ABLE ENGINEERING CO LTD v. WIDEVELOP LTD

   HCA1654/2006

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO. 1654 OF 2006

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BETWEEN

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J U D G M E N T

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1.  The plaintiff is a building contractor who in 2003 was awarded a government contract in Tung Chung. Part of the project involved the construction of a “ball catching fence” alongside the adjacent MTR railway line.

2.  According to its contract with the government, the plaintiff was under a clear duty to obtain approval for all structural calculations and drawings to the satisfaction of the government architect or structural engineer before installation work could be commenced. There are many such provisions in the government contract. It is not necessary to recite them herein. The defendant in this case takes no issue with the plaintiff on this point.

3.  The defendant is a Hong Kong limited company which carries on the business, inter alia, of designing, supplying and installing such fences.

4.  From August 2003, the plaintiff and the defendant commenced negotiations. A number of quotations were offered and amended.

5.  The quotation which is at the heart of this litigation is “Quotation X”. The material parts are as follows :

Price	Material price :EUR240,000
	Installation : HK$2,070,000
	Additional : EUR9,200 (additional cable & bracket at top)
Schedule	Calculation—1 month
	Production—4 months
	Installation—1 month
Deposit	EUR32,396 (13%) against L.I. (Letter of Intent)
Payment	Balance by two L/C payable in 2 weeks after L.I. For HK$2,070,000 [ie installation price]
	35% against approval of calculation
	15% against ex-factory advice
	24% against cargo receipt for posts on site
	15% after completion
	11% retention for one year after completion
	L/C validity until 31 March 2006
	For EUR249,000 [ie material and additional costs]
	22% against approval of calculation
	15% against ex-factory advice
	50% against shipping document (B/L)
	L/C validity until 31 July 2004
Note	The deposit is not refundable.  However, [the Defendant] and/or its supplier should ensure that its design could be proved by structural calculation.”

6.  The defendant’s supplier was a specialist manufacturer in Germany.

7.  Four days later, on 19 January 2004, the plaintiff responded to Quotation X in the following clear and unambiguous terms :

“Further to your quotation and subsequent discussions, we hereby confirm that your offer in amount of EUR$240,000.00 as well as HK$2,070,000.00 for the captioned Sub-contract Works is accepted subject to Architect/Structural Engineers’ approval of your shop drawings and/or structural calculations.

In addition, your offer of EUR$9,200.00 for additional cable and bracket at top of Fence is also accepted subject to Architect/Structural Engineers’ approval.

Please be noted that the scope of works is in strict accordance with Particular Specification and please proceed your shop drawing production and structural calculation as soon as possible for our onward submission.

Thank you for your kind attention.”

8.  The outcome of this action depends solely on the legal effect of the words “is accepted subject to Architect/Structural Engineers’ approval of your shop drawings and/or structural calculations” which appear twice in the letter.

9.  This letter, referred to as the “Letter of Intent” (“LI”) is clearly a conditional acceptance. The plaintiff was bound to include such a pre-condition because of the terms of its contract with the government.

10.  The defendant had a choice, either to proceed on the basis of the conditional acceptance or reply to the LI stating it would only proceed if the acceptance was unconditional. It clearly did not choose the latter course because there was no such reply. Therefore, as of 19 January 2004 the defendant’s offer in Quotation X had been conditionally accepted by the plaintiff.

11.  Nothing in the offer was binding on the plaintiff until the condition precedent was satisfied. This included (a) the requirement to provide letters of credit within 2 weeks and (b) the non-refundable nature of the deposit.

Subsequent events

12.  For the purpose of resolving the sole issue before the court these can be summarized very briefly. The plaintiff paid the deposit of EUR32,396 and sought approval of the design etc. from the appropriate source. In the next four months there were numerous exchanges aimed at obtaining the architect/structural engineer’s approval. In the meantime the plaintiff had not issued the letters of credit. Ultimately an impasse arose. The plaintiff’s stated position was that it would not issue the letters of credit until approval had been obtained. The defendant’s position was that neither it nor its German supplier would respond to any further correspondence or enquiries until the letters of credit had been issued.

13.  It is not part of the defendant’s case that the architect/structural engineer’s approval had been withheld unreasonably. The defendant’s case is simply that the plaintiff is in breach of contract by failing to issue the two letters of credit within 14 days of 19 January.

14.  In my judgment, the plaintiff was under no such obligation until the condition precedent had been satisfied. The defendant’s submission that it would not actually have received any money by the issuance of the letters of credit, merely a guarantee of payment, therefore the plaintiff should have issued them, is not the point.

15.  The mechanical or practical consequences of the condition have no bearing on its legal status. It is unnecessary to look beyond the natural and ordinary meaning of the words in the LI.

No contract

16.  The defendant’s argument is that a fully binding contract had come into existence on 19 January notwithstanding the agreed fact that the architect/structural engineer’s approval was never obtained.

17.  In support it makes two further points. It says it makes commercial sense for this to be so and that it must have reflected the intention of the parties at the time. I find the submissions made in support of this proposition to be somewhat tortuous. In my judgment, the commercial sense goes the other way. It would make no commercial sense for the plaintiff to bind itself to terms of payment which would, potentially, cause a breach of its own contract with the government. It would be reckless of it to do so. Neither can it be said that the factual matrix evidences an intention on the plaintiff’s part to be unconditionally bound. Quite the contrary.

18.  Secondly, the defendant relies on the payment by the plaintiff of the deposit as evidence of there being a contract. I do not agree. The fact that the plaintiff chose to take a step forward does not alter the legal framework. It did not act as a waiver of the condition precedent. Indeed it has never been pleaded or argued that it could.

19.  The fact that Quotation X describes it as “non refundable” is of no benefit to the defendant until the quotation and all its terms had been unconditionally accepted.

20.  The deposit was paid in good faith at a time when it had not yet achieved the status of unrefundability. Once the impasse had been reached (later in the year) it is refundable on the basis that the defendant had wrongfully caused the impasse.

21.  The same argument would have also applied even if the plaintiff had, in fact, issued the two letters of credit. Until the condition had been fulfilled any payment or act in furtherance of the parties’ commercial relationship was reversible under the principle of restitution.

Plaintiff’s alternative case

22.  The plaintiff submits that even if, hypothetically, a binding contract had come into being when the LI was issued the defendant’s failure to provide designs and calculations which met with the approval of the structural engineer was a fundamental breach.

23.  In short, I regard this as a plainly sustainable alternative plea. It is not necessary to address it further. The plaintiff’s damages would be the same, no more no less, namely the return of the deposit following the defendant’s repudiatory breach upon declining to provide further information pending the plaintiff’s issuance of the letters of credit.

Defendant’s counterclaim

24.  There is no need to deal with the merits of the counterclaim. However two observations are necessary.

25.  The claim, for a relatively modest sum of EUR32,396 was launched in the District Court. The defendant counterclaimed approximately $1.3 million and transferred the matter to the High Court. The first item in the counterclaim was for a sum of EUR25,000 said to be the costs paid by the defendant to its German designer (the party responsible for providing the technical data for the satisfaction of the HK Government engineer). The invoice relied on is dated 3 years after the LI, it has not yet been paid (another 3 years later) and no demand or reminder has ever been issued. Its dubious nature is plain to see.

26.  The bulk of the balance of the counterclaim is a claim for loss of profits. The evidential basis for the quantum of such loss was plainly flawed.

27.  There was no merit in the case being transferred. However, as the plaintiff was the passenger in such a transfer and has been entirely successful it is plainly entitled to High Court costs.

28.  However, on taxation such costs should be subject to one proviso. The trial bundles consisted of 7 archfiles. At least 5 of them consisted almost entirely of technical drawings, structural data and correspondences and other documentation relating thereto. Neither side in this case ever took issue with the technical or engineering or scientific issues. None of the paper generated to this end was ever relevant. The sole issue, from the outset, was the legal effect of the LI. Neither the actual suitability of the fence nor the HK structural engineer’s knowledge, reasons for refusal or reasonableness were ever contentious issue. Of the 2,000 pages of exhibits a few dozen were referred to at trial.

29.  How this is reflected on taxation is a matter for the taxing master.

30.  There will be judgment on the claim for the plaintiff in the sum of EUR32,396 plus interest at prime plus 1% from 17 June 2004. The counterclaim is dismissed. On both there will be costs to the plaintiff on a nisi basis.