TACTFUL CONSTRUCTION & ENGINEERING (HK) LTD v. UNIVIC ENGINEERING LTD

HCCT 57/2016

[2019] HKCFI 1568

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 57 OF 2016

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J U D G M E N T

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Background

1.  The Defendant in this action was the sub-contractor for laying underground mains and the associated drainage structure for a construction project referred to as the Kai Tak Development (“Development”).  The Defendant is a subsidiary of Kwan On Construction Company Limited (“KO”), which was the Main Contractor of the Development.  The works under the Main Contract between the Government and KO consisted mainly of the laying of underground mains, the associated drainage structure, and the construction of the roads within the Development.

2.  In about early 2015, the Defendant sub-contracted part of the drainage works of the Development (“Works”) to the Plaintiff (“Sub Contract”). The Works under the Sub Contract were mainly the laying of high density polyethene pipes (“HDPE Pipes”) of 500 mm diameter, together with the various associated pipe fittings.

The pleaded case

3.  It is necessary to start with the pleadings filed in the case.  It is trite, and parties scarcely need reminding, that the purpose of pleadings is to ensure that the real issues in dispute between the parties can be defined in advance of trial, to enable parties to know the case it has to meet and the evidence to prepare for trial.  In Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632, the Court of Final Appeal emphasized the important and pervading principles that must be adhered to in relation to pleadings:

“A party must raise all the issues he wishes to raise to be dealt with at the trial. Parties are not entitled to have issues recently thought up dealt with separately and piecemeal. The other party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken….

Pleadings are not mere formalities.  They impose a necessary discipline and a fundamental to enabling every procedural facet of the adversarial system to operate fairly.”

It is the pleadings that will define the issues in the trial and dictate the course of proceedings both before and at trial.  Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round.  In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced.  (Para 18/0/3 Hong Kong Civil Procedure 2019)

4.  By the Statement of Claim, the Plaintiff seeks from the Defendant payment of the sum of $3,618,314.70 (“Sum Due”), as the outstanding amount due to the Plaintiff as payable by the Defendant, and representing the value of the Works carried out by the Plaintiff under the Sub Contract.  The Plaintiff claims (in paragraph 4 of the Statement of Claim) that it had been provided by the Defendant with a bill of quantity for quotation, and that the Defendant had indicated to the Plaintiff after an exchange of emails that the tentative total sum of the Works under the Sub Contract would be around $5.5 million.  By way of particulars, the Sum Due was stated to be the outstanding value of the Works carried out, the costs of rental of machinery, and recovery of deductions said to have been wrongly made by the Defendant as contra charges (totaling $1,976,863.86) from the payment to which the Plaintiff was entitled, as particularized in a schedule attached to the Plaintiff’s letter dated 28 September 2016 (“Schedule”).  The Schedule represented the Plaintiff’s Final Account in respect of what it claims to be the sums payable to it under the Sub Contract.

5.  By way of Defence, the Defendant disputes the Sum Due to the Plaintiff under the Sub Contract, and in particular, disputes the rates at which the value of the Works should be calculated.  In paragraph 4 (i) of the Amended Defence, the Defendant avers that the Plaintiff had agreed that the rate for the Works under the Sub Contract would be the same as the rate of the Defendant’s former sub-subcontractor, Shum Kuen Plumbers Limited (“SK”), which had ceased to carry out its work with the Defendant in or about end 2014. The Defendant denies that the tentative total sum of the Works under the Sub Contract was around $5.5 million, as the Plaintiff alleges.

6.  In paragraph 4 (ii) of the Amended Defence, the Defendant pleads that the parties had agreed that the quantities of the Works would be valued by the actual work done on site, on a remeasurement basis.  Paragraph 4 (ii) is admitted by the Plaintiff in its Reply.

7.  The Defendant claims, in paragraph 5 of the Amended Defence, that the Plaintiff commenced the Works in about early 2015 but failed to complete all the Works.  Paragraph 5 pleads that the Plaintiff abandoned the Works in about late 2015, when it left the site.  The Defendant avers that the Plaintiff was in total repudiation of the Sub Contract.

8.  The Defendant further claims (in paragraph 5A of the Amended Defence) that in breach of the Sub Contract, the Plaintiff had failed to maintain the cleaning of the pipes, and had failed to ensure that the pipelines were installed properly and were sufficiently watertight.  As a result, the Defendant claims that the Works performed by the Plaintiff were defective.

9.  In paragraph 6 of the Amended Defence, the Defendant claims that it had to engage another subcontractor to complete the remaining of the Works, of a length of 139.2m, at a higher rate in about early 2016.  The Defendant therefore claims loss and damages sustained as a result of the Plaintiff’s alleged breach of the Sub Contract.  These damages are pleaded in paragraph 17 of the Amended Counterclaim, representing: (1) the extra costs paid by the Defendant for the completion of the remainder of the Works left by the Plaintiff, of a length of 139.2 m, at the additional costs of $243,600; and (2) the costs of rectifying defects in the Plaintiff’s Works, of $900,000. The total damages claimed in the Amended Counterclaim are $1,143,600.  In the course of trial, the Defendant’s witness explained that the length of the Works left undone by the Plaintiff was only 60 m, and not 139.2 m.  The additional costs of completing these unfinished Works were accordingly reduced by half, to $105,000.

The dispute as to the contract rate

10.  The most substantial dispute between the parties is on the rate at which the Works under the Sub Contract should be paid. 

11.  On the evidence, it was at the request of the Defendant (made by the Defendant’s email to KO of 20 January 2015), that Mr Ho Chi Kwong of the Plaintiff received from KO (the Main Contractor) by email, on 21 January 2015, a blank bill of quantity (“BQ”) together with drawings for the Works.  The email from KO to Mr Ho was copied to Mr Michael Chung (“Chung”) of the Defendant at the Defendant’s email address.  In the 21 January 2015 email, KO sought from the Plaintiff a quotation for the works covered by the BQ.  The BQ only set out the quantities required for the different descriptions of work involved (such as for Item 4.1.37, 592 pieces of HDPE pipes depth not exceeding 1.50m).  In response, on 21 January 2015, Mr Ho of the Plaintiff sent by email to Chung the BQ with the labour rates for the different items of work inserted (for example, Mr Ho wrote “2,450” as the rate for Item 4.1.37).  The total amount for the items of work described in the completed BQ was $2,897,451, and Mr Ho inserted that this amount excluded the butt fusion machine, excluded materials, and that the Main Contractor was to supply electric power and water, and provide insurance.

12.  On 24January 2015, Mr Ho received an email from KO (“24/1 Email”), which stated:

“Enclosed please found (sic) the proposed rate (all cost inclusive unless otherwise specified) for your consideration. We look forward to a reply at your earliest convenience.”

Enclosed with the 24/1 Email was a BQ (“24/1 BQ”), with the heading “Price Comparison for DN 500 Twins Rising Main (from CH 0 - 441.533)”.  The last big box of the 24/1 BQ was headed “Tactful” (i.e.  the Plaintiff), and against each description of the works set out in the 24/1 BQ, “material cost” and “labour cost” were set out, with the rates and amounts for each item of work in the BQ. By way of illustration, for HDPE Pipes depth not exceeding 1.5m, the rate of material cost was “2,193.10”, the rate of labour cost was “2,450”, the total rate being “4,643.10”, and the total amount involved for the quantity of 592 of HDPE Pipes depth not exceeding 1.50m was “2,748,717.24”.  The “labour rate” in the 24/1 BQ adopted the same labour rates proposed by Mr Ho in his email to Chung of 21 January 2015.  The total rate of “4,643.10” for HDPE Pipes depth not exceeding 1.50m was the sum of the labour rate of 2,450 and the material rate of 2,193.10 proposed.  There were additional amounts for the provision of a welding machine, and for the supply of temporary electric city and water.

13.  The 24/1 BQ appended to the 24/1 Email had a notation at the end, which reads:

“Above rates are all included (sic), except those are specially specified”

The reference to “all included” must have meant “all inclusive”.

14.  The 24/1 Email was copied to Chung of the Defendant.

15.  According to the Plaintiff, Mr Ho had no objection and was happy to accept the “all-inclusive” rates set out in the enclosure to the 24/1 Email.  There is no evidence of any further communication between Mr Ho on behalf of the Plaintiff and any representatives of either the Defendant or KO, after Mr Ho's receipt of the 24/1 Email, but on 26 January 2015, the Defendant emailed Mr Ho, with copy to KO, instructing Mr Ho to arrange for his staff to attend the site for safety training.  There is no dispute that the Plaintiff commenced the Works on the site on 29 January 2015.

16.  On the Defendant’s part, Chung who was the Defendant’s project manager sought to disclaim the 24/1 Email, and denies the application of the rates set out in the 24/1 BQ attached to the 24/1 Email.  Chung’s evidence is that he could not confirm whether the Defendant or he had received the 24/1 Email, nor could he verify its content, since his staff had not been able to check the relevant mailbox.  Nor could he confirm whether anyone of the Defendant had sent the 24/1 Email.  He only alleged that the 24/1 Email was “very suspicious”.

17.  Short of any pleaded claim and cogent evidence of the 24/1 Email being a forged document, I reject any suggestion by the Defendant that the 24/1 Email is a fabricated document, or that it had never been sent, or was never received by Chung or the Defendant.  As the court pointed out in Eu Asia Engineering Limited v Wing Hong Contractors CACV 29/1992, the court places greater significance on contemporaneous documents in construction cases.  This is because such documents would usually have been prepared in good faith before any dispute had arisen - as compared with assertions made by parties after a dispute, and for the purposes of legal proceedings, in which they seek to advance claims to support their case or defence.  It is improbable that in January 2015, at the commencement of the Sub Contract and before any disagreement had arisen, the Plaintiff or Mr Ho would have devised false emails and created documents which were not in fact sent, or set out in such documents fabricated facts which were not in fact true at the time.

18.  As for the Defendant’s claim, that as a condition for its sub-contracting a part of the works under its own contract to the Plaintiff, the Plaintiff had been required to adopt the same rates as those of SK which had already undertaken a part of the works prior to the Plaintiff’s involvement, there has been no direct evidence adduced by the Defendant in this regard.  There is only Chung’s assertion, that there was such a condition, and that he had been told that the Defendant’s quantity surveying manager (“Ms Tai”) had never permitted the Plaintiff to use a rate different to or higher than SK’s rate. Neither Ms Tai, nor anyone else from the Defendant’s quantity surveying team, gave evidence as to the fact that the Plaintiff had been asked to adopt SK’s rate, or how the Plaintiff had been required, as a condition of its contract to undertake the Works, to use SK’s rate, and who and how the Plaintiff had agreed to such condition.  The claim by Chung that the rates specified in the 24/1 Email were “absurdly high” is irrelevant to whether there was indeed agreement made between the Plaintiff and the Defendant, that the Plaintiff would adopt SK’s rate for the Works.  The fact that SK had agreed on specific rates with the Defendant for SK’s work is similarly irrelevant to whether there was agreement between the Plaintiff and the Defendant to adopt SK’s rates.

19.  The Defendant and Counsel repeatedly stated that the rates set out in the 24/1 BQ were “exceedingly high”, such that they were said to be “devoid of any commercial sense”.  It is not the function of the court to determine the commercial attractiveness of any price in a contract which had been freely negotiated between the parties.  Nor is the court in a position to judge the commercial sense of the price.  There is no expert evidence on the market price prevailing then, and there may have been many commercial reasons, and quid pro quo, not in evidence, as to why the parties had negotiated and agreed on that price.  The appropriate time for the Defendant to comment and bargain with the Plaintiff on the level of pricing is the time when the Sub Contract was being negotiated - and not at trial, after the agreement has been made and the contract work completed, and a claim is made by the Plaintiff for the price agreed. 

20.  I therefore reject the Defendant’s case that SK’s rates apply to the Sub Contract between the Plaintiff and the Defendant, for the simple reason that there is no evidence that SK’s rates had ever been disclosed to the Plaintiff, or that the Plaintiff had been informed by anyone that the SK rates would apply to the Works to be carried out by the Plaintiff under its Sub Contract with the Defendant, and that the Plaintiff had agreed to this.

21.  As a matter of law, whilst the rates offered by Mr Ho in his email of 21 January 2015 to Chung of the Defendant constituted an offer to enter into the Sub Contract for the Works at his proposed rates, the 24/1 Email and the attached rates constituted a counter-offer from KO and the Defendant, which was accepted by the Plaintiff when, without raising any further objection to the rates, the Plaintiff commenced the Works at the site on 29 January 2015, to the knowledge and with the consent of both the Defendant and KO. 

22.  The Defendant adduced evidence as to the parties’ conduct after January 2015, and sought to argue that the subsequent conduct of the parties suggest that the Plaintiff had never regarded the rates in the 24/1 BQ as being part of the Sub Contract.  In my judgment, any evidence of the parties subsequently departing from an agreement concluded in law does not necessarily mean that they had never intended the agreement to be effective and binding.  A proper conclusion to draw from such evidence may be that the parties had agreed to vary their agreement and that they have become bound by the agreement as varied. The evidence relied upon by the Defendant only raises this question, of whether the agreement concluded in law by the Plaintiff’s acceptance of the 24/1 Email and the 24/1 BQ could have been varied.   

23.  It is not disputed that after commencement of the Works, on 6 February 2015, the Plaintiff prepared and submitted to KO an application for the 1^st Interim Payment under the Sub Contract (“Interim Payment 1”).  This was prepared by the Plaintiff adopting a labour rate of $2,450, instead of the “all inclusive” rate of $4,643.10 in the 24/1 BQ.  Interim Payment 1 was accepted and paid by the Defendant, as evidenced by the Payment Statement issued by the Defendant, dated 14 February 2015, for the period ending 18 February 2015.  In the same way, Interim Payment 2 was applied for and paid, using the Plaintiff’s labour rate proposed in Mr Ho’s email of 21 January 2015.

24.  Mr Ho’s evidence is that the applications for Interim Payment 1 and Interim Payment 2 were prepared by his staff, and he had failed to notice that his staff had adopted the wrong rate, i.e.  the labour rate used in his email of 21 January 2015 when the BQ was submitted to Chung.  It was a mistake on his part, but Interim Payment 2 was made by the Defendant, adopting different rates. For HD Pipes depth not exceeding 1.50m, a rate of $4,826 was used by the Defendant.  This was higher than both the rate used in the 24/1 BQ, and the alleged SK rate relied upon by the Defendant at trial.

25.  According to Mr Ho, he did not seek to argue with the Defendant over the rates applied by the Defendant for the Interim Payments made.  On Mr Ho’s evidence, some of the rates were higher and some were lower than the Sub Contract rates, and he was more anxious to get payment for the work done.

26.  Interim Payments 2, 3, 4 and 5 were all made and certified by the Defendant, adopting rates of $4,826 for HDPE Pipes of depth not exceeding 1.50m. The Defendant’s Interim Payments 6, 7 and 8 adopted another rate of $4,200 for the same pipes.

27.  When it came to the final account, the Plaintiff’s claim for payment was on the basis of the higher rates at which the Defendant had made payment under Interim Payments 2 to 5, namely $4,826 for the HDPE Pipes of depth less than 1.50m.  That was the highest rate in its favour.  The Defendant’s final account, however, was prepared not on the basis of the rates set out in the 24/1 BQ, nor any of the rates (of $4,826 and $4,200) adopted in the Interim Payments, but on the basis of the lower rates which they claim to be SK’s rates ($2,450 for HDPE Pipes of depth less than 1.50m) allegedly agreed with the Plaintiff.

28.  The Defendant’s explanation in relation to the different rates used to calculate and certify payments due to the Plaintiff is totally inadequate.  There has been no explanation in the witness statements of how $4,826 and $4,200 were derived.  Chung only states that “interim payment certificates might well be overstated in order to assist subcontractors”.  The Defendant relies on the fact that it is well known in the construction industry that interim payment certificates are merely for reference, and cannot be taken to imply or contradict the final account. 

29.  According to Mr Ho, at no time in the course of the Sub Contract and after submission of the Plaintiff’s applications for payment did the Defendant ever inform the Plaintiff that they refused to pay because the Plaintiff was only entitled to be paid according to the rates of SK.  The SK rates first appeared when the Defendant filed its Defence and Counterclaim on 20 February 2017.

30.  It has also been highlighted that according to the further and better particulars of the Defence and Counterclaim filed on 14 July 2017, the rates of SK as originally pleaded (e.g.  2,633.80 for HDPE Pipes of depth not exceeding 1.5m) were also totally different to the rates pleaded in the amended particulars filed on 1 August 2018 (2,450 for the same pipes).  The Defendant’s case on the SK rates allegedly agreed kept evolving.

31.  It is inaccurate for the Defendant to submit that both the Plaintiff and the Defendant had used SK’s rates in the interim payment applications and certifications, by reference to the 2,450 rate for the HDPE Pipes of depth not exceeding 1.5m.  2,450 was also the Plaintiff’s labour rate as proposed in its first offer (Mr Ho’s email of 21 January 2015).  2,450 was only alleged by the Defendant to be SK’s rate in the amended particulars of the Defence and Counterclaim filed on 1 August 2018 (as the Defendant’s originally pleaded SK rate for the HDPE Pipes of depth not exceeding 1.5m was 2,633.80) - which was never used in any of the Interim Payment applications or certifications.

32.  Although Counsel for the Defendant referred in his submissions to the rate of $4,826 as a “Subsidize Rate”, whereby the Defendant had agreed to provide financial assistance to the Plaintiff during the period of the Sub Contract, this was never so explained by the Defendant’s witnesses, apart from Chung’s cursory and speculative statement (paragraph 42 of his witness statement) that “interim payment certificates might well be over-stated in order to assist subcontractors”.  (Emphasis added)

33.  Interim certificates are not meant to be conclusive and final, in the absence of express and clear provision to the contrary in the parties’ agreement (Wide Project Construction (HK) Ltd v Incorporated Owners of Yen Dack Building [2005] HKEC 1997).  Certification of the value of works for the purpose of making monthly payments is meant to be provisional and represents only an approximation (Wong Chuk Kin v Millennium Engineering Ltd [2007] HKEC 1521).

34.  The parties were entitled to treat, and appeared to have treated, the interim payments and the rates used, as “interim”: subject to finalization of the accounts and of their respective entitlement upon completion of the Works. The parties were in any event never ad item on the rates used for interim payments at any definite time.  Even on the Defendant’s case, it is not alleged that the parties had agreed the contractual rate to be either 4,826 or 4,200, as the Defendant certified and used in the Interim Payments 2 to 8.  The Defendant’s argued case is that these were purely “subsidize rates”, concessionary and purely to help the Plaintiff’s financial situation during the subsistence of the Sub Contract. 

35.  I cannot see any basis to find that there had been agreed variation of the rates after conclusion of the only agreement, as a matter of law, upon the Plaintiff’s acceptance of the 24/1 Email and the rates set out in the 24/1 BQ.

36.  The Plaintiff’s pleaded case (paragraph 4 of the Statement of Claim) is on the basis of the rates quoted in the 24/1 BQ, for the total sum of $5.5 million under the Sub Contract, with deductions.  In its answer to the request for further and better particulars of the Statement of Claim, the Plaintiff also referred to the 24/1 Email and the rates in the 24/1 BQ.  The particulars of the Statement of Claim referred to the breakdown of sums set out in the Plaintiff’s final account attached to a letter dated 28 September 2016, which refers to different rates (e.g.  of 4,826 for the HDPE Pipes of depth not exceeding 1.5m).  The criticism may be that the final account is not supporting evidence of the rates pleaded.  The Plaintiff has indicated that it is prepared to accept the lower rates in the 24/1 BQ, and not to insist on the rates claimed in its final account.  I do not agree that the Plaintiff is precluded from doing that, when the Court finds that the 24/1 Email and 24/1 BQ constitute the parties’ agreement.  The Sub Contract made on the basis of the 24/1 Email was the pleaded case which the Defendant had been prepared and had come to court to meet, and the Plaintiff has pursued that case, for a lesser sum as claimed originally in its final account.

37.  In my Judgment, the contract rates under the Sub Contract are as set out in the 24/1 BQ.

The Plaintiff’s claim for the extra over for EF Coupler

38.  A further dispute is in respect of the Plaintiff’s claim for $99,000 for 22 pieces of an item known as “EF Coupler”.  A coupler is a short length of pipe or tube which allows two pipes or tubes to be joined or welded together. 

39.  The Defendant’s defence to the Plaintiff’s claim for the amount is that there is no such item or costs therefor included in the 24/1 BQ which forms part of the Sub Contract.

40.  On the pleadings and evidence adduced by both parties, the Sub Contract was made orally, and evidenced by the correspondence between the parties.  It is not in dispute that at the time when the parties negotiated and concluded the Sub Contract, the Plaintiff had been sent the 24/1 BQ (setting out the items and quantities of work required) as well as the “twin rising mains drawing” (page 4 of the Core Bundle) (“Drawing”).  The Defendant emphasized that the 24/1 BQ included “extra over for flexible coupling”, but the Plaintiff never quoted for any costs for the EF Coupler (“Coupler”). As there has been no evidence from the Plaintiff as to how the claim for $99,000 was calculated, whether as to the unit rate or the quantity of the Coupler claimed, the Defendant argued that the Plaintiff simply has not discharged its burden of proof for this claim.

41.  The Plaintiff’s case was simply put on the basis that the Coupler was required in order to complete the Works.  In the course of cross-examination, Mr Ho explained that the Coupler was only used in the Sub Contract for 2 purposes: for connection of pipes laid at different stages in terms of time, and for connection of bended pipes.  Mr Ho accepted that as the BQ send to him on 21 January 2015 included items for “bends”, it should have been contemplated that there would be bended pipes in the Works.  Mr Ho claimed, however, that at the time when he submitted the completed BQ to the Defendant on 21 January 2015 and when the Sub Contract was made, he had envisaged that all the pipes subject to the Sub Contract would be laid in one go, such that the Couplers would not be required to join the pipes that were completed at different stages, and hence the costs for the Couplers were not initially included in the BQ.

42.  I find Mr Ho’s above excuse difficult to believe.  As the Defendant has highlighted, the Plaintiff was aware that only part of the works under the Main Contract and the Defendant’s own subcontract were being subcontracted to the Plaintiff, and that other contractors would be carrying out drainage and other works at the site.  This is apparent from the Drawing, which shows the structure of the Works required, and from Mr Ho’s visit to the site on about 21 January 2015.  Any experienced contractor would have been aware that execution of the contract Works would have to be coordinated with the works of other contractors at site.  In cross-examination, Mr Ho accepted that in his 30 years of experience, he had only on one occasion been able to lay hundreds of pipes in one go as a main contractor.

43.  I therefore accept the submissions of the Defendant that without having made provision for the costs of the Couplers in the BQ which it submitted to the Defendant, the Plaintiff bore the risk of such Couplers being required for the connection of the drains in the likely and probable event that the drain pipes could not be laid in one go, but had to be done in stages in coordination with the progress of the Works at site.

44.  Counsel for the Plaintiff argued that the Defendant had never disputed the Plaintiff’s inclusion of the costs relating to the Couplers in the Plaintiff’s applications for interim payments.  I reject such argument.  The fact that they were deducted in the Defendant’s final account cannot be evidence of the Defendant’s acceptance of the Plaintiff’s claim or application, as the Plaintiff asserts.  In fact, as the Plaintiff had to accept, the Defendant never certified nor made the payment for such Couplers, notwithstanding their inclusion in the Plaintiff’s applications for interim payments.

45.  There is no case advanced that the Couplers were required as a result of any agreed variation to the scope of the Works under the Sub Contract.

46.  In my Judgment, the Plaintiff is not entitled to the costs of the Couplers under the Sub Contract.

The Counterclaim of failure to complete the Works

47.  The Defendant’s complaint, by way of counterclaim, is that the Plaintiff was in breach of the Sub Contract, by failing to complete all the Works which it was required to carry out under the Sub Contract.  This is the pleading made in paragraph 6 of the Amended Defence and paragraph 17 of the Amended Counterclaim.

48.  On this issue, I accept the Plaintiff’s submissions and criticisms of the Defendant’s pleaded case.  There are no pleaded particulars of the alleged unfinished Works “abandoned” by the Plaintiff: how the alleged length of 139.2 m, or amended length of 60 m (as corrected by the witness at trial) was calculated, and where the Works were left undone. 

49.  In Chung’s witness statement filed on behalf of the Defendant, he only stated that on the Plaintiff’s own measurement record (the accuracy of which was not admitted), the Plaintiff did not conduct works at 3 specified locations: CH 109.4 - 185; CH 214.08 - 218.61; and “the connecting pipes to the pumping station”, thus leaving 139.2m of 722.36m uncompleted.  In the course of his cross-examination at trial, Chung explained that the uncompleted Works of 60 m which the Defendant pursues by way of Counterclaim were only at CH 214 - 218 (approximately 8 m in length) which was the location of the double air valve chamber, and at CH -18 - 6 (approximately 48 m in length), which represented the location of the pipes leading to and connecting the pumping station. 

50.  Nevertheless, there is the pleaded case of the Plaintiff’s breach by failing to complete the Works, albeit of a length of 139.2 m which is different to the case of 60 m pursued at trial.  The Defendant relies on Chung’s oral evidence as to 60 m of such uncompleted Works - on the basis of the Plaintiff’s own measurement records submitted in support of the Plaintiff’s final accounts seeking payment.

51.  In answer to such evidence, the Plaintiff’s case is that although its records show that it did not carry out works at (1) CH 0 - 6, and (2) between CH 214.08 and CH 217.262 (which was the location of the double air valve chamber), it had its reasons not to.  The fact that its own measurement records show that there were gaps in the length of the mains which they had completed, and for which they claimed costs in respect only of the completed parts of the Works, is not evidence of the Plaintiff’s breach of the Sub Contract by failing to complete the contractual Works.  Part of the drains between CH 0 and 441.533 were executed by another contractor, prior to commencement of the Plaintiff’s works, such as CH 125 - 185.  If any necessary part of the Works could not be executed as a result of matters not due to the Plaintiff’s fault, or because the Plaintiff was not given the opportunity to complete the Works, the fact that part of the Works remained outstanding cannot be due to the Plaintiff’s breach.  Significantly, it is the Defendant’s Counterclaim that the Plaintiff was in breach and repudiation.  As such, the burden is on the Defendant to establish such breach and to prove its claim for damages sustained as a result of the breach alleged.  I accept that the Plaintiff’s own measurement record is not self-explanatory of its breach.

52.  The Plaintiff’s case, in defence to the Counterclaim of breach, is that the allegedly uncompleted Works connecting the drains to the pumping station were not within the scope of the Sub Contract.  This I cannot accept. 

53.  The Plaintiff places reliance on the fact that the 24/1 BQ had a heading which referred to the Works as “Twins Rising Main (from CH 0 - 441.533)”. However, since the Sub Contract between the Plaintiff and the Defendant was made orally, by reference to and as evidenced by the 24/1 Email and the documents sent with the 24/1 Email, the drawings and documents sent to the Plaintiff have to be considered to decide on the scope of the Works covered under the Sub Contract.  The description “from CH 0 - 441.533” may be the starting point in the consideration of the scope, but in my judgment, it does not end there and the Works must be considered in the light of the negotiations and the documents exchanged at the time of the conclusion of the Sub Contract.

54.  Mr Ho accepts in evidence that the drawing of the miscellaneous details for the pumping station (“PS details Drawing”) was provided to the Plaintiff with the email of 21 January 2015, when the Plaintiff was asked to submit a quotation for the works covered by the BQ sent to the Plaintiff.  The PS Details Drawing included the flexible coupling and the flanges, which are required for connection of the pipes to the pumping station.  The bill of quantity submitted by Mr Ho for the Plaintiff included rates for the flanges and the flexible coupling required for works to be carried out at the connection to the pumping station.  This means that the Works under the Sub Contract must have been intended and agreed to include the works on the pipes leading to and connecting the pumping station.  As Counsel for the Defendant argued, it would have been meaningless to provide the PS Details Drawing to the Plaintiff if it was not part of the Sub Contract to execute the works and employ the parts described in the PS Details Drawings. 

55.  For the location of the double valve chamber at CH 214 - 218, the Plaintiff claims that it could not carry out its work there because the Defendant was not able to provide to it the necessary materials required for the Works at the location, nor could it provide the site to the Plaintiff to execute the relevant Works there.  The Plaintiff relies on the email dated 5 August 2015 from Kit So of the Plaintiff (“So”), in which the Plaintiff stated that for CH 215, it was still waiting for materials.  In another email dated 7 August 2015, the Plaintiff asked Mr Kwok of KO for the pipe material for installation, referring to the stub flange and other items.  In apparent reply, Mr Kwok simply asked the Plaintiff to contact the site engineer to follow up on the outstanding fittings.  The Defendant also relies on an earlier email to the Plaintiff dated 9 July 2015, which shows that pipe fittings including the flanges had been made the subject matter of an application made by KO for purchase, in June 2015. 

56.  No witness from KO or the Defendant had been called to give further evidence on the supply of the fittings and materials to the Plaintiff to carry out work at CH 215.  The fact that according to the only documentary evidence available, an application had been made by KO for purchase of flanges in June 2015 does not prove that the said flanges had indeed been purchased, and then supplied to the Plaintiff, for installation and execution of the Works at CH 215.  Since the burden of proof of the Counterclaim is on the Defendant, I am not satisfied on a balance of probabilities, and on the limited evidence available, that the materials requested by the Plaintiff on 7 August 2015 for CH 215 had been provided to the Plaintiff for the necessary Works to be carried out, before they were refused access to the site after November/December 2015.

57.  I conclude that the Plaintiff had failed to complete the part of the Works on the connecting pipes to the pumping station, of 48 m in length.

The Counterclaim for costs of defect rectification

58.  As for the Counterclaim for the Defendant’s costs of rectifying the Plaintiff’s allegedly defective Works, there is dispute as to the unsigned reports which allegedly show the leakage in the pipes and consequently the lack of evidence, and whether it was necessary for the Defendant to execute the cleaning works in the manner alleged, as a result of the Plaintiff’s alleged lack of maintenance of the pipes.  Suffices it to say that at the end of the day, there was in fact no evidence at all from the Defendant’s witnesses as to the alleged damage and costs totaling $900,000 incurred, as pleaded in paragraph 17 of the Amended Counterclaim.  There is no invoice or receipt, for either the CCTV and cleaning costs of $100,000.  Nor is there any invoice or receipt in respect of the costs of the leakage detection and rectification works of $800,000.  The quotation given to Chung on similar works for other pipes, and Chung’s “estimate” of the likely costs involved for rectifying the Plaintiff’s works are not satisfactory evidence of the damage allegedly incurred or the expenses paid as a result of such damage.  The Defendant has simply failed to discharge its burden of proof on the Counterclaim for these charges, which are disallowed.

Conclusion

59.  I find that the contractual rates for the Works under the Sub Contract are as set out in the 24/1 BQ.  The Plaintiff can calculate the amounts due to it, and submit the draft judgment order for approval.

60.  On the Counterclaim, I allow the extra costs incurred by the Defendant for the completion of the Works at CH -18 - 6, of a total length of 48 m, at the rate set out in paragraph 17 of the Amended Counterclaim. 

61.  The parties should agree on and submit the terms of the draft judgment order to be made, in view of the findings I make on the main claim and the counterclaim.  They should also file written submissions on costs, confined to 3 A4 pages for each party, within 14 days.