SPORTS TECHNOLOGY (ASIA) LTD v. CLARIDGE HOUSE LTD

DCCJ 1478/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1478 OF 2004

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JUDGMENT

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INTRODUCTION

1.  In this action, the Plaintiff claims against the Defendant for the final instalment of the contract price for the supply and installation of a synthetic soccer pitch surface.

2.  The defence is that the work had not been completed.  The Defendant also counterclaims against the Plaintiff on the basis of alleged defects in the work done.

BACKGROUND

3.  The soccer pitch in question was part of the construction project of the sports ground of Lingnan University (“the University”) at Tuen Mun, New Territories, carried out in 2003.  The University appointed Pionic Unit Construction Company Limited (“Pionic”) as the main contractor of the project.  The University also appointed Chan Partners (Projects) Limited as the project architect (“the Architect”).

4.  Pionic subcontracted to the Defendant, among other things, the supply and installation of the artificial turf and synthetic track surface at the sports ground.

5.  In November 2001, the Plaintiff sent to the Defendant its quotation for the supply and installation of the synthetic soccer pitch and track surface.

6.  After negotiation, the Defendant finally subcontracted to the Plaintiff the supply and installation of a POLIGRAS synthetic soccer pitch surface but not the track surface.  On 7 March 2003, the Defendant sent a purchase order (No.005873) to the Plaintiff (“the PO”).  The PO was amended on 11 March 2003.

7.  The contract price was HK$1,665,302 which was payable by 3 instalments by way of letter of credit.  The Plaintiff has received payments of the first 2 instalments.  The outstanding final instalment in the sum of HK$333,060.40 is the amount of the claim.

8.  The above background is not in dispute.

ISSUES

9.  The Plaintiff’s case is that pursuant to the contract, the final instalment of the contract price was payable upon completion of the work.  It contends that this happened on or about 8 September 2003.

10.  The Defendant contends that the work was not completed because the Plaintiff has not secured a completion certificate issued by the Architect (“the Architect’s Certificate”) pursuant to the contract.  Further, the numerous defects discovered in September 2003 but never rectified by the Plaintiff also entitled the Defendant not to pay the final instalment or alternatively, to counterclaim for loss and damage.

11.  The major issues are:

(1) whether pursuant to the contract, completion of the work was conditional upon the Plaintiff’s presentation of the Architect’s Certificate;

(2) whether there were the defects as alleged by the Defendant;

(3) whether the Plaintiff has completed the work so as to entitle it to the payment of the final instalment of the contract price; and

(4) whether the Defendant is entitled to its counterclaim.

WITNESSES

12.  The Plaintiff called the following witnesses:

(1) Simon Richard Ruxton Bach (“Bach”), General Manager of the Plaintiff; and

(2) Chung James Chung (“Chung”), Regional Sales Manager of the Plaintiff at the material time.

13.  The Defendant called the following witnesses:

(1) Cheung Hei Shun (“Cheung”), Assistant Sales and Marketing Manager of the Defendant;

(2) Mak Wai Yi, Purchasing Officer of the Defendant;

(3) Wong Kam Fat Albert (“Wong”), Contract and Engineering Manager of the Defendant; and

(4) Lai Tsz Fai (“Lai”), Project Officer of the Defendant.

14.  The Plaintiff also relied on the evidence of John Dunlop (“Dunlop”), Executive Director of Acousto-Scan Pty Limited (“Acousto-Scan”).  Proper notice has been given in respect of the use of his witness statement as hearsay evidence.  The Defendant raised no objection to this subject to any argument as to its weight.

THE CONTRACT

15.  The Plaintiff’s case is that the contract was in writing and  evidenced by the PO.

16.  The Defendant’s case is that the PO was only one of 5 documents evidencing the contract between the parties.  2 of them were dated before and 2 of them were dated after the PO.  They were:

(1) the Plaintiff’s quotation dated 24 April 2002;

(2) the record of telephone conversation between Bach and Cheung on 2 December 2002;

(3) the draft written contract prepared by the Plaintiff and sent to the Defendant on or about 20 March 2003; and

(4) the letters of credit dated 11 April 2003.

17.  The Plaintiff denies the contractual nature of these 4 documents.  It also relies on the Defendant’s fax to the Plaintiff dated 14 August 2003.  It is averred that by this fax, the Defendant represented to the Plaintiff that the PO was the contract between the parties and the Defendant is estopped from denying that.

The Plaintiff’s quotation

18.  The Plaintiff’s quotation dated 24 April 2002 was apparently a revision of the earlier one dated 26 November 2001.  The payment terms contained in this quotation read as follows:

“Payment Terms

With these new prices we require, under local LC:

30% Deposit with order

50% Materials to Site

20% at completion”

The record of telephone conversation between the parties

19.  What the Defendant referred to was the Defendant’s copy of the Plaintiff’s quotation mentioned above.  Apparently, Cheung jotted down thereon a note of the telephone conversation between him and Bach on 2 December 2002.  The note on its face confirmed that the prices quoted in April 2002 were still valid.  Apart from that, the note added nothing to the payment terms cited above.

The PO

20.  The PO expressly confirmed in details the Defendant’s order with the Plaintiff for the supply and installation of the synthetic soccer pitch.

21.  The payment terms contained in the PO read as follows:

“Payment Terms:	By L/C:-
	30% Deposit with order
	50% Material to site
	20% Project completion”

22.  The payment terms in the PO were in line with the Plaintiff’s quotation.  The Plaintiff also signed the PO to signify its acceptance of the same.  The PO became so far the first document bearing the necessary features of a contract between the parties.

The draft written contract

23.  The draft written contract was prepared by the Plaintiff and sent to the Defendant on 20 March 2002.

24.  Referred to the PO, the draft written contract contained some 20 clauses of terms defining the parties’ respective rights and obligations.  Clause 20 read as follows:

“Payment
By irrevocable Letter of Credit, payable as
Payment 1:	30% Deposit HKD 499,590.60
	Payable on invoice presented upon opening of letter of credit
Payment 2:	50% Materials to Site HKD 832,651.00
	Payable on presentation of stipulated shipping documents
Payment 3:	20% Project Completion HKD 333,060.40
	Payable on presentation of Certificate of Practical Completion, Warranty Certificate and Maintenance Manual”

25.  Insofar as the 3 instalments of the contract price are concerned, the payment terms contained in the draft written contract were practically the same as those in the PO.  What the draft written contract sought to specify additionally were the document(s) which would need to be presented for payment of each instalment.  For the payment of the final instalment, among others, a certificate of practical completion would need to be presented.

26.  There is dispute as to what this certificate meant.  However, whatever the parties might have intended the term to mean, the fact was that the Defendant never accepted the terms of the draft written contract.  Neither party is in a position now to rely on selective terms of the draft written contract, which was never concluded, to define the contractual relationship between the parties.

Letter of credit

27.  The documents specified in the draft written contract were supposed to be presented to the bank which would pay each instalment of the contract price in accordance with the terms of the letter of credit.

28.  The letter of credit was issued by the Defendant’s bank on 11 April 2003 (“the LC”).  The LC contained, among others, the following provisions:

“Payment Instruction

HK$499,590.60 – 30% against invoice as deposit payment

HK$832,651.00 – 50% materials to site against cargo receipts

AND THE RELATIVE REQUIRED DOCUMENTS AS STIPULATED IN THIS CREDIT

HK$333,060.40 – 20% at practical completion against certificate completion.  Certificate issued by Architect – Chan Partners (Projects) Ltd and accomplished with warranty certificate and maintenance manual.”

29.  Among the 5 documents relied on by the Defendant, the LC was the only one which specified that the completion certificate had to be the Architect’s Certificate.

30.  Before the LC was opened, the Defendant sent to the Plaintiff a draft application for the letter of credit with an attached sheet stipulating the terms of the letter of credit including the payment instruction cited above.  The drafts were produced during the trial.  They were apparently sent for the Plaintiff’s comment.  The Plaintiff then returned to the Defendant the drafts with its comments marked therein.  The returned amended drafts were also produced during the trial.  The compelling inference from the corrections and markings by the Plaintiff on the drafts is that the Plaintiff signified its agreement that the certificate of completion to be presented for payment under the letter of credit to be opened should be the Architect’s Certificate.  The Defendant applied for the letter of credit in those amended terms and copy of the actual application was apparently sent by fax to the Plaintiff.  The LC was subsequently issued in those amended terms.

31.  In the circumstances, the Plaintiff in fact agreed with the Defendant that for the payment of the final instalment of the contract price under the letter of credit, the Plaintiff needed to present the Architect’s Certificate to the bank.

The Defendant’s fax dated 14 August 2003

32.  In support of its contention that the PO was the only contractual document between the parties, the Plaintiff also relied on the following part of the Defendant’s fax dated 14 August 2003:

“Sports Technology do have the basis to work with Claridge House for Lingnan project.  Claridge House has placed the P.O. to you on 7 March 2003 and you have received the deposit as well as the payment of material on site already as per the payment terms agreed.  There is no ground for you to pull your crew off the Lingnan University site without our consent.  Sport Technology and Claridge would otherwise leave a very bad image to client.

We treat our P.O. as the contract.  This has been the work practice between our companies for all our previous jobs.”

33.  The Plaintiff argued that relying on such representation in the fax, it continued to render its service and therefore the Defendant is estopped from denying that the PO was the contract.  Implied in this contention is the suggestion that first, the Plaintiff had then the liberty to decide whether to continue and second, the representation was material to its decision.  This position of the Plaintiff was evidenced by its fax dated 12 August 2003 whereby the Plaintiff threatened to pull out its crew from the work until the (draft written) contract was signed. This led to the Defendant’s above reply dated 14 August.

34.  However, the reality was that the parties did not withhold their performance of the contract notwithstanding the lack of a further written contract.  Pursuant to the PO, the Plaintiff sent the proforma invoice, delivered the materials to the site, invoiced the Defendant as well as demanded the payment of the first 2 instalments of the contract price.  There is no dispute that the first instalment of the contract price was paid by way of the LC in May 2003.  Notwithstanding argument between the parties in July 2003, the second instalment of the contract price was also paid by way of the LC by early August 2003.  In the circumstances, taking the Plaintiff’s fax dated 12 August 2003 seriously, I would have expected the Defendant to argue instead that the Plaintiff was estopped from denying that the parties had became contractually bound since the PO.

35.  Further, according to their statements, both Chung and Bach of the Plaintiff understood that the PO was binding between the parties.  Though the Plaintiff had preferred or expected to sign a more formal contract than the PO (as suggested by Bach), this would not undermine the contractual basis by virtue of the PO on which the parties had in fact been performing.  I do not see how the representation contained in the Defendant’s fax dated 14 August 2003 became material to the position of the Plaintiff as it was already bound to continue with the work.

36.  Therefore, while I am satisfied that the fax dated 14 August 2003 was no doubt an acknowledgement by the Defendant that the PO was the contractual basis on which both parties had been and would be performing their respective obligations, I am not convinced by the Plaintiff’s argument on the basis of estoppel.

Requirement of the Architect’s Certificate – the alleged final payment term

37.  The Defendant’s pleading says (at paragraph 5(c) of the Amended Defence and Counterclaim):

“It was a material term of the agreement between the Plaintiff and the Defendant that completion of the Works was subject to and conditional upon, amongst others, the presentation by the Plaintiff to the Defendant the Project Practical Completion Certificate issued by Chan Partners (Projects) Limited (“the final payment term”)” (emphasis added)

38.  As to how this alleged final payment term came to be agreed between the parties in the first place, the pleading is not clear.  Only at the trial when it was submitted on behalf of the Defendant that the alleged final payment term was agreed expressly or alternatively impliedly.

Express term

39.  The Defendant’s case as pleaded (at paragraph 5(d) of the Amended Defence and Counterclaim) was that the application for the letter of credit and eventually the terms of the LC were to give effect to the alleged final payment term.

40.  However, at trial, the Defendant’s case as submitted was on a different basis.  It was argued that the terms of the contract were not finalised until the terms of the LC, including the requirement of the Architect’s Certificate, were agreed and therefore suggesting that the alleged final payment term was agreed only when the terms of the LC were agreed.

41.  Indeed, under the PO, the payment terms did not specify the terms of the letter of credit.  Therefore, the terms of the letter of credit to be arranged by the Defendant would have to be agreed by the parties.  Pursuant to the express term of the PO, the Plaintiff issued the proforma invoice containing the shipping terms and instructions for the letter of credit to be arranged.  The Defendant prepared the draft application for the letter of credit (with an attached sheet) in accordance with these shipping terms and instructions save and except that it added the requirement of the Architect’s Certificate.  All these were made for the obvious purpose of defining the terms of the letter of credit to be arranged and in particular specifying the documents which the Plaintiff would need to present to the bank before payment of each instalment would be released. 

42.  There is no dispute that the contract by the LC and the underlying contract are separate and distinct: see Goode, Commercial Law (3^rd ed.) at 971-973; 978-979.  The effect of the Defendant’s argument now was that by agreeing to present the Architect’s Certificate to the bank for payment under the LC, the Plaintiff also agreed to import into the underlying contract that it had to present the Architect’s Certificate to the Defendant for entitlement to the final instalment (i.e., the alleged “final payment term”).  I do not accept that there was such contractual consensus between the parties.  In my judgment, the requirement to present the Architect’s Certificate was agreed solely as a term of the LC and not agreed independently of this method of payment.

Implied term

43.  The alternative basis of the Defendant’s argument is that the alleged final payment term existed by implication.

44.  The Defendant argued that the alleged final payment term was implied by business efficacy.  This argument was premised upon what was said to be the Plaintiff’s contention that “completion” in the PO meant certified completion.  It was argued that such term was ambiguous and inefficacious without specifying the certifying party.  It was argued that the Plaintiff’s contention that the certificate was intended to be issued by the the Defendant was not in line with commercial sense.  The Defendant submitted that it must be implied that the certificate should be issued by an independent party, namely, the Architect in this case.

45.  To begin with, I do not understand the Plaintiff’s contention to be that “completion” in the PO referred to certified completion.  When the Plaintiff suggested that the completion certificate was intended to be one issued by the Defendant, it was not referring to the payment term contained in the PO but that contained in the draft written contract.  As mentioned above, the draft was not accepted by the Defendant and failed to become binding.

46.  In the absence of express term in the PO defining what constituted completion, was it then implied that completion under the PO should be conditional upon the Architect’s Certificate as alleged by the Defendant?  Despite the different authorities cited, the parties are ad idem on the principles of implied terms.  Chitty on Contracts (Hong Kong Volume) at 5-066 and 5-067 succinctly summarises the principles in the context of construction contracts as follows:

“General principles.  The general principles which apply to implied terms in construction contracts are the same as those which apply to contracts generally.  The principles in relation to a term to be implied are summarised by Lord Simon in BP Refinery (Westernport) Pty Ltd v Shire of Hastings as follows:

(1) the term must be reasonable and equitable;

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

(3) the term must be so obvious that “it goes without saying”;

(4) the term must be capable of clear expression;

(5) the term must not contradict any express term of the contract.

Necessary terms.  The court will imply terms to establish the intentions of both of the parties to a contract, and to give business efficacy to the contract.  The court will not imply terms which improve the contract made by the parties.  Nor will it imply a term if there are alternative solutions to the issue between the parties.  A term will be implied where there is an obvious gap in the content which requires filling.”

47.  I do not agree that the contract between the parties was ineffective or that there was an obvious gap in the contract which required filling by the requirement for the Architect’s Certificate.  Indeed, parties might dispute as to whether the Plaintiff has completed the work contracted for under the PO.  The dispute might have to be resolved by litigation.  But prospect of dispute and litigation would not render the contract ineffective and thus a failure.  Importing the implied requirement of the Architect’s Certificate might improve the contract.  But a term would not be implied with a view to improving a contract.  Further, implying this requirement also would not remove the prospect of dispute.  An example is the dispute as to whether the Architect’s Certificate, if impliedly required, has been unreasonably withheld.  I do not consider that the requirement of the Architect’s Certificate, as a matter of contractual term, was something which goes without saying.

Construction

48.  The Defendant also referred to the construction of the PO.  However, if the Defendant succeeds in establishing that the requirement of the Architect’s Certificate was either an express or an implied term of the PO, there should be no further issue of construction of such term of the PO.  Therefore, this must be another alternative basis for contending that the Architect’s Certificate was a requirement under the contract.  Effectively, the Defendant is saying that properly construed, “completion” in the PO meant that it was conditional upon the Architect’s Certificate.

49.  In my judgment, the ordinary and natural meaning of “completion” in the PO does not contain any room for reading into it the requirement of the Architect’s Certificate.

50.  The Defendant argued that one had to take into account the factual matrix of this case in construing the payment term under the PO.  Reliance was placed on the case of Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896.  What the Defendant referred to was the principles of construction summarised by Lord Hoffmann (at 912H-913D).  His Lordship spoke of the aim in construing a contractual document which was to find the meaning which the document would convey to a reasonable person having all the background knowledge reasonably available to the parties, or the “matrix of fact”, including anything which would have affected the way a reasonable man would have understood it, but excluding previous negotiations and declarations of subjective intent.  The meaning which a document would convey to a reasonable man was what the parties using its words against the relevant background would reasonably have been supposed to mean.

51.  It should be borne in mind that the relevant factual matrix referred to by the court in Investors Compensation Scheme must be that prevailing at the time of the contract (see 912H).  In this regard, the Defendant submitted that at the time of the PO, the Plaintiff was aware that the Architect was involved in the project.  It was also said that Pionic’s representative had described the Architect as the “final receiver” of the project.  This might be the understanding between the University and Pionic with respect to the entire project.  However, there was apparently no provision for the architect’s certification in the Defendant’s contract with Pionic either.

52.  The Defendant also sought to refer to the conduct of the parties subsequent to the PO, namely, their agreement on the terms of the LC and the Plaintiff’s submission of the draft Architect’s Certificate to the Defendant.

53.  In my judgment, it is not legitimate to use what parties said and did after the contract was made as an aid in construing the contract.  This was made clear by the House of Lords in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 (at 603D-E, 606E, 611D, 615A) which was adopted in Yuen Ching Yuen v Union Insurance Society of Hong Kong Ltd [1998] 2 HKC 294 (at 303H-304A), an authority relied on by Mr. Stock for the Plaintiff.  The Defendant accepted this but only as a general rule.  The Defendant submitted that an exception lies where there is ambiguity and it would be necessary to look at the conduct of the parties, whether before or after the contract, to ascertain the contracting parties’ intention.  The Defendant relied on Port Sudan Cotton Co. v Chettiar [1977] 2 Lloyd’s Law Reports 5 at 10-11.  However, a fair reading of the case of Port Sudan Cotton Co. reveals that the court there was not making an exception of the rule but that the rule simply did not apply in the case.  What the court there had to decide was whether there was a concluded contract at all or, if there was, what were the terms of it.  In deciding the question, the court legitimately received evidence of the words and conduct of the parties (which amounted to admission of the contract and term) at a later date.  In the present case, a similar example is the Defendant’s fax dated 14 August 2003 acknowledging that the PO was the contract between the parties.

54.  Even if I am wrong, I do not find that such subsequent conduct supports the construction of the meaning of “completion” contended by the Defendant.  As I said earlier, as at the time of the PO, parties probably anticipated further agreement on the terms of the letter of credit to be arranged but the same, when agreed, did not become terms of the contract independently of the agreed payment method.  One also needs to understand the circumstances in which the Plaintiff sent the draft Architect’s Certificate to the Defendant in September 2003.  The Plaintiff allegedly completed the work on 8 September 2003.  On 10 September 2003, there was a joint site inspection.  Apparently, on the same day, the Plaintiff provided to the Defendant a draft practical completion certificate to be executed by the Defendant.  This was followed by the fax of the Plaintiff to the Defendant dated 15 September 2003 enclosing the draft Architect’s Certificate for the Defendant’s onward submission to the Architect for execution.  The Plaintiff argued, and I agree, that this is perfectly consistent with the Plaintiff’s understanding that the Architect’s Certificate was necessary for payment by the bank under the LC.  This understanding is also evidenced by the Plaintiff’s faxes to the Defendant in September and October 2003.  The production of another draft completion certificate to be issued by the Defendant at about the same time simply shows the Plaintiff’s understanding of the draft written contract.  Since the written contract was never concluded, this other completion certificate became superfluous.

55.  In the circumstances, the Defendant’s contention that “completion” as between the Plaintiff and the Defendant under the PO was understood by the parties to mean completion as certified by the Architect is, in my judgment, not justified.

Project completion and payment by the LC

56.  The method of payment was by letter of credit.  This was the agreed method of payment binding on both parties.  Goode, Commercial Law, has this to say (at p.980):

“A term in the contract of sale providing for payment by letter of credit is for the benefit of both parties.  Accordingly, S is not entitled to demand payment in any other way (eg by B direct) nor to sue for the price during the pendency of the credit or complain of non-payment by B during this period.  The letter of credit, like the bill of exchange, is considered to be taken as conditional payment unless otherwise agreed, and during the currency of the credit S’s right to sue for the price is suspended.  If the credit is honoured, that constitutes payment under the contract of sale.  If it is dishonoured (eg through failure of IB, or of AB as confirming bank, to pay, accept or negotiate in accordance with the credit on due presentation of documents), S’s right to sue B for the price or for damages revives, for, as in the case of a bill of exchange, the court will not ordinarily infer an intention on the part of S to take a letter of credit as an absolute payment.”

57.  The Defendant submitted that since it was agreed that payment was to be made by the LC, the Plaintiff could only get paid under the LC.  It follows that the Plaintiff could only get paid in accordance with the terms of the LC including the presentation of the Architect’s Certificate to the bank.  Indeed by still producing the draft Architect’s Certificate in September 2003 (after the alleged completion of the work) for the Architect’s execution, the Plaintiff was still contemplating equipping itself to demand payment from the bank in accordance with the LC.  However the fact was that after the LC last expired on 31 July 2003, it had never been extended at all.  It cannot be suggested that if the Plaintiff had obtained the Architect’s Certificate, the Defendant would have arranged to renew the LC for effecting the payment by the bank.  Otherwise, the Architect’s Certificate would not only be a condition precedent to payment by the bank but also to the renewal of the LC.

58.  In the circumstances, the Defendant might not hold the Plaintiff to the terms of LC whereas at the same time the Plaintiff could not follow the agreed method of payment after the expiry of the LC.  The Plaintiff’s right to claim for the contract price directly from the Defendant under the underlying contract revived.  The Plaintiff would be entitled to the final instalment payment upon completion of the work as a matter of fact.

COMPLETION

Circumstances surrounding the allegation of defects

59.  Pursuant to the contract, the Plaintiff was to supply and to install the synthetic soccer pitch at the University’s sports ground under construction.  Specifically, when the base of the soccer pitch was constructed and ready, the Plaintiff would install the artificial turf on the base to form the pitch.  The basic installation consisted of the laying of the artificial turf on the base which would be followed by the brushing of sand and rubber infill onto the artificial turf surface.  The artificial turf used in the present case belonged to the newest (or, according to the parties, the third) generation specially designed for soccer pitch.

60.  The standard of quality of the artificial turf pitch is governed by Federation Internationale de Football Associations or better known as FIFA.  FIFA needs no introduction as the governing body of the football world.  This body has since 2001 developed a Quality Concept for Artificial Turf (“FIFA Quality Concept”) to standardise artificial turf quality.  The concept entails a rigorous test programme for artificial turf surface whereby successful manufacturers would be able to enter into a licensing programme for the use of the FIFA Recommended marks on their products.  If the artificial turf pitch passes all the laboratory and field tests, it may qualify for FIFA Recommended Marks.  FIFA Recommended artificial turfs are qualified for holding all qualification matches for the FIFA World Cup and the Olympic Football Tournaments.  FIFA Recommended endorsement has become the benchmark for the highest quality artificial turf soccer pitch.  The correspondence in evidence in the present case show that this was also the standard of quality expected of the pitch to be installed.

61.  In this case, the construction of the base of the pitch in this case had been completed by early June 2003.  On about 16 June 2003, the first FIFA field test was carried out by the representative of Acousto-Scan, a FIFA selected testing laboratory from Australia.  The test involved the slope, evenness and permeability of the base.  The base passed the test and the Plaintiff informed the Defendant of the result on 30 June 2003.

62.  The artificial turf was installed afterwards which the Plaintiff claimed to be completed on or about 8 September 2003.  A joint site inspection was apparently held on 10 September 2003.

63.  On 30 September 2003, representatives of Acoustic-Scan led by Dunlop carried out the second FIFA field test on the finished artificial turf.  This test involved broadly the play/surface interaction test and the ball/surface interaction test.  The pitch passed both tests.

64.  The soccer pitch has been put to use by the University since September 2003.

65.  With effect from 20 October 2003, the soccer pitch was certified as FIFA recommended for a period of 3 years.

66.  The above circumstances are not in serious dispute or in any event substantiated by the evidence.

The alleged defects

67.  The first document questioning the quality of the artificial turf installed was the fax dated 16 September 2003 from the Defendant to the Plaintiff (after the joint site inspection on 10 September 2003).  It mentioned only the alleged colour variation and black spot in the artificial turf as seen from a distance.  Another document suggesting more problems with the artificial turf was the Architect’s list of comments dated 27 September 2003 (3 days before the second FIFA field test).  These are also the defects now alleged by the Defendant.

68.  There were the following alleged defects:

(1) The soccer field surface was excessively wavy and uneven.

(2) The soccer field surface colour was inconsistent.

(3) The rubber granules in-fill appeared to be too patchy, inconsistently and excessively laid.

(4) The extent of visible grass appeared to be inconsistent and overwhelmed by the rubber granules.

(5) Ponds of water formed in some areas after rain.

(6) Logos of “POLIGRAS” and “THIOLON” installed on the field surface without the Defendant’s authorisation were yet to be removed.

69.  In his submissions, Mr. Kwan for the Defendant grouped the above alleged defects into 3 broad categories:

(1) Unevenness (including defects (1), (3), (4) and (5) above);

(2) Colour (defect (2) above); and

(3) the logo (defect (6) above).

Unevenness

70.  The complaint is that the pitch surface was excessively wavy and uneven.

Before installing the turf - the rock base

71.  There is no dispute that the construction of the rock base of the pitch was the responsibility of the Defendant.  In the Plaintiff’s written reply in October 2003 to the Defendant’s complaint, the Plaintiff stated that the pitch surface could not be perfectly even because the turf was laid directly on the rock base without the asphalt or e-layer in between.  The Plaintiff had recommended such a layer but had been rejected.  In any event, despite minor unevenness, the rock base still passed the evenness test of the FIFA field test in June 2003.  When the Plaintiff informed the Defendant of the result of the test on 30 June 2003, it requested the Defendant to rectify the minor unevenness before the Plaintiff would install the turf.  According to the Defendant, the rectification had been done.  There is not much detail of such rectification work.  Further, as to whether there was any change in the condition of the rock base during the period between the test and the installation of the artificial turf later, there is also not much evidence.

Installing the turf - the infill

72.  The Defendant attributed the alleged excessive waviness and unevenness essentially to excessive and uneven distribution of the rubber infill and therefore it was the Plaintiff’s responsibility.

73.  According to the Plaintiff’s written explanation to the Defendant in October 2003, the application of excessive rubber infill was done deliberately.  This was said to be for the initial settlement of the infill especially at high usage areas such as the penalty box, touch lines and the centre line.  After rain and use, the level of the infill was supposed to settle below the grass fibre tips to a proper level.  This initial settlement of the infill in the Hong Kong environment was expected to take about 3 months.  Bach confirmed this in his evidence at trial.  In fact, even before the turf was installed and the complaint in September 2003, the Plaintiff had already advised the Defendant that the frequency of rainfall in Hong Kong would assist the settlement of the sand and rubber infill after installation and would therefore enhance the performance of the turf (see the Plaintiff’s fax to the Defendant dated 28 July 2003).

74.  The Plaintiff’s explanation is also in line with the FIFA Quality Concept for Artificial Turf Guide (“the FIFA Guide”).  The FIFA Guide says (under the section “Maintenance of an Artificial Turf Field – Levelling the In-Fill”) that:

“The penalty spots and corners are prone to disruption of the infill.  The ground staff should be aware of this and be prepared to top up on a more regular basis than is necessary for the general brushing.  It may be necessary to top up these areas every day during intense usage.

……

SETTLING IN PERIOD

Systems that utilise infill materials may require a period of settling in.  This will necessitate a regime of regular brushing on a more frequent basis than is normally required.  The installing company will give advice as to the necessity and added frequency of this extra brushing.”

75.  According to the Defendant’s witnesses, the level of rubber infill, even if deliberately excessive, was simply so overwhelming that not much grass could be seen.  Looking at the photographs referred to by the Defendant’s witnesses as well as the video compact disc recording produced by the Plaintiff, I find it difficult to share their observation about the extent of the excessive infill or its effect on the level and evenness of the pitch surface.

76.  After the artificial turf was installed, the second FIFA field test was carried out in September 2003.  The pitch also passed this field test.  The Defendant argued that this field test did not involve test of the evenness of the turf surface and therefore could not tell whether the installed turf surface was even.  However, this second field test still consisted of 7 elements aiming at testing the player/surface interaction as well as the ball/surface interaction.  The player/surface interaction includes aspects such as shock absorbency, surface deformation, slip resistance, skin abrasion and traction which would have direct impact on the safety of the players in their contact with the turf surface.  The ball/surface interaction includes aspects such as ball rebound and behaviour which would reflect the performance of the ball on the turf surface.  All these were explained by Dunlop in his statement and the FIFA Guide.  If the infill level were so excessively and unevenly distributed that the turf surface became excessively wavy and uneven as alleged by the Defendant, I would be surprised that the surface turf managed to pass these tests.

77.  The Plaintiff also explained that maintenance of the pitch would affect the level and distribution of the rubber infill.  Specifically, this would by the grooming (or brushing) of the turf surface.  As to this, Lai gave evidence that grooming was done a few days before the joint site inspection on 10 September 2003 but this did not improve the turf surface as the Plaintiff suggested.  I would not be surprised.  The Plaintiff never suggested that grooming was a once for all procedure.  Instead it was part of the regular maintenance.  The FIFA Guide explains (under “Why Maintenance?”) that:

“The need to maintain an artificial turf is fundamental for several reasons.  These can be highlighted as follows:

· aesthetics

· safety

· playing performance

· longevity

……

The playing characteristics of the field will be severely impaired by a lack of maintenance.  The ball can become faster over the surface, it will roll unevenly and the ball bounce will vary from place to place.  The players will feel uncomfortable running on uneven surface and frustrated by the inability to control an unpredictable ball

……”

and (under “Weekly Maintenance”) that:

“The surface should normally be brushed at least once weekly.  The brushing frequency will be related to the intensity of use, the more often it is used the more often will be the need for brushing.

The main effect of brushing is to level the in-fill (where present) to ensure the uniformity of the surface.

……”

78.  The Plaintiff also referred to copies of the government contracts for the installation of artificial turf at government sports grounds in Hong Kong.  They invariably contain maintenance schedules which required grooming as well as inspection of the infill level as part of the regular (and in fact frequent) maintenance.

79.  Quite clearly, regular maintenance is crucial to controlling the level and distribution of the infill and therefore the uniformity of the turf surface.

80.  Wong said that the Plaintiff had never passed the maintenance manual to the Defendant.  However, the correspondence does show that on as early as 13 March 2003, the Plaintiff supplied, among various brochures and specifications, the maintenance manual to the Defendant.  If the Defendant meant to say that it could not trace the maintenance manual, this may be explained by the fact that these documents sent on 13 March 2003 were expressly meant for onward transmission by the Defendant to the Architect.  After all, it was the University instead of the Defendant which would be maintaining the pitch.  In any event, what really matters was whether the Defendant had been advised of the relevance of maintenance to the settlement and distribution of the infill.  Even after the Defendant’s complaint, between September and October 2003, the Plaintiff reiterated numerous times the relevance of grooming and maintenance to the level and distribution of the infill.  Therefore, whether the Defendant had the maintenance manual is irrelevant because it simply rejected the Plaintiff’s explanation with reference to maintenance.  On 22 December 2003, the Plaintiff specifically advised the Defendant on the maintenance required.  On 24 January 2004, the Plaintiff further offered to arrange the grooming machine for use during the period between 15 and 29 February 2004.  The Plaintiff’s advice and offer had not been accepted.

81.  The stance of the Architect is no different.  In its list of comments dated 27 September 2003, the Architect stated that its comment about the infill would be “subject to written comments and acceptance by the Manufacturer”.  Now that the Plaintiff had given, and reiterated, its explanation but the Architect apparently did not accept them without any reason.

“Ponding”

82.  The complaint was that ponds of water had occurred on the pitch after rain.

83.  The major evidence of the alleged “ponding” is the set of photographs of the pitch depicting isolated areas with puddles apparently after rain.  The location and size of these puddles were also marked on a sketch of the pitch.  However, these were evidence of the condition of the pitch in June 2005.  According to the Hong Kong Observatory’s record, which is in evidence, that month happened to be a very wet month.  The monthly rainfall was more than double of the normal figure and ranked the fourth highest for the month since record began in 1884.  Red rainstorm warning was issued for the first time that year.  There were 28 reports of landslip and over 150 reports of flooding.  The condition of the pitch under such exceptional rainfall intensity is probably one of the most atypical examples one would reasonably choose to show the alleged “ponding” condition at the pitch in 2003 or generally.

84.  Lai attempted in court to make a comparison between the extent of “ponding” as depicted in the photographs and that which he allegedly witnessed in 2003.  I find that such evidence was just too uncertain to be reliable either.

85.  The other evidence of the alleged “ponding” at the pitch in 2003 is the list of comments from the Architect dated 27 September 2003.  However it only stated: “some ponding had occurred after rain.  To be verified.”  This complaint was on its face equivocal.  It seems to suggest that the Architect did not even have personal knowledge of the alleged “ponding”.  Such allegation of “ponding” in 2003 has been maintained by the Architect since then but has never been verified as suggested.

86.  As to whether there was the alleged extent of “ponding” at the pitch in 2003 or generally after rain, I have my doubt.

87.  Even if there was the alleged “ponding” (as depicted in the photographs in 2005), the Plaintiff submitted that there is insufficient proof that this had anything to do with the Plaintiff’s installation of the artificial turf.  Indeed other possible causes were suggested and argued.

88.  The Plaintiff argued that this could have been a problem at the sub-base or drainage.  Bach explained in his evidence that the pitch is situated in what used to be a swamp or clay area.  This very geological nature of the area was suggested to be a hidden factor contributing to possible sub-base collapse and therefore surface unevenness.  The Plaintiff explained that the pitch was constructed on a very low budget.  Reference was made to the compromise of the thickness of the crushed rock base and the drainage system recommended, bargain down of the contract price as well as the removal of the recommended asphalt or e-layer between the rock base and the artificial turf layer partly for cost reason.  The correspondence indeed evidences these matters.  Reference was also made to the fact that the Plaintiff was not responsible for the base or drainage work.  While the Plaintiff had been consulted and had given advice on the base and drainage formation, the Defendant had been reminded of its sole responsibility to ensure the quality of the material and degree of surface evenness of the base layer.  Indeed the last such reminder was contained in the Plaintiff’s fax dated 5 May 2003 to the Defendant prior to the commencement of the base construction.  However, Wong confirmed that the Defendant did not even have a civil engineer for the work.

89.  In the absence of proper geological or surveyor’s evidence, I would go no further than saying that the Plaintiff’s explanation in respect of the base and drainage is plausible.

90.  The Defendant on the other hand suggested that the infill caused blockage in the drainage holes in the turf and therefore the alleged “ponding”.  It was Wong who brought this up only in his evidence in court.  When Bach was recalled to testify in respect of this fresh allegation, he categorically denied the suggestion.  It seems to me that even assuming that the infill (be it sand or rubber) might cause drainage blockage, it is relevant to know how the infill came to block the drainage because this could also have been caused by factors unrelated to the workmanship of the installation of the turf in 2003.  One example would be the movement of the infill.  In this regard, the FIFA Guide does contain a reminder (under the section “Maintenance of the Artificial Turf Field – Irrigation and Waterfall”) that after heavy rainfall, it is advisable to check the infill levels as they may have become disrupted.  It also advises (under the same section – “Levelling the In-fill”) that materials could accumulate at the edges of the pitch and therefore debris should be removed from it and the accumulated material brushed back into the main field.  This also highlights the relevance of the maintenance to the distribution of the infill.  However, there is no evidence of how the pitch was maintained during the period between 2003 and 2005.

Colour

91.  The complaint is that there was colour variation in the artificial turf.  The variation refers to inconsistent shades of green.

92.  In its fax dated 24 October 2003, the Plaintiff stated that the pitch passed the FIFA standard which includes colour.  Mr. Kwan for the Defendant pointed out that neither of the 2 field tests involved test of the colour of the turf.  This is confirmed by Dunlop in his previous affidavit in the interlocutory stage of this action.  However, before the pitch could be certified as FIFA Recommended, the turf must have passed not only the field tests but also the laboratory tests (which were carried out prior to the field tests).  The testing procedures are clearly set out in the FIFA Guide.  One of the laboratory test element is the measure of colourfastness, i.e., resistance to ultraviolet, water and heat.  In terms of FIFA standard (instead of test), colour was indeed an element.  Of course, and for the avoidance of doubt, I am not in a position to speculate whether the Plaintiff was referring to this in its fax.  Insofar as test of colour consistency of the installed turf is concerned, what Mr. Kwan pointed out is correct.

93.  The alleged colour variation was first discovered by Lai who witnessed the installation of the turf.  He identified mainly 3 strips of allegedly problematic turf.  He gave evidence that the Plaintiff had moved around strip of turf during installation due to colour variation.  The Plaintiff had allegedly replaced some turf due to the same reason.  The parties’ witnesses also commented on the experiment of comparing patches cut out from different parts of the turf of the pitch.  The Plaintiff suggested that if such test was done, it would show that the turf was of the same colour.

94.  No matter whether what the Defendant’s witness said is true or whether what the experiment might show is reliable, the difficulty is that I am asked to decide whether there was the alleged colour variation in the absence of proper test result or samples of different parts of the turf in question for comparison.  There are photographs and video compact disc recording of the pitch before me.  Since what is in issue is the consistency of shades of the same colour, I need to be meticulous about the quality of the colour images depicted.  The colour of the turf depicted might vary with the cameras used, time and light condition, angle of shooting as well as the film development.  I pointed this out and Mr. Kwan for the Defendant seemed to agree.  In the absence of proof that the turf installed actually consisted of turf in different shades of green, any colour inconsistency is a matter of appearance only.

95.  In some, but not all, the photographs and the video compact disc recording, I do observe the appearance of colour inconsistency (subject to the qualifications which I made above regarding the quality of the images).  Mr. Kwan for the Defendant made the point that notwithstanding the Plaintiff’s explanation, appearance of inconsistency still existed in the pitch depicted in the photographs taken just during the period of this trial.  However, he also did not dispute that the inconsistency, as depicted, has become less sharp with passage of time comparing with that shown in the photographs taken in 2003 or 2005.

96.  Bach explained what caused the appearance of inconsistent shades of the green turf.  According to him, this had to do with the different directions in which the piles of the turf lie and the piles were probably bent during transportation.  Grooming would put the piles upright and thus removing such inconsistency.  He emphasized that due to the “memory” acquired by the pile as a result of the previous bending during transportation, grooming must be sufficiently frequent to maintain the consistency in colour appearance.

97.  The FIFA Guide somehow lends weight to the Plaintiff’s explanation.  It says (under “Weekly Maintenance”) that:

‘……A second important reason for brushing a synthetic field is to prevent pile lean and pile flattening.  Many synthetic fibres have a tendency to lean in a particular direction or flatten with use.  To help overcome this regular brushing in all directions will tend to keep the fibres upright and non-directional.”

98.  As mentioned above, there is no evidence of whether the pitch has been maintained (or specifically, groomed) as suggested by the Plaintiff and the FIFA Guide.

99.  In any event, there could also be no dispute that the appearance of colour inconsistency does not affect the function of the soccer pitch at all.

The logos

100.  The logos of POLIGRAS and THIOLON, both white in colour, were installed at the corners of the 2 ends of the pitch outside the goal line respectively.

101.  In the draft written contract sent to the Defendant in March 2003, there was an express provision (clause 18) reserving the Plaintiff’s right to install logos on the pitch at a location mutually acceptable to the parties.  When the draft written contract was returned with the Defendant’s comments on 4 September 2003, no comment or amendment was proposed in respect of such provision.  No doubt the Plaintiff could not rely on this provision to found any legal right to install the logos because the draft written contract was never concluded.  On the other hand, the Defendant might not claim to have been unaware of the Plaintiff’s intention to install the logos.

102.  According to its fax dated 24 October 2003, the Plaintiff suggested that the Defendant had been informed prior to the commencement of the installation of the logos.  There is also no dispute that the workers engaged by the Defendant helped with the installation of the logos.

103.  The Defendant’s case, as pleaded and according to the witness statements, was that the logos were installed without authorisation.  The Defendant also pointed out that no logo was marked on the layout plan of the pitch.  In court, the Defendant’s witnesses suggested that the Plaintiff represented that the logos had to be installed for the purpose of obtaining the FIFA certification and the Plaintiff undertook to remove them afterwards.  The Plaintiff had allegedly failed to do so.  Knowing that this was a fresh allegation, Mr. Kwan for the Defendant applied to amend the Defendant’s pleading by adding the alternative plea that the Plaintiff allowed the logos to remain on the pitch.  Still, I do not see such alleged representation and undertaking by the Plaintiff in the Defendant’s response to the Plaintiff’s fax dated 24 October 2003.  Bach said that there was no such FIFA requirement.  Nor could I find such requirement from the FIFA materials.  I wonder why the Plaintiff would make the alleged representation.  There should be no incentive for the Plaintiff to make such representation for its own gain because the logos installed were not that of the Plaintiff but simply the brand names of the artificial turf products.

104.  I also have doubt as to whether the installation of the logos was a real issue in the eyes of the Defendant or the University.  As mentioned above, the first document complaining about the installed pitch was the Defendant’s fax dated 16 September 2003.  All Mr. Ho of the University was said to have mentioned to the Defendant about the pitch were the alleged colour variation and black spots in the turf.  The other document complaining about the pitch was the Architect’s list of comments dated 27 September 2003.  This was already after the joint site inspection on 10 September 2003.  The logos were simply not mentioned at all in the Architect’s list.  Only on 24 October 2003 did the Defendant demand in writing that the logos be removed immediately.  No reason was given then.  The logos have remained as they were until now.  When asked in court why the University has not even considered removing the logos over the past 2.5 years (as the cost of which, according to Bach, would be less than HK$20,000), the Defendant’s witnesses explained that the University was concerned about the resultant colour variation after the removal.  I simply fail to see the logic behind such concern of the University, if it was true.

Whether the alleged defects are proved

105.  In considering the above evidence, I also take into account the following matters.

106.  The extent of the Defendant’s actual experience in the third generation artificial turf pitches at the material time was called into question.  My attention was drawn to the lack of specific reference to construction of sports grounds or pitches in the Defendant’s business advertisements.  That alone perhaps may not a safe test of the Defendant’s relevant experience.  According to Wong, prior to this project for the University, the Defendant had been involved in the installation of several tennis courts and soccer pitches.  However only one of them used third generation artificial turf specially designed for soccer pitches and that was a test patch at the Hong Kong Football Club.  The Defendant obtained other knowledge about the third generation artificial turf from internet research.  Regarding the alleged defects, the Defendant apparently relied on the complaint by the University and the Architect and passed it onto the Plaintiff.  Upon receipt of the Plaintiff’s explanation, the Defendant passed it back onto Pionic and the Architect hoping that the Architect and the University would accept the same (see for instance its fax dated 24 December 2003).

107.  Mentioning the above does not mean disrespect for the Defendant but it is just relevant to evaluate how far I can take what the Defendant’s witnesses said as evidence of the alleged defects.  This is particularly important as the Architect was not a witness and its experience in the third generation artificial turf was also called into question.

108.  The Architect was appointed by the University as the architect of the entire project of the construction of the sports ground.  In respect of the construction of the rock base of the pitch and the installation of the artificial turf, the Architect had consulted the Plaintiff.  But the Architect’s lack of the relevant experience is apparent.  For instance, notwithstanding the repeated reference in the Plaintiff’s quotations and drawings prior to 2003 as well as Bach’s advice in January 2003 that it would be safer and better to install the asphalt or e-layer between the rock base and the turf, the Architect still asked what the layer was and what it was for.  Its further explanation revealed that the layer was taken out because the Architect and the University were somehow not convinced of the actual function of the layer relative to its cost.  Even the Defendant’s witness, Cheung, apparently had the impression that the Architect did not have much knowledge about third generation artificial turf.  The Architect also appeared to have been unclear about the exact role of FIFA and had once misunderstood that FIFA would send its representatives to supervise the turf installation (see the Plaintiff’s fax dated 25 April 2003; the Architect’s fax dated 22 May 2003; and the Plaintiff’s fax dated 26 May 2003).  In its list of defects dated 27 September 2003, the Architect’s complaint about the rubber in-fill and the alleged “ponding” was equivocal.  Yet this list became the basis for the Defendant’s allegation of defects.  Despite the information and explanation provided by the Plaintiff in respect of the complaint which were also forwarded by the Defendant to Pionic (and the Architect presumably), no feedback had been received from the Architect.  In November 2004, the Defendant requested the Architect to give evidence to answer the affidavit of Dunlop filed in support of the Plaintiff’s then application for summary judgment.  Despite specific references to the evidence of Dunlop and Bach against the Architect’s complaint, the Architect refused to respond but simply referred the matter to Pionic.

109.  As to the Plaintiff, prior to the contract with the Defendant, it had the experience of installing football pitches at government stadium, international school and private football club in the territory.  Its parent company in Australia was involved in the installation of the pitch for the Sydney Olympic Games.  It has been a FIFA Quality Concept licensee since April 2003.  There are also the materials from FIFA, the reports of Acoustic-Scan and the statement of Dunlop.  Though Dunlop did not testify at the trial, I have no reason to doubt the accuracy and weight of his evidence.

110.  In the circumstances, I prefer the evidence of the Plaintiff’s witnesses to that of the Defendant’s witnesses in respect of the alleged defects.

111.  Mr. Kwan for the Defendant submitted that it is the Plaintiff’s burden to prove that the defects did not exist as alleged.  I disagree.  The Defendant, which made the allegation, has the burden of substantiating the alleged defects though this does not alter the burden of the Plaintiff to prove that it has completed the work as a matter of fact so as to entitle it to its claim.  Likewise, Mr. Stock for the Plaintiff emphasized that the Plaintiff was not running a positive case on what caused the alleged defects as if the same were admitted.  He submitted that it was the Defendant’s burden to substantiate the alleged defects and it, the Plaintiff says, fails to discharge such burden in the light of the evidence and plausible explanations of the alleged defects put forward by the Plaintiff.  I agree with him.

112.  I am not satisfied that the alleged extent of unevenness of the turf surface is substantiated.  I am not satisfied the alleged extent of appearance of colour inconsistency of the turf is substantiated.  Any unevenness or inconsistency in the colour was and would be a matter of proper maintenance and had nothing to do with the workmanship of the Plaintiff in installing the artificial turf in the first place.  I am not satisfied that the logos were installed without the consent of the Defendant or as a result of the alleged misrepresentation by the Plaintiff.  As such, I would not consider any of them as defect at the time of the completion.

Whether the Plaintiff is entitled to the payment of the final instalment

113.  On the basis of my above findings, the Defendant’s basis for saying that the Plaintiff has not completed the work (i.e., the lack of the Architect’s Certificate or due to the alleged defects) collapses.

114.  Even assuming that the problems of the pitch alleged by the Defendant were considered as defects, the question of whether they rendered the work incomplete is one of fact and must be answered in the ordinary sense.  The law in this regard is explained in terms of substantial completion in Hoenig v Isaacs [1952] 2 All ER 176 at 179A, per Somervell, LJ:

“The question here is whether in a contract for work and labour for a lump sum payable on completion the defendant can repudiate liability under the contract on the ground that the work though “finished” or “done” is some respects not in accordance with the contract……The learned official referee regarded H. Dakin & Co., Ltd. V Lee (2) as laying down that the price must be paid subject to set-off or counterclaim if there was a substantial compliance with the contract.  I think on the facts of this case where the work was finished in the ordinary sense, though in part defective, this is right.”

and at 180H-181A, per Denning, LJ:

“In determining this issue the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment.  It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment.  When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions.  The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition.  It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done.  Unless the breach goes to the root of the matter, the employer cannot resist payment of the price.  He must pay it and bring a cross-claim for the defects and omissions, or, alternatively, set them up in diminution of the price……I think this contract should be regard as an ordinary lump sum contract.  It was substantially performed.  The contractor is entitled, therefore, to the contract price, less a deduction for the defects.”

115.  The case was cited with approval and applied in terms of practical completion in Big Island Contracting (HK) Ltd v Skink Ltd [1990] 1 HKC 69 at 71C-E, per Kemspter, JA.

116.  The problems alleged, even if true, did not suffice to render the work incomplete in September 2003 when the Plaintiff handed the pitch over to the Defendant.

117.  Even if completion of the work to the full satisfaction of the Defendant was a condition precedent to the Plaintiff’s entitlement to the final instalment of the contract price, the same as a condition must have been waived.  In Hoenig v Isaacs at 181E-G, Denning, LJ added:

“Even if entire performance was a condition precedent, nevertheless the result would be the same, because I think the condition was waived.  It is always open to a party to waive a condition which is inserted for his benefit.  What amounts to a waiver depends on the circumstances.  If this was an entire contract, then, when the plaintiff tendered the work to the defendant as being a fulfilment of the contract, the defendant could have refused to accept it until the defects are made good.  But he did not refuse to accept the work.  On the contrary, he entered into possession of the flat and used the furniture as his own, including the defective items.  That was a clear waiver of the condition precedent.  Just in a sale of goods the buyer who accepts the goods can no longer treat a breach of a condition as giving a right to reject but only a right to damages.  The case becomes an ordinary lump sum contract governed by the principles laid down in Mondel v Steel (10) and H. Dakin & Co., Ltd. V Lee (2).  The employer must, therefore, pay the contract price subject to a deduction for defects or omissions.”

118.  Mr. Kwan for the Defendant submitted that the University (and therefore the Defendant) should not be taken to have accepted the work because putting the pitch to use was to prevent any accusation of failure to mitigate.  However, insofar as the condition of entire performance (as opposed to the right to damages) is concerned, mitigation is irrelevant.

COUNTERCLAIM

119.  On the basis of my finding that the alleged problems of the pitch were not defects, there is no basis for the counterclaim.

120.  Even assuming that the alleged problems were considered as defects, I wonder whether the counterclaim should be allowed.  The Defendant alleged that by reason of the alleged defects, the Defendant would suffer damage.  Insofar as the claim for damages is concerned, there is really no particular or evidence for any assessment.  What the Defendant essentially claims is to be indemnified by the Plaintiff against any claims or costs for which the Defendant might become liable as a result of the Plaintiff’s alleged breach.  Mr. Stock for the Plaintiff rightly pointed out that it would be incorrect to make such an order: Trans Trust S.P.R.L. v Danubin Trading Co. Ltd. [1952] 2 QB 297; Wong Ho Wai Ying v Yeung Shui Cheung [1987] HKLY 960.  Mr. Kwan for the Defendant submitted that the Defendant would seek a direction that it should have liberty to apply with respect to any damages (including interest on damages) and costs which might be awarded against the Defendant in any claim brought by Pionic or its liquidator flowing from the Plaintiff’s alleged breach.

121.  In Trans Trust S.P.R.L., Denning, LJ agreed with what Somervell, LJ said (at 303) as follows:

                   “……No declarations ought to prejudice or preclude a proper determination of these issues, on which the defendants should be entitled to be heard.  It might, as it seems to me, be more satisfactory if there were liberty to apply for directions as to the determination of these issues, if any, and quantification of damages under this head as between plaintiffs and defendants, should dispute arise.  Some order in this form, at any rate,in some cases, might be more satisfactory than a declaration in the form ordered.” (emphasis added)

122.  The court obviously still has to consider if such a direction, which may be granted, should be granted in the particular case.  Such a direction was ordered on appeal in place of a declaration of indemnity ordered in the first instance in Gitting Engineering Ltd v Waly Decorative Products Ltd, unreported, Civil Appeals Nos. 7&8, 12 January 1993.  However, not much detail of the factual basis in that case was recorded probably in the absence of opposing argument.  Such a direction was also made in Wai Bo Construction and Engineering (HK) Company Limited v Wo Fung Engineering Limited, unreported, HCA 7656/2000, 17 April 2001.  However, it was established in that case that the defendant’s delay in the works had brought about the plaintiff’s breach of the main contract and the termination of the main contract with the distinct probability that the plaintiff would become liable for damages in an amount beyond the sum of the security bond which the Plaintiff could resort to under the sub-contract.

123.  In the present case, any claim which Pionic may bring against the Defendant in respect of the alleged defects would have to be based on the claim which the University may bring against Pionic in respect of the same defects.  There is simply no evidence of such claim having been made by the University or Pionic.  Apart from the few documents alleging defects, there is no evidence to suggest any concrete intention on the part of the University to bring any claim against Pionic since the University has been using the pitch in 2003.  On 1 November 2004, the Architect wrote to Pionic (with copy to the University) suggesting that it had advised the University to carry out rectification work and to deduct the cost of rectification from the payment to Pionic.  There is no evidence that such rectification work had ever been done.  By writing this letter, the Architect apparently was not aware that Pionic was already wound up on 7 April 2004.  The Defendant’s witnesses suggested that the Defendant had claimed against Pionic for the balance of their contract price.  In their terms, the Defendant had “queued up at the bankruptcy registry” with a claim for about HK$800,000 including 20-30% outstanding balance of their contract price.  However, none of the witnesses suggested that Pionic or its liquidators had ever even indicated any intention to counterclaim against the Defendant in respect of the alleged defects.  As Mr. Stock for the Plaintiff submitted, they surely would have done so by now had there been such an intention.  According to Bach (which was not challenged), the rectification by grooming would cost HK$5,000, reversing the problematic turf would cost HK$20,000-30,000 and the removal of the logos would cost HK$19,000. Relative to the Defendant’s claim against Pionic, any counterclaim by Pionic on the basis of the rectification cost would be very small.

124.  In all the circumstances, I am not convinced that such a direction sought by the Defendant should be given even assuming that the alleged problems of the pitch are considered as defects.  If the possibility of claim by Pionic or its liquidator materialises, the Defendant may still join the Plaintiff as third party to those proceedings.  This was the suggestion of the court in Goodsun Industries Limited v Yanion Company Limited, unreported, HCA 5973/1987, 18 January 1989.  However, since I find that the Defendant does not have basis for the counterclaim, I do not have to reach a conclusion in this regard.

ORDER

125.  I find for the Plaintiff and dismiss the counterclaim.  Judgment is entered against the Defendant in the sum of HK$333,060.40 with interest thereon at 1% above the base rate from the date of writ to the date of judgment and thereafter at the judgment rate until payment.  Costs should follow the event and I make an order nisi that the Plaintiff has the costs of the action, to be taxed if not agreed, with certificate for counsel.