CWF PILING AND CIVIL ENGINEERING CO. LTD. v. KONSUN INTERNATIONAL LTD.

HCCW695/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.695 OF 1999

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J U D G M E N T

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1. This is a creditor's petition based on a sum of $2 million odd alleged to be due and owing under a Certificate of Payment dated 15 April 1998 ("the Final Certificate") issued by David S.K. Au & Associates Limited, the architects of the project ("the architect"). The petitioner was the contractor for carrying out demolition and foundation works ("the works") for an industrial development. The Company was the registered owner and developer of the site.

2. For the petitioner, it was submitted that the Final Certificate was conclusive. Clause 30(7) of the contract provided as follows :

"(7) Unless a written request to concur in the appointment of an arbitrator shall have been given under clause 35 of these Conditions by either party before the Final Certificate has been issued or by the Main Contractor within fourteen days after such issue, the said certificate shall be conclusive evidence in any proceedings arising out of this Contract (whether by arbitration under clause 35 of these Conditions or otherwise) that the Works have been properly carried out and completed in accordance with the terms of this Contract and that any necessary effect has been given to all the terms of this Contract which require an adjustment to be made to the Contract Sum, except and insofar as any sum mentioned in the said certificate is erroneous by reason of :-

(a) Fraud, dishonesty or fraudulent concealment relating to the Works, or any part thereof, or to any matter dealt with in the said certificate; or

(b) Any defect (including any omission) in the Works, or any part thereof which reasonable inspection or examination at any reasonable time during the carrying out of the Works or before the issue of the said certificate would not have disclosed; or

(c) Any accidental inclusion or exclusion of any work, materials, goods or figure in any computation or any arithmetical error in any computation."

It is common ground that no notice for arbitration was given. The Company submitted that whilst the Final Certificate was conclusive as to quantum, quality and amount in relation to the works, its conclusiveness was not absolute. The central question is whether the Final Certificate contained an obvious error on its face inasmuch as a necessary adjustment to the Contract Sum had not been made. In determining whether there was such an obvious error, it is necessary to consider the following issues :

(a) what the completion date was under the contract;

(b) when the works were actually completed.

Completion date under the contract

3. The Final Certificate contained the following provision :

"Date of Completion for Whole Contract

6 September 1995 (Extended to 21 October 1995 see DA ref: L93021/271)"

4. Under the contract, the original date for completion of the works was 6 September 1995. It is common ground that by agreement this date was extended to 21 October 1995 ("the first extension"). There is a letter dated 28 December 1994 from the architect on behalf of the employer (i.e. the Company) addressed to the petitioner, confirming an agreement between the parties as to, inter alia, the extension of the contract period. Shortly before the first extension was due to expire, it would appear that the petitioner sought a second extension. There is a letter dated 26 October 1995 ("the October letter") from the architect to the Company referring to an earlier letter of 12 October 1995 and enclosing a self-explanatory letter from the petitioner regarding the request for the delay. The enclosure was not in evidence. Nonetheless, the October letter set out the three reasons for the delay given by the petitioner together with the architect's comments thereon. The letter went on to say :

"The total Extension of Time to be granted is 68 days which would extend the contract completion date to 28 December 1995.

You are requested to comment upon the ground of extension of time and reply to us for our onward action." (emphasis supplied)

5. Based on this letter, the petitioner submitted that a second extension was in fact granted so that the period for completing the works did not expire until 28 December 1995. The Company's position is that it never agreed to the second extension.

6. It is clear from the October letter that further "action" by the architect was plainly contemplated. The Company did not respond to the October letter. Equally, no evidence of any written extension from the architect to the petitioner giving notice of any extension being granted as required by clause 23 was before the court. It is to be noted that by the date of the October letter, it was already past the date of the first extension. There was no evidence that the architect took any further action to satisfy the requirements of clause 23. That being the state of the evidence, it is not possible to conclude that a second extension was ever granted.

Date of completion of the works

7. There was a flurry of activity in March 1998. On 8 March 1998, the architect issued a certificate stating that Practical Completion of the Works was achieved on 28 December 1995. On 19 March 1998, Levett & Bailey, Chartered Quantity Surveyors ("the quantity surveyor"), made a valuation of the work in progress. It valued the work completed at a little over $16.5 million. After taking into account the amount previously certified, the amount due was stated to be $2,008,211.40. Then on 15 April 1998, the Final Certificate was issued. The amount certified to be due is the same as the amount appearing in the quantity surveyor's valuation.

8. On the petitioner's own case, the works were not completed until 28 December 1995. It is relevant to note that under the contract, there is a liquidated damages clause (i.e. clause 22 and the appendix) which provided for the payment of $15,000 per day should completion of the works be delayed. Clause 30(7) required the architect to make any necessary adjustment to the contract sum and liquidated damages payable by reason of clause 22 and the appendix constituted such an adjustment. Counsel for the Company submitted that it is reasonable to infer from the fact that the amount shown in the quantity surveyor's valuation and the Final Certificate being the same that no deduction in respect of liquidated damages for delay in completion had been taken into account. So, at a minimum, paragraph (c) of clause 30(7) applied in that liquidated damages had been accidentally excluded from the figure shown in the Final Certificate. The amount of the liquidated damages would of course depend on the date the works were actually completed. Hence its relevance.

9. Although there is a Certificate of Practical Completion, that certificate is not of itself conclusive. Clause 15 of the contract required the architect to "forthwith" issue a certificate when, in his opinion, the works were practically completed. The certificate issued in March 1999 was plainly not issued "forthwith" : it was issued well over two years after the alleged completion of the works.

10. That aside, there is a letter dated 16 April 1996 from the petitioner to the architect in the following terms :

"Re : Demolition and Foundation at 115 How Ming Street, Kowloon

We refer to the captioned project, we would like to inform you that all the foundation works including G/F slab of the captioned project have been completed on 14/4/96."

If, as is the petitioner's stance, the works were completed on 28 December 1995, what was the purpose of this letter? The letter was addressed to the architect but the reason for the letter is not evident. Neither side has adduced any evidence to explain quite why such a letter came to be written. Counsel for the petitioner submitted that there was a grammatical error in the letter and it meant that the works were completed "as at" 14 April rather than "on". In my judgment, that is a possible but not a necessary conclusion. The point having been raised by the Company, it fell to the petitioner to rebut what appeared to be the ordinary meaning of the letter. Since that letter was written by the petitioner, it should have had no difficulty in putting it in its proper context if that would have dispelled doubts as to whether the works had been completed by 28 December 1995. That was not done and no explanation was given.

11. Counsel for the petitioner then sought to derive comfort from certain minutes of a project meeting held on 19 January 1996 among the Company, the project manager Oval Partnership, the quantity surveyor, the architect and W. Hing Construction Company Limited which was to carry out the superstructure work. W. Hing is a subsidiary of the petitioner. The petitioner sought to rely on those minutes as evidencing the fact that completion must have been achieved prior to that meeting as otherwise building works could not have commenced. But when one reads the minutes, the contract for W. Hing to erect the superstructure had not even been prepared. There was thus no question of building works commencing at the time of the meeting. Moreover, the design work had not been done and the sample board and the presentation model had not yet been created. Reading those minutes as a whole, there is nothing from which it would be reasonable to infer that the foundation works must have been completed prior to that meeting.

12. On the evidence, it is impossible to say when completion of the works occurred. It is an entirely open question since the Certificate for Practical Completion was not issued as required by the contract and the petitioner's letter of 16 April 1996 remains a mystery. It is also to be noted that the date stated in the Certificate for Practical Completion is the date of the second extension claimed to exist by the petitioner. What is remarkable is the absence of any evidence from the architect to deal with the existence or otherwise of the second extension and the reason why the Certificate for Practical Completion was not issued "forthwith", not to mention the difficulties arising from the Final Certificate itself. These matters once raised cast the onus upon the petitioner to dispel the doubts arising regarding the date the works were completed. In my judgment, the petitioner failed to do so.

CONCLUSION

13. On the petitioner's own case, the works were not completed until 28 December 1995. So if a second extension was never granted, there would have been a delay of 63 days which at $15,000 per day would have resulted in damages of $945,000 payable by the petitioner. However, given the possibility that the works were not completed until 14 April 1996, the resulting liquidated damages on that assumption would exceed the amount of the underlying debt.

14. On the evidence before me, I am satisfied that the debt is substantially disputed on bona fide grounds. It is therefore unnecessary to consider the additional point relied on by the Company which is that it also has a cross-claim for loss of rental sustained through the delay.

15. Accordingly, the petition must be dismissed. I also make an order nisi that the costs be to the Company.