HOPEWELL CONSTRUCTION CO. LTD. v. MASS TRANSIT RAILWAY CONRPORATION

1988, No. MP 569

IN THE HIGH COURT OF JUSTICE

HONG KONG

------------------

----------------

JUDGMENT

----------------

1. I have before me two originating summonses that seek declarations as to whether the arbitrator appointed by the Court has jurisdiction to determine certain disputes between Hopewell Construction Co. Ltd. (hereinafter referred to as Hopewell) and the Mass Transit Railway Corporation (hereinafter referred to as MTR). The proceedings in each case are separate but for convenience, I shall deliver one judgment that will relate to both summonses.

2. By the first summons, MP569 of 1988, Hopewell applies for a declaration that the arbitrator has no jurisdiction to determine a counterclaim by MTR for the sum of $2,099,908.54. In the second summons, MP634 of 1988, MTR claims a declaration that a claim by Hopewell for the sum of $149,184.75 cannot be heard by the arbitrator.

3. The arbitration concerns disputes that have arisen over work carried out during the commercial development of Telford Gardens above the Kowloon Bay Mass Transit Railway depot under contract No. 703 entered into between Hopewell as the main contractor and MTR as the employer in about October 1978 which was completed in 1982. Another party to the contract was Palmer & Turner who were employed by MTR as the architects and engineers. Mr Burns a partner in Palmer & Turner was in overall charge of the contract and made the decisions on the matters referred by Hopewell.

4. In respect of the first originating summons my task is to interpret the arbitration clause No. 136 set out as a supplementary condition in the contract and which replaced the original arbitration clause No. 35. Clause 136 where relevant reads as follows :

"136.1 If any dispute arises between the Employer or the Architect and the Main Contractor in connection with or arising out of the Contract or the carrying out of the Works ...... it shall be referred to and settled by the Architect who shall state his decision in writing and give notice of the same to the Employer and the Main Contractor. Unless the Contract shall have been already determined or abandoned the Main Contractor shall in every case continue to proceed with the Works with all due diligence and he shall give effect forthwith to every such decision of the Architect unless and until the same shall be revised by an arbitrator as hereinafter provided. Such decisions shall be final and binding upon the Main Contractor and the Employer unless either of them shall require that the matter be referred to arbitration as hereinafter provided.

 

136.2 Where the Architect fails to give such decision for a period of 3 months after being requested to do so, or if either the Employer or the Main Contractor is dissatisfied with any such decision of the Architect, then either the Employer or the Main Contractor may within 3 months after receiving notice of such decision or within 3 months after the expiration of the said period of 3 months (as the case may be) require that the matter shall be referred to the arbitration of a person to be agreed upon between the parties or, (if the parties fail to appoint an arbitrator within one calendar month of either party a serving on the other party a written notice to concur in the appointment of an arbitrator) a person to be appointed in accordance with and subject to the provisions of the Arbitration Ordinance or any statutory modification thereof for the time being in force. Any such reference to arbitration shall be deemed to be a submission to arbitration within the meaning of the Arbitration Ordinance or any statutory modification thereof for the time being in force. Such arbitrator shall have full power to open up, review and revise any decision, opinion, instruction, direction, certificate or valuation of the Architect and neither party shall be limited in the proceedings before such arbitrator to the evidence or arguments put before the Architect for the purpose of obtaining his decision above referred to. The award of the arbitrator shall be final and binding on the parties. "

5. Three complaints were originally made by Hopewell to the architects under clause 136. These related to defects and certificates under clause 15 of the contract, claims for extensions of time, and the amount of the final account. The claim in respect of extensions of time has since been abandoned. Hopewell referred the claim for defects and certificates under clause 15 to the architect by a letter dated the 14th March 1984 which requested decisions to be made on the following matters :-

The architect's decision is set out in his letter of the 14th June 1984 to Hopewell which reads as follows :-

"Our decision in this matter is that the certificates of practical completion were generally issued in accordance with conditions 15(1) and 16 of the contract as applicable. The certificates signified practical completion but did not release the contractor from his obligations to complete the works in accordance with the contract documents. With the contractor's agreement, the certificates were qualified by requiring upon the contractor to complete the outstanding and substandard work within a reasonable time or within the period specified. The contractor has an obligation to repair any damage caused by his failure to comply with the requirements of the contract or his agreement.

 

Schedules of defects in compliance with Clauses 15(2) and 16(b) of the contract were issued on some areas. Instructions to remedy defects were issued on virtually all areas. The contractor has an obligation to make good the defects and outstanding work listed or instructed and any latent defects found in the works. Until such time as this is completed the architect is not in a position to issue a certificate of making good defects. "

6. Hopewell were not satisfied with the architect's decision and by their letter of the 22nd June 1984 to MTR gave notice that they required the disputes raised in their letter of the 14th March 1984 to be referred to arbitration pursuant to supplementary condition 136.2.

7. Hopewell submitted a final account to MTR in about March 1983 claiming payment for loss and expenses incurred as a result of delay and disruption during the progress of the work. The dispute over the valuation of a number of items could not be resolved, with the result that Hopewell on the 30th July 1984 requested the architect to give a decision on the disputed items under clause 136.1. The architect's decision which was given on the 30th October 1984 recommended a payment to Hopewell of $1,550,000 for two items, but rejected the remainder. Hopewell wrote to the architect on the 6th November 1984 requesting a payment certificate for this sum, but also gave notice to MTR on the 7th November 1984 that it was dissatisfied with the architect's decision and requested that the matters be referred to arbitration under supplementary condition 136.2. No complaint was made by MTR with regard to either of the architect's decisions whilst payment of the architect's award of $1,550,000 was made to Hopewell. Subsequently differences arose as to the appointment of an arbitrator which resulted in Mr R.S. Peard being appointed by an order of the court on the 26th May 1987.

8. By the points of claim Hopewell claims an increased sum for the two items for which the architect gave his certificate for $1,550,000. Points of defence and counterclaim were delivered by MTR on the 31st December 1987. By the counterclaim MTR seeks to recover the moneys that were certified by the architect and paid to Hopewell which they contend were over certified.

9. It has been argued on behalf of Hopewell that there is no dispute between them and the architect as to the amount certified and that as those sums were not disputed and were paid without qualification, there was no dispute between MTR and Hopewell before the counterclaim was made. The only dispute, according to Hopewell, is whether they are entitled to an amount over and above the sum certified by the architect. Accordingly, Hopewell submits that if there is any dispute it is between MTR and the architect. It was also argued that as MTR did not refer the dispute to the architect for a decision, they are not entitled to challenge the award before the arbitrator.

10. Both Mr Pennicott, counsel for Hopewell and Mr Clayton for MTR agree that clause 136 provides that a decision must be made by the architect or has failed to give a decision within three months after being requested to do so is a condition precedent before a reference can be made by either party to arbitration. I accept that submission which is plain from the cording of the clause.

11. If Hopewell's contention is correct, it means that MTR is hound by the decision of the architect whereas Hopewell are free to argue that a higher figure should have been awarded. The meaning of the clause, must be decided from the words used. The construction placed upon the words by Mr Pennicott does not accord with the powers given to the arbitrator by clause 136.2 under which he has specific power to open up, review and revise any decision or valuation of the architect whilst the parties are not limited in the arbitration to the evidence or arguments that were put before the architect. It has been suggested that as MTR have paid the amount awarded they must be taken to have accepted the award, but this is not correct for they were bound by the contract to effect payment to Hopewell. Accordingly, their failure to challenge the decision does not necessarily mean that the award, because it was paid, was accepted unless both sides decided not to refer the matter to arbitration. However once one of the parties made a reference, the whole of the matters in issue could be reopened by the arbitrator. That the arbitrator should be circumscribed by the award accords neither with the plain wording of the clause nor with common sense. The argument put forward on behalf of Hopewell was fallacious and devoid of any merit. The first originating summons is therefore dismissed.

12. By the second originating summons, MP634 of 1988, MTR seeks a declaration that the arbitrator has no jurisdiction to determine Hopewell's claim for $149,184.75 which has been pleaded in the points of claim and which relates to alleged defects arising from defective designs.

13. It was contended by Mr Pennicott that the disputes for consideration by the architect were set out in Hopewell's letter of the 14th March 1984 to which I have already referred and that the architect's decision was contained in his letter of the 14th June 1984 which I have reproduced earlier in this judgment.

14. Following dissatisfaction with that decision, Hopewell requested that the disputes be referred to arbitration as previously mentioned. Hopewell's contention that the architect's decision was set out in the letter of the 14th June 1984 and was made under clause 136.1 has been denied by Mr Burns in his affidavit of the 11th April 1988.

15. Mr Clayton submitted that this claim has nothing to do with the monetary claim in respect of work that had been rectified due to defective design. Although MTR do not deny that there is a dispute in respect of the work, they maintain that it has not been referred to the architect for a decision. Accordingly, as no decision has been made by the architect which is a condition precedent for a referral to arbitration, the arbitrator has no jurisdiction to determine this clam.

16. On the other hand Mr Pennicott submits that Hopewell has carried out the remedial work for defective design which was later discussed at a meeting on the 18th January 1984 which was attended by representatives of Hopewell, MTR and the architect. He argued that Hopewell had made a clear distinction between defects due to materials and workmanship from the defects due to design. Reliance is placed upon correspondence passing between the parties and to the fact that all the items were included in a Schedule of Defects, in respect of which Hopewell were required to carry out remedial work relating to the defects of design.

17. Mr Robinson who was Hopewell's project manager for the work under the contract refers in his affidavit of the 25th April 1988 to the claim and asserts that the previous correspondence had dealt with the claim and that the architect had been asked to consider it when making his decision. Hopewell contend that all the items were included in a Schedule of Defects although they accept the architect was not asked to evaluate the work. However, there is no evidence before me to show what was contained in the Schedule of Defects or whether any of the matters in respect of which complaint has been made were included. On a perusal of the architect's decision, it is clear that he was referring to condition 15 which relates to practical completion and defects liability and to clause 16 relating to sectional completion rather than to clause 136.

18. The evidence does not therefore show that the matters in question were the subject matter of a decision by the architect under clause 136. As no decision has been made by the architect, which is a condition precedent to a reference being made to arbitration, the claim is not within the jurisdiction of the arbitrator. As a result MTR are entitled to the declaration sought. There will be an order nisi as to costs in respect of both originating summonses.