SUCCESS WELL INVESTMENT LTD. v. BANK OF CHINA GROUP INSURANCE CO. LTD.

HCCT58/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.58 OF 1999

----------------------

------------------------

J U D G M E N T

------------------------

INTRODUCTION

1. This case concerns the building of a 35 storey office block at 244 - 250 Hennessy Road, Wanchai, Hong Kong. The plaintiff engaged the 1st Third Party as the main contractor ("Wai Bo"). The plaintiff's claim is limited to the value of a bond executed by the defendant insurance company which secured the performance of Wai Bo carrying out the works under contract. The value of the Bond is $3,899,600. The plaintiff claims this sum plus interest and costs. The plaintiff contends that the actual damages caused by Wai Bo's breach of contract comfortably exceed the value of the Bond.

2. The relevant part of the Bond states as follows :-

"NOW THE CONDITION of the above-written Bond is such that if the Main Contractor shall duly perform and observe all the terms, provisions, conditions, obligations and stipulations of the Contract on the Main Contractor's part to be performed and observed according to the true purport intent and meaning thereof or if on the default by the Main Contractor and on demand by the Employer the Surety shall satisfy and discharge the damages sustained by the Employer thereby up to the amount of the above-written Bond then this obligation shall be null and void but otherwise shall be and remain in full force and effect ..."

The defendant does not dispute the validity of the Bond but denies liability to pay under it because it joins the Third Party in disputing that the Third Party is in breach of contract. It is also agreed that the Bond is conditional and thus the onus is on the plaintiff to prove breach by Wai Bo and consequential damages up to the amount of the Bond in order to recover under it.

3. Evidence was heard over seven days between 18 May and 26 May 2000. Twelve witnesses were called, eight as to factual matters and four experts (two for the plaintiff and two for the defendant). Lengthy witness statements and experts reports stood as evidence-in-chief and closing submissions were submitted in writing on 7 June. At the heart of the matter is the question of delay. Wai Bo's contract was terminated about five months after the original completion date. The plaintiff's case is that Wai Bo's had not proceeded "regularly and diligently". The contract was considerably behind time and the delays, so it is submitted, were the fault of the contractor. Wai Bo says it should have been granted extension of time and that the plaintiff's termination was wrongful, alternatively that the plaintiff, by the wrongful termination was in repudiatory breach. The significant non-contentious dates are as follows :-

(a) 6 October 1997 - the date of the contract. In fact work had commenced earlier in the year. It was a 400 day contract.

(b) 6 May 1998 - the original completion date marking 400 days since the commencement of the works.

(c) 14 October 1998 - Cecil Chao & Associates Ltd (the Architect) served a letter on Wai Bo pursuant to clause 25(1) of the conditions of contract as notice of the entitlement to terminate the contract if Wai Bo's failure to "proceed regularly and diligently with the works" was continued or repeated.

(d) 29 October 1998 - notice of termination was served on Wai Bo.

(e) 29 October 1998 - the Architect granted a retrospective extension of time of 15 days making the original completion date 21 May 1998. Wai Bo, in September 1998, had submitted an application for extension of time of 185 days. In its pleaded case it claims an entitlement to 170 days extension for the original completion date which, had it been granted, would have extended the time to 23 October 1998.

(f) As at 29 October 1998 the works were not complete. Another contractor, Far East (Wagner) Engineering Ltd, was engaged who completed the building work by 24 February 1999. The additional cost to the plaintiff to get the building finished was $4,900,000.

4. The plaintiff's primary case is that the Architect's certificates are valid and binding unless there are compelling reasons not to treat them as such. Wai Bo have never challenged the Architect's certificates in arbitration. The plaintiff's fall back position is that if the court chooses to make its own assessment of the various delays and application for extension of time, any damages due for breaches by Wai Bo together with liquidated damages due under clause 22 of the contract will still exceed the amount due under the Bond. All the plaintiff must do is prove damages in excess of the Bond, once that is done, the Bond is payable in full.

THE CONTRACT

5. Before turning to the issues at trial, it will be helpful to set out some of the relevant clauses in the contract. They are :-

"21. Possession, Completion and Postponement

(1) On the Date for Possession stated in the appendix to these Conditions possession of the site shall be given to the Main Contractor who shall thereupon begin the Works and regularly and diligently proceed with the same, and who shall complete the same on or before the Date for Completion stated in the said appendix subject nevertheless to the provisions for extension of time contained in clauses 23 and 33(1)(c) of these Conditions.

(2) The Architect may issue instructions in regard to the postponement of any work to be executed under the provisions of this Contract.

22. Damages for Non-completion

If the Main Contractor fails to complete the Works by the Date for Completion stated in the appendix to these Conditions or within any extended time fixed under clause 23 or clause 33(1)(c) of these Conditions and the Architect certifies in writing that in his opinion the same ought reasonably so to have been completed, then the Main Contractor shall pay or allow to the Employer a sum calculated at the rate stated in the said appendix as Liquidated and Ascertained Damages for the period during which the Works shall so remain or have remained incomplete, and the Employer may deduct such sum from any monies due or to become due to the Main Contractor under this Contract.

23. Extension of Time

Upon it becoming reasonably apparent that the progress of the Works is delayed, the Main Contractor shall forthwith give written notice of the cause of the delay to the Architect, and if in the opinion of the Architect the completion of the Works is likely to be or has been delayed beyond the Date for Completion stated in the appendix to these Conditions or beyond any extended time previously fixed under either this clause or clause 33(1)(c) of these Conditions,

(a) by force majeure, or

(b) by reason of inclement whether ....

(c) ....,

(d) by reason of civil commotion, ....

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

(f) by reason of the Main Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect for which he specifically applied in writing on a date which having regard to the Date for Completion stated in the appendix to these Conditions or to any extension of time then fixed under this clause or clause 33(1)(c) of these Conditions was neither unreasonably distant from nor unreasonably close to the date on which it was necessary for him to receive the same, or

(g) by delay on the part of Nominated Sub-Contractors or Nominated Suppliers which the Main Contractor has taken all practicable steps to avoid or reduce, or

(h) deleted

(i) ....

(j) ....

(k) ....

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

24. Loss and Expense Caused by Disturbance of Regular Progress of the Works

(1) If upon written application being made to him by the Main Contractor the Architect is of the opinion that the Main Contractor has been involved in direct loss and/or expense for which he would not be reimbursed by a payment made under any other provision in this Contract by reason of the regular progress of the Works or of any part thereof having been materially affected by :

(a) The Main Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect for which he specifically applied in writing on a date which having regard to the Date for Completion stated in the appendix to these Conditions or to any extension of time then fixed under clause 23 or clause 33(1)(c) of these Conditions was neither unreasonably distant from nor unreasonably close to the date on which it was necessary for him to receive the same; or

(b) ....

(c) ....

(d) ....

(e) ....

and if the written application is made within a reasonable time of it becoming apparent that the progress of the Works or of any part thereof has been affected as aforesaid, then the Architect shall either himself ascertain or shall instruct the Quantity Surveyor to ascertain the amount of such loss and/or expense. Any amount from time to time so ascertained shall be added to the Contract Sum, and if an Interim Certificate is issued after the date of ascertainment any such amount shall be added to the amount which would otherwise be stated as due in such Certificate.

(2) The provisions of this Condition are without prejudice to any other rights and remedies which the Main Contractor may possess.

25. Determination by Employer

(1) If the Main Contractor shall make default in any one or more of the following respects, that is to say :-

(a) If he without reasonable cause wholly suspends the carrying out of the Works before completion thereof, or

(b) If he fails to proceed regularly and diligently with the Works, or

(c) If he refuses or persistently neglects to comply with a written notice from the Architect requiring him to remove defective work or improper materials or goods and by such refusal or neglect the Works are materially affected, or

(d) If he fails to comply with the provisions of clause 17 of these Conditions.

then the Architect may give to him a notice by registered post or recorded delivery specifying the default, and if the Main Contractor either shall continue such default for fourteen days after receipt of such notice or shall at any time thereafter repeat such default (whether previously repeated or not), then the Employer without prejudice to any other rights or remedies, may within ten days after such continuance or repetition by notice by registered post or recorded delivery forthwith determine the employment of the Main Contractor under this Contract, provided that such notice shall not be given unreasonably or vexatiously.

(2) In the event of the Main Contractor becoming bankrupt or making a composition or arrangement with his creditors or having a winding up order made or (except for purposes of reconstruction) a resolution for voluntary winding up passed or a receiver or manager of his business or undertaking duly appointed, or possession taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the floating charge, the employment of the Main Contractor under this Contract shall be forthwith automatically determined but the said employment may be reinstated and continued if the Employer and the Main Contractor his trustee in bankruptcy liquidator receiver or manager as the case may be shall so agree.

(3) In the event of the employment of the Main Contractor being determined as aforesaid and so long as it has not been reinstated and continued, the following shall be the respective rights and duties of the Employer and Main Contractor :-

(a) The Employer may employ and pay other persons to carry out and complete the Works and he or they may enter upon the Works and use all temporary buildings, plant, tools, equipment, materials and goods intended for, delivered to and placed on or adjacent to the Works, and may purchase all materials and goods necessary for the carrying out and completion of the Works.

(b) ....

(c) ....

(d) The Main Contractor shall allow or pay to the Employer in the manner hereinafter appearing the amount of any direct loss and/or damage caused to the Employer by the determination. Until after completion of the Works under paragraph (a) of this sub-clause the Employer shall not be bound by any provision of this Contract to make any further payment to the Main Contractor, but upon such completion and the verification within a reasonable time of the accounts therefor the Architect shall certify the amount of expenses properly incurred by the Employer and the amount of any direct loss and/or damage caused to the Employer by the determination and, if such amounts when added to the monies paid to the Main Contractor before the date of determination exceed the total amount which would have been payable on due completion in accordance with this Contract, the difference shall be a debt payable to the Employer by the Main Contractor; and if the said amounts when added to the said monies be less than the said total amount, the difference shall be a debt payable by the Employer to the Main Contractor."

THE ISSUES IN THE MAIN ACTION

6. Pursuant to the Practice Directions, the plaintiff's solicitors filed a list of issues dated 8 May 2000. There are 12 issues to be answered which fall into five categories, namely, (A) Contractual terms, (B) Delay/Breach of Contract, (C) Time at large and General Damages, (D) Determination of 1st Third Party's Employment and (E) Damages. In this judgment, I will deal, with varying degrees of brevity, with each issue in turn. The findings on each issue have been made after consideration of the relevant evidence, both written and oral, and the detailed and helpful written submission from counsel.

(A) Contractual terms

Issue no.1

7. Whether the binding agreement constituted by the plaintiff's acceptance of the 1st Third Party's tender was superseded and subsumed by the formal contract entered into on or about 6 October 1997?

8. This is a non-issue. Work commenced on 2 April 1997 following a letter of intent which bound the parties dated 8 March 1997. The Bond was later executed on 2 June 1997 and the formal contract signed on 6 October 1997. However, it is conceded by the defendant that there are no material differences between the terms of the letter of intent and the terms and conditions of the formal contract.

Issue no.2

9. Whether the Contract was subject to implied terms :-

(a) that the plaintiff through the Architect shall issue all instructions timeously and in a coordinated manner so as not to obstruct or delay the due completion of the Works;

(b) that neither the plaintiff nor the Architect will do anything to prevent or impede the progress or completion of the Works;

(c) that the plaintiff through the Architect shall grant reasonable extensions of time under the Contract;

(d) that the Architect shall act impartially or fairly to facilitate the due execution or completion of the Works;

(e) that where the Architect failed to apply the terms of the Contract properly which operated to the detriment of the 1st Third Party as a contact, the plaintiff shall require the Architect to perform his duties properly.

10. The law on this issue has not been the subject of argument between the parties. A term may be implied in a contract if :-

(i) It is reasonable and equitable.

(ii) It is necessary to give business efficacy to the contract. It will not be implied if the contract is effective without it.

(iii) It must be obvious and easily definable.

(iv) It must not contradict the express terms.

11. In Barque Quilpue Ltd v. Brown [1904] 2 KB 264, Vaughan Williams LJ said :-

"... in this contract, as in every other, there is an implied contract by each party that he will not do anything to prevent the other party from performing the contract or to delay him in performing it. I agree that generally such a term is by law imported into every contract, in the same way as you import into every contract a stipulation that the various things which are to be done by the one party or the other are, if no time is specified, to be done within a reasonable time. In each of these cases that may be called an implied contract. It must not, however, be supposed that the law readily implies any special affirmative contract; I think the law very rarely indeed does or ought to imply such a contract."

12. This emphasizes the undeniable duty to co-operate. However, in this case, the defendant's submission that the terms stated above should be implied fails because of principles (ii) and (iv) above. The fundamental issues between the parties concern delay and extensions of time. Clauses 23(e) and (f) specifically and comprehensively provide for such matters. In addition, there is a standard Arbitration Clause at clause 35. The combined effect being that the proposed implied terms either contradict the express terms or the contract is effective without them.

13. The proposed implied term (d) requires particular mention. Complaint is made that the Architect, Mr Cecil Chao, was not impartial and did not act fairly on matters such as the issuing of Architects certificates and the granting or refusal of extensions of time. I find that both the law and the evidence are against the defence on this issue.

14. Mr Chao's firm was the architect for the project, he was also a director of the plaintiff. Mr Chao's firm was therefore an associated company of the plaintiff company with common directors. I find on the evidence that these connections were never concealed from Wai Bo. I find that on the balance of probabilities they not only should have known but in fact did know and were aware of the connection. Employee architects are not uncommon. As the agent of the employer, an architect in his professional capacity is capable of issuing valid certificates. The complaint goes further however. It is not merely said that he should not have been the architect because of the connections (or should have at least expressly declared it), it is also said that he, in fact, was impartial, biased and unfair. I find none of those complaints made out on the evidence. I am satisfied that he held a fair balance between his employer and the contractors and exercised professional skill when making his decisions. Whether or not his decisions on the issuance of certificates, extensions of time etc. were right or wrong is another matter to be addressed later. Bias did not play a part in this decision making.

(B) Delay/breach of contract

Issue no.3

15. Whether the 1st Third Party was in breach in failing to complete the works by the extended completion date certified by the Architect, or (if time was at large) in failing to complete with a reasonable time.

Issue no.4

16. Whether and, if so, to what extent delay was caused and/or progress of the Works prevented by variations and Architect's instructions in relation to :-

(1) Revision of height of parapet at 6/F.

(2) Revision of height of kerbs at typical floors.

(3) Instruction for construction of chiller plant plinth.

(4) Addition of circular opening in floor slabs at 31/F to 33/F.

(5) Revision of the structure of architectural feature at Roof.

(6) Provision of reinforced concrete external wall at 6/F to replace metal grille installation.

(7) Construction of additional reinforced concrete slab on Upper Roof floor for gondola installation by others.

(8) Further revision to the structure of architectural feature at 35/F.

(9) Remedial works for additional cantilevered slabs to 7/F and 8/F.

(10) Revision of curtain wall cladding of architectural feature at Roof.

(11) Variations of the external cladding to the circular windows of the typical floor and "Burlite" finishes and/or the appointment of a new contractor to carry out the "Burlite" finishes.

(12) Post 6 May 1998 instructions.

17. These issues lie at the heart of the case. Much of the evidence at trial concerned 4(1) - (12) above. In general terms, it will be seen from the court's findings which follow, that the factual evidence from the plaintiff's witnesses was preferred and accepted as accurate and reliable evidence.

18. Five separate "delays" were identified by Mr Dunbar, the expert called on behalf of the defendant. All parties adopted these five events as the basis of their respective submissions. I will deal with them individually in due course. Before doing so, two preliminary observations are appropriate.

19. Firstly, concerning the expert witnesses. In many cases the court has to make a choice between experts. The court does not possess any expertise of its own to help it make the choice. This is an inevitable fact in litigation such as this. In this case, the court has been impressed with the thoroughness, competence and objectivity of all the expert witnesses. They have been of considerable assistance to the court. At the end of the day, the opinion of the plaintiff's expert has prevailed. Where Mr Dunbar's evidence has not been followed, it has not been so, in general terms, because it has been based on assumptions which have not been borne out by the factual evidence and not because of a rejection of his professional opinion.

20. Secondly, there are a number of preliminary matters of fact which are not in issue and which, in my judgment, need to be stressed at the outset because they significantly undermine the defence case. Many of the submissions made by Wai Bo must be considered in the light of these facts. When this is done, the relative strengths of the defence submissions generally, are further diluted and the primary cause of the project being delayed becomes easily discernible, namely, that Wai Bo found it increasingly difficult to meet the contractual deadline and such difficulties that they had in trying to proceed diligently with the works were compounded by their own financial problems, for which no blame can be placed at the plaintiff's door.

21. The best examples of such matters, as highlighted by counsel for the plaintiff are, in my judgment, compelling. For example :-

(a) If Mr Dunbar's evidence were accepted in full, an extension of time to 23 October 1998 should have been granted. By 29 October 1998, only 85% of the works had been completed. The balance took a further three months at a cost of nearly $6 million.

(b) Almost no progress was made between mid-May and mid-September 1998. The site was almost at a standstill. Of the five main delaying events which Mr Dunbar has identified, only one postdate 22 May. Thus the real cause for the slow down from May onwards was post May factors, namely, financial problems.

(c) By 22 May, Wai Bo had received stage payments in the sum of $31.56 million. The defendant's expert evidence concerning the value of the work done by the end of October (by which time a small amount of extra work had been done since May) was $32.6 million. Thus, there is no justification for the complaint that in May 1998 Wai Bo had been underpaid. Particularly because the employer would have been entitled to a 10% retention for works done and paid for, making a fair payment to Wai Bo less than $30 million.

(d) When Wai Bo were in difficulties, it made unrealistic estimates of when the project could be finished. In April 1998, they said they would be finished by mid-July. July came and went and then, after three months virtual inactivity, Wai Bo on 9 September 1998 submitted an application for more time. In that application Wai Bo estimated that the hoist and scaffolding would come down on 2 October. In fact by 29 October, even on the most optimistic estimate the glass installation could not be finished before 8 November. Thus even with an extension of time, approved in full, the glass installation was certain to be at least 36 days overdue. In evidence Mr C K Chan, Wai Bo's quantity surveyor, blamed the weather. There was no other evidence of bad weather and no reference to weather had ever been made in an application for more time. The evidence was disingenuous.

(e) Wai Bo maintained that the inactivity from May onwards was primarily due to the plaintiff's failure to make interim payments. It has already been noted that by May 1998, Wai Bo had received a fair and proper sum. One limb of Mr Brian Wong's submissions on Wai Bo's behalf was that Wai Bo were entitled to further interim payments because the method of calculating stage payments up to May 1998 had not been in strict compliance with the method as stipulated in the contract. In fact, Wai Bo had received stage payments slightly in excess of the amount and in advance of the times provided for in the contract. It is not necessary to examine the figures in detail. In fact the plaintiff had been generous. Wai Bo argues, unconvincingly in my judgment, that the plaintiff's failure to continue being generous caused their financial difficulties. At best, it is an ingenious argument which deflects attention from the fact of Wai Bo's financial difficulties which stemmed from before the plaintiff's disinclination to make further stage payments when no progress was being made.

There was evidence that Wai Bo secured a loan from its Bank of $6 million. There was no evidence as to how the loan was spent. It can be inferred from Mr K K Tam's (Wai Bo's general manager) written evidence that the loan pre-dated the plaintiff's refusal to make interim payments. If the loan was not used to pay sub-contractors and for materials, it should have been. If it was so used it (a) was not enough and (b) further demonstrates Wai Bo's own financial embarrassments.

(f) The issue concerning the state of the site during the two weeks prior to the termination of the contract on 29 October is a final matter which merits particular consideration. It is the plaintiff's case that when site visits were made after 12 October the site was deserted save for a single female. The Defence case is that the site was in progress in a normal way, with an average number of labourers and workers on site. The Defence contends that the plaintiff's evidence is deliberately false and manufactured to justify the notice of termination based on the continuing failure to proceed regularly and diligently. I accept the plaintiff's version. It is supported by contemporary correspondence and photographs and also by the quality of their evidence. The evidence from Mr C K Chan for the Defence concerning the activity on site up to 22 October 1998 first appears in his second supplemental witness statement dated 13 April 2000. Further, there is no documentary evidence in support of its contention. As to the photographs showing a deserted site, Mr Chan's unsatisfactory explanation was that they must have been taken during the lunch hour.

(g) It was the Defence case that the blame for the lack of progress from May onwards was the plaintiff's. The crux of the Defence case was put to Mr Cecil Chao in cross-examination. It was suggested to him that, for his own purposes, he had deliberately slowed down the project and squeezed out Wai Bo. It was put that he wanted the project to, in effect, grind a halt, because of the property market. Mr Chao's answer was "That's a joke". I accepted Mr Chao's evidence. After Wai Bo left the site, a new contractor was immediately engaged who finished the job expeditiously in the same property market. I found the Defence contention to be without merit or foundation.

22. I turn now to a brief appraisal of the five delays identified in Mr Dunbar's report. In fact, only the first four were pleaded in the Defence. Nonetheless, all five were dealt with in evidence. They are :-

Delay 1 : Delays to concrete structure

Delay 2 : Delays to exterior wall design development

Delay 3 : Delays to approval of curtain wall shop drawings

Delay 4 : Delays to curtain wall work due to disruption caused by other instructed work

Delay 5 : Delays caused by changes to the architectural features on the roof

Delay 1 :

23. Even though the time claimed in the E.o.T application was 152 days for this delay, at trial, the time in issue was 10 days. Much of the original Defence claim reappears under other headings. A period of four days delay arising out of the installation of a circular staircase at the penthouse levels was agreed by the architect (event No.4).

24. The two other events about which some evidence was heard were event 1 (revision of parapel height at 6/F) and event 8 (additional beam at 35/F to support curtain wall). Four days are claimed for event 1 and six days for event 8.

25. As far as event 1 is concerned, Mr Wong for the plaintiff accepted that some extra work would be required for dismantling the formwork and refixing later but added that it would be "stupid" to delay casting the slab for the entire floor pending the adjustment. In the circumstances and having heard the witnesses, one day will be allowed.

26. There was a delay in relation to event 8. However, the evidence satisfies me that the responsibility for the delay does not lie with the plaintiff (for the same reasons as will appear later under Delay 3). I accept both the architect's and the plaintiff's expert's assessment of a nil allowance under this item.

Delay 3

27. 85 days is claimed (from 29 September to 22 December 1997) for the delay of approval by the Buildings Department of the curtain wall shop drawings.

28. A considerable volume of evidence, oral and written, was adduced in relation to this matter. An additional file containing documents relating to the design of the curtain wall was produced by Wai Bo only a day or two before the start of the trial. The plaintiff made no objection and the relevant witnesses were invited to comment. The issue, in my judgment, is resolved, not by a detailed examination of technical matters about the building of the curtain wall, but by two preliminary findings. Firstly, Mr Dunbar's assessment of 85 days is premised on the assumption or opinion that the reason for the re-submission for approval to the Buildings Department was the fault of the architect. Secondly, it was always the responsibility of Wai Bo to produce a design for the curtain wall that would be approved by the Buildings Department in accordance with the tender requirements. Their failure to do so caused the delay.

29. The reasons given by the Buildings Department for not approving the original submission were communicated by letter dated 5 December 1997. Three reasons were given. Mr Dunbar accepted that two out of the three were Wai Bo's problem, not the plaintiff's. The totality of the evidence went further and the court was satisfied that the third reason also fell at Wai Bo's door.

30. In a nutshell, the final curtain wall was made of two segments of curved glass. The original tender showed eight flat segments. Mr Chao would have accepted an eight panel wall but it was never designed. The site minutes and correspondence provide evidence of concern by the architect about the delay in producing a satisfactory design by Wai Bo. The curved glass design which was eventually accepted and approved was, I so find, not a design upon which Mr Chao insisted but was a proposal belatedly made by Wai Bo to solve the difficulties they were facing in producing an eight segment design in accordance with the tender requirements. In spite of the concern expressed by the architect, Wai Bo never did produce a compliant design. In my judgment, therefore, none of the delay was the plaintiff's responsibility and the refusal to grant any extension of time for this delay was justified.

Delay 4

31. Delays to curtain wall work caused by disruptions in other works. Wai Bo claims a further 15 days under this heading. It concerns six separate events, all of which are relatively minor (save one which I shall give separate consideration to below). The events are :-

(a) Three days for revision of kerb heights for curtain wall installation.

(b) Three days (concurrent) for late instructions of additional plinths at 6/F chiller plant.

(c) Eight days for a revision of the support system for the architectural roof feature.

(d) One day for the provision of reinforced concrete external wall at 6/F.

(e) Two days for additional works for gondola installation.

(f) One day for cantilevered slabs at 7/F and 8/F.

32. It is again unnecessary to give detailed consideration of a technical nature to each of these events. In respect of all of them much depends on the evidence and the court's findings in relation to the use of the hoist. Mr Dunbar, readily and fairly acknowledged that the 15 day total was not an actual delay. It is not based on any records of specific delays in the curtain wall works. They are assessments based on suppositions in relation to the use of the hoist. In relation to those suppositions, the plaintiff's evidence is preferred in three material respects. Firstly, Mr Dunbar calculated the weight of material the hoist could lift based on 70% of its maximum load. Mr Wong, rightly in my view, said it should have been based on 100%. Maximum safe working loads are, naturally conservative and have a built-in safety factor. There is no reason to go down to 70%. Secondly, no account was made for the hoist being used during overtime hours. The hoist could have been, and in fact was, used into the evenings. Thirdly, I reject Mr C K Chan's evidence that a second hoist could not have been erected. The evidence that a second hoist could have been erected and should have been considered was persuasive. Mr Dunbar's assessments did not take into account the possibility of a second hoist.

33. The one event which merits particular comment, in spite of the above finding, is the claim for 12 days delay attributable to the revised support system for the architectural feature on the roof. There is some overlap between this delay under the heading Delay 4 item (c) in the Defence case and Delay 5 in Mr Dunbar's schedule. Presumably because Delay 5 was not pleaded, the Defence have included this item under Delay 4. In any event, the evidence shows that the events leading up to the eventual construction of the support to the roof feature demonstrates Wai Bo to be the culpable party.

34. The crux of this issue concerns, not the feature itself which remained the same throughout the project, but the changes to the support system behind it. Mr Dunbar attributed 26 days delay for this (in his report from 27 November to 22 December 1997, but in oral evidence from 17 December to 12 January 1998).

35. There was no dispute that Wai Bo was the responsible party to design the support system. The original tender drawings showed an undetailed outline support system made of steel. The evidence revealed however that Wai Bo never provided a design proposal in compliance with the tender drawings to either the architect or the plaintiff. The high water mark of the Defence evidence was that given orally by Mr C K Chan when he said that he first saw a preliminary design drawing for a steel support system prior to December 1997. He admitted that neither the plaintiff nor the architect were shown it. He accepted also that it had not merited a reference in his written witness statements. In any event, no progress with this apparent design had been made by 9 December 1997 when the architect issued instructions to construct a support system made of reinforced concrete. If one accepts the accuracy of his evidence, it was agreed that had the steel structure proposal proceeded, it would have taken another month to finalize and a further two or three months to be approved. Then it would have had to be constructed, commencing in about March or April 1998.

36. What actually happened is illuminating. Further to the architect's instructions in December, the architect issued drawings for the new structure on 8 January 2000. Wai Bo had failed to comply with the tender requirements. The architect, in effect, took over the task to save time. There was some disagreement between the experts concerning whether a steel structure or a concrete structure could be built quicker and whether Buildings Department approval would have been necessary, and if so would have taken as long, for a concrete structure compared with a steel one. All this is somewhat academic because the concrete structure was in fact completed within the same time frame that a steel structure could have been. In other words, even if Wai Bo had started the steel structure at the earliest time that they say they could have done, it would not have been built any quicker than the concrete one, the impetus for which came from the architect because of Wai Bo's failure to proceed diligently with this part of the works.

Delay 2

37. Originally, in Mr Dunbar's report, 85 days was claimed for delay to external works due to changes to the exterior wall design. The pleaded case was however for 70 days, which Mr Dunbar accepted when giving evidence. The delay claimed was from 25 April to 3 July 1998.

38. The problem related to the windows which were originally to be finished in granite. The final decision was to use "Burlite". The origin of the problem was the same as before, namely, Wai Bo's failure to submit design proposals and details for the work. There was no record of Wai Bo ever requesting details from the architect to enable them to commence work on a granite finish. The plain inferences to be drawn from the evidence were that Wai Bo were behind schedule in any event and were more concerned with the costs implication of a granite finish than its feasibility. It is correct that Wai Bo's subcontractors were refusing to quote for the work but it seems clear that this was not, in truth, because it was impossible but that it was not cost effective. A quotation that was eventually made, in June 1998, for a stainless steel finish was for a wholly unacceptable figure of nearly $11 million.

39. My assessment of this issue is that the problem was of Wai Bo's making but the slow speed at which it was ultimately resolved was partly due to the architect. The proposed material to be used changed from granite, to aluminum, to stainless steel, to Burlite. The architect's instructions to use Burlite start on 5 June 1998, i.e. a little over half way through the claimed period from 25 April to 3 July. There is no doubt that once Burlite was decided on, the works continued quickly and were done by another sub-contractor engaged by the plaintiff, "Wing Mow", at a modest cost of $283,000 (even Wai Bo's quotation for Burlite had been $656,250). The decision to use Burlite was the plaintiff's. Building Department approval was not needed. Had they decided to go straight from granite to Burlite, the delay would have been less. For this reason, in my judgment, Wai Bo's claim for delay, on the evidence, is in part justified. The court's approach can only be approximate. I allow half the number of days claimed, namely 35. It is true that the plaintiff's decision to proceed with Burlite was not the original cause of delay. The original cause was Wai Bo's failure to proceed diligently with the granite finish. However the length of delay would have been less had they decided on Burlite earlier.

40. I now make the following concluding comments on the delay issue :-

(a) The approach adopted by Mr Wong, the plaintiff's expert, is preferred. His report has the advantage of being based on what actually happened on site and on an analysis of the contemporaneous site documents. Mr Dunbar's report, although thorough and detailed in its context, is in many respects based on assumptions of what could have happened rather than a critical analysis of what did happen.

(b) In respect of the curtain walling, the granite window feature and the roof feature support system, the delays were all initiated by Wai Bo's failure to meet its responsibility to produce drawings in time or at all in accordance with their contractual obligations.

(c) In two instances have I found it reasonable (Delays 1 and 2) to re-assess the extension of time. In all other respects, the architect's certificates have been shown to be reasonable. The consequence is that the e.o.t granted should be increased from 15 days to 51 days.

(d) A root cause of Wai Bo's slow progress was its own financial problems which existed prior to the plaintiff's failure to make stage payments and for which the plaintiff was not responsible.

(e) The interim payments actually made to Wai Bo fairly represented the value of the work done as at the time the payments were made.

Issue no.5

41. If delay was caused by any of the matters referred to in 4 apart from the extension of time of four days in respect of item 4(4) whether and, if so, to what extent the 1st Third Party's failure to give notice of delay in accordance with the notice requirements in the Contract and/or its failure to exercise best endeavours to avoid delay would disentitle the 1st Third Party to any further extension of time.

42. In London Borough of Merton v Leach 32 BLR 51, it was held by Vinelott J. that :-

"(a) If the architect is of the opinion that because of an event falling within clause 23(a)-(k) progress of the work is likely to be delayed beyond the completion date, he must estimate the delay and make an appropriate extension to the date of completion. He owes that duty not only to the contractor but also to the building owner.

(b) The giving of notice by the contractor under clause 23 was not therefore a condition precedent before the architect was due under a duty to consider any possible extension of time.

(j) Failure by the contractor to give notice under clause 23 on it becoming reasonably apparent that the progress of the work was delayed was a breach of contract and that breach could be taken into account by the architect providing an extension of time."

"A document could be considered a proper notice even if it did not specify a cause of delay with sufficient detail for the architect to form the opinion whether the cause falls within clause 23(a)-(k) because of the difference criteria which apply to the notice and to the opinion. The intention of the contractor's notice is simply to warn the architect of the current situation regarding current progress. It is then up to the architect to monitor the position in order to form his opinion. The architect was not relieved of his duty by the failure of the contractor to give notice or give notice promptly."

43. In view of the relatively limited extent to which the court has re-opened the architect's certificates in Wai Bo's favour, very little turns on this issue. I find that a notice of delay is not a condition precedent for the grant of an extension of time. I make no finding on whether the various letters written by Wai Bo, upon which they rely as constituting the requisite notice, do in fact amount to notices under clause 23. The circumstances surrounding the particular event for which I have found that Wai Bo, in part, should have been granted an extension are such that Wai Bo should not be disentitled from being granted the extension which I have found in their favour by virtue of any failure to issue formal notices in accordance with the contract.

(C) Time at Large & General Damages

Issue no.6

44. Whether time became at large by reason by the following alleged circumstances :-

(1) The failure by the Plaintiff to appoint an architect capable of acting fairly or impartially.

(2) The late issue by the Architect of all instructions for variations and his late response to the 1st Third Party's requests for outstanding instructions, drawings, details or levels.

(3) The contractor appointed by the Plaintiff to carry out the "Burlite" finishes materially affecting the progress of the Works.

(4) If the answers to (i), (ii) and (iii) are in the affirmative, whether the 1st Third Party was prevented from completing the Works by the acts of prevention on the part of the Plaintiff and whether in premises, time for completion became at large under the Contract.

45. The overall effect of the findings of fact made hitherto is that time for completion under the contract did become "at large". Dealing briefly with each of the three matters identified under this issue :-

(1) The appointment and role of the architect has already been dealt with.

(2) As already stated, the contractual obligation to prepare designs and drawings in most material events was on Wai Bo and it was their failure to do so which was the primary, and usually the sole, cause of delay. There is little or no evidence identifying requests for instructions from Wai Bo or any failure by the plaintiff to respond.

(3) Although I have found that the change from granite to Burlite should have been speedier and that Wai Bo were not responsible for all the time taken from the abandonment of granite to the selection of Burlite, nonetheless, once Burlite was chosen by the architect, it had the effect of reducing further potential delays.

46. The consequence of treating time at large is that the liquidated damages provisions become ineffective. The sort of issues raised in this case and the court's findings on them are such that the plaintiff has plainly established its right to rely on the liquidated damages provisions.

Issue no.7

47. If the answer to (6) is in the affirmative, whether the 1st Third Party failed to complete the works within a reasonable time and was thus liable to the Plaintiff for damages in rental losses and bank loan interest and if so in what sum. The answer to issue no.6 is in the negative.

(D) Determination of 1st Third Party's Employment

Issue no.8

48. Whether the 1st Third Party was in breach of clause 21 of the Conditions of Contract in failing to regularly and diligently proceed with the Works and, if so, whether the Plaintiff was entitled to and did exercise its right to determine the 1st Third Party's employment in accordance with clause 25 of the Conditions of Contract.

49. The issue here is whether the plaintiff has proved that Wai Bo failed to proceed with the works regularly and diligently before the issue of the warning letter on 14 October 1998 and thereafter failed to improve and make progress prior to the termination on 29 October 1998. The meaning of "regularly and diligently" is as follows :-

"Breach of this obligation is a ground for determination under clause (21). It has been held that ''regularly and diligently' should be construed together and that in essence they mean simply that contractors must go about their work in such a way as to achieve their contractual obligations. This requires them to plan their work, to lead and to manage their workforce, to provide sufficient and proper materials and to employ competent tradesmen, so that the Works are fully carried out to an acceptable standard and that all time, sequence and other provisions of the contract are fulfilled.'. This construction is very wide and would appear to have the consequence that almost any failure by the Contractor to comply with a contractual requirement would amount to a failure to proceed regularly and diligently, thereby putting the Contractor at risk of a determination notice under clause (21)." ("Keating" page 625)

50. In view of the findings of fact already made, the answers to both the questions raised in this issue are "yes". The plaintiff's letters of 14 and 29 October complied with clause 25 of the contract. The factual matters which are specifically relevant to this issue can be summarized as follows :-

(i) Between the original completion date of 6 May 1998 and October, the works had progressed by as little as 2-3%, the blame for which was not the plaintiff's.

(ii) Wai Bo's estimate, made in its application for extension of time dated 9 September 1998 that the hoist would be dismantled by 2 October was wholly unrealistic.

(iii) Wai Bo abandoned the site on 12 October 1998. Thereafter only one female employer was on site and no progress at all was made.

Issue no.9

51. Whether the Plaintiff was in wrongful and repudiatory breach of the Contract because of the matters referred to in points [3 and 5] above or the form of the notice of termination given by the Plaintiff and, if so, whether the 1st Third Party accepted the Plaintiff's wrongful repudiation of the Contract.

52. This is the reverse side of the same coin already determined. There was no repudiatory breach by the plaintiff.

(E) Damages

Issue no.10

(a) The period for which liquidated damages for delay are payable.

(b) The damages payable for delay if time was at large.

53. The completion date certified by the architect was 21 May. This judgment has allowed a further 36 days. The appropriate date is therefore 26 June. Liquidated damages are due at the rate of $50,000 per day from 26 June to 29 October 1998. 125 days is $6,250,000.

Issue no.11

54. The amount due to the Plaintiff pursuant to clause 25(3)(d) of the Conditions of Contract.

55. There was a substantial measure of agreement between the plaintiff's expert, Mr Yim and the defendant's expert, Mr Molling. However, in view of the court's finding in relation to the liquidated damages claim which has been found to exceed the amount of the Bond by a considerable margin, no further issues on quantum need to be addressed.

Issue no.12

56. The amount of any set-off to which the 1st Third Party is entitled. This issue has been rendered academic. In any event the answer is nil.

57. The plaintiff has proved its case against the defendant and there will be judgment in its favour for the value of the Bond together with interest and costs. Interest will be at prime +1% from the date of the writ.

58. I now turn to the Third Party proceedings.

Third Party action

59. The Third Party Notice claims against the Third Parties as follows :-

" The Defendant claims against you for indemnification against the plaintiff's claim and the costs of this action on the grounds that,

(a) in consideration of the defendant issuing the Bond jointly and severally with the 1st Third Party in favour of the plaintiff to guarantee that the 1st Third Party as the main contractor shall duly perform and observe all the terms, provisions, obligations and stipulation of the Contract, by 3 contracts of counter guarantee all dated 31 May 1997 and executed by the 1st Third Party, 2nd Third Party and Tam Ting Wai now deceased respectively (collectively referred to as 'the Third Parties') in favour of the defendant, the Third Parties jointly and severally agree from time to time and at all times thereafter to indemnify and to keep indemnified the defendant against all loss damages claims costs charges and expenses and from any liability whatsoever which the defendant should at any time or times thereafter incur or sustain by reason of the defendant having entered into and given the Bond.

(b) on 2 June 1997, the defendant jointly and severally with the 1st Third Party executed a contract bond no.SB970000046 ('the Bond') for the sum of HK$3,899,600.00 in favour of the plaintiff."

60. The Third Parties pleaded defence is :-

"2. Save that the 1st, 2nd and 3rd Third Party Parties admit that 3 Contracts of counter guarantee all dated the 31st of May 1997 had been executed by the 1st and 2nd Third Party Parties and Tam Ting Wai, now deceased, in favour of the defendant, paragraph (a) of the Third Party Notice is denied. The 1st Third Party, the 2nd Third Party and the 3rd Third Party shall rely upon the full content of the said 3 Contracts of counter guarantee for their respective true meaning and intent.

3. Paragraph (b) of the Amended Third Party Notice is denied. At all material times, the plaintiff and the defendant were well aware that the Common Seal of the 1st Third Party was not affixed nor executed in accordance with its Articles of Associations. The plaintiff and the defendant are put to strict proof of the validity of the Bond."

The issue on the Third Party proceedings is whether the contract bond is binding on the Third Parties by virtue of the fact that the company seal on the contract bond was not duly signed and that it was, thus, not executed in accordance with Wai Bo's Articles of Association.

61. Having considered the competing written submissions helpfully prepared by counsel for the respective parties on this issue, I find the arguments advanced by Mr Yeung Ming Fai on the defendant's behalf to be correct. In summary form, the defendant submits as follows :-

(a) Wai Bo's Articles of Association state :-

"18. Without prejudice to the general powers conferred by the preceding Article and the other powers conferred by these Articles, it is hereby expressly declared that the Directors shall have the following powers, that is to say, power :-

.....

(10) To enter into all such negotiations and contracts and rescind and vary all such contracts and execute and do all such acts, deeds and things in the name and on behalf of the Company as they may consider expedient for, or in relation to, any the matter aforesaid, or otherwise for the purposes of the Company.

20. Every document required to be sealed with the Seal of the Company shall be deemed to be properly executed if sealed with the seal of the Company and signed by the Chairman of the Board of Directors singly, or by any two directors jointly."

(b) The evidence, upon which the court relies, is :-

(i) Wai Bo was a family company established by the 3rd Third Party Mr Tam Ting Wai, who died in 1998. He had negotiated this contract with the plaintiff with the company's full authority. He and his son had executed counter-guarantees both on their own behalves and on behalf of the company.

(ii) The counter-guarantees were checked by the defendant's witness Mr Chan Chun Kwong. He prepared a surety bond (once the application had been approved by Head Office) in the sum of $3,899,600 in favour of the plaintiff. It was duly executed by directors of the defendant.

(iii) The original was then sent to Wai Bo for their execution and for them to send it on to the plaintiff.

(c) The Companies Ordinance Cap.32

62. Section 32 provides as follows :-

"(1) Contracts on behalf of a company may be made as follows :-

(a) ....

(b) a contract which if made between private persons would be by law required to be in writing, signed by the parties to be charged therewith, may be made on behalf of the company in writing signed by any person acting under its authority, express or implied;

(c) ....

(2) A contract made according to this section shall be effectual in law, and shall bind the company and its successors and all other parties thereto."

63. There is no doubt that Mr Tam Ting Wai was an authorized person to deal on Wai Bo's behalf and as such he duly executed the Bond on the company's behalf.

(d) The Company Seal issue

64. The 3rd Third party further relies on Article 22 of its Articles of Association. Their answers to the request for further and better particulars state :-

"The 1st Third Party relies upon Article 22 of the Articles of Associations of the 1st Third Party, which provides that every document required to be sealed with the Seal of the 1st Third Party shall be deemed to be properly executed if sealed with the Seal of the 1st Third Party and signed by the Chairman of the Board of Directors singly or by any two directors jointly. The Articles of Association being a public document, the Plaintiff and the Defendant are deemed to have notice of the contents therein."

65. Thus, the appearance of the appropriate signatures and seal is sufficient evidence of proper execution.

66. The facts of our case are that the defendant did not have actual knowledge that the seal had not been duly signed. Once the Bond had been executed by the defendant, the original was sent to Wai Bo for them to execute it. This is common practice and Wai Bo's later failure, unknown to the defendant, cannot invalidate the document to Wai Bo's advantage. Even if the particular Article of Association has not been complied with the Bond is nonetheless valid and binding.

(e) No consideration for counter-guarantees

67. The culmination of the 3rd Third Party's contention is that if the contract Bond was invalid, it followed that the counter-guarantees lacked any consideration. This argument fails for three reasons :-

(i) The invalidity of the Bond has not been established.

(ii) The issue was not pleaded. In fact, all that has been pleaded is an admission by the Third Party that three contracts of counter-guarantees had been executed by the Third Parties in favour of the Defendant.

(iii) If it had been pleaded, it would have been unsuccessful. It is unnecessary to deal further with this issue because of (i) and (ii) above. However, even if there is a technical argument that there is a lack of consideration, the court would (if it had to make such a ruling) not find in the Third Party's favour on the facts. I simply recite Mr Yeung's final submission (with which I agree) as follows :-

"Further, it would be unjust and inequitable if the Third Parties could avoid their liability under the counter guarantees and the Contract Bond by reason of the technical non-compliance of the Article of Association (which is not admitted) which was solely caused or made by the 1st Third Party.

It is beyond dispute that the Contract Bond after execution by the directors of the Defendant was sent to the 1st Third Party for their execution before forwarding to the Plaintiff. At that time, the Contract Bond was not yet executed by the 1st Third Party. The 1st Third Party knew well of the formality required in execution of the documents. Yet they were satisfied that Mr Tam Ting Wai's execution of the Contract Bond without company seal was valid in law. The Contract Bond with Mr Tam Ting Wai's signature was then forwarded to the Plaintiff. Since then, there has been no dispute by the Third Parties whatsoever that the Contract Bond has not been properly executed by the 1st Third Party, not even when the Plaintiff called for the Bond nor when the Defendant demanded explanation from the Third Parties. Further, the Third Parties have accepted a refund of part of the premium for the Contract Bond due to the amendment to the period of coverage. The Third Parties are therefore estopped from denying the validity of the Contract Bond and the counter guarantees."

(f) Indemnity

68. By a letter dated 3 November 1998, the plaintiff through its solicitors called for the Bond on the ground that the 1st Third Party was in default of the Contract.

69. By a letter dated 3 December 1998 from the Third Parties' solicitors, the Third Parties denied that the 1st Third Party was in default of the Contract and objected to the defendant admitting liability under the action and pay the said sum of HK$3,899,600.00 or any part thereof to the plaintiff.

70. The defendant was therefore required to incur expenses in defending the action. The court has found against the defendant in the action, the defendant is now entitled to be indemnified by the Third Parties for the judgment sum together with the cost incurred in defending the action.