PETER LEUNG CONSTRUCTION COMPANY LIMITED v. TAI POON COMPANY LIMITED

IN THE COURT OF APPEAL

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JUDGMENT

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Silke, J.A.:

1. On the 15th February 1982 an Agreement - "the Agreement" - was entered into between Peter Leung Construction Company Limited - "the Main Contractor" - and Tai Poon Company Limited - "the Employer" for the erection of industrial buildings on two lots known as "E" and "F" in Hung Hom. The contract price was $368 million. It included, as a prime cost, plumbing and drainage. It did not include a provision for the laying of a cement/sand screed upon the floors. I shall return to these two items later as they are the main concern.

2. Work commenced and continued, interim certificates were issued and, up to the issue of Certificate No. 38 - "the Certificate" - about $340 million had been paid. So far as we are aware, none of those payments is in dispute.

3. On the 7th July 1984 the Architect issued the Certificate for $7.2 million. The Agreement provided for payment upon presentation within a period of 14 days after the issue of a certificate. Clause 26 permitted the Main Contractor to determine the work if he were not paid within the period specified. The works had been completed, and satisfactorily, at a much earlier date. The Certificate was presented for payment on the 9th July 1984.

4. No payment was made. Several reminders were sent to the Employer and on the 10th September 1984, payment still being outstanding, the Main Contractor issued his writ.

5. On the 18th September the Quantity Surveyor sent to the Main Contractor a revised valuation and on the 19th September the Architect purported to issue a revised Certificate 38R - "38R" - which was said to supersede the Certificate. This reduced the $7.2 million to $4.9 million.

6. The reasons for the reduction were stated to be: (a) in respect of the plumbing and drainage, that there had been no accepted contract price and that therefore payment should be on a quantum meruit basis and further that the sum claimed by the Main Contractor was too high: (b) as to the cement/sand screed, that there had been no written confirmation of a verbal instruction from the Architect concerning it - Clause 2 sub-clause 3 of the Agreement requiring that all Architect's instructions "shall be issued in writing".

7. On the same day, the Architect did issue his formal confirmation in writing of the verbal instructions already given as to the cement/sand screed.

8. The history of the plumbing and drainage item was that this had been intended for sub-contractor's work. There had been a change of plan and the Main Contractor was requested to tender for it. He did so. Letters and documents were exchanged as between the Main Contractor and the Quantity Surveyor and the Architect. They were marked as copied to the Employer. The Employer says it never received a quotation.

9. On the 26th September 1984 the Main Contractor issued a summons seeking summary judgment under 0.14 and the Employer issued a summons seeking a stay of the action under section 6 of the Arbitration Ordinance - "the Ordinance". The Agreement had contained the common form Arbitration Clause, Clause 35.

10. The matter came on for hearing before a Master who, on the 3rd December 1984, gave judgment for the Main Contractor for $5,920,970.22. He ordered a stay for the purpose of arbitration in respect of a sum of $1,279,029.78 which was the amount claimed for the screed work.

11. The Employer appealed against the judgment and the Main Contractor cross appealed against the stay order. These came on for hearing before a Deputy Judge who, on the 1st March 1985, after two days of argument reversed the stay order and gave judgment for the whole sum in favour of the Main Contractor.

12. The Employer now appeals against that judgment and seeks the following orders:

13. Dealing first with the application for a stay under section 6 of the Ordinance. The issue which arises is: was there a dispute at the commencement of the proceedings? Section 6 reads, in so far as it is material:

"If any party' to an arbitration agreement, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to those legal proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to that court to stay the proceedings,....."

(Emphasis supplied)

14. Clause 35(1) of the Agreement provided inter alia:

"Provided always that in case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Main Contractor......then such dispute or difference shall be and is hereby referred to the arbitration and final decision of a person to be agreed between the parties......"

15. Only, therefore, if there were a dispute or difference in existence or the 10th September 1984, the date of the issue of the writ, could a stay be granted under section 6.

16. We can find nothing; in the "evidence" - by that we mean the affidavits filed in the earlier proceedings - to establish that the issues raised by the Employer in respect of either the plumbing and drainage or the cement/sand screed had been brought to the attention of the Main Contractor prior to the issue of the writ. It may well be that the Employer, having exchanged correspondence with the Quantity Surveyor and the Architect, was contemplating a dispute. But that contemplation was not made active until the issue of 38R subsequent to the commencement of proceedings.

17. A good deal of the argument before us, and indeed before the Deputy Judge, centered round the issuing of 38R.

18. The bona fides of the Quantity Surveyor and, in particular, of the Architect were also challenged before the Deputy Judge.

19. He made findings both in law and on fact in relation to those two issues. For myself, I do not think that either issue was so clear and unambiguous as to permit of resolution in summary proceedings.

20. In Ellerine Brothers (Pty.) Ltd. & Another v. Klinger⁽¹⁾ Lord Justice Templeman distinguished Billington⁽²⁾ (London and North Western and Great Western Joint Railway Companies v. J.H. Billington, Limited). He said, at page 1381:

"As I read the speeches in the House of Lords, they are simply saying; that the judge found that there was a contract between the railway company and the trader, accepted by this trader, that he would pay the charge, namely 6d. a day levied by the railway company if he took advantage of the company's facilities and services; and that being the contract between the parties, there was no room for arbitration :.......''.

21. Ellerine⁽¹⁾ concerned the distribution of films and the taking of an account and a payment of monies found due upon that account being taker. The defendant never accepted that he was under an obligation to provide the account or to pay anything. The Court of Appeal held that there was a dispute between the parties at the time when the plaintiffs issued their writ claiming an account and payment.

22. Lord Templeman at page 1382D found Ellerine⁽¹⁾ to be a very far cry from Billington⁽²⁾. For myself, I found this instant case to be a far cry from Ellerine⁽¹⁾. Interim certificates, once issued, are payable upon presentation and within the time limit seat out in the Agreement. The works here had concluded long before the issue of the Certificate by the Employer's agent, the Architect. Nothing was said to the Main Contractor as to any reservations held by the Employer in respect of the sum contained in that Certificate. They simply remained silent.

23. Mustill & Boyd in "Commercial Arbitration" at page 91 states:

"Where the defendant has not actively admitted the claim, but has so far failed to deny it, it would seem that there is co 'dispute' then in existence, and the claimant not only car but must prosecute his claim by action, rather than by arbitration. Moreover, if he really believes that the defendant is saying nothing because he has nothing to say, he car apply for summary judgment."

                (Sea also Tradax Internacional SA v. Cerrahogullari TAS, the M. Eregli⁽³⁾ which seems to go a little far.)

24. If the matter is simply one of non-payment there is nothing to go to arbitration. In our judgment there was no "dispute" in existence at the time that the Main Contractor issued his writ though we accept that both the disputed items would fall into the category of "matters to be referred". In those circumstances these proceedings fall to be resolved by action. It is not, for once, a matter which comes within the "general hardening attitudes of the courts both in England and in Hong Kong against what had been a growing tendency of parties to arbitration agreements to complicate and lengthen proceedings by resort to the courts. (Schindler Lifts (Hong Kong) Ltd. v. Shui On Construction Co. Ltd.⁽⁴⁾ at page 9 (unreported)).

25. The Order 14 issues can be narrowed quite considerably. There is no dispute that the Main Contractor is entitled to be paid the $4.9 million referred to in 38R. Mr. Kaplan accepts that the written instructions point on the cement/sand screed issue is a wholly technical one. There is no dispute as to the work being carried out or its quality. It is clear that the Main Contractor is entitled to be paid for it and the provisions of Clause 2 have been complied with, though somewhat late in the day. There is no real defence.

26. The only remaining issue, therefore, is whether or not the summary judgment for the amount claimed for the plumbing and drainage should be allowed to stand. We do not think it should.

27. There is a clear and triable issue on the point as to whether there was, or was rot, a contractual price and, if that point is resolved against the Main Contractor, then what is the amount which he should be paid upon a quantum meruit basis. It is not disputed that he is entitled to something.

28. Having come to that conclusion, we do not think it necessary to go through the exercise which Mr. Mills-Owens quite properly performed before us as to the exchange of letters and documents, copied to the Employer, leading up to the Main Contractor performing this work.

29. This also raises the issue, should it be pursued, of whether or not an Architect can issue a revised certificate in circumstances such as these.

30. The $4.9 million was reached by deducting from the original $7.2 million an item of $1.2 million for cement/sand screed and $1 million for plumbing and drainage. The Main Contractor would therefore retain his judgment for $6.2 million, in round figures, and leave to defend is granted in, respect of the $1 million for plumbing and drainage. We note that figures are generally quoted in round sums, allowing for adjustment in the Final Certificate.

31. We shall hear the parties as to the form of order, the question of interest and on costs.

Having heard Counsel

32. The order of the Judge will be varied to grant the defendant/Employer unconditional leave to defend as to $1 million;

33. $1 million to be repaid by the plaintiff/Main Contractor to the defendant;

34. The plaintiff to pay the defendant interest at the rate of 1% over prime on the $1 million from the 18th March 1985 to date of repayment;

35. The plaintiff to have two thirds of his costs before the Judge and two thirds of his costs of this Appeal.

(1)     [1982] 1 W.L.R. 1375

(2)     [1899] A.C. 79

(3)     [1981] 2 Lloyd's Rep. 169

(4)     Civil Appeal 134 of 1984