THORN SECURITY (HONG KONG) LTD v. COMTECH ENGINEERING & CONSULTANT CO LTD

HCCT 53/1999 and HCA 7968/1999

HCCT 53/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 53 OF 1999

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J U D G M E N T

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Background

1. The relevant events in this action took place between 1997 and 1999, with the main events occurring in 1998. The Plaintiff's claims and the Defendant's Counterclaim are both concerned with the fire services installation work that was carried out in a Sandwich Class housing development at a site located at Lai Kong Street, Kwai Chung, New Territories ("the Site"). This development involved the construction of two 30-storey and four 32-storey residential blocks and a two-level car park.

2. The employer of the project was the Hong Kong Housing Society ("HKHS"). The main contractor was Hip Hing Construction Company Limited ("Hip Hing"). The Defendant in these consolidated proceedings, Thorn Security (HK) Limited ("Thorn") was the nominated sub-contractor for the fire services installation work. Such work encompassed, broadly, what are known as "wet" and "dry" work. Wet work included, for example, the installation of sprinklers and any plumbing work. Dry work included electrical installations (such as fire detection and alarm systems).

3. In turn, Thorn originally sub-sub-contracted on a back to back basis the whole of the fire services installation work to a company called Wise Engineering Company Limited ("WEC") under a purchase order numbered 2376 dated 15 August 1997. The purchase order before the court was not signed by WEC but one of the witnesses, Mr Yung Chor Hei ("C.H. Yung"), the sales director of Thorn, said in evidence that it was signed by WEC at some stage. Nothing turns on this because it is clear that Thorn did contract with WEC. The stated value of this purchase order was $7,785,122.00.

4. On its face, PO No. 2376 stated that WEC was to provide labour and materials to carry out the specified fire services installation work. Documents containing detailed terms were, however, annexed to this purchase order. Among the documents was one headed "Domestic Sub-Sub-Contract for Fire Services Installation of Residential Development KCTL 458 Lai Kong Street, N.T." ("the Domestic Sub-Sub-Contract"). This document stated the scope of works to be carried out by WEC as follows:-

"The scope of work to be carried out by Wise Engineering Company Limited ('the Domestic Sub-sub-Contractor') shall comprise the supply, installation, supervision, testing and commissioning of the whole fire services installation. All works are to be carried out to the satisfaction of the Thorn Security (Hong Kong) Limited (TSHK) ('the Sub-Contractor'), Hip Hing Construction Company Ltd. ('the Contractor'), and HKHS ('the Employer')."

5. It will thus be seen that one of the duties under its sub-sub-contract with Thorn was that WEC would be responsible for supervising the fire services installation work. I shall call this part of its task "contract administration" as this is the term that was used at trial. In this regard, it was further stated in clause 3.3 of the Domestic Sub-Sub-Contract that WEC was to provide sufficient full-time supervisors on site for the overall supervision of the works.

6. Problems developed over WEC's performance of the sub-sub-contract. This started about October or November 1997. Apparently, WEC was experiencing difficulties in getting the requisite labour to the Site, fell behind in the submission of drawings for the approval of materials and also had difficulties in maintaining adequate supervision. The fire services installation work fell behind schedule.

7. Another problem seemed to be that WEC was not paying its own sub-contractor, either on time or at all. WEC's sub-contractor was the Plaintiff, Comtech Engineering & Consultant Company Limited ("Comtech"), to whom WEC had sub-contracted a part of the works for the sum of $4,997,228.00. This sub-sub-sub-contract is evidenced by a Work/Variation Order dated 4 June 1997. The contract administration part of the work was, however, not subcontracted to Comtech.

8. Eventually, Thorn decided in February 1998 to terminate the sub-sub-contract with WEC (as well as two other projects on which WEC had been engaged also as sub-contractor, namely, the developments at KCTL 456, Hing Shing Street, Kwai Chung ("P 456") and at the MTRC Quarry Bay Station). The termination of WEC's employment in the Lai Kong Street project is evidenced by a fax dated 11 February 1998 from Thorn to WEC. Thorn decided to replace WEC with Comtech. Negotiations between Comtech and Thorn took place over February and March. During this time, Thorn was already behind schedule in the fire services installation work. For example, there is a record of a coordination meeting on 2 March 1998 in which it is recorded that Hip Hing found the fire services installation "slow and behind .... schedule".

9. We are in this action only concerned with the Lai Kong Street development (known also as Project 458). There is no dispute that Comtech was engaged to do fire services installation work by Thorn and that it did carry out such work. One of the principal disputes in this action between Comtech and Thorn, however, is the ambit and terms, if any, of Comtech's engagement. I will turn to this important issue in due course.

10. Comtech's engagement by Thorn started in about February 1998. At that time, WEC had done about 28.6% of the fire services installation work required of it. By a fax dated 11 February 1998, Thorn informed Comtech that WEC's involvement in the project was terminated and Comtech was asked to take over WEC's activities at the site.

11. I shall refer below in detail to the events from February to April 1998 when dealing with the important issue of the existence or otherwise of a binding contract between the parties. Suffice it to say for the present that as Comtech proceeded with the performance of the fire services installation work (both wet and dry), this work became increasingly behind schedule. There are many documents evidencing the concern and dissatisfaction of Hip Hing and HKHS on the lack of progress.

12. Eventually, on 1 July 1998, Thorn took over from Comtech the performance of the wet work for the fire services installation at the Site. It is quite clear that Comtech was unable or unwilling to complete this part of the work. Comtech made no objection to Thorn taking over the wet work. It appears that Comtech continued with the dry work until 24 September 1998. From that date, it carried out some rectification work although, as will presently be seen, Thorn had to carry out some of this.

13. Practical Completion was eventually certified by the architect, Ronald Lu & Partners ("RLP") to be on 31 December 1998. Thereafter, rectification work continued during the defects liability period.

14. In the course of early 1999, Comtech and Thorn had final accounts discussions. Allegations and counter-allegations were made as both Comtech and Thorn claimed against one another. Nothing was resolved. On 15 May 1999, Thorn commenced proceedings against Comtech (HCA 7968 of 1999) claiming the sum of $9,265,437.28 for breach of contract. For its part, on 1 June 1999, Comtech instituted proceedings against Thorn (HCCT 53 of 1999) claiming initially $6,179,974.41 as the amount due and owing to it from Thorn. Both claims of course arose out of the same project and the fire services installation work that had been carried out at the Site.

The proceedings

15. On 23 May 2000, Burrell J consolidated the two actions and directed that Comtech be the Plaintiff in the consolidated action and Thorn, the Defendant.

16. Trial before me commenced on 15 October 2002 lasting some 10 days ending on 31 October 2002. At trial, Mr Nicholas Cooney represented Comtech and Mr Anthony Houghton represented Thorn.

17. The following persons gave evidence at trial for Comtech:-

(1) Mr Lee Pak Sum, Otway ("Otway Lee"), Comtech's project manager.

(2) Mr Andrew Ngo ("Mr Ngo"), the quantity surveyor engaged by Comtech to give expert evidence on quantum.

18. For Thorn, the following persons gave evidence:-

(1) C.H. Yung, Thorn's sales director.

(2) Wong Yiu Wah, Donnie ("Donnie Wong"), Thorn's assistant project manager at the Site.

(3) Sy Hok Tay, Terry ("Terry Sy"), Thorn's contracts manager.

(4) Mr Andrzej Cierpicki ("Mr Cierpicki"), the quantity surveyor instructed by Thorn to give expert evidence on quantum.

19. All witnesses had provided witness statements which were treated as their evidence in chief. In making findings of fact in this judgment, I have based such findings on the testimony of the witnesses and the documents before me. The facts stated above in the Background (which are common ground or indisputable) are to be treated as findings of fact.

The parties' claims

20. Both Comtech and Thorn have made claims against each other arising out of the performance of the fire services installation work carried out by Comtech at the Site. The nature, however, of the claims made by each party is quite different.

21. Comtech puts its case simply. Labour and materials were provided by it in relation to the fire services installation work carried out at the Site and Comtech's claim, less partial payments totalling $2,114,220.00, comes to $5,184,442.34 (as pleaded in the Amended Statement of Claim), although by the end of final submissions, the claim was put at $4,875,013.85. The claim is made on a quantum meruit basis. As pleaded, the various components of this claim comprise labour and materials supplied and various other expenses, together with office overheads and profit. It was, as Mr Cooney put it, a "cost plus" equation. In the course of the trial, it became clear that Comtech's primary position in support of its quantum meruit claim was that there was no contract between the parties. Alternatively, it was said that if there was an express contract, this was on the basis only of labour and materials to be supplied by Comtech at reasonable cost. I shall deal further below with this somewhat inconsistent approach.

22. Thorn puts its case equally simply but approaches it from a completely different direction. Thorn's case is that a contract did exist between the parties, not on the basis of a quantum meruit or for labour and materials at cost-plus, but on the basis of detailed terms contained in a sub-sub-contract as evidenced by a purchase order dated 9 April 1998 numbered 3164 ("PO 3164"). This purchase order, it is contended, reflected the parties' wish that Comtech would take the place of WEC as Thorn's sub-sub-contractor in respect of the fire services installation work. The contract sum stated in PO 3164 was $5,419,636.57.

23. It is important in the present case then first to resolve the question whether there existed a contract between the parties and if one did exist, its terms. This is critical to the following matters which have to be resolved:-

(1) If no contract existed or only on terms as alleged by Comtech on its alternative case, there is no question of any breach of contract by Comtech. The only breach would then be on Thorn's part in failing to pay what was due to Comtech, basically on a quantum meruit. The only issue here would really be the quantum of what was due to Comtech on a cost plus basis.

(2) If on the other hand Thorn succeeds on its claim that a contract existed on the terms of PO 3164, its further allegation that Comtech was in breach then needs to be resolved. Thorn's position is that Comtech was in breach of PO 3164 in various respects (as pleaded in paragraphs 8 and 9 of the Amended Defence and Counterclaim) which can be summarised as follows:-

(a) Comtech delayed in the performance of its work, falling way behind schedule to such an extent that Thorn had to take over the wet part of the fire services installation work from 1 July 1998;

(b) Comtech did defective work which was not rectified by it and which had to be rectified by Thorn instead.

(3) Comtech denies it was in breach in any event.

(4) By reason of Comtech's breaches, Thorn claims that it has had to incur substantial expenses thereby suffering loss. As pleaded in the Amended Defence and Counterclaim, Thorn quantifies its claim against Comtech at $9,768,732.26. Credit is given to Comtech for amounts due under PO 3164.

24. I propose dealing with the following issues in turn:-

(1) Was there a contract between Comtech and Thorn and if so, what were its terms? (Issue 1)

(2) Was Thorn in breach? (Issue 2)

(3) Was Comtech in breach? (Issue 3)

(4) Quantum of damages. (Issue 4)

Issue 1: Was there a contract between Comtech and Thorn and if so, what were its terms?

25. I have already summarised the parties' basic positions.

26. In my judgment, there is no doubt that a contract did exist between the parties and that the relevant terms were those as contained in or evidenced by PO 3164. I reject Comtech's contention that either there was no contract at all (its primary case) or if one did exist, it was on terms that Thorn would be charged on a cost plus basis for labour and materials supplied.

27. I reach this finding for the following reasons.

28. First, the relevant contemporaneous documentation compels this result:-

(1) It is common ground (at least this cannot be disputed on the documents) that Thorn terminated its sub-sub-contract with WEC in February 1998 and then entered into negotiations with Comtech for the taking over of the fire services installation sub-sub-contract. I have already referred to the fax dated 11 February 1998 from Thorn to WEC terminating its involvement in the fire services installation work. By the fax on the same day to Comtech, Thorn requested Comtech to take over from WEC. That fax, signed by Donnie Wong, ended by saying, "In order to shorten the idol [sic] time, you are required to provide us the details on all the site work done status, materials on the site check list and also your takeover prices for both projects [including P 456] for our further actions".

(2) It is also common ground that Comtech and Thorn engaged in negotiations during February and March 1998 as to the terms of Comtech's engagement as sub-sub-contractor taking over from WEC. I accept C.H. Yung's testimony to the effect that as far as Thorn was concerned, it wanted Comtech to step into the shoes of WEC as sub-sub-contractor on the same terms except for price. In the latter regard, C.H. Yung referred to Thorn's wish that the pricing should be based on the price of the Thorn-WEC sub-sub-contract less the value of work that had already been performed by WEC and less a further sum to reflect Thorn's administrative costs in dealing with the termination of WEC's engagement and the employment of Comtech to take over.

(3) By a letter dated 1 March 1998, Comtech submitted a quotation to Thorn. This quotation referred to the provision of labour and materials in relation to various items as set out therein. The suggested price was $5,230,000.00. Comtech places much emphasis on this letter and quotation to show that these were really the only terms under which it was willing to contract with Thorn in taking over the fire services installation work from WEC.

(4) However, by a letter dated 18 March 1998 from Thorn to Comtech, headed "Letter of Intent", it would appear that the parties had reached agreement. This letter is important and I therefore set out in full what it says:

"We [Thorn] are pleased to inform you that we intend to place two separate purchase orders with you [Comtech] to undertake the Fire Services Installations for the captioned two Hong Kong Housing Society projects.

Details of the contract price, payment and terms and conditions had been settled with our Mr C.H. Yung, your Mr Otway Lee and your kindness during the special meeting held on last week. We will promptly issue you the formal purchase orders once the preparation of the documents are completed. In the meantime, we are pleased if you would instruct your colleagues to take whatever effort to complete the above projects in line with our committed time schedule.

Thank you for your kind attention."

(5) No doubt recognising the impact of this letter, Otway Lee said in his evidence that the contents were untrue and no agreement had been reached between the parties. There was, however, no response by Comtech to this letter, either soon after its receipt or at all. Otway Lee says that he telephoned Mr Terrence Wong (Thorn's project manager) a few days after this letter to complain about its contents and he was told by Mr Wong that he had been instructed by C.H. Yung to draft this letter. Mr Cooney described this letter as a "try on", meaning obviously that it was false but sent anyway so as somehow to trap Comtech. I reject Otway Lee's assertions in this regard. It is simply implausible for Comtech not to have written back to protest against this letter and set the record straight, as it were. As the voluminous documentation before me shows, Comtech was very much in the habit of engaging in written correspondence with Thorn. Amongst this correspondence are records of telephone conversations (see for example the fax dated 23 March 1998 from Otway Lee to Terrence Wong referring to a telephone conversation between them). It is therefore even more bizarre that the contents of the alleged telephone conversation between Otway Lee and Terrence Wong when Otway Lee complained, were not recorded in writing. I also reject the suggestion that this letter was a try on. I simply fail to understand the motive behind a high risk manoeuvre such as a letter containing lies when at that time, Thorn (being behind schedule) must have been anxious to secure the cooperation of Comtech to perform the fire services installation work at the Site. In Otway Lee's witness statement, he further states that since the letter only showed an intention on Thorn's part to enter into a contract with Comtech, he did not take it seriously. I similarly reject this.

(6) The suggestion that all major points of agreement had been reached between the parties as contained in the 18 March 1998 letter, is reinforced by a fax dated 22 March 1998 from Thorn to Comtech, in which Comtech was sent the "Agreed FS [Fire Services] Catch-Up Programme". This programme was necessary in light of the fact that the fire services installation work at the Site was way behind schedule at that time. Sending the agreed programme to Comtech was consistent at least with the fact that Comtech and Thorn had agreed terms of Comtech's engagement and indeed supports such a state of affairs. It also goes directly contrary to Comtech's case that there was no agreement between the parties as to any part of its engagement, including the time within which Comtech was to perform its work. Otway Lee in his evidence said that despite the wording of this fax, he made it clear to Terrence Wong that whether or not Comtech could comply with the programme (which he says he compiled) would depend on the availability of equipment and materials and approval of drawings. The fax contains no such qualifications nor did Comtech respond to it by articulating these matters. This is another example of Otway Lee attempting to qualify or distort the plain meaning of documents and I reject this approach.

(7) Then comes PO 3164 itself. Comtech makes much of the fact that it was not signed by it but in fact, the parties did not habitually sign every quotation passing between them. There are quotations relevant to variation works where not all the parties have signed. According to Thorn, PO 3164 was personally handed by Donnie Wong to Otway Lee at Thorn's offices. Otway Lee denies this and refers to the fact that he did not sign any form of acknowledgement. I resolve this issue in favour of Thorn. It is consistent with the previous correspondence exchanged between the parties, particularly the 18 March 1998 letter. It is also consistent with the subsequent conduct of the parties (to which I will presently turn). I also believe Donnie Wong and have found his evidence credible. I have already referred to various unsatisfactory aspects of Otway Lee's testimony and I have to say that where his testimony contradicts that of Thorn's witnesses, I am inclined to treat the testimony of Thorn's witnesses as being more reliable than that of Otway Lee.

29. PO 3164 stated on its face the price ($5,419,636.57). The precision of this figure supports what C.H. Yung had said about the basis of the pricing (see paragraph 28(2) above). The purchase order also stated on its face "Job 9179" which was the same reference as that mentioned in the relevant purchase order given to WEC (PO 2376). This indicates quite clearly that it was intended that Comtech step into the shoes of WEC in taking over the fire services installation work. I have already referred to some of the contract administration obligations in the Thorn-WEC purchase order contained in the Domestic Sub-Sub-Contract. These same obligations were contained in PO 3164 in the equivalent document annexed thereto. I will refer further to this below as well as to the specific unit rates for materials contained in the Schedule of Rates also appended to that purchase order.

30. Secondly, I turn to the conduct of Comtech and Thorn subsequent to PO 3164 and this in my view reinforces the fact that there was a contract between the parties on the terms of the purchase order:-

(1) In at least two invoices which Comtech sent to Thorn subsequent to PO 3164, express reference was made to that purchase order:- see the invoices from Comtech to Thorn dated 11 April 1998 (for $3,452,780.70) and dated 21 April 1998 (for $1,196,917.20). This is to be contrasted with an invoice dated 25 March 1998 sent by Comtech to Thorn (before PO 3164 came into being), in which no reference is made to any purchase order in the box marked "Customer PO No.". Otway Lee's explanation for the two invoices dated 11 April 1998 and 21 April 1998 was that he was instructed by Thorn to type in the reference to PO 3164 merely as a matter of convenience to facilitate payment from Hip Hing. According to him, it did not reflect the fact that the terms of Comtech's engagement were governed by PO 3164.

(2) Again, I reject Otway Lee's testimony in this regard. It simply does not make sense and all the more so when one sees the absence of a reference to a purchase order number in the said invoice dated 25 March 1998. In my judgment, the reference to PO 3164 was made in the two invoices because this reflected the fact that Comtech's engagement was on the terms contained in that purchase order. It is also interesting to note in this context that in the box marked "IMPORTANT" in PO 3164, it is stated that all invoices had to be referenced with the relevant PO number. This was exactly what happened in relation to the two said invoices.

(3) I have already referred to the fact that Comtech sent quotations for variation work done by it. Even Otway Lee accepted in his witness statement that "variation works that were beyond the original scope of works" were carried out by Comtech (see paragraph 65 of his witness statement). This is inconsistent with Comtech's case that there was no agreement between the parties and even with its alternative case. The very concept of variation works presupposes the existence of agreed standard works. On Thorn's case, the standard work was spelt out in PO 3164. On Comtech's, none was agreed.

(4) Furthermore, when one comes to examine in detail some of the variation works carried out by Comtech, it can be seen that on numerous occasions the unit rates used by Comtech for variation work matched exactly the unit rates stipulated in PO 3164. It was put to Otway Lee in cross-examination that not only did this mean PO 3164 governed Comtech's engagement but that he must have had PO 3164 all along (contrary to his case that he was not given this purchase order). His response was that the match-up of unit rates between the variation work carried out by Comtech and the rates stipulated in PO 3164, was purely a coincidence. According to him, these were rates that had been agreed (presumably orally) between one Andy Chan (Comtech's project engineer) and Thorn. Otway Lee added that these rates for variation work were derived, not from PO 3164, but from figures he obtained from Comtech's own sub-contractors as well as from the time he worked for a company called Chubb.

(5) Again, I find this part of Otway Lee's testimony unbelievable. The rather blasé way in which he said that all this was just a coincidence, without any real supporting material, was in my view unacceptable.

(6) Next, I turn to the fact that, contrary to its repeated insistence that its engagement only required the provision of labour and materials and not any aspect of contract administration, Comtech did in fact perform many acts of contract administration throughout the terms of its engagement. This is well-documented and none more so than in the said invoice dated 11 April 1998 in which charges are made for the preparation of drawings. There are also numerous site memoranda clearly evidencing the contract administration role of Comtech. In fact, on site, Marco Lee (one of Comtech's engineers) was regarded as Thorn's project engineer as far as HKHS, RLP and the project consultant, Mott MacDonald (HK) Limited ("Mott MacDonald") were concerned. Comtech also used Thorn's notepaper to correspond with Hip Hing over the fire services installation work.

(7) Otway Lee did not deny that Comtech performed acts of contract administration. He said, however, that it was done merely as a favour to Thorn (as it was at that time engaged in a number of projects for Thorn) and Thorn was not charged for this. The reference to any acts of contract administration in the invoices did not represent charges that Comtech intended to make. Rather, so Otway Lee testified, these were charges that Thorn intended to make against Hip Hing (even though, on Comtech's case, it did not perform these acts of contract administration nor was it charged by Comtech for them). These items were in the invoices since Thorn had given a computer disc to Comtech with such details to assist Comtech in making up its invoices. This was yet another attempt to distort the plain meaning of documents and the facts. And again, I have no hesitation in rejecting it.

(8) There was a telling exchange during Otway Lee's cross-examination when he was referred to a letter dated 27 April 1998 from Hip Hing to Thorn (which Thorn copied to Comtech) in which Hip Hing pressed for more workers to be on site to complete the fire services installation work. Otway Lee said that his superior, Allen Wong, had told him that they would not do so since there was a risk of workmen being left idle. As Mr Houghton said, the invitation by Thorn to Comtech to have more workers on site represented, on Comtech's case, a "golden opportunity" to make more profit. After all, it was Comtech's case that their engagement was on cost plus terms. Yet, Comtech was unwilling to increase the workforce. In my view, the truth of the matter was that Comtech wanted to use as few workers as possible so as to cut down on their own expenses since its engagement by Thorn was on a fixed price basis.

31. Thirdly, Thorn's version makes commercial sense in the circumstances whereas Comtech's does not:-

(1) When Thorn asked Comtech to take over from WEC, although the fire services installation work was behind schedule, the situation had not become so desperate that Thorn was forced to engage contractors on an ad hoc labour and materials basis. Obviously, Thorn wanted someone to step into WEC's shoes on the same terms. Otherwise, if Comtech were right, Thorn would have been engaging a sub-sub-contractor without knowing exactly what the cost would be. This was the position that Thorn eventually found itself in, but this was not the position in February/March 1998. As C.H. Yung says in his witness statement (and he was not challenged on this), "Given the stage the job had reached at this time there is no way I could allow the sub-contract for the Fire Services to be led on anything but a contract that stated the price and time for completion. If I had not, and if it was placed on a basis which allow Comtech to progress as they pleased, this would be too great a risk to take in getting the job completed. It was already in delay at this time and there would have been no incentive for Comtech to recover the lost time".

(2) As far as Comtech was concerned, I have already referred to an exchange in cross-examination in relation to Thorn's request for additional workers (see paragraph 30(8) above). Moreover, at least one of Comtech's sub-contractors was engaged on a lump sum basis. The letter dated 16 July 1998 from Comtech to Thorn refers to a sub-contractor called Jetz Engineers, who were engaged by Comtech on a lump sum basis. If indeed there was no contract between Comtech and Thorn so that the amount of work to be carried out by Comtech was indeterminate, it would not make much sense for Comtech to have had a lump sum contract with a sub-contractor. Otway Lee provided no real insight into this in his cross-examination.

32. Fourthly, I have already referred to the Amended Statement of Claim in which a contract is alleged to have existed between Comtech and Thorn. From that pleading, it is alleged to have been made on 11 February 1998. This is to be contrasted with the way Comtech approached this aspect at trial. Its case at trial was primarily that no contract existed. Alternatively, if a contract was made, this was made at the end of February 1998 (and not 11 February 1998) whereby Comtech agreed to perform the wet and dry work by providing labour and materials on a cost plus basis while Thorn would be responsible for contract administration. No explanation was given for the change and it is an aspect that I take into account in deciding this issue against Comtech.

33. Both Mr Cooney and Mr Houghton have referred me to a number of authorities dealing with the court's approach in finding the existence of a contract in building cases. Whether or not a contract exists may often be a difficult question on the facts, especially where there is no one document that is signed by the parties. The parties may often be in protracted negotiations, with offers and counter-offers being made to one another. In all such cases, the court needs to look at the whole of the communications between the parties and their conduct. I refer in particular to a passage in the judgment of Robert Goff J in British Steel Corporation v Cleveland Bridge & Engineering Co. Ltd. [1984] 1 All E R 504, at 509, in which he says, "Now the question whether in a case such as the present any contract has come into existence must depend on a true construction of the relevant communications which have passed between the parties and the effect (if any) of their actions pursuant to those communications".

34. With the finding I have made in Thorn's favour on Issue 1, I now turn to the other issues.

Issue 2: Was Thorn in breach?

35. It follows from my finding (that the parties contracted on the terms stated in PO 3164) that Comtech fails in its claim for damages on a cost plus basis for labour and materials. However, there is no doubt that some monies are due to Comtech under PO 3164 itself. I find the amount of Comtech's entitlement comes to $3,606,609.56. This takes into account the contract sum of $5,419,636,57, with $701,193.08 to be added for variation work done by Comtech (in fact Mr Ngo for Comtech only allows $695,354.88 but I take the higher figure) but with $2,114,220.09 deducted being the amounts previously paid to Comtech as well as $400,000.00 (as the provisional sum).

36. However, in view of my conclusions on the next two issues, it would be wrong to say that Thorn was in breach by not paying Comtech this amount. The value of Thorn's counterclaim far exceeds the amount to which Comtech is entitled under PO 3164.

Issue 3: Was Comtech in breach?

37. Under PO 3164, it was stipulated that the performance of Comtech's work was to be in accordance with the "sub-contract programme but not later than 31 July 1998".

38. At the time Comtech commenced to work on the Site replacing WEC, the fire services installation work was already behind schedule. I have earlier referred to the building services coordination meeting held on 2 March 1998 in which Hip Hing remarked that the fire services installation work was "slow and behind .... schedule", although Hip Hing had continually urged Thorn to take catch up action. The delay had no doubt been due, at least to a significant extent, to WEC's performance (or lack of it).

39. Thus, when Comtech was required to take over from WEC, there was a certain urgency to the performance of the fire services installation work that could not have been lost on Comtech. Comtech, it will be recalled, afterall had been the sub-sub-sub-contractor engaged by WEC at the Site. The quotation made by Comtech in the 1 March letter implicitly recognised this urgency in the price that was quoted. This price ($5,230,000.00) was in fact over $200,000.00 more than the price that Comtech got in its contract with WEC. It did not include contract administration, according to Comtech. Thus, since the work undertaken by Comtech for WEC also did not include contract administration (according to Otway Lee), it can be inferred that this increase in price contained in the 1 March 1998 quotation reflected (at least in part) the urgency of the situation. The letter also stated, "We [Comtech] are now to submit it herewith this proposal and advise that we must be sufficient and our resource for complete the installation works of Fire Services System".

40. It is Thorn's case that there were significant delays in the fire services installation work that Comtech was contracted to perform and this constituted a breach of contract on its part. It was this continual delay that led to Thorn taking over the wet part of the fire services installation work from 1 July 1998. Donnie Wong has given detailed evidence in support of this claim and I accept what he says. It is on the whole consistent with the contemporaneous documentation, with which I will deal presently. Donnie Wong's evidence was essentially that when Comtech initially took over, things progressed smoothly. However, during April 1998, Comtech began slowing down and fell behind the programme. In turn, Thorn became increasingly under pressure from Hip Hing, who was no doubt under pressure itself from the employer. Matters deteriorated in May and June 1998. Ultimatums were delivered to Thorn by Hip Hing and in turn passed down to Comtech. Comtech simply could not perform on time what was required. Eventually, without much if any protest, it allowed Thorn to take over the wet work as from 1 July 1998. The problem was probably lack of manpower to perform the necessary work. Eventually, owing to the predicament in which it found itself, Thorn had to engage labourers and obtain materials at great expense just to complete the requisite work.

41. Before I deal with the documentation, I should perhaps explain the significance of the fire services installation work in relation to the project as a whole. Hip Hing was particularly concerned over the fire services installation work being completed on time because unless the Fire Services Department certified this aspect to be safe, no certificate of completion would be issued and in turn the occupation permit for the buildings on the Site would not be issued.

42. I now deal with the relevant documentation. There is a lot over the relevant period but I will just deal with a few of the more important documents.

43. I have already referred to the coordination meeting held on 2 March 1998 (see paragraphs 8 and 38 above). By a letter dated 18 March 1998 from RLP to Thorn, Thorn was asked to take "immediate" action on a number of aspects including site installation progress being "still far behind programme" and what was perceived to be an insufficient labour force to catch up.

44. On 22 March 1998, following a site meeting between Comtech and Thorn, an "agreed" fire services catch up programme was sent to Comtech by Thorn. I have already referred to this letter in paragraph 28(6) above.

45. A site memorandum dated 17 April 1998 from Hip Hing to Thorn refers to the progress made by Thorn as a "terrible mess". This was a site memorandum amongst many. By a letter dated 24 April 1998 from Hip Hing to Thorn headed "Final Reminder on Termination of Sub-contract", Hip Hing informed Thorn that the sub-contract would be terminated on 30 April 1998 "if we consider your performance is still not satisfactory". The letter ended, "as the situation is extremely critical, taking into consideration on the submission of form 501 scheduled on 10/05/98, whereas most of your commitments still cannot be honored, please take special remedial action on almost urgent basis".

46. By a letter dated 27 April 1998 from Hip Hing to Thorn, completion dates for various fire services installation works were set out and the threat to terminate the sub-contract between them was repeated. This letter was copied to Comtech in Thorn's letter dated the same day in which the completion dates for various items set out in Hip Hing's letter were described as "critical dates for us to achieve in order not to be terminated by the Main Contractor". Comtech was also informed that it would be held liable for any costs incurred through its "slow and unacceptable programme". Significantly, there was no contradiction to the sentiments expressed in this letter when Comtech replied by its letter dated 30 April 1998. Otway Lee's explanation for this in cross-examination was that he basically ignored the letter because he took the view that no contract existed between Comtech and Thorn and therefore any problems that Thorn had as regards Hip Hing, were not Comtech's concern. I reject this attempt again to qualify the impact of the contemporaneous documentation. As I have found, a contract did exist and Otway Lee knew this. The contents of Thorn's letter to Comtech dated 27 April 1998 were not contradicted because they were true.

47. By a letter dated 12 May 1998 to Comtech, Thorn expressed its disappointment at Comtech's lack of progress. Reference was made to the continual complaints made by RLP, Mott MacDonald and Hip Hing. Comtech was further informed that if it could not complete the works on time, Thorn would be forced to allocate its own resources. Comtech responded to this letter the next day in which it referred to the working programme as being "impossible". Reference was also made to various factors, for which Thorn was responsible, that had contributed to the delay. I will deal with these counter allegations below when dealing with the excuses made by Comtech. It is sufficient to say for now that I reject them: they are insignificant compared with its own default.

48. Matters did not improve in June 1998. By a memorandum dated 11 June 1998 from Mott MacDonald to Hip Hing, the latter was urged to increase the work force to catch up with the fire services installation programme. It described the number of workers for the fire services installation work as being "totally unbelievable". By a letter dated 16 June 1998, Thorn informed Comtech that as it had repeatedly ignored Thorn's request to increase its workforce to cope with the fire services installation programme, Thorn had no choice but to mobilise its own workforce. Comtech responded the next day stating that it was not in a position to keep its workforce to perform the work and further alleged that Thorn had not provided sufficient information and drawings to perform the work on time.

49. On 22 June 1998, representatives of Comtech and Thorn met to discuss target dates and the number of electrical and plumbing workers that Comtech had to employ. The minute of that meeting was enclosed in a letter dated 22 June1998 from Comtech to Thorn. It is clear from that letter that Comtech was acutely aware of the need to achieve the target completion date. No mention was made in that letter, however, of any difficulties that Comtech might be having in relation to its not having been given sufficient information or drawings by Thorn.

50. By a letter dated 29 June 1998 from Mott MacDonald to Hip Hing (headed "Warning Letter"), Hip Hing was ordered to instruct Thorn to catch up with the fire services installation programme. A letter from Hip Hing to RLP referred to Thorn's performance as being "gradual further inferiority [sic]" (which I take to mean further deterioration).

51. Things came to a head on 30 June 1998. By a letter that day, Thorn instructed Comtech to mobilise at least 40 plumbers (making altogether 60 workers on the Site) to execute the fire services installation works without any further delay. This confirmed an oral request made by phone on C.H. Yung's part to Mr Parry Tang of Comtech.

52. By another letter that day from Thorn to Comtech, reference was made to the earlier letter as well as the 16 June 1998 letter. It continued:

"We are very disappointed and cannot tolerate your irresponsible attitude on this project. By the conversation between your Mr Otway Lee and our Mr Donnie Wong at 18.30 on 30th June 1998, your Mr Lee confirmed that your resources cannot match with our requirement and approximately only ten electricians without any plumber will be available for tomorrow. He also said that he could only arrange totally 38 workers including electrician and plumber by the earliest 2 July 1998. It is entirely not acceptable to us and in fact you are repeatedly ignored our instruction on increasing your work force to cope with the fire services installation programme.

Therefore we have no other alternatives but to inform you that we will start to mobilize immediately our work force to perform the installation works on your behalf. All cost incurred from above will be back-charged from your project account accordingly."

53. These letters followed a fax dated 30 June 1998 from Hip Hing to Thorn in which concern was expressed by Hip Hing as to Thorn's "empty commitments" and it was further stated that the site supervision and labour resources provided by Thorn were "totally unacceptable". Thorn was given a final warning that the sub-contract would be terminated on 2 July 1998 unless Thorn committed 60 workers on the fire services installation work by 1 July 1998.

54. According to Donnie Wong, when he spoke to Otway Lee (as recorded in the second letter dated 30 June 1998), Comtech had only approximately 10 electricians at the Site with no plumbers. As he puts it in his witness statement, "We [Thorn] urgently needed plumbers to maintain progress on the fire services installation so we wrote confirming that we would be taking control of the works. .... Our intention was to provide additional labour so as to improve progress or even to mitigate the fact of the delay being progressively caused by Comtech. I knew that we had to do something quickly if the date for completion was to be achieved".

55. By a letter also dated 30 June 1998, Comtech referred to Thorn's request by phone for additional manpower and workforce. Reference was also made (again) to Thorn's failure to provide sufficient information and working drawings. However, no attempt was made by Comtech to link the question of sufficient workforce and manpower to that of the lack of information and drawings. Whatever Comtech now says, it was never really part of Comtech's position at that time that there was somehow no point increasing the workforce since there was insufficient information or lack of drawings.

56. On 7 July 1998, Comtech responded to Thorn's two letters dated 30 June 1998. Although it protested any attempt to charge Comtech for additional charges that Thorn said they would incur in completing the project, Comtech did not say that it could in fact perform the work itself. On the contrary, it stated in the letter that it would have no objection to Thorn mobilising its own workers.

57. Thorn did indeed take over the wet work as from 1 July 1998. According to Donnie Wong, Thorn immediately mobilised 60 plumbers on a day-work basis. Although he accepts this was not the most economical way of performing the work, it was a quicker way of securing performance of the fire services installation work rather than trying to get lump sum quotations. As was clear by that stage, Hip Hing had lost all patience. A fax dated 4 July 1998 from Hip Hing to Thorn stated Donnie Wong's acknowledgement at a meeting held on 3 July 1998 that no obvious progress had been made by Thorn. That fax referred to a meeting that was to be held on 6 July 1998 at which Thorn's continued role as fire services sub-contractor was to be further discussed.

58. Apart from organising extra workers, Thorn also had to order materials that Comtech should have done but did not. The additional labour and materials that Thorn had to organise and pay for are the subject of Thorn's Counterclaim.

59. In my judgment, it is clear that Comtech was in breach of contract in failing to perform the work timeously. This was on the whole the wet part of the fire services installation work. As I have earlier said, I accept Donnie Wong's evidence and this evidence is consistent with the contemporaneous documentation.

60. In the Defence and Counterclaim, reference is made to Comtech's breach as amounting to a repudiation which was accepted by Thorn either on 30 June 1998 (meaning presumably the two letters from Thorn to Comtech that day) or the issue of the writ in HCA 7968 of 1999 on 15 May 1999. In view of the fact that Comtech did remain on the Site after 1 July 1998 to perform some electrical and other work, it cannot really be said that the contract had been terminated by Thorn's acceptance of Comtech's repudiation. Obviously, as a matter of law, it is not possible for an innocent party to accept only partially the repudiation of a contract. Either the whole contract is affirmed or the whole contract is terminated by the acceptance of the repudiation. There is no halfway position. The correct legal analysis in the present case is that Comtech did breach the contract by failing to perform it either on time or at all. In the circumstances, the delay on Comtech's part to perform its obligations was equivalent to non-performance. Thorn did not accept this repudiation. Instead, the parties (at least implicitly) agreed that Thorn would mobilise its own workers and perform other parts of the contract itself while Comtech retained a more minor role. In a way, it was a variation of the original contract but this is not of great significance. What is, though, of importance is the conclusion that Comtech was in breach.

61. In arriving at this conclusion that Comtech was in breach of contract by its delay or non-performance, I have not ignored its contention that any delay was caused or contributed to by Thorn's own default. Though not pleaded (somewhat surprisingly), it was Comtech's case at trial that any delay was caused by:-

(1) Thorn's failure to provide drawings, materials or instructions.

(2) Comtech having to wait for possession or for other contractors to finish certain works before it could carry out its own obligations.

(3) Additional or variation work which it was asked to (and did) carry out.

These allegations were contained in Otway Lee's evidence.

62. In my judgment, while I accept that these matters were not fictitious since there are documents making reference to them, I do not accept that they in any way caused or contributed significantly to the delay in this project, other than on a de minimis basis. I am of the this view for the following reasons:-

(1) I have already referred to some of the contemporaneous correspondence in which allegations were made from time to against Thorn in relation to some of these complaints. However, it is clear that the root cause of the delay in the performance of the fire services installation work was the inability of Comtech to secure sufficient labour at the Site. I do not understand the contemporaneous correspondence to be alleging that in fact, the cause (or a significant cause) of the delay was any one or more of the matters referred to in paragraph 61 above. Certainly, Comtech's response to the two 30 June 1998 letters would have been far stronger than it was, whatever Otway Lee now says after the event, if Comtech felt that it was Thorn that had been in breach.

(2) I accept Donnie Wong's evidence contained in his second witness statement when dealing with these allegations, both specifically and in general terms. In particular, I refer to paragraph 33 of this witness statement in which he says:

"I would say as a general statement for all the above items that it is characteristic of a construction site to have daily problems and also with the flow of information from contractors to sub-contractors to sub-sub-contractors. This is nothing unusual and is entirely typical for all sites and I believe that this is not indicative of any serious of delays or prevention of work. I would also add that many of the items that Comtech have raised are of minor nature and very isolated. Indeed, my main concern was that Comtech were not performing properly in many other areas of the site. As an example I refer to Hip Hing's letter dated 6 July 1998 at page 763. This sets out (on 764) many areas of the project which required a major input. These are significant areas and referred to substantial works. If Comtech were held up in any way in any other areas, there is no reason why they could not have directed their resources to any one of the items listed on page 764."

(3) I have already referred to many parts of Otway Lee's evidence that I have found unsatisfactory. I have little hesitation in preferring Donnie Wong's evidence.

(4) Comtech has not adduced any or any expert evidence as to how significant these allegations made by Otway Lee were in terms of causing or contributing to the delay in completing the fire services installation work. The contemporaneous documents certainly do not provide a clue. I recognize of course that Thorn did apply to Hip Hing for extensions based on some of the matters referred to in paragraph 61 above:- see for example the letters to Hip Hing dated 3 July 1998 and 14 July 1998. However, these claims were not pursued because, as C.H. Yung said in cross-examination, this would only have provoked Hip Hing to claim liquidated damages against Thorn. Both C.H. Yung and Donnie Wong said that the effective cause of the delay was Comtech's default. C.H. Yung said in re-examination that at no stage did Comtech ask for any extension of time based on the matters it is now alleging. I find his and Donnie Wong's evidence in this regard convincing.

(5) It is not without significance that these matters were not even pleaded in Comtech's pleadings when it would have been obvious to do so if they had any significance.

63. Apart from delay and inability to perform PO 3164, Thorn also alleges that Comtech was in breach of contract by performing defective work and failing to rectify such defective work. Donnie Wong has provided details in support of this claim and indeed the documents reinforce this. Comtech was pressed to rectify defective work but failed to do so. As Donnie Wong says in his first witness statement, from July to August 1998, Comtech maintained at the site about 7 plumbers and 3 electrical workers. After August, the electrical workers diminished to about 2 or 3 and there were no plumbers. He says, "Comtech effectively abandoned the site during this period". I have been referred to non-conformance reports from Hip Hing to Thorn providing details of defects and Otway Lee accepted in his testimony that Thorn would expect Comtech to rectify these matters. Letters from Thorn to Comtech referred to defect rectification (see for example the letters dated 12 May 1998 and 5 January 1999 from Thorn to Comtech). Hip Hing's complaints were copied to Comtech as well (see for example the fax dated 18 May 1998 from Thorn to Comtech). I accept Donnie Wong's evidence that Comtech failed to perform rectification work and was therefore in further breach of contract. In fact, he said that following Thorn's taking over of the wet work, about 40% of its resources was used for defects rectification work.

64. In summary, I am of the view for the reasons stated above that Comtech was in breach of contract as alleged by Thorn. What are the consequences of this?

Issue 4: Quantum of damages

65. Thorn alleges that as a result of Comtech's breaches of contract, it had suffered loss and damage. The factual evidence in support of Thorn's claim is contained in the testimony of Terry Sy (which I accept as showing that Thorn suffered loss and damage), supported by the expert quantity surveying evidence of Mr Cierpicki. Comtech, for its part, relied on the evidence of Mr Ngo in relation to the assessment of Thorn's Counterclaim. Both experts have helpfully provided individual reports as well as a joint report agreeing on relevant figures in relation to certain items of claim. Thorn's Counterclaim can be broken down into the following parts:-

(1) Additional materials it has had to provide or purchase for use at the Site to complete the fire services installation work.

(2) Extra labour it has had to pay for in relation to the fire services installation work.

(3) Additional management time spent as a result of Comtech's breaches.

(4) Overheads.

(5) Contra charges.

(6) Loss of profit and loss of business opportunity.

66. I deal with each of these claims in turn.

67. Additional materials

(1) Here, Terry Sy has given evidence in support of an overall figure of $4,409,462.47. This comprises materials that he says were ordered by Donnie Wong. The relevant invoices have been checked by him. The items here comprise (and this is the breakdown used by the parties) materials supplied by Thorn's suppliers, miscellaneous materials, dry materials including freight charges thereon, miscellaneous dry materials, wet materials and miscellaneous expenses.

(2) The experts have agreed on a figure for the materials supplied by Thorn's suppliers, namely $3,152,105.46. However, while Mr Cierpicki is prepared to allow the whole of this figure as representing Thorn's claim, Mr Ngo is not. Mr Ngo's doubts stem from there being insufficient evidence (in his view) by way of delivery notes or orders etc. proving that the relevant materials were actually delivered to the Site. Deductions amounting to over $1,000,000.00 are therefore to be made according to Mr Ngo. In my view, Mr Ngo has taken much too strict a view of the matter. The objection is in fact speculative and indeed Mr Cooney could put it no higher than to say that there was a "real possibility" that materials "may" have been used at other sites. Terry Sy has given evidence in support of this part of Thorn's claim and it was not suggested to him that somehow materials may have been used on other sites. A good example of the somewhat unreasonably high standards that Mr Ngo has applied is where certain invoices specifically refer to the said project No. 9179, thus indicating that the relevant materials were used at the Site (see here for example an invoice dated 5 August 1998 from Fu Wo Metal Factory). Yet, the sums contained in such invoices have been disallowed by Mr Ngo on the basis there was insufficient proof of delivery to the Site. I disagree with him here. In the circumstances, I would allow the sum of $3,152,105.46.

(3) As for miscellaneous materials, Mr Cierpicki allows the sum of $12,358.00 while Mr Ngo allows $8,796.70. The difference lies in the fact that some of the relevant invoices were illegible. I have not been taken to these invoices and in view of the fact that Mr Cierpicki does not really deal with the objection, I would therefore take Mr Ngo's figure as representing Thorn's claim here, namely $8,796.70.

(4) As to dry materials including freight charges, Mr Cierpicki allows $1,047,491.79 while Mr Ngo's figure is $991,037.65. The difference between them lies in a percentage figure of 6% which Thorn has added to the figures on account of freight handling charges levied by Thorn (the materials having been supplied by Thorn's associated companies abroad). In cross-examination, Terry Sy accepted that the 6% figure was arbitrary but nonetheless his evidence was that it was justified. Mr Cierpicki regarded this figure as constituting reasonable accounting practice. Mr Ngo also raises the same points as before about evidence of delivery to the Site. In my view, the figure of 6% for freight handling should be allowed and is reasonable. Comtech has not really demonstrated why Thorn's evidence here should not be followed and indeed, this evidence makes sense. As to the point about evidence of delivery to the Site, this is again speculative and I repeat the matters set out above in this context. I therefore allow the said figure of $1,047,491.79.

(5) In relation to miscellaneous dry materials (this comprising sundry expenses including dry materials and travelling expenses), Mr Cierpicki allows $5,520.00 whereas Mr Ngo allows $4,148.90. The difference is again due to certain of the documents being illegible. For the same reason as in the case of miscellaneous materials, I will take the figure of $4,148.90.

(6) Regarding wet materials, I would allow nothing since neither expert makes any allowance in relation to this item.

(7) As to miscellaneous expenses, Mr Cierpicki allows $39,283.30 while Mr Ngo allows $36,408.30. The difference lies in the lack of proof of payment. Mr Cierpicki does not really address this issue. I would therefore allow $36,408.30.

68. Extra labour

(1) The experts agree that the invoices show a total of $5,923,498.00.

(2) According to Mr Ngo, however, some $1,367,718.65 falls to be deducted since certain invoices relate to a company called Chi Fung and also to WEC and it was indicated on these invoices by Thorn that deductions should be made from Chi Fung and WEC's accounts.

(3) However, as Mr Cierpicki points out, the deductions were wrongly made for WEC. He refers to documents evidencing this. In relation to Chi Fung, Mr Cierpicki states that only $20,850.00 should be deducted and again he refers to relevant documents. I find his explanation convincing.

(4) I would therefore allow in relation to this claim, $5,902,648.00.

69. Additional management time

(1) Here, Terry Sy gave evidence to the effect that as a result of Comtech's breaches, Thorn has had to spend more management time in relation to the project. This is plausible and reasonable. It has not been contended otherwise. The figure he gives as representing the cost of management time up to December 1998 (when the work was completed) is $970,965.71.

(2) Terry Sy reduces this figure by 25% since he accepts that some of this time would have had to have been spent anyway even if Comtech was not in breach. Mr Cierpicki accepts this as being reasonable. The figure then becomes $715,524.00.

(3) For his part, Mr Ngo does not dispute the item in principle, but says that there should be further deductions amounting to $269,121.09. Of this, $248,229.00 relate to expenses claimed by Thorn for staff from its associated company, Wormald Engineering Services Limited. He says basically that there is insufficient evidence in support of this part of the claim. Mr Cierpicki said that he was told Wormald was Thorn's sister company who had time-charged Thorn in relation to work done. I have seen no evidence to explain the relationship between Thorn and Wormald and just why or how Thorn became liable to pay for Wormald staff. There has been no evidence either of the charges said to have imposed by Wormald on Thorn. The other $20,892.09 is Mr Ngo's assessment of the duplication between this head and the claim for office overheads. I accept his evidence here.

(4) Accordingly, I would allow the sum of $446,402.91.

70. Overheads

(1) Mr Cierpicki takes a figure of 14.45% as being the relevant percentage of the above items to arrive at a figure for overheads. Terry Sy uses a figure of 17% while Mr Ngo in fact adopts a figure of 15% in his report.

(2) In cross-examination, Terry Sy accepted that to an extent there was some double counting between this claim and Thorn's claim for additional management time. However, given the fact that Mr Cierpicki's percentage figure is the lowest and also having made an allowance of $20,892.09 (see paragraph 69(3) above), I would adopt the percentage figure of 14.45%.

(3) Accordingly, applying this percentage to the sum of the other items, the figure I would allow under this head is $1,531,411.29.

71. Contra charges

(1) In his evidence, Terry Sy referred to a debit of $275,000.00 representing contra charges to be made against Comtech in relation to the work. This was the sum that was agreed between Thorn and Hip Hing when the accounts for the project were finalised. This sum is supported by documents.

(2) Mr Cierpicki's assessment of the relevant figure comes to $191,145.72. Mr Ngo objected to deductions to be made by way of contra charges on the basis that these included items (such as builders work or failure to attend safety meetings) that were not Comtech's responsibility under the contract. I do not find these objections convincing. These aspects were all part of the fire services installation work that was wholly sub-sub-contracted to Comtech by Thorn. In my view, Comtech is responsible for these contra charges.

(3) I would therefore allow the sum of $191,145.72.

72. Loss of profit and loss of business opportunity

(1) These are items of loss and damage that are frequently made, particularly in building claims.

(2) Where, as was initially Thorn's position in the present case (see Terry Sy's evidence), a claim is made for profits on the additional expenditure that has been incurred as a result of a breach of contract, it is difficult to see as a matter of principle how such a claim can be allowed. Damages for breach of contract are generally assessed on a comparison between the position that would have existed had the contract been properly performed and the position that the innocent party actually found himself in resulting from the breach of contract. In a building case such as the present where a contractor is in breach of contract, the comparison is between what the innocent party (Thorn in the present case) would have had to pay had the contractor (Comtech) properly carried out the contract and what the innocent party in fact has had to incur. There is no rule for an element of profit to be superimposed on the extra expenses the innocent party has had to incur. Were it otherwise, damages would not be compensatory but instead produce a windfall for the innocent party, a concept that has no place in Hong Kong law.

(3) So much is accepted by Mr Houghton. He submits, however, that Thorn should be entitled to loss of profits or loss of opportunity in the sense that but for Comtech's breaches, Thorn would have been able to engage itself in other projects instead of devoting time and energy dealing with the consequences of these breaches.

(4) As a matter of principle, such a head of claim is possible, but cogent evidence is required in support. Bare assertions or assertions without sufficient detail will not do. The reason why I say cogent evidence is required is because this type of claim is not the usual consequence of a breach of contract. It is also speculative. For example, would the innocent party have actually got the other work? Evidence needs to be given which goes to show that, more probably than not, the innocent party has in fact lost out.

(5) In my judgment, Thorn has not demonstrated its alleged loss under this head of claim. The evidence of Terry Sy deals with the number of Thorn staff deployed in the project consequent on Comtech's breach and he also refers to certain tenders made by Thorn in other projects that were eventually declined. The assumption seems to be that but for Comtech's breaches, Thorn would have been in a position to have tendered successfully. This is not an assumption I am prepared to make. No real evidence was provided to back this up.

(6) I therefore reject this head of claim.

Outcome

73. Taking into account the sums due to Comtech under PO 3164 (totalling, as stated in paragraph 35 above, $3,606,609.56), the amount of Thorn's counterclaim comes to $8,713,949.51. I therefore give judgment to Thorn in this sum. I will hear the parties in due course on interest, costs and any other outstanding matters.

74. The award of damages to Thorn in the above sum reflects the predicament that Thorn found itself in when faced at the end of June 1998 with a main contractor who was threatening to terminate the sub-contract (with the consequential claims that would inevitably have been made) and a sub-sub-contractor who was simply not performing. PO 3164 was, as Mr Cierpicki put it, underpriced, no doubt partially because Comtech wanted to establish itself as a fire services installation sub-contractor who could perform competitively. For Thorn, getting labour and materials at short notice was inevitably going to cost more.

75. It only remains for me to thank counsel and solicitors for their assistance in this case.