TAIKOO ENGINEERING LTD. v. SHUN SHING CONSTRUCTION & ENGINEERING CO. LTD.

1997 , No. MP 2061

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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Background

1. The applicant (Taikoo) was the nominated sub-contractor for the electrical work on a project for the Housing Authority. The respondent (Shun Shing) was the main contractor.

2. There were delays in the completion of the project. The parties blamed each other for these delays. They took their claims to arbitration.

The Claim and Counterclaim

3. Taikoo filed points of claim in the arbitration. In this, it complained that, in breach of clause 13(3) of the sub-contract, Shun Shing failed to certify extensions of time in respect of "numerous acts, omissions and breaches" by Shun Shing and the employer, or both, during the work and in respect of which extensions ought to have been granted under clause 13(3)(a) or (b), or both, of the sub-contract. Alternatively, Taikoo pleaded that the time for completion was at large, and that a reasonable time for completion was 10 December 1993, or such other date as the arbitrator might assess. By reason of this, Taikoo says, it suffered loss and damage.

4. In its statement of defence and counterclaim, Shun Shing says that, if Taikoo was delayed in completion of the work, this was caused by Taikoo's breaches of the sub-contract. Shun Shing pleads that Taikoo has admitted that it completed the work only on 10 December 1993, and was thus in breach of its obligations. As a result of this breach, Shun Shing has suffered loss and damage. Shun Shing goes on to plead that, by reason of this breach, it has incurred liability to the employer for liquidated damages and for loss and damage claims from other sub-contractors. In this respect, Shun Shing claims a declaration that it is entitled to an indemnity.

The Arbitrator's Findings

5. Following the arbitration hearing, the arbitrator published his award and reasons. In his award, the arbitrator found that the claimant's claim failed in its entirety. He found that the counterclaim for loss and damage failed in its entirety. He declined to make the declaration regarding the indemnity, subject to a reservation.

6. Regarding Shun Shing's counterclaim, the arbitrator said - "The counterclaim is premised on [Taikoo] being in culpable delay from the date for completion up to the date of certified practical completion. Here the onus lies [Shun Shing], and as I have indicated, while I accept that some delay to the sub-contract work has probably been caused by [Taikoo], there is no evidence enabling me to determine how much. . . [H]aving formed the view that I have that [Taikoo] is entitled to some extension of time, but in an amount which I am unable to determine, it would be simply wrong to hold [Taikoo] liable for loss and expense in respect of the same period."

7. On the indemnity claim, after noting that no claims had been made in respect of liquidated damages, he expressed himself thus - ". . . I suspect that the employer will not be able to leave matters in this state indefinitely. Liquidated damages liability may then become an issue, as may consideration of the contribution of [Taikoo] to such damages. I observe that the terms of any such indemnity have not been canvassed, and it would clearly be wrong in principle for such indemnity to go beyond an established contingent liability. There is at present no basis on which I could say that [Shun Shing] ought to be indemnified. Such a remedy is clearly discretionary in any event, and for these reasons I decline to exercise my discretion at this juncture. Since issues may arise in the future it would perhaps be appropriate that I should reserve to myself issues that may arise in regard to this aspect of the contribution."

Criticism of the Findings

8. Mr Graham says that the finding against Shun Shing on its claim for loss and damage is wrong, although Shun Shing have not appealed against it. Mr Graham says, as I understand him, that it is wrong because, once it is shown that Taikoo failed to complete the work within time, it is in breach, and it for Taikoo to show that the delay was not culpable.

9. Clause 13 of the sub-contract provides that Taikoo was entitled to extensions of time in stated circumstances. Taikoo cannot be liable for loss or damage suffered by Shun Shing by reason of the delay where it was entitled to extensions of time to cover that delay. I am inclined to agree with the arbitrator that he could not find Taikoo liable for any loss or damage suffered by Shun Shing unless he could find that Taikoo's delay went beyond any extension of time to which Taikoo was entitled. He has found that he could not do this. In my view, he was right to say that, where, after examining all the evidence, he could not find which party was responsible for any specific delay, he could not find that either party was liable for any specific loss and damage.

The Notice of Motion

10. But that is by the by. The arbitrator has made his findings, in fact and in law, in relation to responsibility for loss and damage. In these proceedings, the parties are bound by them. I must be concerned only with the matter before me. That is a notice of originating motion by Taikoo in which Taikoo asks that that matter be remitted to the arbitrator for him to reconsider whether or not Shun Shing's claim for an indemnity should be dismissed.

The Indemnity

11. It appears clearly from the arbitrator's reasons that the only basis on which he reserved to himself the issue of indemnity was that there had not been any claim against Shun Shing by the employer or other sub-contractors, but he considered that such claims were possible. But, if there had been such claims, on what basis could a claim for an indemnity succeed? The basis on which Shun Shing claimed the indemnity was that, by reason of Taikoo's breach by delaying the subcontract work, Shun Shing had incurred liability to the employer and other sub-contractors. It claimed an indemnity "against all claims against [Shun Shing] arising from the delays to the completion of the Subcontract Works which have caused or contributed to the delays to the completion of the Main Contract Works.". But the arbitrator had already found that he was unable to determine how much delay had been caused by Taikoo, and the parties are bound by such finding.

12. The situation contemplated by the arbitrator when he reserved the issue of indemnity was that, at some time in the future, the employer or a subcontractor may make a claim against Shun Shing, and Shun Shing will bring the matter back before him. But, if that were to happen, the arbitrator and Shun Shing would be faced with the finding that there could not be any determination as to how much delay was the responsibility of Taikoo. It follows that the arbitrator could not determine the issue of the indemnity in favour of Shun Shing. The arbitrator could not allow Shun Shing to reopen its case to show that, contrary to the arbitrator's existing finding, that, in fact, it was possible to determine the extent of the delay for which Taikoo was responsible. It seems to me that, in this situation, the arbitrator is now in as good a position as he will ever be to determine the issue of indemnity.

Conclusion

13. My conclusion is that it was not necessary for the arbitrator to reserve the issue of indemnity; no useful purpose was served by this. An arbitrator should reserve matters only when it is necessary or expedient to do so. Otherwise, the parties are entitled to have their disputes resolved immediately, which is what the parties contemplated in this arbitration. In these circumstances, it seems to me that it is just that the matter should be remitted to the arbitrator with the direction that he decide Shun Shing's claim to an indemnity on the basis of the evidence and his existing findings. I make an order accordingly.

Costs

14. There seems no obvious reasons why cost should not follow the event. I make an order nisi that the costs of and incidental to this application be paid by Shun Shing.