DRAGAGES ET TRAVAUX PUBLICS AND OTHERS v. GLADHOVER LTD AND ANOTHER

IN THE COURT OF APPEAL

Civil Appeal
No. 119 of 1987

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REASONS FOR JUDGMENT

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Clough, J.A.

1. These are the reasons of the court for its order made on the 25th September 1987 dismissing the appeal of the Plaintiffs ("the Contractors") against the order of Barnett J. made on the 19th August 1987, pursuant to Order 12 rules 8(1)(a) and 9(3), setting aside for want of jurisdiction the service on the first defendant ("Gladhover") of the Plaintiffs' originating summons which had been served on Gladhover and the second defendant ("NOZESCO"). The originating summons had been issued by the Contractors under section 12 of the Arbitration Ordinance (Cap. 341) to obtain the appointment by the court of an arbitrator under an agreement dated 21st January 1985 ("the 1985 agreement") for the execution of certain harbour dredging works in mainland China.

2. The issue arising below and on appeal is whether Gladhover is personally liable under the 1985 agreement. NOZESCO has not resisted being made a party to the originating summons.

3. The Contractors are the three members of a joint venture partnership comprising a French company (the first plaintiff) and two Belgium companies (the second and third plaintiffs) who undertook the dredging works and were together one party to the 1985 agreement under the composite name "DRAGAGES - DE NUL - DI".

4. Gladhover is a limited company incorporated in Hong Kong. NOZESCO is a limited company incorporated in China and described in its Memorandum and Articles of Association as "a joint venture enterprise". It is the vehicle for the implementation of certain development projects (including the harbour dredging works mentioned above) pursuant to a joint venture agreement dated the 26th March 1984 ("the 1984 agreement") made between Gladhover and two other parties, namely Zhuhai Special Economic Zone Development Company of Guangdong Province and China Nanhai Oil Joint Service Corporation.

5. Clause 4 of the 1984 agreement provides that NOZESCO is "a sino-foreign joint-venture enterprise" and that "All its economic activities and legal rights will be under and protected by the laws of the People's Republic of China." The 1984 agreement describes the projects of the joint venture and the phases in which the work is to be carried out. It stipulates what are to be the functions of the members of the joint venture. Clause 7 provides that Gladhover (referred to as "Party C" in the agreement):-

“… is responsible for raising of all funds for the development of the deep-water wharf, Eastern Area supporting complex and Ngan Hang Resort Village. Estimated total amount required for the initial phase work of the deep-water wharf and Eastern Area supporting complex is approximately US$65.06m. Party C is also responsible for bringing in advanced technology, modern management experience, organizing, operating and management of the development so as to raise economic benefits gained.”

6. Clause 9 includes provisions for an initial period of 15 years for the repayment out of the "company proceeds" of the "invested principal and interest" of Gladhover, and for a subsequent net profit sharing ratio entitling Gladhover to 40 per cent of NOZESCO's net profits.

7. Under Clause 11 Gladhover is made responsible for preparing NOZESCO's overall development plan design and construction drawings of its projects.

8. Clauses 12, 13 and 21 (referring to Gladhover as "Party C") provide as follows:-

"Clause 12: Chinese and foreign contractors and suppliers shall he publicly invited to tender by the Joint Venture Company and the best should he chosen to ensure progress and economic benefits. Party C will make proposals on the finalization of the tender documents, supervision of project work, and marketing etc, and submit the same for the approval of the Board of Directors of the Joint Venture Company for implementation.

Clause 13: Party C is responsible for providing funds for the projects stated in this agreement and shall according to the schedule and progress of work, place the funds into the bank account nominated by the Joint Venture Company. Whenever a major capital expenditure is to be made by the Joint Venture Company, a resolution to this effect must he passed by the Board of Directors and signed by the authorized delegates (one of whom must be representative of Party C).

Clause 21: When this agreement becomes effective, Party C shall in accordance with the overall development plan and the actual progress of work, place the funds into the bank account nominated by the Joint Venture Company so as to ensure the cash flow requirements of the project. The use of the project funds shall be made in accordance with Clause 13 of this Agreement."

9. Clause 17 declares that NOZESCO "is an independent economic unit".

10. The 1985 agreement comprises the usual documents for a contract of civil engineering works, namely a short formal agreement incorporating general conditions and conditions of particular application together with other drawings and documents (to which we shall refer as "contractual documents") which are deemed to form and be read and construed as part of the agreement. Included among the contractual documents were the 1984 agreement and NOZESCO's Memorandum and Articles.

11. The short formal agreement is expressed to be made:-

"BETWEEN GLADHOVER LIMITED FOR AND ON BEHALF OF NANHAI OIL ZHUHAI SPECIAL ECONOMIC ZONE DEVELOPMENT AND SERVICES COMPANY LIMITED of 22nd FLOOR, HARBOUR CENTRE, 25 HAREOUR ROAD, HONG KONG (hereinafter called 'the Employer') of the one part"

and the Contractors (referred to as ‘the Contractor’) of the other part. The address specified above was that of Gladhover.

12. In the recitals "the Employer" is expressed to be desirous of having the contract works executed and as having accepted the Contractors' tender. The same expression is used in relation to the employing party in Clauses 3 and 4 concerning the payments to be made to the Contractors. The opening words of Clause 4 are:-

"The Employer hereby covenants to pay the Contractor … "

13. The testimonium clause of the agreement was in the following form:-

"IN WITNESS WHEREOF

the day and year first above written

the hand of the Employer has been

hereunto set"

The attestation clause began as follows:-

"Signed by the said

Gladhover Limited

For and on Behalf of

Nanhai Oil Zhuhai Special Economic Zone

Development & Services Company Limited"

14. To the right of the above words there appeared the chop of Gladhover and the signature of Mr. B.J. Wong as Managing Director of Gladhover. The attestation of his signature was by Mr. Sun Ren, Chairman of NOZESCO and by Mr. Xie Quan Xun, Deputy General Manager of China Nanhai Oil Joint Service Corporation, which was a party to the 1984 agreement and a member of the NOZESCO joint venture. No issue arises concerning the authority of Gladhover to sign the 1985 agreement.

15. A number of conditions and contract documents are material for consideration. Clause 1(2) of Part I (General Conditions) of the 1985 agreement provided that, where the context required, words in the contract importing the singular only also included the plural and vice versa. In clause 1(1)(a) of Part II (Amendments to Part I and Conditions of Particular Application) "Employer" was defined as meaning "Gladhover Limited for and on behalf of Nanhai Oil Zhuhai Special Economic Zone Development and Services Company Limited, 22nd Floor, Harbour Centre, 25 Harbour Road, Hong Kong".

16. Clause 5 of Part II provided that the English language should be the "Ruling Language" of the contract which should be construed and operated in all respects as a Hong Kong contract in accordance with Hong Kong law. The same clause provided that, subject to the arbitration requirements of cluase 67, no proceedings were to be brought in any court other than a competent Hong Kong court.

17. Under clauses 21 and 23 the Employer was required to insure in the joint names of the Employer and the Contractors against loss or damage to the works and against third party claims arising out of the execution of the works or the carrying out of the contract. The concluding words of clause 21(1) declared that a copy of the policy insuring against loss or damage to the works was attached as Appendix "C" to the Make Up of the Tender. These documents were declared to be contractual documents by clause 2(e) of the 1985 agreement.

18. However no insurance policy was in fact incorporated into the original 1985 agreement. There was only a cover note in the form of a letter dated 30th August 1984 addressed to Gladhover by London insurance brokers who confirmed that the relevant insurance had been effected. The assured were expressed to be:-

"GLADHOVER LIMITED and/or NANHAI OIL ZHUHAI SPECIAL ECONOMIC ZONE DEVELOPMENT AND SERVICES CO. LTD. jointly as Principals and/or Contractors and/or Cos. and/or Sub-Contractors and/or Engineers and/or Architects and/or Suppliers and/or Project Managers and/or all other parties connected with the project and LLOYDS BANK INTERNATIONAL LTD. as agents for a syndicate of Banks for their respective rights and interests."

19. It appeared from the loss payable clause of the cover note that Gladhover had entered into a loan agreement dated 8th August 1984 with a number of lenders and their agent Lloyds Bank International Limited and that by an assignment dated 31st August 1984 Gladhover and NOZESCO had assigned, or were proposing to assign, all their interest under the insurance policy evidenced by the cover note to the bank as agent for the lenders.

20. Clause 67 of Part II of the 1985 agreement provided for the reference of all disputes between the Employer or the Engineer and the Contractors to a single arbitrator in accordance with and subject to the provisions of the Hong Kong Arbitration Ordinance.

21. Reliance was placed below by the Contractors on the content of two letters written by Gladhover on 19th June 1986 and 17th July 1987 respectively. On behalf of Gladhover reliance was placed on the manner in which payments had been made t6 the Contractors under the the 1985 agreement. However, on appeal, counsel on both sides accepted that these matters came within the settled general rule that a contract should not be construed in the light of the subsequent actions of the parties: Whitworth Street Estates Ltd. v. Miller(1); Wickman Tools v. Schuler A.G.(2).

22. The judge rightly adopted the objective test adumbrated by Brandon J. in The Swan(3) at p. 12 when interpreting the 1985 agreement. In substance he found the use of the expression "for and on behalf of" NOZESCO in the agreement and in a number of contractual documents sufficiently compelling to outweigh any of the factors relied upon by the Contractors to support their contention that the agreement was to be interpreted as meaning that Gladhover had contracted as principal as well as agent for its principal NOZESCO.

23. After hearing Mr. Swaine on behalf of the Contractors and Mr. Pennicott on behalf of Gladhover we were satisfied that the judge was clearly right in concluding that the 1985 agreement created no privity of contract between Gladhover and the Contractors.

24. The question that arises depends on the objective intentions of the parties determined by the construction of the 1985 agreement in the light of the nature of the contract and the surrounding circumstances. As Bankes L.J. observed in Ariadne Steamship Co. v. James McKelvie & Co.(4) at p.524, in such a situation decided cases can serve only as guides and not as authorities unless the language of two documents is practically identical. However the decided authorities establish certain clear principles which are material to the present circumstances. Thus although the general rule is that where a person contracts as agent for a principal, the contract is the contract of the principal and not that of the agent, so that the agent "drops out" of the transaction, nevertheless, if there are indications to the contrary it is possible for an agent to be a contracting party instead of or in addition to his principal: Bowstead on Agency, 15th edition at p.424.

25. As Lord Scarman observed in Yeung Kai Yung v. Hong Kong and Shanghai Banking Corporation(5) at p. 795 C-D:-

"The true principle of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability."

26. One of the accepted ways for an agent to negative his personal liability is to state in the contract or by way of qualification of his signature that he makes the contract "as agent for", "on account of", “on behalf of” or "for" a principal. Where the agent makes such a qualication to his signature of the contract, thereby qualifying all that has gone before, the case is strong for negativing personal liability in the absence of compelling indications to the contrary in the earlier part of the contractual instrument: Universal Steam Navigation Company Ltd. v. James McKelvie & Co.(6); approving Gadd v. Houghton(7); Halsbury's Laws of England, 4the edition, Vol. 1, para. 854 where the editors express the view that qualification of the signature is conclusive.

27. In the present case Gladhover has used express language ("for and on behalf of"), which is commonly accepted as apt to qualify its capacity, both when named as a party in the 1985 agreement and in the attestation clause. It has also done so by implication in the testimonium clause where the defined expression "Employer" is used. The same words are frequently used in other contractual documents, including the letter of confirmation of acceptance of the award of the contract dated 29th November 1984 and written on behalf of the Contractors. It is difficult to see how the agreement can be capable of any construction which imposes personal liability on Gladhover if violence is not to be done to the plain meaning of the words "for and on behalf of". Those were not the words under consideration in the McKelvie Case⁽⁶⁾ or in Gadd v Houghton⁽⁷⁾ but they are words which have frequently been judicially accepted as clearly negativing personal liability: see for example W. & T. Avery (Limited) v. Charlesworth(8); Ariadne Steamship Company Ltd. v. James McKelvie & Co.⁽⁴⁾ per Atkin L.J. at pp.535-6; The Swan⁽³⁾ at p.13 and The Santa Carina(9) per Lord Denning, M.R. at p.481.

28. Furthermore it is significant that the same words are recommended by the editors of the Encyclopaedia of Forms and Precedents (5th edition) Vol. 12, at p. [1041], form 91, for insertion by the draftsman in an instrument under hand only intended to he signed by an agent.

29. Mr. Swaine contended that the expression "Employer" in the parties to the 1985 agreement was ambiguous and could be construed to mean either Gladhover or NOZESCO, but that the definition of "Employer" in clause 1(1)(a) of Part II unambiguously defined Gladhover as the Employer albeit acting for NOZESCO. He contended that the execution of the agreement, being expressed in the testimonium clause to have been under "the hand of the Employer", the hand was that of Gladhover and that the words "For and on behalf of" NOZESCO in the testimonium clause meant that Gladhover executed the agreement (1) for itself as Employer and additionally as agent for NOZESCO, or alternatively (2) for itself as Employer while at the same time indicating that, as Employer, Gladhover was the agent of NOZESCO.

30. It was further argued that to conclude that Gladhover signed the agreement for NOZESCO as Employer would conflict with the definition of "Employer" in the agreement as meaning Gladhover.

31. The identification of Gladhover as the Employer, albeit additionally as NOZESCO as agent, was then made the basis for the proposition that the recitals in the 1985 agreement and clauses 3 and 4 were to be interpreted as giving rise to the personal liability of Gladhover as Employer under the agreement. In particular Mr. Swaine argued that clause 4 was to be construed as the personal covenant of Gladhover as Employer to pay the Contractors for the works. On that basis he contended that the situation came within the principles applied in Hall v. Ashurst(10) and in Tanner v. Christian(11).

32. We were unable to accept these arguments. It seemed to us to be abundantly clear from the language of the agreement that Gladhover entered into the 1985 agreement in the character of agent for NOZESCO and not as principal. We accepted that Gladhover was in literal terms the “Employer” under the agreement and that Gladhover had functions to perform and payments to make under the agreement. However whenever Gladhover is mentioned in the agreement it is in conjunction with the words "for and on behalf of" NOZESCO, both in the body of the agreement and in the definition of "Employer" in clause 1(1)(a) of Part II.

33. Those words are vital and clearly indicate that anything Gladhover undertakes under the agreement is undertaken, not by Gladhover personally, but on behalf of NOZESCO. The same applies to the signature of the agreement which is clearly expressed to be signed for and on behalf of NOZESCO. It is difficult to think what more could be done to negative the personal liability of Gladhover.

34. It is clear from the authorities that a party can contract as agent only, on behalf of his principal, even if he is described in the contractual instrument as a contracting party (e.g. "the charterer") and has obligations to perform in that capacity on behalf of his principal. He is none the less only contracting as an agent without incurring personal liability provided he qualifies his execution of the contractual instrument in appropriate terms, as happened in the McKelvie⁽⁶⁾ case.

35. In that case Lord Sumner considered that the fact that the contracting agents ("Charterers" under the contract) for a foreign principal were to perform numerous stipulations performable by charterers eo nomine in this country was of little weight in support of an argument that the agents were personally liable under the charter. In his view the effect of the agents having signed the charter "as agents" was that references in that instrument to the "charterer" were to be read as references to the name of the agents (James McKelvie & Co.) "as agents". He went on to observe at p.502:-

"What can be the meaning of saying 'Jamcs McKelvie & Co., on behalf of their principal, engage that James McKelvie & Co., as charterers, shall pay steamer demurrage at Cività Vecchia' except that they bind their principal to authorize them to pay for him and to put them in funds, to do so? The construction comes back to the same point, that the addition of the words 'as agents' has the effect of reading all references to James McKelvie & Co. in the obligations undertaken by the charterers, as if James McKelvie & Co. had been throughout described as agents for charterers, ….”

36. In the present case a similar result is manifestly achieved because Gladhover is throughout referred to as contracting "for and on behalf of" NOZESCO and it has executed the 1985 agreement subject to the same express qualification. Clearly Gladhover has contracted in the character of agent for NOZESCO, using language which is commonly accepted as appropriate to negative personal liability.

37. It remains only to consider whether there are any matters in the 1985 agreement and the contractual documents or any relavant circumstances which require the agreement to be construed as one entered into by Gladhover not only as agent for NOZESCO but also so as to incur personal liability.

38. The judge gave careful consideration to all the factors relied on below and concluded that they were of insufficient weight to require the 1985 agreement to be construed as imposing personal liability on Gladhover. Broadly the same matters were canvassed before us on behalf of the Contractors. We concurred with the judge's conclusion.

39. Gladhover was not an agent acting at arms length from its principal, NOZESCO. The 1984 agreement and the Memorandum and Articles of NOZESCO indicate that Gladhover had a 40 percent interest in the profits of NOZESCO and therefore an indirect interest in the works which were the subject of the 1985 agreement. However there can be no question but that NOZESCO is a separate legal and economic entity from Gladhover which cannot be said to be the true principal contracting party under the 1985 agreement.

40. Of more significance is the fact that, as evidenced by the cover note mentioned above which was a contractual document, Gladhover effected insurance of the works and in respect of third party risks inter alia on behalf of itself and NOZESCO jointly as principals, whereas clauses 21 and 23 of Part II of the 1985 agreement required only insurance in the names of the Employer and the Contractors. However the weight to be attached to this matter when construing the 1985 agreement is greatly reduced by the fact that the 1984 agreement, another contractual document, makes it clear that Gladhover's role under the latter agreement included the raising of funds for NOZESCO's development projects, the provision of modern management experience the preparation of tenders and the supervision of project work.

41. Furthermore the necessary inference from the contents of the cover note is that Gladhover did raise funds by way of a loan agreement dated the 8th August 1984 entered into by it with a syndicate of lenders and that NOZESCO was not a party to that agreement. It follows that Gladhover having incurred financial liability in connection with the funding of the works, albeit on the basis that NOZESCO was obliged to reimburse it within 15 years under clause 9 of the 1984 agreement, must have had an insurable interest in the works independently of whether it entered into the 1985 agreement as principal or agent.

42. Then there is the fact that NOZESCO is a foreign corporation whose economic activities and legal rights are expressed by clause 4 of the 1984 agreement to be "under and protected by the laws of the People's Republic of China." Mr. Swaine did not contend that the 1985 agreement was ultra vires the powers of NOZESCO. He relied upon the foreign character of NOZESCO as a material factor in the light of Teheran-Europe Co. Ltd. v. S.T. Belton (Tractors) Ltd.(12) and the fact that Gladhover is a Hong Kong company, whereas the effect of clauses 5 and 67 (Part II) of the 1985 agreement is that the agreement is governed by Hong Kong law and the parties are precluded from bringing arbitration or other proceedings outside Hong Kong.

43. However when seeking to ascertain the objective intention of the parties under the 1985 agreement and the contractual documents it seems to us, as it seemed to Barnett, J., that none of the above factors are of sufficient weight individually or in aggregate to require the 1985 agreement to be construed as imposing personal liability on Gladhover. The consistent use of the words "for and on behalf of" NOZESCO are too strong and decisive in all the circumstances.

44. Moreover we consider that, as in the case of the words "as agents" which were under consideration in the James McKelvie Case⁽⁶⁾, the words "for and on behalf of" have for many years been commonly accepted in the commercial community as, in the words of Bankes L.J. in the English Court of Appeal in that case⁽⁴⁾ at p.529, a deliberate expression of intention to exclude any personal liability of the signatory". In our view it is in the best interests of the commercial community that such words should continue to be so construed in the absence of very compelling reasons to the contrary.