TANG WAI KUEN RAYMOND AND ANOTHER v. ASIA LANDSCAPING LTD

HCCT 11/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDING

ACTION NO. 11 of 2008

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J U D G M E N T

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I. INTRODUCTION

1.  DARG and Asia Landscaping are parties to a Consultancy Agreement contained in a letter dated 27 February 2006.  The Consultancy Agreement concerns “soft landscape works” for a project at the Venetian Macau.  The Project Employer engaged Asia Landscaping for the works and Asia Landscaping in turn engaged DARG as a consultant.

2.  It was a term of the Consultancy Agreement that DARG was to be paid as follows:-

3.  The sole question in this case is the construction of the expression “variation amount” in the Consultancy Agreement.

4.  The Project covered Zones A, B, C, D and E of the works site.

5.  By Letter of Acceptance dated 30 March 2006 Asia Landscaping was awarded the works in Zones A, B and C.  A Trade Contract between Asia Landscaping and the Employer to that effect was executed on 6 July 2006.  The contract sum was MOP13,671,852.

6.  Subsequently, Asia Landscaping and the Employer entered into 3 Supplemental Agreements (respectively dated 5 December 2006, 9 July 2007 and 30 August 2007).  These Supplemental Agreements enlarged the scope of the original Trade Contract to cover work on Zones D and E.  The Supplemental Agreements were executed pursuant to cl. 21.6(a) of the General Conditions to the Trade Contract.  As a result, the contract sum was increased to MOP30,871,589.

7.  DARG’s contends that the work done on Zones D and E under the Supplemental Agreements constituted a variation of the Trade Contract.  Accordingly, DARG claims that under the Consultancy Agreement it is entitled to a 5% bonus on the increased contract amount which resulted from the inclusion of Zones D and E to scope of work.

8.  Asia Landscaping replies that, although the Employer initially let out works in Zones A, B and C under the Trade Contract, the Project had always encompassed Zones A, B, C, D and E.  Accordingly, the increased scope of the works under the Supplemental Agreements did not constitute a variation within the terms of the Consultancy Agreement.  Asia Landscaping says that the expression “variation amount” in the Consultancy Agreement only refers to the value of variations to the work originally envisaged for Zones A, B, C, D and E.  On that basis, the 5% bonus would only attach to variations to the works in Zones A, B, C, D and E ordered under Construction Managers Instructions (CMI) issued pursuant to cl. 6 of the General Conditions to the Trade Contract.

9.  On DARG’s reading of the Consultancy Agreement, MOP769,029.60 remains due to DARG by way of bonus on “variation amount”.  Asia Landscaping accepts that, if DARG is right, the outstanding quantum is as DARG asserts.  On the other hand, on Asia Landscaping’s reading of the Consultancy Agreement, nothing remains due and owing to DARG from Asia Landscaping.

II.      DISCUSSION

10.  The terms “variation” and “variation amount” are not terms of art which are capable of bearing only one meaning.  While terms generally connote some idea of “change” or “alteration,” different people may use the terms to mean different things.  Mr. Desmond Leung (appearing for DARG) argues the following matters in support of DARG’s construction of the expression “variation amount”.

11.  First, DARG was not involved during the tendering stage of the Project. Consequently, at the time when the Consultancy Agreement was entered into, for all DARG knew, the Project only involved Zones A, B and C.

12.  Mr. Leung points to the evidence on this matter.

13.  Mr. Raymond Tang (DARG’s principal partner) says that he was not involved on Asia Landscaping’s behalf in the tendering process.

14.  Mr. Stan Li (Asia Landscaping’s director) vaguely suggests that tender documents (including materials referring to the Project as inclusive of Zones A, B, C, D and E) were copied to Mr. Tang from time to time to keep him informed.  But (Mr. Leung observes) there is no compelling evidence backing Mr. Li’s suggestion.

15.  In the course of discovery, Mr. Li disclosed some 5 different versions of the set of tender documents which Mr. Li asserts were handed to Mr. Tang prior to execution of the Consultancy Agreement.

16.  But, within these versions, there are (Mr. Leung notes) inconsistencies, such that one cannot be sure that any given alleged bundle of tender documents was actually handed to Mr. Tang.  For instance, there are discrepancies between the table of contents of particular versions and the actual documents said to comprise those versions. The table of contents only list documents relating to Zones A, B and C.  But (if Mr. Li is to be believed) the particular versions nonetheless included documents relating Zones D and E.

17.  Mr. Tang denies that the alleged bundles were handed to him and Mr. Li himself does not claim to have personally handed the same to Mr. Tang.  No one gave evidence on behalf of Asia Landscaping about specifically handing the bundles of tender documents to Mr. Tang.

18.  In any event, Mr. Li himself accepts (Mr. Leung stresses) that Mr. Tang had no significant input into the negotiations between Asia Landscaping and the Employer on the precise work to be done by Asia Landscaping on the Project.

19.  In those circumstances, Mr. Leung submits that the Court cannot conclude that Mr. Tang would have been aware that the consultancy between DARG and Asia Landscaping would encompass Zones A to E.  It is doubtful whether any of the alleged bundles of the tender documents were actually handed to Mr. Tang as Mr. Li says.  The bundles disclosed by Asia Landscaping may (Mr. Leung argues) have only later been cobbled together for whatever reason from tender documents issued at various times before and after the date of the Consultancy Agreement.

20.  Second, immediately after the Consultancy Agreement was concluded, Asia Landscaping received the Employer’s Letter of Acceptance and entered into the Trade Contract. These 2 last documents only refer to Zones A, B and C.  These documents therefore suggest (Mr. Leung argues) that, at around the time when the Consultancy Agreement was concluded, in all likelihood the parties only contemplated that the scope of DARG’s consultancy was limited to Zones 5A, 5B and 5C.

21.  Mr. Leung’s argument is bolstered by reference to 2 documents which Mr. Tang is known to have received from Asia Landscaping immediately before the Consultancy Agreement was executed.  In proposing fees for DARG’s consultancy, Mr. Tang says that he relied on a “Preliminary Soft Landscape Programme of Works” dated 4 November 2005 and on a 15 February 2006 version of the tender documents.  These 2 documents show the scope of works as limited to Zones A, B and C.

22.  Third, Mr. Li’s evidence is that at some unspecified time the Project Construction Manager orally indicated to him that, to avoid delay, the Employer would put Zones A, B and C to tender first and Zones D to E to tender later. Mr. Li could not say just when the Construction Manager so indicated.  Mr. Li’s evidence is thus too vague (Mr. Leung submits) to be relied upon on this point.  But, even if the evidence were reliable, the Construction Manager’s indication must have been given at least some significant time (say, a month or so) before the Employer’s Letter of Acceptance was issued in late March 2006. On that assumption, Mr. Li himself would likely have contemplated the Consultancy Agreement as referring only to Zones A to C.

23.  Fourth, the terms of the Consultancy Agreement were orally discussed and agreed at a meeting on 24 February 2006 between Mr. Tang and Mr. Li at a coffee shop. The agreed terms were later reduced by Mr. Tang into a letter dated 27 February 2006.  This letter was then signed by Mr. Tang and Mr. Li.

24.  At the 24 February meeting, it is Mr. Tang’s evidence that Mr. Li said to him (in translation):-

“Don’t be so calculating by demanding so much money each month. I’d rather increase the bonus. Since the money is coming from others, there will be 5% for amount exceeding $13,000,000”.

25.  Mr. Li denies that he said anything to such effect.

26.  But, if the Court accepts Mr. Tang’s evidence on this point, Mr. Leung submits that the $13 million must refer to the estimated value of the work on Zones A to C.  This would indicate that at the time of negotiating the Consultancy Agreement both parties indeed regarded the relevant consultancy work as involving just Zones A to C. Mr. Leung submits that anything beyond that work (valued at MOP13.6 million odd) would constitute a “variation” for which a 5% bonus would be payable.

27.  Ms. Janine Cheung (appearing for Asia Landscaping) attacks Mr. Leung’s submissions head on.

28.  Ms. Cheung argues that the words “variation amount” in the Consultancy Agreement are ambiguous at best.  The words could plausibly refer either to changes in the scope of work under the Trade Contract made pursuant to cl. 21.6 (as DARG contends) or to changes pursuant to CMIs in the original landscaping work envisaged for the entirety of Zones A to E (as Asia Landscaping contends).

29.  The fact is (Ms. Cheung stresses) that the parties never specifically discussed among themselves what “variation amount” was supposed to cover.  Each assumed that they knew what the words meant, although their understanding of the expression was different.

30.  There was (Ms. Cheung says) no “consensus ad idem”.  It is simply not possible to determine objectively what the parties meant by the reference to “variation amount” in their contract.  The situation is similar to that in Raffles v. Wichelhaus (1864) 2 H & C 906 where it was not possible to determine which ship the parties were referring to when they agreed to buy a cargo of cotton “ex Peerless from Bombay”.  This was because there were 2 ships with the same name Peerless which sailed from Bombay at different times.  In the premises, Ms. Cheung submits that DARG’s claim must fail, since there is a probative burden on DARG to establish its construction of the words “variation amount” in the Consultancy Agreement.

31.  I am not persuaded by Ms. Cheung’s argument.  In my view, if one looks at the matter objectively, it is plain that by “variation amount” the parties most likely had in mind the construction for which DARG contends.

32.  I accept Mr. Tang’s evidence that his involvement in the tendering process was minimal.  That is not really disputed by Mr. Li.

33.  In those circumstances, I find it hard to see how in drafting the Consultancy Agreement, Mr. Tang would be contemplating a 5% bonus on variations to works envisaged in Zones A to E, as opposed to only Zones A to C.  Whatever tender material referring to whatever Zones may have been provided to Mr. Tang previous to February 2006, by the time when he was preparing the Consultancy Agreement Mr. Tang had the 15 February 2006 version of the tender documents. That referred only Zones A to C.

34.  It would accordingly have been natural and reasonable for Mr. Tang to have borne that 15 February document in mind and relied on the same when he was drafting the Consultancy Agreement.  I note in this connection that Mr. Tang prepared a first draft on the Consultancy Agreement around 18 February 2006.

35.  For the sake of completeness, I add that, in light of the discrepancies which Mr. Leung has highlighted, I am far from satisfied that the alleged versions of tender documents referred to by Mr. Li were actually provided to Mr. Tang.  In all likelihood, as Mr. Tang says, Mr. Tang only received the 15 February 2006 version of the tender documents.

36.  Moreover, I accept that Mr. Li told Mr. Tang not to be “greedy” as DARG would be earning a bonus on works over $13 million.  In giving evidence, Mr. Li tended to be vague on details and chronology, so that I am unable to treat his evidence on a particular matter as reliable.

37.  Given such reference to $13 million by Mr. Li, it must have been the case that Mr. Li (like Mr. Tang) was contemplating that the bonus on “variation amount” would bite on work additional to that to be done in Zones A to C (estimated at a little over $13 million).  This evidence is to me a strong indication that Mr. Li was thinking in the same way as Mr. Tang and so there was a “consensus ad idem”.  We are thus miles away from the Raffles v. Wichelhaus situation.

38.  Ms. Cheung says that the reference to $13 million in the remark attributed to Mr. Li is itself ambiguous.  The $13 million could (Ms. Cheung suggests) refer only variations ordered to be done by CMIs issued in relation to Zones A to C.  But I am unable to accept this.  In context, the remark indicates exactly what it says, namely that, for the purposes of DARG’s consultancy there would be a bonus on everything above the approximately $13 million works awarded in relation to Zones A to C.

39.  Ms. Cheung notes that cl. 21.6(a) (unlike cl. 6) does not specifically deal with the valuation of variations to the scope of works.  That may be true.  But, looked at commercially, I do not see why that is an obstacle to two parties agreeing the payment of a bonus on cl. 21.6(a) variations.  Valuation could proceed in a robust and reasonable fashion, by reference to the value of the additional work to be done on Zones D to E. Here the amount claimed by DARG is 5% of the contract sum of the works certified for Zones D and E.

III.     CONCLUSION

40.  DARG succeeds in its claim for MOP796,029.  For present purposes, there is no substantial difference between the Macau pataca and the Hong Kong dollar.  Interest is consequently to run on that amount at 1% over Hong Kong dollar prime from date of Writ (4 February 2008) until today.  Thereafter, interest will run at the judgment rate until payment.

41.  Asia Landscaping decided at trial not to pursue its Counterclaim.  The Counterclaim is therefore dismissed.

42.  I will now hear counsel on costs and consequential orders.