BRUCE DAVID GOURLAY v. CLIPPER MOTOR YACHTS LTD AND OTHERS

HCCL 30/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 30 OF 2009

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BETWEEN

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JUDGMENT UPON PRELIMINARY ISSUE

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This action

1.  This litigation is about the sale and purchase of a motor yacht, as to which a Memorandum of Agreement (‘the Agreement’) dated 8 August 2008 recorded that the defendant, Clipper Motor Yachts Ltd, was to construct and to sell to the plaintiff, Mr Bruce Gourlay, a vessel therein described as a “Clipper 52’ Europa Hull No. 52C06 (hereafter ‘the vessel’).

2.  Originally proceedings had been commenced by the plaintiff against the defendant pursuant to Order 86 RHC, seeking specific performance of the Agreement, the plaintiff contending that the defendant had not wired the vessel in accordance with the contractual specifications. The defendant, however, firmly refuted this allegation, and declined to rewire as requested, contending that there had been compliance with the relevant wiring specifications.

3.  This court declined to entertain the Order 86 application, and instead directed that the matter should proceed to mediation; however, in light of the respective positions of the parties, it perhaps came as no great surprise that the much-vaunted mediation process – which it strikes me as rarely productive in hard-nosed commercial cases – proved incapable of resolving this dispute, given that the stance of each parties was, and regrettably remains, firmly entrenched.

4.  Subsequent to the attempted mediation, the case thereafter returned to this court for hearing on 5 July 2010; at that hearing the plaintiff’s action herein was discontinued against the 2^nd, 3^rd and 4^th defendants as originally named, leave was granted to amend the Points of Claim, and the pleading as thus amended was served on the defendant on 7 July 2010.

5.  Thereafter a Defence and Counterclaim dated 21 July 2010 was filed and served, followed by a Reply and Defence to Counterclaim dated 28 July 2010, and thereafter, and unusually, a Rejoinder to Reply and Defence to Counterclaim dated 10 August 2010.

6.  The pleadings as currently filed speak for themselves, and for present purposes there is no necessity to descend to great detail.

7.  Suffice to say that the Amended Points of Claim recites the history of the matter commencing from the date when the Agreement was executed, and describes the genesis of the requirement that Australian Wiring Standards (‘AWS’) be adhered to in the electrical installation on the vessel, alleging that the AC cables are not ‘double insulated’ and/or ‘double sheathed’ in accordance with AWS, and hence do not comply with the relevant term of Agreement; the pleading further records that the defendant has refused to continue work upon the vessel and/or to release or deliver the vessel in Hong Kong until the plaintiff has paid the total outstanding purchase price, and claims various remedies, including damages in lieu of or in addition to specific performance, and in the alternative rescission of the Agreement and reimbursement of certain sums already paid to the defendant toward the cost of construction of the vessel.

8.  In broad terms, the Defence and Counterclaim contends that the wiring as placed on the vessel complies with contractual specifications, and contends that, to the contrary, it is the plaintiff which is in breach of the Agreement and/or is in wrongful repudiation thereof, the Counterclaim seeking, inter alia, the storage charges of the shipyard in which the vessel presently is laid up, loss of production time, and damage to reputation.

9.  In the Reply and Defence to Counterclaim, the AWS are addressed, wherein the plaintiff condescends to particulars concerning his complaints about the state of the wiring as installed on the vessel, and further denies repudiation of the Agreement.

10.  The Rejoinder, which in the Commercial Court is something of a rarity, maintains that the terms ‘double insulated’ or ‘double sheathed’ are not to be regarded as synonymous with ‘double sheathed’, and asserts that the vessel as manufactured did not fail to comply with AWS, the defendant again maintaining that it is the plaintiff, and not itself, which is in breach of the Agreement and is liable for wrongful repudiation thereof.

11.  Thereafter, upon joint application by the solicitors for the plaintiff and defendant, and by consent, an order of this court dated 19 August 2010 permitted the proceedings to be set down for the expedited hearing of a preliminary issue, which issue duly was entertained by this court on 8 and 11 October and 10 November 2010.

12.  This, then, is the judgment consequent upon the hearing of that preliminary issue.

The preliminary issue

13.  This issue was agreed by the parties to be in the following terms:

“Is the wiring installed by the Defendant aboard Clipper 52’ Europa Hull No. 52C06 in conformity with the contractual specifications set out at clause 1.15 of the Specifications to the Memorandum of Agreement for the Purchase of a New Vessel dated 8 August 2008, namely:

‘All wiring to be double sheathed conduit[d] and numbered on the control panel for wiring.  Wiring throughout the boat to meet Australian pleasure craft standards.’”

14.  Leave also was given by the court to adduce expert evidence confined to the issue as thus defined.

Expert Evidence

15.  In the event, two experts were called to give viva voce evidence: for the plaintiff Mr Fowler, whose reports are respectively are dated 8 and 29 September 2010, and for the defendant Mr Lamble, whose reports respectively are dated 15 and 28 September 2010.

16.  Both expert witnesses struck me as genuinely trying to assist the court, although predictably the ultimate opinion of each was in support of the party who had called them.

17.  Mr Fowler, called on behalf of the plaintiff, has experience and background and day to day familiarity with AWS, and inspected the vessel in September 2009. His view was that the installation of a split conduit in this manner as had occurred did not satisfy Australian standards, which, he opined, would contribute to potential safety concerns, and the possibility of remedial work being required and refusal/avoidance of insurance cover; by necessary implication, therefore, he was saying that the wiring as installed did not conform to the meaning of the expression “double sheathed conduit[d]”.

18.  Mr Lamble, on the other hand, is a Hong Kong based surveyor, who visited the laid up vessel more recently, in September 2010, and in his view has concluded that the wiring does not infringe the AWS, and thus, conversely, that what actually has been installed did conform to the contractual rubric “double sheathed conduit[d]”.

19.  Hence the dividing line was defined. Photographs of the relevant wiring on the vessel duly were produced, none of which was conclusive on the matter, save to indicate what actually had been installed ‑ as to which there was no factual debate, the sole issue being whether the electrical wiring conformed to the contractual specifications as set out at Clause 1.15 of the Agreement.

20.  No other viva voce evidence was led, and the matter thereafter proceeded against the background of the expert evidence and the mass of documentary material as had been assembled for this hearing.

Physical exhibits

21.  In addition, a number of physical exhibits were produced to the court to which frequent reference was made, both during the expert evidence itself, and also by counsel in submission at the end of the hearing. For present purposes it may be useful to list these exhibits in the order in which they were produced:

Exhibit A: This consists of 3 strands of AC wiring, the copper wiring within being covered/sheathed with plastic/polymer insulation material coloured yellow/green, blue and brown, these 3 strands representing positive, negative and earth;

Exhibit B: This consists of corrugated, black plastic split conduit tubing, into which the 3 strands of AC wiring are inserted, this split conduit (the split therein continuing along the entire length of the corrugated tubing) then being secured intermittently with plastic ties in order to ensure that the 3 strands of insulated wiring therein remain securely within the conduit and have no means of escape from the corrugated tubing;

Exhibit C: This consists of a similar plastic corrugated conduit tube (in this instance of white colour) which differs from Exhibit B in that this is a solid continuous (ie non-split) tube, so that any wiring placed therein would have to be ‘threaded’ through the entirety of the tube from beginning to end and, unlike the situation with Exhibit B, could not simply be pressed into the tube through the lengthwise split;

Exhibit D: This consists of a length of black corrugated split tubing of smaller diameter than Exhibit A, and appears to have come from an auto supplies retailer; for present purposes this merely was produced to demonstrate a variant upon Exhibit B, and this exhibit plays no part in this discussion;

Exhibit E: This is the most significant exhibit within the context of what does, or does not, constitute a ‘double sheath’, and consists of the 3 individual AC copper wires encased in their plastic covering and overlaid by a further (and doubtless insulating) layer of plastic, in this instance of orange colour, which is moulded to and tightly encircles the 3 individual wires therein. Clearly a cable of this nature can only be produced in a factory machine, which provides the ‘outer-casing layer’ of plastic (or similar polymer material), which itself is perhaps some 2-3mm thick;

Exhibit F: This is a variant of Exhibit E, save that it is of red outer colour and appears to be slightly thicker and to contain 3 electrical strands therein (each of which is covered in plastic) which appear able to receive a stronger voltage; essentially, however, there is little conceptual difference between these latter two exhibits.

Wiring installation on the vessel

22.  Whilst the parties are in hot dispute, happily there is no disagreement as to that which, as a matter of fact, actually is installed on the vessel in terms of relevant electrical wiring.

23.  In a nutshell, the photographs illustrate that what has been installed in the relevant areas of the vessel is Exhibit A enclosed by Exhibit B, with the split corrugated tubing intermittently fastened/secured with plastic ties.

24.  The defendant says that this conforms with the contractual specifications, whilst the plaintiff’s consistent case is that it does not, and that what clearly is required is the replacement of the currently-installed single insulation/sheathed wiring enclosed within the corrugated plastic split conduit by double sheathed wiring, which then may be enclosed within such split conduit as now is installed: in other words, the plaintiff says that that which would be contractually compliant amounts to Exhibit E as enclosed by Exhibit B.

25.  At the end of the day, despite the mass of documentary material produced, and the extensive skeleton arguments expertly produced by counsel, this, it seems to me, is the sum total of that which this case ultimately involves, the answer to which provides the answer to the preliminary issue which now has been tried by consent.

Contractual and AWS specifications

26.  Within the Agreement itself, the Wiring Specification is contained within Clause 1.15 of the contractual specifications:

“All wiring to be double sheathed conduit[d] and numbered on the control panel for wiring.  Wiring throughout the boat to meet Australian pleasure craft standards.”

27.  In terms of the interpretation of this specification, some forensic manoeuvring has taken place, it is probably fair to say on each side of the adversarial fence.

28.  Thus, in the opening submission of Mr Alder, for the defendant, counsel submits (at para 78) that the first sentence should be the dominant element in terms of construction:

“…if there is a conflict between the requirements of the first and second sentences of the Wiring specification, then the former, being more specific, overrides the latter, which serves to incorporate other documents”,

whilst in his closing submission his converse suggestion (at paragraph 45) is that the key lies in the correct interpretation of the second sentence:

“…if there is a conflict between the requirements of the first and second sentences of the Wiring Specification, then the second sentence overrides the first and the defendant’s compliance with the second is good compliance with the contract…”

29.  Equally, Mr Sheppard, appearing throughout for the plaintiff, emphasized in his opening remarks that the key to resolving the present debate lay in analysis of the aforesaid Australian pleasure craft standards, and in particular of his expert’s professional opinion that the installation of such a ‘split conduit’ did not satisfy Australian standards, whilst in his closing submission Mr Sheppard was at pains to observe (at paragraph 3) that this court need not determine this issue (as to AWS compliance or otherwise), stating:

“The electric wiring installed by the defendant on board the vessel does not and cannot comply with the contractual specifications.  Thus, the plaintiff submits that the court need not determine whether the wiring met Australian pleasure craft standards…”,

a position Mr Alder has castigated as “the most remarkable about turn”.

30.  Aside from the opportunity of according either side his forensic pound of flesh, the short point behind such changes of emphasis lies, I suspect, in the realization by two highly able counsel that the relevant version of the Australian standards in operation at the relevant time in itself fails to provide the answer to the present construction conundrum, and perhaps serves to beg more questions than it answers.

31.  It is common ground that the relevant version of the Australian standards is that which was referred to at this hearing as ‘AS/NZS 3004:2002’, as supplemented by the subsequent ‘AS/NZS 3000:2007’.

32.  Paragraph 3.5.1 of the 2002 standards – which rejoices under the title ‘Australian/New Zealand Standard, Electrical installations ‑ Marinas and pleasure craft at low voltage’, reads thus:

“Fixed wiring forming part of the electrical installation on board a pleasure craft shall consist of multi-stranded insulated and sheathed cables and flexible cords having not less than seven strands and a conductor cross-sectional area of not less than 1mm.”

33.  Following from that, AS/NZS 3000:2007 – known as ‘the Australian/New Zealand Wiring Rules’ – makes provision, at paragraphs 3.10.1.1, to the effect that ‘Insulated, unsheathed cables’ “shall be enclosed in a wiring enclosure throughout their entire length”, whereas paragraph 3.10.1.2 provides, under the heading ‘Insulated and sheathed cables’, that “Cables of a sheathed type need not be installed in a wiring enclosure” albeit in neither instance, is the objective reader left a great deal the wiser as to that which actually is imported by these words.

34.  The problem with all this, it seems to me, is that within this miasma of electrical wiring regulation nowhere is there a definition of the precise meaning of ‘double sheathed conduit[d]”; I note at this stage that there is nothing between counsel on either side as to whether the final word within that phrase should be ‘conduit’, or ‘conduited’, it being agreed that either is acceptable and that, as it appears at Clause 1.15 of the Agreement, the term ‘conduite’ is spelt incorrectly.

35.  I confess that I have not found this issue of contractual interpretation to be a straightforward exercise. Nor if I may say so have I been particularly assisted in resolution of this debate by the respective experts, albeit in so saying I mean no disrespect to either gentleman; as earlier recorded, Mr Fowler, with Australian experience and background, opines that the wiring as currently existing on the vessel as built does not meet the rubric “double sheathed conduit[d]”, and Mr Lamble, who does not have the Australian background of Mr Fowler, opines that it does. However, if and in so far as the views of the expert witnesses indeed are relevant – and it strikes me yet again that as a matter of practical politics effectively these experts have been employed to answer the ultimate question of construction, which must remain solely a matter for the court ‑ then, with respect, I would have preferred Mr Fowler’s evidence.

36.  A vast amount of paper, both in terms of pleadings, expert reports, bundles of regulations, and counsels’ submissions have been expended on this issue, but at the end of the day it seems to me that the simple choice before the court is tolerably clear: against the matrix of undisputed facts, either the crucial phrase “double sheathed conduit[d]” properly is construed to mean, to express the matter in ‘exhibit terms’, as ‘Exhibit A enclosed by Exhibit B’ (which is the current position, and the one espoused by the defendant as being correct), or, as the plaintiff maintains, this is not right, and that what is meant by the crucial phrase (and thus that which should have been installed during the vessel’s construction, but was not) is ‘Exhibit E enclosed by Exhibit B’.

37.  I have pored over counsel’s excellent opening and closing submissions, both oral and written, containing therein a welter of compelling and contradictory argument, but as I have said at the end of the day this issue comes down to that which the court considers that “double sheathed conduite[d]” means when set against the largely undisputed factual matrix.

38.  Having thus pondered, I have come to the conclusion that the plaintiff is correct in its interpretation, and that, if I may be permitted once again to use ‘exhibit terms’, the phrase as used properly is to be construed as ‘Exhibit E enclosed by Exhibit B’. I so hold.

39.  It strikes me with some force that the crucial part of the phrase under construction is the expression ‘double sheathed’. For my part I take the view that the disputed wiring as presently on the vessel is ‘single sheathed’ surrounded by a ‘split conduit’, which for these purposes I do not construe as being a ‘sheath’ in itself, at least within the meaning of that term as used in the contractual specification, but as constituting no more than, in effect, a “wiring enclosure”.

40.  As to the contrary argument so persuasively advanced by Mr Alder, it also seems to me that the essence of ‘double sheathing’ means precisely that, with the 3 individual plastic-sheathed wires themselves being “sheathed” or overlain by another moulded plastic ‘sheath’, which no doubt provides (and thus was intended to provide) additional insulating properties. This I believe is the gravamen of the contractual specification, which in my judgment does not represent that which is presently installed on the vessel, which installation also I strongly suspect does not conform to AWS, notwithstanding the difficulty in accurately deciphering these regulations.

41.  It follows therefore that in my view the relevant wiring installation which currently is provided on this vessel represents no more than that which properly may be described as ‘single sheathed conduit[d]’, as opposed to ‘double sheathed’, it being clear from this that, as I have earlier noted, I do not consider that in this context the corrugated split plastic tubing in which the three insulated wires presently repose is a ‘sheath’ properly so-called, and represents no more than that which properly is to be regarded/described as a ‘conduit’ or ‘wiring enclosure’, within which it was intended that “double sheathed wiring” (in the sense in which I now have characterized it) was to be placed.

42.  This conclusion is not susceptible to further elaboration; either it is right or it is wrong, but if it be wrong – which respectfully I do not consider to be the case – then at least it possesses the merit of being wrong clearly.

Decision

43.  It follows, therefore, that the answer to the preliminary issue with which this court has been seized, and which has generated considerable evidence/argument lasting 3 hearing days, is encapsulated in the single word: “No”.

44.  I so hold.

45.  As to costs of and occasioned by the hearing of this preliminary issue, I can see no reason why the normal rule should not apply, and that costs should follow the event.

46.  Accordingly, I make an order nisi that the costs of and occasioned by the hearing of the preliminary issue be to the plaintiff, such costs to be taxed if not agreed.