HSIN CHONG CONSTRUCTION (ASIA) LTD v. HENBLE LTD

HCCT 23/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION & ARBITRATION PROCEEDINGS

NO. 23 OF 2005

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J U D G M E N T

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I.   Introduction

1.  Hsin Chong was the Main Contractor and Henble the Employer for a residential development at 31 Tin Hau Temple Road.  Access to the site was solely through a right of way (ROW) over land belonging to Fu Fai Court at 33 Tin Hau Temple Road.  Contract drawings supplied by Henble to Hsin Chong showed that all utilities were to pass from the site over or under the ROW for connection to the trunk public supply systems situated in or around Tin Hau Temple Road (THTR).

2.  Hsin Chong makes 5 claims against Henble in respect of sums said to be due and owing for work on the project.  Henble in turn claims liquidated damages for delay and seeks an indemnity against sums said to have been paid to the Owners of Fu Fai Court (the Owners) for nuisance caused by Hsin Chong’s workers in the course of construction.

II.  discussion

A.  Hsin Chong’s claims for non-payment of IPC 17 and 18 and the 2nd half of retention monies

3.  Henble has failed to pay $2,868,502 due under Hsin Chong’s Interim Payment Certificates 17 and 18.

4.  Henble has also refused the 2nd half of retention monies ($975,000) to which Hsin Chong is now entitled.

5.  Henble does not dispute the total due under these 2 claims ($3,843,502).  Henble says, however, that the claims are subject to any amounts due under its counterclaims.

B.  Hsin Chong’s claims for additional time for completion

B.1 Contract terms

6.  The Main Contract was subject to overriding terms stipulated in a Letter of Acceptance (LOA) dated 18 July 2002.  The LOA provided for the project to commence on 18 July 2002 and to be completed within 360 calendar days thereafter (that is, 12 July 2003).

7.  On extensions of time (EOTs) and liquidated damages (LDs), LOA cl.5 provided as follows:-

“A maximum of 45 days will be granted by the Employer in this Contract for all circumstances including variations required by the Contract and no loss and expenses will be claimed by the Contractor for the extension of time granted by the Employer in this respect.  For the avoidance of doubt, the extension of time to be granted for this Contract will follow the same procedures as stipulated in Clause 6 of this Letter of Acceptance for the extension of time granted less than 45 days, and if the extension of time granted under this contract is equal or more than 45 days, the Contractor’s entitlement is only 45 days and thereafter no extension of time whichsoever will be granted to the Contractor under this Contract.  However, any late completion of the contract other than the 45 days EOT as stipulated above will be subject to LD deduction of HK$30,000.00 per day.”

8.  LOA cl.5(b) provided that a maximum of 5% of the Contract Sum would be paid to Hsin Chong for variations required by the Main Contract and approved by Henble.  But “any amount more than the 5% of the Contract Sum for variation works will be absorbed by the Contractor”.

9.  To understand its effect, LOA cl.5(a) has to be read in conjunction with the General and Special Conditions of the Main Contract.  In particular, GCC 22 and 23 (as amended by SCC 15 and 16 respectively) govern entitlement to additional time. 

10.  GCC 22(1) gives the Employer the right to impose LDs for delay.  Where by reason of specified events not attributable to him, a Main Contractor fails to complete by the Completion Date or any extra time allowed under GCC 23, GCC 22 does not provide for EOTs.  Instead GCC 22(3) sets out a procedure by which the Architect may grant a time allowance to the Main Contractor.  The grant of such time allowance will result in the Main Contractor being “relieved of the obligation to pay or allow [LDs] in relation to the portion of delay so certified”. 

11.  GCC 23 allows the Main Contractor to give notice of specified events which are likely to delay or have delayed the progress of the works prior to the Completion Date.  The Architect will then estimate the length of delay or likely delay and grant a fair and reasonable extension of time for completion of the works.  Note that, although an EOT may be granted under GCC 23, the actual Date of Completion stipulated in the LOA remains unchanged.

12.  To obtain a time allowance or an EOT under GCC 22 or 23 respectively, a Main Contractor must notify the Architect of a relevant event within 28 days of its occurrence.

13.  The combined effect then of LOA cl.5(a) and GCC 22 and 23 is that up to 12 July 2003 (the Completion Date) delays attributable to events specified in GCC 23 will give an entitlement to EOT up to a maximum of 45 days.  Thereafter, events specified in GCC 23 will give an entitlement to time allowance.  Any time allowance granted will reduce the LDs payable to the Employer on account of delay.  In any eventuality, the Completion Date of 12 July 2003 will remain unchanged.

14.  Hsin Chong submits that, in imposing a 45 day cap to EOTs, LOA cl.5(a) operates as a penalty clause and should be treated as unenforceable. 

15.  Hsin Chong further suggests that LOA cl.5(a) may be a penalty because it enables an Employer to claim LDs even where delay is the result of the Employer’s own conduct.  This (Hsin Chong reasons) would be contrary to the prevention principle whereby a wrongdoer should not benefit from his own wrong.

16.  I do not agree that cl.5(a) is a penalty.

17.  First, it was open to Henble as Employer to stipulate a maximum number of EOTs to which a Main Contractor would be entitled in whatever circumstance.  Knowing that such maximum was to be a term of the contract, Hsin Chong would undoubtedly have priced its tender accordingly, factoring in an element for bearing the risk of circumstances leading to more than 45 days’ delay.  There is nothing unfair in the arm’s length bargain struck.

18.  Second, a specified event entitling the Main Contractor to a time allowance under GCC 22 or an EOT under GCC 23 is:-

“(l) any act of breach or prevention by the Employer, his servants or agents not already mentioned in the foregoing sub-paragraphs...”

19.  This sub-clause (l) appears in GCC 23.  But where an event falls within the terms of sub-clause (l), GCC 22(3) enables the Main Contractor to apply for a time allowance in respect of such event.  The time allowance can then be offset against LDs.

20.  Accordingly, where delay is due to the Employer’s own act of prevention, the Main Contractor may apply for an EOT or a time allowance depending on whether the relevant event arises before or after 12 July 2003.  The time granted by the Architect would then reduce any claim by the Employer for LDs in respect of delay caused by his act.

21.  I do not accept the submission by Mr. Clayton SC (appearing for Hsin Chong) that GCC 23(l) should be read restrictively in light of the foregoing sub-clauses in GCC 23.  I agree with Mr. Westbrook SC (appearing for Henble) that sub-clause (l) was plainly meant as a catch-all to obviate the possibility of time being set at large by some act of prevention by the Employer not expressly dealt with in other sub-clauses of GCC 23.

22.  Practical completion was certified as at 23 November 2003.  The project thus experienced 134 days of delay.  The question is for how many of those 134 days Hsin Chong should be allowed time. 

23.  The Architect certified a total of 88 days’ EOT and time allowance.  However, both parties accept that the Architect’s certificate can (and should) be re-opened by the Court.

24.  On Hsin Chong’s own expert evidence, 33 of the 134 days’ delay are attributable to Hsin Chong’s delay in performing critical blockwork.  Hsin Chong is consequently not entitled to an EOT or a time allowance in connection with those 33 days.  Since I have rejected Hsin Chong’s contention that cl.5(a) is penal, it follows that Henble must at least be entitled to 33 days of LDs.

25.  I now proceed to examine each of Hsin Chong’s remaining claims for EOT or time allowance.  For convenience, I shall continue to identify what were referred to during trial as “EOT Claims” by number (for example, EOT Claim 2, 4, etc.).  This is even though some claims have been abandoned (since they involve non-critical delays) and most remaining claims are for time allowance (since they involve events after the contractual Date of Completion).

B.2  EOT Claim 2a: Revised last manhole details and ELS work

26.  In August 2002 Hsin Chong dug a 1 m deep trial pit across the pavement between the ROW and THTR.  No unusual obstructions to planned drainage works were identified.

27.  In March 2003, having obtained a licence from the Highways Department to dig up part of THTR, Hsin Chong discovered obstructions (24 pipes of telephone cables and a 600 mm diameter pipe) obstructing the proposed drainage works.

28.  Various options were investigated (including changing the routing of drains and diverting existing utilities).  None proved viable.

29.  Eventually, it was decided to lay the drainage pipes much deeper than shown in the contract drawings.  This in turn entailed connecting with government manholes in THTR at a lower level and constructing deeper manholes for storm water and sewage under the ROW.

30.  The ELS (Excavation and Lateral Support) work for the ROW last manholes consequently had to be deeper than originally envisaged.  This required a submission to the Buildings Department (BD) for approval.  That took from 23 May to 12 July 2003.

31.  The relevant work was programmed for completion by 2 June 2003.  But it was not actually finished until 29 July 2003.

32.  Hsin Chong claims an EOT of 18 days for this event.  Mr. Clayton notes that an EOT is claimed because the critical delay arose out of events preceding the Date of Completion (12 July 2003).

33.  Mr. Westbrook argues that, under the Main Contract, Hsin Chong bore the risk of unexpected sub-soil conditions and utilities necessitating a revision of the originally planned drainage works.  He suggests that, by leaving final investigation of sub-soil conditions along THTR until late into the project, Hsin Chong only has itself to blame for any delay under this head of claim.

34.  I disagree with Mr. Westbrook’s analysis.

35.  First, I do not believe that the Main Contract imposed the alleged risk on Hsin Chong.

36.  Henble relies on numerous provisions (some pleaded, many not pleaded) in support of it submission.  I have examined all of the express contractual terms referred to by Mr. Westbrook in his Closing Submissions.  In my view, none of them expressly or impliedly impose on Hsin Chong the burden of sub-soil conditions (including location of utilities) turning out otherwise than as shown on the contract drawings.

37.  Many of the provisions relied on by Mr. Westbrook (for example, Specification Preliminaries (SP) cls.15.01 and 15.02) concern Hsin Chong’s obligation to coordinate among various parties involved in the works (including drainage works).  But such an obligation does not mean that Hsin Chong undertakes the risk of existing utilities or pipes at THTR not being as envisaged.

38.  Another provision (SP cl.20.07) relied on by Henble concerns the submission of an ELS plan to the BD.  But in fact Hsin Chong was never asked to prepare a revised ELS plan for the BD.  To save time, the Structural Engineer decided to do that on its own without reference to Hsin Chong.  In any case, as Mr. Westbrook accepts, the submission of ELS plans to the BD did not give rise to critical delay.

39.  Still another provision (SP cl.17.05) concerns the protection of existing services during the course of Hsin Chong’s work.  But there is no suggestion that Hsin Chong failed to protect existing services when digging trial pits or holes.

40.  Yet other provisions (such as Specification Section ME-50 cl.2.3) require Hsin Chong to investigate and verify levels and gradients.  But the mere fact that the Main Contractor was obliged to investigate whether actual sub-soil conditions (including gradients and levels) conformed with contract drawings, is not sufficient to impose the alleged risk on Hsin Chong.  Hsin Chong did carry out investigatory works as obliged and those simply showed that conditions were not as at first believed.

41.  The provision that apparently comes closest to supporting Mr. Westbrook’s case is SP cl.17.05G.  It reads:-

“For the purpose of this clause, drawings showing adjacent services, if available, will be kept in the Architect’s office for inspection.  The drawing is for information on the type of services and there is no guarantee as their exact location or as the existence of other services that are not shown on the drawing.  The Main Contractor shall contact the Public Utility Companies/ Authorities to ensure the extent and quantity of services adjacent to the Site.  No claim due to ignorance of the presence of any services will be entertained.”

42.  But, as Mr. Clayton points out, ultimately cl.17.05G does not assist. 

43.  The provision relates to construction of drainage or other utilities works in strict accordance with the Architect’s original design.  A Main Contractor cannot say that such work will require greater care or resources than anticipated because the exact location of existing services does not conform to what had been envisaged.

44.  In contrast, here it was not possible to build the drainage works at all in strict accordance with the original design, even with the expenditure of greater care and resources.  Here it was necessary to re-do the design altogether.

45.  Second, there is no suggestion that the work sequence shown in Hsin Chong’s programmes was unreasonable or incompetent. 

46.  There may be other possible sequences.  With the benefit of hindsight, had Hsin Chong approached matters differently and started drainage works earlier, there may have been no critical delay. 

47.  But this does not mean that Hsin Chong is to blame for deciding on valid grounds (including the desire to minimise obstruction of the ROW) to proceed as it did.  This is especially so where, as observed above, Hsin Chong did not contractually undertake to be liable for sub-soil conditions being radically different from anticipated.  Hsin Chong cannot be faulted for failing to foresee what was eventually discovered when THTR was dug up.

48.  In my judgment, the changes to the level of drainage works constituted variations to the Architect’s original design.  Hsin Chong should be entitled to an EOT of 18 days for such variation.

B.3  EOT Claim 2b: Delay to water main connection

49.  The Water Supplies Department (WSD) delayed water main connection until 24 September 2003. 

50.  A principal reason for the delay appears to have been a site inspection by WSD on 13 August 2003.  The inspection found 7 “defects” in the internal plumbing works which required rectification.  Although it is not entirely clear from the evidence, I think that it is unlikely that WSD would have effected the water main connection until the 7 defects were remedied.

51.  Hsin Chong claims a time allowance of 45 days for this event.

52.  Mr. Westbrook repeats his suggestion that Hsin Chong is to blame for any delay by reason of its failure to coordinate properly and by reason of the work sequence which it adopted for drainage works.

53.  I do not find any failure on Hsin Chong’s part in relation to coordination.  Further, for the reasons discussed in relation to EOT Claim 2a, I do not think that Hsin Chong can be faulted on its work sequence.

54.  More substantially, Mr. Westbrook argues that the 7 defects are largely attributable to the failings of Golden Day, Hsin Chong’s sub-contractor for the site plumbing works.  Insofar as Golden Day is at fault, then Hsin Chong as its principal cannot (Mr. Westbrook reasons) be entitled to any time allowance.

55.  I do not accept Mr. Westbrook’s contention in relation to Golden Day. 

56.  Golden Day is a licensed plumber.  By letter dated 23 September 2002 to the Water Authority, JCL (the Building Services Engineer) authorised Golden Day to submit drawings in relation to the potable and flushing water plumbing arrangements for the development. 

57.  In the ordinary course of events, JCL would have had to submit such drawings.  However, Golden Day being a specialist, JCL engaged Golden Day to perform that function on JCL’s behalf.

58.  JCL was Henble’s consultant.  Thus, as far as submission of drawings to the Water Authority was concerned, Golden Day would have been acting as Henble’s agent or sub-agent and not on behalf of Hsin Chong. 

59.  It is true that Golden Day was also Hsin Chong’s sub-contractor for plumbing works.  But this does not mean that everything done or not done by Golden Day is attributable to Hsin Chong as principal.

60.  Consider now the 7 defects.  They were as follows:-

(1) The distance between certain pipes on the 25th floor was insufficient.  The problem was resolved by bending certain pipes.

(2) There was a question about the flushing cistern.  It is accepted that rectifying this problem did not use up time.

(3) Golden Day failed to submit revised drawings showing a variation.  There was thus a discrepancy between the approved drawings and what had been built.  Golden Day did not submit revised drawings until after WSD’s inspection.

(4) Despite the fact that approved drawings showed a Pressure Release Valve (PRV) set on the 6th floor, WSD wanted the PRV set moved to the ground floor.  There was some delay by Golden Day in incorporating the change into revised drawings.

(5) There was a question over whether the fibreglass potable water tanks used had been approved by the Water Authority.

(6) Isolation valves were not installed as had been previously required by the Water Authority.  The reason was that, despite the need for isolation valves having been drawn to its attention, Golden Day had not prepared revised drawings incorporating the isolation valves.  The omission was rectified after WSD’s inspection.

(7) WSD thought that gate valves had not been installed. In fact, the valves were in place, but were simply not visible.  The problem was solved by using glass doors for the compartment housing the valves.

61.  It will be seen that the defects were essentially matters of design.  If there were delays, they were primarily due to the late submission of revised drawings by Golden Day.  In the submission of such drawings, Golden Day would have been acting as Henble’s agent or sub-agent. 

62.  It follows that delay in the connection of the water main cannot have been due to Hsin Chong.  Hsin Chong must accordingly be entitled to time allowance of 45 days for this event.

B.4  EOT Claim 4: Revised A/C plinths and bathroom louvres

63.  Henble accepts that Hsin Chong is entitled to 13 days’ time allowance on this claim.

B.5  EOT Claim 6: Late registration of undertaking letters

64.  The last BD inspection took place on 21 October 2003.  Henble filed certain undertaking letters with the Land Registry on 1 November 2003.  The Occupation Permit (OP) was granted on 17 November 2003.  The grant of the OP was a pre-requisite to practical completion.

65.  Hsin Chong claims 19 days’ critical delay for this event.

66.  Hsin Chong say that it was necessary for Henble to register 2 undertaking letters in the Land Registry before the OP could be obtained.  Hsin Chong points out that in May 2002 BD stipulated that the letters should be registered before an application for an OP was submitted.

67.  Henble says that there is no evidence that the late registration of the letters delayed the issue of the OP.  The time taken to issue an OP could simply have been due (Henble suggests) to administrative delays in BD’s internal processing.

68.  In all likelihood, especially given the BD’s stipulation in May 2002, Hsin Chong is right on the question of causation.

69.  Mr. Clayton argues that this event does not fall within either GCC 22 or 23.  But, in my view, it comes within the catch-all provision in GCC 23(l) (which is not to be read restrictively).  The event arising after the Date of Completion, GCC 22(3) (read in conjunction with GCC 23) provides for time to be allowed provided notice of the delaying event was given within 28 days of its happening.

70.  Mr. Clayton’s difficulty is that Hsin Chong failed to give the requisite notice of delay within 28 days of the event.

71.  Mr. Clayton suggests that the 28 days’ time bar cannot apply to this event.  This is because (Mr. Clayton submits) the reason for the delay in issuing the OP (late registration of the undertaking letters) would not have been apparent to Hsin Chong.

72.  I do not accept this reasoning. 

73.  On the giving of notice, GCC 23 (and hence GCC 22) are categorical.  GCC 23 makes clear that “the Main Contractor’s compliance with these requirements shall be a condition precedent to his entitlement to an extension of time”.  As a matter of construction, it seems to me that the Main Contractor was undertaking the risk of not being aware of a reason entitling him to an EOT or time allowance.

74.  In any case, it appears from the evidence of Mr. Jason Wong (Hsin Chong’s Contract Manager in charge of the works) that he learned about the non-registration of the undertaking letters on 21 October 2003 during a 2nd OP inspection.  He refers to having been “astounded” at the time to learn that Henble had forgotten to register the letters and BD was not issuing the OP in consequence.

75.  At the latest, Hsin Chong would have been put on inquiry on 23 October 2003.  That was when Henble copied to Hsin Chong a letter sent to the BD (on the same date) referring to the submission of the undertaking letters in connection with the OP application.

76.  Accordingly, Hsin Chong has lost any entitlement it might have to make a claim under GCC 22 for time allowance in connection with this event.

B.6  EOT Claim 5: Late design changes by the Architect

77.  This claim concerns some 24 changes to the design of the clubhouse portion of the development.  These changes were instructed between 31 October and 12 December 2003.  There is no dispute that the changes caused critical delay of 6 days to the project.

78.  There was a dispute over whether the changes instructed were substantial (as opposed to merely minor) variations.  In my view, significant interior design changes were instructed for the clubhouse.  Overall, I accept that such changes constituted a variation.

79.  But Hsin Chong accepts that it is not entitled to a further time allowance here.  This is because Hsin Chong did not comply with the 28 day notification requirement.  Thus, a time allowance claim under this head is now time-barred.

B.7  Summary of EOT and time allowance claims

80.  The net result is that Hsin Chong is entitled to an EOT of 18 days on EOT Claim 2a and time allowances of 45 and 13 days respectively on EOT Claims 2b and 4.  The total extra time to which Hsin Chong is entitled would therefore be 76 days.

C. Hsin Chong’s claim for loss and expense

C.1    Contract terms

81.  Hsin Chong claims for loss and expense in relation to EOT Claims 2a, 2b, 4 and 5 under GCC 11(6).  Hsin Chong’s claim consists of 3 components: additional site preliminaries costs; additional head office overhead costs; and loss of profit. 

82.  GCC 11(6) provides:-

“If upon written application being made to him by the Main Contractor, the Architect is of the opinion that a variation or the execution by the Main Contractor of work for which a provisional sum is included in the Specification or Summary of Tender ... has involved the Main Contractor in direct loss and/or expense for which he would not be reimbursed by payment in respect of a valuation made in accordance with the rules contained in sub-clause (4) of this Condition and if the said application is made within a reasonable time of the loss or expense having been incurred, then the Architect shall either himself ascertain or shall instruct the Quantity Surveyor to ascertain the amount of such loss or expense.  Any amount from time to time so ascertained shall be added to the Contract Sum, and if an Interim Certificate is issued after the date of ascertainment any such amount shall be added to the amount which would otherwise be stated as due in such Certificate.”

83.  Mr. Westbrook submits that, purely on a construction of the Main Contract, Hsin Chong cannot be entitled to the loss and expense claimed.  This is because such claim (Mr. Westbrook argues) is precluded either by LOA cl.5(a) or the reference to “direct” loss and expense in GCC 11(6).  Further, Mr. Westbrook questions whether Hsin Chong can recover loss and expense incurred after practical completion.

84.  By LOA cl.5(a) the Main Contractor expressly agrees that, as far as variations required by the Contract are concerned, “no loss and expenses will be claimed ... for the extension of time granted by the Employer”.   

85.  Mr. Clayton observes that, strictly, it is not the Employer but the Architect who grants an EOT.  To make sense, the reference in LOA cl.5(a) (Mr. Clayton suggests) to the “grant” by the Employer of an EOT must be read as referring to “the grant by the Architect of an EOT which the Employer accepts”.

86.  I think that Mr. Clayton is partially right in his construction of the reference to an Employer “granting” an EOT.  I would go further. 

87.  The parties accept that, whatever EOTs the Architect may or may not have certified, the Court can re-open the Architect’s grant or refusal of EOTs.  If then the Court finally decides that the Main Contractor is entitled to x days’ EOT, the Employer would effectively be accepting such determination by the Court. 

88.  I would therefore read the reference to the “grant” of EOTs in LOA cl.5(a) more widely along the following line: “the grant by the Architect, arbitrator, or Court of an EOT which the Employer accepts”.  It should not matter who (whether the Architect, an arbitrator or the Court) grants EOTs.

89.  The consequence is that LOA cl.5(a) precludes a claim for loss and expense in connection with EOT Claim 2a, the only claim advanced here which concerns the grant of an EOT under GCC 23 (as opposed to time allowance under GCC 22).

90.  Does LOA cl.5(a) go further and preclude claims for loss and expense claims in relation to the grant of time allowance under GCC 22? 

91.  Mr. Westbrook says yes.  Mr. Clayton argues that on its terms LOA cl.5(a) only limits loss and expense claims arising out of variations for which an EOT has been granted.

92.  I think that Mr. Clayton is right.

93.  LOA cl.5(a) is precise.  The Main Contractor will not be able to claim loss and expense where an extension of time is granted.  The grant of a time allowance is not specified as giving rise to a similar restriction.

94.  On the other hand, GCC 22(3) is deliberately couched in the language of time allowance as opposed to time extension.  For example, GCC 22(3) stresses that, where specified events occur, the Main Contractor “shall not be entitled to any extension of time for completion of the Works” but shall instead be granted a time allowance to be set-off against LDs.  A clear distinction is drawn between granting an EOT and giving a time allowance.

95.  Accordingly, I do not think that the wording of LOA cl.5(a) is sufficient to rule out recourse by Hsin Chong to GCC 11(6) in connection with EOT Claims 2b, 4 and 5.

96.  Let me move to Mr. Westbrook’s argument that in any event GCC 11(6) does not permit claims for (say) lost overhead and profit because these are not “direct” losses.

97.  In my view, all the word “direct” does is to emphasise that any loss claimed under GCC 11(6) must be a reasonably foreseeable consequence of the variation instructed.  The loss cannot be too remote. 

98.  Additional preliminaries and overhead costs and lost profit are routinely claimed where a construction project has been prolonged.  It cannot therefore be said that such heads of loss are too remote in the sense of not being reasonably foreseeable.  Consequently, I believe that the loss and expense claimed can be characterised as “direct”.

99.  In relation to prolongation costs said to arise after practical completion, I accept Mr. Westbrook’s submission that such costs need to be proved by evidence.  But in principle I think that such costs can be claimed if shown to have been incurred.

100.  Mr. Westbrook has an additional point on the ambit of GCC 11(6). 

101.  The clause requires that a claim be brought within a reasonable time.  Mr. Westbrook suggests (and Mr. Clayton accepts) that EOT Claim 5 was not notified within 28 days as required by GCC 22.  Mr. Westbrook further notes that Hsin Chong made no claim for prolongation costs until 18 March 2005. 

102.  Thus, whether one goes by the 28 day notice constraint in GCC 22 or the reasonable time limit in GCC 11(6), Hsin Chong’s claim for loss and expense under EOT Claim 5 (Mr. Westbrook says) must now be too late.

103.  I agree. 

104.  The 28 day notice restriction in GCC 22 must be indicative of the reasonable time frame by which a claim under GCC 11(6) for loss and expense in relation to a particular variation is to be raised.  Given that EOT Claim 5 is too late for the purposes of GCC 22, I am unable to accept that it was brought within a reasonable time for the purposes of GCC 11(6).

105.  I accordingly do not think that the loss and expense sought in connection with EOT Claim 5 can be allowed.

106.  I now proceed to quantify the loss and expense incurred in relation to the 2 remaining EOT Claims (2a and 4).

C.2  Quantum

107.  Both parties adduced expert evidence on quantum.  Hsin Chong called Mr. John Molloy, while Henble engaged Mr. Jesse Fok. 

108.  As between the 2 experts, I generally prefer the evidence given by Mr. Molloy.  He has considerably more experience than Mr. Fok, who seemed too heavily reliant for his views on a handbook prepared for internal use by Maunsell (Mr. Fok’s former employer).

109.  In relation to each component of Hsin Chong’s loss and expense claim, the experts prepared tables of monthly amounts incurred or foregone.  Thus, at the end of the exercise, I have been helpfully provided with tables showing total site preliminaries, head office overheads, and loss of profit.

C.2.1 Differences between the experts

110.  There were 6 points of difference between the experts.  I briefly state below what those differences were and what my views on them are.

111.  First, on site preliminaries, Mr. Fok did not allow a senior mechanic and electrical engineer in valuing site staff costs.  This was because of apparent inconsistencies in Hsin Chong’s records.  Mr. Molloy included the 2 persons in his valuation on the basis of documents shown to him.

112.  In my view, there is sufficient evidence (in the form of staff movement reports and journal vouchers and entries) showing that the 2 persons were on site and were paid for work done there.

113.  Second, again on site preliminaries, Mr. Fok has not allowed for an assistant site supervisor.  Mr. Molloy did so, on the basis that such person spent 50% of his time on site.

114.  Here I am satisfied on the basis of Hsin Chong’s salary records and Mr. Jason Wong’s evidence that an assistant site supervisor worked on the project part-time from August 2003 to January 2004.

115.  Third, on preliminaries, the experts disagreed on whether claims for temporary lift service provided by a nominated sub-contractor should form part of Hsin Chong site resources costs.

116.  It seems, however, that the disagreement was largely a matter of terminology.  Mr. Fok appeared to be happy for the item to be treated as a relevant cost if described as “claims from nominated sub-contractor”.

117.  Fourth, in applying a formula (the Emden formula) for calculating head office overheads, Mr. Molloy used a 360 day contract period, Mr. Fok a 450 day period.  Mr. Fok explained that he added 90 days to Mr. Molloy’s 360 day figure in accordance with Maunsell’s internal handbook.

118.  In my view, 360 days is the more appropriate figure.  There seems to be no good reason to add 90 days.

119.  Fifth, again in connection with head office overheads and the Emden formula, Mr. Fok espoused a 2 year average while Mr. Molloy preferred a 4 year average. 

120.  Here I accept Mr. Molloy’s reasoning.  He chose a 4 year average of head office overhead/turnover percentages to obtain a more balanced overhead percentage.  Mr. Molloy reasoned that, while the contract period was covered by the years 2003 and 2004, Hsin Chong would have most likely based its tender on the 2 years preceding the contract period.

121.  Sixth, in relation to loss of profit, Mr. Molloy advocated a 4 year average of profits (1.8412%).  Mr. Fok thought that a 2 year average (leading to a negative figure (-2.0509%)) was appropriate.

122.  I prefer Mr. Molloy’s percentage.  I accept his explanation in cross-examination that Hsin Chong would most likely have tendered on the basis of a positive profit figure taken over a longer period of time.  It is unlikely that Hsin Chong would have tendered on the basis of a negative figure, even if the construction market was in recession in 2002 and 2003.

123.  On loss of profit, the experts also differed on contract period (360 or 450 days).  But that has already been considered above.

C.2.2 Calculation of quantum

124.  Mr. Westbrook queries the use of the Emden formula in this case.  The formula (Mr. Westbrook points out) does not do away with the need to prove loss. 

125.  In my view, there is sufficient evidence that Hsin Chong has suffered the loss and expense sought in connection with EOT Claims 2b and 4.  In those circumstances, recourse to a formula is appropriate.

126.  The end result is that total loss and expense in relation to EOT Claims 2a and 4 (including additional site preliminaries costs, additional head office overhead costs, and loss of profit) is as follows:-

(1) EOT Claim 2b: $923,432.12 (for the period from August to September 2003 (61 calendar days)).

(2) EOT Claim 4: $238,459.16 (for the period from September to October 2003 (61 calendar days)).

127.  Total loss and expense is thus $1,161,891.28.

128.  Hsin Chong based its calculations on costs or losses incurred in the months when delays arose.  Mr. Westbrook has argued that the relevant months should be those where the delay has been assessed by Mr. Adams (Hsin Chong’s programming expert).  On that basis, delays arose at the end of the project.

129.  I think that Hsin Chong’s approach is the correct one.  Given that we are dealing with critical delay, the costs in question must by definition be those incurred in the months when delays arose.  But for the critical delay, one would have been getting on with other work, rather than being detained on site by a particular activity.

D.  Hsin Chong’s claim of reimbursement for a valuation report

130.  Henble accepts that it asked Hsin Chong to obtain a valuation report from DTZ.  There was (according to Henble) no discussion about who should pay for it.

131.  The implicit understanding behind Henble’s request must have been that Hsin Chong would be reimbursed for the report.  Hsin Chong is accordingly entitled to the $18,000 paid for the report.

E.  Henble’s claim for LDs

132.  The corollary to Hsin Chong’s claim for EOT and time allowance is that Henble should be entitled to charge LDs for 134 minus 76 days (that is, 58 days of delay).  At $30,000 per day, this amounts to $1,740,000.

133.  However, Mr. Clayton submits that the prevention principle should operate here.  Henble should not be entitled to LDs where its conduct has led to delay, even (Mr. Clayton says) where Hsin Chong has failed to give notice in accordance with GCC 22 or 23.  Mr. Clayton cites the Australian case of Gaymark Investments v. Walter Construction Group [1999] NTSC 143 in support of his contention.

134.  I am not persuaded by Mr. Clayton. 

135.  I think that the difficulties with his argument are well-summarised in Hudson’s Building and Engineering Contracts (11th ed., 1st Supplement, 2004) at §10.026.  That states:-

“New version of prevention theory

In Australia many forms of contract now contain extension of time clauses expressly based on acts of prevention or default on the part of the owner or his agents, thereby successfully defeating attempts to avoid the contractual liquidated damages machinery on that ground,...  As in the case of all other grounds of extension of time, however, these are commonly conditioned on notices requesting an extension given by the contractor at the time of the event in question (for which there are well justified practical reasons, ...).  In addition, some but not all Australian forms confer a discretion or indulgence on the owner’s A/E to dispense with notice compliance and grant an extension, notwithstanding the contractor’s failure to apply in time (for which there are again sound practical justifications in the owner’s interest).  A quite new prevention argument, which seems to have originated in English contractors’ claims circles but which has first surfaced in litigation in Australia, is that while a sufficiently clear ground of extension standing by itself will defeat a prevention-based attack on the liquidated damages machinery, rejection of a contractor’s claim for an extension on the ground of failure to give the required notice should in some way serve to resurrect the prevention objection.  In the case of Australian standard forms, this argument has ben refined still further as applying only to those forms where there is no express dispensing power conferred on the A/E (so, it is suggested, implicitly requiring dismissal of the contractor’s extension of time claim where a complaint notice has not been given, and thus in some way resurrecting the prevention theory).  While the obvious reply will be that in such a case the liability to pay liquidated damages has been caused by the contractor’s failure to give the required notice rather than by any act of owner prevention, the argument appears to have been accepted in this form by Bayley J in the Northern Territory SC in 1999 in Gaymark ..., when upholding an arbitrator’s rejection of an owner’s claim for liquidated damages on this ground and after considering the two NSW cases of Turner Corporation Ltd. v. Co-Ordinated Industries Ltd. (19950 11 BCL 202 (Rolfe J) and Turner Corporation Ltd. v. Austotel Pty Ltd (19970 13 BCL 378 (Cole J), neither of which lend any support to such a claim.  It appears from the earlier Turner case that there the argument had even been advanced where the contractor was unable to prove actual delay to progress caused by the acts complained of, and was also rejected for that reason.  Since under these forms of contract extensions of time based on owner prevention can expressly be advanced subject only to strict notice requirements applicable to all extension of time claims, it is submitted that any such contract evinces the clearest intention to bring all owner prevention delays within the scope of its liquidated damages machinery, so that the argument seems to be unsustainable both as a matter of party autonomy and of reasonable commercial intention, while the absence of a dispensation provision seems irrelevant...

By contrast, in South Africa, the Appellate Division not only dismissed a contractor’s prevention allegations ..., but then proceeded to hold the owner entitled to full liquidated damages as the result of the contractor’s failure to apply in time for the extension – see Group Five Building Ltd. v. Minister of Community Development [1993] 3 SA 629 (AD)...”

F.  Henble’s claim for indemnity in relation to the Owners

136.  The Owners sued Henble in 2002 and 2003.  The 2002 Action was brought to prevent Henble from using the ROW to access the site.  The 2003 Action was brought to prevent Henble from excavating and laying utility services under the ROW.  Henble settled both actions by the Owners.

137.  I am not persuaded that the 2002 or 2003 Actions were simply brought as a result of acts of nuisance or trespass committed by Hsin Chong’s workers.

138.  Henble believed that it could use the ROW for the purpose of heavy construction vehicles entering and leaving the site.  It also appears to have been under the impression that it could work on the ROW to replace or improve drainage and utility systems running above and below the ROW.

139.  The Owners had different ideas.  They may well have brought the 2002 and 2003 Actions because they realised that Henble had little alternative but to pay the Owners in order to obtain an undisputed right to use (and dig under) the ROW.

140.  I do not think that either action was sparked by nuisance or trespass on the part of Hsin Chong.  On the contrary, in all likelihood the Owners perceived that Henble’s claims to use of the ROW were far from clear.  It seems to me that from the outset of the project the Owners intended to (and did) mount resistance to Henble’s development plans to capitalise on the uncertainty of Henble’s rights.

141.  There may have been some small acts of nuisance or trespass committed by Hsin Chong’s workers on a few discrete occasions.  But any damage done was minor and quickly repaired by Hsin Chong.  By themselves, I doubt that such acts (in distinction to the uncertainty over Henble’s rights over the ROW) were significant causes of the 2002 and 2003 Actions.

142.  In those circumstances, I do not think that Henble is entitled to an indemnity from Hsin Chong in respect of compensation paid and legal costs incurred in connection with the 2002 and 2003 Actions.

III.   CONCLUSION

143.  Hsin Chong is entitled to $5,023,393.28 (that is, $3,843,502 + $1,161,891.28 + $18,000) on its claim.

144.  Henble is entitled to LDs of $1,740,000 on its counterclaim.

145.  Setting-off Henble’s counterclaim against Hsin Chong’s claim leave a balance of $3,283,393.28 (Sum X) due to Hsin Chong.

146.  There will be final judgment in the amount of Sum X to Hsin Chong. 

147.  Pre-judgment interest (Sum I) is to run at 1% over Hong Kong dollar prime on the amount of $2,103,502 (being $3,843,502 - $1,740,000) from 16 January 2005 (the date by which the 2nd half of retention money should have been released to Hsin Chong) to date of judgment.  Pre-judgment interest (Sum K) is to run at the same interest rate on $18,000 from date of writ to date of judgment.

148.  Interest is to run on the judgment sum (that is, Sum X + Sum I + Sum K) at the judgment rate from date of judgment until payment.

149.  Hsin Chong having prevailed in the sense of being awarded a net balance on claim and counterclaim, there will be an Order Nisi that the costs of this action (including the counterclaim) will be to Hsin Chong.  Such costs are to be taxed if not agreed.