Lee Po Hung t/a Lee Po Decoration and Whitewashing Works v. Leighton Contractors (Asia) Ltd.

IN THE COURT OF APPEAL

1996, No. 106
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

1. I will ask Sears, J. to give the first judgment.

Sears, J. :

2. This is an appeal from a reserved decision of Leonard, J. given on 18 April 1996, when he awarded the plaintiff, who is the respondent before us, the sum of approximately $4.5m for fluctuation payments in connection with a construction contract. The issues before the trial judge were varied and extensive, with considerable argument and evidence over the liability of the defendant, who is the appellant before us, to pay the respondent any sum of money. No appeal is made against his decision in so far as the liability of the appellant is concerned; the only issue now is the method of calculation of the fluctuation payments, an issue which the judge decided in favour of the respondent.

3. The appellant was the main contractor for the Hong Kong Housing Authority in the construction of residential blocks and a carpark at Sai Wan Court, Tuen Mun in the New Territories. The respondent was a sub-contractor carrying out bricklaying and plastering works. It is a common feature of construction contracts, which tend to run for some time, that fluctuation provisions are found therein. These allow contractors to recover in respect of rises in the costs of labour and materials over the course of the contract. As far as the main contract is concerned between the appellant and the Housing Authority, there were detailed fluctuation provisions contained in it. The sub-contract contained no express provision for the payment of any sums in respect of fluctuations. There is however a clause in the sub-contract, clause 5, which reads as follows :

"For fluctuation purposes, the Subcontract is based on the Indices as at April 1987 prepared by Housing Department from information supplied by the Hong Kong Census and Statistics Department."

4. In the main contract, in Special Condition no. 11, a formula is provided by which the main contractor obtains his fluctuation payments. One finds there similar words, from which one sees the amount payable "shall be increased or decreased in accordance with provisions of this clause if there shall be any change in the following Index Figure compiled by the Census and Statistics Department of the Hong Kong Government." (There follow references to separate indices for wages and for materials.)

5. The issue before the judge, which the judge resolved in favour of the sub-contractor, can be simply stated. The sub-contractor submits this was a labour only contract and therefore the only index which is relevant to his fluctuation clause is the Housing Department's Index for labour. The contractor submits that the meaning of clause 5 is to be derived from the words "is based on the Indices" and that the same provision as applied in the main contract should be applied to this contract. It is of course important always to recognise that in most situations the sub-contractor is made aware of the provisions of the main contract. He can look at it and he is assumed under General Condition No. 2 to have full knowledge of the provisions of the main contract. There is also no doubt that the sub-contractor always knows that the liability of the main contractor may also affect his own liability. The first unusual matter here was that this particular sub-contract contained no express provision for the payment of fluctuation claims. However, the judge found that there was an estoppel by convention; the sub-contractor had over the months been paid sums which were said to be for fluctuations.

6. Mr. Scott, for the sub-contractor, submits that as the sub-contract is a labour only contract, the sole Index relevant to the issue of calculation of fluctuation matters is that relating to labour. This in itself gives rise to illogicalities, in that the labour figure as computed is a composite labour figure covering a variety of workers, not just bricklayers and plasterers. Mr. Clayton, for the contractor, submits that his construction, based on the fluctuation provision in the main contract; better accords with the actual words used. It is clear that this also could give rise to illogicalities, because the figure which is thus to be calculated is based upon not only on labour, but also on materials, such as tiling, sand, cement and other materials.

7. The court therefore has to construe clause 5 as best it may having regard to what it considers to be the intention of the parties. As was said by Lord Wilberforce in R. v. Herrod, Ex parte Leeds City Council [1978] AC 403, at p.419, of a case where there was a choice between two doubtful meanings: "I feel justified in taking that which is more contextually apposite and also more reasonable". The judge below looked to what he called "a just and practical solution"; but in my judgment, the correct approach to construction here is to look at the context in which this clause is found. The context is that of a sub-contract dealing solely with labour matters. In my judgment, therefore, the more contextually apposite construction is that put forward by Mr. Scott. What is or what is not more reasonable may be more difficult to decide, but in my judgement, the judge below came to a correct conclusion and this appeal should be dismissed.

Seagroatt, J. :

8. I agree.

Godfrey, J.A. :

9. I also agree. I have not found it easy to come to a conclusion upon this short point of construction, which has been extremely ably argued on both sides. But, in the end, it seems to me that the reference to "Indices" in clause 5 of the Supplementary Conditions of this "Labour Only" sub-contract must be construed as a reference to the relevant "Labour Index" prepared by the Housing Department. This construction produces the less illogical and anomalous result. We have to strive to ascertain the true intentions of the parties; that is what the process of construction involves. If the main contractor wished to produce the result for which Mr. Clayton so ably contended, he should have been careful to adopt in the sub-contract more appropriate language. This he failed to do, and so, for the reasons given by Sears, J. with which I agree, this appeal must be dismissed.