WOO CHENG MECHANICAL ENGINEERING FACTORY LTD. v. DIRECTOR OF MARINE

HCAL 1008/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 1008 OF 2000

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J U D G M E N T

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1. The Applicant is a private limited company which carries on the business of marine engineering. In so doing it undertakes maintenance and repair work on vessels.

2. The Respondent is the statutory head of the Marine Department. As such he is responsible for the regulation and control of shipping in Hong Kong waters. To properly exercise this public function the Respondent operates a number of vessels. From time to time these vessels require maintenance and repair and, working through his authorised officers, the Respondent inter alia has chosen to enter into agreements with private contractors to carry out this work. I use the word 'chosen' because the Respondent is under no statutory obligation to do so.

Background to the dispute.

3. On 10 March of this year, the Applicant was awarded a contract to carry out repairs to one of the Respondent's vessels, the 'Hydro 1'. This vessel is used for scientific work and is fitted with expensive survey equipment. The repair work was related to the starboard engine of the vessel which necessitated the temporary disconnection of certain piping. One such piece of piping has been described in the papers as 'the branch rubber hose of the exhaust grommet'. According to Respondent, if this piping is left unplugged or allowed to fall to the floor of the engine room, sea water will spill through into the vessel.

4. Repair work to 'Hydro 1' was commenced on 10 March under the supervision of one of the Respondent's officers, a mechanical inspector. The vessel was at the time moored in the Government Dockyard. The supervising officer has affirmed that he visited the vessel twice that day and noticed that the disconnected branch rubber hose of the exhaust grommet was unplugged. It was, however, raised to a height which would prevent leakage. He did not therefore see the need at that time, while work was still in progress, to warn the Applicant's employees of the danger of leaving the pipe unplugged. He expressed his state of mind in the following terms:

"The branch rubber hose of the exhaust grommet was raised but unplugged and laid on the cylinder head. However, no sea water leakage was observed. I did not warn the Applicant's workers about the danger of having the hose unsecured as they were still working in the engine room. For convenience of work, it was acceptable that the flexible hose was not secured while the workers were working in the engine room. However, the workers should fasten the hose properly before they left the vessel unattended."

5. According to this officer, work had not been completed by the end of the day. As the following day was a Saturday and he was not required to work, he asked a colleague to 'follow up' the remaining repair work. When he returned to work on Monday morning, he was told that 'Hydro 1' had sunk at its mooring in the early hours of Sunday.

6. The vessel was raised, however, and the supervising officer was able to carry out an inspection. He found that the branch rubber hose of the exhaust grommet had been left unplugged and unsecured and concluded that it must have fallen to the engine room floor allowing sea water to flow in. As a result, when sufficient water had entered the vessel, it sank. Put shortly, it was the officer's finding that the cause of the sinking had been the Applicant's negligence.

7. The Applicant does not accept any such allegation. The Applicant's manager has affirmed that his workers were instructed to remove the pipe but were not warned - which they should have been - that, if left unplugged and unsecured, sea water may come in through that pipe. This, he says, is an 'unusual' feature of 'Hydro 1' which was never explained to him or his workers. As a result, following standard shipyard practice, the pipe was left lying on the cylinder head.

8. It is to be emphasised, however, that the Applicant has not come before this Court suing in contract. Nor is it able - despite Respondent's suspicions - to use this action to somehow forestall any claim by the Respondent in negligence. Instead, what is sought by the Applicant is an order of certiorari to quash a decision of the Respondent penalising the Applicant, a decision made in terms of a scheme devised and operated by the Respondent called a 'performance appraisal system' ('the scheme').

The scheme.

9. To ensure that private contractors bidding for work in the Government Dockyard are qualified to undertake that work, the Respondent publishes a list of criteria. If the criteria are met, the contractor is placed on a list of 'approved contractors' and may thereafter bid for work. The Applicant met the necessary criteria and was at all material times an approved contractor. When contracts are awarded in the Government Dockyard the essential terms are contained in a job sheet. However, each contract is subject to standard terms and conditions which are circulated from time to time to approved contractors. It is agreed that these standard terms governed the contract entered into on 10 March 2000 to carry out work on 'Hydro 1'.

10. In addition to the criteria for approval and the existence of contractual terms to define the rights and obligations of the parties, with effect from 1 November 1999 the Respondent introduced the scheme which then became binding on all approved contractors who chose to continue bidding for work. Details of the scheme were contained in a Government Fleet Circular. The circular stated that the purpose of the scheme was to monitor the performance of approved contractors, not only in respect of the work they carried out but also in respect of the degree to which they adhered to safety and environmental protection practices. Contractors who offended the system by committing one of the 'offences' listed in a schedule would be penalised by the award of de-merit points. The scope of this de-merit points system was described in the Fleet Circular as follows:

"The de-merit points system does not only cover the maintenance/repair work done in and for Government Dockyard, but also the safety and environmental protection practices as well. It is objective orientated because the normal faults and/or poor practices are translated into de-merit points according to the seriousness. Work quality, performance, safety and environmental protection compliance of the contractors are all related to the system. When a contractor commits an offence, corresponding de-merit points will be incurred upon him. When a contractor's de-merit points reach a total of ten points within any period of twelve months, the contractor will be penalized by suspending his eligibility to bid the Government Dockyard Tender and Running Quotation for 4 weeks."

11. The schedule of offences is extensive. A flavour of the schedule may, however, be obtained by taking, as an example, several offences from Section II of the schedule:

Code	Offence	De-Merit Points incurred
10	Lack of supervision in carrying out work for Government Dockyard	2
11	Labour supply less than the commitment specified in the 'Form of Tender'	2
12	Delay the completion of work without reason(s) acceptable by GD Management, if the delay is one day or less than one day	2

12. The circular stated that if a supervising officer was of the opinion that an 'offence' in terms of the scheme had been committed by a contractor, the officer was obliged to serve notice on the contractor detailing the offences and setting out the de-merit points attracted to each offence. The contractor was given 5 working days within which to submit a defence. Thereafter a file containing the allegations of the supervising officer and any defence tendered by the contractor would be passed to a senior officer in (or attached to) the Marine Department who would decide the issue. The scheme identified this adjudicating officer as the 'Appropriate Authority' and, depending on the complaint made, stated the required rank and area of expertise of that officer. The circular further stated that the findings of the adjudicating officer would be 'endorsed' by a senior manager whose rank and area of expertise were also specified. There is, therefore, some provision made in the scheme for scrutiny of the Appropriate Authority's decisions. In addition, the scheme allows for a process of appeal. The appeal is to a 'Board of Appeal' consisting of 3 officers who are obliged to give reasons for their decision.

Action taken against the Applicant under the scheme.

13. After he had inspected 'Hydro 1', the supervising officer came to the conclusion that the Applicant had committed 3 breaches of the scheme: it had not exercised due care in carrying out the repair works; had failed to provide adequate supervision, and had not followed what has been termed 'proper procedure'. As a result, the Applicant was informed that it had incurred 8 de-merit points.

14. As earlier indicated, if and when a contractor incurs 10 de-merit points, that contractor's eligibility to bid for work in the Dockyard is suspended for a period for 4 weeks. It goes without saying that a month's suspension can have serious commercial consequences.

The Applicant's grounds of challenge.

15. The Applicant has founded its challenge on a number of bases which, I believe, may be summarised as follows:

a. that the scheme is ultra vires the powers of the Respondent and is therefore of no force and effect;

alternatively -

b. that the decision to impose the de-merit points was tainted by procedural impropriety;

c. that the decision to impose the de-merit points was in any event 'Wednesbury' unreasonable.

The Respondent's primary challenge.

16. On behalf of the Respondent, Mr Wong contends that, whatever the merits of the scheme, it is no more than a system devised by the Respondent to monitor the quality of work carried out by those contractors with whom he chooses to enter into service and repair agreements. In that regard, the Respondent is acting no differently from many large corporations which issue policy statements related to the circumstances in which they will or will not deal with outside agencies or contractors. Mr Wong submits that, in order to fulfil his public mandate, the Respondent needs to operate vessels. But the manner in which he chooses to enter into agreements with private individuals to repair and maintain those vessels is an example of a public officer performing private law contractual duties and not duties of a public nature which are susceptible to judicial review.

17. In reply, Mr Tsui, for the Applicant, argues that an employer in the private sector has only to look to its own economic interests. In this instance, however, the Director has to balance competing interests; namely, the interests of the public in ensuring that government vessels are efficiently maintained at reasonable cost against the disadvantage of being able arbitrarily to police a whole class of persons; namely, approved contractors. The Director he says, in devising and operating the de-merit system, is doing so to ensure that the public interest is protected. He is, therefore, performing a public function.

The amenability of the Respondent's decision to judicial review.

18. While the functions of a public body may all prima facie be subject to judicial review, it is not the source of the exercise of the power that is determinative. A public body may exercise a function which is subject only to private law constraints. In my view, what must be analysed in a case of this kind is the nature of the function exercised. In this regard, for example, see: R v. Panel on Take-overs and Mergers ex parte Datafin [1987] 1 All ER 564, the headnote of which reads (in part):

"In determining whether the decisions of a particular body were subject to judicial review, the court was not confined to considering the source of that body's powers and duties but could also look to their nature. Accordingly, if the duty imposed on a body, whether expressly or by implication, was a public duty and the body was exercising public law functions the court had jurisdiction to entertain an application for judicial review of that body's decisions."

19. What, therefore, was the true nature of the function exercised by the Director in devising and enforcing the de-merit system? Was the Director performing a function in the public domain; that is, was he exercising a public function? Or was he exercising a purely commercial function to ensure that those private contractors who maintained and repaired vessels in his trust did so efficiently and in accordance with recognised safety standards?

20. There is no universal test to determine whether a decision by a public body is or is not amenable to judicial review. In this regard, I refer to Matteograssi SpA v. The Airport Authority [1998] 2 HKLRD 213 in which the dicta of Ognall J in R v. Legal Aid Board, ex parte Donn & Co [1996] 3 All ER 1 at page 11 was cited with approval:

"The answer must, it seems to me, fall to be decided as one of overall impression, and one of degree. There can be no universal test."

21. But some assistance may nevertheless be obtained from the authorities, certainly as to guiding principles. In Mercury Ltd v. Electricity Corporation of New Zealand [1994] 1 WLR 521 Lord Templeman, delivering the judgment of the Privy Council, said (at page 529):

"It does not seem likely that a decision by a state enterprise to enter into or determine a commercial contract to supply goods or services will ever be the subject of judicial review in the absence of fraud, corruption or bad faith. Increases in prices whether by state-owned or private monopolies or by powerful traders may be subjected to voluntary or common law or legislative control or may be uncontrolled. Where a state enterprise is concerned, the shareholding ministers may exercise powers to ensure directly or indirectly that there are no price increases which the ministers regard as excessive. Retribution for excessive prices is liable to be exacted on the directors of the state enterprises at the hands of the ministers. Retribution is liable to be exacted on the ministers at the hands of the House of Representatives and on the elected members of the House of Representatives at the hands of the electorate. Industrial disputes over prices and other related matters can only be solved by industry or by government interference and not by judicial interference in the absence of a breach of the law." [my emphasis]

22. This dicta was cited with approval in Matteograssi SpA v. The Airport Authority (supra) and, in my view, is of direct relevance in the present case. I say so because it seems to me that the system devised and operated by the Respondent is patently intended to provide a framework within which decisions can be made whether or not to enter into contracts of service with those private contractors who have met the basic criteria for eligibility. It is therefore intended to be purely commercial in nature. But intention alone cannot be the full answer. The question remains: what is the true nature of the scheme?

23. In my judgment, its true nature is also clearly commercial. In dealing with private contractors, the Respondent, as a large employer, is obliged not only to be efficient and cost-effective but - as a good employer - is required to exhibit social responsibility. For that reason, leaving aside fundamentally important matters of public liability, such matters as workmen's safety and environmental protection must be of importance to him. A private organization, dissatisfied with work done for it, is entitled in its own commercial interests to refuse to deal further with that contractor either permanently or until sufficient time has been given to allow the contractor to put its house in order. In my judgment, the Respondent's performance appraisal system attempts to do no more than that.

24. Mr Tsui protests that it affects a whole class of persons. But that, while a factor to be considered, is not decisive. That body of persons consists only of contractors who choose to bid for work, all of whom must expect to be subject to constraints of some kind designed to ensure they do their work well. It may even be argued that the body of persons affected consists only of those who have been found culpable under the scheme.

25. Mr Tsui further protests that the scheme imposes penalties. As a result, 'suspended' contractors, who may well be the best able to carry out certain work on publicly-owned vessels, are prohibited from doing so. This, he says, cannot be for the greater public good. But that argument, with respect, ignores the fact that 'suspended' contractors are those who have already been found wanting and therefore, by definition, not the best able to do that work, not at least until they have put their house in order.

26. Mr Tsui has referred me to a number of authorities where, on the facts, a public body was found to be exercising a public function and not a commercial one subject only to the constraints of private law. But they have, with respect, been only of limited assistance. Each case must be decided on its own facts. To repeat: there is no universal rule.

27. I was, for example, referred to Wong Kin Chau & Another v. The Vegetable Marketing Organization [1989] 2 HKC 214, a judgment of Godfrey J (as he then was) in which a decision to suspend a buyer licensed to trade in market premises was successfully challenged. In this case, however, despite the superficial factual similarity, the powers of the Vegetable Marketing Organization were defined by statute in addition to which the Governor-in-Council had, under that statute, made regulations enabling the Organization to regulate the control of vegetable markets and who may trade in them. In light of that direct statutory underpinning, the issue of amenability does not appear to have even been raised.

28. For the reasons set out above (there being no allegations of fraud, corruption or bad faith) I am satisfied that the decision of the Respondent made pursuant to the scheme is not amenable to judicial review. The Application must fail on that ground.

29. The Applicant set out a number of challenges to the Respondent's decision which, in order to receive full consideration, will of themselves require a fairly lengthy judgment. Having regard to my primary finding, however, such consideration would be purely academic.

30. As for costs, at this juncture I see no reason why costs should not follow the event and I will make an order nisi to that effect.

Conclusion.

31. The application is therefore dismissed. There will be an order nisi awarding costs to the Respondent, the order to be made final after 21 days unless application is made prior to that time to argue the matter.