SAM WOO BORE PILE FOUNDATION LTD v. CHINA OVERSEAS FOUNDATION ENGINEERING LTD

Date of Hearing: 15 March 2007

Date of Judgment: 15 March 2007

Date of Handing Down Reasons for Judgment: 21 March 2007

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the reasons given by Le Pichon JA.

Hon Le Pichon JA:

2.  This was an application by the plaintiff for leave to appeal to the Court of Final Appeal from the order of this court dated 24 October 2006 dismissing the plaintiff’s appeal from the order of Reyes J striking out parts of the plaintiff’s claim relating to “extra over for toeing-in of piles” into bedrock.  Leave was refused for reasons to be given in writing later which we now do.

3.  The background facts sufficiently appear from the judgment of this court and I do not propose to repeat them here.

As of right

4.  This was the first ground relied on by the plaintiff and turned on whether the order below (confirmed by this court) made on the strikeout application of the defendant was interlocutory or final.  The first matter to note is that the order made below and confirmed by this court was to strike out part of the plaintiff’s claim.  It was not an order made under Order 14A.

5.  The two tests which historically have been propounded for deciding whether a judgment is final or interlocutory, namely ‘the application test’ and ‘the order test’, are well known.  The former involves an examination of the nature of the application to say whether the order would, whether it failed or succeeded, determine the whole action.  The latter looks at the nature of the order made by the court below rather than the nature of the application and if the order finally disposes of the rights of the parties it is final.  It is evident that it is important that there be clarity and certainty as to which of the tests is applicable from the perspective of litigants as well as the public interest in the efficient deployment of judicial resources.

6.  It is well settled that in Hong Kong as in England the ‘application test’ applies and that an order for the striking out of an action for disclosing no reasonable cause of action under Order 18 rule 19 has always been regarded as interlocutory.  See the determination of the Appeal Committee of the Court of Final Appeal (Litton ACJ, Ching and Bokhary PJJ) in Wai Hung Stationary Co & othersvHKSAR & others [1998] 2 HKC 229 at 231F-G and (Li CJ, Bokhary and Chan PJJ) in B+B Construction Ltdv Sun Alliance and London Insurance PLC [2001] 1 HKLRD 1 at 4E-F where it was explained that the reason why a striking out order was interlocutory was because such an order would not have the effect of finally disposing of the cause or matter if the outcome was in favour of one party and not the other.  I do not read the later decision of the Court of Final Appeal in Shell Hong Kong Ltd v Yeung Wai Man [2003] 3 HKLRD 62 (which concerned Order 14A) as in any way departing from or jettisoning the ‘application approach’, at any rate, so far as summary judgment and strikeout applications are concerned.

7.  For these reasons, I consider that the plaintiff is not entitled to appeal to the Court of Final Appeal under section 22(1)(a) of the Court of Final Appeal Ordinance.

Questions of great general or public importance

8.  Two such questions are said to arise:

“1. Whether in every re-measurement construction contract the description of items in the Bills of Quantities is, by its inherent nature, subject to the provisions of the Standard Method of Measurement (“the SMM”) and/or the “Special Method of Measurement” commonly called “the Particular Preamble to the Bills of Quantities” (“the Particular Preamble”) such that description of any item in the Bills of Quantities is not capable of ‘overriding’ the provisions of the SMM and/or the Particular Preamble.

2 What is the proper meaning to be attributed to the use of the word “min” (being short for “minimum”) as widely used in commercial contracts and/or documents in particular in the construction industry such as in the drawings and/or in the present case in a description of work in the Bills of Quantities, for example as in the current relevant contract in the descriptive phrase “extra over 1500mm diameter vertical pile shaft for toeing-in to bedrock, 1.5m in depth (min.)”:

(1)    does it mean that the risk, and the attendant expense, of the work identified as goes beyond the minimum specified has been placed upon the contractor or other performing party, such that contractors or other performing parties shall have to consider the risk introduced by the used word “min” (which meaning, it will be submitted, is not the proper construction of the contractual provisions as a whole, is contrary to the current practice of the construction industry, and lacks commercial sense)?; or

(2)    does it mean (in such a context) a description of one of the requirements of the work to be performed in that work performed to anything less than the stated “min” or minimum would not be acceptable, such that the contractor has the obligation to demonstrate that it has achieved the “min”, such as here (by way of example only) the minimum toeing-in required, but that work required to be performed beyond the stated minimum will fall to be accounted for and/or recompensed in accordance with the re-measurement provisions of the contract?; or

(3)    does it mean that the word “min” is nothing more than a mere description of one of the requirements of the work to be performed by the contractor or other performing party?”

BQ descriptions, SMM and Particular Preamble

9.  So far as the first question is concerned, Mr Coleman SC who appeared for the plaintiffs submitted that the effect of the judgment is that in a re-measurement construction contract a [Bill of Quantities (“BQ”)] description can override provisions of the SMM and/or the Particular Preamble and whenever a BQ description does not follow the SMM, the BQ description can override SMM.

10.  The premise of the submission was that the judgment of this court laid down general principles of construction involving the interrelationship of BQ descriptions, SMM and Particular Preamble.  On any fair reading of the judgment, I do not consider that one could reasonably arrive at that conclusion.  This court was construing a particular contract relating to the project in question.  Special condition 1(j) was of central importance in the interpretation of the subcontract entered into by the parties.  I cannot see that the proper interpretation of this subcontract can be said to be of general application to other contracts unless they be identical in all material respects.  The subcontract in question was tailor-made and it is misleading and simply wrong to suggest that it was in any way ‘standard form’.

11.  It would appear that Mr Coleman also considered that the judgment supported the following propositions:

“If there is any item in the BQs not drafted or prepared in accordance with the SMM and, unless there is any specific provision dealing with the same in the Particular Preamble of the relevant contract, the BQ item is said to have an error or omission.  Whenever there is error or omission contained in any BQ item, it shall be corrected in accordance with the relevant provisions of the SMM (or any overriding provisions in the Particular Preamble of that contract).”

12.  Again, that submission has no valid basis.  In the subcontract under consideration, the effect of special condition 1(j) when read together with item 4 in BQs 5 and 10 is that the SMM provisions are not followed with regard to extra over for toeing-in into bedrock.  That was not dependent on there being any Particular Preamble.  Mr Coleman’s first proposition is accordingly incorrect.  As to his second proposition, quite simply, whether and, if so, how any “error or omission” is to be addressed must again depend on the terms of the particular contract.

Interpretation of ‘min’

13.  This court dealt with the significance of the drawings provided to all tenderers before the tenders were submitted and, in particular, of notes 6 to 8 in paragraphs 8 to 9 of its judgment.  It is against that factual matrix and the terms of the subcontract that the expression “1.5m in depth (min)” was construed.

14.  The plaintiff relies, inter alia, on an article appearing in the Surveyor’s Times by JB Molloy of James R. Knowles (Hong Kong) Limited.  Ironically, it transpires that in 1995, Mr Molloy had rendered advice on the effect of the subcontract to the defendant and came to a view that is entirely consistent with what this court has held, namely, that the phrase “1.5m in depth (min)” in the BQs meant that the risk of a greater depth of toeing-in fell on the subcontractor.  This necessarily undermines his more recent views as expressed in the Surveyor’s Times which, in any event, were based on the Government Standard Form of Civil Engineering Contract rather than the subcontract.

15.  I do not doubt that the manner in which the subcontract has been construed by this court is of a matter of importance to the plaintiff but that cannot be transmuted into a matter of great general or public importance.

Hon Chu J:

16.  I agree.

Mr Russell Coleman SC & Ms Queenie W S Ng, instructed by Messrs Hau, Lau, Li & Yeung, for the Plaintiff/Applicant

Mr Peter Clayton SC, instructed by Messrs Ho & Ip, for the Defendant/Respondent

Date of Hearing: 18 October 2006

Date of Handing Down Judgment: 24 October 2006

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J U D G M E N T

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Hon Rogers VP:

1.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This is an appeal from the order dated 21 February 2006 of Reyes J striking out part of the plaintiff subcontractor’s claim against the defendant contractor for “extra over … for the toeing-in” of marine piles.  The claim that was struck out arose out of item 4 of bills of quantities 5 and 10 (“BQs 5 and 10”) which concerned cast-in-situ concrete marine piles for the Sea Channel Expressway Bridge and Railway Bridge respectively which formed part of the Lantau expressway project.  The parties entered into the subcontract on 24 June 1994.  At the conclusion of the appeal judgment was reserved which we now give.

3.  The issue below concerned the true construction of item 4.  The defendant had paid the plaintiff $2,304,000 for the toeing-in of the marine piles and if it were right in its construction of item 4, no further amount was due to the plaintiff.  On the plaintiff’s construction, a further $7,940,717 remains due.

4.  Items 3 and 4 of BQ 5 provided as follows:

“	Description	Quantity	Unit	Rate $	Amount $
3	1500mm Diameter vertical pile shaft & extra over 1500mm diameter vertical pile shaft for permanent steel lining of approved thickness.	1968	m	9,900	19,483,200.00
4	Extra over 1500mm diameter vertical pile shaft for toeing-in to bedrock, 1.50m in depth (min.)	48	nr	36,000	1,728,000.00	”

Items 3 and 4 of bill of BQ 10 were in similar terms save that the quantities and thus also the total amounts were different.

5.  In the case of BQ 5, the tender was for driving 48 pile shafts into the seabed and installing the cast-in-situ concrete piles such that a minimum of 1.50 m of each pile had to be toed-in into the bedrock.  It is clear from item 3 that the aggregate length of all 48 piles was estimated to be 1968 m.  It is also clear that any excess in the aggregate length would attract additional payment at the rate of $9,900 per m.  That is not in issue.

6.  It will be noted that there is a significant difference in the rates for installing the vertical pile shaft and the toeing-in of the pile shaft to bedrock.  The explanation for this may be found in paragraph 13 of the 2^nd affirmation of Lau Chun Ming, a director of the plaintiff:

“(7) The toeing-in is an “extra over” item for excavation in bedrock and the unit rate is in respect of the extra difficulty encountered in drilling through bedrock, rather than soil.

(8) Materials above bedrock such as soil could generally removed by chisel and grab, whereas bedrock had to be removed by a Reverse Circulation Drill (“RCD”) fitted with expensive drill rod, stabilizer and drill bit.  The drill rod of the RCD was lengthened in increments of 3m.  Each time the RCD drill bit was extended to a deeper depth, additional costs were incurred due to the tilting of the RCD, additional lifting, additional drill rod, additional stabilizer, idling costs while the extension was being fitted, additional power to the RCD, additional compressed air and more consumption of roller cutters.”

7.  It is common ground that 48 piles were installed pursuant to BQ 5.  However, the actual depth of toeing-in as determined by the engineer exceeded 1.50 m in almost every case.  The toe-in length of the piles amounted to as much as 11 m in some cases.  The plaintiff’s case is that the rate of $36,000 quoted in the tender was for toeing-in the vertical pile shaft into bedrock, but only to a depth of 1.50 m and, as the subcontract was a re-measurement contract, any excess toeing-in length beyond 1.50 m would attract a pro rata additional payment in steps of 0.50 m.

8.  Before tendering for the subcontract, all tenderers including the plaintiff were provided with drawing nos. 273/S/5711 and 273/S/5811 respectively.  The drawings contained notes the most relevant of which, for present purposes, are notes 6 to 8.  In sum, these provided that (a) all piles had to be socketed into bedrock in accordance with the ‘Details of Pile Base’ shown in the drawing; (b) bedrock at founding level not only had to be grade II to III or better but a continuous 5 m rock core satisfying certain specifications had to be obtained; (c) founding levels for piles were to be finalised by the engineer only after ground investigation proof boreholes satisfying (b) above had been excavated; (d) prior to commencing excavation, proof boreholes (to be taken to a depth of at least 10 m below the founding levels) had to be sunk at the centre of each bored cast-in-place pile.  The “Details of Pile Base” on the drawings showed that the base itself had to be in “Grade II to III rock or better” with a minimum depth of 1.50 m.  It was also stated that the “exact founding level to be determined on site by engineer”.

9.  It will be seen that the effect of the notes to the drawings meant that the founding level of each pile could only be determined after the award of the tender because it depended on the actual condition of the relevant part of the seabed where the shaft was to be sunk and that it was for the engineer to determine the appropriate founding level.  Moreover it could not be assumed that once bedrock was reached, the founding level and thus the toeing-in length could be determined as being 1.50 m further down.  That would depend entirely on the quality of the rock core underneath.  Note 6 (summarised in para. 7(b) above) stipulated that:

“Bedrock at founding level shall be grade II to III rock or better … and acontinuous 5 metres rock core at minimum size NX containing at least 65% core recovery in each core run and minimum uniaxial compressive strength of rock material not less than 25MPa are obtained.” (emphasis added)

So quite apart from the terms of item 4 itself, viz. “1.50 m in depth (min.)”, the possibility of the toeing-in having to exceed 1.50 m was therefore readily apparent from the work involved and the parameters spelt out in the drawings.

10.  In addition to the drawings, the tenderers were also provided with partially completed BQs 5 and 10.  The completed part related to description, quantities and unit.  The columns showing the $ rate and the total $ amount were left blank for completion by the tenderers.

11.  The judge found in favour of the defendant on the construction of item 4.

This appeal

12.  In summary, the submissions of Mr Chan SC (who appeared for the plaintiff) were as follows.  The subcontract expressly provided that its contents included, inter alia, conditions of contract and appendices to the subcontract.  Appendix 3 incorporated, inter alia, section 9 of the Hong Kong Government’s Standard Method of Measurement for Civil Engineering Works (“SMM”) which dealt with piling works.  It was therefore an “inseparable” part of the subcontract.  That section included the following provisions concerning “cast-in-situ concrete piles”:

“9.09    The units of measurement shall be:

(i) pile shafts, empty bores, extra over for permanent

linings…………………………………………linear metre.

(ii) extra over for breaking out obstructions………cubic metre.

(iii) extra over for enlarged bases, extra over for toeing-in

to bedrock…………………………………..……..number.

…

9.14   Separate items shall be provided for cast-in-situ concrete piles in accordance with General Principles paragraphs 3 and 4 and the following :

Group       Feature

…

IX 1. Extra over for toeing-in not exceeding 0.50 m in depth.

2. Extra over for toeing-in exceeding 0.50 m but not exceeding 1.00 m in depth and so on in steps of 0.50 m. ”

It was submitted that paragraph 9.14 (IX) was thus an express provision of the subcontract providing for additional payment for toeing-in into bedrock.  Pausing there, it is to be observed that there appears to be some internal inconsistency between paragraph 9.09 (iii) and paragraph 9.14.  One is looking at a unit of measurement by reference to “number” and the other by reference to “linear metre”.

13.  Mr Chan SC drew the court’s attention to addendum no. 6, said to be of particular relevance to his case.  In pertinent part, this addendum read:

		“ADDENDUM NO. 6 SCHEDULE OF PRICES
		SECTION 9 PILING WORKS CAST-IN-SITU CONCRETE PILES
Units	9.09	Delete paragraph 9.09 (iii) and substitute:
		(iii)   extra over for enlarged bases, extra over for rock socket, extra over for toeing-in to bed rock…………………. number.
Itemisation	9.14	Delete paragraph 9.14 Group Feature table I and substitute:
		Group             Feature
	I	1.   Pile shafts.
		2.   Empty bores.
		3.   Extra over for breaking out obstructions.
		4.   Extra over for enlarged bases.
		5.   Extra over for rock socket.
		6.  Extra over for toeing-in to bedrock.
		7.   Extra over for permanent linings of specified thickness.
Pile shafts	9.15	Add the following item coverage after paragraph 9.15(w):
Item coverage		(x) ground investigation works as defined in the specification.
Extra over for breaking out obstructions	9.17	Add the following item coverage after paragraph 9.17 (c):
	…	”

14.  Mr Chan SC underlined the fact that addendum no. 6, whilst varying (by deletion or substitution as appropriate) certain parts of section 9 of the SMM, had left paragraph 9.14 (IX) intact.  As paragraph 9.14 (IX) had not been deleted by addendum no. 6, it was submitted that it must at least be arguable that it had some purpose to serve.  It was submitted that at the very least it was an indication that the re-measurement principle applied.

15.  As recorded in paragraph 14 of the judgment, it was the plaintiff’s case below and remains its case on appeal that the effect of special condition 1 (j) and paragraph 9.14 was that the extent of toeing-in was to be re-measured on completion and any excess charged in accordance with paragraph 9.14 “in steps of 0.50 m”.  Special condition clause 1 (j) reads:

“j. All the quantities set out in the tender are approximate figures.  The quantities of the finally completed works shall be actually re-measured from the drawings to calculate the price for the works in accordance with the unit rates set out in the tender.  Regarding the method of measurement and the items included in the unit rates, save expressly stated otherwise, the calculation shall be in accordance with the method fixed by the provisions of the Hong Kong Government Standard Method of Measurement for Civil Engineering Works (1992 Edition) and its revised edition attached to the Original Contract.  All the unit prices for the works are fixed and they shall not be affected by any fluctuation in prices and wages.”

In the court below the judge rejected that submission, explaining that:

“20. Special condition cl.1(j) provides that quantities are to be re-measured to calculate the price for works in accordance with the unit rates set out in the BQs as tendered by Sam Woo.  The quantities stipulated in BQs 5 and 10 are numbers (“nr”) of piles.  There was no change in the total number of piles driven: 48 in connection with BQ 5 and 16 with BQ 10.”

16.  It is to be noted that the first part of special condition 1 (j) provided for the “quantities set out in the tender” to be re-measured “in accordance with the unit rates set out in the tender”.  So the subject matter of any re-measurement is simply “the quantities set out in the tender” and nothing else.  As the judge rightly held, the quantities stipulated in item 4 of the tender were numbers (“nr”) of piles.  Because there had been no change in the total number of piles driven, any re-measurement pursuant to special condition 1 (j) could not have resulted in any additional payment.  I therefore see no basis for not giving effect to the unambiguous terms of special condition 1 (j).

17.  Moreover, I do not consider that paragraph 9.14 (IX) to be of any assistance in the construction of item 4 of BQs 5 and 10.  The judge observed that it “does not enter into the picture”.  Under the terms of special condition 1 (j), the SMM applies “save expressly stated otherwise”.  He reasoned that as BQs 5 and 10 were prepared on the basis of a unit rate per pile (not length of pile), that amounted to an express statement that paragraph 9.14 (applicable to amounts payable per unit length) was not intended to apply.  As I understand it, Mr Chan SC sought to address this point by submitting that the subcontract itself provided for the method of measurement and “expressly stated otherwise” by making appendix 3 part of the subcontract.  There was therefore no need to go outside the subcontract itself, albeit that it would not have made any difference because either route would lead to the same thing, i.e. the provisions of the SMM.

18.  This argument appears to be somewhat circular in nature.  Be that as it may, I do not consider it to be correct.  In addition to the reason given by the judge, there is a further reason.  Mr Chan SC appears to have overlooked paragraph 9.09 (iii) of appendix 3.  Where that provision applies, it is difficult to see how effect can be given to paragraph 9.14 (IX) at the same time.  Under the SMM, or as Mr Chan would have it, by express provision, there is also no doubt that the appropriate unit of measurement for “extra over toeing-in to bedrock” was “number” and not, for example, “linear metre”.  Paragraph 9.09 (iii) of the SMM (reproduced in paragraph 12 above) so provides and whilst addendum no. 6 did amend that paragraph by substituting a new provision (reproduced in paragraph 13 above), the unit of measurement remained the same.  So whether under the SMM or as varied by addendum no. 6, there can be no doubt that the appropriate unit of measurement for “extra over toeing-in” is by number only.  In the face of that clear provision, there is no scope for the application of paragraph 9.14 (IX), particular as almost all its provisions appear to be diametrically opposed to what item 4 of BQs 5 and 10 expressly provides.  It is plain that the bulk of the provisions of paragraph 9.14 (IX) can have no application.  In those circumstances, it would be highly artificial to say that it is applicable by seeking to give effect to the concluding words only.  Even then those words could only be given effect in the context of a term to be implied from the express provisions of item 4 itself.

19.  In my view, there is no merit in the plaintiff’s submissions.  I would dismiss the appeal with an order nisi that the costs of the appeal be to the defendant.

Hon Chu J:

20.  I agree and have nothing to add.

Hon Rogers VP:

21.  There will therefore be an order in terms of paragraph 19 above.