SZE FUNG ENGINEERING LTD v. TREVI CONSTRUCTION CO LTD

HCCT 51/2019

[2026] HKCFI 3026

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 51 OF 2019

___________________

BETWEEN

____________________

________________________________

JUDGMENT ON REMITTED ISSUES

________________________________

Background

1.  On 17 February 2023, after a trial which had taken place in August 2022, this Court handed down a Judgment relating to a Subcontract between the Plaintiff, SF, and the Defendant, Trevi, for piling and grouting works (“Judgment”).

2.  The definitions used in the Judgment are adopted below.

3.  SF appealed against the Judgment, and on 28 March 2025, the Court of Appeal handed down its judgment (“CA Judgment”).

4.  In the CA Judgment, the Judgment was set aside, and the variation claims and loss of profits claim were remitted to the Court for determination. These claims had been dismissed in the Judgment on the basis of the Court’s construction of Item 18 of the Quotation, that SF was only to be paid by Trevi, if Trevi was paid under the Main Contract for the works and claims concerned. The Court of Appeal held that the “back to back principle” in Item 18 only governs the time of payment to SF, and is not a pay when paid clause. The Court of Appeal further found that there is an implied term in the Subcontract, for Trevi to assess and pay SF for all works duly done in a timely manner, and to pay a reasonable price for the same (paragraphs 56 - 61 of the CA Judgment).

5.  The remitted claims came before this Court in January 2026. By then, some further items of claims had been agreed. This judgment deals with the remainder of the disputed claims which have been remitted.

6.  The background and relationship between the parties have been set out in the Judgment and the CA Judgment, and will not be repeated here.

The disputed variations

VO 4

7.  For this claim, the dispute focuses on whether there was a direct agreement made between SF, and Leighton as the Main Contractor, for payment of the additional/double shift night works instructed by Leighton in the meetings. Trevi claims that the Subcontract between SF and Trevi does not provide for variations, nor for the supply of labour, and that the agreed price for the works under the Subcontract can only be adjusted through remeasurement of the quantities of the works carried out, or by way of a supplemental agreement between SF and Trevi. Trevi further claims that the work was instructed by Leighton to SF and undertaken by SF pursuant to such instructions, and that it should be Leighton which should be responsible for payment, as Trevi was not a party to the agreement.

8.  On the evidence, the relevant work instructions were contained in an email from Leighton to Trevi (on 3 March 2018), which was forwarded by Trevi to SF, with instructions to SF to commence the nightshift work. On 6 March 2018, SF issued a letter to Trevi, referring to a meeting held on 5 March 2018, which was attended by representatives of Leighton, SF as well as Trevi, whereby Leighton had agreed that the night works would be assessed at $30,000 per shift. In Trevi’s own letter to Leighton of 7 March 2018, Trevi also referred to the 5 March 2018 meeting. SF’s quotation for the night works had been attached, and by its email of 22 March 2018, Leighton instructed Trevi to have the night works carried out, at the agreed rate of $30,000 per shift.

9.  I accept the submissions made for SF, that the instruction for the additional works had come from Leighton, to Trevi, and that Trevi had asked SF to confirm Leighton’s instructions. The meeting held on 5 March 2018 was attended not just by Leighton and SF, but also by Trevi. On the face of such evidence, I cannot accept that there was only a private arrangement between Leighton and SF relating to the night works. The instruction given by Leighton at the meeting, in the presence of Trevi, was obviously for the work to be carried out by SF in its capacity of Trevi’s subcontractor. The subsequent correspondence and references to Leighton issuing the instructions to SF and compensating Trevi as well as SF are just as consistent with Leighton instructing and confirming its agreement through Trevi, its own contractor. In the light of the parties’ relationship and contracting position, it would require much clearer evidence and confirmation to show that Leighton was contracting directly with SF, and excluding its own contractor Trevi from the contract with SF, and that the parties all intended this to be so.

10.  In any event, as held by the CA, Trevi was bound by the implied term found by the CA to pay for works carried out by SF, at a reasonable price. As Counsel for SF submitted, SF’s payment entitlement is not confined to what was provided for under the bills of quantities.

11.  The agreement reached with Leighton was for the additional nightwork to be carried out at $30,000 per shift. On the valuation made by the SJE on the basis of the work records submitted, I allow the amount payable to SF at $330,000.

VO 15

12.  This claim relates to the cost of providing and mobilizing a piling machine and other associated plant for the 610 mm diameter pipe pile works at shaft D. SF claims that the work was necessary because (on Trevi’s own pleaded case) there was an increase in the scope of works required under the Subcontract.

13.  Trevi claims that the work record submitted by SF in support of the claim was not signed by Trevi, and there is no evidence that the additional piling machine had actually been mobilized, as the pipe piling works at shaft D had been omitted.

14.  I accept the submissions made for SF, that the denial of the mobilization was not pleaded, and the claims now made, that SF had not carried out work at shaft D, were never put to the witnesses of SF at trial.

15.  The fact that Trevi had not been paid by Leighton for the claim falls away in the light of the CA Judgment. The quantum expert allowed the claim at $350,000 on the basis of the documents submitted, and I will allow this claim.

VO 21

16.  This is a claim for providing “additional welding inspectors” for “external and lateral support works” at the pumping station. SF’s claim is that Leighton had instructed Trevi to deploy additional welding inspectors, and pursuant thereto, Trevi had instructed SF to carry out the additional work.

17.  According to Trevi, the cost of providing the welding inspectors should be included in the piling rates agreed for the Subcontract, and there was no additional work chargeable. It further claims that there is insufficient evidence to support the claim. In this last respect, although the Subcontractor Site Instruction (“SCI”) concerning the instruction for the provision of welding inspectors (which SCI was issued under the letterhead of Leighton) was not signed, the work records had been submitted by SF and examined by the SJE who was satisfied with the same, and assessed the value at $22,222.

18.  I accept the submissions made for SF, that the rates under the Subcontract only covered the piling work, as opposed to the provision of a welding inspector for the works, and in any event, the instruction from Leighton stated that the works were additional in that the additional inspector was for the external and lateral support works which were outside the scope of SF’s works under the Subcontract. On behalf of SF, Counsel pointed out that this unpleaded assertion of Trevi, that the cost of the welding inspector was included in the “piling rates”, had not been put to SF’s witnesses at trial.

19.  I will allow this claim assessed at $22,222.

VO 24

20.  This relates to cube test, flow cone and bleeding tests carried out by SF.

21.  On SF’s case, these works were to be carried out by Trevi under the express terms of the Clarification Letter (of 15 September 2017). Evidence of the work actually carried out by SF (instead of Trevi) is contained in the documents produced at trial and examined by the SJE, which included the invoices of Stranger Asia Ltd for $259,785, which the SJE accepted.

22.  Considering the evidence, I will accept this claim.

Loss of profits

23.  This relates to the piling works in shaft D, which were ultimately omitted from the Subcontract. Trevi’s witness accepted in cross-examination that there is no dispute that the works were actually omitted. The Subcontract was for works in all 4 shafts A, D, E and F.

24.  As alluded to in the Judgment (see paragraph 79), there is no contractual provision in the Subcontract whereby Trevi would be entitled to omit items of work from the scope of works covered by the Subcontract. Any omission would amount to a variation of the contract, entitling the contractor to claim the contract sum for the works omitted, at the agreed rates, less the costs of labour and materials saved by the omission.

25.  The basis on which SF’s claim for loss of profits was rejected under the Judgment was simply that Trevi had not been paid by Leighton for the omitted works, and hence SF was not entitled to payment from Trevi under the back to back principle (paragraph 81 of the Judgment). That has been overturned by the CA Judgment.

26.  The fact that SF could have made a profit from other variation works is no answer to the claim that works which were included in the scope of the Subcontract had been omitted without any contractual basis. Nor is the fact that Trevi had not included SF’s claim in Trevi’s own final account sufficient to defeat SF’s claim.

27.  As the CA Judgment held, SF is entitled to receive a reasonable price for any variations to the Subcontract.

28.  The SJE had considered and allowed the claim of $85,795.26, on the basis of a 15% margin in calculating the loss of profits and overheads, the price originally agreed for the works, and 3.23% for loss of profit. There is no challenge to this valuation and I will allow it.

Costs of the action

29.  Costs are in the discretion of the Court. The general rule is that costs should follow the event (Re Elgindata Ltd (No 2) [1992] 1 WLR 1207, Commissioner of Inland Revenue v HIT Finance Ltd [2014] 4 HKLRD 412). Further, as the Court pointed out in HLB Kidsons v Lloyds Underwriters [2008] 3 Costs LR 427, “there is no automatic rule requiring reduction of the successful party’s costs if he loses on one or more issues”.

30.  Counsel for SF referred also to the judgment in Chan Shun Kei v Hong Kong Construction (Hong Kong) Ltd CACV 192/2014, 7 March 2016, where Hon Lam VP (as His Lordship then was) observed as follows:

“… It is clear to us that the claim by the Plaintiff remains as a claim arising from the construction works undertaken under the contract notwithstanding the different bases for quantification advanced by the Plaintiff. Further, in essence, it is a matter of accounting between the two parties and ultimately the court is asked to determine which party owed money to the other party. We do not think that there is any special rule for construction cases. The approach of testing who emerged as the successful party has been adopted in construction cases: see Chevalier (Construction) Co Ltd v Tak Cheong Engineering HCA 153 of 2008, 8 June 2011; ACT Construction v Mackie [2005] EWCA Civ 1336.”

31.  In the case of Chevalier cited above, the court explained the approach as follows:

“… In my judgment, the whole piece of litigation can be regarded as an accounting exercise between the parties. And the Plaintiff emerged as the party entitled to a judgment at the end of the day…”

32.  Having considered the submissions on costs made for the parties, I accept that the party found to be entitled to payment in this case should be considered the successful party, and should be entitled to costs unless the successful party had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed (para 7 of the judgment of Bokhary PJ in Commissioner of Inland Revenue v HIT Finance Ltd).

33.  As a result of the appeal, Trevi is to pay SF a sum depending on the outcome of this Court’s determination of the remitted issues. From the preceding paragraphs, it can be seen that all the remitted claims have been decided in favor of SF.

34.  Overall, I consider that SF had not been unreasonable in raising the claims which it did in these proceedings, even though they were not successful. As Counsel for SF pointed out, in the course of the project, Trevi had not rejected SF’s claims, and had submitted the vast majority of SF’s claims to Leighton.

35.  Accordingly, my order is that SF is the overall winner, and is entitled to the costs of the action.

36.  Finally, in relation to the Calderbank offer made by Trevi in June 2022, I consider that it is currently premature to determine whether and what effect that has on the costs order, when the final amount of the claims allowed, with interest thereon, is not yet clear. Upon such final calculation, if Trevi is entitled to apply to vary the cost order under the relevant rules, it can do so at a later stage.