MING KEE SHIPPING SERVICE (FAR EAST) CO LTD v. CHINAL LIGHT & POWER CO LTD

IN THE HIGH COURT OF HONG KONG SAR

COURT OF FIRST INSTANCE

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JUDGMENT

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1. In 1995, the Defendant China Light & Power Company Ltd. ("CLP") planned to build a power sub-station in Chek Lap Kok, Lantau. Two very large and heavy transformers were to be installed at that sub-station and were required to be transported from Tsing Yi to Sham Shui Kok, Lantau and then be placed in position there. Tender for the moving of the two transformers was invited by CLP and the Plaintiff, Ming Kee Shipping Service (Far East) Co. Ltd. ("the Contractor") was awarded the contract in May 1995 upon the terms of the tender ("the Contract"). The Contract was for a lump sum but the work under the Contract was divided into three Phases. After Phase 1 and 2 (for moving of light weight items) had been performed, there was a dispute as to the ability of the Contractor to perform Phase 3 and pursuant to the Contract, CLP served written notice on the Contractor, terminating the Contract. CLP refused to pay the contractual sum and the Contractor brought proceedings to recover the amount which the Contractor claimed was due under the Contract. CLP engaged another contractor to perform Phase 3 and is seeking the extra costs of such services from the Contractor. The main dispute at the hearing relates to the termination of the Contract by CLP arising from the desire by the Contractor to move and place the Transformers by hydraulic crane at the sub-station instead of by the traditional skidding method desired by CLP. CLP was of the opinion that the Contractor was incapable of properly performing Phase 3 and therefore terminated the Contract by serving the notice. There are also two minor disputes. The first as to Phase 1 replacement cost of moving of a van. The second minor dispute is over the quantum of damages relating to the main question, namely if CLP is entitled to terminate the Contract, what should be the proper sum that the Contractor ought to pay CLP because CLP had to employ another contractor and if CLP is not entitled to terminate the Contact, what ought to be the proper sum pursuant to the Contract which CLP should pay the Contractor, taking into account the fact that the Phase 3 work was actually not done by the Contractor. The main dispute however is on whether the termination of the Contract by CLP was in accordance with the Contract and most of the time and energy during the hearing was spent on this main question.

2. The following are the relevant provisions of the Contract:-

3. The following are the relevant provisions of the Contract's Specifications:-

HISTORY LEADING TO DISPUTE

4. CLP being a very large company, in the course of its business employed a number of contractors to move various CLP equipment. The Contractor is one of those who had previously done work for CLP. For moving heavy equipment, CLP adopted a procedure requiring potential contractors to pre-qualify by demonstrating the ability to perform the required job of CLP. In 1992, the Contractor took part in a pre-qualification exercise in relation to another contract and demonstrated then in 1992 its ability to move heavy equipment by kidding. Skidding is the traditional method by which very heavy objects are moved from one location to another location. Skidding involves the usage of a large number of workers by means of winch, hydraulic jacks, ropes, pulleys, planks and timbers skids to move a very heavy object slowly so that the base of the object was at all times in contact with support. Skidding is the opposite of crane lifting, the essence of which is that the heavy object is lifted off ground support and suspended in air or moved in the air. The Pictures in Exhibit D5 do give a good illustration of skidding.

5. The reason why a company such as CLP always used skidding is because safety is a very important consideration for CLP. Safety to CLP means safety for everyone and everything concerned with the moving operation: safety to the workers of the Contractors, to the staff of CLP, to the equipment being moved and to the plant and the Sub-station where the operation is taking place. It is in this context of the strict demand for safety by CLP that we have to understand the history of the evolution of this Contract which led to the eventual conflict between the parties, specially by way of the two keys persons involved in this Contract, Mr. Tommy Singh of CLP ("Singh") and Miss Chino Ng of the Contractor ("Miss Ng").

6. Prior to the Contract being awarded to the Contractor, there was a Site meeting on the 25^th April 1995 attended by on the Contractor's side, Miss Ng and her boss Mr. Lee and on the CLP's side, Singh and Mr. Ho. As the Contractor had already previously in 1992 shown the ability to do skidding there was no pre-qualification skidding exercise required from the Contractor. But it was at that Site meeting in April 1995 when Singh explained and emphasized to the representatives of the Contractor that the moving of the large transformers under the Contract would require Contractor's doing the moving by skidding. There was a dispute at the hearing as to whether Singh had made such statement at the April 1995 Site meeting and for reasons which I later stated, I accept Singh's evidence on this episode.

7. On the 4^th of May 1995, the Contractor submitted its tender to CLP and on the 18^th of May 1995, CLP wrote to the Contractor accepting the tender of the Contractor. That letter dated 18^th May 1995 was countersigned by the Contractor the next day, 19^th May 1995.

8. Late May 1995 to early June 1995 was the period when Phase 1 of the Contract was being performed. Singh was the Responsible Officer nominated by CLP under the Contract and therefore the Contractor was principally to work with and on the instructions of Singh, who was a meticulous and demanding Senior Transport Supervisor of CLP. On the Contractor side, the person who provided the public face of dealing with CLP was Miss Ng. Miss Ng, was previously a secretary, but at the material time had become the assistant of Mr. Lee Kam Ming, the proprietor of the Contractor. It will be seen later that Miss Ng was neither an engineer nor someone with much technical expertise or experience. The conflict between Singh and Miss Ng eventually led to the dismissal of the Contractor. The first serious conflict took place over the moving of a van onto the barge.

9. On the 5^th of June 1995, the Contractor was proposing to move a light van onto the barge by the following operation:-

(1) drive the van up the ramp onto the trailer;

(2) lift the trailer with the van on top, onto the barge.

Singh discussed this with Miss Ng and informed her as to why he considered such proposed method of moving the van to be inappropriate and asked for a different and safer way of doing that work. Miss Ng after consulting Lai Wing Lun of Fu Wah Transportation Company insisted on what the Contractor had originally proposed (van on trailer) instead of by means of the safe and usual net method. Singh therefore stopped that work. On the 8th of June 1995 there was a meeting at which Miss Ng and Mr. Lee of the Contractor were asked expressly by CLP to deliver the van in accordance with CLP's safety requirements and instructions but the Contractor refused. At the meeting Miss Ng was informed that another contractor would be engaged to do that van delivery work. Subsequently the van was moved by another outside contractor at the cost of some $7,850. This first serious conflict between Singh and Miss Ng was an early indication of CLP's opinion of Contractor's inability to properly perform the Contract which opinion CLP then acted on by stopping the proposed inappropriate work and engaging someone else to do the work.

10. On 7^th July 1995, CLP sent to the Contractor a Fax notifying the Contractor that Phase 3 delivery was to commence on 24^th July 1995.

11. On the 18th July 1995, the Contractor asked for an urgent meeting with CLP. The next day, 19^th July there was the first of three meetings between CLP and the Contractor. The meeting scheduled for the morning had to be postponed to the afternoon before of a medical appointment of Miss Ng. At that meeting Miss Ng proposed carrying out the vital Phase 3 moving of the Transformers by using crane instead of using the traditional skidding method. Singh refused to give his agreement to move the Transformers with crane. CLP however indicated that it would be prepared to reconsider the crane method if the Contractor could satisfy CLP that the crane method was safe after giving more information of how it proposed to safely move the Transformers by using the crane method. Singh also asked for the test certificates for performing the work. The Meeting of 19^th July did not go well between the parties and there was serious disagreement. That the 19^th July meeting did not go well was well demonstrated as the Contractor took the somewhat unusual step of bringing its solicitor to the next meeting on the 21^st July 1995. The day after the 19^th July Meeting, the Contractor faxed to CLP a number of documents including various certificates and materials. But CLP found the documents unsatisfactory which did not give confidence to CLP that the Contractor could carry out the work under the Contract.

12. The 21^st July 1995 Meeting between the Contractor and CLP was crucial as time was running short and the Contractor was still insistent on using the crane method while CLP was adamant in relying on the traditional skidding as it was not convinced that the Contractor had the capability of using the crane method or that the crane method could safely move and place the transformers. Therefore that Friday meeting was the last opportunity for the Contractor to convince CLP of the Contractor's capability of safely moving and placing the Transformers by the crane method. The meeting was long and finished at about 8 p.m. At the end of the Meeting, the Contractor was still insistent on using the crane method repeating what it had been saying all along that skidding was old fashioned. On the other hand CLP was firmly against the crane method as CLP was unconvinced of the safety of the crane method proposed at the Meeting by Miss Ng. It was agreed at the end of the Meeting that there would be one final meeting at 10.00 a.m. on Monday, the 24^th July and that by 10.00 a.m. that morning, the Contractor must furnish to the satisfaction of CLP all the items in a signed Meeting Agenda List which include the following documents: -

The Contractor's Miss Ng was further warned at the end of that 21^st July Meeting that if it failed to produce any of the items in the Meeting Agenda List by 10.00 a.m. on 24^th July 1995, CLP would terminate the Contract without further warning.

13. Over the weekend, the Contractor faxed to CLP a very brief Method Statement and a simple Sketch Plan, plus details of a different crane instead of the Grove crane previously proposed. On the 24^th July 1995, Miss Ng came at about 10.00 a.m. to the office of CLP for the Meeting. She came alone, without solicitor or Mr. Lee. On the CLP side, there was Singh and other CLP staff, although Miss Ng said that Singh was not present at that 24th July meeting which contention I reject. She did not have the valid Safe Working Load test certificates for hydraulic jacks and for the chain blocks as required by the Meeting Agenda List. It was not a long meeting. Miss Ng was asked a few questions, inter alia about the crane method statement and Sketch Plan and about the documents sent to CLP but she was unable to give any reasonable answer. She was then told that the Contract was terminated by CLP and she was given a letter dated 24^th July 1995 from CLP terminating the Contract.

14. Very shortly after the termination of the Contract, CLP employed another contractor Kwok Kam Hei to do the Phase 3 work by skidding. The costs of that work together with wasted administrative costs of new tender came to $568,170.83.

15. On the 14^th September 1995, this Action was commenced by the Contractor suing for $852,000. The Defence of CLP is that it was entitled to terminate the Contract and entitled to the Counterclaim of replacement cost of moving van and replacement cost of employing another contractor to do Phase 3.

16. At the end of the Trial, many of the issues between the parties had fallen away and there were only 3 issues which require determination by the Court, namely:-

I will consider each of the 3 Issues, in turn. But before I do that, it is convenient to first set out my views as to the general credibility of the witnesses who gave evidence before me.

CREDIBILITY OF WITNESSES

17. On the factual side, three witnesses for the Contractor and four witnesses for CLP gave evidence at the Trial. Evidence was also heard from one expert from each side.

18. Of the factual witnesses, the two key witnesses were Miss Ng for the Contractor and Singh for CLP. Having heard and seen them giving extensive evidence before me and this is particularly true in respect of Miss Ng, I have no doubt that I would reject the evidence of Miss Ng and prefer the evidence of Singh where there might be conflicts between the evidence of Miss Ng with witnesses for CLP and where there might be conflict between the evidence of Singh with evidence from those called by the Contractor. Miss Ng who is in her thirties was very attractive in appearance but I regret to say that was her only attribute which was obvious to this Court. Although she was said to be an assistant of Mr. Lee of the Contractor, she seemed to me more like a secretary rather than an assistant (she was an executive secretary in the Contractor company until April 1995) and she certainly did not have the capability to be handling the job of running this Contract, even with Mr. Lee supervising or helping her. (I know of course nothing about Mr. Lee's own capability). When she was giving evidence, she was very often totally lost which accounted for the long periods of time or pauses before she could give an answer, often to fairly simple questions. And yet she was supposed to be the person on behalf of the Contractor who was dealing with this Contract and talking to CLP about what was supposed to be done under Phase 3. I am therefore not surprised that CLP had lost all confidence in the ability of the Contractor to properly perform Phase 3 of the Contract. I have formed a very negative view of Miss Ng as a witness and where her evidence is material to the determination of the case, I would without hesitation reject her evidence and prefer the evidence from the CLP witnesses.

19. Singh was a totally different witness from Miss Ng. He struck me as a demanding officer who knew his job very well and who required high standards to be maintained. I was impressed both by his way of giving evidence as well as by the substance of his evidence. He was forthright in admitting mistakes when he realised he had made mistakes. I find him to be a truthful and reliable witness and whenever there is any conflict between his evidence and that of witnesses for the Contractor, I prefer his evidence.

20. Lai Wing Lun, the sole proprietor of Fu Wah Transportation Company, the sub-contractor was a confusing witness. I form the view that he has low capability although I cannot say that he was always a untruthful witness. In so far as his evidence was supportive of Miss Ng, I reject his evidence.

21. Paul Kwok Chi Kwong of Reeson Crane & Engineering Ltd. on the other hand was not a man of low intelligence. I found him to be astute and to tailor his evidence in such a way as to best serve the Contractor. Although he is intelligent, I do not find him to be a witness of truth or reliability.

22. Jimmy Ho Chiu Min, the assistant Procurement Manager of CLP also gave evidence before me. His evidence was really of marginal significance. He was not always a coherent witness but where his evidence was material to the issues, I accept his evidence in support of CLP's case.

23. Kwok Chi Ming gave short evidence and I have no difficulty in accepting his evidence.

24. So far as the technical experts are concerned, it is really something of an uneven match. Mr. Quincy Lloyd of Carmichael & Clarke is of course well known in Hong Kong. He had extensive experience and is of high technical competence and he gave his evidence clearly, fairly and well. I accept his evidence and the reliability of his evidence. On the other hand, the technical expert of the Contractor, Mr. Sequeira did not give his evidence well nor did he give this Court the impression that he has the same technical capability as Mr. Lloyd. At times, the eliciting of oral evidence from Mr. Sequeria was so painful that the Court was left in the strange position of not knowing how much allowance should be given for Mr. Sequeria's advanced age or that English was not his mother tongue. But even giving every possible allowance, I have no doubt that no firm reliance could be placed on Mr. Sequeria or his evidence. There is therefore no question that this Court prefers the evidence of Mr. Lloyd.

ISSUE 1 -MOVING VAN

25. The moving of the Van onto the barge as proposed by the Contractor consisted of two operations, firstly the driving up of the van up the ramp onto the trailer and secondly the hoisting of the trailer with the van sitting on top onto the barge. The Photographs at pages 251 of the Bundle show the trailer and the ramp of the trailer up which the van was supposed to be driven as desired by the Contractor. The trailer was not equipped with any supporting legs. Two wooden blocks in poor condition were placed underneath one side of the front end of the trailer supplemented by a pair of forks of a forklift truck underneath the goose neck of the trailer (see paragraph 9(b) of Singh Statement and his Photograph 2). It seems to me fairly basic that the proposed method of the Contractor of driving the van up the ramp onto the trailer is inherently dangerous as said by Singh and Mr. Lloyd. Miss Ng who insisted on carrying out this operation, albeit after consultation with Lai Wing Lung, exposed herself at that early stage to giving the impression to Singh and others of CLP that the Contractor had someone in charge of the Contract who did not know what she was doing. So my conclusion on the first part of that proposed operation of the moving of the Van was that it was dangerous and unsafe.

26. The second part of the proposed operation was also objected to by CLP as Singh took the view that the proper and safe method of lifting was by means of a net which view was confirmed by Mr. Lloyds, whose opinion was supported by well know literature on the safe method of lifting. On this question, I also hold in favour of CLP.

27. In my judgment, the Contractor was clearly wrong to insist on moving the van onto the barge in the manner it had proposed and I accept without question the evidence of Singh and Mr. Lloyd that the net method was the appropriate and safe method. There are at least 7 reasons why the Contractor's proposed method was unsafe, namely:-

It follows therefore that on this 1^st Issue, the Contractor is liable for the replacement cost of moving the van.

28. A faint question was raised as to the quantum of that issue, with CLP claiming the full cost charged by Ah Tai of $7,850 whereas the Contractor contends that only $5,000 should be charged as Miss Ng was alleged to have offered to Singh on 8^th June for that job to be done by Lai at $5,000. I do not accept the evidence of Miss Ng on this point (or for that matter on practically anything). I hold that the quantum claimed by CLP for the replacement cost of moving the van can be recovered in the sum of $7,850.

29. The implication of what I had decided on this 1^st Issue touches also on the 2^nd Issue of Termination. It seems to me that the van episode did legitimately give rise to two conclusions which any reasonable person in charge of CLP would come to, namely:-

ISSUE 2 - TERMINATION OF CONTRACT

Interpretation of Clause 4.1

30. Clause 4.1 of the Contract provides for four situations whereby CLP can terminate immediately by written notice. The four situations are:-

It is to be noted that it is only in relation to the second situation of incapability to perform, a defective quality of the Contractor is related to the opinion of CLP. The second situation above does not call for the determination of whether in fact the Contractor had become incapable of performing the Contract. What is required to satisfy the second situation is that CLP was of the opinion that the Contractor had become incapable of performing the Contract. In my view, a subjective opinion of CLP was all that was required under Clause 4.1 (ii) and if there was in existence that opinion of CLP then in my view it does not matter even if in fact the Contractor was capable of performing the Contract. The Court is bound to give effect to the word "in the opinion of the Company" and as I see it, to give full effect to those words, I must determine this question of termination under Clause 4.1 (ii) by reference not to whether in fact on the 24^th July 1995 the Contractor had become incapable of performing the Contract but by reference to whether on the 24^th July 1995, CLP was of the opinion that the Contractor had become incapable of performing the Contract. For ease of convenience I will hereinafter refer to this test as the "Subjective Test".

31. Miss Lau for the Contractor in a vigorous submission, however contended for a different test, namely not whether there was in existence that opinion of CLP on the 24^th July 1995 but whether that opinion of CLP if in existence on the 24^th July 1995 was formed reasonably by CLP (second requirement). It can be seen that if Miss Lau is correct, then instead of one requirement, she has introduced a second requirement of reasonableness in forming that opinion. In fact her aggressive submissions went even further because she also contended that not only must the forming of that opinion be reasonable but that only grounds and reasons which were advanced at that time as forming that reasonable opinion of incapacity could be relied on by CLP and no other reasons or grounds. Miss Lau therefore has introduced the third and fourth requirements under Clause 4.1(ii), namely that the reasonable opinion must be announced at that time with reasons or grounds in support (third requirement) and that only those reasons or grounds announced on the 24^th July 1995 and no other reasons or grounds could be relied on by CLP (fourth requirement) as basis for the reasonable opinion of incapability. I am wholly unable to accept these submissions of Miss Lau as they are not supported by the words used in Clause 4.1(ii) and they would be introducing (for the invocation of the right under Clause 4.1(ii)) requirements based on non existent language. Clause 4.1(ii) did not call for or say that the opinion of CLP must be reasonable or that reasons or grounds are required to be given in support of the reasonable opinion. If Miss Lau is correct in her submission, then not only is the "Subjective Test" to be rejected but also the objective test of whether in fact the Contractor was incapable to perform on the 24th July. Instead the Court would have to look at a much more elaborate and difficult test namely that whether the factors and reasons which must be given by CLP on the 24th July 1995 were reasonable and whether those factors and reasons (even if reasonable) would in fact render the Contractor incapable of performing the Contract.

32. The primary submission of Miss Lau on the interpretation of Clause 4.1(ii) rests on the contention that there is an implied requirement that CLP must act reasonably in forming the opinion of the Contractor's incapability. I do not accept that submission. I do not see any basis to convert what in the sub-clause is a simple requirement of the existence of the opinion into a double requirement of both the existence of the opinion and the reasonableness of that opinion. Reasonableness of opinion is capable of infinite debate and cannot be shown to be necessary or essential for the sub-clause to work. The simple "Subjective Test" works perfectly well without an additional reasonableness requirement. I see no warrant to read into the sub-clause an implied requirement of reasonableness and thereby to convert what is a simple subjective view of CLP (which is of course written in for the protection of CLP) into a complicated quasi-objective view of whether the opinion is reasonable. Miss Lau suggested that unless the implied requirement of reasonableness is read into the sub-clause it would render other clauses of the Contract such as 3.5, 4.1(i) and 4.2 nugatory. I disagree. 4.1(ii) is directed to the opinion of CLP as to the capability of the Contractor to perform the Contract. In a way it could be said to be directed at the confidence of the employer in the employee and once that confidence is lost then it gives rise to the right of the employer (CLP) to give immediate notice of termination. The key to this is the perception of CLP of the Contractor's incapability. Clauses 3.5 and 4.1(i) relate to something quite different, namely failure by the Contractor to make good default after notice given by CLP to the Contractor. Clause 4.2 is yet a third situation namely when notice to terminate can be given without any reason but with two months prior notice and such termination will only take effect two months later. I see no conflict between Clause 4.1(ii) in the simple way of being construed without implied requirement of reasonableness with Clauses 3.5, 4.1(i) and 4.2 Finally, I am also of the view that the authorities of Hillas v Arcos and Renard Construction v Minister for Public Works referred to me by Miss Lau do not assist the Contractor. Accordingly in my judgment, on the true construction of Clause 4.1(ii) there is no implied requirement of reasonableness for the holding of opinion of incapability.

33. Clause 4.1(ii) does not require reasons to be given for holding the opinion of incapability and it is noticeable that the written notice in Clause 4.1(ii) does not in any way touch on the contents of the notice. If no reason or ground for the opinion is required to be given in the written notice and there is no requirement for reason or ground to be given for holding the opinion of incapability, I do not see how it could be said that an opinion which was held could be said to be no longer reasonable merely because Grounds D, E and F were not advanced at the time of the written notice but say Grounds A,B and C or some other combination were advanced. It seems to me in relation to all of Miss Lau's submissions under the rubric of reasonableness of opinion, the fatal error of Miss Lau was to confuse the existence of opinion (which is required by Clause 4.1((ii)) with the rightness or wrongness of the opinion (which is not required by Clause 4.1(ii)). It is not the quality of the opinion of CLP that is the criterion but the existence of the opinion. Once you get into the area of rightness or wrongness of the opinion or the reasonableness or unreasonableness of the opinion, you are moving further away from the essential question of incapability. Clause 4.1(ii) is simple and makes the direct link between incapability and CLP's opinion. Miss Lau seeks to build a huge structure on that simple provision and says the opinion must be reasonable, must be supported by contemporaneous reasons given at the time and such reasons must in fact prove the incapability of the Contractor. In my judgment these are all misplaced submissions. Once you get into the area of reasons or grounds for opinion and reasonableness of opinion or rightness of opinion then in fact you are in some ways covering the ground of whether there was in fact incapability and whether CLP was right in holding the view that there was incapability. The sub-clause does not call for the Court to be concerned with whether the opinion was right or wrong or reasonable or given with sufficient grounds being advanced or even whether there were reasonable materials in existence at the time for CLP to form that opinion. The authority of Bysouth v Shire of Blackburn and Mitcham [1928] VLR 562 does not assist Miss Lau or has any application. I conclude therefore that no reason need to be given in the notice for the CLP's opinion of the Contractor's incapability and that CLP was not debarred from relying on the written notice merely because it might not state some grounds for the opinion of incapability.

Conclusion based on "Subjective Test"

34. On the basis of the "Subjective Test", Clause 4.1 of the Contract calls for the following: -

On the evidence before me, there can be no doubt that both of these requirements are satisfied and in fact I do not understand Miss Lau as disputing this. In relation to the requirement that there was in existence the opinion of CLP that the Contractor had become incapable of performing the Contract, it seems to be too obvious having regard to the termination letter dated 24^th July 1995, to CLP invoking Clause 4.1(ii) to terminate the Contract and to the general evidence by Singh of the unsuitability of the Contractor to continue with the Contract that he Singh as the Responsible Officer under the Contract had formed the clearest opinion that the Contractor had become incapable of performing the Contract and therefore should be relieved by termination. That Miss Lau did not dispute too much the existence of the opinion is understandable as even she is not capable of challenging that obvious fact. It is probably because there can be no viable dispute that these two requirements had been satisfied that Miss Lau found herself being driven to contending for complex multi- layered requirements. My conclusion on the basis of the "Subjective Test" is therefore that the written notice dated 24^th July 1995 was validly given by CLP pursuant to Clause 4.1(ii) and it follows that the Contractor fails in the major issue before the Court.

Conclusion based on "Reasonable Opinion Test"

35. I now proceed to consider on the basis that the test to be adopted is not the earlier "Subjective Test" but what I might call the "Reasonable Opinion Test" namely whether the opinion of CLP on the 24^th July 1995 of the Contractor's incapability to perform the Contract was an opinion which a reasonable person in the position of CLP could form. This is a test which Mr. Reyes for CLP was willing to adopt and be measured by although as I had indicated earlier, this is not in my judgment the right test emerging from Clause 4.1(ii). But as both Mr. Reyes and Miss Lau were arguing at some length as to the different result which would emerge from applying such a test, I will proceed to consider the main issue on the basis of the "Reasonable Opinion Test".

36. The starting point of the journey for CLP to form the opinion that the Contractor had become incapable of performing the Contract must be the earlier opinion of CLP that the Contractor was capable of performing the Contract. This would be at the time when the tender was awarded to the Contractor in May 1995 or possibly earlier at the Site Meeting in April 1995. The Contractor had previously performed the moving of heavy equipment for CLP and had done skidding and had pre-qualified and it was presumably on that basis that CLP formed its opinion that the. Contractor was capable of performing the Contract that the tender was awarded by CLP to the Contractor in May 1995.

37. The first time in my view, that opinion of the capability of the Contractor to perform the Contract was shaken was on 5^th June 1995 when the Contractor proposed to move the van in a way which was considered by Singh and his colleagues in CLP as being dangerous and when it must have become obvious to CLP that the person who was in charge on the Contractor's side Miss Ng (who some two months earlier was only an office secretary) was neither technically qualified, capable or experienced. It is in this context of Miss Ng's role in this Contract that I should now say something about the effect of sub-contracting on incapability.

38. The Contract is very specific about no sub-contracting and I totally accept the evidence of CLP that CLP had no idea that the Contractor had in breach of the Contract sub-contracted Phase 1 to Portion Wide (who in turn further sub-sub-contracted to Fu Wah) and sub-contracted Phase 2 and 3 to Fu Wah. In terms of capability to perform the Contract, as no sub-contracting was allowed, CLP was only looking to the Contractor's own in-house capability. Generally speaking in my view, three factors would go towards the consideration of a contractor's capability or incapability to perform a technical contract, namely:-

In this case, it is reasonable to conclude from the evidence that the Contractor was not a large company. It had very limited personnel, confined to really a few persons and that for contracts such as the Contract in question, the Contractor went outside by way of sub-contract to perform its contracts. I do not think that even the Contractor could seriously dispute that in-house, it had very limited capability in terms of equipment (under (2) above) or staff (under (3) above) to perform this Contract. The crucial element however is (1), the quality of the person in charge of the Contract, namely in this case the quality of Miss Ng. On this question, the answer had been staring us in the face over this long trial, as Miss Ng was simply not fit to be in charge of a project like this. She had neither the experience, nor the technical qualification nor the capability or even the affinity, to be in charge of the Contract. Miss Ng was a secretary in the Contractor company and was put up just one month before the Contract was signed to an Executive Director. She should have stayed a secretary, as she was not capable of functioning as a person in charge of this Contract. This could be demonstrated by her inability to deal with problems raised by CLP on the 5^th June 1995, raised by CLP at the meetings of 19^th, 21^st and 24^th July 1995 or on her being questioned in this Court (her evidence in relation to the net method for moving the van and in respect of her non-understanding of what was involved in skidding are good illustrations of her unsuitability as person in charge). Based therefore on my observations of her and the evidence given in my Court about her. I have no doubt that with her being in charge, the Contractor had become incapable of performing the Contract. This view must have also been obvious to CLP at that time on the morning of the 24^th July 1995 and I hold therefore as a fact that to any reasonable contracting party such as CLP or Singh or any other reasonable responsible officer of CLP under the Contract, because of Miss Ng and her incapability, it would be reasonable for an opinion to be formed that the Contractor had become incapable of performing this Contract (which requires high technical expertise and experience, not qualities enjoyed by Miss Ng). I hold therefore as a fact that on the basis of "Reasonable Opinion Test", CLP has satisfied that test and that the opinion of CLP expressed in its letter of 24^th July that the Contractor had become incapable of performing the Contract was a reasonable opinion which entitled CLP to serve the Clause 4.1(ii) notice to terminate the Contract immediately.

39. Further, to be even more specific I accept the written and oral submissions of Mr. Reyes that the events of 19^th to 24^th July 1995 did convince CLP quite rightly that the Contractor was incapable of performing the Contract. Reference was made by Mr. Reyes in particular to:-

I accept these submissions and I hold as a fact that all these documents were inadequate, thereby showing the Contractor's incapability to perform the Contract. I further accept the submissions of Mr. Reyes and I hold as a fact that the insistence of Miss Ng and the Contractor on using the crane method shows a dangerous lack of appreciation of the difference between the very safe traditional method of skidding compared to the much higher risk of the unsafe method of moving by crane. In my judgment, this lack of understanding confirmed and supported the opinion of CLP that the Contractor had become incapable of performing the Contract.

40. Further, following on my holding that Miss Ng was not fit to be in charge of the Contract, irrespective of whether the Contractor was willing not to insist upon moving the Transformers by crane or was willing to move by skidding, I would still have held that CLP was entitled to hold its opinion that the Contractor had become incapable of performing the Contract by skidding as the person in charge was incapable. For me, if Miss Ng could not understand something as simple as the net method or how it worked, then she had no chance of knowing how to handle skidding at the Sub-station involving two very heavy Transformers, a large trailer, complicated skidding operations over several days involving a large number of workers and equipment when she had to rely all the time on outside help for the proper performance of the Contract. Her evidence in fact revealed her lack of proper grasp of skidding. With her in charge and with no in-house capability to do skidding, it is really all an academic exercise for Miss Lau to huff and puff about the Contractor being at all times willing to do skidding. But even that point I find against her, as I accept totally the evidence of Singh that Miss Ng had made it clear long before the meeting of the 24^th July that the Contractor was adamant on moving only by the crane method. I just cannot accept the version put forward by Miss Ng and the other witnesses for the Contractor that the Contractor had shown a willingness at all times to go back to skidding if the crane method was ultimately rejected. The parties simply would not have spent so much time and energy engaged in these emergency meetings if the Contractor was really willing to do skidding. For me it was clearly a case of the Contractor standing on its ground of crane and only crane which led to the furious activities from the 19^th to the 24^th July resulting eventually in the unhappy conclusion of CLP that it would not work and that like the previous van incident, CLP could not afford to take a risk of allowing an unsafe method to be adopted. Put in the context of this decision being made so late in the day when CLP was forced to terminate the Contract, I find the evidence of CLP not only logical but compelling that the Contractor had taken a stand of crane and crane only. The Contractor had adduced in this Court its evidence that it was willing at all times to go back to the alternative method of skidding if crane method was rejected by CLP. I am afraid I do not accept that evidence. I hold as a fact that the Contractor insisted on the crane method and only the crane method. It lost the gamble as it did previously on 5^th of June 1995 and on both occasions, CLP went elsewhere for the necessary work to be done, properly.

Conclusion based on whether in fact the Contractor was incapable on 24^th July 1995

41. It can be seen from my previous account that based on my totally negative assessment of Miss Ng's capability, I have concluded that CLP was entitled to its opinion of the incapability of the Contractor to perform the Contract. On the basis however that this finding might be disputed, I also find in favour of CLP on the basis (not by reference to the opinion of CLP) which I find as a fact that on 24^th July 1995, the Contractor had become incapable of performing the Contract. The circumstances of this case give a clear picture of actual incapability of the Contractor. A good illustration is Miss Ng's repeated role of being merely a mail box. between fax coming from say Kwok or others and fax she sent out to CLP. But to make my finding even clearer that the Contractor was incapable of performing the Contract either by the crane method or by the skidding method, I will state unequivocally that I reject all the evidence from Miss Ng, Lai Wing Lun, Kwok Chi Keung and Mr. Sequeria to the effect that the Contractor was capable of doing the Phase 3 work and I accept all the evidence from Singh, Mr. Lloyd and other witnesses of CLP that the Contractor to the effect that the Contractor was not capable of doing the Phase 3 work. In this context I also accept all that had been said by Mr. Reyes in his written and oral submissions. Finally two points are worth emphasizing, namely Miss Ng's incapability and the lack of in-house capability. Having regard to my finding of Miss Ng's unfitness to be in charge of this Contact and certainly of Phase 3, I have no doubt that this renders the Contractor incapable of performing the Contract. The lack of in-house capability however further confirms this inevitable picture. When the Contractor has no in-house capability (whether by way of equipment or workers) and when it could not sub-contract, then it could hardly be said that the Contractor had the capability of performing Phase 3 of the Contract. When this is coupled with the unfitness of Miss Ng, there is incapability of the highest kind.

Conclusions Generally on Issue 2

42. I therefore conclude on Issue 2 that CLP did rightly serve, pursuant to Clause 4.1(ii) the written notice dated 24th July 1995 to terminate the Contract immediately because:-

ISSUE 3 - QUANTUM OF REPLACEMENT SKIDDING

43. Subsequent to the 24th July 1995 Contract Termination, Kwok Kam Hei was hired to perform Phase 3 by way of skidding. The cost for that charged by Kwok Kam Hei was $568,000 added to which was the administrative charge of $170.83 for inviting new tenders. This is the sum which CLP had to incur in order that Phase 3 could be completed as should have been done by the Contractor. I can see really no basis for contending that this cost was unreasonable. It was incurred and it was incurred under the fair and open condition of open tender when there was also a time constraint. There was more than sufficient material for this Court to hold that the Kwok Kam Hei figure was reasonable and to reject any suggestion of unreasonableness. There is no merit whatsoever in this objection.

FINAL CONCLUSIONS

44. For the reasons stated above, I find in favour of CLP on all three Issues. It follows therefore that CLP succeeds in its claim for $7,850 for the replacement cost of moving van (Issue 1) and $568,170.83 for the replacement cost of skidding the Transformers at the Sub-station (Issues 2 and 3). From the contractual sum of $880,000, the above sums of $7,850 and $568,170.83 must be deducted and therefore the Plaintiff Contractor is only entitled to Judgment in the sum of $275,979.17 which sum had always been admitted by CLP. There will be judgment to the Plaintiff in that sum of $275,979.17.

45. In the circumstances, as the Defendant had won on all issues, there shall be an order of costs nisi both in relation to the Action and to the Counterclaim in favour of the Defendant and against the Plaintiff.