MAEDA KENSETSU KOGYO KABUSHIKI KAISHA also known as MAEDA CORPORATION AND ANOTHER v. BAUER HONG KONG LTD

HCCT 35/2016

[2018] HKCFI 1057

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 35 OF 2016

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J U D G M E N T

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1.  This is an appeal on a question of law arising out of the First Interim Award (Award (1)) of Sir Vivian Ramsey QC (Arbitrator) published on 21 June 2016 in respect of arbitrations between the Plaintiffs (JV) and the Defendant (Bauer). The question concerns the proper interpretation of contractual Measurement Rules M12A to M12G which were made for purpose of payment of excavation of diaphragm wall (D-wall) panels.

2.  The JV were the main contractors employed by the Mass Transit Railway Corporation (MTRC) under 2 main contracts to construct tunnels for the Hong Kong to Guangzhou Express Rail Link, namely, Contract 823A and Contract 823B.  These Contracts were administered on behalf of MTRC by an Engineer whose role and duties were set out in the Contracts.  The JV sub-contracted the D-wall works under both Contracts to Bauer under Sub-contracts 823A and 823B.  Award (1) relates to the parties’ disputes under Sub-contract 823B.

3.  The Originating Summons herein was issued on 21 July 2016 seeking leave to appeal and setting out 4 grounds of appeal.  Leave to appeal was granted by DHCJ Lee on 7th April 2017.  For this substantive appeal, the court will decide the question of law ab initio.

4.  Since the granting of leave to appeal, the Arbitrator’s interpretation of the Measurement Rules had been applied in 2 further awards of quantum (Further Awards).  The parties had agreed that they may each appeal the Further Awards insofar as may be necessary depending on the outcome of this appeal, and (subject to the court’s view) for the remission of the same to the Arbitrator. 

Issues

5.  There are 4 grounds of appeal.  Ground 4 is no longer pursued.  The remaining 3 grounds of appeal concern :

(1)  Whether (a) the “Founding levels determined by Engineer” in the legend for Diagram C1 (Measurement Rule M12A) should correctly say “Bedrock level” and (b) “Theoretical bedrock lines” in M12D should be described as “straight lines joining the successive theoretical bedrock levels” instead of “straight lines joining the successive theoretical founding levels” as stated;

(2)  Whether the definition of “measureable core” in M12C should apply to M12D;

(3)  Whether “Bedrock” in M12D should include Category 1(d) material.

6.  The parties are in agreement that Ground (1) is a standalone argument.  It is not clear whether the result of the appeal on this ground, assuming that the Arbitrator had made an error, would affect the payment to Bauer under the Sub-contract.  On the other hand, the outcome of this appeal on Grounds (2) and (3) is likely to have a significant bearing on such payment.

7.  Grounds (2) and (3) are intricately related because they concern the key components of M12D and affect the proper construction of that Measurement Rule.  Mr Clayton SC, who appeared for the JV, had helpfully summarised the crux of his arguments as follows :

(1)  The Measurement Rules set out how measurement of different areas of excavation is undertaken.  In the case of “toe in to rock”, which is the area affected by the Arbitrator’s interpretation, the measurement runs from the bottom of the excavation (which is uncontroversial) to a level determined by reference to the top of “measurable core”.  The relevant cores came from the drill holes taken along the line of the D-wall panels prior to excavation. 

(2)  There is a definition of “measurable core” within the Measurement Rules which specifies that the core must contain at least 85% specified rock material (“category 1(c)”) and have a rock quality designation (RQD) of at least 30[1].  The definition, specifically provided for measurement purposes, should apply to measurement of toe in to rock.

(3)  The Arbitrator did not follow that definition and rewrote key parts of the Measurement Rules so that lower grade material (“category 1(d)”) became “bedrock” in the Measurement Rules.

(4)  Consequently, the Arbitrator’s interpretation greatly increases the quantity of material measured as toe in to rock by including significant quantities of lower grade material.

Background

8.  D-walls are concrete walls constructed in trenches excavated into the ground using a series of interconnected panels.  Before excavation, drill holes were undertaken along the line of the D-walls to investigate the ground and recover core samples.

9.  The Measurement Rules (MRs) were made specially by MTRC for the main contract.  They were passed onto Sub-contract 823B for the measurement and payment of the excavation works.  To put them in proper context, the MRs formed part of the Preamble (a 73 page document) of the Pricing Document which was prepared based on the Civil Engineering Standard Method of Measurement (3^rd edn) (also known as CESMM3) published for the Institute of Civil Engineers.  In particular, the Preamble set out the departures from CESMM3 in accordance with para 5.4 thereof. 

10.  It should be noted that para 5.5 of CESMM3 provided that: “Where excavation, … is included in the work a definition of rock shall be given in the Preamble and this definition shall be used for the purposes of measurement.”

11.  The MRs came under Part A (Amendments to CESMM3), Class 3 (Geotechnical and Other Specialist Processes) of the Preamble.  Under item reference C2 (Diaphragm Walls), there was an amendment to Second Division and Third Division of the work classification under Diaphragm Walls.  To understand the work classification, one needs to refer to para 3.1 of CESMM3 :

“The Work Classification divides work commonly encountered in civil engineering contracts into 26 main classes. Each class comprises up to three divisions which classify work at successive levels of detail. Each division comprises a list of up to eight descriptive features of work. Each item description in the Bill of Quantities shall identify the component of work covered with respect to one feature from each division of the relevant class, …”

12.  Under item C2(a), Diaphragm walls (First Division) were divided into “Excavation in material Other than rock  m³” and “Excavation in rock  m³” under Second Division.  The latter was further divided under the Third Division into 3 categories: “Rock – Class A”, “Rock – Class B” and “Toe in to rock”.  

13.  Bauer was entitled to be paid for the work involving excavation in 4 types of identified material at different rates per m³ as priced in the Sub-contract Schedule of Prices: “material other than rock” (Other Material) at HK$X; both “Rock – Class A” and “Rock – Class B” at HK$Y; and “Toe in to rock” (TITR) at HK$Z.  Self-evidently, the pricing reflected the difficulties in the works.

14.  It is common ground that the MRs were used by the parties for the tendering under Sub-contract 823B. 

15.  The MRs were set out in 5 pages under item C2(b), a copy of which together with C2(a) is attached hereto as Annex I.  It is not at all easy to understand them, and in order to do so (apart from the foregoing introduction) one needs to have an understanding of the relevant features of the works and the provisions under the Sub-contract.  For this purpose, I am grateful to Mr Clayton for having set them out in succinct terms as part of Attachment A of his skeleton submissions.  The relevant paragraphs are 1 to 11, with the exception of para 8(2) which consists, at least in part, of submissions.  In addition, there are 2 sketches provided in Attachment C to illustrate some of the explanations.  I believe that these materials are accurate[2] and helpful to gaining a better understanding of the relevant background for the interpretation exercise in hand.  Attachment C is attached hereto as Annex II and the relevant parts of Attachment A are set out below (footnotes omitted).  For ease of reference, the paragraphs are renumbered from 15.1 to merge with this judgment :

The nature of the works

15.1.  D-walls are reinforced concrete walls constructed deep into the ground using a series of interlinked panels and specialist machinery.   In the present case parallel D-walls, on either side of the proposed railway tunnel alignment, were constructed by [Bauer] under Sub-contract 823B in two areas of the project known as the Emergency Rescue Sidings (‘ERS’) and Cut and Cover tunnel (‘C&C’) sections.   In summary, the process of D-wall panel construction is as follows:

(1)  excavation of a deep trench for each panel, typically 6.0m or 6.3m long by 1.0m or 1.2m wide, along the alignment of the D-wall.  The excavation is carried out using grabs and chisels and / or cutting machines.

(2)  the trench excavation stops at a founding level determined by Engineer in accordance with relevant founding criteria and verified during excavation.  This may or may not require going into sound rock depending on the relevant founding criterion.

(3)  a reinforcement cage is lowered into the excavated trench.

(4)  concrete is poured into the trench.  Upon concreting the D-wall panel is, in principle, complete.

(5)  the process continues along the alignment of the D-wall.

15.2.  The [JV] were to excavate in between the completed D-walls to below the intended track level of the rail lines.  The D-walls were to retain the ground on either side of and prevent the ingress of water into the excavation and in the ERS section formed part of the final structure built by the [JV].  In the C&C section the D-walls were temporary works allowing construction of a tunnel section in between them prior to backfilling of the excavation.

15.3.  In both the ERS and C&C sections, base slabs were to be constructed by the [JV] at the bottom of the excavations between the D-walls on which the rail tracks would run, as can be seen from figure 1 in [Annex II] which is taken from one of the Sub-contract drawings.

The founding criteria and other relevant provisions

15.4.  A very important consideration in the design and excavation of the D-walls is the engineering founding criteria for the D-wall panels.  In other words, the criteria for determining the material into which the D-walls should be toed (keyed) or founded on and their depth.

15.5.  (1)   The D-wall engineering founding criteria were given on    the Sub-contract drawings. For instance, Drawing No.823B/T/000/OAP/C01/004B:

1.   All permanent diaphragm walls shall satisfy either of the following founding criteria:

i)   Should the category 1(c) rock head be higher than the base slab bottom level, the diaphragm wall shall be founded on at least 300mm below the base slab bottom level and shear pin shall be provided according to the diaphragm wall schedule.

ii)   Should the category 1(c) rock head be less than 15m below the base slab bottom level, the diaphragm wall shall be founded at least 300mm into category 1(c) rock head and shear pin shall be provided according to the diaphragm wall schedule.

iii)   Should the category 1(c) rock head be more than 15m below the base slab bottom level, the diaphragm wall shall be provided with a minimum length of 15m below base slab bottom level and be founded on category 1(d) or better rock (emphasis added)

The final formation level is assumed to be not more than 100mm below base slab bottom level.

The founding material shall satisfy the requirements as stated in the following schedule.

Table 1 founding material schedule

Rock material decomposition grade	Minimum uniaxial compressive strength UCS (MPa)	Equivalent point load index strength PLI50 (MPa)	Total core  recovery	Allowable bearing pressure (kPa)
Category 1(c) or better	25	1 MPa min.	85% of the specified grade min. calculated from a 1.5m core run	5000
Category 1(d)	-	-	50% of the specified grade min. calculated from a 1.5m core run	3000

(2)  It can be seen from the three engineering founding criteria above that the critical element for determining founding levels is the level of “category 1(c) rock head” and that category 1(d) rock for founding criterion (iii) is not expressed as being a “rock head” in the founding criteria.  Thus, according to founding criteria (i) and (ii), the D-walls are required to be founded into the “category 1(c) rock head”, whereas under founding criterion (iii), the D-walls are only required to be founded on category 1(d) rock.

(3)  Table 1 of this Drawing stipulates total core recovery from a 1.5 metre core run for the material to be accepted as category 1(c) is required to be 85% minimum of the specified grade and also with a minimum uniaxial compressive strength UCS of 25.  For category 1(d) the requirement is only 50% of the specified grade and without any minimum uniaxial compressive strength.

(4)  (i)    A description of category 1(c) and 1(d) rock is to be found as Table 2.1 of the Code of Practice for Foundations, which is reproduced, so far as category 1(d) is concerned, at paragraph 500 of [Award (1)].  The relevant descriptions of the categories are as follows:

1(c)  Slightly to moderately decomposed moderately strong rock of material weathering grade III or better, with a total core recovery of more than 85% of the grade and minimum uniaxial compressive strength of rock material (UCS) not less than 25 MPa (equivalent point load index strength PLI₅₀ not less than 1 MPa)

1(d)  Moderately decomposed, moderately strong to moderately weak rock of material weathering grade better than IV, with a total core recovery of more than 50% of the grade

      (ii)   Classification of rock weathering or decomposition grades I to VI (as referenced in the description of categories 1(c) and 1(d) above) can be seen from Table 4 in Geoguide 3.  Grade I is fresh rock with grades II to VI reflecting progressive stages of decomposition down to residual soil.  The 85% of the specified grade (category 1(c)) and 50% of the specified grade (category 1(d)) as mentioned in Table 1 (paragraph [15.5 (1)] above) is accordingly of grades I to III.

(5)  A simple diagrammatic illustration of the different engineering founding criteria for Sub-contract 823B appears in figure 2 in [Annex II].

15.6.  Core recovery is a reference to core samples obtained from the drillholes carried out prior to excavation.  Thus, the key distinguishing feature between category 1(c) and 1(d) is that 1(c) will have 85% of the length of core comprising rock of grades I to III, whereas 1(d) need only have between 50% and 85% of the length of core comprising rock of grades I to III.  Additionally, category 1(d) need not satisfy the minimum uniaxial compressive strength requirement.

15.7.  One of the main reasons why there are different founding criteria is that the natural ground conditions are variable. Whilst generally less weathered rock is found as the excavation proceeds down, there are frequently pockets of more decomposed material within the weathered rock and rising and falling profiles of category 1(c) and category 1(d) material. As part of the Contract 823B works, the [JV] drilled small diameter drillholes along the lines of the D-walls which were used to obtain core samples and undertake tests in relation to the material to be excavated.  From the results of the drillholes the relevant category 1(c) rock head and 1(d) rock levels at the drillhole location could be established and, by applying the relevant engineering founding criteria, tentative founding or toe levels for individual panels were determined and provided to [Bauer] for its works.  For the panels as excavated, the founding criteria (as set out above) require the category 1(c) or 1(d) material to be present across the whole panel base at that level and below, as shown in [Annex II].

15.8.  (1) Whilst the carrying out of drillholes reduced some of the uncertainty as to the rock profiles prior to excavation of the panels, the coring equipment used for the drillholes was generally only between around 60-85mm in diameter.  Most of the D-wall panels were between 6m and 6.3m long by 1m or 1.2m wide in the horizontal plane.  For a 6m by 1m panel that means the drillhole is covering less than 0.1% of the area of a panel at any given level.  There would likely still be considerable variability in the rock profile within panels and between individual drillholes and it is very unlikely that an individual drillhole will hit the point where category 1(c) material is present across the whole base of a particular panel, rather than a higher point where category 1(c) is present across some of the panel.

15.9.  The final excavated founding or toe levels for the panels were verified for approval by the Engineer on site during excavation, so the rock head level across the whole panel and, hence, the founding or toe level could be checked and identified.

15.10. Measurement Rule M12D provides [inter alia] that:

“Bedrock” shall be rock below the founding level as determined by the Engineer in accordance with the M&W Specification

15.11. The M&W (Material and Workmanship) Specification, part of Contract 823B, provides a definition of rock at clause 24.2(15) and bedrock at clause 24.2(16) thereof :

Rock is naturally occurring material of Grades I to III as classified in Table 4 of Geoguide 3 “Guide to Rock and Soil Descriptions”

“Bedrock” means rock which is defined by description to have been an originally solid in place rock mass below which Grade IV, V or VI material normally would not or has not been found.

16.  The above extraction of Attachment A referred to “rock head” and “Geoguide 3”.  There is a definition for the former in Consultancy Agreement No C803, which was one of the contractual documents of Contract 823B.  It set out the geotechnical conditions anticipated to be encountered during underground construction.  Paragraph 7.1 of that document contained a glossary of geological terms where “Rockhead” can be found, and it was defined as “the surface of the Bedrock”.  Although there may be difference between the parties on the relevance of this document, there is no disagreement that this is a correct definition.

17.  Geoguide 3 is a document produced by the Geotechnical Engineering Office of the Hong Kong Government.

18.  In addition to the above background, it is important for the understanding of the MRs to bear in mind that, firstly, underground condition varies, eg, even when one has excavated to a layer of rock, nature is such that it is highly unlikely for the depth of that layer to be uniform.  Secondly, underground condition is not fully known until the ground is opened up.  Thirdly, the MRs served, in part, the purpose of allowing the contractors to tender for the works without full knowledge of the underground condition. 

19.  Fourthly, the measurement exercise was never meant to be a precise one.  This is self-evident from the MRs.  One of the key constituents of the MRs is the “measurement horizon”, which is deemed to be at a fixed height of 1.5m above the highest point of the “theoretical bedrock line”.  Another example is the fact that TITR is measured at a fixed rate irrespective of the actual amount of rock or the combination of material excavated in that zone.  In the context of a construction contract, such rough and ready measurement is not uncommon and the logic can be easily understood. It is inherent in such a methodology, or perhaps in the nature of excavation work, that there is a risk that the underground condition may turn out to be less favourable than assessed (and vice versa).

Law

20.  The legal principles applicable to the construction of a contract are fairly trite.  They were set out in paras 436 to 445 of Award I.  I do not propose to repeat them all here, but to refer to some which are of particular assistance in this appeal. 

21.  I start with the well-known dicta of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913C-E :

“(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigororsly when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201:

‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”

22.  On behalf of Bauer, Mr Pennicott SC who appeared with Mr Niehorster, placed emphasis on the following dicta in Rainy Sky v Kookmin Bank [2011] 1 WLR 2900 :

“… the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant … the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (§14)

… the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. (§21)

Where the parties have used unambiguous language the court must apply it. (§23)

… having regard to the improbable result for which the landlords contended, only the most unambiguous of such clauses could properly be found to bear the landlords’ construction … (§24)

  … an appellate court is entitled to take account of the fact that an experienced judge of the Commercial Court reached that conclusion [the bank’s construction would have a surprising and uncommercial result]. (§41)”

23.  On the other hand, Mr Clayton highlighted to the court, firstly, part of the leading judgment in Arnold v Britton [2015] AC 1619, §§17 to 21 :

“17 First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

18. Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

19. The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, quoted by Lord Carnwath JSC at para 110, have to be read and applied bearing that important point in mind.

20. Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.

21. The fifth point concerns the facts known to the parties.  When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties.  Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.”

24.  Secondly, the dicta in Jumbo King Ltd v Faithful Properties Ltd (1992) 2 HKCFAR 279 at 296E-H :

“Quite often this exercise [the construction of a document] will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course, in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.”

25.  Mr Clayton and Mr Pennicott agreed that there is only 1 issue of law between them, namely, whether, as Mr Clayton contends, there has to be 2 possible constructions of a document before the court can resort to business common sense to reject one of the constructions as being unreasonable.  Mr Clayton relies on Rainy Sky SA v Kookmin Bank, supra, §16 (see also §23 and 40) :

“16 At para 18 Sir Simon identified the question of construction, substantially as set out in para 9 above, and said, at para 19:

‘There is no dispute about the principles of construction to be applied in order to answer this question.  The court must first look at the words which the parties have used in the bond itself.  The shipbuilding contract is of course the context and cause for the bond but is nevertheless a separate contract between different parties.  If the language of the bond leads clearly to a conclusion that one or other of the constructions contended for is the correct one, the court must give effect to it, however surprising or unreasonable the result might be.  But if there are two possible constructions, the court is entitled to reject the one which is unreasonable and, in a commercial context, the one which flouts business common sense.  This follows from the House of Lords decisions in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 where Lord Reid said: ‘The fact that a particular construction leads to a very unreasonable result must be a relevant consideration.  The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear’ and The Antaios [1985] AC 191, 201 where Lord Diplock said: ‘If detailed and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense it must yield to business common sense.’’”

26.  It is convenient to deal with that issue here.  I do not believe that there is a hard and fast rule as suggested by Mr Clayton.  Such an understanding of the law would not be consistent with Lord Hoffmann’s dicta in Investment Compensation Scheme (see para 21 above) which was almost invariably cited in all the subsequent authorities on construction of contract.  In my view, the court should take a holistic view of the relevant circumstances and the document to be construed, and be guided by the authorities and sound common sense.

Proper construction of the MRs

27.  Paragraphs 506 to 530 of Award (1), under the heading “Decision”, set out the Arbitrator’s construction of the MRs.  A copy of pgs 100 to 103 of Award (1), containing those paragraphs, is attached hereto as Annex III.

28.  In my respectful view, the MRs were poorly drafted.  The use of technical terms adds to the difficulty in understanding them properly.  Further, the similarity of some such terms gives rise to unnecessary confusion.  Furthermore, various concepts are inter-related.  Therefore, the lack of clarity in one concept is multiplied when a Rule, which contains a number of related concepts, is to be construed. 

29.  It is essential for the understanding of the MRs to have in mind not only the relevant background, but at the forefront of one’s mind the works required to be carried out by Bauer under the Sub-contract, which was the purpose for which the MRs were created.

30.  It appears that the general scheme of the MRs is reasonably clear.  The 4 types of excavation (see para 13 above) were to be paid for at different rates (save that Rock Class A and Rock Class B would be paid at an identical rate), and for purpose of the payment, some rough and ready assessment rules were devised with Diagram C1 of M12A provided for illustration purpose.  Rule M12B contains the definitions for the 4 types of excavated material.

31.  The central feature of the scheme is the “measurement horizon” (MH), which is an artificial concept devised under M12D and M12E for the rough and ready assessment.  In cases where the panel was “toed into bedrock”, the excavation above the MH would be paid for on the basis of Other Material and Rock Class A and Rock Class B.  The excavation below the MH would be paid for as TITR (the use of abbreviation helps to reduce the confusion).  Where the panel was not toed into bedrock, the excavation would be paid for only as Other Material, Rock Class A and Rock Class B. 

32.  The definitions of Rock Class A and Rock Class B in M12B refer to “measureable core” (MC) which was defined in M12C.  There are 2 requirements in the definition of MC, namely, a total recovery of at least 85% and RQD of at least 30.  It is very important for the proper understanding of this definition that it must be read with the definitions of Rock Class A and Rock Class B in M12B, because the length of the MC is to be found there and without which it is meaningless to speak of total recovery of at least 85%.  The lengths of MC for Rock Class A and Rock Class B are respectively more than 200mm but not exceeding 1300mm and exceeding 1300mm.

33.  There is no dispute that Category 1(c) rock might or might not satisfy the requirement of RQD  30.  In other words, this was an additional requirement over the quality of the rock. 

34.  The definition for TITR, in particular the use of the words “that rock”, is very difficult to understand.  Apart from linguistic problem, it is quite clear that the area of excavation represented by TITR would be made up of a mixture of soil and rock (and possibly other artificial material).  On the other hand, there is no dispute that for panels which are to be toed into bedrock, the material between the MH and the toe level would be paid at TITR rate.  It appears that the drafter(s) of the MRs probably had in mind to treat the TITR material as, notionally, a category of rock.  Hence, it came under the Third Division as one of the categories of “Excavation in rock” provided in the Second Division (see para 12 above).

35.  In order to find out where the MH would be, one needs to look firstly at M12D.  It is indeed challenging to try to understand that Rule, and it is the cause of much of the disagreements between the parties.  It is reasonable clear that M12D seeks to set out the parameters for working out a “theoretical bedrock line” (TB Line), and that line will in turn be used in M12E for working out the MH. 

36.  M12D starts off by referring to D-walls which are to be “keyed into bedrock”.  I believe that such words are synonymous with “toed into bedrock”.  It is unfortunate that the use of inconsistent terms has served to add to the confusion.  Despite the contrary suggestion by Mr Clayton, I do not believe that it is open to doubt that “toed into bedrock” is synonymous with “keyed into bedrock” for the following reasons: (a) the clear meaning of both terms; (b) the fact that they may be used interchangeably (Mr Clayton accepted that they may sometime be so used); and (c) the context of usage in the MRs, in particular M12E states that a MH shall be established for D-walls which are to be “keyed into bedrock”. 

37.  Two concepts have been introduced in M12D to work out the TB Line, namely, “theoretical bedrock level” (TB Level) and “theoretical founding levels” (TFL).  I agree with Mr Clayton that these concepts are related in that the TB Level is to be used to work out the TFL. Without the former, it is impossible to determine the latter.  Once the TFL is worked out based on the TB Level and the engineering requirements, then the TB Line is simply a matter of joining up the successive TFL at each drillhole.

38.  The third paragraph of M12D sets out a definition for “Bedrock”.  There are 2 propositions contained in the definition: (a) Bedrock “shall be rock below the founding level” and (b) the founding level will be “as determined by the Engineer in accordance with the M&W Specification”.  The second proposition is helpful to make clear that the founding level will be determined in accordance with the engineering criteria.

39.  I regret to say that it is very difficult to understand the first proposition as to what was intended or how it sheds any light on the rest of M12D.  If it simply means that the founding level shall be sitting on rock, then it is obvious and unnecessary.  There are 4 references to bedrock in the first paragraph of M12D.  I am unable to see how the first proposition may shed any light on the understanding of any of them. 

40.  The Arbitrator referred to this definition of bedrock in para 516 of Annex III, but there is no explanation on how the first proposition was understood.  The parties had not been able to offer any analysis in their extensive submissions which may assist in rationalising the first proposition.

41.  Doing the best I can, the only way to make sense of the first proposition is to read it in conjunction with Diagram C1.  A few points should first be made about Diagram C1.  Firstly, it is not in dispute that all the panels shown are keyed into bedrock (which is perhaps self-evident).  Secondly, although the legend for the dotted line with an arrow head does not use the word “theoretical”, in the context of Diagram C1, there is no reason to doubt that it refers to the TFL.  Thirdly, although the solid line at the bottom of each panel is not explained in the legend, I agree with Mr Clayton that it indicates where the toe/founding level as further verified by the Engineer[3] will be. 

42.  Reading the first proposition with Diagram C1, it is possible that the drafter(s) intended to make the point that the verified toe/founding level will be below the TFL.  This makes sense in that it is quite unlikely that the rock found in the MC will be present across the entire width of the panel, and hence the verified toe level will in all probabilities be lower (see para 15.8(1) above). 

43.  It is convenient to mention here that there was also a definition of “Bedrock” contained in the M&W Specification (see Annex III, para 521).  It is common ground that the M&W definition is relevant for the present purpose.

44.  Pursuant to M12E, the MH is deemed to be a horizon line at 1.5m above the highest point of the TB Line. 

45.  M12F disapplies M12D and M12E in respect of D-walls which are “not to be keyed into bedrock”.  I am not sure if the second sentence of M12F serves any useful purpose because the scheme is reasonably clear and can function without it.  Reading this Rule as a whole, it is reasonably clear that it was designed to explain that TITR rate would not apply to the excavation for panels which would not be keyed into bedrock. 

46.  M12G is not relevant for the present purpose. 

Ground 1

47.  With the above understanding of the MRs, I turn to the first ground of appeal (see para 5(1) above).  The arguments here rest within a small compass.  Mr Pennicott’s submission is founded on the conflict between the founding level and the bedrock line.  Where a panel is required to be keyed (or toed) into bedrock, it is to be keyed into the bedrock by 300mm (see para 15.5(1) above), and therefore the founding level and the bedrock line cannot coincide as shown on Diagram C1.  It appears from the Arbitrator’s analysis that he took the same view (see Annex III, paras 514 to 519).

48.  I must say that my initial analysis of the MRs agreed with the Arbitrator.  However, I am persuaded that the wordings of the MRs are too clear to allow any rewriting or contrary reading in this regard. 

49.  It is essential to bear in mind that the MRs set out a theoretical exercise.  It is quite clear that the choice of words by the drafter(s) could have been improved.  Language aside, I do not see anything wrong with using the TFL to work out a baseline (TB Line) and premised upon that baseline the MH is then created (for measurement purpose).  Bauer would be paid for the excavation all the way down to the founding level. 

50.  For the present purpose, the language used in M12D is quite clear.  The TB Line is formed by joining up the TFL.  There is no reason to believe that the use of the words “founding levels” in the second paragraph of M12D was accidental because “founding level” appears again in the definition of “Bedrock”.  The drafter(s) must have in mind a distinction between TB Line and TB Level when those terms were used, because different functions are to be served by them. 

51.  Further, Diagram C1 was specially provided for illustration, and it is consistent with what is stated in M12D.  This goes a long way to confirming that the choices of words were deliberate.

52.  Mr Pennicott suggested that a tenderer would find it odd that the dotted line with the arrow head is the “Founding levels determined by the Engineer”.  I do not believe that there is anything in the point.  There is no suggestion that any tender query was raised by any tenderer. 

Ground 2

53.  The argument here is whether the definition of MC in M12C applies to M12D resulting in an additional requirement that the rock to be identified in the MC must have a RQD of at least 30.  The Arbitrator rejected this argument as contrary to commercial sense (see Annex III, paras 507 to 513).  

54.  Mr Clayton had put forward a forceful submission in favour of applying M12C to M12D based on 6 points :

(1)  The MRs are quite short.  M12D follows immediately M12C and MC is used in inverted commas;

(2)  M12C was formulated in terms of general application: “For the purposes of classifying rock to be excavated in diaphragm wall trenches …”;

(3)  In the Preamble (see para 9 above), Part C, para 8.1(b), “rock” is defined in Preamble A, Class C (see also para 10 above). M12C is the only relevant definition;

(4)  It makes no sense for RQD  30 to be applied to Rock Class A and Rock Class B, which are to be found at a higher level (above the MH) but not below (generally rock quality is higher or less decomposed the deeper it is located);

(5)  Technical words should have the technical meaning given to them, unless something can be found in the context to exclude it (see Chitty on Contracts, 32 edn, rubric 13-053);

(6)  M12D cannot work without reading with M12C because the definition of bedrock (quoted in para 521 in Annex III) means that it has to be solid rock.  The qualification of a total core recovery of at least 80% in M12C is therefore essential to render M12D viable.

55.  In my view: (a) it is not altogether clear from reading the MRs whether M12C is meant to apply to all rock; and (b) JV’s case is difficult to accept conceptually and quite impossible to apply as a matter of practicality.

56.  Purely from looking at the language of the MRs, although formulated in terms of general application, M12C refers to classifying rock.  It is important to note that the definition of TITR also refers to rock, but plainly M12C cannot be applied to “that rock” because, inter alia, TITR is a mixture of material. 

57.  Further, with 1 exception, the terminology adopted in the MRs is to refer to the 2 types of Class A and Class B rock as “Rock Class A” and Rock Class B”.  The terminology suggests that these 2 classes of material received special treatment in the MRs.  This is consistent with the Third Division elaboration of “Excavation in rock”, under which Class A and Class B are identified specifically as “Rock”, whereas TITR is a different category of material.  The exception mentioned is the last paragraph of the definition of “Rock Class A and Class B” where the reference to Class A and Class B is preceded by “rock”. 

58.  In the premises, there is considerable force in the Arbitrator’s analysis that M12C was designed to classify the rock to be excavated as Class A and Class B (Annex III, para 509).  The Arbitrator is right that the use of inverted commas is inconsistent.  There are at least 2 references to drillhole which are not in inverted commas: in the legend in M12A and under the definition of Rock Class A and B in M12B.   

59.  I do not agree that M12D is unworkable without M12C.  To the contrary, for the reason set out in para 32 above, M12C is unworkable without the definitions of Rock Class A and Rock Class B contained in M12B.  This goes a long way to showing that the application of M12C is confined to Rock Class A and Rock Class B.

60.  For M12D, the MC requirements can be found in the engineering criteria for founding level.  This is what M12D is for – to measure the excavation work for panels to be keyed into bedrock.

61.  For these reasons, I am driven to the conclusion that the inclusive language used in the opening words of M12C is a reflection of infelicitous drafting.

62.  I also agree with the Arbitrator that it is contrary to commercial sense to construe M12D as imposing an additional requirement of RDQ  30.  It is common ground that such requirement is not to be found anywhere in the Sub-contract, save in the MRs, which were created to measure the excavation work. 

63.  Mr Clayton submitted that the additional requirement is justified because the parties had agreed to adopt different rules for measurement.  With respect, that argument is unhelpful or self-serving for the purpose of construing the MRs.  In any case, I find it illogical that the parties had agreed an additional requirement in the MRs for the measurement of work to be done without such requirement.  It is analogous to the tail wagging the dog.  I fail to see any reason why any reasonable contractor would have agreed to such terms, and therefore it is not a sensible construction of the MRs. 

64.  Hence, I find the JV’s construction of M12D (reading it with the additional requirement under M12C) conceptually unacceptable. 

65.  In additional, I have great difficulty seeing how the JV’s construction can work properly as a matter of practicality, which is another good pointer on the true and proper construction of the MRs. 

66.  The Arbitrator had touched upon this point in Annex III, para 512, where he referred to 2 panels, P071 and P192.  It is common ground that those panels were keyed/toed into rock in manner which satisfied the engineering criteria but were not paid at TITR rate.  Instead, they were paid at the rates for Other Material, Rock Class A and Rock Class B.

67.  The result is that, for Panel P071, more payment was due (primarily due to the higher volume of Rock Class A and Rock Class B) and for the other panel (P192), there was less payment.  I am unable to accept the suggestion that this is the result of the parties having agreed the MRs and that there is give and take in a rough and ready measurement.  Instead, I take the view that the inconsistency inherent in the construction advocated by the JV means that it would be quite difficult, if not impossible, for a reasonable contractor to price for this project and to calculate the risk involved.

68.  Like the Arbitrator, I find it unlikely that the parties would have contemplated that panels toed into rock were not going to be paid at TITR rate, and I agree that such a construction is not consonant with commercial sense.

69.  In addition, Mr Pennicott had pointed out a serious problem with importing the RQD  30 into the excavation for panels which are to be keyed/toed into rock.  The engineering criteria for such panels require the drillholes to extend at least 5m into Grade III or better rock with a total core recovery of not less than 85%, ie, Category 1(c) rock[4]. On the other hand, there is no equivalent guidance to identify the depth of RQD  30 required.

70.  What took place was that, firstly, the JV applied the Notes on Pre-drilling on Drawing 004B in support of its interpretation that the pre-drill was required to be at least 5m into RQD  30 so as to satisfy the requirement for key/toe in.   Secondly, there were many instances where there was no continuous core of RQD  30, which is unsurprising because there was no need for pre-drilling by reference to that requirement.  For these cases, the 5m of RDQ  30 was relaxed and assumptions of where the RDQ requirement was satisfied were made.  Consequently, there were cases where the RQD line and even the MH were below the actual toe level of the D-wall. 

71.  I am unable to see the contractual basis for the application of the RQD requirement by the JV.  I believe that the practical difficulties in applying the RQD requirement to M12D lay bare the fragility of JV’s case.

72.  The submission that the core data was only available after the Sub-contract was entered into, and therefore is irrelevant for purpose of construing the Sub-contract does not assist the JV.  The fact is that the ROD requirement has nothing to do with the work performed by Bauer.  There is no contractual basis to apply it to such work and it is unworkable to do so.

73.  In respect of the submission that the definition of rock is provided in the Preamble (see para 54(3) above), there are 2 matters to be considered.  Firstly, the quality of MRs does not reflect a carefully thought through process.  Secondly, the lack of such definition is not fatal in that the engineering requirements are clear and there is no suggestion that the excavation work was hindered by that deficiency.  In the premises, I do not believe that this point advances the JV’s case.

Ground 3

74.  With respect, I believe that the arguments here can be dealt with more swiftly.  The Arbitrator held that Category 1(d) material satisfies the definition of bedrock (or rock head) and that if the Category 1(d) rock head is less than 15m below the bottom of the base slab and at a different (higher) level to the Category 1(c) rock head, the D-wall panel will necessarily be keyed/toed into 1(d) rock before reaching the 1(c) rock head (more decomposed 1(d) is normally found higher than 1(c)) (see Annex III, paras 520 to 526). 

75.  On the first of the 2 holdings, and with respect, I am unable to agree.  Bedrock is defined as rock below which no Grade VI to VI (more decomposed) material would normally be found or has been found. I agree with the JV that according to this definition material containing Grade IV to VI cannot be bedrock. 

76.  The engineering criteria for Category 1(d) rock require a 50% minimum of core recovery of Grade I to III.  If the core recovery of Grade I to III gets to 85%, then it is Category 1(c).  In simple terms, 1(d) may contain 50-84% of Grade I to III.  However, as to the remainder (up to 26%), it would be highly unlikely, if at all possible, for there not to be any Grade IV to VI.  I therefore cannot see how Category 1(d) can satisfy the definition of bedrock. 

77.  It is important for any interpretative exercise to take a step back from the possible constructions to review if they sit with the purpose of the document and its various components as a whole, lest one becomes short-sighted by the construction of an individual term used in the document. 

78.  In my view, the founding criteria make a clear distinction between D-walls which are to be keyed/toed into rock and those which are not.  The MRs were designed to reflect that distinction.  It is quite clear that M12D is to measure the former and M12F expressly excludes from M12D the measurement of the latter. 

79.  I believe that enough has been said about construing the MRs in light of the excavation work required under the contract.  For panels which are to be keyed/toed into rock, they must keyed/toed into Category 1(c) and not 1(d).  Category 1(d) is only relevant under founding criteria 1(iii) (see para 15.5(1) above) and in those cases the D-wall needs only be founded on Category 1(d) or better rock.  This, I believe, is a very clear distinction, and I do not believe that it is appropriate to construe the MRs differently. 

Conclusions

80.  By reason of the aforesaid, I am of the view that no amendment of the MRs is justified; M12C does not apply to M12D; and Category 1(d) rock does not come within the definition of bedrock for the purpose of M12D.

81.  Counsel on both sides had indicated that the parties will endeavour to agree the terms of the order to be made as a consequence of this judgment.  I direct that an agreed draft order be produced for the approval by the court within 14 days from the date of this judgment. Failing complete agreement, a succinct joint letter be written to the court setting out the respective positions.  As indicated by the court in the course of the hearing, any unreasonableness may result in an adverse costs order.   

82.  I make an order nisi that one half of the costs of this appeal be paid by Bauer to the JV, to be taxed if not agreed.  Such an apportionment reflects the fact that at least half of the work in this appeal relates to Ground 2 on which the JV has lost. 

83.  Apart from expressing my gratitude to all counsel for their assistance and patience to the court in this very challenging case, I wish to make an observation on the procedure for leave application in a matter of the present type.

Leave application

84.  There was in this case an inter parte leave application which was heard in January 2017.  Following the judgment where DHCJ Lee gave leave to appeal, there was an application by Bauer for leave to appeal against that judgment.  That resulted in another hearing on 16 May 2017 and a Ruling by the learned Deputy Judge dated 26 May 2017.  Dissatisfied with the Ruling, Bauer then sought leave from the Court of Appeal.  That application was heard and dismissed on 24 August 2017 with Reasons for Judgment and Decision on Costs given on 4 September 2017. 

85.  Speaking for myself, I would have found it quite difficult to determine the application for leave to appeal against Award (1) without getting into much details and a great deal of assistance by counsel on both sides.  I believe that there is scope for a roll-up hearing for the leave application, which is sometimes adopted in judicial review proceedings, in an usually difficult case.  The decision whether to adopt such a procedure is of course that of the judge seized of the matter.  This procedure has the attractions of speed and saving of costs.  It will be in line with the underlying objectives embodied in O1A, r 1.

Annex 1 

Annex 2 

Annex 3