GRAND CHOICE CONSTRUCTION CO. LTD. v. DILLINGHAM CONSTRUCTION (H.K.) LTD.

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JUDGMENT

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1. This is a construction contract dispute between the main contractor (Dillingham) as Defendant and the sub-contractor (Grand Choice) as Plaintiff arising out of an expansion project for the Hong Kong International School (HKIS) at Tai Tam.

2. Although this contract ran into millions of dollars, there are 2 unusual features to this dispute. Firstly, there was no written contract between Grand Choice and Dillingham and thus I am faced with an oral construction contract. Secondly, the person most concerned with the contract on behalf of Dillingham, Mr. James Corlett, is no longer with them and thus I have heard a number of allegations as to what it is alleged he said or agreed without hearing from him.

3. The agreement between Dillingham and HKIS was made in writing in July 1987. One of the crucial points which I have to decide is whether or not Grand Choice are bound by the terms of this contract because if they are then it is alleged that certain sums were not due at the commencement of this action.

4. Design Consultants were the Architects appointed by the employer HKIS and Hi-Point CTMS were appointed the Quantity Surveyor by HKIS both appointments being made pursuant to the terms of the main contract.

5. I heard a great deal of evidence stretching over 3 weeks. There were voluminous experts reports placed beforeme. I have to say that it was most unfortunate that the experts had not been invited to have a without prejudice meeting prior to the commencement of the hearing, because had they done so, their reports might have been able to show a measure of agreement. In any event, as a result of prompting from the court the experts did meet and in fact a measure of agreement as to quantum subject to liability was achieved. I do not propose to go through the evidence in any detail in this judgment. All the facts are contained in the experts' reports, the witness statements and in the transcript which has been provided to me. Merely because I do not mention a particular fact or piece of evidence does not mean that I have not had the whole of the evidence clearly in mind when deciding the issues which remain for my decision.

Background Facts

6. Grand Choice was incorporated in 1985 and Mr. Francis Ho, a qualified architect was involved with the company from its inception.

7. Mr. Ho first met Mr. Corlett of Dillingham in December 1986. In February or March 1987, Mr. Corlett telephoned Mr. Ho and asked whether Grand Choice would be interested in tendering for a job at the HKIS. Mr. Ho told Mr. Corlett that Grand Choice were in fact preparing a tender for the same job for Shimizu.

8. Grand Choice had undertaken 2 or 3 sub-contracts for Shimizu in the past. They had been without formal sub-contracts. All had gone well and Grand Choice's final accounts were settled on a basis which was fair and reasonable to Grand Choice.

9. Grand Choice prepared Bills of Quantities for both Dillingham and Shimizu. A priced Bill of Quantities was sent to Mr. Corlett of Dillingham on 14th May 1987 and one was sent to Shimizu as well.

10. Mr. Ho had a number of telephone calls with Mr. Corlett. Mr. Corlett had expressed concern about the formwork prices in the Bill of Quantities prepared by Grand Choice.

11. Mr. Ho prepared a programme and Mr. Chan of Grand Choice worked out the prices on the basis of this programme. Mr. Ho accepts that he did not send a copy of this programme to Mr. Corlett at the time of tendering.

12. The programme of works is of some significance in this case as will become apparent later. Suffice it to say at this stage that the sequence of works can affect the number of uses which can be made of the formwork and this has a considerable effect on the cost. Based upon this programme, Mr. Ho estimated that the formwork could be re-used 5 times.

13. Mr. Ho told Mr. Corlett that there was a labour shortage and that the location of the school exacerbated the position. Mr. Ho told Mr. Corlett he was confident with the formwork provided that he could achieve 5 re-uses. This was apparently said in May 1987. Mr. Chan also discussed this issue with Mr. Walter Ip of Dillingham.

14. On 23rd May 1987, Mr. Ho held a meeting with Shimizu at Hi-Points Office.

15. On 25th May, Mr. Ho and Mr. Chan had a meeting with Mr. Corlett. At this meeting Mr. Ho was asked whether Grand Choice was interested in doing the sub-contract work for Dillingham. Mr. Ho said that Grand Choice was too busy to take on any more work. Mr. Corlett said that he really wanted Grand Choice to undertake this sub-contract. Mr. Corlett was very persuasive. During the course of this conversation, I am quite satisfied that he said encouraging things to Mr. Ho such as that Dillingham would do all they could to help. He said that Dillingham would find a sub-contractor with whom they had worked before. Any difference between the sub-contractor's price and Grand Choice's B.Q. price would be credited to Dillingham. There was, I am satisfied, some conversation about Dillingham's control over that sub-contractor. I will have to decide later whether these discussions have any, and if so, what contractual effect.

16. In response to Mr. Ho's concern about Grand Choice's cash flow if they were to take on the sub-contract, Mr. Corlett proposed that Dillingham would purchase the concrete and steel and debit Grand Choice later. Payment would be made to Grand Choice without waiting for Hi-Point's valuations.

17. As I have said Mr. Ho found Mr. Corlett quite persuasive. Mr. Ho said he would have to discuss this matter with his three other directors. At this stage no mention had been made of Ho Yee Kee the formwork sub-contractor whose poor performance quite clearly bedevilled this contract and led to this litigation.

18. Certain of Mr. Ho's fellow directors expressed concerns but in the end they went along with Mr. Ho's proposal that Grand Choice accept this sub-contract.

19. On the 5th June 1987, Hi-Point sent a letter of intent to Dillingham.

20. On the 6th June 1987, Mr. Ho and Mr. Chan met with Mr. Corlett and Mr. Ip of Dillingham. At this meeting Mr. Ho stated that Grand Choice was prepared to undertake this sub-contract. Mr. Ho says that this agreement was on the basis of Mr. Corlett's assurances with regard to help with cash flow and control of the sub-contractor. Mr. Corlett apparently agreed and they went on to discuss the tender programme prepared by Mr. Ho, but this was not shown to Dillingham at this meeting and in fact it was not given to Dillingham until mid June. At this meeting it was anticipated that Grand Choice would be given possession of the site by mid June. During the course of this meeting it was suggested that the formwork sub-contractor should enter into a direct contract with Grand Choice.

21. Another meeting took place on 9th June and the respective foremen were introduced to each other.

22. Grand Choice in fact took possession of the site on 15th June 1987.    

23. It is common ground that no written agreement was ever entered into between Grand Choice and Dillingham although one was suggested at the 6th June meeting. Mr. Ho could not recall why it was never entered into.

24. Ho Yee Kee was the formwork sub-contractor introduced by Dillingham to Grand Choice. Problems arose immediately because Ho Yee Kee had insufficient manpower on site. After Ho Yee Kee started the work, Grand Choice entered into a written sub-contract with them. This was signed after Ho Yee Kee started the work. It seems that Dillingham got Ho Yee Kee down to a price of $3.8 million and there can be no doubt that Dillingham introduced Ho Yee Kee to Grand Choice.

25. Mr. Ho says, and I accept, that he had not seen any main contract documents prior to Grand Choice going on site and the first time he saw the main contract between HKIS and Dillingham was during the discovery process. It seems that the main contract was executed on 30th July 1987.

26. Dillingham produced an analysis of formwork sub-contractor quotations and this appears at page 73 at Vol. 1. Mr. Ho was not shown a copy but he says that had he seen it he would have questioned the materials figure which was high and which indicated fewer re-uses of timber.

27. On or about 11th July 1987 Grand Choice received a copy of a master programme (page 179 Vol.1). Mr. Ho says that the effect of this programme (upon which he did not base his tender) was that a lot more work was required to be done concurrently and this would reduce the opportunity for re-use of formworks. This increases the material costs and also the labour element.

28. By the end of July 1987, problems had surfaced. Grand Choice was not satisfied that Dillingham's site staff were being helpful enough, but the big and continuing problem was that Ho Yee Kee had insufficient manpower on site and was getting behind schedule.

29. By July, there was talk of replacing Ho Yee Kee.

30. By late August, Ho Yee Kee was seeking more money. (Vol. 2 p.360).

31. Mr. Ho was referred to a master programme dated 18th August 1987 which he says he did not see until discovery.

32. In September there was an agreement between Grand Choice and Dillingham that Ho Yee Kee should be paid an additional 15% to be divided equally between Grand Choice and Dillingham. I am satisfied that the payment was made in order to prevent Ho Yee Kee leaving the site and thereby exacerbating substantially the problems that their slow progress had already created.

33. By November, the Ho Yee Kee problem had got worse. They were not making sufficient re-use of the formwork. In that month Mr. Ho told Mr. Corlett that all the formwork allowed for in the Bills of Quantities had already been delivered to site and Mr. Ho alleges that Mr. Corlett asked for an acceleration of the works. He says that Mr. Corlett asked him to start work on the gym at every level and to finish the reinforded concrete works by Chinese New Year.

34. Mr. Ho says that he replied by saying that Grand Choice would not deliver more formwork to site, unless they were assured that they would be paid for it. He alleges that Mr. Corlett agreed to pay for the extra cost. No actual figure was discussed he says because at that time it was not certain if the formwork was needed.

35. By December, things were getting worse and Grand Choice concluded that they should finish the reinforeed concrete structure, but omit the finishing works which were part of their contractual obligations.

36. It was then agreed to replace Ho Yee Kee for the carpark works. Mr. Walter Ip of Dillingham asked Grand Choice to obtain a quote for the carpark works. This quote came from N.Y. Nam and it was based on new formwork as opposed to the re-use of existing formwork on site. There was an issue whether a new incoming contractor would ever agree to use his predecessors formwork.

37. In January 1988 a sub-contract was entered into between Grand Choice and N.Y. Nam for the carpark works. The contract price was $1,187,900.

38. It was agreed that the finishing work should be omitted from Grand Choice's scope of works. Mr. Ho says that this agreement came into effect at the end of January 1988. After that date he says it was agreed that Dillingham would take over site responsibility such as removal of rubbish, site labour, watchmen and temporary services supply.

39. This agreement is reflected in a document which appears at p.753A and 796. The former is in the hand of Mr. H.M. Chan of Grand Choice and the latter is in the hand of Mr. Corlett of Dillingham. Page 791 is the fax cover sheet for 796.

40. Mr. Ho alleges that this agreement as to the cut off for preliminaries was, in fact, acted upon.

41. Mr. Ho then alleges that there was a meeting on the 24th March 1988 with Mr. Corlett when the question of formwork was discussed. He alleges that Mr. Corlett said that a figure of $2 million would be paid to Grand Choice and Mr. Ho was basically happy with this figure.

42. As to the concrete and steel delivered to site which was to be paid by Dillingham and backcharged to Grand Choice a dispute had unfortunately arisen as to the manner of these backcharges. Mr. Ho said the Grand Choice had continuously been complaining about the matter. Backcharges were being made in respect of actual quantities delivered to site. Dillingham ordered the materials and sometimes, so it was suggested, these included materials referrable to variation. Mr. Ho said it was unfair for Dillingham to backcharge for materials in respect of variations when payment for those variations would not be arranged until later. This was something which affected Grand Choice's cash flow.

43. Mr. Corlett left Dillingham's employment in mid-May 1988. He asked Mr. Ho to prepare a Final Account. Mr. Ho then met Mr. Slayton, Dillingham's Managing Director and it is clear from the evidence that Mr. Slayton took a somewhat stricter view of matters then had Mr. Corlett.

44. A final account was prepared and there was a meeting with Mr. Slayton on the 17th June 1988. Mr. Slayton was not receptive to the claim for additional costs.

45. The final account has not been agreed hence these proceedings. There is a dispute about extra monies which Grand Choice say they are entitled to and there are also disputes about backcharges and defects. Grand Choice's claim for extra monies have only been agreed as to a few items.

46. Grand Choice left site in mid June 1988.

47. A letter before Action was sent on the 11th December 1988.

48. The writ was issued on 10th March 1989. The hearing took 17 working days and Counsel thereafter agreed to reduce their closing submissions into writing. Grand Choice's reply to Dillingham's closing submissions were received on 29th July 1991. On 5th August 1991 Dillingham's solicitors wrote to the Court pointing out errors in their reply which they wished to correct. I returned to Hong Kong on 8th September. These dates explained why the judgment is being handed down so long after the conclusion of the evidence.

49. Because of the delay it became desirable to prepare this judgment as quickly as possible. I heard a large number of withesses and was referred to many documents. As I have said the Bundles supplied to me were voluminous. Once I have decided the Major contractual points I believe I can decide the points contained in the form of a Scott Schedule reasonably simply without copious references to the documents and the evidence.

Were Grand Choice bound by the terms of the Main Contract between Dillingham and HKIS?

50. Para. 7 of the Re-Re-amended Defence pleads that there were express terms of the cral sub-contract that Grand Choice would carry out the sub-contract works 'in all respects in accordance with and subject to the provisions of the Main Contract as if the said provisions had been expressly incorporated in the sub-contract mutatis mutandis'.

51. It was further alleged to be an express term of this oral sub-contract that, 'upon receipt of payment under the Main Contract in respect of the sub-contract works the Defendants would pay the Plaintiff therefor either:-

52. Mr. Ho tells me that no such terms were expressly agreed. I have not had the benefit of hearing from Mr. Corlett. I accept Mr. Ho's evidence on this point. Given the difficulty that Dillingham had of finding a sub-contractor for the job, I doubt very much whether Mr. Corlett would have said anything that could possibly have amounted to the incorporation of such express terms. I certainly take Mr. Slayton's point that he was told nothing about this, and that it was most unusual for a sub-contractor not to be bound by the terms of the main contract and be entitled to payment before the Main Contractor. On the other hand it was unusual for there to have been an oral sub-contract of this size and complexity. I can find nothing in the evidence which satisfies me on the balance of probabilities that these express terms were in fact incorporated.

Implied terms

53. Para. 8 of the Re-Re-amended defence contends further or alternatively that the above-mentioned express terms were terms to be implied 'as being necessary to give the same business efficacy'. It is to be noted that there is no plea that such terms are to be implied by custom trade or usage.

54. Implied terms can be used in 3 different senses. The first is what I might term statutory implication as one finds for example in the Sale of Goods Ordinance. The second is what can be termed the frustration situation. The third is where the Court attempts to give effect to the presumed intention of the parties. Clearly I am only dealing with the third category.

55. The third category can be said to break down into 2 sub-categories. The first is where the parties have entered into an agreement, but there is missing from it a term required to be implied in order to make the contract work. This can be called the "Moorcock" approach. (See [1889] 14 PD 64). The second sub-category is where in certain sorts of contracts the law has implied what can be termed 'usual terms' unless of course the parties have expressly or impliedly excluded them. So in building contracts the Court will inevitably imply a term that the builder will carry out the work with reasonable skill and care.

56. Under neither category will the Court imply terms unless it is necessary and reasonable to do so. But the term has to be necessary before it will be implied. "The touchstone is always necessity and not merely reasonableness". (Liverpool Corp. v. Irwin (1977) A.C.239 @ 266). Lord Wilberforce set out 5 conditions in B.P. Refinery (Westonport) v. Shire of Hastings [1978] 52 ALJR 20 @ 26D.

" ..... for a term to be implied, the following condition (which may overlap) must be satisfied; (1) it must be reasonable and equitable (2) it cannot 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."

 

57. Mr. Bell in his closing submissions for the Defendant refers to the 'normal way of doing business in Hong Kong'. But as I have said no trade custom or usage has been pleaded and in any event an oral agreement for such a contract is itself most unusual. The fact that Mr. Ho admitted in cross-examination that he was familiar with the 'pay when paid' provision is neither here nor there to the pleaded case.

58. Mr. Gary Lee was called by Dillingham and was asked by Mr. Bell whether Grand Choice was paid before or after the employers had paid Dillingham. He replied "Can't recall, but sometimes before and sometimes after". He was then asked "why would you pay them before being paid by the employer?". His simple response was "why not".

59. Although reference is made by Mr. Bell to the 'usual practice' insufficient evidence was adduced to substantiate such a practice nor to define the precise terms of such a practice. Dillingham are a substantial contracting company and are part of an American Group. If they enter into oral contracts for jobs such as this in circumstances such as these, then the Court should not be astute to imply terms which they would have included had they got round to executing a written agreement. This oral contract works perfectly well without the terms sought to be implied. In any event I do not consider that, in all the circumstances of this case, it would be reasonable to imply these terms. I therefore decline to imply the terms contended for.

60. I hasten to add that Mr. Bell made it clear that he was not arguing the Grand Choice could never recover the sums admittedly due to them or found by me to be due to them. He was just saying that the cause of action had not arisen as at the date of the issue of the writ. Grand Choice could of course have issued a fresh writ during the hearing and I could have dispensed with all pleadings and if the point had turned out to be a good one I could have given such judgment as I may give to Grand Choice on the new writ. It is common ground that Dillingham have now been paid by HKIS in respect of variations and Grand Choice are clearly entitled to something (subject of course to the set off in respect of the alleged backcharges).

Did Dillingham through Mr. Corlett agree that Grand Choice would make no loss on the sub-contract?

61. This allegation was not pleaded and only came out through the evidence of Mr. Ho and Mr. Chan. It is highly improbable given the tight conditions that exist within the construction industry in Hong Kong. In any event one is entitled to ask what 'no loss' covers. Does it cover a loss caused by Grand Choice's fault or of those for whom they are responsible? Does it cover a loss caused by 3rd parties the responsibility for which cannot be laid at the door of Dillingham?

62. Mr. Chan, when asked about this conversation, said that the words used by Mr. Corlett were something like "he would try to prevent us from a loss".

63. I am quite satisfied that Mr. Corlett did say something to this effect. However I am quite satisfied that what he said cannot possibly amount to an indemnity against loss as has been suggested by Grand Choice. Mr. Lewis in his written submissions contends for a general indemnity against loss and a particular indemnity in respect of Ho Yee Kee and he says these were terms of the original agreement.

64. As to the general indemnity against loss I am not satisfied that what was said was certain enough to give rise to a binding agreement. I think that what Mr. Corlett said was no more than that Dillingham would try to prevent loss and that he had no intention to enter into an indemnity against loss as he alleged. I am therefore not satisfied that the general indemnity was a term of this oral sub-contract, nor am I satisfied that the statement was a representation upon which Grand Choice could reasonably have relied upon as inducing them to enter into this agreement. In any event if I was wrong on the latter point I would have little doubt that Mr. Corlett meant what he said at the time. I do not consider that Mr. Corlett was intending, nor could reasonably have been taken as intending, to create a legal relationship by the vague statement upon which Grand Choice rely.

65. I therefore reject the submissions that Dillingham agreed generally to indemnify Grand Choice for loss.

Did Dillingham through Mr. Corlett agree that they would 'control' Ho Yee Kee?

66. The first time that this allegation surfaced was on the 8th March 1991 in Further & Better Particulars of the amended Statement of Claim (P.47).

67. Para. 7A of the Re-amended Statement of Claim provides as follows:

 

(i)    to indemnify the Plaintiff against extra costs occasioned by the failure of Ho Yee Kee to work in accordance with programme and with due dilligence;

 

(ii)    to meet the additional costs occasioned by the appointment of N.Y. Nam, as pleaded at paragraph 10 below."

 

68. The March 1991 Further & Better Particulars in this paragraph was as follows:-

"Response

The obligation was an implied term of the agreement between the parties. The implication is derived from the circumstances set out in the pleading; it is further and separately derived from the Defendant's assurances and undertakings, through Mr. Corlett and Mr. Ip, that the Defendant would "control" those sub-sub-contractors whom it instructed the Plaintiff to appoint. The Plaintiff understood "control" to mean that the Defendant would ensure the proper performance by the sub-sub-contractors of the work which were their responsibility. The said assurances and undertakings were given at a meeting in late May 1987 at the Defendant's office. Messrs. Ho and Chan of the Plaintiff, and Corlett and Ip of the Defendant were present. At a meeting between the parties represented by the same persons, on 6th June 1987, Messrs. Ho and Chan of the Plaintiff stated that their agreement to carry out the works was expressly subject to the Defendant's said assurances and undertakings."

 

69. Mr. Bell made the point that such allegation cannot be found in Grand Choice's letter of 15th June 1988 and this he submits must effect the credibility of Mr. Ho and Mr. Chan who supported these particulars.

70. When Mr. Chan was pressed by Mr. Lewis on this topic he said that Mr. Corlett's exact words were 'we can control them easy because they wish to get good relationship with us' (sic).

71. When asked by Mr. Lewis why this was so he said this:

"..... Normally in Hong Kong it is like that because Dillingham is quite a big company in Hong Kong and if a lot of sub-contractors wish to work under them continuously this is why they have good relationship, that means obedience and complete the work smoothly and on time etc. May be Dillingham will continue their business and they get some advantage." (sic)

 

72. It is quite clear from this passage that Mr. Chan's understanding of the matter was that because Dillingham introduced Ho Yee Kee to Grand Choice Ho Yee Kee would try their best to please Dillingham in order to preserve their commercial relationship with Dillingham.

73. Mr. Ho told me that Walter Ip suggested to Mr. Ho that if Grand Choice paid Ho Yee Kee, Grand Choice would have more control because sub-contractor listen to their paymaster.

74. The simple fact of the matter is that Grand Choice entered into a sub-contract with Ho Yee Kee and there is nothing in the evidence which displaces the fact the Grand Choice was responsible for the defaults of their own sub-contractor.

75. I am quite satisfied that there can be no term implied to the effect that Dillingham would 'control' Ho Yee Kee (whatever that means) and it cannot be implied (as pleaded) from what Mr. Corlett said about the matter because what he said falls far short of an express term (which is not pleaded) nor does it amount to a representation upon which Grand Choice could reasonably have relied. It may well be that Mr. Corlett believed that Ho Yee Kee would perform well in order to please Dillingham and enjoy continued patronage but I can find nothing in the evidence which supports the case as pleaded on this topic.

Did Dillingham instruct Grand Choice to engage Ho Yee Kee and if so what consequences flow therefrom?

76. I have already referred to Para. 7A of the Statement of Claim. The evidence which I accept is that Grand Choice had tendered for the job but could not find a suitable formwork sub-contractor. Perhaps the instinct of one of the Directors of Grand Choice was correct when he stated that he was against taking the job because Grand Choice were overworked. Be that as it may, Mr. Chan made Grand Choice's difficulty clear at a meeting on 6th June. Mr. Walter Ip of Dillingham stated that he could find a sub-contractor for Grand Choice.

77. Dillingham clearly introduced Ho Yee Kee to Grand Choice. There was no way in law by which Dillingham could impose Ho Yee Kee on Grand Choice. They accepted the introduction and entered into a written sub-contract with Ho Yee Kee. They could have dismissed the service of Ho Yee Kee if they had so wished just as they dismissed a sub-contracter called Honcade.

78. Absent any agreement on the part of Dillingham to be liable for the acts and defaults of Ho Yee Kee, the normal rule applies, namely that Grand Choice are liable for the defaults of Ho Yee Kee. I can find nothing in the evidence or documents that indicate that Dillingham agreed to be liable for the defaults of Ho Yee Kee and the mere fact of introduction gets nowhere near it. It follows therefore that any argument that Dillingham is liable for extra formwork caused by the delay or defaults of Ho Yee Kee is unsustainable in law.

Programmes

Was Grand Choice's June Programme an agreed sub-contract programme thus making Dillingham's project master programme dated 20th June 1987 a variation?

79. It is common ground that the Grand Choice's June programme was not faxed to Dillingham until 23rd June. The contract between the parties was concluded on 6th June. Thus unless Grand Choice told Dillingham of the contents of this programme and further unless they made it clear that there was a tender programme upon which the tender was calculated this claim must fail.

80. I am quite sure that Mr. Ho discussed with Mr. Corlett the question of sequencing of works but like all else in this saga it was done informally and it is difficult to characterize these discussions about sequence as a contractual stipulation. The discussions about how Grand Choice had it in mind to sequence the works are not the same as contractual stipulations that the work would be carried out in this particular sequence and no other.

81. Just as Dillingham have to accept the consequences of sloppiness in not getting a written contract executed so Grand Choice have to accept the consequences of dealing with this matter so casually. If it was their intention to make this programme a condition of the contract then I would have expected the programme to have been shown to Dillingham at the time of concluding the oral agreement. Mr. Bell also makes additional powerful points at pages 5-7 of his clesing submissions which also lead to the same conclusions and which I accept. I have of course taken into account that the burden of establishing this point rests with Grand Choice and they have failed to discharge the civil burden. In my judgment, the project master programme dated 20th June 1987 was not a variation of the agreement between the parties.

Is Dillingham liable to reimburse Grand Choice for additional formwork (if any) occasioned by the payment of an additional 15% to Ho Yee Kee and consequent acceleration?

82. I have already concluded that Grand Choice was responsible for the defaults of Ho Yee Kee. Ho Yee Kee was asking for more money and clearly there was a fear that he would leave the job. It was agreed to pay him an extra 15% to be shared equally between Grand Choice and Dillingham. It was obviously in the interest of both parties to keep Ho Yee Kee on site and merely because they agreed to split the 15% between them does not in my judgment support any contention that Ho Yee Kee were the responsibility of Dillingham given the previous facts and submissions to which I have referred.

Is Dillingham liable to reimburse Grand Choice for additional formwork (if any) occasioned by any acceleration request in November 1987?

83. I am not satisfied that there was a request for an acceleration in November if what is meant thereby is that Grand Choice were to move ahead of schedule. Clearly everyone was trying to get Ho Yee Kee to go faster, but for the reasons I have given above, I do not consider that this justifies Grand Choice in claiming any extra payment.

Is Dillingham liable to reimburse Grand Choice for additional formwork (if any) occasioned by the appointment of N.Y. Nam?

84. This point effectively falls away once I decide, as I have, that Dillingham had no responsibility for Ho Yee Kee. They cannot possibly have any liability in respect of any replacement for Ho Yee Kee in the absence of a specific agreement to that effect which I cannot find on the evidence or in the documents. There was however specific agreement, which was admitted, that Dillingham would pay the additional labour costs of N.Y. Nam. As to whether or not N.Y. Nam would use formwork of their predecessor which was on site, I am satisfied that they would have used formwork that was properly treated and left on site. It is to be noted that under the sub-contract with Grand Choice, Ho Yee Kee were obliged to remove nails, clean the formwork and stack in accordance with Grand Choice's instructions and thus there should have been suitable useable formwork available for N.Y. Nam's use. If there was not, then it was only Ho Yee Kee's fault for which unfortunately Grand Choice are responsible.

In view of the actual as opposed to the planned programme of the works, was there any need for additional formwork?

85. I do not have to go into this issue because I am satisfied that Dillingham are not liable to Grand Choice for extra formwork (if any) caused by the alleged change of programme, the alleged 'acceleration' and the hiring of N.Y. Nam.

86. I am satisfied that Dillingham are not liable to Grand Choice in respect of any claim for extra formwork, and thus I do not propose to go into the complicated and detailed evidence relating to quantum. Neither do I have to decide whether Grand Choice would have been entitled to 'on-costs' on its formwork claim and if so how much.

87. I am satisfied that it was Ho Yee Kee's poor performance which caused the additional formwork because they had insufficient men on site and they failed to make sufficient re-use of the formwork which was available. Grand Choice do have a remedy against Ho Yee Kee but the disadvantage of doing business with people like Ho Yee Kee is that if all goes wrong they are not in a position to make good the losses they have caused. This is most unfortunate for Grand Choice but this does not give them a case against Dillingham.

The Split of Preliminaries

Originally it was agreed that Grand Choice would carry out certain finishing works. By agreement between the parties Dillingham agreed to take on these works leaving Grand Choice to perform the structural work. As a result of this agreement Dillingham further agreed to take over some of the preliminaries. This agreement is evidenced by pp.796-796C in Bundle 6.

88. In October 1987 there was a discussion and agreement which led to Grand Choice's reducing their scope of works by excluding the finishing works. At p.796C is a Grand Choice document showing how the split of preliminaries would work with the cut off date being 1st February 1988. Taking clearing rubbish and cleaning as an example the contract allowed Grand Choice $750,000 for this item. Under this split agreement Grand Choice would only get $250,000 and Dillingham would get $500,000 to cover them for this obligation from 1st February 1988.

89. In February 1988 Mr. Corlett prepared the handwritten note which appears at p.796. It is dated 5th February 1988 and shows that as from February 1988 small tool, office, cleaning, temporary works and test materials were no longer to be Grand Choice's obligations and thus they were to receive no payment for them pursuant to this split agreement.

90. Evidence about this agreement and the documents was given principally by Mr. Ho and also by Mr. H.M. Chan both of Grand Choice. Mr. Chan said at p.193 that Mr. Corlett wanted a breakdown and Grand Choice wanted a clear cut off date. Mr. Corlett spoke to Mr. Chan and Mr. Ho about this matter. As to the breakdown Mr. Chan said this:

"He (Mr. Corlett) asked me to give the breakdown....of the preliminaries for cutting into 2 - one is for our part and the other is for Dillingham's part and the cut off date is end of January 1988."

 

A little later when commenting on p.796 he said:

 

"That means after that, what our agreement is after January we no need to do all the works that is not mentioned, there is no figure mentioned in all these 2 columns." (sic)

 

91. A little later he added that Mr. Corlett and Mr. Ip agreed to this.

92. Mr. Bell emphasizes that the agreement relating to the split of preliminaries was made on about 18th November 1987 (see p.796C). He then submits that the document at 796B - a Bar Chart - is an integral part of the agreement. That Bar Chart shows completion of most of the areas by 1st February 1988. He then submits that it is clear that this projection was not met in fact. So he submits that the preliminary split was conditional on completion of the work in accordance with the Bar Chart at 796B. That did not happen and thus the split of preliminaries date needs to be varied to take this into account.

93. The difficulty I have with Mr. Bell's agreement is that none of the defendant's witnesses gave evidence that the Bar Chart was in fact an integral part of the agreement to split preliminaries. Further Mr. Corlett's handwritten document at 796 which is dated 5th February 1988 must have been written with knowledge of the actual state of progress. In cross-examination, Mr. Chan told Mr. Bell that Mr. Corlett knew that for example the car park would not be completed until May 1988. It was not put to Mr. Chan that the split of preliminaries was in fact conditional on precise completion according to the Bar Chart although Mr. Bell skirted around this topic in cross-examination.

94. Bearing all these matters in mind and taking into account what I have already found to be a fairly sloppy contractual approach between these parties I do not feel able to find that the clear preliminary split agreement was in fact conditional upon compliance with the Bar Chart as now alleged by Mr. Bell. Mr. Corlett was the only person who could substantiate that and he was not called to give evidence. I have no reason to disbelieve Mr. Ho or Mr. Chan that what was agreed was a clear cut off date and that this was to be acted upon.

95. There is just not sufficient evidence to justify linking the preliminary split agreement with the Bar Chart. I have, of course, born in mind that the burden of proof in relation to linking these 2 documents is upon Dillingham.

96. The importance of this point is that many of the backharges claimed by Dillingham are said to be covered by the split agreement and thus are not properly chargeable to Grand Choice.

Scott Schedule/Litigation Final Account

97. A Scott Schedule was attached to the Statement of Claim, and it appears in the pleadings bundle between pp.100 and 103(b). In addition, both parties placed before me a litigation final account which showed their respective positions after taking into account the areas in respect to which there was agreement.

98. Under the heading "Variations" there are 12 items in respect of which 5 are agreed. If I find a sum due then it was due and owing at the commencement of this action as I have rejected Dillingham's submissions to the contrary. I will deal with each item separately in this judgment and I will attach hereto the litigation final account which shows the figures for which each party contends and a column for my findings will be completed. I will hear the parties later as to the precise form of my order.

1. Variations

(1)             For reasons which I have already given Grand Choice are not entitled to anything for extra formwork.

(2)             The variations for the school block are agreed at $82,948.

(3)             The variation for staff quarters is agreed at $869.

(4)             As to variation work for the auditorium, Grand Choice claim $77,530 and Dillingham admit $49,141.90. The difference between the two figures is because Mr. Waughman, the expert called by Grand Choice, has valued the variation at the higher figure whereas Mr. T. Chan, called on behalf of Dillingham, has taken the architect's valuation in respect of Dillingham's variation claim against HKIS for the same item. Mr. Bell invites me to prefer the architect's figure although I have heard no evidence from him. He says that it is not fair for Dillingham to have to pay Grand Choice a sum higher than that which they themselves receive from H.K.I.S. This problem arises because of the lack of linkage between the two contracts which is Dillingham's own fault. I see no reason not to accept Mr. Waughman's higher figure. I, therefore, allow Grand Choice $77,530 under this head.

(5)             As to variation work for the gymnasium, Grand Choice claim $65,507 and Dillingham admit $51,330.56. The difference is explicable for the same reasons as under 4 above and for the same reason I allow Grand Choice $65,507.

(6)             Various locations is agreed at $106,502.

(7)             Variation for labour cost for additional reinforcement is agreed at $946,053.

(8)             As to Variation cost for car park works above 57.55 p.d. Grand Choice claim $368,701 and Dillingham admit $168,484.70. Grand Choice's claim under this head breaks down into 3 portions as follows:

        (1)    $168,484.70 for the skylight. This is admitted as a figure.

        (2)    A difference of $75,362.00 in the parties' valuation of N.Y. Nam extra labour costs.

        (3)    $130,680 in respect of a suspended slab to LG1.

 

99. As to (2) the figure of $318,530 appears to have been agreed with Grand Choice (see Vol. 8, p.1128). I do not propose to allow any sum over and above that figure. I disallow the sum of $75,562 which is part of the $368,701 claimed. As to $130,680 this relates to what has been termed 'sacrificial formwork' to LG1 of the car park. I prefer Mr. Ho's evidence that Mr. Slayton instructed him personally to do this. I am not satisfied that there was in fact a saving in cost and I have no reason to disallow the amount claimed of $130,680.

100. I therefore allow $130,680 which has to be added to the agreed sum of $168,484.70 making the total under this head $299,164.

(9)             Grand Choice claim $314,419 for a variation for additional scaffolding work. Dillingham contest this item. I agree with Mr. Bell for the reasons set out in paragraph 11 of his written submission that this claim was muddled, half hearted and confusing. I am not satisfied that there was an agreement with Mr. Kam that Dillingham would pay for this item. Further, the change of case with regard to the height of the scaffolding and the shown inaccuracies therein make me extremely doubtful about this claim which I do not propose to allow.

(10&11)     These 2 claims are now abandoned.

(12)             It is also agreed that Dillingham are entitled to a credit of $112,500 in respect of the omission of reinforced concrete walls.

2.     Works not Performed by Grand Choice

101. There are five such items which are agreed in the total sum of $468,584.71 which must be credited to Dillingham.

3.    Material costs incurred by Dillingham

(a)    Concrete Grand Choice contend for $3,549,562 and Dillingham contend for $3,919,217. As for (b) steel reinforcement Grand Choice contend for $5,775,042.25 and Dillingham contend for $6,295,507.40.

102. An agreement was reached in June 1987 which is recorded as follows at p.113C of Vol. 1. "Grand Choice will be charged according to delivery dockets" for concrete and "Grand Choice will be charged according to material receipt. Steel scrap will be the property of Grand Choice" in respect of reinforcement. The idea behind this arrangement was that Grand Choice would inform Dillingham of their requirements, Dillingham would order and get the benefit of lower prices. This was clearly to Grand Choice's benefit. They got lower prices and an improved cash flow position. Dillingham contend that it was clearly agreed that they would backcharge Grand Choice on the basis of deliveries. This would not always equate with the actual amount incorporated into the works. Clearly wastage is a factor to be considered in such an arrangement.

103. I reject the suggestion by Grand Choice that they should only be backcharged in respect of BQ quantities. This is such an uncommercial arrangement that I cannot believe it was ever agreed. Reliance was placed on a letter at Vol. 17, p.1755 which refers to a figure for reinforcement "which has been incorporated into the works". This letter is from High Point to Design Consultants and it refers specifically to the arrangements between HKIS and Dillingham. In my judgment this figure has nothing to do with the payment arrangements as between Grand Choice and Dillingham which are as stated above.

104. I am quite satisfied that, subject to 4 points, Dillingham have calculated the amount of concrete and steel reinforcement in accordance with the agreement of the parties. I am fortified in this view by the fact that it makes commercial sense whereas the opposing view would place Dillingham at great risk caused by the inefficiency of Grand Choice or HO Yee Kee.

105. The 4 matters upon which I have sufficient doubt to justiy disallowance are (1) the pump surcharge which I believe is $190,552, (2) the extra cost of higher grade concrete which I believe is $118,046, (3) tower crane usage and (4) temporary road access. The last 2 items would appear to be covered by the split on preliminaries and indeed Thomas Chan on behalf of Dillingham seemed to agree with this (see p.648). As to the first 2 items there is sufficient doubt on the evidence about whose responsibility they were supposed to be. The burden is again upon Dillingham to establish his backcharges.

106. I propose to allow $6,295,507 for steel reinforcement. For concrete I allow $3,919,217 from which must be deducted the four items above mentioned. I will hear the parties as to what sums should be deducted.

4.    Further Expense Incurred by Dillingham

107. There are 19 items claimed by Dillingham. These total $2,141,097.07. Grand Choice admit a total of $752,868.49.

(a)         This is agreed at 132,946.50.

(b)         This is agreed at 288,913.42.

(c)         This is agreed at 78,106.27.

(d)         This is agreed at 19,736.30.

(e)         This is agreed at 38,706.00.

(f)         This is agreed at 46,900.00.

(g)         This is agreed at 60.00.

(h)         This is agreed at 147,500.00.

(i)         This is agreed at Nil.

(j)         Loss of equipment is claimed at $22,788. Dillingham had hired scaffolding from S.G.B. on Grand Choice's behalf. Some of it went missing and Dillingham were charged for it. On 31st December 1989 Dillingham claimed this sum from Grand Choice and asked for their comments. Unfortunately, no comments were received. However, Dillingham were not in a position to establish by any evidence the date upon which this scaffolding went missing and as it is possible that it may have done so after Grand Choice left the site I do not consider that Dillingham have discharged the burden of proof upon them to establish this item against Grand Choice, and I, therefore, disallow it.

(k)         Cleaning and remedial work is claimed at $325,797.50. I am satisfied that this is in fact covered by the agreement to split the preliminaries. Dillingham were to claim back $500,000 from an original figure allowed of $750,000. I therefore disallow this item. Mr. Waughman's concession on quantum in no way binds me as to liability.

(l)         Rubbish removal is claimed at $44,000 and I am also satisfied that this is covered by the agreement to split the preliminaries. I disallow this item.

(m)      Clearing of formwork material April 88 - May 88 is claimed at $49,500. I disallow this item for the same reasons as under (k) and (1) above.

(n)       Chipping concrete is claimed at $53,550. I accept the evidence that there was in this case as in most cases some defective formwork. Bearing in mind Ho Yee Kee's poor performance generally, I am not at all surprised that there was found to be bulging of the concrete caused by inadequately supported formwork. Although Grand Choice would not give an opportunity to rectify this themselves, it is common ground that this alone is insufficient to bar the claim. Mr. King Wong gave evidence on behalf of Dillingham that the invoices he referred to were all referable to rectifying Grand Choice's work. Again Grand Choice would have had a claim over against Ho Yee Kee but this does not prevent Grand Choice being liable to Dillingham. I therefore allow this item at $53,550.

(o)(r)  Item (o) is outstanding works left by Grand Choice in the sum of $217,249 and item (r) is outstanding concrete works left by Grand Choice in the sum of $319,094. These two together total $536,343.00. This total includes $103,400.00 in respect of alleged defects to 47 manhole covers. I find this item a little surprising. That remedial works were required in order to enable the manhole covers to be properly placed does not surprise me. But the cost claimed here is for the total reconstruction of the 47 manhole covers. I take the point that if all 47 were as hopelessly constructed as the cost of remedial work would suggest, it is surprising that Grand Choice received no warning of the extent of this claim prior to a letter dated 6th November 1988. I think that the only fair way of dealing with this claim is to adopt the approach of Grand Choice's expert Mr. Waughman and allow half of the sum namely $51,700.00.

108. A further $141,200 is claimed to cover the cost of re-erection of scaffolding around the period of the temporary occupation permit. I take into account that Dillingham have the burden of establishing this item which I do not consider they have discharged. I am not satisfied that the sum of $141,200 has been made out.

109. As to the balance of (o) and (r) I am satisfied that Mr. King Wong has made out these items on the documents.

110. In the result I allow $343,443.00 for items (o) and (r) out of a total of $536,543.

(p)    $121,050 is claimed for poor workmanship rectification cost. I think the only fair way to deal with this item is to adopt Mr. Waughman 60% approach and thus I allow this item at $72,630.

(q)    $90,200 is claimed for removal of temporary concrete supports. I am not satisfied that this sum has been established. These were temporary works which were more likely than not to be covered by the preliminary split. Dillingham has not discharged their burden of proof as to these items.

(s)    Dillingham claim $145,000.00 for the provision of scaffolding to plaza column and beam finishing works. This goes back to the temporary occupation permit point. It was said by Grand Choice that the scaffolding was dismantled for the purposes of the temporary occupation permit inspection which occurred long after Grand Choice left site and then later re-erected. Mr. Bell says that the risk was on Grand Choice. I am not satisfied that this is the case and as the burden is on Dillingham I disallow this item

Conclusion

111. Having dealt with all these matters as best as I can on the materials before me I will subsequently hear the parties as to what order they contend for and I will also hear them on costs and any other matters arising. I attach to this judgment the Scott Schedule with my figures included. These will require alteration after I have heard the parties.