HONGKONG UNDERGROUND ENGINEERING LTD v. WELCOME CONSTRUCTION CO LTD

HCA 1834/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1834 OF 2003

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JUDGMENT

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1. The plaintiff is a specialist contractor in underground work, specifically tunneling.  The defendant is a general building contractor. 

2. The defendant was one of the sub-contractors appointed under a government contract DC/99/03 (“the Main Contract”) for the provision of drainage maintenance and construction works for the Drainage Services Department (“DSD”) for various sites in Hong Kong Island and Island Districts.  This included the installation of 1200 mm diameter concrete jacking pipes by trenchless method across the junction between Robinson Road and Oaklands Avenue in the Mid-Levels in Hong Kong.

3. The Main Contractor under the Main Contract was Zen Pacific Civil Contractors Limited (“the Main Contractor”).  The works under the Main Contract were subdivided by the Main Contractor and the defendant was engaged as one of the sub-contractors.

4. The defendant in turn sub-contracted parts of its own work and one such sub-contract was the one whereby the plaintiff was engaged. 

5. On or about 22 November 2000 the defendant engaged the plaintiff as its sub-contractor for the installation of 1200 mm diameter concrete jacking pipes across the junction between Robinson Road and Oaklands Avenue in the Mid-Levels in Hong Kong by pipe jacking method which was a trenchless method.  In contrast to the usual method of pipe-laying whereby a trench is excavated from ground level with the pipe then laid in the trench before it is backfilled, the plaintiff’s work involved no trenching as such.  Instead, two pits would be excavatednamely, a launching pit and a receiving pit and the pipe then would be pushed horizontally through the ground between the two pits.  This process is referred to as pipe-jacking.  The pipe-jacking method avoids disruption to the surface above the pipes and as such, the road would be kept open to traffic during the works.

6. DSD issued Works Order No. OOHMCW50713SR (“the Works Order”) to the Main Contractor on 14 November 2000.  Under the Works Order it was required to :

1)	lay 1200 mm pipes by trenchless method across the junction between Robinson Road and Oaklands Avenue; and
2)	construct two backdrop manholes.

The works were to commence on 20 November 2000 and to be completed on or before 13 May 2001.

7. The plaintiff was required to complete the works under 1) of the Works Order under its contract with the defendant.  The defendant would complete the works under 2) of the Works Order after completion of the works by the plaintiff. 

8. On or about 5 December 2000 the plaintiff commenced the works under the contract it entered into with the defendant (“the contract”).  However, by the end of May 2001 the works were incomplete and the plaintiff suspended operations.  The plaintiff contended that the defendant was in repudiatory breach of contract for non-payment according to the contract and accepted the defendant’s repudiation.  The defendant on the other hand contended that the plaintiff was in repudiatory breach of contract and accepted the plaintiff’s repudiation.

9. The plaintiff’s claims against the defendant is for damages for breach of the contract.  The defendant denies that it is liable to the plaintiff and also counterclaims for damages for breach of contract.  The defendant engaged other contractors to complete the unfinished works and seeks damages by way of counterclaim.

The Agreed Issues

10. The parties have agreed a list of issues.  This is set out as follows :

“The contract
1.	What, if anything is provided for in the contract as to the excavation of rock?
	(a)	On a true construction of the contract is rock encountered (and removed from) the receiving and launching pits payable as an extra?
	(b)	On a true construction of the contract is rock encountered (and removed from) the pipe excavation payable as an extra?
2.	Was the contract varied by agreement between Mr. Tsang Fan Hoi of the Plaintiff and Mr. Siu Wai Ping of the Defendant on or about 24th February 2001 as to provide that all rock encountered would be payable?
3.	Did the contract contain the oral terms alleged at paragraph 4D of the Re-Amended Defence and Counterclaim, namely :
	“(1)	During the meetings and conversations between Andrew Ng of the Plaintiff and Michael Wong of the Defendant held in about October and November 2000, it was orally agreed between the Plaintiff and the Defendant :-
		(a)	Time shall be of the essence for completion for the works under the Subcontract undertaken by the Plaintiff.
		(b)	The Plaintiff shall indemnify the Defendant for any loss and damage caused by the Plaintiff’s failure to comply with the Subcontract including any loss and damage that the Main Contractor and/or DSD would claim against the Defendant under the Main Contract.
		(c)	The Plaintiff shall comply with all safety requirements in accordance with statutes, trade practice and the Main Contract.
		(d)	The Plaintiff would issue monthly invoices to the Defendant for applications for interim payments.  Upon receipt of each invoice issued by the Plaintiff, the Defendant would counter-check and determine the value of the items of the work done and materials delivered and make interim payments to the Plaintiff accordingly.
		(e)	The final accounts as between the Plaintiff and the Defendant would be subject to the final assessment and accounts carried out and made by the Defendant and DSD.”
4.	On its true construction did the contract provide for payment to be made by the Defendant to the Plaintiff within 30 days of invoice (as alleged at para. 4 of the Amended Statement of Claim) or in the manner alleged at paragraph 4D(1)(d) of the Re-Amended Defence and Counterclaim?
5.	On its true construction what, if anything did the contract provide as to the time for completion?  (Amended Statement of Claim para. 4 : “Anticipated duration of work would be 14 weeks”.  Re-Amended Defence and Counterclaim para. 4C(3) “The works under the Sub contract shall be completed within 14 weeks”).
Repudiation
6.	Whether the failure by the Defendant to make payment in accordance with the Plaintiff’s invoices (as follows) evinced an intention no longer to be bound by the contract on the Defendant’s part?

 

Particulars

Invoice No.	Date of Invoice	Net Amount Claimed (HK$)	Due Date	Payment against Invoice (HK$)	Cumulative Outstanding Amount (HK$)
2K0032	28.12.00	324,400.00	27.01.01	100,000	224,400.00
2K01007	02.02.01	338,400.00	04.03.01	150,000	188,400.00
2K01008	27.02.01	248,400.00	29.03.01	NIL	248,400.00
2001/006	31.03.01	446,400.00	30.04.01	138,000	308,400.00
2001/011	28.04.01	644,400.00	28.05.01	NIL	506,400.00
2001/012	11.05.01	776,400.00	10.06.01	NIL	638,400.00
				388,000

7.	Whether the facts and matters referred to at paragraphs 6 & 7 of the Re-Amended Defence and Counterclaim (i.e. Plaintiff’s delay in completing the works; contravention of safety requirements and discontinuance of the works) evinced an intention by the Plaintiff no longer to be bound by the contract.
8.	In the circumstances whether it was the Plaintiff or the Defendant who repudiated the contract.
Quantum
9.	In the event that the Court finds that the contract was repudiated by the Defendant :
	(a)	The value of work executed by the Plaintiff up to the date of acceptance of the repudiation (26th May 2001).
	(b)	The entitlement of the Plaintiff to loss and damage representing the loss of benefit of the contract.
	(c)	The balance due from the Defendant to the Plaintiff after giving credit for the sum of $388,000.00 previously paid.
10.	In the event that the Court finds that the contract was repudiated by the Plaintiff :
	(a)	The reasonable extra cost to the Defendant of completing the contract after making due allowance for the sums that would have been paid to the Plaintiff.
	(b)	The entitlement of the Defendant to additional management costs and additional overheads in supervising the completion of the work.
11.	In either event :
	(a)	The entitlement of the Defendant to recover the liquidated damages deducted by DSD from the Defendant.
	(b)	The value of materials supplied by the Defendant to the Plaintiff to be deducted from sums owing to the Plaintiff.
	(c)	Interest and costs.”

The Contract

11. It is first of all necessary to determine what the contract between the parties was.  The plaintiff’s case is that the contract between the parties was the written agreement contained in the letter dated 22 November 2000 sent by the plaintiff to the defendant and which was sent back to the plaintiff by the defendant after it was signed by Michael Wong (“Wong”) on behalf of the defendant.  This is the document at pages 34 to 36 of Bundle D(“D34-36”).  This provided for a fixed price re-measurement contract at rate for pipe jacking of 1200 mm diameter concrete jacking pipe at the unit rate of $22,000 per meter run.  It was provided that concrete jacking pipe would be supplied and delivered to the work site by the defendant. 

12. The terms and conditions are contained at D34-36.  At the bottom of D34 is the following notation :

“Note : Pipe Jacking not include excavation of bed rock, artificial hard material”.

The document sent by the plaintiff to the defendant also included after that notation the words “and/or rock size exceeding 0.5 cu m.  (Any pneumatic drilling breaking shall be counted @$4,800 per cubic meter)” (“the deleted words”).  However, the deleted words were deleted and initialled by Wong of the defendant before D34-36 was sent back to the plaintiff with the signature of Wong.  One of the matters in dispute between the parties is whether the deletion was accepted by the plaintiff or whether the deletion was purely unilateral so that the deleted words were included in the contract.

13. Cl. 6 of D34-36 provided as follows :

“Anticipated duration of work would be 14 weeks. ”

14. Cl.9 provided for payment as follows:

“Payment :

Invoice shall be submitted before the end of each calendar month and payment should be paid within 30 days of receiving invoice.”

15. It is the plaintiff’s case that the document at D34-36 was the written agreement between the parties and that there were no oral express terms or implied terms as alleged by the defendant.

16. The defendant’s case is that the contract between the parties was partly oral and partly written.  Insofar as it was in writing it was as contained in the document at D34-36 with the deleted words deleted.  The defendant’s case is that excavation of rock with size exceeding 0.5 cu m was included in the contract.  Insofar as it was made orally, the defendant’s case is that in or about October and November 2000 oral terms were agreed between Andrew Ng (“Andrew”) of the plaintiff and Wong of the defendant as pleaded at para. 4D of the amended defence and counterclaim as follows :

“	(a)	Time shall be of the essence for completion for the works under the [contract] undertaken by the Plaintiff.
	(b)	The Plaintiff shall indemnify the Defendant for any loss and damage caused by the Plaintiff’s failure to comply with the [contract] including any loss and damage that the Main Contractor and/or DSD would claim against the Defendant under the Main Contract.
	(c)	The Plaintiff shall comply with all safety requirements in accordance with statutes, trade practice and the Main Contract.
	(d)	The Plaintiff would issue monthly invoices to the Defendant for applications for interim payments.  Upon receipt of each invoice issued by the Plaintiff, the Defendant would counter-check and determine the value of the items of the work done and materials delivered and make interim payments to the Plaintiff accordingly.
	(e)	The final accounts as between the Plaintiff and the Defendant would be subject to the final assessment and accounts carried out and made by the Defendant and DSD.”

17. The defendant’s alternative case is that the above terms were implied into the contract.  Although the pleaded case goes further, Mr. Khaw, for the defendant, confirmed in his opening that the defendant sought to imply such terms solely by reason of business efficacy and nothing else.

The evidence

18. The plaintiff called Dave Tsang Fan Hoi (“Tsang”) and Jacky Wu Tin Chau (“Wu”) both of whom were project engineers of the plaintiff.  The defendant called Siu Wai Ping (“Siu”), the manager of the defendant.

19. It is common ground that neither Tsang nor Wu were involved in the formation of the contract between the parties in or about November 2000.  Tsang only became involved in the contract in February 2001 when the plaintiff was proceeding with the construction of the launching pit.  He was assigned to assist Andrew who was then the project manager of the plaintiff.  His duties included reporting to Andrew on matters relating to the execution of the contract works including progress and payment and the day to day administration of the contract works.

20. Wu was assigned by the plaintiff only in March 2001 as a site engineer for the works under the contract and to be responsible for the supervision of the works being carried out at the site.

21. Siu was the manager of the defendant and was involved with the Main Contract at the outset even before the contract between the plaintiff and the defendant was entered into.  However, although he was present in discussions with Andrew and Wong, he was not involved in negotiating the terms of the contract.  He thus has no personal knowledge of the oral terms relied on by the defendant.   He relies on what he was told by Wong.  Wong is now deceased and cannot be called as a witness.  Siu gave evidence that Wong told him that the oral terms were agreed.  He believed that this was after 22 November 2000.  He also said that he thought that Wong had discussed the oral terms with Andrew between October and November 2000.  Siu made no record of what he was told at the time.  His witness statement was only prepared in April 2004 when he was asked to recollect events which took place 3 years earlier.  He said that the terms as pleaded were an approximation of what was discussed in the conversation he had with Wong.

22. I do not accept Siu’s evidence on these matters.  I do not believe him.  I found him to be an evasive witness who did not tell me the truth on these matters.  I do not believe Siu when he said that Wong had told him that he had agreed the alleged oral terms with Andrew.

23. The oral term as to time namely, that time shall be of the essence for completion is inconsistent with cl. 6 which provided for an estimated time of 14 weeks for completion.  The oral terms as to payment namely, that upon receipt of each invoice the defendant would counter-check and determine the value of work done and materials delivered and make interim payments and that the final accounts between the plaintiff and the defendant would be subject to final assessment and accounts carried out and made by the defendant and DSD were also inconsistent with cl. 9 which provided for payment of invoice within 30 days of receiving invoice.

24. It seems to me that Wong did take care to make amendments to D34-36 before signing and returning it to the plaintiff.  He took care to delete the deleted words and initialled the same.   If indeed the oral terms had been agreed as alleged it would have just as easy for Wong to make the necessary amendments to D34-36 to include the same before signing it and sending it back to the plaintiff.  The fact that he did not suggests that there were no oral terms agreed as alleged.

25. In any event I would have placed no weight on the hearsay evidence of Siu.

26. Section 49 of the Evidence Ordinance Cap. 8 sets out the considerations relevant to weighing of hearsay evidence.  This provides as follows :

“	(1)	In estimating the weight, if any, to be given to hearsay evidence in civil proceedings the court shall have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence.
	(2)	For the purposes of subsection (1), regard may be had, in particular, to the following-
		(a)	whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness;
		(b)	whether the original statement was made contemporaneously with the occurrence or existence of the matters stated;
		(c)	whether the evidence involves multiple hearsay;
		(d)	whether any person involved had any motive to conceal or misrepresent matters;
		(e)	whether the original statement was an edited account, or was made in collaboration with another or for a particular purpose;
		(f)	whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight;
		(g)	whether or not the evidence adduced by the party is consistent with any evidence previously adduced by the party.”

27. I consider that Siu, as the manager of the defendant and the person who decided on how much of the plaintiff’s invoices should be paid, has a motive to conceal or misrepresent matters on behalf of the defendant.  Although it is not possible to call Wong as a witness as he is deceased, no explanation has been given as to why the defendant did not call Andrew as a witness to substantiate the defendant’s allegation that oral terms were agreed.  Andrew left the plaintiff to work for a competitor in April 2001 before the contract was terminated.  He went to work for Victory Trenchless Engineering Company Ltd. (“Victory”), the contractor who was engaged by the defendant to complete the unfinished works after the plaintiff left the site.  Siu knew that Andrew was in Hong Kong yet there is no explanation provided as to why he was not called to give evidence about the alleged oral terms.  I would not have placed any weight on the hearsay evidence in any event as I do not regard the evidence as being reliable.

28. I would also observe that in any case, on the evidence of Siu, the oral terms were discussed between Wong and Andrew in October and November 2000, i.e. before the written agreement at D34-36 was signed and returned to the plaintiff.  That being so, it seems to me that the alleged oral terms if any, were superseded by the subsequent written agreement.  It is also plain that the oral terms are inconsistent with the subsequent written agreement.  

29. Mr. Khaw also relied on the subsequent conduct between the parties to show what the terms of the contract were.  It is common ground that evidence of the conduct of the parties after the making of the contract is admissible to show what the terms of the contract were but such evidence is not admissible to interpret a written agreement (para. 12-126,Vol 1 Chitty on Contracts 29^th Edn).

30. As regards the alleged oral term that time was to be of the essence of the contract, the defendant relies on the site meeting held on 12 February 2001.  This was a meeting attended by, inter alia, the Main Contractor, representatives of DSD, Andrew and Siu.  As the Notes of the Meeting show, the Government was complaining that the progress of works was not satisfactory and the Main Contractor replied that the progress of works was delayed because a substantial amount of rock was encountered in the launching pit.  

31. The point is made by Mr. Khaw that the plaintiff took the question of time seriously and even proposed to carry out the pipe jacking works on Sundays and Public Holidays in addition to normal working days.  This conduct is said to be in support of the defendant’s case that there was an oral term that time shall be of the essence of the contract.  I am unable to accept this submission.  The fact that the plaintiff agreed to speed up the progress of works by working on Sundays and Public Holidays does not, in my view, begin to support the defendant’s case that the parties orally agreed that time shall be of the essence of the contract.  There is no doubt that the progress of works was delayed because rock was encountered in the pits and in the jacking pipe.  It is clear from the evidence of Siu that he anticipated that there would be rock and boulders in the site because it was in the Mid-Levels.  The written agreement gave an estimation of 14 weeks for the completion of the works.  As it was anticipated that there would be rock encountered which would slow down the works, it seems to me that it was entirely sensible and reasonable for the parties to agree to an estimation of 14 weeks as set out in the contract rather than a fixed period for completion.  I am unable to accept that the subsequent conduct relied on by the defendant supports the defendant’s case that there was this oral term that time was of the essence of the contract.  

32. As to the oral term as to payment, Mr. Khaw submitted that Tsang agreed in evidence that an invoice was regarded as an application for interim payment and that the sum stated in each invoice was only a rough estimation of the work done as at the date of the invoice.  He also relied on the fax cover letter dated 29 December 2000 from Andrew to the defendant enclosing the 1^st invoice dated 28 December 2000 where it was stated that what was attached was the “1^st IP for your certification”.  This conduct is said to be in support of the defendant’s case that there was the alleged oral term as to payment.  I am also unable to accept this submission.  Tsang said that whenever an invoice was submitted to the defendant the sum charged in each invoice was subject to assessment by the defendant and that he regarded the invoices that he sent to the defendant as applications for interim payment.  It is clear that the amount in each invoice was not for a definite sum as evidenced by the use of the word “say” before the amount in each invoice.  Tsang said that this was done for the purpose of putting a rough estimate for the work done.  Although Tsang’s understanding was that the defendant would make its own assessment of each invoice and make payment accordingly, that was not what the written agreement provided.  The written agreement clearly stipulated that the invoice should be paid within 30 days.  That was the contractual obligation of the defendant.  The fact that the contract was a re-measurement contract does not mean that the amounts in the invoices need not be paid.  As Mr Houghton submitted, at the conclusion of the works a detailed valuation and measurement of the works would be carried out and adjustments would be made for payments already made.  

33. It is clear from the evidence of Siu that he did not proceed on the basis of payment terms relied on by the defendant.  The oral term relied on is that upon receipt of each invoice the defendant would counter-check and determine the value of the items of the work done and materials delivered and make interim payments to the plaintiff accordingly.  It is clear from the evidence of Siu that he did not make payment of the sums assessed by the defendant after receipt of the invoices.  I shall revert to this in more detail later when dealing with the question of repudiation.  It is clear, however, that Siu did not make payment of the plaintiff’s invoices on the basis of his assessment of the value of work done and materials supplied.  Payment was made on some other basis which was not provided for in either the written agreement or the oral terms relied on by the defendant.  It is abundantly clear that the defendant’s subsequent conduct does not support the defendant’s case that there was the alleged oral term as to payment.

34. As regards the alleged oral terms that the plaintiff shall indemnify the defendant for any loss and damage caused by the plaintiff’s failure to comply with the contract including any loss and damage that the Main Contractor and/or DSD would claim against the defendant under the Main Contract and that the final accounts as between the plaintiff and the defendant would be subject to the final assessment and accounts carried out and made by the defendant and DSD, Mr. Khaw submitted that Siu gave evidence that a copy of the Main Contract was given to the plaintiff whose attention was drawn to the key terms before the contract was made.  Although Mr. Khaw submitted that the defendant does not seek to argue that all the terms of the Main Contract had been incorporated into the contract, he submitted that the fact that a copy had been provided and that it contained terms regarding time for completion, liquidated damages and interim payments is relevant in determining whether the parties agreed on the alleged oral terms. 

35. Tsang said in evidence that he did not know if the Main Contract had been provided to the plaintiff.  He himself did not ask for a copy of the Main Contract or of the conditions which had been mentioned in the letters dated 30 March 2001, 19 April 2001, and 27 April 2001, namely GCC cl. 53 and SCC cl. 11 of the Main Contract.  I believe Tsang and accept his evidence.  Siu said in evidence that he himself did not know if the whole Main Contract was supplied to the plaintiff.  The Main Contract is a complex and voluminous document.  The contract between the plaintiff and the defendant was but a small part of the works under the Main Contract.  I see no reason why the plaintiff would have received a copy of the Main Contract from the defendant.  It seems to me that although the provisions of GCC cl. 53 and SCC cl. 11 were drawn to the plaintiff’s attention in the correspondence it does not show that the entire Main Contract was ever supplied to the plaintiff although it is likely that the provisions of SCC cl. 11 and GCC cl. 53 were available to the plaintiff as they were referred to in the letter dated 30 March 2001 from the defendant to the plaintiff.

36. Siu also gave evidence that had told Andrew at the site that all the items in the project should be carried out in accordance with the terms in the Main Contract.  However, there is no mention of this in his witness statement.  It is also not part of the defendant’s pleaded case.  I do not believe Siu and I reject his evidence on this.

37. The subsequent conduct of the parties does not, in my view, support the defendant’s case that there were the alleged oral terms agreed between the parties as to liability to indemnify the defendant and that the final accounts between the plaintiff and the defendant would be subject to the final assessment and accounts between the defendant and DSD.  This was not a back to back contract and there is no reason why the plaintiff would have agreed to such terms.  They are also inconsistent with the terms of the written contract D34-36.

38. I find that there were no oral terms in the contract as alleged by the defendant.  I find that the contract was not partly oral and partly written as alleged by the defendant.  In my judgment the contract between the parties was the written agreement at D34-36 which contained all the essential terms. 

39. The plaintiff’s case is that the deletion of the deleted words were not accepted by the plaintiff and that the deleted words remained in the contract.  It seems to me that by sending the defendant the letter dated 22 November 2000 the plaintiff was making an offer to the defendant which the defendant accepted as varied by the deletion of the deleted words.  By making the deletion and sending the document back duly signed the defendant was making a counter-offer which, in my judgment, the plaintiff accepted when it commenced the works without objection to the deletion of the deleted words.  It seems to me that this is also consistent with the fact that in the sub-contract contained in the letter dated 5 December 2000 which the plaintiff entered into with its own sub-contractor for the works namely, Wo Kee Construction & Engineering Ltd (“Wo Kee”) there is the following notation :

“Note: Pipe Jacking not include excavation of bed rock, artificial hard material”.

There was no addition of the deleted words.  This demonstrates, in my view, that the plaintiff did acceptthe deletion of the deleted words made by the defendant and agreed to proceed with the contract on that basis.

40. As the contract was the written agreement at D34-36, the parties subjective intentions and the subsequent conduct of the parties is not relevant and therefore inadmissible in construing the contract.

41. The defendant also relies in the alternative on its case that the same terms were implied into the contract by reason of business efficacy.

42. In Kensland Realty Ltd v Whale View Investment Ltd [2002] 1 HKC 243 the Court of Final Appeal adopted the requirements for implying a term in a written contract set out in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20.  Ribeiro PJ said at page 262 :

“In a well-known passage, Lord Simon, expressing the majority opinion of the Privy Council, sets out the requirements for implying a term in a written contract:

... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’ BP Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26.”

43. The implied terms as to time being of the essence and payment are inconsistent with the written express terms and there is no room for such terms to be implied.  The terms as to the plaintiff indemnifying the defendant and that the final accounts between the plaintiff and the defendant would be subject to final assessment and accounts between the defendant and DSD are in my view neither necessary nor so obvious that “it goes without saying”.  The contract was but one small sub-contract of the works under the Main Contract.  The Works Order was just one of many works orders under the Main Contract.  In my judgment it is neither necessary nor is it so obvious that “it goes without saying” that the said term as to the final accounts between the plaintiff and the defendant would be subject to final assessment and accounts between the defendant and the DSD should be implied in the contract.

44. I am, however, of the view that it is necessary to imply a term that the plaintiff should comply with safety requirements by reason of business efficacy.

45. The implied term pleaded at para. 4D(1)(c) of the re-amended defence and counterclaim is that :

“The Plaintiff shall comply with all safety requirements in accordance with statutes, trade practice and the Main Contract.”

However, in my view, a term ought to be implied that the plaintiff shall comply with all safety requirements required by law and under the Main Contract.

Issues 3, 4 and 5

46. In my judgment Issue 3 is resolved in favour of the plaintiff.  I have found that the contract did not contain the oral terms alleged in para. 4D of the re-amended defence and counterclaim.

47. As to Issue 4, in my judgment on the true construction of the contract, payment was to be made by the defendant to the plaintiff within 30 days of invoice and not in the manner alleged at para. 4D(1)(d)of the re-amended defence and counterclaim.  The written contract is to be construed by the words used and not by the subjective intentions of the parties or the subsequent conduct of the parties which is inadmissible for the purpose of construction.  The words used are :

“Invoice shall be submitted before the end of each calendar month and payment should be paid within 30 days of receiving invoice”.

Those words are clear and they mean what they say.

48. As to Issue 5, in my judgment on the true construction of the contract only an estimation of 14 weeks was given for the completion of the works.  Time for completion was not made of the essence of the contract.  That being so, the works had to be completed within a reasonable time.

Issue 1

49. I have found that the deleted words did not form part of the contract.  That being so, the contract made it plain that the pipe jacking was not to include excavation of bed rock and artificial hard material.  These were to be payable as an extra if encountered and removed.

50. The dispute between the parties concerns the excavation of rock size exceeding 0.5 cu m.  The plaintiff’s case is that the excavation of rock size exceeding 0.5 cu m was not included in the contract and therefore payable as an extra.  The defendant’s case is that this was included and not payable as an extra.

51. The deletion of the deleted words simply means that there was no agreement between the parties as to excavation of rock size exceeding 0.5 cu m.  Mr. Houghton relied on Mineralimportexport and others v Eastern Mediterranean Maritime Ltd (The “Golden Leader”) [1980] 2 Lloyd’s Rep 573 where Lloyd J said at page 574 :

“Mr. Phillips relies on the deletion of the second and third paragraphs of the printed clause, particularly the second which provides expressly that the owners should not be liable for the neglect or default of the captain or crew or some other person employed by the owners on board or ashore for whose acts they would, but for this clause, be responsible.  The parties must, said Mr. Phillips, have had some purpose in deleting that part of the clause.  By deleting the express exclusion of negligence they must have intended to re-instate negligence as a ground of liability, at all events if the undeleted first paragraph is ambiguous.

I do not belong to the school of thought which regards it as inadmissible to look at deletions in a printed clause.  Thus the use of a word or phrase in the deleted part of a clause may throw light on the meaning of the same word or phrase in what remains of the clause : see The Dominator, [1959] 1 Lloyd’s Rep. 125; [1959] 1 Q.B. 498.  But it seems to me quite another thing to say that the deletion itself has contractual significance; or that by deleting a provision in a contract the parties must be deemed to have agreed the converse.  The parties may have had all sorts of reasons for deleting the provision; they may have thought it unnecessary; they may have thought it inconsistent with some other provision in the contract; it may even have been deleted by mistake.”

52. It seems to me, and I so find, that the deletion of the deleted words has no contractual significance.  It does not mean that the parties agreed that excavation of rock size exceeding 0.5 cu m was included.  With the deletion, the contract was simply silent on this.

53. As to Issue 1, I find that the contract provided that the excavation of bed rock and artificial hard material were not included but were to be payable as an extra.  However, the contract did not provide for the excavation of other rock, whether of rock size exceeding 0.5 cu m or other sizes.  It was silent on the question of excavation of other rock.  In my judgment on a true construction of the contract rock encountered and removed, other than bed rock, was not payable as an extra.  In my view the answer to Issue 1(a) and (b) is “no”, apart from bed rock.

Was there a variation of the contract?

54. The plaintiff’s pleaded case at para. 4A of the amended statement of claim is that at a meeting held in or about mid-February 2001 it was agreed by Siu on behalf of the defendant and Tsang on behalf of the plaintiff that the cost of any rock excavation would be payable by the defendant to the plaintiff.  It is pleaded that in the premises the contract was varied and/or supplemented.

55. Tsang said that when he was assigned in early February 2001 to assist Andrew, the plaintiff had encountered substantial amount of bed rock, boulder and rock with substantial size.  Andrew advised him that as the contract only included excavation of rock size less than 0.5 cu m, the excavation of rocks being carried out were outside the plaintiff’s scope of works and records of rock excavation should be taken for future claims.  Records were kept and sent to the defendant.  Tsang also said that shortly after the site meeting with representatives from DSD and the Main Contractor concerning the progress of the works, he had a meeting with Siu at which he agreed with him that the costs arising out of the excavation of rock size exceeding 0.5 cu mwere to be paid for separately and on a day-work basis based on the labour and plant employed for the day.  He and Siu also agreed that the issue of the size of the rock was to be determined at the site and the parties would agree to the total amount of rock excavated weekly.

56. Tsang sent a letter dated 24 February 2001 to record the parties agreement and requested the defendant to counter-sign the same and send it back to the plaintiff.  This the plaintiff failed to do and Tsang said that Siu told him that he could not sign the same.

57. The letter dated 24 February 2002 from Tsang to Siu stated inter alia :

“ I refer to the captioned, our pipe jacking work does not include any excavation of bed rock and artificial hard material in the original accepted quotation.  It was agreed with you in the previous meeting that the cost caused by any rock excavation should be paid by day work basic (sic).  The day work amount should be including labour and tool consumed, and the amount should be agreed by weekly.”

58. The letter went on to give certain rates for labour and equipment for rock breaking for the defendant’s approval and acceptance and asked the defendant to sign the letter and return it to the plaintiff within 3 days.

59. Although the letter recorded the oral agreement as an agreement that the cost caused by any rock excavation should be paid, Tsang gave evidence, which I accept, that his agreement with Siu was that excavation of rock size exceeding 0.5 cu m would be separately charged for and paid, although the rates were not agreed.  It was not an oral agreement for the payment for any rock excavation but for excavation of rock size exceeding 0.5 cu m.  That being so, the letter did not accurately describe the agreement when it referred to “any rock” rather than rock size exceeding 0.5 cu m.  I accept Tsang’s evidence that he agreed with Siu that the excavation of rock size exceeding 0.5 cu m would be separately paid for. 

60. Siu denied that he had made such an agreement with Tsang.  He denied that he had ever agreed to pay for rock excavation.  On this dispute of fact, I prefer the evidence of Tsang to that of Siu.  I believe Tsang and disbelieve Siu on this. 

61. I find that the contract was varied in or about mid-February 2001 by an oral agreement between Siu and Tsang that excavation of rock size exceeding 0.5 cu m would be separately paid for.  There was, however, no agreement on the rates to be paid.

62. Shortly after the meeting with Siu, Tsang followed up the matter by his letter dated 24 February 2001.  There was no reply to that letter.  However, Siu said that he after he received the letter he called Tsang to tell him that he did not agree.  I do not believe him.  I prefer Tsang’s evidence that Siu called him up to say that he could not sign the letter. 

63. Thereafter, rock breaking records were sent to Siu by Wu.  Wu gave evidence that he tried to arrange a joint inspection of rock with the defendant to inspect the quantity of rock at the site but the defendant failed to send someone to the site to inspect the same.  The fact that the plaintiff made records of rock breaking is also consistent with the fact that an agreement had been made.  If no agreement had been made, it was pointless to send the records of rock breaking to the defendant.

64. As to Issue 2, I find that the contract was varied by agreement between Tsang of the plaintiff and Siu of the defendant in or about mid-February 2001 as to provide that excavation of rock size exceeding 0.5 cu m would be payable, although no rates were agreed.

Repudiation

65. Issues 6, 7 and 8 are the issues in relation to the question of repudiation.

66. The plaintiff’s case is that the failure of the defendant to make payment in accordance with the plaintiff’s invoices as set out in Issue 6 evinced an intention no longer to be bound by the contract on the defendant’s part.

67. The defendant’s case is that the facts and matter referred to at paras. 6 and 7 of the re-amended defence and counterclaim namely, the plaintiff’s delay in completing the works, contravention of safety requirements and discontinuance of the works, evinced an intention by the plaintiff no longer to be bound by the contract.

The Invoices

68. The plaintiff’s invoice no. 2K0032 dated 28^th December 2000 (“the 1^st invoice”) was for the sum of $324,400.  According to Tsang, at that stage 50% of the work at the launching pit, described in the invoice as the jacking pit, and 80% of the work at the receiving pit had been completed.  

69. Siu gave evidence that he made his own assessment of the work that had been carried out.  He wrote his adjustments on a copy of the 1^st invoice in or about mid-January 2001.  Siu did not query the plaintiff’s assessment in respect of the launching pit but adjusted the plaintiff’s assessment in respect of the receiving pit from 80% to 50%.  He therefore reduced the plaintiff’s claim of $134,400 for the receiving pit to $84,000, thereby reducing the total of the 1^st invoice to $274,000.  However, he went further and wrote in the copy of the invoice his own calculations as to what the cost of the labour and machinery was for 33 working days up until 15 January 2001.  He arrived at the sum of $169,800.  Using this as the basis for the 1^st payment, he estimated that the plaintiff should receive $100,000 as the 1^st invoice was dated 28 December 2000 and the $169,800 figure was as at 15 January 2001.  The defendant then paid $100,000 to the plaintiff as the 1^st payment on 18 January 2001.

70. It is significant that the payment of $100,000 made by the defendant under the 1^st invoice was not in accordance with the contractual term for payment under the contract.  It was also not in accordance with the alleged oral term relied on by the defendant.  Although the defendant assessed the amount of the 1^st invoice at $274,000 it made payment only of $100,000.  The valuation mechanism that he adopted for payment of the 1^st invoice was, as Siu admitted in evidence, his own initiative.  It was not as agreed under the contract.  This was a clear breach of contract on the defendant’s part.

71. The next invoice was Invoice no. 2K01007 dated 2 February 2001 (“the 2^nd invoice”).  By that date Tsang estimated that 80% of the works in the launching pit had been completed.  The estimated amount of works done was $438,000, which was a cumulative figure, and with the previous payment of $100,000 the invoiced amount was $338,400.  On 8 February 2001 Siu made his assessment on a copy of the invoice and adjusted the amount of the invoice to $288,000 instead of the amount of $338,400.  He made a payment of $150,000 to the plaintiff on 13 February 2001.  He did not pay the plaintiff either the invoiced amount of $338,400 or his assessed sum of $288,000.  He did not even attempt to make any calculation of how he arrived at the sum of $150,000 but he said that it was a bit more than the plaintiff’s operation expenses.  He admitted in evidence that it was a figure he pulled out of the air.

72. The payment of $150,000 under the 2^nd invoice was also not made in accordance with the contractual term.  It was also not in accordance with the alleged oral term relied on by the defendant.  It was simply a figure plucked out of the air.  This was also a clear breach of contract by the defendant.

73. The next invoice was 2K01008 dated 27 February 2001 (“the 3^rd invoice”).  The amount of works done estimated by the plaintiff was the cumulative sum of $498,000 and with the previous payments the amount of the invoice was $248,400.

74. As to the 3^rd invoice, Siu made his own assessment and reduced the amount to $138,000.  He said that since at the time the amount of works in respect of the launching and receiving pits had been constant he felt that full payment could be made so he authorized payment of the sum of $138,000 which he assessed on 27 March 2001.  However, the evidence shows that this sum was not paid to the plaintiff until 17 May 2001, more than two months after the date of the invoice and more than one month after Siu’s approval for payment.  Siu was unable to explain the delay.  The payment that was made was not in accordance with the contractual term.  This was also a clear breach of contract on the defendant part.

75. The next invoice was dated no. 2001/006 31 March 2001(“the 4^th invoice”) for the invoiced amount of $446,400.  Siu said that he did not receive this and I accept his evidence on this as no assessment has been made by him on a copy of this invoice.

76. The next invoice was no. 2001/011 dated 28 April 2001 (“the 5^th invoice”).  The amount of works done as at that date was the cumulative amount of $894,400 and taking into account the two previous payments, the invoiced amount was $644,400.  

77. On or about 16 May 2001 Siu sent to Tsang a copy of the 5^th invoice with his adjustments and comments including a printed page of the SCC 11 of the Main Contract with his comments on the side as to his calculation for liquidated damages (“LD”).  He adjusted the cumulative amount of work done to $704,000 and he also deducted the previous payments of $100,000 and $150,000 as well as the payment of $138,000, which in fact had not yet been paid as at 16 May 2001 although Siu thought that it had already been paid.  He also deducted the sum of $270,000 for LD leaving an adjusted invoice amount of $46,800.  However, even that sum was not paid to the plaintiff.

78. Siu’s written calculations for LD show that he estimated the actual completion date to be 30 June 2001.  He estimated LD at the rate of $2,498 per day for 109 days arriving at the figure of $272,282.  He thus made a deduction of $270,000 for LD in the copy of the 5^th Invoice.

79. It is plain that the contract did not have any provision for the payment of LD by the plaintiff to the defendant.  There was no basis for any deduction for LD under the contract.  Further, the daily rate of $2,498 calculated by Siu to arrive at the sum of $272,282 for the LD deduction seems to have been an excessive rate in any event.  It was not the rate for LD payable by the defendant to the Main Contractor under the Main Contract.  The evidence shows that the LD rate that the defendant was liable for was $1,571.40.  As pleaded in the reamended defence and counterclaim the LD deducted by the DSD was the sum of $15,714.  This represented 10 days of delay for the Works Order in respect of which LD was imposed on the defendant.  The defendant was obliged to pay the plaintiff the invoiced amount under the contract but it failed to do so.  Even the sum of $46,800 as assessed by the defendant was not paid.

80. On 3 May 2001 the plaintiff’s solicitors wrote to the defendant.  By that date the 5^th invoice had been submitted but had not become due for payment as the 30 days had not elapsed.  It was pointed out that payment had not been paid to the plaintiff under the 1^st to 4^th invoices.  The letter went on to state that by the non-payment the defendant evinced an intention no longer to be bound by the contract and that the defendant was in breach of contract.  A demand was made for the defendant to remedy the breach and make payments under the invoices failing which the plaintiff would terminate the contract and seek damages.

81. The reply from the defendant dated 12 May 2001 stated that the plaintiff persistently delayed in performing the contract and failed to observe safety rules.  It went on to state that :

“ Please note that there are liquidated damages to be imposed by the [DSD] for any delay in the [contract].  A reasonable sum of money is withheld by us from the invoices produced by your client for any such liquidated damages to be imposed by DSD.  Furthermore, the amount claimed by your client under the said invoices is not finalized until the [contract] is completed.”

82. At that stage Siu had not yet made his adjustments to the 5^th invoice.  But the plaintiff was clearly told that a sum of money would be deducted by the defendant for LD to be imposed by DSD.

83. By letter dated 19 May 2001 the plaintiff’s solicitors replied.  By that date payment had been made of the sum of $138,000 under the 3^rd invoice and the plaintiff had already received Siu’s assessment and comments on the 5^th invoice.  The plaintiff denied that it had persistently delayed in performing the contract.  It also stated that all safety measures were in place.  The letter went on to state :

“3. Your alleged basis to deduct [LD] from our client’s payment is unfounded and without merit.  In light of the fact that the [contract] contains no [LD] clauses or E.O.T. clauses and the duration of the Works stipulated therein is an estimate only, you are not entitled to levy any [LD] on our client.  We find it strange that in your said letter and your fax to our client of 16 May 2001, you consider having the right to deduct [LD] in the sum of HK$270,000 from our client’s payment.”

84. In the subsequent correspondence the defendant maintained its stance that it was entitled to deduct the said sum of $270,000 for anticipated LD.

85. The defendant failed to make any further payments to the plaintiff.  

86. By letter dated 26 May 2001 from the plaintiff’s solicitors to the defendant the plaintiff accepted the defendant’s repudiation of the contract.  

87. I accept Tsang’s evidence that it was the plaintiff who asked Wo Kee to suspend the works and the works were suspended at the site because of this.

88. By letter dated 1 June 2001 the defendant stated that by the discontinuance of works by the plaintiff, the plaintiff evinced an intention no longer to be bound by the contract and has repudiated the same.  The defendant accepted the plaintiff’s repudiation.

Did the plaintiff or the defendant repudiate the contract?

89. Mere breach of a payment obligation does not constitute acommon law repudiation.  What has to be considered is whether the circumstances of the non-payment show an intention not to be bound by the contract (para. 4.221 Vol 1, Hudson’s Building and Engineering Contracts 11^th Edn).  A number of authorities were cited to me including Mersey Steel & Iron Co. Ltd. v Naylor, Benzon Co. [1881-5] All ER Rep. 365, Decro-Wall International SA v Practitioners in Marketing Ltd. [1971] 1 WLR 361, Shyam Jewellers Ltd v Cheeseman, English Court of Appeal, 29 November 2001 and Creatiles Building Materials Co. Ltd. v To’s Universe Construction Co Ltd [2003] 2 HKLRD 309.  Each case, of course, depends on its own facts.

90. In Creatiles it was held that although there was no general right in common law to suspend work if payment was wrongly withheld, a deliberate refusal to make an interim payment was capable of amounting to a repudiation of the contract.  Ultimately, one had to examine the facts of the case to see whether the non-payment amounted to repudiation.  One had to consider whether the circumstances of the non-payment showed an intention not to be bound by the contract.

91. The manner in which the defendant dealt the invoices submitted by the plaintiff has been set out above.  The defendant did not pay according to the contractual term.  It did not pay the amount of the invoice in respect of the 1^st and 2^nd invoices.  It did not even pay the assessed amount.  Instead it paid the sum of $100,000 under the 1^st invoice on a basis of a calculation made on Siu’s own initiative.  It was on the basis of the plaintiff’s operational expenses but not on the contractual basis.  It was not even on the basis of the alleged oral term relied on by the defendant.

92. The payment of $150,000 by the defendant under the 2^nd invoice was even more remarkable.  It was simply a figure plucked out of the air without any calculation made by Siu. 

93. Although payment under the 5^th invoice was not due at the time of acceptance of repudiation, the defendant had already made its position plain before then in the correspondence that I have referred to by insisting that it was making a deduction for anticipated LD to be imposed on the defendant under the Main Contract.  There was plainly no contractual basis to impose this on the plaintiff under the contract.

94. As was said by Potter LJ in Shyam Jewellers Ltd. at para. 57 of his judgment :

“The principle which emerges from the authorities is that, in any given case, where a party is alleged to be in repudiatory breach by reason of a failure or delay in payment of an instalment or interim sum due under a contract, the “potency” and legal effect of such breach falls to be judged in the light of the seriousness of the breach and its effect upon the continuing performance of the contract.  This involves an examination of the circumstances of the breach itself as well as its implications for the future of the contract and any likelihood of repetition.”

95. And at para. 58 he said :

“It is also clear that, in assessing the nature and effects of the breach, the court is concerned to do so objectively.  Thus it can only concern itself with the reasonable perceptions and reactions of the party asserting a repudiatory breach, so that it will not take into account concerns or fears, which, however naturally entertained, are not justifiably grounded in the actions and intentions manifested by the party alleged to be in repudiatory breach.”

96. Looking at the matter objectively, the circumstances as I have set out above provides compelling evidence that the defendant did evince an intention not to be bound by the contract. 

97. I find that the defendant repudiated the contract and that the plaintiff has accepted the repudiation. 

98. There is no merit in the defendant’s case that the plaintiff repudiated the contract which the defendant has accepted.  The plaintiff was in my judgment justified in suspending works because of the defendant’s repudiation which it had accepted.  Tsang gave evidence that there were disagreements with Wo Kee from time to time because they encountered rock in the excavation works and works were suspended intermittently because of this and because of their failure to reach agreement with Wo Kee over payment for this.  However, his evidence was that Wo Kee eventually discontinued work in May 2001 when the plaintiff asked them to discontinue the works.  The DSD site records, which in my view were a more reliable record rather than the plaintiff’s site records which were not made contemporaneously but only after June 2001, show that work was certainly carried on at the site in May 2001 right up to 24 May 2001 before the acceptance of repudiation.  I believe Tsang and accept his evidence.

99. I find that Wo Kee suspended the works at the site because the plaintiff asked them to do so.  This was because of the defendant’s wrongful repudiation of the contract which was accepted by the plaintiff.

100. The defendant’s alternative case is that the defendant’s repudiation was invalidated or negated because the defendant was under a genuine belief that it was entitled to withhold payment for liquidated damages which would be imposed by DSD.

101. In Creatiles Cheung JA said at para. 34 at page 319 :

“The authors of Chitty on Contracts (28^th ed., 1999) Vol 1, para. 25-018 commented that the cases in this area are not easy to reconcile.  The position would appear to be that it may not be a repudiation for one party to put forward his genuine, but bona fide, interpretation of what the contract requires of him but that where the party performed in a manner which was inconsistent with the terms of the contract, it is no defence for that party to show that he acted in good faith.”

102. It is quite clear in this case that the defendant acted in a manner inconsistent with the terms of the contract.  There was simply no provision for LD in the contract.  There was no basis for making a deduction for LD.  As I have said, even the rate of $2,498 per day calculated by the defendant was far in excess of the rate of LD of $1,571.40 per day imposed on the defendant under the Main Contract.  I am not satisfied that Siu had a bona fide belief that he was entitled to make a deduction for LD.  Even if he had acted in good faith, that provides the defendant with no defence.

Issue 6

103. As to issue 6, in my judgment by failing to make payment in accordance with the plaintiff’s invoices the defendant evinced an intention no longer to be bound by the contract.

Issue 7

104. As I have found, the contract works were to be completed within a reasonable time.  What is a reasonable time depends on all the circumstances.  There is no doubt that large rock was encountered in the excavation of the pits and the jacking pipe and this certainly delayed the progress of works.  Siu also accepted that encountering rock would delay the project.  Under the Works Order the time imposed on the Main Contractor by DSD for the entire works thereunder was 13 May 2001.  It is significant that after the completion of the Works Order the defendant applied for and was granted a substantial extension of time for the completion of works.  The DSD records, which I accept as being reliable records, show that the works were completed by 8 October 2001 although Siu said that in fact it should have been completed by the end of October 2001.  It matters not, in my view, whether it was 8 October or end October when the workswere completed.  What is clear is that a substantial extension of time was given because of the presence of rock in the excavation of the pits and the jacking pipe.  Eventually, only 10 days of LD were imposed on the defendant.  DSD obviously considered that it was reasonable for the works to have been completed by October 2001.  They considered that there was a delay of 10 days in respect of which LD in the sum of $15,714 was imposed on the defendant.  Even if it could be said that the plaintiff delayed the progress of works before it suspended operations, this was not a serious breach going to the root of the contract.  This was not a repudiatory breach in my judgment.

105. As to the allegation that the plaintiff failed to comply with safety procedures at the site, the defendant wrote to the plaintiff by letter dated 19 April 2001 complaining of the same and enclosing a Site Safety Advice issued by the Main Contractor.  It seems to me that the plaintiff did fail to comply with safety procedures.  However, the plaintiff did promptly attend to the matters raised and by letter dated 21 April 2001 the plaintiff informed the defendant that the “listed items of safety deficiencies” had already been improved.  In my judgment any breach by the plaintiff in respect of safety issues was not a repudiatory breach. 

106. The plaintiff suspended works because the defendant had wrongly repudiated the contract and the repudiation was accepted by the plaintiff as I have found. The plaintiff was entitled to suspend works in the circumstances.

107. As to Issue 7, in my judgment the plaintiff did not evince an intention no longer to be bound by the contract by reason of delay or contravention of safety requirements.

Issue 8

108. As to Issue 8, in the circumstances it was the defendant who repudiated the contract in my judgment.

Quantum

109. As to Issue 9, the differences between the respective quantity surveyors namely, John Richard Phillip Battersby (“Battersby”) for the plaintiff and John Bernard Molloy for the defendant have been considerably narrowed by their Joint Report dated 7 July 2005 (“the Joint Report”) which was made during the trial.  By para. 1 the experts agree that the value of works completed by the plaintiff is $1,204,820 on the basis that backfilling and reinstatement were not included in the contract and if excavation of rock is to be separately paid for.  By para. 2 the experts agree that the value of works completed by the plaintiff is $1,193,860 on the basis that backfilling and reinstatement were included in the contract and if excavation of rock was to be separately paid for.

110. It is necessary to consider whether backfilling and reinstatement works were included in the contract.  There is no specific item dealing with backfilling and reinstatement works in the contract.  However, in respect of the launching pit and the receiving pit the plaintiff was required to remove the sheet piles upon the completion of the manholes by the defendant (cls. 2 and 4 of the contract).

111. Molloy was of the clear view that backfilling and reinstatement of the ground were part and parcel of the operation of removing the sheet piles.  This was a necessary operation in completing the works under the contract.  Battersby is unable to agree that backfilling and reinstatement of the ground were works that were required to be done by the plaintiff under the contract.  He was of the view, as set out at para. 5.2.3.1 of his report dated 6 April 2004, that all the works for the launching pit and the receiving pit were completed by the plaintiff except the removal of the sheet piles. 

112. I have no hesitation in accepting and preferring the evidence of Molloy to that of Battersby on this dispute.  It seems to me, and I so find, that backfilling and reinstatement of the ground were part and parcel of the operation of removing the sheet piles.  The plaintiff was required to remove the sheet piles.  That being so, I find that as a matter of construction of the contract backfilling and reinstatement works were included in the contract.  Therefore, as agreed by the experts in their Joint Report at para. 1 the value of works completed by the plaintiff is $1,193,860. 

113. The plaintiff also claims the cost of the excavation of bed rock and rock from the pits and jacking pipe.  However, the difficulty with this head of claim is the failure of the plaintiff to adduce cogent and satisfactory evidence in support of this claim.  It is clear from the cross-examination of Wu that he was unable to say from the photographs in evidence which photographs showed that there were in fact rock size exceeding 0.5 cu m which were excavated.  Under the contract as varied, only bed rock, artificial hard material and rock size exceeding 0.5 cu m were not included and the excavation of these had to be separately paid for.  It is for the plaintiff to show that in fact bed rock and rock size exceeding 0.5 cu m were encountered in the excavation.  The plaintiff sent records of rock which had been broken and removed.  However, Wu said that the records included both small and large rocks.  On the evidence before me the plaintiff has failed to establish that in fact bed rock, artificial hard material or rock size exceeding 0.5 cu m was encountered in the excavation although it is clear that large rock was encountered.  In the circumstances, I do not make any award for the extra cost for the excavation of bed rock, artificial hard material and rock size exceeding 0.5 cu m under the contract as varied.

114. As I have said, the value of the works completed by the plaintiff is $1,193,860 as agreed by the experts.  The plaintiff has been paid a total of $388,000 under the invoices, leaving a balance of $805,860 unpaid.

115. The plaintiff is also entitled to loss of profit for the unfinished work due to the defendant’s repudiation of the contract which it accepted (para. 8-59 Keating on Building Contracts 7^th Edn).

116. By para. 6 of the Joint Report the experts agree that the value of outstanding works left behind by the plaintiff, based on the contract rates and if backfilling and reinstatement were included in the contract, is $915,160.  By the amendments to Section 5.3 of his report as contained in para. 5 at page 3 of the Amendments to Battersby’s report dated 8 July 2005, Battersby worked out the direct cost to the plaintiff for completion of the outstanding works at $487,600.  Battersby said at para. 6 at page 3 of the Amendments to his report that the indirect cost to the plaintiff, such as those for supervision and administration, was likely to amount to 25% of the direct cost, i.e. $121,900.  Therefore, the loss of profit likely to be suffered by the plaintiff was $305,660 ($915,160 – $487,600 – $121,900).

117. Battersby said in evidence that in arriving at the loss of profit suffered by the plaintiff he relied on the sub-contract the plaintiff had with Wo Kee. 

118. Molloy said that in general his experience was that the profit level (excluding overheads) earned in civil engineering contractors ranged from 5% to 15%.  He took 7.5% as a profit level and applying that to his view of the value of the outstanding work at $800,000 he arrived at a figure of $60,000 for loss of profit (para. 6.1.5 of his report dated 6 April 2004).  He considered that the figures agreed by Wo Kee and the plaintiff under the plaintiff’s sub-contract with Wo Kee were unrealistic and unreliable.

119. On this dispute, I prefer the views of Battersby to that of Molloy.  There can be no question but that there was a sub-contract between the plaintiff and Wo Kee.  The rates set out in that sub-contract were agreed by them.  I see no reason why the loss of profits to the plaintiff should not be assessed on the basis of its sub-contract with Wo Kee which was a valid and binding sub-contract.  Although there was evidence that there were disputes in the course of the works between the plaintiff and Wo Kee these were in relation to the question of payment for the excavation of rock.  It seems to me that the plaintiff is entitled to loss of profit on the further amounts that would have been payable to the plaintiff had the defendant not repudiated the contract and had the plaintiff gone on to complete the contract.  I am satisfied that the plaintiff is entitled to the sum of $305,660 for loss of profit.

Issue 9

120. As to Issue 9, I find that

(a)	the value of work executed by the plaintiff up to the date of acceptance of the repudiation on 26 May 2001 is $1,193,860.
(b)	the entitlement of the plaintiff to loss and damage representing the loss of benefit of the contract is $305,660.
(c)	the balance due from the defendant to the plaintiff after giving credit for the sum of $388,000 previously paid is $1,111,520.

Issue 11

121. As to issue 11(a), on the issue of the entitlement of the defendant to recover the liquidated damages deducted by DSD from the defendant, the evidence is that $15,714 was deducted as LD by DSD from the defendant.  This represented 10 days of delay at the daily rate of $1,571.40.  I find that the defendant is not entitled to recover the liquidated damages deducted by DSD from the defendant as I have held that there is no term express or implied in the contract that the plaintiff is to indemnify the defendant.

122. As issue 11(b) in respect of the value of materials supplied by the defendant to the plaintiff to be deducted from sums owing to the plaintiff, there is a claim for $108,526.70.  Siu at para. 33 of his witness statement said that the defendant “has spent a total sum of $108,526.70 for materials such as precast concrete pipes and rental for transformer etc. which should have been borne by the [plaintiff] and deducted from its total charge for the works done”. 

123. The cost to the defendant of the precast concrete pipes supplied to the plaintiff has been agreed at para. 11 of the Joint Report at $50,277.23.  Molloy was unable to determine whether the cost of the provision of structural steel members and the rental for transformer should be deducted from the plaintiff’s account (para. 6.2.2 of his report).

124. Battersby at para. 5.7.3.2 of his report expressed the view that the defendant was not entitled to charge the plaintiff for the cost of supply of the jacking pipes. 

125. Cl. 1 of the contract provided that :

“concrete jacking pipe will be supplied and delivery to work site by [the defendant]”

126. It seems to me that Battersby is correct as the contract did not provide for payment by the plaintiff for the supply by the defendant of the precast concrete pipes.  In my judgment the defendant is not entitled to charge the plaintiff the sum of $50,277.23 agreed by the experts.

127. The plaintiff is entitled to judgment in the sum of $1,111,520.  The plaintiff is also entitled to interest on the said sum from acceptance of repudiation, i.e. from 26 May 2001. 

Issue 10

128. Issue 10 does not arise as I have found that the contract was repudiated by the defendant.  However, in case this matter goes elsewhere and it is held that it was the plaintiff rather than the defendant who repudiated the contract and that the defendant has accepted the plaintiff’s repudiation, I go on to consider the damages that would have been awarded to the defendant under its counterclaim.

129. As pleaded at para. 16 of the re-amended defence and counterclaim, the defendant seeks damages in the sum of $2,280,040.70 as follows :

(1)	$1,865,800 being the cost incurred by engaging Victory and Fai Kee Engineering Co. (“Fai Kee”) to carry out the unfinished work and to rectify the work done by the plaintiff.
(2)	$15,714 being the LD deducted by DSD.
(3)	$290,000 being the management and/or additional overheads incurred by the plaintiff to oversee the progress of the work to completion; and
(4)	$108,526.70 being materials incurred by the defendant for the works under the contract

130. Siu gave evidence, which I accept, that after the plaintiff left the site, the defendant engaged Victory and Fai Kee to complete the works.  The total cost incurred by the works undertaken by Victory and Fai Kee was $1,865,800.  I am satisfied on the evidence that the defendant incurred and spent this sum for the completion of the works.  However, it is necessary to consider whether it was reasonable to spend this sum.

131. Although para. 7 of the Joint Report states that the reasonable costs to the defendant of completing the outstanding works left behind by the plaintiff, except the pipe jacking works, is $355,458.40, Molloy said in evidence that on further consideration he considered that it was not appropriate to take an average between his valuation and Battersby’s valuation to arrive at $355,458.40 for the outstanding works, except for pipe jacking works.  Battersby believed that a reasonable valuation was to take the average between his and Molloy’s valuation.  Molloy considered that it was appropriate to see whether the sums paid to Victory were reasonable sums bearing in mind that the plaintiff as the contractor employed stopped work before completion of the contract and other contractors had to be engaged to complete the works.  The defendant paid Victory $250,000 for mobilizing, setting up and subsequently demobilizing the pipe jacking equipment.  He was of the view that this sum was excessive.  He considered that $168,000 was a reasonable sum for those items (para. 5.4.1.4 of his report).  I accept Molloy’s evidence on this and prefer his opinion to that of Battersby’s.

132. In respect of the pipe laying works the defendant paid Victory $864,000.  At para. 8 of the Joint Report it is stated that Battersby’s valuation, based on Wo Kee’s rates, is $387,500 to which he adds $77,500 for the sub-contractor’s mark-up.  At para. 9 it is stated that the costs to the defendant of completing the pipe jacking works, based on Victory’s rates, is $837,000 which is Molloy’s valuation of the outstanding pipe jacking works.  I accept that, as Molloy said, when a contractor has to go out and find somebody to complete the works half way through a contract, inevitably a premium has to be paid for that.  I do not consider that it would be appropriate to take Woo Kee’s rates at arriving at what the reasonable cost was to engage Victory and Fai Kee to finish the unfinished works left by the plaintiff.  I prefer and accept Molloy’s valuation and find that the defendant would have been entitled to recover $837,000 for the outstanding pipe jacking works.

133. The works undertaken by Fai Kee are set out at para. 30 of Siu’s witness statement and includes testing work for drainage pipe, reinstatement of a subsided area, and removal and relaying works for a concrete footpath, curbside, flat channel and railing.

134. At para. 10 of the Joint Report it is stated that Molloy’s view of the reasonable costs to the defendant of the works undertaken by Fai Kee is $65,670 as particularized in Appendix C to the Joint Report.  Battersby’s view is that no such costs should be recoverable by the defendant except for the agreed sum of $7,000 for testing works for the drainage pipe.

135. I accept Siu’s evidence on the works undertaken by Fai Kee.  In my view it was reasonable for the defendant to engage Fai Kee to do those works.  In my judgment a reasonable sum for this is $65,670 as assessed by Molloy.  I prefer his views to those of Battersby.

136. I would not have made any award for the sum of $15,714 claimed as the LD deducted by DSD.  The defendant is not entitled to claim this against the plaintiff.

137. As to the management and additional overheads incurred by the plaintiff to oversee the progress of the work, I accept that Siu, a site agent and a foreman remained at the site to oversee the works after the plaintiff left the site.  I am not satisfied that it was reasonable for the defendant to supervise the outstanding works undertaken by the replacement contractors Victory and Fai Kee.  I prefer the views of Battersby to those of Molloy on this.  I would have made no award for this.

138. As to the claim for $108,526.70 for materials incurred by the defendant for the works under the contract, para. 11 of the Joint Report states that the cost to the defendant of the supply of precast concrete pipes to the plaintiff is $50,277,23.  I have found that the defendant is not entitled to claim this from the plaintiff.  I would have made no award under this head.

139. There should also be a credit to the plaintiff for the value of the works completed by the plaintiff on the basis that backfilling and reinstatement were included in the contract which is agreed at $1,193,860 less the $388,000 received by the plaintiff.  There should therefore be a credit to the plaintiff in the sum of $805,860.

140. The total damages that would have been awarded to the defendant is as follows :

(1)	Reasonable sum for mobilizing, setting up and demobilizing the pipe jacking equipment by Victory	$168,000
(2)	Reasonable sum for completing the pipe jacking works by Victory	$837,000
(3)	Reasonable sum for Fai Kee’s works	$65,670
		$1,070,670
	Less Amount credited to the plaintiff	$805,860
		$264,810

141. If I had held that it was the plaintiff who wrongly repudiated the contract which was accepted by the defendant I would have awarded damages to the defendant on its counterclaim in the sum of $264,810 with interest at 1% above prime rate from the date of the defence and counterclaim on 8 July 2003 to judgment and thereafter at judgment rate until payment.  I would also have made an order nisi for costs of the action and counterclaim to be paid by the plaintiff to the defendant, such costs to be taxed on the District Court scale.  Issue 10, however, does not arise as I have found that the contract was repudiated by the defendant.

Conclusion

142. I give judgment to the plaintiff in the sum of $1,111,520.  I also give judgment to the plaintiff for interest on the said sum of $1,111,520 at 1% above prime rate from 26 May 2001 until judgment and thereafter at judgment rate until payment. 

143. The counterclaim is dismissed.

144. I also make an order nisi for costs of the action and the counterclaim to be costs to the plaintiff to be paid by the defendant.