TANG WAI KUEN RAYMOND AND ANOTHER t/a DARG PARTNERS v. ASIA LANDCAPING LTD

HCCT 11/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 11 OF 2008

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J U D G M E N T

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Introduction

1.  The Plaintiffs provide landscape consultancy services and entered into an agreement to provide consultancy services to the Defendant for the soft landscape works for the Venetian Macao at Cotai, Macau (the “Consultancy Agreement”).

2.  In this action, the Plaintiffs are claiming the sum of MOP$796,029.60 which they say is the outstanding balance due to them under the Consultancy Agreement and, by summons under RHC Order 14, the Plaintiffs seek summary judgment on their claim.

The Consultancy Agreement sued upon

3.  The Consultancy Agreement, dated 27 February 2006, is set out in the form of a letter from the Plaintiffs to the Defendant, which the Defendant countersigned to indicate confirmation and acceptance.  The letter is headed:-

“Consultants Services

8021 External Works – Soft Landscape Works for

The Venetian Macao in Cotai, Macau”

4.  The body of the letter provided as follows:-

“Thank you for your invitation regarding our professional consultants services for the captioned project, we would like to list out herewith our professional service and the fee proposal for your perusal.  We provide full quantity surveying services and/or project management services, it is included but not limited to supervise the taking-off of quantity, procurements and subletting works, preparation of interim payment for client and subcontractors, variation and final account, claims preparation and assessment, contractual dispute, attending site meeting and project coordination services.”

5.  Below that rubric is a fee proposal containing 3 paragraphs.  The first two concern a monthly consultancy and travelling allowance and there is no dispute in relation to them for present purposes.  The third paragraph, about which there is a dispute, reads simply:-

“5% Bonus for all the variation amount”.

6.  The Consultancy Agreement was terminable by either party upon 30 days’ notice in writing.

Background

7.  To put the Consultancy Agreement into context, the Defendant had been invited by Hsin Chong Engineering (Macau) Limited, as Construction Manager, to tender for the External Works Soft Landscape Package No.8021 for Venetian Cotai Limited. 

8.  The Defendant duly submitted its tender by a letter dated 21 October 2005.  It is the Defendant’s case that the tender related to 6 sections of work described respectively as Preliminaries, Zone 5A, Zone 5B, Zone 5C, Zone 5D and Zone 5E.  For their part, the Plaintiffs say that the tender documents provided to them when the Consultancy Agreement was being negotiated only contained reference to works in Zone 5A, Zone 5B and Zone 5C and not to Zone 5D and Zone 5E.

9.  Eventually, by a letter of acceptance dated 30 March 2006, the Defendant was awarded the project covering the Preliminaries, Zone 5A, Zone 5B and Zone 5C for a total contract sum of MOP$13,671,852. 

10.  The formal Trade Contract between the Venetian Cotai Limited and the Defendant was entered into on 6 July 2006.  That the scope of the works was limited to Zone 5A, Zone 5B and Zone 5C is confirmed by Annexure 1 to the Trade Contract Articles of Agreement and also Clause 3.3 of the Specification – Preliminaries Part II.

11.  The Trade Contract General Conditions contained the following clauses:-

(1)      Clause 6.2(a) which provided:-

“6.2    Valuation of Construction Manager’s instructions

(a)   If any instruction issued under the Trade Contract:

(i)    requires the Trade Contractor to undertake work not provided for in, or to be reasonably inferred from, the Trade Contract documents; or

(ii)   imposes any additional obligation, restriction or requires the omission of any work, obligation or restriction,

the Trade Contractor must comply with the instruction and the Contract Sum will be adjusted and the provisions of clause 6.3 will apply, subject to clause 6.2(b).”

(2)      Clause 21.6(a) which provided:-

“(a)    The Trade Contract may not be varied except by an agreement in writing signed by both parties.”

12.  Subsequent to the Trade Contract, the Defendant entered into three Supplemental Agreements dated 5 December 2006, 9 July 2007 and 30 August 2007 and respectively relating to soft landscaping works at Zone 5D, Zone 5E (VIP Garden) and Zone 5E (golf course).  Each of the Supplemental Agreements was expressly entered into pursuant to clause 21.6(a) of the Trade Contract General Conditions.  As a result the total contract sum increased to MOP$30,871,589.

The dispute lending to this action

13.  By an invoice dated 31 August 2007, the Plaintiffs invoiced the Defendant for the monthly consultancy fee and travel allowance for the month of August.  The invoice included an item representing 5% of the contract sum for works relating to Zone 5D and Zone 5E as well as 5% of the value of the variations ordered by way of Construction Manager’s Instructions (“CMIs”) under clause 6.2(a) of the Trade Contract General Conditions, both as certified by the project’s cost consultant in its interim valuation certificate No.6.

14.  The Defendant disputed the Plaintiffs’ entitlement to claim 5% of the contract sum for works relating to Zone 5D and Zone 5E.

15.  The dispute eventually led to the Defendant serving a notice to terminate the Consultancy Agreement by fax dated 30 November 2007.  Since the Consultancy Agreement required 30 days’ notice in writing, the Consultancy Agreement was thereby terminated on 30 December 2007.

16.  The Plaintiffs now claim the sum of MOP$796,029.60 being 5% of the contract sum for works relating to Zone 5D and Zone 5E as certified by the cost consultant in its interim valuation certificate No.11 dated 7 January 2008.  The Plaintiffs have selected this interim valuation certificate as the basis of the calculation of the 5% bonus under the Consultancy Agreement since certificate No.11 is a valuation as at 31 December 2008 and this is a certificate of the value of the work closest to the date of the termination of the Consultancy Agreement.

17.  For its part, the Defendant denies that the works relating to Zone 5D and Zone 5E were variations within the meaning of the Consultancy Agreement.  Furthermore, the Defendant counterclaims the sum of MOP$52,555.57 already paid to the Plaintiffs by way of bonus under the Consultancy Agreement on the basis that the accumulated amount of the variations has been valued by the cost consultant as a negative figure so that the sum paid to the Plaintiffs, based on a previous valuation figure that was positive, falls to be repaid.

The relevant principles on an Order 14 application

18.  There was no dispute between the parties as to the relevant principles.

19.  On an application for summary judgment, unless the Court dismisses the application, the burden rests on the defendant to satisfy the Court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the claim.

20.  It is also trite that the underlying policy of the summary procedure under Order 14 is to prevent a defendant from delaying a plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim: see Hong Kong Civil Procedure 2008 at Note 14/4/1 (p.188).

21.  On the other hand, unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, Order 14 ought not to be applied.  Order 14 is for clear cases, that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise: see Hong Kong Civil Procedure 2008 at Note 14/4/9 (p.191).

The application for summary judgment

22.  Mr Desmond Leung, counsel for the Plaintiffs, submitted it was clear that the works relating to Zone 5D and Zone 5E under the Supplemental Agreements were variations within the meaning of the Consultancy Agreement and were therefore work to which the 5% bonus applied.

23.  In support of this contention, he relied on Hudson’s Building and Engineering Contracts (1995 Ed.) Vol.1 at paras. 7.001 and 7.004 which address the meaning of the term “variation”.  Para.7.001 states:-

“In this chapter, however, the term is used in the narrow sense of an alteration in the previously described work and materials to be provided by the contractor (that is, as shown on the drawings and described in the specifications, …”.  (Emphasis in original)

24.  Para.7.004 states:-

“It is perfectly possible for variations to be ordered, carried out and paid for under a separate agreement between the owner and the contractor, whether made orally or in writing, and quite independently of any express provision providing for variations in the contract, unless there is some provision specifically denying effect to any such separate agreement, …”.

25.  Mr Leung submitted that, whilst the work in relation to Zone 5D and Zone 5E were not variations pursuant to CMIs pursuant to clause 6.2(a) of the Trade Contract General Conditions, they were variations pursuant to clause 21.6(a) of those conditions and therefore fell within the ambit of variations for the purpose of the Consultancy Agreement.

26.  Mr Leung pointed to the fact that the works under Zone 5D and Zone 5E were not in contemplation at the time when the Consultancy Agreement was being negotiated by the Plaintiffs and the Defendant, so the subsequent inclusion of those additional or extra works in the Trade Contract must necessarily therefore be variations for the purposes of the Consultancy Agreement.

Is there a triable issue?

27.  The Defendant’s case is that the term “variation” in the Consultancy Agreement does not cover the Zone 5D and Zone 5E works, which were part of the contract works.  Accordingly, there is no basis for the Plaintiffs’ claim to a 5% bonus in respect of the contract sums for those items of work.

28.  Ms Janine Cheung, counsel for the Defendant, submitted that there is a triable issue in the present case as to what is meant by the word variation in the Consultancy Agreement.  The Defendant’s case, she submitted, was that the word should be taken to have the meaning generally understood in the trade, namely as amounts certified and valued as variations pursuant to CMIs.

29.  In this context, she relied upon general statements in McInnis: Hong Kong Construction Law (Issue 17) at paras.1308 and 1310-1350.  The former reference includes the statement:-

“The latter term ‘variations’ is often used synonymously with extra work although, to be more precise, extra work is usually required by the employer through the medium of an instruction of the architect or otherwise and then regarded as a variation of the contract which is valued according to the contract.”

Ms Cheung pointed to the valuation provisions in clauses 6.3 and 6.4 of the Trade Contract General Conditions and submitted that this demonstrated that variations meant work carried out under CMIs which would be valued accordingly.

30.  The latter reference includes the statement:-

“Variations represents [sic] works which are not expressly or impliedly included in the original contract and, therefore, are not included in the contract price.”

In this context, Ms Cheung submitted that the works at Zone 5D and Zone 5E were priced as a lump sum and were included in the interim valuation certificates as part of the contract sum rather than as work carried out under CMIs, which were separately listed as variations.

31.  Ms Cheung submitted that there was at least an ambiguity as to the meaning of the word “variation” in the Consultancy Agreement.  Since this was drafted by the Plaintiffs, any ambiguity fell to be construed contra proferentem.

32.  For his part, Mr Leung submitted that nothing would be served by having a trial of this action.  He said it was clear that any work additional to Zone 5A, Zone 5B and Zone 5C must be a variation to the Trade Contract and therefore be subject to the 5% bonus payment under the Consultancy Agreement.  The position, he submitted, was that the indisputable contemporary documents showed that the scope of the works was limited to Zone 5A, Zone 5B and Zone 5C and did not include Zone 5D and Zone 5E, so that the latter must inevitably have constituted variation works.  He submitted that the subjective intentions of the parties when negotiating the Consultancy Agreement would not be admissible to construe the relevant clause.  He also submitted that the term variation was commonly understood in the trade and would include the Zone 5D and Zone 5E works in the present case.  In this context, he referred to the fact that the Defendant was granted leave to file expert evidence as to the meaning of the bonus clause in the Consultancy Agreement but chose not to file any such evidence for this summary judgment application.  Hence, he submitted, there was no point in having a trial since no evidence could be led that would assist in the resolution of the question.

33.  In my judgment, it is at least arguable that the wording in the clause is ambiguous and there is a question as to what the relevant clause in the Consultancy Agreement means.  That question is this: in the context of this case, does the word “variation” or the phrase “variation amount” in that clause refer solely to variations under CMIs pursuant to clause 6.2(a) (the Defendant’s case) or does it also refer to any additional work including that carried out under a supplemental contract pursuant to clause 21.6(a) (the Plaintiff’s case)?

34.  Notwithstanding Mr Leung’s arguments, I think this question does raise a triable issue for the purposes of Order 14.

35.  In my opinion, I do not think it would be right to determine this question summarily without hearing such admissible factual evidence as may be adduced by the parties concerning the factual matrix out of which the Consultancy Agreement arose.  Evidence may also be admissible and assist in determining the question posed in the context of the Defendant’s submissions as to whether any work done by the Plaintiff in relation to the works at Zone 5D and Zone 5E was already remunerated by the monthly consultancy fee and was not intended to be remunerated by the 5% bonus. 

36.  In addition, expert evidence may be admissible and of assistance in determining how the word “variation” or the words “variation amount” in the relevant clause would be understood in the construction industry.

37.  In the circumstances, I do not propose to express any view on the merits of the interpretation issue raised since that should remain to be decided at trial.

38.  I would add that the Defendant had also pleaded and argued on this application that the Plaintiffs were negligent or in breach of the Consultancy Agreement in performing their services under that agreement.  Although this contention was pleaded in general terms in the Defence, it is not clear to me how this impacted on the Plaintiffs’ claim.  It was not pleaded that the negligence or breach of contract was such as to disentitle the Plaintiffs to the bonus payment under the Consultancy Agreement.  Nor was there any counterclaim for damages based on the alleged negligence and breach of contract.  No evidence of any contemporary complaint of this nature was adduced by the Defendant.  I would not have been disposed to grant leave to defend had this been the only point raised by the Defendant.

39.  Nevertheless, for the reasons set out above, it is my opinion that there is a triable issue raised as to the meaning of the relevant bonus clause in the Consultancy Agreement and I therefore grant the Defendant unconditional leave to defend the action.

40.  Leave has already been granted to the Plaintiffs to file and serve a Reply and Defence to Counterclaim within 7 days of the determination of this application: see the Order of Burrell J dated 19 March 2008.

41.  As to the costs of this application, I make an order nisi that the costs of the application for summary judgment, including the costs reserved by the Order of 19 March 2008, be costs in the cause.