SZE FUNG ENGINEERING LTD v. TREVI CONSTRUCTION CO LTD

HCCT 51/2019

[2023] HKCFI 419

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 51 OF 2019

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J U D G M E N T

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Background

1.  Most of the background facts in this case are agreed and uncontested. The Plaintiff (“SF”)  carried on business at the material time as a contractor for civil engineering works and in particular piling works in Hong Kong.  It has worked on a wide range of well-known construction projects here. The Defendant (“Trevi”)  is part of an Italian group of companies established in the 1950’s and is a world leader in the field of underground engineering, having been involved in construction work on many large infrastructure projects. Both companies are obviously experienced in the construction industry.

2.  These proceedings concern the construction work associated with a new combined cycle gas turbine unit at the Black Point Power Station (“Black Point”)  in Tuen Mun, New Territories (“Project”). Black Point is one of the world’s largest gas-fired combined-cycle power stations, and is owned by the Castle Peak Power Company Limited, in which CLP Power Hong Kong Limited (“CLP”)  has an equity interest.  The objective of the Project was to increase the proportion of electricity generated in Hong Kong by natural gas technology.

3.  In early 2017, CLP invited tenders for works involved in the Project.  Leighton Contractors (Asia)  Ltd (“Leighton”)  was appointed by CLP under a contract between CLP as Employer and Leighton as the main contractor (“Main Contract”)  for the civil, building, mechanical, electrical and plumbing works associated with the Project (“Main Contract Works”).

4.  It is not disputed that on around 6 January 2017, Leighton issued to each of SF and Trevi an invitation (“1^st Invitation”)  to tender for part of the Main Contract Works, which included the construction of pipe pile walls, sheet pile walls and grouting works (“Subcontract Works”).  Trevi submitted its tender to Leighton on about 13 January 2017 and SF submitted its tender to Leighton some time in mid-February 2017.

5.  It was on 29 May 2017 that Leighton was formally appointed as the Main Contractor for the Main Contract Works on the Project.

6.  On 14 July 2017, each of SF and Trevi received from Leighton a second invitation to tender for the Subcontract Works (“2^nd Invitation”). On 19 July 2017, SF submitted its tender pursuant to the 2^nd Invitation.  On its part, Trevi submitted a tender on 21 July 2017.

7.  In early September 2017, Leighton awarded to Trevi a contract to execute the Subcontract Works (“Subcontract”), and the written Subcontract was dated 15 September 2017. The Subcontract comprised General Conditions, Special Conditions, Schedules and Appendices, with a schedule of rates and drawings. The total Subcontract price was $77,238,595, for completion of works within 306 days.

8.  There is no dispute that prior to September 2017, representatives of Trevi and SF had held a meeting on 7 August 2017, to discuss the possibility of SF carrying out part of the Subcontract Works.  There was another meeting held on 8 September 2017, referred to later in a letter from SF to Trevi dated 29 January 2018 (“SF 29/1 Letter”).

9.  The SF 29/1 Letter stated that the meeting was held by representatives of Leighton, Trevi and SF regarding the Subcontract Works, and that Trevi and SF had come to an agreement on “rates for the Subcontract Works”, that SF was Trevi’s subcontractor, and that interim payment would be paid to SF “after 30 days of application”.

10.  After the meeting on 8 September 2017, SF submitted a quotation to Trevi on 9 September 2017 (“Quotation”)  for works to be carried out by SF for the sum of $20,373,995 (“SF Works”). The Quotation contains a breakdown of SF’s tendered sum in the form of a bill of quantities. Essentially, the piling and pumping tests of the Subcontract Works were to be undertaken by SF, with the remaining works largely comprising grouting and associated works to be undertaken by Trevi.

11.  The Quotation expressly states:

“The quantities in this quotation are subject to remeasurement and shall exclude the works which are not covered in the Bills of Quantities and shall also refer to our remarks in the BQ.”

12.  The Quotation then states that various items were to be provided to SF free of charge, including, for example, monitoring works of underground utilities and/or adjacent structures, steel metals with a wasting allowance of 6%, and supply of diesel fuel at cost. The Quotation further states:

“16. Supply of cement grout to be charged at HK$1,200/cu.m, based on net quantity measured from as built record.

17. Working hours on weekdays only from 8 am to 6 pm. Overtime works, if required, up to 8 pm on weekdays only.

18. Payment is based on ‘back to back’ principle and to be released to (SF)  within 3 days upon receipt of the same from Client.” (Emphasis added)

13.  As recorded in the contemporaneous documents and notes, there was a telephone conversation between Mr PC Lee of SF and Mr Liu of Trevi on 9 September 2017. Items 16 and 17 of the Quotation were discussed and varied. The supply of cement grout was to be charged to SF on the basis of the quantity ordered by SF, and not on the basis of the net quantity measured from the as-built record.  For Item 17, no overtime was to apply between 6 pm to 8 pm.

14.  On 15 September 2017, SF issued a letter which confirmed matters agreed in relation to grouting works and pre-boring works (“Clarification Letter”).

15.  On 18 September 2017, and in response to the Clarification Letter, Trevi wrote to SF, dealing with the cost of cement grout referred to in Item 16 of the Quotation, and with the remeasurement of pre-boring works (“18/9 Letter”). The 18/9 Letter states, inter alia:

“As discussed with (Leighton)  site SQS, Mr Samuel Tsui, in the afternoon of 18 September 2017, he confirmed that all pre-boring works for the sheet-piling installation will be remeasured in accordance with the standard method of measurement under the Contract. Hence, the point 2 of your above said letter ref SF1708/BL/002 dated 15 September 2017 will not be entertained.” (Emphasis added)

16.  There is no dispute, that SF commenced the SF Works around 22 September 2017, in accordance with a request from Leighton to Trevi to commence the Subcontract Works and to mobilize its resources. It was on 19 January 2018 that Trevi sent to SF a draft contract for the SF Works, which was in identical terms to the Subcontract between Leighton and Trevi. On 29 January 2018, SF responded to state that SF had already commenced works, applied for interim payments, and that there was already a binding subcontract between Trevi and SF, with all terms having been agreed.  It stated that it was not necessary to have another set of terms and conditions set out in the draft contract submitted by Trevi. No agreement was ever signed between SF and Trevi.

The dispute

17.  SF claims that the terms of the contract between it and Trevi (“Agreement”)  were contained in the Quotation, the Clarification Letter from SF of 15 September 2017, and the 18/9 Letter from Trevi.  Alternatively, it claims that the Agreement was accepted by Trevi by conduct when it allowed SF to commence works and/or when Trevi made payments to SF. It referred (in paragraph 8 of the Amended Statement of Claim (“SOC”))  to paragraph 2 of the Quotation, which stated that the quantities were subject to remeasurement and shall exclude the works which were not covered in the bills of quantities, and to Item 18 of the Quotation, which stated that “payment is based on back-to-back principle and to be released to SF within 3 days upon receipt of the same from the Client” (“Item 18”).

18.  SF also claims (in paragraph 9 of the SOC)  that the Agreement contains the following implied terms, to give business efficacy and to give effect to the common yet unexpressed intention of the parties (“Implied Terms”):

(a)  Trevi will assess and/or pay SF for all works duly done including variation works in a timely manner and pay a reasonable price;

(b)  Trevi will give all such cooperation to SF as is reasonably necessary to bring about the completion of the contract works;

(c)  No act or omission of Trevi will prevent or hinder SF from carrying out the contract works and bringing them to completion.

19.  On its part, Trevi pleads in its Amended Defence (at paragraph 4(f))  that the Quotation was submitted by SF on the understanding between the parties that the terms and conditions under which SF would carry out the SF Works would be on a back-to-back basis with the terms and conditions of the Subcontract between Leighton and Trevi, save that the rates and prices contained in the bills of quantities attached to SF’s Quotation would replace those in the Subcontract for the purpose of payment. It claims that the Clarification Letter and the 18/9 Letter were clarifications to the Quotation, and that the Quotation was accepted by Trevi in late September 2017 by allowing SF to commence the SF Works. It claims that it had always been the intention of the parties to formalize the contract by a written agreement, but SF refused to enter into the written contract provided by Trevi.

20.  Trevi pleads (at paragraph 5 of the Amended Defence)  that the terms of the Agreement are to be ascertained from a combination of: (i)  the oral communications between the parties prior to SF commencing the SF Works; (ii)  the terms and conditions of the Subcontract between Leighton and Trevi; (iii)  the Quotation; (iv)  the Clarification Letter and the 18/9 Letter; and (v)  terms implied by law or custom, or as necessary to give business efficacy to the Agreement.

21.  Trevi claims (at paragraph 5.2 of the Amended Defence)  that the express or implied terms of the Agreement are that:

“(a)  SF will execute the SF Works, together with any agreed variations thereto, in accordance with the sequence and program prescribed by Leighton and/or Trevi, as may be adjusted from time to time to suit the actual progress on site;

(b)  in executing the SF Works, SF will comply with all health, safety and environmental standards and requirements as prescribed under the Subcontract and /or legislation;

(c)  SF will apply reasonable skill and care in executing the SF Works and deploy appropriate plant, equipment and labour so as not to put Trevi in breach of its obligations under the Subcontract, including, but not limited to, not causing excessive settlement of the Site and surrounding structures in executing the SF Works;

(d)  Trevi will pay SF for the SF Works in accordance with the following principles and procedures:

(i)  Trevi will submit interim payment applications for all works carried out by both Trevi and SF to Leighton on a monthly basis;

(ii)  Leighton will measure the works carried out under the Subcontract and prepare interim payment certificates (“Trevi IPCs”);

(iii)  Trevi will certify the works carried out by SF on a back-to-back basis with the Trevi IPCs, albeit applying the rates and prices as contained in the Quotation (“SF IPCs”);

(iv)  Trevi will make interim payments to SF in accordance with the amounts certified in the SF IPCs within 60 days of receiving the corresponding payment under the Trevi IPCs;

(v)  All interim payments made by Trevi to SF under the SF IPCs will be subject to final measurement and adjustment upon the completion of the Subcontract on a back-to-back basis with Leighton’s final certificate for the Subcontract Works, albeit applying the rates and prices as contained in the Quotation or as otherwise agreed;

(vi)  Trevi will certify the net balance of payment due to SF (or owed by SF to Trevi, as the case may be)  in the final payment certificate for the SF Works; and

(vii)  Trevi will make the final payment to SF within 60 days after receipt of the corresponding final payment from Leighton under the Subcontract.

(“Back-to-back Payment Term”)

(e)  Trevi will be entitled to deduct retention money from payments due to SF under the Back-to-back Payment Term;

(f)  any variations to the Sub-contract Works which necessitate variations to the SF Works shall, unless expressly agreed otherwise, be valued using the rates in the Quotation, where applicable, and the payment mechanism under the Back-to-back Payment Term will apply to such variations;

(g)  the parties will cooperate with each other as reasonably necessary to bring about the completion of the Sub-contract Works;

(h)  Subject to sub-paragraph (i)  below, the parties will not prevent or hiden each other from carrying out their respective parts of the Works and bringing them to completion; and

(i)  SF shall not have exclusive access of the site, or any party thereof, and shall be required to coordinate the execution of the SF Works with the works Leighton, Trevi and other sub-contractors.”

22.  On their pleaded case, the essential dispute between the parties is the payment term of and under the Agreement. At the heart of the dispute in these proceedings is whether SF is entitled to payment for the works it carried out if such works were not approved or certified by Leighton under the Subcontract, and for which Trevi was not paid under the Subcontract. There is NO dispute that the Agreement between SF and Trevi contains the express term set out in Item 18 of the Quotation, namely: “Payment is based on back to back principle and to be released to SF within 3 days upon receipt of the same from Client”. The dispute between the parties is the meaning and effect of Item 18, and how it applies to SF’s claims to payment for the remeasured SF Works under the Agreement, the variations, and the claims made by SF under the Agreement in these proceedings.

The payment term

23.  According to SF, the language of Item 18 is not sufficiently clear to warrant a construction to the effect that SF’s entitlement to payment was conditional upon Trevi’s receipt of payment from Leighton.  SF’s case is that Item 18 only governs “the timing of releasing payment”, and not liability for payment.

24.  On Trevi’s case, payment to SF is clearly and explicitly expressed in Item 18 to be on “back-to-back principle”. Such “payment” would extend to any sum due or said to be due under the Agreement, including the cost of labour, cost of materials incorporated into the works, the cost of materials delivered on-site, the cost of variation works, the cost to rectify defects, and any contra charges. According to Trevi, the back-to-back principle would extend to the matters and payment process defined in paragraph 5.2 (d)  of the Amended Defence, namely to the submission of interim payment applications for the works carried out by SF, the measurement of the works by Leighton, the certification of the SF Works on a back-to-back basis with the interim payments Trevi received from Leighton but applying the rates and prices contained in the Quotation, final measurement and adjustments. Trevi contended that properly construed, Item 18 incorporates the entirety of Clause 18, the payment clause in the Subcontract, into the Agreement.

25.  Clause 18 of the Subcontract (“Clause 18”)  provides as follows:

“18. Payment

18.1 The Subcontractor will not less than 7 days before the date specified in Schedule 3 (Date for Interim Applications for Payment)  or otherwise as agreed in writing, submit to the Contractor a written statement of the value of all work properly done under this Subcontract and, if allowable under the Main Contract, the value of all material delivered to the Site for incorporation in the Subcontract Works at the date of such statement. The statement will be in such form and contain such details as the Contractor may reasonably require and the value of work done will be calculated in accordance with the rates and prices, if any, specified in this Subcontract or if there are no such rates and prices, then by reference to the Subcontract Price.

18.2 The Contractor will make applications for payment under and in accordance with the Main Contract and, subject to the Subcontractor having submitted and complied with clause 18.1, will include in such applications claims for the value of work done and, if allowable under the Main Contract, for the value of material delivered to the Site by the Subcontractor. The Contractor will use its reasonable endeavours to obtain prompt payment of all sums due to it in respect of the Subcontract Works under the Main Contract.

18.3 Within the period specified in Schedule 3 (Period for Payment)  and commencing on the day after the Contractor receives from the Employer on account of the Main Contract Works any payment which includes a sum in respect of the Subcontract Works, the Contractor will pay to the Subcontractor in respect of work done or materials provided by the Subcontractor and allowed for in such payment under the Main Contract, a sum calculated in accordance with the rates and prices specified in this Subcontract, or by reference to the Subcontract Price, as the case may require, but subject to a deduction of previous payments made by the Contractor to the Subcontractor and retention at the rate specified in Schedule 3 until such time as the limit of retention specified in Schedule 3, if any, has been reached.

18.4 In the absence of any provision in Schedule 3 specifying a shorter period for the release of retention monies:

(a)  within 14 days of the Contractor's receipt of any payment under the Main Contract in respect of the release of the first half of the retention monies for the Main Contract Works or where under the Main Contract the Main Contract Works are to be completed by sections, then for the last of such sections in which the Subcontract Works are comprised, the Contractor will pay to the Subcontractor the first half of the retention monies held under this Subcontract; and

(b)  within 14 days of the Contractor's receipt of any payment under the Main Contract which is by way of release of the second half of the retention monies for the Main Contract Works and provided that the Subcontractor has submitted and agreed its final account with the Contractor in accordance with clause 18.6, the Contractor will pay the Subcontractor the second half of the retention monies under this Subcontract.

18.5 If, in the opinion of the Contractor, clause 18.4 will result in undue delay in payment to the Subcontractor of the retention monies held under this Subcontract, the Contractor may, in its absolute and unfettered discretion, by notice in writing to the Subcontractor advance the time for payment of the retention monies to such date as the Contractor will determine.

18.6 Within the period specified in Schedule 3 and commencing on the day after the Subcontractor has finally performed its obligations under clause 17, or within 14 days after the Contractor has recovered full payment under the Main Contract in respect of the Subcontract Works, whichever is the later, and provided that the Subcontractor has submitted and agreed its final account with the Contractor in accordance with this clause 18.6, the Contractor will pay to the Subcontractor the Subcontract Price together with any other sums that may have become due to the Subcontractor under this Subcontract, less such sums as have already been received by the Subcontractor on account of the Subcontract Price or such other sums.

Provided always that if the Contractor will have been required by the Main Contract to give to the Employer or to procure the Subcontractor to give to the Employer any undertaking or warranty as to the completion or maintenance of the Subcontract Works, the Subcontractor will not be entitled to payment under this Subcontract until the Subcontractor has given a like undertaking to the Contractor, or has given the required undertaking to the Employer, as the case may be.

18.7 Failure by the Contractor to pay on the due date any sum owing to the Subcontractor under this clause 18 will not constitute a default by the Contractor which could lead to the termination of this Subcontract.

18.8 The Contractor will not be liable to the Subcontractor for any matter or thing arising out of or in connection with this Subcontract or the execution of the Subcontract Works unless the Subcontractor has made a written claim in respect of such matter or thing to the Contractor before the Responsible Officer (or equivalent)  issues the maintenance certificate or defects liability certificate (or equivalent)  in respect of the Main Contract Works or, where under the Main Contract the Main Contract Works are to be completed by sections, the maintenance certificate or defects liability certificate (or equivalent)  in respect of the last of such sections in which the Subcontract Works are comprised. To avoid any doubt, it is a condition precedent that the Subcontractor has made any and all claims before the Responsible Officer (or equivalent)  issues the maintenance certificate or defects liability certificate (or equivalent)  in respect of the Main Contract Works.

18.9  It is expressly agreed that in consequence of the Contractor being dependent for payment in respect of the Subcontract Works on successful recovery of such payment under the Main Contract, in no circumstances will the Contractor be liable to pay any amounts due to the Subcontractor under this Subcontract or for breach of this Subcontract without the Contractor having first received actual payment from the Employer under the Main Contract of such amounts.”

26.  Alternatively, it was argued that even if Clause 18 is not incorporated into the Agreement, Item 18 of the Quotation itself amounts to a “pay when paid” provision, which has the same effect as Clause 18.9 of the Subcontract. Under Item 18, SF assumed the risk of non-payment if Trevi was not itself paid by Leighton. On such basis, Trevi contends that SF is not entitled to any of the claims made in these proceedings if they were not included in the final amount certified and paid by Leighton to Trevi under the Subcontract.

Construction of Item 18

27.  The principles on interpretation of contracts are not seriously in dispute. Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties (per Lord Bingham in BCCI v Ali [2001] UKHL 8; [2001] 1 AC 251).

28.  I accept that as part of the relevant factual matrix and background surrounding the parties’ relationship, it is necessary to consider and bear in mind the fact that both SF and Trevi had tendered for the Subcontract, and had (at least pursuant to the 1^st Invitation)  been given relevant documents, information and drawings relating to the Subcontract Works and the Project.  It is SF’s claim that at the time of the 2^nd Invitation, it had not received any documents and drawings for the 2^nd tender it submitted in July 2017, apart from the bills of quantities. SF alleged that Leighton had in fact asked SF to submit a tender “for reference only”, as SF was informed by Leighton that the Subcontract would not be awarded to SF because it was not a specialist in grouting works.

29.  On behalf of Trevi, it was pointed out that this “reference” tender was not mentioned in any of the witness statements filed on behalf of SF, and only raised in cross-examination of Mr Lee Ping Cheong of SF. Emphasis was made of the fact that notwithstanding Lee’s assertion, SF had in the course of discovery disclosed the entire set of the tender drawings for the Subcontract, which must therefore have been provided to SF.

30.  Even if Lee’s assertion was to be accepted completely, it is incredible that SF would have been able to submit its tender in July 2017 “blindly” (as described by Counsel for Trevi), without reference to any of the drawings, documents and information it had obtained before, at the time when SF submitted its tender in February 2017 pursuant to Leighton’s 1^st Invitation. There may have been revisions made in the drawings or documents between January 2017 and July 2017, but the essential information was contained in the documents received by SF for the two tenders it made in February and July 2017. The Project remained the same, the nature of the Subcontract Works remained essentially the same, and the necessary information was contained in the bills of quantities which were received by SF in July 2017, which information was necessary for SF to bid for the works at the prices it submitted - whether for Leighton’s reference, or for SF to seriously tender for the Subcontract.  I doubt that any contractor would submit a tender at prices it would not be prepared to accept if the works were ultimately to be awarded to it.

31.  On the basis of the documents SF had received, it was argued for Trevi that, at the time when the Quotation was issued and when the Agreement was made, SF should have been and was aware of the contents, terms and conditions of the Subcontract between Leighton and Trevi, which conditions include but are not limited to Clause 18 and the terms of payment set out thereunder. It must therefore be taken to have been aware of the payment provisions in the Subcontract, and be treated to be bound by them.

32.  On behalf of SF, Counsel submitted that any efforts to incorporate any provisions of the Subcontract into the Agreement must be sufficiently explicit, and clear references to the documents and terms sought to be incorporated are required.  Reliance was placed on passages in Hudson’s Building and Engineering Contracts (14^th edition), at paras 3-025 and 9-066:

“‘Sub-contracts, particularly when informally concluded by quotation and order, frequently attempt to incorporate the provisions of the main contract in vague and general language. Unless they are sufficiently explicit, these efforts may fail, because so many main contract provisions cannot be incorporated without modification, or may not apply at all, although misdescriptions of the documents to be incorporated, which are quite common in practice in construction contracts, will be disregarded if they can be sufficiently identified by evidence.’ (Emphasis added)

‘As in other areas of commerce, the exchange of documents which lead up to the conclusion of a sub-contract frequently contain references, often in vague terms lacking precision, showing that some other identifiable document or set of contract terms are to apply to the sub-contract. In construction sub-contracts these usually take two principal forms, namely references to a part or all of the main contract itself (or to the Main Contractor’s obligations under it, which, by implication if not expressly, the Sub-contractor undertakes to perform), on the one hand, and secondly references, often garbled and inaccurate, to some known and publicly available set of documents or standard form which it is intended should constitute the formal sub-contract conditions.

The incorporation of relevant main contract terms can give rise to considerable difficulties, where the incorporation is loosely expressed in the most general words and without any precise or careful consideration of the consequences. Each case must be separately considered to determine the precise purpose and extent to which it is desired to incorporate the term or terms of the main contract. It follows from the absence of privity between the Employer and the Sub-contractor that, without incorporation, the terms of the main contract, even though well known to both parties, cannot bind the Sub-contractor. This will be very much a question of interpretation on a case-by-case basis of often informal documentation in an endeavour to ascertain the parties’ objective intentions to be derived from the language used.

……

As a matter of first principle and in the light of the usual real-life intentions of sub-contracting parties, doubtful or ambiguous references to main contract documents or terms are much more likely to be aimed at the technical descriptions of the sub-contract work to be found in the drawings, specifications or bills of quantities of the main contract rather than at the contractual or legal provisions in the main contract documentation, it is submitted.’” (Emphases added)

33.  As pointed out by Counsel for SF, the Quotation made no reference at all to the Subcontract, or any other document apart from the bills of quantities attached to the Quotation.

34.  Trevi relies in part on the 18/9 Letter, which referred to “the Contract”, when Trevi stated that SF was required to make provision of cement grout “in accordance with the Contract’s requirement”, and that all pre-boring works would be remeasured in accordance with the standard method of measurement under the Contract. Counsel for Trevi sought to argue that these references to the Contract were references to the Subcontract between Leighton and Trevi.

35.  According to Trevi, properly read and construed, Item 18 of the Quotation is on its own a “pay when paid” clause, and further, is sufficient to incorporate Clause 18 of the Subcontract into the Agreement.

36.  SF argued that Item 18 is not sufficiently clear and unambiguous to either incorporate Clause 18 or any clause of the Subcontract, or to impose on SF’s right to payment a condition precedent that Trevi must first have been paid.  Counsel cited Wo Hing Engineering Ltd v Pekko Engineers Limited HCA 5561/1996, 7 September 1998, where the learned judge observed, with reference to Smith & Smith v Winstone [1992] 2 NZLR 473 and other authorities from Australia, New Zealand and the United States:

“The underlying principle from all these cases seems clear enough - that when having to construe a clause in a sub-contract that the sub-contractor will only be paid when the main contractor is paid, commonly called a “pay-when-paid” clause, sufficiently clear words will have to be used before a court will be prepared to construe that such a clause imposes as a condition payment to the main contractor which had to be fulfilled before the sub-contractor had the right to be paid as opposed to a clause limiting the time for payment.”

37.  The relevant clause in Wo Hing was:

“The contract is based on back-to-back basis including payment terms.”

The court found that in the absence of any clear express words, the clause merely provided for the time of payment, and that the plaintiff’s right to be paid was not dependent upon the defendant getting paid first.

38.  In its judgment, the court in Wo Hing referred to Smith & Smith, where the New Zealand court observed:

“For myself I believe that unless the condition precedent is spelled out in clear and precise terms and accepted by both parties, then clauses such as the two particular ones identified in these proceedings do no more than identify the time at which certain things are required to be done, and should not be extended into the ‘if’ category to prevent a subcontractor who has done the work from being paid merely because the party with whom he contracts has not been paid by someone higher up the chain.”

39.  In Brington Engineering Ltd v Cheerise Asia, HCCT 2/2010, 18 August 2011, the clause construed was:

“Principle of variation, addition and/or omission to the original Sub-Contract sum shall also be settled in the same ‘back-to-back’ basis.”

Not surprisingly, the court held that by the phrase “back-to-back” in the particular clause, the only thing that can be said to be common to both the main contract and the subcontract by reason of the back-to-back basis was the way in which claims for variations, additions or omissions were to be valued.

40.  Counsel for SF placed reliance on the judgment in Brington where the judge observed (at paragraph 53):

“... if back-to-back is intended to mean that the Sub-Contractor’s entitlement will be lost if the Main Contractor is not entitled to compensation under the Main Contract, clear words should be used. This is because such argument curtails the rights of the Sub-Contractor to claim payment under the Sub-Contract and hence cannot be lightly implied. It certainly cannot be implied for the usual reasons such as giving Sub-Contract business efficacy nor by operation of law.”

41.  It has to be borne in mind that construction and interpretation of contracts and any term used in any particular contract depend on the facts and circumstances forming the factual matrix of the agreement made and construed. The terms and phrases used must be read as part of the contract as a whole. The meaning found by the court in any case is dependent on the facts of the case, and cannot be rigidly followed in another case where the relationship of the parties is different, the facts and circumstances are distinguishable and the entire factual matrix may be different.

42.  In the case of Tim Lee Construction Engineering Co Ltd v Kwong Wah trading as Super King Engineering Co HCCT 18/2010, 20 April 2012, the court construed a clause which contained the language: “This agreement made … for the supply/installation of the following works in a back-to-back payment basis”. The plaintiff argued that the expression “back-to-back payment basis” was a reference to the time of payment, drawing a distinction between entitlement to payment, and time for payment. Counsel for the plaintiff argued that the expression “back-to-back payment” should be interpreted as referable only to the time for payment, and that the plaintiff’s entitlement was not made conditional upon the defendant’s receipt of payment from the employer. Smith & Smith and Wo Hing were cited and considered by the court.

43.  In Tim Lee, the court observed that there was nothing in the factual background which warranted a finding that the expression “back-to-back payment” was referable only to the time for payment but not entitlement. Having considered the factual background, the court considered that the natural meaning conveyed by the phrase being construed was simply that the plaintiff would be paid when the defendant had received payment from its superior contractor for the relevant works.  The learned recorder considered that there was only one obligation concerning payment, and that was the obligation to pay when payment was received, and it would be artificial to make the distinction between entitlement to and the timing of payment.

44.  The phrases considered by the courts in Wo Hing, Smith & Smith and Tim Lee are all different to the phrase contained in Item 18 of the Quotation.  Item 18 is clear in providing that what is governed by the “back-to-back” principle is “payment”, and further states that payment is to be released within 3 days upon receipt of the same from the client. Item 18 sets out the principle of back-to-back, that it governs payment, and sets out the time of the payment to be upon receipt from the client.

45.  Put simply, Item 18 provides for “what”, “how”, and “when” in its reference to “back to back”. What is back-to-back? Payment.  What is made back-to-back? SF’s payment and Trevi’s payment. How is payment made? Back-to-back. When is payment made? Upon receipt from the client. That is clear on a plain reading of the ordinary meaning of the words used.

46.  All this is supported when the factual matrix is considered, that both SF and Trevi had tendered for the Subcontract and had knowledge of the nature of the Project and the work contemplated, and in the context of the parties’ knowledge of the contents and terms of the Subcontract as provided by Leighton, the general framework of payment under the Subcontract, the meetings held between the representatives of Trevi and SF and the discussions they had on the timing of the payment in the light of the applications for interim payments contemplated to be made by Trevi as subcontractor to Leighton as the Main Contractor for the Project. SF had itself highlighted the fact that the parties had met and agreed at a meeting on 8 September 2017 that interim payments would be made to SF “after 30 days of application”, but that after the meeting, the parties had agreed to allow 3 more days to Trevi, as Trevi would need time to clear Leighton’s cheque before arranging for payment to SF.

47.  In my judgment, it is clear that Item 18 was plain and unequivocal in providing for payment to SF to be made by Trevi, back-to-back to Trevi being paid by Leighton, and that payment to SF would be released within 3 days upon Trevi’s receipt of payment from Leighton. This extends to payment for the SF Works undertaken under the Agreement, and for all agreed or permitted variations of such work. I agree with the learned Recorder’s observations in Tim Lee, that it is artificial to draw a distinction between the time for payment, and liability for payment – as the latter involves the same question as to when such liability arises.

48.  Both SF and Trevi are experienced in the construction industry, and payment on back-to-back basis, or pay-when-paid provisions in contracts, should not have been novel to either of them. The observation on the passing of risks amongst contractors was made in Bailey’s Construction Law (3^rd edition), vol 3, para 20.16:

“The terms of a main contract may be incorporated into a subcontract by express agreement, whether that involves direct transposition of the main contract terms or incorporation by reference. There are obvious benefits to matching the terms of a subcontract with the terms of the corresponding main contract. By replicating the main contractor’s obligations in a subcontract agreement, the main contractor may be able to, in effect, pass on to its subcontractor (or consultant)  liability and risk in respect of a particular manner. The manner in which contractual obligations are passed down the contractual chain is a matter for the parties’ agreement which, naturally, involves consideration of whether the parties intended to incorporate some or all of the provisions of the main contract into the subcontract. Where it is intended that specific obligations in a main contract be incorporated into a subcontract, it will usually be necessary for there to be an express incorporation of the relevant contractual terms.”

49.  Although Item 18 states that payment is to be on back-to-back principle, I am not satisfied that Item 18 is sufficient to incorporate Clause 18 and other provisions of the Subcontract into the terms of the Quotation or the Agreement. As the authorities show, there must be clear reference to a contract term for its incorporation. There should be certainty, and parties should not be left in doubt as to what provisions govern their working relationship. Even if there was some reference to another contract document, the parties cannot be left on their own to speculate which clause or clauses thereof apply, and which does not.

50.  Payment terms may be agreed to be back-to-back, and Clause 18 may be a relevant payment term and condition of the Subcontract, but other terms and provisions of the Subcontract also have  direct or indirect effect on the subcontractor’s claim to payment.  Clause 18 requires the named subcontractor to submit statements of the value of the work done and materials delivered, to make applications for payment in accordance with the Main Contract, and for the Main Contractor specified to make payment of sums due. These relate to the subcontractor’s claims of payment said to be due for its works carried out. However, as Counsel for SF rightly pointed out, the clauses in the Subcontract which relate, for example, to extensions of time, and which provide for when the subcontractor may be entitled to claim extensions of time, the procedure and time-limits for seeking extensions of time and variations and additional payments, all have impact on or relate to the subcontractor’s claim of payment. It cannot reasonably be left to the contractor to surmise which clause or clauses in the Subcontract relate to payment, and are sought to be incorporated.  In the absence of any clear expression of and reference to either the incorporation of the entire contract, or the specific terms of the contract sought and agreed to be incorporated, the parties cannot possibly be ad idem as to the terms of their agreement. It will be pure guesswork.

51.  On my construction, Item 18 is clear and certain enough without the need to refer to any other term. As the sub-sub-contractor is only to be paid when payment is received by the subcontractor, it is obviously necessary and in the interests of the sub-sub-contractor to make its application for interim or other payment in time for the sub-contractor to make its application to the main contractor, and otherwise to comply with the sub-contractor’s requirements to submit the necessary documents, particulars, breakdown of costs and materials and other information the sub-contractor requires for its submission to the main contractor, in accordance with the agreement made between them.

52.  Counsel made submissions on the reasonableness (and hence the likelihood)  or otherwise, of SF having to agree to bear the risks of non-payment for its work, just because Trevi was not paid, under a “pay-when-paid” clause.

53.  For Trevi, it was submitted that there is nothing inherently improbable in a sub-sub-contractor assuming the commercial risk of default by those higher up the contractual chain. The pay-when-paid provision is in fact not uncommon in Hong Kong. As the court pointed out in Tim Lee, it is all a matter of the parties’ bargain and agreement on the allocation of risk, and there is no reason in principle why a properly drafted “pay when paid” clause should not be given effect by the courts. There may have been a quid pro quo considered and accepted by the parties.

54.  SF in its evidence highlighted the fact that in the course of a telephone conversation between Lee of SF and Stanley Lam of Leighton around 8 September 2017, Leighton had allegedly urged SF to submit a quotation to Trevi for undertaking the SF Works, because Leighton wanted to have the piling works commenced as soon as possible, and further, Stanley Lam had assured Lee that Leighton would “step in” if Trevi should fail to fairly administer the subcontract between Trevi and SF.  SF’s reliance on the assurance from Leighton, that it would somehow intervene if Trevi should not fairly administer its contract with SF (including administration of the payment conditions)  suggests that SF knew that there was a risk to be assumed, but had accepted such assumption of risk with Leighton’s assurance.

55.  In relation to the dispute as to whether there was in fact a term of “pay-when-paid” on back-to-back basis, and not on the question of the interpretation of Item 18, the conduct of the parties after the date of the Agreement can be considered. At para 39-067 of Chitty on Contracts (34^th edition), the learned editors stated:

“Subsequent acts The general rule is that evidence of conduct subsequent to the making of a contract is not admissible for the purpose of interpreting the contract. The general rule, in its modern form, was established by the House of Lords in James Miller & Partners Ltd v Whitworth Street Estates (Manchester)  Ltd where it was held that

‘… It is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later.’

Subsequent actions are therefore inadmissible to interpret a written agreement, although there are certain exceptions to this rule: (i)  where the contract is oral or partly oral; … (iv)  to show that an agreement, or a term of an agreement, is a sham; (v)  to show whether there was a contract and what the terms of the contract were; (vi)  to show that the terms of the contract have been varied or enlarged; (vii)  to found an estoppel; and (viii)  to infer the governing law.”

56.  In my judgment, the correspondence exchanged between SF and Trevi when SF made its claims in November 2017 support the existence of the term disputed.

57.  Shortly after the commencement of the SF Works, SF issued its first Notice of Claim on 4 November 2017.  In the notice, SF referred to CLP’s safety campaign, and the fact that plants had to be shut down and all pre-boring and sheet piling works had to be suspended.  SF stated in the notice that it was its intention to claim for idling of labour and plant and concluded that it would expect the idling cost to be reimbursed by Trevi.

58.  In reply, Trevi issued its letter to SF on 10 November 2017.  It pointed out that the request to suspend works had been made by the client of Leighton, and then went on to state:

“Your claim to reimburse the idling cost would be submitted to (Leighton)  for their assessment and approval. Please record all the idling resources as mentioned in your letter and request (Leighton’s)  Supervision Staff to endorse it before your formal submission to Trevi for our onward submission.

… we would like to point out that the request to suspend the site operation was issued/instructed from CLP. Hence, Trevi would not be responsible for the compensation of your loss in this issue unless the claim has been entertained by (Leighton)/CLP.”

(Emphasis added)

There was no response from SF to Trevi’s letter.

59.  SF issued Notice of Claim No 2 on 8 November 2017, which related to “late approval of WSWP from CLP”, and Notice of Claim No 3 on 9 November 2017 relating to suspension of work in Shaft F. Again, it stated in its notice that it was its intention to claim additional time and cost arising out of the event, and would expect such cost to be reimbursed by Trevi. Trevi’s response to these notices was dated 13 November 2017, in which letter Trevi stated:

“… We would like to clarify that the suspension of your works in Shaft F was from our Main Contractor - (Leighton). Your claim for extension of time and to reimburse the idling cost would forward (sic)  to (Leighton)  for their assessment and approval. Please record all the idling resources as mentioned in your letter and request (Leighton’)  Supervision Staff to endorse it before your formal submission to Trevi for our onward submission.

In addition, we would point out that the request to suspend the site operation was issued/instructed from (Leighton). Hence, Trevi would not be responsible for the compensation of your loss in this issue unless the claim has been entertained by (Leighton).” (Emphasis added)

Again, there was no reply or dispute from SF in response.

60.  On behalf of Trevi, it was pointed out that most of the notices of claim submitted by SF to Trevi were expressed in the same language: “Please submit our claim for additional cost to (Leighton)  and reimburse the same to us through (Trevi).” As Counsel pointed out, this language supports the conclusion that SF had understood that payment would not be made to SF, unless such payment had been certified and paid by Leighton.

61.  Similarly, the quotations submitted by SF to Trevi for any additional works to be carried out were made with the request: “Please submit this quotation to Leighton and reimburse the same to us through (Trevi).”

62.  Counsel for SF argued that Trevi’s letters of November 2017 do not support the “pay-when-paid” term. He contended that Trevi only purported to make it clear that SF had first to submit the claim to Trevi, and that Trevi would then forward the claim to SF. I do not agree.  The letters from Trevi also stated clearly that it would not be responsible for compensation of SF’s loss unless the claim was entertained by Leighton.  Further, I do not accept that the statement made by SF in its letters, requesting Trevi to submit SF’s claim to Leighton and then to reimburse SF, was simply a reminder to Trevi to make the submission. Contrary to what was contended by Counsel, the request did not make it clear that SF was seeking reimbursement from Trevi, and not Leighton.

63.  Consistent with the agreement that SF would be paid only if Leighton certified and assessed payment, the evidence also shows that throughout the Project, SF had directly taken part in the negotiations with Leighton in connection with the SF Works. SF acknowledged in its own letter to Leighton of 27 November 2019 that when it came to payment matters, Leighton had openly discussed all its assessment of SF’s entitlement with both Trevi and SF, and that Trevi would normally pay SF within 3 days when corresponding payment was received under the Subcontract with Leighton.

64.  Counsel for SF sought to rely on the agreement made on 8 September 2017, which was recorded in SF’s letter of 29 January 2018, that interim payment would be made to SF after 30 days of its application, to support its argument that this preceded the language used in Item 18, and suggested that Item 18 only dealt with the time of payment. According to Counsel for SF, the parties had on 8 September 2017 only discussed the timing for payment.

65.  The term allegedly agreed on 8 September 2017 is not pleaded as a part of the Agreement. The discussion on 8 September 2017 is inadmissible as evidence on the construction of Item 18. The Quotation only contained Item 18 and the language used therein, and in my judgment, that is what should be construed.

66.  It was further argued that the final accounts for the Subcontract were only discussed and agreed between representatives of Trevi and Leighton, and that SF were not involved. The final accounts agreed between Trevi and Leighton excluded the claims made by SF to Trevi, which were reduced to zero.  Counsel submitted that this was totally inconsistent with the existence of the “pay-when-paid” term. I do not consider this to be relevant or material to the Court’s findings on the existence, meaning and effect of Item 18. There is no obligation or contractual duty at all on Trevi to seek SF’s agreement on the final accounts, or to Leighton’s certification of the amounts due and payable to either Trevi or its subcontractor, SF.  In its evidence, Trevi also referred to an email from Trevi to SF in June 2019, which showed that there had in fact been discussions held between Trevi and SF on their final account.

67.  On all the evidence, I find that Item 18 of the Quotation formed part of the Agreement whereby SF and Trevi agreed that payment for the SF Works under the Agreement was on “back-to-back principle”, which meant that payment would only be made to SF upon Trevi’s receipt of payment from Leighton/CLP under the Subcontract, within 3 days upon its receipt of the same, and that the “back-to-back” principle of payment, or the pay-when-paid term, formed part of the Agreement.

Implied terms

68.  The claim made by SF is that the Agreement contained an implied term that Trevi would assess and pay SF for all works duly done in a timely manner and pay a reasonable price therefor. I accept the submissions made for Trevi, that the implication of such a term would be contrary to the express provisions of the Agreement, for the SF Works to be paid in accordance with the contract rates, and would contradict Item 18, that payment was based on back-to-back principle, to be released to SF within 3 days upon Trevi’s receipt. The real dispute in these proceedings is whether SF is entitled under the Agreement to payment for the SF Works it carried out, when some of the works were not certified and paid by CLP/Leighton to Trevi.

69.  There is no pleaded claim, that Trevi was in breach of the implied term contended, requiring Trevi to cooperate with SF to bring about completion of the SF Works, nor are there any particulars of how Trevi had failed so to co-operate.

70.  As for the implied term against hindrance of work, there is largely consensus between the parties from their pleadings, to the extent that each claims that the other should not prevent or hinder it from carrying out the respective works and to bring the works to completion. Each must therefore be subject to a corresponding duty.

71.  I accept Trevi’s submission, that SF is only one of the many contractors carrying out work on the site, and as such, SF does not have any right of exclusive access to any part of the site.  It goes without saying, for a large scale project such as this, and in order to give business efficacy to the Agreement and the completion of the SF Works thereunder, SF is required to coordinate with the works of other contractors on the site and to comply with the instructions of Trevi/Leighton as to when it could access the site to carry on its works in the sequence and in accordance with the work programme directed by Leighton.

Claim on remeasured works

72.  There is no dispute on liability for the remeasured works.  The only dispute is on quantum and this depends on whether SF’s entitlement should be “pay-when-paid”, as I have found. Accordingly, based on the final quantities certified by Leighton, and in accordance with the back-to-back payment principles, the single joint expert (“SJE”)  has valued the remeasured works at $28,033,055.50. On that basis, and giving credit for the payment made and already received by SF, SF has been overpaid by $145,166.50.

Variations

73.  In respect of the 13 admitted variations, for which there is no dispute on liability, the valuation for quantum purposes should be based on the application of “back-to-back” payment principles. On such basis, $86,352.20 is payable to SF.

74.  In the course of the Project, all notices of claim in respect of variations, and all quotations for work done by SF, were submitted by SF to Trevi, for Trevi to forward and submit same to Leighton, for Leighton’s assessment and certification. None of the applications for payment were individually or separately assessed by Trevi, and they were all incorporated in their entirety into Trevi’s own applications for payment and submitted to Leighton. Leighton assessed the applications for payment for both Trevi and SF, in respect of the work covered, and a payment certificate was issued by Leighton to Trevi, which would in turn certify a gross sum payable to SF for the SF Works carried out, on a back-to-back basis, and in accordance with the quantities assessed by Leighton. Retention and contra charges were also deducted by Trevi on a back-to-back basis, with a net sum payable. Leighton would make the interim payment to Trevi, which would then make interim payment to SF. This practice is accepted by SF in its evidence.

75.  The variations for which payment is denied by Trevi are disputed on the basis that SF is not entitled to payment, when the variations were not approved and hence not paid by Leighton.  Alternatively, Trevi claims that the works in question do not constitute a variation as they were covered by the rates and work included in the Quotation and Agreement, and further, the claim was not supported by the necessary supporting information and evidence.

76.  On my finding on the construction of Item 18, and that payment is on “back-to-back” basis, the amount payable to SF for the disputed variations is nil, as Leighton (which on SF’s case had issued most of the instructions)  had rejected the claim, and Trevi was not paid for the variations.

Other claims

77.  Other claims, including those for acceleration of works and aborted works, are rejected on the same basis, that they had not been certified and approved for payment by Leighton, and were not paid to or received by Trevi.  Under Item 18, SF is not entitled to payment.

78.  Any claim made on the basis of the implied term relied on by SF, that Trevi was under a duty not to hinder SF’s works to completion, is not accepted as SF had no right of exclusive access to the site but must co-ordinate with the sequence and programme of works imposed and planned by Leighton for all the contractors working at the site for the Project. I also accept Trevi’s submission, that if SF claims that there was disruption of its work or that it had been prevented to execute its work in a timely manner by reason of  having to co-ordinate with the work of other contractors, and that hence, there was breach by Trevi of the implied term, then SF must substantiate such claim for its idling costs and other alleged loss, by producing the necessary particulars and evidence of (inter alia)  the disruptive event complained of, its own planned work allegedly disrupted, whether it could have worked elsewhere and whether its claimed idling and loss was due to its own poor management and inefficient working practices etc, all of which were lacking and none of which had been produced, either to Leighton or the SJE in this action, for assessment.  Questions of delay would require consideration of issues such as whether any instruction to suspend works caused any critical delay in the programme of works, and whether delay was caused or contributed to by SF. Even if there was any instruction from Leighton to stop work, or to “accelerate work”, that does not by itself give rise to any consequential liability on the part of Leighton or Trevi to pay for SF’s claim – which claim must (like all disputed claims)  be substantiated by proper particulars and evidence of the damages allegedly caused as a result of the instruction.

79.  In relation to the claim for profits on the omitted works (Claim 31), there is of course no contractual provision in the Agreement whereby Trevi would be entitled to omit items of work from the scope covered by the Agreement. Any omission would amount to a variation of contract.  So it is arguable that SF was entitled to be paid the contract sum for the works omitted, at the agreed rates specified in the Agreement, less the costs of the labour and materials saved by the omission, at the rates agreed. This is tantamount to a claim for the profits SF would have earned had it carried out the agreed work.

80.  Trevi claims that the omitted work had been replaced by a variation of piling work for which SF had been paid much more than the original work, such that allowing the claim for the original and omitted work would amount to double recovery for SF.

81.  In my judgment, the term expressly agreed under Item 18 was that SF would only be paid for work (including variatons)  if Trevi was paid. As a result of CLP’s omission of the work under the Main Contract, Trevi was not paid for the work agreed to be undertaken. It follows from Item 18 that SF was not entitled to payment from Trevi.

82.  The claim for the scrap value of sheetpiles left by SF is rejected for the same reasons in respect of the claim for the omitted piling work. Moreover, Trevi’s case is that the pipe piling work at Sea Bank Road, for which the scrap metal was used, had never been included in the scope of the SF Works under the Agreement and that it was entitled to omit the work in question. According to the SJE, although SF claimed that the work was related to Power Island, and was different to the work at Sea Bank Road, SF had failed to produce any evidence or materials to the SJE to substantiate such claim. The SJE further pointed out that the records relied upon by SF had not been signed or verified by Trevi. No further independent or additional materials were adduced at trial, and I reject the claim.

Contra charges

83.  In relation to the contra charges, Leighton had deducted from the payments due to Trevi charges which Leighton claims it was entitled to deduct from Trevi under the Subcontract. Trevi sought to apportion such deductions to SF from the payments due from Trevi to SF under the Agreement. The dispute between Trevi and SF is whether Trevi is entitled under the Agreement to deduct, or to set-off against SF’s entitlement to payment for the SF Works, any sum on the basis that SF is liable to pay such sum to Trevi under the Agreement. With Trevi’s acceptance of the fuel charges being $5,201,130.87, the remaining difference between Trevi’s claim and SF’s assertion, as to what Trevi is entitled to deduct by way of contra charges, relates to plant rental charges, penalties imposed by Leighton, and safety training charges deducted by Leighton.

84.  I have found that SF’s entitlement to payment of the contract sum for the SF Works under the Agreement is expressed in Item 18 to be on back-to-back basis, which extends to payment for variations of the SF Works carried out, and as remeasured. However, SF’s entitlement to the contract sum is different to Trevi’s counterclaim/set-off on the basis that under the Agreement, SF is liable for payments and charges which are not related to the execution of the works. In this case, Trevi seeks to deduct training charges, penalties and payments for the rental of plant or equipment used for the SF Works. For this, Trevi should prove its entitlement by reference to what had been agreed between SF and Trevi.

85.  Counsel has not referred to any clause of the Quotation, the Clarification Letter or the 18/9 Letter to substantiate Trevi’s claim to the disputed contra charges. As rightly submitted by Counsel for SF, there was no agreement that SF was to pay for training in any respect, nor did the Agreement provide for any event in which SF would be liable for penalties of any kind.  If there were provisions in the Subcontract regarding liability for penalties and charges, which Trevi wished to incorporate and include in the Agreement, there should be clear and unambiguous reference thereto.  There was none in the Quotation or any of the documents pleaded as containing the terms of the Agreement. 

86.  From the correspondence, the penalty charges imposed by Leighton on Trevi were on the basis of substandard safety items, which were non-compliant with the specifications and provisions of the Subcontract and the Schedules thereto. I have not found that these have been incorporated into the Agreement.  

87.  Nor is there any evidence that liability had been discussed and agreed in any of the meetings, whether before or after the making of the Agreement, in respect of either the training, the penalties, or in respect of any plant or equipment to be hired to SF.

88.  Further, according to the SJE report, there is no evidence or particulars as to which worker was responsible for the breach of safety measures or requirements, and whether SF should be responsible at all.

89.  For all these reasons, I reject Trevi’s claims for the contra charges, apart from the admitted fuel charges.

Interim payment applications and interim payments

90.  Finally, any application for interim payment, and any interim payment made, is “interim” in nature and is not final or conclusive.

91.  There was evidence and arguments were made as to whether there had been interim certification of approximately $10.2 million which was paid to SF in late 2018, under Item J of the bill of quantities. Having considered the evidence, I accept the submissions made for Trevi, that to the extent that any interim payments were certified, they were as certified on the face of the Interim Payment Certificates, and these record that no money had been certified for “Claims” (eg Interim Payment No 19 in Bundle J/1646). This was confirmed by the SJE on the materials submitted to him. The two interim payments made to SF in December 2018 were recorded “on account” against Item J, when works had not yet commenced.  Trevi’s witnesses explained that the payment was an advance payment, which Leighton had decided to make to SF to ease SF’s finances. Mr Mak also explained that Item J was used to release money for other works which had not been constructed by SF.  In any event, even if certified, they were only included in the interim payment process, and it is trite that interim payments are only interim estimates, which are non-binding and can be adjusted in the final accounts and final payment (Chan Chi Lam v Lam Woo & Company, unreported, HCCT 52/2014, 13 March 2017).

Disposition

92.  Save for the agreed claims and items, the claims made by SF in this action are dismissed.

93.  Trevi did not pursue its counterclaim for damages in respect of what it claimed was SF’s breach of the Agreement. It only pursued its claim for overpayment and maintained the contra charges it had deducted from the contract sum payable to SF.

94.  On the basis of what I have found to be due and are allowed, parties are directed to confer and sensibly agree on a draft Judgment order particularising the amounts to be paid, and to submit same within 14 days for the approval by the Court.

95.  Interest on the sums allowed and unpaid will be allowed at 1% above the HSBC best lending rate from the date of the Writ to the date of judgment, and thereafter, at judgment rate until payment.

96.  On the basis that there is no further payment is due to be paid by Trevi to SF under the judgment, the costs order nisi is that SF should pay to Trevi the costs of the action.  Such order nisi shall be made absolute unless application for variation is made within 14 days.

97.  In the event that there is amount found to be due and payable by Trevi to SF, and costs cannot be sensibly agreed, parties are directed to file and serve written submissions on costs, within a timetable to be agreed between the parties.