KH FOUNDATIONS LTD v. CHUN YIP CONSTRUCTION CO LTD

HCCT 43/2019

[2020] HKCFI 3019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 43 OF 2019

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BETWEEN

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D E C I S I O N

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1.  These proceedings were instituted by the Plaintiff to pursue claims made against the Defendant under a Works Contract in writing dated 7 January 2014 (“Contract”), under which Contract the Plaintiff was appointed to construct piling and foundation works (“Works”) at a residential development in Deep Water Bay Drive (“Development”). The Plaintiff seeks payment of a sum of $145.9 million said to be payable and due from the Defendant under the Contract, and various declarations which include a declaration that it was entitled to an extension of time of 424 days under the Contract, and declarations relating to a Supplemental Agreement which the Plaintiff claims was made between it and the Defendant in March 2015 (“Supplemental Agreement”).

2.  Pursuant to the Plaintiff’s service of a Statement of Claim (“SOC”) on 13 September 2019, the Defendant filed a Defence and Counterclaim, in which the Defendant denies the existence of the Supplemental Agreement, and further denies the Plaintiff’s claims of entitlement to extension of time.  The Defendant also denies the Plaintiff’s claim for $145.9 million as the adjusted contract sum claimed to be payable under the Contract.  By way of Counterclaim, the Defendant seeks payment of contra charges totaling $17.5 million, the proper valuation of work done pursuant to variation orders issued under the Contract (which the Defendant claims to be $41 million), and liquidated damages of $350,000 per day payable by the Plaintiff.  The Counterclaim, if successful, extinguishes the Plaintiff’s claim and leaves a balance with the Defendant in the region of between $170 million and $230 million.

3.  The trial of the action has been fixed for May 2022, with 15 days reserved.

4.  On 11 May 2020, the Plaintiff issued a summons for further and better particulars of the Defence and Counterclaim (“Particulars Application”). On 12 May 2020, it also sought by a separate summons production of an unredacted copy of the Superstructure Works contract which was referred to in the Defence and Counterclaim (“Production Application”).  By the time of the hearing, Request 2 of the Particulars Production was not pursued and Requests 1 and 3 were simplified to narrow the matters remaining in dispute.

Applicable legal principles

5.  The general principles applicable to particulars of pleadings and discovery are not seriously in dispute between the parties, and need not be repeated.  The emphasis made on behalf of the Defendant is that the Court has warned against prolix pleadings in construction cases, and bearing in mind the length of the pleadings and appendices which have already been served by the parties in this case, the Court should not encourage further particulars or discovery, and confine orders to what are necessary either for disposing fairly of the cause or matter or for saving costs (Order 18 rule 12 (3B) and Order 24 rule 13).  I fully agree with the sensible approach and have no intention whatsoever to add prolixity to unnecessary particulars and pleadings.  At the same time, the Court must bear in mind the underlying objectives of the rules, and must pay heed to securing the just resolution of disputes and ensure a fair trial of the action.

The Particulars Application

6.  Request 1 of the Particulars Application concerns paragraph 20 of the Defence, which pleads:

“With a view to minimizing its liability due to the late completion of the Works under the Management Contract and to enable Bordon to commence the Superstructure Works, the Defendant had no alternative but to accept the proposal from the Plaintiff for a partial handover arrangement for the Tower Portion (the ‘Partial Handover Arrangement’) in around March 2015. This Partial Handover Arrangement was accepted by the Defendant pursuant to GCC Clause 16 (7) of the Works Contract.”

7.  According to the SOC, the employer and developer of the Development (“Employer”), the Defendant which was engaged by the Employer to manage the construction of the Development under a Management Contract, and the company engaged to construct the superstructure of the Development (“Bordon”) are all connected, and are within the Nan Fung group of companies (“Group”).  The Contract was entered into by the Plaintiff and the Defendant, for the Plaintiff to carry out piling and foundation works for the Development.  Bordon was appointed by the Employer as the contractor for the construction of the superstructure of the podium, the building services and other fitting out works for the Development (“Superstructure Works”).

8.  According to the SOC, the parties were in discussions in March 2015 when the Defendant requested the Plaintiff to hand over a portion of the Works to Bordon, to enable it to commence construction of the Superstructure Works.  The Plaintiff pleads in paragraph 25 of the SOC that it was agreed between the Plaintiff and the Defendant “in or around March 2015 leading up to 23 March 2015”, that there would be a handover of a portion of the Works to the Defendant on 4 June 2015, to enable Bordon to commence the Superstructure Works, and the remaining Works were to be completed within a reasonable time thereafter (“Supplemental Agreement”).  The Plaintiff also pleads that the Defendant had represented that no liquidated and ascertained damages for delay would be imposed beyond 4 June 2015 (“Date of Handover”).

9.  In answer, the Defendant pleads (in paragraph 19 of the Defence) that by mid-March 2015, it had become apparent that the target completion dates agreed to by the Plaintiff were unachievable, and because of the Plaintiff’s delays, part of the tower portion works were omitted from the Contract by mutual agreement of the Plaintiff and Defendant, and completed by Bordon instead.  The claim in paragraph 20 then follows, claiming that to enable Bordon to commence the Superstructure Works, the Defendant had no alternative but to accept the proposal from the Plaintiff for the Partial Handover Arrangement in March 2015.

10.  By the revised Request 1, the Plaintiff sought the following particulars of paragraph 20 of the Defence:

“1. State whether the proposal was in writing or oral (or partly in writing and partly oral), and when made.

2. If the proposal was in writing, identify the relevant documents. If the proposal was oral, identify the person(s) from the Plaintiff who made it and the person(s) from the Defendant to whom it was made and the gist of the words used.

3. State the terms of the proposal.”

11.  This is a standard request for pleas as to agreements or offers made, and in this case, of the alleged proposal from the Plaintiff for the Partial Handover Arrangement. 

12.  The issue relating to Request 3 is similar.  Following the pleading in paragraph 20 of the Defence, the Defendant claims in paragraphs 21 and 22 that under the Partial Handover Arrangement, there was a handover of the tower portion and the related works to the Defendant in 3 parts, but due to the Plaintiff’s delay, the upper ground floor slab within the tower portion of the Development (“Omitted Works”) was eventually omitted from the Contract “by mutual agreement” of the Plaintiff and the Defendant, and subsequently completed by Bordon.

13.  Request 3 therefore sought the same basic particulars of whether the “mutual agreement” referred to in paragraph 22 of the Defence was in writing or oral, when it was made, the persons who made the agreement if it was oral, and the terms of the mutual agreement.

14.  The Defendant raises the same objection to Requests 1 and 3.  It claims that there is no dispute between the parties that portions of the Works were handed over to the Defendant in parts.  Nor is there dispute that a part of the tower portion works, ie the Omitted Works, was omitted from the Contract. The Partial Handover Arrangement, in so far as it related to the fact of a partial handover, is not in issue.  The Defendant only disputes and denies the Plaintiff’s claim that there was a Supplemental Agreement, as pleaded in paragraph 25 of the SOC, whereby it is alleged that after the partial handover, the Works which remained would be completed by the Plaintiff within a reasonable time.  The Defendant further denies that it had represented that no liquidated and ascertained damages for delay would be imposed beyond the Date of Handover.  According to the Defendant, the particulars sought of the proposal for the handover arrangement, and for the mutual agreement for omission of the Omitted Works, are unnecessary.

15.  The fact that the proposal was made by the Plaintiff, and hence known to it, does not mean that it is not entitled to particulars from the Defendant (para 18/12/61 HK Civil Procedure 2021).  Although it is agreed, that there was a proposal from the Plaintiff and that this was accepted by the Defendant, and further, that there was a partial handover of the Works and omission of the Omitted Works, the Plaintiff is entitled to the essential particulars of the Defendant’s case on the proposal made and the terms of the proposal.  These particulars are necessary to bind the Defendant to its case on the proposal and on the agreement for the handover, and to enable the Plaintiff to fully meet the disputed case on whether, as part of the Handover Arrangement, there were (according to the Defendant) terms as to the date for the Plaintiff to complete any part of the Works, and terms as to liquidated and ascertained damages for any delay beyond the Date of Handover. 

16.  Bearing in mind the nature of the particulars sought, Request 1 is proportionate, and also necessary for disposing of the action fairly, to avoid any surprises and to save costs of unnecessary cross-examination and argument at trial.

17.  The same applies to Request 3 for the particulars of the mutual agreement.  The Plaintiff admits in the Reply that the Omitted Works were omitted, but does not admit to the other averments in paragraph 22, namely that the omission was due to its delay.  The Plaintiff is entitled to know the Defendant’s case on the mutual agreement on the omission, and to bind the Defendant to its case on the terms of the mutual agreement on omission.  The particulars sought are proportionate, and necessary for disposing of the action fairly, and to save costs of unnecessary cross-examination and argument at trial.

18.  With regard to Requests 4 to 6, these relate to Annex G to the Defence and Counterclaim, referred to in paragraph 26 (3) (ii) thereof.  The pleading at paragraph 26 is as follows:

“26. The Defendant’s case is that the Plaintiff has no entitlement to any extension of time or to prolongation costs and time did not become at large for the following reasons:

(1) there is provision in the Works Contract (namely GCC Clause 30) allowing for an extension of time to be granted under appropriate circumstances. Contrary to the Plaintiff’s claim, there was no agreement between the Plaintiff and the Defendant to displace the contractual mechanism after Date of 1^st Partial Handover (namely 4 June 2015). Accordingly, time did not become at large post 4 June 2015. This will be further elaborated in paragraph 115 below;

(2) the Plaintiff is not entitled to any extension of time or prolongation costs because of its failure to satisfy the conditions precedent in GCC Clause 30 and GCC Clause 36, which require timely and proper notice to be given in respect of such claims. Details of the contractual provisions in GCC Clause 30 and GCC Clause 36 relating to the grant of extension of time and prolongation costs are set out in Annex B hereto and the Plaintiff’s non-compliance of each of the aforesaid provisions is summarized Annex E and Annex F hereto respectively;

(3) alternatively to paragraph 26(2) above:

(i) were GCC Clause 30 not a bar to a claim for extension of time, the Plaintiff’s total entitlement to an extension of time in respect of the claims pleaded in the SOC would only be 147 days;

(ii) in such circumstances, were GCC Clause 36 not a bar to a claim for prolongation costs, the Plaintiff would only be entitled to 1 day of prolongation costs, because the remaining delay of 146 days were concurrent with delays which were within the Plaintiff’s own responsibility, as set out in Annex G hereto;

(4) in the further alternative to paragraph 26(3)(i) above, were there an entitlement to 165 days of extension of time (as per the Architect’s assessment which resulted in the previous grant) instead of the aforesaid 147 days, the Defendant will rely on programming expert evidence as to the effect of concurrency arising from events pleaded in Annex G.”

19.  Annex G sets out “delays which were within the Plaintiff’s own responsibility”.  These include facts and events such as the Plaintiff’s late submission of designs, failure to handle amendments requested by the Buildings Department, and late consent applications, over different periods in time and in relation to different designs and works under the Contract.  Essentially, the Defendant’s plea is that the Plaintiff was not entitled to any extension of time or prolongation costs, because any delay for which extension of time was sought by the Plaintiff was concurrent with delays which were within the Plaintiff’s own responsibility.

20.  The Defendant also claims in paragraphs 73 (2), 88 (3) and 100 (5) of the Defence that various periods of delay (of 36 days, 74 days and 30 days) were non-critical, as well as being concurrent with the Plaintiff’s own delay.

21.  In the requests for particulars, the Plaintiff seeks breakdown of how each event set out in Annex G made up the claim of days of concurrent delay, which event contributed to the concurrent delay, and a detailed breakdown of how each event made up the concurrent delay.

22.  In relation to these requests for particulars of Annex G, I accept the submissions of Counsel for the Defendant, that it would be a waste of time and costs to deal with the requests by way of particulars to the pleadings as they now stand, which adequately give notice to the Plaintiff of the Defendant’s case on delay and extensions of time, and of the facts relied upon by the Defendant.  The requests as to how the facts and events set out in Annex G caused or contributed to the delay, with breakdown of the computation of the days of delay, should more appropriately be dealt with by expert evidence to be called.  It is not helpful to have prolix pleadings which essentially set out evidence, or which have the effect of hampering the work of the experts who can be relied upon to consider the essential facts of the case, identify the relevant events which may have impact on delay and to assess the claims against what they regard to be the relevant events.  The case of Chun Wo Building Construction Ltd v Metta Resources Ltd, HCCT 29 of 2013, 19 August 2016 and the observations made by the Court at paragraphs 404 and 405 are highly relevant as an example of the type of pleadings and particulars to avoid, in order to have an effective trial.

23.  As observed in the case of John Doyle Construction Ltd v Laing Management (Scotland) Ltd [2004] SC 713, at para 20:

“So far as the causal links are concerned, however, there will usually be no need to do more than set out to the general proposition that such links exist. Causation is largely a matter of inference, and each side in practice will put forward its own contentions as to what the appropriate inferences are. In commercial cases, at least, it is normal for those contentions to be based on expert reports, which should be lodged in process at a relatively early stage in the action. In the circumstances there is relatively little scope for one side to be taken by surprise at proof, and it will not normally be difficult for a defender to take a sufficiently definite view of causation to lodge a tender, if that is thought appropriate. What is not necessary is that averments of causation should be over elaborate, covering every possible combination of contractual events that might exist and the loss or losses that might be said to follow from such events.” (Emphasis added)

24.  Requests 4 to 7 all relate to the impact of the events set out in Annex G, and how they operate to cause and contribute to the delay, and should be dealt with by way of expert evidence.  The same objection applies to Request 8, as to the significance of the date of 18 September 2014.

25.  In conclusion, I am only prepared to make orders on Requests 1 and 3 as revised, on the Particulars Application.

Production Application

26.  In the Production Application, the Plaintiff seeks production of the Superstructure Works contract which the Plaintiff says is referred to in the Defence, and in particular at paragraphs 5 (2), 6 (4) and 10 thereof.  The application is made under Order 24 rules 10 and 11A RHC, which entitle a party to seek production and inspection of a document, if “reference is made” to the document in a party’s pleadings, affidavits or witness statements.

27.  The application is opposed by the Defendant on the basis that Order 24 rule 10 only applies if the document is “directly alluded to” in the affidavit, pleading or witness statement, and that a reference which arises nearly “by inference” is not sufficient.  In reliance on Dubai Bank Ltd v Galadari & Ors (No 2) [1990] 1 WLR 731 and para 7.06 of Matthews and Malek, Discovery (1992), Counsel argued that reference to a transaction which, on the balance of probabilities, must have been effected by a document is not sufficient to invoke Order 24 rule 10.  In Dubai Bank, the example was given of a reference to “Blackacre was conveyed by A to B”, which was held to be insufficient as any reference to a document.  In Marubeni Corporation v Alafouzos, unreported, 6 November 1986, reference in an affidavit to “outside Japanese legal advice” was similarly held to be not a reference to any document.  On these authorities, Counsel submitted that there should be a direct allusion in the pleading to a document or documents, before Order 24 rule 10 can apply, and that there is no such direct reference or allusion in the Defence and Counterclaim.

28.  The references made in the Defence to the Superstructure Works contract may not be perfectly clear.  Yet, they are by far different to the allusions made in Dubai Bank and Marubeni.

29.  At paragraph 5 (2) of the Defence, the Defendant defines “Superstructure Works”, and it is by reference to the Superstructure Works as defined that the later references to the “Superstructure Works contract” are made.  Paragraph 5 (2) pleads as follows:

“Borden Construction Company Limited (‘Borden’) is the contractor engaged by that Employer for the construction of the superstructure on the Podium, viz the 2 Villas and the Residential Tower, and the building services (other than the underground drainage) and other fitting-out works for be entire Residential Development (the ‘Superstructure Works’).” (Emphasis added)

30.  At paragraph 6 (4) of the Defence, the Defendant pleads:

“the Employer, the Defendant and Borden are separate legal entities and assumed different contractual obligations and liabilities under the Management Contract and the Superstructure Works contract.”

31.  Paragraph 10 of the Defence goes on to plead as follows:

“SOC paragraph 9 is admitted. P&T Architects and Engineers Ltd had also been appointed by the Employer to perform the duties of the architect under the Superstructure Works contract between the Employer and Borden.”

32.  The Plaintiff also referred to paragraph 31 of the Defence, which pleads:

“As to SOC paragraph 24, the Defendant had liaised with Borden for Borden to carry out its works, but the agreement for Borden to commence the Superstructure Works would have been agreed between Cheerwide Investment Limited and Borden and not the Defendant.”

33.  Reading paragraphs 5 (2), 6 (4) and 10 together, and giving these paragraphs as well as the phrase “reference is made to any document” their natural and ordinary meaning, I consider that the references to “the Superstructure Works contract” are direct references to the contract for such works.  They are not indirect allusions to a mere transaction between the Defendant and the Employer, nor inferences of the likelihood of existence of a written contract for the Superstructure Works.  Since there is a reference to the Superstructure Works contract in the Defence, Order 24 rules 10, 11 and 11A apply.

34.  In any event, and without concession that there was any reference made to the Superstructure Works contract in the Defence, the Defendant argued that it had already complied with Order 24 rule 10 by supplying a redacted copy of the Superstructure Works contract to the Plaintiff.  In the affidavit of Chung Wai Keung made on behalf of the Defendant (“Chung affidavit”), it was stated that the redacted parts of the Superstructure Works contract contain pricing information, which is commercially sensitive and confidential between Borden and the Employer, and that the redactions are irrelevant to the disputes between the Plaintiff and the Defendant.  On behalf of the Defendant, it was contended that the Chung affidavit is conclusive on the relevance of the redacted material.

35.  The Court held in Moulin Global Eyecare Holdings Limited [2013] 3 HKLRD 72 that there is a clear distinction between discovery generally and applications for production under Order 24 rule 10.  A party has the prima facie entitlement to a document referred to in a pleading, unless good cause is shown otherwise.  The purpose of Order 24 rule 10 is to prevent a party from obtaining an unfair advantage by relying on documentary evidence that the other party is unable to question (Moulin Global and Zida Technologies Ltd v Tiga Technologies Ltd & Ors [2001] 3 HKLRD 698).  Where a document is referred to voluntarily by a party in a pleading, affidavit or witness statement, it is difficult for the party to contend that the document is irrelevant, although the good cause required to oppose an order for production is not limited to lack of relevance.

36.  Although the party seeking an order for production under Order 24 is required to show that the order is necessary to dispose fairly of the cause or matter or to save costs (as required to under Order 24 rule 13 (1)), the Court affirmed in Moulin Global that “for practical purposes, a court is likely to take the view that absent any special factors, where a document has been referred to, it would generally be appropriate to regard its production as being so necessary as being in the interests of fairness and equality of information”.  In Taylor v Anderson [1995] 1 WLR 466 at 462, the Court explained that the purpose of requiring production to be necessary is to ensure that one party does not enjoy an unfair advantage, or suffer an unfair disadvantage, in the litigation as a result of a document not being produced for inspection.

37.  In GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 1 WLR 172 relied upon by the Defendant, Lord Hoffman held that a party is entitled to cover up parts of a document which he claims to be irrelevant, and the oath of the party giving discovery is conclusive – unless the Court can be satisfied from the documents produced, or from the circumstances of the case that the affidavit does not truly state that which it ought to state.

38.  I am not satisfied in this case that the redactions made by the Defendant are not relevant to the matters in dispute between the Plaintiff and the Defendant in these proceedings, as the Defendant claims in the Chung affidavit.  As the Plaintiff has highlighted, the Defendant’s counterclaim includes claims for contra charges and damages caused by the Plaintiff’s delay.  The Plaintiff’s claim in the action also includes additional costs said to have been incurred by hampered access to the site, and the Defendant’s failure to cooperate with the Plaintiff in hindering the Plaintiff’s works.

39.  From the disclosed parts of the Superstructure Works contract, the redactions relate to the construction budget, the estimate for costs of Borden “picking up” the tower portion works, the scope of the services to be provided by Borden, and the specification of its works.  These are relevant (on the Peruvian Guano test of relevance) to the costs claimed by the Defendant in its counterclaim for contra charges and costs incurred as a result of the Plaintiff’s alleged delay, and to the Plaintiff’s claim that it had been hindered in/prevented from the proper performance of its works under the Contract.  The Plaintiff further contended that the pricing information is relevant to the issue of whether the liquidated and ascertained damages clause in the Contract is penal and invalid, as the Plaintiff has so claimed in the Reply and Defence to Counterclaim.  Evidence of the costs of Borden’s works and specifications of its work is relevant in showing the likely damage sustained by the Employer/Defendant, as a result of any delay caused by the Plaintiff, and the work carried out by Borden.

40.  The fact that the pricing information may be commercially sensitive and confidential is not, in my view, a good reason to justify the redaction when the Superstructure Works contract is referred to in the Defence.  The rationale and principles stated in the decisions of the Court in Interlego AG v Tyco Industries Inc [1985] HKLRD 115, Dynamic Way International Ltd & Anor v Ho Kui Chee & Ors [2000] 4 HKC 138 apply.  The Defendant chose to refer to and rely on the Superstructure Works contract in its Defence and Counterclaim, and despite any alleged confidentiality claimed, there is no good justification to deny access to the Plaintiff to the document.  This is in accordance with the principles of securing a fair determination of the trial and the issues in dispute in this action.

41.  I also accept the submissions made on behalf of the Plaintiff, that there is doubt whether there is any remaining confidentiality in the pricing information.  The Superstructure Works contract was made in 2015, between related companies in the Group (and the Plaintiff argued that it has little value as an indicator of Borden’s market price).  The Development has been completed and sold/is being sold.  It is dubious whether the data which the Defendant seeks to withhold from the Plaintiff retains any commercial significance to any competitor.  I also agree with the observation made by the Court in Wong Yin Fong v ISS Hong Kong Services Ltd [2005] 2 HKLRD 648, that any concern that the Plaintiff might misuse the commercially sensitive or confidential information is adequately safeguarded by rules and directions which confine documents produced on discovery to use only for the purpose of the present litigation.  The prime consideration is the right to inspect documents which is a right underpinning procedural fairness and essential for administration of justice.

42.  For the foregoing reasons, I am satisfied that the production of the Superstructure Works contract is necessary for disposing fairly of the cause or matter.

Disposition

43.  Orders are made in terms of the summons for Requests 1 and 3 on the Particulars Application and in terms of the Production Application, with an order nisi that the Defendant is to pay 50% of the costs of the Particulars Application and 100% of the costs of the Production Application, with certificate for Counsel.