SANG HING MECHANICAL & ELECTRICAL ENGINEERING LTD v. ARNHOLD & CO LTD

HCA 3891/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3891 OF 2003

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D E C I S I O N

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1.  On 20 May 2004 there were two summonses heard before Reyes J.  The first summons was issued by the Defendant to this action on 18 November 2003 and it was a summons for specific discovery of a certain document.  The second summons was issued on 27 January 2004 also by the Defendant and it was a summons for the stay of this action on the ground that the parties had entered into an arbitration agreement to submit the subject matter of this action to arbitration.

2.  Reyes J heard the summons for discovery first.  He made an order that “the cost of the Defendant’s application by way of summons filed on 18 November 2003 to the Defendant to be taxed if not agreed in any event”.  He did not have to make any order for specific discovery because by 20 May 2004, the Plaintiff had already supplied the document requested to the Defendant.  Thus all that the Judge needed to deal with was the cost of the application and the summons.  He then heard the summons for stay of the proceedings.  He ordered that “all the proceedings in this action be stayed”.  As to the cost of the application for stay, Reyes J ordered that “cost of the Defendant’s application by way of summons filed on 27 January 2004 be to the Defendant payable forthwith to be taxed if not agreed.”

3.   On 17 June 2004 there was an appointment for the taxation of the bills for the summons of 18 November 2003 and also the summons of 27 January 2004.  Eventually the taxation came before Mr. Registrar C Chan on 30 September 2004.  After hearing the parties on 30 September 2004, on 16 November 2004 Mr. Registtrar Chan handed down his decision.  He ruled that because the cost order in relation to the summons of 18 November 2003 was that the Defendant was awarded cost “in any event”, he “did not consider it proper to tax the costs attributable to those items in the bill relating to the cost order resulting from the Defendant’s application by way of summons filed on 18 November 2003.” 

4.  On 29 December 2004 the Defendant asked for leave to file an application to review.  The parties were not agreed as to whether there was power on the part of the Registrar to review his decision.  On 3 January 2005, the parties filed a consent summons to withdraw that application to review.  On 5 January 2005, the Defendant filed a summons to ask for extension of time to appeal against the decision of Mr. Registrar C Chan of 16 November 2004. 

5.  In theory the application before me today is just for leave to appeal out of time.  However before me, the parties have not addressed me on any issue on the question of leave, but instead both parties through their counsel addressed me on the merits of the appeal.  

6.  There is no suggestion that the Plaintiff would in any way be prejudiced by the delay in lodging this appeal. 

7.  In the circumstances, I will give leave to the Defendant to appeal out of time and as I have also heard the parties fully on the merits of the appeal, I also decide that the hearing before me should be treated as the hearing of the appeal proper too.

8.  Before I come to consider the merits of the appeal, I would like to deal with a question of law on the approach that I should adopt in considering this appeal.  Counsel for the plaintiff submitted that this appeal should be considered as an appeal against the discretion of the Master on cost and as such the Judge hearing an appeal on cost should not disturb the decision of the Master unless it could be shown that the Master was wrong.  He referred me to the head note of decision of Hoddle v CCF Construction Ltd. [1992] 2 All E.R. 550 which said:

“In general the Judge in chambers should not allow an appeal from an order for cost made by a master of the Queen’s Bench Division unless it can be shown either that it was unreasonable or that the master erred in law or took into matters which he should not have taken into account or failed to take into account matters which eh should have taken into account”.

9.  I do not consider that the decision of Hoddle is relevant to the issue that I have to deal with.  What I am concerned with is whether the Registrar was correct in his ruling on the meaning and effect of the cost order of Reyes J.  It is not a case where the Master has exercised his discretion to make a cost order which is now being challenged.  Accordingly I am of the view that I should apply the the well established principle that in an interlocutory appeal from a decision of the Master to the Judge, the appeal is by way of re-hearing and the Judge is free to exercise his own discretion and is at liberty to come to a different conclusion from that of the master even though the master has not been shown to have erred in principle or in law. 

10.  The crux of the matter is the meaning and effect of the cost order of Reyes J. 

11.  “Cost in any event” has a well established meaning. 

12.  In J. T. Stratford & Son Ltd. v Lindley [1969] 1 WLR 1547, Lord Denning M.R. said (at 1553B):

“Plaintiff’s costs in any event” means that, no matter who wins or loses, when the case is decided, or settled, the plaintiff is to have the cost of those interlocutory proceedings.  “Plaintiff’s costs” means that the plaintiff is to have the costs of the interlocutory proceedings without waiting for a decision.”

13.  At paragraph 62/3/6(3) of the Hong Kong Civil Procedure 2004, it is stated that :

“Plaintiff’s (or defendant’s) costs in any event” means that, no matter who wins or losses when the case is finally decided or settled, the plaintiff (or the defendant) is to have the costs of those interlocutory proceedings although it does not confer upon him a right to tax the costs until the event is finally decided or settled (Adam and Harvey Ltd. v International Maritime Supplies Co. Ltd. [1967] 1 All E.R. 533; Allied Collection Agencies Ltd. v Wood [1981] 3 All E.R. 176; Like Soon Co. Ltd. v Tsai Kui Kan [1986] HKC 142).  Such costs are not taxable until the event take place unless in the particular circumstances of the case the taxing master is satisfied that there is no likelihood of any further order being made in the action.”

Thus from the commentary, a cost in any event order would be taxable in 2 circumstances viz (a) when the “event” is finally settled or decided or (b) when there is no likelihood of any further order being made in the action.

14.  The commentary refers to the situation of the case being finally decided or settled.  It does not mean that there cannot be an “event” for the purpose of the taxation of this kind of cost order unless there is a settlement of the action or an adjudication on the merits of the action in the sense that there is a judgment in favour of one party or another. 

15.  A case may come to an end by the Court deciding on the merits in favour of a party to the action.  This would result in a judgment in favour of that party.  However a case may equally come to an end with the action being struck out or stayed or with a declaration under Order 12 rule 8(1) that the Court has no jurisdiction over the defendant in respect of the subject matter of the claim.  The same is true when the action is settled.  The action may be settled with a consent order or judgment.  On the other hand, an action may be settled by a Tomlin order in which case, the action is stayed with liberty to apply for the purpose of carrying out the terms of settlement reached between the parties.  Likewise in some instances, after the commencement of an action by a plaintiff, a defendant may apply to have the action stayed on various grounds.  The existence of an arbitration agreement is merely one of the instances for application for stay of the action.  Other grounds for stay of the action may include forum non conveniens.  In all these instances where the action is stayed, the underlying dispute between the parties has not been resolved.  It would only be determined by another forum or tribunal.  In my view where an action is stayed, the action should be considered as having come to an end for the purpose of deciding whether there is an “event” for the taxation of an order for “cost in any event”.  In as much as a judgment in an action may be set aside on appeal or on the ground of fraud, the mere existence of a possibility that a stay may be lifted on some special grounds does not mean that the action stayed is still on going so that an order for “cost in any event” should not be taxed.

16.  Molnlycke AB and another v Procter & Gamble Limited (No. 6) [1993] F.S.R. 154 is a decision in support of the proposition that the fact that there may still be steps to be taken or further orders to be made in an action does not per se mean that there could not be any conclusion of the cause or matter for the purpose of taxation of cost.  This case was decided on the Rules of Supreme Court 1965 of England.  Under Order 62 rule 8 of the Rules of Supreme Court 1965, it was provided that:

“	(1)	Subject to paragraph (2), the costs of any proceedings shall not be taxed until the conclusion of the cause or matter in which the proceedings arise.
	(2)	If it appears to the Court when making an order for costs that all or any part of the costs ought to be taxed at an earlier stage it may, except in a case to which paragraph (3) applies, order accordingly.”

In Molnlycke case, the action had been tried and the court gave judgment to the plaintiff with a direction that there be enquiry as to damages.  The court further ordered the defendant to pay the costs of the action and counterclaim and such cost to be taxed on certain basis.  The plaintiff wished to have the cost taxed without waiting for the enquiry as to damages.  The question was whether the enquiry as to damages would mean that the cause or matter in which the proceedings arose had not been concluded.  Morritt J held that the cause or matter had been concluded.  The enquiry as to damages merely arose under the judgment.

17.  In the present case, the Plaintiff objected to taxation on the ground that although the proceedings had been stayed by the order of Reyes J, it is still possible that some applications under the Arbitration Ordinance would be made to the Court.  Examples of such application are applications under section 2GC (reliefs including security for costs, inspection and taking samples of the property etc, and interim injunction order etc); section 2GG (enforcement of the arbitral award); section 23(2) (appeal against arbitral award); section 23A (referral to the court for decision on point of law).  Furthermore the Court is also empowered to grant relief where the arbitrator is not impartial or the dispute involves question of fraud.  I accept that it is possible that in the future the court may be asked to make various kinds of orders.  However I do not think that it would mean that the cause or matter sued upon by the Plaintiff in the writ of this action had not been disposed of by the Reyes J’s order staying the proceedings.  Under the order to stay, the underlying merits and disputes between the parties would have to be determined by an arbitrator in pursuance of the arbitration agreement.  Unless the stay order is lifted, there is no prospect that the merit of the Plaintiff’s claim in this action would be determined or adjudicated by the Court.  The claim in this action is thus concluded. 

18.  I am also satisfied that it must be the intention of Reyes J when he made the order giving the Defendant cost in any event in relation to the discovery application, that the Defendant should be able to tax the cost if the action should be stayed.  At that time, the Judge had not adjudicated on the application for stay.  If he should refuse to stay the proceedings, the action must go on and the Defendant would have to wait until the determination of the merits of the claim or a settlement of the action before they could ask for taxation of the cost.  However in the end, the Judge also ordered a stay of the action.  It would be very strange that the Judge would give the Defendant the cost of the application for stay so that the Defendant could proceed to taxation at once and yet he should desire that the cost for the discovery should not be taxed until a point of time highly uncertain in the future.  In this respect it is worthwhile to point out that while the court has an inherent jurisdiction to regulate its own proceedings so that the court could out of its own initiative strike out an action for want of prosecution, the court would not have such inherent power to regulate the progress of arbitration. 

19.  Further I am also satisfied that there should be taxation of the cost order in question on the ground that there is no likelihood of any further order in this action.  There is no appeal against the order for stay.  Since the order of Reyes J made about 8 months ago, there is no active step taken in the arbitration proceedings.  The Plaintiff had not put in any evidence to suggest that it is likely that there would be any further steps taken in this action or any application under this action for any relief.  My view that there is no likelihood of any further order being made in this action does not mean that it is not possible to have any further order made in this action. 

20.  I would like to add that I do not see any sense of there being 2 taxations, one in respect of the cost for the stay application and one in respect of the cost of the discovery.  The applications were heard on the same day by the same Judge.  If the result of this appeal would depend on any exercise of discretion, I could only see that the discretion should be exercise in one way – to direct that the Defendant may apply for the taxation of the cost of the discovery application now so that the taxation of the cost of the stay application and the discovery application could take place together.

21.  Accordingly I would allow the appeal.  As to the cost of the appeal, the parties were in broad agreement that it should follow the event.  However, it appears that the parties had forgotten that this appeal was possible only if I would grant leave to appeal out of time.  As to the leave to appeal out of time, the Defendant being the party asking for the indulgence of the Court would have to pay the cost of the application.  Hence it would appear that an appearance before me would be inevitable even though the parties had taken the sensible approach and had not spent any time in any argument on leave.  Taking all these circumstances into account I will make an order nisi that the Plaintiff is to pay 90% of the Defendant’s cost of this appeal (including the application for leave to appeal) to be taxed if not agreed. 

Mr Herbert Y F Leung, instructed by Messrs Ng & Co., for the Plaintiff

Mr Victor Dawes, instructed by Messrs Peter Lau & Co., for the Defendant

HCA 3891/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3891 OF 2003

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Dates of Hearing: 20 May 2004

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J U D G M E N T

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1.  The Plaintiff claims unpaid retention monies (in the amount of $681,650.55) said to be due under an agreement (“the sub-contract”) whereby the Defendant as main contractor sub-contracted air-conditioning works to the Plaintiff as sub-contractor.  There are 2 versions of the sub-contract.  One dated 20 April 1999 on its first page is in the Defendant’s possession, the other undated on its first page but dated 3 May 1999 on its last page is in the Plaintiff’s possession.  For the purposes of this application, dates apart, there is no material difference between the terms of the 2 versions.

2.  The Defendant applies to stay the Plaintiff’s claim pursuant to Arbitration Ordinance (Cap. 341) (“AO”) s. 6(1).  The Defendant relies on cl. 15.2 of the sub-contract which provides:-

“Any dispute or difference arising out of or in connection with the Local Purchase Order shall be referred to and determined by an arbitration at Hong Kong International Arbitration Centre and in accordance with its Domestic Arbitration Rules, unless the Company [the Defendant] and Sub-contractor [the Plaintiff] agree otherwise.”

3.  The question arises as to what is meant by the expression “the Local Purchase Order” in cl. 15.2.  Mr Dawes (appearing for the Defendant) says that the words must refer to the sub-contract.  Ms Lam (appearing for the Plaintiff) contends that the words are either devoid of any meaning which makes sense or, at any rate, cannot be equated with the sub-contract.

4.  The words “Local Purchase Order” appear in cl. 1 of the sub-contract.  Clause 1 is entitled “Definition” and simply defines “LPO” as “Local Purchase Order”.  I note in passing that cl. 1 also provides:-

“Singular and plural: Words importing singular also include plural and vice versa where the context requires or intends.”

5.  The words “Local Purchase Order” further appear in cls. 13 and 14 of the sub-contract.  Those clauses provide as follows:-

“13.0    Revocation, Termination and Frustration

 13.1    The Local Purchase Order shall be deemed revoked and discharged in the event that there is any substantial change of design on the requirements or performance of the equipment required by the Checking Parties or the equipment is rejected or not acceptable to the Checking Parties.  Both the Company and Sub-contractor shall be deemed being discharge from the Local Purchase Order in this regard, unless both parties mutually agree otherwise.

13.2    The Local Purchase Order shall be deemed revoked and discharged in the event that the duty/type of the equipment is revised due to design changes and the Company found that the revised price for the equipment is unreasonably high in comparison with the price form interpolation.

13.3    In the event of any revocation or discharge of the Local Purchase Order under Clause or 13.2 or 13.3 the Sub-contractor shall not be entitled to be compensated or have remedy for any consequential damages or loss of profit arising from the revocation by frustration or discharge of the Local Purchase Order or the like.

13.4    In the event that there is any substantiated or anticipated delay to the project progress as directly or indirectly caused by the Sub-contractor’s acts and/or omissions, the Company shall exercise his discretionary rights to terminate the Local Purchase Order.  The Sub-contractor shall not be entitled to claim any remedy for consequential damages of loss or profit arising from the termination of the Local Purchase Order in this regard or the like.

14.0    Treatment of Ambiguities or Discrepancies

14.1    The Local Purchase Order, the Company issued correspondence and the Employer’s requirements shall be seen together and regarded as a complete document and taken as mutually explanatory of one another.  Notwithstanding the Local Purchase Order takes a high order of precedence generally, in case of any ambiguity and/or discrepancies among themselves, the most stringent terms and/or requirements shall prevail, unless otherwise interpreted by the Company.”

6.  As Ms Lam points out, a “purchase order” ordinarily means “a document authorising a seller to deliver goods with payment to be made later”.  See, for example, Black’s Law Dictionary (7th ed.), p. 1248.

7.  The sub-contract relates (among other things) to the provision, design, supply, installation, delivery, inspection and fixing of air-conditioning equipment.  By cl. 4 the Plaintiff agreed to “ensure that the process, installation, construction, materials, performance and workmanship of the equipment are acceptable to [the Defendant]”.  Clause 5 provided for adjustment in the price of equipment to reflect changes in the quantity and capacity actually employed.  Such adjustment was to be based on rates quoted by the Plaintiff.  Where no unit rates were applicable, appropriate rates were to be mutually agreed by the parties.  If the Defendant disapproved of a particular piece of equipment, the Plaintiff was obliged to re-select and re-submit another unit of the relevant equipment without any cost implication to the Defendant.  By cl. 9 delivery of equipment was to be “within 2 months ETA HK”.  The Plaintiff was to adjust and monitor delivery time to comply with the works programme.

8.  I reject the argument that the words “Local Purchase Order” are devoid of any sensible meaning and should be ignored.  It is a tenet of the construction of contracts that as much as reasonably possible a Court should strive to give effect to words used by the parties to an agreement and should not ignore them except as a last resort.

9.  There appear to be only 3 possible meanings to the words “Local Purchase Order” given the context of the sub-contract.

10.  First, the words could refer to one or more purchase orders to be placed by the Defendant with the Plaintiff for equipment.  That reading does not seem tenable.  There is no evidence that it was ever contemplated that purchase orders were to be placed with the Plaintiff by the Defendant.  For what it is worth, none in fact ever seems to have been placed by the Defendant with the Plaintiff according to Ms Lam.

11.  Second, the words “Local Purchase Order” might refer to individual purchase orders entered into by the Plaintiff on its own behalf or on behalf of the Defendant with third parties for the supply of equipment for use in the project.  But that reading is even more problematic.  Clauses 13 and 14 would not make sense on this construction of “Local Purchase Order”.  For example, cl. 13.1 refers to the Plaintiff and Defendant being deemed to be discharged from the Local Purchase Order.  Since the Local Purchase Order in this second sense which I have described would not be between the Plaintiff and the Defendant, but between one or either or both of them on the one hand and a third party supplier on the other, how can cl. 13.1 purport to discharge the Plaintiff and Defendant from a purchase order so understood?  Cl. 13.4 would equally be mysterious in its operation.  What is meant by the Defendant’s “discretionary right” to terminate a Local Purchase Order if the same refers to an order for delivery of goods placed with a third party?  As for cl. 14.1, it would be curious if Local Purchase Orders in the second sense with third party outsiders, should be accorded a “higher order of precedence generally” in defining the contractual relationship between the Plaintiff and the Defendant.  Cl. 14.1 makes better sense if the expression “Local Purchase Order” is equated with the sub-contract.

12.  Third, the words “Local Purchase Order” might refer to the sub-contract itself.  That reading appears to me to be the only one that makes sense of cls. 13 and 14.  Indeed, it appears by process of elimination that the expression “Local Purchase Order” can only refer to the sub-contract.

13.  Ms Lam submits that in their ordinary definition the words “purchase order” cannot be used to describe the sub-contract.  I disagree.  The sub-contract includes the supply, delivery and installation of certain equipment (albeit apparently not split air-conditioning units which according to Appendix 1 of the sub-contract the Defendant would itself supply).  Certainly, insofar as supply of some equipment is concerned, the sub-contract would conceivably relate to the purchase of such equipment.  In those circumstances, it does not seem to be fanciful or stretching the bounds of English language to regard the parties as having intended the expression “Local Purchase Order” to mean the sub-contract as a whole.

14.  Ms Lam argues that, even if there is an arbitration agreement, the Plaintiff’s claim for retention monies is outside its ambit.  I disagree.  If one substitutes the words “sub-contract” for the expression “Local Purchase Order” in cl. 15.2, one sees that cl. 15.2 requires “[a]ny dispute or difference arising out of or in connection with [the sub-contract]” to be referred to arbitration.  The Plaintiff’s claim for retention monies arises out of the sub-contract.  That claim has not been admitted by the Defendant.  I therefore have no discretion except to stay the same to arbitration pursuant to cl. 15.2 and AO s. 6(1).

15.  I shall now hear the parties on costs.

Ms Catrina Lam, instructed by Messrs Ng & Co., for the Plaintiff

Mr Victor Dawes, instructed by Messrs Peter Lau & Co., for the Defendant