Professional Documents
Culture Documents
UDL Argos Engineering & Heavy Industries Co LTD and Yau Lee Construction Co LTD HCCT 32008
UDL Argos Engineering & Heavy Industries Co LTD and Yau Lee Construction Co LTD HCCT 32008
NO. 3 OF 2008
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IN THE MATTER of an
ARBITRATION
and
IN THE MATTER of the
Arbitration Ordinance (Cap.
341)
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BETWEEN
UDL ARGOS
Applicant
ENGINEERING &
(Claimant in
HEAVY INDUSTRIES CO
Arbitration)
LTD
and
YAU LEE CONSTRUCTION
Respondent
CO LTD
(Respondent
in
Arbitration)
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AND
HCCT 25/2008
NO. 25 OF 2008
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IN THE MATTER of an
ARBITRATION
and
IN THE MATTER of the
Arbitration Ordinance (Cap.
341)
----------------------
BETWEEN
UDL ARGOS
Applicant
ENGINEERING &
(Claimant in
HEAVY INDUSTRIES CO
Arbitration)
LTD
and
YAU LEE CONSTRUCTION
Respondent
CO LTD
(Respondent
in
Arbitration)
----------------------
----------------------
JUDGMENT
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I. INTRODUCTION
1. In June 1996 UDL entered into a Sub-Contract with Yau Lee for
the installation of structural steelwork in the Air Mail Centre at Chek
Lap Kok Airport. Disputes arose between UDL and Yau Lee which
were eventually referred to arbitration pursuant to the Sub-Contract.
II. DISCUSSION
A. Provisional Quantities
4. The Arbitrator held in light of this that the agreed lump for the Sub-
Contract could only be revised in limited circumstances. Two such
situations were alterations in cost centre values and variations. This
much was clear (the Arbitrator thought) from cls.8 and 9 of the Sub-
Contract Conditions.
5. The Arbitrator rejected Yau Lee’s submission that the agreed lump
sum could be revised to take account of mere errors in the Bills of
Quantities .
6. Yau Lee had argued that Clause 68(3) of the Main Contract had
been incorporated into the agreement with UDL by reason of cl.3 of
the Sub-Contract.
9. But the Arbitrator held that cl.68(3) had not been incorporated into
the Sub-Contract. He stated (at Award I, §34):-
“Clause 3 of the sub-contract has a particular purpose of ensuring
that the sub-contractor carries out the work so that the work itself
complies with the main contract, and such that the sub-contractor
does not cause the main contractor to be in breach of the main
contract. It does not have the effect of incorporating what are
essentially the commercial terms of the main contract into the sub-
contract in a way that would alter the basis on which the sub-
contractor is entitled to be paid. Therefore, unless there are direct
provisions within the sub-contract that allow for re-measurement in
the event of errors in the bills, I do not think that the sub-contract
allows for it.”
12. For the same reason that he did not believe cl.68(3) to be part of
the Sub-Contract, the Arbitrator rejected the suggestion that the
definition of “Provisional Quantities” in the Main Contract had been
incorporated into the Sub-Contract. Nonetheless, having heard expert
evidence, the Arbitrator thought (at Award I, §38) that in normal
industry practice the designation “Provisional” in Bill 9.5 was:-
“an indication that the item in question was, at the time of tender,
incapable of accurate estimation or measurement, and would be re-
measured when completed, with the price adjusted to reflect the re-
measurement. This would be the case even in a contract which is
otherwise a ‘Lump Sum’ contract.”
13. The Arbitrator recognised that there was some ambiguity in Bill
9.5 as to what precisely the word “Provisional” was meant to qualify
whenever it appeared. The word could conceivably describe the
stipulated price or even the relevant work itself.
14. Nonetheless, on the basis that the word “Provisional” was intended
to apply to quantities, the Arbitrator noted that on the strict wording of
the Preamble to the Bills of Quantities , there could be no alteration
of the agreed contract price even if the quantities designated
“Provisional” were re-measured. That is because, on a strict reading
of the Preamble, there could only be an adjustment of the lump sum if
there were an adjustment to a Provisional Sum (as opposed to a
Provisional Quantity).
15. But how could this be reconciled with what the Arbitrator found
to be standard industry practice “to re-measure provisional quantities
which have been included in a contract as provisional”?
16. The Arbitrator resolved the dilemma as follows (at Award I, §45):-
“In my view there is a legitimate reconciliation. I think the clear
intent of the contract was to maintain a lump sum price for
everything apart from the things which were said to be provisional. I
do not think that by the use of the words ‘Provisional Sums’ in the
preambles the author of the bill was intending to exclude the
remeasurement of a bill which everybody at the time must have
recognised was provisional (either in its quantities, or in its price). I
do not think that the words were used in their strict sense to draw a
distinction between Provisional Sums and Provisional Quantities,
thereby allowing an alteration to the price for Provisional Sums, but
not for Provisional Quantities. Such a distinction would be odd in
this contract, because apart from bill 9.5, there is nothing which is
provisional. There are no Provisional Sums unless the word
‘Provisional’ in bill 9.5 qualifies the sum of that last bill. Thus, if it
does not qualify the sum, but qualifies the quantities, there would be
no sense in including the words in the preambles to allow an
alteration to the contract price for Provisional Sums. There would be
no Provisional Sum in the contract to alter. Thus the words must
have been intended to cater for something else, and the only other
thing which they would sensibly cater for would be an alteration in
respect of provisional quantities.”
17. This meant that the lump sum price in the Sub-Contract could be
substantially revised downwards to take account of a re-measurement
of the provisional quantities in Bill 9.5.
18. Mr. Barrie Barlow SC (appearing for UDL) submits that the
Arbitrator was obviously wrong. Mr. Barlow suggests that, given the
Sub-Contract was for a lump sum, the risk of changes in quantities was
on Yau Lee. The Bills of Quantities were simply (Mr. Barlow
contends) a guide to assist UDL and other tenderers in arriving at their
lump sum tenders.
19. Mr. Barlow further suggests that the Arbitrator confused the
“different and distinct” concepts of Provisional Sums and Provisional
Quantities. The two concepts (which are defined in the Main Contract)
cannot (Mr. Barlow says) be equated with each other in the way that
the Arbitrator did.
21. The Arbitrator accepted that the Sub-Contract was for a lump
sum. But he inferred from the Preamble that the lump sum could be
adjusted in certain circumstances, including the situation of
Provisional Sums. The Sub-Contract was not a pure lump sum
agreement. The Arbitrator therefore had to determine whether, as a
matter of construction, the use of the word “Provisional” in bill 9.5
was an indication that the lump sum could be adjusted upon a re-
measurement of the quantities apparently designated as “Provisional”.
22. I do not think that it is fair to say that the Arbitrator confused
“Provisional Quantities” with “Provisional Sums”. He was plainly
aware of the distinction, because (as we have seen) he drew attention
to it in Award I.
B. Interest
25. By Award I the Arbitrator ordered Yau Lee to pay UDL a principal
sum of some $3.4 million. On the question of interest, the Arbitrator
then held as follows (at Award I, §102):-
“I turn therefore to an assessment of the rate and period of
interest. The starting date claimed is 1 March 1999, being one month
after the final account was submitted. Even allowing for a
reasonable time for negotiation on the final account, proceedings
probably could, and should, have been commenced by the time of the
Scheme in April 2000. An arbitration of this case would reasonably
have been concluded within about 18 months of commencement (as
indeed it has in fact taken, even some 6 years later). Thus, if [UDL]
had pursued its entitlement with reasonable diligence, an award,
including interest, could reasonably have been expected within say
2½ years from the submission of the final account. On this basis, this
award has been delayed by some 6 years. I am prepared to allow
some leeway to the Claimant, on account of the disruption that may
have occurred as a result of the Scheme, therefore, I will allow
interest for a total of three years.”
26. Mr. Barlow submits that the Arbitrator’s approach was obviously
misconceived. UDL (Mr. Barlow notes) had been kept out of a
substantial net amount over the period disallowed by the Arbitrator. It
should (Mr. Barlow says) only be in exceptional circumstances that
interest is refused to run from the notional date when (in the ordinary
course of business) a principal sum ought to have been paid to the date
of an award.
C. Cost
31. The question then was whether the Arbitrator could consider the
Calderbank offer made by the letter dated 22 May 2007. On the face
of ACP Rule 18 he could not do so.
32. But the Arbitrator noted that the parties had exchanged a series of
“without prejudice save as to costs” letters between them. In the
course of such correspondence, Yau Lee had made settlement offers
leading up to its final proposal of $4.15 million and UDL had put up
alternative offers.
33. From this, the Arbitrator concluded that the parties should be
treated as having mutually waived the strict application of Rule 18
even if that provision formed part of the ACP Rules governing the
arbitration.
34. It was pointed out to the Arbitrator that the parties’ positions were
not symmetrical. Thus, while Yau Lee as debtor could make a
payment into Court, UDL as creditor could not. Any offer by UDL to
accept a lesser sum could only be made by letter.
36. 2. The Arbitrator therefore took the 22 May 2007 offer into
account. Consequently, exercising his discretion on costs, he
essentially ordered that UDL bear the costs of the reference to
arbitration from 22 May 2007.
37. Mr. Barlow suggests that the Arbitrator was plainly wrong in so
doing. Mr. Barlow contends that the Arbitrator exceeded his
jurisdiction.
III. CONCLUSION
40. The result is that leave to appeal is refused on the 3 grounds raised
by UDL. UDL’s Notices of Motion are dismissed.
(A.T. Reyes)
Judge of the Court
of First Instance
High Court
Mr Barrie Barlow, SC instructed by Messrs Huen Wong & Co, for the
Applicant
[1] Wrongly referred to by the Arbitrator in the text of Award II, §25
as “the Claimant”.