RIDGID PLUMBING LTD v. YEE SHUN HUNG t/a JUNIC CONSTRUCTION CO

HCCT19/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.19 OF 2005

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J U D G M E N T

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1. The plaintiff (“Ridgid”) was the plumbing and drainage sub-contractor in a new housing development in which the defendant (“Junic”) was the main contractor and the Hong Kong Housing Authority (“HKHA”) was the employer.

2. Ridgid claims that it has been underpaid for the work it did.  There were four main heads of claim.  At the outset of the trial the parties were able to agree all but one of the plaintiff’s claims.  Subject to that one issue the quantum of the plaintiff’s claim is :

(1)     Value of re-measured contract sum	$7,150,000.00
(2)     Unpaid variations	$195,971.78
	$7,345,971.78
(3)     Less agreed contra-charges	$574,500.00
	$6,771,471.78
(4)     Less sum already paid	$4,893,979.00
	$1,877,492.78

3. The outstanding issue in the claim concerns a particular contra-charge.  The defendant claims that a further sum should be deducted to account for the fact that certain pipes were not wrapped with petroleum based tape whereas, they submit, the rate they actually paid was calculated on the basis that the pipes would be so wrapped.  It was agreed that the pipes were neither wrapped nor required to be wrapped by HKHA, thus Junic seek a rebate by way of a contra-charge.  If Junic are right, the plaintiff’s claim would be reduced by a figure of approximately $126,000 to $450,000 (depending on which of the quantum experts’ reports is adopted).

4. In addition, Junic has made a counterclaim.  Ultimately the project was delayed by 209 days.  HKHA imposed 209 days liquidated damages on Junic.  In its pleading Junic counterclaimed the entire sum from Ridgid.  However, as a result of the experts’ reports, at trial, Junic only seeks to be indemnified for 49 days of liquidated damages.  Ridgid was only one of ten or more sub-contractors involved in the project. 

5. Finally, Junic has made a claim for prolongation costs arising out of Ridgid’s delay.  In round terms, and based on a 49-day liability, Junic’s counterclaim for liquidated damages is $2.1 million and its counterclaim for prolongation costs is $1.9 million.

6. Ridgid denied any liability for delay or prolongation.  There are therefore three key issues : contra-charge? delay? prolongation costs?

(1)     Contra-charge

7. There are two sub-issues :

(a)      Should there be any contra-charge?

(b)     If so, how much?

In my judgment the answer to question (a) is “no”, therefore an answer to question (b) is not required.

8. The original BQ quoted $600 per metre and $700 per meter for laying 150mm and 200mm diameter steel ducts.  No price was quoted for the wrapping thereof with petroleum based tape, although the wrapping did appear as an item on the HKHA BQ form.

9. About six months after the BQ was tendered by Ridgid, namely in September 1998, Mr Philip Kwan of Ridgid and Mr Yee of Junic met.  I am satisfied that the result of that meeting was that any work for wrapping which may be required by HKHA would be included in the $600 and $700 rate.  I am satisfied that Mr Kwan was happy to make this agreement because he was confident that no such wrapping was or would be required, and he was right.  Mr Yee was happy to make this agreement because if any wrapping was required Junic would not have to pay any extra for it.

10. Thus, on the BQ, in the handwriting of Junic’s QS, next to the space where the cost for wrapping would normally be are the words “Note : Included in the rate above (the rate for laying the ducts) provided as per Mr Yee meeting with Ridgid as at 30/9/98 5.00 pm”.

11. Further, Ridgid wrote to Junic on 14 October 1998 stating, inter alia, “The unit rate of BQ item 8.13/1 D-E (laying the ducts) will remain unchanged (the $600 and $700 rates) as in contract and will include the works of petroleum based tape if required.”  (The words in brackets above are my additions.)

12. Finally I am satisfied that if, as contended for by Junic, the agreement was that there would be a reduction if the tape wrapping was not done, the parties would have agreed the quantum of that reduction at the time of the meeting.

13. Thus I find that there should be no additional contra-charge for this item.  

14. For the sake of completeness, if it had been necessary to quantify a reduction under this heading I would have accepted the plaintiff’s expert’s quantification, namely $126,644.50.  In short, this figure represents about 20% of the overall cost which I consider to be more realistic than the defendant’s figure which represents well over 50% of the overall cost.  I also considered the plaintiff’s methodology which resulted in this figure to be preferable.  In view, however, of my answer to issue (1)(a) I need say no more about quantum under this head. 

(2)     Delay

15. It is not difficult to imagine that in a development in which several hundred flats are being constructed and in which there are over 10 sub-contractors, many of which have sub-sub-contracted much of the work, co-ordinating all the work is a massive task in which problems, delays, variations, disputes and so on are inevitable.  Ridgid’s sub-contract was relatively small in the context of the whole project (about 4-5% of the whole contract sum).  Also, Ridgid had sub-sub-contracted its works to another firm called “Cheung Hing”.

16. Before considering the questions of delay and prolongation costs in more detail, the following undisputed facts and statements should be noted :

(a)      the sub-contract does not contain a specific completion date;

(b)     “Sub-contract completion” is not defined in the sub-contract;

(c)     the sub-contract contains no provision for extension of time;

(d)     the sub-contract contains no provisions for liquidated damages;

(e)      the sub-contract was not “back to back” with the main contract.  Thus the liquidated damages provisions in the main contract are not incorporated into the sub-contract;

(f)      the onus is on the defendant to prove the plaintiff guilty of delay in its sub-contract works;

(g)     the defendant must also prove that the delay by the plaintiff, if proved, caused delay to the completion of the main contract;

(h)     if (f) and (g) are proved, have the defendants also proved that they (i) have suffered prolongation costs and (ii) are entitled to be indemnified by the plaintiff for any liquidated damages they have had to pay to the employer?

17. The difference between the two programming experts (Mr Tam Chun Tung for the plaintiff and Mr Jesse Fok for the defendant) is that Mr Tam opined that Ridgid was responsible for no delay at all to the completion of the main contract.  Mr Fok’s final assessment was that Ridgid should be liable for 49 days delay.  The 49-day period was arrived at in the following way.  

18. HKHA had imposed 209 days delay on Junic.  That period commenced on 13 May 1999 and went up to completion on 8 December 1999.  The experts divided it up into four periods.  They agreed that Ridgid was not liable for any delay in the first two periods i.e. up to 19 July 1999.  (That being the end of the 45-day period within which Ridgid was expected to do its sanitary ware installation work according to the final programme.)  Period III was from that date to the date of the Water Services Certificate (24 September 1999) and Period IV was from 24 September to completion on 8 December 1999.  Mr Fok held Ridgid responsible for 50% of the delay in Period III and for 20% in Period IV.  That totalled 49 days.

19. Before considering his reasoning, in the light of the evidence of Mr Tam and in the light of counsel’s submissions, I make two preliminary findings in relation to the contract :

(i) Due to those matters already referred to at (2)(a)– (e) above and also due to the facts that there were several revisions of the Master Programme (not all of which were sent to Ridgid) and that Ridgid were requested to carry out a number of variations to their works, this was a sub-contract where time was at large and it was therefore the plaintiff’s duty to carry out their works within a reasonable time.

(ii) Counsel for the parties (Mr Chan Pak Hong for Ridgid and Mr Bernard Mak for Junic) disagreed about what key document constituted the terms of the sub-contract.  Ridgid’s offer contained in its BQ which preceded its commencement of work stemmed from May 1998.  It was on the basis that that BQ had been accepted that they commenced.  The formal letter of acceptance from Junic however was not sent until some 12 months later.  I do not accept Mr Mak’s argument that the terms must be as contained in the letter of acceptance.  Junic had accepted Ridgid on site for about a year and therefore the terms upon which Ridgid started work should form the basis of the agreement between the parties.

Any delay by Ridgid in Period III?

20. In my judgment Mr Jesse Fok’s evidence, on Junic’s behalf, contained weaknesses. 

21. In broad terms, I was not convinced that he was convinced that his own methodology and calculations had produced a just result.  (My use of the word ‘convinced’ is not an indication of a standard of proof, merely an expression of a general assessment.)  He was often rather hesitant in answering questions.

22. He was cross-examined with some effect on two particular extracts from his report.  First, he concluded that because the Water Services Certificate and the Fire Services Certificate had to be obtained before practical completion could be certified, “definitely time is of the essence in the sub-contract work as indicated in the master programme.”  He also concluded that the plaintiff’s installation work (of sanitary ware) lay on the critical path of the main contract. 

23. Under cross-examination he said that he had not used the expression “time is of the essence” in any strict legal sense but merely as a way to emphasise that time was “important” (with which no-one would disagree).  He also agreed that, in Period III, he had not considered the performance of any of the other many sub-contractors; neither had he seen or considered an ‘as-built’ programme showing all categories of work done under the Master Programme.  In these circumstances, as Mr Chan pointed out, it is difficult to see how the critical path of the main contract could be determined, why only the plumbing and fire sub-contractors were singled out as the blameworthy sub-contractors and why they were split 50/50.

24. Secondly, Mr Fok stated :

“However, in this project the Contract Manager had insisted that all defects must be rectified before he would certify completion and imposed liquidated damages until then.”  (my emphasis)

Two criticisms of this statement arise.  First, if so, the performance of all the other sub-contractors would be relevant to the certification of practical completion.  Secondly, he acknowledged that, in fact, there was no documentation to support the correctness of this statement.  His use of the word “all” was erroneous and therefore flawed the logic of his subsequent findings.

25. I therefore do not consider it safe to adopt Mr Fok’s conclusions.  It does not follow however that I must automatically adopt Mr Tam’s, in their entirety.  The court is entitled to investigate the middle ground and adopt a broad brush approach in an attempt to determine a just outcome.

26. With the benefit of hearing both sides’ witnesses and with the benefit of counsel’s submissions I do not think that Ridgid should be absolved entirely from contributing in some way to the delay which occurred during Period III.  There were 68 days delay in Period III.  In Period IV Mr Fok acknowledged that there were at least 5 sub-contractors on site.  In fact there were more in both periods.  There is no evidence about their performances however, I see no reason to blame Ridgid for more than a maximum of 20% (namely 14 days) in Period III (the same as Mr Fok did for Period IV).  Moreover Junic were not blameless or entirely innocent.  Much time was spent at trial taking the witnesses and the court through a mass of correspondence by which Ridgid held Junic responsible for acts of prevention and, conversely, Junic held Ridgid responsible for delays.  Counsel’s attention to detail and their knowledge of the files was admirable.  It would be pointless however, to attempt to set it all out herein; the fact was that both parties were doing their best in difficult circumstances and both were, understandably, protecting their position in the correspondence.  Ultimately, I find that, because of the number of sub-contractors on site and because many of the points made by Mr Chan against Junic were well made, the figure of 14 days should be further reduced to 10 days.

Any delay by Ridgid in Period IV?

27. I am satisfied that the answer to this question is “no”, none.

28. As already pointed out it was erroneous of Mr Fok to say that all defects had to be rectified before practical completion.  There were many minor ones actually rectified after 8 December 1999.  I am satisfied that such minor defects as there were between 24 September and 8 December were not defects which caused the delay of the main contract.

29. The Water Supply Certificate was issued on 24 September after the WSD’s second inspection.  This is a strong indication that their works had been practically or substantially completed by this date.  Confirmation of this is found in the minutes of a site meeting on 9 September, which stated that Ridgid’s work was complete and confirmed again at another site meeting on 14 October.  Finally, Junic wrote to the contract manager on 6 October and stated that, inter alia, the plumbing and drainage sub-contract works were substantially complete.

30. Accordingly, I find that none of the disputes in Period IV either constituted delay or caused delay in the main contract.  The defendant’s argument that a term should be implied into the contract that Ridgid was under a duty to rectify all defects before its works should be regarded as complete is unsustainable for two reasons.  It is unreasonable and unnecessary to imply such a term, and secondly, it would render pointless any defects liability period.

(3)     Damages

31. The final issues, which now flow from my findings thus far, is have the defendants proved that they are entitled to liquidated damages and/or prolongation costs arising from the 10 days delay?

(a)     Liquidated damages

32. In my judgment Junic is not entitled either to liquidated damages or to be indemnified for the liquidated damages it had to pay the HKHA.  There is no evidence that Ridgid was aware of the provisions for liquidated damages in the main contract when it entered into its sub-contract.  As already noted, also, the sub-contract is not back-to-back with the main contract.  It is also worthy of note that Ridgid’s sub-contract represented less than 5% of the main contract value.  Finally, I have already found, at paragraph 19(i) above that time was at large.  Taken overall it is therefore reasonable to say that the potential for being liable to liquidated damages of $42,900 a day (as per the main contract) would not have been within the reasonable contemplation of Ridgid at the material time.  Thus, I conclude that the only damages for which Ridgid may be liable are prolongation costs.

(b)     Prolongation costs

33. I do not accept Mr Chan’s submission for Ridgid that the prolongation costs, if any, should be considered in the light of the fact that Junic’s annual financial returns show that its turnover was increasing whilst its head office and site expenses were decreasing compared to previous years.  This is too general an approach.  Rather I prefer to consider the quantum experts’ analyses which, as it turns out, although not agreed, are not very far apart.

34. Junic’s claim is based on a total figure of $8,001,893 for head office and site overheads combined.  If divided by 209 and multiplied by 49, it produces a figure of $1,876,042.  Ridgid’s total figure however is $6,148,555.

35. By taking a median figure, dividing by 209 and multiplying by 10, the prolongation costs for which Ridgid should be liable comes to $338,527.  This sum will be deducted from the figure on page 2 of this judgment.  Thus I give judgment for the plaintiff for $1,538,965 with a costs nisi order in their favour, to be taxed if not agreed.