DRILTECH GROUND ENGINEERING LTD. v. GROUP PLAN CONTRACTORS LTD.

CACV 648/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 648 OF 2001

(ON APPEAL FROM HCCT NO. 29 OF 1999)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This appeal arises out of a judgment dated 15 March 2001 of Burrell J. The matter concerns a sub-subcontract in respect of work being carried out on Hiram's Highway at its junction with Clear Water Bay Road. The defendant, the appellant in this appeal, was the subcontractor. It had subcontracted the plaintiff to carry out piling work for retaining walls at two locations. The first work to be carried out was referred to as RW2; the second work, which was never carried out by the plaintiff for reasons which will become apparent, was called RW1.

2. In the action the plaintiff claimed a total of approximately $1.8 million. The defendant counterclaimed originally for an amount in excess of $6 million but later that was reduced. In the event, the judge awarded the plaintiff a sum of $780,201 and the defendant $34,290.86, which was an agreed sum.

3. The appeal in this case relates to only one of the issues, namely, whether the defendant had repudiated the sub-subcontract with the plaintiff by its letter dated 14 August 1998. The amount awarded in respect of the repudiation claim was $230,000.

4. At the conclusion of the argument on behalf of the defendant, the appellant, this court dismissed the appeal with costs and indicated that we would give our reasons in writing, which we now do.

Background

5. The RW2 works had been carried out between September 1997 and January 1998. The RW1 works were originally due to commence on about 10 September 1998. By mid-August 1998 at least, it was apparently known to both parties that commencement would be later. It seems that the actual commencement date had not been fixed but was in all probability to be October or perhaps November.

6. There had apparently been little contact between the plaintiff and the defendant after the conclusion of the RW2 works. On 5 June 1998, the defendant wrote to the plaintiff in relation to their "pre-drilling rate". At the end of the letter it was said:

"Besides, we heard a rumour that you would wind up your Company soon. Please clarify the situation."

7. Nothing further transpired and the plaintiff ignored that last remark. On 14 August 1998, the defendant again wrote to the plaintiff in the following terms:

"Our letter ref. HY/96/08-1407/6.17 of 5th June 1998 inquiring the status of your Company refers.

As discussed earlier, you informed us you had difficulties to carry out the remaining bored pile works at Retaining Wall No. 1. We notify you that we are inviting tenders for the aforementioned work. We also confirm that the additional costs incurred shall be deducted from your account.

Besides, please submit your outstanding breakdown regarding the pre-drilling rates in order to finalise the contra charges amount."

8. That letter was answered by the plaintiff by a letter dated 28 August 1998. They commenced by apologising for the delay:

"... as it took time for us to attempt to understand the contents therein. However, despite our best endeavor, we must confess that we are still very much bewildered by your said letter."

The letter then went on to deny that there had been any difficulty in carrying out the remainder of the sub-subcontract works and the third paragraph of the letter reads:

"We do not understand why you have to invite tenders for the 'remaining bored pile works at Retaining Wall No. 1'. Were you suggesting that you had terminated or would terminate the Sub-Contract? Should your answer be affirmative, we must state that your said statement amounted to a breach or an anticipatory breach, as the case may be, and that the same in itself was a repudiation of the Sub-Contract which we would have no hesitation to accept. We demand that you clarify the same within 7 days hereof, failing which we would take that you have repudiated the Sub-Contract and would accept the same."

The letter then went on to deal with other matters.

9. On 5 September 1998, the plaintiff wrote again to the defendant stating that in the absence of any reply it was taken that the defendant had repudiated the subcontract. The letter then stated:

"We now accept your repudiation and terminate the sub-contract accordingly."

The matter was disputed in correspondence.

10. The judge made a number of findings of fact which were not challenged in the notice of appeal. In relation to the reference to difficulties in carrying out the bored pile works in the letter of 14 August, the judge referred to what the plaintiff had said in the 28 August letter and drew the inference that any difficulties which had existed were technical difficulties. He went on to hold that, although he accepted that rumours abound in the construction industry, any rumour as to the winding up of the plaintiff had no foundation in fact and did not entitle the defendant to repudiate the contract. The judge also held that, although there was no truth in the statement made by the defendant that it was inviting tenders, the plaintiff did not appreciate that the defendant had been bluffing until it received a letter from the defendant dated 8 September. The judge held further that the additional costs referred to by the defendant in its letter of 14 August included the costs of the new tendering.

11. Although Mr Yu SC, appearing on behalf of the defendant, did draw our attention to the fact that the plaintiff had had to take steps to avoid financial difficulties, I consider that there is no basis for challenging any of those findings. Indeed, there was no real challenge to them. In the light of those findings, the judge came to the conclusion that on an objective reading of the letter of 14 August, it could only be assumed that the defendant was seeking tenders, that one of the tenders which were invited would be accepted and that the plaintiff would then be "off the site". As such, the judge held that the defendant had repudiated the subcontract with the plaintiff. In my view, the judge reached the correct conclusion.

12. Before this court, Mr Yu submitted that the letter of 14 August was not a plain or unequivocal renunciation of the contract. It was said that renunciation was neither to be lightly found or inferred. In answer to a question from the court, Mr Yu agreed that to succeed on this appeal he needed to show that the letter of 14 August was not plain and unequivocal.

13. In my view, the letter of 14 August was plain and unequivocal. It stated in bald terms that the defendant was seeking others to carry out the RW1 subcontract works and that all additional costs would be for the plaintiff's account. Nothing could be plainer. The defendant was declaring that it was no longer contractually bound to have the work done by the plaintiff. There was no suggestion that the defendant would not be bound by the process of inviting tenders. In my view, the defendant can derive no assistance from a consideration of the letter of 5 June 1998. In view of the judge's finding that the rumours as to winding up had no foundation in fact and did not entitle the defendant to terminate the subcontract with the plaintiff, that letter is irrelevant to the issue on this appeal.

14. In support of his argument that the 14 August letter was equivocal and was not plain and unambiguous, Mr Yu also relied on the letter of 28 August. In the first place, I do not consider that the letter of 28 August is a legitimate aid to construction of the letter of 14 August. Mr Yu sought to rely upon the decisions in Anchor Line Ltd v Keith Rowell Ltd (The "Hazelmoor") [1980] 2 Lloyd's Rep 351 and Jaks (UK) Ltd v Cera Investment Bank SA [1998] 2 Lloyd's Rep 89 in support of the contention that it was proper to use a recipient's response as an aid to construction of a communication. In my view the decisions in those cases do not support the proposition that that can be done. The most that can be said is that in the latter case, after construing the relevant document, Moore-Bick J said he derived "some comfort" from the fact that the recipient of the document had construed it in the same way as he did. That is a very different thing from using a response as an aid to construction of a communication. Whilst it is therefore irrelevant to the final determination, I consider that, when properly construed, that the 28 August letter was merely giving the defendant an opportunity to avoid the consequences of its own repudiation.

15. As Mr Yu pointed out, contractual relations cannot be imposed unilaterally by making an offer and putting a time limit for reply in the absence of which the offer will be deemed accepted. However, that would be quite different from a situation, as in the present case, where the plaintiff indicated that the defendant had disavowed the contract but was prepared to waive the disavowal should the defendant indicate within the next 7 days that it wished the original contractual relations to continue. Moreover, as is pointed out in paragraph 2-065 of Chitty on Contracts (28th Edition), there are circumstances where it is legitimate to impose a time limit for reply by the opposite party. In any event, in the letter of 5 September the plaintiff unequivocally accepted the repudiation constituted by the letter of 14 August and at that stage it was still open to the plaintiff to do so.

16. This appeal therefore fell to be dismissed with costs.

Hon Le Pichon JA:

17. I agree.

Hon Ma J:

18. I agree.