Terraform Engineering Co. Ltd. v. Full Wealth Investment Ltd.

CACV 251/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 251 OF 1998

(On appeal from HCCT No. 28 of 1998)

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J U D G M E N T

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Rogers, J.A. :

Introduction

1. This is an appeal from a judgment of Findlay, J. given on 16th June 1998 whereby he gave leave to the Respondent in this appeal to appeal against an arbitrator's award, he allowed the appeal and set aside the arbitration award and made ancillary orders. The reasons for the judgment were handed down on 19th June 1998.

The Background

2. The original claim in the arbitration arose out of a contract dated 3rd August 1995 to demolish a building in Causeway Bay. By that contract, the Appellant in this appeal contracted to complete the work using hand-held tools within 260 days commencing from 1st June 1995. By the Supplemental Agreement dated 25th October 1995, the Appellant was permitted to use mechanical tools but the Contract Period within which the work was to be completed was reduced to 230 calendar days from the 1st June.

3. Clause (A)(i) of the Supplemental Agreement made clear that the work was to be completed on or before 16th January 1996. Sub-clause (ii) reinforced that by stating that the Respondent was entitled to liquidated and ascertained damages at the rate of $10,000 per day if the Appellant "fails to complete the whole of the demolition works by 16th January 1996."

4. The works were not completed by 16th January 1996 and the Respondent withheld $560,000 as liquidated damages, for 56 days delay, from the contract amount paid to the Appellant.

5. The Appellant contended that it was not responsible for the delay and that not only should it receive the $560,000 which had been withheld but that it was entitled to extra payment in respect of the extra costs which had been caused by reason of the delay for which the Respondent was responsible. The matter then went to arbitration.

The arbitration

6. The arbitrator was appointed on 17th September 1996 and after a hearing in December 1997, issued his arbitration award on 27th January 1998. Although in the pleadings, the Claimant (the Appellant in this Court) claimed damages for breach of contract by the Respondent, it appears that at least by the time of the hearing of the arbitration, the Claimant had abandoned its claim for damages for breach but put its case on the basis of claims for extensions of time and consequent prolongation costs. This is apparent not only from the summary of the issues at paragraph 11 of the award and from the conclusions to which the arbitrator came in the course of the award but, also, we have been shown the Claimant's closing submissions which make this clear on its own, and indeed adopt, what is stated in the Respondent's opening note, which also makes the matter clear. This also emerges throughout the award, see, for example, paragraphs 73, 325 and 326.

7. As a result of the change in the Claimant's stance, the Respondent did not pursue its counter-claim. This is made clear in paragraph 11 of the Respondent's opening note. The counter-claim was based in part upon failure to complete the contract works by no later than the 16th January in breach of the terms of the Supplemental Agreement to which I have referred above.

The Findings

(a) Facts

8. At paragraph 187 of the arbitration award, the arbitrator found that there had been a delay up until 24th August 1995 of 29 days; at paragraph 188 he held that the responsibility for that delay lay with the Respondent and at paragraph 191, he held that a further period of 32 days delay up until 24th October 1995 was also the responsibility of the Respondent. That finding was again repeated at paragraph 309.

(b) Law

9. The arbitrator then went on to grant an Extension of Time for completion of the work of 56 days although he felt entitled if it were necessary to grant one of 61 days. His initial conclusion in this regard is at paragraph 194 of the award. At paragraph 317, he held that he was entitled to grant an extension of time for breach of an implied term on the basis of the decision in Percy Bilton Ltd v. GLC [1982] 1 WLR 794. At paragraph 325, the arbitrator repeated that the claimant agreed with the Respondent that the claim for prolongation costs could only be considered to the extent that an extension of time was somehow awarded to the claimant and, on that basis, in his determination recorded at paragraph 349 the arbitrator determined that he granted extensions of time of a total of 61 days and that the claimant would be entitled to the prolongation costs.

The judgment in the Court below

10. The first ground upon which the Judge in the Court below held that the arbitrator was wrong was that the arbitrator purported to grant an extension of time for completion of the contract in circumstances where the contract did not give any power to do so.

11. The Judge below however went on to hold that the arbitrator was wrong to read the final sentence in Clause 2.02 and the third paragraph of Clause 5.02 of the contract as requiring the implication of the word "reasonable". It might also be pointed out that the arbitrator did not specify where this word should be inserted into the Clauses. The third and fourth grounds upon which the Judge below also held that the arbitrator was in error, are not relevant for this judgment. They turned upon construction of the Clause in the Supplemental Agreement relating to the period necessary to obtain building consents and Clause 6.03 in the contract relating to the period within which a claim had to be made.

This Appeal

12. The Appellant does not seek to disturb the Judge's main finding that the arbitrator was not empowered to grant an extension of time. Mr. Bell, on behalf of the Appellant, argues that even on the basis that the arbitrator was in error in granting an extension of time, his award should be maintained because it had been found that the Respondent was in breach of an implied term in the contract and that damages which would be of the same amount as that awarded by the arbitrator should, in those circumstances, be recoverable.

13. In my view, this argument fails for two reasons.

14. In the first place, although as I have already set out, the arbitrator has held that there was a delay under the contract and he held that that was in breach of an implied term, he did not, in my view, make findings in relation to the Supplemental Agreement and to the extent that he has, his findings should not, in my view, be upheld by this Court.

15. In the second place, it is clear, as I have already mentioned, that the claimant abandoned its claim for damages for breach of contract and, moreover, the Respondent altered its position in relation to the counter-claim because of that abandonment.

16. The delays, for which the arbitrator held the Respondent was responsible, had all occurred prior to 25th October 1995. On that date, the claimant entered the Supplemental Agreement. That Agreement, spelt out in very precise terms that the completion date for the contract works was to be 16th January 1996. It went on in Clause A (ii) to which I have referred above to specify that if the work was not completed by then, liquidated damages of $10,000 per day would be payable. In those circumstances, I find it difficult to understand how, even on the basis that the claimant might, for some reason, still be entitled to claim damages for breach of an implied term of the first contract, the Respondent would not be entitled to liquidated damages in respect of the Supplemental Agreement as provided in Clause A (ii) thereof.

17. Furthermore, it seems to me that the effect of the Supplemental Agreement upon any obligations and liabilities under the contract has not been adequately dealt with in the arbitration award. At paragraph 297, the arbitrator said :-

"... I am unable to accept the submission of the Respondent that I cannot construe the Supplemental Agreement as not preserving the claimant's rights or in the alternative I find that the Supplemental Agreement does not touch on the matter at all."

18. As to the first point, the Supplemental Agreement certainly has no words which preserve any rights. The effect of the provisions of the Supplemental Agreement providing for completion on 16th January 1996 could not be clearer. If the Supplemental Agreement did not touch upon the matter at all, it seems to me, that either the claimant must be taken to have waived its rights for any prior breaches of the first contract or else whatever prior breaches there were in respect of the first contract, they caused no damage because the claimant was in any event in breach of the Supplemental Agreement.

19. As to the second point, it is trite law that if a litigant expressly abandons one part of his case at trial, he cannot on appeal resurrect that part of his case which is inconsistent to that which he pursued at trial. The reason is obvious. The mind of the Tribunal deciding the case originally was directed to the inconsistent case. It was not directed to the new case which the litigant wishes to resurrect.

20. Not only therefore am I not satisfied that the findings of fact are necessarily comprehensive in respect of the breach of the implied term on which the claimant now wishes to found its claim in damages but the arbitrator has not considered fully the questions arising on the Supplemental Agreement. Furthermore, as the Respondent has pointed out, it abandoned its counter-claim and it would be entitled to have that reconsidered.

21. In my view, for these reasons, it would be wrong to permit the Appellant now to raise the alternative basis for its claim which it abandoned at the arbitration.

22. It has been submitted that on the basis of the principles laid down in the Nema [1982] AC 724. The Court below was wrong in exercising its discretion under Section 23(3)(b) of the Arbitration Ordinance, Cap. 341.

23. This was, in my view, a one-off contract and the point at issue was clearly not one of wide public importance. Nevertheless, the arbitrator's decision was so clearly wrong in law that the Judge really had no alternative but to hold, at least on ground one, as he did and that necessitated at least some relief being granted to the Respondent. At one stage, I considered that it might be appropriate, in view of the points now being raised by the Appellant, for the matter to be remitted to the arbitrator. However, both parties to this appeal indicated that whatever the outcome of this appeal, they would not wish to have the matter remitted. On balance, I consider that the matter should in any event not be remitted to the arbitrator.

24. Whilst I have some sympathy for Appellant, of whom it could be said perhaps from what emerges from the papers that it had endeavoured to complete its work and assist the Respondent as much as possible, it seems to me, that its downfall lay in agreeing to enter into imprudent contracts.

25. I therefore consider that this appeal should be dismissed with an order nisi as to costs in favour of the Respondent.

Godfrey, J.A. :

26. I agree.

Mortimer, V-P :

27. I also have some sympathy for the Appellant but for those reasons given I would dismiss this appeal. There is nothing I can usefully add.

28. The appeal is therefore dismissed with an order nisi for costs to the Respondent.