicable method for valuation of the work carried out by the applicant was stated in the other terms specified in SC 504. In particular, I refer to Addendum No.1 of SC 504 which sets out the applicable monetary rates for pipe-crossing. These rates were, as Mr Griffiths observed, simply handwritten in using the same format as the Bills of Quantities under the Principal Contract.

(6) The commercial intent of clause 2 was simple : the work carried out by the applicant was to be measured using the same methodology as that applicable under the Principal Contract but adopting different monetary rates so that the respondent, as the principal contractor, would be paid more under the Principal Contract than it would have to pay the applicant under SC 504.

(7) This was essentially what the arbitrator found and he was, with respect, correct. The applicant's grievance was that the measurement actually carried out by the Engineer under the Principal Contract differed from the measurement which was carried out under SC 504. However, the measurement carried out under SC 504 was, as the arbitrator found (and from which there is no appeal), in accordance with the SMM. The method of measurement actually used by the Engineer under the Principal Contract is not before me, whether that was actually in accordance with the SMM or not.

(8) The applicant's grievance is not having had the work it carried out measured as it was actually measured, rightly or wrongly, under the Principal Contract. But, as I have observed, this was not what clause 2 dictated. It was a methodology provision referring to objective and identifiable criteria and not a "measured as actually measured" one. Paradoxically, there is a measure of protection for sub-contractors such as the applicant in this clause. It provides an objective method of measurement and does not subject the sub-contractor to the possible vagaries of a measurement under the Principal Contract in which the sub-contractor has no say.

(9) I would finally just add this. The clause refers to final quantities being "measured and valued" (my emphasis). This was plainly a reference to a specified methodology or formula, for it could not have been intended that the applicant was to have its work valued at the same rate as it was actually valued under the Principal Contract. This would make no commercial sense for a main contractor such as the respondent at all.

29. Certainly, it cannot be said that the arbitrator's conclusion was plainly or obviously wrong in these circumstances.

Issue 2 : Estoppel

30. The only real point raised in relation to this aspect in relation to both estoppel by representation and estoppel by convention was that there could at law be no representation of a future intention. Reliance was placed on Jorden v. Money (1854) VHLC 185, particularly that part of the speech of the Lord Chancellor at 214-5 where he said that the doctrine of estoppel "does not apply to a case where the representation is not a representation of a fact, but a statement of something which the party intends or does not intend to do".

31. It is not necessary to review extensively the authorities in this area of the law. It is now well-established that a statement of intention to do or abstain from doing something in the future can amount to a representation of existing fact : see the well-known words of Bowen LJ in Edgington v. Fitzmaurice (1885) 29 Ch D 459, at 483 ; Spencer Bower and Turner : Estoppel by Representation (3rd Edition) at paragraph 29. As Lord Wilberforce said in British Airways Board v. Taylor [1976] 1 WLR 13, at 17D-E, "everyone is familiar with the proposition that a statement of intention may itself be a statement of fact and so capable of being true or false".

32. As for estoppel by convention, for a statement of the general principles, I need only refer to Amalgamated Investment and Property Company Limited v. Texas Commerce International Bank Limited [1982] QB 84, at 120-122, 130-131 and also to Chitty on Contracts (28th Edition) Volume 1 at paragraph 3-100 to 3-106. Mr Griffiths laid much emphasis on the fact that in the present case the statements of intention made by the applicant's representative were made pre-contract, but I do not think that this by itself would prevent an estoppel by convention from operating. In any event, conduct subsequent to the making of a contract (as in the present case) can found such an estoppel : see Amalgamated Investment and Property Company Limited at 120H-122A; Whitworth Estates (Manchester) Limited v. James Miller and Partners Limited [1970] AC 583, at 611D-E per Viscount Dilhorne.

33. Apart from points of law, the applicant's arguments were ultimately really just based on the interpretation of the facts as found by the arbitrator. Here, I can find no fault in the way of that the arbitrator has made findings to justify the conclusion that the applicant was estopped from contending that the measurement of the pipes should be on an individual basis rather than on a group length basis. It was not suggested that the arbitrator simply had no evidence with which he could have made the findings of fact that he did.

34. In this context, it is important first to bear in mind in relation to appeals or attempted appeals from arbitration awards that as a matter of jurisdiction, the court's power to review is circumscribed by statute : see section 23(2) of the Ordinance, which restricts appeals to questions of law arising out of an award.

35. Where it is sought to appeal from findings of fact made by an arbitrator, whether primary or secondary, the appellant faces a difficult task. In Ha Hau Kwan Fong, Mary at paragraph 24, I said this : -

" ... In my view, while it is possible to classify as a question of law arising out of an award, an argument that the arbitrator has made a finding without any evidence to support it (and therefore no reasonable arbitrator could have made such a finding : cf. Edwards v. Bairstow [1956] AC 14), the following must firmly be borne in mind :

(1) Such an appeal would invariably be a 'one-off' type of situation, since a question of fact is ultimately involved.

(2) In most, if not in all, such cases, it will simply not be sufficient for the applicant merely to demonstrate that on the preponderance of the evidence, the arbitrator should or should not have made the relevant finding. The finding must really be so bizarre that no reasonable arbitrator could have made it, such as, for example, where there was simply no evidence or reason for the finding of fact to be made. But for this scenario, it will not in my view be possible to obtain leave to appeal based merely on findings of fact made by an arbitrator, whether primary or secondary."

36. In the present case I have not been shown anything remotely suggesting that the arbitrator was plainly or obviously wrong in his findings of fact to justify the conclusion of estoppel, let alone that such findings were in any way bizarre. In my view, he was entitled on the evidence before him (which, in significant parts, were not contradicted by the applicant) to make the findings and reach the conclusions he did. I refer here, in particular, to paragraphs 85 to 100 of the Award.

37. Strictly speaking, in view of my conclusion on Issue 1, it is unnecessary to deal with the estoppel issue but I have done so out of completeness.