JOHNSON CONTROLS HONG KONG LTD v. WANGLE ENGINEERING LTD

CACV 454/2021, [2023] HKCA 568

On appeal from [2021] HKCFI 2560

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 454 OF 2021

(ON APPEAL FROM HCA NO. 2239 OF 2016)

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J U D G M E N T

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Hon Cheung JA (giving the Judgment of the Court) :

I. The appeal

1.  This is an appeal by the plaintiff against the judgment of Linda Chan J who dismissed its claim against the defendant for the sum of $4,813,285.60 and gave judgment to the defendant for the sum of $2,296,461. The plaintiff now appeals.

II.  Background facts

2.  The following facts are extracted from the judgment below.

3.  The Airport Authority Hong Kong (‘AA’), as employer, engaged Gammon Construction Limited (‘Gammon’) as main contractor to undertake the building and construction of the new extension of the passenger terminal building with basement and back-of-house facilities at the Hong Kong International Airport (‘Midfield Concourse’). Gammon engaged its subsidiary, Gammon E&M Limited (‘GEM’), as the sub‑contractor of ‘AAHK Contract No P533 – Midfield Concourse E&M Work’.

4.  GEM in turn engaged the plaintiff as a sub‑contractor in respect of the fire service system. By letter dated 5 April 2013, GEM confirmed its acceptance of the plaintiff’s offer on the ‘Design, Manufacture, Supply, Delivery, Fabrication, Programme, Installation, Supervision, Testing & Commissioning and Maintenance Fire Service Systems Sub‑Contract Work’ for the sum of $67.5 million. The Fire Service Systems and the work within the systems are referred to as ‘FSS’ and ‘FSS work’ respectively while the contract between the plaintiff and GEM is referred to as ‘FSS Contract’.

5.  In the usual practice of the industry, a fire services system is divided into ‘dry work’ (concerning electrical connections and devices), and ‘wet work’ (concerning water piping and equipment). In the present case, the ‘dry work’ is known as ‘AFA System’.

6.  In September 2013, the plaintiff sub-contracted the ‘dry work’ to Moral Way Engineering Limited (‘Moral Way’) on a lump sum basis for $11.85 million, and the ‘wet work’ to Link‑Foong Engineering Services Limited (‘Link‑Foong’).

7.  Moral Way did not complete the work and left the Site in May 2014. The plaintiff then engaged two other contractors to continue with the unfinished work on a ‘day‑work’ basis, i.e. the plaintiff would pay the contractors on a daily basis according to the actual number of workers they provided in carrying out the work. There is no evidence on what work had been completed by these two contractors or how much (if any) they were paid by the plaintiff. These contractors did not finish the work and in early 2015, the plaintiff engaged the defendant to work on a day-work basis to do work. The plaintiff did not provide any documents relating to its dealings with GEM (including the FSS contract, any drawings submitted by the plaintiff to GEM or any documents relating to the contra charges made by GEM) to the defendant until after commencement of this action.

8.  By a ‘Quotation of Provision of Manpower for Fire Services Installation’ dated 21 April 2015 (‘1^st Quotation’), the defendant quoted $4,412,500 as the price for : 1) provision of electrician for fire services installation in April, May and June 2015 and 2) drawing fee for work drawings.

9.  By a purchase order dated 12 May 2015, the plaintiff referred to the 1^st Quotation and confirmed purchasing the defendant’s work with ‘delivery date’ of 10 June 2015 at $997,000 (‘1^st PO’). The amount of $997,000 was paid by the plaintiff to the defendant.

10.  At the meeting held on 19 May 2015 between the plaintiff (represented by Charles and Choi) and the defendant (represented by Ken and Mabel), the plaintiff suggested that the defendant should quote a lump sum contract price of $4 million odd so as to control its budget. Pursuant to such request, the defendant provided a quotation dated 14 May 2015 in respect of ‘AFA System for Fire Services Installation’ at $4,800,000 (‘2^nd Quotation’) which described the work and the amounts quoted in this way :

Item	Description	QTY	Amount
1	Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L1	1 Lot	$700,000
2	Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L3	1 Lot	Included
3	Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L4 (including Area of Metal Structure at Height and Pump Rooms)	1 Lot	$1,150,000
4	Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L5	1 Lot	$700,000
5	Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L6 (including Airplane Boarding Bridges)	1 Lot	$1,150,000
6	Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L7	1 Lot	$300,000
7	Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L8 &L9 (including Area at Height and Beam Detectors Installation)	1 Lot	$800,000
		Total	$4,800,000

11.  The 2^nd Quotation contained the following terms and conditions :

‘1) Our scope of works shall be limited to the work detailed in the above Quotation.

2) Cutoff date is 15 May 2015 for remaining material cost after the cutoff date is included in the quotation.

3) Cutoff date is 1 May 2015 for remaining work and associated cost after the cutoff date is included in the quotation. Any additional works after cutoff date is Excluded and shall be quote [sic] separately.

4) Overtime, night work and tools and included.

5) Working platform and all associated mobilization cost are Excluded and provided by others.

6) In particular, those [sic] work at Level 4 under a separate sub-contractor is included.

7) Apart from Johnson Controls’ fire panel, detector, signal cables and other field equipment, all other cable containment work, cable, wiring and termination are included.

8) Testing and commissioning for the aforesaid works shall be included.

9) Target to complete the work by 1 July 2015 and ready for FSD inspection.

10) Attend all FSD inspection and rectify the defects in a timely manner.

11) The following items are Excluded from our offer and to be provided by others:

a. All insurance and levies such as CITA, PCFB, ECI, CAR, TPL and other levies;

b. Bonds & Warranty;

c. All builder’s work, such as wall / slab openings, demolition and reinstatement of false ceiling, FRP and access panels for carrying out our works;

d. Removal of rubbish from site; and

e. Supply of Material and [sic] should be provided adequately on time by others to suit site progress.

12) Payment Terms: Monthly Progress Payment to be paid within 30 days.

13) We reserve the right to charge a 2% monthly interest on any overdue balance.

14) Quotation shall be valid for 30 days.’ (underlined added)

12.  By a ‘Letter of Intent’ dated 20 May 2015 issued to the defendant (‘LOI’), the plaintiff referred to the 2^nd Quotation and confirmed the contract price at $4,700,000 (‘Price’) subject to the following ‘clarifications’ :

‘1. The scope of works cover all remaining AFA works in Midfield Concourse L1 to L9, the tunnels and ancillary buildings;

2. The direct link and foam system installation are not included in your scope;

3. The wages for workers to carry the aforementioned AFA work by other subcontractors ([Yau Shing] and [New Chance]) after 1 May 2015 shall be paid by you or shall be deducted from the Contract Sum if paid by us;

4. The working drawings and as-built drawings shall be prepared by you in AutoCAD format;

5. The defect rectifications or necessary amendments of already completed works to meet FSD inspection have been included in your scope;

6. The works of testing and commissioning and attendance of handover inspection (maximum 300 man days) of the AFA system to meet the Main Contractor/Employer’s requirement are included in your scope;

7. Any defect of AFA works due to substandard quality or workmanship (defects found by the Employer/the Main Contractor/Gammon E&M/Johnson Controls within the Defects Liability Period) shall be rectified by you;

8. Maximum payment up to 90% of Contract Sum after successful completion of FSD Inspection; further 7.5% shall be paid after handover the AFA System to the Employer; the remaining 2.5% shall be released after end of Defect Liability Period;

9. Clause 1 of Terms and Conditions of [2^nd Quotation] shall be amended by clause 1 above; Clause 13 of Terms and Conditions of [2^nd Quotation] shall be deleted;

10. You are responsible for clear away of rubbish and residue materials to collection point designated by the Main Contractor;

11. Defect Liability is 12 months from Substantial Completion of the Main Contract certified by the Architect/Project Manager;

12. If any discrepancy between the conditions of this letter and [2^nd Quotation], this letter shall prevail.

Until a Purchase Order issued to you, this letter shall be a formal contract between both parties.

You are instructed to carry out the aforesaid AFA work immediately.’ (underlined added)

13.  The plaintiff issued a purchase order dated 4 June 2015 to the defendant (‘2^nd PO’) for the installation of ‘AFA System including conduit, cable wiring, equipment and associated accessories (L1 to L9) at Midfield Concourse’ at $3,703,000. It was stated under ‘Remark’ that 1) the ‘details scope of works’ should be referred to the LOI, and 2) the amount under the 1^st PO should be deducted from the 2^nd PO.

14.  It is common ground that the contract between the plaintiff and the defendant was contained in or constituted by the 2^nd Quotation and the LOI.

15.  In order to effect payment to a contractor, it was necessary for the plaintiff to issue a purchase order to that contractor. In this case, all the purchase orders (including the 2^nd PO) were issued after the contractors had already begun carrying out the work in question.

16.  At the time when the contract was entered into, it was understood by the parties that the FSS (including the AFA System) would be ready for inspection by the FSD on 1 July 2015. However, it is common ground that the FSD inspection only commenced on 7 September 2015.

17.  The defendant continued to work at the Site after conclusion of the contract. However, the construction of the builders’ work at the Site was still ongoing. To enable the FSD inspection to be carried out, Gammon procured various temporary ceilings, doors, walls and other builders’ related amenities (‘Temporary Structures’) to be built at the Site, and the defendant was instructed by the project managers of the plaintiff to install the devices on such Temporary Structures.

18.  Between 28 July 2015 and 24 August 2015, Charles of the plaintiff sent emails to the defendant in which he requested the defendant to rectify the defects shown in the ‘AFA Point Lists’ (generated by the plaintiff) in a timely manner (collectively ‘Aug 2015 Emails’). The last written communication in which the plaintiff complained about the defects in the defendant’s work was the email dated 24 August 2015.

19.  The FSD inspection commenced on 7 September 2015. It was a process during which the officers of the Fire Service came to the Site to inspect different parts of the FSS and provided their comments on whether the FSS required amendments, rectifications or additional devices to meet the FSD’s requirements. In the process, the officers identified issues which were described by GEM and the plaintiff as ‘document issue’ and ‘site issue’, and it was the responsibility of the plaintiff to address and resolve the issues to the satisfaction of the FSD.

20.  As far as the AFA System is concerned, there is no dispute that the document issues were the responsibility of the plaintiff, while the defendant was required to resolve the site issues to the satisfaction of the FSD.

21.  By a certificate dated 19 November 2015 (‘FSD’s Certificate’) the Director of Fire Services certified the fire service installations and equipment at the Midfield Concourse in these terms :

‘ This certificate is issued in accordance with Section 21 of the Buildings Ordinance Subsection 6(d), and certifies that the Director of Fire Services is satisfied that the fire service installations and equipment shown on the building plans approved by him have been installed in accordance with Sub‑paragraph (ii) of Paragraph (b) of Subsection (1) of Section 16 of the Buildings Ordinance and were in efficient working order and satisfactory condition at the time of their inspection on 6.11.2015’ (underlined added)

22.  Whilst the work at the Site was still ongoing, the defendant submitted six ‘invoices’ for interim payments to the plaintiff (respectively ‘IP 1’ to ‘IP 6’, collectively ‘IPs’). The dates of the IPs, the percentage of work done (‘QTY’) and the amounts claimed are summarised as follows :

IP No.	Date of IP	‘QTY’	Amount Claimed
1	30/5/2015	42% (L4) 68% (L5) 5% (L6)	$995,323.30
2	9/6/2015	35% (L1) 70% (L4) 80% (L5) 30% (L6) 10% (L7) 25% (L8 & L9)	$1,144,156.40 (being $2,139,479.70 less) $995,323.30)
3	30/6/2015	35% (L1) 70% (L4) 90% (L5) 75% (L6) 60% (L7) 60% (L8 & L9)	996,301.65 (being $3,133,333.65 less $2,139,479.70)
4	2/7/2015	90% (L1) 90% (L4) 90% (L5) 75% (L6) 60% (L7) 60% (L8 & L9)	$602,185.75 (being $3,737,969.10 less $3,135,781.35)
5	3/8/2015	95% (L1) 95% (L4) 95% (L5) 95% (L6) 95% (L7) 95% (L8 & L9)	$727,030.90 (being $4,465,000 less $3,737,969.10)
6	3/9/2015	100% (L1) 100% (L4) 100% (L5) 100% (L6) 100% (L7) 100% (L8 & L9)	$235,000 (being $4,700,000 less $4,465,000)

23.  The plaintiff by one of its project managers Yan certified that as of 3 September 2015, the plaintiff had completed 100% of the work falling within the scope of the contract. Except for 2.5% of the amount, the plaintiff paid the defendant the amount claimed in the IPs.

24.  It is the defendant’s case that pursuant to the instructions given by the project managers of the plaintiff, it carried out various additional work falling outside the scope of the contract (details of which were set out in the 1^st and 2^nd VOs). However, other than paying 60% of the amount payable under the 1^st VO, the plaintiff refused to pay the remaining amount due. As the defendant was unable to continue to pay the wages of its workers, it decided to stop working on the additional work required by the plaintiff and left the Site on 15 October 2015. The amount of VO unpaid by the plaintiff was $3,879,600.

25.  After the defendant had left the Site on 15 October 2015, there was no further communication between the plaintiff and the defendant concerning the defendant’s work on the AFA System until the plaintiff’s solicitors sent a letter to the defendant on 10 June 2016 which alleged that the defendant was in breach of contract and the plaintiff accepted the defendant’s repudiatory breach on 10 June 2016.

26.  The plaintiff claimed that the defendant had failed to complete its work to meet the FSD inspection on 7 September 2015, whereupon GEM had to deploy various workers (including those hired by its sub-contractors) to work on the AFA System from 2 September 2015 to 24 October 2015 and deducted from its payment to the plaintiff $1,214,885.60 by way of contra charges.

27.  In late October 2015, 33 employees previously employed by the defendant lodged complaints with the Labour Department in respect of unpaid wages for the period from September to October 2015. The claims were resolved with the plaintiff agreeing to pay all the outstanding wages to the employees by 10 November 2015 pursuant to section 43C of the Employment Ordinance (Cap. 57). The plaintiff paid an aggregate sum of $1,833,650 to the employees.

28.  The defendant admitted that it was liable to pay $1,833,650 to plaintiff but sought to set off the same against the amounts payable by the plaintiff under the 1^st and 2^nd VOs and its claim for materials charge of $250,511.

29.  It is the plaintiff’s case that from November/December 2015, it continued to receive various ‘FS Master Defect list for MFC’ from Gammon (which the plaintiff described as ‘Defects and Outstanding Work List’) (‘DOW List’) which show that the work carried out by the defendant was incomplete or defective, and it had to engage Link-Foong to carry out rectification work. The amount incurred was $3,598,400.

III.  The parties’ claims

30.  The plaintiff’s claim against the defendant was $4,813,285.60 being :

1)  $1,214,885.60 in respect of contra charges deducted by GEM against the plaintiff (‘GEM Charges’);

2)  $3,598,400 incurred by the plaintiff in completing the rectification and outstanding work left by the defendant (‘Rectification Charge’); and

3)  $1,833,650 as reimbursement of wages paid by the plaintiff to the 33 employees of the defendant (‘Reimbursement Charge’).

31.  The defendant’s claim was for the following sums :

1)  $3,879,600 in respect of additional work (‘VOs claim’); and

2)  $250,511 materials charge (‘Material claim’).

32.  It accepted that the Reimbursement Charge is to be deducted from its claim.

33.  The Judge dismissed the plaintiff’s claim for GEM Charges and Rectification Charge. She gave judgment for the defendant in respect of the VOs Claim and Materials Claim less the Reimbursement Charges in the net sum of $2,296,461.

IV.  The Five Issues

34.  The Judge identified five issues for her determination :

1)  Whether the defendant completed all the work falling within the scope of the contract and, if so, when?

2)  Whether the defendant is liable to pay the GEM Charges to the plaintiff?

3)  Whether the defendant is liable to pay the Rectification Charge to the plaintiff?

4)  Whether the plaintiff is liable to pay the VOs Claim to the defendant?

5)  Whether the plaintiff is liable to pay the Materials Claim to the defendant?

V.  The parties’ and the Judge’s assessment

1)  The role of the persons engaged in the project

35.  The Judge summarised the role of the persons engaged in the project.

(1)  In respect of the plaintiff

36.  Wong, Yan and Dennis were the project managers of the plaintiff. They were responsible for the day‑to‑day management of the ‘FSS work’ and giving instructions to the sub‑contractors engaged by the plaintiff. They regularly attended the Site and monitored the actual progress of all the work carried out under the FSS. Mai was the contract manager responsible for reviewing contract, preparing final accounts and lodging claims on behalf of the plaintiff from 2012 to March 2017. Mai would meet with the project managers of the plaintiff at the temporary office located outside the Site once or twice a month to check the actual progress of work and applied for payments from GEM. As Mai had not been authorised to enter the Site, he mainly relied on what he had been told by the project managers as to what work had been done and would mark the same on the ‘working drawings’ supplied by the defendant. If Mai became aware of the need to make any claim against a party, he would collect and retain the documents relevant to such claim. Ryan was the assistant sales engineer of the plaintiff at the relevant time. Ryan worked full time at the Site from July to December 2015. Charles, the sales director and Choi were representatives of the plaintiff and were involved in the negotiations with the defendant leading up to the contract.

37.  At trial, Mai and Ryan gave evidence on behalf of the plaintiff.

(2)  In respect of the defendant

38.  Ken was the de facto boss of the defendant. He has over 20 years’ working experience in the fire services system industry. He represented the defendant in the negotiations on the contract. He was involved in the operation side, including giving instructions to and working alongside with the workers in carrying out the work at the Site during the period from April to 15 October 2015. Mabel joined the defendant in 2014 as assistant project manager. During the time when the defendant was engaged to carry out installation of the ‘AFA System’, Mabel spent over 15 hours at the Site or at the temporary office, and she worked closely with Yan and Ryan. She was responsible for dealing with all working drawings and documentation as well as liaising with the plaintiff’s representatives on the installation of the devices within the AFA System. Ken and Mabel gave evidence for the defendant.

(3)  The Judge’s assessment of the witnesses

39.  The Judge held that Mai and Ryan did not have much personal knowledge on the crucial issues as to i) what instructions were given by the project managers of the plaintiff to the defendant in carrying out the work under the contract, in particular, the work carried out on the Temporary Structures, ii) whether the project managers of the plaintiff had instructed the defendant to carry out work falling within the scope of the 1^st and 2^nd VOs and on the basis that they constituted variation orders, and iii) the basis upon which the project managers of the plaintiff certified that the defendant had completed 100% of the work under the contract. She held :

‘ Overall, I do not find the evidence of Mai and Ryan to be of much probative value to the issues I have to decide in this action.’

40.  On the other hand, the Judge held that Ken and Mabel provided their answers in a straight-forward and candid manner. They had been cross-examined by Mr. Cheuk at some length and their evidence remains unshaken. The Judge found that their evidence was consistent with and corroborated by contemporaneous documents and was credible. She preferred the evidence of Ken and Mabel to the extent that it was inconsistent with the evidence of Mai and Ryan.

VI.  The Judge’s Decision

1)   Issue 1 : Did the defendant complete all the work falling within the scope of the contract?

41.  The Judge held that the defendant completed all the work falling within the scope of the contract by 3 September 2015.

42.  The only pleaded breaches of contract by the plaintiff against the defendant are delay in failing to complete the work by 1 July 2015 and the defects in the defendant’s work as identified in the emails up to 24 August 2015. At trial, the plaintiff no longer relied on delay as the basis of its claim.

43.  The defendant relied on the IPs in which Yan as project manager certified that as at 3 September 2015, the defendant had completed 100% of the work falling within the scope of the contract. Except IP 1 which was not signed by anyone on behalf of the plaintiff, Yan signed all the IPs under ‘Certified By’ without any qualification. Shortly after the IPs had been certified by Yan, the plaintiff paid the amounts applied for under the IPs except $117,500 (representing 2.5% of the Price), which was not paid to the defendant. Although 2.5% of the Price was not paid, such amount was agreed to be the retention amount which was not payable until after the expiry of the defects liability period.

44.  The Judge held the fact that the defendant had completed all the work under the contract by 3 September 2015 is consistent with or corroborated by the following facts and matters, namely, (1) the last written communication in which the plaintiff complained about the defects in the defendant’s work was the email dated 24 August 2015. After that date, there was no further email or document from the plaintiff to the defendant complaining about the timing or quality of the defendant’s work falling within the contract; and (2) on 7 September 2015, the FSD inspection on the FSS commenced. Although the FSD’s Certificate was only issued on 19 November 2015, it is clear that the issues identified by the FSD before 19 November 2015 did not concern the AFA System or the defendant.

45.  The plaintiff denied that the defendant had completed the contract work and relied on three points :

(1)  despite the fact that the IPs were signed by Yan which certified that the defendant had completed 100% of the work under the contract, such certification was ‘only provisional and subject to final account calculation’ and was made by the plaintiff to facilitate the defendant’s cash flow problem at the time (‘Provisional Certification point’);

(2)  the parties ‘intended to agree a lump sum such that everything necessary for the full completion of the AFA System (i.e. up to the handover of the [Site] to [AA] and the satisfactory completion of the Defects Liability Period) would be included therein (‘All‑Inclusive point’); and

(3)  it is ‘common’ that installation of a fire service system may involve ‘double‑handling’ works, and the parties ‘contemplated such possibility at the time of the [Contract]’ (‘Common Understanding point’).

46.  The Judge held against the plaintiff on these three points :

‘ 65. As regards the Provisional Certification point, if there were the alleged qualification which, according to Mai, was important to [the plaintiff], there was no reason why Mai would not have inserted such qualification at the time he issued the 2^nd PO or when he arranged for payments of the amounts payable to [the defendant] under the IPs. I do not accept Mai’s assertion that [the plaintiff] was forced to make payments to [the defendant] as it had to rely on [the defendant]’s workers (who had been authorised by AA to enter the Site) to work on the Site. As Ken points out in his evidence, it is clear from GEM’s Sitework Record Sheets that after [the defendant] had left the Site on 15 October 2015, GEM was able to employ the same workers previously employed by [the defendant] to work on the Site. In his closing, Mr Cheuk submits that Ken agrees, during cross-examination, that “the IP assessment was only for interim purpose” and the same “were subject to final account review”. The submission is incorrect, as the questions and answers are directed to the general market practice, rather than the fact of this case.

66. As for the All Inclusive point, under cross‑examination, Mai admits that he had no involvement in the discussions between [the plaintiff] and [the defendant] and did not know the basis upon which they agreed on the Price until the parties had made their decision. Although Mai says that he drafted the Contract and therefore has the clearest idea of what it said, but the question is not what Mai subjectively thought to be the meaning of the terms. Rather, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense. In the present case, the Contract did not contain any term to the effect that it was all‑inclusive contract. Nor has [the plaintiff] adduced any admissible evidence in support of its assertion.

67. The same goes to the Common Understanding point. As Mai was not involved in the negotiations, he does not have the requisite personal knowledge to say whether there was the alleged Common Understanding between [the plaintiff] and [the defendant]. In any event, it is clear from Mai’s evidence that it was not at all “common” for installation of fire services system to involve “double‑handling” work, given that the FSS Contract itself did not cover any “double-handling”, and [the plaintiff] was entitled to claim additional payment beyond the contract price. Nor did any of the other sub‑contractors engaged by [the plaintiff] agree to include any “double-handling” as alleged by [the plaintiff].

68. Lastly, I do not think it is open to [the plaintiff] to change the contents of the IPs by the mere say‑so of Mai who had no personal knowledge as to why Yan certified the percentage of work done in the way he did. Plainly, the only person who has the requisite knowledge to explain why the certification was made in the way they appeared on the IPs is Yan, but [the plaintiff] chose not to call him as its witness. Mr Cheuk says that the reason why [the plaintiff] did not call Yan to give evidence at trial is because he has left the employment of [the plaintiff]. However, it is open to [the plaintiff] to issue a subpoena to require Yan to give evidence on its behalf. There is no explanation as to why this has not been done. It is in the circumstances reasonable to infer that if Yan were called as a witness, his evidence would not be supportive of the 3 points belatedly advanced by [the plaintiff].’

2)  Issue 2 : GEM Charges

47.  The Judge referred to the parties’ pleaded case on the GEM Charges :

‘ 70. [The plaintiff]’s case on GEM Charges, as pleaded in §6 of the SOC, is as follows:

“ As FSD Inspection was re-scheduled to commence on 7 September 2015, [the plaintiff] had to seek assistance from [GEM] which arranged workers to assist in the AFA System works to facilitate the FSD inspection. The particulars of [GEM’s] works were recorded in their Sitework Record Sheets … As a result, [GEM] has deducted a total sum of HK$1,214,885.60 as contra charges from the outstanding payments due to [the plaintiff] under the Project upon conclusion of the Statement of Final Account in October 2016.”

71. [The defendant]’s case is that the FSD inspection took place on almost every working day during the period from 7 September 2015 to 15 October 2015. It admits that the FSD Action Lists were sent from GEM to [the plaintiff], but the items identified in those Lists related to document issues or equipment issues, which were outside the scope of [the defendant]’s work under the Contract.’

48.  At trial the plaintiff sought to rely on other evidence to show that the defendant had not completed the work on 3 September 2015. The Judge held that the plaintiff was not entitled to do so as the only pleaded particulars of the plaintiff were based on the Site Record Sheets. The Judge described the Sitework Record Sheets :

‘ 74. The Sitework Record Sheets consisted of 98 pages with a generic “Description of work”, followed by the name and working hours of the workers. The period covered was from 2 September 2015 to 20 October 2015. Despite the general nature of the descriptions in the Sitework Record Sheets, [the plaintiff] has never identified nor explained the bases for asserting that all the workers recorded in the Sitework Record Sheets worked on the AFA System, let alone during the period of the FSD inspection.’

49.  The Judge held the work described in the Sitework Record Sheets did not support the plaintiff’s claim because she found that by 3 September 2015, the defendant had already completed 100% of the work within the scope of the contract. Any work carried out by GEM could not have been within the scope of the contract, let alone the responsibility of the defendant. Further, although there was one Sitework Record Sheet which showed that GEM deployed two workers to work on the AFA System on 2 September 2015, it is clear from the description that the work concerned ‘DTL’ (direct telephone link), which was specifically excluded in Clause 2 of the LOI.

50.  The Judge also gave other reasons for dismissing the claim for the GEM Charges :

‘ 86. Mr Cheuk then relies on the Aug 2015 Emails and contends that [the defendant] was repeatedly asked to carry out the rectification works in July and August 2015 and was warned that if it did not do so, [the plaintiff] would carry out the necessary action. The contention must be rejected:

(1) It has never been [the plaintiff]’s case that the work carried out by GEM was the result of [the defendant]’s failure to respond to the requests made in the Aug 2015 Emails.

(2) In any event, as discussed in §29 above, the evidence shows that by 24 August 2015, the defects identified in the Aug 2015 Emails had already been rectified by [the defendant] and no further complaint was made by [the plaintiff].

(3) According to the Sitework Record Sheets, the first date GEM deployed workers to undertake work on behalf of [the plaintiff] was 2 September 2015, which was after the defects identified by [the plaintiff] in the Aug 2015 Emails had been rectified.’

3)   Issue 3 : Rectification Charge

51.  The Judge referred to the parties’ case on rectification charge :

‘ 87. [The plaintiff]’s case on Rectification Charge, as pleaded in §7 of the SOC, is this:

“ From about November/December 2015, [the plaintiff] continually received various [DOW List] from [Gammon] setting out the outstanding work to be done. In order to rectify [the defendant’s] defects, [the plaintiff] has also engaged other subcontractors and has incurred expenses in the total sum of HK$3,598,400.00.”

88. [The defendant] denies that there were any outstanding defects in its work, whether under the Contract or the VOs. Prior to commencement of this action, [the defendant] has never been informed that (1) [the plaintiff] received the DOW Lists from Gammon, (2) the defects identified in DOW Lists were caused by [the defendant], (3) [The plaintiff] engaged other subcontractors to carry out the work or (4) [the plaintiff] would claim the costs incurred against [the defendant]. No particulars of the work carried out by the contractors has been provided to [the defendant].’

52.  The plaintiff contended that the claim is supported by contemporaneous documents.

53.  The Judge rejected the claim for Rectification Charge for the following reasons : 1) the plaintiff had not identified, as to which parts or items of the work completed by the defendant, whether pursuant to the contract or the VOs, were defective and which led to the plaintiff engaging another sub‑contractor (Link‑Foong) to carry out the rectification works. It had not adduced any evidence to demonstrate the causal link between the alleged defective work carried out by the defendant and the work carried out by Link‑Foong; 2) the documents provided by the plaintiff did not support the plaintiff’s pleaded case on the Rectification Charge; 3) the suggestion that the defendant’s work was so defective to the extent that the plaintiff had to pay almost the same amount for the work carried out by the defendant during the entire period from 30 May 2015 (IP 1) to 3 September 2015 (IP 6) is inherently improbable; and 4) in [6(3)] of the Reply, it is pleaded that Link‑Foong was instructed to carry out, inter alia, ‘dismantlement of the temporary installations and carrying out of the permanent re‑installations’. It is difficult to see how the plaintiff can maintain the claim for Rectification Charge, when the defendant already installed the AFA System on the Temporary Structures in accordance with the plaintiff’s instructions.

54.  The Judge also rejected the plaintiff’s contention that the FSD inspection and the FSD’s Certificate did not mean that the work under the contract had been duly completed because the FSD’s Certificate only certified that the equipment was installed in accordance with the Buildings Ordinance and the inspection was conducted by random sampling only.

4)  Issue 4 : VOs Claim

55.  The Judge summarised the basis of the defendant’s VOs Claim :

‘ 102. It is [the defendant]’s case that at various meetings and site coordination sessions held between GEM, [the plaintiff] and [the defendant], [the defendant] was instructed to carry out additional work falling outside the scope of the Contract which included:

(1) the additional work as a result of the delay caused by other aspects of the construction of Midfield Concourse in particular the builder work;

(2) “double handling” or “multiple handling” of the same devices already installed by [the defendant] at the Site. Such double/multiple handlings were necessitated by the devices having been installed at the Temporary Structures to facilitate FSD inspection; and

(3) installation of additional interfacing with other devices or systems.’

56.  The plaintiff’s defence to the VOs Claim is that :

(1)  All the work done by the defendant fell within the scope of the contract :

‘ (1) By 14 May 2015 (when [the defendant] submitted the [2^nd Quotation]), what the parties intended was to change the day‑work basis of [the defendant]’s engagement into a lump sum basis. In other words, the parties intended to agree a lump sum such that everything necessary for the full completion of the AFA System (i.e. up to the handover of the [Site] to [AA] and the satisfactory completion of the Defects Liability Period) would be included therein. The purpose of such a change was to provide certainty to [the plaintiff] as to the amount of costs it would need to incur in order to achieve full completion of the AFA System and to allocate the risk of the potential variation of costs to [the defendant]’ (underlined added)

‘ (2) It is common that in order to accommodate other contractors’ works or regulatory requirements such as FSD inspection, the installation of a fire services system may involve ‘double-handling’ works (i.e. installation of the same devices or equipment more than once). Both parties were experienced contractors in the construction industry and had contemplated such possibility at the time of the [Contract]. Such works inherently formed part of the ‘all remaining AFA works in the Midfield Concourse L1 to L9, the tunnels and ancillary buildings’ and were within the scope of the [Contract] works.’ (underlined added)

(2)   In August 2015, the plaintiff instructed the defendant to carry out some temporary installations in order to meet the requirements of the FSD inspection on 7 September 2015. Those temporary installations were maintained from 7 September 2015 to 6 November 2015 so as not to affect the FSD inspection. After 6 November 2015, the plaintiff engaged Link‑Foong to ‘dismantle’ the temporary installations and carry out permanent re‑installation. As such, the defendant could not have carried out any ‘double‑handling’ work or variation work.

57.  The Judge rejected the plaintiff’s contention that the contract was an all‑inclusive contract or that it covered any double/multiple handling of the same devices already installed by the defendant pursuant to the plaintiff’s instructions. The Judge held that the defendant had discharged the burden of proving that it is entitled to be paid the amount under the VOs Claim. She held that (1) there is no dispute that the defendant continued to work on the Site until 15 October 2015. As the defendant had already completed all the work under the contract by 3 September 2015 and no further complaint or request had been made by the plaintiff on the quality of the defendant’s work after 24 August 2015, the work carried out by the defendant between 3 September and 15 October 2015 could only have been the work under the 1^st and 2^nd VOs; (2) the contemporary written exchanges between the parties showed that both parties understood the VOs Claim were additional work outside the scope of the contract; and (3) she accepted the evidence of Ken and Mabel as to why it was necessary to carry out the double/multiple handling of many devices after they had completed installing all the devices as required under the Contract.

5)  Issue 5 : Materials Charge

58.  The award of materials charge is not challenged by the plaintiff.

VII. Grounds of the appeal

59.  We will now deal with the grounds of appeal.

1)  Ground 1 : The Judge misconstrued and failed to construe the defendant’s scope of work under the contract

(1)  The plaintiff’s arguments

60.  Mr. Scott SC and Mr. Cheuk for the plaintiff submitted that the plaintiff’s case is that the defendant’s scope of work is all-inclusive subject to express exclusions (‘All‑Inclusive point’). Mr. Scott described this as the primary point of the appeal. He submitted that i) the whole purpose of the contract, which changed the original ‘day‑work basis’ (i.e. payment on the basis of how many man‑days work was actually carried out by the defendant) to lump sum basis, was to provide certainty to the price for the works and a price for the whole system described in the 2^nd Quotation; ii) it is common ground that the contract was contained in or constituted by the 2^nd Quotation and the LOI; iii) the 2^nd Quotation used ‘1 Lot’ to describe the defendant’s work without any breakdown. Clause 1 of the LOI expressly provided that ‘The scope of works cover all remaining AFA works in Midfield Concourse L1 to L9, the tunnels and ancillary buildings’; and iv) exclusions were set out in the contract separately and individually (see Clause 2 of the LOI; Clauses 5, 7 and 11 of the 2^nd Quotation).

61.  Mr. Scott submitted that at the time of the contract, there was no detailed itemisation of or allocation of prices to the different components within the defendant’s scope of work provided by either party; the only drawings in existence at the time were some general buildings drawings provided by GEM, which did not contain any detail of the components within the AFA works; and according to the defendant, it did not even receive those drawings at the time of the contract or any other plans or drawings. In those circumstances, if the plaintiff’s interpretation is not adopted, there remains no other way to define the defendant’s scope of work or its entitlement to be paid for part performance of its works in circumstances where (as here) the defendant only installed some of the components in the AFA. He submitted that while the Judge rejected the plaintiff’s interpretation, she did not provide her own interpretation of the defendant’s scope of work under the contract. She also erred in concluding that the prices quoted by the defendant were based on the drawings prepared by the defendant submitted to the plaintiff, which, undisputedly, did not exist at the time of the contract and were only produced by the defendant after the contract came into existence. He further submitted as the judgment is tainted by the Judge’s misinterpretation or lack of interpretation of the defendant’s scope of work, on this ground alone, it should be set aside and the judgment in favour of the defendant on its counterclaim should also be set aside.

(2)  Our view

62.  The interpretation of a contract is a matter of law based on its context. The task of the Court is to determine what a reasonable person would have understood the parties to have meant by using the language which they did.

63.  There is a dispute whether the plaintiff had properly pleaded the All‑Inclusive point in the Amended Statement of Claim. Our reading of the document is that it had not. The Amended Statement of Claim merely set out the terms of the contract. The All‑Inclusive point was only belatedly pleaded more than three years after commencement of action, in the Re‑Re‑Amended Reply and Defence to Counterclaim where at [4A] it was pleaded that :

‘ (1) By 14 May 2015 (when the Defendant submitted the Quotation), what the parties intended was to change the day-work basis of the Defendant’s engagement into a lump sum basis. In other words, the parties intended to agree a lump sum such that everything necessary for the full completion of the AFA System (i.e. up to the handover of the site to the Employer and the satisfactory completion of the Defects Liability Period) would be included therein. The purpose of such a change was to provide certainty to the Plaintiff as to the amount of costs it would need to incur in order to achieve full completion of the AFA System and to allocate the risk of the potential variation of costs to the Defendant. Therefore, the Letter provided that except for certain express exclusions, the “scope of works cover all remaining AFA works in Midfield Concourse L1 to L9, the tunnels and ancillary buildings”.’

64.  We do not agree that the contract is of an all‑inclusive nature as contended for by the plaintiff. The change from day‑work basis to lump sum and the description of ‘1 Lot’ of the various work do not support the plaintiff’s case. The defendant’s scope of work is to cover ‘all remaining AFA works’. The perimeters of such work are set out in the 2^nd Quotation and LOI which the plaintiff itself pleaded in Amended Statement of Claim as follows :

i)  The works of testing and commissioning and attendance of handover inspection is subject to the maximum of 300 man days [4(2)];

ii)  The work should be completed by 1 July 2015 and ready for Fire Services Department (‘FSD’) inspection [4(3)];

iii)  The defendant shall be entitled to a maximum payment up to 90% of contract sum after successful completion of FSD inspection. A further 7.5% shall be paid after handover the AFA System to the Employer; the remaining 2.5% shall be released after end of Defect Liability Period [4(7)]; and

iv)  The defendant is required to rectify defects or do necessary amendments to the already completed works to meet FSD Inspection; and to rectify defects due to substandard quality or workmanship [4(5) & (6)].

65.  Additional work is separately provided for. Clause 3 of the 2^nd Quotation provided that additional work would be separately charged: ‘[a]ny additional works after cutoff date [i.e. 1 May 2015] is Excluded and shall be quote [sic] separately’.

66.  As Mr. Yuen and Ms Chan for the defendant submitted, the Amended Statement of Claim shows that the defendant’s work is to be completed when the AFA System is ready for FSD inspection and by then the only outstanding task is to meet the FSD requirement and rectify defects due to substandard quality.

67.  We disagree with the submission that if the All‑Inclusive point is rejected, there will be no other way to define the defendant’s scope of work. The plaintiff as a sub‑contractor of the Fire Service Systems must have knowledge of the work left undone by Moral Way and the two other contractors it had hired to complete the work. There were project managers of the plaintiff on site who clearly would know the scope of work that had to be done in order to meet the target completion. The Judge also held at [78(3)] that when the plaintiff engaged the defendant the parties had a fairly good idea of what was included in the AFA System and how many man days were required to complete the work. As Mr. Yuen pointed out the unchallenged oral evidence of Ken was that he used the area of the Site to quote for the contract and the undisputed fact was that Mabel would base on the layout of the Site and co‑ordinate with others including the plaintiff to determine the exact installation locations which ultimately led to various drawings prepared by her. In our view, the target date to complete the work for the FSD inspection and the specified maximum 300 man days for the works of testing, commissioning and handover inspection would define the temporal limit of the work. The requirement of an FSD inspection would define the scope of work that the defendant had to carry out in order to meet this requirement. The payment of, inter alia, 90% of the contract sum after successful completion of the FSD inspection would indicate that a substantial part of work that meets the FSD inspection should have been reached by then. The term for payment of additional work contradicts the idea of an all‑inclusive contract.

68.  One should try to understand why the plaintiff chose to rely on the All‑Inclusive point. It was used to challenge the defendant’s case that it had completed the work by 3 September 2015. This was rejected by the Judge when she found that the contract work was indeed completed by that date. The argument was also used to support the plaintiff’s claim for the GEM Charges and Rectification Charge. Based on her finding that the defendant had completed the work on 3 September 2015, the Judge held that any work carried out by GEM could not have been within the scope of the contract. As to Rectification Charge, the Judge held that the plaintiff had not proved its claim. These are findings of fact which the plaintiff now seeks to challenge. As will be shown later, we reject the plaintiff’s challenge.

69.  The plaintiff criticized the defendant for mis‑characterising its challenge to the Judge’s interpretation of contract as a challenge to finding of fact made by the Judge. We do not accept that the defendant had misconstrued the nature of an interpretation exercise. All that Mr. Yuen is saying is that at trial the plaintiff sought to support the All‑Inclusive point by the evidence of Mai which was rejected by the Judge. The subjective view of a person to the meaning of a contract is clearly not admissible.

70.  The plaintiff also criticized the Judge for the mistake in holding that the contract was based on the drawings prepared by the defendant when such drawings did not exist at the contract. In our view, this does not carry the plaintiff’s case further. The Judge’s rejection of the All‑Inclusive point is clearly correct for the reasons she gave.

2)  Ground 2 : The Judge misconstrued and misunderstood the nature of the interim payment certificate

(1)  The plaintiff’s arguments

71.  This is in respect of the Provisional Certificate point detailed above. This is described by Mr. Scott as his subsidiary point. He submitted that interim or ‘progress’ payment certificates (as envisaged by Clause 12 of the 2^nd Quotation, Clause 8 of the LOI and the accepted market practice) are only a machinery of provisional validity, see : Beaufort Development Ltd v Gilbert‑Ash Ltd [1999] AC 266, at 276, per Lord Hoffmann. Further, unless clear words to the contrary are used, the presumption is that a certificate is not conclusive against either the employer or the contractor, and each party retains all its rights to dispute the underlying facts and the inferences to be drawn from them, see : Hudson’s Building and Engineering Contracts (14^th ed., 2020), at [4-011). The Judge erred in law by misconstruing and misunderstanding the nature and function of the interim payment certificates by rejecting the plaintiff’s Provisional Certification point. In particular, her construction and understanding of the interim payment certificates that they were essentially conclusive and binding on the plaintiff unless there was any qualification stated on their face or when the plaintiff arranged for payments under the same (see [51], [53] and [65] of the judgment) is inconsistent with the nature and function of the interim payment certificates, as well as the general market practice as admitted by the defendant (see [65] of the judgment). The Judge further erred in law by drawing adverse inference against the plaintiff for not calling Yan at the trial (see [68] of the judgment).

(2)  Our view

72.  We do not agree with the plaintiff’s criticisms. The contract does not provide for an interim payment certificate. The Payment Terms under Clause 12 of the 2^nd Quotation is simply that ‘Monthly Progress Payment to be paid within 30 days’. This is not a case where the Court is required to construe an ‘interim payment certificate’ commonly found in some standard building contracts. All that the Judge was saying is that the defendant completed the contract on 3 September 2015 is supported by, inter alia, the interim payments made by the plaintiff. This is a finding of fact which is supported by evidence. Market practice was not pleaded nor raised with the defendant’s witnesses. This is the short answer to the argument. In any event, as Mr. Yuen submitted, there is no evidence that the plaintiff has carried out any final account review. Further, there was ample evidence to support the Judge’s decision irrespective of whether adverse inference was to be drawn from not calling Yan to give evidence.

3)  Ground 3 : The defendant did not complete the scope of work as of 3 September 2015

73.  This ground is based on the plaintiff’s previous arguments on All‑Inclusive point and Provisional Certification point. We have already addressed these arguments and rejected them. The plaintiff further contended that the Judge’s finding is contradicted by other evidence. This is merely a repetition of the arguments that had been advanced at trial which the Judge had considered and rejected. We agree with the Judge. In our view, the plaintiff failed to overcome the high threshold that such finding of fact must be plainly wrong before this Court would interfere with the finding.

4)  Ground 4 (VOs Claim)

74.  The plaintiff argued that the Judge erred in holding that the defendant had discharged the burden of proving that it was entitled to the VOs Claim. However, in its written submission the plaintiff merely stated that following from the All‑Inclusive primary ground, the defendant is not entitled to the VOs Claim unless it can prove it falls within any of the express exclusion and there is no evidence to support the claim and it should be rejected.

75.  As we have already found against the All‑inclusive point, this argument is not sustainable. In any event, the clear finding of the Judge is that the defendant had proved its case on the VOs Claim and it is not demonstrated that the finding is plainly wrong.

5)  Ground 5 (GEM Charges) and Ground 6 (Rectification Charge)

76.  These two grounds can be dealt with together as they both involved challenges to findings of fact by the Judge.

77.  The plaintiff repeated that its case on the GEM Charges is supported by contemporaneous documents and it criticised the Judge for her assessment of such documents and other evidence such as those relating to Mabel and other matters. In respect of the Rectification Charge, the plaintiff also repeated that its case on the Rectification Charge is supported by contemporaneous documents. It criticised the Judge for her assessment of the evidence such as those relating to Link‑Foong, Ryan and Mai. These arguments are in the main repetition of arguments that had been raised below which were analysed and rejected by the Judge. We have earlier referred to the Judge’s decisions on these two issues. The extract shows the care and details that the Judge had undertaken in addressing these issues. None of the grounds now relied upon by the plaintiff can satisfy the threshold for challenging findings of fact. We need to only mention one matter raised by the plaintiff, namely, the defendant left the Site for good on 16 October 2015 and therefore did not i) attend the handover inspection or provide the as‑built drawings as required by Clause 6 of the LOI or ii) provide as‑built drawings as required by Clause 4 of the LOI. The plaintiff contended that the defendant was in repudiatory breach of the contract. As stated earlier, the Judge had found that the defendant completed all the work on 3 September 2015. Mr. Yuen submitted that Ken’s evidence was that the plaintiff had fully used up the 300 man days of testing and commissioning under Clause 6 of LOI which entitled the defendant to leave the Site and Mabel’s evidence was that the defendant was willing to go back to the Site after 16 October 2015 within the defect liability period, but the plaintiff had never asked the defendant to do so nor informed the defendant of any outstanding work or defects. As to the as‑built drawings, it is not only unpleaded but also there are no particulars as to which as‑built drawings were not provided.

VIII.  Conclusion

78.  Accordingly, the appeal is dismissed. There will be an order nisi for costs of the appeal to the defendant with certificate for two counsel.