SECRETARY FOR JUSTICE v. SUN FOOK KONG (CIVIL) LTD.

1997, No. 219
(Civil)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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J U D G M E N T

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Godfrey, J.A. (giving the first judgment at the invitation of Power, V.-P.) :

Introduction

1. This is an appeal from an order of Barnett, J., made on 19 September 1997 in proceedings between the Secretary for Justice (the "respondent") and Sun Fook Kong (Civil) Ltd (the "appellant"). The proceedings raised a short point arising on a building contract which had been the subject of an arbitration award, which the judge was called on to reconsider. He came, like the arbitrator, to a conclusion unfavourable to the appellant and the appellant now appeals to this court.

2. The point at issue turns on the relationship between the various contractual documents entered into between the appellant and the respondent, which together constituted a remeasurement contract made on 11 June 1990 for road widening and a trunk sewer at Tuen Mun New Town.

3. The point cannot sensibly be identified without first referring to the relevant provisions of the contractual documents, to which I now turn.

The contractual documents

4. The contract documents consist of Articles of Agreement, containing General and Special Conditions, and include priced Bills of Quantities.

5. The General Conditions of Contract include the following provision, General Condition 5(1), which, so far as is material, reads as follows :-

"5. (1) Save to the extent that any Special Condition of Contract provides to the contrary the provisions of these General Conditions of Contract shall prevail over those of any other document forming part of the Contract.

(2) Subject to the foregoing the several documents forming the Contract are to be taken as mutually explanatory of one another ....."

I need not read further from General Condition 5.

6. General Condition 79 provides for interim and final payments under the contract. General Condition 79(1) reads as follows :-

"79. (1) Within 21 days (unless otherwise stated in the Contract) of the date of delivery to the Engineer of the Contractor's statement in accordance with Clause 78, the Engineer shall value and certify and within a further 21 days the Employer shall pay to the Contractor after deducting previous payments on account, if any, and any other sum deductable by the Employer under the Contract the sum which in the opinion of the Engineer is due, based on the rates in the Contract where appropriate, in respect of the [items (a) to (e) listed in Clause 79(1)]."

7. There is a proviso to General Condition 79(1), which reads as follows :-

"Provided that the total certified sum shall be adjusted by the Engineer to take into account :-

(i) the retention of the percentage stated in the Contract until the sum retained reaches the limit of Retention Money stated in the Contract; and

(ii) any adjustment to be made for fluctuations in the cost of labour and materials in accordance with Clause 89."

8. Clause 89 deals with fluctuations, as indicated; but Special Condition of the Special Conditions of Contract provides that sub-clauses (1) and (2) of Clause 89 of the General Conditions of Contract are to be replaced by different provisions contained in Special Condition 23.

9. The Bills of Quantities which formed part of the contract are preceded by General Preambles. General Preamble 10 confers a privilege on the tenderer. It reads as follows :-

"10. A tenderer may insert a lump sum addition or deduction which shall not exceed 10% of the total of the Bills of Quantities before the addition or deduction of that lump sum against the Adjustment Item given in the Grand Summary. For the purposes of Clause 79 of the General Conditions of Contract (1985) additions or deductions on account of the amount, if any, of the Adjustment Item shall be made by instalments in interim certificates in the proportion that the amount referred to in Clause 79(1)(a), (b), (c), (d) and (e) of the General Conditions of Contract (1985) bears to the total of the Bills of Quantities excluding the Contingency Sums and the Adjustment Item. Such interim additions or deductions shall be made before deduction of the Retention Money and shall not exceed in the aggregate the amount of the Adjustment Item. Any balance of the Adjustment Item outstanding after interim additions or deductions shall be added to or deducted from the final payment.

For the avoidance of doubt, the effective value referred to in Clause 89 of the General Conditions of Contract (1985) shall include all sums payable in respect of the Adjustment Item."

The appellant took advantage of this privilege when submitting its tender, creating a negative adjustment item reducing the contract sum from $101,313,630 to $98,618,018.

The issue

10. The issue between the parties can now be identified. The issue is whether the provisions of General Preamble 10 relating to the "effective value" have effect notwithstanding the provisions of General Condition 5. Mr. Clayton for the appellant now very properly concedes that the necessary price fluctuation calculations to be made by the engineer by way of adjustment to the total certified sum would have to take into account, were it not for General Condition 5, the provisions of General Preamble 10 (leading to the result for which the respondent contends). But, he says, the engineer is precluded from applying General Preamble 10 because of the provisions of General Condition 5(1). I go back to that, to note again that the parties have agreed that the provisions of the General Conditions of Contract are to prevail over those of any other document forming part of the contract, save only to the extent that any Special Condition of Contract provides to the contrary.

The argument for the appellant

11. The argument for the appellant is that the parties have, in effect, given their own directions as to how their contractual arrangements are to be construed. In the face of General Condition 5, says the appellant, it is simply not open to the respondent to rely, as it otherwise could, on the provisions of General Preamble 10 as directing the engineer as to how the necessary adjustments are to be calculated. In those circumstances, says the appellant, the judge, who accepted that General Preamble 10 could be used to lead to the result for which the respondent contended, was wrong.

Conclusion

12. In my judgment, there are two ways of approaching this problem.

13. First, the very general words of Clause 5(1) and (2) are not, as it seems to me, intended to defeat any specific contractual arrangement which the parties may come. They are intended simply to provide guidance as to the proper approach to the construction of the contract in the case of inconsistency. The provisions of General Preamble 10 are intended to record the contractual arrangements made by the parties to regulate the position in the event of the tenderer exercising the privilege conferred on him. Obviously, this produces a variation or modification in the contractual arrangements which would otherwise have obtained; but it does not produce inconsistency. The deliberate act of the parties, introducing this variation or modification, must on any principle of construction take precedence over the general words of General Condition 5, which were in no way intended to preclude the parties from entering into whatever contractual arrangement as they might want to do which varied or modified what would otherwise have been the applicable provisions contained in the General Conditions or the Special Conditions of Contract.

14. Second, as it seems to me, it may be said that the adjustments to be made under the proviso (ii) to Clause 79(1) of the General Conditions of Contract, including as they do an adjustment to be made for fluctuations in the cost of labour of materials in accordance with Clause 89, can be read anyway as comprehending the adjustments which have to be made in order to give effect to the intention of the parties as expressed in General Preamble 10, including in particular that part of it which provides precisely and distinctly "for the avoidance of doubt" how the engineer is to make the necessary calculation.

The result

15. In my judgment, the judge was right to accept the respondent's case on the point in issue, and I would propose that we dismiss this appeal.

Mayo, J.A. :

16. I agree with what has been said by Godfrey, J.A. There is nothing that I can usefully add.

Power, V.-P. :

17. I also agree. The appeal is dismissed with costs.