PRESTIGE POOLS INTERNATIONAL LTD v. YAN OI TONG LTD AND ANOTHER

___________

HEADNOTE

___________

                On a claim by a building contractor for summary judgment under O. 14 on a variations claim under Clause 11 of the Hong Kong standard conditions of contract: and on contractor's appeal against order granting 1st Defendant building owner a stay of proceedings in favour of arbitration held: -

__________

DECISION

__________

1. I have two matters before me. The first is the plaintiffs' summons for judgment under O. 14 which has eventually caught up with me; having been referred subsequently to me by the Master. The second is the plaintiffs appeal against the order of Master Crawshaw made on 15th April last which on the application of the 1st defendant granted a stay of the proceedings to enable the matter to proceed to arbitration.

2. Now this is a very peculiar case in many respects. It seems to go back to early 1982, when there was thought to be an urgent need to build a swimming pool in a new development at Tuen Mun called Area 5, as part of the leisure complex. The Jockey Club agreed to donate $5 m. to its cost. The Government, in various aspects, was concerned to see this swimming pool built and in place at the earliest possible moment. It therefore looked around for someone to act as building owner for the purposes of this development. For this function it would seem that the 1st defendant's volunteered; they being a local charitable organization, and feeling no doubt that this was consistent with their public interest and public duty as a charity. Therefore they became a sort of nominal principal and nominal building owner. They have none of the other characteristics which are normally associated with an owner at all.

3. The 2nd defendant in the action is the architect found, it would seen first of all by Government and then adopted by the 1st defendant as the architects for the scheme. It was they who were responsible for carrying the whole project through from the owner's point of view.

4. The 3rd party is the plaintiffs, the contractors. They came on the scene because they originally put forward a quotation for the construction of this pool in the sum of $4.7 m. which was within this $5 m. ceiling. In their own documents they used words or phrases like "turn key" or "turn key basis", which, it is asserted means lump sum in the strict sense of the word, i.e. complete this project within the money available namely the $5 m. from the Jockey Club.

5. That work in fact started, as I understand it, on the 1st defendant's acceptance of the plaintiff contractor's quotation. The parties had in mind entering into a formal agreement. This is dated some months later, 19th November 1982, the contract being in the standard Hong Kong form. That of course contains Clause 11 and elaborate provisions for variation of the contract. The work took some time to complete, and during its course the plaintiff assert that there were numerous variations within the meaning of Clause 11. They have set out the variations in some detail in their schedule to the statement of claim which is called P2. These variations have been elaborately costed in Bills which comprise a much longer schedule, which is called P3. It is said the total value of these variations is in the order of $1.052 m. They have accordingly brought this claim principally for that sum. I say principally because there were some subsidiary claims which I had been invited to ignore, and happily do so. They brought their claims against the 1st defendant, the charity, as building owner, and likewise against the 2nd defendants, the architects, for breach of duty as certifiers.

6. It is perfectly apparent from what I have already said that the claim must have come as a considerable surprise and shock to the 1st defendant. They went off and sought other quantity surveying advice. Their instinctive reaction, as I suspect it was, was to run for cover, to apply for a stay of the proceedings so that the matter could be arbitrated. That would give them time to consider their position.

7. The matter also caused some embarrassment I gather to the architects, the 2nd defendants, because the professional most closely concerned with the project had by that time left the firm and the Colony and was then working in Singapore.

8. That it is the background. I am going to consider first of all the plaintiff's summons for judgment against the 1st defendant under 0. 14. It seems to me that this summons fails basically for three reasons.

9. The first is the lump sum defence which is now being advanced by the architects, because they are the ones who know anything about it, and adopted by the 1st defendant. This was first mentioned in the original affidavit filed by the 1st defendant, and frankly was ill received by me. I think my comments approached ridicule, because when you looked at it against Clause 11 of the Hong Kong standard form it just seemed silly. Now that I have seen the background, and now that I have seen the underlying documentation, I can quite understand why it is being advanced. Equally it seems to me in the light of that background that it certainly cannot be dismissed completely, as I was minded to do originally. It may well be exceedingly difficult to advance as a matter of construction, and it may well involve (if it can be got off the ground at all) a claim for rectification of the contract. But having seen the circumstances in which this contract was made, I cannot just dismiss the contention. I certainly cannot say it gives rise to no point of argument in this case. Indeed I am minded to think that it is going to be the first and fundamental point of argument when these matters reach their trial or trials.

10. The second fatal objection, as I now see it, is that the architects have come up with detailed answers to all the alleged variations in the plaintiff's schedule P2. Now it is not difficult to critize some of those points. Mr. Bell for the plaintiffs said, "Look at this, it is perfectly obvious this must constitute some sort of alteration to the underlying plan; it must be a variation within Clause 11", I have sympathy with some of these points of criticism at first blush. But the problem is that it is quite impossible to ascertain first of all whether they are valid or not, and secondly, if they are, how far they take it. Because it may simply show that part or part of some variations are true variations, but that is a long long way from 0. 14.

11. Thirdly, there is, it seems to me, an almost overwhelming structural problem with which the plaintiffs are here faced. I think they have failed to show that any sum here is "indisputably due" within the principles of those two cases conveniently reported in 1978 1L.L.R.; the first on page 24 which is Associated Bulk Carriers v. Koch; and the second at page 33 which is Ellis Mechanical Services v. Wates Construction. The problem basically is this. Quantum on this variations claim is obviously always arguable and in dispute. In practical parlance its almost impossible in a variations claim under Clause 11 of this contract, to separate liability from quantum. In every case quantum involves pluses and minuses, additions and omissions. You can only do that by a detailed calculation or detailed assessment of the alterations as the case may be.

12. The basic approach initially was to invite me to give interlocutory judgment for damages to be assessed. That involved declaring that everything in P2 constituted an effective variation for the purposes of Clause 11. When I first read P2 I thought that this was really quite impossible. Any declaration of that nature would leave an impossible burden on the person who tried to make the assessment of damages thereafter. A variations claim like this simply is not amenable to be dealt with in that sort of way.

13. The plaintiffs only chance was to try to show that in some way some sun must be "indisputably due", not by reference to individual claims, but by a global sum. I have some doubts or reservations as to whether that is the function of O. 14 or O. 29. But on the evidence it is impossible. Plaintiffs critized the 1st defendants for not producing the quantity surveyors' report they obviously had, which may contain some figures. These will now become the third line of defence on quantum. They are not obliged to produce it, I cannot critize them for failing to produce it, and their failure to produce it does not give me a licence to guess. Therefore there is simply no basis on which I could say that $x is here "indisputable due".

14. So in my judgment the O. 14 summons fails. There must be leave to defend or a stay as far as the 1st defendant is concerned. Therefore I now turn to the application for the stay, and to the appeal.

15. There are I think four relevant principles here. The first is that applications for stay, and applications for summary judgment under O. 14 should be brought on together, because they are really two different sides of the same coin. I totally agree with, and accept the statement which appears on page 92 of Mustill and Boyd on Commercial Arbitration where they say this: "Where the claimant contends that the defence has no real substance, the Court habitually brings on for hearing at the same time the application by the claimant for summary judgment, and the cross application by the defendant for a stay, is being taken for granted that the success of one application determines the fate of the other". For those who say, as was being said at one stage in this case, I cannot deal with the O.14 summons because I will then be taking a step in the action. The short answer I think is this. By dealing with the 0. 14 you are not taking a step in the action, you are simply filing evidence to show that there is an issue fit to be arbitrated. I emphasize that first of all, because problems were caused in this case by the fact the master below directed that the application for stay should be taken first, and separately from the O. 14. With respect to him that was wrong, and resulted in the adjournment of this matter when it first came before me.

16. The second general principle is that on an application for stay finder section 6 of our Ordinance prima facie the Court will grant it, unless the plaintiff show, good reason to the contrary. The Court's simple approach, I believe is this. The arbitration clause constitutes a specific agreement between the parties to resort to a private tribunal, and by granting a stay of proceedings the Court is in effect granting specific performance of that clause in the contract. The applicant is prima facie entitled to specific performance unless the plaintiff can show good reason for the matter to be litigated. Again I accept what is here said in Mustill & Boyd at page 425: "The burden is on the plaintiff to persuade the Court that it is proper to refuse a stay". That is the effect of the very convoluted language of the section itself. Thus by a somewhat cruder and simpler route I reach the same conclusion as did Mantell J. in Wharf Properties v. Eric Cumine Associates, No. 13431 of 1983.

17. Thirdly, it seems to me that since the decision in Northern Regional Health Authority v. Derek Crouch 1984 2 All E. R. 175 the Court will have the gravest difficulty in refusing a stay where the issue involves the issuance or the refusal to issue one of the discretionary type certificates which arise under this common form building contract. By discretionary type certificates I mean not the simple payment certificates certifying that work to a certain value had been clone, but the sort of certificate which can be granted under, I think it's Clause 23, extending the time for performance of the contractual obligations. The effect of the Crouch decision as I read it, is that only arbitrators have power to review and open up a certificate of that nature. So plainly to refuse an application for stay in such circumstances could have the effect of depriving one or other party of a particularly important remedy. That difficulty does not arise here.

18. The fourth relevant principle to my mind is that multiplicity of proceedings is still a relevant factor which could induce a Court, in the exercise of its discretion, to refuse a stay. The principles of Taunton-Collins v. Cromie 1964 1 WLR 633 remain valid because as Pearson L.J. points out in that case you can have a conflict between two important principles. The first is that the parties private agreement for a particular sort of tribunal should be honoured; and the second is that multiplicity of proceedings can bring the law into disrepute particularly if there is a serious risk of two different tribunals reaching two different or possibly conflicting conclusions on fact. The validity of the point was also emphasised by Cairns L.J. in the Court of appeal in The Jade (also known as The Eschersheim) 1976 1 All E. R. 441 at p.451 where he says: "The prevention of duplication is not a conclusive ground for refusing a stay, but it is an important consideration and has often been the main ground on which a stay was refused". As it was in that case.

19. It is this ground which I find particularly significant in the context of this case. As I say it is a very peculiar one. I emphasize first of all it is not the case where one or other party to the building contract has dragged in the professionals with a view to defeating the arbitration clause. In that sort of case I think very different considerations could well arise. But it is a case where you have got this highly unusual building owner situation, and which has given rise to this contractual problem. This, as I have indicated is going to be the first question which any judge or arbitrator is going to have to face.

20. The first thing there is that from the nature of the problem there must, I think, be a very real risk of a lay arbitrator and a judge reaching different conclusions upon that sort of problem. The second is that in the present action, plaintiffs v. 2nd defendants, I have some difficulty seeing how the question can be dealt with properly at all. In their proposed draft defence, the 2nd defendants argue the matter as one of construction. I am far from sure that that is going to work. If I am right in thinking that this is going to involve a plea of rectification, that is a matter which the 2nd defendants cannot start to assert unless the other contracting party, the let defendant; are party to the action. Thirdly in the suggested arbitration between the plaintiff and the 1st defendants, the 1st defendants cannot get anywhere without the evidence of the 2nd defendants. It was the 2nd defendants who were responsible for negotiating the contract, and I suspect for choosing the contract documents.

21. As things now stand it seems to me impossible for the 1st defendants to adopt the pose which it seems to me that they are almost certainly going to want to adopt in the dispute that has arisen. As far as the plaintiffs are concerned, the 1st defendants want to be able to adopt the architect's arguments and said 'Look, this is really a lump sum situation: you knew we only had $5 m. to spend'. Conversely as against the architects, the 1st defendant are going to want to say 'You knew we only had $5 m. to spend; if you have managed this contract in such a way that we are now liable to the plaintiffs for more, you should foot the bill'. That, I'm sure, is what the 1st defendant want to say. When I pointed these difficulties out to their counsel, and inquired why in those circumstances were they are pressing for a stay and separate trials, I got little response to begin with. Then eventually he was minded to agree that there was force in what I was saying but he wanted to leave the matter to the Court.

22. It seems to me that this is one of these very strange cases where not only justice, but the interests of all the parties require one hearing; and that all the parties are going to be in difficulty if this hearing is split into two. I totally accept that in the nature of this dispute, at least part of it is much better designed for a professional arbitrator then for a judge. I have there in mind, obviously, all the questions on measurements and quantities. But the problem about the dispute is this. Some difficult points of law, and mixed questions of fact and law arise first. If the matter is dealt only by a judge, one must hope that the quantum matters could be dealt with, either contingently by agreement or perhaps by some other process thereafter. But that is perhaps neither here nor there, because it is not for the Court to order a joint arbitration in a case like this. If the parties chose it, that is a matter for them. A Court which comes to the conclusion, as I have, that one hearing of this case is essential, only has one remedy open to it. That is to refuse the application for a stay.

23. So the effect of these matters in my judgment is this. First, the plaintiff's summons for judgment against the 1st defendants O. 14 fails, and there must be unconditional leave to defend. Secondly I allow the appeal against the Order for a Stay already made, and say that the matter should continue in litigation in the Court. I will, if necessary, if asked, give directions as to the next steps of the action,