LI WAI KEUNG t/a ROBERT LI PROJECT MANAGEMENT CONSULTANT CO v. FEDERAL STEEL WORKS ENGINEERING LTD

DCCJ 3587/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3587 OF 2011

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JUDGMENT

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Background

1. Maeda-Hitachi-Yokogawa-Hsin Chong, J.V. (“the Main Contractor”) was engaged by the Highways Department as her main contractor for the construction of the Stonecutters Bridge under contract no. HY/2002/26 (“the Project”).  The defendant was a sub-contractor of the Main Contractor for the Project.

2. The defendant engaged one Boldken International Limited (“Boldken”) to provide project management services (“the Services”) in relation to the supply and installation of steel falsework and concrete segments of the Stonecutters Bridge’s back span support.

3. The scope of the Services was set out in Boldken’s letter of contract dated 4 March 2005 with reference no. BIL/Q/05/034 (“the Letter of Contract”), and the terms therein were agreed and accepted by the defendant on 25 March 2005.

4. By the Letter of Contract, the defendant agreed to pay Boldken a flat monthly retainer fee of $100,000.00 for the Services.  In addition, clause 25 of the Letter of Contract (“Clause 25”) stipulates that in the event that the defendant is awarded additional payment valuation arose from additional and/or variation works, Boldken shall be entitled to receive 5% of the said amount as a means to offset the extra efforts and resources spent by Boldken to ascertain the matter (“the 5% Bonus”).

5. In September 2005, the defendant and Boldken entered into a supplemental agreement contained in Boldken’s letter of contract dated 9 September 2005 with reference no. BIL/Q/05/099 (the Supplemental Letter of Contract”), by which Boldken agreed to provide additional quantity survey services (“the Additional Services”) from 1 September 2005 and the defendant agreed to increase the monthly retainer fee to $110,000.00.

6. Nevertheless, shortly after the supplemental agreement was entered into by the defendant and Boldken, the defendant agreed with the plaintiff that the plaintiff shall take over the Services and the Additional Services from Boldken effective on 1 October 2005.  The agreement between the defendant and the plaintiff was contained in the plaintiff’s letter dated 28 October 2005 with reference no. BIL/Q/05/001 (“the Agreement”).  It is a term of the Agreement that “the scope of service and the fee arrangement shall remain as part of compliance”.

7. By mutual agreement between the defendant and the plaintiff, the amount of the monthly retainer fee paid to the plaintiff was subsequently varied a number of times and the final amount was $50,000.00 effective on 1 August 2007.

8. According to the plaintiff’s case, the defendant informed the plaintiff on 24 September 2007 that the Agreement was terminated with immediate effect as the defendant had engaged other people to provide the Services.

9. As the defendant had failed to pay the monthly retainer fee for the month of September 2007, the plaintiff claimed the amount of $50,000.00 against the defendant in this action.  However, the plaintiff agrees at the trial that this claim should be reduced to $40,000.00 being the pro rata amount for the period from 1 September 2007 to 24 September 2007.  Thus, the plaintiff claims only $40,000.00 now as the outstanding retainer fee.

10. In addition, pursuant to Clause 25, the plaintiff claims a sum of $1,083,051.81 being 5% of the amount of $25,411,036.25 agreed between the Main Contractor and the defendant as the payment valuation for the additional and/or variation works less the sum of $187,500.00 which had already been received by the plaintiff.

11. In fact, the Main Contractor reached an agreement with the defendant by issuing to the defendant a Statement of Sub-Contract Final Account dated 21 September 2007 (“the Statement”) together with an attached Summary of Sub-Contract Final Account (“the Summary”), which were signed and accepted by the defendant on 4 October 2007.

12. In the Statement, the final sub-contract sum was agreed to be $92,437,716.76 (“the Final Sub-Contract Sum”), the breakdown of which was set out in the Summary as follows:-

“	HK$
1/ Measurement
1.1 Remeasured value of original subcontract works	72,008,292.14
1.2 Remeasured value for additional steel trusses(SIS/0452)	11,879,097.00
1.3 Remeasured value for additional steel trusses(SIS/1549)	2,650,431.71
2/ Supplemental Agreement No.1	3,700,000.00
3/ Variations
3.1 VO agreed as per Supplemental Agreement No.1	2,466,687.58
3.2 VO After Supplemental Agreement No.1	2,585,634.13
4/ Dayworks	0.00
5/ Claims	2,129,185.83
Gross Total:	97,419,328.39
6/ Contra-charge
6.1 Contra-charges agreed as per SA No.1	(422,334.97)
6.2 Contra-charges after SA No.1	(4,559,276.66)
Final Sub-Contract Sum:	92,437,716.76”

13. The aforesaid amount of $25,411,036.25 was the total sum of Parts 1.2, 1.3, 2, 3.1, 3.2, 4 and 5 of the Summary as set out above.

14. Thus, the total amount claimed by the plaintiff in this action is $1,123,051.81 ($40,000.00 + $1,083,051.81). However, the plaintiff agrees to waive and abandon the excess of the claimed amount which exceeds $1,000,000.00 so that the claim may fall within the jurisdiction of the District Court.  The plaintiff also claims interest and costs.

15. The defendant contends that the Agreement was not terminated on 24 September 2007 but on 17 August 2007 when the defendant’s project director, Mr Atsutomo Kodama, called the plaintiff to terminate the Agreement by accepting the plaintiff’s repudiation of the Agreement.  It is the defendant’s case that the plaintiff repudiated the Agreement by not providing the Services with due diligence in August 2007 and not performing according to the Agreement by the end of July 2007.  Nevertheless, the defendant paid the plaintiff’s monthly retainer fee up to 31 August 2007 to avoid any dispute.  Thus, the defendant denies that the plaintiff is entitled to claim the retainer fee for the period from 1 September 2007 to 24 September 2007 in the sum of $40,000.00.

16. In his opening submissions, Mr Wu for the defendant raised the issue of whether the arrangement among the plaintiff, the defendant and Boldken was a novation so that Boldken should be a party to the Agreement.  He also raised the issue of whether Clause 25 is implied in the Agreement.  After clarification, Mr Wu confirms that he will not pursue these two issues any more.  In fact, it is not the plaintiff’s case nor the defendant’s that there was a novation among the plaintiff, the defendant and Boldken.  The Agreement was simply made between the plaintiff and the defendant without Boldken being a party to it.  There is also no dispute that the defendant had indeed paid a sum of $187,500.00 to the plaintiff pursuant to Clause 25.  Thus, it is clear that Clause 25 was treated by both parties as a term of the Agreement with Boldken’s name therein substituted by the plaintiff’s name.

17. However, the defendant contends that the plaintiff did not spend any extra efforts or resources to enable him to claim the 5% Bonus under Clause 25.  In particular, the defendant avers that the plaintiff did not carry out any re-measurement for the final account of the sub-contract between the Main Contractor and the defendant (“the Sub-Contract Final Account”) and did not take part in any negotiation with the Main Contractor in completing the Sub-Contract Final Account.

18. Hence, there was no contribution by the plaintiff leading to the additional payment in the Final Sub-Contract Sum except for a portion of the agreement between the Main Contractor and the defendant reached in May 2006 known as Supplemental Agreement No. 1 (“SA No. 1”), by which the Main Contractor agreed to pay the defendant a sum of $3,750,000.00 being the valuation of the additional and/or variation works done by the defendant in the Project.  An interim payment in the sum of $2,500,000.00 was paid by the Main Contractor to the defendant on 11 May 2006.  However, the final sum awarded for SA No. 1 was $3,700,000.00 as stated in Part 2 of the Summary instead of $3,750,000.00.  The said payment of $187,500.00 was the 5% Bonus for the agreed sum of $3,750,000.00 instead of the final awarded sum of $3,700,000.00.  Nevertheless, the defendant does not care about the overpayment of $2,500.00 in respect of this discrepancy.  The defendant’s case is that the plaintiff is not entitled to receive any further payment beyond the said payment of $187,500.00.

19. There is also no dispute that the plaintiff did spend extra efforts and resources in employing a claims consultant to prepare the consolidated claim no. 050809 so that the Main Contractor agreed to pay $3,700,000.00 under SA No. 1.  The defendant, however, contends that the sums in Parts 1.2, 1.3, 3.1, 3.2, 4 and 5 of the Summary were manipulated by the Main Contractor and the plaintiff was not involved in any of the valuation process in the final account stage.   

20. The defendant also contends that Part 6.1 of the Summary refers to contra-charges agreed as per SA No. 1 and Part 6.2 refers to contra-charges after SA No. 1, and they were for the materials, tools, machinery and insurance provided by the Main Contractor for the carrying out of the original subcontract works as well as variation order works.  It is the defendant’s case that such contra-charges should be deducted from the valuation of the additional and/or variation works done by the defendant.

21. Moreover, the defendant avers that it has suffered loss and damages by reason of the plaintiff’s breach of the Agreement in failing to perform from the end of July 2007, in that it had to incur a sum of $50,000.00 to employ other people to assist in claims and re-measurement works, as well as extra expenses of $210,760.00 by allocating technical staff of a sister company, Top Tower Engineering Limited, to take over the final re-measurement and claims for variations left over by the plaintiff from July to October 2007.  Thus, the defendant counterclaims against the plaintiff for the said sums of $50,000.00 and $210,760.00 or damages to be assessed together with interest and costs.

The issues

22. With the withdrawal of the two issues as aforesaid, the following are now the issues in this case: -

(1)  What is the proper construction of Clause 25, ie whether the plaintiff is required to provide extra efforts and resources in order to be entitled to the 5% Bonus?

(2)  Had the plaintiff provided extra efforts and resources?

(3)  Concerning the termination of the Agreement,

(a)  Whether there was non-performance of his duties on the part of the plaintiff since the end of July 2007 as alleged by the defendant?

(b)  Whether the Agreement was terminated on 17 August 2007 but the termination was effective on 31 August 2007 as claimed by the defendant?

(c)  Whether the defendant unilaterally terminated the Agreement on 24 September 2007 as claimed by the plaintiff?

(4)  If the plaintiff is entitled to the 5% Bonus, how much of the gross sum of $97,419,328.39 as stated in the Summary should be included in the calculation of the 5% Bonus?

(5)  If there was repudiation of the Agreement on the part of the plaintiff as alleged by the defendant, whether the defendant is entitled to counterclaim any of the alleged extra expenses?

Issue (1): Proper construction of Clause 25

23. The plaintiff contends that his entitlement under Clause 25 only depends on whether the defendant receives additional payment valuation for the additional and/or variation works.  Once additional payment valuation is received by the defendant for the additional and/or variation works, the plaintiff should be entitled to receive 5% thereof with the intention to offset the extra efforts and resources spent by the plaintiff to ascertain the matter.  Thus, it is not a condition precedent or requirement to the entitlement that the plaintiff must provide extra efforts and resources in ascertaining the additional and/or variation works.

24. The defendant, on the other hand, contends that Clause 25 does impose a condition precedent or requirement for the plaintiff to provide extra efforts and resources in ascertaining the additional and/or variation works, otherwise the plaintiff would not need to work at all after entering into the Agreement and just wait for the result of the final account.  It could not be the parties’ true intention that the plaintiff would be awarded the 5% Bonus without spending any extra efforts and resources.

25. In construing the true meaning of Clause 25, the following legal principle summarized by Lord Hoffmann NPY in Jumbo King Ltd v Faithful Properties Ltd [1999] 4 HKC 707 applies:-

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.”

26. Having considered the wording of Clause 25 and the Agreement as a whole including its factual and legal background as well as the practical objects which it was intended to achieve, I am of the view that the plaintiff’s interpretation is the proper construction of Clause 25.  First of all, I do not see any of the wording used in Clause 25 imposes a condition precedent or requirement for the plaintiff to prove that he has spent extra efforts or resources before he is entitled to the 5% Bonus.  The phrase “as a means to offset the extra efforts and resources spent by Boldken [or the plaintiff] to ascertain the matter” only explains the purpose of giving the 5% Bonus, which is different from imposing a condition precedent or requirement as alleged by the defendant.  In fact, the only condition precedent or requirement for the 5% Bonus as laid down in Clause 25 is the occurrence of the event that the defendant is awarded additional payment valuation arose from additional and/or variation works.

27. From the factual and legal background of the Agreement, it is also clear that the plaintiff was legally obliged under the Agreement to follow up the additional and/or variation works and to apply interim payments for them on behalf of the defendant.  Had the plaintiff failed to do so, this would amount to a breach of the Agreement and the defendant would be entitled to damage flowing from the plaintiff’s breach.  Thus, Clause 25 presupposes that there were extra efforts and resources spent when additional payment valuation is awarded.  However, this is different from suggesting that the plaintiff must show that he had carried out re-measurement work for the Sub-Contract Final Account or that he had negotiated with the Main Contractor in completing the Sub-Contract Final Account (as contended by the defendant) before he would be entitled to the 5% Bonus.

28. I accept the plaintiff’s evidence that in dealing with the additional and/or variation works, he undoubtedly would need to give extra efforts and resources in the Project including studying site instructions from the Main Contractor, writing correspondence concerning the additional time and effect caused by these additional and/or variation works, submitting drawings and calculations, procuring supply of materials, arranging sub-contractors to carry out the works, supervising the works, monitoring and controlling the progress of the works, making payment application to the Main Contractor, following up payment and negotiating with the Main Contractor through discussions between the respective quantity surveyors and the like.  Such evidence clearly establishes that the plaintiff had spent extra efforts and resources to undertake the additional and/or variation works.  In fact, even Mr Kodama, the defendant’s witness, agreed during cross-examination that the plaintiff did incur extra efforts and resources in handling the additional and/or variation works as aforesaid.  He just alleged that the plaintiff did not carry out any re-measurement work and hence was not entitled to the 5% Bonus.

29. Thus, it is a fact that the plaintiff must have incurred extra efforts and resources when there were additional and/or variation works involved.  The wording of “as a means to offset the extra efforts and resources spent by Boldken [or the plaintiff] to ascertain the matter” in Clause 25 reflects no more than this factual and legal background and was added to explain the purpose of giving the 5% Bonus.  It cannot, however, be turned around and treated as a condition precedent or requirement for the plaintiff’s entitlement as contended by the defendant.

30. Moreover, it is clear to me that Clause 25 intends to achieve a practical object of making the calculation of the payment to the plaintiff in respect of the additional and/or variation works simple.  It would be difficult if not impossible to have all these extra works of the plaintiff be documented and recorded to show what and how much extra efforts had been spent by him and his team members.  Even if such documentation could be done, the amount of work involved would be disproportionate to the related additional and/or variation works.  Thus, the mechanism set out in Clause 25 is to provide a simple means of calculation of payment to the plaintiff, namely, by paying a fixed percentage of 5% of the amount received by the defendant from the Main Contractor for the additional and/or variation works.

31. In fact, for the overheads and profits incurred for the additional and/or variation works, the defendant was paid by the Main Contractor by way of adding 15% on top of the prime costs.  Mr Kodama agreed during cross-examination that the overheads which the Main Contractor paid to the defendant for the additional and/or variation works included the project management services provided by the plaintiff in respect of the additional and/or variation works.  It is clear to me that Clause 25 intends to let the plaintiff have a fair share of the overheads which the defendant would receive from the Main Contractor in respect of the additional and/or variation works.  As the plaintiff would undoubtedly provide project management services for the additional and/or variation works, it is logical and reasonable that the plaintiff should receive the 5% Bonus without having to prove the actual items or the extent of the extra efforts and resources first as a condition precedent or requirement for his entitlement.

32. On the other hand, the defendant’s contention that if the plaintiff’s interpretation of Clause 25 is correct, it would mean that the plaintiff is entitled to the 5% Bonus without spending any extra efforts or resources does not tally with the factual and legal background of the Agreement.  As aforesaid, the plaintiff was legally liable to follow up the additional and/or variation works and would undoubtedly incur extra efforts and resources when there were additional and/or variation works.  The alleged scenario of the plaintiff receiving the 5% Bonus without spending any extra efforts or resources does not exist.  It is illogical and unreasonable to use this non-existing scenario to interpret Clause 25.

33. In the closing submissions, the defendant submits that the plaintiff tried to assert in his witness statement that the defendant knew in 2005 that $100,000.00 was insufficient for providing the team of staff so as to infer that the 5% Bonus was intended to compensate such deficiency, and he was shaken upon cross-examination when he told the court at first that it was Tony Hau of the defendant telling him about $100,000 not being sufficient for providing the team staff and then he admitted that Tony Hau had never told him such thing.  As the defendant would not have envisaged that the retainer fee was insufficient for the plaintiff to provide the team of staff, it could not be inferred that the 5% Bonus was intended by both parties to compensate the insufficiency of the retainer fee.  Hence, the defendant contends that the proposal that the plaintiff should be entitled to the 5% Bonus even though the plaintiff did not spend extra effort so as to cover the insufficiency of the retainer fee could not stand.  However, I do not find that there is any basis for this contention.  The plaintiff has never suggested that Clause 25 was intended to let the plaintiff have the 5% Bonus to cover any insufficiency of the retainer fee.

34. The defendant further submits that the plaintiff admitted in cross-examination that the plaintiff did have other projects at the material time although later change the word “projects” to “works”, and the plaintiff could arrange his staff to work elsewhere to get more income at the material time.  Hence, the plaintiff would not have relied on the 5% Bonus to maintain his team of staff.  Again, there is no basis to make that suggestion as it is not the plaintiff’s case that the 5% Bonus was to maintain his staff because of any insufficiency of the retainer fee.

35. Moreover, relying on the case of Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd 1 BLR 111, the defendant submits that even if the wording of “as a means to offset the extra efforts and resources spent by Boldken to ascertain the matter” was not stated in Clause 25, the plaintiff should still be required to spend extra effort so as to be entitled to the 5% Bonus under the contra proferentem rule.  However, as the plaintiff’s case is never that he did not need do work at all after entering into the Agreement, the defendant’s reliance on the contra proferentem rule does not bring the matter any further.

36. In the circumstances, the proper interpretation of Clause 25, as I find it, is that it does not impose a condition precedent or requirement for the plaintiff to prove that he has spent extra efforts or resources before he is entitled to the 5% Bonus.  The wording of “as a means to offset the extra efforts and resources spent by Boldken [or the plaintiff] to ascertain the matter” is just to explain the purpose of giving the 5% Bonus, as there would certainly be extra efforts and resources spent by the plaintiff in relation to the additional and/or variation works, but it does not mean that the plaintiff has to prove that he did spend extra efforts and resources before he is entitled to the 5% Bonus.

Issues (2): Extra efforts and resources provided by the plaintiff

37. In any event, even assuming that Clause 25 does impose a condition precedent or requirement for the plaintiff to prove that he has spent extra efforts or resources before he is entitled to the 5% Bonus, I agree with the plaintiff that he had indeed provided extra efforts and resources for the additional and/or variation works as revealed clearly by the evidence before me.

38. As aforesaid, the various extra efforts and resources mentioned by the plaintiff were not challenged by Mr Kodama except re-measurement work.  Mr Kodama actually admitted that the plaintiff had done all the works such as studying the site instructions and registering time/cost effects of the site instructions, but denied that they were extra efforts to ascertain the additional and/or variation works.  However, it is clear to me that such works were extra efforts for the additional and/or variation works.  In fact, since May 2006, the plaintiff had engaged a quantity surveyor, Mr David Tam, to assist him in handling interim payment applications and preparing submissions for claims, additional and/or variation works.  The plaintiff had also engaged a claim consultancy company, Consultant Associates (H.K.) Limited, to assist him in preparing claim submissions for the additional and/or variation works.  In addition to the services which it had provided during the period between 1 October 2005 and 31 March 2006 (6 months) leading to the conclusion of the SA No. 1, Consultant Associates (H.K.) Limited also provided consultancy service to the plaintiff for the sub-contract during the period between 1 December 2006 and 30 April 2007 (5 months).  These were all extra efforts and resources spent by the plaintiff.

39. Further, the plaintiff gave evidence that, as a token of appreciation of the additional hard works and efforts of the plaintiff’s project management team, the plaintiff paid bonus and red-pocket money to the team members.  The breakdown of the bonus and red pocket money paid by the plaintiff to his staff is as follows: -

Ching Ka Ming	$15,000
Chan Chuen Chin	$15,000
Michael Tam	$15,000
David Tam	$60,000
Benny Ho including Anita Ho	$67,750
Tanny Tsui	$8,000
Consultant Associates (H.K.) Limited	$37,000

40. The extra efforts given by the plaintiff and his team to the additional and/or variation works are also evidenced by the contemporaneous documents at that time.  There were numerous letters sent by the plaintiff on behalf of the defendant to the Main Contractor claiming for additional costs for the additional and/or variation works.  Indeed, most of the documents which the defendant relied on in his final payment application dated 31 August 2007 were prepared by the plaintiff and his team members.

41. As aforesaid, the defendant was paid an extra 15% on top of the prime costs for the additional and/or variation works, which covered the project management services provided by the plaintiff.  This is a clear example of the extra efforts and resources spent by the plaintiff.  Another example is that when the defendant employed Leung Kan Engineering Company Limited to provide works for the steel fabrication frames and pre-cast concrete segments for the additional and/or variation works, the plaintiff managed to seek for a daily wage rate for the workers at $900.00 from the Main Contractor when the defendant was paying only $730.00 to the workers, which enabled the defendant to make a profit of about 18%.  Thus, through the plaintiff’s extra efforts and resources, the defendant was able to make extra profits and income in respect of the additional and/or variation works.

42. As made clear by Mr Kodama’s evidence at the trial, the main defence raised by the defendant in denying the plaintiff’s entitlement to the 5% Bonus is that the plaintiff did not do the re-measurement for the final account and hence he should not be entitled to the additional payment for the additional and/or variation works.

43. This line of defence has no merit at all.  First of all, Clause 25 only requires extra efforts and resources from the plaintiff for the additional and/or variation works (assuming this is a condition precedent or requirement to entitlement).  It does not require the plaintiff to provide specifically re-measurement work as alleged by the defendant.  The defendant argues that as Clause 25 requires the additional payment to be “awarded” to the defendant, it would mean that the plaintiff had to make re-measurement so as to ascertain the final amount for the award.  I do not agree with this interpretation as it is too far-fetched to suggest that the word “award” in Clause 25 could define the scope of the extra efforts and resources to be provided by the plaintiff.

44. The defendant also complains that the plaintiff failed to submit final payment application in a format acceptable to the Main Contractor.  It is clear from the scope of service set out in the Letter of Contract and the Supplemental Letter of Contract that the plaintiff’s task was to make interim payment application, not final payment application.  Indeed, the defendant had repeatedly stressed in its submissions the difference between the final payment application and the interim payment application, with the latter being on an interim and periodic basis and subject to correction and adjustment in the final account.  Thus, had the defendant required the plaintiff to provide the final account submission, this requirement should have been spelt out clearly in the Letter of Contract, the Supplemental Letter of Contract or the Agreement.  The absence of such a requirement clearly indicates an intention that the scope of service required to be provided by the plaintiff would not cover the final account submission.

45. Although both the plaintiff and Mr Kodama agreed that under Clause 25 interim payment applications should be preformed until the final account statement is signed, it still does not mean that the plaintiff had to prepare the final account submission.  When being cross-examined, Mr Kodama accepted that only interim payment applications should be performed by the plaintiff until the final account was issued.  It is clear to me from this evidence that the scope of service did not include final payment application.  Mr Kodama further said that the last interim payment application prepared by the plaintiff should be in a format which is akin to the final payment application.  However, I accept that the plaintiff had in fact complied with this requirement by preparing, compiling and submitting to the Main Contractor the Interim Payment Application No. 31 (“IPA31”) on 24 July 2007, as the evidence is clear that the defendant had based its final payment application dated 31 August 2007 on IPA31 which was prepared by the plaintiff.

46. There is also no basis for the defendant to allege that the plaintiff did not do any re-measurement.  The plaintiff had clearly completed the re-measurement of quantities for the works (including the additional trusses under SIS 452 and SIS 1549) using the bills of quantities rates (“BQ rates”) in IPA31.  The plaintiff had also submitted the records and substantiation for the variation works.  The defence that the plaintiff had failed to carry out any re-measurement is wholly devoid of merits.

47. Moreover, there is cogent evidence that the plaintiff had upon the request of the defendant assisted it in handling the accounts of the defendant’s various sub-contractors in August or September 2007.  Such sub-contractors included Jiangmen Shipyard Limited, PROVA and Leung Kan.  Thus, it is clear that the plaintiff did attend the site and did provide project management services to the defendant.  It is plainly wrong for the defendant to allege that the plaintiff did not provide any extra efforts or resources for the additional and/or variation works.

48. However, in the closing submission, the defendant alleges that it increased the retainer fee for the plaintiff when the workload increased.  Hence, the extra efforts done by the plaintiff in relation to managing variations such as checking of drawings of the site instructions and registering time/cost effects of the site instructions were reimbursed by the increase in retainer fee.

49. This allegation was not pleaded nor put to the plaintiff at the hearing.  It is not right for the defendant to raise it only during closing submissions.  In any event, the evidence shows clearly that the retainer fee was increased from $100,000.00 to $110,000.00 because of the Additional Services as mentioned above.  The subsequent changes for the retainer fee were due to changes of manpower as required by the defendant.  The retainer fee was increased from $110,000.00 to $135,000.00 when there was an addition of a site supervisor, but when the defendant re-deployed a site supervisor to another project later in January 2007, the retainer fee was reduced from $135,000.00 to $98,000.00, which was further reduced to $50,000.00 in August 2007.  Thus, it is wrong for the defendant to suggest that the extra efforts such as checking of drawings of the site instructions and registering time/cost effects of the site instructions were reimbursed by the increase in retainer fee.

50. The defendant disputes that the plaintiff had done any re-measurement works because (1) the plaintiff has pleaded in his Amended Reply that he was not responsible for re-measurement, (2) the plaintiff does not know what Standard Method of Measurement (“SMM”) is when knowledge of SMM is required for any re-measurement work and (3) the plaintiff told the court that he submitted the raw data from Guangdong Jiangmen Shipyard Co Ltd (“Jiangmen”), the structural steel fabricator, on a “Back to Back” basis to the Main Contractor in IPA31.  In fact, the plaintiff said that he had done re-measurement on additional trusses as shown in items C to I of IPA31.  These were all estimated quantities picked up by the plaintiff from the invoices provided by Jiangmen.  The plaintiff told the court that the defendant was on a “Back to Back” re-measurement of quantity basis with the supplier according to the letter dated 2 April 2007.  However, the “Back to Back” quantities in IPA31 were totally rejected by the Main Contractor.

51. The defendant contends that the plaintiff had disregarded the requirements in SA No. 1 and was merely working on his own set of rules.  That was the reason why the plaintiff said that SA No. 1 was merely a memorandum of understanding which could be adjusted continuously, and also the reason why the plaintiff did not follow SMM to measure all completed works.  In cross-examination, the plaintiff agreed that the sub-contract was a re-measurement contract.  Hence, the works were firstly measured in the bills of quantities.  Upon completion of the Project, the plaintiff should carry out re-measurement of all completed works, including original works and additional works.  However, the plaintiff also said that he did not carry out any re-measurement because it was not within the scope of services as pleaded in paragraph 16 of the Amended Reply.  In fact, there was no document in the hearing bundles showing that the plaintiff had done any re-measurement at all.  Hence, the defendant submits that the plaintiff did not carry out any re-measurement for Parts 1.2 and 1.3 of the Summary.

52. The defendant also contends that the plaintiff did not carry out the re-measurement as shown in IPA31, as these were all estimated quantities picked up by the plaintiff from the invoices provided by Jiangmen as mentioned above.  The plaintiff tried to show that there was re-measurement done by the plaintiff by asserting the quantities shown in draft interim payment certificate 30, which was in fact not approved by the Main Contractor and the plaintiff should not rely on such document at all.  Thus, the plaintiff failed to show that he had spent extra effort in measuring Parts 1.2 and 1.3 of the Summary.

53. However, I agree with the plaintiff that although the Amended Reply states that the plaintiff was not required to carry out re-measurement work, it does not mean that the plaintiff did not actually carry out any re-measurement work.  What the plaintiff states in the Amended Reply is just to put forward his position that he was not required by the Agreement to carry out any re-measurement work.  So it is not right for the defendant to rely on the Amended Reply as aforesaid.

54. As to the allegation that since the plaintiff does not know what SMM is, he could not have provided re-measurement work, I do not find this argument convincing at all.  The plaintiff was never shown a copy of the alleged SMM, and there could be different types of standard method of measurement.  So the mere fact that the plaintiff does not know what the alleged SMM is does not support the defendant’s contention that no re-measurement work was done.

55. The allegation that the plaintiff did not do any re-measurement work because the plaintiff only provided the raw data from Jiangmen on a “Back to Back” basis to the Main Contractor is also without merit.  First of all, Mr Kodama admitted that he himself was not aware of the site work or measurement as he was only working at the top management.  So he could not tell whether the quantities were coming from Jiangmen or not.  In any event, as Jiangmen was only responsible for steel fabrication, it would not be possible for it to provide the other quantities such as those for the installation of concrete blocks, which were in fact provided by other contractors such as Leung Kan and Kam Fai.  Furthermore, as Jiangmen’s service was terminated by the defendant and it was replaced by another contractor Ying Chi in July 2006, it was impossible for Jiangmen to provide all the quantities.  It is therefore clearly wrong for the defendant to contend that the plaintiff did not do any re-measurement and just rely on the raw data from Jiangmen.

56. Regarding Part 3.2 of the Summary, ie variation order after SA No. 1, the defendant contends that the plaintiff could provide no document proving that they had spent any extra effort.  All the plaintiff could rely on is IPA31 which shows that all the variations were assessed on a day work basis.  The Main Contractor had rejected such an assessment as the sub-contract was a re-measurement sub-contract and all variations should be measured to get the increased quantities, followed by pricing using BQ rates if applicable, and if no BQ rate is applicable, then new rates should be agreed by adjusting similar BQ rates.  Thus, the defendant contends that the plaintiff did not spend any extra effort in ascertaining the variation works and should not be entitled to any bonus on Part 3.2 of the Summary.

57. Nevertheless, both the plaintiff and Mr Kodama agreed that there is a three-tier approach to valuation, even though it concerns a re-measurement contract.  First, when there are existing applicable BQ rates, they would be used.  Secondly, when there are no applicable BQ rates because the variation works are of different nature, then the rates can be built on the prime costs including the costs of the plant, labour and materials.  Records of the plant, labour and materials used, which are akin to day work records, would be kept for calculation of the costs.  The defendant’s overheads and profit would be reimbursed by adding on the prime costs certain percentage.  This valuation exercise is closely analogous to valuation on a day work basis.  Thirdly, when the variation works involve large sums, both parties would attempt to agree on the rates beforehand.

58. Thus, where no applicable BQ rates could be applied, day work records would provide a very effective way of assessing the reasonable amount for the additional and/or variation works.  This method of valuation had in fact been adopted by the defendant as well as the Main Contractor, and is also consistent with the terms in SA No. 1.  In any event, the mere fact that the Main Contractor rejected this valuation method does not mean that the plaintiff provided no extra efforts and resources.  Efforts and resources in providing valuation on a day work basis were still incurred by the plaintiff in relation to the additional and/or variation works. 

59. In relation to Part 5 of the Summary, ie Claims, the Main Contractor assessed the amount of $2,129,185.83 pursuant to the Final Claim No. 070628 (“the Final Claim”) submitted by the defendant on or about 31 August 2007.  In the Final Claim, the defendant compiled all the previous submissions and summarized the financial compensation for (A) Disruptive Delays $3,500,000.00; (B) Interferences during Construction Operation $2,500,000.00; and (C) Transport of Materials beyond Subcontract Requirement $1,500,000.00.  After further substantiation with accounting records and negotiations, the Main Contractor assessed $2,129,185.83 to be a fair valuation for the Claims.  The defendant contends that, in pursuing the Final Claim, the defendant had the right to use the previous letters as substantiation, and it is not right for the plaintiff to assert that he had contributed extra efforts in preparing these letters for the Final Claim. It is also submitted that the previous letters were either routine project management letters or letters asking for advance payments.

60. Moreover, the defendant contends that it had to find out the causations for (A) Disruptive Delays; (B) Interferences during Construction Operation; and (C) Transport Materials beyond Subcontract Requirement and spent hours to dig out the accounting records so as to calculate the claimed amount as well as to meet with the Main Contractor for substantiation and negotiation.  It was the effort of the defendant to convince the Main Contractor that the defendant incurred extra loss and/or expense so that the Main Contractor awarded $2,129,185.83 under the heading of Claims.  The plaintiff did not take part in negotiation meetings with the Main Contractor and did not spend extra effort in digging out the accounting records of extra expenses caused by (A) Disruptive Delays; (B) Interferences during Construction Operation; and (C) Transport Materials beyond Subcontract Requirement.  Accordingly the plaintiff should not be entitled to any bonus due to the Claims.

61. I do not accept the defendant’s contentions in this regard.  Although the defendant had the right to use the previous letters as substantiation, they were nonetheless the extra efforts provided by the plaintiff in relation to the additional and/or variation works.  Clause 25 does not require the extra efforts and resources to be confined to a particular item of the award before the 5% Bonus is payable in respect of that particular item.  As long as there were efforts and resources incurred for any items of the additional and/or variation works (assuming this is a condition precedent or requirement), the total award should be used to calculate the 5% Bonus.  Thus, even if the plaintiff did not contribute anything for the Claims or take part in the negotiations with the Main Contractor as alleged by the defendant, I am satisfied that there were many other efforts and resources provided by the plaintiff which would allow the plaintiff to have the 5% Bonus on the total sum awarded.

62. I therefore find that there were extra efforts and resources provided by the plaintiff to enable him to have the 5% Bonus.

Issues (3): Termination of the Agreement

63. The defendant’s case is that Mr Kodama called the plaintiff on 1 August 2007 and complained about his non-performance by not attending the site for weeks.  Mr Kodama also warned the plaintiff to rectify IPA31 to suit the Main Contractor’s requirement on re-measurement of variation works.  Despite such complaint and warning, there was no improvement made by the plaintiff.  Mr Kodama then called the plaintiff on 17 August 2007 to terminate the Agreement.  However, the defendant contends (as confirmed by Mr Wu at the hearing) that the termination of the Agreement was effective on 31 August 2007, and not 17 August 2007, as the plaintiff was paid the retainer fee up to 31 August 2007.

64. The defendant submits that the 3 interim payment certificates, ie IPC 30, IPC 31and IPC 32, for the months June, July and August 2007 show that there was zero payment received for these 3 months and it can be inferred that there was non-performance of the plaintiff’s duty during these 3 months.  Also, as the plaintiff prepared IPA31 based on day work sheets, the Main Contractor complained the same to the defendant who in turn complained to the plaintiff on 1 August 2007 as aforesaid.

65. However, I do not accept the defendant’s evidence in this regard.  Mr Kodama was cross-examined about what complaints or warnings he had issued to the plaintiff during the telephone conversation on 1 August 2007, but his answers were unsatisfactory and evasive.  He admitted that IPA31 was submitted to the Main Contractor on 24 July 2007 and prior to that date, the defendant had no complaint about the plaintiff’s performance at all.  If that was the case, how could the interim payment certificates for the months of June and July 2007 (IPC 30 and IPC 31) be evidence to support the defendant’s allegation that there was non-performance on the part of the plaintiff prior to 24 July 2007?  Mr Kodama said that he gave one month to the plaintiff to rectify the problem and to prepare the final payment application.  Again, if that was case, why did he call the plaintiff again on 17 August 2007, which was short of the one month period given to the plaintiff?

66. Mr Kodama was asked why he did not mention in his oral evidence that he had complained about the plaintiff’s non-attendance at the site (although it was mentioned in his witness statement), he just said that it was understood as part and parcel of the Main Contractor’s complaint.  Also, he did not mention in his oral evidence that he had told the plaintiff that the Main Contractor was chasing after the defendant to submit the final account with re-measurement substantiation, or that he did warn the plaintiff about the termination of the Agreement, although these matters were mentioned in his witness statement.  Thus, his oral evidence does not tally with his witness statement.  I do not find his evidence credible.

67. In addition, when Mr Kodama was shown with a copy of the payment schedule prepared by him and dated 26 July 2007 (page 384 of Box 2 of the Trial Bundle), he became more evasive.  This payment schedule was for the assessment of the final account and outstanding payments to various parties and had Mr Kodama’s own handwritings on it.  From the contents of this payment schedule and Mr Kodama’s handwritings, it seems that Mr Kodama had already planned to have the plaintiff’s services up to the end of September 2007.  It also shows that Mr Kodama wanted to have some figures checked and breakdown provided, but he denied he had the intention to ask the plaintiff to provide the information.  In this regard, I accept the plaintiff’s evidence that Mr Kodama did ask him on 1 August 2007 to reply to the notes made in the payment schedule and the plaintiff did provide the information as evidenced in another copy of the payment schedule (page 385 of Box2 of the Trial Bundle).  Thus, the evidence shows clearly that Mr Kodama was talking to the plaintiff on 1 August 2007 about the payment schedule rather than making complaints to the plaintiff as alleged by the defendant.

68. Moreover, the defendant did not disclose any document showing that the Main Contractor had complained about the quality of IPA31 and requested for re-measurement substantiation.  Mr Kodama just said in his oral evidence that he could not recall whether there were any written complaints made by the Main Contractor in relation to IPA31.  It seems to me that it is rather unlikely that the Main Contractor would only make oral complaints in respect of a formal and written interim payment application.  As aforesaid, it is not unusual to use day work records to substantiate variation works.  The defendant and the Main Contractor had also used this method.  So the allegation that the Main Contractor had complaints on 1 August 2007 about the use of day work records cannot be substantiated by evidence.  In fact, towards the end of his cross-examination, Mr Kodama suddenly suggested that the Main Contractor had provided all the quantity measurement work itself, but no such allegation was ever made in pleadings or in his witness statements before.  It just shows that his evidence is totally unreliable.

69. Further, the defendant had produced the telephone records for the period between 24 July 2007 and 14 September 2007, to show that Mr Kodama did have telephone discussions with the plaintiff on 1 and 17 August 2007, but no record was produced to show that there was no telephone call on 24 September 2007 to rebut the plaintiff’s allegation that the termination was in fact made on that day.  Although it is the plaintiff’s duty to prove his own case, when the defendant had taken the trouble to produce the telephone records up to 14 September 2007, it is just strange that it did not produce further records to rebut the plaintiff’s case. The reason offered by Mr Kodama that the defendant did not know that there was an issue between the plaintiff and the defendant on the telephone conversation on 24 September 2007 simply cannot stand against common sense.

70. Mr Kodama gave evidence that it had been the company policy of the defendant that after final account was signed with the Main Contractor, all correspondences in the project would be discarded.  Since the final account with the Main Contractor was signed on 4 October 2007 and the payment was received in mid-October 2007, all documents including the correspondence were discarded shortly after.  This account of events is simply implausible.  Mr Kodama agreed that as at October 2007, there were still outstanding claims by its sub-contractors, Jiangmen, PROVA and Leung Kan for their service fees under the respective sub-contracts.  The defendant also knew that the plaintiff was demanding for payment of the 5% Bonus and the September 2007 service fee.  Given this situation, no reasonable commercial man would discard the documents and correspondence in the Project as one would still need to refer to them.  Thus, it is hard to believe that the defendant no longer keeps the documents concerning the Main Contractor’s complaints.

71. By reason aforesaid, I find it more likely than not that the telephone discussion on 1 August 2007 between the plaintiff and Mr Kodama was on the accounting information provided by the plaintiff, and not on the alleged complaint or warning notice given by Mr Kodama to the plaintiff.

72. As to the telephone conversation on 17 August 2007, it is Mr Kodama’s oral evidence that he terminated the Agreement when the plaintiff refused to provide the final payment application.  However, in paragraph 14 of Mr Kodama’s 1^st witness statement, he only said that:-

“Despite receiving warning, the Plaintiff remained non-performance during August 2007 and repudiated the Agreement. Subsequently, I called to Mr. Robert Li on 17 August 2007 to terminate the Agreement by accepting the Plaintiff’s repudiation.”

73. It was not mentioned in the witness statement that the plaintiff had refused to perform.  If the plaintiff had refused to perform during the telephone discussion on 17 August 2007, it would be logical that the defendant would have mentioned the same in its pleading and/or in Mr Kodama’s witness statements.  The absence of this allegation in the pleadings and in the witness statements suggests that the alleged refusal by the plaintiff to perform is just an after-thought and a recently invented excuse by Mr Kodama.

74. More importantly, if Mr Kodama had told the plaintiff on 17 August 2007 that the Agreement was terminated, the defendant would have mentioned this in its reply letter to the plaintiff dated 18 October 2007.  The defendant’s letter dated 18 October 2007 was not only silent on this alleged oral notice of termination of the Agreement, it actually contains the following statements which are completely inconsistent with the defendant’s assertion that the Agreement was terminated on 17 August 2007:-

“ 1. First and foremost, let us be understood that the Contract HY/2002/26 Stonecutters Bridge is still far away from completion. Whilst it may be noted that our Subcontract with the Main Contract is near completion, it is, however not yet finalized as of to date.

2. The above brings out the point that, whilst our Subcontract is eventually coming to a close, we have yet to receive official notice of termination of service from your company. That is to say, we have, thus far received nothing from your company informing Federal that all project management services instructed have been completed accordingly, so that we could revert to the Main Contract likewise.

3. And to engage the above, there were several outstanding items that would have had needed your necessary attention and action to timely complete.

  4.  As of to date, there remains the matter of outstanding claims to the Main Contractor that need to be pursued and resolved, to which it should had been part of the project management service from your company, but regrettably it had not.”

(underlines added)

75. It is clear that if the Agreement was terminated by the defendant on 17 August 2007 as alleged, it would be nonsensical for the defendant to complain in its letter dated 15 October 2007 that it did not receive official notice of termination from the plaintiff.  Mr Kodama was unable to offer any answer as to why this letter was written in this manner.  There is also absolutely no reason for the defendant to pay the retainer fee until 31 August 2007 if the Agreement was terminated on 17 August 2007.  The reason that the defendant wanted to avoid dispute with the plaintiff just does not make sense.  I therefore do not find that there is any truth in the defendant’s allegation that the Agreement was terminated on 17 August 2007 or on 31 August 2007.

76. On the other hand, I find that the plaintiff’s case on termination is clear and plausible. I accept the plaintiff’s evidence that the defendant removed the site office before 24 September 2007 without notifying the plaintiff in advance.  When the plaintiff made enquiry with Mr Kodama by phone on 24 September 2007, he was told that the defendant no longer needed the Services provided by the plaintiff, and the Agreement between them was terminated with immediate effect.

77. The defendant tried to attack the plaintiff’s credibility by challenging some of the details of what happened at the site and the actual date of the incident when the plaintiff went there.  However, I do not find the plaintiff’s evidence shaken as suggested by the defendant.  The mere fact that the plaintiff mentioned more things about the environmental aspect of relocating container office when he was asked why he did not ask somebody at the site about where the site office was relocated does not make the plaintiff’s evidence unbelievable or a recent fabrication as suggested by the defendant.  Although the plaintiff did not state in his witness statement that he did ask the defendant’s staff as to the whereabout of the container office, I do not find this matter so important that he must have it stated in the witness statement.  As to the allegation that the plaintiff was lying when he said that he attended the site on 23 September 2007, which was a Sunday, I find that the plaintiff was actually confused by the way the questions were put to him.  He already said that he could not remember the exact date of his attendance at the site.  It is unfair to criticize the plaintiff for referring to a wrong date.

78. Although the plaintiff did not provide any telephone record for the call on 24 September 2007, I accept his evidence in this regard as I find him to be an honest and credible witness.  I do not agree with the defendant that the plaintiff was an evasive witness, as I find that he has given his evidence clearly, cogently and in a straight forward manner.

79. I therefore find that there was no non-performance of the plaintiff’s duties which caused the defendant to terminate the Agreement on 17 or 31 August 2007, and that the Agreement was actually terminated unilaterally by the defendant on 24 September 2007.  As the plaintiff was not paid retainer fee for the period from 1 September 2007 to 24 September 2007, he is entitled to claim the pro rata retainer fee in the sum of $40,000.00.

Issue (4): The plaintiff’s entitlement to the 5% Bonus

80. As aforesaid, I do not find that Clause 25 has a condition precedent or requirement that the plaintiff must establish extra efforts and resources before he can claim the 5% Bonus.  I also find that even if that was the case, the plaintiff had in fact provided extra efforts and resources and it does not matter that the extra efforts and resources were not specially directed to a particular item of work. Thus, the plaintiff is clearly entitled to the 5% Bonus.

81. There were some arguments about which parts of the works mentioned in the Summary were additional and/or variation works, but I think the evidence shows clearly that Parts 1.2, 1.3, 2, 3.1, 3.2, 4 and 5 of the Summary were all related to additional and/or variation works.  Thus, it is right for the plaintiff to adopt the amount of $25,411,036.25 to calculate the 5% Bonus.

82. As to the contra-charges mentioned in Part 6 of the Summary, I do not find that they should be deducted from the calculation of the 5% Bonus.  As contended by the plaintiff, it is clear that these contra-charges were supposed to be incurred by the defendant if they were not provided by the Main Contractor.  There is nothing wrong for the Main Contractor to set off these amounts from the sums payable to the defendant, but it would be wrong to deduct them from the calculation of the 5% Bonus.

83. In the circumstances, the plaintiff is entitled to 5% of the amount of $25,411,036.25, ie $1,083,051.81, pursuant to Clause 25.

Issue (5): Counterclaim

84. As aforesaid, the plaintiff was not obliged to make the final payment application under the Agreement, and hence the plaintiff’s job was completed when IPA31 was submitted. There is no basis for the defendant to counterclaim the alleged expenses for works that were required to be done for the final payment application.  Thus, the defendant must fail on its counterclaim.

Conclusion

85. In the premises, the plaintiff is entitled to claim the said sums of $40,000.00 and $1,083,051.81, but the total amount of the award will be reduced to $1,000,000.00 so that it falls within the jurisdiction of the District Court.

86. The defendant’s counterclaim will be dismissed accordingly.

Interest

87. The plaintiff claims interest from the due dates for payment of the retainer fee and the 5% Bonus respectively, ie from the dates of the respective invoices issued by the plaintiff to the defendant.  Thus, the plaintiff contends that for the September 2007 retainer fee, it should run from 27 September 2007 and for the 5% Bonus, it should run from 8 April 2008.

88. However, as there were no contractual terms to pay interest in the manner suggested, I think interest should run from the date of the service of the writ.

89. Regarding the interest rate, I agree that the usual commercial rate should apply in this case (see Koomala Decof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) (“Koomala”) [1984] HKLR 219 and Tate & Llye case [1982] 1 WLR 149).

90. The plaintiff is therefore entitled to interest at 1% above the best lending rate of HSBC from the service of the writ until judgment and thereafter at judgment rate until payment.

Order

91. Thus, I order as follows:-

(1)  The defendant do pay the plaintiff a sum of $1,000,000.00 together with interest thereon at 1% above the best lending rate of HSBC from the service of the writ until judgment and thereafter at judgment rate until payment.

(2)  The counterclaim be dismissed.

(3)  Costs order nisi: The defendant do pay the plaintiff costs of the action including costs of the counterclaim with certificate for counsel to be taxed if not agreed.