HAPPY DYNASTY LTD v. WAI KEE (ZENS) CONTRUCTION & TRANSPORTATION CO LTD AND OTHERS

1995, No.CON41

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Construction List)

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J U D G M E N T

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The Sub-Contract

1. The 1st Defendant ("Wai Kee") was the subcontractor of the Lantau Expressway Joint Venture ("LEJV") in respect of the Tai Ho Section of the North Lantau Expressway for the new airport.

2. Wai Kee further subcontracted the drilling and blasting works to the Plaintiff ("Happy Dynasty").

3. By a letter dated 7 September 1992 ("the tender letter") Mr Randolph Law of Happy Dynasty offered to perform the drill and blast work at the rate of $12.67/m(. It was expressly stated in the letter that :-

"The D and B offer is made on an assumption of 13 months' work. It is our intention to speed up the progress to cut-short the contract period wherever possible. Wai Kee shall provide necessary mucking and hauling equipment to clear the muck fast."

This letter of offer was verbally accepted by Wai Kee on 16 September 1992.

4. It was further provided as a term and condition of the agreement in the tender letter that the initial mobilization fee of $1.5 million was requested to be paid to Happy Dynasty during contract signing. It was stated under drilling and blasting fee that there should be one-off equipment mobilization/demobilization costs of $100,000. Mobilization would be made within 10 days, i.e. upon payment of the mobilization fee.

5. In fact, the mobilization fee was not paid until after 30 December 1992. But Happy Dynasty had already been mobilized and ready to begin drilling at least by 4 November 1992. The revised programme of 28 October 1992 shows the D and B works should start on 1 November 1992. This seems to be the best and accepted date to use as the starting date.

6. The contract could not be finished within 13 months i.e. at the end of November 1993. Instead it continued on and could only be completed by 28 May 1995. It is common ground between the parties that by the time the contract was completed, it was 31 months already.

Was the contract rate applicable for 13 months only?

7. The first issue to be decided is whether the contract rate of $12.69/m( would only be applicable for the 13 months up to the end of November 1993. In this respect there is one further complication apart from the construction of the first term and condition of the letter of 7 September 1992. The parties were aware at the time of the original subcontract Wai Kee would enter into a joint venture with other parties in establishing a new company instead of Wai Kee as a subcontractor of LEJV. This was the 3rd Defendant ("Huge Host"), an engineering limited company which was incorporated in March 1993. It formally entered into the subcontract with LEJV. Thereafter by a sub-subcontract dated 6 July 1993, Happy Dynasty entered into a formal subcontract with Huge Host again for the same D and B works. This D and B subcontract works provided that Happy Dynasty was to carry out the works in accordance with the principal contractor's programme as revised from time to time. There are provisions in this subcontract that it was intended to be "back to back" with the principal subcontract and I do not want to repeat all of them here : they are in GCC 3, 13, 15, 16, 17, 18, 59 and 63.

8. However the letter of 7 September 1992 was expressly incorporated in and appended to the subcontract and the subcontract itself has no provision for rate. In other words, the only provision for rate of $12.69/m( which specifically stipulated that it would apply for 13 months was in the said letter incorporated into the formal subcontract.

9. In this respect I accept the Plaintiff's submission that the letter which was incorporated into the subcontract provided clearly the contract rate would only apply for 13 months albeit Happy Dynasty had an obligation to follow the programme of the principal contract beyond 13 months from whence onward the rate would no longer apply. Before I consider what rate would then apply and what is the legal consequence thereof, I would have to consider the effect of this formal subcontract dated 6 July 1993.

The formal subcontract

10. By the time the subcontract was signed by Happy Dynasty with Huge Host, the D and B works had already begun. In signing the subcontract, Happy Dynasty was willing to enter into a formal subcontract with Huge Host to continue on the D and B works with a new entity for the same works which it had previously agreed with Wai Kee, bearing in mind that Wai Kee was one of the party in establishing Huge Host.

11. By the same token, Huge Host was willing to enter into this subcontract with Happy Dynasty and accepted the terms and conditions as stated in the letter of 7 September 1992, by incorporating the same in its subcontract. In so doing Huge Host also accepted that the rate would only be applicable for 13 months since the commencement of the works up to November 1993. There was no provision for any other rate. Accordingly, even when the subcontract was intended to be a back to back subcontract with the principal contract and Happy Dynasty was duty bound to perform the subcontract beyond the 13 months period, there was no agreement as to what rate would have by then onwards applied.

12. As from 6 July 1993 Happy Dynasty carried out work for and at the direction of Huge Host, requested Huge Host to pay it and was paid by it. Thus I find that Huge Host had assumed the contractual obligations of Wai Kee which was anticipated and accepted by Happy Dynasty by signing the subcontract document. However Wai Kee continued to be involved, inter alia, in making promises that they had included delays to Happy Dynasty's works in their claim to LEJV (e.g. letter dated 16 June 1994). The satisfaction letter of 22/24 May 1995 was signed by Wai Kee. Accordingly, in the absence of any express provision defining the position of Wai Kee and Huge Host after the formal subcontract, the parties had by their conduct accepted that both Wai Kee and Huge Host were the subcontracting parties with Happy Dynasty. This is so in spite of the fact that Mr Law of Happy Dynasty acknowledged this in Happy Dynasty's letter dated 3 January 1995 to Wai Kee in which he wrote that "Our contract is with Huge Host Engineering not with you". In other words both the 1st and 3rd Defendants are jointly and severally liable to the Plaintiff.

Is the Plaintiff entitled to Quantum Meruit?

13. The Plaintiff pleaded in its statement of claim that :-

"If the work took not a maximum of 13 months but very substantially more than 13 months through no fault of the Plaintiff the contractual rates were not applicable but the Plaintiff would be paid a fair and reasonable remuneration based inter alia upon the actual time taken to complete the contractual works."

14. Mr Harris, Counsel for the Defendants submitted that a term will only imply if it is required to give efficacy to the agreement or it is obviously to be inferred into the agreement. In D. P. Refinery (Westerport) Pty Limited v. The Shire of Hastings 16 ALR 363, the Privy Council had provided a useful test to be applied in determining whether or not a term should be implied. At p.376 Lord Simon, in giving the judgment of the Privy Council, says:

" In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied:

1. it must be reasonable and equitable;

2. it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

3. it must be obvious that 'it goes without saying';

4. it must be capable of clear expression;

5. it must not contradict any express term of the contract."

It was submitted by the Defendants that none of these criteria are satisfied by the implied term pleaded by Happy Dynasty. I however disagree.

15. I have already accepted that in the subcontract, albeit a back to back contract in the sense that Happy Dynasty cannot cease to continue on with the works after 13 months, the contractual rate was only applicable in clear and express term, for 13 months only. It must be reasonable and equitable and also obvious in order to give business efficacy to the contract that after 13 months, Happy Dynasty is entitled to be paid at a reasonable rate if the contract is silent on the rate applicable after 13 months. This does not contradict any express term of the contract. It was open to the party to agree on the new term beforehand. They did not. It is therefore necessary for the Court to determine according to the circumstances of this case. After all, Wai Kee and Huge Host were paid $20 million as compensation by LEJV for prolongation by way of settlement. This was not made known to the Plaintiff until during the trial.

16. Before this settlement payment made by LEJV to Wai Kee and the completion of the works, Wai Kee said to Happy Dynasty :-

(a) in their letter dated 16 June 1994

"... our contract work at Tai Ho site has experienced serious delays ... naturally this situation has affected your subcontract works ... we have included the consequent delays to your subcontract works as part of our claim to LEJV", and

(b) in their letter dated 27 June 1994

"We appreciate that Happy Dynasty's quotation for the blasting work was based on a 13 month contract period ... should LEJV's claim against the Engineer be successful an additional payout shall be made on the basis of delays to your works".

These letters are clear indication that Wai Kee there and then also considered that Happy Dynasty would be entitled to a reasonable sum for the delay.

17. Mr Graham, Counsel for the Plaintiff, submitted that the appropriate rate ought to be fixed by way of quantum meruit based upon a fair valuation of the work. In Hudson's Building and Engineering Contract 11 ed. Vol. 1, it was said that the expression "quantum meruit" :-

"... is frequently employed in two quite different legal contexts. On the one hand, it may be used where a true contractual situation exists in the sense of a request to do work accompanied by an intention to pay for it, and so supported by consideration but where the price may not have been fixed at all or with sufficient precision by the contract, so that a promise to pay a reasonable price or remuneration requires to be implied to give practical effect to the parties' intentions. This is merely an application of the rules as to implied terms ... and is not a case of quasi-contract. ... On the other hand, the expression may be used where no agreement exists, or subsequently comes into existence, but it would be unconscionable to allow one party to benefit from the work done or services rendered by the other. This is true quasi-contractual quantum meruit ..."

18. I accept the Plaintiff's submission that the term quantum meruit is obviously used in the first sense as aforesaid. I also accept the Plaintiff's submission that the best way of establishing a fair and reasonable rate for month 14 onwards is by approaching the matter as one would in a traditional prolongation claim. There is no cleft between a "quantum meruit claim" (as the claim under paragraph 20 of the Statement of Claim has been called) and the "prolongation claim" under paragraph 20A of the Statement of Claim. There are slightly different calculations based on the same approach.

19. Mr Michael Charlton, an expert called by the Plaintiff commented in his evidence that he regarded Mr Randolph Law's quantification under paragraph 20 of the Statement of Claim as "an attempt to calculate a fair price for those items which were the subject of delay. That seems to me to be the way it is being done, in fact, very similar to what I did." I accept his contention and I shall elaborate it under the consideration of "Quantum".

20. Before I consider what is the reasonable rate, I have to consider the submission of the Defence that the Plaintiff could not, as stated in its tender letter, finish the work within 13 months' time anyway. Thus, so submitted by the Defendants, the period from which the contractual rate would cease to apply should not be calculated from the 14th month onwards.

Could the Plaintiff finish the work in 13 months?

21. The letter of 7 September 1992 contained key technical figures. In particular in Assumption A it assumed that the development blasting would last for 2 months, for November and December 1992. It provided that the number of rig to be used would be 1.397. According to Mr Law, this could not in reality be the case since you cannot provide a fraction of a rig. This was used only for calculation. The amount of rock blasted would be 100,000 m(.

22. Thereafter for Production One period, i.e. for January and February 1993, the total volume of rock to be blasted would be 200,000 m( and the number of rig to be provided, as a matter of calculation only, would be 1.222.

23. In respect of Production Two period i.e. from March to November 1993, as contained in Assumption B, the total volume of rock to be blasted would be 1,260,000 m(. The contractual time would be 9 months and the number of rig to be provided would be 1.01. The price breakdown on this tender letter provided that the unit rig for development blasting was $18.86/m( and for production blasting $12.26. Accordingly, for the total volume of 1,560,000 m( the average rate was $12.69/m(.

24. The Defence submitted that the Plaintiff could not have completed the work in 13 months time using the plant and manpower assumed in the tender. They calculated the total linear metre ("LM") to be drilled in the tender assumption and the actual linear metre drilled for the whole work. It came to 64% more and thus they submitted that it required 64% more time in the D and B works.

25. However the tender assumption, as a matter of calculation as I pointed out herein before, used only part of a rig which is not possible in reality. The tender letter also stated at the outset that two rigs would be used. The Plaintiff's claim and the Plaintiff's quantification of its claim presupposes that the tender assumption needs to be revised and compared the delay elements of carrying out the work in 13 months with two rigs and the delay elements of carrying out the work in 31 months using two rigs. In the cross-examination of Mr Charlton, it was put to him that the Plaintiff could have done the job in 13 months but it would have needed 26 plant-months, not what he had assumed in the tender which is 15.2. Mr Charlton said his assessment did allow for two rigs on site for 13 months i.e. 26 plant-months. Even Mr Hawley, an expert called by the Defence, said drilling and blasting 1,560,000 m( with two rigs in 13 months would ordinarily be an easily achievable target but in this case, because of the site specific factors, it would be necessary to work overtime. However he declined to calculate by how much.

26. The tender assumption is drilling 418 m/day, 27 days/month for 11.5 months. Using the "yield" figure calculated by Mr Hawley, that would have produced 2,700,000 m( rock, i.e. 43% more than was required to be done under the contract. In other words, the tender assumption itself has already allowed for 43% more drilling as a matter of cushioning.

27. Further and more importantly, the main factor in the additional drilling was changes in the blast pattern. The tender assumption assumed that emulsion explosive would be used. However, the emulsion plant was shut down by the end of 1993 because of the extreme prolongation of the work. Mr Hawley also agreed with this. He agreed that the reversion from using emulsion explosive to heavy explosive/ANFO involved a change in the blast pattern and that the change in the blast pattern could have been because of the change in the explosive used.

28. I accept the Plaintiff's evidence that the major cause of the 64% additional drilling was a tighter drilling pattern brought about by the forced abandonment of bulk emulsion method because of prolongation and that was just another effect of delay and ought to be ignored for the purposes of quantifying the Plaintiff's claim. In other words, I accept the Plaintiff's submission that although the tender built up was for 280 LM (linear metre) per day during the production phase, it was in fact 1.22 rigs at 280 LM/day/rig, i.e. 280 LM plus 22% more or 61.6 LM per day, giving a total of 341.16 LM/day. This figure of 1.22 rigs for production was adjusted up by Mr Robert Lloyd, an expert called by the Plaintiff, to two rigs as one cannot have 22% of a rig. Mr Charlton then used two rigs as the basis of his quantification. The tender letter already stated that the Plaintiff would provide two rigs and was thus entitled and bound to supply the same if necessary.

29. In the end, I find that the Plaintiff could have finished the work in the ordinary course of such contract work if unhindered by any factor of delay. Thus I would have to consider what have caused the delay in the D and B works of the Plaintiff.

Were the works prolonged beyond 13 months through no fault of the Plaintiff?

30. The works meant the contract works of D and B and pre-splitting carried out as a separate item at $85/m³ as well as substantial additional works. They were completed on 28 May 1995. In other words, it was 31 months from 1 November 1992 as aforesaid.

31. The additional works included the rectangular channel, U-channel, utility trench, and underpass. The Plaintiff accepted that 3.5 months of the total period may be regarded as having been spent on pre-splitting works as well as the additional works. The Defendants' case is that 3.5 months were spent on the additional works alone, i.e. excluding the pre-splitting works. I accept the Plaintiff's submission for reasons which I shall discuss later on.

32. On pleadings, apparently the Defendants' case in respect of delay which the Plaintiff has to meet was only those 11 days delay in March 1993 as pleaded in paragraph 27 of the counterclaim :-

"This [difficulty in the excavating rock] caused a delay to the 1st Defendant a period equivalent to 39% of March 1993 which the 1st Defendant has taken to be 11 days. The loss suffered by the 1st Defendant was as follows:"

33. However the Defendants' opening described one of the triable issues as:

"Did the rates in the agreement between Happy Dynasty and Wai Kee and/or Huge Host apply if the works took 31 months rather than 13 months to complete for reasons (which is not conceded) for which Happy Dynasty was not or not materially responsible?" (emphasis added)

34. Further Mr Gabiel Lam, the Defendants' expert also attempted to argue that the Plaintiff's drilling rigs were at all times fully utilized and the additional 12.5 months needed to complete the drilling and blasting work:

"possibly arises because when preparing his tender the Plaintiff overlooked:

i. the need to mobilize plants in six areas,

ii. the fact that little drilling will be carried out during blasting,

iii. the number of manpower assigned,

iv. the necessity to start drilling and blasting simultaneously in some areas ... another fact to consider is the productivity of the drilling plant."

In other words it was contended by Mr Lam that the prolongation was caused by an insufficiency of resources supplied by the Plaintiff. However, this line of argument in his statement was abandoned by Mr Lam when he gave his oral evidence. When Mr Harris, Counsel for the Defendants, put to him, he agreed that with the exception of a period in March 1993, the Defendants were not suggesting that there was any significant delay caused to the excavation works by Happy Dynasty themselves.

35. The major causes of delay which, in my view, were abundantly established from the evidence and documents before me, might be summarized as follows :-

(1) delay in hand over of seawalls;

(2) delays in building seawalls once they were commenced;

(3) delays in reclamation works which were to be the dumping ground for OTR (other than rock);

(4) consequential upon (3) above, delays in OTR removal;

(5) delays in the reclamation works having the knock on effect of causing delays in access to other working areas available to LEJV/Wai Kee/Happy Dynasty;

(6) problems caused to programming and planning of works in particular having regard to peak rock demand caused by the above;

(7) lack of stock piling areas for OTR and rock;

(8) incidental causes such as breakdown of plant; lack of grizzly facilities and other sources of disruption, including failure to muck out blasted faces quickly enough; and the need to revert to more labour intensive high explosive/ANFO blasting after 13 months.

36. The specific causes of prolongation are not material to the Plaintiff's case save that it is necessary only for the Plaintiff to show that the causes of delay were not attributable to the faults of Happy Dynasty. In view of the concessions put by Counsel for the Defendants to Mr Gabiel Lam, detailed consideration of all these matters of delay is now not necessary. I would just state a few salient features of the evidence accepted by me.

37. The Defendants admitted there were frequent machinery breakdowns. Mr William Zen of Wai Kee acknowledged "more breakdowns than normal" of their machineries. Mr Mok Ka Ian of Wai Kee said "it is true that our bulldozers broke down on many occasions."

38. Although it was denied by Wai Kee with some indignation that they had "manipulated" rock production to avoid double handling at times when demand for rock for the seawalls was low, it was, in my view, amply supported by the evidence, e.g. the site meeting minute for 8 June 1993.

39. Further, Mr Mok also admitted that if the seawall had been held up so that he could not put the grade 700 rock on the seawall. As he did not want to stock pile, the only thing he could do was cut down his production of rock. Mr Hawley also agreed that "generally I would say a delay in the end product definitely delays the mucking out".

40. The evidence quite clearly showed that the pace at which Happy Dynasty could execute his works was entirely dictated by Wai Kee and LEJV. Many instances of delays, e.g. by the failure to muck out, low rock requirement etc, are recorded in the site meeting minutes. Mr Mok was cross-examined at some length on these minutes, and eventually he admitted the aforesaid.

41. In Wai Kee's letter of 12 November 1992 they wrote:

"Because of delay of marine works by LEJV, the usage of rock, for seawall construction from excavation was limited. We do not encourage you to bring some more plants to the site at this stage."

Further, Wai Kee had acknowledged in their letter of 24 December 1993 that the contract works had been delayed due to delays in the handover of sections of works from LEJV, in particular the handover of sections of seawall. Mr Ken Yau of Wai Kee also said in his written statement that:

"Delays of about 2 months has started to occur to the construction of seawall from around November 1992, and it was quite clear to me that there would be a knock-on delay to Happy Dynasty's works."

Mr Ken Yau tried to resile from this position in his oral evidence. Mr Mok also tried to take a similar stand that one of LEJV's other subcontractors, in delaying the marine works, could not have delayed Happy Dynasty. The letters of Wai Kee dated 24 December 1993 and 16 June 1994, however, plainly acknowledged that delays were caused to the drilling and blasting by delays to the seawall and reclamation. The position could be summarized by what Mr Neil Hodge, the project manager of LEJV, said :

"I can only repeat: my position was that the China Fijian dredging delayed the excavation works, so I guess I could say that Happy Dynasty would be delayed along with that."

42. In short, the delay or prolongation was not caused by the Plaintiff.

43. In the end I reach the firm conclusion that the delay in the drilling and blasting works of the Plaintiff was through no fault of the Plaintiff. Before I consider the quantum, as a consequence of the prolongation, I shall consider the two items of counterclaim of the Defendants first.

First counterclaim ( Was there delay equivalent to 11 days to the works in March 1993?

44. The Defendants' first counterclaim contained two elements, namely :-

a. "... by necessary implication" there was a term in the contract that blasting would be carried out by a method and/or using explosives which would result in sufficient "heave" to allow the rock that had been blasted to be excavated by the 1st Defendants;

b. or alternatively there was a "duty of care" on the part of the Plaintiff to produce "sufficient heave".

45. The second point could be disposed of quickly. In a contract to provide services, there is no room to import duties or obligations over and above the contract by means of a "duty of care" ( see Lord Scarman in Tai Hing Ltd v. Liu Chong Hing Bank Ltd. [1986] AC 80. In Jackson & Powell on Professional Negligence 1-54[32](ix) it has been said that:

"where parties have entered into a contract defining their obligations the law of tort will not generally impose any wider duties."

46. There is no room for the "necessary implication" as contended by the Defendants. The contract was being carried out using the type of explosives intended by the contracting parties as stated in the said tender letter of 7 September 1992. If what is intended by the "necessary implication" is that every cubic metre of rock calculated according to the blast design was to be muckable without any secondary blasting, that is, as submitted by the Plaintiff, plainly wrong. It was not disputed that secondary blasting of toes which had not fragmented properly was a relatively common occurrence. Even Mr Ken Yau of the Defendant was at pains to explain in the context of payment of invoices that the amount of rock theoretically produced by a blast was never in fact produced. His explanation was fortified by a drawing on the white board. He said the difference between the blast design and the surveyed amount would, at the end of the month, become :-

" A very big sum ... . That is the reason why we could not base the blast design to calculate and we had to base on the actual survey design to do the calculations. There would be a discrepancy between survey quantity and the quantity shown in the blast design ...".

47. Thus it would not be correct in the first counterclaim which presupposed that 113,262 m( of rock had actually been blasted but 69,143 m( removed would amount to proof that the balance was unmuckable.

48. There was no contractual obligation to produce any particular quantity of muckable rock per month or per blast. Mr Charlton's comment (which evidence I accept) was that :-

"... one has to look at the basis on which the Plaintiff tendered. As I recall there was no indication as to the way in which the blasting would allow the mucking out to be done in the terms of efficiency. That is to say, if they found it difficult to remove certain of the rock that had been blasted then so be it, that is the way the rock happens to work out when you blast it ... the blasting figures fluctuated considerably month by month and there was no prediction on what those figures were actually going to be, and therefore no prediction on what the mucking out figure ... is going to be. So to suggest that in one month, because you could only remove 69,000 and 44,000 had to remain, you have incurred a loss when, in any event, you had no clear indication as to what that figure would be in the first place, it lacks a bit of logic to me ... It seems that the only obligation that was imposed was to actually muck it out so as to allow the blasting to proceed. The reverse was not the case, that the blasting would be carried out so as to allow the mucking out to go at a certain rate ..."

49. In fact as shown by the Defendant's document, the monthly rock excavation record, March 1993 was by far the best month up until that date and was only surpassed by seven subsequent months: May, July, September, October, November, December 1993 and July 1994. The fact that all other of the 30 months record on the Defendants' vertical bar chart produced less mucked rock than March 1993 highlights the fallacy of the contention that the volume of rock mucked in that month delayed the excavation works overall by 11 days and caused the Plaintiff's damages in the sum of $1,807,566. The Plaintiff's contractual obligation was to drill and blast 1,560,000 m( of rock in 13 months or less, not to drill or blast any particular volume in any particular month.

50. I also accept the Plaintiff's submission that in respect of the "necessary implication" argument, in the case of many kinds of contracts for the provision of expert services, it has been held that the contractual obligation is not (in the absence of any express provision) to achieve any particular result but to serve the client with reasonable skill and care :-

"... apply this to the employment of a professional man. The law does not usually imply a warranty that he will achieve the desired result but only a term that he will use reasonable skill and care ..."

(Lord Denning M.R. in Greaves & Co. (Contractors) Ltd. v. Baynham Meikle and Partners [1975] 1 WLR 1905.)

51. It has not been pleaded nor has evidence been led to the effect that the Plaintiff failed to exercise reasonable skill and care in carrying out the five problem blasts. The evidence strongly suggested that the problem was with the supplier of emulsion explosives down the hole and the Plaintiff was acting with promptness in seeking to find the solution.

52. Further the plant utilisation records show that the dumper trucks being used for mucking out were not idling. There were also contemporaneous complaints by Happy Dynasty that shot rock left on the ground was reducing payments to which they would otherwise be entitled. Any delay in fact caused by March 1993, if any, was obviously subsumed or overtaken by subsequent delays. It has not been shown that any delays in March 1993 were critical path delays or a limiting factor in the delay in view of concurring causes of delay.

53. Accordingly, the Defendants failed in their first counterclaim.

The second counterclaim ( The cause of remedial work to the railway cutting at Ngau Tau Kok Ch. 13600-13856

54. I accept the Plaintiff's submissions that counterclaim cannot succeed for a number of different reasons herein below. The first is the letter of satisfaction countersigned by Wai Kee on 24 May 1995 having been issued by Happy Dynasty on 22 May 1995 which said :-

"This is to record that all drilling and blasting operations in Ngau Tau Wan area which include bulk blasting work and utility trench blasting work have been completed on May 22, 1995 to your satisfaction. The Ngau Tau Wan area is now handed over to and accepted by Wai Kee as from today. Please signify below indicating your agreement to this handover ....

Confirmed and Accepted By: - ... [Mr Mok of Wai Kee]

for and on behalf of

Wai Kee (Zens) Construction and Trading Co. Ltd

Date: 24th May 1995"

55. The above letter is binding on Wai Kee. If necessary I also accept that Wai Kee was acting as an agent for Huge Host in signing the letter and it is therefore also binding on Huge Host. The Defendants originally seemed to accept that.

56. The case for the Defendants was that this blasting work was done in July 1995 and thus not covered by the letter of 22/24 May 1995.

57. Mr Law of the Plaintiff did not accept that the work was done in or about July 1995. He said categorically in cross-examination that all blasting works were completed by 22 May 1995 at Ngau Tau Wan. Thereafter, Happy Dynasty did not have any blasting licence in that area any more. He had done other blasting with LEJV in July 1995 in another area which had nothing to do with this area in Ngau Tau Wan. I accept his evidence.

58. Mr Mok of the Defendants said he was satisfied with the bulk blasting at the time he signed the letter.

59. The Plaintiff's case was that there was some damage to the slope in the vicinity of Ch. 13600-13850 of Ngau Tau Kok Railway cutting but this was not attributable to the faults of Happy Dynasty as witnessed by the said letter of 24 May 1995. Wai Kee had submitted a claim to LEJV on the basis that "geological conditions" had been responsible for the overbreak of Ngau Tau Kok railway cutting. In Happy Dynasty's letter of 22 September 1995 it said :-

"... most of the rock structure .... is highly weathered .... HDL was instructed to blast according to your setting out into the top of the slope by 1m for 0.6m depth .... no sub-drilling was carried out for the blasting within the damage rock zone .... Bulldozer was used to clear the slope and rip the top of the upper bench .... No backhoe was used for trimming."

60. This letter had already raised at the time long before litigation was contemplated, the points made by Mr Chan Kam Sing of Happy Dynasty in his evidence in that the holes along the platform had been drilled 1 metre deeper at the express request of Mr Mok, but that there had been no sub-drill on the soft slope edge.

61. The situation on site at that time was also supported by the site meeting minutes of 19 April 1995 which said :-

"Ngau Tau Kok .... Mok reported that 2 of our 3 loaders were broken down yesterday and it would affect our works progress seriously if this matter cannot be resolved immediately .... Critical work at Ngau Tau Kok could not be delayed by whatever means at this moment due to the huge amount of L.D. [liquidated damages]...."

62. Mr Roger Keller, a blasting expert called by the Plaintiff said it is not uncommon for the mucking contractors to request the drilling sub-contractors to slightly over-subdrill in order to make their mucking easier. With 2 out of 3 loaders out of action, and a possible claim for "huge" amount of liquidated damages looming, it is more probable that Mr Mok had requested Mr Chan Kam Sing to over-sub-drill 1 metre deeper.

63. It is also in this context that the platform was ripped by a bulldozer which broke the crest of the slope. It is also apparent from the photographs at B2.1, p.241 3A & 3B that damage to the slope was not caused by blasting but over-enthusiastic mucking out in weak geological conditions. I do not accept the Defendants' evidence that these photographs are actually a few metres away from the damage in question.

64. In any event, the evidence showed beyond any dispute that Wai Kee and the engineer were responsible for checking the blast designs and checking the drilling before blasting to ensure that it conforms to the blast design. They were charged with the duty of overseeing the blasting operations. Mr Ken Yau of Wai Kee said :-

"My job was to discuss with Happy Dynasty the depth, diameter and spacing of the holes ... Happy Dynasty would drill the holes. Then there would be an inspection with Happy Dynasty ... LEJV ... the Engineer (Mott McDonald) and myself to check the holes were drilled in accordance with the specification."

65. In the end I accept the evidence of the Plaintiff's witnesses and rejected that of the Defendants. I find there was a request for over-subdrilling by one metre deeper. The letter of 22/24 May 1995 is binding on both Wai Kee and Huge Host. They were in fact at that time satisfied with the blasting works completed on 22 May 1995 in Ngau Tau Wan area.

66. For the sake of completeness, I also accept the Plaintiff's submission that if I find the Plaintiff liable under the second counterclaim, upon the Defendants' admission and the evidence of Mr Charlton, deductions would have to be made in respect of savings of the excavation of concrete u-channel and the forming of the u-channel.

Quantum

67. I shall deal with each item of quantum with those uncontroversial items first herein below.

(1) Underpayment for excavated rock

68. The LEJV final survey shows that total blasted volume of blasted and mucked rock was 1,570,322.40 m(. Payment Certificate No. 33 shows that Happy Dynasty had been paid to date on the basis of 1,479,825 m( of rock blasted and mucked.

69. The Plaintiff has therefore been unpaid for 90,497.40 m( of rock at $12.69/m( which amounts to $1,148,412. The Plaintiff accepted the old rate applied to avoid complication. On the other hand, this amount and liability are admitted by the Defendants as due and owing subject to the Defendants' counterclaims.

(2) Underpayment of amount in Invoice No. 23

70. Invoice No. 23 was wrongly invoiced for $1,124,710. The 3rd Defendant admitted that this invoice was wrong. The parties also agreed the amount in the invoice should be $1,127,710, i.e. $2,999.54 difference. However the Defendant pleaded that the correct amount had already been paid.

71. Mr Law gave evidence and said the difference was not paid. No evidence was led from the Defence that the correct full amount was paid. On general probability I accept the Plaintiff's evidence and thus the balance of $2,999.54 is still unpaid. I would round it up to $3,000.

(3) Claim for $411,180 utility trench blasting

72. The Defence denied that the Defendants are liable to pay for those works but the sum of $411,180 is agreed. However in William Zen's statement he says:

"Having discussed the matter with my Project Manager Mr Chan, I agree that this amount of $411,180 needs to be brought into account in the claims of Happy Dynasty and the counterclaim of my joint venture."

In other words subject to the counterclaim of the Defendants, this item is due and owing.

(4) Quantification of payment for month 14 onwards

73. This is the main claim of the Plaintiff:

(i) Mr Charlton's report (B3.1 p.340) reads:

"3.7 H.D. believe they have a valid sub-contract (the letter of September 1992) but the contract rate is no longer applicable because of the extent of the overrun."

"3.8 ... it is not correct to take the opportunity to reprice the entire sub-contract or indeed to deny the contractor his profit recovery which would be obtained in the absence of delay (e.g. in variation works)."

74. In Mr Charlton's evidence (see transcript Day 13 p.70) he said :-

"If there was no rate available on which to base the core value of the work ... you would have to look at the quantum meruit as a total cost with no rate on which to base it ... you would have no choice but to try to calculate the total cost expended ..."

and at pp.91-92:

"one has the cost information available from Happy Dynasty on which to base the calculation ... if the actual costs were obviously excessive or unreasonable, then you would not".

Further in his report he said:-

"4.1 it is necessary to ascertain what the costs would be had the contract been completed in 13 months."

"4.3 the actual costs/month are very much higher than the budgetted rates ... rig costs are much higher but ... there were 2 rigs used throughout ... the first step is to adjust the bill rate and increase the costs of the budget in respect of delayed elements."

(ii) I accept the Plaintiff's submission that the effect of this is that where one has a rate from which to start (and in many quantum meruit situations there will not be) one starts from the rate unless the rate is unreasonable or excessive. It does not matter what the rate was as long as the work could have been done in 13 months with the resources that have been used for calculating what the work would have cost to complete in 13 months.

75. In his evidence Mr Charlton also said on Day 14 p.15:

"If Mr Law would have lost money in 13 months that is a separate matter entirely and should not feature in the cost of the delay. Mr Law could have priced his rate at HK$2 instead of HK$12.69 and he still would have been entitled to HK$8 million costs ... for the delay of 18 months."

(iii) Appendix H

76. This encapsulates Mr Charlton's comparison of the costs of doing the work in 13 months (the figures in Column A are "actual" in the sense that (except for explosives, which is necessarily a budget figure) they are the costs incurred over the 31 months divided by 31 and multiplied by 13) compared with the costs of 31 months (which included a new explosives method caused by delay). In financial terms the difference between the costs of 31 months and 13 months less 3.5 months' costs for extra work amounted to HK$7,357,173 as follows :-

(iv) All of these figures are agreed by the Defendants' Q.S. expert Mr Gabriel Lam although he (perhaps) adheres to his position that 3.5 months excludes pre-splitting : there was virtually no evidence on this subject. His contentions in paragraphs 38 and 39 of his report are not unconvincing. His conclusions were inaccurate on almost every other topic. I accept the Plaintiff's contention that 3.5 months included pre-splitting.

(v) The effect of Gariel Lam's agreement is that if the Plaintiff establishes a right to adjust the contract rate or otherwise obtain financial compensation for the fact that the work was not completed in 13 months and a comparison between the additional costs of time related items is held to be a fair and reasonable approach, then (subject possibly to the question of time for pre-splitting which has already been dealt with above) the Defendants' Q.S. expert agrees that HK$7,357,180 is the additional cost. This figure can be, although it is unnecessary to do so, converted into an addition to the rate for month 13 onwards. Gabriel Lam said (at Day 29 p.81) he agreed with Mr Charlton's approach to quantifying 3.5 months for variation works. At Day 30 p.21 he said:

"I agree with the basic principles of Mr Charlton..."

Mr Randolph Law's quantification (para. 20 Statement of Claim)

(i) Mr Law quantifies the additional cost of time related items at HK$8,619,900 (B1 p.38). Referring to Column 3, Mr Gabriel Lam said he agreed all the items except for shot-firer, driller, operators and drilling plant. He was initially taking the view that the costs of running 4 rigs should be set out in Column 3 because the method statement provided for 4 rigs.

77. At Day 30 p.35 he said:

"actually Happy Dynasty did spend this amount of money for the first 13 months of the work I will agree to that."

[i.e. the figures in Column 3]

78. At page 50 (Day 30) he acknowledged that Column 3 was a calculation of the actual costs if the contract period had been for 13 months.

(ii) At Day 30 p.42 Gabriel Lam agreed that the method statement had been based upon a programme which had become obsolete before the works commenced. He did not seem to have been made aware previously of the 28 October 1992 programme.

(iii) Mr Charlton commented on Randolph Law's quantification (at Day 13 starting at p.16 onwards). He confirmed that Mr Law was attempting to calculate a fair price for those items which were the subject of delay

"in fact, very similar to what I did."

79. In dealing with the difference between his figures and Randolph Law's, the most obvious was his non-allowance of HK$1.29 million for profit in the sense of lost opportunity profit. The Plaintiff accepts that there is no evidence of lost opportunity profit as calculated by Mr Law and Mr Law's figure in para.20 can be reduced by HK$1,293,000 leaving a figure of HK$7,326,900. This is strikingly close to Mr Charlton's Appendix H calculation of $7,357,180. Mr Charlton's calculation of additional site running costs and head office overheads more or less balanced out with Randolph Law's calculation of management costs. The two quantifications as submitted by the Plaintiff, can be regarded as a cross check of one upon the other. I accept Mr Charlton's quantification and round it up to $7,357,000.

Conclusion

80. Accordingly the total amount of payment due to the Plaintiff is as follows :-

(1) underpayment	$1,148,412.00
(2) underpayment of Invoice 23: (rounded up to)	$3,000.00
(3) utility trench blasting: agreed	$411,180.00
(4) prolongation	$7,357,000.00
	$8,919,592.00

81. There shall be judgment in the sum of $8,919,592 for the Plaintiff against the 1st and 3rd Defendants. The counterclaim herein is dismissed. Since parties have not argued on the question of interests and costs, there shall be an order nisi that interest shall run on the aforesaid judgment sum from the date of the writ at judgment rate until the date of judgment, together with costs of the action and the counterclaim to the Plaintiff against the 1st and 3rd Defendants.

82. In this judgment I must thank Counsel for both parties for their meticulous and continuous support in presenting detailed and useful written submissions. Some of the items like the question of bench height and detailed examination of drilling rates and pattern were not discussed in full in the judgment herein in my endeavour to keep the same as simple as possible. Those items together with some evidence of the witnesses (expert or otherwise) and some ingenious submissions of Counsel not specifically mentioned in this judgment are either considered not necessary or not accepted. This is by no means disrespectful to the efforts made by Counsel.