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Bulletin

The Bulletin has been compiled by Masons Hong Kong


and summarises recent legal developments in the
fields of construction, infrastructure, energy and
utilities.
For specific advice or further information on the topics
covered, please contact Jon Howes (+852 2294 3369
jon.howes@pinsentmasons.com)
or
your
usual
Masons contact.
For copies of the articles referred to or to be included
on the circulation list for future issues, please email
MasonsHK@pinsentmasons.com.

Issue 8
In this issue:

Legislation
Environment Transport and Works
Bureau Technical Circulars
20/2005, 2/2003C, 16/95B, 19/2005

Case Law
Petromec Inc
v
Petroleo Brasileiro SA
Beyond the Network Ltd
v
Vectone Ltd

Round-up of recent articles


Masons
Arbitration
Building & Construction
Energy & Utilities
Middle East

Disclaimer:
The material and information in this Bulletin is prepared for general
information only. Detailed professional advice should be sought and
obtained before taking or refraining from any action based upon it. Whilst
we endeavour to ensure the accuracy and completeness of the material and
information herein, we accept no responsibility for loss occasioned as a
result of reliance placed thereon.

Editorial Team
Peter Borg
Nicholas Turner
KM Liew
Leo Cheng

Distribution of articles not prepared by or on behalf of Masons is subject to


copyright limitations.

LONDON

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BRISTOL EDINBURGH

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SHANGHAI

www.pinsentmasons.com

Masons Bulletin Issue 8

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Legislation, Rules & Regulations


Environment Transport and Works Bureau Technical Circular (Works)
20/2005: Upward Reporting of Major Emergency Incidents from Works
Departments
This circular sets out the procedures for upward reporting of major emergency incidents from
Works Departments to the Works Branch of the Environmental, Transport and Works Bureau.
A major emergency incident is one which may occur
during or outside office hours and is either a crisis or will
develop into a crisis. A crisis has one or more of the
following characteristics or consequential implications:
widespread media interest, overwhelming public concern
and political interest, significant traffic impact, serious
effect on members of the public and/or fatality. To
determine whether an incident is a crisis, and therefore an
emergency incident, a co-ordinating officer (a government
official) will undertake a technical and public relations
impact assessment.

The circular sets out the procedures for upward reporting


of an incident, additional procedures where there is a
traffic impact and procedures where more than one Works
Department is involved.
This circular came into immediate effect on 8 December
2005.
[Back]

Environment Transport and Works Bureau Technical Circular (Works)


2/2003C: Regulating Action where a Serious Incident has or Site Safety or
Environmental Offences have occurred on a Construction Site
This circular supplements the Environmental, Transport and Works Bureau Technical Circular
No. 2/2003 by redefining the definition of "serious incident" for convening a Panel of Enquiry.
A serious incident involves either one or a combination of
the following: loss of life at a construction site, serious
bodily injury at a construction site, dangerous occurrence
or incident leading to or resulting in an injury that is
considered serious, or damage to works or property on or
adjacent to the construction site.

This circular came into immediate effect on 1 January


2006.
[Back]

Environment Transport and Works Bureau Technical Circular (Works) 16/95B:


Selection and Remuneration of Engineering and Associated Consultants
Attached to this circular are two amendments to earlier Works Bureau Technical Circular Nos.
16/95 and 16/95A.
The amendments comprise:
1.

Where the scope of design and construction services


for a design and construct project cannot adequately
be defined until the investigation stage has been
carried out, the project shall be split into two separate
consultancies one for investigation services and
another for design and construction services; and

Masons Bulletin Issue 8

2.

Where the full scope of investigation, design and


construction services can be adequately defined at
the start for the purpose of inviting competitive lump
sum fee proposals, the use of a single consultancy is
encouraged to expedite project delivery.

This circular came into immediate effect on 6 January


2006.
[Back]

Page 2 of 6

Environment Transport and Works Bureau Technical Circular (Works)


19/2005: Environmental Management on Construction Sites
This circular sets out policy and procedures requiring contractors to prepare and implement
Environmental Management Plans (EMP) in all public works contracts, adopt unified
standards on environmental nuisance abatement measures and expands the Pay for Safety
and Environmental Scheme to cover environmental nuisances.
This circular supersedes and/or should be read in
conjunction with a number of current Works Bureau and
Environmental, Transport and Works Bureau Technical
Circulars.
The aim of the circular is to extend the concept of waste
management on public works sites (previously waste
management was applicable to only capital projects) and
targets air, noise and wastewater pollution. The measures
will be implemented by the inclusion of terms in the

Special Conditions of Tender (requiring a contractor to


submit an outline EMP), Special Conditions of Contract
(requiring a contractor to submit and finalize the EMP),
Particular
Specifications
(setting
out
detailed
requirements for environmental management) and Bills of
Quantity/Schedule of Rates.
This circular came into immediate effect on 16 January
2006.
[Back]

Case Law
Petromec Inc v Petroleo Brasileiro SA Petrobas
This English Court of Appeal decision held that a contract that contains an express obligation
for good faith negotiations may be enforceable according to the terms of such provision.
Background
It is generally thought that the English courts will be
reluctant to enforce obligations to negotiate in good faith.
Such obligations are often thought of as a type of
"agreement to agree" and thus too uncertain to enforce.
The leading case that is often cited in connection with
these issues is the decision of the House of Lords in
That case concerned
Walford v Miles in 1992.
negotiations for the sale of a business in the course of
which the vendor agreed not to negotiate with any third
party and to negotiate only with a single prospective
purchaser. This undertaking was against the background
that there was no concluded agreement at all between the
parties, since everything was "subject to contract".
The House of Lords in the Walford case held that the
undertaking to negotiate with only one purchaser was
unenforceable because there was no provision saying
how long it was to last. The House of Lords also held that
it was impossible to imply a term into the agreement that
the parties would negotiate in good faith, as that was
inherently inconsistent with the position that the parties
were negotiating subject to contract.

Masons Bulletin Issue 8

The issue of whether the courts will uphold express


obligations between parties to negotiate in good faith was
examined by the Court of Appeal in the Petromec case.
In the Petromec case, the parties had entered into an
agreement for the construction of an oil production
platform under which the Operator agreed to pay the
Contractor any reasonable extra cost for upgrading the
platform in accordance with specifications and any
reasonable cost for any further alterations instructed by
the Operator.
The additional costs were to be payable on production of
evidence of expenditure following which the parties
agreed to negotiate in good faith to determine the costs
payable. The relevant terms read:
"The additional costs will become due and
payable on the production by [the Contractor] of
evidence of expenditure satisfactory to [the
Operator] by [the Contractor] and [the Operator]
being satisfied that such costs were reasonable
and properly incurred."

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"[The Operator] agrees to negotiate in good faith


with [the Contractor] the extra costs and upon
determination of the same [the Operator] and [the
Contractor] agree to enter into one or more
addendums to this Agreement specifying the
amounts to be paid by [the Operator] to [the
Contractor] "

Held
The Court of Appeal found that the Agreement was
legally enforceable and held that the express obligation
to negotiate the additional costs in good faith was not a
bare agreement to negotiate. The Court of Appeal
commented that it would be "a strong thing to declare
unenforceable a clause into which the parties have
deliberately and expressly entered." The Court of
Appeal also commented that it did not consider that
Walford v Miles represented binding authority that an
express obligation to negotiate would always be
completely without legal substance.

The Walford case was distinguished on its facts as "in


that case there was no concluded agreement at all since
everything was subject to contract; there was, moreover,
no express agreement to negotiate in good faith." In
contrast, the agreement to negotiate in good faith in the
Petromec case derived from an express term contained
within a complex contract drafted by City of London
solicitors.

[Back]

Beyond the network, Limited v Vectone Limited


This Hong Kong decision held that an arbitration agreement was inoperative.
Background
Beyond and Vectone entered into an agreement for the
sale and purchase of international telephone services
from each other. The Agreement provided, inter alia, the
following terms concerning jurisdiction:
4.

SETTLEMENT AND PAYMENT

4.3

Each party will be responsible for payment of all


undisputed charges as reflected on any billing
statement.... Neither party shall have an obligation
to pay any amount which has been disputed in good
faith until such time that the dispute is satisfactorily
resolved by the Parties.... In the event the Parties
are unable to resolve the dispute amicably with[in] a
reasonable period of time and havin[g] exchanged
their respective call detail records, not to exceed 14
days, then, the parties will submit the difference to
the Hong Kong Courts.

5.

REGULATIONS.
This Agreement is made
expressly subject to all present and future valid
orders, regulations of any regulatory body having
jurisdiction over the subject matter of this
Agreement, and to the laws of the Hong Kong, SAR.
The Parties hereby submit to the exclusive
jurisdiction of the courts of Hong Kong, SAR.

11.2 GOVERNING LAW.


This Agreement will be
interpreted in accordance with the laws of the State
of New York, USA, notwithstanding the principles of
conflicts of laws thereof, and any dispute shall be
submitted to the courts in the State of New York.
The Parties agree that the United Nations
Convention on Contracts for the International Sale
of Goods will not apply to this Agreement.

Masons Bulletin Issue 8

11.3 ARBITRATION. Either Party may require that any


dispute arising hereunder be settled by binding
arbitration in accordance with the commercial
arbitration rules of the American Arbitration
Association provided that alleged breaches of
Section 7 (Confidentiality) may be settled by
injunctive relief in a court as provided in Section
11.2. The arbitral tribunal shall be composed of a
sole arbitrator. The English language shall be used
throughout the arbitral proceeding. The arbitration
shall take place in New York, NY, USA. The cost of
the arbitration, including the fees and expenses of
the arbitrator(s), shall be shared equally by the
Parties unless that award provides otherwise.
Based on some alleged billing discrepancies, Vectone
disputed certain of Beyond's invoices. On 14 December
2004, Beyond commenced proceedings against Vectone
for a sum of USD718,999 being unpaid invoices due from
Vectone. Vectone applied to stay the proceedings to
arbitration by relying on Clause 11.3 of the Agreement.
Beyond argued that Clause 11.3 was inapplicable or
inoperative because of Clauses 4.3 and 5.

Held
The Court held that Clause 11.3 was inoperative as an
arbitration agreement because:1.

Beyond's claim concerned billing and by virtue of


Clause 4.3, the parties had agreed to submit any
dispute on billing to the Hong Kong Courts if it was
not amicably resolved within a reasonable period of
time;

Page 4 of 7

2.

The parties' submission to the exclusive jurisdiction


of the Hong Kong courts was "made crystal clear"
by Clause 5;

3.

The arbitration agreement provided in Clause 11.3


was permissive, not mandatory. When both parties
agreed to arbitrate, the acquiescence would
override Clause 5; in the absence thereof, Clause 5
would govern the jurisdiction; and

4.

Even though Clause 11.3 might allow a party to


require arbitration, it was too late for Vectone to
seek arbitration because it must do so within the
"reasonable time" as stipulated in Clause 4.3 and
whatever a reasonable time for invoking arbitration

might be, 5 months was an unreasonable period in


the circumstances (Vectone disputed the invoices
since 24 September 2004, but did not give notice of
its wish to go to arbitration until 16 February 2005).

Commentary
This decision, while not ground breaking, does
provide a timely reminder of the importance of getting
the terms of a contract right, particularly in relation to
certainty and compatibility between clauses.

[Back]

Round-up of recent articles and news


Masons
Legal and practical considerations when
selecting arbitrators

Arbitration in the construction industry

DIAC Journal October 2005 (Vol 1)

Gordon Bell of Pinsent Masons defines arbitration and


outlines its advantages and disadvantages in the context
of alternative dispute resolution procedures.
He
concludes that, although arbitration of domestic disputes
is decreasing, for the majority of international disputes, it
is likely to remain the dispute resolution method of choice.

Gordon Bell and Michelle Nelson of Pinsent Masons


discuss the legal and practical considerations when
selecting arbitrators in the Middle East, including
experience, expertise and availability. They examine and
compare a number of the differences introduced by local
laws, particularly in England and some of the Middle East
Arab States, and some of the more common arbitration
rules, in particular, the ICC (International Chamber of
Commerce) Rules, the LCIA (London Court of
International Arbitration) Rules and the UNCITRAL Rules.

27 October 2005

[Back]

Other articles and news


Arbitration
BIT Arbitration: A shield and sword for
international investment

resolution methods available. Advises on the knowledge


which lawyers should ensure they have before engaging
in bilateral investment treaty arbitration work.

New Law Journal (2006) Vol.156 No.7206


Stuart Dutson explains the use of bilateral investment
treaties between particular countries to provide protection
for nationals of that country engaging in international
trade and the requirements which claimants will need to
satisfy. Outlines the rights which are usually included in
bilateral investment treaties, remedies available for the
breach of bilateral investment treaties and the dispute

Masons Bulletin Issue 8

International Arbitration
December 2005 (Vol 22 No 6)
Haydn Main discusses the English Court of Appeals
decision in Cetelem SA v Roust Holdings, which may
have important implications for parties seeking urgent

Page 5 of 7

interim relief in the English courts. The courts held that


the power under the Act to preserve assets should be
interpreted broadly to allow not only for traditional freezing

orders against a defendant's assets, but also for the


award of interim mandatory injunctions to secure the
protection of a claimant's contractual rights.

[Back]

Building & Construction


Listen, this is important
Building 2 December 2005
Nick Lane highlights the importance of understanding how
delay analysis techniques connect with contractual
provisions concerning delay and extensions of time.
Examines the commonly used delay analysis techniques:
(1) as-planned versus as-built; (2) as-planned impacted;
(3) time impacted analysis; and (4) as-built but-for
analysis.

according to those terms. The Court considered Walford


v Miles, the leading case on these issues.

Coordination of building services drawings


Contract Journal 16 November 2005
Geoff Brewer Comments on the Court of Session decision
in Emcor Drake & Skull v Edinburgh Royal JV on the
status of building services drawings and responsibility for
co-ordination.

Time at large
Contract Journal 30 November 2005
Geoff Brewer comments on the Court of Appeal decision
in Shawton Engineering v DGP International that where
the requirement is to complete works within a reasonable
time, that reasonable time for completion must be
established and notice making time of the essence given
before a contract can be terminated for delay.

Cut to the quick


Building 14 October 2005
Ron Nobbs and R. Chaplin suggest important points to
look out for when construction lawyers need to examine a
contract at short notice. Focuses on LDs and LADs
(ascertained damages) and sectional completion,
professional indemnity insurance, best endeavours, the
"back-to-back" concept and executing contracts.

Who stumps up for a big loss?


Construction News 17 November 2005
Daniel Atkinson comments that a contractor's liability is
often capped at a cumulative maximum sum, usually a
percentage of the contract value, but considers whether
this cap should still apply when the contractor's own
failure leads to a far higher loss than expected.

Rights and remedies


Contract Journal 11 January 2006
Geoff Brewer comments on Petromec v Petroleo
Brasileiro which considered whether the courts will uphold
express obligations between the parties to negotiate in
good faith. The author concludes that an agreement to
enter into good faith negotiations to resolve essential
terms for the making of a contract will generally not be
enforced. A contract that contains an express provision
for good faith negotiations may however be enforceable

Masons Bulletin Issue 8

When is a profit lost?


Construction News 06 October 2005
Rudi Klein examines US and Australian court rulings to
discover what compensation is applicable if a client
breaches a contract when a contractor is in full
accordance.

Concurrent delay a map through a


minefield
Construction Law December 2005
Tom Wrzesien explains what concurrent delay is and why
concurrency matters. He notes that it is vital, when
analysing concurrent delay, to distinguish the effect on
extensions of time from the effect on loss and expense.
[Back]

Page 6 of 7

Energy & Utilities


China Outlines Pricing Plans for Wind
Generated Electricity

China Continues Rapid Development of


Solar Power Technology

ChinElec China Power Monitor 17 January 2006

ChinElec China Power Monitor 17 January 2006

China announced that it is to set prices for electricity


generated by wind power through a competitive bidding
process. The National Development and Reform
Commission (NDRC) has issued new rules on the
process and said last week that the bidding process
would be organised by the central government, according
to the Shanghai Securities News.

China's status as a global leader in the production and


use of solar-panelled heating equipment will be cemented
when the country achieves a level of solar-powered
energy equivalent to the combustion of more than 22
million tonnes of coal per year by the end of this decade.

The new regulations stipulate that prices for solar power,


wave power and geothermal energy will be set by the
government, but not through a competitive bidding
process. Local governments are allowed to set the prices
of electricity generated by biomass, and are permitted to
give out subsidies to biomass power generators.

This target was announced at a national solar energy


conference in Haikou last week when it was revealed that
industry has already put into use 15 million square metres
of solar panelling. Solar-panelled power will generate 1%
of China's energy use by 2010.
[Back]

Middle East
A clear objective
Middle East Economic Digest (MEED) 16-22 December
2005 (Vol 49 No 50)
This is a special report on Saudi Arabia with information
on employment, terrorism, economic reform, the impact of
the kingdom's recent accession to the World Trade
Organisation, the petrochemicals industry, project finance,
water conservation, mining and transport.
[Back]

FEBRUARY 2006

Masons Bulletin Issue 8

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