EU ASIA ENGINEERING LTD. and WING HONG CONTRACTORS LTD. Plaintiffs Defendant

1990, Con List 16

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is a claim by the plaintiffs (Eu Asia) for the price of work done and damages for wrongful repudiation of a sub-contract which they entered into with the defendants (Wing Hong) on 22nd December 1988. Wing Hong deny liability and counterclaim for damages for what they contend was Eu Asia’s wrongful repudiation of the contract. They also counterclaim for the cost of completing and remedying Eu Asia’s work. In essence, each side alleges that the other wrongfully repudiated the contract on 6th May 1989.

2. Wing Hong was the Principal Contractor engaged by the Hong Kong Housing Authority (The Authority) to carry out certain building works known as Phase 7, Tsui Ping Estate, Kwun Tong. That contract was dated 31st March 1988.

3. The contract dated 22nd December 1988 between Eu Asia and Wing Hong is in Chinese, and it was not until part way through the case that both parties were happy with the certified translation of this agreement. The contract sum was $7,690,000.00. I do not propose to set out the terms of the contract in full, but will only set out those terms which are relevant to the matters in contention.

“TSUI PING ESTATE PHASE 7
CONTRACT FOR STEEL FORMWORK, TIMBER
FORMWORK & CONCRETING

I) SPECIFICATION FOR WORK

1.     (deleted)

2.    Steel formwork, timber formwork and concreting, irrespective of small or large quantities, shall be carried out in the order directed by the Company.

3. The Sub-Contractor shall send adequate and skilled workers to Site in order to ensure that the progress of work for one whole storey can be completed within nine working days.

4. During the course of construction, the Sub-Contractor shall send a works supervisor to Site full time to supervise his staff and workers to carry out the work in accordancewith the company’s progress. If night work or overtime work etc. is required, the extra costs shall bethe responsibility of the Sub-Contractor.

5. (N/A)

6. (N/A)

7.  Steel forms, timber boards and scantlings and concrete shall be supplied by the company.

8.  The company shall be responsible for purchasing workmen  compensation insurance and supplying water, electricity, lift hoist, tower crane, vibrator, mould oil, polystyrene foam and PVC tube.

9.  The standard of acceptance shall be that of the Housing Authority and the company.

10.There shall be no claim for reimbursement because of   increases in labour wages.

II) THE FOLLOWING ITEMS SHOULD BE INCLUDED IN THE  SUB-CONTRACTOR'S QUOTATION

A. STEEL FORMWORK

1. Clean, scrape off rust, and apply mould oil prior to erection.

2. (N/A)

3. (N/A)

4. (N/A)

5. (N/A)

6. (N/A)

7. Prop up the slabs for two storeys after striking including taking down and transporting.

9.  The tower crane operator (employed during the construction of the structure) shall also be responsible for transporting building materials, e.g. steel bars, plumbing pipes, electrical conduits, scaffolding bamboo, etc. for all the Sub-Contractors employed by the Company and the Housing Authority (including night work).

10.Initial sorting out and fabrication of steel forms.

11.(N/A)

B. TIMBER FORMWORK

C. CONCRETING WORK

a)  Hack, trim and made good at internal angles and joints.

b)  Hack and make good honeycombing and bulging according to Housing Authority specification.

c)  Spraying with water or curing compound immediately after initial setting of concrete or striking of formwork.

d)  Trowel concrete surfaces including tops of reinforced walls and columns, rinse protruding bars, roughen surfaces of construction joints if required by Housing Authority.

e)  Clean up prior to concreting.

f)  Operate vibrators, erect timber gangway.

g)  Twice clear off debris, concrete droppings, etc. deposited on floors (first time on completion of the main structural wall and floor slab, and the second time on completion. of the return visit work).

D. PAYMENT TERMS

(1) Payments shall be made twice a month, amounting to 95% of the certified value and honoured within14 days after the date of application for payment.

(2) The maximum retention shall be 5%. 50% of the retention shall be released after the completion of the concrete structure, while the remaining 50% shall be released after 3 months.

(3) The entire works total HK$7,690,000.00.

(4) In case of unduly slow or sub-­standard work, the Main Contractor has the right to employ workers on behalf of the Sub-Contractor or terminate this Sub-Contract, all losses being clawed back from the Sub-Contractor.”

4. After the signature page there follows 4 pages. The first 2 pages contain the particular specification for the erection and fabrication of steel forms and the next 2 pages contain the rates for the work.

5. The work that Eu Asia agreed to carry out was the concrete construction of these blocks with the use of steel formwork. Before work could commence steel formwork had to be fabricated. This was carried out by a company called Far East Iron Works Ltd. of which Mr. Ng, a Director and Shareholder of Eu Asia, was also a Director. The steel form had to be supplied by Wing Hong and they entered into an agreement with Far East for its manufacture.

6. Eu Asia was not responsible for the substructure works and their work commenced by constructing the first floor walls to the second floor slabs and concreting walls and slabs up to 34 floors.

7. Matters came to a head on the 6th May 1989. Eu Asia contend that on that day Wing Hong locked them out of the site and thus repudiated the contract for which repudiation Eu Asia now claim damages. Wing Hong contend that Eu Asia stopped work and thus evinced an intention to be no longer bound by the contract. In addition to claiming the loss of profit on the remaining work Eu Asia also claim for the balance of sums due in respect of the work actually carried out to the date of termination. Wing Hong also claim damages being the extra cost they say they incurred in having the work carried out by others and they also claim for the cost of remedying defective work. Eu Asia agreed to construct 66 storeys, but as at 6th May 1989 they had only constructed 10 1/6 floors.

8. Eu Asia started work on the site on 26th December 1988. It is common ground that delays occurred. There were some delay in completing the lower floors which was not part of Eu Asia’s work. I am satisfied that there were delays in handing over the site and that the handover was piecemeal. The most important delay related to the construction of the steel formwork. This had to be modified so as to be able to cast the upstand beams at the same time as the wall slab, rather than separately and later, for which the original design provided. I am satisfied that there was design work to be done and I am further satisfied on the evidence and on the documents that this re-design work was not completed until the middle or end of March 1989. I am also satisfied that the reason for the modification was that the Authority would not accept construction of the slab separately from the upstand beams. The contemporaneous documents all support the conclusion that the modification was made but was not completed until the middle or end of March 1989, and all these documents have been set out at the top of page 4 of Mr. Clayton’s helpful written closing submissions and I do not propose to overburden this judgment by setting them out.

9. The fact that the modification to the steel form was not completed until March 1989 is of crucial significance to Wing Hong’s major allegation that Eu Asia did not achieve a 9 day cycle for the completion of each floor as specified in the contract. I reject the suggestion made by Wing Hong’s witnesses that delay was caused by the negligence of Eu Asia in dropping the steel formwork.

10. Before considering each of the allegations upon which Wing Hong rely to justify their termination of the contract on 6th May 1989 it is necessary for me to say something about the credibility of the witnesses. I formed a favourable view of the witnesses called upon behalf of Eu Asia. Mr. Ng, the Managing Director, gave evidence mostly about the losses which he says Eu Asia suffered as a result of the alleged breach of contract. To this matter I will return later in this judgment.

11. Mr. Liu, the Managing Director of Wing Hong, alleged that all the main contract documents had been shown to Mr. Ng before he signed the sub-contract. Mr. Ng denied this. Mr. Ng told me that he had carried out many similar contracts without seeing the Main Contract. I prefer Mr. Ng’s evidence on this point. The main contract contains price sensitive information which the main contractor would not like the sub-contractor to know about before he enters into the sub-contract. I reject Mr. Liu’s evidence that he had shown Mr. Ng the main contract documents.

12. Mr. Ng very fairly admitted that despite not seeing the main contract documents he knew, because this was usual, that Wing Hong would be subject to liquidated damages if late but did not know that the figure was $20,000.00 per day until 4th May 1989.

13. I found Mr. Ng to be an honest and straightforward witness and wherever his evidence conflicts with that of any of Wing Hong’s witnesses I prefer Mr. Ng’s evidence.

14. In addition to Mr. Ng Eu Asia called Mr. Lee who is also a Director of the Company. He was the Project Manager and Senior Representative on site. He gave his evidence in a very careful and straightforward way and despite being subjected to a long cross-examination by Mr. Woo I formed a very favourable impression of his honesty and veracity. Again where his evidence differs from that of Wing Hong’s witnesses I much prefer Mr. Lee’s evidence.

15. Eu Asia’s next witness was Mr. Yu who was the Site ­Foreman and Assistant Project Manager. He was a very impressive witness whose evidence I have no hesitation in accepting. Mr. Woo’s lengthy cross-examination on Mr. Yu did nothing to dent his credibility as he emerged from it quite unscathed.

16. Eu Asia’s last witness was Mr. Chan who was employed by Eu Asia as a Steel Formwork and Concreting Sub-Contractor  He too impressed me as a witness of truth. He told me about the delays on site. He said that the first floor of Wing C was handed over to him on the 8th January 1989, but Wing A was only handed over to him on the 1st February 1989. He told me of the delays caused by the modification to the steel formwork between January and March.

17. Mr. Chan also told me that on the 4th of May 1989 he was asked to attend a meeting at Wing Hong’s offices. Mr. Liu and Vincent Ho (Wing Hong’s Project Manager) were present. Mr. Liu told Mr. Chan he was going to terminate Eu Asia’s contract, and he asked whether Mr. Chan and Mr. Law (Eu Asia’s sub-contractor for Block B) would continue to work for him. Mr. Liu offered them both a contract on the same terms as Eu  Asia’s contract. Mr. Chan said that he needed time to consider this offer. On 6th May Wing Hong purported to terminate Eu Asia’s contract. On 9th May Mr. Chan did sign a contract with Wing Hong to continue Eu Asia’s work. On 11th May he was taken by Vincent Ho to see a solicitor, and as a result wrote to Eu Asia terminating his contract with them (p.203). A few days later, he had second thoughts about what he had done and therefore he terminated his new contract with Wing Hong (p.194).

18. Mr. Liu and Vincent Ho both denied that there had been any approach to Mr. Chan prior to 6th May 1989. I much prefer Mr. Chan’s evidence and reject Mr. Liu and Mr. Ho’s denial. Mr. Chan also confirmed that Eu Asia was not responsible for the delays that occurred.

19. Wing Hong’s major witness was Vincent Ho, their Project Manager. His evidence was given in a very glib manner, but I have found substantial difficulties in accepting his evidence where it conflicts with Eu Asia’s witnesses. There were 2 major problems with his evidence. Firstly, without telling anyone, he started giving his evidence by referring to a proof of evidence which he had prepared following a conference with Wing Hong’s solicitors the day before. As soon as this was discovered Mr. Woo quite properly drew this matter to my attention and this statement was taken away from Mr. Ho and copied and given to the other side. This episode was unfortunate as all other witness’s statements had been exchanged. He gave evidence from this undisclosed statement from 10:00 a.m. on Monday 11th November until 11:30 a.m. that morning when I took a short break.

20. Mr. Ho’s statement which was exchanged was signed and dated 25th October 1991. However, Mr. Ho told me that he had made a statement shortly before he left Wing Hong in March 1990, and that he merely re-dated it on the 25th October 1991 for the purposes of these proceedings. In this statement he details the events of April and May 1989, but quite extraordinarily he omits to mention the events of the 6th May 1989 which was the crucial date. When pressed about this omission he responded that his secretary must have left it out and he had not noticed it. What is even more strange is that his statement goes on to deal with the 7th and 8th May and states that no one from Eu Asia was present or if present was not working. This is surprising given that it has always been Wing Hong’s case that they had grounds on the 6th May to accept Eu Asia’s repudiation of the contract and did accept it. If that had in fact been the scenario one is entitled to question the relevance of his detailing complaints against Eu Asia after the alleged acceptance of repudiation.

21. But perhaps the most troubling feature of Mr. Ho’s evidence is in relation to the minutes of meetings between Wing Hong and the Authority. In a number of respects, these minutes support Eu Asia’s case. Whenever these passages were pointed out to Mr. Ho he accepted that such statements appeared in the minutes but denied that the minutes accurately reflected what was happening on (and off) the ground. He told me that the minutes were for record purposes only and did not reflect what had been orally agreed with representatives of the Authority. I found this evidence quite disturbing and would not be prepared to accept it without some verification from the Authority. Wing Hong called no witnesses from the Authority to support Mr. Ho’s version relating to the minutes nor Wing Hong’s case generally. This was particularly surprising given that the Authority had an office on this very site.

22. In construction cases, as in most other cases, I attach great significance to the contemporaneous documents. These are usually prepared in good faith before a dispute has arisen or at any rate crystallised. It is a particularly devious contractor, employer or sub-contractor who systematically manufactures documents to assist in a future dispute. Fortunately, such instances are rare. I accept that once a dispute has been identified it is necessary to pay careful attention to the documents created after that time because it is only natural that parties will reflect their grievances and justification for actions taken in those documents. I am quite satisfied that all the contemporaneous documents until just before the crucial events can be relied upon. I will have to look harder at the other documents prepared once the dispute existed.

23. Another feature of Mr. Ho’s evidence which I find it impossible to accept is his evidence that a half inch bulge at a construction joint due to leakage of grout would cause loading problems as the building goes up. He said the load would be transferred into this bulge rather than down through the walls. I have seen the photographs and it is significant that this view was not supported enthusiastically by Mr. W.K. Chang and I find it quite unbelievable and reject it.

24. Wing Hong’s last witness was Mr. Liu, its Managing Director. Although Mr. Liu gave some first hand evidence I think to a great extent he relied upon what he had been told by Mr. Vincent Ho. I have already made it clear that I have rejected Mr. Liu’s evidence in so far as it contends that he had no contact with Eu Asia’s Sub-Contractors prior to the termination of the contract. I also reject his evidence when he says that he saw the formwork dropped due to the negligence of Eu Asia and this was the cause or at least one of the causes of delay. I believe his evidence is suspect because what I think happened was that Wing Hong were being pressed by the Authority in relation to the delays which clearly had occurred regardless of whose fault there were, and Wing Hong needed somebody else to blame even though they were of course responsible for Eu Asia.

25. The fact that Mr. Ho and Mr. Liu made contact with Eu Asia’s sub-contractors prior to the termination of the contract leads me to believe that they planned this matter fairly carefully. I believe that they thought that it would assist in their dealings with the Authority if they could show that they had dismissed their Sub-Contractor and blamed him for the delay. They could then, as it were, ask the Authority to give them another chance with new contractors.

26. This conclusion forces me also to conclude that some of the documents written by Wing Hong at or around the date of termination were disingenuous to say the least. As will become apparent later, I am quite satisfied that Wing Hong were demanding Eu Asia to do certain things which they knew could not be done. In this regard, I refer to the fact that shortly before the 6th of May the tower crane for Block B was not in operation, no cement for concreting had been ordered and an inspection had been cancelled. Therefore in relation to Mr. Liu’s evidence wherever it conflicts with the evidence called by Eu Asia, I prefer the evidence of the latter’s witnesses.

27. I do not propose to reiterate all the facts of this case which are contained in the pleadings, statements of witnesses, and 3 rather full ring binders. Both counsel have helpfully reduced their closing submissions into writing. What I propose to do is to consider each of the allegation pleaded by Wing Hong to see whether individually or together they amount to a repudiation of the contract by Eu Asia. I approach this exercise bearing in mind that the burden of proof is on Wing Hong. If none of these grounds are sufficient then it must follow that on the 6th May 1989 Wing Hong wrongfully repudiated the contract by preventing Eu Asia from continuing with the works.

28. Paragraph 9 of the amended defence and counterclaim and particulars in writing thereof given during the trial itemise Wing Hong’s allegation. I will deal with them separately.

(i) Failed to complete one whole storey within 9 working days

29. I am quite satisfied that one whole storey did not include what has been termed the return visit work. These were the late cast items such as the air conditioning hood and the parapet walls. The contractual obligation to complete one whole storey was to complete the basic wall and slab concrete structure. It is significant that return visit work is dealt with separately in the contract at paragraph B(2).

30. P.834 in the bundle sets out the work cycle for the completion of a floor within 9 days. It does not include return visit work. I am also satisfied on the evidence that the 9 day cycle could not have included return visit work because it would have prevented the tableform from being removed.

31. On 14th March 1989 Wing Hong requested from the Authority a relaxation of striking times to 5 days for tableform for slabs and 16 hours for walls to allow the 9 day cycle to take place. (Pp.833(b) & (c) & 835/6). The Authority permitted this on 20th March 1989 (841). This is also referred to in minutes dated 17th March 1989 (745). That 5 days is the minimum period permitted is made clear from the specification itself at p.18 (aaq).

32. The air conditioning hood reinforcement for the late cast air conditioning hood could not be erected until after the slab for the floor above had been cast, and p.834 shows this was not cast until Day 10.

33. Mr. Ho accepted that the late cast items were not within the 9 day cycle.

34. Before Eu Asia could begin to comply with the obligation to complete a storey within 9 days, the steel formwork had to be modified and the construction method for the upstand beams had to be approved by the Authority. Further it could not happen without the relaxation of the striking time to which I have referred. All these things had not been done until middle or late March 1989. Mr. Yu produced a chart (P3) showing the progress of the works which I accept as an accurate reflection of what had happened. It is significant that Wing Hong did not put forward any itemised challenge to this chart. If delay was caused by bad weather or failure by other Sub-Contractors of Wing Hong and this caused a storey not to be completed within 9 days then this is clearly not the fault of Eu Asia.

35. At the top of p.4 of his written submissions Mr. Clayton lists all the documents which made clear that the 9 day cycle could only be achieved after modification to the formwork and approval by the Authority with regard to striking time. There is no need to repeat them here. I have already rejected Mr. Ho’s evidence that these documents did not accurately reflect the true position. It is also significant that there was no written complaint by Wing Hong prior to termination in relation to failure to comply with the 9 day cycle obligation.

36. I am not satisfied that Wing Hong has established a failure by Eu Asia to complete the 9 day cycle obligation.

37. Mr. Clayton goes on to submit that even if I had found that there was a failure by Eu Asia in relation to the 9 day cycle nevertheless it could not give rise to a determination of the contract. Clause D4 of this contract states:

“In case of unduly slow or sub-standard work ... the main contractor has the right ... to terminate the sub-contract.”

38. Clause 1(3) of the sub-contract deals with the 9 day cycle obligation. Clause D4 limits the right to termination. Wing Hong has not got the right to determine the sub-contract for any delay to the 9 day cycle. Clause D4 recognises that some work will be delayed but only focuses on undue delay. Given all the factors that existed in this case, I am quite satisfied that if, contrary to my view, there was delay attributable to the fault of Eu Asia, it could not, on the facts of the case be characterised as undue delay.

39. Mr. Clayton goes further and submits that if Wing Hong had such a right (which he denies) then they waived such right by allowing Eu Asia to continue with the work after the alleged breach and, in particular, by the terms of the letter dated 4th May 1989 which called upon Eu Asia to resume work on the 5th May by 8:00 a.m. or else Wing Hong would accept Eu Asia’s repudiation of the contract (p.174). I agree that this letter coupled with the continuation of the work after alleged delays had occurred did amount to a waiver of the right to determine the contract for that alleged breach and if Eu Asia had been allowed to continue on 6th May the waiver would have been unanswerable.

(ii)      Failed to carry out work in accordance with the progress under the  main contract

40. Further and better particulars of this allegation are given at p.31 of the pleadings bundle.

41. Nowhere in the amended defence and counterclaim does one find any allegation express or implied that Eu Asia was obliged to comply with the Master Programme. The sub-contract in this case contains no such obligation. Clearly Eu Asia was obliged by their contract to construct the floors in accordance with the approved drawings of the Authority, but that is not the same as saying that they were contractually bound to work in accordance with the progress of the main contract. I accept that this is a clause frequently found in formal sub-contracts but such a clause is absent here, and I have not even been invited by Wing Hong to imply it.

42. In any event my earlier findings would have an important significance on this obligation if it existed. I have found that there were delays caused by the modification to the formwork, the approval for the construction of the beams and the relaxation of striking times which were not the fault of Eu Asia.

43. On the 19th April 1989 (240(h)) and 24th April 1989 (240(j)) Wing Hong instructed Eu Asia to go ahead with the fabrication and erection of the return visit formwork and the concreting of the return visit work. However it is clear from the daily records bundle (p.179 et seq) that Wing Hong did not begin scaffolding until 30th April 1989. This appears to have been at the insistence of the Authority expressed at a meeting held on the 20th April 1989 (p.752). Mr. Ho identified his writing against item 4.24 on these minutes and this showed that the work was completed on the 11th May some 5 days after Eu Asia had been thrown off the site. Mr. Ho eventually agreed with the evidence of some of the Eu Asia’s witnesses that it would be too dangerous to carry out the late cast work from the second floor upwards without scaffolding.

44. It is also pertinent to note that as at the date of termination no late cast work reinforcement had been placed by Wing Hong’s steel benders, save for that for the parapet on the first floor of 1 wing of Block A. Mr. Chang’s photographs show this. There was no reinforcement for either the planter or the air conditioning hood and thus there was not one floor which Eu Asia could complete if their obligation included the late cast items.

45. I am satisfied that the procedure was to carry out reinforcement first. There were no instructions to show a different procedure. I reject Mr. Ho’s evidence that one wall of the parapet wall work should be put up before reinforcement. It is also of significance in my view that setting out lines were not in place at the time of termination. This is made clear by photographs 21-3 of a bundle produced by Mr. Liu during the course of his evidence which bundle had not previously been disclosed.

46. It was also suggested on behalf of Wing Hong that a failure to complete the cleaning work up to the seventh floor of a 36 storey building could give rise to a right terminate the contract. I reject this submission emphatically as Wing Hong had not yet even put in place any rubbish shute.

47. Wing Hong further suggest that because honeycombing was required to be corrected this indicated that a floor had not been completed. Mr. Chang’s estimate for the cost of rectifying honeycombing was $31,666.00 which must be viewed in the context of the contract sum of $7.69 million.

48. Mr. Ho told me that any serious honeycombing about which the authority had complained had in fact been rectified following a memo of 19th April 1989 (240(f)). added a manuscript addition to paragraph 4.21 of a meeting held the next day (752). Mr. Ho’s evidence was to the effect that any honeycombing thereafter could only be described as minor. Mr. Clayton also submitted that on the evidence it is clear that Wing Hong accepted some responsibility for the honeycombing because they agreed to purchase more powerful vibrators. This is an instance where Mr. Ho says that paragraph 5.1 of the minute is inaccurate (753). It is significant that no correction was made at the next meeting.

49. In my judgment the whole issue of honeycombing has been blown out of all proportion. Honeycombing is a frequent occurrence. I accept that it has to be put right. It has to be put right before finishes are applied to the walls. I am quite satisfied that if there was any honeycombing Eu Asia would have made it good in the normal course of the work. To suggest that it could give rise either to termination or to an allegation that it prevented a floor from being completed is quite unreal. Lord Diplock in Kay & Hosier v. Dickinson (1972) 1 WLR 147 at 165 said:

“During the construction period it may, and generally will, occur that from time to time some part of the works done by the contractor does not initially conform with the terms of the contract either because it is not in accordance with the contract drawings or the contract bills or because the quality of the workmanship or materials is below the standard required by condition 6(1). The contract places upon the contractor the obligation to comply with any instructions of the architect to remedy any temporary disconformity with the requirements of the contract. If it is remedied no loss is sustained by the employer unless the time taken to remedy it results in practical completion being delayed beyond the date of completion designated in the contract. In this event the only loss caused is that the employer is kept out of the use of his building beyond the date on which it was agreed that it should be ready for use. For such delay liquidated damages at an agreed rate are payable under condition 22 of the contract.

Upon a legalistic analysis it might be argued that temporary disconformity of any part of the works with the requirements of the contract even though remedied before the end of the agreed construction period constituted a breach of contract for which nominal damages would be recoverable. I do not think that makes business sense. Provided that the contractor puts it right timeously I do not think that the parties intended that any temporary disconformity should of itself amount to a breach of contract by the contractor.”

50. Mr. Chang was also critical in relation to bulging at the joint of the concrete work. Photographs were produced which show this defect. Mr. Chang contended that it would cost $82,115.00 to remedy such defects. Significantly, there were no written complaint about bulging made by the Authority. Such defects are common place and will in the normal course of events be remedied before finishes are applied. In my judgment, these defects come within Lord Diplock’s above observations.

51. Mr. Clayton made the same point about waiver as he had done under paragraph 9(a)(i). I agree that Wing Hong had waived their right to terminate the contract for such breaches as then existed (if such right ever existed) by permitting Eu Asia to continue with the works and by the terms of the letter dated 4th May 1989 (574).

52. I am quite satisfied that there is no obligation as pleaded hereunder and, even if there was, no breach has been established.

(iii)     Failed to co-ordinate with the defendant in its construction work under the main contract

53. The particulars relied upon under this head are the same as those relied upon under paragraph 9(a)(ii) above and my conclusions under that paragraph apply equally to this paragraph.

(iv)     Failed to make good honeycombing with due diligence

54. It is not pleaded that there was a contractual obligation to make good honeycombing with due diligence. I doubt very much whether it can be said that the remedying of honeycombing can be on the critical path. None of the witnesses called by Wing Hong said that it was. Clearly it has to be remedied by Eu Asia and I am satisfied that had they not been thrown off the site they would have complied with this obligation in such a way as to have no conceivable effect upon the progress of the works. I think there is much in Mr. Clayton’s point that the due diligence obligation, if it existed at all, related to a time before finishes were to be applied. If making good honeycombing delayed the application of finishes then Wing Hong would have had a justifiable complaint. But that is not what happened here. My conclusion under paragraph 9(a)(ii) in so far as they relate to honeycombing naturally apply under this head too. The same applies to the waiver submission.

(v)     Failed totally to make good joints not properly finished off and defects in the concrete resulting from leakage of grout or concrete and bulging

55. I have already dealt with this issue and am satisfied that even though there was some bulging this could not conceivably have given rise to a right to terminate the contract.

(aa)    By reason of the aforesaid the sub-contract works carried out by the plaintiff in purported fulfillment of the contract were sub-standard

56. The right to terminate on the grounds of sub-standard work cannot possibly relate to the complaints made in this case which were mere temporary disconformities. The reference to sub-standard work in paragraph D4 of the contract must relate to general sub-standard work and cannot possibly relate to defects which had been or would soon be rectified in the normal course of events. If Wing Hong had the right to terminate the contract for every defect, the contract would not make commercial sense. I do not suppose any building has ever been constructed in Hong Kong where minor defects did not occur and which were later remedied by the contractors.

57. I totally reject the submission that the work carried out by Eu Asia was sub-standard on the grounds alleged or any grounds.

Under Paragraphs 9(b) to (e)

58. These sub-paragraphs deal with 2 conversations between Mr. Ng and Mr. Ho on 15th to 29th April 1989, wherein it was alleged by Mr. Ho that Mr. Ng threatened to suspend the works if applications for payment were not met in full and they further referred to the events of the 3rd to the 6th May 1989.

59. Wing Hong contend that Eu Asia suspended work on the 4th and 5th May 1989. I am quite satisfied that on the totality of the evidence they did not suspend work on those dates. I am satisfied that Eu Asia carried out such work as they were able to carry out. This is supported by all the Eu Asia’s witnesses who included 2 no longer employed by them, namely Mr. Yu and Mr. Chan.

60. I have already stated that I do not find much assistance in the evidence of Mr. Cheung and Mr. Chow called by Wing Hong. Mr. Cheung could not explain why his statement dealt with the events of the 6th to the 8th May if termination had taken place on the morning of the 6th. His evidence as to what was and was not happening on site on the 4th and 5th was based on merely walking passed the blocks twice each day without ever going up to the construction floor.

61. So the main witness to support Wing Hong’s case that no work was being carried out on the 4th and 5th May was Mr. Ho whose evidence I have already rejected wherever it conflicts with the evidence given by Eu Asia’s witnesses.

62. I do not propose to repeat my reasons for finding his evidence unacceptable. However in addition to those grounds I should add the following. He told me that the Authority would not know of the identity of Wing Hong’s sub-contractor, and that this would have continued right up to the moment of terminations. When shown the daily records from p.179 onwards he was forced to accept that he was wrong. Further when Mr. Clayton put to him memos of the 19th to 24th April (240(h) and (j)) and suggested they sought the impossible from Eu Asia, because erection of formwork and concreting of late cast items could not then take place, he countered by blaming it all on the poor standard of Chinese of his site agent.

63. As I have said I place great reliance upon the contemporary documents. Eu Asia’s daily records show that they had 8 workmen on site on the 4th May and no less than 18 on the 5th May.       (Daily records pp.43, 52 & 53). Further Wing Hong’s records show that on the 4th May Eu Asia purchased Tricopac from them and it is common ground that this was used for the repair of honeycombing.

64. What work could be carried out on the 4th and 5th May is hotly disputed. Eu Asia contend that Wing Hong failed so to arrange matters that no major concreting could take place on the 5th May. On the 5th May Eu Asia handed to Wing Hong a memo (p.177) which stated that they were unable to concrete the wall at Block A Wing A as no concrete had been ordered. Eu Asia demanded a response by 5:00 p.m. on that day. Mr. Yu told me and I accept that no response was forthcoming. Wing Hong never suggested that any response was given. Mr. Ho would have me believe that no inspection was arranged, nor any concrete ordered because Eu Asia’s workmen did not change into their workclothes and in any event there was not enough of them to carry out any meaningful work. It was unfortunate that these 2 points were not adequately put to Eu Asia’s witnesses. However, Mr. Cheung gave evidence that the concrete and inspection was not ordered or arranged because he had been instructed by Wing Hong not to do so. I am quite satisfied that Eu Asia was ready, willing and able to carry out works on 4th and 5th May but that they were prevented from so doing by the failure by Wing Hong to arrange inspection and order concrete.

65. In considering Eu Asia’s memo of the 5th May I take into account that it was written at a crucial time in this dispute, but nevertheless I am satisfied that it was a genuine document. Mr. Ho, on the other hand, gave evidence that a memo (p.180-1) was handed to Mr. Yu on the morning of the 5th May, which memo sets out work allegedly hindered by Eu Asia’s actions. Unfortunately, this was never put to Mr. Yu and furthermore it does not feature in Mr. Ho’s written statement. This document bears a receipt stamp dated 8th May and it further states that it was being sent to Eu Asia rather than being handed to Mr. Yu on site.

66. I am quite satisfied that it was not handed to Mr. Yu on 5th May and was received by Eu Asia on 8th May.

67. This memo or letter of 5th May refers to 7 aspects of the work which could not be carried out due to Eu Asia’s alleged fault. Items 4-6 all relate to Block B, but I am satisfied that the tower crane for Block B was not working on the 4th and 5th and that is the reason why those works were not being carried out.

68. Item 1 alleges that the alleged stoppage of work resulted in their being no laying of concrete of the wall between floor and 7 of Block A Wing A. I am satisfied that this work could not be done because no inspection had been arranged and no concrete supplied.

69. Item 2 relates to Block A Wing B and the installation of the floor surface of the 7th floor. Mr. Yu’s chart, P3, shows that the tableform was in fact in place. Mr. Yu told me and I accept that the tableform was ready to have the reinforcement placed on top prior to concreting. This evidence was never challenged.

70. Item 3 relates to Block A Wing C and the 7th and 8th floor. The slab for Wing C was cast on the 3rd May. The next item of work is the placing of reinforcement for the walls. (See 834). Wing Hong’s own daily record sheet (p.184) shows that this very work was in progress on the 5th May. This gives the lie to the alleged hinderance stated in this memo.

71. Item 7 appears to relate to late cast work. I have already stated why this could not have been done at the date of termination.

72. So I find that this memo was not handed over on the 5th of May and in any event is an ex post facto attempt at blaming Eu Asia for the inability to carry out these works.

73. Wing Hong’s case is that on the 15th and 29th April and also on the 4th May Mr. Ng threatened to suspend works in telephone conversations with Mr. Ho. Mr. Liu alleged that a similar conversation took place on the 14th of April as well. (This latter conversation was not put to Mr. Ng, nor does it appear in Mr. Liu’s statement) Had these conversations taken place in the manner alleged, I find it quite incredible that no mention of them was made in correspondence. I far prefer Mr. Ng’s version that during conversations on the 15th and 29th April, he did mention the possibility of later suspension of work if payments continued to be made late and with deductions. This version squares up with the surprising omission to mention the immediate threat of suspension in any letter or memo. Further it is surprising that in letters from Wing Hong and from its solicitors it is said that the alleged suspension in May was without notice. If these conversations had taken place as alleged then notice had most certainly been given.

74. Having considered all the evidence both written and oral I am quite satisfied that there was no suspension of work by Eu Asia as alleged or at all.

75. Mr. Woo submitted that Eu Asia had no right to suspend works merely because they contended that they had not been paid what they should have been paid. I quite agree. It is clear that Eu Asia were very concerned that their invoices were not paid in full, but I am satisfied that they did not suspend work for that reason or at all.

76. My conclusion, therefore, is that Wing Hong had no right to determine the contract on the 6th of May as they clearly purported to do. Such determination was wrongful and Eu Asia are entitled to recover by way of damages payment for the work actually carried out at contract rates and damages representing their loss of profit.

77. Wing Hong have no cause of action against Eu Asia, but I will at the end of this judgment set out what I would have awarded them had they established wrongful termination on the part of Eu Asia.

78. Mr. Woo for Wing Hong provided me with a 31-page written submission on the question of liability. This submission referred to a number of authorities which he usefully provided for me. This submission was thoughtful, elaborate, detailed and helpful. However, it was based on insecure foundations, namely the evidence called by Wing Hong in support of their defence and counterclaim. I was unable to accept their evidence wherever it materially differed from that of witnesses called by Eu Asia. I intend no discourtesy to Mr. Woo by not replicating his submissions fully in this judgment, but I do wish to express my appreciation for the effort which obviously went into preparing them. I have not and could not reasonably deal with all the points raised in a case, such as this, but I have attempted to deal with those which seem to me to bear on the issues I have to determine.

Value of work done

79. Eu Asia claim for the cost of work done and this claim is set out in an amended version of invoice 1119 dated lst May 1989. It originally contained 7 items but item 6 has now been abandoned. This document was Exhibit ‘P2’.

The first three items total $674,666.00.

Mr. Chang has valued these at $583,500.00.

80. Mr. Clayton submits that I need not delve into the reasons for Mr. Chang’s deductions because the three items have been paid in full by Wing Hong prior to termination. Pages 159-161 contain an invoice 1118 dated 14th April 1989 which indicates items 1 and 2 being certified and paid in full and as for item 3, $233,999.00 was paid, which was full payment to that stage of the works.

81. Mr. Clayton submits that there is no provision in this sub-contract for any adjustment of sums certified and paid, and none has in fact been pleaded. Under the contract, 95% of certified value is to be paid, but in the light of the events that have happened, Eu Asia should receive payment in full.

82. In my judgment, Wing Hong cannot now go back in relation to these items which they have certified and paid. There is no contractual provision for that. Eu Asia are entitled to 100% of what is due, as there is now no contract in respect of which there needs to be a retention fund.

83. Further or alternatively, Mr. Clayton submits that Mr. Chang’s deductions for items A2 & A3 are deductions said to be made because the parapet wall, being return visit work, was not carried out. He points out that the return visit work is covered by item B2 under the sub-contract quotation (p. 14) under which no claim has, in fact, been made. Thus, he submits that there is no justification for this deduction at all.

84. I agree with both of these submissions and award Eu Asia the total claim for items l-3 on P2, namely $674,166.00.

85. There is no dispute as to item 4 of P2 which totals $132,166.00. I award that in full.

86. I now turn to item 5. P2 shows it as $105,732.00. Eu Asia has now reduced this to $100,294.00. This figure is arrived at by taking the original P2 figure for item 5, namely $132,166.00 and deducting from that the maximum figure which they contend should be deducted for not completing the cleaning work. This they agree at $31,871.00 hence the balance claimed of $100,294.00.

87. Mr. Chang’s estimated deduction for cleaning comes to $9,100.00 for each of 10 1/6 floors, namely $92,516.00.

88. Mr. Chang has made a professional estimate which I do not doubt was a good faith attempt to value the appropriate deduction. However, Wing Hong actually expended money in completing the cleaning, and I see no reason why this should not represent the appropriate deductions.

89. At page 22 of the Pleadings Bundle, there are further and better particulars of Wing Hong’s case and they refer specifically to two documents being pages 710(a)-(c) and 713(a) and (b).

90. 710(a) shows $3,600.00 paid to substitute workers for cleaning.

91. 710(b) shows $900.00 paid for cleaning workers.

92. 713(a) shows $35,000.00 paid for cleaning in respect of 13 floors which come to $27,371.00 for 10 1/6 floors.

93. These three items total $31,872.00 which is the maximum to which Eu Asia Say Wing Hong are entitled. I see no reason why Wing Hong should be permitted to go outside their pleaded case and I thus propose to allow a deduction for cleaning in the sum of $31,872.00. This means that I award Eu Asia $100,294.00 for item 5 on P2.

94. I now turn to the cost of remedying defective work. P2 gives a credit of $20,666.00 in respect of the item “remedy bulging/defective concrete at joints 10 1/6 floors at $2,000.00 per floor”. Eu Asia are now prepared to accept a figure for this item in the sum of $82,115.00.

95. Mr. Clayton submits that there should be no justification for any deduction for honeycombing. He relies on the evidence. Both Mr. Yu and Mr. Lee testified that there was, in fact, no honeycombing left to complete. Mr. Chang somewhat surprisingly took no photographs of honeycombing. Mr. Liu agreed that no claim had been made for honeycombing. He said that he had forgotten to put it in the account and had made no calculations in respect of it. But he did say that there was honeycombing especially at the lower part of the wall.

96. There is so much evidence about honeycombing that I find that some must have existed at the time of termination. Mr. Chang said that he saw some and I am not prepared to disbelieve him.

97. However, I find that Mr. Chang’s estimate for putting it right to be excessive. Wing Hong produced documents showing what they paid in respect of this item. Pages 713(a) and (b) show that a total of $105,000.00 was paid in respect of 13 floors. This represents $82,115.00 for 10 1/6 floors and this is the sum I propose to deduct. There is no dispute as to item 7.

98. The final position is thus as follows :-

Interest

99. I propose to award interest on this sum at 1% above prime from 15th May 1989 (the date upon which payment should have been made) until the date of handing down this judgment.

Loss of profits

100. Clearly, Eu Asia are entitled to claim the profit which they would have made had the contract gone its normal course, and not been wrongfully determined by Wing Hong. As is usual with most claims for loss of profit, there is a wide divide between the parties. Eu Asia take a straightforward and simple approach. They start with a gross profit being the difference between the contract sum and the amount they had to pay their sub-contractors. They then seek to deduct therefrom the percentage of their overheads which are represented by this contract. They do this by taking the same proportion which the value of this contract bears to the total value of contracts then being carried out by them. Mr. Ng says this figure is 37.5%.

101. On the other hand, Mr. Woo for Wing Hong has subjected Eu Asia’s audited accounts to a most careful scrutiny and submits that I should not allow anything like as large a claim under this head which is, in fact, $1,717,589.00.

102. Eu Asia’s calculation for loss of profit was contained in an appendix to Mr. Ng’s statement. He starts, as I have said, by taking the contract price of $7,690,000.00 and deducting therefrom the cost of his own sub-contractors in the sum of $5,444,900.00. This leaves a gross profit of $2,245,100.00. He then deducts head office expenses by taking 37.5% of them for 13 months, and does the same for site expenses.

103. He then arrives at a net profit for the whole of the job. From that he deducts the total sum invoiced for work completed (P2). He then finds that there was 87.46% of the work still to do and he then takes that percentage of the net profit and arrives at $1,717,589.00.

104. I am quite satisfied that the starting point should be the gross profit of $2,245,100.00.

105. 37.5% is, as I have already stated, a purely mathematical calculation based on the total value of the three contracts current at this time, including this one. I was told hardly anything about the other contracts, save as their individual values. I think it would be safer and fairer to take 40% of the expenses as being attributable to this contract.

106. Mr. Ng’s original figure for office expenses was $35,783.00 per month, which he multiplied by 13. He then took 37.5% thereof. However, Mr. Woo correctly pointed out that in the audited accounts from 31st March 1990 (p.1,237) which was for the first 17 1/2 months of Eu Asia’s existence, there were items for audit fee, depreciation, hire purchase interest, interest paid on short term loans and preliminary expenses which had not been taken into account. These total $76,008.00 for 17 1/2 months and for 13 months would be $54,463.00 which Mr. Clayton was prepared to concede.

107. In these accounts, there is also an item for machinery rental of $700,000.00 which I was told related to steel formwork for another project. No machinery was to be purchased for this project and it was submitted that this $700,000.00 was not part of head office overheads. However, this $700,000.00 does appear in the same box as the other items which are conceded to be properly accountable, and I see no reason for deducting this item. This was a business expense of the business during the period under considerations.

108. So I have to take the total for 17 1/2 months in the sum of $776,008.00 and for 13 months, this becomes $576,463.00. 40% thereof is $230,585.00 which is the figure I find for head office expenses.

109. The site manager’s wages for 13 months comes to $85,800.00. I cannot accept that there would have been no other site expenses whatsoever although I have had no evidence on this point. I propose to increase this figure to $95,000.00 to take this reasonable certainty into account. These figures produce the following calculation:-

110. A total of $994,919.00 was invoiced by P2 in its original form.

111. This figure is the value of the work to be completed and represents 87% of the contract price. 87% of the net profit figure of $1,919,515.00 is $1,669,978.00.

112. However, I am uncomfortable with a calculation which is based purely on these figures, and takes no account of the possibility that during the remainder of the contract, all may not have gone smoothly and that other expenses might have been incurred. For example, overtime payments may have had to be paid in order to catch up or keep up to schedule. This calculation takes no account of that possibility. Extra costs may have been incurred for remedying defective work. The possibilities are countless.

113. In assessing what Eu Asia has lost as a result of the wrongful termination of this contract, the Court must look at all the possibilities and bear in mind the nature of a 13-month construction contract. It would be quite unreal, in my judgment, to ignore the likelihood that all would not have gone completely accordingly to plan. The first 4 1/2 months of this contract gives some idea of what can go wrong. If the contract did not finish on time at the very least, site and head office expenses would have been higher. There is also the possibility that Eu Asia might have been liable for damages for delay.

114. Taking all these factors into account, I think that the only fair way to deal with this matter is to round down the figure of $1,669,978.00 to one of $1,300,000.00 to take into account the sort of contingences to which I have referred and to which no reference has been made in the calculations put before me.

115. Mr. Woo challenged the above approach on the basis that the audited accounts did not indicate a profit situation. However, the simple fact remained that if Eu Asia had not had its contract wrongfully determined, they would have received additional income from this contract. That income would either have swollen their profits or reduced their losses. What the final effect would be on the audited accounts is not for me to say. All I am concerned with is to see that they are compensated for this breach by an injection of loss of profits after taking into account deductions which they would have inevitably incurred in order to be in a position to have earned this money. How this loss of profits will be reflected in the accounts, I know not, but I am quite satisfied that but for the breach of contract they would have received the sum which I propose to award. For example, it may well be that they could have made a profit on this contract, but lost on the other two. This may have resulted in the audited accounts showing a loss, but on this particular contract taken in isolation they could still make a profit. The effect of this  will be to reduce their overall losses.

Interest

116. The contract was for 13 months and should have been completed on 4th February 1990, and Mr. Clayton submitted that interest should run from that date. I think it only proper to allow another month to cover contingences, and I therefore propose to award interest on $1.3m at 1% above prime from the 1st March 1990 until the date of handing down this judgment. I trust that the appropriate calculation can be agreed.

Wing Hong’s counterclaim

117. Although I have found against Wing Hong, I think it may be helpful to consider the quantum of their counterclaim lest this matter should go further.

118. Before dealing with this matter, I should point out that after the close of evidence and speeches and whilst I was preparing this judgment, I had before me on Thursday, 28th November 1991 an application by Mr. Woo on behalf of Wing Hong to re-re-amend its defence and counterclaim. I refused his application on the grounds not only that it was made very late, although I accepted that late applications for amendment are frequently granted, but mainly because to allow it would have necessitated further discovery and the opening up of more evidence. Mr. Clayton made it clear that the effect of allowing the amendment (which was to feed back into the defendant’s calculation of counterclaim a sum representing that which I allow for the balance of work done) necessitated Mr. Clayton in seeking to challenge items, which as the figures stood at the end of the case, he had no need to challenge because the calculations worked out in an acceptable way so far as his case was concerned. There was an item in Mr. Liu’s calculation, Appendix 3, of some $1,341,000.00 for formwork and concrete for the 34th floor and water tank. As I have said, Mr. Clayton did not challenge that figure because he was happy with the total figure of Appendix 3, especially after the figure of $140,000.00 had been deducted as he contended it should. All Mr. Liu said in relation to this invoice was that he only had a quotation. He was not challenged about that, but if this amendment were to be allowed, there would have to be further evidence about this matter, and I took the view that it was just too late. This case was before me for two weeks and there were amendments made, at the very last moment, at the beginning of the trial, to the defence and counterclaim. Although one has to balance this matter as fairly as one can, there really does come a time when a defendant cannot further change his case. As I had no idea when I could hear this further evidence, beating in mind the state of the lists, it seemed to me a great hardship to keep Eu Asia any longer out of their money. I was particularly impressed by a passage in Lord Griffiths’ speech in Ketteman v. Hansel  [1987] 1.A.C. 189 at 220 d-f.

119. I now turn to the counterclaim as it was at the end of closing submission.

120. Mr. Liu produced three appendices to his statement which purported to set out the losses which he maintained flowed from Eu Asia’s breach of contract.

121. Appendix 1 deals with the costs of running the building site for 12 extra days. Item 1 thereof is the alleged cost of the foreman and other site staff for 12 days. The supporting documents are not wholly satisfactory. The relevance of including payments made in April and July was not explained satisfactory. The claim for overtime was not properly explained by Mr. Liu. He suggested that overtime was part of the salary, but the precise calculations appear to give the lie to that. The claim for ‘others’ is based on page 335, but this is for work carried out and it is impossible to accept Mr. Liu’s evidence that this is a claim based on people being rendered idle by Eu Asia’s breach. So I would not have awarded anything for salary, overtime or others.

122. Item 2 relates to watching and is not in dispute, save as Mr. Liu accepted that the division should be by 31 and not 30. The total under this head would have been $1,858.00.

123. Item 3 relates to the cost of plant and equipment which Mr. Liu conceded was not justified.

124. Item 4 is for lighting and power and is not disputed in the sum of $4,070.00.

125. Item 5 relates to site office and is agreed at $3,448.00.

126. Item 6 relates to temporary telephone and is not disputed in the sum of $237.00.

127. Item 7 relates to head office staff. I was not impressed with this claim. Head office staff were permanent employees who would have continued in the employment regardless of delays to this project.

128. Appendix 2 was a claim in excess of $200,000.00 for compensation allegedly paid or payable to sub-contractors for the 12 days prolongation. Only one of these sub-contractors has ever made a claim and this has not been paid. It was pointed out that although there is a claim for compensation payable to the painter, his contract did not commence until July 1989, two months after the alleged prolongation!

129. Appendix 3 is for the alleged cost of completing Eu Asia’s sub-contract by other. The only relevant item are for those for remedying defective work which has already been allowed as deductions from the work done item. It cannot be allowed twice over.

130. So the only item I would have been prepared to allow Wing Hong were the items under Appendix 1 which total $9,614.50.

131. There is also a claim for a declaration that Eu Asia is liable to pay to Wing Hong all sums payable by them to the Authority for delay in completing the main contract by reason of the delay and disruption in the sub-contract works caused by Eu Asia. Despite this case being heard in November 1991, which is 2 1/2 years after the matters complained of, no evidence whatsoever has been given as to any claim made by the Housing Authority. However, I am prepared to accept that the final account has not yet been finalized, and that there may be a claim for delay made against Wing Hong, and that part of that claim may be relevant to these 12 days. Had I found for Wing Hong, I would have granted the declaration sought, but would have ensured that the case came back before me if a claim was ever made by the Housing Authority to see whether it could be established that any part of it was attributable to Eu Asia’s alleged delay.

Conclusion

132. I therefore award Eu Asia the sum of $273,497.00 in respect of the value of work done at the date of termination together with the sum of $1,300,000.00 in respect of their loss of profit. Both figures will carry interest as specified above.

133. I propose to dismiss Wing Hong’s counterclaim.

134. I propose to make a costs order nisi in respect of the costs of this action in favour of Eu Asia.