XCHRX CHUN WO BUILDING CONSTRUCTION LTD. v. SHIMZU-PENTA OCEAN JOINT VENTURE

HCCT131/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.131 OF 2000

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J U D G M E N T

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1. The applicant is the claimant in arbitration proceedings commenced pursuant to an arbitration agreement contained in a building subcontract between it and the respondent, the respondent being the Main Contractor on the project. The arbitrator made his award on 13 November 2000.

2. By its Notice of Originating Motion, the applicant seeks leave to appeal against the arbitrator's award under section 23 of the Arbitration Ordinance ("the Ordinance") on two questions of law and in the event that leave is given and the questions of law determined in its favour, an order that the Award be varied or set aside in the light of the opinion of the court.

3. In addition, the applicant seeks further orders pursuant to section 24 of the Ordinance namely :

(a) the setting aside of paragraph 85 of the arbitrator's Award awarding the applicant an extension of time of 23 days and remission of the Award to the arbitrator to reconsider his Award, this on the basis that there is an undisputed arithmetical error in the previous paragraph in the calculation of "other delays"; and

(b) remission of the Award to the arbitrator to enable him to make findings in relation to the applicant's alternative contention in relation to paragraph 6.05 of the Preliminaries.

The questions of law are as follows :

"Whether, as a matter of proper construction of the sub-contract made between the parties on the 27th February 1997 the words "the Architect" as used in the Standard Form of Building Contract, Private Edition (with Quantities) (1986 Edition), as amended, sometimes refer not to the Architect under the main contract but, as held by the Arbitrator, to the Respondent." (Question 1)

and :

"Whether, as a matter of proper construction of the sub-contract, the words of paragraph 6.05 of the Preliminaries which state, inter alia: 'The provisional quantities are estimates only and no responsibility can be taken for their accuracy' are to be ignored such that even if the quantities were not estimates, no extension of time was to be allowed should the final quantities differ from the original provisional quantities." (Question 2)

4. The criteria contained in the Ordinance which must be satisfied by a party to an arbitration award who seeks to appeal it are intended to promote the finality of the award and limit the bases upon which a court can interfere. As the respondent puts it, "the court will assume that the parties to the arbitration agreement were content to take the risk that the arbitrator might make both mistakes of law and fact, but nonetheless in the interest of finality, the award should be binding.". Section 23(1) of the Ordinance expressly provides :

"Without prejudice to the right of appeal conferred by subsection (2) the Court shall not have jurisdiction to set aside or remit an award on an arbitration agreement on the ground of errors of fact or law on the face of the award."

5. Under subsection 2, appeal is limited to a question of law arising out of an award and under subsection 4, the court hearing the application shall not grant leave under subsection 3(b) unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement.

6. The statutory regime is reinforced by well established authorities on the exercise of the court's discretion and the threshold for the granting of leave to appeal. Generally, the presumption of finality and therefore against the granting of leave is strongest in the case of the "one-off" contract or event where there is no point of general importance or interest to the market or industry concerned and weakest where the question of law involved is one of construction of a standard form bearing upon a factual situation which is common.

Question 1

7. Mr Sarony SC for the applicant submitted that this question concerning the role or identity of the Architect is very much something which will apply to any "back-to-back" subcontract as part of his argument that leave should be granted and that this case was one where the applicant need only show a strong prima facie case that the arbitrator was wrong. However, which clauses of a main contract are imported into a subcontract and how they are to be applied or interpreted in the context of the subcontract usually depends on the documents making up the subcontract. These documents have to be construed as a whole and there is no standard way in which these documents are put together nor is there any standard method of incorporating main contract terms. Although the problem of construing subcontract obligations is a common one, the disputes themselves rarely present a question of law which is common. In my judgment, the question of law here posed is specific to this subcontract and therefore, the applicant has to show that the arbitrator was plainly wrong in deciding the question of law in the way that he did.

8. Mr Thomas QC for the respondent submits that logically the first issue to be considered by the court is whether the question of law satisfies the criterion in section 23(4). If the question of law does not satisfy the criteria, it does not matter at which end of the spectrum this case lies because the court is precluded from granting leave. This is clearly right.

9. The respondent submits that this question fails to identify a question of law that would arise on the proposed appeal and one which would substantially affect the rights of the applicant. This is because the issue which the arbitrator had to decide was whether the applicant had given the notification of its claims for loss and expense within the time and with the details required by clauses 11 and 24 of the main contract as applied to the subcontract.

10. As the arbitrator put it in paragraph 12 of section A of his Reasons for the Award :

"It does not matter who is taken to be the Architect for the purposes of clauses 11 and 24 of the Main Contract of course unless there is firstly an 'event' and secondly, a clear notification (to somebody at least) of a claim arising from that event. There is no dispute that these clauses are applicable-CW [the Applicant] found their claims on them. If those claims are not to be treated as having been 'waived', then, if there can be said to have been an event, it is necessary that there should also have been notification as required by the clause. It is only then that the identity of the person to be notified that engenders material disagreement."

11. The arbitrator then went on to consider whether notifications of claims for loss and expense were made within time and in the detail required by clauses 11 and 24 and came to the conclusion that they were not. The head of claim for loss and expense was accordingly dismissed.

12. Mr Sarony SC tried valiantly to establish the connection between the question of law as framed and the dismissal of the applicant's claims for loss and expense. What the applicant argued was that a compromise agreement had been reached between the Employer and the Main Contractor which had the effect of waiving the "time-bar" arrangements in the contract and with those waived, various of the subcontractor's claims would have fallen for determination by the Architect. In reply, he submitted that there was a tenuous link between the function of the Architect whereby in accordance with the settlement agreement made between the Main Contractor and the Employer, no claims for liquidated damages were made against the Main Contractor thus overlooking any omission to comply with the time limits required. These points simply go the question of whether the time-bar provisions were waived by the Employer as against the Main Contractor and whether any such waiver enured to the benefit of the subcontractor. I am unable to see any link however tenuous between the question of law as framed relating to the role and identity of the Architect and the question of waiver of the strict requirements of clauses 11 and 24. The arbitrator had made it very clear that whoever was fulfilling the role of the Architect as the person to whom notification of the subcontractor's loss and expense claims had to be made, such notifications as were given were not within time and contained insufficient detail to satisfy clauses 11 and 24.

13. In my judgment, the determination of this question is not such that it could (not "would" as submitted by the respondent) substantially affect the rights of the parties to the subcontract. The issues before the arbitrator never turned upon whether it was the Architect or the Main Contractor to whom extension of time claims and loss and expense claims should have been made by the applicant under the terms of the subcontract. Since the arbitrator fully considered all of the extension of time claims which the applicant had made, the issue of who fulfilled the role of Architect was utterly irrelevant and could have no effect whatsoever on the parties' rights in relation to the extension of time claims. In the light of the arbitrator's reasons for dismissing the applicant's loss and expense claims, there is no basis for saying that the arbitrator's view on the identity of the Architect had any effect whatsoever on any entitlement of the applicant under its loss and expense claims.

14. I therefore do not grant leave to the applicant to appeal on the question of law in Question 1.

Question 2

15. The substance of this question involves the proper construction of a contractual term in the Preliminaries which applies equally to the Main Contract and the subcontract. I accept the evidence of the applicant's solicitor that clause 6.05 of the Preliminaries is in the same or similar terms to provisions in other contracts to the extent that it could be described as a standard form condition. That there may be different terms in use does not detract from the fact that Bills of Quantities prepared by some of the well known Quantity Surveyors employ the same or very similar wording as clause 6.05. However, there is no evidence showing that the circumstances which have arisen here, namely a substantial increase (approximately 22%) from the provisional quantities specified in the Bills, is common. This may therefore be a "one-off" event. I am prepared nonetheless to adopt a less demanding threshold and to accept that the applicant need only show a strong prima facie case that the arbitrator is wrong in the view which he took of the proper construction of this clause.

16. Both before the arbitrator and before me, the applicant's argument centred almost exclusively on the meaning of the word "estimates" in clause 6.05. It is argued that in context, the word implies that a process of measurement has been undertaken and in the light of the unchallenged evidence that an estimate would be within plus or minus 5% of the actual quantities when measuring from drawings, the provisional quantities of reinforcement specified in the Bills could not have been estimates. Thus, the clause could not preclude the subcontractor from entitlement to an extension of time where the provisional quantities were not estimates.

17. However, the arbitrator did not find the evidence of assistance considering that the question was one of legal construction not measurement practice. In paragraph 7 of section B of his Reasons for Award, he set out his views on the question of construction in these terms :

"What then is the effect of clause 6.05? On its face it states that there will be no extension of time granted to CW in the event that there is a change to the quantities of the steel reinforcement from the provisional quantities inserted in the bills, and that is its effect in my view. It seems to me that the clause means what it says, and is effective to preclude CW from any claim for an extension of time arising from nothing more than an increase in the quantities of reinforcement which had been billed as "provisional" in the B.Q.'s."

18. Although the arbitrator was prepared to entertain the applicant's approach of focusing attention on the word "estimates", it is trite law that one must construe the clause as a whole and in context. In my judgment, the arbitrator was absolutely right to construe clause 6.05 in the way that he did. Therefore, I am not persuaded that there is a strong prima facie case that he was wrong in his construction and I do not grant leave to the applicant to appeal this question of law.

Paragraph 3(b) of the Notice of Motion

19. It is convenient for me to deal next with this application to remit the Award to the arbitrator as the argument on it is closely related to the applicant's argument on Question 2.

20. The basis upon which the applicant seeks remission of the Award to the arbitrator is that he failed to deal with the applicant's alternative contention in relation to paragraph 6.05 of the Preliminaries that if the provisional quantities were not estimates in the sense of being reasonably relative to the eventual quantity (excluding variations), the respondent was in breach of contract entitling the applicant to damages.

21. The arbitrator is not bound to deal with every argument which is put by a party to him and it seems to me that remission would serve absolutely no purpose here since it is evident from the way in which the arbitrator dealt with the question of construction of clause 6.05 that he had already rejected the applicant's argument.

22. I therefore do not order remission of the Award to the arbitrator under paragraph 3(b) of the Notice of Motion.

Paragraph 3(a) of the Notice of Motion

23. The arbitrator awarded the applicant 23 days extension of time thus extending the completion date of the subcontract to 6 March 1998 although it is not immediately apparent what, if any, financial consequences such an extension had.

24. In section B of his Reasons for Award, the arbitrator considered in turn each of the applicant's claims for extension of time and in the case of some, rejected the claims and in others, specifying a number of days delay. To give some examples :

25. In the case of E.O.T. No. 1, he used the assessment of the applicant's expert as a starting point but discounted it by two days " to allow for the non-critical areas " and stated that an extension of eight days was appropriate. (Paragraph 17)

26. In the case of E.O.T. No.5 involving late supply of information to commence preparation of bending schedules, he concluded that seven days of delay was incurred (Paragraph 20).

27. In the case of E.O.T. No.7 involving a revision of the Podium Floor Level on the 4-7/Floors, he accepted that changes to the floor heights would have required additional time for concreting, there being additional concrete to pour (Paragraph 30). In his view, the appropriate extension of time would be three days.

28. Having considered each of these claims, the arbitrator summarised the overall position which yielded a total of 521/2 days. However, he concluded that the net extension of time to which the applicant was entitled was 23 days being the eight days for E.O.T.1 and the 15 days for E.O.T.24 which he had already found when considering each claim. In so doing, he had accepted as the proper approach that if there were two concurrent causes of delay, one of which was a relevant event and the other not, the contractor was entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event.

29. In paragraph 84 of section B of his Reasons for Award, he said :

"...As noted, both experts were in agreement that steel fixing was the critical activity. This leaves the extension of time in two concurrent segments it appears to me: namely 23 days of reinforcement delay, distributed generally through the project and 191/2 days of 'other' delays also during the currency of the project."

30. It is not disputed that the figure of 191/2 days should have read 291/2 days. It is the applicant's submission that the arbitrator may have disregarded all delays other than delays to steel fixing on the basis that steel fixing was the critical activity but that greater delays were caused by the other delays than the 23 days assessed by the arbitrator. So I am invited to set aside the arbitrator's award of an extension of 23 days and remit the Award to him for him to reconsider his award in the light of the error.

31. The applicant accepts that I have no power to set aside any part of the Award under section 24. I may only remit it. Mr Thomas, Q.C. for the Respondent submits that the discretion to remit is limited under section 24 to cases of procedural mishap and has referred me to a passage in Merkin on "Arbitration Law" (at Paragraph 18.9) containing a citation from Lord Donaldson's judgment in King v. Thomas McKenna which it is accepted contain the relevant principles.

32. Further, I remind myself of the provisions of section 23(1) of the Ordinance. Mr Thomas, Q.C. draws attention to paragraph 84 of the Reasons where the arbitrator refers to steel fixing being the critical activity thus justifying the award of an extension of 23 days.

33. Although I have found this the most difficult and troubling aspect of the application because I am unable to follow the arbitrator's reasoning in his analysis of the claims, at the end of the day, I cannot see that there has been deviation from the route which the reference should have taken to its destination particularly when the arbitrator made his Award available in draft to the parties so that they were able to comment on any errors and responded to the applicant's request that he amplify that part of his reasons for the Award resulting in an extension of time of 23 days. The onus is on the applicant to establish procedural mishap causing some injustice to it and this onus has not been discharged.

34. I therefore dismiss the applicant's application and I make an order "nisi" that the applicant do pay the respondent's costs.