WING HONG CONSTRUCTION LTD v. TIN WO ENGINEERING CO LTD

HCCT 13/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDING

NO. 13 OF 2010

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D E C I S I O N

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Introduction

1.  In the construction project leading to these proceedings Wing Hong was the main contractor for the execution and completion of a substantial residential building development in Beacon Hill Road, Kowloon.  Tin Wo undertook to carry out certain steel cutting and fixing works by way of a subcontract. 

2.  A dispute arose between the parties, with Tin Wo claiming against Wing Hong for the balance of payment for the value of work done, and prolongation costs arising out of what it said was delay on the part of Wing Hong.  Wing Hong counterclaimed against Tin Wo for contra charges and loss incurred due to delays in the project which it said were attributable to the works of Tin Wo.  The dispute was referred to arbitration.

3.  The arbitrator delivered an interim award on 3 February 2010, which was substantially in favour of Tin Wo.  Wing Hong now seeks leave pursuant to s 23(3)(b) Arbitration Ordinance to appeal from the award.

4.  The errors of law alleged by Wing Hong are detailed in the summons in the following way:

“(A) (Tin Wo) was entitled to the second moiety of the retention monies whilst the same should only be released under SSC 22 of the Subcontract within 30 days from the date of issue of the Certificate of Making Good Defects and such Certificate of Making Good Defects had not yet been issued (refer to paragraphs 81 to 91 of the Reasons for Interim Award);

(B)    (Wing Hong) was not entitled to rely on the absence of a date for the completion of the Subcontract Works (refer to paragraph 108 of the Reasons for Interim Award), and the conditions of the Subcontract do not have the effect of excluding (Tin Wo) from claiming compensation for delay to the completion of the Subcontract Works (refer to paragraph 109 of the Reasons for Interim Award).”

5.  The contract was in Chinese, but the arbitrator has set out a translation of the three relevant clauses, and there is no dispute as to the translation.  The determinations made by the arbitrator, and challenged by Wing Hong turn on to provisions in the contract.  These are, first, clause 48 of the “Contract - General Conditions of Sub-contract”, (SGC), and second clause 24 of the “Special Conditions of Sub-contract”, (SSC).  These provide:

“SGC 48

The contract period of these works is to be calculated from the date of notification of commencement of works up to the completion of these works, (Tin Wo) shall follow (Wing Hong’s) rate to complete these works.  If the rate of (Tin Wo’s) works causes delay to these works, (Tin Wo) shall take responsibility and pay for the ensuing consequences.”

“SSC 24

The completion period for these works is to be calculated from the date of notification of commencement of works up to the completion date to be drawn up by (Wing Hong).  If by reason of rate of works the time limit is delayed (Tin Wo) shall complete this works contract in accordance with (Wing Hong’s) rate of works, and cannot by reason of this demand any compensation whatsoever.”

6.  Mr Clayton for Wing Hong says that SGC 19 is also relevant.  That provides:

“If during the carrying out of works, (Tin Wo) finds that (Wing Hong) impedes its execution of the works, (Tin Wo) shall on that day verbally inform (Wing Hong’s) Person-in-charge and subsequently inform (Wing Hong) in writing.  (Wing Hong) upon having verified its truthfulness will inform (Tin Wo) in writing about giving (Tin Wo) extension of time.”

The relevant principles

7.  The principles to be applied are well settled, but are worth repeating.  The leading authority in Hong Kong is Swire Properties Ltd & Ors v Secretary for Justice (2003) 6 HKCFAR 237, with the essential principles being sent out by Bokhary PJ at para 31 in the following terms:

“At the risk of over-simplification, one might say that what Lord Diplock said in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 comes to essentially this: leave should not normally be given in “one-off” disputes unless the arbitral tribunal’s construction is “obviously wrong”; but leave can sometimes be given in “standard clause” disputes as long as there is at least “a strong prima facie case” that the arbitral tribunal’s construction is wrong.  Summaries have their merit.  But over-simplification is not a risk that ought to be run in this context.  So I propose to quote the whole of the passage from Lord Diplock’s speech in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) which I have in mind.  It appears at pp732H-743F:

Where, as in the instant case, a question of law involved is the construction of a “one-off” clause the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong.  But if on such perusal it appears to the judge that it is possible that argument might persuade him, despite first impression to the contrary, that the arbitrator might be right, he should not grant leave; the parties should be left to accept, for better or for worse, the decision of the tribunal that they had chosen to decide the matter in the first instance.”

8.  Mr Clayton properly accepted that the clauses under consideration were “one-off” clauses, and not standard clauses.  Both counsel accepted that in considering whether or not the arbitrator was obviously wrong, I was not confined solely to the award, but without having resort to full adversarial argument, I could have regard to the fundamental contentions advanced by each side as to the interpretation of the relevant clauses and view the conclusions of the arbitrator in the light of those contentions.

9.  I approach the application for leave to appeal with these principles in mind.

Discussion

10.  The first argument advanced by Wing Hong before the arbitrator was that there was no date for the completion of the contract.  This argument goes to the error of law set out in paragraph 4(A), above.  The argument was that without a completion date, there could be no breach of any implied term not to hinder or prevent completion by that date nor lack of cooperation precluding competition by that date and, hence, the common law damages claim was bound to fail. 

11.  There is no dispute between the parties that Wing Hong did not, in compliance with SSC 24, notify, either by letter or notice to Tin Wo, a completion date for the works. 

12.  In those circumstances the arbitrator found, at paragraph 108 of the Reasons for Award, that the subcontract did stipulate a date for completion, in SSC 24, and that date was a date to be drawn up by Wing Hong after the issue of notification of commencement of works.  The arbitrator concluded that Wing Hong had not done that.  He found that Wing Hong was in breach of SSC 24 in failing to “draw up” a date for completion.  In the course of reaching that conclusion the arbitrator noted that a party cannot rely upon his own wrong in enforcing a contract.  He concluded that Wing Hong’s first argument had no effect on the validity of Tin Wo’s claim.

13.  The arbitrator went on to conclude that although Wing Hong had not complied with SSC 24, and “drawn up” a date for completion, it was possible to determine the date for completion by reference to the works programme which identified a date for the completion of the subcontract works, (see Reasons for Award paragraph 108).

14.  I cannot say that the conclusion reached by the arbitrator is obviously wrong.  He might have better expressed himself, but it is plain from a reading of the award as a whole that the arbitrator has concluded that although Wing Hong had not formally notified Tin Wo of a completion date, the completion date was capable of determination by reference to the works programme that had been prepared by Wing Hong, and that the lack of formal notification of that completion date by Wing Hong could not stand in the way of a claim by Tin Wo. 

15.  It is clearly arguable that the works programme had plainly been “drawn up” by Wing Hong.  It is equally arguable that the failure to formally notified Tin Wo of the date arrived at by that programme did not in any way detract from the consequence of drawing up the date.  In those circumstances, and having regard to the arbitrator’s comment that the finding that Wing Hong was in breach of SSC 24 had no effect on the validity of Tin Wo’s case is entirely understandable.

16.  I accept Mr Manzoni’s submission that the real complaint is that Wing Hong is dissatisfied with the arbitrator’s finding of fact as to the date for completion.  There is of course no right to appeal a finding of fact.

17.  In the absence of notification of a completion date the arbitrator was perfectly entitled to infer, if he could, from the provisions of the contract a completion date.  That is all he has done.

18.  It may well be that Mr Clayton is right when he says that the application of the principle of the party cannot rely on his own wrong was inappropriate in the circumstances of this case.  But that does not make wrong the essential conclusion of the arbitrator, that, in the absence of stipulation on the part of Wing Hong of a completion date, a completion date may be inferred.

19.  I cannot say that the conclusion of the arbitrator set out at paragraph 4(A) above is obviously wrong.  It was a conclusion he was entitled to reach.

20.  The second argument which Wing Hong advanced to the arbitrator was that the language of the second sentence of SSC 24 specifically precluded recovery of prolongation costs by Tin Wo.  This argument goes to the error of law set out in paragraph 4(B) above. 

21.  Central to Mr Clayton’s argument was an assertion that it was absolutely plain that the expression “rate of works” refers to Tin Wo’s rate of works.  On first impression that may be so.  But Mr Manzoni argues that the expression is equally applicable to Wing Hong’s rate of work.  On a second reading of the clause, I cannot say that that is wrong. 

22.  Mr Manzoni points out that the interpretation sought by Mr Clayton would have the subcontractor entering into a fixed-price contract which required him to work at any rate that the main contractor desired, and to be on site for as long as the main contractor desired, without any entitlement to additional remuneration.  That simply does not make commercial sense.  While a foolish subcontractor might enter into such a provision, if clearly to that effect, where the provision is not clearly to that effect, but requires that interpretation, the commercial unreality of the argument for that interpretation militates strongly against saying that the arbitrator was obviously wrong in not so finding.

23.  I cannot say that the conclusion of the arbitrator set out at paragraph 4(B) above is obviously wrong.  It was a conclusion he was entitled to reach.

24.  I have not embarked upon a detailed analysis of the various contentions as to the interpretation of the clauses.  That is not appropriate in an application for leave to appeal an award.  There are plainly arguments for different interpretations of the relevant clauses, to those reached by the arbitrator.  This is simply not a case where I can say that the arbitrator is obviously wrong in either of the two matters upon which the application is based.

Costs

25.  There will be an order nisi that Wing Hong must pay Tin Wo’s costs of the proceedings, to be taxed on a party and party basis if not agreed.