CHEVALIER (CONSTRUCTION) CO LTD v. TAK CHEONG ENGINEERING DEVELOPMENT LTD

HCA 153/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 153 OF 2008

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J U D G M E N T

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1.  The Defendant was a sub-contractor who entered into a contract with the Plaintiff (as the main contractor) on 26 July 2006 [“the Contract”] in respect of construction works of the Hong Kong Community College Development at Kowloon Inland Lot No.11176, West Kowloon. Under the Contract, the Defendant agreed to supply and fix formwork and to install precast elements at the site. The contract sum was $12,844,912.21.

2.  The Defendant had carried out most of the contract works at the site.  An interim payment certificate issued by the Plaintiff on 15 September 2007 certified that the total value of works completed (including variation works) as $12,537,777.21.  However, on 11 October 2007 the Plaintiff terminated the Contract by letter on the ground that the Defendant repudiated the contract.  The Defendant disputed the legality of the termination.  The Plaintiff did not permit the Defendant’s workers to go back to the site since the letter of termination.

3.  The Plaintiff said it had to engage other contractors to finish the remaining works under the Contract and to rectify some substandard works of the Defendant.  It also paid some arrears of wages on behalf of the Defendant to the latter’s workers.  After taking into account of everything, the Plaintiff claimed that the Defendant should pay damages to it in the sum of $3,522,075.12 (as pleaded in the Re-amended Statement of Claim).

4.  On the other hand, the Defendant said the Plaintiff had withheld payments due to it under the Contract and for variation works.  The Defendant said the unwarranted termination of the Contract by the Plaintiff constituted repudiation.  It counterclaims for damages.  In its Amended Defence and Counterclaim, a sub-total of $1,646,855.13 was pleaded under the particulars of damages.  In addition, the Defendant also claimed for value of materials and tools left behind at the site.

5.  As often happened in construction cases, parties engaged quantity surveyors to assist them in the quantification of their respective claims.  At the end of the trial, the Plaintiff’s claim was reduced to $1,339,355.95 (Scenario 1 in Revised Annexure 4 of Mr Ho’s Closing) whilst the Defendant’s counterclaim was revised to $360,549.87 (Annex B to Mr Lau’s Closing).

6.  In the light of the submissions of the counsel, the following are the heads of issue that this court has to decide,

(a) Was the Plaintiff legally entitled to terminate the Contract by the letter of 11 October 2007;

(b) The alleged unfinished and substandard works and quantum;

(c) Variation works and omissions and quantum.

7.  Some of the issues involve disputes of fact which the court has to resolve by assessing the relevant factual evidence.  Some issues involve quantification of works done and reference has to be made to the evidence of the quantity surveyors.  In my Decision of 23 February 2011, I have set out the background leading to the appointment of an assessor to assist the court in respect of the expert evidence.  At the trial, Mr Kwan Nam Wai, a very experienced quantity surveyor, assisted this court in the capacity as assessor. I am grateful for his assistance and he attended the trial on the third day when the experts of the parties gave evidence.

8.  The assessor was mindful of his role in this case as specified in my Decision.  Applying the guidance set out in Ahmed v University of Oxford [2003] 1 WLR 995 as discussed in my Decision, I confirm that the assessor did not play any evidential role and he did not raise any point in the course of his assistance which was not within the contemplation of the parties necessitating any disclosure to be made.

The legality of the termination by the Plaintiff

9.  In the Statement of Claim, the Plaintiff relies on the following matters to justify its termination of the Contract on 11 October 2007,

(a) Starting from September 2007 the Defendant had been persistently late in carrying out the works at the site (para.13);

(b) Starting from about the beginning of October 2007, the Defendant failed and/or refused to carry out further work despite repeated requests and demands by the Plaintiff (para.14);

(c) In breach of the Contract, the Defendant failed and/or refused to pay the wages of its workers (para.15);

(d) Starting from about October 2007, some workers of the Defendant made claims against the Plaintiff as principal contractor for unpaid salaries under Section 43C of the Employment Ordinance (para.16).

10.  The only witness who gave evidence on behalf of the Plaintiff regarding the reasons for termination was PW1 Mr Chiu [“Chiu”].  Chiu was the project manager of the Plaintiff at the site.  The relevant evidence is at paras.10 to 12 of his witness statement.  In those paragraphs, Chiu referred to the site memos produced by him as “CSY-2” and alleged that the Defendant’s work progress at the site had slowed down since September 2007 and not in compliance with the instructions of the Plaintiff.  He also alleged that in October 2007 Mr Lai (the Defendant’s person in charge) [“Lai”] did not come to the site and the failure of the Defendant to comply with instructions led to a number of items of work being suspended.

11.  The evidence shows that there had been dispute between the Plaintiff and the Defendant as to payments well before October 2007.  In his oral evidence, Chiu said the dispute started in around June 2007.  The documentary evidence indicates that the dispute occurred earlier.  On 22 April 2007, the Defendant wrote a letter to the Plaintiff complaining of gross underpayment.  The Defendant had submitted payment application in respect of $11,191,877.33 whilst the Plaintiff had only paid $6,582,126.87.  The Defendant said the substantial shortfall ($4,609,750.46) had caused it serious cashflow difficulties.  The Plaintiff responded in a letter of 25 April 2007 setting out its calculation as to the value of the Contract works done ($8,646,943.00).

12.  The dispute as to underpayment persisted.  The Defendant set out the outstanding works under the Contract in a document dated 29 August 2007 and quantified the values of the same.  The on-site quantity surveyor of the Plaintiff Mr Siu considered it and put down his estimates of the values of these outstanding items on it.  Though there were differences, the discrepancies were not that great.  However, the differences between the parties were substantially larger in the interim payment for 15 September 2007.  The Defendant submitted an application for $2,247,880.99 whilst the Plaintiff only certified a sum of $199,724.03 to be payable. 

13.  At para.13 of the Amended Defence and Counterclaim, the Defendant set out the particulars of under-certifications and underpayments by the Plaintiff. In the closing submissions, Mr Lau told the court that the Defendant did not rely on the dispute as to underpayments to support its case as to wrongful termination of the Contract by the Plaintiff.

14.  Mr Lau cross-examined Chiu about the outstanding items listed at the document of 29 August 2007.  Chiu agreed that these were discussed at a site meeting.  He said this document was prepared and the discussion took place to facilitate the processing of interim payment.  In my judgment, the nature of this document has to be considered against the background of the Defendant’s complaints as to underpayment.

15.  Counsel suggested to Chiu that amongst the 5 outstanding items on the list, items 1, 3 and 5 had been completed by 11 October.  Chiu disagreed though he agreed that the site memos issued by the Plaintiff did not complain about these items not being finished.

16.  The evidence shows that item 2 could not be executed at that stage because other works by other contractors had to be finished before the Defendant could execute the task at item 2.

17.  As mentioned, Chiu referred to the site memos produced as “CSY-2” as evidence of the unsatisfactory performance and progress of the Defendant’s works.  And Chiu said that Lai could not be contacted at site and the Plaintiff had to rely on communication through site memos.  Thus, if there were delays in respect of the works regarding these three items, I would expect the Plaintiff to have issued site memos on them.  Chiu did not offer any explanation for the absence of such memos except by claiming that verbal instructions could have been given.  In so saying Chiu was contradicting himself as to the absence of Lai from the site during that period.

18.  Further, “CSY-2” is 10 site memos issued by the Plaintiff to the Defendant.  They were signed by some foremen of the Plaintiff.  None of the foreman gave evidence for the Plaintiff.  Thus, it is not clear to this court the circumstances under which the site memos were issued.  I have therefore no factual witness from the Plaintiff testifying on how the works described in the memos related to the works under the Contract and why the Defendant should be responsible for them.

19.  In the course of his cross-examination, Lai accepted that some items were within the Contract.  He testified he had agreed with a foreman of the Plaintiff that the Plaintiff would get other workers to undertake such works and charged the Defendant for the same.  And this was actually reflected in the site memos.  The Plaintiff did not adduce any evidence to dispute that and nor was Lai challenged.  Lai’s account was reinforced by the fact that the records of the Plaintiff show that engaging other workers to do the works of its contractors and charging them for the same was quite common at the site.  In this respect, I find the evidence of Lai credible.

20.  On the face of the documents, there were two types of site memos.  Site memos called M1 were issued by the Plaintiff as instructions to the Defendant to execute certain works.  The other types were M2 by which the Plaintiff informed the Defendant that it had arranged other workers to undertake the works and would charge the Defendant’s account for the same.  Amongst the 10 site memos in “CSY-2”, there were only three M1s. 

21.  Lai agreed that site memo No.137-M1-0250 was within the Contract and the Plaintiff had arranged other workers to do it.  Though the memo was dated 6 October 2007 (requiring the works to be done on 8 October), the fax record shows that it was only faxed on 8 October at 10:56 and its associated site memo M2 (137-M2-0250) shows that the Plaintiff actually engaged three workers to do the job between 08:00 and 18:00 on 8 October 2007. 

22.  Another M1 in “CSY-2” No.137-M1-0251 faxed at 17:06 on 8 October 2007 (requiring works to be done on 9 October) suffered from the same criticism. The associated M2 shows that the Plaintiff engaged 2 workers to do the job on 9 October 2007 between 08:00 and 18:00.

23.  Either the Plaintiff did not give reasonable opportunity to the Defendant to comply with the M1s or, as testified by Lai in respect of other memos, there was agreement between the Plaintiff’s foreman and Lai regarding such arrangement.  In my judgment, in neither case can the Plaintiff relies on the non-compliance with the M1 as ground for terminating the Contract.

24.  The other 7 site memos in “CSY-2” are M2s.  At the highest, they only show that the Plaintiff engaged other workers to undertake certain works which it had previously required the Defendant to do.  Bearing in mind the situations in the two M1s mentioned above, and the omission of the Plaintiff to call the foremen issuing the relevant memos, I am not satisfied on the evidence available that the issue of these M2s afforded valid grounds to the Plaintiff to terminate the Contract.  After all, on the face of these memos (be it M1 or M2), the Plaintiff only purported to exercise its rights to engage other workers to execute the jobs and to debit the Defendant for the same.

25.  As a matter of fact, on the evidence relied upon by the Plaintiff (in particular by reference to “CSY-2”), I do not think the Plaintiff has satisfied me that by 11 October 2007 the Defendant had been persistently late in carrying out the Contract works or that it had failed and/or refused to carry out further work.

26.  In the letter of 11 October 2007, the Plaintiff only referred to the complaints by the workers as to arrears of wages and their stoppage of work as the ground for the termination of the Contract.  Mr Ho relies on the general rule that a party terminating a contract may justify it by reference to reasons other than specified in the notice of termination if such other reasons were in existence (Chitty on Contracts, 30 Edn. para.24‑014).  In the light of my above conclusion as to the failure of the Plaintiff to discharge the burden of proof on such other grounds, it is not necessary for me to consider whether any exception to that general rule applies in this case. 

27.  Nor do I have to consider if these other grounds were established on the facts, whether they constitute valid reasons for termination pursuant to Clause 22 of the Contract.  Since the construction of this clause would also be relevant to the grounds relied upon by the Plaintiff in the letter of 11 October, it is convenient to turn to this question at this juncture.

28.  Clause 22 of the Contract provides as follows,

“22. 甲方終止合約

a) 在工程進行期間，如乙方不能跟甲方進度表或甲方地盤經理書面之指示依期完成某項或某部份工程，則甲方有權以任何方式(包括僱用代工)代乙方完成未能完成之工程或部份工程，一切有關之損失，按照總合約條款第11條C項所述由乙方負責。此外，甲方有權照前列所定之中期罰款再向乙方每月糧單內扣除。

b) 如乙方工作不能令甲方滿意或不能履行本合約其中之任何一條條款，甲方有權無需向乙方發出警告信及給予任何改善期限下，可於七天前或在甲方認為迫切的情況下即時以書面通知乙方終止本合約。

c) 若乙方違反、不遵守、不履行本合約其中之任何一條條文，不論是非故意與否、間中或經常，甲方地盤負責人可斟酌個別情況向乙方發出通知書或警告信指明該項失職行為，要求乙方在通知書或警告信的規定期限內糾正，如在規定期限後乙方仍未按指示糾正違規事項或提交令甲方滿意之糾正方案，則甲方可以書面形式通知乙方即時終止本合約。

d) 如乙方按上述被終止僱用，甲方可另行招商承做，一切有關之損失， 按照總合約條款第11條C項所述由乙方負責。至於已做工程，乙方願依合約單價計算，但甲方有權扣留本工程預計所需損失之款額，待正確損失款項核準後始將餘款數發還，不敷之數亦應由乙方負責。在甲方的指示下，乙方及其僱員、代理人等要立刻離開地盤，甲方並有權接收乙方地盤內所有材料、机械、貨物及其他物品，並可將該等物品用於施工，完成及維修或將其全部或部份出售，把所得的金額補償甲方因此所引致之一切損失。”

29.  Mr Ho acknowledged that the Contract did not specify whether the failure of the Defendant to comply with the site memos in question constituted a breach of warranty or a breach of condition.  Though counsel referred to Clause 22(b), in respect of the alleged breaches supposedly evidenced by “CSY-2”, there is no evidence showing that the Plaintiff regarded the same as an urgent situation which warranted immediate termination.  The site memos themselves pointed to the other conclusion, viz. the Plaintiff did not regard such breaches, if any, as calling for termination of the Contract.  As submitted by Mr Lau, the memos showed that the Plaintiff only exercised the option under Clause 22(a).  And the Plaintiff did not give seven days’ notice as required by Clause 22(b).  Thus, in any event, Clause 22(b) cannot avail the Plaintiff regarding alleged breaches supposedly evidence by “CSY-2”.

30.  As regards Clause 22(c), the issue of notice setting out a time limit for rectification to the Defendant is a prerequisite before the Plaintiff could subsequently terminate based on the non-compliance with the notice.  By necessary implication, the notice must be given in such a manner that the Defendant could have reasonable time to comply with it.  As explained above, on the evidence, the Plaintiff fails to satisfy me that reasonable notice has been given to the Defendant regarding the “CSY-2” site memos.  Further, on the balance of probabilities, I find that Lai had reached an arrangement with the site foremen of the Plaintiff for the works to be undertaken by some other workers and debited the account of the Defendant for such works.  Thus, a satisfactory arrangement was in place and there was no triggering event for termination.  Clause 22(c) cannot avail the Plaintiff.

31.  I now turn to the arrears in payment of wages and stoppage of work.  Before I discuss the factual findings, I can dispose of an argument of Mr Ho based on another clause in the Contract.  Mr Ho placed reliance on Clause 3.12 which reads as follows,

“3.12乙方總價已包於每期申請糧款時，遞交下列全部文件資料，如有任何遺漏，甲方會每次扣除乙方合約總價之0.1%作為額外文件及行政費用，並且不設上限：

a) 每名工人不論是乙方直接僱用、乙方之分判商或者以下再分判之人員全部都要有僱主與工人雙方簽訂之僱庸合約(以附夾樣本作基礎)。

b) 每名工人不論是乙方直接僱用、乙方之分判商或者以下再分判之人員全部都要以銀行轉帳方式支付薪金，乙方要提供工人每期銀行轉帳支薪記錄予甲方存檔。

c) 如乙方未能做到上述(a)及(b)項之要求，甲方將會於乙方每期所批之糧款額外拍起10%作為支付乙方工人之保証金直至乙方工程完工為止，而該保證金將會於乙方全部工作完工後最遲三個月內一次性無息發還予乙方。”

32.  Counsel suggested that there was a breach of Clause 3.12(b).  In my judgment, Clause 3.12 has nothing to do with termination.  Even if the Defendant was in breach of Clause 3.12(b) in not paying the salaries of its workers by bank transfer (and the Plaintiff has not adduced any evidence to such effect), the consequence is laid down in Clause 3.12(c), viz. the Plaintiff could withhold an extra 10% from the interim payments due to the Defendant as security.  With respect, it is wholly unarguable to suggest that because the Defendant did not pay wages by bank transfer the Plaintiff could terminate the Contract.

33.  As regards the applicability of Clause 22, it depends on the factual circumstances surrounding the alleged stoppage of work on 11 October 2007. Though it was asserted in the Plaintiff’s letter on that date that the stoppage of work caused serious disruption to the progress of works at the site, the evidence suggests otherwise.  The Plaintiff has not even attempted to show to this court how the progress of other works at the site was disrupted by the stoppage of work of the Defendant’s workers on that date when they went to the Labour Department to complain about non-payment of their salaries.  Bearing in mind the items of outstanding works to be performed by the Defendant at that stage and the ready arrangement for some such works to be executed by other workers appointed by the Plaintiff (as evidenced by some of the site memos M2 issued by the Plaintiff before that date), I am not satisfied that the stoppage of work on that day by the Defendant’s workers had caused serious disruption at the site.

34.  Further, it was not a case of strike by the workers.  There is no suggestion that the Defendant’s workers prevented other workers (of other sub-contractors) from continuing with their works by virtue of their occupation of the site.  Lai gave evidence that the workers went to the office of Chiu at the site on 11 October 2007 demanding payment of their salaries by the Plaintiff on behalf of the Defendant.  He said he learnt subsequently from the workers that Chiu told them to go to the Labour Department.  That prompted such workers to stop working on that day in order to go the Labour Department.  This was reflected in a letter dated 18 October 2007 from the Defendant to the Plaintiff.  Though Chiu testified that he had not suggested the workers to go to the Labour Department, he admitted he had commented that they could go there.

35.  The lack of intention on the part of the workers to stop works altogether is also evidenced by the fact that they did return to work on 12 October. But they were prevented from entering the site by the Plaintiff.

36.  On these factual findings, I do not regard the Plaintiff as having made out a case for termination under Clause 22.  Clause 22(b) was not applicable because there was no evidential basis for the Plaintiff to suggest that the situation was urgent and the assertion in the letter dated 11 October that the stoppage of work caused serious disruption to the progress at the site was factually incorrect.  I do not believe the Plaintiff honestly regarded the situation as urgent.  Thus the situation does not fall within the scope of Clause 22(b). 

37.  Neither can the Plaintiff rely on Clause 22(c) because the Plaintiff did not comply with the prerequisite of issuing a notice to the Defendant to rectify the situation within a specified time.

38.  The non-payment of salaries by the Defendant to its workers per se was not a breach of the Contract.  Its significance must therefore tie in with the stoppage or disruption of progress of works at the site.  As such, the Plaintiff cannot rely on non-payment of salaries as an independent ground for termination. 

39.  I therefore hold that the Plaintiff’s termination of the Contract on 11 October 2007 was unlawful.  By preventing the Defendant’s workers to return to work on 12 October, the Plaintiff acted in repudiation of the Contract.  Such repudiation was accepted by the Defendant at the latest by the Defendant’s letter of 18 October.

The unfinished works

40.  The Defendant agreed that a sum of $49,575.07 had to be deducted from the Contract price payable to the Defendant on account of unfinished works.  On the other hand, the Plaintiff’s expert assessed the quantum of unfinished works by reference to day work sheets of the substituted workers.  According to the Plaintiff’s expert Mr Chan, the quantum should be $357,357.00.

41.  It is plain to me that the Plaintiff’s expert simply collated all the day work sheets produced from the Plaintiff and set them out in various summaries for his quantification.  Though he said he had exercised his judgment in the process, I agree with the views of the Defendant’s expert Mr Ng that the material available is simply inadequate for a quantity surveyor to assess meaningfully whether the alleged numbers of man-days were required for completing the task.  There was no information as to the scale of the works, the details of the job description and the cross-reference to items under the Contract for which the Defendant should be responsible.  It is telling that (as admitted by him) Mr Chan did not cut any items put forward by the Plaintiff.  Further, some of the records of the Plaintiff were demonstrated by Mr Lau in cross-examination to be confusing and unreliable.  Mr Chan was however prepared to ignore such deficiencies and put forward the carelessness of the foremen of the Plaintiff in keeping the record as excuses.  In so doing without any factual evidence from the foremen to support the same, Mr Chan had acted beyond the proper remit of an independent expert.

42.  Further, since it is my finding that the Plaintiff terminated the Contract wrongfully, there was no reason why the Defendant should pay for the consequence of such wrong in terms of the inevitable higher rates charged by the substituted contractors.  However, Mr Chan did not assess the quantum on any other basis.

43.  I reject Mr Chan’s quantification of the outstanding works.  Hence, I will only allow a sum of $49,575.07 to be deducted on account of unfinished works.

Sub-standard works

44.  In the Revised Joint Expert Report, the respective position of the parties is as follows: Mr Chan (Plaintiff’s expert) quantified the sub-standard works to be $706,664 whilst Mr Ng (Defendant’s expert) quantified the sub-standard works to be $6,400.

45.  By the time of closing submissions, it is apparent that different approaches should be adopted in respect of sub-standard works purportedly rectified by substituted workers engaged by the Plaintiff prior to termination [“Pre-termination Works”] and those purportedly rectified afterwards [“Post-termination Works”].  Mr Ho put forward the following figures in respect of the Pre-termination Works: the total value of as stated on the daywork sheets (after disregarding the mismatched items for which no satisfactory explanation was put forward in the Plaintiff’s evidence, other than speculation by Mr Chan which I do not accept as reliable factual evidence) is $93,720.  If one were only to have regard to those site memos M1 with successful fax reports, the figure is $76,780.

46.  On the other hand, Mr Lau disputed some of the items included in Mr Ho’s figures and he submitted that the respective figures should be $87,460 and $70,520 after discounting items 7 to 11, 14, 22 under DN-114, item 5 under DN-126 and item 2 under DN-157 in the Revised Annexure 2 to Mr Ho’s closing submissions handed up during the course of hearing on 15 March.

47.  Mr Lau further submitted that the Plaintiff had not proved that the Pre-termination Works were due to the fault of the Defendant as the available evidence did not show the details and quantities of the works and how the works came to be executed by the substituted workers.  Thus his primary position is to maintain the figures put forward by his expert Mr Ng, viz. $6,400 limited to a few items which the expert regarded as capable of meaningful quantification basing on available evidence.

48.  I cannot accept this submission.  In the course of the evidence of Lai, he testified in respect of some of the site memos^[1] put to him that he had agreed with the foremen of the Plaintiffs that substituted workers be engaged and the costs of that being charged against the account of the Defendant.  Though he disputed other memos, he had not done so in his witness statement.  Mr Lau informed the court that solicitor for the Defendant had not gone through the site memos specifically with Lai because Lai told him that he did not have any idea about the site memos.  I find that surprising as it must be the duty of the solicitor to make sure that the evidence of the Plaintiff was properly dealt with instead of merely taking the ambiguous stance of Lai on its face value.  Further, as demonstrated by Lai’s response to Mr Ho’s cross-examination regarding the site memos issued prior to the termination, he clearly had recollection as to what they were about.  Despite that, in dealing with the records produced by the Plaintiff at para.44 of his witness statement, Lai did not deal with the site memos issued prior to the termination.

49.  The court may draw inference based on Lai’s failure to comment on such memos in his witness statement.  Before the termination, the Defendant could have checked the alleged substandard works set out in site memos M1 and, as Lai himself said in evidence, he had the opportunity to sort things out with the Plaintiff’s site foremen orally.  Lai also testified that the Defendant had an on-site quantity surveyor Mr Chan to handle such matters.  Thus, if the Defendant disagreed with any of the site memos issued before the termination, I would expect some form of written protests by the Defendant and some positive evidence in the witness statement of Lai or some evidence from Mr Chan.

50.  In the circumstances, I think it is appropriate to infer that the Defendant did not have proper grounds to challenge the quantum of the substandard works in respect of the site memos which were successfully faxed to the Defendant prior to the termination of the Contract.

51.  However, I would not draw the same inference in respect of site memos which are not shown to have been successfully faxed to the Defendant.  Mr Ho submitted that due notice of such site memos had prima facie been given.  I do not see any evidential basis for this submission.  The evidence of the Plaintiff actually shows that it had failed to fax these memos to the Defendant. And there is no other evidence from the Plaintiff proving the notification of these memos to the Defendant.  Further, I note from the Revised Annexure 2 to Mr Ho’s Closing Submissions that most of these unsuccessfully faxed memos were debited by the Plaintiff under Debit Note DN-225 which was only issued on 23 July 2008, long after the date of termination.

52.  In respect of the pre-termination site memos successfully faxed, Mr Ho quantified the same to be $76,780 whilst Mr Lau’s figure is $70,520.  The difference is due to the submissions at paras.6.7(a), (b) and (c) and 6.5(d) of Mr Lau’s Closing Submissions.  As regards the submissions under para.6.7, it all depends on the oral testimony of Lai as to why the Defendant should not be held liable for such works.  I do not regard his evidence as reliable in these respects by reason of his failure to advert to these matters in his witness statement.  As pointed out by Mr Ho, Lai’s answer could be rebutted by reference to some of clauses in the Contract.  Due to the omission of Lai to deal with these memos in his witness statement, I do not think I have all the necessary evidence and it would be unfair to the Plaintiff if I were to give full weight to his testimony on these memos.  Further, Lai could not satisfactorily explain why there was no written protest by the Defendant to these memos.

53.  Regarding Mr Lau’s submission at para.6.5(d) (in relation to item 5 under Debit Note 126), though there were inconsistency between the documents relating to other daywork sheets, I do not see any inconsistency between the 3 relevant documents under this item, viz. daywork sheet at D3 p.853, the M1 at D6 p.2692 and M2 at D6 p.2696.  I reject Mr Lau’s challenge to this item.

54.  For reasons given in other parts of this judgment, I do not regard the evidence of the Plaintiff’s expert on the quantification of the substandard works as reliable.  Thus, for Pre-termination Works, I am only prepared to make award in respect of a sum supported by the limited inference I can draw as stated above.  On that basis, I find the quantum to be $76,780.

55.  Turning to Post-termination Works, since the relevant site memos were issued after the Defendant had been evicted from the site and it had no means to cross-check the assertions in the memos and the extent of the Defendant’s responsibility for such works, I cannot draw the same inference as in the case of Pre-Termination Works.

56.  The memos, debit notes and other documentary records produced by the Plaintiff do not by themselves give sufficient information to facilitate a meaningful independent evaluation of the quantity of the works in question and the extent to which the Defendant should be responsible for the same.  The Defendant’s expert Mr Ng highlighted some of the difficulties under para.3.3.6 of the Revised Joint Expert Report on Quantum.  In particular, I agree with him that one needs information as to the following before one can assess the quantum,

(a) measurements of substandard works including the depth, thickness, height, width and length of the same;

(b) identification of the types of defects;

(c) survey record or site record or photos regarding the works.

57.  The Plaintiff’s expert Mr Chan simply collated the documents and reproduced the same in a tabular summary.  As I have said in the context of the unfinished works, it is plain to me that Mr Chan did not carry out any independent assessment of the quantum.  Had he done so, he would have appreciated the need for further information as pointed out by Mr Ng.  Therefore, it does not lie in Mr Chan’s mouth to say that the comment of Mr Ng at para.3.3.6 was only made after the joint expert meeting and he had insufficient time to respond to them on paper.  When he was cross-examined, Mr Chan said he had applied his experience in the trade in the preparation of his opinion.  However, I fail to see how a quantity surveyor’s experience could make up for deficiencies in the requisite information.  Further, Mr Chan had difficulties in accounting for some inconsistencies in the Plaintiff’s records.  This cast a very big question mark in my mind as to how careful he had been in scrutinizing the records.

58.  I find that there is inadequate evidence before me to establish the quantum for any Post-termination sub-standard works.  Bearing in mind the percentage of works already completed by the Defendant before the wrongful termination, I am also skeptical as to why so much sub-standard works were only recorded by the Plaintiff after the termination.  The burden is on the Plaintiff to satisfy the court as to its claim for sub-standard works.  In this instance, it has failed to discharge the burden in proving the same in respect of Post-termination Works.

59.  I will therefore only award the sum of $76,780 in favour of the Plaintiff in respect of sub-standard works.

Administrative charges

60.  In the claims, the Plaintiff included a 10% administrative charge in respect of the unfinished and sub-standard works.  It was rightly abandoned by Mr Ho as counsel agreed that there was no contractual basis for claiming the same and the Plaintiff had not produced any evidence to justify the quantum of any administrative charge.

Variation orders

61.  Based on Annexure 1 to Mr Ho’s closing submissions and the VO summary of Annex B to Mr Lau’s closing submissions, the outstanding disputes between the parties on the variation orders are in respect of VOs 2, 5, 13, 14, 16, 17, 18 and 35.

62.  The other VOs are agreed as follows,

VO 1	1,650.49
VO 3	nil
VO 6	45,709.62
VO 7	2,151.03
VO 8	nil
VO 9	425.00
VO 10	3,000.00
VO 11	321,830.10
VO 12	5,169.49
VO 15	4,952.05
VO 19	1,190.86
VO 20	745.07
VO 21	1,419.99
VO 22	77.94
VO 23	1,336.99
VO 24	390.46
VO 25	31.17
VO 26	3,400.00
VO 27	nil
VO 28	2,076.22
VO 29	9,595.35
VO 30	2,998.98
VO 31	nil
VO 32	8,000.00
VO 33	19,484.00
VO 34	45,900.00

63.  The total of these undisputed VOs adds up to $481,534.81.

64.  Under VO 2, the Defendant claims a sum of $6,858.37 (as per the quantification by its expert) in respect of formwork to footings of tower crane.  It is agreed between the experts that tower crane footing was included in the Contract sum. There is no evidence showing that the works which the Defendant was required to execute were other than works in respect of tower crane footings.  I shall reject this VO.

65.  Under VO 5, the Defendant claims a sum of $217,080.01 for chamfered edges and skirting at the columns.  There was no drawing showing the detail features of the columns at the time of tender.  However, at the Preamble of the Contract, item B(iii) provides that the rates for formwork are to include for “straight, circular and raking cutting and waster, splayed edges, notchings, allowance for overlaps and passings at angles, battens, except for fillets planted on formwork to form ornamental features in self-finished concrete surfaces, all fillets for chases, drips, grooves, recesses, and the like, rebates chamfered and rounded or moulded edges, splayed angles and the like and stops to chamfers, rounded or moulded edges and splayed edges.”

66.  A detail drawing as to the features of the columns was made by architect and sent to the Defendant on 2 September 2006.  It is not disputed that the features come within the meaning of the word “recesses” in the preamble.  However, Mr Lau argued that the Defendant was entitled to regard this drawing as a variation because no such feature appear in another drawing supplied during tender.

67.  The tender drawing relied upon by the Defendant was at Bundle D1 p.319. Whilst there was a diagram called “typical detail for column” in that drawing, PW2 Mr Wong explained that this tender drawing was for engineering purposes and it was not meant to show the detail features of the column.  That diagram appears to be dealing with the positioning of the steel bars for the construction of the columns instead of the architectural features of the columns.  The Defendant’s expert Mr Ng did not give any evidence regarding the tender drawing.  In the Revised Joint Expert Report on Quantum at para.3.5.3.5(b), the original comments based on the tender drawings was deleted. And no evidence was elicited from him as to the contention of Mr Wong when Mr Ng gave oral evidence.

68.  In his closing submissions, Mr Lau contended that preamble B(iii) should be construed as covering only those features which are shown in the contract drawings and/or specifications as being part of the works to be done under the Contract.  Since there was no indication that the columns would have such features in the tender material, Mr Lau said the Plaintiff cannot rely on preamble B(iii) in this instance.

69.  I do not think preamble B(iii) should be read down in such a manner. The only exception explicitly provided for in the preamble is “fillets planted on formwork to form ornamental features in self-finished concrete surfaces”.  If it was the intention of the parties that common non-ornamental features of the columns had to be shown in tender drawings, the preamble should be qualified explicitly to such effect.

70.  I therefore reject the claim for the chamfered edges.  As regards the change in the height of the skirting, they could not be regarded as additional since the change was from its position at a height of 150mm to 100mm.  There cannot be any claim for additional skirting.  VO 5 is rejected.

71.  VOs 13 and 14 are related and can be considered together.  It is not dispute that there was a variation in terms of change from normal formwork to fairface formwork along gridlines B, C, F and G.  The instruction was set out in a site memorandum from the Plaintiff to the Defendant on 6 November 2006.  VO 14 was the claim by the Defendant for such variation and VO 13 was its related claim in respect of abortive work caused by the change in the concrete finishes along the same gridline.  As per the position of the parties as set out in Closing submissions, the Plaintiff accepts $7,285.28 for VO 13 and $73,906.07 for VO 14 whilst the Defendant claims $10,597.03 for VO 13 and $194,018.13 for VO 14.

72.  I can first dispose of three relatively less controversial points.  It is not disputed that the instruction for variation was in respect of the main beams.  Thus Mr Ho was correct in pointing out that the calculation of the Defendant’s expert was wrong by including quantum regarding perimeter beams and column heads.  On this account, a sum of $76,526 should be deducted from his assessment for VO 14 set out in the Revised Joint Expert Report on Quantum.

73.  Further, omission for original works relating to pre-cast units should be deducted since the Defendant was absolved from doing such works by reason of the variation.  The value of the omission was quantified by the Plaintiff’s expert at $22,991.12 and it was not contradicted by evidence from the Defendant.

74.  The third point is a non-point.  As submitted by Mr Ho, the evidence shows that no variation as per this instruction had actually been undertaken from 4^th floor upwards even though the instruction covered up to the Roof Floor.  Mr Lau did not dispute this and this was stated to be so at para.3.5.6.7 by the Defendant’s expert in the Revised Joint Expert Report on Quantum.

75.  At the trial the experts agreed to adopt a measurement of 677.67m² for the portions of the main beams originally specified as precast and the resultant valuation (applying the agreed rate of $143.14 per m²) is $97,001.68.  Deducting the $22,991.12 omission, the value is $74,010.56.

76.  The more substantial disagreement between counsel at the end of the trial is whether the variation for the change from normal formwork to fairface formwork should cover the portions of the main beam which had always been specified to be cast in-situ.  The Plaintiff said the scope of the variation was limited to the parts of the main beams originally specified to be pre-cast.  The Defendant said it should extend to those parts originally specified to be cast in-situ as well.  The measurements of these disputed portions are set out in attachment D5a-Rev.1 of the Revised Joint Expert Report on Quantum and quantified by the Defendant’s expert as $20,489.78 by using the agreed unit rate.

77.  In the Chinese instructions from the Plaintiff to the Defendant set out in the site memo of 6 November 2006, it did not draw any distinction between formworks for originally precast portions and cast in-situ portions of the main beam.  It only stated that the main beam along Grid line B, C, F & G was to use fairface formwork.  An instruction from the architect dated 3 November 2006 was attached.  The instruction of the architect stated,

“Please note the surfaces of the cast in-situ beams along G.L. B, C, F & G to be fairface concrete surfaces.”

Again no distinction was drawn between the portions which were originally precast and those which were originally cast in-situ.

78.  The Plaintiff relied on other documents to show the background leading to the change.  I have read all the relevant documents which have been conveniently produced as “WKB-15” and the relevant drawings.  What had happened was that in the original design, some portions of the main beam along Grid line B, C, F & G were to be precast whilst some portions were to be cast in-situ.  By a site memo dated 3 October 2006, the consulting engineer instructed that all portions are revised to cast in-situ.  The Plaintiff then sought advice from the architect by a letter dated 24 October 2006, asking for instructions as to the concrete surface of revised cast in-situ beams.  The instruction of the architect of 3 November 2006 was in reply to that.

79.  I do not think the Plaintiff could rely on the background leading to the change to qualify the instructions set out in the site memo dated 6 November 2006.  To start with, there is no evidence suggesting that the Plaintiff had shown to the Defendant the site memo from the consulting engineer of 3 October 2006 and the Plaintiff’s request for information addressed to the architect on 24 October before the Defendant carried out the relevant works.  Moreover, even the Plaintiff’s own factual witness, Mr Wong, gave evidence about VO 14 on the basis that no distinction is drawn between the different portions of the main beam.  At para.9(xiv) of his witness statement, he referred to the area where the change was effected as 991.53m² and by reference to the measurements put forward by the Defendant’s expert the total area for the main beams (both originally precast  and cast in-situ) is only 800 odd m². Mr Wong’s figure of 991.53m² was actually used in the correspondence between the Plaintiff and the Defendant in the course of negotiations when the works were being executed, see Bundle D2 p.601 to 607.  Mr Wong did not allude to the distinction now advanced by counsel for the Plaintiff.

80.  There is no dispute that as a matter of fact the Defendant did use fairface formwork for all the portions of the relevant main beams.  The Plaintiff had foremen and more senior personnel on the site.  I find it unbelievable that if the Plaintiff did not regard it as necessary to change the formwork in respect of the original cast in-situ portions, those personnel on site did not correct the mistake of the Defendant.

81.  On this point, I agree with the Defendant.  Thus for VO 14, the correct amount should be $74,010.56 + $20,489.78 = $94,500.34.

82.  The difference between the parties on VO 13 is on the same point.  It follows from my conclusion in the context of VO 14 that I should adopt the valuation of the Defendant for this VO as well.  For VO 13, I will award the Defendant the sum of $10,597.03.

83.  VO 16 is a claim of $2,182.21 (agreed valuation of the experts) in respect of the re-doing of certain formworks at staircase No.2.  The Plaintiff said the works were necessitated by the failure of the Defendant to follow revised instructions from the Plaintiff sent on 17 October 2006.  The claim was submitted by the Defendant on 27 November 2006.

84.  There is no direct evidence as to when the works were executed.  The burden is on the Defendant to prove that it is entitled to claim for this item. The Plaintiff has presented evidence from Mr Wong to suggest that it was due to the fault of the Defendant and there was no specific evidence from Lai to rebut him.

85.  Belatedly, counsel for the Defendant tried to cross-examine Mr Wong by suggesting that the Defendant merely followed the markings by another contractor on the materials in executing the formworks and if the markings were wrong it was not the fault of the Defendant.  Though Lai referred to the procedure of markings generally at para.21 of his witness statement, he did not rely on it when he referred to VO 16.  There is no evidence from Lai that regarding the mistake leading to the re-doing of the formworks it was due to the wrong markings by the other contractors.

86.  In the absence of specific evidence from the Defendant as to the precise circumstances giving rise to the need for re-doing the formworks in order to rebut Mr Wong’s evidence, I am of the view that the Defendant fails to discharge the burden of showing that it is entitled to its claim under VO 16.

87.  VO 17 is a claim of $12,000 for the change from square to circular columns at different locations.  The dispute is whether the Defendant is entitled to claim the same notwithstanding preamble B(iii) in the Contract provides that formwork rate included both straight and circular cutting.  Mr Lau’s argument is essentially the same as the one he raised in the context of VO 5.  Since the unit rate is the same and there is no evidence suggesting that more works in terms of quantity had to be executed as a result of the change, I agree with Mr Ho that this VO should be disallowed.

88.  VO 18 is a claim of $4,642.86 for re-fixing work caused by modification works at the escalator pit at UG/F.  The Plaintiff concedes $3,146.49 but disputed the rest on the basis that an item in the works (formwork on the floor slab) had not actually been done.  There is an endorsement by the site quantity surveyor of the Plaintiff to such effect on the claim submitted by the Defendant dated 12 December 2006 at Bundle D2 p.635.  The Defendant did not adduce any positive evidence to establish that the disputed work was done. Mr Lau simply relied on the absence of site memos issued by the Plaintiff regarding the non-performance of this item.  I do not think the Defendant has satisfied the burden of proof in respect of this item.  Thus, I will only award $3,146.49 for VO 18.

89.  VO 35 is a claim of $103,746.25 for the change from normal to fairface formwork for the walls at the lecture theatres at 2/F.  The Plaintiff only accepts a claim in the sum of $66,293.73.  The difference is attributable to different interpretation of the relevant instruction: the Plaintiff says it only covered the inner sides of the walls of the lecture theatres whilst the Defendant says it also covered the external sides.

90.  The evidence in respect of this VO is scanty.  Lai referred to it shortly at para.14 of his witness statement.  He did not give any details as to how, when and by whom the instruction as to such change was given.  No document was produced to support his assertions.

91.  Reference was made by Mr Lau to the drawings at Bundle D7 p.3038 to 3039 and the handwritten remarks on them.  Counsel pointed out that for some walls there were remarks “单面板” indicating that changes at the other walls were double-sided.

92.  I do not accept this submission.  I have no evidence as to who put down such handwritten remarks and whether such remarks appeared in the original drawings.  Nor do I have any evidence as to why such remarks were put down.  The drawings were not put to the Plaintiff’s factual witnesses.

93.  Considering the matter in the light of the drawings, the other side of the relevant walls are walls of other rooms like AHU rooms, stores and lavatories.  In the absence of precise evidence as to how the instructions were given, I am not satisfied that the Plaintiff had instructed the Defendant to change the formworks for both sides of the walls unless the wall is one which lies between two lecture theatres.

94.  Therefore, I agree with Mr Ho that only a sum of $66,293.73 shall be awarded under VO 35.

95.  Adding all the VOs together, the sum I will allow for them is $656,072.40.

The omission regarding change from concrete walls to block walls

96.  By a letter dated 24 April 2007, the Plaintiff informed the Defendant that some of the walls at the site would be changed from concrete walls to block walls.  As a result formworks would not be required for such walls.  The quantity of works under the Contract was reduced accordingly.

97.  The experts have agreed the omission amount to be $1,445,218.29, subject to a dispute as to whether a deduction of 13.79% should be made on account of material and labour wastage occasioned by abortive works already done by the Defendant before the notification of change.

98.  The Defendant did not produce any concrete evidence as to such material and labour wastage.  Lai only asserted generally at para.16 of his statement that there was such wastage without giving any particulars.  Nor did the Defendant produce any documents to support such a claim.

99.  In the absence of reliable evidence on such wastage, the Defendant’s expert was driven to educated guesswork as set out at paras.3.5.21.6(l) to (s) in the Revised Joint Expert Report on Quantum.  The percentage of 13.79% was arrived at by reference to the agreed Rate Build-up for Fair Face Formwork by comparing the costs of plywood with the formwork unit rate.

100.  The expert assumes that the scrape value of the plywood would counter- balance the labour costs in respect of the abortive works.

101.  With respect, I cannot accept such artificial construct as substitution for proper evidence to establish the quantum of the alleged wastage in labour and material.  That methodology proceeds on the basis that all the materials required for the formwork associated with the changed walls had been delivered and worked upon before the notification.  But one must bear in mind that according to the Contract the Defendant only carried out work at specific locations when the Plaintiff told him to do so as the Plaintiff had to monitor the overall progress of the works at the site.  There is no evidence suggesting that the Plaintiff had given specific instructions to the Defendant to do works regarding these walls prior to 24 April 2007.

102.  Even though the Defendant might have difficulty in stock-taking after the Plaintiff wrongfully terminated the Contract and prohibited it from returning to the site, there is no reason why the Defendant could not produce evidence like the invoices and wages records regarding the abortive works.  Given that the Defendant also had a quantity-surveyor at the site, it should be able to produce some details as to the alleged abortive works in terms of dates, description and quantity.

103.  The Defendant carries the burden of showing that there has been wastage and the quantum thereof.  It has failed to discharge that burden in this trial.

104.  Thus, I would adopt the agreed figure of $1,445,218.29 as the omission to be deducted from the Contract sum payable to the Defendant.

The materials left on the site

105.  The Defendant said it had materials and tools left at the site when the Contract was terminated by the Plaintiff and the Plaintiff had refused to let it to collect the same.  Instead the materials were used by the substituted contractor engaged by the Plaintiff.

106.  The Plaintiff did not dispute that there were materials left behind by the Defendant and some were used by its substituted contractor.  The Plaintiff had actually deducted a sum of $8,356.50 from the payments to that substituted contractor on this account.

107.  The dispute is as to quantum.  Lai did not give detail particulars as to the quantity and value of these left behind materials and tools.  He simply asserted that he believed they should worth at least $200,000.  Mr Lau urged the court to take into account of the difficulty facing the Defendant by reason of the Plaintiff’s wrongful termination of the Contract and prohibition of the Defendant from returning to the site.  Thus, the Defendant did not have the opportunity to conduct a detail stocktaking of these materials and tools.  

108.  I accept this is a highly relevant consideration.  It seems to me that the principle of Armory v. Delamirie (1722) 1 Stra 505 can be applied with the necessary modifications in the circumstances of the present case.  In Browning v Messrs. Brachers [2005] EWCA Civ 753 Jonathan Parker LJ stated the relevant principle in these terms at para.205,

“in a case where the defendant has wrongfully deprived the claimant of property of value (be it an item of physical property or a chose in action), the court will, save to the extent that it is persuaded otherwise by the defendant, assess the value of the missing property on a basis which is generous to the claimant.”

109.  Further, at para.210, His Lordship said,

“the principle in Armory v. Delamirie is not directed at the legal burden of proof; rather it raises an evidential (i.e. rebuttable) presumption in favour of the claimant which gives him the benefit of any relevant doubt. The practical effect of that is to give the claimant a fair wind in establishing the value of what he has lost.”

110.  In a letter dated 18 October 2007, the Defendant had already complaint to the Plaintiff about its tools and materials being detained at the site.  In the light of that complaint, the Plaintiff should either allow the Defendant to collect its materials and tools or at least prepare an inventory of the items detained by it.  The Plaintiff had actually done an inventory in respect of the plywood and timber used by the substituted contractor and its on-site quantity surveyor set out his calculation regarding the values of these materials in a table at Bundle D2 p.800.  The total amount was $55,710 and the quantity surveyor applied 85% depreciation on account of the materials having been used previously.  However, the Plaintiff did not call the quantity surveyor as a witness and this court does not have credible evidence to justify the 85% depreciation.

111.  In the circumstances, I should be generous to the Defendant in the assessment of the value of the tools and materials.  But I do not think the principle in Armory v. Delamirie requires this court to accept the bald assertion of Lai as to the value of these items.  I believe that the inventory of the Plaintiff’s quantity surveyor is not a comprehensive inventory of the tools and materials left behind.  It was only an inventory prepared for the purpose of calculating the deduction from the payment to the substituted contractor.  Doing the best that I can, and giving the Defendant the Browning fair wind, I shall proceed on the basis that the materials and tools left on the site would be double those set out in the inventory, and instead of applying a 85% depreciation, I would only apply a 50% depreciation.  The end result is that I assess the value of such left behind items to be $55,710.

The overall result

112.  Based on my above findings, using the agreed formula between the parties, the overall position is worked out as follows,

1. Interim payments paid by the Plaintiff (agreed)	$11,738,701.76
2. Wages paid on behalf of the Defendant (agreed)	$682,822.50
3. Unfinished works (para.43)	$49,575.07
4. Substandard works (para.59)	$76,780.00
Sub-total (A)	$12,547,879.33
5. Contract sum (agreed)	$12,844,912.21
6. VOs (para.95)	$656,072.40
7. Omission (para.104)	($1,445,218.29)
Sub-total (B)	$12,055,766.32
8. Left behind materials (para.111)	$55,710.00
Balance due to the Plaintiff (A) - (B) – (8)	$436,403.01
	============

113.  I shall order judgment in the sum of $436,403.01 be entered in favour of the Plaintiff.  The counterclaim of the Defendant shall be dismissed.

114.  On the question of costs, though the end result is a judgment in favour of the Plaintiff, on a number of substantive issues I find against the Plaintiff.  Unless the parties reach agreement on costs, I would like to hear submissions from them.  I am also concerned about the apparent disproportionality of costs incurred in this action as compared with the final judgment.  The submissions of the parties should deal with the question of the reasonableness of conduct of the parties in this action as well as admissible information as to attempts on alternative dispute resolution.  Parties shall fix a date for hearing of 2 hours with the Listing Officer for argument on costs.