DRILTECH GROUND ENGINEERING LTD v. GROUP PLAN CONTRACTORS LTD

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JUDGMENT

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1. The plaintiff, referred to hereafter as both "Driltech" and "the plaintiff", is a specialist foundation contractor. The defendant, "Group Plan", is a building sub-contractor. Group Plan had been sub-contrcted by the main contractor ("B & B") to carry out works improving the road system along Hiram's Highway in the New Territories and, in particular, a junction improvement at Clear Water Bay Road junction.

2. The contract for certain piling works at two particular locations, "RW1" and "RW2" were awarded to Driltech in March 1997. The "RW2" works were in fact carried out first, between September 1997 and January 1998. The second part of the contract, at RW1, was never carried out by Driltech because the contract was terminated in or about August 1998, before the RW1 works started. "RW" stands for "retaining wall".

3. Driltech claims that Group Plan wrongly repudiated the contract and that they accepted the repudiation. Group Plan say it was Driltech who repudiated. Arising out of their parting company, Driltech have sued Group Plan under a number of different headings, claiming a total of about $1.8 million. Group Plan have counterclaimed. Originally, their counterclaim exceeded $6 million. At the start of the trial, the sum was reduced to about $1.5 million.

4. There is an agreed list of issues dated 15 January 2001, comprising 14 issues. Some minor issues have been agreed, others can be grouped together. What remains are three issues under Driltech's claim and three issues under Group Plan's counterclaim. The issues under the claims are :-

A. The lssue of Repudiation (Issue 5 on the agreed list) :-

B. The Issue of Prolongation (Issues 6 and 8 on the agreed list):-

This issue subdivides into two sub-issues, namely, the "late start" (as described by Mr J. Scott SC, counsel for Driltech) or the "97 day claim" (as described by Mr P. Graham, counsel for Group Plan). Put simply, the RW2 works started 97 days late. Who was responsible? The second sub-issue is described by Mr Scott as the "restriction on working hours" and by Mr Graham as the "35 day claim". The issue here is - did the works overrun by 35 days (or a lesser period)? If so, what caused the overrun?

C. The Pre-drilling Works (Issue 3 on the agreed list):-

Approximately $16,000 is claimed under this issue.

5. The issues under the counterclaim are :-

D. Backfilling the trench (Issue 9 on the agreed list):-

E. Acceleration (Issue 10 on the agreed list):-

F. Repudiation (Issue 11 on the agreed list):-

This is the mirror image of issue A, above. I will deal with A and F together. The remainder of the issues specified in the agreed list (namely, 1, 2, 4, 7 and 12-14) have either been resolved by agreement or fall to be resolved within the primary issues as set out above.

6. In substance therefore, there are five issues which are largely, self-contained. I will deal with them in the following order:-

1. PROLONGATION

7. In their final tender letter of 24 February 1997, the plaintiff included the following clause:-

"In addition, any delay resulting of facts not directly under the control of DRiLTECH, such as delay in approval of drawings, delay in any authorization from authorities, etc ...... will give right to extension of time."

8. In addition the plaintiff relies, in the Statement of Claim, on the inclusion of the three implied terms into the contract:-

9. The RW2 works were originally scheduled to commence on 17 June 1997. The actual start date was either 14 September (90 days later) or 22 September (97 days later). (Nothing turns on the difference on this claim.)

10. The defendant relies heavily on the letter of contract signed by both parties on 12 March. It is submitted on their behalf that one cannot incorporate additional terms extracted from the tender letter, which contradict the clear terms of the contract letter. The letter stated:-

11. I find that these clear words mean that the plaintiff did not have a contractual right to commence works on 17 June 1997. Bearing in mind that this contract was "back to back" with Group Plan's contract with its main contractor "B & B", it would make no commercial sense for Group Plan to bind itself, on 12 March, to a start date over three months hence. For this very reason, the 12 March letter specifically states that programme no.C4903/P01 is for "information only" and no claims for amendment to the programme will be allowed and, finally, "the progress will be to suit the overall programming".

12. Mr Scott submits this only affects re-sequencing of the programming once it has started, it does not affect the start date. Otherwise, Group Plan could start at any time in the future and Driltech would have no recourse. I do not agree. If Group Plan had in fact prevented Driltech from starting at the earliest possible date unreasonably (which is not the case here), then Driltech would probably have a claim for breach of an implied term. Group Plan have no claim against B & B for delay over this period. Driltech's actual start was "fitting in with the overall programming". It would be wrong in my judgment, on the facts of this case, to interpret the tender letter and contract letter together in such a way that would leave Group Plan vulnerable to a claim for a late start by Driltech, for which it had no recourse against B & B.

13. Before leaving this issue, Mr Graham makes two further points which have merit. The consequence of both points is that even if Driltech had been successful in establishing that the contract entitled them to damages in the event of a late start, they would not have been successful in proving that any damages would in fact be payable. Firstly, because there is no cogent evidence that the delayed started was Group Plan's responsibility. Moreover, when the piling work did begin, in late September, Driltech's own programme was for 60 days work (including remedial work), some 30 days less than the original programme.

14. Secondly, and more importantly, Driltech are on weak ground in proving actual damages under this head. It includes a claim for $74,000 a month (approximately $240,000 for the whole period) for staff, who, it is assumed, without specific evidence in support, were idle for the whole period. Furthermore, it is accepted that Driltech had no plant or personnel on site standing idle. They only mobilized prior to the actual commencement of work (subject to the "trench claim" with which I deal later under Group Plain's counterclaim). Had Driltech a valid claim under this head they would have been under a duty to mitigate their loss. There is no evidence that they did so. The expert report from Mr P. Battersby, Driltech's expert witness (which is very detailed and helpful), makes calculations under this heading without any "actual cost data". Mr Graham invites the court to infer, with some force, that no "actual cost data" was provided because no actual costs were incurred.

15. In any event, these latter points are merely supplementary to the court's primary finding that Driltech's claim for damages for a "late start" fails.

16. Under this heading, Driltech claims that the completion of the piling works were delayed by 35 days because the working hours were changed after the piling had began. The change came about as a result of complaints about the noise from a nearby school.

17. Driltech's starting point is condition 12 of the general conditions of quotation which stated :-

18. These times appear, both in the "general conditions of quotations" dated 19 February 1997 and also in the tender letter, already referred to, of 24 February 1997. They are, again, not referred to in the contract letter of 4 March. The same question arises - are they incorporated, either expressly or impliedly, into the contract?

19. I am satisfied that there is no basis upon which the whole of the "general conditions of quotations" can be incorporated into the contract. In fact, parts of it are specifically excluded by the terms of the 12 March contract letter. Consistent with my finding on the previous issue (the late start), I find there is no express contractual right to work the specific days and hours set out in their tender letter. Can then, the plaintiff rely on a more general implied term the effect of which would be, in the plaintiff's submission, that an inability to work during those hours would constitute a breach for which the defendant would be liable in damages?

20. The existence of a more general term implied by law is not a difficult issue. However, I do not accept that implied terms as pleaded (and recited earlier in this judgment) bind the defendant in this contract or that, in any event, the defendant is in breach of such implied terms. The reason for coming to this conclusion is the cumulative effect of the following factors.

(a) The more general implied term is a term to co-operate and not hinder the progress of the contract unreasonably or willfully:-

21. The court's findings of fact, which follow, do not put the defendant in breach of this implied term. Neither do they put the defendant in breach of the pleaded implied terms, even if they were incorporated into the contract.

(b) The general condition of quotation upon which the plaintiff relies is condition 12. Condition 12 commences:-

"The present quotation is based on the following site working hours."

and concludes:-

"However DRiLTECH reserves the right to extend at his own convenience the site working hours to 24 hours a day and 7 days a week with no contra-charging of the supervision cost of the Client/Engineer."

22. Group Plan could not agree to a term which permitted Driltech to work hours prohibited by law.

(c) The factual background is that a nearby school had complained of noise, by letter, soon after the works had begun. The letter was dated 4 October 1997. A meeting was quickly convened. A factual issue arose at trial as to whether, Mr Ken Fu, Driltech's representative, was present at the meeting. It concerned a meeting which took place three and a half years ago. Witnesses had different recollections. The evidence from contemporary documents, such as correspondence and site minutes, leads me to conclude that on a balance of probabilities he was present. It would be surprising if no representative of the actual pilers was in attendance. At that meeting, a solution to the problem was agreed and carried out.

(d) The agreement was to adjust the piling sequence so as to take the noise away from the school as much as possible. Driltech's agreement that it would resequence the work "in consideration of noise disturbance to school" and that it would "complete the piling work at RW2 including pile testing on 15 November 1997" is recorded in a letter of 15 October 1997 from Group Plan.

(e) In any event, Driltech should not have been taken by surprise by the school's complaint. They are experienced pilers, conversant with noise control regulations, who should have been aware of the clear and obvious location of the nearby school. Noise control is specifically dealt with in the main contract with B & B, with which Driltech was "back-to-back". The particular specifications (numbers 1.80 and 1.81 in the main contract, which it is not necessary to recite herein) were brought to Driltech's attention by letter on 24 October 1997. In short, there was an obligation on the plaintiff, as well as on the defendant, to carry out the works so as to cause as little inconvenience as possible to the public, to minimize noise impacts to the surrounding environment and not to create excessive noise during school hours.

(f) What actually happened further dilutes the plaintiff's claim. The original completion date was intended to be 20 December 1997. Driltech's 35 day claim runs from this date. In fact, by 16 December, all the piles which Driltech had contracted for were completed. An ancillary remedial pile was completed on 20 December. Driltech's piling rig left the site on 24 December.

23. The 35 day period runs up to 24 January 1998, that is, the date upon which the engineer finally certified his acceptance of all the piles, including ancillary piles and remedial work. Driltech's case is that the engineer's certification would have come 35 days earlier but for the restriction of hours. This is hard to accept. If it took from 16 December (the last pile) to 24 January to secure the engineer's acceptance, a period of 39 days, it must be assumed that with normal working hours, they would have had to complete the actual piling about 39 days before 20 December, say, on 11 November. Given that the piling work commenced on 22 September and that there was a break for the first two weeks in October whilst a rig was being replaced (for which no blame is attached to the defendant), that leaves a period of four to five weeks for all the actual piling works. This makes little sense.

24. It is reasonable to say, however, that the adjustment to the working hours will have had some effect on progress. However, the evidence has not persuaded me that the effect, which I find would have in reality, have been relatively minor, amounts to a breach by the defendant. Contractually, I find no term which has been breached and, factually, I find there to have been agreement to the adjustments by Driltech and relatively small losses incurred in any event. It has not been proved that the claimed losses, based on full mobilization for 35 days, were incurred.

2. REPUDIATION

25. The question of who repudiated this contract requires an analysis of the correspondence which was exchanged between the parties in or around August 1998. The outcome was that Driltech did not perform the second half of the drilling works at RW1. They claim loss of profit for not being able to carry out those works. Group Plan, on the other hand, submit that Driltech left the site, that Driltech repudiated and they claim the extra costs incurred by having to engage another sub-contractor to finish the job.

26. I now set out what seems to be the relevant extracts from the correspondence which resulted in termination (with emphases added):-

"As discussed earlier, you informed us you had difficulties to carry out the remaining board pile works at Retaining Wall No.1. We notify you that we are inviting tenders for the aforementioned work. We also confirm that the additional costs incurred shall be deducted from your account."

27. This exchange of correspondence was effectively concluded on 18 September when Driltech concluded a lengthy letter by saying "we will communicate with you further on the issue of our claim for loss and damage resulted from your wrongful repudiation".

28. Driltech had the contractual right and duty to perform the second half of the contract, namely RW1. There was always going to be a gap of about nine months between the end of RW2 and the start of RW1. It is Driltech's case that in the intervening period, Group Plan evinced an intention not to be bound by the sub-contract. They denied Driltech the right to perform the RW1 section of the works.

29. As to the law applicable to such a situation, Mr Scott has referred the court, inter alia, to a number of extracts from the 28^th Edition of Chitty on Contracts:-

30. For the reasons which follow, I have come to the conclusion, not without some difficulty, that Group Plan is the losing party on the question of repudiation. In the final analysis, the issue turns on Group Plan's letter of 14 August 1998. Their attempts to dilute its meaning and minimise its effect fall on stony ground.

31. Group Plan's evidence concerning this crucial letter is that it was "a bluff" which was sent because of the adverse rumours they had heard about Driltech's solvency and desire to carry out the works of RWl. Much evidence was adduced at trial on the issue. Counsel for each party has invited the court to put a different spin on what was said and written. Without reciting any particular part of the evidence given, I record the following findings:-

32. In short, an objective reading of the 14 August letter suggests Group Plan to be saying - "because of your 'difficulties', we are inviting tenders; you will have to pay the consequential costs of this". It could only be assumed that one of the tenders which were invited would be accepted and Driltech would then be off the site. Put even shorter, it is not a case of Driltech calling their "bluff", it is a case of the "bluff" backfiring on Group Plan.

QUANTUM ON REPUDIA TION

33. The basis of Driltech's claim is 15% of the tender price for the RW1 works. The tender price was $2,307,702. The innocent party after repudiation, is entitled to damages representing compensation for what they could have reasonably expected to gain had there been no repudiation.

34. The exact calculation is as follows:-

35. Mr Battersby, the plaintiff's expert witness, recognises the deficiencies in the evidence in support of this claim. Firstly, there is no evidence that Driltech actually made such a profit on RW2; secondly, he had seen no evidence of what Driltech's profit or loss on RW2 was in fact; thirdly, whether or not the RW1 works would have been carried out according to tender is purely a matter of speculation; and fourthly, the projected figure of 15% of the tender sum is for head office overheads as well as for profit.

36. It is conceded by Mr Scott that there are some unsatisfactory aspects to the evidence concerning quantum but he says, the court must make an assessment. It is damages which are being sought, not a specific loss which is capable of a precise calculation.

37. The agreed joint report from both parties experts states as follows:-

I consider the correct approach is to assume that a profit would have been made. If one takes the median percentage, namely 12.5%, the calculation is as follows:-

38. However, the matter does not and there. Mr Graham submits, and I agree, that this figure includes a figure for "head office overheads" as well as profit. Here, there are none, and thus a further reduction should be made. The court has no guidance on this. In order to achieve finality, I reduce the figure further, by an amount which is relatively small but more than token. The sum of $230,000 will be awarded under this head of claim.

3. THE PRE-DRILLING WORKS

39. Issue 4 on the agreed list of issues is :-

"Did the Defendant wrongfully deduct or withhold HK$664,715 from monies due to the Plaintiff under the Sub-Contract and in breach thereof? How much was the Defendant reasonably entitled to deduct?"

This matter was agreed at the start of the trial. $538,201 plus interest is due to the plaintiff.

"Did the Defendant award the Pre-Drilling Work to Freyssinet in breach of the Sub-Contract?"

A disproportionate amount of time was spent on this issue. The maximum value of the claim to Driltech is $16,502.

40. The background, in a nutshell, is that Driltech had contracted to carry out certain pre-drilling works for a price of $126,514. It transpired that Driltech did not have the government licence necessary to do this work. Group Plan therefore engaged another subcontractor on site, namely "Freyssinet" to do the work instead.

41. Group Plan's case is that it engaged Freyssinet on behalf of Driltech because Driltech was unlicensed.

42. Driltech's case is that they did not agree to Freyssient stepping into their shoes. Rather, they should have had the opportunity to subcontract the work themselves if they were, in fact, unlicensed. In fact, a Driltech witness, Mr Yu, their managing director, testified that it was only the person who compiled the data who needed a licence and, so, it was unnecessary to give the work to Freyssinet at all.

43. I do not propose to spend a similarly disproportionate amount of time on this issue. Mr Yu's evidence, the fact that Driltech had a contractual right to do the work and the fact that they were not given an opportunity to get their own subcontractor, if necessary, persuades me to find in their favour. Group Plan were, at least, premature and arguably heavy handed in taking the work away from Driltech in the manner they did.

44. On the question of quantum, for the same reasons as stated in the previous issue, I take as a starting point a figure of 12.5% as a maximum expected profit :-

45. I reduce this further for two reasons. Firstly, as before there is an element of head office overheads included and, secondly, it is probably that Driltech would have had to subcontract the work which would probably have resulted in a further erosion of their profit. $12,000 will be awarded.

4. THE DEFENDANT'S COUNTERCLAIM

46. This is a discrete claim concerning events which occurred at the very start of the RW2 works. The issue is - is the defendant entitled to recover the cost of backfilling a trench to form a platform?

47. When Driltech came on site on 2 September 1997, they found that a trench had been excavated parallel to where RW2 was to be built, along a line where the piling was to be carried out. The dimensions of the trench are disputed. In any event, Driltech's case is that it expected, according to the contract, to commence the piling work at ground level and not at the base of a trench. They refused to take over the site. In order to get the work under way, Group Plan decided to fill in the trench and argue the question of liability later. They now claim, on a quantum merit basis, the cost of backfilling the trench for the purpose of piling and for re-excavating again after the completion of the piling.

48. Group Plan went to some length at trial to demonstrate that the trench, as dug, was suitable for the proposed work and that Driltech could have, and should have, carried out the piling with their rig at the bottom of the trench. Driltech's case is that it expected there to be no trench. It expected, according to its tender documents, a level working surface. However, Driltech's case, in answer to this part of Group Plan's counterclaim, is that it gave Group Plan a choice of either to fill in the trench or to widen it. It refused to accept the site with the trench, as dug.

49. The following factors persuade the court to find in Driltech's favour on this issue:-

"With reference to your facsimile message dated 22 ^nd February 1997, please find attached our revised quotation for installing 600mm dia. piles at ground level with 1 or 2 meters above pile cut-off level.

From Driltech on 4 March 1997 :-

50. The defendant's "trench" counterclaim fails.

51. The basis of this claim is that because the RW2 works were only finally certified on 24 January 1998, 35 days late, and because the RW2 works were on the "critical path", the next task could not start until 24 January whereas it should have started 35 days earlier. In order to catch up time, Group Plan had to "accelerate" subsequent works.

52. It was acknowledged by both experts that acceleration claims are unusual and difficult to prove. The difficulty in proof is partially due to the fact that extra costs resulting from extra resources, usually results in a corresponding increase in output, which is not an acceleration.

53. The experts disagreed about whether the RW2 works were, in fact, on the "critical path". Much evidence was adduced as to the proper interpretation of programming schedules and revised programming schedules. Whilst not criticizing the integrity of Mr Fred Koo, the point is fairly made, that he was, in a sense, an expert witness "in his own cause". Since 1996, he had been Group Plan's director of marketing and planning. Whilst not questioning his competence and expertise, it has to be faced that when the court has competing expert evidence from an expert such as Mr Koo on the one hand, and an expert such as Mr Battersby on the other (an expert of the highest professional standing), the latter must start with an advantage in the court's eyes. Of course, he does not automatically keep the advantage. It depends on the quality of the evidence given. In any event, I prefer the arguments and factors advanced by Mr Battersby that the RW2 works were not on the critical path. Put the other way around, Group Plan did not satisfy me that RW2 was a critical activity.

54. Had RW2 been on the critical path, Group Plan would still have had two further hurdles to surmount. Firstly, to show that there was in fact acceleration and, secondly, to prove that increased costs were incurred as a result of such acceleration and, if so, by how much. On these issues, the court again relies on Mr Battersby's assessment and evaluation of the voluminous documentation. He was carefully cross-examined. The result is that Group Plan have failed to prove its acceleration claim. As already found, it was not proved that RW2 was a critical activity; moreover, it was not proved that there was, in fact, any acceleration; there was no sufficient evidence that output went down or that the alleged acceleration resulted in increased staff or plant.

55. To his credit, Mr Fred Koo was also luke-warm about this aspect of Group Plan's counterclaim. In chief, he gave the following evidence :-

56. The defendant's counterclaim for acceleration costs fails.

57. This must also fail because of the court's findings at item 2 (supra).

58. To conclude, the parties, helpfully were able to agree four minor issue, which I here set out for completeness :-

59. Agreed issue 12 :-

60. The total of these agreed sums which are due to the defendant is $34,290.86.

IN THERESTS AND COSTS

61. It is hoped that the parties will be able to avoid a further court hearing by agreeing the appropriate rate and duration of interest. At the time of preparing their respective submissions, it appeared that counsel were not id idem. If there is no meeting of minds, the court will determine the matter on a future occasion.

62. As to costs, I have not heard the parties but make an order nisi, again, in the hope that it will prove unnecessary to incur more costs to argue-the issue of costs.

ORDER

ADDENDUM

63. Mr Scott, in his closing submissions, invited the court to attach weight to two matters. He submitted that, although they do not call for a determination by the court, they nevertheless put Group Plan in a poor light and reflect badly on their overall approach to this litigation.

64. Firstly, it was pleaded and maintained until the first day of trial that all 106 piles at RW2 had been pre-drilled by Freyssinet and a contra-charge had been calculated on that basis. This never was the case (Issue 4).

65. Secondly, Group Plan's original pleaded counterclaim was for just over $6 million. Of this, approximately $4.3 million (for delay by Driltech) was also abandoned on the first day.

66. Mr Graham rightly acknowledged that both these issues were unsustainable.

67. The court has weighed these matters in the balance, but bearing in mind Mr Graham's response to them, the actual weight to be attached is not as great as Mr Scott submits. The court has concentrated on the live issues, not the abandoned ones. Mr Scott's complaints are nonetheless worthy of mention and have merit. Costs will have been incurred by Driltech in dealing with them which will have to be met in the general order for costs. Mr Scott seeks a "special order" for costs in relation to these two items. It seems to me that it would be sufficient if the costs so incurred were simply included in the normal bill of costs. The amount of costs claimed will no doubt reflect the time spent on those issues, albeit, that they were abandoned at trial.