Construction contracts: ambiguities in remeasurement provisions

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White & Case LLPRemeasurement provisions are commonly used in construction and engineering contracts where there is uncertainty as to the quantity of work to be performed by the contractor. Remeasurement may be desirable in these situations, but it is vital that the 'rules for measurement' are clearly defined and understood. A recent case from Hong Kong highlights some of the issues that can arise when this is not the case.

Maeda Corporation v Bauer Hong Kong Ltd [2020] HKCA 158

The case involved a main contractor JV, which subcontracted part of the tunnelling works involved in the construction of an MTR project in Hong Kong – the Guangzhou Express Rail Link. By their nature, the tunnelling works involved civil works spread across a long distance, and the parties understood that ground conditions might vary significantly along the site. The extent of the civil works to be done would be uncertain until the site conditions became known.

The tunnelling works were remeasurable, with the principles for remeasurement being based on the ICE's / FCEC's Civil Engineering Standard Method of Measurement, CESMM3. However, the parties amended CESMM3 to introduce very complex remeasurement provisions to regulate site conditions risk. This involved taking measurements of the distance from bedrock and other positions in the subsoil, at different parts of the site. These measurements would be used to determine which parts of the site and subsoil corresponded to pre-agreed rock categories stipulated in the subcontract, which carried different payment rates.

The parties disagreed as to how the remeasurement mechanism should be interpreted, and referred the dispute to arbitration under the subcontract. A distinguished former judge of the English Technology and Construction Court was appointed as sole arbitrator. He issued an award interpreting three different parts of the measurement mechanism. The award was then challenged before the Hong Kong courts.

Decision

The remeasurement provisions of the subcontract, and therefore the issues in the case, were somewhat involved. One of the principal issues considered was as follows.

  • In general terms, the remeasurement clause contemplated a greater remuneration for the subcontractor the deeper the foundations for the tunnel's retaining walls needed to be sunk into the ground. In relation to this, the remeasurement clause used a definition of "theoretical bedrock level" as a basis of measurement. However, an illustrative diagram in a different part of the clause used the expression "founding levels determined by Engineer", and this diagram also had an impact on measurement. The dispute concerned whether "founding levels determined by Engineer" and "theoretical bedrock level" should be construed as meaning essentially the same thing.
  • The court interpreted the each of the two terms in accordance with their natural meaning, and rejected the arbitrator's approach of conforming the two, to produce what he considered to be a fairer and more commercial outcome.

Comment

The case highlights some of the dangers of amending and overcomplicating methods of measurement. Here, the parties had (wisely) started with CESMM3 as their basis for measurement. CESMM3 states that "work should be itemised in the Bill of Quantities in sufficient detail to be possible to distinguish between the different classes of work, and between work of the same nature carried out in different locations or in any other circumstances which may give rise to different considerations of cost." Through a process of amendment, the clarity called for by CESMM3 was lost, resulting in substantial arbitration proceedings followed by litigation.

It is natural that parties should seek to agree complex remuneration structures to cover a range of uncertainties. However, this case is a useful reminder of the dangers of allowing ambiguity to be created by inconsistencies in the relevant provisions. Parties have a wealth of standard forms and standards available (CESMM is just one example) and it is suggested that these standards should be deviated from as little as possible, so as to reduce the risk of ambiguity, disagreement and dispute.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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