MAYSUN ENGINEERING CO LTD v. INTERNATIONAL EDUCATION AND ACADEMIC EXCHANGES FOUNDATION CO LTD t/a HONG KONG INSTITUTE OF TECHNOLOGY

DCCJ 27/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 27 OF 2006

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BETWEEN

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JUDGMENT

Background

1.  Typically in a case where elaborate works have been undertaken to be carried out by a contractor, and there is an unfortunate break down of trust and confidence in the relationship, the parties are inclined to let their dispute evolve into a myriad of complaints over each and every small detail of work carried out or to be carried out under the agreement. For the purpose of determining the dispute brought to the Courts, the essential and starting point is the pleadings filed in the proceedings and how the dispute is defined in and by the pleadings.

2.  In this action, the Plaintiff ("MEC") seeks from the Defendant ("Institute")recovery of a sum of $641,133.69, being what it claims to be the balance of the amount due under a contract made between MEC and the Institute ("Contract") for fire services works, electrical works and other defined additional works ("Works") carried out at the premises of the Institute at 2, Breezy Path, Mid Levels, Hong Kong ("Site"), and damages.

3.  The parties are not in dispute that the Contract for MEC's Works is evidenced by (amongst other things) a letter from MEC to the Institute dated 14 August 2005, countersigned by the Institute on 15 August 2005. MEC claims that the Institute was in breach of the Contract, by failing to provide the necessary design information and design drawings to facilitate MEC to carry out the Works in accordance with the Contract, to provide the necessary building works required to enable MEC to carry out the Works, to make interim payments due to MEC under the Contract, and to provide employee's compensation insurance in respect of the Works (paragraph 13 of the Re-re-Amended Statement of Claim ("Statement of Claim" for the sake of brevity)). MEC claims that it had requested the Institute to rectify the breaches, but instead of so doing, the Institute instructed MEC on 24 September 2005 and 28 September 2005 to remove its tools from the Site, and by a letter dated 28 September 2005 from the Institute's solicitors, the Institute had repudiated the Contract. MEC claims that it had accepted the Institute's repudiatory breach by removing its tools and machinery on 4 October 2005, but is entitled to claim for payment in respect of the Works done prior to the Institute's repudiation, and to damages including loss of profits and the cost of materials left unused on the Site.

4.  By way of defence, the Institute denies that it was in breach of the Contract. By way of counterclaim, the Institute claims that it was MEC which was in repudiatory breach of the Contract, as MEC was contractually bound, first, to provide design drawings for the Works and to submit layout plans to the Fire Services Department ("FSD") for approval before the fire services works could commence on the Site; secondly, to provide employees' insurance for its employees before commencing work; and thirdly, to communicate with other contractors to ensure that such contractors could progress with their work efficiently and in proper order (paragraph 25 of the Re-re-re-Amended Defence and Counterclaim ("Defence and Counterclaim")). The Institute claims that it had no obligation under the Contract to provide the building works alleged by MEC to be necessary to enable it to carry out the Works, and further alleges that MEC was in repudiatory breach of the Contract by suspending all work since 19 September 2005 (paragraph 25 (5) of the Defence and Counterclaim). Such repudiatory breach on MEC's part was, on the Institute's case, accepted by the letter dated 28 September 2005 from the Institute's solicitors to MEC.

5.  In determining factual disputes, the Court takes into consideration the inherent probability of the parties' assertions, whether their assertions are consistent with the parties' conduct and the contemporaneous documents, and the credibility and demeanor of witnesses. However, the Courts have recognized the difficulties posed by reliance simply on the demeanor and testimony of witnesses at trial. Often, witnesses' testimony is affected by the lapse in time between the events which took place and the trial and their memory, and their memory can in turn be tainted by a party's own subjective view of its case in Court and the rights and wrongs of the protagonists involved in the matter. Comparison of witnesses' testimony to contemporaneous documentation is always useful as an aid to testing the reliability of the testimony, unless there is reason to believe that the documentation is contrived or materially incomplete.

6.  In this case, the pleadings and the evidence focus on a chain of correspondence exchanged between the parties between 14 September to 28 September 2005, at a critical time when disputes had begun to arise in the course of the execution of the Works. On 14 September 2005, MEC wrote to Madam Shi, the Principal of the Institute ("Principal"), referring to a meeting which had taken place between Mr. Yung of MEC and Mr. Fu of the Institute ("the 14 September Letter"). The 14 September Letter sets out 4 matters for the Principal's action.

7.  First, it was stated that the Institute had not purchased employees' insurance for the project, and stated that MEC would have to suspend work until receipt of the Principal's notice that insurance coverage had been bought. Secondly, it was stated that the Institute had not provided builder's works, specified as wall/floor openings, support frames and scaffolding for the Works, and sought the Institute's provision of these builder’s works without delay. Thirdly, the 14 September Letter states that MEC had not received any design information or drawing from the Institute, and that MEC could not prepare the installation drawings without such information and drawings. The Institute was requested to expedite the provision of such design information to MEC. Finally, the 14 September Letter sought the release of an interim payment of $175,857.30 pursuant to an interim payment application dated 31 August 2005.

8.  MEC concluded the 14 September Letter by saying that if confirmation or information on the 4 identified matters is not received in 3 days, they would suspend the Works.

9.  On 22 September 2005, the Principal responded to the matters outlined in the 14 September Letter, as follows:

"1. According to the approval of tender, you were fully aware what had been successfully tendered. It is your responsibilities to make sure that you will be able to deliver the service that had been included in the tender. What had not been included should not become a reason for not being able to carry out the service as tendered.

2. Please refer to the copy of tender, there is no payment made under 50% completion.

3. We have site insurance covered. It is always your responsibilities to make sure that your employees are fully covered by suitable insurance.

If you choose not to proceed as tendered, please let us know at your earliest convenience. For future correspondence, we would appreciate if you can contact our lawyer, Mr. Chan at fax number: 28772620. All legal rights reserved."

10.  It is not in dispute that this letter of 22 September 2005 from the Principal ("22 September Letter") was sent with an attachment, being the "Notes" and "Remarks" page of the relevant tender for the Works submitted by MEC and accepted by the Institute ("Tender"), with Remark 4 ("Payment Terms") crossed out by the Principal.

11.  In response to the 22 September Letter, MEC wrote to the Institute and to the Institute's solicitors on 25 September 2005, to "reiterate the problems listed" in the 14 September Letter and to state that early attention to the problems was required. MEC sought instructions on how they could proceed with the Works, and stated that it was not in agreement with the Institute changing the Payment Terms. There is a reference in one of the letters issued on 25 September 2005 that MEC would suspend the Works at the Site until further instructions were received.

12.  On 26 September 2005, MEC again wrote to the Principal, as follows:

"We received the verbal instruction from your staff Mr. Fu Kong Fat on G/F of the site (No. 2 Breezy Path, Mid-levels West, Hong Kong) at 14:45 on 24^th September 2005 to instruct "our company to take away the tools out of the site and will terminate the Contract of our work for this project". We record that the instruction was given from your staff Mr. Fu Kong Fat on your behalf. We shall follow your instruction to remove the tools from the site within five days of this letter.

We reiterate that you shall be fully responsible for all loss and profit due to your instruction to terminate our Contract and your act to breach the Contract of this project."

13.  On 28 September 2005, the Institute's solicitors issued a letter to MEC ( "28 September Letter"), to state:

"We are instructed that since 19/9/05 you have suspended all the renovation work at the captioned site thereby in breach of the tender terms dated 14/8/05. This constitutes a repudiation of the agreement for the renovations at the captioned sites, which repudiation is hereby accepted.

We are further instructed by our client to give you notice, which we hereby do, that unless you clean up the captioned site and remove all the tools and machineries kept thereat, and to refund to our client the deposit in the sum of HK$351,714.60, within 7 days from the date hereof, legal institution (sic) will be brought against you regarding the same without further notice."

14.  MEC left the Site some time after receipt of the 28 September Letter, on 4 October 2005.

15.  Against this background of contemporaneous correspondence and bearing in mind the contract documents, I will deal with each party's allegations of breach in turn.

The provision of employees' compensation insurance

16.  Both MEC and the Institute had claimed that the other was to provide insurance for employees' compensation in respect of the Works under the Contract.

17.  I consider that it is clear from the tender documents which form part of the Contract that the costs of the provision of employees' compensation insurance were excluded from MEC's quotation for the Tender ultimately accepted by the Institute. There is no dispute between the parties that the Contract comprises MEC's letter dated 14 August 2005 to the Institute, the tender documents dated 14 August 2005 which contain a schedule of  the works to be carried out ("Schedule of Works") and the Proposed Layout Plan dated 7 July 2005 (paragraph 4 of the Statement of Claim, and paragraph 6 of the Defence, which only avers that an additional letter dated 9 August 2005, which does not relate to the issue of insurance, should form part of the Contract).

18.  Remark 2 of the Tender clearly states:

"Our quotation excluded Employee Compensation Insurance, Insurance of the Works against Fire and Insurance against Injury to Persons or Property."

19.  On the face of the tender documents, Remark 2 makes it clear that the price quoted in the Tender excludes the cost of providing for employees' compensation insurance for the workers involved in the Works. Even if it was MEC's statutory duty to provide such insurance for its workers, it does not mean that MEC was not entitled to look to the Institute for recovery of the cost of providing such insurance. The Principal's simple answer that the Institute is only obliged to pay for items expressly included in the Schedule of Works is rejected. To illustrate the fallacy of this argument, contractors normally give quotations which are expressed to be either inclusive or exclusive of labor, or material, costs, but it does not mean that where the cost of materials (for example) is excluded from the quotation, the employer is not obliged to pay for the cost of such materials in addition to the costs quoted for the works involved. In this case, the cost of employees' compensation insurance is expressly excluded from the tender, but it does not mean that the Institute is not obliged to pay for the cost of such insurance.

20.  It is Mr. Yung's evidence in this case, which I accept as inherently more probable and being consistent with Remark 2 of the Tender, that he was told by Mike Wong of the Institute, prior to the submission of the Tender, that employees' insurance would be provided by the Institute, and that the cost of provision of such insurance should be excluded from the price of the Works to be provided by MEC under the Contract. Mike Wong has not been called by the Institute to reject or even challenge Mr. Yung's claim in this regard. Mr. Yung therefore thought that the Institute would purchase the insurance for MEC's workers, or otherwise arrange for such insurance to be provided by the main contractor to be engaged for the project.

21.  In any event, despite the fact that MEC had referred to the Institute's failure to provide employees' compensation insurance as an instance of breach in the 14 September Letter, in which letter MEC had stated that they would have to suspend the Works until receipt of the Principal's notice that insurance had been bought, the evidence is that MEC's workers had in fact continued to work on the Site after 14 September 2005. The Daywork Sheets produced at trial show that there were 3 workers of MEC at the Site until 24 September 2005, and one worker and Mr. Yung himself at the Site until 30 September 2005. Counsel for MEC argued at trial that MEC had not in fact relied on the Institute's breach of failing to procure employees' compensation insurance to either suspend the Works or to terminate the Contract. I accept that this has been established on the evidence. Nor has the Institute relied on MEC's failure to procure employees' compensation insurance as breach which entitled the Institute to terminate the Contract, as is evidenced by the 28 September Letter, which refers only to MEC's suspension of work as the repudiatory breach.

The failure to provide building works

22.  In any case involving the execution of building or decoration works by a contractor at any site, it is inevitable that there must be some cooperation and coordination between the contractor and the employer. The employer may rely on the expertise and skills of the contractor in the design and/or execution of the works involved, but it can be readily appreciated that the contractor cannot carry out essential works required of and expected from him unless the employer provides the necessary information and details as to the employer's requirements. The more complex the project, the greater involvement is required from the employer, or someone authorized to make decisions on the employer's behalf, to facilitate the smooth and timely execution of the works.

23.  On the evidence, the Contract relates to works which form part of the overall conversion of a site formerly used as a hospital to premises fit to be operated as a school. It certainly cannot be described as a simple project. The Works only form one part of all the works required to be executed for the conversion. Whereas MEC was to supply and install electrical works and fire services works on the ground floor and basement of the premises concerned, essential building works such as the installation or provision of partition walls, openings in the walls, fire resistant doors, false ceilings and fire resistant partition walls, etc were all excluded from the Contract (as evidenced by items 2, 3.9.1 to 3.9.8, 4.81 to 4.83 and 5.1 to 5.8 of the Schedule of Works), and were to be provided and installed by other contractors to be engaged by or on behalf of the Institute.

24.  Further, Remark 3 of the Tender expressly provides that the quotation for the Tender "excluded all painting work and chase the wall/floor opening".

25.  MEC claims (in paragraph 8 of the Statement of Claim) that it was an implied term of the Contract that the Institute would provide the necessary building works to facilitate MEC in its execution and completion of the Works. It is MEC's case that despite its requests for the necessary building works, the Institute had failed to provide these works, such that it was not possible for MEC to complete the Works in accordance with the Contract. This was one of the matters mentioned in the 14 September Letter as requiring action on the part of the Institute, with reference to the Institute's failure to provide wall and floor openings, supporting frames for air-conditioners and scaffolding.

26.  By way of answer, the Institute's pleaded case (in paragraph 21 of its Defence) is that it had no obligation to provide the building works alleged to enable MEC to carry out the Works. In evidence, the Principal initially claimed in her Statement that the matters stated in the 14 September Letter were simply MEC's excuses for delaying the submission of plans for approval by the FSD. In Court, she claimed that as MEC had failed to submit drawings and plans, the Institute did not know how MEC would do its work and how other contractors could coordinate their work with MEC's.

27.  There cannot be any dispute that MEC had no obligation under the Contract to carry out works relating to the "excluded" parts of the Schedule of Works, and these include the installation of false ceilings, wall openings for conduits and pipes (including conduits and pipes to be supplied or installed by MEC under the Contract) and doors.

28.  MEC claims that the Contract is subject to implied terms that: (1) the Institute would not hinder or prevent MEC from carrying out and completing the Works in a regular and orderly manner and in accordance with the Contract (paragraph 7(f) of the Statement of Claim); and (2) the Institute would cooperate with and do all such things necessary to facilitate MEC in carrying out and completing the Works (paragraph 7(g) of the Statement of Claim).

29.  In its Defence, the Institute has on its part claimed that the Contract is subject to an implied term that MEC would liaise with other contractors to ensure that different works are carried out on the Site in the correct sequence (paragraph 9 of the Defence and Counterclaim).

30.  I am satisfied that the terms claimed by both MEC and the Institute (and referred to in paragraphs 28 and 29 above) satisfy the conditions stated in BP Refinery (Westernpoint) Pty Ltd. v. Shire of Hastings (1978) 52 ALJR 20, as applied in Kensland Realty Ltd. v. Whale View Investment Ltd. (2001) 4 HKCFAR 381, and can be implied into the Contract. They are necessary to give business efficacy to the Contract, and must express the obvious intention of the parties.  They are not inconsistent with any express terms of the Contract.

31.  Since MEC is not contractually bound to carry out building works such as the erection of walls and false ceilings, it is naturally the duty of the Institute to provide or procure the provision of such building works as are required for MEC's execution and completion of the Works under the Contract, and to cooperate with MEC to facilitate the Works and to coordinate the Works with other building works to be carried out by other contractors at the Site.

32.  It can hardly be disputed on the evidence that MEC was the first contractor engaged by the Institute, and in any event was the first contractor to commence and execute works on the Site. Having considered the entirety of the evidence available, I accept that when MEC commenced the Works at the Site, the false ceiling had not been installed and no other contractor had even been engaged for the erection of the false ceiling or any other building works.  It appears that when the Site was handed over to MEC to commence the Works, the Site was a bare shell with only the structural walls present.

33.  It was suggested to Mr. Yung of MEC in the course of the evidence that MEC did in fact carry out some of the Works and should be able to complete the Works without the building works claimed by MEC to be outstanding. MEC's case is that it did commence and endeavored to carry out as much of the Works as it could in the circumstances, but by mid-September 2005, MEC had proceeded to such a stage of the Works that it could no longer carry out or continue any further work in the absence of clear instructions from the Institute and without the supporting building works it required. For example, Mr. Yung referred to the fact that his workers had installed conduits and pipes, but the down pipes could not be finalized nor could the position of the sprinkler heads be fixed or the flashing lights installed until and unless the false ceiling was installed, or at least the depth of the false ceiling was fixed and disclosed to MEC.

34.  The photographs produced at the hearing support Mr. Yung's case and clearly show that a large part of the Works had been carried out. The evidence also shows that conduits put up by MEC were damaged and pushed away when the contractor erected walls later in September without providing trenches for the conduits which had been installed by MEC.

35.  The evidence given by Mr. Fu Kong Fat supports MEC's case. Mr. Fu was employed by the Principal as a consultant to the project at the Site. He confirmed that the conduits were installed by MEC before walls were built on the Site, that the conduits were pressed out when the walls were built subsequently, and that this would not have happened if the walls were erected before the conduits were installed. Mr. Fu also confirmed that when he started work at the Site around September 2005, Mr. Yung had asked him for builder's works to be provided, and he had told Mr. Yung that they were still looking for a contractor to do the builder's works required. Mr. Fu also admitted that Mr. Yung had made markings on the wall for openings to be provided in order that the Works could be continued, but Mr. Fu would not make any commitment. Mr. Fu further admitted that he had told Mr. Yung that he understood from the Principal that the Institute would not provide any information, design information or builder's works to Mr. Yung. Whilst admitting that Mr. Yung had asked for wall and floor openings, air-conditioner frames and scaffolding, Mr. Fu's only answer for not providing these was that Mr. Yung had failed to provide him with MEC's plans. Mr. Fu emphasized that he had asked Mr. Yung to provide him with layout plans which would set out the items of work to be carried out by MEC, such as how the conduits would run, and the priority of the Works to be carried out.  On his part, Mr. Yung’s case is that he could not produce MEC’s installation drawings without the design drawings and information from the Institute. It seems that the project was simply not being planned and coordinated, as it should have been.

36.  On the entirety of the evidence, I accept that Mr. Yung had sought the provision of building works from the Institute, and that such building works had not been provided to MEC to enable MEC to carry out its works in a reasonable and timely manner.

37.  Counsel for the Institute argues that MEC should have made any necessary wall or floor opening on its own, or engaged a third party to provide such openings, and thereafter claim such costs from the Institute. If MEC are not contractually bound to undertake such work, then I fail to see why MEC should undertake the course suggested by Counsel. At most, it was an option or remedy open to MEC, but it was not bound to do so and was entitled to look to the Institute for the provision of the building works.

38.  It was further argued on behalf of the Institute that instead of waiting for walls to be put up and trenches to be provided for the installation or concealment of the conduits, MEC could have proceeded on the basis that the conduits would be exposed and not hidden within the trenches. MEC's case is that the Schedule of Works does not provide for whether the conduits should be exposed or concealed, and the Institute and Mr. Fu had never instructed MEC that the conduits could be exposed and that they should proceed on such basis. MEC's complaint is that they had never been given the design information and instructions that they required to carry out and complete the Works.

39.  I agree with Counsel for MEC that MEC is not obliged to undertake the Works in an exceptional, time-consuming, expensive or inappropriate manner contrary to the usual practice in the industry, in the absence of any express instructions or authority from the Institute with regard to the manner of work, such as completing the Works without regard to the usual work sequence of other builder's works on the Site. If MEC had undertaken or continued with the Works without regard to the builder's works to the carried out by other contractors at the Site, they would be at risk of being in breach of the implied term relied upon by the Institute, that it has to coordinate with other contractors to ensure that the different works on the Site are carried out in the correct sequence. Not being the main contractor nor the party imposed with the duty to supervise or coordinate the different works involved in the project, MEC could not be blamed for the overall lack of coordination.

The failure to provide design information/drawings

40.  Much of the dispute in this case focused, at least at the initial stage, on the lack of design drawings or plans. MEC complained of the lack of design information and drawings from the Institute, being one of the matters identified in the 14 September Letter, claiming that MEC could not prepare its installation drawings as a result. On the other hand, the Principal and the Institute's consultants including Mr. Jeffrey Kwok and Mr. Fu complained that MEC was in breach of the Contract in failing to submit drawings.

41.  The Institute relies on item 4.7.1 of the Schedule of Works in the tender to claim that MEC had the duty under the Contract to provide design information and design drawings. Item 4.7 refers to work to be carried out by MEC under the heading "Others", and item 4.7.1 refers to "Shop Drawing & Form submission". The Institute also relies on a letter from MEC dated 9 August 2005, in which MEC states that the Institute had accepted MEC's second revised quotation and had confirmed to MEC to proceed with the Works. The letter went on to say that MEC would "order the material, start the site work and submit the E&M drawings to FSD, WSD and HKEC for approval as soon as possible".

42.  On its pleaded case, the Institute claims (in paragraph 15 of the Defence and Counterclaim) that MEC was in breach of contract by failing to submit layout plans to the FSD, and (in paragraph 25 (3) of the Defence and Counterclaim) that MEC was in breach by failing to submit any drawings to the FSD before commencing work.

43.  The issue of MEC's failure to submit design drawings to the FSD before commencement of the Works at the Site has not been pursued at trial, in view of the evidence from the FSD that submission and approval of design drawings prior to commencement of the Works was not in fact required.

44.  The Institute further pleads in paragraph 25 (2) of the Defence and Counterclaim that MEC was in breach of item 4.7.1 of the Schedule of Works in failing to procure layout design or drawings. However, on the Institute's evidence, it had not relied on MEC's failure in the submission of such design drawings as repudiation of the Contract. Rather, as evidenced by the 28 September Letter, the Institute relied on MEC's suspension of Works since 19 September 2005 as repudiation and accepted such repudiation.

45.  On MEC's case, it had not been able to proceed to the stage at which installation drawings or design drawings as may be required could be prepared for submission to the FSD, as the Institute had failed to provide the necessary design information, instructions and building works to enable MEC to prepare such drawings and continue its works, and further, that the Institute had wrongfully terminated the Contract at the end of September or early October 2005.

46.  From the evidence, it has been made clear that what MEC required from the Institute was information and instructions relating to the overall design of the Site and the school facilities to be provided at the Site, for MEC to finalize the Works. Mr. Yung referred in his evidence to the fact that the false ceiling had not been built at the time when MEC commenced to carry out the Works. MEC was the first contractor to do works at the Site. Mr. Yung explained that he could not finalize or complete the Works relating to the down pipes, the sprinkler heads or the location of the light troughs in the ceiling until the level of the false ceiling was finalized and made known to him. Nor could he install the fire exit signs until the height of the door frame was known. Mr. Yung also referred to the fact that MEC required information as to the design of the layout of the classrooms and the lecture theater, such as where the blackboard would be, and the pattern of how the lighting tubes in the rooms are to be switched on and off, before he could finalize the Works relating to the lighting and light switches for these rooms. Works relating to the power supply to the computer room likewise could not be completed without information as to the design of the computer table. All these make perfect sense, particularly with regard to the matters set out in paragraph 22 of this Judgment.

47.  The Principal's answer to the allegation that design information and instructions was not forthcoming from the Institute can be summarized thus : (1) she did not know why the information was required by Mr. Yung; (2) MEC should only require the Layout Plans prepared by KC Surveyors, the Institute's consultants, which had been provided to MEC; (3) any competent contractor would know the information sought by Mr. Yung; (4) Mr. Yung had not made any written request for the allegedly outstanding information; (5) MEC had not submitted its plans for the Works; and (6) it was just Mr. Yung's excuse to suspend works.

48.  Mr. Yung acknowledged that in the absence of a proper design and the relevant design information which he required from the Institute, he had already made guesses as best he could on the basis of the information given to him or as available from the Layout Plans supplied to him (such as the number of the sprinkler heads required), and that he had proceeded with the Works as best he could, until he could no longer continue in the absence of the details required, such as the height of the false ceiling and the proposed design or layout of the lecture theater and the computer room, etc. I do not accept the Principal's suggestion that a contractor such as MEC could indiscriminately decide on its own accord on the design of the lecture theater or classroom (the Principal's evidence that the blackboard could just be put "anywhere"), unless the Principal or Institute as MEC's client had given clear instructions to MEC that it had a free hand and full discretion to make such design and to carry out the Works as MEC should see fit. There is no evidence in this case that the Institute had given such carte blanche to MEC under the Contract.

49.  As for the Layout Plans, they provide little information other than as its name implies : the layout of the Site, and the total number of sockets and data inlet in each room.  More design information would be required for the completion of the Works, as Mr. Yung explained.

50.  Mr. Fu admitted in his evidence that Mr. Yung had asked him for design information so that MEC could carry out the Works, and that he had informed Mr. Yung that he understood from the Principal that the Institute would not be providing the design information and builders' works that MEC required. Mr. Fu suggested that Mr. Yung should have a meeting with the Principal to discuss the matter.

51.  Mr. Fu also supported Mr. Yung's evidence that at their meeting with the Principal on 14 September 2005, the Principal had said that if Mr. Yung required to know any design information, he should speak to Mr. Fu and not bother her, and that she had left the meeting. According to Mr. Yung, Mr. Fu then suggested to Mr. Yung that he should write to the Principal to seek any answer he required, and this led to the issue of the 14 September Letter.

52.  I am satisfied from the evidence that Mr. Yung had asked Mr. Fu and the Principal for the design information he required, that this is supported by the 14 September Letter, and that such information was reasonably required. The fact that there was no other written request for the outstanding information is not an answer to MEC's complaint. The Principal could have asked Mr. Yung to explain why the information he required was necessary, but she did not. She could also have instructed Mr. Yung to carry out the Works in any manner he wished and in any sequence he required, without waiting for the false ceiling or other building works contractor to do their work first, but she did not. In my judgment, Mr. Yung was entitled to seek and wait for such instructions and information, or to treat the Institute's failure to furnish such instructions and information as breach of the implied terms pleaded in paragraph 7(f) and 7(g) of the Statement of Claim.

53.  I also accept that the Institute is under an implied obligation to coordinate all works at the Site to enable or ensure the Works to be carried out and completed in accordance with the Contract. As Counsel for MEC has pointed out, MEC cannot control other contractors engaged by the Institute, and hence it is not in MEC's power to dictate how other contractors should carry out their work to fit in with MEC's Works.

54.  As for the Institute's argument that MEC should carry out and complete the Works before the works relating to the false ceiling or other building works are done, without regard to the lack of design information from the Institute, I have dealt with this in paragraph 39 of this Judgment.

Failure to make payment

55.  In the 14 September Letter, MEC sought release of an interim payment of $175,857.30, the subject of a second application for interim payment dated 31 August 2005. This was pursuant to and in reliance on the Payment Terms set out under Remark 4 of the Tender. Remark 4 states as follows:

"Payment terms:-

30% deposit upon signing of contract

Progress payment will be submitted on the 15th day and the 30th day of each month, payment shall be released to our company within 14 days

90% upon submission form 251 to FSD for inspection

97.5% upon after FSD inspection

2.5% retention money will be released after six months"

56.  The first application for interim payment was made on 14 August 2005, relating to the 30% deposit of the Contract price. This was duly paid on 15 August 2005.

57.  In reply to the 14 September Letter, the Principal issued the 22 September Letter which attached a copy of the page of the Tender with Remark 4 crossed out. She stated in the 22 September Letter:

"Please refer to the copy of tender, there is no payment made under 50% completion."

The reference to 50% completion was made by reference to percentages of the work done given in MEC's second and third applications for interim payments, respectively dated 31 August 2005 and 16 September 2005.

58.  According to the evidence of Mr. Yung, on the day when the letter dated 14 August 2005 (which comprises the Contract) was signed by Mr. Yung on behalf of MEC and the Principal on behalf of the Institute, manuscript amendments had been made to the Summary of the Contract sum as a result of the Principal's negotiation of the discount from 3% to 5%, and to the Payment Terms set out in Remark 4. Mr. Yung's evidence is that he revised the figures in the Summary, inserted the "5%", the revised figures of "61,704" and "1,172,382", and put his signature next to the last figure. These are not disputed by the Principal.

59.  The dispute relates to the manuscript amendments made to the Payment Terms set out in Remark 4. As a result of the negotiations made between Mr. Yung and the Principal, Mr. Yung claims that the Payment Terms were revised, such that instead of 90% of the Contract price being payable upon submission of Form 251 to FSD, only 70% of the Contract price would be payable, with 95% of the Contract price being payable after FSD inspection (instead of 97.5% as originally stated), and 5% of the retention money to be withheld by the Institute (instead of 2.5%). Mr. Yung therefore claims that the percentages set out in Remark 4 were crossed out, with Mr. Yung inserting 70% in the margin to replace the 90% crossed out, and the Principal inserting 95% and 5% in the margin to replace the 97.5% and 2.5% which were crossed out. The Principal put her initials in the margin above the manuscript figures.

60.  The Principal denies that Remark 4 remain effective, and claims that the entire Remark 4 had been deleted at her meeting with Mr. Yung on 15 August 2005. She claims that she had never accepted Mr. Yung's proposal for the Payment Terms, save that she agreed to pay a deposit of 30 % upon signing the Contract. On this basis, the Principal claims that the Institute is under no obligation to make any interim payment other than the deposit.

61.  The Principal's evidence in relation to the amendments to the Payment Terms is inconsistent, and totally unreliable.

62.  In her Statement made on 27 April 2007, she claimed that upon signing the letter dated 14 August 2005 (which she explained in her Supplemental Statement made on 29 April 2009 as taking place in her office on 15 August 2005), she deleted Remark 4 to indicate her disagreement with the original Payment Terms. She went on to say, however, that she "also wrote 70%, 95% and 5% on the page of Remark 4". If that was true, it is unclear what she meant by inserting the revised percentages in the margin when she had deleted the entire Remark 4, and whether she was actually agreeing to the Payment Terms with the revised percentages - consistent with Mr. Yung 's case on the revised Payment Terms.

63.  In her testimony in court, the Principal's evidence on the Payment Terms remained that she had inserted the revised percentages by manuscript. She claimed that she had crossed out the provision with regard to interim payments on the 15th and 30th day of each month.

64.  When the Principal was cross-examined in court as to the agreed manner of payment, her evidence is that as she regarded FSD inspection of the Works to be very important, she had told Mr. Yung that 70% of the Contract price would be payable by then, or after inspection, and that if the FSD was satisfied with the Works, 95% of the Contract price would be paid. This is inconsistent with the stages of payment even under the revised Payment Terms of Remark 4: that 70% was payable upon submission of Form 251 to the FSD for inspection and 95% upon or after FSD inspection.

65.  The Principal's testimony is to be further contrasted with paragraph 4 of her Statement, which refers to a 30% first payment, and "the balance payment should only be paid upon the completion of the Plaintiff's work and the final approval of the Fire services Department".

66.  Finally, the Principal's evidence that she had inserted the 3 revised percentages by manuscript in the margin of Remark 4 is shown to be unreliable and unbelievable when the original and the color photocopy of the relevant page of the Tender is produced, since it shows the figure of "70%" as being written in blue ink, and the figures of "95%" and "5%", the 2 lines crossing out Remark 4 and the Principal's initials being written in black ink. The Principal's testimony that she had written the 3 revised percentages at the same time and with the same pen removes any doubt that her evidence is otherwise than unbelievable and cannot be accepted.

67.  I therefore reject the Principal's evidence in relation to the alleged deletion of the Payment Terms contained in the Tender. I accept Mr. Yung’s evidence in this regard in relation to the manner of amendment of Remark 4, and that it was only when he received the 22 September Letter that he received the page of the Tender with Remark 4 crossed out. Under the agreed Payment Terms, MEC is entitled to progress payments and to apply for the interim payments sought.

Suspension of the Works

68.  The Institute claims in the 28 September Letter that MEC had suspended all works since 19 September 2005, and that such conduct amounted to a repudiation of the Contract, which repudiation was accepted by the Institute. In the same letter, MEC was required to clean up the Site, remove its tools and machinery, and to refund the deposit to the Institute.

69.  The suspension of works since 19 September 2005 is pleaded in paragraph 25 (5) of the Defence and Counterclaim.

70.  However, no reliable evidence has been adduced by the Institute as to MEC's alleged suspension of the Works since 19 September 2005. On the contrary, the evidence adduced at trial suggests otherwise. Mr. Fu accepts in his testimony that after the meeting which took place on 14 September 2005, MEC had continued with the Works for some time thereafter, at least for about another week, and that it was only the Principal who told Mr. Fu that MEC or Mr. Yung had stopped work, so that some other contractor had to be found to follow up on the Works. Mr. Fu accepted that even by 25 September 2005, Mr. Yung was still trying to continue with the Works and to solve the outstanding problems with the Institute. On 25 September 2005, MEC had written to the Institute's solicitors in response to the 22 September Letter, to reiterate the problems identified in the 14 September 2005 Letter and to state that early attention to the problems was required. Mr. Fu's testimony is that he did not know why the Principal had said that Mr. Yung had stopped work.

71.  In the Principal's Supplemental Statement made on 29 April 2009, she claimed that it was she who had requested MEC to stop the Works immediately at a meeting with Mr. Yung on one unspecified day in September 2005, since MEC had commenced the Works before submission of the relevant plans to the FSD for approval. The Principal's claim is that "shortly after that meeting", she was informed by Mr. Fu that MEC's workers had left the Site.

72.  MEC has referred to Daywork Sheets which record their workers on the Site until 24 September 2005 and 30 September 2005. To the extent that Mr. Fu has referred to MEC's workers ceasing work at the Site, it has been emphasized on behalf of MEC that they had run out of work to do in the absence of building works being provided and design information and instructions being furnished to MEC. By 28 September 2005, MEC was in receipt of the notice from the Institute's solicitors to remove their tools and machinery from the Site.

73.  I find that the Institute has failed to show that MEC was in repudiatory breach of the Contract by suspending the Works since 19 September 2005, as alleged.

Whether the Institute had repudiated the Contract

74.  In the light of all the evidence and my findings made above, I consider that the Institute had clearly demonstrated by its conduct and in writing that it had no further intention to abide by the Contract, and had repudiated the Contract. MEC had in the 14 September Letter referred to the lack of the necessary builder's works and design information which it required to execute the Works, and had asked for the interim payment of $175,857.30. In response, the Institute not only failed to deal with the outstanding building works and the request for design information but issued the 22 September Letter, in which the Principal unequivocally stated that the interim payment sought by MEC would not be made, that the Payment Terms set out in Remark 4 were rejected, and that no insurance would be provided. MEC were asked to contact the Institute's lawyers for further correspondence.

75.  The clear rejection of the Payment Terms, on its own, is an unequivocal demonstration of the Institute's intention not to be bound by the terms of the Contract. It is clear from the cases cited, Creatiles Building Materials Co. Ltd. v. To’s Universe Construction Co. Ltd. [2003] 2 HKLRD 309, Merseysteel & Iron Co. Ltd. v. Naylor (1884) 9 App Cas 434 and Hongkong Underground Engineering Ltd. v. Welcome Construction Company Ltd. (formerly known as Shun Hing Construction Co., Ltd.) HCA 1834/2003, 15 August 2005, that in deciding whether nonpayment can constitute a repudiation of contract, the Court should examine the facts of the case and the circumstances of the nonpayment objectively, to ascertain whether it can be established that there was a clear unequivocal intention not to be bound by the contract.

76.  On the facts of this case, the Institute's deliberate refusal to make the interim payment and the rejection of the agreed payment method specified in Remark 4 by its deletion after the event fundamentally changed the conditions under which MEC agreed to carry out the Works. Coupled with the Institute's failure and refusal to coordinate and cooperate with MEC by furnishing the design information and supporting building works MEC required for the Works, the Institute had clearly repudiated the Contract, entitling MEC to treat the Contract as discharged by virtue of the Institute's breach.

MEC's remedies

77.  MEC accepted the Institute's repudiation when they removed their tools and machinery and vacated the Site on 4 October 2005. In these proceedings, MEC claims the following amounts by way of damages:

(1)   value of the Works completed under the Contract: $408,395.20

(2)   value of additional works executed: $44,040

(3)   value of materials left on the Site: $80,668.93

(4)   deposits paid by MEC to subcontractors: $165,150

(5)   payments made by MEC to laid off workers: $18,200

(6)   loss of profit under the Contract: $47,663.68

After deducting the deposit of $351,714.60 received from the Institute, the total net sum claimed by MEC is $412,403.21.

78.  I accept the evidence of MEC's expert, Mr. Hon, in relation to his valuation of the Works completed by MEC at the Site, and allow the sum of $408,395.20. I also accept the evidence of Mr. Yung with regard to the materials which were left at the Site. The photographs produced at the trial support Mr. Yung's claims, and I allow the sum of $80,668.93 as valued by Mr. Hon. Mr. Hon has assessed MEC's profit under the Contract at 10%, and I accept Mr. Hon's calculation of $47,663.68.

79.  With regard to the deposits MEC had paid under the Contract to its subcontractors in relation to their supply of air-conditioners, sprinkler pumps, panels and other assessories, I accept Mr. Yung's evidence, which is supported by the quotations, invoices and receipts issued by the subcontractors, of MEC's payment of the total sum of $165,150. I accordingly allow the claim for this amount in full.

80.  As for the sum of $18,200, MEC claims that it had to pay the equivalent of 7 days' wages to 4 workers, as payment in lieu of notice for terminating their employment. No evidence has been adduced to show that these workers had been employed by MEC solely for the Works under the Contract, such that when the Contract was terminated by the Institute's repudiation, MEC had to terminate the employment of the 4 workers in question. I am not satisfied that the payment of $18,200 can fairly and reasonably be considered as arising naturally from the Institute's breach of the Contract, or such as may reasonably be supposed to have been in the contemplation of both parties as the probable result of the breach of the Contract.

Claim in respect of the Additional Works

81.  Mr. Hon assessed the value of the additional works executed by MEC outside the scope of the Contract ("Additional Works"), pursuant to instructions received from the Institute, at $44,040.

82.  The first set of instructions for the Additional Works relates to emergency lighting, contained in a Site Memo dated 11 August 2005 issued by Mr. Yung. The Institute claims that as a licensed fire services contractor, the emergency lighting should be included in the Contract price, since Mr. Yung and MEC must have known, as a licensed fire services contractor, that the emergency lighting were requirements of the FSD, and Mr. Yung knew at the tender stage that the Contract was to provide and install fire services works in order to meet the requirements of FSD and to obtain FSD approval for the school.

83.  Considering the Schedule of Works and the documents comprising the Contract as a whole, the Contract was for MEC to supply and install the items specified in the Schedule of Works, and I cannot see that the Schedule of Works covers the supply and installation of emergency lighting of the type referred to in the Site Memo dated 11 August 2005. As stated in the Site Memo, and on Mr. Yung's evidence, he attended a meeting at the FSD on 10 August 2005 with Mr. Mike Wong of the Institute, and he was given a set of documents setting out the FSD requirements for "self-contained luminaries emergency lighting system". Mr. Yung was asked by Mr. Wong after the meeting on 10 August 2005 to incorporate these requirements into the Works under the Contract. They were outside the scope of the Schedule of Works under the Contract, and MEC claims that they constitute Additional Works for which MEC is entitled to claim payment.

84.  Counsel for the Institute argues that the emergency lighting constitutes "essential and inevitable ancillary work", which should be included in the Contract price under the "inclusive price principle". He relies on paragraphs 4-037 to 4-042 of Hudon's Building and Engineering Contracts Volume 1 (1995 Edition).

85.  As a matter of construction of the Contract, MEC is to execute the Works described in detail in the Schedule of Works prepared at the tender stage by the Institute's professional consultants, KC Surveyors. There is nothing in the Contract to support the Institute's contention that the Contract was for MEC to design, provide and install such fire services works and system as would meet with and obtain approval from the FSD. According to Mr. Yung's evidence, which I accept, the FSD has different requirements which vary for different projects and for schools of different sizes, and on the basis of the information contained in the tender documents, he had included in the Tender only the basic or minimum requirements, and these did not include the requirements supplied by the FSD on 10 August 2005.

86.  Under the Schedule of Works, MEC was to supply and install, in respect of the fire services part of the Tender, the fire service water incoming system, the fire hydrant and hosereel system, the automatic fire alarm system, the exit sign system for the main building, the automatic sprinkler system, and other specifically named appliances such as a portable extinguisher, a sprinkler pump and assessories, sprinkler pipes, and one "60A charger for flashing light". I cannot see how it can be said that the emergency lighting can be considered as indispensably necessary or essential to any item of work which is specified in the Schedule of Works, or that it should be implied into the Contract as part of the Works in order to comply with the requirements or descriptions of the Contract, and be included in the Contract price.

87.  The second set of instructions for the Additional Works relates to wiring and conduits for the CCTV, contained in the Confirmation of Instruction issued by Mr. Yung to the Institute on 13 August 2005. According to Mr. Yung, Mr. Man of the Institute went to the Site with Mr. Yung on 10 August 2005 for the purpose of showing him the locations for the installation of socket outlet boxes, lighting switch boxes, telephone outlet boxes and computer outlet boxes. At the same time, Mr. Man informed Mr. Yung that the Institute would be installing a CCTV system, and instructed Mr. Yung to set up the power supply and transmission system for the CCTV. Pursuant to these instructions, MEC issued a document entitled "Confirmation of Formal/Verbal Instruction" ("Confirmation") to the Principal on 13 August 2005, referring to the verbal instructions received from Mr. Man to "add CCTV for G/F and LG/F wiring and conduit point complete with power supply and 2A socket connection unit". The Confirmation states:

"Should there be objection from any party, please reply in writing to stop the work within seven days."

88.  According to Mr. Man, the purpose of his meeting with Mr. Yung at the Site on 10 August 2005 was only to inform Mr. Yung that the Institute would need to install a CCTV system in the corridor and a projector in the classroom, and that MEC should "allow space" for the installation of the necessary cables for such purpose. He accepted that he also informed Mr. Yung at the visit the facilities required for the computer room, so that MEC could, again, "allow space" for the installation of the necessary cables for the computer room. The latter formed part of the Works. Mr. Man denies that he had instructed Mr. Yung to install the connection or signal transmission system for the CCTV, which he explained in his Statement would be taken care of by the supplier of the CCTV.

89.  To the extent that Mr. Man attempted to make a distinction between the instructions given for the CCTV and the computer room services, I reject his evidence. Mr. Man went to the Site on 10 August 2005 to give instructions to Mr. Yung in relation to the Works, and it was reasonable for Mr. Yung to treat Mr. Man's instructions as instructions to provide cable connection for the CCTV system to be installed by the Institute. In any event, the Institute or the Principal could, upon receiving the Confirmation, have corrected Mr. Yung or informed Mr. Yung that there was no need to do the work described in the Confirmation. The Confirmation contained a note regarding objection to the work concerned within seven days. No objection was ever raised until the present litigation.

90.  I therefore allow MEC's claim for the value of the Additional Works, in the sum of $44,040, as valued.

Conclusion

91.  I find that the Institute had repudiated the Contract, which repudiation was accepted by MEC. I allow all of MEC's claims, with the exception of $18,200 in relation to the laid off workers, and there is to be judgment in favor of MEC for the total sum of $394,203.21 as claimed, with interest at judgment rate from the date of the Writ until payment. I dismiss the Counterclaim.

92.  I will make an order nisi that the Institute will pay to MEC the costs of the main action and of the Counterclaim, to be taxed if not agreed, with certificate for counsel.