NEWELL CURTAIN WALL & ENGINEERING CO LTD v. SUNYARDS ENGINEERING LTD

HCCT 55/2010
and HCA 1361/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 55 OF 2010

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J U D G M E N T

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INTRODUCTION

1.  These two actions were commenced almost simultaneously.

2.  By an order dated 4 October 2010 by Reyes J, the actions were consolidated with HCCT 55/2010 as the leading action.

3.  The plaintiff carries on business as a Building Contractor.

4.  It was the nominated subcontractor of a construction project at the Po Lin Monastery at Ngong Ping, Lantau.

5.  The defendant carries on business of supplying and fabricating glass reinforced plastic works (“GRP”) products.

6.  On 31 October 2009, the defendant submitted to the plaintiff a quotation for GRP works at the temple extension building.

7.  The plaintiff accepted the quotation by a letter of acceptance dated 2 November 2009.

8.  This acceptance was conditional upon the defendant obtaining approval from the employer Po Lin Monastery and Mr Huang Wei Li (“Mr Huang”) their Architectural Specialist to a mock up which they would construct in accordance with the requirements and specifications referred to in the said letter of acceptance. The specifications referred to the GRP work which had to be undertaken.

9.  It is the plaintiff’s primary case that the requirement for this approval was a condition precedent to the coming into effect of any contract between the parties.

10.  It is their case that the mock up was not approved in accordance with the terms of the conditional contract constituted by the letter of acceptance.

11.  Accordingly they are suing the defendant for losses and damages and the refund of advance payments which were made pursuant to the conditional contract.

12.  The plaintiff’s alternative case is that if they are unsuccessful in their contention that the contract was a conditional contract, they are suing the defendant for breach of a fundamental term of the contract to procure the approval of the Architect and Employer.

13.  Consequential upon this breach of contract they are claiming the refund of advance payments and loss and damages.  They contend that the breach of the terms of the contract amounts to its repudiation.

14.  The Letter of Acceptance is in these terms:

15.  The case being advanced by the defendant is that the contract was not a conditional contract.  They contend that it was an effective and binding contract.

16.  They counterclaim for loss and expenses arising out of the plaintiff’s breach of the implied terms of the subcontract and of its repudiatory breaches.

THE PLAINTIFF’S CASE

17.  The first witness to give evidence for the plaintiff was Mr Mak Kin Man (“Mr Mak”).  He is a Director of the plaintiff and was in charge of this project.

18.  One important aspect of this project was to create the appearance and style of a Tsing Dynasty Temple while using contemporary materials and technology.  To achieve this objective required highly specialised knowledge and skills.

19.  The employer the Po Lin Monastery appointed Mr Huang as the Chinese Architectural Specialist.  He is a Board member of the monastery.  It was necessary for him to work in conjunction with the representative of PK Ng, the Architect.

20.  Mr Huang was responsible for the Chinese Architectural features and the architect was responsible for the structural and technical aspects and for integrating the Chinese features into other structural parts of the temple.

21.  The approval of both of them was necessary for the project to be proceeded with. 

22.  On account of the specialized nature of GRP work, Mr Mak was of the opinion that it would be necessary to subcontract this work.

23.  Mr Mak had been introduced to Mr Kwong King Swing (“Mr Kwong”), a Director of the defendant by a mutual friend.

24.  On 5 October 2009 a site visit was arranged at a factory at Zhongshan China (“the Factory”) which Mr Kwong claimed was owned by the defendant.  Mr Mak had attached great importance to this as he did not want anyone undertaking the work to subcontract any part of it as this would lead to administrative problems.

25.  The meeting was attended by himself. Mr Kwong and Mr Li Hun Jian (“Mr Li”) who was described as being the manager of the factory.

26.  Work was in progress at the factory and it appeared conditions were acceptable.  An ISO certificate was displayed in the office at the factory.

27.  On 14 October 2009 the defendant attended a tender interview at the plaintiff’s sub office at Cheung Sha Wan.  This was also attended by Mr Yan King Wah (“Mr Yan”) the plaintiff’s project manager.

28.  Mr Mak made inquiries about the defendant’s quality assurance and quality control system.  This was important on account of the stringent requirements of the project.

29.  Mr Mak asked Mr Kwong to submit documentation on this and he later produced a document entitled “Technical Specification of Fibre Glass Reinforced Plastic” which contained quality assurance, method statement and specifications of the GRP materials, manufacture and fabrication procedures.

30.  The defendant issued a quotation on 31 October 2009.  On 2 November the plaintiff issued the letter of acceptance earlier cited in this judgment together with Specification Preliminaries, GRP Specifications, Schedule of Drawings, Schedule of Rates and Proposed programme.

31.  The plaintiff accepted the quotation subject to the terms and conditions stated in the said letter.  The defendant accepted the contract by countersigning the letter.

32.  The contract provided that the defendant was responsible for all testing and the provision of all GRP materials which should comply with the requirement of the Building Authority.  It was also necessary for them to execute works in compliance with the scope of works, specifications and drawings and to obtain the approval of the Architect and the Employer.

33.  Most important was the provision in the contract which had been underlined that the contract was conditional upon and would only become effective upon approval being obtained from the Architect and Employer of a mock up of the work to be undertaken prior to mass production of the GRP work being proceeded with.

34.  According to Mr Mak the rationale of this provision was to ascertain whether the defendant was competent and had the facilities to produce work which was acceptable.

35.  The contract also referred to a large number of drawings which particularised the plaintiff’s requirement.  These were provided timeously to the defendant.

36.  Mr Arthur Yan (“Mr Yan”) who was the next witness to give evidence was appointed as project manager for the plaintiff.  He and another employee Mr CK Leung were stationed at the Zhongshan Factory (“the Factory”) in China to supervise and assist with the project.  As mentioned earlier by Mr Mak he proceeded upon the information that he had been given that the Factory was owned by the defendant.

37.  The work required the provision of a GMS steel structured frame which would simulate the frame it was intended to be installed at the monastery.

38.  It was agreed that the plaintiff would be responsible for providing the GMS frame and the defendant would provide the labour for its installation.

39.  When the GMS frame was delivered to the Factory, there were no workers available for the installation.  It was then agreed that the plaintiff would undertake the installation of the GMS frame and as it had already been delivered to the Factory its cost would be deducted from the amount which would eventually be payable to the defendant.

40.  Work on the GRP products was then proceeded with and a few pieces for the mock up were at the request of the employee delivered to them.

41.  On 12 March a meeting was arranged at the Factory to ascertain how the project was proceeding.

42.  The meeting was attended by Mr Andrew Cheung representing the Architect, Mr Huang representatives from the Employer Po Lin Monastery, Mr Kwong and his project manager Mr Anson Wong, Mr Li who was in fact the sole proprietor of the Factory, Mr Yan and Mr CK Leung and himself.

43.  No detailed inspection was undertaken as this would have been premature in all the circumstances.  What the Employer and Architect were concerned with was the general appearance of the GRP work and the conditions prevailing at the Factory.  There was no question at that stage of any approval being given.  Nor was there any rejection of the GRP work.

44.  Following this meeting work continued on the project.  The defendant had requested that advance payments should be made to them by the plaintiff.

45.  Under the Schedule of Rates the price for the 1:1 scale mock ups was only HK$331,075.00.  All parties were working together in an attempt to get approval for the mock ups and this payment was made.

46.  The plaintiff paid to the defendant a total of $766,350.18 between November 2009 and June 2010.  It was hoped that these moneys could be recouped at the conclusion of the project.

47.  On 5 June 2010 Mr Yan informed him that he and his project staff had been refused entry to the Factory.  He requested Mr Yan to take the matter up with the defendant.

48.  It was realised at this time that it would be necessary to negotiate directly with Mr Li.  This was on the basis of advice he had received from Mr Li that the defendant had no financial interest in the Factory.  Mr Kwong talked about purchasing a 10% interest in the Factory but no purchase moneys had ever been forthcoming.  In addition to this the defendant owed substantial sums to him in respect of other projects and only a fraction of the moneys had been paid.

49.  A search at the office of the Zhongshan City Administration revealed that Mr Li was indeed the sole proprietor of the Factory.

50.  It was also manifest that the ISO certificate he had seen at the Factory on his first visit did not relate to the Factory.

51.  The plaintiff paid to Mr Li RMB246,000 by 2 instalments on 14 and 19 June 2010.

52.  Arrangements were made for another visit to the Factory on 26 June.  Prior to this there was a preliminary meeting on 22 June attended by himself, the Architect and Mr Yan.  They met Mr Li and informed him of the intention to have a meeting on 26 June.  Mr Li said he would inform the defendant.

53.  The meeting on 26 June was attended by the Architect, Mr Huang, representatives from the monastery, Mr Li, Mr Yan, CK Leung and himself.  The defendant was not present.

54.  The representatives of the employer were most dissatisfied with the conditions prevailing at the Factory and the fact that numerous objects obstructed access to the GRP work.  After inspecting the mock up there Mr Sik Kin Chin one of the representatives said it was a waste of time coming to the Factory and that they would not visit again.  After about half an hour they all left.

55.  On 28 June the plaintiff received a letter from Mr Huang the translation is as follows:

“ [TRANSLATION]

328-Tl

Newell Curtain Wall & Engineering Company Limited:

Regarding your delegation to Sunyards Engineering Limited to manufacture the Po Lin Monastery GRP mock-up at the Zhongshan factory, after the manufacturing process, it is rejected as follows:

1. failing to provide sufficient facilities and manpower to manufacture the relevant GRP product.

2. failing to provide sufficient production space and basic facilities, environmental requirements for use as painting space.

3. failing to provide any quality control and supervision for the products.

The above 3 points are confirmed «Huang Wei Li»

Huang Wei Li

28-6-2010”

56.  Mr Huang also requested him to find another subcontractor to do the necessary work.  Mr Mak said that he would give the matter consideration.

57.  Mr Mak gave evidence that he found himself in a difficult situation.  He and Mr Yan reviewed the performance of the defendant’s work up to that time.  It was undoubtedly the case that it was unsatisfactory.  However having regard to the amount of work and effort already put in by the plaintiff they were reluctant to have to start all over again.

58.  On 29 July 2010 Mr Huang asked him to return the wooden moulds he had fabricated and provided to the plaintiff for onward transmission to the defendant.

59.  Mr Mak attempted to get these moulds back from the defendant.  His efforts to this end were unavailing.  The defendant refused to return them.

60.  On 2 August the plaintiff received the following letter from the defendant:

61.  The plaintiff’s reply to this letter was as follows:

62.  A decision had accordingly been made to discontinue working with the defendant.

63.  Mr Mak gave particulars of a new subcontract arrangement made with a company called LianDe Metal Handicraft Factory for a price of HK$9,249,203.70.

64.  So far as the actual details for the work either done or not done by the defendant, Mr Yan was the witness to give evidence on this.

65.  Mr Yan confirmed that as Project Manager he was based at the Factory together with Mr CK Leung.  Also they worked closely with Mr Huang who visited the Factory frequently.

66.  This was on account of the fact that the classical features in the artistic design had been Mr Huang’s work.  He was also the craftsman of what has been described as the wooden moulds upon which the mass production moulds would be based.

67.  The plaintiff prepared the shop drawings which would facilitate work including the necessary fixing details and structural elements for the architect’s approval.

68.  The shop drawings which had been prepared by the plaintiff were submitted to the Building Department and approval was forthcoming in three batches namely on 19 September, 7 October and 9 November 2009.

69.  The drawings which were relevant to the defendant work were given to the defendant on 15 November 2009.  Mr Yan said he also supplied Mr Anson Wong, the Project Manager of the defendant with all CAD files of the approved shop drawings.  When he attended at the defendant’s office at Sheung Shui, he copied the same from his USD drive to the defendant’s computer.

70.  A full set of the architect approval shop drawings was lodged at the Factory and the defendant’s workers had access to them.

71.  Contemporaneous with the delivery of the shop drawings, the plaintiff received from Mr Huang the wood moulds which were the visual representations of the final products.  On receipt the plaintiff would take measurements of the dimensions and cross check with the shop drawings.  Thereafter they would be passed to the defendant at the Factory.

72.  According to Mr Yan what the defendant should then have done was to prepare production shop drawings which were also referred to as fabrication drawings.  In this connection it is relevant to note what the Court Structural experts had to say on this topic.

73.  It was Mr Yan’s contention that fabrication drawings are essential in a production process such as this because without fabrication drawings, the component members or parts manufactured would not be controlled and would readily go astray.

74.  One of the complaints made by the defendant was that the plaintiff had failed to supply the defendant with drawings which had been approved by the Building Department.  This was a complete red herring as approved shop drawings are a separate matter and it is in relation to the structural designs which are the responsibility of the plaintiff which need to satisfy the requirements of the Building Department.

75.  The production of the fabrication drawings was not dependent upon Building Department approved drawings.

76.  In fact as outlined in the proposed working programme, the Building Department and the 1:1 mock ups themselves were concurrent processes.

77.  What the defendant had to do was to follow the design which had been approved by the architect and supplied to it.  As long as the defendant had done this if the structural design had to be varied or altered as a result of the requirements of the Building Department and which were not attributable to the fault of the defendant, the charges could be charged as a variation.

78.  What was completely unacceptable was for the defendant to sit back and simply claim to be waiting for further particulars to be provided by the plaintiff.

79.  In the event of any dispute in this connection, the correct practice was for reference to be made to the architect for a Ruling.  In the event of a party having to undertake additional work for variations the cost arising out of this could be recovered as an expense incurred.

80.  Mr Yan had explained all of this to Anson Wong and had requested him to proceed with the fabrication drawings notwithstanding any reservations he may have that variations may occur in the future.

81.  All that the defendant did in relation to the drawings was to prepare some combined drawings for the railing/parapet and beam panel. Although they were described as fabrication drawings they fell far short of meeting the requirements of the situation.  Mr Yan gave evidence that he explained to Mr Anson Wong the necessity of having proper fabrication drawings developed for each member part by part but the defendant still failed to comply with this advice.

82.  So far as the drawings of other parts such as the Tou‑Kung, ceiling, purlin and GRP features were concerned no fabrication drawings were ever prepared or submitted by the defendant.

83.  Without fabrication drawings the Factory would not know how to fabricate the parts or members.  In particular the fixing connections between structural members and GRP products could not be produced. What the defendant did was simply to mould the wood moulds prepared by Mr Huang to form the product mould (with GRP or silicon) which would be used to manufacture the members.  The GRP members were then assembled to 1:1 scale to form the mock up.

84.  The predictable result of all of this was that the GRP products manufactured were not controlled and deviated from the shop drawings.  They could only initiate the surface appearance of the wooden moulds and the structural details approved by the architect could not be incorporated.

85.  Mr Yan referred to the detailed specifications and the provisions setting out the obligations and responsibilities laid down in the subcontract and he corroborated Mr Mak’s evidence in relation to the GMS steel frame and the expenses of installation.

86.  One of the main problems which was encountered was the fact that Anson Wong and his colleagues were hardly ever in attendance at the factory and when workers were available to undertake work no adequate or satisfactory supervision was exercised by the defendant.

87.  In an endeavour to salvage a serious situation and get the necessary work done, the plaintiff tried to undertake some of the work itself but due to the absence of fabrication drawings this proved in many cases to be impossible.

88.  Mr Yan would telephone Mr Kwong for assistance and when he was able to contact him, he would simply say that he should refer the matter to Mr Li.  Mr Li who was engaged in other work was usually unable to give any meaningful assistance.

89.  One of the matters referred to in the structural experts reports was the necessity of there being and ongoing process of coordination and cooperation to ensure that fabrication and installation could be proceeded with smoothly.

90.  Having regard to the almost total lack of any input from the defendant including its failure to comply with its contractual commitments, it is not surprising that serious problems were encountered.

91.  The conditions at the Factory were lamentable. It was messy and disorganised.  Although a system of quality control and assurance system had been installed it was never adhered to.  There was no checking of the moulds including the master mould.  No inspections were carried out and the inspection forms were never submitted or signed.

92.  Under the terms of the subcontract the defendant was responsible for all required tests and providing all GRP material data for the approval of GRP by the Building Department.

93.  On 11 November 2009 the defendant submitted the calculation sheet for GRP bending strength, shear strength, tensile strength and compression strength to the plaintiff.  The structural design was undertaken by the plaintiff on the assumption of the material properties and data provided by the defendant.

94.  On 5 January 2010 Mr Yan and the plaintiff’s designers and structural engineer together with Anson Wong attended a meeting with the Building Department.  The purpose of the meeting was to clarify some technical details and discuss testing requirements.

95.  By Emails sent on 5 January and 6 January the defendant confirmed that they would do the tests in accordance with Building Department requirements.

96.  On 12 January the Building Department gave approval for the super structure — GRP Cladding (beam panal).  The approval however was subject to the tests which the defendant had promised to undertake.

97.  A copy of the Building Department letter and the conditions relating to testing was in this form.

98.  Mr Yan said that despite prompting the defendant never carried out any of the tests referred to and no material test reports were ever submitted to the plaintiff.

99.  Mr Yan gave similar evidence to the evidence given by Mr Mak concerning the 12 March 2010 meeting.  He also emphasized the superficial nature of the meeting and the fact that no assurance whatever was given by the employer, the architect or the plaintiff that they were satisfied with the performance of the defendant’s obligation under the subcontract.

100.  His evidence was also similar to Mr Mak’s in respect of the advance payments made to the defendant and the necessity of the plaintiff making payments to casual workers to ensure that the project proceeded notwithstanding the failure of the defendant to fulfil its obligations.

101.  Mr Yan played a central part in the events relating to the lockout from the Factory when he and his colleagues were refused entry.  He attempted to resolve the impasse with Mr Kwong without success.

102.  He was mindful of the fact that the moulds were in the Factory and in the not too distant future it would be necessary to have the installation of the mock up complete.

103.  He decided to make an approach to Mr Li at the Factory to see whether some form of arrangement could be made to resolve the problem.

104.  When he discussed the matter with Mr Li he learnt of all the problems he was having with the defendant and an agreement had been concluded that the plaintiff would pay RMB369,000 by 3 equal instalments to Mr Li which moneys would be used to engage workers to continue with the installation of the mock up.  The first two installments were paid until matters came to a head in late June 2010.

105.  Mr Yan’s version of what transpired at the meetings of 22 and 26 June 2010 were very similar.

106.  Mr Yan assumed an active role in relation to the attempts to get the moulds back from the Factory and it is clear that the defendant was not willing to agree to this.  He did however manage to retrieve the aluminum support frames which the plaintiff had supplied.

107.  Mr Yan said that he was aware of the letter Mr Huang had sent to Mr Mak and he had also taken part in the deliberations which had taken place when a decision had been taken as to whether a new subcontractor should replace the defendant.

108.  Both Mr Mak and Mr Yan were subjected to lengthy cross‑examination by Mr Alan Fan who was representing the defendant.

109.  I do not think that either of them were shaken in their evidence in any significant way.  In my view they were both excellent witnesses and I believe that they were truthful and reliable witnesses.

110.  The two other witnesses who gave evidence for the plaintiff were the expert witnesses.  Mr Chan Wai Lung was the structural engineering expert and Mr Ng Shiu Lim was the expert on quantum.

111.  It will be more convenient to deal with their expert and testimony after I have considered the two factual witnesses who gave evidence for the defendant.

THE DEFENDANT’S CASE

112.  The first witness for the defendant was Mr Anson Wong.  He described himself as being the Project Engineer and Quality Manager of the defendant.  He obtained impressive academic qualifications in both the USA and from Hong Kong University of Science & Technology.  He is a member of the UK Institute of Structural Engineers.

113.  He first obtained employment with the defendant in December 2006.  He claimed extensive experience with the defendant over a wide range of activities.

114.  He took part in the preparation of the quotation for the subcontract with the plaintiff and after the acceptance of the quotation he assumed duties as the Project Manager up to the time when he says the plaintiff wrongfully repudiated the subcontract in August 2010.

115.  During this time he claimed to have had dealings mainly with Mr Yan, Mr Mak, Mr YK Cheung, the architect representative and Mr Huang who was the Chinese Architectural Specialist representing the employee.  Also he maintained close contact with Mr Li Huan Jian the manager of the defendant factory at Zhongshan in China.

116.  From 20 November 2009 Mr Yan and some members of the plaintiff’s staff were stationed at the Factory.  The purpose of their presence was to supervise and coordinate the fabrication work of the mock ups. Mr Huang was also stationed at the Factory and his team was responsible for the colour coating and schematics of the project.

117.  It was his evidence that none of the people he had been working with had expressed any serious disapproval of the work which was being undertaken by the defendant.

118.  The plaintiff delivered to the Factory a large quantity of wooden moulds.  The quantity of these moulds was considerably in excess of the amount he expected and it was anticipated that adjustments would be made for this in due course.

119.  The moulds were delivered in 6 batches.  The first being delivered in November 2009 and the sixth in May 2010.  After each delivery the moulds would be inspected and measured.

120.  The construction drawings were received by the defendant on 15 November 2009.

121.  Mr Anson Wong said that there was a significant disparity between the measurements on the drawings and the measurements they had taken from the wooden moulds.

122.  He claimed that he had had discussions with Mr Mak and Mr Yan who had advised him that the construction drawings could not be used for the purpose of preparation of their GRP production shop drawings and the mock up should be fabricated individually in accordance with the actual sizes of the wooden master mould received by the defendant.

123.  He also claimed that the Building Department had not yet approved the plans for the structural sub frame perlins and brackets for the GRP works.  He accepted however that the plaintiff had requested that the production shop drawings should be submitted to them for approval on a number of occasions between November 2009 and March 2010.

124.  He contended that the plaintiff had never informed him that the plans had been approved by the architect and that accordingly they had been unable to proceed with the mass production of the GRP products.  He claimed that by urging the defendant to submit PSD for the GRP panels was a representation that the mock ups fabricated for the relevant GRP products had been approved by the plaintiff.

125.  Mr Anson Wong referred to a meeting he had attended with the Building Department on 5 January 2010 which was also attended by Mr Yan and staff from his office and the architect’s office.  At this meeting he understood that the defendant’s participation in the project would be approved.  However it was also made clear that mechanical properties tests should be conducted on samples of GRP panels and pull out anchorage tests should be conducted on the overlay samples to verify the assumed characteristics of the material.

126.  What however is singularly lacking from this commentary is any statement that the tests which needed to be undertaken if approval was to be forthcoming from the Building Department were ever arranged for or done.

127.  Mr Anson Wong claimed that the plaintiff was requiring additional mock ups to be fabricated and that these related to the numerous additional wooden mould samples which had been supplied by the plaintiff.

128.  The next matter dealt with by Mr Anson Wong was the meeting which took place on 12 March 2010.  He said that the meeting had been attended by Mr Yan, Mr YK Cheung representing the architect, Mr Huang and the employer.

129.  No one had made any adverse comments upon the mock up products save for minor paint touch ups and minor repairs.  The original and additional mock up samples were deemed to have been satisfied by the architect, Mr Huang and the employer.

130.  Mr Vincent Li cross-examined Mr Anson Wong on this.  On the basis of his admitted lack of active participation in the discussion taking place and its informal nature it was put to him that simply because he had not heard any adverse comments concerning the mock ups did not in any way mean that there had not been criticisms by any of the other parties present.

131.  Over and above this he also accepted during his cross‑examination that the aluminium supports had not been included in the GRP products and accordingly could not possibly have been under the impression that the 12 March meeting was in fact a meeting for the formal approval of the mock up.

132.  Also at that time the testing of the material properties of the GRP products had not been undertaken so there could be no question of the contractual requirements having been complied with.

133.  As regards the tests which were subsequently undertaken and referred to in the reports on the structural engineering by the appointed experts Mr Anson Wong accepted that the contractual requirements had not been complied with.

134.  In particular he was referred the section in the Joint Expert Report:

“2.3 Whether the mock-ups produced by the Defendant were in compliance with the contractual requirements and the requirements shown in the drawings supplied by the Plaintiff.

2.3.1 The temporary steel frames were largely different from the concrete structure of the Monastery building, in terms of providing fixing and anchorage to the aluminum sub-frame that supports the GRP products, particularly the Tou-kung, beam panels and features such as dragon head. If the Plaintiff had provided the Defendant with the amended drawings for the aluminum subframe for the mock-ups that tally with the fixing arrangements of the temporary steel frame, the Defendant could then produce the "FSD" or "PSD" accordingly

2.3.2 When the wooden moulds were found in major discrepancies with the drawings provided and received by the Defendant, the instruction given to the Defendant by the Plaintiff was to follow the shape and dimension of the wooden mould for the mock up fabrication.

2.3.3 The laboratory test results for samples taken form the mock-ups during the joint site inspection on 23 July 2011 in accordance with paragraph 4 of the SUMMONS dated 4 July 2011 are summarized below:

(a) flexural strength/bending strength - not comply with the strength specified on the BD approved plan dated 12 January 2010 and 2 June 2010.

(b) pull-out/anchorage test - test sample was not available as no cast-in embeds was fixed in the mock-ups.

(c) hardness - one of the test results from a total of 3 samples was less than the required hardness of 35, and the overall average of the 3 samples was larger than 35. The overall test results is considered in compliance.

(d) thickness - thickness of the five samples was complied with the requirements of 5mm +/- 0.5mm as stated in the approved Building Plan dated 12 January 2010 and 2 June 2010 but one of it was not complied with the requirement of 6.3 mm stated in clause 12.2.6.1 of the GRP Specification.

(e)   surface spread of flame according to BS 476 Part 7 - test results of the samples were classified as Class 3. Clause 12.2.2 of the GRP Specification stated that ‘All GRP ornamentations within protected means of escape shall be of Class 1 or 2 rate of Surface Spread of Flame as per BS 476-7.’ Clause 9.1 of the GRP Specification stated that Prefabricated GRP shall conform to BS 476, Part 7, Class 2. The internal memo of BO had made reference to the Fire Test Report from Bodycote Warrington submitted by for the 1 st approval on 12 January 200 which showed GRP laminated with similar composition so tested had Class 1 fire rating. BO had no further comment on the flammability of the proposed GRP material and approved the GRP plans on 12 January 2010 with notes no. 3.2 ii a) that ‘GRP Material shall be comply to BS476 Part 7 Class 2’, The same note no. 3.2 ii a) on the 2^nd amendment submission approved by BO dated 2 June 2010 had changed to ‘GRP Material shall be comply to BS476 Part 7 Class 1’.”

135.  These opinions need to be read in conjunction with the contractual requirements set out in the GRP specification.

136.  Clause 1.5.1 reads:

“1.5.1 The stainless steelworks and/or GRP works shall comply with all current Hong Kong Building Regulations, Building Department Practice Notes, Standards and Codes, and the latest version of all relevant British Standard and Codes of Practice (CP), ASTM, ANSI, AS, EN, ENV and ISO / DIN standard recognized by the Macau Building Department. Where there is a discrepancy between the requirements of similar Codes and specifications, the more stringent requirements shall apply. No substitution for the codes, specifications and standards will be accepted without endorsement from the Architect.”

137.  When accepting that there had been non-compliance, Mr Anson Wong observed that if these deficiencies had been made known to him at the relevant time he could have taken the necessary remedial action to rectify the situation.  This of course is a matter for conjecture.

138.  The remainder of the evidence of Mr Anson Wong mainly related to proving the items being claimed in the counterclaim.  As it was the function of the expert on quantum to deal with this aspect of the matter it would appear to be preferable to consider this evidence in conjunction with the Joint Expert Evidence on t his topic.

139.  Mr Anson Wong was subjected to a lengthy and skilful cross‑examination by Mr Vincent Li.

140.  One of the first matters dealt with by Mr Li was the relationship between the defendant and the Factory.

141.  It will be recollected that Mr Anson Wong had referred to the Factory manager Mr Li as being an employee.

142.  Mr Anson Wong’s attention was drawn to the searches of Public Records which had been conducted which clearly showed that Mr Li was the sole proprietor of the Factory.

143.  Mr Anson Wong said that he had been informed by Mr Kwong that he had some shares in the company and that accordingly it was not inaccurate to say that Mr Kwong owned the Factory.

144.  This was quite an important matter as it would undoubtedly impact upon the way in which Mr Anson Wong would perform his duties of supervision or whether he would assume a direct role in the fabrication process.

145.  It is difficult to believe that anyone of the undoubted intelligence of Mr Anson Wong would not be aware of the relationship between the defendant and the Factory or that the mere fact that some share or shares in any entity would of itself entitle a person to claim that they are the owners.

146.  Following on from this Mr Anson Wong was requested to give particulars as to how much of his time was spent at the Factory.  On being pressed by Mr Vincent Li he said that he had over the period of three to four months only been to the Factory on 4 to 6 occasions.  He also gave evidence that he was concurrently undertaking work on other projects and this being the case the amount of his input would not have been considerable.  The explanation he gave was that if any problem or situation arose, Mr Yan or his staff could raise the matter with Mr Li.  It was then put to him that if Mr Li who was sole proprietor of another organization was going to take part in the performance of the contract, this would amount to subcontracting something which Mr Mak had been anxious to avoid.  Mr Anson Wong said that he did not think that there had been any subcontracting of the defendant’s obligations under the subcontract.

147.  In my view the most important shortcoming in Anson Wong’s evidence was his evidence in relation to the requirement of producing fabrication shop drawings in conjunction with the measurements taken from the wooden moulds when producing negative moulds for the GRP products.

148.  Mr Yan’s evidence was put to him as was the evidence contained in the Joint Expert Report on structural matters. However Mr Anson Wong persisted that the moulds could be constructed simply from measurement of wooden moulds and their general appearance.

149.  This could not possibly be the case because without accurate measurements relating to the position of joints on the GMS frame, it would be impossible to install the GRP products.

150.  It has to be said that when this is taken in conjunction with the very limited time that Mr Anson Wong on his own evidence spent at the Factory it is hardly surprising that problems arose.

151.  Another matter which was raised in cross-examination was Mr Anson Wong’s participation at the 12 March 2010 meeting.

152.  Mr Vincent Li showed him photographs which had been taken at the occasion and Mr Anson Wong had difficulty to identify some of the people attending there.  On being pressed he had to admit that the extent of his involvement with the masters of the monastery and the architect was highly superficial and that almost exclusively his contacts had been confined to those with the plaintiff and its employee. 

153.  My overall impression of Mr Anson Wong as a witness was not favourable.  He struck me as being glib and superficial and when there are disparities between his evidence and the evidence of either Mr Mak or Mr Yan I much prefer their evidence.

154.  The next witness to give evidence for the defendant was Mr Kwong.

155.  Mr Kwong gave evidence that he is a director and major shareholder in the defendant company.

156.  He has been in the metal and fibre glass industry for many years.  In 1992 he traded as a sole proprietor and the business was incorporated in 2004 and changed its name to Sunyard Engineering Limited in 2007.

157.  He claimed to have undertaken a large number of projects where GRP products formed part of the project.

158.  In August 2009 he was introduced to Mr Mak by a mutual acquaintance.  Mr Mak told him about Po Lin Monastery project and his involvement in it.  He said that he intended to subcontract the GRP work.  Mr Kwong said that he would be interested in undertaking such work.

159.  Arrangements were made for tender documents to be sent to him to enable him to make a quotation.

160.  He was assisted in preparing the quotation by Mr Anson Wong.  He had been with the defendant since December 2006.  He had wide experience in a number of activities in which the defendant was engaged.

161.  Mr Kwong placed particular reliance upon Mr Anson Wong as he himself did not speak any English nor was he literate in the language.  Mr Anson Wong had been a student in the USA.  Other members of his team in respect of this project were Mr Gary Law and Miss Leung.

162.  In his dealings with the plaintiff, his team mainly dealt with Mr Arthur Yan the project manager and Mr Mak the project director.

163.  He also had dealings with Mr YK Cheung the representative of the architect and the authorised person and Mr Huang who represented the employer in relation to Chinese architectural matters.

164.  As the tender forms were in English, Mr Kwong was assisted in completing the necessary information.  However Mr Kwong gave instructions to Mr Anson Wong as to the details to be included.

165.  After the submission of the quotation to the plaintiff, Mr Kwong had several telephone conversations with Mr Mak.  Mr Mak had requested a downward price adjustment and Mr Kwong had agreed to this.

166.  On 2 November 2009 the defendant received from the plaintiff a letter of acceptance.

167.  This letter was translated to him by Mr Anson Wong.

168.  Mr Kwong said that he had no idea that a provision had been included in the letter of acceptance whereby the subcontract which was being entered into was subject to a condition precedent that approval had to be obtained from the employer and the architect of a 1:1 mock up of the GRP works.

169.  Mr Kwong said that during his extensive experience in the construction industry he had never come across a provision of this nature.  He also claimed that no one from the plaintiff had informed him that such a provision would be included.

170.  The requirements for the mock up in the GRP specification were quite onerous.

171.  In addition to this it was quite difficult to reconcile the timing for obtaining mock up approval with the master programme relating to other work.

172.  Had Mr Kwong been aware of the fact that this approval was a condition precedent to the contract coming into effect he would have required a further substantial amount to be added to the subcontract to cover this additional work.

173.  After he countersigned the Letter of Acceptance arrangements were made for him to spend time at the Factory in Zhongshan.  He claimed to be a co-owner of the Factory with Mr Li Huan Jian (“Mr Li”).

174.  Mr Kwong was cross-examined by Mr Vincent Li at some length on this topic.

175.  Mr Vincent Li put it to Mr Kwong that the Factory was in fact a sole proprietorship of Mr Li.  He also referred to various documents which had been discovered by the defendant recently which clearly indicated that the sole proprietorship was a separate legal entity from the defendant.  Mr Kwong continued to insist that because he claimed to have invested some moneys in the business it was accurate for him to describe the Factory as belonging to him in part.  He saw no problem in having assured Mr Mak that the work which would be performed under the subcontract as being work done by the defendant.

176.  One of the complaints which was being made by Mr Kwong was that although they had provided the defendant with wooden moulds they had failed to provide any fabrication shop drawings.

177.  Mr Vincent Li pointed out to him that Mr Anson Wong had given testimony that over 100 drawings had been provided by the plaintiff.  It was clearly the case the drawings had been provided.  Mr Kwong’s explanation for this was that the drawings had not been approved by the Building Department.  In fact it would appear that they had been.

178.  Mr Kwong was then subjected to a lengthy cross-examination concerning the defendants working experience in relation to the projects he claimed had been undertaken by the company.  Eventually Mr Kwong agreed that none of the previous projects had involved such complex and detailed work.

179.  The next matter which was dealt with was the system of work adopted to produce moulds which could be used for mass production.

180.  It had been the case that very few of the moulds which had been produced had been manufactured by reference to any fabrication shop drawings.  Mr Kwong’s evidence in this respect was somewhat equivocal.  At first he said that it would be sufficient to take measurements from the wooden moulds which had been supplied.  He then changed his evidence to say that in some instances it would be necessary to have fabrication shop drawings.  It was definitely my impression that this was an area of expertise which Mr Kwong was not familiar with.

181.  One of the explanations furnished by Mr Kwong for the failure of the defendant to produce fabrication shop drawings as he was required by the subcontract to do was that Mr Yan had informed the defendant that as there would be variations the mass production of GRP products should be deferred pending further instructions being obtained from Mr Huang.

182.  In his evidence Mr Yan had strongly denied that either he or Mr Mak had ever given such instructions to the defendant.

183.  In all the circumstances it would appear to be unlikely that this would have been the case.  All along there was every indication that the plaintiff was anxious that the project should be proceeded with expeditiously even to the extent of their providing labour to undertake work which the subcontract obligated the defendant to perform.

184.  There is a clear procedure to be adopted in the event of there being any dispute between contracting parties in a construction scenario.

185.  Reference should be made to the architect who would then make a ruling on how the matter should be resolved.

186.  Be that as it may Mr Kwong said that the defendant did produce batches of GRP moulds which were of a satisfactory standard.  This was notwithstanding the fact that the plaintiff continued to make variations in their requirements.

187.  In support of his contention that all was going well he referred to the joint inspection meeting which took place on 12 March 2010 at the Factory.  Although it would appear that he himself had not attended the meeting he referred to everyone present being satisfied with the quality of the mock up products. Presumably he got this information from Mr Anson Wong and this subject has been dealt with in his evidence.

188.  In his witness statement, Mr Kwong said that in late July 2010 “instead of fulfilling its above contractual obligation to provide use with structural drawings for cast-in sub-frames and brackets Mr Arthur Yau suddenly made a telephone call” requesting him to return the wooden moulds which had been supplied.  He declined this request and instructed Mr Anson Wong to write a letter to him confirming this.

189.  There then followed the exchange of letters earlier cited in this judgment when commenting upon Mr Anson Wong’s evidence.

190.  Each side staked out their provisional position and counter allegations.

191.  I regret that I did not consider Mr Kwong to be a truthful or reliable witness.  His evidence concerning the fabrication shop drawings provided by the plaintiff was blatantly untruthful.  There were other instances of his evidence being unreliable.  Not much weight can attach to most of his evidence.

EXPERT EVIDENCE

192.  It is convenient to deal with this evidence in the same way as it was at the trial.

193.  Namely the structural engineers representing each of the parties gave their expert evidence on behalf of their respective clients.  This was in the form of reports and then both experts prepared a Joint Report which indicated where their opinions were in agreement and where they were at variance.

194.  Mr Chan Wai Lung (“Mr Chan”) gave evidence for the plaintiff.  He has obtained a BSc in Civil Engineering with Honours from Hong Kong University.  He is a corporate member of the Institutes of Structural Engineers and of Engineers.  He has extensive experience in his areas of expertise over a period of 25 years.

195.  His instructions were to prepare an expert report providing an opinion on:

(1)  Whether the drawings and information supplied by the plaintiff have contained sufficient structural design and information for the defendant to develop fabrication shop drawings/production shop drawings.

(2)  Whether the fabrication drawings/production shop drawings developed by the defendant were sufficient for the production of the GRP products.

(3)  Whether the mock ups produced by the defendant were in compliance with the requirements and the requirements shown in the drawings supplied by the plaintiff.

196.  It is pertinent to observe that Mr Chan proceeds upon the assumption that the plaintiff did indeed supply to the defendant relevant drawings on 15 November 2009.

197.  He also points out that the responsibility for the fabrication and development of the GRP products had to be undertaken by the defendant while the responsibility for the structural design of the supporting frame lay with the plaintiff.  However the defendant had to incorporate the said frame into the GRP members.  This necessitated an element of co-ordination or cooperation for both parties.

198.  Mr Chan referred to the provisions in the subcontract whereby the defendant had virtually freedom to proceed with their work in accordance with their own dictates.  Essentially what was required of them was to produce moulds which would sufficiently comply with the wooden moulds provided and the drawings supplied by the plaintiff.

199.  An important point made by Mr Chan was that it was not necessary for the defendant to wait for the approval of the general building plan before they prepared the fabrication shop drawings which needed to be prepared by them to enable them to comply with their contractual requirements.

200.  Mr Chan accepted that there were deviations between the plaintiff’s drawings and the wooden moulds.  However if there were differences of opinion the matter should be referred to the architect who would make a ruling.  If the ruling necessitated additional work being undertaken it would be open to the defendant to claim the cost of doing this work.

201.  What the defendant should not do is sit back and do nothing.

202.  Mr Chan’s conclusion on the 1^st question was that from the information provided by the plaintiff it would have been possible for the defendant to develop fabrication shop drawings progressively.  However the defendant only produced 14 fabrication shop drawings.

2. No fabrication shop drawings were developed by the defendant in respect of the most complicated features namely the Tou-Kung, ceiling and pitch roof.

203.  Mr Chan made criticisms in respect of the shortcomings evident in relation to the drawings which were prepared by the defendant.

3. Mr Chan gave details of non compliance with contractual requirements.  I propose dealing with these matters when making comment upon the joint expert report.

204.  Mr KH Siu (“Mr Siu”) gave expert evidence for the defendant on structural matters.  He is a Registered Structural Engineer and like Mr Chan has lengthy and relevant experience in the fields of his expertise.

205.  In his general observations, Mr Siu makes the point that there were numerous variations in what was required and that partly as a consequence of this there had been significant delays.

206.  On the 1^st question he emphasized the necessity for there being a large measure of cooperation and assistance on the part of the plaintiff in the fabrication process if moulds were to be produced which would meet contractual requirements.

207.  It is only fair to point out that Mr Siu’s expert report is more favourable to the defendant than Mr Chan’s.

208.  This being the case, it is more helpful for me to go to the relevant parts of the joint expert report so that the agreements and disagreements of the experts can be considered.

The joint expert report

209.  On the 1^st question the conclusion of the experts was:

“2.1.4 The defendant, as the GRP sub-contractor, was responsible for the preparation of the ‘FSD’ or ‘PSD’. The Plaintiff, as the main contractor, was responsible for the structural design and layout arrangement of the aluminum subframe, supply of the aluminum sections for all the subframes and the GRP cast-in embeds, and approval of the ‘FSD’ or ‘PSD’. In normal practice, the GRP sub-contractor responsible for the production of GRP products would work with the main contractor to collect sufficient information and details necessary for the completion of the ‘FSD’ or ‘PSD.

2.1.5 The set of drawings for the parapet received by the Defendant, in conjunction with the first 2 batches of the corresponding wooden moulds supplied by the Plaintiff were sufficient for the Defendant to prepare the ‘FSD’ or ‘PSD’ even though the first two batches of wooden mould differed to a certain extent from the information shown on the set of drawings.

2.1.6  For the Tou-kung and other features, there were much more discrepancies between the Plaintiff’s drawings and the wooden moulds that had resulted in different configuration and fixing arrangements of the aluminum subframe.  The Defendant would require the correct and updated information of the aluminum subframe without which the Defendant could not produce the ‘FSD’ or ‘PSD’ suitable for final full scale production. If the discrepancies did not affect the configuration of the aluminum supporting frame, the Defendant could produce the ‘FSD’ or ‘PSD’ according to the drawings and the wood moulds supplied by the Plaintiff with some adjustment and additional effort when all information were finalized.”

210.  The opinion expressed in relation to the 2^nd question was very brief. 

“2.2.3. The 14 numbers of ‘FSD’ or ‘PSD’ submitted by the Defendant on 9 December 2009 were not sufficient for the factory to produce the final GRP products for the mock ups but no information and comment was given from the Plaintiff on this aspect during the fabrication of the mock-ups.”

211.  This opinion does not take cognizance of Mr Yan’s evidence to the effect that he and his team were present at the factory for almost the whole of the relevant period when the defendant was supposed to be assisting in the development of the mock ups.  I accept Mr Yan’s evidence in this connection.

212.  The joint opinion in respect of the 3^rd question is in my view the most important part of the report. 

213.  I have already included in this judgment at paragraph 134 of this judgment this opinion.

214.  I have also in paragraph 136 referred to Clause 1.5.1 of the GRP specification which provides that there should be no substitution for any of the codes or standards unless the endorsement of the architect has been obtained.  No such dispensation was obtained.

215.  Mr Siu in his evidence surmised that it might have been possible to obtain reclassification of surface spread of flame to make it less stringent.  However Mr Vincent Li in the same spirit of speculation referred to the fact that the monastery was a major tourist attraction visited by a large number of tourists and he speculated that it was unlikely in these circumstances that there would be any relaxation of the requirements.

216.  It may also be helpful to see the short notes on the areas where the experts were unable to agree.

“3. OIPINIONS RAISED BY ONE EXPERT BUT NOT JOINTLY AGREED BY THE OTHER

3.1 Opinions Raised by Ir Chan Wai Lung

3.1.1 Although the overall average of the hardness test was larger than 35, the hardness test of the 3^rd sample SW110026 was significantly out of range from the results of the other 2 samples. Such large variance in material properties of the GRP product showed that the quality control procedure on the GRP production by the factory (Specification 14.1.1) was not acceptable

Noted by Ir Siu Koon Hoi

3.2 Opinions Raised by Ir Siu Koon Hoi

3.2.1 The drawings and information supplied by the Plaintiff for the preparation of ‘FSD’ or ‘PSD’ by the Defendant shall also comprise of BD approved drawings that show the GRP design and structural arrangements of the aluminum subframe.

Comment by Ir Chan Wai Lung:

The Defendant should only follow the drawings and other information supplied by the Plaintiff for the preparation of ‘FSD’ or ‘PSD’ and the Plaintiff should make sure the ‘FSD’ or ‘PSD’ prepared by the Defendant was complied with the BD approved drawings finally.

3.2.2 The ‘FSD’ or ‘PSD’ prepared for the GRP parapet and submitted by the Defendant on 9 December 2009 had taken into consideration details of the wooden moulds supplied by the Plaintiff before this date but had not included further details of the wooden moulds that were delivered to the factory thereafter. This set of ‘FSD’ or ‘PSD’ had to be further amended in accordance with the subsequent batches of wooden mould provided, and comments from the Plaintiff if any, in order to make it suitable for full scale production.

Noted by Ir Chan Wai Lung”

217.  It can be appreciated that the experts were able to agree much more than they disagreed.

218.  Finally on the subject of the expert evidence in relation to structural matters, it is my view that the court was well served by the two experts and they were both helpful and constructive witnesses.  I accepted their evidence as being truthful and reliable.

EXPERT EVIDENCE ON QUANTUM

219.  Mr Ng Shiu Lun gave evidence as to the quantum for the plaintiff and Mr Tang Lim Kit gave evidence for the defendant.

220.  The evidence which they gave and the reports which they delivered were divided to fit three different scenarios.

221.  The first was based upon the court finding Clause 6 of the letter of 2 November 2009 was operative thus the contract was a conditional contract.

222.  The second was based upon this clause not being operable and the result of the plaintiff’s wrongful repudiation of the contract and the third on the basis that the defendant had wrongfully repudiated the contract.

223.  As might be expected the reports based upon the 2^nd and 3^rd scenarios contained far more material than there was for the 1^st scenario.

224.  As it transpired, the amount of detail relating to the 1^st scenario was quite limited.

225.  As will be evident in this judgment I concluded that Clause 6 did validly reflect the intentions of the parties and that accordingly the 1^st scenario governed the situation.

226.  It is convenient to deal with this matter under the general issue of quantum.

227.  In so far as the expert evidence on this topic was concerned the experts gave helpful and constructive evidence.

WAS THE COTNRACT A CONDITIONAL COTNRACT?

228.  The starting point in attempting to answer this question is to consider the contract as a whole and then more particularly consider the wording of the clause which provides or attempts to provide that the contract is indeed a conditional contract.

229.  Earlier in this judgment (para. 14) the letter of 2 November 2009 is copied.  By this letter the plaintiff accepted the defendant’s quotation on the terms stated therein.

230.  For our purposes Clause 6 is the clause which provides when the contract will become effective.  It reads:

“The contract will effective upon mock up approval by the Architect and Po Lin Monastery.”

231.  I do not consider that the omission of the word “become” in any manner affects the legal purport of the clause as it in no way detracts from what is obviously meant.

232.  The principles governing the operation of conditional contracts are conveniently encapsulated in Chapter 2 of Chitty on Contract (30^th Edition) Vol.1 General Principles Sweet & Maxwell.

2-147 “Introductory. An agreement is conditional if its operation depends on an event which is not certain to occur.  Discussions of this topic are made difficult by the fact that in the law of contract the word ‘condition’ bears many senses: it is ‘a chameleon-like word which takes on its meaning from its surroundings.  At this stage, we are concerned with only one of these meanings; but to clear the ground it is necessary to draw a number of preliminary distinctions.

2-149   Conditions precedent and subsequent.  Contingent conditions may be precedent or subsequent.  A condition is precedent if it provides that the contract is not to be binding until the specified event occurs.  It is subsequent if it provides that a previously binding contract is to determine on the occurrence of the event: e.g. where A contracts to pay an allowance to B until B marries.

2-150  Effects of agreements subject to contingent conditions precedent: in general.  Where an agreement is subject to a contingent condition precedent, there is, before the occurrence of the condition, no duty on either party to render the principal performance promised by him: for example, a seller is not bound to deliver and a buyer is not bound to pay.  Nor, in such a case, does either party undertake that the condition will occur.  But an agreement subject to such a condition may impose some degree of obligation on the parties or on one of them.  Whether it has this effect, and if so what degree of obligation is imposed, depends on the true construction of the term specifying condition.  Various possible degrees of obligation are discussed in paras 2‑151 to 2‑155 below.

2-151  Unrestricted right to withdraw.  One possibility is that, before the event occurs, each party is free to withdraw from the agreement.  In Pym v Campbell an agreement for the sale of a patent was executed, but the parties at the same obligation to act reasonably or in good faith and that, as his satisfaction had not been communicated to the other party, the agreement had not acquired contractual force.  On the other hand, where a ship was sold ‘subject to satisfactory completion of two trial voyages’ it was said that such a stipulation was to be construed as ‘subject to bona fides’.  The distinction between the two lines of cases turns, ultimately, on the construction of the agreement.  Even if this requires the discretion to be exercised in good faith, it does and follow that it must be exercised reasonably; the mater may be left to the relevant party’s ‘subjective decision’. It has also been held that the party on whose satisfaction the operation of the contract depends must at least provide facilities for, or not impede, the inspection referred to in the agreement.  Of course if the result of the inspection is unsatisfactory, the principal obligation of the contract will not take effect.

2-155 Duty of reasonable diligence to bring about the event.  A fourth possibility is that, before the event occurs, the main obligations do not accrue but that one of the parties undertakes to use reasonable efforts to bring the event about (without absolutely undertaking that his efforts will succeed).  This construction was applied, for instance, where land was sold subject to the condition that the purchaser should obtain planning permission to use the land as a transport depot: he was bound to make reasonable efforts to obtain the permission, but he was free from liability when those efforts failed.  Similarly, where goods are sold ‘subject to export (or import) licence,’ the party whose duty it is to obtain the licence does not prima facie promise absolutely that a licence will be obtained; but only undertakes to make reasonable efforts to that end.  The principal obligations to buy and sell will  not take effect if no licence is obtained; but if the party who should have made reasonable efforts has failed to do so he will be liable in damages, unless he can show that any such efforts, which he should have made would (if made) have necessarily been unsuccessful.  The same principles have been applied where an agreement was made ‘subject to the approval of the court’; and where an agreement was made to assign a lease which could be assigned only with the consent of the landlord. In such cases the requisite approval or consent must be sought; but the main obligations do not accrue until the approval or consent is given, and if it is refused the principal obligation will not take effect.”

233.  These paragraphs which apply to the present situation correctly state the law which is applicable.

234.  Mr Vincent Li argued that there was no ambiguity in the meaning of the words in Clause 6.  This being the case he placed reliance upon the judgment of Ribeiro PJ in Lau Koon Foo v Champion Concord Ltd etal Unreported being FACV 16 & 17/2010 23 November 2011 at p.27:

“71. On the strength of such authorities, Mr Strachan endeavoured to argue that the settlement agreement ought to be construed so that clause 16 is treated as having been triggered, bringing the Extended Long Stop Date into effect and putting the respondent in breach for refusing to complete.  The contention was that the settlement agreement effected the settlement of a dispute where the legal merits were “overwhelmingly” in the appellants’ favour so that:

‘In entering into the Settlement Agreement the Purchaser would not have foregone its overwhelmingly strong position in the 2007 Action for anything other than an overwhelmingly strong position under the Settlement Agreement.’[28]

72. The following passage from Lord Hoffmann’s judgment in Chartbrook Ltd v Persimmon Homes Ltd[29] was cited in support:

‘When the language used in an instrument gives rise to difficulties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using the language which they did. The fact that the court might have to express that meaning in language quite different from that used by the parties (‘12 January’ instead of ‘13 January’ in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; ‘any claim sounding in rescission (whether for undue influence or otherwise)’ instead of ‘any claim (whether sounding in rescission for undue influence or otherwise)’ in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896) is no reason for not giving effect to what they appear to have meant.’

73. The persistent deficiency in the appellants’ argument is its failure to confront the language used in the contract.  As the citation from Lord Hoffmann makes clear, the Court’s task is to determine ‘what a reasonable person would have understood the parties to have meant by using the language which they did’.  In the present case, the language of clauses 13 to 17 leaves no room for doubt as to what the parties meant.  Those clauses addressed the uncertainties which they faced regarding the obtaining of consent, the amount of the premium and the time it would take to obtain a decision from the DLO.  The purpose of those clauses was to place a limit on the period allowed for completion of the transaction with different completion dates provided for against specified eventualities.  Those were objectives which made good commercial sense viewed from both sides of the contract.”

235.  Mr Vincent Li contended that the principles referred to by Lord Hoffmann were directly applicable to the instant case and that accordingly the contract did not come into effect until the approval referred to in the clause was forthcoming.

236.  Mr Alan Fan’s answer to this was that if the contract was read as a whole it was clear that there were inconsistencies between Clause 6 and other provisions governing the contract.

237.  The requirement that the contract should be read as a whole could be seen from paras. 12-078 of Chitty on Contracts (29^th Edition) Vol.1:

“ Inconsistent or repugnant clauses. Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be reject. The old rule was, in such a case, that the earlier clause was to be received and the later rejected; but this rule was a mere rule of thumb, totally unscientific, and out of keeping with the modern construction of documents. To be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses. A term may also be rejected if it is repugnant to the intention of the parties as it appears from the document. However, an effort should be made to give effect to every clause in the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement. Thus, if there is a personal covenant and a proviso that the covenantor shall not be personally liable under the covenant, the proviso is inconsistent and void. But if a clause merely limits or qualifies without destroying altogether the obligation created by another clause, the two are to be read together and effect is to be given to the intention of the parties as disclosed by the instrument as a whole.”

238.  The main inconsistency referred to by Mr Alan Fan was that some of the work which was to be performed under the contract would have to be performed prior to it being possible to obtain the approval of the mock ups.

239.  When this was put to Mr Mak in cross-examination this was rejected.  It was his evidence that although there was some overlapping for preparatory works, it was not the case that GRP fabrication works had to commence before mock up approval.  I accept Mr Mak’s evidence on this.

240.  Mr Alan Fan also placed considerable reliance upon Permtek Ltd v China Resources Machinery & Equipment Co. Ltd (1989) 2 HKLR 349.  He said that the Court of Appeal in that case had agreed to modify the terms of a contract where there was repugnancy between two of the clauses in the contract.  This case involved the opening of a letter of credit and can readily be distinguished from the facts in this case.  However Mr Alan Fan proposed that the working of Clause 6 should be modified to read in “The contract performance (the subcontract works) will be accepted upon mock up approval by the Architect and the Po Lin Monastery.”

241.  With respect this would be falling into the error referred to by Lord Hoffmann when he held that it was not permissible to alter the terms of a provision in a contract when there was no ambiguity and the terms were clear.

242.  Finally Mr Alan Fan contended that there was a basic fallacy in Mr Vincent Li’s argument that the contract was a conditional contract.  This was on account of the fact that there was no legal basis for the plaintiff to impose upon the defendant an obligation to fabricate or supply a mock up.  Also there was no consideration for this.

243.  He argued this in conjunction with a suggestion that no contractor in his right mind would enter into a conditional contract of this nature if at the end of the day he may end up incurring substantial expenditure and receiving no recompense for his efforts.

244.  The answer to this would seem to be that the benefit which would be in the contemplation of the party is that if the mock up is approved, it will enable him to proceed with what may well be a highly lucrative contract. If he is confident that he would be able to fulfill the condition precedent, there is no reason why he would not take the risk and enter into such a commitment.

245.  Perhaps the best test of this proposition can be gleaned from the evidence of Mr Kwong.

246.  Whilst remonstrating against Clause 6 and the fact that he had not fully realized its implications what he said was that if he had been aware of it he would have increased the price of his work so as to ensure that he would not lose out.

247.  Having considered the matter carefully I have come to the conclusion that the subcontract did have a condition precedent attaching to it and Clause 6 must stand in its present form.

WAS THE CONDITION PRECEDENT COMPLIED WITH

248.  The purpose of having a mock up was to determine whether the defendant was able to perform the subcontract to the satisfaction of the Architect and the Employer.

249.  The requirements for this were set out in Clause 14.1.6 of the GRP specification:

“14.1.6 Provide full-size mock-up sample representative of the work of the Section

a. Mock-up must indicate any progressive installation of glass-fibre reinforced plastic fabrications.

b. Include in each mock‑up, all joint types that will occur in the work of the Project, including joints occurring with adjacent materials.

c. Include typical details (e.g., penetrations for work of other trades).

d. Include typical patching and repairing of major and minor defeats.”

250.  What is clear is that the mock up was never approved by the architect or employer.

251.  It was certainly not approved at the 12 March 2009 meeting. Reasons for this have been given earlier in this judgment.

252.  Nor could it be plausibly argued that any approval was forthcoming at 26 June meeting.

253.  It is apparent from the joint expert report that so far as the tests were concerned the mock ups did not comply with the requirements laid down by the subcontract.

REASONS FOR FAILURE TO OBTAIN APPROVAL

254.  Unfortunately there was undoubtedly a breakdown in communication between the parties.

255.  This may well have been attributable to the fact that in effect the subcontract was subcontracted to Mr Li’s Factory.

256.  Although the plaintiff posted staff at the Factory it would appear on the evidence of Mr Man and Mr Yan that the participation on the part of the defendant was a lot less than was necessary.  Mr Anson Wong admitted that he did not work full time at the Factory.  Mr Yan encountered problems in communicating satisfactorily with anyone in the defendant company. Possibly one reason or this was that the defendant’s employees were also engaged in other work.

257.  It would also appear that both Mr Kwong and Mr Anson Wong had insufficient experience to undertake work of the complexity required. During his cross-examination, Mr Kwong conceded that none of the previous jobs he had undertaken had been so demanding.

258.  More importantly there was the evidence relating to the absence of fabrication shop drawings.  According to the evidence of Mr Kwong and Anson Wong, they appeared to be under the impression that it was possible to produce mould simply by making measurements from the wooden moulds provided and dispense with the necessity of preparing fabrication shop drawings.

259.  Notwithstanding Mr Yan’s evidence that he advised Mr Anson Wong that it was necessary to work from such drawings he made only 14 drawings which in Mr Yan’s opinion fell far short of being of a sufficient standard.

260.  I accept Mr Mak and Mr Yan’s evidence that there was no satisfactory quality control system and there was a lack of quality control such as to enable there to be checking with the architect.

261.  There is also the fact that the tests which the Building Department required were never undertaken.

262.  One of the main complaints made by Mr Alan Fan on behalf of the defendant is the paucity of the formal evidence such as letters or E‑mails from the plaintiff expressing their dissatisfaction with the performance of the GRP work.

263.  There would appear to be some justification for this complaint.

264.  However what needs to be borne in mind is that certainly in the early stage of the work, the plaintiff was very concerned to be able to meet its commitments under the main contract.

265.  They may have felt inhibited from being unduly critical of the defendant as one consequence of this was the possibility of the defendant refusing to take any further part in the project.

266.  There is some evidence in support of this conjecture.

267.  I refer to Mr Mak’s evidence that it was a difficult decision for him to make to dismiss the defendant from the project as was requested by Mr Huang after 26 June visit.  What Mr Mak said was he had to weigh in the balance continuing with the defendant’s unsatisfactory work or throw away all the work and effort the plaintiff’s had put into the project and start all over again.

268.  It was only after the defendant refused to return the moulds which had been supplied by Mr Huang that a definite decision was made to dispense with the defendant’s services.

269.  So the answer to the question who was more at fault in the failure to obtain the architect’s employer approval to the mock up has to be that it was the defendant who was principally to blame.

REFUNDS AND DAMAGES

270.  The situation in this case is that both parties have incurred costs and expenses.  They have very little or nothing to show for it.

271.  It is necessary for me to consider the consequences which flow from this strictly in conformity with the parties pleaded cases.

272.  The defendant’s defence and counterclaim are based on the existence of the subcontract.

273.  The significance of this is that it has not filed an alternative claim in their counterclaim of quantum meruit based on restitution or quasi contract.

274.  If the defendant does not make a quantum meruit claim, the court is unable to make an award under this head.  One consequence of this is that they have no legal right to retain moneys they may have received from the plaintiff.  Any moneys received would constitute an unjust enrichment.

275.  The rationale of this is that Clause 7 of the letter of 2 November 2009 specifically provides that no payments should be payable prior to the architects and the employees approval of the mock up.  This of course refers to payments payable under the contract but would not include advances made outside the contract to the defendant.

276.  What is required is a restitutional approach to avoid unjust enrichment of either the plaintiff or the defendant.

“The advance payments made by the Plaintiff to the Defendant can be classified into the following three types:

(a) Payments relating to the original scope of mock-up work which are to be paid to the Defendant under Item 18 of the SOR should the Subcontract be ultimately effective.

(b) Payments relating to additional scope of mock-up work required for the approval by the Architect and the Employer which are to be paid to the Defendant as variation items should be Subcontract be ultimately be effective.

(c) Disbursement items for delivery charges and various expenses paid by the Defendant on behalf of the Plaintiff. These payment are to be responsible by the Plaintiff even if the Subcontract becomes effective ultimately.

With the hope that the Subcontract will become effective ultimately, the Defendant agreed to incur the first two types (type (a) and type (b)) of costs in procuring the approval of the mock up work, at the risk that should no approval be given, these costs would become abortive and cannot be recovered.

Similarly, with the hope that the Subcontract will ultimately become effective, the Plaintiff has agreed to incur the third type of costs (type (c)), amongst other costs in working with the Defendant in bringing about the approval of the mock up work, at the risk that such costs would become abortive and non-recoverable.

During cross-examination of the Plaintiff’s quantum expert, counsel for the Defendant was trying to argue that those additional mock-up works for painting and for colour selection should be counted as additional work but not within the original scope of work. With respect, this does not affect the amount to be refunded under the restitutional approach, because these costs either belong to type (a) or type (b) costs as mentioned in the above.

Under the Contract Non-existence scenario, all the advanced payments made by the Plaintiff to the Defendant except those disbursement items (items (a), (b), (f), (g), (h), and (j) in Appendix A) should be refunded to the Plaintiff by the Defendant.  The total of these items amounts to HK$60,011.39.”

Appendix A

The payments made to the Defendant by Plaintiff

277.  At a late stage in these proceedings I was informed that the plaintiff had decided that it would not continue to pursue its claim for damages in respect of the defendant’s failure to provide reasonable diligence in bringing about the approval of the mock up work.

278.  For the reasons given judgment will enter for the plaintiff in the sum of HK$1,047,837.18 less HK$60,011.89 which comes to HK$987,825.29.

279.  The defendant’s counterclaim is dismissed.

280.  Interest is awarded to the plaintiff from 4 August 2010 at the rate of interest determined from time to time by the Chief Judge of the High Court up to the date of this judgment and thereafter at the prescribed rate up to the date of payment of the amount awarded.

281.  I make an order nisi that the plaintiff will have its costs on their claim and on the counterclaim.  In the absence of agreement they are to be taxed.