LAM GEOTECHNICS LTD v. MARIA JUSTINE MILICHICH AND ANOTHER

HCA158/2002
& HCA1766/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.158 OF 2002

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(Consolidated pursuant to the order of Master A. Mak dated 18 June 2002)

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J U D G M E N T

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1. The plaintiff (“Lam”) is a geotechnical and environment contractor.  The 1^st defendant, Dr Milicich, is a marine biologist and ecologist and she operates through the 2^nd defendant (“MCL”), of which she is a director and shareholder.

2. To put matters briefly, Lam in 2001 contracted with the Government for field sampling and laboratory testing of a contaminated mud pit adjacent to the Chek Lap Kok airport.  This required, inter alia, the trawling, sampling and analysis of demersal, i.e. bottom-dwelling fish.  The trawling, sampling and analysis had to be supervised by an ecologist with 10 years’ post-graduate experience.  Lam contracted with the Hong Kong University of Science and Technology for this work but also sought quotations from other ecologists.  According to Lam, it subcontracted to Dr Milicich or MCL the supervision of trawling, sampling and analysis of samples at Mud Pit IV, based on a lump sum price of $79,750, later $87,750 per trawl event.

3. Lam pleads that it engaged Dr Milicich or MCL for one trawl event from 6 to 9 August 2001.  Because of differences which occurred during this trawl event, the plaintiff elected not to use the defendants’ services for the next trawl event on 29 August 2001, so notified them, and engaged another ecologist for the work.  However, wrongfully and in breach of contract, Dr Milicich and/or Lam wrongfully withheld samples and data (“deliverables”) and demanded the sum of $346,250 from Lam.  Lam offered to pay $125,500, which is in excess of what it owed the defendants for the work done but the offer was rejected.  Lam issued these proceedings for mandatory injunction and damages.  On 25 January 2002 I ordered Lam to pay $125,000 into court and Dr Milicich and MCL to hand over the deliverables.  This was done.  Now Lam seeks an order to make the mandatory injunction permanent, plus a relatively small amount of damages and of course the costs of the action which no doubt by now far exceed the claim and the counterclaim.

4. Meanwhile, also in January 2002 Dr Milicich and MCL instituted proceedings in the District Court in DCCJ123/2002 against Lam for breach of the subcontract between them.  The actions were consolidated.  The original District Court claim now appears as the counterclaim in the consolidated proceedings.

5. In brief, Lam’s case is that the subcontract was based on a lump sum price for each trawl.  In other words, there was a separate contract for each trawl.  The services rendered by Dr Milicich and MCL in the first trawl were unsatisfactory, so Lam did not engage them for the second trawl.  In breach of contract, she did not hand over the deliverables, so Lam had to obtain the mandatory injunction; and she and MCL are liable in damages.

6. The case of Dr Milicich is that there was no contract between Lam and herself; Lam’s contract was with MCL and she has no personal liability.

7. MCL’s case is that the subcontract was for a period of approximately four years and would include 10 trawls with a fixed price per event.  One trawl event was carried out but before the second trawl event Lam repudiated the contract.  The real reason for that was that the Government as main contractor demanded it, because of a perceived conflict of interest arising out of MCL’s direct employment under a different subcontract by the engineer of the main contract.  MCL had partly performed the subcontract by carrying out the first trawl event and preparing for the second.  It accepted the repudiation but remained ready and willing to fulfil its obligations for the full period.  In breach of contract, Lam did not pay for the first trawl event or for agreed additional work done in connection with it.  MCL incurred costs in preparation for the second trawl event, and loss of profits in respect of the nine trawl events which they lost.  Alternatively it lost the preparation costs, lump sum payment for the second event, and consulting time accrued.

8. In fact there was no evidence that the services of MCL were terminated because of conflict of interest.  The Government did raise a query about that, but long afterwards; so that is not an issue.

9. There is an issue as to whether Lam’s contract was with Dr Milicich herself or with MCL.  At the relevant time there was a registered business named “Milicich & Co.” whose letterhead was used in communications between the parties.  That business had a registration certificate commencing on 15 February 2001.  Its registration was cancelled on 1 August 2001.  MCL’s own business registration certificate runs from 19 June 2001 which appears to be its date of incorporation or the anniversary thereof.  In any event the form of the document was not relied on as indicating who the contracting party was.  Indeed this question was rather glossed over at trial.

10. The major issue on liability in this case is whether Lam engaged Dr Milicich or MCL only for one trawl event at a time on a single lump sum contract basis, or whether it engaged her or it for the period of its contract with Government, and all the trawl events in that period.  There is also the issue of whether Dr Milicich or MCL had the right to withhold the deliverables.  I propose to deal with the contractual issue first.  I will then consider whether Dr Milicich and MCL were justified in withholding the deliverables and if not whether Lam acted properly in obtaining an interim injunction.  Lastly I will consider the questions of quantum.

Background

11. By a written contract dated 3 April 2001 the plaintiff agreed with the Government to undertake field sampling and laboratory testing for a contaminated mud pit adjacent to the Chek Lap Kok airport known as Mud Pit IV east of Sha Chau.  The contract was made subject to the General Conditions of Contract for Civil Engineering Works, 1999 Edition, and the Specification attached thereto.  The Engineer appointed by the Civil Engineering Department under the contract was Mouchel Asia Ltd (“Mouchel”).

12. Section 4 of the Specification required demersal trawling, i.e. trawling for bottom-dwelling fish and other fauna in the mud pit, and the chemical analysis of the fauna for chemical pollution.  Section 1.21(e) required Lam to provide the service of an experienced ecologist with an approved degree and 10 years of post-graduate experience in collection and analysis of demersal fauna.  The duties of the ecologist included :

“Managing and supervising the trawling sampling and analysis.  The Ecologist shall be on the trawler during all field surveys and sampling; and

Ensuring all laboratory testing on demersal fish samples is carried out in accordance with analytical methods specified in the Contract.”

13. Appendix B of the Specification required demersal trawl sampling and chemical analysis of samples in Pit IVa in January and February and in Pit IVb in the wet and dry seasons between 2001 and 2005, i.e. one trawl event (to be carried out according to a specified protocol) in each of July and August 2001, followed by events in January and February and July and August in each year until January and February 2005.  This came to a total of 18 trawl events.  Target species were specified.  Under section 4, if sufficient tissue or whole body samples were not available from the first trawl event, they were to be frozen and stored in the laboratory and then pooled with samples from the second trawl event.

14. Lam entered into an Agreement for Research Services with the Hong Kong University of Science and Technology (“UST”), dated 4 May 2001, for a period of five years for services based on the requirements of the Government for Mud Pit IV.  The services were toxicity testing with an organism named Capella Capitata; benthic (mud-dwelling) organisms sorting; and demersal trawling for fish and invertebrates.  The total contract price was $4,816,800.  UST was to receive a non-refundable retainer of half this sum for preparatory work by six-monthly payments and the balance was to be paid on receipt of invoices with deliverables and reports as per an annexed Scope of Work.  The Agreement named two associate professors, Dr Qian and Dr Ni as Principal Investigators (“PI”) employed to carry out the service.

15. The Scope of Work for demersal trawling sample annexed to the contract between Lam and UST provided for fishing surveys and field survey assistants to be arranged by Lam.  The PI or his designated personnel was to participate in the demersal trawling and supervise the sampling.  The samples were to be delivered to the PI’s laboratory in the UST and there re-inventoried, checked and freeze dried.  Though this is not mentioned in the scope of work it appears that the actual chemical testing of the samples was to be carried out by an Australian government laboratory known as AGAL.

16. Lam’s Scope of Work did not specify that UST had to provide an ecologist with the ten years’ experience as required by section 1.21(e) of the main contract to be on the trawler for each trawling event.  The PI for the demersal work, Dr Ni, was such an ecologist but as appears from the minutes of a progress meeting on 3 April 2001, he would only be able to supervise half of all demersal trawl sampling events.  In order to comply with the main contract, therefore, Lam had to provide a suitably qualified ecologist.

17. The UST carried out demersal trawling in May 2001 but Dr Ni indicated that he would not be available for the scheduled July and August trawl events.  Lam’s laboratory manager, Mr Carlton Hall wrote to Mouchel suggesting that Dr Ni’s team, who between them had the specified experience, should be enough; but Mouchel replied insisting on a suitably experienced individual ecologist.  Mr Jones of Mouchel recommended Dr Milicich who was already involved in work for Mouchel and Government related to Mud Pit IV.  She was responsible for the design of surveys, analysis of data and power analyses, and for assessment of fisheries impacts.

18. Following the recommendation of Mr Jones, Dr Milicich approached Mr Hall and they had a meeting in early June 2001 at which Mr Hall’s assistant, Tara Jensen was also present.  An exchange of letters followed.  Lam in pleadings relies on letters from Dr Milicich dated 11 June and 23 July 2001 but does not refer to any document emanating from itself.  Dr Milicich in her pleadings relies specifically on these letters and a fax message from Lam dated 26 July 2001 as containing the full terms and effect of the subcontract between them.  It is as well to look first at the documents before going to the oral evidence, particularly bearing in mind the principles of interpretation set out by Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] WLR 896 at 912, as follows :

“I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 3 All ER 237 at 240-242, [1971] 1 WLR 1381 at 1384-1386 and Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co. [1976] 3 All ER 570, [1976] 1 WLR 989, is always sufficiently appreciated.  The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life.  Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded.  The principles may be summarised as follows.

(1)   Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)   The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include.  Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3)   The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.  They are admissible only in an action for rectification.  The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life.  The boundaries of this exception are in some respects unclear.  But this is not the occasion on which to explore them.

(4)   The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words.  The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.  The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] 2 WLR 945.

(5)   The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.  On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.  Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1984] 3 All ER 229 at 233, [1985] AC 191 at 201:

‘… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.’”

Documentary evidence

19. On 11 June 2001 Dr Milicich wrote and sent by fax to Lam a letter which contains technical queries relating to freeze-drying, collecting sufficient tissue by repeated trawling, pooling of tissue between trawl events, and other matters which I need not reproduce here but attached to it was a document setting out the Scope of Work.  The letter concluded :

“The lump sum fee for the scope of work attached and covering the points in the fax is $79,750.00 per event (one month of trawling data e.g. July 2001).”

20. The Scope of Work reads :

“	1	Scope of Work
	1.1	Task 1: Trawl Sampling
	1.1.1	Manage and supervise trawling works
		The nominated ecologist (Milicich) shall be present and shall ensure that the trawling is conducted according to the specification.  If it is necessary to provide an alternative ecologist, we will ensure that the Client approves the person before the trawling begins.
	1.1.2	Presort samples on boat
		We will provide an additional experienced staff member to assist with presorting samples on the boat.  Both our staff will take additional data from the catch as it is presorted.  Using our previous experience, we will estimate if sufficient organisms have been caught of the target (and alternative) species required for tissue analysis.  This will be done by identifying those organisms on board the boat wherever possible and recording approximate numbers and weights so that estimates of tissue availability can be made on site.  This will immeasureably aid the decisions for extra trawls and will determine which stations are more likely to yield additional samples.  it will also provide forewarning of the need to combine samples with the subsequent months sampling.
	1.2	Task 2: Catch Sorting, Enumeration and Reporting
	1.2.1	Manage and Supervise
		the nominated ecologist (Milicich) shall adequately manage and supervise the identification and enumeration of the catch.  She will also design and seek approval from the client of the database format used to submit the data.
	1.2.2	Data Processing
		We will provide an experienced team capable of identifying all organisms collected in the trawl (including small non-commercial components).  The catch will be enumerated and biomass will be recorded for each replicate.  Data will be entered into a database, CPUE (catch per unit effort) and YPUE (yield per unit effort) will be calculated and the whole will be submitted electronically.  We will retain organisms for a reference collection and will maintain and update the collection until the end of the assignment.
	1.3	Task 3: Tissue and Whole Body Preparation
		We will dissect tissue for the species required and will homogenize this tissue and whole organisms as required.  We will deliver these frozen to your laboratory for freeze-drying.  We are happy to supply time for working with the freeze-dryer.  I haven’t included freeze-drying time in the fee but we can discuss this and work something out.
	1.4	Task 4: Laboratory Testing
	1.4.1	Manage and supervise
		Under the contract specifications, S1.21(b), the ecologist (Milicich) would be responsible for ensuring that all testing is carried out in accordance with the methods specified.  As the samples are being sent to AGAL this will be difficult in a hands-on manner.  What I suggest is that I review the reports sent by AGAL to you.
	1.5	Task 5: Meetings and Client Liaison
		We will attend any meetings with you that are required and any meetings that are required with the client.  This is included in the fee for up to a nominal amount of 6 meetings/year.”

21. Mr Hall apparently passed these documents to Tara Jensen for evaluation.  She produced some figures, which are not readily intelligible and indeed Mr Hall could not explain them, but she noted that “Milicich’s price is better than HKUST.”  There were further discussions between Dr Milicich and Tara Jensen.  On 17 July 2001 Mouchel approved Dr Milicich’s appointment as ecologist under section S1.21 of the main contract.  Then on 20 July 2001 Dr Milicich wrote to Mr Hall regarding a recent telephone conversation.  Most of it concerned technical points relating to the trawl protocol but this was followed by a suggestion that Dr Milicich could also do the benthic work, which involved the collection and analysis of organisms dwelling in the mud.  She then dealt with splitting the work, i.e. collecting specimens and passing them to Dr Ni for analysis which, according to her Mr Hall had suggested and which she thought could work for the coming month.  She concluded :

“We would then be able to take over the whole package for the next months and future sampling.”

22. This was followed by Dr Milicich’s letter of 23 July 2001 which reads :

“With respect to our recent tele conversation and your request for us to proceed with next month’s sampling, I have revised the situation and the submission that was sent to you some six weeks ago.  The Scope of Work I sent you still stands, however, there is a need for a few points to be made clear before we proceed and I have outlined these here below in the hope that they may help with the preparation of your appointment document :

1.    On the boat, I need to have control over the way samples are dealt with etc.  I presume this will not present any problem.  I also presume that supply fishing and deck sorting stuff?

…

3.    In order for us to efficiently organise our effort for that issue extraction process, I need to know what the pooling procedure will be by the time we come to the point of dissection.  For example, I don’t want to do a group of dissections only to find that they are not the right ones to include and that I then have to do a different group.

4.    For the homogenisation step, we propose using an automatic blender/processor along with manual techniques.  I understand after talking to your staff that the metal used must be stainless steel.  Our blender/processor has stainless steel blades and otherwise is made of plastic.  I assume this is acceptable for an analysis of the inorganic and organic contaminants?

5.    The lump sum fee I previously gave to you assumed that we would not deliver tissue to you, unless we had sufficient material.  After speaking to Tara, I was made more aware of the pooling situation and likely requirements.  I have, therefore, had to revise the previous fee by a small margin to accommodate additional equipment purchase.

The lump sum fee for the scope of work attached and covering the points in this fax is $85,750 per event (one month of trawling data e.g. July 2001).  If you have any problems with this, please call …”

23. Lam replied on 26 July 2001 in the following terms :

“Field Sampling and Laboratory Testing for Contaminated Mud Pit IV at East of Sha Chau

SUBJECT : Confirmation of Sub Contract.

Thank you for your quotations dated 11 June 2001 and 23 June 2001.  We wish to let the demersal catch identification, enumeration and tissue extraction sub contract works to yourselves.  As such we confirm your quotation for $85,750 per event is acceptable subject to the following:

Your compliance with the relevant particulars of the Main Contract entitled Field Sampling and Laboratory Testing for Contaminated Mud at East of Sha Chau;

In particular the requirements of the Specifications Section 4;

Acceptable arrangements being in place with your suppliers and acceptance of your suppliers;

The quotation is a fixed-price lump sum for the period of the contract ― which is until mid-2005 and programmed to be another nine trawl events;

Your co-operation with the other parties to the Main Contract.”

24. These are the contractual documents.  There follow various e-mail messages between the parties regarding the arrangement of the first trawl event and a further series regarding what happened during that event.  Dr Milicich’s main complaint seems to have been that, although as ecologist she was required to supervise, in fact she had to sort the catch and bag the samples.  She wrote a long e-mail to Mr Hall on 8 August 2001, with an attached document headed “Lam Submission” setting out her proposals for the way the work should be carried out at the next trawl event.  This included the hire by her of an extra boat for catch pre-processing staffed by MCL’s personnel.  She asked for a signed contract to be in place before the next event and added :

“This needs to be for the duration of the works, i.e. until mid 2005.”

and she further claimed an additional surcharge for changing the storage and processing of samples in respect of the first trawl event and subsequent events.  This was followed by an e-mail from one Tim Wong at Lam asking Dr Milicich to go ahead with the next trawl event on 29 and 30 August, and by an e-mail from Dr Milicich to Mr Hall dated 27 August 2001 asking to have “a contract in place before Wednesday”.

25. On the afternoon or evening of 28 August 2001, Mr Hall telephoned Dr Milicich and cancelled her services, he says for the following day and she says for the rest of the term of the main contract.  I will deal below with the evidence of what was said.  The same evening Dr Milicich sent an e-mail to Mr Hall, setting out her claims in respect of the cancellation in the following terms :

“Our costs that need to be met are:
1.	Last event ― HKD85,750 plus HKD15,000 for extra work handled by us on board the trawler which was outside the contract
2.	Less than 24 hours notice to terminate current event ― HKD85,750
3.	Consulting time inputs ― HKD32,000
4.	Equipment and chemicals ― HKD30,000
5.	Boat Hire for Canceled Event ― HKD12,000
6.	Reparation for loss of future Staff Salary’s in relation to this project ― estimated at equivalent of one event ― HKD85,570
75% to be paid within one week; 25% on submission of data
In addition:
1.	You cannot use our methodology for any fisheries events you may ever undertake or subcontract.
2.	You write a letter and send it to me first as agreed.  It is then sent direct to Mouchel and to CED separately.
3.	You communicate the situation to Ni as favourable to us and report on this to me.

Also:

Mouchel asked for an SOP from you BEFORE the last trawling event and yet I was not asked to supply one.  The lab situation would have been dealt with in this document.

The subsequent letter you received from Mouchel was therefore due to a lack of response on your part to their request for an SOP.

Mouchel did not dismiss either the Lamma Lab or the HKIED lab as unusable.  They wished to be provided with an SOP and have the option for inspection.

I have taken preliminary advice from our company lawyer and will take further action if necessary.  I consider the claims made here to be very reasonable and would like to make it clear that I expect an immediate response.”

26. Mr Hall replied agreeing to pay $87,750 for the first trawl event plus the surcharge of $15,000 subject to supporting details but stating that he had agreed to look at her costs rather than her rates.  Then in further correspondence on 6 and 7 September 2001 he referred to the fact that while Dr Milicich obviously thought that she had a contract for the duration of the works, “it was clearly detailed as ‘per event’”.

27. Thereafter correspondence between the parties deals with an audit of MCL’s laboratory by Mouchel, standard operating procedures to be agreed by the latter, and the processing of the deliverables.  The question of the contract did not come up again until 27 September 2001 when Dr Milicich wrote a letter setting out her position that the contract was until mid-2005 and suggesting amicable settlement.  After further e-mail correspondence, Dr Milicich wrote to Lam on 2 November 2001 claiming that Lam was in breach of contract and that while MCL was ready to deliver the deliverables, it would not do so until the financial arrangements for premature termination were agreed.  She asked for payment of $245,500 for damages on delivery of the samples and data and a further $107,750 for the work itself one month after delivery.  By a letter dated 6 November 2001 Lam insisted that the subcontract was for a two trawl event at a fixed price lump sum of $85,750 and that the confirmation of the subcontract simply fixed the price for the period of the main contract and further that payment would be made in accordance with standard civil engineering practice, i.e. after approval of the work by the Engineer.  The stalemate continued until Lam instructed solicitors who wrote to MCL on 28 December 2001 with an open offer of $125,500 coupled with a threat of proceedings for injunction and damages.  The offer was refused and the proceedings were initiated.

Oral evidence

28. This comes entirely from Mr Hall on the one side and Dr Milicich on the other.  Some of it relates to the previous negotiations of the parties and their declarations of subjective intent.  Mr Hall says that all along, he intended to engage Dr Milicich on a lump sum per event basis, with a fixed price for the duration of the main contract.  In other words, he could engage her or not, as he wished, but at a fixed price if she took the work.  Dr Milicich’s intention as is clear from the documents she wrote as well as the oral evidence was to have a contract for the term of the main contract.  But on the authority cited above, all this is inadmissible and must be disregarded.  What is important for the purposes of interpreting the contractual documents is the background matrix of fact.  In the circumstances, I do not propose to try to set out the evidence at length but will confine myself to those matters which in my view are significant and relevant to the interpretation of the contractual documents and the other issues.

29. Mr Hall adopted two witness statements as evidence.  The first one dealt mostly with matters which I have referred to above and which are not really in dispute.  The second deals to some extent with the availability of Dr Ni; with comments on the pleadings and the witness statement of Dr Milicich and with quantum.

30. With regard to the plaintiff’s own claim it now appears from Mr Hall’s oral evidence that, although it was thought that delay caused by the late delivery of the deliverables might render Lam liable for liquidated damages, it did not; and while it was feared that such delay might cause Lam to have an adverse report made against it and indeed it did cause Lam’s performance to be regarded by the employer as less than satisfactory, no loss flows from this either.  So Lam’s damages claim is now restricted to the loss of Mr Hall’s own time, about 50 or 60 hours chargeable at $1,000 per hour.

31. Under cross-examination Mr Hall maintained that the engagement of Dr Milicich and MCL was for only one trawl event at a time, at a fixed rate per event; but he made various significant admissions.  He said that the role which he asked Dr Milicich to play was the same role which UST played, as part of a team including Lam, the trawling contractor, UST and the specialist laboratory.  He agreed that the trawl events were paired with the pairs about six months apart and that data could be pooled between the pairs.  When the engagement of Dr Milicich was discussed, what was in contemplation was that she would be concerned with the pair of trawl events in July and August 2001.  Thereafter what was in contemplation was contingency cover for nine trawl events, and, subject to performance and the circumstances being correct, Dr Milicich and MCL would have been engaged for them.  There would have been difficulties in organising this because they would have been on dates of Lam’s choosing.

32. Mr Hall agreed that he had told UST what was happening and that he was thinking of replacing it for half the contract.  Dr Ni’s response was not helpful; he believed that the was the only one who could do it.  UST did not threaten Lam with proceedings for breach of contract but did remind Mr Hall of the contract payments which were payable in any event, a matter he already knew.

33. Regarding the telephone conversation with Dr Milicich on 29 August 2001, Mr Hall said that he told her that her services were not needed because Lam had engaged UST for the next event.  He did not say that he would not use her services again; he wanted to keep the relationship open on a per-event basis.  Clearly Dr Milicich believed that she had a long-term contract and the conversation was heated.

34. So far as the identity of the contracting parties was concerned, Mr Hall’s attention was drawn to Lam’s solicitor’s letters which were addressed to MCL, and described it as “one of Lam’s appointed subcontractors”.  He said that he was not sure who he had contracted with; he thought it was Dr Milicich herself; he was not sure of her relationship with the company.  But he accepted that his letter of 26 July 2001 had been addressed to the company and that he was appointing the company.

35. The solicitor’s letter also referred to “your appointment being terminated on 29/08/2001”.  Mr Hall did not accept that Lam had terminated the appointment; he wanted to keep the relationship open.  He said that he had discussed the matter with solicitors and the view was simply that it was terminated; the question of who had terminated it had been left on one side.

36. Dr Milicich also adopted a lengthy statement, but unfortunately her counsel took the approach of going outside it in examination-in-chief, particularly with regard to the telephone conversation of 29 August 2001.  This was not covered by the statement; specifics came out which should properly have been, and which could have been put to Mr Hall in cross-examination if they had been in the statement, instead of the rather general questions which were put.  Objection was taken, and ultimately I ruled out further questions about discussion of figures on the telephone; but by that time much evidence had come out.  In particular, Dr Milicich said that Mr Hall said that he was cancelling the contract.  She said that she asked why, because she had a contract to the end of the main contract; and he said that it was because Dr Ni had agreed to go back out on the boat.  He further said that the UST was very awkward; it was an awkward situation; and it was easier to do this.  She said that they had to deal with what was to happen the next day; she had been exposed to costs and hired another boat.  Mr Hall was reasonable.  She asked what was to be done about the whole contract and he told her to put something together informally and send it, and he would pay reasonable costs.  On this basis she sent her e-mail setting out her claims on the same evening.

37. Some of the above goes to Mr Hall’s view of what the contract meant but obviously some of it relates to the background matrix of fact and the presence of the UST in that background.

38. Dr Milicich under cross-examination adhered to her view of what she had offered, namely a subcontract for the full term of the main contract with a lump sum price per event for a series of events, even thought her offer was not specific on this point.  What she was offering included the keeping of a reference collection for the full term, and attending up to six meetings a year.  She believed, on the basis of negotiations which had gone before, that the matter of her having a contract for the full term was settled.  She did not know the legal effect of the term “lump sum”.  She had not asked for a payment schedule because at that stage she trusted Lam and Mr Hall.  She was asked whether she expected to be paid once the results came back from the specialist laboratory; this point was revisited later; but it appears she was quite unclear on as to when she was to be paid.  She expected Lam to propose some kind of payment schedule; but her requests for a “contract” before the second trawl event did not relate to that, or the subcontract itself, but rather to specific details as to who was to do what on the boat.

39. She had had to incur expenses in obtaining equipment such as a freezer and a blender; the former arose from the pooling requirements discussed with Tara Jensen; she had increased the price to reflect the cost of the extra equipment plus a risk factor, over the term of the contract.

The length of the subcontract

40. It is unfortunate that Mr Hall, as he admitted, was relatively new to contract management work when this matter arose.  Dr Milicich too, it appears, had not much idea of contracts.  What no one, and particularly Mr Hall seems to have considered is that taking away work from the UST might have involved Lam in a contractual dispute with that organisation.  In any event Mr Hall admits that the UST told him that Lam would have to pay for their services anyway.

41. I am inclined to believe, having heard the witnesses, particularly on the matter of the telephone call of 29 August that Mr Hall’s understanding of what had been agreed was the same as Dr Milicich’s.  This is particularly so when one remembers that Mr Hall effectively admitted that Dr Milicich and MCL were taken on in the first place for not one but two trawl events.  But that is not the point.  The point is that I have to interpret the contractual documents according to the principles enunciated by Lord Hoffmann and set out above.  It is not what the parties or either of them believed that counts or indeed what they meant by what they wrote or said, but what a reasonable person, who knew everything that they knew, would have taken the correspondence between them to mean.

42. Looking at the background facts it is clear that Lam had subcontracted the demersal trawling work to the UST for the duration of the main contract but ran into a problem when the UST’s 10-year ecologist, Dr Ni, expressed himself as unable to be present on the trawler for about half of the scheduled trawl events.  Dr Milicich knew Dr Ni, and according to her she knew from Mr Hall that he was looking for someone to take over the work because Dr Ni was not available to go out on the boat to supervise the trawling and that this would continue over a period of years.  She did not know much about, or even think about Lam’s subcontract with UST but obviously she knew that she was to take over work which Lam would otherwise have had done by the UST and Dr Ni.

43. Dr Milicich knew the requirements in the main contract for the ecologist and what the ecologist’s duties were and it was on this basis that she set out her Scope of Work.  In fact that is not far different from the Scope of Work annexed to Lam’s subcontract with the UST.  She had discussions particularly with Tara Jensen as to what was required.

44. While the correspondence emanating from MCL does not specifically offer to do the work continuously over the period of the main contract, the Scope of Work does contemplate follow-up work after the trawling, including in particular management and supervision of testing as required of the ecologist by the main contract as well as meetings and client liaison.  The keeping of a reference collection for the full term is also offered.

45. Lam’s letter of 26 June 2001 does not specifically refer to the acceptance of the offer for one trawl event.  Rather it says : “We wish to let the … subcontract works to yourselves.”  It goes on to say that the quotation is a fixed price lump sum for the period of the contract, which is until mid-2005 and is programmed to be another nine trawl events.

46. It seems to me quite difficult, on the ordinary meaning of the words, to interpret this in any other way than that contended for by the defendants, even without having regard to the background facts.

47. When one considers those facts, however it is clear that Lam, as far as it knew in June 2001 needed an ecologist, not just for one or even two trawl events, but for 50% of the trawl events planned until 2005 and Dr Milicich knew that as well.  Lam had to provide an ecologist under the main contract and could not force the UST to provide one.

48. It is significant that although the only thing which Lam really needed was the presence of a 10-year ecologist on the boat for every trawl event, because the UST and Dr Ni’s assistants could provide everything else, and indeed there is nothing to suggest that Dr Ni could not have provided the supervision of testing thereafter, what Lam chose to offer was the whole of the ecologist’s work.  I do not know whether some agreement could have been reached for Dr Milicich simply to go on the boat and provide some kind of notional supervision or if Mouchel would have accepted that; such was not canvassed.  But it appears from Mr Hall’s statement ― and Dr Milicich agrees with this ― that in the beginning there was some question of changing the whole contract from UST to MCL.  This suggests an ongoing need, known to both parties, for continuity.

49. Marine ecologists who fulfil the requirements of the main contract are not common in Hong Kong; Mr Hall said as much in his statement.  Also, as Mr Hall agreed, arranging for MCL to come back for individual events on a per-event basis, would inevitably be difficult.  So it would make commercial sense from Lam’s point of view to have MCL contractually bound to provide services when required over the full period, rather than simply bound to do the work at a specific price if Lam needed to offer it and if MCL chose to accept it.

50. From MCL’s point of view, given the need to obtain special equipment for the particular requirements of the job, the requirement to keep a reference collection and have follow-up meetings, and indeed the need to fulfil the requirements of supervision of testing imposed by the main contract, it would make sense to have a subcontract for the full term of the main contract.  The “business common sense” referred to by Lord Diplock would therefore dictate that a continuing subcontract for the term of the main contract would be to the advantage of both parties.

51. I conclude therefore that what the parties agreed was a subcontract for that period, for nine trawl events, at a lump sum price per event.

The identity of the contracting parties

52. The correspondence emanating from MCL, although on letterhead of an unincorporated association (no point being taken on this), clearly contemplates that services are to be provided not just by Dr Milicich but by her organisation.  This would include Louise Shorthose, by then a director, who accompanied Dr Milicich on the first trawl event and the laboratory staff.  That organisation was MCL.  This was recognised ultimately by Lam in its solicitor’s letters and indeed it seems to have been accepted by Mr Hall in cross-examination.  Of course Dr Milicich is herself the ecologist but she was, in my view, not engaged in a personal capacity; it was her company that was engaged to provide her services and those of its other staff.  So the contracting parties were Lam and MCL.

Retention of the deliverables

53. Having heard the witnesses I find that Mr Hall did cancel the contract on 28 August.  Most probably what happened was that Lam realised that it had an ongoing contract with the UST and would have bigger problems if it did not cancel that with MCL; hence Mr Hall’s words to Dr Milicich that “it’s easier to do this”.  In other words Lam repudiated the contract.  MCL accepted the repudiation by a letter dated 11 December 2001.

54. After the repudiation MCL was willing to continue with the preparation of samples and data and indeed it completed that work; the samples and data were ready for delivery by 5 November 2001.  Dr Milicich insisted on being paid first.  This Mr Pirie for Lam called “fishmail”.

55. The subcontract provides for a lump sum per event.  There is no dispute that a lump sum contract generally requires that the work be completed, or substantially completed before payment is made.  That would require, in the case of ecological work, completion of the work through to the supervision of testing required by the main contract.  Dr Milicich herself did not, apparently realise the significance of the term when she made her offer so it is arguable that the parties were not ad idem on this point.  If that is right, then on general principles payment would have to be made within a reasonable time and in any event I think that reasonable time would not expire before the final testing of the samples.

56. As to why the deliverables were withheld, Dr Milicich said that it was because nothing was sorted out about the finances.  She had a cancelled contract, and the other party wanted her to deliver without payment.  There was no proposal for payment on delivery and she wanted to be sure that the financial side would be all right.  In other words, she wanted to protect herself.

57. Then when she received Lam’s letter of 9 November 2001 offering $125,000 in full and final settlement, Dr Milicich said, she did not accept it because it was not reasonable.  The payment for the work done was wrapped up with other matters and if she accepted it she would have no recourse for the other expenses she had incurred, such as for equipment.

58. I have considerable sympathy for Dr Milicich’s reaction.  She did not want to leave MCL unprotected and without any leverage to recover what she considered was owed to it.  However, once Lam repudiated the subcontract, MCL could have accepted the repudiation straight away but it did not formally do so until December, and it did not indicate acceptance by its conduct; it carried on with the work it had agreed to do.  In my view it would still be bound to whatever payment terms applied under the subcontract.  I do not see how MCL could, in the circumstances, expect to be paid before it released the deliverables and I do not consider that it was justified in retaining them.

59. Mr McGowan argues for MCL that in any event the interlocutory injunction should never have been granted.  In the first place it lacks the necessary undertaking in damages because the payment into court in lieu of undertaking would be insufficient to cover the defendants’ damages.  Then it is said that while Mr Hall claimed that the data was unique, it was not; and finally it is said that even if there was delay Lam was still in a position to obtain a certificate of completion of part of the works under the main contract.  This would have reduced any liquidated damages.  So damages would have been an adequate remedy and there was no need for an injunction.

60. In his affidavit Mr Hall said that the data was unique, and required as part of a series commencing in May 2001.  It was required at six-month intervals consistent with seasonal variations.  Interpretation of the preceding and subsequent data at this time was inadequate without the August data.

61. At the trial Dr Milicich gave evidence that the August data could have been replaced by any other wet season trawl.  The trawl events should, under the main contract, be three and a half weeks apart.  UST carried out a trawl event at the end of August and therefore could have carried out a second one, in order to repeat what MCL had done at the beginning of August; and MCL could have thrown all the samples and data away.

62. This may well be right, but it overlooks the fact that there was no suggestion that the samples and data would not be delivered, except against payment of damages, until the beginning of November.  By then, it was too late.  The wet season had passed and, as was noted in correspondence from Mouchel to the Civil Engineering Department at the end of December 2001, there was a data gap for the August trawl event; other methods of filling it had been considered but the survey could not now be repeated.

63. It is also argued that Mouchel reminded Lam on 31 December 2001 that it could submit a request for a certificate of completion of part of the works.  The effect of such a certificate would have been to reduce the rate of liquidated damages.  Those liquidated damages would in any event only have been payable from 11 October 2001.  In fact substantial completion of section IV of the works was ultimately certified by Mouchel at 10 October with outstanding work of analysis and report on the biota samples obtained in August 2001 to be carried out in the maintenance period, i.e. six months.  Therefore the solution to the problem was in Lam’s hands and there was no need for an injunction.

64. The problem with this argument is that by 31 December, 2001 MCL was withholding the deliverables and there was no way to replace them.  Mouchel’s certificate of substantial completion was issued on 21 March 2002, i.e. after the injunction had been obtained and complied with, and presumably on the basis that the deliverables were now to hand.

65. Once MCL had coupled delivery with payment at the end of November, it seems to me, the only way that Lam could proceed was by way of injunction, to get the deliverables so that they could be analysed either within time or, as it turned out, within the maintenance period.

66. It is true that these points were not revealed at the injunction hearing; at any rate, I do not remember them, and they are not covered in my ruling.  But if they had been, I cannot see that it would have made any difference.  Lam needed the deliverables and damages would not have been an adequate remedy.

67. It follows that Lam was justified in applying for the injunction.  I will deal with the effect of this finding below.

Quantum of the counterclaim

68. MCL is obviously due payment for the first trawl event plus the extra charge of $15,000 for additional work done; I do not think that there is now any dispute on that point.

69. MCL then pleads alternative claims.  The first is for a loss of profit of $245,000 for the nine trawl events.  The second alternative is for $159,750 being $85,750 for the second trawl event, expenses of $42,000 in respect of purchase of equipment and chemicals at $30,000 and boat hire at $12,000.

70. I do not see how the full price of the second trawl event could be awarded.  MCL would, on cancellation, be entitled to its loss of profits for the rest of the contract and that would be in respect of eight trawl events.  As to equipment and chemicals there is some evidence of these, but they would have to be factored into the loss of profits and there could not be a separate award in respect of them.  The boat hire is an extra, and an award can be made in respect of it; I have no doubt a boat was hired; that features in the correspondence.  The invoice produced in support of the hire seems to refer to an entirely different boat hire on a different day but I can accept that the cost of a day’s hire would be $12,000.

71. No doubt there would be loss of profits but there is a problem with quantification.  Dr Milicich does not explain the figure pleaded; she simply said (following an objection to her evidence, on the ground that there was nothing in the statement about loss of profit) that this was her net loss.  The figure she advanced as reparation for staff salaries in relation to the project in her e-mail of 29 August 2001 was not loss of profit.  I have no other evidence of what MCL’s loss of profit might have been.  The margin seems high, but the work is mainly intellectual in nature and probably does not need a lot of input in terms of equipment or consumables.  I will therefore accept this figure.

72. There is also a claim for consulting fees of $32,000.  I am not clear what this relates to.  Some of it seems to have been in relation to the proposal to take over the benthic work.  However, it is not provided for under the subcontract and I will disallow it.

73. The final figure should therefore be :

First trawl event	$85,750
Extra charges therefore	$15,000
Loss of profit on 8 events	$217,777
Boat hire	$12,000
Total	$330,527

The result

74. In the premises, Lam was entitled to its injunction against MCL and is now entitled to have its injunction against MCL made final.  I do not see that it should have had an injunction against Dr Milicich personally, because she was not the contracting party so the interlocutory injunction against her is discharged.

75. The balance of Lam’s claims against both Dr Milicich and MCL are dismissed.

76. As to the counterclaim there will be judgment in favour of MCL for $330,527 with interest at prime rate plus 1% from the date of filing of the counterclaim until judgment and thereafter at the judgment rate until payment.

Costs

77. On Lam’s own case, the amount in dispute between the parties was low.  When the action was raised, there was no claim against Lam for liquidated damages and no claim for loss of contracts and indeed no such claims have eventuated.  There was in 2001 jurisdiction in the District Court to grant the injunction, given the amount of claim then involved and Lam could have gone there in the first instance, secure in the knowledge that transfer would have been possible if its damages claim had to be amended.  To institute proceedings in the High Court was using a sledge hammer to crack a nut.

78. The costs of the interlocutory injunction were ordered to be costs in the cause and Lam having succeeded on the injunction against MCL will have the costs of the interim and final injunction, but at the District Court rates.

79. Lam having failed against Dr Milicich entirely will pay her costs, again at the District Court rates and will pay the costs of MCL in respect of the failed claim for indemnity and damages.

80. MCL will have the costs of the counterclaim, again at the District Court rates.

81. The costs are to be taxed if not agreed.  Since the judgment is to be handed down the costs orders are nisi.