CHINNEY CONSTRUCTION CO LTD v.PO KWONG MARBLE FACTORY LTD

CACV 123/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 123 OF 2003

(ON APPEAL FROM HCCT NO. 92 OF 2002)

_________________________

_________________________

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1. This is an appeal from a decision of Burrell J given on 22 April 2003 whereby he refused leave to appeal against an arbitral award. At the conclusion of the hearing of this appeal this court dismissed the appeal with reasons to be given in writing.

Background

2. The applicant in this matter was the main contractor in respect of a residential and commercial development. The respondent was a subcontractor. It was responsible for the installation of the marble in the development. The respondent commenced arbitration proceedings in respect of what it claimed was money due to it under its subcontract. At the heart of the claim was the respondent's contention that the applicant had received payments which had not been fully accounted for under the terms of the subcontract. It is the respondent's case that under clause 11(b) of the subcontract it was entitled to payment which had been received by the applicant. Clause 11(b) reads:

"Within fourteen days of the receipt by the Main Contractor of payment from the Employer against any certificate from the Architect the Main Contractor shall notify and pay to the Sub-Contractor the total value certified therein in respect of the Sub-Contract Works and in respect of any authorized variations thereof and in respect of any amounts ascertained under clause 8(c) hereof less :-

(i)	Retention Money, that is to say the proportion attributable to the Sub-Contract Works of the amount retained by the Employer in accordance with the Main Contract; and
(ii)	The amounts previously paid."

3. Although the claim in arbitration was made on the basis of a claim under Interim Payment Certificate No. 29, which had been certified on 20 September 1999, the arbitrator held that that certificate was evidence that the monies which the respondent alleged that the applicant had received, had in truth been paid prior to the 29th certificate. The arbitrator put his findings in this way at page 9 of the award:

"It is clear from examination of Certificate for Payment No 29 dated 20th September 1999 that the Architect certified that the sum of HK$434,853,351.95 had previously been certified by the Architect and had been paid by the Employer to the Respondent. It is also clear that this sum included both a previous certification and previous payment of the sum of HK$31,139,022.00 after deduction of retention money in respect of the Sub-Contract works.

In the Respondent's Reply on Points of law to the Claimant's Closing Submission the Respondent asserts that the Architect's certificate is not a strong evidentiary basis in support of payment having been made. It is however evidence and no evidence has been adduced by the Respondent to refute the veracity of the certificate. I do not need to refer to previous certificates to be satisfied that payment has been certified by the Architect and made by the Employer to the Respondent.

I find that the Respondent has received payment of HK$31,139,022.00 in respect of the Sub-Contract works. Furthermore, I find that such payment was made pursuant to a certificate or certificates of the Architect.

I am also satisfied that, pursuant to clause 11(b), the Respondent was obliged to make payment of HK$31,139,022.00 (less any permissible deductions or set-offs) within 14 days of receipt. I have no evidence of the actual date of receipt of the sum of HK$31,139,022.00 or as to whether a single payment or a series of payments was made. However, on the basis of Certificate for Payment No 29, I am satisfied that payment was made to the Respondent by the Employer before the issue of Certificate for Payment No 29 on 20th October [sic] 1999."

4. Thus it is clear that the arbitrator found as a fact that the applicant had received payment and he made that finding on the basis that the 29th certificate evidenced such payment.

5. The way the case was put in opening by Mr Scott SC, who appeared on behalf of the applicant, was that the arbitrator had fallen into error because the applicant received nothing as a result of the 29th certificate. In this regard reliance was placed on a letter dated 11 October 1999 from the employer to the applicant. In that letter it is said that the sum certified in the 29th certificate, namely HK$2,020,264.92, would be set off against sums owing from the applicant to the employer as liquidated damages and contra-charges. On that basis Mr Scott argued that there is a point of law which has troubled the courts for many years based on clause 11(b) of the standard form contract. Mr Scott drew our attention to a number of cases which dealt with the question as to whether the main contractor was obliged to make payment to a subcontractor if other amounts owing from the main contractor to the employer had been set off against payments from the employer to the main contractor.

6. The decisions to which our attention was drawn were not conclusive. I, for my part, can only express difficulty, at this stage, in associating myself with some of the reasoning in some of those decisions where it was held that it was arguable that the main contractor could withhold payment where there had been a set off which had arisen from matters wholly unconnected with the subcontractor. Nevertheless, whatever the merits of such a point might be, that point does not seem to me to arise in this case. The arbitrator's award was made on the basis of a finding of fact that payment had been made to the applicant. Hence the point sought to be argued is irrelevant to this case. The point that might be said to arise is whether it was within the jurisdiction of the arbitrator to hold that payment had been received by the applicant prior to the issue of the 29th certificate. That is a matter of jurisdiction of the arbitrator. It was within his jurisdiction to decide his own jurisdiction in this respect and I see no basis for disturbing his decision. In any event, this is not the subject matter of the appeal.

7. There was also a question as to whether the total amount of retention money, which could be withheld from payment to the respondent, was 5% or two amounts of 5%. That was a matter of the construction of the particular subcontract. The conclusion to which the arbitrator came in this respect was a conclusion that was open to him. In this respect, it cannot be said that this was a standard clause which would give rise to a more liberal application of the test as to whether leave to appeal an arbitral award should be given.

8. In my view, the application was refused in the court below for the correct reasons and this appeal accordingly fell to be dismissed, quite apart from the fact that this was an appeal against the exercise of a discretion.

Hon Le Pichon JA:

9. I agree.

Hon Yuen JA:

10. I agree.