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CACV 301/2019
[2020] HKCA 830
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 301 OF 2019
(ON APPEAL FROM HCCT NO 4 OF 2018)
________________________
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IN THE MATTER of the Arbitration Ordinance (Cap 609) |
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and |
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IN THE MATTER of an Arbitration |
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BETWEEN
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MAEDA KENSETSU KOGYO KABUSHIKI KAISHA also known as MAEDA CORPORATION |
1st Plaintiff
(1st Respondent in the Arbitration) |
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CHINA STATE CONSTRUCTION ENGINEERING (HONG KONG) LIMITED |
2nd Plaintiff
(2nd Respondent in the Arbitration)
(together as “the Plaintiffs”) |
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and |
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BAUER HONG KONG LIMITED |
Defendant
(Claimant in the Arbitration) |
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| Before: |
Hon Kwan VP, Yuen JA and Barma JA in Court |
| Date of Hearing: |
16 September 2020 (remote hearing) |
| Date of Judgment: |
16 October 2020 |
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J U D G M E N T
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Hon Kwan VP:
1. On 30 August 2018, M Chan J granted leave to the plaintiffs (“the JV”) to appeal[1] on two questions of law arising out of the 2nd Interim Award of the arbitrator, Sir Vivian Ramsey, QC, published on 3 January 2018 as corrected on 3 March 2018. The judge handed down her judgment on the appeal on 9 April 2019 (“the Judgment”). She allowed the appeal of the JV in respect of one of the questions, namely, whether there was compliance with the conditions precedent to give notice under clauses 21.1 and 21.2 of the Sub-Contract between the JV and the defendant (“Bauer”)[2]. She held that Bauer had failed to give proper notice under clause 21.2, and that the arbitrator’s decision to the contrary was wrong in law[3].
2. Bauer appealed to this court against the Judgment with leave granted by the judge on 3 June 2019[4].
3. The ambit of this appeal is very narrow, and turns on the proper construction of clause 21.2.1 of the Sub-Contract.
Background
4. The relevant background matters for the proper understanding of the issue in this appeal may be related as follows.
(1) General background and a short chronology
5. The JV was the main contractor under two contracts (Contracts 823A and 823B) entered into with the Mass Transit Railway Corporation (“MTRC” or “the Employer”) for the construction of tunnels for the Hong Kong to Guangzhou Express Rail Link. The JV entered into sub-contracts with Bauer for the excavation for and installation of diaphragm wall works for each of the contracts. Disputes arose between the JV and Bauer and the arbitrations (known as the 823A Arbitration and the 823B Arbitration), which were dealt with in tranches, were heard by the same arbitrator. The arbitrator delivered his 1st Interim Award in the 823B Arbitration on 22 June 2016[5], the 2nd Interim Award on 3 January 2018[6] and the 3rd Interim Award on 12 March 2018[7]. The question of law on notice compliance under clause 21.2 arose in the 2nd and 3rd Interim Awards.
6. The arbitrator gave a short chronology in the 2nd Interim Award at §§62 to 76. The relevant parts read as follows:
“62. … a brief chronology of some of the more important matters which arose after commencement of the diaphragm wall work in the Cut and Cover (“C&C”) section on 21 June 2011 and in the ERS [Emergency Rescue Sidings] on 28 June 2011.
63. Progress during the first month of operations was slow and Bauer makes a claim for the disruption which it says it suffered to the first 17 panels in the ERS constructed up to 17 August 2011 and the first 4 panels in the C&C constructed up to 25 July 2011.
64. Discussions had taken place between the JV and Bauer about Delay Recovery Measures to make up time which had been lost because of the later start to diaphragm wall construction caused be the delayed possession of the Site. … This forms the basis for the claim for Sub-Contract DRM1.
65. On 27 and 28 July 2011 meetings took place between Bauer and the JV to discuss the poor progress which was being achieved and which did not match the planned production rate 1 panel per day in the ERS and 1 panel every 1.5 days in the C&C, shown by the Preliminary Programme. Bauer stated that the reason for the slow progress was the additional quantities of rock excavation and greater difficulties in excavation of the rock due to the increase in socket depth and inclined rock head surfaces for the panels constructed so far, together with other factors.
66. On 27 July 2011 the JV gave notice to MTRC that the existing level of Category 1(c) and Category 1(d) rock obtained for Granodioritic rock to be encountered in the excavation of the ERS and C&C obtained from per-drilled boreholes indicate that the levels are generally higher than the corresponding Baselines for rock levels included in the GBR [Geotechnical Baseline Report].
67. On 5 August 2011 the JV instructed Bauer to take measures to expedite based on certain additional resources. … on 28 September 2011, the JV confirmed that Bauer was required to appoint Intrafor and Bachy to carry out specific parts of the Sub-Contract Works. This forms the basis for the claim for Sub-Contract DRM2. …
70. At a meeting held on 3 November 2011 between MTRC, the JV and Bauer to discuss rock excavation quantities both MTRC and Bauer put forward the quantities of Category 1(c) material from the GBR and the actual quantity of material based on the predrills. MTRC identified that the mixed rock and hard layers above the Category 1(c) line might also have affected progress.
71. Bauer had engaged Geo-Design to produce Baseline quantities and actual quantities of Category 1(c) and 1(d) rock and material with SPT [Standard Penetration Test] ˃200 and mixed ground. A table was produced by Geo-Design on 4 November 2011 and subsequently Geo-Design produced a report in December 2011 and further reports … ”
(2) Bauer’s claims in respect of unanticipated ground conditions
7. In the arbitration, Bauer made claims in relation to a change in the quality and an increase in the quantity of rock which it said it was required to excavate to construct the diaphragm walls. As stated in the 2nd Interim Award:
“97. Bauer’s primary contention is that it is entitled to claim on the basis of a variation for unanticipated ground conditions. It submits that the GBR formed part of the Sub-Contract and, in addition, constituted an express contractual statement of the geological conditions that it was anticipated that Bauer might encounter during the execution of the Sub-Contract Works. Further, it submits that the Geotechnical Baselines in Section 7 of the GBR formed part of the Sub-Contract for the purposes of determining if Bauer had encountered unanticipated geological conductions during the execution of the Sub-Contract Works in relation to a claim against the JV. In particular, Bauer contends that additional quantities and changes to the qualities of the rock from the quantities and quality identifiable and/or referred to in the GBR constituted a Variation and/or Sub-Contract Variation for which Bauer is entitled to an extension of time pursuant to Clause 14.3.3 and additional payment pursuant to Clauses 19 and/or 21.1.6 of Sub-Contract. Specifically, it submits that the broad definition of a “Sub-Contract Variation” under Clause 1.2.7A of the Sub-Contract, means that any change in or modification to the Sub-Contract Works would constitute a Sub-Contract Variation.
98. In addition, Bauer submits that, regardless of whether the JV in fact itself has pursued such a claim under the Main Contract, it has a stand-alone right to claim for changed ground conditions pursuant to Clauses 21.1.1 and 8.3.4 of the Sub-Contract.” (emphasis supplied)
8. The full provisions of clause 21 are set out in an appendix to this judgment. Clause 21.1 provides for a claim for “additional payment or loss and expense” due to one or more of six events, occurrences or matters specified in clauses 21.1.1 to 21.1.6. Of particular relevance are clauses 21.1.1 and 21.1.6 which relate to:
“21.1.1 any circumstances or occurrence as a consequence of which the Contractor is entitled to additional payment or loss and expense under the Main Contract;”
“21.1.6 any Variation or Sub-Contract Variation”.
9. The arbitrator rejected Bauer’s primary claim pursuant to clause 19 and/or clause 21.1.6 for these reasons[8]:
“Whilst, as set out below, I have found that the final changes to the founding level were instructed as Variations or Sub-Contract Variations and that such changes were instructed, I do not consider that Bauer is entitled to a Variation or Sub-Contract Variation merely because there was a change in the conditions which could have been foreseen and that this had an effect on the work. An essential part of the variation mechanism is that there has to be an instruction by the Engineer and/or by the JV. Where in carrying out the diaphragm wall work, Bauer encountered unanticipated ground conditions, it was still obliged to carry out the same work in terms of the volume of material which had to be excavated and there was no change to the scope of the work. Nor was there any instruction. I therefore accept the JV’s submission that the changed ground conditions do not, in themselves, give rise to payment as a Variation or Sub-Contract Variation, in the absence of an instruction.”
10. That leaves the alternative claim pursuant to clause 21.1.1, which was described as a “like rights” claim in that it was premised on the JV’s entitlement to additional payment or loss and expense under the relevant provisions of the Main Contract. Clause 21.8 provides that “in respect of any claim made under Clause 21.1.1 and subject to the Sub-Contractor’s compliance with the condition precedents set out in this Clause 21”, on receiving any amount in respect of the...
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