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What is "Back-to-Back"?

"Back-to-back" is a term commonly used to describe the rights and obligations of the parties under the sub-contract in a building project. However, its meaning and legal effect is far from clear. In the recent case Brington Engineering Ltd v Cheerise Asia Ltd., handed down on 18 August 2011, Deputy High Court Judge Cheng SC discussed the meaning of the term in detail. One of the issues in the case was whether if the consultant disallowed a claim made by the sub-contractor in the name of the main contractor, the sub-contractor would be entitled to anything.

The sub-contract in question provided, amongst other things, that

The basis of this subcontract is to execute as "Back to Back" in terms and conditions within our Main Contract. "Principle of variation, addition and/or omission to the original Sub-Contract sum shall also be settled in the same ‘Back to Back' basis."

The parties differed fundamentally on the exact meaning and interpretation of "back-to-back" in the provisions in question.

Deputy Judge Cheng was of the view that the phrase "back-to-back" is by no means precise. Deputy Judge referred to the case of WH-SCG JV Limited v Hong Kong Construction (Holdings) in which Reyes J commented that "back-to-back" has no straightforward meaning and is at best a vague expression. Hence, the phrase must be understood and construed in context, while the reasonableness of the result of construction is a relevant consideration.

Having considered the facts of the case carefully, Deputy Judge Cheng rejected the main contractor's arguments and the following findings of the court may be of interest to readers:-

1. The phrase "back-to-back" can only mean that the rights to make claim and the principle of valuation of variations have to be the same as those in the main contract. "Back-to-back" cannot possibly mean "pay when paid" or "pay if paid".

2. Clear words should be used if "back-to-back" is intended to mean that the sub-contractor's entitlement will be lost if the main contractor is not entitled to compensation under the main contract. Such curtailment of entitlement to claim cannot be lightly implied.

3. The consultant's decision on the sub-contractor's claims made in the shoes of the main-contractor against the employer was relevant evidence, but not conclusive in the context of the sub-contract. The sub-contractor was still entitled to pursue the claims against the main contractor.

4. The passing on of the claims from the sub-contractor to the employer did not amount to the main contractor's admission of either liability or quantum. The claims under the sub-contract had to be established independently and neither party could rely on the passing on of the claims to the consultant nor the decisions of the consultant.

This judgment serves as a good reminder that contractors are not to use the mere term "back-to-back" as a short cut to pass on to the sub-contractor rights and obligations under the main contract.

Key Contacts

Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9427

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