CHUN WO FOUNDATIONS LTD v. DORRO PROPERTIES LTD

cacv 293/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 293 of 2005

(on appeal from hcct NO. 84 of 2000)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Burrell J given on 15 August 2005.  The judge ordered that the defendant should pay the plaintiff the sum of $973,827.40 plus interest.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

2.  The plaintiff is a piling contractor and the defendant is a property developer.  In 1999 the defendant awarded the piling contract for a residential development on a site in Kowloon to the defendant.  At that time it was contemplated that there would be a 17 storey block of flats built on the site.  As it transpired, because height restrictions in the area were lifted, the plaintiff was eventually able to build a taller building.  What is significant for the purposes of this case, in that respect, is that, in the first place, a great deal of time elapsed between the time when the plaintiff finished the piling work and the time when the defendant commenced building the superstructure.  In the second place, design changes were made which necessitated changes to the pile cap designs.  Those matters will be referred to below.

3.  Although the plaintiff’s contract for the piling was signed on 9 September 1999, the piling work commenced on 4 August 1999.  Again, although the contract provided that the time for completion of the contract works would be 80 days, the parties are in agreement that time was at large because there were variations to the contract and hence the plaintiff was required to complete the contract works within a reasonable time.  It is also pertinent to note that under the Specification S6 substantial completion, which was required under the contract, was defined as meaning satisfactory completion of the Works and of all tests required by the Engineer and/or the Building Authority of the Works.

4.  At the trial the judge found in favour of the plaintiff on its claim in respect of amounts that had been certified as due by the architect but had not been paid.  He also held that, because the time for completion of the contract Works was at large and he accepted the evidence that the plaintiff had completed the Works within a reasonable time, the defendant was not entitled to deduct any liquidated damages.

5.  The defendant had raised a counterclaim based on the allegation that the piles had been built outside the tolerances permitted by the contract and hence were defective which necessitated remedial work and, in particular, delayed the completion of the building for which the plaintiff was, therefore, responsible.

6.  In considering the question as to whether the piles had been wrongly located in positions which were outside the tolerances, the plaintiff relied on a survey plan which it had handed to the defendant at a meeting on 5 April 2000.  On the other hand, the defendant relied on a plan which had been produced by a firm of surveyors, Andrew Lau & Associates (China) Ltd (“ALA”), in November 2000.  After a trial lasting some 13 days, the judge was not prepared to say that either plan was inaccurate.  He came to the conclusion that the defendant had not proved its case that the plaintiff’s piling work was defective.  The judge then went on to consider whether, even if the piling had been out of specification, the plaintiff was liable in respect of any delay caused by the fact that modifications were made to the pile cap designs and the building work had been delayed.

7.  Based on the evidence of Mr Sung, a director of Wong & Cheng, who were engaged as consulting engineers more than a year after the plaintiff had completed the piling, the judge found as a fact that although there had been revisions to the piling details which were submitted to the Building Authority these had been caused by amendments to the pile cap design and that the amendments to the pile cap design had not been caused by any defect in the piling.  Furthermore, revisions to the general building plans and the structural plans were, again, not caused by the pile locations.  As regards the delay to the construction of the building, the judge observed that there was a delay of almost 3 years that had elapsed after the completion of the piles and before the superstructure works got underway.  Although it is somewhat lengthy it is worthwhile quoting paragraph 83 of the judgment which sets out the history of the matter:

“83. It is nonetheless a worthwhile exercise to consider the delays which actually occurred and investigate the reasons.  Some of these matters have already been touched on; however, by way of a concluding observation, when the following factors are viewed together, it becomes fanciful to think that Chun Wo should be liable for years of liquidated damages and/or years of loss of rental incomes and/or loss of property value in a falling market.

(i) After January 2000, eight months passed before Mr Tsang visited the site.

(ii) Thereafter another two months passed before Dorro instructed Andrew Lau.

(iii) Chun Wo was not asked to check its figures until 27 November 2000.  Chun Wo responded within 10 days.  Chun Wo did the best they could in this regard faced with Dorro’s unreasonable refusal to provide Chun Wo with its pile cap design proposals.

(iv) Chun Wo was not involved in the dispute between Dorro and Master Union.  It had no power to control the delay that that dispute caused.

(v) After Master Union resigned five months passed before a new RSE was appointed and seven months before a new architect was appointed and nine months before an application was made to the BA for the superstructure contractor (New City Construction) to carry out the ELS works — a necessary pre-requisite to the pile cap amendment works.

(vi) The negotiations over the premium went back and forth for almost two years.  Dorro eventually agreed to pay a premium which was almost the same amount that had been offered early.  About $8 million was eventually paid in July 2001.  $8,230,000 has been proposed by the Lands Department in May 2000.  On two occasions Mr Tsang asked for an extension of time to consider an appeal against the Lands Department’s premium assessment.  On one occasion he gave as a reason for needing more time that he needed to discuss the matter with other directors of the company.  The only other director was his wife.

(vii) Dorro was very slow in submitting the SSSP (a site safety plan), monitoring check points and a defects survey.  Contrary to the defendant’s contention, the evidence showed that these were critical to the commencement of the ELS works.  BA consent was only granted after they were submitted in June 2002.  Dorro had known they were both necessary and required for at least nine months prior to their submission.”

8.  On this appeal Ms Cheng SC, who appeared on behalf of the defendant, took two main points.  The first point taken in argument was that the plaintiff had not completed the Works within the contractual time.  The point relied upon by the defendant was that the plaintiff had not delivered the plan which showed the location of the piles as built until 5 April 2000.  It was said that the delivery of the plan was part of the Works that had to be carried out by the plaintiff.  The plan was handed to the defendant at a meeting on site on 5 April 2000.

9.  It seems to me that the analysis has to start with the question as to what it was that the plaintiff was required to do.  In the contract, which was annexed to the Form of Tender, the Works were defined under the Specification S1 as:

“All the works and things to be executed or/and supplied by the Contractor under the Contract and including Temporary Works.”

10.  The scope of works was defined under S3 of the Specification ended included under (e):

“Preparation and submission of all necessary site supervision plans, piling records, reports and record plans, and Form BA14 to the Architect for their onward submission to the Building Authority.”

11.  S5 of the Specification dealt with the question of time and under subclause (c):

“The Time for Completion refers to the number of calendar days running from the Date for Commencement and to that required for the substantial Completion of the Works as defined by Clause S6 and inclusive of the periods between the submission of piling records by the Contractor to the Architect/Engineer and the time to carry out the loading text.”

12.  Finally, as previously noted, substantial completion was defined under S6 as meaning:

“Substantial completion shall mean satisfactory completion of the Works and of all tests required by the Engineer and/or the Building Authority of the Works.”

13.  Although under clause (e) of S5 of the Specification the time for completion was given, for the purposes of this appeal, Ms Cheng accepted that, save for two matters, there had been substantial completion of the works by 31 January 2000.  The first was the provision of record plans of the plaintiff’s piling.  These had been requested, according to the defendant, on 13 January 2000 and, according to the plaintiff, on 18 January 2000 when the plaintiff vacated the site.  The other matter relied upon by the defendant was the allegation that the piling work by the plaintiff had been defective.  That was the second point on the appeal and as regards the first point on the appeal, it was a matter taken separately.

14.  Briefly the history of the matter was that the BA14 form together with two sets of piling record plans, the piling report, the vibration monitoring reading, the ultrasonic test report, the mill certificate and the monitoring record for settlement checkpoints and tilting markers were all submitted by the architect to the Building Department on 19 October 1999.  In early November the Building Authority required a pile integrity test and loading test to be carried out.  The plaintiff submitted a proposal 10 days later and, after the architect had written to the Building Authority regarding the load test report, the Building Authority chose the piles for the pile integrity test on 20 December 1999.  The report was submitted by the plaintiff on 30 December 1999.

15.  As already noted, the site was handed over on 18 January 2000 and, apart from what the judge classified as three minor tasks which were unrelated to piling, the only other matter which the defendant could point to as being uncompleted was the delivery of piling plans.  Two matters are relevant here.  First the judge said at paragraph 28 of the judgment that that dispute was irrelevant as to whether the works had been completed.  The judge then went on to hold in paragraph 31 of the judgment that there was no obligation on the plaintiff to produce the piling record that was requested by the defendant in January and handed over on a “without prejudice” basis on 5 April 2000.  As the judge held, the plaintiff’s survey plan of the as-built piles had been submitted to and accepted by the Building Authority as per the plaintiff’s contractual obligations.  Those were set out in the Technical Specification 18 which required that the plaintiff should keep a record of various matters stated including daily record sheets signed by the plaintiff’s representative and the Resident Engineer and should submit them to the AP/RSE each week.  When the Works were completed a valid BA14 form had to be submitted together with the piling reports and record plans to the AP/RSE.  Second, and most importantly, the architect certified that there had been substantial completion of the Works on 31 January 2000.  In all the circumstances it appears to me that the defendant’s case that there had been a delay and that the Works had not been completed within a reasonable time must fail.

Defective piling

16.  The other point raised by the defendant was that the piling carried out by the plaintiff had been defective.  The basis for this contention was that although the piling record given to the defendant on 5 April 2000 had shown that the piles had all been located within the 50 mm tolerance allowed under the contract, the survey plan of the pile locations produced by ALA who had been instructed in November 2002 showed that there were 34 piles which were offset by more than 50 mm.

17.  As already noted, the trial of the action was lengthy.  Having heard the evidence the judge came to the conclusion that he could not decide which of the two sets of piling records was accurate.  The ALA plans had been prepared using the theodolites.  On the other hand, the plaintiff’s record plans had been prepared using tape measures.  The judge had been impressed by the plaintiff’s witnesses whom he regarded as being both honest and competent.  Ms Cheng made a number of submissions directed to showing that the judge should have held that the ALA plans were the accurate plans.  She submitted that the theodolite measurement was likely to be far more accurate than a tape-measure measurement.  With regard to that submission, it may be correct, but having been taken to the relevant parts of the transcript I am not satisfied that the evidence establishes that.  It was said that the very fact that following the preparation of the ALA plans new piling records were submitted to the Building Authority demonstrated the plaintiff’s plan must have been inaccurate.  It was said that the defendant and the defendant’s professional advisers at the time would not have gone to that trouble and expense had it not been necessary because the original plans were inaccurate.  In this regard, however, it is noted that the pile cap designs were changed.  Importantly, the judge accepted the evidence of Mr Sung, the director of Wong & Cheng, who were not appointed consulting engineers until mid-2001, that is 18 Months after the plaintiff ceased to have anything to do with the Works on the site, that the “three piling amendments (from which flowed pile design amendments) the revisions to general building plans and structural plans were not caused by the pile locations.”

18.  Whereas it is possible that had I heard the case I might have come to a different conclusion as to the question as to whether the piles were within the tolerance permitted by the contract, that is not the question on this appeal.  Furthermore, it must be stated that not having seen and heard the witnesses and been in a position to consider the matter as fully as the judge I certainly do not feel competent to come to a conclusion which is different from his.

19.  More importantly, however, even if the piles were located in positions which were not within the contractual tolerances I cannot see that damage has been occasioned to the defendant as a result.  The amendments to the pile cap designs were not caused by any out of tolerance piling.  The simple fact is that for one reason or another the defendant allowed a great deal of time to elapse after the completion of the piling and before work on the superstructure commenced.  As the judge noted during the period from August 1999 to May 2001 the defendant was negotiating and corresponding with the Lands Department about the premium payable for the development.  There was a falling market.  The defendant may well have considered it to be in its commercial interest to delay developing the site.  In addition there are the other matters which are referred to in the quotation from paragraph 83 of the judgment quoted in paragraph 7 above.  No delay can be attributed to anything done by the plaintiff.  Whether it is looked upon as being a situation where a the defendant is unable to prove damage or, alternatively, if there has been damage the defendant is unable to prove loss, the claim must fail because damage was the basis of the defendant’s counterclaim.

20.  In those circumstances I would be dismiss this appeal with an order nisi of costs in favour of the plaintiff.

Hon Cheung JA:

21.  I agree.

Hon Tang JA:

22.  I agree.

Hon Rogers VP:

23.  There will therefore be an order as set out in paragraph 20 above.