A failed bid to overturn an arbitration award casts the spotlight on the troubled project
Nearly four years after completion of the iconic Stonecutters Bridge, an attempt by the main contractor to get more payment in its dispute with the government has come, very quietly, to an abrupt halt.
In a little-noticed decision released last month, the Court of Final Appeal refused permission to allow the main contractor, Maeda-Hitachi-Yokogawa-Hsin Chong Joint Venture to appeal to it to overturn an unsuccessful appeal in the Court of Appeal.
Hong Kong’s top court said the lower court had convincingly ruled against the questions of law brought up by the contractor.
“We are satisfied that the Court of Appeal was clearly right in concluding that there was no doubt about that the Arbitrator was correct in his decision,” acting Chief Justice Patrick Chan Siu-oi wrote in the court’s decision.
Upon enquiry by Construction Post, Highways Department said it was bound by the confidentiality provisions of the contract.
“As the litigations involved appeals relating to the arbitration, the department is likewise unable to disclose any such information and for this reason the hearings were not opened to the public and the judgments were marked ‘Restricted’,’ a department spokeswoman said.
The local partner of the joint venture, Hsin Chong Construction, a subsidiary of listed Hsin Chong Construction Group (0404), did not respond to an enquiry made through its website.
Asked to comment, a veteran industry consultant said the courts are generally wary of interfering with the awards of arbitrations if both sides had agreed beforehand to do arbitration.
As such, in law, it was very difficult to successfully appeal an arbitrator’s award unless there were very limited grounds such as not being notified of an appointment of an arbitrator, incorrect application of the law by the arbitrator and such like.
“The fact that you don’t not like the decision is not one of them,” the consultant said.
As a result, about 95 percent of appeals against an award are dismissed “out of hand” he added.
In keeping with the general reluctance to be involved, the courts would also extract only the barest details from the arbitration to see if the arbitrator was correct or not in his award.
Any details of the dispute that was subject of the arbitration would not be made public in the court’s decision and the decision when issued would be exceptionally brief, the consultant said.
According to the consultant, the joint venture has several arbitrations in various states of progress.
Details about any disputes arising out of the project are hard to find.
Various industry consultants have taken part in claims preparation and arbitration for Stonecutters Bridge, according to an Internet search.
One consultant seconded to the joint venture said he helped resolve one multi-million dollar dispute with Highways Department through mediation.
According to the website of law firm Jones Day, in December 2007 it represented the joint venture in a dispute with a subcontractor over fabrication and installation of segments for the bridge.
“The disputes were caused by deliberate delay in the delivery of bridge segments and allegations of economic distress by the sub-contractor to force a price renegotiation,” Jones Day said on its website.
The dispute however was eventually settled and arbitration avoided.
A paper submitted by the Department of Justice to the Finance Committee of the Legislative Council (Legco) in December 2012 on the subject of legal expenses revealed a bit more.
It said the department had spent HK$1.11 million on solicitor’s fees and overseas and local counsel in relation to an appeal by the joint venture over an arbitration regarding the reinforced concrete paving to a portion of site used as works area.
The arbitrator issued a partial award in March 2011.
Whether this partial award was the subject of the latest decision by the Court of Final Appeal cannot be confirmed.
Whatever the subject of the arbitrations, it was clear from the start that the project would be challenging when it was awarded to the joint venture for a contract sum of HK$2.76 billion in 2004.
“The substantial material requirements and long delivery schedule for this contractor in a demand driven commodity market will make significant demands on the joint venture during the procurement period where fluctuating global price trends can be anticipated,” Hsin Chong said in its 2004/05 annual report.
That commodity referred to was steel.
According to market rumours over the years, the joint venture had a big dispute over steel quantities and unit rates with Highways Department.
Works commenced in April 2004 for completion in June 2008, according to Hsin Chong’s 2004/05 annual report, but things went rapidly downhill from then on.
By the next annual report for 2005/06, the anticipated completion dated had slipped to December 2008.
The anticipated completion dates continued to slip with each successive annual report until the 2009 annual report when Hsin Chong finally advised completion in November 2009.
If that wasn’t bad enough, the government actually cut the project estimate for the bridge for several years.
According to a Transport and Housing Bureau paper submitted to the Public Works Subcommittee of the Finance Committee in October 2008 the approved project estimate for the bridge was revised downwards after contract award from the original HK$3.22 billion to HK$2.78 billion as a result of “very competitive rates submitted by the contractor”.
The Finance Committee subsequently approved a revised estimate of HK$3.07 billion, still lower than the original estimate.
The contractor did get something back from contract price fluctuation adjustments, with the Finance Committee also approving an increase from negative HK$123.1 million made in 2002 to HK$1.23 billion.
But that was for the entire section between Tsing Yi and Cheung Sha Wan of Route 8 which included Stonecutters Bridge, so it is not clear how much of that HK$1.23 billion was due to the joint venture.
According to the 2007/08 annual report, the contract sum was increased to HK$3.21 billion and then to HK$3.58 billion in the 2008 annual report.
Hsin Chong has remained mum on any disputes and arbitrations, much less make any sort of provision, arising out of the project to shareholders.
A trawl through company’s stock exchange notices and annual reports since 2004 came up with nothing.
However one notice issued in September last year offered a glimpse of advances paid to the company’s various subsidiaries.
According to the disclosure notice, a total sum of HK$104.6 million has been advanced to the joint venture of which Hsin Chong has a 20 percent stake.
The notice did not say what the sum was used for.
“The old adage when I first came to Hong Kong: the person who wins a government contract, is the person who has made the biggest mistake. In my opinion, that still holds true in Hong Kong,” the veteran consultant said.