SUPER KEEN INVESTMENTS LTD. v. GLOBAL TIME INVESTMENTS LTD. and GRAND MILLION DEVELOPMENT LTD. (Third Party)

1997, No. CON 71

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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Background

1. On a site on Wellington and Peel streets in the central district of Hong Kong (the property), there is a multi-storey building (the building). The superstructure of this was built by K & R Construction Company Limited (the contractor) for Simpson Development Investment (HK) Limited (the employer) under a contract entered into by them on 16 August 1993 (the building contract). These two companies were closely related. Indeed, Mr Peter Wong, who appears to have been an officer or employee of both companies, acted for both the contractor and the employer at different times during the course of the building contract. The date for the completion of the building under the building contract was 30 June 1995, but the usual provision was made for extensions of time granted by the architect appointed under the building contract.

2. In late 1993 and early 1994, the property market in Hong Kong was on the rise. If by nothing else, this is demonstrated by the fact that there were several sales of the property over this period of time at ever increasing prices. And this was before there was very much to see on the property. On 13 December 1993, the employer sold the property to the third party for a price of $256 million (the first agreement). On 8 April 1994, the third party sold the property to the defendant for $405 million (the second agreement). And, on 11 April 1994, the defendant sold it to the plaintiff for a price of $600 million (the third agreement). The dates I have given for the last two sales are those of the formal agreements. These were preceded by provisional agreements dated, respectively, 11 March 1994 and 22 March 1994.

3. The first agreement provided that the building was to be erected "in accordance with the Building Plans approved . . . as annexed subject to such further amendments as the parties may agree and in accordance with the Schedule of the fitting and finishing attached hereto provided that if the Vendor shall for whatever reason be unable to supply any of the items listed in the Schedule, the Vendor shall provide such fittings and finishings of similar but not inferior quality.".

4. The schedule provided that the external wall facing Wellington street would have an "aluminium curtain wall and window wall with reflective glass" and that facing Peel street would be an "aluminium curtain wall and semi-gloss glazed tiles". However, the annexed approved plans, which were reduced to A4 size, indicated to the reader, perhaps only with the aid of a magnifying glass for some, that these walls would have "alum cladding". Aluminium curtain walls and window walls with reflective glass are quite different from walls with aluminium cladding.

5. The first agreement also provided that "Notwithstanding anything herein contained to the contrary the building to be erected on the Property shall be completed with Occupation Permit issued on or before 30/6/1995 subject to the usual architect's extension", and that time was of the essence.

6. The second agreement recited the details of the first agreement, and referred to the fitting and finishings described in that agreement. The description of the property referred to a building to be erected "according to the Approved Building Plans". The subject of the purchase was the property as described and the fittings and finishings "subject to and with the benefit of" the first agreement. Time was made the essence, although the only relevant provision in this agreement as to time is that in relation to completion following the issue of the occupation permit. There is no provision in this agreement itself relating to the time of completion of the building.

7. Clause 23 of the second agreement of is of some importance in this case. I set this clause out in full -

"23. (a) The Vendor hereby agrees and undertakes with the Purchaser that :-

(i) the Vendor will duly perform and observe all the terms and conditions contained in the Principal Agreement and will use best endeavours to ensure that the right and remedies of the Vendor thereunder be ensured and protected; and

(ii) in the event of any breach or non-performance of any term or condition in the Principal Agreement on the part of the Head Vendor, the Vendor will, upon being required by the Purchaser so to do, (at the cost and expense of the Purchaser and subject to the indemnity hereinafter contained) take all necessary steps and actions which are reasonable and prudent to procure the due performance and observance by the Head Vendor of its obligation and the terms and conditions under the Principal Agreement Provided that the Purchaser shall indemnify the Vendor against all losses, costs, expenses, claims, damages, liabilities and actions which the Vendor may incur or sustain as a result of taking any such step or action.

(b) In the event of the Vendor becoming entitled to exercise any right of rescission under the Principal Agreement, the Vendor shall, within seven (7) days after the Vendor becomes aware of the existence of such right, notify the Purchaser in writing of such right, and irrespective of whether or not such notice has been given by the Vendor, the Purchaser shall, notwithstanding any provisions herein contained to the contrary, be entitled to rescind this Agreement by serving written notice of rescission on the Vendor. In addition, the Purchaser shall be entitled within seven (7) days after the receipt of such notification by the Vendor to direct the Vendor in writing to refrain exercising such right and the Vendor shall not from exercise any right of rescission under the Principal agreement unless the direction is revoked by the Purchaser or unless the Purchaser shall fail to give any direction to the Vendor within seven (7)days of receipt of the Vendor's notice under this sub-clause, in which event, the Vendor shall be entitled to exercise or to refrain from exercising such right of rescission as the Vendor may think fit.

(c) The Purchaser shall indemnify the Vendor against all losses, costs, expenses, damages, liabilities, claims and actions which the Vendor may incur or sustain as a result of the Vendor refraining from exercising any right of rescission under the Principal Agreement pursuant to the direction of he Purchaser.

(d) The Purchaser shall not be entitled to exercise the right of rescission under clause 23(b) above if (i) the Purchaser has given direction to the Vendor to refrain from exercising any right of rescission under the Principal Agreement, (ii) such direction remains revoked (sic) and (iii) the Vendor has not acted contrary to such direction.

(e) In the event of the Purchaser serving notice of rescission on the Vendor pursuant to clause 23(b) above or in the event of the Vendor exercising any right of rescission under the Principal Agreement where the Purchaser has failed to give any direction has been revoked by the Purchaser, then, (without prejudice to the rights of the Vendor under clause 23(c) above), this Agreement shall be rescinded and the Vendor shall repay to the Purchaser all or such part of the Purchase Price as shall have been paid by the Purchaser hereunder together with interest thereon at the rate of one per cent per calendar month from the date or dates on which such amounts were paid to the date of repayment, the payment of such amounts and interest to be in full and final settlement of all claims by the Purchaser against the Vendor hereunder.

(f) If the Head Vendor fails to complete the Building and the Fittings and Finishes to be erected on the said Premises within the specified period provided in the Principal Agreement and the Vendor elects to wait for completion, the Vendor shall on completion account and pay to the Purchaser all interest (if any) payable by the Head Vendor to the Vendor under the Principal Agreement due to delay in completing the building."

8. The third agreement, except in relation to the price and its payment, is in almost identical terms to those of the second agreement, and has obviously been copied from it.

9. In fact, the building was not completed on or before 30 June 1995. This did not happen until towards the end of March 1996. The occupation permit was issued on 12 April 1996.

10. But there was what purported to be an architect's extension of time. What happened in this respect was this: On 26 May 1995, the defendant asked the third party for evidence that the usual architect's extension applied to the case, and the third party passed this request onto the employer on 3 June 1995. On 16 June 1995, the contractor applied to Mr Gordon Yeung for an extension of time of 309 days. Mr Yeung was the authorised person in respect of the construction of the building. His role as architect was unusual, and I will deal with this later. On 29 June 1995, Mr Yeung granted an extension of time of 294 days, taking the date for completion of the building from 30 June 1995 to 19 April 1996.

11. In the meantime, the market value of the property had fallen. The parties are agreed that, in April 1996, the value was $290 million. In these circumstances, naturally enough, the plaintiff did not want to pay $600 million for it. So, on 10 November 1995, the plaintiff told the defendant that unless completion of the third agreement was made within a reasonable time, it would rescind the agreement. The defendant did not complete, and the plaintiff rescinded the third agreement on 17 February 1996. On 11 April 1996, the defendant rescinded the second agreement on the grounds of delay and in respect of the failure to construct the building in accordance with the schedule I have mentioned.

12. The plaintiff has paid a deposit of $101,612,000, and wants this back.

13. Not surprisingly, the defendant's case against the third party is similar to that pleaded by the plaintiff against the defendant, but the defendant also pleads that the third party represented to the defendant that the building would be constructed with an aluminium curtain wall. The defendant also pleads that the third party knew that the defendant purchased the property with a view to re-sale. The defendant paid a deposit of $100 million. It wants this back, and its loss of profit on the re-sale.

The Issues

14. The pleadings are somewhat complicated by the fact that the defendant, perforce, pleads one case in defending itself against the plaintiff's claim and quite another in seeking to enforce its claim against the third party. At the trial, however, the defendant has joined forces with the plaintiff.

15. The two principal issues that arise concern -

a) the architect's extension of time (EOT); and

b) the exterior finish of the building.

16. As between the defendant and the third party, there is another principal issue; whether or not the defendant lost its right to rescind.

The Architect's Extension

17. It is convenient to deal firstly with the issue concerning the architect's extension.

18. The letter seeking the EOT is dated 16 June 1995, and is written by the contractor to Mr Yeung in the circumstances I have already described. The contractor applied for EOT under four heads -

1. 150 days from 1 February 1994 to 30 June 1994 for a cause stated to be "Disapproval of the shoring plan by the Building Authority (i.e. date of commencement of works delayed)". The reference quoted is a letter by Mr Yeung to the employer dated 27 October 1994. This letter recited the history of the submission, rejection and final approval of the plan, and said that the project is expected to be completed by 30 April 1996.

2. 95 days from 25 August 1994 to 27 November 1994 for a cause stated to be "existence of a gap of " between No. 6 & 8 Peel street during our installation of the steel piling work, our works had to be suspended until the completion of the installation of additional temporary shoring to No 6 Peel Street." The references quoted are a letter by Mr Yeung to the contractor dated 25 August 1994 confirming that Mr Yeung had instructed cessation on the steel sheet piling works, and asking for a shoring proposal, another letter by Mr Yeung dated 9 September 1994 to the contractor saying that "we are still awaiting" the revised shoring proposal, and a letter by the contractor dated 30 November 1994 to Mr Yeung saying that the temporary shoring works were completed on 27 November 1994, and the installation of sheet piling works was resumed on 28 November 1994 and expected to be complete on 10 December 1994.

3. 48 days from 20 December 1994 to 5 February 1994 for a cause stated to be "time lap for applying for consent to the commencement of excavation works". The references here are to a letter by Mr Yeung to the Building Authority dated 20 December 1994 applying for consent to commence excavation works and a letter by Mr Yeung to the contractor dated 6 February 1995 telling the contractor to execute the work according to the approved plans and with the necessary precautions.

4. 16 days from 13 April 1995 to 28 April 1995 for a cause stated to be "Uncertainty of the finishing ground floor level due to the existing pavement floor level higher than the proposed finishing floor level of the transformer room". The references given by the contractor are to a letter by the contractor to Mr Yeung dated 20 April 1995 saying that the pavement level was higher than that on the approved drawing, that, as a consequence, the casting of the ground floor slab had been suspended since 13 April 1994 and notifying Mr Yeung of a claim for extension of time, and to a letter dated 16 May 1995 by Hongkong Electric Company Limited to Mr Yeung referring to a meeting on 28 April 1995 when the level of the transformer room floor was agreed.

19. The certificate by Mr Yeung dated 29 June 1995 addressed to the contractor and copied to the employer said that "In consideration of your submitted information and in pursuant to clause 23 of . . . the Building Contract, we certify that an extension of 294 days is granted". The details given were -

1. Site idling due to "unavailable" of approved lateral support & excavation plans from the Building Authority and the related consent - 135 days

2. Suspension of site works due to unforeseen incidence of adjoining building and installation of additional shoring works to the adjoining building - 95 days

3. Site idling pending additional consent from Building Authority for the pile cap excavation works - 48 days

4. Change of floor level of Transformer Room - 16 days

20. In a letter dated 22 March 1996 by Mr Yeung , he informed the employer of the basis for the grant of the EOT. Item 1, he said, was granted under clause 23(e) and (f) of the building contract, item 2 under clause 23(e), item 3 under clause 23(e) and (f) and item 4 under clause 23(f).

21. Both the plaintiff and the defendant challenge the third party's reliance on the grant of the EOT by the architect. Mr Wong has summarised this challenge as being pitched at four levels, and Mr Scott has adopted this view.

22. At the first level, the argument is that the employer and the third party contemplated that the person designated as the architect under the building contract would undertake that role from the inception, and would, from the beginning, hold the balance between the contractor and the employer. It is said that Mr Gordon Yeung, in granting the EOT, did not act in this capacity.

23. The second level of challenge is that the architect so appointed would balance those interests, and not act in collusion with the contractor and the employer to bring about a result that they both wanted. The plaintiff and defendant allege that Mr Yeung did not behave in this way.

24. The third level of challenge is that Mr Yeung, in considering the EOT, would act within his jurisdiction; that is, that he would consider an extension only if he was allowed to do so under the building contract. Mr Yeung, it is said, did not do this.

25. The fourth, and final, level of challenge is on the merits of Mr Yeung's decision. Here, it is argued by the plaintiff and the defendant, Mr Yeung decision was wrong.

Mr Yeung's Evidence

26. At this stage, it is convenient to consider the evidence given by Mr Yeung.

27. Mr Gordon Yeung came to court under a writ of subpoena. One might have thought that, as a professional man, he might have been willing, indeed anxious, to assist the court to resolve the disputes brought about by his grant of the EOT. Having heard his evidence, however, I am not surprised that he was unwilling to appear voluntarily. His evidence was most unimpressive, and I cannot regard him as entirely a reliable witness to the truth where he seeks to defend his actions. He was embarrassed, or should have been, by the manner in which he discharged his professional duty.

28. He gave evidence initially on 21 January 1998, at a nominal start of the trial, in order to produce the documents in his possession. At that time, Mr Yeung was asked about his working papers prepared for assessing the extension of time, but he said that he "discarded" these after the work was complete. He said these papers were "recording the dates, recording critical activities, recording important matters to assess whether it is critical to the whole project, to assess the importance of the matter of the programme." They were, in other words, just the sort of documents that one would expect an architect assessing an EOT to prepare and use in that assessment. He said, after doing his work, he threw these papers away. That, in my view, is an astonishing thing to do. For an architect involved in a major building project in Hong Kong to throw away his working papers used to assess an extension of time is, at the very least, irresponsible. If indeed Mr Yeung did have working papers and threw them away, the only possible explanation for this is that Mr Yeung well knew that his assessment of the EOT was not going to be challenged by either the contractor or the employer. It is clear that Mr Yeung anticipated this criticism of his behaviour, and, in his later evidence, sought to minimise the importance of these documents, eventually saying that he wished to withdraw his evidence that they were of the nature described by him in January. He also sought to change his evidence by saying that, perhaps, he did not throw them away, but that they were merely misfiled.

29. Mr Yeung returned to complete his evidence on 17 September 1998. Although it appeared from the building contract that he was the architect administering the contract, he was not, or was not until a late stage, appointed to perform this role, and then only for the limited purpose of granting the extension of time. He was also said to be the quantity surveyor for the contract, although he is not a quantity surveyor. It did not appear from his evidence immediately that he was not the architect. He was asked how he was selected as architect and quantity surveyor, and he answered that the employer entrusted him to be the authorised person and registered structural engineer because he had known people in the company for many years. He knew that the contractor and the employer were "very much closely related". He knew Mr Peter Wong. His role was the person in charge - the property manager. When he was asked by Mr Scott for whom Mr Peter Wong was in charge, the contractor, the employer or both, Mr Yeung said he was not sure about that. It is very hard to understand how it was that Mr Yeung, if he was seeking to exercise the usual role of an architect on a project such as this, did not know for whom Mr Peter Wong was acting. He explained this by saying that he had no part in the internal affairs of the parties. Mr Yeung admitted it was difficult to administer the contract knowing the close relationship between the contractor and the employer, but he had to find the balance in terms of fairness. His view appeared to be that in balancing these interests, if the matter was reasonable to the contractor, he would accept it. Mr Yeung conceded that he knew that Mr Peter Wong sometimes acted for the contractor and sometimes for the employer. When Mr Peter Wong wrote on behalf of the contractor on 16 June 1995 asking for "early approval" of the application for extension of time, he knew that the property had already been sold to the third party. In spite of this, Mr Yeung says he never thought about why he was being asked for an extension of time at that stage. He said it never crossed his mind that the application for extension of time was linked to the sale of the property, but when he was asked specifically whether anyone had told him that completion of the sale was connected to the award of an extension of time, he paused, then said he could not remember clearly and perhaps he did not pay attention to such matters.

30. When he was asked to consider an EOT, he did not have a copy of the contract. It would be, of course, very strange for an architect administering a building contract not to have a copy of that document in his possession. He received this only a few days before he issued his certificate. When he was asked about this unusual situation, he said that he was employed only as authorised person - to see how the construction goes and to prepare drawings, except the shoring drawings. His duty was to perform the statutory functions and prepare plans, except shoring and foundation plans. He did not believe he was employed to administer the contract according to its terms. When asked whether he was ever appointed as architect to administer the contract and hold the balance between the parties, he said he was appointed to do this only when he received the contract about a week before issuing his certificate of extension of time. He was not, he says, appointed as architect in express terms, but he took it that he was appointed by the fact that he was sent the contract. When asked if he was appointed only to grant the extension of time, he said firstly that this was possibly so, but later seemed to accept that this was indeed so. When he received the letter asking for the extension of time, he did not say to anyone that he was not the architect. This letter was received through the post. The document he produced to the court in January 1998 was the contract he was sent by, probably, Peter Wong.

31. He had about a week to review the contract for the extension of time. He said he reviewed the provisions of the contract for extensions of time thoroughly. There is little need to review here Mr Yeung's evidence on his examination of the contract to see whether the extension of time was justified. It is quite apparent to me that he paid only the most cursory attention to the obligations of the contractor under the contract when he undertook the task of assessing the EOT. He had no weekly or daily reports from the contractor. He supposed that these would be "helpful" to enable an architect to do his job professionally. He asked for information from the consulting engineers, but issued his certificate before receiving this.

32. As to Item 1 of the events for which Mr Yeung allowed an extension time, he said he allowed this under clause 23(f) of the building contract, but, when pressed, conceded that the necessary pre-condition for the application of that sub-clause did not exist. Nevertheless, he still attempted to justify his decision on the basis of the "spirit" of the clause. He then thought that sub-clause (e) might apply, but he conceded that there were no architect's instructions under this provision. He sought to justify his decision on the basis of a "non-instruction".

33. Mr Yeung did not inquire from the contractor why plans for the shoring were not submitted until November 1993. Mr Yeung told me that approval was not required for shoring plans in October 1993, only agreement. This was clearly not so. I could not understand what he was trying to say. He seemed to be saying that the contractor anticipated that the plans would be "agreed" by the Building Authority (the BA) within a matter of a few days. He was aware of a change in the practice of the BA after 10 January 1994. The contract referred to approval of the BA, not agreement. In any event, in his letter dated 31 March 1994 to the employer, Mr Yeung makes no reference to any change of practice by the Building Authority. He says there that the main reason for the rejection was that a file containing the information regarding the foundations of 6 Peel street was only available on 24 March 1994, he having requested the file on 24 December 1993.

34. He did not read clause G1.10.12 of the building contract before considering the grant. He was unaware of it. This clause required the contractor to provide "all necessary shoring, propping strutting, etc whether for the support of excavation, new work under construction or of existing buildings, and existing slopes.". This work was to be designed by the contractor to the approval of the architect and the Building Authority.

35. Under clause 23 of the building contract, the architect had to be satisfied that the contractor had constantly used its best endeavours to prevent delay. Mr Yeung said the delay in the approval of the plans was not the contractor's responsibility; it was outwith its control. Mr Yeung's attention was drawn to Item T of the preliminaries that cast responsibility on the contractor for the design of the shoring. This item, under the heading of "Contractor's Account" provided the sum of $.7 million for "Allow for temporary steel shoring, sturcting (sic) brancing (sic), and timber sheeting for excavation of pile caps, including obtaining approval from the Building Authority.". He did not consider this before granting the extension, but he would still consider that the contractor was entitled to the extension because, although the design was its responsibility, the delay was outside its control. It seems that when he granted the extension, Mr Yeung thought that it was the employer's responsibility to design the shoring. However, knowing the true situation, he still maintained that the extension was reasonable because the delay "was a fact".

36. The fact of the matter, which Mr Yeung patently failed to appreciate, was that the contractor had charged for the shoring and obtaining approval. This was the responsibility of the contractor, and the risk of delay was one that the contractor undertook.

37. On 25 May 1994, Mr Yeung wrote to the solicitors for the plaintiff. This purported to be a certificate regarding the progress of the building contract. He seems to think that Peter Wong asked him to write this, or someone within the employer. The letter said that "under the provision of the Building Contract the building can be completed by 31st December 1995.". When Mr Yeung wrote this he had that part of contract that gave the date for completion as 30 June 1995. He does not remember if the words of this letter were his own or suggested to him. He gave the date 30 December 1995 as "under the provisions of the building contract" because the contractor started work on 1 July 1994, and he added the days onto it.

38. Mr Yeung could not explain satisfactorily why he waited before giving an extension of time in spite of the contract saying "as soon as able to". He said that this was perhaps because the contractor did not need to ask for an extension.

39. Under event 2, Mr Yeung's view was the employer had to take the risk regarding the work to safeguard the adjoining building because it was quite old and this could not be avoided, and this even if the contractor was paid to carry the risk. His view was that, if the contractor was reasonable, an extension of time should be allowed.

40. He was not aware of clause SW4.1.1 of the building contract at the time of considering the extension. This clause provided that the scope of works included providing "temporary timbering, planking and shoring to sides of the excavation during the progress of the work" and to provide "temporary steel shoring and strutting to the sides of the timber sheetings during pile cap excavation.".

41. In a letter to the contractor dated 25 August 1994, he was being a "little" critical of the contractor, and, in another letter to the contractor dated 9 September 1994, in which he told the contractor to "Act without delay!" and that he was "still awaiting for the revised shoring proposal", he was expressing his anxiety at that time.

42. He awarded the extension of 95 days under clause 23 (e) because he had given an instruction to suspend work. The view he took was that the contractor had done its job, and a lot of the delay it could not avoid.

43. When assessing this claim, Mr Yeung did not take into account the following clauses of the building contract; clause SW 4.1.2., which provided that the contractor "shall provide shoring, strutting and other necessary supports as shown on drawings to ensure the stability of adjoining buildings and excavation works.", or clause G1.11.2, which provided that the contractor "shall take every precaution necessary to protect adjoining property from damage and shall bear all costs incurred in remedying damage caused through lack of proper care on his part.

44. Again, the risk of this delay was something the contractor had undertook. Unfortunately, Mr Yeung did not bother to read the contract to ascertain the responsibilities of the contractor before awarding this EOT.

45. Under item 3, although Mr Yeung now accepted that the responsibility for this was with the contractor, he maintained that the risk was with the employer. He allowed this under clause 23 (f), although he conceded that it was not within its letter; it was within its spirit. In fact, the experts agree that this delay was a "knock-on" from the earlier claims, and, if they are not allowable, neither is this.

46. Under item 4, he allowed the extension under clause 23 (f), although again he conceded that the letter of the clause did not apply "because the contractor was negligent". Mr Yeung explained that the contractor could not cast the rest of the ground floor slab until the level of the transformer room floor was settled. His explanation was very difficult to follow. In fact, it appears that the delay was not critical in this sense because a letter by Mr Yeung dated 8 May 1995 to a consultant architect said "As the present moment, the formwork for G/F walls and columns are now being installed". This reveals that the work in casting the ground floor slab had proceeded because the formwork for the ground floor walls and columns could not have progressed without this. Unfortunately, this letter was found amongst the mass of papers after Mr Yeung had given evidence so it was not put to him. The area of the rest of the slab was about 80% of the total. The work was programmed by the contractor to start on 1 May 1995, although Mr Yeung seemed to be unaware of this when he assessed the claim. His only answer to this seemed to be that perhaps the contractor's own programme was "not accurate". The work, on the basis of the contractor's own claim started on 28 April 1995, so there could have been no delay to work programmed to start on 1 May

47. Mr Yeung says he made the award of the extension some 10 days after the claim. He was aware there was a need for urgency in his award; he said "they needed it very much". He was told to hurry up. He thinks he was told this by Peter Wong, although he was not sure whether Mr Wong was wearing his hat as contractor or as employer. He could not remember if he was told that the extension had to be granted before 30 June 1995.

48. When assessing claim 4 also, Mr Yeung did not take into account clause G1.9.6, which provided that any "discrepancy between actual dimensions or levels and those shown on drawings shall be referred immediately to the Architect for clarification", or clause G1.2.5 (a) item 27, which provided that the works included "Attendance and Builder's work incidental to work carried out by public utilities . . . Authorities."..

49. When he was asked by the parties to the building contract to supply the contract, he was told it was for use "internally". He never thought that there would be a problem arising from an extension of time. He had no idea that he might be asked to consider an EOT.

50. When he received the claim for an extension of time, he did not tell Mr Lee, the third party's consultant architect. When Mr Chan asked him if Mr Lee or anyone had sought to influence him or make submissions, Mr Yeung said that Mr Lee had not done this. He was asked if, apart from the letter from the contractor, he received any other submissions as to what extension to grant, and he mentioned a consultant from the employer, but seemed to be saying at that stage this person did not make submissions or try to influence him. The fact that the contractor and the employer were connected companies, he said, did not make any difference.

51. He said he designed a building with aluminium cladding. This is completely different system from an aluminium curtain wall.

52. Regarding the working papers that he did not keep, Mr Yeung's evidence was contradictory to that he gave in January 1998 and unsatisfactory. He withdrew his description of the working papers that he gave on that occasion, now saying that they contained only notes of dates and what was done. He did not, in fact, prepare any analysis of what was critical and important except in relation to the level of the transformer room.

53. When asked about saying that Mr Lee had not sought to influence him, he said he had misunderstood; he meant that no one had tried to influence him. He agreed that he had received submissions from the consultant of the employer - a Mr Ho. He was evasive about this. He went to the employer's office to discuss the grant of an extension of time. He said he could not remember if Mr Ho was hostile to the extension or supportive. Mr Ho was not saying that he should grant an extension or should not. There was more evasion, but eventually Mr Yeung said that Mr Ho was saying that if Mr Yeung thought it right he should award an extension.

The Effect of this Evidence relating to the Extension of Time

54. In relation to Mr Wong's first level of challenge, in spite of what Mr Yeung himself says, Mr Chan insists that Mr Yeung was the architect as mentioned in the building contract. I cannot accept this. It is simply not possible for Mr Yeung to have been the architect as contemplated by the building contract without knowing it. One cannot have an architect, who has continuing duties and responsibilities under the contract, unconscious of the fact that he has those duties and responsibilities. In the same way, one could not have a judge judging a case unless he knows he is doing so. Equally, one cannot have an architect assuming one of the functions of the architect under the contract at a late stage when he has not exercised the duties and responsibilities during the contract that would enable him to exercise that function in a proper and professional manner. Mr Yeung makes it clear that he never anticipated being asked to consider an extension of time. How, then, could he have paid the required attention to the contractor's conduct during the course of the works to enable him to make a proper assessment of this matter? He did not, for example, require the contractor to submit reports to him as required by the contract. He did, he says, pay periodic visits to the site, but he did not have in mind the possibility that he would, eventually, have to make an assessment of the contractor's endeavours to avoid delay.

55. Accordingly, it seems to me, there was no architect as envisaged by the contract who was able to grant any extension of time.

56. Mr Wong's second level of challenge is that the architect appointed under the contract would balance the interests of the contractor and employer, and not act in collusion with the contractor and the employer to bring about a result that they both wanted.

57. The collusion alleged here is of an unusual nature. It is not collusion by the architect with one of the parties to the building contract against the other party. Here, what is said is that both the contractor and the employer wanted an extension of time, and colluded with the architect to achieve this against the interests of a purchaser from the employer.

58. On the evidence, it is probable that Mr Yeung clearly understood that both the contractor and the employer wanted him to grant the extension. Mr Yeung probably suspected that this joint wish had something to do with the sale of the property by the employer, although he may have turned a blind eye to the details. Certainly, both the contractor and the employer, particularly through Mr Peter Wong, knew just what was going on. The employer had entered into an agreement with the third party that any architect's extension would be "usual", by which I take it that the employer and the third party contemplated an extension that would not be brought about by the contractor and the employer acting in collusion with the architect; that would not be "usual". It may be, although there is no evidence of this, that the third party was also a party to this collusion, but this would not help the third party as against the defendant.

59. I find that, on this basis, there was no "usual" architect's extension.

60. The third level of challenge is based on the assumption that Mr Yeung, in considering the EOT, had a duty to act within his jurisdiction; that is, that he would consider an extension only if he was allowed to do so under the building contract. Mr Yeung, it is said, did not do this.

61. The evidence establishes that Mr Yeung, either deliberately and through ignorance, did not consider the extension within the confines of the contract. It appears that he did not even read that basic document properly. He seems to have considered that he was entitled to grant an extension if he thought the contractor was being "reasonable", or if he thought that the application was within the "spirit" of the contract. That is quite wrong.

62. So, here also, there cannot be said to have been a "usual architect's extension".

63. The fourth, and final, level of challenge is on the merits of Mr Yeung's decision. Here, it is argued by the plaintiff and the defendant, Mr Yeung decision was wrong.

The Merits of Mr Yeung's Decision

64. Mr Colin Wall, the expert called by the third party to support the merits of Mr Yeung's decision, submitted a report in which he says that the only relevant basis on which Mr Yeung could have granted an extension of time is clause 23 of the building contract. Mr Wall's report is very scanty in explaining the grounds on which he supports Mr Yeung's view. He explains this by saying that he anticipated that there would be an expert's meeting at which his views would be expanded. The fact that the third party's solicitors only served Mr Wall's report, although prepared in March 1998, on all the parties on the Thursday before the Monday start of the trial rather hampered this expectation.

65. Part of Mr Wall's opinion rests on an assumption that there had been an instruction from the architect requiring a variation. In fact, there had been no such instruction, and no such variation. All the work that the contractor did was work that it was required to do under the contract. Mr Wall agreed that sheet piling is a form of shoring, but maintained that it was not originally contemplated. I do not accept this. The contractor was obliged to do what it did under the building contract. If what the contractor was obliged to do was more than it anticipated, that does not make the additional work a variation. The balance of his opinion is based on the view that there had been a postponement of the work. There was, of course, postponement of the work, but any delay was at the risk of the contractor. Mr Wall seems to think that, unless the building contract specifically says the risk of delay is with the contractor, it rests with the employer. He separates cost, which may be for the contractor, and delay, which is with the employer unless the contract says otherwise. I do not accept this. If the contractor undertakes a task and is paid for it, he carries the cost and the risk of delay, unless he can bring himself within a provision for an extension of time. There is, of course, very little difference between cost and delay in a building contract; they both ultimately sound in terms of money.

66. The relevant parts of clause 23 of the building contract read -

"Upon it becoming reasonably apparent that the progress of the Works is delayed, the Main Contractor shall forthwith give written notice of the cause of the delay to the Architect, and if in the opinion of the Architect the completion of the Works is likely to be or has been delayed beyond the date of completion stated in the appendix to these conditions or beyond any extended time previously fixed under . . . this clause,

(e) by reason of the Architect's instructions issued under clauses 1(2), 11(1) or 21(2) of these Conditions, or

(f) by reason of the Main Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect for which he specifically applied in writing on a date which having regard to the Date for Completion stated in the appendix to these Conditions or to any extension of time then fixed under this clause . . . of these Conditions was neither unreasonably distant from nor unreasonably close to the date on which it was necessary for him to receive the same . . .

then the Architect shall so soon as he is able to estimate the length of the delay beyond the date or time aforesaid make in writing a fair and reasonable extension of time for completion of the Works. Provided always that the Main Contractor shall use constantly his best endeavours to prevent delay and shall do all that may reasonably be required to the satisfaction of the Architect to proceed with the Works."

67. The references in paragraph (e) are to clause 1(2), 11(1) and 21(2). Clause 1(2) is not relevant. Clause 11(1) relates to variations. Although it does not appear that Mr Yeung proceeded on this basis, Mr Wall says that there was a variation or deemed variation under clause 4(1). Clause 4(1) requires the contractor to comply with the law, and says, before making any variation to so comply, the contractor shall give written notice to the architect. The architect may then give instructions. If he does not, the contractor should proceed and a variation is deemed. Clause 21(2) refers to instructions by the architect to postpone work. Whatever justifications Mr Wall now seeks to advance to support Mr Yeung's conclusion, it is clear to me from Mr Yeung's own evidence that he was not justified.

68. Mr Wall agreed that Mr Yeung's certificate did not reveal if an extension had been validly granted under clause 23.

69. In Tang Siu Ling v More Way Development Limited (1996 HC Action No. A11079), Barnett J. held that "it was vital that the Plaintiffs should be aware which precise ground or grounds AP relied upon for granting an extension. They were entitled to know so that they could exercise the option to rescind available to them." Barnett J also examined the AP's grant to see whether it was justified under the agreement. Mr Chan argues that this case is distinguishable on the ground that the grounds for extension were contained in the very agreement concerned. I do not accept that there is any valid ground for distinguishing that case from this one, and I agree that an architect's certificate must reveal the grounds on which the extension is granted for the reasons given by Barnett, J.. In that case, no grounds at all were given. I do not consider that the certificate before me is invalid because of this. Everyone knew that the only clause of the contract under which the extension could granted was clause 23, and factual grounds were given that purported to justify the extension,

70. Mr Chan's principal argument is that if "the architect administering the building contract . . . has granted any extension of time . . . there is no requirement that the architect's views and decision . . . must be correct and justified with reference to the terms of the building contract . . ." Mr Chan says that business efficacy requires this.

71. I do not accept this argument. If for no other reason, the agreement between the employer and the third party required that any architect's extension be "usual". An extension of time granted without regard to the building contract cannot possibly be usual.

72. Mr Chan then argues that the clauses in the Preliminaries part of the building contract which, apparently, Mr Yeung did not read, were, in fact, not part of the building contract. There is no merit in this submission. Mr Yeung

prepared a contract with the Preliminaries part and sent it to the contractor/employer. The contractor and the employer signed this. When Mr Yeung asked for the contract, it is the document before the court that was supplied to him. Clearly, the contractor and the employer regarded this whole document as the contract, not just part of it.

73. Mr Chan concedes, by implication, that a valid extension under clause 23(e) required a written instruction and, under clause 23(f), a written request, and they did not exist, but says these requirements may be waived. The problem with this is that there is no evidence whatsoever that they were waived. Even Mr Yeung does not suggest this.

74. Even on Mr Yeung's own evidence, it is clear that his decision to grant an extension was wrong.

Conclusion on the Architect's Extension

75. For the reasons I have given, I do not accept that there was any relevant "usual architect's extension" granted in this matter.

The Aluminium Cladding

76. The plaintiff pleads against the defendant that it was a term of the agreement that the building was to be constructed according to the schedule. The defendant pleads the same allegation against the third party. Against the plaintiff, the defendant pleads that the building was to be erected in accordance with the approved building plans, and the third party says that the construction was to be according to the approved plans.

77. The fact of the matter is, of course, that the agreements provided that the building was to be constructed according to the approved plans and the schedule. The problem is that the approved plans and the schedule are in conflict. They provide for different finishes on the exterior of the building. In this situation, I should see if I am able to construe the agreements so as to give effect to the real intention of the parties. From the agreements themselves and the factual matrix, there is, in my view, no reason why I should prefer one obligation to the conflicting obligation. Both the schedule and the approved plans are vague as to the details of the coverings of the walls concerned. Indeed, they are so vague as to leave me with the impression that the parties were not greatly concerned with this aspect of the contracts between them. If the plaintiff or the defendant had been anxious to acquire a building with a particular type of exterior finishing, I would expected them to require the specifications to be much more particular, and they would have paid far more attention to what the approved plans provided in this respect. Surely it cannot be the case that, if it were the real intention of the parties that the exterior should be of a particular kind, that the plaintiff and the defendant would have been content with the phraseology of an "aluminium curtain wall and window wall with reflective glass" and an "aluminium curtain wall and semi-gloss glazed tiles". Would not the plaintiff and defendant want to know which parts of the walls were to be "aluminium curtain wall", "window wall with reflective glass and "semi-gloss glazed tiles"? And if they had looked at the approved plans, which one would expect any purchaser expending the large amount of money involved to do, would the plaintiff and defendant not want to know more details about the "alum cladding"?

78. I am left in the position of being unable to construe the conflicting provisions so as to adopt one as paramount. The result of this is that the plaintiff and the defendant have failed to discharge the onus of establishing that there has been a breach of contract in this respect.

79. It was, I suspect, because Mr Ronny Wong anticipated this difficulty that he pleaded the misrepresentation. This was done very late in the day, and it was a complaint never raised in the correspondence.

80. The defendant's evidence on this point is from Mr Wong Kwan, a director of the defendant at the relevant time. He says he was very concerned whether the building would be constructed with an aluminium curtain wall. Although he said this originally, several times during his evidence he said that he thought the building would have a glass curtain wall. I do not believe that Mr Wong Kwan was as concerned as he would have me believe about the curtain wall. If he had been so anxious about this, I believe it is probable that he would have investigated the matter more thoroughly, and would have insisted on more detailed specifications in this regard.

81. Mr Wong Kwan says that Mr James Lee of the third party told him over the telephone in March 1994 that the building would have an aluminium curtain wall and repeated this at a meeting in the Clipper Lounge of the Mandarin Hotel. It was at this meeting, he says, that Mr Lee showed him the schedule. Mr Lee denies this. Mr Lee says that, on the contrary, what he showed Mr Wong Kwan was the plans that showed that the building would have aluminium cladding. In fact, Mr Lee says, he sent to Mr Wong Kwan a copy of the plans the next day. And indeed there is a letter from an associate of Mr Lee's dated 10 March 1994 to Mr Wong Kwan saying that it encloses the plans. The Wong Kwan admits receipt of this letter but says that it did not, in fact, enclose the plans. Mr Wong Kwan says that the letter enclosed something quite different; some drawings that did not speak about aluminium cladding. Mr Wong Kwan was not able to explain satisfactorily why he did not follow up what he says was a mistake in the terms of this letter. As a matter of probability, I accept that Mr Wong Kwan did have the plans, at least by 10 March 1994, and that even a casual perusal of these by someone who was concerned about the exterior finish of the building would have revealed the fact that these plans contemplated the building having aluminium cladding.

82. Mr Ronny Wong makes something of the fact that, as early as 8 December 1994, the defendant's then solicitors pointed out that "it has been agreed" that there would be a curtain wall, saying that the plans did not include that curtain wall. The third party did not deny this, and, indeed, made the same complaint to the employer. This is so, but there is nothing to be taken from this in the defendant's favour. The agreement did provide for a curtain wall, and the plans did not so provide. There was clearly a conflict between the schedule and the plans, and the defendant's then solicitors must have then been aware of this. If, in spite of this, there had been assurances by Mr Lee that there would be a aluminium curtain wall, one would have expected the defendant to say this at that time. In my view, this point tells against the defendant rather than in its favour.

83. Mr Wong Kwan says that it was not until he was told so by Mr Thomas Ling that he knew the building would not have an aluminium curtain wall. This was "in about July 1994".

84. Mr Thomas Ling says that he did speak to Mr Wong Kwan in July 1994, and his evidence does indicate that Mr Wong Kwan seemed to think that the building would have a curtain wall.

85. Mr Wong Kwan says that he called Mr Lee about this. He says "I kept calling James Lee". There is nothing in writing about this until the defendant's solicitors wrote to the third party's solicitors on 8 December 1994, and then nothing is said about Mr Lee's representation or Mr Wong's calls to Mr Lee. The letter reads as if the defendant's solicitors had discovered the discrepancy between the schedule and the approved plans.

86. Although I was not convinced by the evidence of Mr Wong Kwan, I should say that I was not any happier with the evidence of Mr James Lee. I was not satisfied that either of them were reliable witnesses to the truth. As is so often the case, I suspect that the truth lies somewhere between the version given by Mr Wong Kwan and that given by Mr Lee. But the result is that I am not satisfied that the defendant has made out its case on representation as pleaded.

Loss of Right to Rescind

87. The remaining matter to be considered is whether the defendant has lost its right to rescind the second agreement.

88. The letter by the defendant's solicitors dated 11 April 1996 gives formal notice of rescission of the agreement "as a result of your client's repudiation of the same." The letter then says that there has been undue delay in the issue of the occupation permit. It also says "there has been another breach . . . in that the Head Vendor has failed to construct Aluminium Curtain Wall . . . in accordance with the terms of the [first agreement] and your client has failed to take the necessary action under clause 23(a) of the agreement herein. Pursuant to clause 23(b) of the Agreement, this breach constitutes further grounds of Rescission by our client . . . our client will also rely on this failure to construct and deliver the Building in accordance with the agreed fittings as a further ground of Rescission.".

89. I need consider only the ground of undue delay in the issue of the occupation permit because I have found that any breach relating to the curtain wall has not been established.

90. There was no repudiation by the third party entitling the defendant to accept this and rescind the second agreement. Mr Chan argues that there is no term in the agreement between the defendant and the third party that the building was to be completed within any period. I accept this. In my view, the defendant's right to rescind depends, not on any breach by the third party, but on clause 23 of the second agreement. The right to rescind arises by virtue of the agreement itself, and not because of any breach by the third party. It matters not, of course, that the defendant relied on a misconceived ground in rescinding. If the defendant had a right to rescind, it had a right to rescind, even if it may not have known the grounds for this at the time.

91. Mr Chan accepts that clause 23 of the second agreement gives the defendant rights in the event that the building was not completed with occupation permit issued on or before 30 June 1995 subject to the usual architect's extension. Mr Chan says that the defendant would only have a right to rescind the second agreement if the third party had a right to rescind the first agreement. Mr Chan further accepts that, if the building was not completed as required by the first agreement, the third party had a right to rescind that agreement.

92. Mr Chan accepts that, if the employer failed to complete the building as required by the building contract, the third party would have the right to "terminate" the first agreement, but not a right to "rescind". This is an argument of desperation. I have no hesitation in finding that what the parties were talking about was the right to bring the agreements to an end.

93. If this contention is wrong, Mr Chan says, the right vested in the third party to rescind arose immediately after midnight of 30 June 1995. He says that the defendant's right to rescind similarly arose on 1 July 1995. The third party passed to the defendant all the relevant information to enable the defendant to know of its right to rescind; formal notice was not necessary.

94. Mr Chan also says that, if the third party elected to affirm the first agreement, the defendant had no right to rescind, but only the right to claim interest. The argument is that, because clause 23(f) of the first agreement is specific, it should over-ride the general terms of clause 23(b).

95. I do not accept this argument. Clause 23(b) gives the defendant a specific right to rescind "notwithstanding any provisions herein contained to the contrary". Even Clause 23(f) itself does not purport to be to the contrary; it does not say that, in the circumstances prescribed, the defendant would lose its right to rescind. I believe that clause 23(f) applies only where the third party elects to wait, notice has been given under sub-clause (b) and the defendant has given no direction. It would make nonsense of the detailed provisions giving the defendant the right to rescind if it were so that the third party could nullify those rights by deciding that it wants to complete, regardless of the defendant's wishes in the matter, and no matter how much delayed was the completion.

96. If this is not so, Mr Chan further contends that, in any event, the defendant's right to rescind had been lost before it gave notice on 11 April 1996. The defendant received a copy of the architect's extension on about 30 June 1995. Then the defendant knew any defects on the face of the certificate, knew of the relationship between the contractor and the employer and the terms of the building contract. No query was raised by the defendant on the grant until 20 October 1995. This letter asked for clarification and further information. This letter followed a similar letter from the plaintiff's solicitors to the defendant's solicitors dated 17 October 1995. Also on 20 October 1995, the defendant's solicitors wrote to the plaintiff's solicitors saying that the queries were too late and saying that the certificate was binding. The third party's solicitors wrote to the defendant's solicitors saying that they had asked the employer's solicitors for comments. There is no evidence that the employer's solicitors supplied further information, although, on 22 March 1996, Mr Yeung wrote to the employer expanding on the grounds for the grant of the EOT. On 10 November 1995, the plaintiff's solicitors wrote to Mr Yeung asking for more information about his grant of the EOT. There is no evidence that Mr Yeung replied to this letter.

97. Further grounds for alleging affirmation are that the defendant did not give notice to the third party following notice by the plaintiff dated 17 February 1996, that the defendant only alleged delay in the issue of the occupation permit on 11 April 1996, after being told by the third party's solicitors on 10 April 1996 that it would be issued shortly and one day before it was issued on 12 April 1996, and that the defendant raised no objection to the payment of deposit money to the employer.

98. The defendant's right to rescind arose immediately after the third party's right to rescind as against the employer. We know now, of course, that, notionally, the third party's right to rescind arose immediately after 30 June 1995 because, on my findings, there was no usual architect's extension. But this was not real because only the contractor, the employer and Mr Yeung knew that the granting of this EOT was a charade. They concealed this from the others. The plaintiff, the defendant and the third party were faced with a certificate that might, on the face of it, be valid. Clearly, from the correspondence, it appears that the plaintiff and the defendant were suspicious about the grant of the EOT and sought further information without success. It is probably because of this that the plaintiff elected to give notice to complete, and then accept repudiation.

99. Because the third party, on the evidence, did not know the full facts about the grant of the EOT because these were concealed by the employer, its right to rescind remained open, although it had the right to take a gamble; to rescind and hope that it would be able to prove justification. Similarly, the defendant's right to rescind against the third party was open-ended, with a similar right to take the risk of rescission and justify it.

100. What the defendant did was to seek further information, and wait. But eventually it could wait no longer because the issue of the occupation permit became imminent and it would be called upon to complete. In my view, the defendant was entitled to do this. At this stage, the defendant had the right to elect to complete or rescind and justify. It elected to rescind, and, in my judgment, it has justified that rescission. In my view, nothing that the defendant did whilst it waited sent any clear message that it had elected to affirm so that the third party can raise any justified allegation of waiver, estoppel or affirmation. On the contrary, the third party well knew that the defendant was unhappy with Mr Yeung's EOT, and the defendant did not give the third party any reason to believe that this unhappiness had dissipated. The defendant had asked for information to be assured that the grant of the EOT was justified, and the third party had not supplied this.

101. In the result, I find that the defendant did not lose its right to rescind.

The Plaintiff's Claim

102. The plaintiff is entitled to a declaration against the defendant that the third agreement has been effectively terminated, and this is granted.

103. The plaintiff is also entitled to receive payment from the defendant of the sum of $101,612,000, and judgment is granted against the defendant in this sum together with interest as stipulated in clause 23 of the agreement to the date of this judgment, and, thereafter, at the judgment rate.

104. I have heard no argument on costs, but it seems to me there is no reason why they should not follow the event. I make an order nisi that the defendant pay the plaintiff's costs.

The Defendant's Claim

105. I grant a declaration that the defendant has effectively terminated the second agreement as against the third party.

106. I have found that no breach of the agreement by the third party, and no misrepresentation, has been proved by the defendant so no damages are payable.

107. The defendant is entitled to the refund of the deposit of $100 million paid, and I grant judgment against the third party in this sum.

108. I award interest and costs to the defendant on the same basis as mentioned above in relation to the plaintiff's claim.

109. The defendant is also entitled to a lien over the property in respect of unpaid deposit, interest and costs.

The Third Party's Counterclaim

110. It follows from what I have already said that the third party fails on its counterclaim. This is dismissed. There will be an order nisi that the third party pay the defendant's costs of the counterclaim.