HUNG WAN CONSTRUCTION CO LTD v. HONG KONG HOUSING AUTHORITY

HCCT 21/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 21 OF 2010

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IN THE MATTER OF THE ARBITRATION ORDINANCE CAP 341
IN THE MATTER OF AN ARBITRATION

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BETWEEN

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D E C I S I O N

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The factual background:

1.  Hung Wan applies for leave to appeal against an interim award dated 19 March 2010, given by the arbitrator, Mr Peter Clayton SC.

2.  Hung Wan was the contractor, and the Housing Authority was the employer in a construction contract for the redevelopment of Sau Mau Ping Estate, Phases 6 & 7.  The contract, dated 12 April 2000, was in a form incorporating the Government of Hong Kong’s General Conditions of Contract for Building Works, (GCC).

3.  The dispute relates to the payment to be made to Hung Wan with regard to the design and construction of the metal main roof, forming part of the works under the contract, in accordance with the contract.  The metal main roof, the subject of the dispute, was dealt with as Bills of Quantities item 9.6/75A, (BQ’s) in the following terms:

Description	Quantity	Unit	Rate	$
Metal Main Roof   ........   Design, supply and installation of metal main roof including..... to meet all requirements as stated in Specification section STE, section APQ – Appendix “Q”, other relevant Specification sections and Drawing Nos. KL32/7/CC/A/L0-07......KL32/7/CC/S/902....   (detail omitted)   A General; (Type MF/1) (approximate area on plan 2,048 m²)		Item		$14,900,000

The amount of $14,900,000 was inserted by Hung Wan, as tenderer, and part of the accepted contract price.  In all other respects, BQ 9.6/75A was prepared by the Housing Authority, and comprised part of the tender documents.

4.  It will be noted that BQ 9.6/75A states that the approximate area of the roof was 2,048 m².  As the contract was “design and build”, it was for Hung Wan to design the roof to meet the specifications and contract drawings.  The contract drawings, expressly stated to indicate the design intention only, identified in the “Description” column of BQ 9.6/75A, in fact provided for a roof area of 4,300 m² after deduction of areas which would be separately managed.

5.  The Form of Tender completed by Hung Wan stated that its price for the contract works, (including the works to be designed and built) was given having examined, inter alia, the contract drawings and specification.  Hung Wan does not dispute this to be the position. 

6.  It is accepted by both parties that the approximate area for the roof as set out in the “Description” column is an error.  The actual area of the roof was some 4,300 m².

The principle to be applied:

7.  In any application for leave to appeal against a domestic arbitrator’s award, it is first necessary to determine whether the issue involved is a “one-off” issue, as opposed to the construction of a standard clause.  If the issue is a one-off issue then the more difficult test of establishing that the arbitrator was “obviously wrong” applies.  If the issue is the construction of a standard clause, the party seeking leave to appeal must show only that there is “a serious doubt as to the correctness” of the arbitrator’s decision: see Swire Properties Ltd v Secretary for Justice (2003) 6 HKCFAR 236 at §46 and §43, respectively.

8.  Mr Shieh says in his skeleton argument that the issue should be expressed thus:

“Whether in the case of a building contract subject to a Bill of Quantities (BQ) in the form (set out in paragraph 3 above) and the Hong Kong Government’s General Conditions of Contract Building Works (1993 edition) (GCC), an error in a statement as to the approximate area of “contractor’s design and build works” under the “Description” column in the BQ is an “error in firm quantities” within the meaning of GCC 59(4)(a) to be corrected according to the mechanism set out in GCC 61, or not an “error in firm quantities” in consequence whereof the contractor is entitled to no remedy under the contract.

9.  GCC 59(4)(a) provides:

“Variations ordered in accordance with Clause 60, work shown on the Drawings or described in the Specification but not measured in the Bills of Quantities or the rectification of any error in firm quantities shall be valued in accordance with Clause 61. Provisional quantities shall, subject to (b) of this sub-clause, be valued at the rates stated in the Bills of Quantities.”

10.  Also relevant to Mr Shieh’s argument was “Note 3”, contained in the BQ’s under a title: “Contractor Responsible to Designing Build Works”:

“3. For measurement and payment purpose the quantities in this section for all design and build works shall be measured according to the area on elevation and/or on plan unless otherwise specified and the Contractor shall allow his rates for all necessary openable units, copings, flashing, ironmongeries, etc unless measured separately.”

11.  Mr Pennicott pointed out that the issue that the parties had agreed to refer to arbitrator was in the following terms:

“Whether the ‘approximate area’ of 2,048 m² stated in the description of BQ item 9.6/75A for the ‘metal main roof’ is an error in firm quantity within the meaning of clauses 5(2)(a) and 59(3) of the General Conditions of Contract.”

12.  GCC 5(2)(a) provides:

“errors in firm quantities or work shown on the Drawings or described in the Specification but not measured in the Bills Quantities shall be dealt with in accordance with clause 59;”

Clause 59(3) provides:

“The quantities in the Bills of Quantities are firm except where described as provisional. Only provisional quantities, variations ordered in accordance with Clause 60, work required by the Architect to be carried out which is shown on the Drawings or described in the Specification but not measured in the Bills of Quantities and errors discovered in firm quantities shall be measured.

Provided that there shall be no rectification of any error, omission or wrong estimate in any description, quantity or rate inserted by the Contractor in the Bills of Quantities.”

Discussion:

13.  The issue in the form posed for the arbitrator, said Mr Pennicott, plainly demonstrated the true issue, and made clear that it was BQ 9.6/75A that was to be interpreted, not the provisions of GCC clause 59.  I accept Mr Pennicott’s submission.  Even the formulation proposed by Mr Shieh shows that the real issue for consideration by the arbitrator was a question of “description”, and not a question of “quantity”.

14.  That being the case, it is quite clear that the issue for consideration was a one-off issue, and is not a question of the construction of a standard clause.  That being quite clear, it is not necessary for me to consider the extent to which the concept of a notional scale of cases between one-off cases, and standard clause construction cases, as enunciated by the Court of Appeal in Re Dover Chemical Company v Lee Chang Yung Chemical Industry Corporation, [1990] 2 HKLR 257, survives the decision in Swire Properties.

15.  The contract specification and drawings supplied with the BQ’s for the purpose of tender showed the plan area of the roof to be about 4,300 m².  On Hung Wan’s own evidence to the arbitrator, (see paragraph 3.6, 5.5, 5.10 and 5.11 of the Award), Hung Wan’s tender price was based on the specification and drawings.  When the estimator came to prepare the tender he would know that he had to design and build and price for the entirety of the metal main roof works because the expression “Item” in the  “Unit” column of BQ 9.6/75A plainly referred to the roof itself, and there was no need to look for any quantity.  No issue of an error in quantity arose.

16.  Mr Pennicott said, and I accept, that that really was the end of the matter.  Hung Wan had priced the works based on drawings and specifications, showing an area of 4,300 m².  It follows that Hung Wan cannot be entitled to any more money.

17.  In order to justify leave to appeal in a one-off situation it must be shown that the arbitrator is obviously wrong.  The primary point relied upon by Mr Shieh to show that the arbitrator was obviously wrong was Note 3, (see paragraph 10 above), which he said was entirely inconsistent with any sensible procedure for making interim payments.  Consequently, he said, the note, in referring to “quantities in this section” must relate only to the final product, which by definition would not be measured against an elevation or plan, but the finished product.

18.  First, once it is seen that the true issue is one of description, and not one of quantity, any question of measurement, whether on a final or interim basis, simply disappears, and Note 3 is irrelevant to the discussion. 

19.  Second, as Mr Pennicott pointed out, the submission demonstrated a lack of understanding as to how a lump-sum contract (or item) operates.  The important point is, in respect of BQ 9.6/75A, is that Hung Wan would never be paid more than the $14,900,000 that had been tendered and accepted as the price for the design and construction of the metal main roof.

Conclusion:

20.  The case falls a long way short of demonstrating that the decision of the arbitrator was obviously wrong.  Leave to appeal must be refused.

Costs:

21.  In accordance with the practice enunciated by Reyes J in A v R [2010] 3 HKC 67, at 79, there will be an order nisi that Hung Wan must pay the Housing Authority’s costs on an indemnity basis, which I fix in the gross sum of solicitors fees and disbursements, $110,000, counsels fees $162,000.