TEAMBO ENGINEERING LTD v. HONG KONG CONSTRUCTION (HOLDINGS) LTD

HCCT 1/2005

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 1 OF 2005

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D E C I S I O N

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I.  Introduction

1.  HKC was the main contractor for Science Park Phase 1A.  HKC sub-contracted some of the project's metal and shopfront works to SCG (HK) Limited.  SCG further sub-contracted those works to Hai Da.  Hai Da in its turn engaged Teambo to carry out the metal and shopfront works under 2 sub-contracts.

2.  In October 2001, Hai Da having experienced financial difficulty, HKC (with Teambo's agreement) assumed Hai Da's rights and obligations under Hai Da's sub-contracts with Teambo.

3.  Teambo is now suing HKC for unpaid sums alleged due under its sub-contracts.  HKC denies that any amount is due.  It applies to stay Teambo's action to arbitration. 

4.  The question is whether Teambo's sub-contracts incorporate an arbitration agreement.  The sub-contracts can be treated as identical in material terms.  I shall therefore focus on the metal works sub-contract, my conclusions on that agreement applying equally to the other.

II.  Discussion

5.  The main contract between HKC and the Employer consisted of General Conditions of Contract (GCC) and Special Conditions of Contract (SCC). 

6.  The GCC were effectively the Government Standard Form for Building Works (1993 Edition) (the Standard Form).  GCC 86 of the Standard Form provides for mediation followed by arbitration.  But for the purposes of the main contract, SCC 81 deleted GCC 86 and replaced it by a multi-tiered mechanism for dispute resolution including (in the last resort) arbitration.

7.  The metal works sub-contract provided as follows in a section entitled "Brief Details of Main Contract Applicable in this Sub-Contract" (the Brief Details):-

“	(j)	Form of Main Contract:  Articles and Agreement and the General Conditions of Contract for Building Works (Form GF 502 - 1993 Edition) as modified by any Special Condition of Contract.
	(k)	Special Conditions of Contract: As per attached Page No. SCC/50, SCC/51, SCC/52."

SCC pages 50-52 did not contain SCC 81, which was in SCC pages 29-44.  Only SCC pages 50-52 were bound into the metal works sub-contract.

8.  Chinese Articles of Agreement included in the metal works sub-contract provided in art.15 as follows (in translation):-

"The Conditions of Tender, the Conditions of Subcontract, the General Specification, Special Conditions of Subcontract, Party B's tender, the Particular Specification, Drawings, the specifications for the construction materials, the Preambles, the Bills of Quantities, the Schedule of Rates and other conditions appended to this Subcontract, etc. carry the same legal enforceability as this Subcontract.  All are mutually explanatory."

9.  Chinese Special Conditions of the metal works sub-contract stipulated in cl.1(1) as follows (in translation):-

".... The Conditions of Contract and requirements in the Main Contract must also be implemented, and all relevant responsibilities and duties owed by our Company to the Employer and the Employer's representative under the Main Contract would similarly be applicable to the Subcontractor."

10.  As a matter of construction, Brief Details §§(j) and (k) must preclude the incorporation of SCC 81 into the metal works sub-contract.  If SCC 81 were intended to apply, it is difficult to see why SCC pages 29-44 were not mentioned in Brief Details §(k) and were not bound into the metal works sub-contract. 

11.  Brief Details §(j) construed in isolation could conceivably have brought SCC 81 into the metal works sub-contract.  Taken alone, Brief Details §(j) might be read as importing the GCC applicable to the main contract in the manner modified by all the SCC peculiar to the main contract.

12.  However, some effect must be given to Brief Details §(k). If Brief Details §(j) already incorporated the main contract's SCC, there would be no need for a specific clause bringing in certain (but not all) pages of the SCC.  The operative maxim is  "expressio unius, exclusio alterius".  Reference to specific pages of the SCC excludes application of the other pages of the SCC.

13.  Chinese Articles of Agreement art.15 does not affect the foregoing analysis.  In mentioning the "other conditions appended to this Subcontract, etc.", art.15 could not be incorporating SCC 81 which is neither mentioned in nor bound into the metal works sub-contract.

14.  Nor can Chinese Special Conditions of Subcontract cl.1(1) lead to incorporation of SCC 81.  Clause 115. appears under the heading “The scope and standard of the Metal Works”.  Thus, the words from cl.1(1) quoted above apparently relate only to standards and specifications found in the main contract.

15.  In any event, given Brief Details §§(j) and (k), when referring to "[t]he Conditions of Contract and requirements in the Main Contract", cl.1(1) must be concerned with those terms of the main contract which have been stated in the Brief Details to apply to the metal works sub-contract.  In other words, cl.1(1) cannot be read in isolation, but must be construed in light of Brief Details §§(j) and (k).  To do otherwise, would render Brief Details §§(j) and (k) pointless.

16.  Now, is it possible that GCC 86 has been incorporated into the metal works sub-contract by the reference to the Standard Form in Brief Details §(j)?  Mr. Tsang (appearing for HKC) says yes.  But I do not think that GCC 86 can be treated as part of the metal works sub-contract.  To see why, it is necessary to look at the Brief Details more carefully.

17.  The Brief Details explicitly incorporate "Details of the Main Contract Applicable to this Sub-Contract".  But GCC 86 is not a "detail of the main contract", because it has been deleted by SCC 81.

18.  By the same token, Brief Details §(j) expressly refers to the "Form of Main Contract".  From an objective standpoint, that reference must indicate an intention to incorporate into the metal works sub-contract only those GCC of the Standard Form which are part of the main contract.

19.  Thus, although the dispute resolution system in SCC 81 is not incorporated into the metal works sub-contract for the reasons discussed, the deletion of GCC 86 by SCC 81 cannot be ignored when considering whether GCC 86 applies to the metal works sub-contract.  The simple truth is that GCC 86 is not part of the main contract and therefore cannot be imported as a main contract term.  To put it in another way, Brief Details §(j) does not incorporate all and sundry GCC in the Standard Form, but only those GCC which are part of the main contract.

20.  I am fortified in my conclusion on GCC 86 by a further consideration.

21.  As Ms. Mak (appearing for Teambo) points out, it is hard to see how GCC 86 could govern the relationship between Teambo and HKC (or Hai Da) in practical terms.

22.  GCC 86 provides for the reference of any dispute between main contractor and employer (or presumably (say) contractor and sub-contractor) to the Architect.  If the Architect fails to decide within 28 days or if, the Architect having decided, a party is unhappy with the Architect's decision, the Architect’s conclusion may be brought within 28 days to a mediator or arbitrator.

23.  There is no direct contractual nexus between the project Architect on the one hand and Hai Da or Teambo on the other.  If Hai Da or Teambo had approached the Architect with a dispute, it is unlikely that the Architect would have regarded himself as authorised or able to deal with the dispute.  The same result would apply to disputes between HKC and Teambo.  HKC would have been in no better position with the Architect on such disputes than Hai Da (into whose place HKC stepped).

24.  Following Astel-Peiniger Joint Venture v. Argos Engineering & Heavy Industries Co. Ltd. [1994] 3 HKC 328, one might treat the provisions relating to the Architect in GCC 86 as surplusage and ignore them.  However, such provisions constitute a significant part of GCC 86.  Ignoring the Architect's function in GCC 86 and reading the clause as (in reality) merely an agreement directly to arbitrate all disputes, would result in a radical re-writing of GCC 86.  The better view must be that the parties to the metal works sub-contract could never have intended that GCC 86, having been deleted from the main contract, should be restored to the sub-contract.

III.  Conclusion

25.  Teambo’s sub-contracts do not incorporate arbitration agreements.  HKC's application for a stay of Teambo's action is dismissed.