SUNLEY ENGINEERING & CONSTRUCTION CO LTD v. NGO KEE CONSTRUCTION CO LTD

HCCT 49/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 49 OF 2002

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J U D G M E N T

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1. The plaintiff (“Sunley”) was the piling sub-contractor in a residential development (seven multi storey blocks and car park) in Hung Hom Bay which was completed in 2002.  The defendant (“Ngo Kee”) was the main contractor.  The sub-contract price was $75 million.  The main contract price for the entire works was $1.232 billion.

2. In these proceedings Sunley claims it is due a further sum of just under $10 million.  That sum is made up as follows :

	HK$
The Sub-contract price	75,000,000
Variations	9,566,049
Miscellaneous contra charges	(444,388)
Materials supplied by Ngo Kee	(26,219,097)
Previous payments	(48,073,505)
Balance due to Sunley	9,829,059

3. Ngo Kee on the other hand claim that Sunley is liable to repay them over $16 million.  That sum is calculated thus :

	HK$
Sub-contract price	75,000,000
Variations	3,138,499
Less
Ngo Kee’s actual damages	(12,409,556)
Wai Kee’s claim	(1,150,000)
Contra charges	(2,863,112.46)
Materials supplied to Sunley	(26,219,097)
Retention	(3,750,000)
Previous payments	(48,073,505)
Balance due to Ngo Kee	(16,326,771)

4. Prior to trial the parties were able to agree liability and quantum in respect of a number of items.  However, the outstanding disputes remain substantial.  There are five issues :

(1)      Sunley’s entitlement to variations

(2)      Ngo Kee’s entitlement to contra charges

(3)      Ngo Kee’s liability to pay retention money

(4)      Ngo Kee’s counterclaim for damages for delay

(5)      The “Wai Kee” claim.

5. Counsel (Mr Ian Pennicott Q.C. for Sunley and Mr Peter Clayton S.C. with Mr Alan Fan for Ngo Kee) and their respective instructing solicitors have been extremely helpful in the conduct of the trial.  Considerable effort and skill has gone into crystallizing and simplifying the many issues contained in 700 pages of witness statements from eight witnesses of fact and 700 pages (excluding exhibits) in 18 reports from four expert witnesses.  I shall endeavour to continue the commendable attempts to simplify matters in this judgment.

Other parties

6. First Star Development Ltd (“First Star”) was the developer, acting on behalf of the Hong Kong Housing Authority (“HKHA”).  Ngo Kee’s architect was Ho & Partners (“HPA”).  The structural engineers for the project were Mitchell McFarlane, Brentnall & Partners (“MMBP”).

The Sub-contract

7. Sunley undertook to carry out for Ngo Kee the design and construction of all of the piling and part of the pile caps for the development.  The terms of the contract are contained in three documents;  firstly, Sunley’s tender dated 16 June 1999, secondly, Sunley’s letter dated 2 September 1999 and thirdly, Ngo Kee’s letter of acceptance (which annexed both of the above letters) dated 2 November 1999.  It is common ground that it was not a remeasurement contract.  It was a design and build lump sum contract.  However, I accept Sunley’s submission that this description does not act as a straightjacket to their claims and entitlements. 

8. The defence point to paragraph 1 in the letter of acceptance :

“Design and execute piling and pile cap work for Tower Blocks and piling works only for Carpark and By-Pass including all labour, supervision, plant, materials, traffic management (limited to set up moveable barrier, traffic with warning lamps), equipment and method statement, shop drawings and calculations, etc. in strict accordance with the requirements in the Main Contract Documents (BD’s requirements and HKHA’s specifications (1999 Edition)) and to the satisfaction of the Contractor, the Employer, the Employer’s Representative, Architect, Contract Manager and Engineer.”

9. They submit that if quantities other than those estimated in Sunley’s schedule of rates were required for design, it was at Sunley’s risk under the sub-contract because Sunley was the designer as well as the builder.  However, I do not accept that this means that Sunley has irreversibly signed itself up to an obligation to pay for anything and everything which is or becomes necessary for the design (to be compliant with regulations and requirements of the various authorities).

10. The agreed lump sum was for the work as defined.  Sunley rely on paragraph 5 of the sub contract which states “the sub contract works shall be carried out and completed in accordance with the bill of quantities”.  In my judgment it is no more than commercial common sense to construe this contract as one where the quantities signed for formed part of the contract.  Sunley therefore have a legitimate claim in respect of work done by them which was necessary in order to properly complete the works which had been omitted from or understated in the bills of quantities. 

Variations

11. Nine of the thirteen claims for variations remain in dispute.  The four that have been agreed are relatively minor (a total of $517,000 approximately).

12. It is necessary to address two preliminary matters before dealing with each variation in turn :

(a)  On account payments for variations in Interim Certificates

13. In at least two instances (variation number 1 “cart away” and variation number 6 “additional coring tests”) Sunley relies on the undisputed fact that in interim payments Ngo Kee had certified the variation as due and payable.  Further, in answer to Further and Better Particulars, it had conceded that it was a variation.  Ngo Kee’s position at trial was that it was only realised late in the day that these payments should not have been certified as variations and that what constitutes a variation is a matter of law to be determined at trial.

14. I find that the fact of earlier certification is not determinative of the issue but, as a matter of weight, it goes in Sunley’s favour.

(b)  Mark up

15. The parties agreed that in respect of variations numbered 7, 8 and part of 9 it was necessary for the court to determine an appropriate level of “mark up”.  The evidence comes from the two experts, Mr Brian Rawling for Sunley and Mr Michael Charlton for Ngo Kee.  Mr Rawling concluded that 26% should be added.  Mr Charlton’s figure was 15%.

16. Both experts justified their final percentage in some detail.  Mr Rawling perhaps the more so.  The issue was considered and argued in some detail.  There was merit on both sides of the argument.  There were valid criticisms on both sides of the argument.  I find it only necessary to give a bare outline of the differences.

17. Mr Rawling used as a base, a figure for an average overhead percentage from Sunley’s accounts during the period of the sub-contract works in 1999 and 2000.  He then added 10% for “profit and risk”.  Mr Charlton did not agree that any increase for “risk” was appropriate and criticized the use of years 1999 and 2000 because they happened to produce the highest figures and therefore the highest percentage.  He said a four-year period would be more appropriate than a two-year period.

18. It is the sort of issue where a host of different percentages could be argued for and justified depending on where one chose to lay the emphasis.  Examples of other contracts were quoted, some were lower, some were higher.  Some were purely civil engineering works, unlike this;  some were building works, as was this.

19. Ultimately, I was surprised that a median figures was not agreed between the parties.  It seems to me precisely the sort of issue where recognition should be given to the arguments on both sides and recognition should also be given to the fact of life that the plaintiff argues for the highest figures that it can properly and reasonably justify whilst the defence argues for the lowest.  It is a classic case for splitting the difference.  I shall adopt a mark-up, where appropriate, of 20.5%.

20. I now turn to each variation still in dispute.  For each one I shall first recite the issue from the agreed list.

(a) Variation (1) Cart away

(i)    Is carting away excavated soil a variation pursuant to the terms of the Sub-contract?

(ii)   If yes, what is the proper assessment of the quantum for this variation?

21. This claim arises because more carting away of excavated soil was done, over and above the estimate in the Bills of Quantities, because of a shortage of storage space.

22. Evidence was given from both factual and expert witnesses.  As for the factual witnesses I make this preliminary remark which is applicable to all future issues.  No witness of fact in this case was obviously being unhelpful, unreliable or dishonest.  On the other hand, in very general terms, I found Sunley’s witnesses to be straightforward, not prone to exaggeration or bias and generally reliable.  I found Mr Nick Ho Chi Ling and Dr John Ho Kar Chung to be particularly helpful.

23. This issue turns, to a large extent, on to interpretation of the sub contract.  The relevant provisions are as follows :

“Paragraph 15(i)(d)

Ngo Kee shall be responsible for the following items :

(d)  provide stock pile area for the excavated material to be backfilled in the future.  If no stock pile areas are provided, Ngo Kee shall bear the cost of import filling.

Paragraphs 15(ii)(c) and (d)

Sunley’s rate shall include the following items :

(c) Backfill approved material…

(d) Cart away all excavated materials and debris.

Schedule of rate for pile cap works

Item 2 (Towers 1-3)

(a) Excavation	12070 cu.m.
(b) Backfilling/spoil heap on site	4879 cu.m
(c) Cart away	7191 cu.m

Item 3 (Towers 4-7)

(a) Excavation	16090 cu.m
(b) Backfilling/spoil heap on site	6502 cu.m
(c) Cart away	9588 cu.m”

24. It is a fact that under “Bill No. 5 Variation Works” for the period ending 25 August 2000 Ngo Kee certified this item as a variation in the sum of $1,474,200.  Moreover, this was confirmed by Further and Better Particulars dated 16 November 2001.

25. The factual evidence showed that some of the excavated material was to be used as backfill later, the rest was to be carted away.  I am satisfied that paragraph 15(ii)(d) did not apply to the material which was intended for later use as backfill.  A shortage of storage space, not the fault of Sunley, led to more carting away than was originally estimated.  Sunley are entitled to be paid for this.  The only figure which has been put forward for this variation is that from Mr Rawling in the sum of $475,951.  Ngo Kee did not quantify it because they denied any entitlement at all.  I award $475,951 to Sunley for variation (1).

(b) Variation (6) Additional Coring tests

(i) Do the additional coring tests carried out by Sunley constitute a variation pursuant to the terms of the Sub-contract?

(ii) If yes, what is the proper assessment of the quantum for this variation?

26. As with the carting away variation Ngo Kee certified in an interim payment and conceded in the pleadings that the additional coring tests were variations.

27. The Sub-contract provided for a total of seven coring tests, one for each tower.  In fact an additional one was required for each tower.  Consistent with my finding as to the construction of the contract, the additional tests constitute variations.

28. The agreed quantum is $196,384 which Ngo Kee is liable to pay Sunley.

(c) Variation (7) Additional Site Investigations and Tests

29. There is no issue on liability with this variation.  The only issue is quantum.  The only issue on quantum is the proper mark up to be applied.  My ruling on the mark-up, above, means that Ngo Kee’s liability to Sunley under this variation is $451,968.

(d) Variation (8) Temporary Removal and Reinstallation of Hoarding

(i) Was the temporary removal and reinstallation of the hoarding claimed for by (Sunley) a variation under the Sub-contract?

(ii) If yes, what is the proper assessment of the quantum for this variation?

30. Ngo Kee admitted this was a variation in the pleadings.  In quantum terms it is a minor item ($73,264).  A disproportionate amount of time was spent on it.

31. There was a conflict between the factual witnesses on this issue.  I prefer Sunley’s evidence as their involvement in the events at the time was more direct. I accept Mr Nick Ho’s evidence that Sunley was instructed by Ngo Kee to install the sheet piles so that they could be re-used later.  Mr Nick Ho, on 26 January 2000 wrote the following letter :

“As requested by your representatives, the sheet pile shall be driven outside boundary line as shown in the attach sketch which was faxed to Ngo Kee on 20 January 2000. Sunley was instructed by Ngo Kee to break the existing concrete base, to dismantle and reinstall the affected hoarding according to the said sketch.  The sheet piles installed can therefore be used for the construction of pile caps for Elevated Deck”.

32. Ngo Kee concedes that if the court makes the factual finding in Sunley’s favour, the cost of the work done would constitute a variation.

(e) Variation (9) Additional H-piles

33. This is the most significant variation.  Sunley claim a total of approximately $5.3 million.  Ngo Kee’s quantification is approximately $1.7 million.  The claim sub-divides into three separate issues.

(e)(i) 9.1

To what extent is Sunley entitled to claim for the additional H-piles to the Carpark and By-Pass Elevated Deck (included as part of item 9 Schedule R1 to the Reply and Defence to Counterclaim) as a variation and, to the extent that it is, what is the proper assessment of the quantum thereof?

34. There is no issue in relation to eleven additional H-piles provided at the carpark area.  The issue concerns those provided at the elevated deck.  Sunley provided 165 additional 180 kg/m H-piles (at an extra costs of $4,265,250) but as a consequence did not provide 149 kg/m   H-piles at the same location.  The net extra cost after discount was $2,407,434 (according to Sunley).  Ngo Kee admit a lower sum of $1,715,943 is due. 

35. The difference is due to two arguments advanced by Mr Carmine Siu, Ngo Kee’s expert structural engineer.  Mr Siu contends that Sunley under estimated the number of piles required.  Secondly, he submits that as a result of the under estimation the requirements were revised and Sunley’s as built works turned out to be more than was necessary.  In short they ultimately over designed the number of piles that were necessary.

Under estimate?

36. This issue, ultimately, came down to one question :  were Sunley obliged to take into account “highway loadings”.  Ngo Kee argue that they should have done but did not.  Sunley agree that they did not but contend that they were not obliged to.  If they were obliged to, a difficult and technical exercise must be embarked upon to determine the extent of and the cost of the under estimation.

37. There is no issue between the experts that there was no under estimation if Sunley’s obligation was limited to (a) tendering upon the basis of the loading plans provided to them and (b) completing the works in accordance with those plans.  It is a fact that the loading plans and schedules specified the gravity and wind loads only.  They made no specific reference to “highway loads”.  Ngo Kee say that Sunley should have taken highway loads into account when preparing its tender.  Highway loads form part of the requirements of the Buildings Department.  Ngo Kee submit that Sunley was required to comply with the “BD requirements” and accordingly provide for such loadings.

38. In my judgment the stance taken by Sunley was correct.  It was consistent with their entire tendering exercise.  They tendered on the basis of the information supplied.  MMBP provided information for gravity loads and wind loads.  Sunley tendered accordingly.  Ngo Kee argue that Sunley must have known that highway loads should be involved because it was an elevated deck that was being built.  However, it was perfectly possible that the highway loads had been included in the calculation of the gravity loads.  MMBP did not specify.  I consider Sunley’s obligation was limited to designing on the basis of the figures provided and not making enquiries about what the figures did or did not include.

39. Highway loading includes seismic loading, collision loading and thermal loading.  If, as Ngo Kee contend, Sunley were required to design on the basis that highway loads had to be included, they would have had to make assumptions and even engage in guesswork.  The primary assumption would have been that the MMBP loading excluded highway loading.  Even the primary assumption could well have been wrong. It was only in October 1999 that it became apparent that account had to be taken of highway loading and it was MMBP who provided the figures for Sunley to revise the pile design.

40. Further consideration of the technical structural issues under this heading is therefore unnecessary.  Sunley are entitled to $2,407,434.

Over design?

41. The same finding applies to this issue.  Any minor over design that was in fact built flows from (a) Sunley’s correct approach in the first place, (b) revised figures being supplied by MMBP at a later date and (c) the approval of Ngo Kee, MMBP and the Buildings Department to the revised design upon which Sunley relied in completing the piling work for the elevated deck.

(e)(ii) Variations (9.2) and (9.3).  Pre-boring

42. The issue is :  Is Sunley entitled to claim for the pre-boring of 73 H-piles for the By-Pass Elevated Deck (included as part of item 9 to Schedule R1) as a variation and, if so, what is the proper assessment of the quantum thereof?

43. Save for the issue of ‘mark-up’ there is no dispute on quantum.  If Ngo Kee are liable the sum due is $1,538,303 under (9.2) and $568,639 under (9.3).  If Ngo Kee are not liable, the figures are nil.

44. The issue arises because of the known existence of an underground box culvert running across the site.  Pre-boring was necessary in certain locations to protect the box culvert from the vibration of pile driving.

45. I accept as a fact that Sunley’s tender did not allow for pre-boring.  The cost was additional to Sunley’s tender.  Ngo Kee maintain that it should have been included and Sunley cannot therefore claim it as a variation.  I accept Dr John Ho’s evidence that the cost of pre-boring was not in the tender.

46. I am able to revolve this issue by factual findings.  I am satisfied that the issue was the subject matter of meetings during the second half of 1999.  Those meetings may be construed as resulting in a separate agreement on pre-boring.  Ngo Kee denies any such agreement.

47. There is no dispute that Sunley was aware of the box culvert at the time of tender.  However, neither party knew its exact location.  The matter was discussed at two meetings in July and September 1999.  Dr John Ho’s notes of a meeting he attended at Ngo Kee’s offices on 12 July 1999 state :  “Should bored piles be adopted for deck structure, $8 million to be added to contract sum.”

48. The matter came up again at a meeting on 1 September 1999, at which Dr John Ho and Mr K. K. Chan of Ngo Kee were again in attendance.

49. Dr  Ho’s evidence was as follows :

“At that time in September 1999, it was ultimately understood and agreed between me and K.K. Chan that as long as there were changes to the foundation system for the Elevated Deck, the contract sum would be adjusted to reflect the changes/variations.  As pre-boring was at the end of the day required for the driven steel H-piles, Sunley is entitled to claim the variation costs for carrying out the pre-boring works.”

50. Dr Ho also added the following handwritten note on the “Summary of Tender” : “agreed with K.K. Chan on 1/9/99 Price - $75 million.  Condition – Deck foundation subject to review.  Cost provision of $8 million had already been allowed”.  Finally a letter was written to K.K. Chan on 2 September 1999 stating, inter alia :

“3.  The cost of foundation for the By-pass deck structure is subject to final design and the contract sum will be adjusted accordingly.”

51. Mr K.K. Chan was not called to give evidence for Ngo Kee.

(e)(iii) 9.4. Increased Cost of Materials

Is Sunley entitled to claim for the increased material cost of steel H-piles, and, if yes, how should such increase be assessed?

52. The original Bills of Quantities, as already found, do form part of the Sub-contract.  One of the three contract documents states “The unit rate shall be firmed and fixed for interim payment, variations and final account”.

53. The price of steel went up.  It is possible, albeit remotely, that the price could have gone down.  In either event the price was fixed.  On the construction of the contract therefore I find that Sunley are not entitled to any sum arising out of fluctuations in prices of materials.

(f)  Variation (10) Additional Pile Cap Quantities

To what extent is Sunley entitled to claim for the additional pile cap quantities as a variation and, to the extent that it is, what is the proper assessment of the quantum thereof?

54. This issue also turns on factual findings relating to what verbal instructions were given to Sunley concerning the lift pits.  Helpfully, quantum has been agreed.  Three separate figures have been agreed – each relates to a different sub-issue.

55. The seven tower blocks are in two groups (Towers 1-3 and Towers 4-7).  Each tower has high zone lifts and low zone lifts.  The three instructions which form the basis of Sunley’s variation claim are as follows :

(i)         For the high zone lift pits in Towers 1-3 MMBP instructed Sunley to lower the lift pits and create drop panels.  This extra work cost $206,956.

(ii)       For the low zone lift pits in Towers 1-3 Sunley were instructed to create drop panels.  This extra work cost $213,028.

(iii)     For both low and high zone lifts in Towers 4-7 Sunley were instructed to create drop panels.  This extra work cost $575,615.

56. Ngo Kee do not dispute item (i) above.  As for (ii) and (iii) they say that no such oral instructions were given to Sunley.  The extra work, they contend, became necessary because the original design was mistaken, inadequate or poor.  The evidence in support of oral instructions constituting a variation is, they contend, tenuous. 

57. I do not agree.  The fact is that Sunley did produce drawings which show the drop panels in all lift pits, namely high and low zone in both groups of Towers.  They were approved.  It seems inherently unlikely that Sunley would have done all this extra work without instructions. It is true, and I take into account, that in some respects the evidence in support of the instructions having been given is not direct evidence.  In some respects it relies on recollection of what other people, who did not give evidence, said.  Ngo Kee understandably criticize the quality of such evidence.  They also criticize the absence, in some instances, of written confirmation by Sunley of oral instructions having been received, which was the usual practice.

58. However, considering the issue as a whole, Sunley’s account and their corresponding actions make sense.  I have already commended Mr Nick Ho as a witness.  His evidence on this issue is helpful, although second-hand.  I have also taken into account that there is evidence that Mr Henry Wong (to whom Mr Nick Ho refers in the following extract) said he did not recall making the instructions.  Mr Nick Ho’s evidence was :

“…that at the material time, Henry Wong, MMBP’s engineer who was involved in the Project, gave verbal instructions to Sunley via Cheung to lower the lift pits at Towers T4 to T7 and to provide all lift pits (at all Towers T1 to T7) whether at low or high zones with drop panels (or in other words to thicken the pile cap base).  The reasons for the instruction were that the positions of the high and low zone lifts were not yet finalised at the material time and that the lift pits at Towers T4 to T7 might be lowered shortly.  Further, the provision of drop panels would make any revisions to the level of the lift pits in future (i.e. before concreting was done) easier and would not affect the works that would have been carried out previously.  As such, Sunley was in fact instructed to lower the lift pits at Towers T4 to T7 and to provide drop panels (i.e. thicken the pile cap base) for all the lifts (whether for high or low zones) at Towers T1 to T7.  Sunley would not have provided the drop panels without any instructions as the construction costs of the drop panels was more expensive than the flat slab pile caps which BD initially approved.”

59. Taking an overall view I am confident that this is correct.

60. Sunley are entitled to be paid $995,600 for this extra work.

(g)  Variation (11) Additional Loading Tests

(i)        Were all the additional loading tests carried out by Sunley a variation pursuant to the terms of the Sub-contract?

(ii)       If yes, what is the proper assessment of the quantum for this variation?

61. The issue here is precisely the same as Variation (6) (Item (b) supra).  It is a question of the construction of the sub-contract.  In my judgment if Sunley were entitled to claim additional coring tests as a variation they must also be able to claim additional loading tests.  There is no dispute that they were necessary.  It is merely a question of whether or not Sunley should bear the financial burden.  My decision must be the same as Variation (6).  Sunley is entitled to $673,315.  This sum is in fact less than originally claimed because Sunley have accepted the finding of its own expert (Mr Rawling) that the original tender only provided for four tests whereas it should have provided for five.  Sunley does not make a claim arising out of its own mistake.

(h)  Variation (12) Additional Design Works

(i)        Is Sunley entitled to claim for the additional design works as a variation?

(ii)       If yes, what is the proper assessment of the quantum for this variation?

62. Sunley allowed for $400,000 for design works in the original tender.  That was for nine design submissions.  Under this claim Sunley is claiming for a further 24 at a total further cost of $729,549.

63. At trial evidence in support of the claim was objected to by Ngo Kee as being inadmissible.  I admitted it de bene esse.  I now rule on its admissibility.

64. Sunley face three problems on the question of admissibility.  First, the evidence was quantum expert evidence but it was not given by an expert witness.  Secondly, one of the non expert witnesses upon whom Sunley rely was Mr W.K. Cheung.  He was not called as a witness and so Sunley rely on the hearsay provisions to adduce his evidence.  Thirdly, the live non expert witness who was called (Mr Ho Wing Hong) had not been directly involved at the material time.  His evidence was thus made approximately five years after the event without the benefit of any time sheets or other written records.

65. In support of the evidence being admissible Sunley relied on s.58(2) of the Evidence Ordinance, Cap.8, which provides that :

“where a person is called as a witness in any civil proceedings, a statement of opinion by him on any relevant matter on which he is not qualified to give expert evidence, if made as a way of conveying relevant facts personally perceived by him, is admissible as evidence of what he perceived.”

66. I do not think this assists Sunley.  Mr Ho’s evidence does not come within the expression “facts personally perceived”.  Moreover, the “White Book” Vol. 2 gives numerous examples of the sort of situations envisaged to be covered by this provision.  None of them fit the situation in the present case.

67. The bottom line for Sunley is that their expert Mr Rawling has given the claim credence.  His quantum cannot be adopted because it is based on inadmissible guesswork by Mr Ho and Mr Cheung.  Mr Rawling’s evidence however is some support for the validity of the claim in substance.  That being the case I adopt the figure proposed by Ngo Kee’s expert, Mr Charlton, for this item.  It is a valid variation but unsupported by any admissible evidence as to quantum.  $80,000 is therefore allowed.

(i)  Variation (13) Maunsell’s Fee

(i)        Is Sunley entitled to claim for the costs incurred for the report prepared by Maunsell as part of the valuation of a variation?

(ii)       If yes, what is the proper assessment of the quantum of the claim?

68. This refers to a report prepared by Maunsell in October 2000 at a cost of $132,000.  Quantum is not in issue.

69. The report was commissioned in order to satisfy the HKHA as to the acceptability of the H-piling at the Car Park. The report made no criticism of Sunley’s works.

70. I accept that, throughout, the piles designed by Sunley were intended to rest on bedrock.  Maunsell’s report confirmed that they did  rest on bedrock.  I do not accept Ngo Kee’s contention that “the costs were incurred because Sunley had designed friction piles and then, because it considered that they had been driven to bedrock, did not, as it was obliged to under the Sub-contract, satisfy the static formula in relation to the depth to which they were driven”.  (Ngo Kee’s final submissions). 

71. In fact Maunsell were not asked to investigate whether they were friction piles or bedrock piles.  Sunley’s approved design was for bedrock piles.  Bedrock piles were built and confirmed by Maunsell.  The “static formula” was not applicable because they were not friction piles.

72. In all the circumstances, it was not appropriate to insist that Sunley should pay for independent confirmation that they had built the piles in accordance with the approved design.  Their contractual liability was limited to load testing.

73. I am satisfied that this was a variation.

74. This concludes all variation issues.  Sunley’s entitlement is :

		HK$
(1)	Cart away	475,951
(6)	Coring tests	196,384
(7)	Site investigations	451,968
(8)	Hoarding	73,264
(9.1)	Additional H-piles	2,407,434
(9.2)	Pre-boring	1,538,303
(9.3)	Pre-boring	568,639
(9.4)	Price increases	Nil
(10)	Additional pile cap quantities	995,600
(11)	Additional loading tests	673,315
(12)	Additional design works	80,000
(13)	Maunsell’s fee	132,000
		7,592,858

Retention Money

75. The parties are in dispute over the non release of part of the retention money.  It is agreed however that the dispute will only need to be resolved if one item in Ngo Kee’s counterclaim based on contra charges (namely the provision of a rockfill plug; contra-charge (2)) is  resolved in Ngo Kee’s favour.  I will therefore turn to Ngo Kee’s counterclaim and return to this issue later if necessary.

Counterclaim :  This is in three parts

1.  Contra Charges

76. Ngo Kee claims for 22 contra charges, 19 of which (with a total value of $278,272) are not in dispute.  The disputed items are :

(1)  Remedial backfilling around pile caps

77. The issue is:  what sum is Ngo Kee entitled to recover in respect of its claim for opening up and inspection with regard to Sunley’s pile cap backfilling works?

78. In July 2000 Ngo Kee engaged Shui Wing Engineering Company (“Shui Wing”) to open up pile caps in ten locations for inspection and testing and, if necessary, to carry out remedial backfilling works.  This was done on instructions from MMBP.

79. Remedial work was required at two out of the ten sites.  Sunley accepts liability for the two sites but not the eight which were found not to be defective.  They say they should only be liable for the sites where a breach of contract can be established.  I think this argument is too simplistic.  It is being wise after the event.  The “event” is MMBP’s proper request to open up and test.

80. However, Mr Rawling’s (for Sunley) analysis of the cost notes disparities and omissions in the relevant worksheets.  I attach weight to his analysis and consider it reasonable to split the difference between the two experts on this issue.  Ngo Kee had claimed $652,828.  Sunley’s valuation, if liable for all the backfilling, was $289,727.  The median figure is $471,277.

(2)  Provision of Rockfill plug

(i)     Was the rockfill plug to the pile caps for Towers T1 to T7 within the scope of the Sub-contract Works?

(ii)    If the answer is yes, what sum if any is Ngo Kee entitled to recover from Sunley in respect of its installation of the approved alternative works?

81. Sunley submits that the answer to question (i) is an emphatic no.  I agree that the answer is in the negative.

82. Ngo Kee principally rely on PNAP 227 (a Practice Note for Authorized Persons and Registered Structural Engineers) issued by the Buildings Department.  It reads :

“The following design rules are recommended for the design of different types of structures on grade on newly reclaimed land :-

…

(e)   Where open-cut method of excavation is proposed for raft pile cap construction and where space allows, a rockfill plug around the pile cap shall be provided to mitigate the migration of soil into the void that may be formed underneath the cap due to long terms ground consolidation.  The suggested details for the rockfill plug are enclosed in Appendix A.  Where unusually excessive settlement is anticipated, appropriate measures to minimize the migration of soil into the void should be duly considered and provided for.

3.    Where it is intended not to follow the above design recommendations, the problem of differential and total settlement affecting structures on grade should be fully taken into consideration in their designs.  In this connection, a detailed assessment of the time-related total and differential settlement (including predicted time-settlement curves) and a proposal for necessary measures to overcome or accommodate the problem are required to be included in your site formation, superstructure and drainage plans as necessary where structures on grade are proposed on newly reclaimed land.”

83. Ngo Kee’s argument is that although PNAP 227 is directed at AP’s and RSE’s (in this case Ho & Partners and MMBP) because this was a design and build contract and Sunley was the designer, they too are bound by its provisions. 

84. It is accepted by Sunley that works, pursuant to this Practice Note, were carried out.  Ngo Kee engaged two sub-contractors (one of which was Shui Wing) to construct a sheet pile wall as an alternative to a rockfill plug.  There is some minor disagreement as to the cost.  It was approximately $1.5 million.

85. For four reasons I think Ngo Kee’s claim fails.  First, there is no reference to a rockfill plug or any alternative in Sunley’s Bill of Quantities which forms part of the sub-contract.  Any such references in other contracts higher up the chain were unknown to Sunley.

86. Secondly, none of Sunley’s numerous plans provided for a rockfill plug as an alternative.  All such plans passed the scrutiny of the AP and/or to RSE en route to the Buildings Department for approval. 

87. Thirdly, PNAP 227 does not apply to piling sub-contractor however specialist they may be and whether or not they were responsible for the design of piles and pile caps.

88. Fourthly, PNAP 227 is not binding in any event.  By its very title it “notes” a “practice” and “recommends” AP’s and RSE’s to follow certain design rules.

89. My finding therefore is that the provision of rockfill plug was not within Sunley’s scope of work, no sum is due to Ngo Kee as a contra charge and the retention money falls to be released.

(3)  Maunsell’s fee

(i) Is Ngo Kee entitled to claim for the cost incurred for the geotechnical consultancy services provided by Maunsell?

(ii) If the answer is yes, what is the proper assessment of the quantum of this claim?

90. This is the second Maunsell report.  The first was variation (13).  The second report was a year later (October 2001) and was titled “Substantiation report for steel H-piles found on bedrock”.  The result was the same, the report did not criticize the integrity of Sunley’s works.  Ngo Kee commissioned and paid for the report.  They now claim Sunley should pay for it.  My reasons for allowing variation (13) have equal application here.  In the context of a ‘contra charge’ as part of a counterclaim, there is the added factor that no breach has been proved by Ngo Kee.  No fault was found by Maunsell.  Ngo Kee’s claim that they only engaged Maunsell because Sunley did not demonstrate the integrity of the piler themselves is, I think, without merit.  Sunley complied with their obligations at each stage and responded to all reasonable requests in this regard.

2.  Ngo Kee’s Delay Counterclaim

91. This is the major part of the counterclaim.  Ngo Kee claims over $12 million.  At least half the time at trial was spent on this issue.  The volume of material from expert witnesses and factual witnesses exceeded half the total material.

92. However, having considered all the evidence and submissions, I have come to the conclusion that the issue can be dealt with in a relatively straightforward way.  It is the approach contended for by Sunley. 

93. In order to succeed Ngo Kee must prove, on a balance of probabilities, at least two things.  Did any delay by Sunley (which is denied) cause any delay to the main contract?  If so, did it cause any loss to Ngo Kee?  This is a simplification of the agreed list of issues to which I refer below.  However, it strives to emphasise the main thrust of Mr Pennicott’s submissions opposing the counterclaim which, in my judgment, are attractive, sound and correct.  The outcome is that Ngo Kee’s claim for general damages for delay fails.

94. I commence by setting out the court’s answers to the agreed issues. 

Answers to agreed issues (in so far as they remain live and relevant issues)

Issue 4 :       Was the plaintiff’s obligation in relation to the completion of its works for Towers 1-3 (Stage 1) and Towers 4-7 (Stage 2) to achieve completion within a reasonable time, as time had become at large, and, if so, what were the reasonable times?

Answer :      Yes.  Stage 1 was 22 May 2000 and Stage 2 25 May 2000.

Issue 5 :       By what dates did the plaintiff achieve completion of its works for Stage 1 and Stage 2?

Answer :      22 May 2000 and 25 May 2000.  By reference to Construction Programme Revision 1, they were 1 and 4 days’ late, respectively, but this was excusable (Issue 6).

95. Some preliminary observations are apposite.

96. First, at the material time, namely when Sunley were on site actually carrying out the works, no complaint by Ngo Kee was made alleging Sunley was responsible for delaying the works through their own fault.  Secondly, the delay issue was enthusiastically taken up in the course of litigation.  Ngo Kee’s original claim was for liquidated damages of $31.4 million alleging 42 days’ delay for Stage 1 and 227 days’ delay for Stage 2.  This was amended in June 2005 to $12.7 million (67 days and 50 days respectively).  The claim for liquidated damages was hopeless.  There was no provision for it in the contract.  However, it was only abandoned, rightly, on 29 September 2006.  The trial commenced on Tuesday, 3 October 2006. Ngo Kee, at trial, claimed $12.4 million general damages based on 38 days’ alleged delay to Stage 1.  Even four years (August 2005) after its first pleaded defence Ngo Kee stated that, at that time, it had no plans to engage or call any expert witness on the question of delay analysis.  Thirdly, it is telling that even after all the evidence had been heard, Ngo Kee’s primary position was to argue why Sunley had caused delays (in considerable detail) whilst failing to demonstrate the more important point that such delays, if any, had actually delayed the main contract and caused loss to Ngo Kee.  Given that Sunley’s works were foundation works and they were off site almost two years before actual contractual completion it was not an easy task to prove.  To some extent, they relied on the “knock on effect” of a delay in 1999 or 2000 affecting the final completion.  However, I accept the arguments, outlined below, that Ngo Kee failed to prove this at each and every stage.

97. Ngo Kee’s claim is made up as follows:

	HK$
(i) Damages for delay under the main contract	7,190,636
(ii) Extended site preliminaries	2,674,708
(iii) Under recovered head office overheads	2,544,212
	12,409,556

98. Ngo Kee say Sunley should have finished Stage 1 on 18 April 2000 but they in fact only finished on 26 May 2000.  This is the basis of their 38 day claim.

99. Sunley poses a number of questions with regard to these dates.  In short, they come down to this :  Are the dates relevant?  Are the dates correct?  If so, was the main contract delayed as a result?  If so, what was Ngo Kee’s resulting loss?

100. I think it better to address the questions of relevance and loss after the two questions of correctness of the dates and delay to the main contract.  It is true that if the dates have no relevance and if no loss has been proved, Ngo Kee’s claim fails in any event.  However, I think a brief analysis of the actual progress of works and its consequences should be made first.

What was a reasonable date for completion of pile cap concreting?

101. The starting point is that time had become at large.  The original Stage 1 completion date (in the letter of acceptance) was 12 April 2000.  Some of the actual dates, taken from the expert reports for key events are as follows:

Stage 1 : the last tower to have its pile cap concreting finished was T2.  That was on 22 May 2000.  The earliest dates for Ngo Kee’s superstructure works commencing was 5 April 2000 (retarder application at T3) and 9 May 2000 (steel fixing, also at T3).  At every Tower Ngo Kee’s superstructure works started before Sunley’s works finished.

Stage 2 : A similar analysis is true.

102. 100 pages of Mr Rawling’s report is given to an analysis of delay causes.  Delayed Buildings Department’s consent to sheet piling and pile cap construction is determined to be non-critical.  The result is that in his expert opinion Sunley finished earlier than they reasonably could have or should have.  Mr Rawling impressed as a truly independent expert with an abundance of knowledge, experience and common sense.  It does not assist to rehearse the hundreds of pages of evidence from both experts who deal with every item.  It is the court’s conclusion, having read the reports and heard the witnesses, which is paramount.

103. In further support Sunley rely on the terms of the contract.  The completion date referred to in the letter of acceptance (as updated to 12 April 2000) was stated to be “subject to the latest version of the construction programme which shall be updated from time to time”.  Whilst Sunley was on site the only construction programme it was given was Revision 1.  The date set by Ngo Kee in that programme (which in evidence it agreed was set because it was realistic and achievable) was 21 May, one day before the actual completion of Stage 1.  The one day can safely be ignored because Towers 1 and 3 were finished earlier and the superstructure work on all three towers had commenced before that date.

Did Sunley cause any delay to the main contract?

104. In my judgment Ngo Kee’s contention that 38 days delay to the piling works caused a similar 38 days to the final completion is more theoretical than actual.  Ngo Kee does not seem to have addressed the need to prove this.  Mr. Carmine Siu, for Ngo Kee, agreed that he had not been asked to consider the link between delays by Sunley on the one hand and delay to the main contract on the other, in the light of events which did or may have occurred subsequent to Sunley’s piling works.  The onus was on Ngo Kee to prove the knock on effect (assuming they had got over the first hurdle of proof, namely the correctness of the 38 day delay) resulting in the same delay at the end of the contract.  I find that Ngo Kee has failed to do so and, in fact, Sunley has demonstrated the opposite.  The high water mark of Ngo Kee’s submission is the bald statement that “It was Mr Siu’s evidence that the 38 days’ delay by Sunley in the completion of Stage 1 would cause 38 days knock on delay to the Main Contract works”.  Sunley point to a number of factors which suggest this not to be the case :

(i) The contractual date for completion of the main contract was 21 February 2002.  In their first revision programme Ngo Kee targeted 24 January 2002 as the date for obtaining the Occupation Permit (i.e. within time).  This was based on, in the same revised programme, 21 May 2000 being the completion date for Stage 1 (which was achieved).

(ii) The latest targeted date for the Occupation Permit (in all subsequent revisions after Sunley had finished) was 21 February 2002.  Thus Ngo Kee never anticipated delays to the main contract in spite of the fact that they claimed they were 38 days behind as at 22 May 2000.  Ngo Kee’s witnesses of fact confirmed the obvious, namely, that when a programme was revised, the information and targets contained therein were considered to be realistic.

(iii) A perusal of minutes of the monthly (approximately) meetings at which progress was reported reveals a reasonably clear picture.  During the remainder of 2000 there was only one delay report of any significance.  That was in October.  It was not suggested that that particular delay had anything to do with Sunley.  Throughout 2001 also, the same picture emerges.  It was only late in 2001 that difficulties started which, in all probability, were the direct cause of the application for the occupation being late.  Up till then, progress was, in general terms, as anticipated and as it should have been.

(iv) The picture in 2002 was not so good.  Ultimately (in April 2003) Ngo Kee applied to Ho & Partners for an extension of time for events which occurred between February and August 2002.  The main reasons given were inclement weather and the delay in the application for the occupation permit.  It is not suggested that either of these had anything to do with Sunley.

105. I now return to the two questions posed earlier:  are the dates of Sunley’s reasonable completion relevant and has any loss been proved?

Relevance?

106. Sunley submits that this discrete question is determinative of the entire delay issue.  It relates to matters already referred to, namely Ngo Kee’s commencement dates of the superstructure works.  The point is made that not only did Ngo Kee’s superstructure works commence before the completion of Sunley’s piling works in fact, but also there was no need for Ngo Kee to wait for the completion of the piling before commencing its preparatory superstructure works.  Mr Clayton submits that the nature of the works said to be the commencement of the superstructure works were mere preparatory works and should be disregarded when identifying the start date of the superstructure.  The fact remains however that these works had to be done and were done in advance of Sunley’s completion.  No material evidence was advanced to suggest that Ngo Kee’s commencement of the superstructure works were delayed at all.

Loss?

107. The damage claimed falls under 3 heads : general damages for delay, site overheads and head office overheads.  I find it unnecessary to make any specific reference to the claims for site and head office overheads because they do not arise in the event that it has not been proved that the main contract had been delayed.

108. The same could be said of general damages for delay.  However, one factor is worthy of mention.  Ngo Kee is seeking to recover from Sunley damages for a 38 day delay which, they claim, is part of the 120 day delay to the main contract for which they, in theory, were liable to the employer, First Star.  First Star initially maintained that Ngo Kee were therefore liable to them in the sum of $24 million for liquidated damages.  However, on the other hand, Ngo Kee was claiming about $23 million from First Star for improvements (the details of which remain unknown to Sunley).  The respective slates were wiped clean, a total of $47 million worth of claims, with remarkable speed.  The deal was done regardless of the fact that the extension of time provision had been deleted from the main contract, thus rendering First Star’s purported claim for liquidated damages a non-starter.

109. With this background Ngo Kee’s attempt to recoup damages for 38 days out of the 120 is unsustainable.

3.  The Wai Kee claim

110. The third limb of Ngo Kee’s counterclaim is a claim for $1,150,000 referred to at trial as the “Wai Kee claim”.

111. Wai Kee was the sub-contractor engaged to design and build the superstructure at the elevated deck.  Ngo Kee paid them $1 million as compensation for delayed delivery of the site.  Ngo Kee say the delay was Sunley’s fault and seek compensation from them.

112. The claim is complicated by the fact that the piling works at the elevated deck was done by two firms.  Sunley did the H-piling, then Shui Wing did the sheet piling and pile cap works.  The following matters are relevant to the consideration of this claim.

(i) Shui Wing’s role has not been sufficiently investigated.  There is a real probability that it was they who were primarily responsible for any delay.

(ii) Mr Carmine Siu accepted in evidence that his calculation of Sunley’s delay was only “theoretical”.

(iii) Mr Rawling’s detailed opinion absolving Sunley was not tested in cross-examination.

(iv) Sunley finished its work in two phases on 18 August 2000 and 10 October 2000.  Shui Wing did not commence its pile cap works until 19 December 2000.  Shui Wing cannot explain this delay by the assertion that they were waiting for pile load tests to be carried out because the pile load tests and the sheet piling could be and were being done simultaneously.  Sunley’s works were well finished by this time.

(v) Put simply, there is insufficient evidence to link Sunley’s completion and Wai Kee’s commencement.

113. But for the agreed contra charges of $278,272 and the sum of $471,277 for the remedial backfilling, Ngo Kee’s counterclaim is dismissed.

114. Thus, a further sum of $749,549 will be deducted from the sum due to Sunley’s for its variations.

115. There will be judgment for Sunley in the sum of $6,843,309.  Interest is agreed at prime plus 1%.  It shall run from 21 June 2001.  By applying the helpful table provided by Sunley, I calculate interest to be $2,571,583 up to 30 November 2006 and thereafter to judgment at a daily rate of $1,687 and thereafter at the judgment rate.  No doubt, the parties will be able to agree interest if my calculations are in error.

Costs

116. I make the following final costs orders.  They relate to the costs of the action and those matters which remained outstanding, as particular items, at the conclusion of the trial.  I make these final orders because both parties have had an opportunity to address the issues in writing.  A further hearing on costs may nonetheless be necessary as further costs issues may remain outstanding.  I merely express the hope that the parties can agree such outstanding matters, if any.

117. There will be a costs order in Sunley’s favour for their claim and the dismissal of the counterclaim.  I make no apportionment for the fact that Sunley did not obtain 100% of its claim or that Ngo Kee had a minor success in its counterclaim.

118. Costs arising from the late witness statement of Ng Man Lee and the 3^rd witness statements of Chow Tai Wang and Tsoi Man Ping shall be to Sunley.

119. The costs of and occasioned by Ngo Kee’s 2^nd and 3^rd engineering reports shall be to Sunley. 

120. The costs of and occasioned by the service of Mr Charlton’s 4^th and 5^th reports (28 September 2006 and 5 October 2006) shall be to Sunley.

121. The costs of and occasioned by Ngo Kee’s summons dated 28 September 2006 shall be to Sunley.

122. Mr Pennicott in a detailed written submission seeks an order that all the above outstanding orders be on an indemnity basis.  I have carefully considered his submissions and Mr Clayton’s written opposition.  I decline to make any indemnity orders.

123. The costs arising from Sunley’s second supplementary quantum and programming expert report dated 26 September 2006 shall be in the cause.