S. D. V. CONSTRUCTION & ENGINEERING CO LTD t/a WAH SUNG ENGINEERING CO v. BEST BILLION ENGINEERING LTD

HCCT 101/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO. 101 OF 2002
(transferred from HCA No. 3644 of 2001)

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J U D G M E N T

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I. BACKGROUND

1. Hopelead Enterprise Limited ("Hopelead") as Employer appointed the Defendant ("Billion") as Main Contractor for the design and construction of foundation, pile cap and shoring works in connection with a building development at TWIL 48, Nos. 65-69 Chai Wan Kok Street, Tsuen Wan, New Territories ("the Site"). On 31 May 1994 the Plaintiff ("Wah Sung") (a general building and piling contractor) submitted a Quotation ("the Quotation") to perform piling and pile cap construction work ("the work") on the Site for a total sum of $5,648,000 as specified in the Quotation. That amount was later reduced by $3,000 to $5,645,000. Shortly after submission of the Quotation, Billion appointed Wah Sung as Sub-Contractor for foundation and piling work at the Site.

2. A "Programme for Construction of Piling, Pile Cap No. 65-69 Chai Wan Kok Street, Tsuen Wan, N. T." ("the Programme") was attached to the Quotation when submitted to Billion. The Programme (which was in the form of a bar chart) estimated that it would take 245 calendar days for completion of the piling project.

3. One of the items on the Programme ("Construction of pile cap and S.B.") was estimated to run for 45 days. There is a dispute between the parties as to what the initial "S.B." in that item mean. Wah Sung (through the oral evidence of its managing director Mr. Lau Yue Sung ("Mr. Lau")) says that "S.B." stands for "strap beams". Billion (through the oral evidence of its managing director Mr. Cheung Siu Tong ("Mr. Cheung") says that the abbreviation means "starter bars".

4. What the initials mean is said to matter because Wah Sung claims additional fees for starter bar work which it says did not form part of original scope of work within the Programme. Wah Sung points to the following express remark in the Quotation in support: "Starter bars for columns and core walls will be claimed @5.00/Kg which fee is not included in this quotation." Billion contends on the strength of the "S.B." item in the Programme that starter bar work formed part of the Programme.

5. Wah Sung commenced design for the work in mid-June 1994. It was originally expected that the work would be completed by 25 July 1995. In the event Wah Sung did not complete the work until early September 1995.

6. On 30 June 1994 Wah Sung sent piling plans and relevant calculations to Billion for onward submission to the Buildings Authority. On 10 September 1994 the Buildings Department ("the BD") notified AE Architect Limited (the Architect for Hopelead's project) that the plans had been approved. On 14 November 1994 the BD informed the Architect that the BD had consented to the commencement of steel H-piling works at the Site.

7. Piling having finished, the construction of pile caps started on 3 June 1995. Around that time Wah Sung discovered that there were old footings and strap beams from previous buildings remaining on the Site. Those obstructed pile cap work and had to be removed. By letter dated 7 June 1995 Wah Sung sought Billion's instructions on the matter. There was no written reply from Billion.

8. On 11 July 1995 Wah Sung wrote to Billion in these terms:-

"Refer to your information for starter bars of columns indicated on the approval plan dated of 21st March, 1995 for the above project.

We submit herewith the relevant quantities of this starter bars for your reference and record, and we would like to inform you this starter bars are not included in our contract.

We are also to inform you that the concreting work for F2, F3, F4, F6, F7, F8, SB1 and SB3 has casting on date of 11th July, 1995, the starter for columns A2, A3, A4, B2, B3 and B4 are installed with Y40 subject to the approval plan date of 21st March, 1995."

The letter arises because it was not until 21 March 1995 at the earliest that Wah Sung knew for sure that it would be responsible for installing starter bars in pile caps. When the Quotation was submitted, it was not certain that Hopelead would engage Billion to construct pile caps in addition to carrying out foundation work. Thus, only when Billion was authorised by Hopelead to execute the pile cap and starter bar work, could Billion in turn definitively instruct Wah Sung to carry out the same.

9. By an Instruction No.AI2 ("AI2") dated 12 July 1995 the Architect requested Billion to revise the levels of certain pile caps. AI2 stated: "Revised Pile Cap plans according to the above revisions are to be submitted to us for further submission to Buildings Department for approval". Billion forwarded AI2 to Wah Sung for execution.

10. By an Instruction No.AI3 ("AI3") dated 19 July 1995 the Architect requested revisions to the thickness of particular pile caps and the centerline of strap beam 6. AI3 provided that further revised plans needed to be submitted for approval by the BD. Billion forwarded AI3 to be dealt with by Wah Sung.

11. On 27 July 1995 Billion wrote to Wah Sung as follows:-

"With regard to the above [Foundation Works at the Site], you are requested to provide the following for our onward submission to Architect for approval of E.O.T. as well as consideration of variation.

(1) Latest program showing the contract work affected by the inclement weather and obstruction of underground old footings/ columns.

(2) Breakdown of excavation for the underground old footings/ columns.

(3) Any cost/ time implications for the AI No.3 (dated 19 July 1995)? If yes! Please provide the breakdown for the claim.

Regards!"

The fax was signed by Billion's managing director, Mr. S. T. Cheung ("Mr. Cheung"). It included a postscript which read:-

"Insurance Period of the captioned policies are extended to 31st August 1995. Therefore, you are requested to complete the foundation works on or before 25th August 1995."

12. Wah Sung replied as follows by letter dated 28 July 1995:-

"We would submit the relevant items as follows for your consideration and approval:

1. We claim 30 days for excavation and cleaning of existing Pile cap and Columns, the period for construction of Pile Cap Works should be extended to 25th August, 1995.

2. The coat [quote?] for excavation and cleaning of existing underground old footings and columns for a lump Sum $110,000.00. Excavation and cleaning the existing underground oil tank will be handled by the superstructural contractor during construction of ground floor beams, instructed by Architect Miss Alice Lin, direct informed our site foreman Mr. W. L. Poon.

3. The cost for design amendment of Pile Cap F9, F13 & F14 and the balance cost for increase reinforcement and deduct concrete due to the final amendment will be submitted later.

Thank you for your kind attention."

It does not appear that Billion ever sent a written reply to this letter.

13. On 3 August 1995 Wah Sung submitted its revised pile cap plans and relevant calculations to Billion. Wah Sung afterwards informed Billion on 8 August 1995 that casting of pile caps following the revised plan would take place on 10 August 1995. Wah Sung asked Billion to relay any comments which Billion might have on the proposed arrangement. The 10 August 1995 date for casting was subsequently changed to 11 August 1995 due to a steel inspection.

14. On 30 August 1995 Wah Sung wrote to Billion as follows:-

"We would like to inform you we have found seven numbers of existing footings and strap beams in the position of F1, F5, F9, F13, SB1 and SB5, 2 sets of relevant photographs are attached herewith for your record and submit t to the Architect and your inspection on site. The above existing footings are not included in the old footings report that we submitted before. However, we will not claim the relevant fee for cleaning this additional existing footings, but, we must claim on the time that we use for cleaning works. Even though we provide 2 Nos. of excavators for this cleaning works, we must extend the completion period of this project to 10th September, 1995."

Again Billion does not appear to have sent any written reply to Wah Sung's fax.

15. By 2 letters dated 8 September 1995 Wah Sung calculated the additional cost arising from the revision to pile caps as $33,292 and the extra charge from its starter bar work as $128,511. The latter figure was based on a price of $5.00 per kg. of starter bar. By letter dated 6 December 1995 Wah Sung appears to have revised its claimed extra charge for starter bars downward. In that letter it sought an additional fee of only $148,951.90, comprising $115,659.90 for starter bar work and $33,292 in relation to the revised levels and redesign of pile cap. With the starter bars, Wah Sung seems to have offered to lower its charge to $4.50 per kg.

16. From the time when the work commenced to the present, Billion has made the following payments to Wah Sung:-

(1) 17 January 1995	$1,495,322.00
(2) 9 August 1995	$1,300,000.00
(3) 7 October 1995	$1,100,000.00
(4) 7 December 1995	$ 100,000.00
(5) 18 December 1995	$ 500,000.00
(6) 16 February 1996	$ 148,951.90

Billion has therefore paid Wah Sung a total of $4,644,273.90.

17. By this action Wah Sung claims the balance of unpaid fees due. These may be calculated as follows:-

Quotation fee		$5,645,000.00
LESS:-
Payments made		$4,644,273.90
		-----------------
	SUB-TOTAL	$1,000,726.10
ADD:-
Fee for removal of old footing		$ 110,000.00
Starter bar fee		$ 115,659.90
Pile cap revision fee		$ 33,292.00
		---------------
	TOTAL	$1,259,678.00
		==========

18. Billion denies Wah Sung's claim. It counterclaims the amounts of $789,688.31 and $34,500.

19. Billion says that there was a delay of 53 days¹ in Wah Sung's performance of the work, including the revised pile cap work and installation of starter bars. Billion calculates this by reference to the Programme. Billion contends that it is entitled to charge liquidated damages in respect of this delay at $20,000 per day by reason of the tender documents. This yields damages of $1,060,000 ("Sum L"). The rate of liquidated damages is derived from the Instruction to Tenderers which formed part (Billion says) of its sub-contract with Wah Sung. Billion alleges that it in turn owed Hopelead liquidated damages of the same amount for delay under the Main Contract consequential upon Wah Sung's tardy performance.

20. Billion says that it had a valid claim against Hopelead in respect of 61 days' delay in the commencement of the superstructure works at the Site. Given a liquidated rate of $12,945.71 per day in relation to such delay, Billion claimed $789,688.31 ("Sum X") from Hopelead. Nonetheless, on 29 August 1995 Billion and Hopelead agreed to set-off their respective claims and extinguish the same. Thus, Hopelead agreed to forego its claim for liquidated damages and Billion to waive its claim for Sum X.

21. Billion argues that in waiving its claim for Sum X, it effectively mitigated its claim for liquidated damages against Wah Sung from Sum L down to Sum X. It therefore seeks Sum X from Wah Sung.

22. The $34,500 is in respect of costs of $30,000 incurred in the removal of an underground oil tank together with a 15% overhead. Billion contends that the removal of the oil tank from the Site was Wah Sung's responsibility and Wah Sung ought accordingly to reimburse Billion for doing Wah Sung's work.

II. DISCUSSION

23. Mr. Hui submits that Wah Sung was not entitled to the amount stipulated in the Quotation because it was subsequently agreed orally between Mr. Lau and Mr. Cheung in mid-June 1994 that the sub-contract would be charged on a measure and value basis.

24. Both Mr. Lau and Mr. Cheung gave evidence on the point. The former denying, the latter affirming the existence of the alleged oral agreement. On the whole I preferred Mr. Lau's evidence. My impression of Mr. Cheung was that his recollection of events tended, consciously or sub-consciously, to be tinged by what might have been perceived as favourable to Billion's case. I did not think that his evidence was reliable. I give 3 specific examples.

25. First, as to the initials "S.B.", Mr. Cheung conceded that in the construction trade "S.B." could mean "strap beam". But he was adamant that "S.B." in the Programme referred to "starter bars". This was despite the remark in the Quotation which I have mentioned above. This was also despite the fact that the Piling Plan for the Site showed that the pile caps were to be supported by several horizontal structures, each of which was expressly identified in the plan by the initials "S.B.". Mr. Cheung agreed that "S.B." in the context of the plan meant "strap beam". Given that it was unclear at the outset whether Wah Sung would be doing the starter bar work, it is not apparent why Wah Sung would include starter bars in the Programme. It seemed to me that the reason that Mr. Cheung was insisting that "S.B." referred to starter bars was because then it could be claimed that the installation of starter bars formed part of the original Programme of 245 days and Wah Sung was not entitled to an extension when it later was instructed to do starter bar work. I therefore accept Mr. Lau's evidence as to the meaning of "S.B."

26. Second, Mr. Cheung referred in his oral evidence to a "Standard of Measurement". Asked to clarify to what specific document he was referring, Mr. Cheung simply said "my witness statement". Mr. Cheung possibly meant the "Hong Kong Standard Method of Measurement of Building Works" (Third Edition, February 1979) ("the Standard"), which is mentioned in his witness statement. It is mentioned there because it is Billion's case that by the mid-June 1994 oral agreement Wah Sung accepted that the work would be paid on a measure and value basis as set out in the Standard. If this is what was orally agreed between Mr. Cheung and Mr. Lau, it is curious that Mr. Cheung could not articulate what the Standard was in cross-examination in Court, but could only vaguely refer to his witness statement. The credibility of Mr. Cheung's assertion that the Standard was to form the basis of measurement and value must be in doubt. For this reason, I reject Mr. Cheung's evidence that the Standard formed any agreed basis of contracting between Wah Sung and Billion.

27. Third, Mr. Cheung asserted that important matters which one would might have expected to see in writing were only communicated orally. Thus, I have noted in Section I above that when Wah Sung asked for approval of an extra charge of $110,000 for removal of old footing and for an extension of time as a result of additional old footing later discovered there is no letter in response from Billion or Mr. Cheung. Mr. Cheung claims to have been unhappy with Wah Sung's progress on the work. But where are the letters complaining about Wah Sung's slow work? Where are the letters seeking liquidated damages from Wah Sung? Where is any claim for liquidated damages or Sum X advanced? It is not until the Re-Re-Amended Defence and Counterclaim that these matters are raised. It is not until Mr. Cheung's oral evidence in Court that it is alleged that Wah Sung was repeatedly warned orally about late progress.

28. On the other hand, because it was important to Billion's case to link the tender documents prepared by Hopelead to the sub-contract with Wah Sung, Mr. Cheung said that he provided Mr. Lau with all the tender documents because such key matters as specification (and presumably other terms of contracting) could not be left to mere oral explanation. I have doubts about Mr. Cheung's evidence on this point.

29. Mr. Lau denies that he was shown all the tender documents. Mr. Lau says that he was only provided with a loading plan, a site investigation report and oral specifications. Mr. Cheung contends, for example, that he provided Mr. Lau with all tender documents as exhibited in the Court hearing bundle. That would comprise (among other parts) the Instructions to Tenderers presumably as filled out by Billion for submission to Hopelead on 30 May 1994. The latter document as it appears in the hearing bundle states Billion's tender sum, a sum many times more than what Wah Sung would eventually charge. Can it be the case that Billion revealed its confidential tender to Wah Sung before the latter sent the Quotation? If not, then I would have needed a more careful examination and consideration by Mr. Cheung of which precise tender documents in what state (for example, whether filled out by Billion or not) were provided with what information.

30. During examination-in-chief Mr. Cheung's attention was drawn to the table of contents for the tender documents. He was asked to identify which parts of the tender documents were provided. Immediately, without any real examination of the underlying documents in the bundle, Mr. Cheung simply asserted that all parts of the tender were provided. That does not inspire confidence in me as to the accuracy and reliability of his evidence.

31. Consequently, I reject Billion's case of a subsequent oral agreement to vary the terms of the sub-contract as found in the Quotation. In my view, the Quotation properly construed put forward a lump sum contract for the work. There was no later oral agreement to turn the same into a measure and value contract based on the Standard. I accept Mr. Lau's evidence that he was not provided with all the tender documents and specifications were only communicated to him orally by Mr. Cheung. It also follows from my foregoing views that the scope of work envisaged by the Quotation and Programme did not include starter bar work.

32. Mr. Hui argued that since, according to the tender documents, it was not known at the outset whether pile cap work would form part of the Main Contract, the Quotation could not have been regarded by the parties as charging a lump sum for all the work therein, including pile cap work. It follows (Mr. Hui reasons) that the Quotation could not be a lump sum contract. I am not persuaded by this submission. For all the Court might know, it could have been clearly understood among all (including Hopelead) that Billion was to do the pile cap work and Mr. Lau was asked to provide a lump sum Quotation on that understanding. My difficulty is that Mr. Hui did not put his argument squarely to Mr. Lau in the course of cross-examination. The Court is therefore deprived of any explanation which Mr. Lau might have for charging for pile cap work together with other foundation work.

33. I note that even if I had accepted Mr. Cheung's evidence that the tender documents were provided in their entirety to Mr. Lau, it does not follow that the terms of the tender documents were incorporated as part of the sub-contract between Billion and Wah Sung. There is simply no evidence of any express agreement to that effect. At best, the provision of the tender documents without more might conceivably qualify as an offer, although I would tend to regard the act as more consistent on the facts of this case with the documents being provided for information purposes only. The submission of the Quotation without express reference incorporating the terms of the tender documents would constitute a counter-offer. The acceptance of the Quotation would then give rise to a contract based simply on the Quotation.

34. Mr. Hui submits that Wah Sung was not entitled to claim $110,000 for removal of old footings. He says that Wah Sung took the risk of such being discovered in the course of foundation work at the Site. For this, he relies on a term of the tender documents, namely, Specification EXC3.01(d). Given my finding that the tender documents did not form part of the sub-contract, I reject Mr. Hui's submission. The evidence is that Mr. Lau proposed in writing to clear the old footing for $110,000. There being no evidence of a written reply by Billion and as I am not satisfied that Mr. Cheung actually protested against the imposition of an additional $110,000, I think the proper inference to be drawn is that Wah Sung proceeded to clear the old footing on the understanding that Billion would pay $110,000 for that unexpected addition to Wah Sung's work. Wah Sung should also (it follows) be allowed time to remove the old footing work (including the additional old footing subsequently discovered in the course of pile cap work).

35. But Mr. Hui says that no extension of time beyond that envisaged in the Programme should be allowed for the instruction to install starter bars and for the revision of the pile caps.

36. Given my finding that "S.B." in the Programme did not refer to starter bars, their installation did not form part of the original scope of work envisaged in the Programme. Wah Sung should be entitled to time for that.

37. It seems to me that the revision to pile caps would also entitle Wah Sung to more time. Indeed, it seems to me that by its 27 July 1995 letter Billion implicitly recognised this and by the 2nd sentence of the postscript to the letter confirmed that, in all the circumstances, time for completion had been extended by 1 month from 25 July to 25 August 1995. If Billion thought this was unreasonable, one would have expected it to say so in the 27 July 1995 letter. It did not. Instead it asked Wah Sung to formulate a claim which could be forwarded to Hopelead. The discovery of additional footing work as noted in Wah Sung's letter of 30 August 1995 likewise (I think) warranted the grant of further time.

38. Therefore, I do not see that it was unreasonable or in breach of the sub-contract for Wah Sung to take until early September 1995 to complete the work as revised in respect of the pile caps and as augmented in respect of the starter bars and removal of old footings. I reject Mr. Hui's submissions on this score.

39. Mr. Hui suggests that, even before receipt of AI2 and AI3, Wah Sung would have known that those instructions were forthcoming and could have "re-arranged" the elements of the Programme accordingly so as to meet the times stated therein as closely as possible. Again this was not a matter put to Mr. Lau in cross-examination. I do not think that the Court can speculate as to what Mr. Lau could or could not have realistically done by way of "re-arrangements", unless the matter had been canvassed with him in cross-examination.

40. It follows from the foregoing that Wah Sung has made out its entitlement to claim $1,259,678.00.

41. As far as the Counterclaim is concerned, the case for Sum X hinges on a finding that the liquidated damages provision in the tender documents governed the sub-contract. I have found that the tender documents were not so incorporated into the sub-contract as evidenced by the Quotation.

42. Mr. Hui's case for Sum X would also require me to find that there had been unreasonable delay on Wah Sung's part. I have not found that to be the case.

43. Further, even if there had been delay of some interval on Wah Sung's part, Billion would have to demonstrate that Sum X represented an accurate measure of such damage. Sum X, however, is based on an agreed liquidated figure of damages to Billion for delay on Hopelead's part in relation to the commencement of the superstructure works. It does not mean that Sum X based on the liquidated figure in the superstructure main contract is any accurate estimate of actual damages incurred by Billion as a result of delay on the part of Wah Sung on the sub-contract. The fact that Billion and Hopelead agreed to compromise their respective claims against each other does not, as far as Wah Sung is concerned, make Sum X any more credible as an actual measure of Billion's damages attributable to Wah Sung. Wah Sung did not agree the liquidated rate found in the superstructure contract on the basis of which Sum X has been calculated.

44. There being no evidence of the actual damages (if any) incurred by Billion as a result of any alleged delay on Wah Sung's part, the claim for Sum X is untenable.

45. The claim for the oil tank depends on Wah Sung being responsible for clearance of any unforeseen underground objects or structure discovered in the course of foundation, piling and piling cap work. Such responsibility hinges on the validity of Mr. Hui's submission that the tender documents as a whole formed part of the sub-contract. In light of my finding to the contrary, the claim in respect of the oil tank fails.

46. Although not specifically pleaded as an item in the Counterclaim, in the body of its Defence Billion seeks a deduction of $17,500 from the amount claimed by Wah Sung. This deduction is in respect of an alleged failure by Wah Sung to provide any or any sufficient watchmen, security, maintenance and cleaning on the Site.

47. The evidence in support of this claim by Billion is scanty. It amounts to little more than a couple of letters from the Architect reminding Billion to provide the services just mentioned. Billion forwarded this letter to Wah Sung on the basis that it was included in Wah Sung's scope of work under the Quotation. I do not think that such evidence is enough to support the deduction sought by Billion.

48. Further, the fact that Billion's sub-contract with Wah Sung was a lump sum one militates against my granting the deduction, the calculation of which in any event appears arbitrary. Amounts are simply adjusted at 50% of the rate stated in the Quotation.

49. In my view Billion has simply failed to establish what actual damage (if any) it has suffered by what are essentially unparticularised failures, alleged to merit a deduction.

III. CONCLUSION

50. There will be judgment on Wah Sung's claim in the amount of $1,259,678. Interest will run on that amount at 1% over Hong Kong prime from date of writ (14 August 2001) until date of judgment. Thereafter, there will be interest on the judgment sum at the judgment rate until payment. Billions' Counterclaim is dismissed. I will hear the parties on costs.