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HCA 2239/2016
[2021] HKCFI 2560
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2239 OF 2016
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BETWEEN
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JOHNSON CONTROLS HONG KONG LIMITED |
Plaintiff |
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and
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WANGLE ENGINEERING LIMITED |
Defendant |
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Before: Hon Linda Chan J in Court
Dates of Hearing: 13 – 16, 20 July 2021
Date of Judgment: 31 August 2021
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J U D G M E N T
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1. The plaintiff, Johnson Controls Hong Kong Limited (“P”), claims against the defendant, Wangle Engineering Limited (“D”), for damages for breach of a contract made between them on 20 May 2015 (“Contract”) which comprises:
(1) $1,214,885.60 in respect of contra charges deducted by Gammon E&M Limited (“GEM”) against P (“GEM Charges”);
(2) $3,598,400 incurred by P in completing the rectification and outstanding work left by D (“Rectification Charge”); and
(3) $1,833,650 as reimbursement of wages paid by P to 33 employees of D (“Reimbursement Charge”).
2. D contends that it completed all the work under the Contract on 3 September 2015 and counterclaims against P for $2,458,428.50, being:
(1) $1,113,600 as 40% of the remaining balance due under the “Quotation of Additional Interfacing Installation for AFA System” dated 28 August 2015 (“1st VO”) and $2,766,000 for the work done under “Quotation of Additional Fire Services Installation for AFA System” dated 29 September 2015 (“2nd VO”). The claims under the 1st and 2nd VOs are referred to as “VOs Claim”;
(2) $294,978.50 as reimbursement of the materials purchased by D for P (“Materials Claim”);
(3) $117,500 being 2.5% of the Contract sum retained by P (“Retention Claim”); and
(4) less the Reimbursement Charge.
3. At trial, D abandons the Retention Claim.
4. The dispute concerns construction work[1] but P chose to commence the action in the general list. The writ was issued by P on 30 August 2016. The pleadings filed by the parties have undergone no less than 3 amendments primarily as a result of P changing its case:
(1) P’s statement of claim was amended on 16 March 2018, 3 July 2019 and 24 March 2021. The last version of its case is set out in the Re-Re-Amended Statement of Claim (“SOC”).
(2) D’s defence and counterclaim was amended on 4 June 2018, 17 September 2019, 12 August 2020 and 28 April 2021. The last version of its case is pleaded in the Re-Re-Re-Amended Defence and Counterclaim (“D&CC”).
(3) P’s reply and defence to counterclaim was amended on 3 July 2018, 17 December 2019 and 11 May 2021 with the filing of the Re-Re-Amended Reply and Defence to Counterclaim (“Reply”).
5. The task of the Court is not made easier as both parties failed to comply with the Court’s directions on filing an agreed issues with references to their pleadings. Instead, they filed an “Agreed List of Issues” on 9 April 2021 without reference to the pleadings. Worse still, D’s solicitors sought to retract from the “Agreed List of Issues” and insisted on filing a revised agreed list of issues with only 2 issues, which led to the parties filing separate lists of issues on 16 June 2021. D’s list of issues is confusing and unhelpful to the Court. In future, the legal advisers who fail to comply with the Court’s directions may expect a wasted costs order to be made against them, to reflect the fact that they have failed to assist the Court to further the underlying objectives of the Rules of the High Court[2].
A. FACTUAL BACKGROUND
6. Except where the respective cases and contentions of the parties are stated, the following facts are either not in dispute or are indisputable.
A1. Parties
7. P is a subsidiary of “Johnson Controls” group, a global diversified technology and multi industrial leader serving a wide range of customers in more than 150 countries.
8. D is a company carrying on the business of supplying and installing fire services systems.
9. The following personnel of P were involved in dealing with D at the relevant time:
(1) The project manager (“PM”) responsible for the day-to-day management of the “FSS work” (as defined in §12 below) and giving instructions to the sub-contractors engaged by P. There were 3 PMs who dealt with D at the relevant time: (a) Mr K Y Wong was PM up to April 2015; (b) Mr Lam Wai Yan (“Yan”) was PM from May 2015 to November 2015; and (c) Mr Ho Man Wing Dennis (“Dennis”) was PM from August 2015 to January 2018. The PMs were the persons who regularly attended the Site (as defined in §13 below) and monitored the actual progress of all the work carried out under the FSS.
(2) The contract manager responsible for reviewing contract, preparing final accounts and lodging claims on behalf of P from 2012 to March 2017 was Mr Mai Sun Keung Mike (“Mai”), who held a degree in quantity surveying. Mai would meet with the PMs at the temporary office located outside the Site once or twice a month to check the actual progress of work and applied for payments from GEM. As Mai had not been authorised to enter the Site, he mainly relied on what he had been told by the PMs as to what work had been done and would mark the same on the “working drawings” supplied by D. If Mai became aware of the need to make any claim against a party, he would collect and retain the documents relevant to such claim.
(3) Mr Lam Wing Yan Ryan (“Ryan”) was the assistant sales engineer of P at the relevant time. He obtained a degree in building services engineering from Hong Kong Polytechnic University in 2010. Prior to joining P in 2010, he had 5 years’ experience working in the sales of fire services system. Ryan worked full time at the Site from July to December 2015.
(4) Mr Charles Law (“Charles”), the sales director, and Mr Siu Ming Choi (“Choi”) were representatives of P and were involved in the negotiations with D leading up to the Contract.
10. As for D, it was a company set up by the father of Mr Chan Man Kwong Ken (“Ken”). 2 main personnel were involved in dealing with P at the relevant time:
(1) Ken was the de facto boss of D. He has over 20 years’ working experience in the fire services system industry. He represented D in the negotiations on the Contract. He was involved in the operation side, including giving instructions to and working alongside with the workers in carrying out the work at the Site during the period from April to 15 October 2015.
(2) Ms Ip Ka Ki Mabel (“Mabel”) joined D in 2014 as assistant project manager. She obtained a bachelor degree in building services engineering in 2006, and holds a higher diploma in mechanical engineering. She has over 20 years’ experience in fire services system industry. During the time when D was engaged to carry out installation of the “AFA System” (as defined in §15 below), Mabel spent over 15 hours at the Site or at the temporary office, and she worked closely with Yan and Ryan. She was responsible for dealing with all working drawings and documentation as well as liaising with P’s representatives on the installation of the devices within the AFA System.
A2. FSS Contract between GEM and P
11. The Contract was part of the construction work of the new extension of the passenger terminal building with basement and back-of-house facilities of the Hong Kong International Airport (“Midfield Concourse”). The Airport Authority Hong Kong (“AA”), as employer, engaged Gammon Construction Limited (“Gammon”) as main contractor to undertake the building and construction of the Midfield Concourse. Gammon engaged its subsidiary, GEM, as the sub-contractor of “AAHK Contract No P533 – Midfield Concourse E&M Work”.
12. By letter dated 5 April 2013, GEM confirmed its acceptance of P’s offer on the “Design, Manufacture, Supply, Delivery, Fabrication, Programme, Installation, Supervision, Testing & Commissioning and Maintenance Fire Service Systems Sub-Contract Work” for the sum of $67.5 million. The Fire Services Systems and the work within the Systems are referred to as “FSS” and “FSS work” respectively while the contract between P and GEM is referred to as “FSS Contract”.
13. Midfield Concourse including the site at which P was engaged to carry out the FSS work (“Site”) was a restricted area, and only persons who had been authorised by AA could enter the Site.
14. In the usual practice of the industry, a fire services system is divided into “dry work” (concerning electrical connections and devices), and “wet work” (concerning water piping and equipment).
A3. Sub-contractors for AFA System
15. In the present case, the “dry work” is known as “AFA System”. However, the meaning or scope of what constituted “dry work” or “AFA System” which D was required to carry out under the Contract was not stated in the Contract.
16. In September 2013, P sub-contracted the “dry work” to Moral Way Engineering Limited (“Moral Way”) on a lump sum basis for $11.85 million, and the “wet work” to Link-Foong Engineering Services Limited (“Link-Foong”).
17. Moral Way did not complete the work and left the Site in May 2014. P then engaged Yau Shing Engineering (Asia) Company Limited (“Yau Shing”) and New Chance Engineering Limited (“New Chance”) to continue with the unfinished work on a “day-work” basis, i.e. P would pay the contractors on a daily basis according to the actual number of workers they provided in carrying out the work. There is no evidence on what work had been completed by Yau Shing or New Chance or how much (if any) they were paid by P.
18. In early 2015, P engaged D to work on a day-work basis. P did not provide any documents relating to its dealings with GEM (including the FSS Contract, any drawings submitted by P to GEM or any documents relating to the contra charges made by GEM) to D until after commencement of this action.
19. By a “Quotation of Provision of Manpower for Fire Services Installation” dated 21 April 2015 (“1st Quotation”), D quoted $4,412,500 as the price for:
(1) provision of electrician for fire services installation in April, May and June 2015 consisted of (a) 3,050 “manday” at $1,150/day (from 9 am – 5:30 pm or 6 pm – 10 pm Monday to Saturday), (b) 150 manday at $2,300/day (from 9 am to 5:30 pm on Sunday and public holiday), and (c) 800 hours at $575/hour (from 10:01 pm – 0:00 am Monday to Saturday); and
(2) drawing fee for providing 200 pieces of “Working Drawings” and “As-Fitted Drawings” at $500/piece.
20. By a purchase order dated 12 May 2015, P referred to the 1st Quotation and confirmed purchasing D’s work with “delivery date” of 10 June 2015 at $997,000 (“1st PO”). The amount $997,000 was paid by P to D.
A4. Contract
21. At the meeting held on 19 May 2015 between P (represented by Charles and Choi) and D (represented by Ken and Mabel), P suggested that D should quote a lump sum contract price of $4 million odd so as to control its budget. Pursuant to such request, D provided a quotation dated 14 May 2015 in respect of “AFA System for Fire Services Installation” at $4,800,000 (“2nd Quotation”) which described the work and the amounts quoted in this way:
| Item |
Description |
QTY |
Amount |
| 1 |
Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L1 |
1 Lot |
$700,000 |
| 2 |
Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L3 |
1 Lot |
Included |
| 3 |
Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L4 (including Area of Metal Structure at Height and Pump Rooms) |
1 Lot |
$1,150,000 |
| 4 |
Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L5 |
1 Lot |
$700,000 |
| 5 |
Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L6 (including Airplane Boarding Bridges) |
1 Lot |
$1,150,000 |
| 6 |
Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L7 |
1 Lot |
$300,000 |
| 7 |
Install AFA System for Fire Services Installation, including conduit, cable wiring, equipment and associated accessories at L8 &L9 (including Area at Height and Beam Detectors Installation) |
1 Lot |
$800,000 |
| |
Total |
$4,800,000 |
22. The 2nd Quotation contained the following terms and conditions:
“1) Our scope of works shall be limited to the work detailed in the above Quotation.
2) Cutoff date is 15 May 2015 for remaining material cost after the cutoff date is included in the quotation.
3) Cutoff date is 1 May 2015 for remaining work and associated cost after the cutoff date is included in the quotation. Any additional works after cutoff date is Excluded and shall be quote [sic] separately.
4) Overtime, night work and tools and included.
5) Working platform and all associated mobilization cost are Excluded and provided by others.
6) In particular, those [sic] work at Level 4 under a separate sub-contractor is included.
7) Apart from Johnson Controls’ fire panel, detector, signal cables and other field equipment, all other cable containment work, cable, wiring and termination are included.
8) Testing and commissioning for the aforesaid works shall be included.
9) Target to complete the work by 1 July 2015 and ready for FSD inspection.
10) Attend all FSD inspection and rectify the defects in a timely manner.
11) The following items are Excluded from our offer and to be provided by others:
a. All insurance and levies such as CITA, PCFB, ECI, CAR, TPL and other levies;
b. Bonds & Warranty;
c. All builder’s work, such as wall / slab openings, demolition and reinstatement of false ceiling, FRP and access panels for carrying out our works;
d. Removal of rubbish from site; and
e. Supply of Material and [sic] should be provided adequately on time by others to suit site progress.
12) Payment Terms: Monthly Progress Payment to be paid within 30 days.
13) We reserve the right to charge a 2% monthly interest on any overdue balance.
14) Quotation shall be valid for 30 days.” (underlined added)
23. By a “Letter of Intent” dated 20 May 2015 issued to D (“LOI”), P referred to the 2nd Quotation and confirmed the contract price at $4,700,000 (“Price”) subject to the following “clarifications”:
“1. The scope of works cover all remaining AFA works in Midfield Concourse L1 to L9, the tunnels and ancillary buildings;
2. The direct link and foam system installation are not included in your scope;
3. The wages for workers to carry the aforementioned AFA work by other subcontractors ([Yau Shing] and [New Chance]) after 1 May 2015 shall be paid by you or shall be deducted from the Contract Sum if paid by us;
4. The working drawings and as-built drawings shall be prepared by you in AutoCAD format;
5. The defect rectifications or necessary amendments of already completed works to meet FSD inspection have been included in your scope;
6. The works of testing and commissioning and attendance of handover inspection (maximum 300 man days) of the AFA system to meet the Main Contractor / Employer’s requirement are included in your scope;
7. Any defect of AFA works due to substandard quality or workmanship (defects found by the Employer / the Main Contractor / Gammon E&M / Johnson Controls within the Defects Liability Period) shall be rectified by you;
8. Maximum payment up to 90% of Contract Sum after successful completion of FSD Inspection; further 7.5% shall be paid after handover the AFA System to the Employer; the remaining 2.5% shall be released after end of Defect Liability Period;
9. Clause 1 of Terms and Conditions of [2nd Quotation] shall be amended by clause 1 above; Clause 13 of Terms and Conditions of [2nd Quotation] shall be deleted;
10. You are responsible for clear away of rubbish and residue materials to collection point designated by the Main Contractor;
11. Defect Liability is 12 months from Substantial Completion of the Main Contract certified by the Architect / Project Manager;
12. If any discrepancy between the conditions of this letter and [2nd Quotation], this letter shall prevail.
Until a Purchase Order issued to you, this letter shall be a formal contract between both parties.
You are instructed to carry out the aforesaid AFA work immediately.” (underlined added)
24. P issued a purchase order dated 4 June 2015 to D (“2nd PO”) for installation of “AFA System including conduit, cable wiring, equipment and associated accessories (L1 to L9) at Midfield Concourse” at $3,703,000. It was stated under “Remark” that (1) the “details scope of works” should be referred to the LOI, and (2) the amount under the 1st PO should be deducted from the 2nd PO.
25. It is common ground that the Contract was contained in or constituted by the 2nd Quotation and the LOI.
26. Mr Cheuk confirms that in order to effect payment to a contractor, it was necessary for P to issue a purchase order to that contractor. In this case, all the purchase orders, including the 2nd PO, were issued after the contractors had already begun carrying out the work in question.
A5. FSD inspection
27. At the time when the Contract was entered into, it was understood by the parties that the FSS (including the AFA System) would be ready for inspection by the FSD on 1 July 2015. D continued to work at the Site after conclusion of the Contract. However, the construction of the builders’ work at the Site was still ongoing. To enable the FSD inspection to be carried out, Gammon procured various temporary ceilings, doors, walls and other builders’ related amenities (“Temporary Structures”) to be built at the Site, and D was instructed by the PMs to install the devices on such Temporary Structures.
28. Between 28 July 2015 and 24 August 2015, Charles sent the following emails to D (copied to, inter alios, Choi, Yan, Ryan, Mai) in which he requested D to rectify the defects shown in the “AFA Point Lists” (generated by P) in a timely manner (collectively “Aug 2015 Emails):
(1) The email dated 28 July 2015 where Charles attached the link to AFA Point List dated 25 July 2015 for D to follow up and stated that “There are lots of defects marked on the column ‘Trouble Status’ with ‘Fail’ that need [D’s] rectification immediately to meet the schedule FSD inspection”.
(2) The email dated 8 August 2015 where Charles attached another AFA Point List dated 8 August 2015 in respect of the whole Midfield Concourse and said:
“There are still lots of points reporting trouble. As the FS 501 has been submitted to HKFSD, please arrange the defects rectification work asap.
Besides, as agreed with GEM, all the AFA loops will be ready for testing from Aug 12, 2015. GEM requested that at least 300 points can be tested daily with the result satisfactory from Aug 12, 2015. Thus, please put more effect to meet the target”.
(3) The email dated 12 August 2015 where Charles attached an updated defect list for rectification and said that “There are still over 3000 defect points as of today. Please put more effort and resources to fix”.
(4) The email dated 24 August 2015 (9:03am) where Charles said “There are still around 3000 defects as of Aug 23, 2015. Please provide us the defects rectification program by tomorrow for discussion”.
(5) Another email dated 24 August 2015 (11:14 pm) where Charles attached another AFA Point List dated 24 August 2015 and said:
“There are still over 3000 defects even more than few days before. It seems no significant progress of the defect rectification work in the past few weeks. It is totally unacceptable. You are requested to rectify at least 300 defects points every day from now on. Otherwise, we will take further action in order not to delay the FSD inspection.”
29. The last written communication in which P complained about the defects in D’s work was the email dated 24 August 2015.
30. Prior to the FSD inspection, P submitted a form “FS 501” which set out all the details of the FSS (including in respect of the AFA System, the location of the devices, their interface with other facilities such as walkway, escalators, fire escape doors and the fire control panels at the control room) for FSD’s review and comments. Once approved, the specifications stated in FS 501 could not be changed without the approval of the FSD, and the officers of the FSD would check whether the FSS installed at the Site complied with the specifications stated in FS 501.
31. The FSD inspection commenced on 7 September 2015. It was a process during the officers came to the Site to inspect different parts of the FSS and provided their comments on whether the FSS required amendments, rectifications or additional devices to meet the FSD’s requirements. In the process, the officers identified issues which were described by GEM and P as “document issue” and “site issue”, and it was the responsibility of P to address and resolve the issues to the satisfaction of the FSD.
32. As far as the AFA System is concerned, there is no dispute that the document issues were the responsibility of P, while D was required to resolve the site issues to the satisfaction of the FSD.
33. By a certificate dated 19 November 2015 (“FSD’s Certificate”) the Director of Fire Services certified the fire service installations and equipment at the Midfield Concourse in these terms:
“This certificate is issued in accordance with Section 21 of the Buildings Ordinance Subsection 6(d), and certifies that the Director of Fire Services is satisfied that the fire service installations and equipment shown on the building plans approved by him have been installed in accordance with Sub-paragraph (ii) of Paragraph (b) of Subsection (1) of Section 16 of the Buildings Ordinance and were in efficient working order and satisfactory condition at the time of their inspection on 6.11.2015” (underlined added)
A6. D’s applications for interim payments
34. Whilst the work at the Site was still ongoing, D submitted 6 “invoices” for interim payments to P (respectively “IP 1” to “IP 6”, collectively “IPs”). The dates of the IPs, the percentage of work done and the amounts claimed may be summarised as follows:
| IP No. |
Date of IP |
“QTY” |
Amount Claimed |
| 1 |
30/5/2015 |
42% (L4)
68% (L5)
5% (L6) |
$995,323.30 |
| 2 |
9/6/2015 |
35% (L1)
70% (L4)
80% (L5)
30% (L6)
10% (L7)
25% (L8 & L9) |
$1,144,156.40
(being $2,139,479.70 less) $995,323.30)
|
| 3 |
30/6/2015 |
35% (L1)
70% (L4)
90% (L5)
75% (L6)
60% (L7)
60% (L8 & L9) |
996,301.65
(being $3,133,333.65
less $2,139,479.70)
|
| 4 |
2/7/2015 |
90% (L1)
90% (L4)
90% (L5)
75% (L6)
60% (L7)
60% (L8 & L9) |
$602,185.75
(being $3,737,969.10
less $3,135,781.35)
|
| 5 |
3/8/2015 |
95% (L1)
95% (L4)
95% (L5)
95% (L6)
95% (L7)
95% (L8 & L9) |
$727,030.90
(being $4,465,000 less $3,737,969.10)
|
| 6 |
3/9/2015 |
100% (L1)
100% (L4)
100% (L5)
100% (L6)
100% (L7)
100% (L8 & L9) |
$235,000
(being $4,700,000 less $4,465,000)
|
A7. D’s claims under VOs
35. It is D’s case that pursuant to the instructions given by the PMs, it carried out various additional work (details of which were set out in the 1st and 2nd VOs) falling outside the scope of the Contract. However, other than paying 60% of the amount payable under the 1st VO, P refused to pay the remaining amount due. As D was unable to continue to pay the wages of its workers, it decided to stop working on the additional work required by P and left the Site on 15 October 2015.
36. After D had left the Site on 15 October 2015, there was no further communication between P and D concerning D’s work on the AFA System until P’s solicitors sent the demand letter to D on 10 June 2016.
A8. GEM’s contra charges against P
37. It is P’s case that D failed to complete its work to meet the FSD inspection on 7 September 2015, whereupon GEM had to deploy various workers (including those hired by its sub-contractors) to work on the AFA System from 2 September 2015 to 24 October 2015.
A9. Unpaid wages to 33 employees
38. In late October 2015, 33 employees previously employed by D lodged complaints with the Labour Department in respect of unpaid wages for the period from September to October 2015. The claims were resolved with P agreeing to pay all the outstanding wages to the employees by 10 November 2015 pursuant to s 43C of the Employment Ordinance (Cap 57). P paid an aggregate sum of $1,833,650 to the employees.
39. D’s case is that it was unable to pay the wages owing to P’s refusal to pay the full amount due under the 1st VO and any amount under the 2nd VO. D admits that it is liable to pay $1,833,650 to P but seeks to set-off the same against the amounts payable by P under the 1st and 2nd VOs.
A10. Engagement of Link-Foong
40. It is P’s case that from November/December 2015, it continued to receive various “FS Master Defect list for MFC” from Gammon (which P described as “Defects and Outstanding Work List”) (“DOW List”) which show that the work carried out by D was incomplete or defective, and it had to engage Link-Foong to carry out rectification work.
B. ISSUES
41. On the basis of the pleadings and taking into account the concessions made by the parties at trial, the issues which require determination of the Court are as follows:
(1) Whether D completed all the work falling within the scope of the Contract and, if so, when?
(2) Whether D is liable to pay the GEM Charges to P?
(3) Whether D is liable to pay the Rectification Charge to P?
(4) Whether P is liable to pay the VOs Claim to D?
(5) Whether P is liable to pay the Materials Claim to D?
C. DISCUSSION
C1. Evidence
42. The approach of the Court in fact finding and assessment of credibility has been sufficiently stated by DHCJ Eugene Fung SC (as he then was) in Hui Cheung Fai & anor v Daiwa Development Ltd & ors, HCA 1734/2009, 8 April 2014, §§77-81, and may be summarised as follows:
(1) Generally, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility.
(2) In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events.
(3) In determining a witness’ credibility, it is important to consider the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence as between his oral testimony and witness statement.
(4) The Court has to guard against the danger of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses, or from the assessment of the witnesses’ character.
43. At trial, Mai and Ryan give evidence on behalf of P. Neither of them has much personal knowledge on the crucial issues as to (1) what instructions were given by the PMs to D in carrying out the work under the Contract in particular, the work carried out on the Temporary Structures, (2) whether the PMs had instructed D to carry out work falling within the scope of the 1st and 2nd VOs and on the basis that they constituted variation orders, and (3) the basis upon which the PMs certified that D had completed 100% of the work under the Contract.
44. Where Mai and Ryan’s evidence deal with matters which are within their personal knowledge, they both try their best to recall what happened back in 2015 and give evidence based on their recollection. However, it is clear from their evidence that much of what they say is either based on what they believed or thought to be the “fact” or the correct position, when neither of them has personal knowledge of what actually happened at the Site. Overall, I do not find the evidence of Mai and Ryan to be of much probative value to the issues I have to decide in this action.
45. D calls Ken and Mabel to give evidence on its behalf. They provide their answers in a straight-forward and candid manner. They have been cross-examined by Mr Cheuk at some length and their evidence remains unshaken. I find that their evidence is consistent with and corroborated by contemporaneous documents and is credible. I prefer the evidence of Ken/Mabel to the extent that it is inconsistent with the evidence of Mai/Ryan.
C2. Whether D completed the work within the Contract?
46. In the SOC, P pleads the express terms of the Contract (contained in the 2nd PO and the LOI)[3] and claims that D acted in breach of the Contract in this way[4]:
“After the entering into the [Contract], [D] failed to get its works ready by 1 July 2015 and defects were subsequently identified by [P]. By emails dated 28 July 2015, 8 August 2015, 12 August 2015 and 24 August 2015 respectively, [P] provided [D] with various defects lists and requested for rectification by [D] in a timely manner so as to meet the inspection of FSD. Despite [P’s] repeated requests, in breach of the [Contract], [D] had failed to and/or refused to carry out or complete the rectification works to the satisfaction of [P] or [GEM] in time and/or failed to get its work ready to meet the re-scheduled FSD inspection held on 7 September 2015.”
47. The only breaches alleged against D are delay in failing to complete the work by 1 July 2015 and the defects in D’s work as identified in the emails up to 24 August 2015. At trial, Mr Cheuk confirms that P no longer relies on delay as the basis of its claim. This is unsurprising as it is clear from the contemporaneous documents and the parties’ evidence that soon after D had commenced working at the Site, all parties involved in the Midfield Concourse proceeded on the basis that the FSS would only be ready for FSD inspection in early September 2015.
48. D denies that it acted in breach of the Contract. It relies on the IPs in which Yan (qua PM) certified that as at 3 September 2015, D had completed 100% of the work falling within the scope of the Contract.
49. As stated in section A6 above, D submitted IP 1 to IP 6 to P in which it certified the percentage of work then completed by D.
50. The form and contents of the IPs were materially the same except the progress of the work done and the amounts claimed. Each IP contained 2 parts. By way of example, IP 6 stated as follows:
(1) At page 1:
“With reference to the captioned and your [1st PO and 2nd PO] respectively, we are pleased to certify that the captioned works had been partially completed and submit herewith our invoice for the Interim Payment No. 6 in an amount of HK$235,000 with attached certified workdone record for your perusal and assessment”
This was followed by a table listing out the work for each level. The “Qty” stated for all levels was “100%”.
(2) At page 2 was an “Interim Payment Application No 6 – Workdone Record”, which was a table containing (a) the description of the work on each level, (b) the amount quoted in the 2nd Quotation for the work on that level, (c) the amount stated in the 2nd PO for the work on that level, (d) the “Workdone (%)”, and (e) the amount of interim payment application for that level. Immediately below the words “Certified By” was the signature of Yan (qua PM of P).
51. Except IP 1 which was not signed by anyone on behalf of P, Yan signed all the IPs under “Certified By” without any qualification.
52. Shortly after the IPs had been certified by Yan, P paid the amounts applied for under the IPs except $117,500 (representing 2.5% of the Price), which was not paid to D.
53. D’s case is amply supported by the IPs, which are contemporaneous documents emanated from P, as well as P’s act in paying the Price without any complaint or qualification. Although 2.5% of the Price was not paid, such amount was agreed to be the retention amount which was not payable until after the expiry of the defects liability period.
54. Further, the fact that D had completed all the work under the Contract by 3 September 2015 is consistent with or corroborated by the following facts and matters:
(1) As stated in §29 above, the last written communication in which P complained about the defects in D’s work was the email dated 24 August 2015. After that date, there was no further email or document from P to D complaining about the timing or quality of D’s work falling within the Contract.
(2) On 7 September 2015, the FSD inspection on the FSS commenced. Although the FSD’s Certificate was only issued on 19 November 2015, it is clear that the issues identified by the FSD before 19 November 2015 did not concern the AFA System or D, as further discussed in §§55 - 58 below.
55. From 7 September 2015 to 11 September 2015, GEM emailed various versions of “Action List for MFC FSD Inspection” and an “Action List / Defects List for APM FSD Inspection” to, inter alios, Yan and Dennis (collectively “FSD Action Lists”). In the FSD Action Lists, the details of the issues identified by FSD, the party responsible for resolving the issues, the follow up actions taken and the status of the issues were clearly stated.
56. In the documents disclosed by P, the FSD Action Lists were last updated on 20 September 2015 which showed that, as at that date, the issues remained outstanding were either document issues or issues which concerned the wet work.
57. There is a dispute on when the FSD inspection came to an end.
(1) P says that the FSD inspection was only completed on 6 November 2015[5].
(2) D says that the FSD inspection on the AFA System was completed on 15 October 2015.
58. It is necessary to set out the documents relating to the FSD inspection in chronological order as both parties seek to put different gloss on the FSD inspection and the contemporaneous documents relating to such inspection.
(1) The “Initial inspection Report on Fire Services Installation / Inspection and Testing” dated 15 October 2015 (“15 Oct Report”) in which the FSD identified 14 defects during the inspection.
(2) The “Re-inspection Report on Fire Service Installation / Inspection and Testing” dated 27 October 2015 (“27 Oct Report”) which, according to P, shows that there were outstanding issues as at that date.
(3) In the email dated 27 October 2015 sent by Mr Bill KW Tang (a representative of AA) to Mr Terry Kwok (“AA’s 27 Oct Email”), which was copied to Yan and Dennis, it was stated that the Midfield Concourse FSD inspection was “successfully completed” in the morning on 27 October 2015, and once the “action items” were closed, the Fire Certificates would be issued. In the “MFC re-inspection Report dated 27 October 2015” appended to the email, the parties responsible for resolving the remaining issues were “MAJV” or “GCL[6]”. It appears from the descriptions that the outstanding issues identified by the FSD were either document issues or issues concerning the wet work.
59. Nevertheless, P denies that D completed the work under the Contract and relies on the following 3 points, which were only introduced to the Reply in December 2019:
(1) First, despite the fact that the IPs were signed by Yan which certified that D had completed 100% of the work under the Contract, such certification was “only provisional and subject to final account calculation” and was made by P to facilitate D’s cashflow problem at the time[7] (“Provisional Certification point”).
(2) The parties “intended to agree a lump sum such that everything necessary for the full completion of the AFA System (i.e. up to the handover of the [Site] to [AA] and the satisfactory completion of the Defects Liability Period) would be included therein[8]” (“All Inclusive point”).
(3) It is “common” that installation of a fire service system may involve “double-handling” works, and the parties “contemplated such possibility at the time of the [Contract]”[9] (“Common Understanding point”).
60. P bears the burden to prove each of the above points. This accords with the principle that the burden of proof lies upon the party who substantially assets the affirmative of the issue. If, when all the evidence is adduced by all parties, the party who has this burden has not discharged it, the decision must be against him (Phipson on Evidence, 19th ed, §6-06).
61. In my judgment, P has not discharged the burden of proving the above 3 points for the following reasons.
62. First, despite the professed importance of the points and the volume of the documents disclosed and used at trial (over 5,000 pages), P is unable to point to any contemporaneous document which lends support to any of the 3 points.
63. Second, the 3 points were only raised at a very late stage. If there were any truth in the points, there was no reason why P did not raise them earlier. It is no answer to say that D only pleaded the IPs when it re-amended the D&CC on 17 September 2019 given that:
(1) since 4 June 2018, it has been D’s pleaded case that it had completed the Contract work on or before 3 September 2015[10];
(2) there was no requirement to plead evidence; and
(3) in Ken’s WS filed on 2 May 2019[11], he specifically referred to the IPs as evidence that P had certified completion of all the work under the Contract and paid for such work.
64. Third, although Mai gives evidence in support of the 3 points, I am unable to accept his evidence.
65. As regards the Provisional Certification point, if there were the alleged qualification which, according to Mai, was important to P, there was no reason why Mai would not have inserted such qualification at the time he issued the 2nd PO or when he arranged for payments of the amounts payable to D under the IPs. I do not accept Mai’s assertion that P was forced to make payments to D as it had to rely on D’s workers (who had been authorised by AA to enter the Site) to work on the Site. As Ken points out in his evidence, it is clear from GEM’s Sitework Record Sheets that after D had left the Site on 15 October 2015, GEM was able to employ the same workers previously employed by D to work on the Site. In his closing, Mr Cheuk submits that Ken agrees, during cross-examination, that “the IP assessment was only for interim purpose” and the same “were subject to final account review”. The submission is incorrect, as the questions and answers are directed to the general market practice, rather than the fact of this case.
66. As for the All Inclusive point, under cross-examination, Mai admits that he had no involvement in the discussions between P and D and did not know the basis upon which they agreed on the Price until the parties had made their decision. Although Mai says that he drafted the Contract and therefore has the clearest idea of what it said, but the question is not what Mai subjectively thought to be the meaning of the terms. Rather, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense[12]. In the present case, the Contract did not contain any term to the effect that it was all-inclusive contract. Nor has P adduced any admissible evidence in support of its assertion.
67. The same goes to the Common Understanding point. As Mai was not involved in the negotiations, he does not have the requisite personal knowledge to say whether there was the alleged Common Understanding between P and D. In any event, it is clear from Mai’s evidence that it was not at all “common” for installation of fire services system to involve “double-handling” work, given that the FSS Contract itself did not cover any “double-handling”, and P was entitled to claim additional payment beyond the contract price. Nor did any of the other sub-contractors engaged by P agree to include any “double-handling” as alleged by P.
68. Lastly, I do not think it is open to P to change the contents of the IPs by the mere say-so of Mai who had no personal knowledge as to why Yan certified the percentage of work done in the way he did. Plainly, the only person who has the requisite knowledge to explain why the certification was made in the way they appeared on the IPs is Yan, but P chose not to call him as its witness. Mr Cheuk says that the reason why P did not call Yan to give evidence at trial is because he has left the employment of P. However, it is open to P to issue a subpoena to require Yan to give evidence on its behalf. There is no explanation as to why this has not been done. It is in the circumstances reasonable to infer that if Yan were called as a witness, his evidence would not be supportive of the 3 points belatedly advanced by P.
69. For the above reasons, I find that D had completed all the work it was obliged to carry out under the Contract by 3 September 2015.
C3. Whether D is liable to pay GEM Charges to P?
70. P’s case on GEM Charges, as pleaded in §6 of the SOC, is as follows:
“As FSD Inspection was re-scheduled to commence on 7 September 2015, [P] had to seek assistance from [GEM] which arranged workers to assist in the AFA System works to facilitate the FSD inspection. The particulars of [GEM’s] works were recorded in their Sitework Record Sheets … As a result, [GEM] has deducted a total sum of HK$1,214,885.60 as contra charges from the outstanding payments due to [P] under the Project upon conclusion of the Statement of Final Account in October 2016.”
71. D’s case is that the FSD inspection took place on almost every working day during the period from 7 September 2015 to 15 October 2015. It admits that the FSD Action Lists were sent from GEM to P, but the items identified in those Lists related to document issues or equipment issues, which were outside the scope of D’s work under the Contract[13].
72. In his opening, Mr Cheuk points to the following documents which, he submits, shows that D did not complete all the work in respect of the AFA System by 3 September 205:
(1) GEM’s “Sitework Record Sheets” signed by GEM’s representative and Dennis (as P’s representative). By way of example, Mr Cheuk refers to the Sitework Record Sheets from 15 September to 5 October 2015, which show that GEM installed a “probe type detector” (including conduit and wiring) which, he says, is a smoke detector located at the AHU (air handling unit) room, and the problem was recorded at pages 78-79 of the AFA Point List dated 24 August 2015 (part N1DET).[14]
(2) A “JCI Contra-Charge Summary” in respect of payment no 28 (“GEM Summary”) which shows that GEM deducted an aggregate amount of $6,429,336.36 (inclusive of 20% handling charges by GEM) against the amount payable to P by way of contra charges. Based on the GEM Summary, P allocated an aggregate amount of $1,214,885.60 to D.
(3) The AFA Point Lists and the Aug 2015 Emails sent from P to D between 28 July 2015 and 24 August 2015 which show that there were over 3,000 defects by late August 2015 (discussed in §28 above).
(4) GEM’s letter dated 26 October 2015 to P wherein GEM said:
“We refer to our previous correspondence regarding the delay and disruption to the Main Works as a consequence of delays by you and we write to record the necessity to carry out the following works on your behalf in order to facilitate Fire Service Department Inspection (FSI):
1. Conduit and wiring for AFA in 24 bays of skylight walkways
2. Conduit works for AFA in 19 nos of moving walkways
3. Conduit and wiring for AFA in FLB 2, 3, 5, 10-15
4. Conduit works between fire module to DIU of ACS
5. Probe detector conduit and wiring
We are in the process of collating all of the associated costs; all of which will be deducted from you [sic] forthcoming payments.”
(5) The 15 Oct Report which shows that there were still various defects in the AFA System at the time.
(6) The photos taken by P from 3 September to 10 October 2015, which show the incomplete and defective works of D.
73. I do not think it is open to P to expand its claim under this head by going beyond the work recorded in GEM’s Sitework Record Sheets, which is the only particulars of GEM’s work pleaded in the SOC.
74. The Sitework Record Sheets consisted of 98 pages with a generic “Description of work”, followed by the name and working hours of the workers. The period covered was from 2 September 2015 to 20 October 2015. Despite the general nature of the descriptions in the Sitework Record Sheets, P has never identified nor explained the bases for asserting that all the workers recorded in the Sitework Record Sheets worked on the AFA System, let alone during the period of the FSD inspection.
75. In Mr Cheuk’s written closing[15], he tries to justify the amount claimed by P in this way:
(1) According to Mai’s oral evidence, the number of mandays recorded in the Sitework Record Sheets is around 680 – 700. P assessed each manday to be around $1,400 – 1,500. The total labour cost for 682 mandays, excluding GEM’s 20% handling charges, is $974,019.92 as shown in Appendix 2 to his written closing.
(2) If one excludes the “interface” work not accepted by Mabel (being DTL and door holder module), the total number of mandays is 656. The amount of contra charges which P is entitled to claim against D is at least $918,400 (being 656 mandays x $1400) or $1,102,800 if one includes GEM’s 20% handling charges. In any event, there is no basis to exclude such “interface” work as the Contract was an all-inclusive one, subject only to express exclusion.
(3) D is liable to pay for the use of the crane lorry ($21,500.75), the conduit and the cable containment ($16,884) described in GEM Summary.
76. As stated above, P cannot rely on the GEM Summary which does not form part of P’s pleaded case under the GEM Charges and the descriptions and charges set out therein are very different from those appearing in the Sitework Record Sheets.
77. The same goes to Appendix 2. I do not think it is fair or proper for Mr Cheuk to come up with a new analysis when P’s witnesses have never alluded to such analysis. Nor has he put such analysis to D’s witnesses. Instead, Mr Cheuk only refers Mabel to a few pages of the Sitework Record Sheets and puts to her that the work described therein fell within the scope of the Contract. It is the clear and consistent answers of Mabel that in the examples used by Mr Cheuk, the work involved was installation of additional interfaces between the AFA System and other amenities in the Midfield Concourse, which fell outside the scope of the Contract. I accept Mabel’s evidence.
78. Mr Cheuk contends that all interface work was included in the Contract as the Contract was an all-inclusive one subject only to specific exception. I disagree.
(1) I am unable to see which clauses in the 2nd Quotation or the LOI support Mr Cheuk’s contention. The 2nd Quotation only mentioned installation of the AFA System at different levels, and the reference to “all remaining AFA works in Midfield Concourse L1 to L9” in clause 1 of the LOI must be construed consistently with such description.
(2) This is reinforced by the fact that P engaged D to provide manpower for installation of the AFA System and the prices quoted in the 1st and 2nd Quotations were based on the drawings prepared by D and submitted to P, rather than some undefined or ever changing scope as P suggests.
(3) At that time, both parties had a fairly good idea of what was included in the AFA System and how many mandays was required to complete the work. Had it been the parties’ intention that D was engaged on an all-inclusive basis (no admissible evidence has been adduced by P in support of such contention), it would have been incumbent upon P to disclose all relevant facts to D so that D could quote its price on that basis, and the parties could negotiate the contract price on the same basis.
79. In any event, I am not satisfied that the work described in the Sitework Record Sheets supports P’s claim for the following reasons.
(1) By 3 September 2015, D already completed 100% of the work within the scope of the Contract (as I so find). Any work carried out by GEM could not have been within the scope of the Contract, let alone the responsibility of D.
(2) Although there was one Sitework Record Sheet which showed that GEM deployed 2 workers to work on the AFA System on 2 September 2015, it is clear from the description that the work concerned “DTL” (direct telephone link), which was specifically excluded in clause 2 of the LOI.
80. The above is sufficient to dismiss P’s claim for GEM Charges.
81. Mr Ross Yuen (appearing with Ms Amy Chan), counsel for D, submits that P’s claim must fail for the following additional reasons.
82. First, until the SOC was re-amended on 24 March 2021, the only material fact pleaded by P in support of the GEM Charges was the various “Action Lists” emailed from GEM to P in September 2015[16] in which P asked D to take immediate action to rectify the same but D “failed and/or to respond”, such that GEM and P had no alternative but to rectify the defects themselves by hiring other subcontractors and incurred the contra charges deducted by GEM. It was only after P had sight of Ken’s WS, where he pointed out that the Action Lists did not show any defects which related to D’s work[17] that P changed its case by alleging, for the first time, that P sought assistance from GEM to arrange workers to assist in the AFA System so as to facilitate the FSD inspection commenced on 7 September 2015. Mr Yuen submits that this shows the complete lack of credibility of P’s claim under the GEM Charges. I agree.
83. Second, it is not in dispute that P never notified D before engaging GEM to assist in the work allegedly falling within the scope of the Contract. On P’s case, it only accepted D’s repudiatory breach on 10 June 2016 (when P’s solicitors letter was sent to D) whereupon the Contract came to an end. As such, P was not entitled to engage or allow GEM to carry out any work falling within the scope of the Contract without first giving the opportunity to D to carry out the work. Having unilaterally chosen to remove the work from the contract and to have that work been carried out by a third party, the contractor is entitled to loss of profit on the work removed provided that the work is profitable, and the employer is not entitled to recover the amount incurred from the contractor. Reliance is placed on Howard v Pickford Tool Co LD [1951] 1 KB 417 at 421; Chitty on Contracts, Hong Kong Specific Contracts, 6th ed, §8-248; Pamax Limited v Cross Max Interiors Ltd, HCA 2181/2002, 31 March 2008, §§129, 131-133.
84. Mr Cheuk submits that the contention is against well-established law that the cause of action for breach of contract accrued on the date of the breach and does not depend on the date of acceptance of repudiation. The cases cited by Mr Yuen do not support his contention.
85. No matter how Mr Cheuk puts it, he is unable to articulate any principle or basis in support of P’s contention that while the Contract remained in existence, P was entitled to engage a third party to undertake any work within the scope of the Contract without first offering the opportunity for D to carry out the work in question.
86. Mr Cheuk then relies on the Aug 2015 Emails and contends that D was repeatedly asked to carry out the rectification works in July and August 2015 and was warned that if it did not do so, P would carry out the necessary action. The contention must be rejected:
(1) It has never been P’s case that the work carried out by GEM was the result of D’s failure to respond to the requests made in the Aug 2015 Emails.
(2) In any event, as discussed in §29 above, the evidence shows that by 24 August 2015, the defects identified in the Aug 2015 Emails had already been rectified by D and no further complaint was made by P.
(3) According to the Sitework Record Sheets, the first date GEM deployed workers to undertake work on behalf of P was 2 September 2015, which was after the defects identified by P in the Aug 2015 Emails had been rectified.
C4. Rectification Charge
87. P’s case on Rectification Charge, as pleaded in §7 of the SOC, is this:
“From about November/December 2015, [P] continually received various [DOW List] from [Gammon] setting out the outstanding work to be done. In order to rectify [D’s] defects, [P] has also engaged other subcontractors and has incurred expenses in the total sum of HK$3,598,400.00.”
88. D denies that there were any outstanding defects in its work, whether under the Contract or the VOs. Prior to commencement of this action, D has never been informed that (1) P received the DOW Lists from Gammon, (2) the defects identified in DOW Lists were caused by D, (3) P engaged other subcontractors to carry out the work or (4) P would claim the costs incurred against D. No particulars of the work carried out by the contractors has been provided to D.
89. In his written opening, Mr Cheuk submits that P’s claim is supported by the following contemporaneous documents:
(1) The DOW List issued by Gammon and disclosed by P.
(2) The contract between P and Link-Foong dated 10 March 2016, whereby P engaged Link-Foong “to complete the outstanding works and defect rectifications of the dry fire system” upon the conditions stipulated therein (“Link-Foong Contract”). Under the Link-Foong Contract, the unit rate for the work to be carried out from 9 am to 6 pm was $1,600/manday, while the unit rate for work to be carried out during midnight to 8:59 am was $2,400/manday.
(3) The 10 purchase orders issued by P to Link-Foong between 29 April 2016 and 27 January 2017 (“Link-Foong POs”) in the total sum of $3,598,400 for provision of “competent worker for dry system work” for “day work” or “night work”.
90. In my view, P fails to prove that it is entitled to claim the Rectification Charge against D.
91. First, P has not identified, let alone with any particularity, as to which parts or items of the work completed by D, whether pursuant to the Contract or the VOs (as discussed in section C5 below), were defective and which led to P engaging other subcontractor (Link-Foong) to carry out the rectification works. Nor has P adduced any evidence to demonstrate the causal link between the alleged defective work carried out by D and the work carried out by Link-Foong. In the absence of any causal link between the alleged breach (i.e. defective work allegedly carried out by D) and the engagement of Link-Foong, the claim must fail.
92. Second, none of the 3 documents described in §89 above supports P’s pleaded case on the Rectification Charge. As stated above, P’s case is that the defects had been identified in November/December 2015. However, the Link-Foong Contract and the Link-Foong POs only came into existence in March 2016 and from April 2016 respectively, long after the alleged defects had been identified by Gammon.
93. As for DOW List, P has only disclosed one DOW List, which runs to 60 pages:
(1) There were hundreds of items of outstanding work and defects many of which, on their face, go beyond the FSS.
(2) The earliest and last “JC rectify defect date” (presumably the date when P rectified the items) were 3 February 2016 and 18 August 2016 respectively, while the earliest and last “PMR Sign Off / Date” were 5 January 2016 and 30 November 2017 respectively.
(3) Other than the remarks such as “Dry fire portion”, “FS Wet” and “FS Dry” appearing in the column “Action by”, it is impossible to discern from the descriptions of the items whether they should be classified as wet work or dry work. Nor it is possible to identify which items were document issues, which was the responsibility of P. There is also no evidence on when the remarks were added or who added them to the DOW List.
(4) If, as it appears to be the case, the remarks were added by P for the purpose of this action (just as P added the remarks and the highlights in GEM Summary for the purpose of this action, as Mai admits), no reliance can be placed on such remarks as “evidence” in support of P’s claim.
94. Third, the suggestion that D’s work was so defective to the extent that P had to pay almost the same amount for the work carried out by D during the entire period from 30 May 2015 (IP 1) to 3 September 2015 (IP 6) is inherently improbable, having regard to the following facts:
(1) Yan certified that D had completed all the work under the Contract by 3 September 2015 without any qualification;
(2) The FSD was satisfied with the AFA System in that the FSD Action Lists updated on 20 September 2015, FSD did not identify any defects which were within the responsibility of D (see §56 above);
(3) According to AA’s 27 Oct Email, the FSD inspection on the entire Midfield Concourse had been “successfully completed” in the morning on 27 October 2015. The remaining issues identified in the action items appended had nothing to do with the AFA System (see §58(3) above);
(4) The complete absence of any documents, be it emails or letters, wherein P complained about the quality of D’s work; and
(5) The Midfield Concourse commenced operation on 31 March 2016, and the final account between P and GEM was concluded in October 2016.
95. Fourth, in §6(3) of the Reply, it is pleaded that Link-Foong was instructed to carry out, inter alia, “dismantlement of the temporary installations and carrying out of the permanent re-installations”. It is difficult to see how P can maintain the claim for Rectification Charge, when D already installed the AFA System on the Temporary Structures in accordance with P’s instructions.
96. In reaching the above conclusion, I have not lost sight of the following assertions made by Mai in his WS.
97. As regards the FSD inspection and the FSD’s Certificate, Mai asserts that obtaining the FSD’s Certificate “did not mean that the work under the Contract had been duly completed because the FSD’s Certificate only certified that the equipment was installed in accordance with the Buildings Ordinance and the inspection was conducted by random sampling only”[18]. In this regard, Mai relies on:
(1) the “defect list” dated 4 January 2016 disclosed in P’s 4th supplemental list of documents (“Jan 2016 Defect List”), which shows that there were still around 2,500 defects in the AFA System. On the basis of this Jan 2016 Defect List, Mai surmises that GEM and D only managed to reduce the 3,000 defects recorded in the AFA Point List dated 24 August 2015 by about 500[19]; and
(2) the contention that “the requirements under the Contract were wider than those under the FSD inspection”. 3 examples are given: (a) testing and commissioning of every piece of equipment was required under the Contract but not under FSD inspection; (b) temporary installations would be able to satisfy FSD inspection but not under the Contract; and (c) as-built drawings were required under the Contract but not FSD inspection[20].
98. It has never been P’s pleaded case that the Jan 2016 Defect List set out particulars of the defects or that it formed the basis of P’s claim for Rectification Charge. It is not open to P to run an unpleaded case against D in this way. In any event, it is not clear what was the genesis or purpose of the Jan 2016 Defect List or how they related to the quality of the work carried out by D. One cannot rule out the possibilities, as alluded to in Ken’s oral evidence and his WS in the context of explaining the substantial number of defect points shown in the AFA Point Lists appended to the Aug 2015 Emails, that such number was the result of some of the devices within the AFA System having been disconnected or that the devices installed by D on the Temporary Structures were subsequently replaced by the permanent structures installed by Gammon. As P has not pleaded a case based on the Jan 2016 Defect List, D has been deprived of a proper opportunity to respond to such case.
99. I do not accept the evidence of Ryan or Mai to the effect that the inspection by FSD was only a spot-check or that its scope was limited to ensure compliance with the Buildings Ordinance. It is tantamount to suggesting that all parties involved in the FSD inspection had somehow misled the officers into believing that the AFA System was in good working order when in fact it was seriously defective, and the FSD did not carry out any proper or thorough inspection. The suggestion runs contrary to the undisputed fact that the FSD inspection took place on every week day from 7 September 2015 up until 27 October 2015 and detailed reports were produced by the FSD requiring Gammon and P to rectify the specific defects identified therein.
100. Mai also asserts that the defects or outstanding work in the AFA System did not have significant impact on the day-to-day operation of the Midfield Concourse, as P and Link-Foong continued their work in the evening, and the handover inspection was carried out in parts during 2016/2017[21]. I cannot accept his assertion at face value. This is particularly so when no document has been disclosed by P in support of his assertion.
101. Lastly, it is common ground that P never informed D of the defects allegedly identified by Gammon from November/December 2015. As such, D was deprived of the opportunity to rectify the same even assuming P is able to prove that the work carried out by Link-Foong was caused by the defects in D’s work (which it has not). For the same reasons discussed in §§83 - 85 above, P is not entitled to claim the Rectification Charge against D.
C5. VOs Claim
102. It is D’s case that at various meetings and site coordination sessions held between GEM, P and D, D was instructed to carry out additional work falling outside the scope of the Contract[22] which included:
(1) the additional work as a result of the delay caused by other aspects of the construction of Midfield Concourse in particular the builder work[23];
(2) “double handling” or “multiple handling” of the same devices already installed by D at the Site. Such double/multiple handlings were necessitated by the devices having been installed at the Temporary Structures to facilitate FSD inspection[24]; and
(3) installation of additional interfacing with other devices or systems[25].
103. D regarded the aforesaid work as variation orders as it had already installed the devices pursuant to P’s instructions (which were covered by the Contract) and, therefore, any further work required to re-install or relocate the same devices should be separately agreed and paid for. The work under the 1st and 2nd VOs was completed by D by 15 October 2015.
104. P denies that D was entitled to charge any amount for the work done under the 1st and 2nd VOs on the following grounds:
(1) All the work done by D fell within the scope of the Contract:
“(1) By 14 May 2015 (when [D] submitted the [2nd Quotation]), what the parties intended was to change the day-work basis of [D’s] engagement into a lump sum basis. In other words, the parties intended to agree a lump sum such that everything necessary for the full completion of the AFA System (i.e. up to the handover of the [Site] to [AA] and the satisfactory completion of the Defects Liability Period) would be included therein. The purpose of such a change was to provide certainty to [P] as to the amount of costs it would need to incur in order to achieve full completion of the AFA System and to allocate the risk of the potential variation of costs to [D]”[26] (underlined added)
“(2) It is common that in order to accommodate other contractors’ works or regulatory requirements such as FSD inspection, the installation of a fire services system may involve ‘double-handling’ works (i.e. installation of the same devices or equipment more than once). Both parties were experienced contractors in the construction industry and had contemplated such possibility at the time of the [Contract]. Such works inherently formed part of the ‘all remaining AFA works in the Midfield Concourse L1 to L9, the tunnels and ancillary buildings’ and were within the scope of the [Contract] works.”[27] (underlined added)
(2) In August 2015, P instructed D to carry out some temporary installations in order to meet the requirements of the FSD inspection on 7 September 2015. Those temporary installations were maintained from 7 September 2015 to 6 November 2015 so as not to affect the FSD inspection[28]. After 6 November 2015, P engaged Link-Foong to “dismantle” the temporary installations and carry out permanent re-installation. As such, D could not have carried out any “double-handling” work or variation work[29].
105. It seems from the above pleas that P does not dispute that it instructed D to install the devices on the Temporary Structures so as to facilitate the FSD inspection, but contends that any double/multiple handling of the same devices was covered by the Contract, which was an all-inclusive contract.
106. For the reasons explained in §§66 and 78 above, I do not accept P’s contention that the Contract was an all-inclusive contract or that it covered any double/multiple handling of the same devices already installed by D pursuant to P’s instructions.
107. Nevertheless, as P joins issue with D in respect of the VOs Claim, it is necessary to consider whether D has discharged the burden of proving that it is entitled to be paid the amount under the VOs Claim.
108. On 28 August 2015, D submitted the 1st VO to P in which it:
(1) quoted a total price of $2,784,000 for carrying out “Additional Interfacing Installation” for AFA System at L1, L3 to L9;
(2) stated that “Apart from [P’s] fire panels, detectors, signal cables and other field equipment, all other material, i.e. cable containment, cables, signal cables and associated accessories are included”; and
(3) provided details on the nature, number, location and unit rate of the devices to be added or re-allocated in the “Variation Summary” dated 17 August 2015 for each of L1, L3 to L9 appended to the 1st VO (“1st Variation Summaries”). In the Variation Summaries, the additional interfacing included ACS system, VAC system, TVS system, Exit Sign system, Smoke Curtain System, ATS system, EXP system and Lift system.
109. In response to the 1st VO, P issued a purchase order dated 9 September 2015 to D (“3rd PO”) which stated, inter alia, as follows[30]:
“Remark:
- Issurance [sic] of 60% of the quotation on 10 Sep. 2015
- Balance within 7 days after submission of invoice
10 Subcontract 1.00 AU 1,670,400
Additional interfacing installation for AFA System at P533 HKIA Midfield Concourse
Details scope of work, please refer to [1st VO] but final amount subject to remeasurement
If you have any queries, please do not hesitate to contact our Mr Ryan Lam.
Delivery Date: 2015-10-08 1.00 AU” (underlined added)
110. At P’s request, D issued an “Invoice of Additional Interfacing Installation for AFA System” dated 9 September 2015 to P (“1st VO Invoice”), which referred to the 3rd PO and certified that the work “had been completed”. D appended a “Payment Application for Additional Interfacing Installation – Workdone Record” which set out the number of points (i.e. devices) installed at L1, L3 to L9 and the amount payable for such points. Yan signed the Payment Application under “Certified By”.
111. In the 2nd VO, D:
(1) quoted a total price of $2,766,000 for carrying out “Additional Fire Services Installation for AFA System” at L1, L3 to L7; and
(2) appended another set of Variation Summaries for the entire project and each of the level all dated 29 September 2015 (“2nd Variation Summaries”). In the 2nd Variation Summaries, the details of the devices, number, location and unit rate of the devices to be installed were listed.
112. P’s chop was imprinted on the 2nd VO, which bore the date of 30 September 2015 and the words “先收後驗”.
113. In his written closing, Mr Cheuk makes the following additional points in opposition to the VOs Claim:
(1) P did not sign the 1st VO. As Ken admits under cross-examination, Mai refused to acknowledge that there was any valid variation and required D to prove the same.
(2) The FSD inspection was imminent. As shown in the messages exchanged between Mabel and Ryan, Mabel repeatedly implied that if P did not pay, D would “pull out” from the Site.
(3) The 3rd PO was issued with the express condition that “Final Amount Subject to Remeasurement”. It is not disputed that the phrase means that D’s entitlement to the sum is subject to future proof.
(4) It is unclear what D refers to in the VOs Claim. D’s opening proceeds on the basis that majority of D’s VOs Claim is in relation to double-handling work, but the 2nd VO referred to “Additional Interfacing Installation” only.
(5) There is no proper proof that D carried out the work under the 1st and 2nd VOs. No photograph has been disclosed by D to show that it had in fact carried out the work under the 1st and 2nd VOs.
114. For the reasons explained below, none of the points advanced by Mr Cheuk has any merit. They are inconsistent with or contradicted by the contemporaneous documents, all of which support D’s case that it had been instructed by P to carry out the work under the 1st and 2nd VOs, and that such work fell out the scope of the Contract.
115. First, there is no dispute that D continued to work on the Site until 15 October 2015. As D had already completed all the work under the Contract by 3 September 2015 (as I so find) and no further complaint or request had been made by P on the quality of D’s work after 24 August 2015, the work carried out by D between 3 September and 15 October 2015 could only have been the work under the 1st and 2nd VOs.
116. Second, the following evidence (which is indisputable) shows that both P and D considered that the work described in the 1st Variation Summaries and the 2nd Variation Summaries were additional work outside the scope of the Contract:
(1) There were WhatsApp messages between Ken and Yan which show that as early as 13 July 2015, they had been discussing the additional work carried out by D which Yan described as “VO”.
(2) In the WhatsApp messages between Mabel and Ryan on 11 August 2015, Mabel said she had been busy working on “VO” for submission to Mai the next morning, and enquired the chance of P paying for such work. In response, Ryan said “錢肯定會比，但睇下多少，你地俾多d 信心Charles啦” and “Ricky 預咗攞錢出黎攪掂，但9月前唔會攞得多少你地知就算”. This was followed by Ryan asking “有冇VO 既大數”, to which Mabel said $2,784,000.
(3) In the WhatsApp messages between Mabel and Yan from 25 to 27 August 2015, Mabel had been chasing Yan on the status of the “VO”, which involved over 100 points and the submissions of many additional drawings by D, but P had yet to approve such VO despite Yan’s effort to convince others (the names Mai, Charles, Choi and Ricky had been mentioned in the messages).
(4) In the 1st VO, D described the work requested by P as “Additional Interfacing Installation” and the details were set out in the 1st Variation Summaries. P never protested against the descriptions used by D.
(5) To the contrary, by issuing the 3rd PO, which specifically referred to the 1st VO as the document setting out the scope of work, P must be taken as having accepted the contents of the 1st VO. Although P stated that the final amount was “subject to remeasurement”, such statement only means that the final amount to be paid might be changed if P exercised its right to re-measure the work done by D (there is no suggestion that P has exercised such right). I do not accept Mr Cheuk’s suggestion that the phrase means that D’s entitlement to the sum is subject to future proof.
(6) P’s acceptance that the work described in the 1st VO and the 1st Variation Summaries fell outside the scope of the Contract is reinforced by the fact that P requested D to issue the 1st VO Invoice and the same was signed by Yan under “Certified By”.
(7) Similarly, in the 2nd VO and the 2nd Variation Summaries, D described the work requested by P as “Additional Fire Services Installation for AFA System”. P never protested against the descriptions used by D.
(8) P applied its chop on the 2nd VO which stated its right to measure or check the work carried out by D. Again, there is no suggestion that P has exercised such right.
(9) There was contemporaneous document which showed that P had complained about the quality of the work completed by D under the 1st and 2nd VOs.
117. Indeed, until P re-amended its SOC on 3 July 2019, P never sought repayment of the $1,670,400 paid pursuant to the 1st VO Invoice. Although P alleges that the amount was paid following D’s threat that its workers would stop working and leave the Site, such allegation must be rejected given that (1) is not supported by any document, (2) is contradicted by all the contemporaneous documents discussed in the preceding paragraph and (3) is incredulous for the reasons discussed in §65 above.
118. Third, I accept the evidence of Ken and Mabel as to why it was necessary to carry out the double/multiple handling of many devices after they had completed installing all the devices as required under the Contract. Both of them give clear answers, with cogent explanations, regarding the condition of the Site, the need to install and re-install the same devices owing to the delay in the builders’ work, the need to proceed with FSD inspection and to install additional interfacing subsequently requested by P. They also explain how they and the workers employed by D had been working day and night at the Site so as to meet the requirements of P. Their evidence is consistent with and corroborated by the WhatsApp messages discussed above.
119. Fourth, for completeness, I do not think there is a proper basis for P to allege that D’s work falling within the scope of the 1st and 2nd VOs was in any way defective (no such submission has been advanced by Mr Cheuk), having regard to the results of the FSD inspection on the AFA System (as discussed in §58 above) and the absence of any complaint from P on the quality of D’s work after 24 August 2015 (as discussed in §29 above).
120. As D had already completed the work under the 1st and 2nd VOs by the time it left the Site on 15 October 2015, it was entitled to be paid the full amounts payable under the 1st and 2nd VOs, that is, $2,784,000 plus $2,766,000 less the $1,670,400 already paid by P.
C6. Materials Claim
121. D’s claim under this head is simple. Clause 11(e) of the 2nd Quotation expressly provides that supply of materials would be excluded. D purchased the following materials on behalf of P and claims the total sum of $294,978.50[31]:
| |
Date |
Description |
Amount |
| 1. |
3/6/2015 |
Delivery of prepaid material for fire services installation in May 2015 |
$44,467.50 |
| 2. |
4/7/2015 |
Prepaid equipment (walkie talkie) |
$25,000 |
| 3. |
10/7/2015 |
Prepaid equipment (digital camera) |
$2,561 |
| 4. |
1/9/2015 |
Prepaid material (signal cables) |
$121,500 |
| 5. |
1/9/2015 |
Prepaid material (12/C cables) |
$6,000 |
| 6. |
1/9/2015 |
Prepaid material (signal cables) |
$85,050 |
| 7. |
1/9/2015 |
Prepaid material (metal box for beam detector) |
$10,400 |
122. P admits #3.
123. In his written closing, Mr Yuen accepts that #1 has been paid.
124. As for #2 (walkie talkie):
(1) P denies the claim on the basis that the walkie talkie was D’s own tool, which it took away when it left the Site.
(2) The claim is supported by the WhatsApp conversation which shows that on 2 July 2015, Zeno of P requested D to purchase 6 sets of “Motorola GP 3188”.
(3) As Mabel explains under cross-examination, these 6 sets of walkie talkie had always been kept at P’s office outside the Site for re-charging (as such office had more stable supply of electricity), and they were left at the same office when D left the Site on 15 October 2015. Mai accepts that he was not aware that P had purchased any walkie talkie for use at the Site.
(4) D is entitled to be reimbursed for the amount spent on #2.
125. #4 – 6 (signal cables):
(1) P’s pleaded case is that the quotations submitted by D described the items as “Supply of Twist Pair Signal Cables” which was inconsistent with the delivery notes which described the items as “AE1 – 1.5mm” and “單支防火線”. The items actually received by P were regular power cables, not signal cables and, therefore, should be included in the Contract.
(2) At trial, Mai admits that some signal cables were ordered by D and delivered to the Site when he is shown the delivery note (which concerns 5000m of signal cables) signed by P’s representative.
(3) Mr Cheuk’s contention that D has not adduced any documentary record to show that P had received the signal cables in question is wholly without merit as it ignores (a) P’s pleaded case that it did receive the cables albeit that they were not signal cables; and (b) the delivery notes signed by the suppliers and D, all of which show that signal cables described therein had been delivered to the Site (the precise address was “機場超級1號側地盤-P533”).
(4) D is entitled to be reimbursed for the amounts claimed under #4 – 6.
126. #7 (metal box for beam detector):
(1) In Reply, P denies that D is entitled to seek reimbursement of this item on the grounds that (a) it fell within the meaning of “cable containment work” under clause 7 of the 2nd Quotation, and (b) it was incurred after 15 May 2015 and, therefore, should be included in the Price.
(2) In his written closing, Mr Cheuk accepts that the metal box is not a field equipment and, therefore, clause 7 is not applicable. He contends that the metal box fell within the “remaining material costs” after 15 May 2015 and “remaining work and associated costs” after 1 May 2015 under clauses 2 and 3 of the 2nd Quotation and, therefore, should be borne by D.
(3) Mr Cheuk’s contention does not form part of P’s pleaded case and must be rejected for this reason alone. More importantly, clause 3 of the 2nd Quotation expressly provides that “Any additional works after cutoff date is Excluded and shall be quote[d] separately”. D has quoted for the metal box in accordance with clause 3, and P accepted the metal box.
(4) D is entitled to seek reimbursement of the cost for purchasing the metal box.
127. In summary, P is liable to reimburse D for purchasing the items under #2 – 7 in the aggregate amount of $250,511.
D. DISPOSITION AND COSTS
128. For the reasons set out above:
(1) P’s claims for the GEM Charges and the Rectification Charge are dismissed; and
(2) D is entitled to judgment in the amount of $2,296,461, being $3,879,600 (under the VOs Claim) plus $250,511 (under the Materials Claim) less $1,833,650 (under the Reimbursement Charge).
129. No submission has been made by counsel on the question of interest. It seems to me that interest shall run from the dates the amounts became due and payable up to the date of judgment at HSBC prime lending rate plus 2% (being the usual commercial rate for borrowing money in the market) and, thereafter, at judgment rate until payment.
130. I make a costs order nisi that the costs of and occasioned by P’s claim and D’s counterclaim be paid by P to D on a party and party basis, to be taxed if not agreed. I do not think this is a case which warrants the engagement of 2 counsel.
| |
(Linda Chan) |
| |
Judge of the Court of First Instance |
| |
High Court |
Mr Calvin Cheuk, instructed by W.K. To & Co, for the plaintiff
Mr Ross Yuen and Ms Amy Chan, instructed by Jimmie K.S. Wong & Partners, for the defendant
[1] Which falls within the classes of action within the Construction List, as described in PD 6.1 §3(2)
[2] As required by Order 1A, rule 3
[3] SOC §§3-4
[4] SOC §5
[5] Reply §5B
[6] Appears to be the abbreviation for Gammon
[7] Reply §5G(1)-(2)
[8] Reply §4A(1)
[9] Reply §4A(2)
[10] §3 of Amended D&CC filed on 4 June 2018
[11] Ken WS §§12, 18
[12] Eminent Investments (Asia Pacific) Limited v DIO Corporation (2020) 23 HKCFAR 487 at §44
[13] D&CC §7
[14] Mai 2nd SWS §10
[15] Appendix 2
[16] These are the FSD Action Lists discussed in §§55-58 above
[17] Ken WS §35
[18] Mai WS, §49
[19] Mai SWS §29(1)
[20] See also Mai SWS, §29(2)
[21] Mai SWS §§32-33
[22] D&CC §14
[23] D&CC §14(2)
[24] D&CC §14(5)
[25] D&CC §17(3)
[26] Reply §4A(1)
[27] Reply §4A(2)
[28] Reply §6(1)-(2)
[29] Reply §6(3)-(4)
[30] Original words in capital letters
[31] D&CC §§39-40
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