Tridant Engineering Co. Ltd. v. Mansion Holdings Ltd.

CACV000311A/2000

CACV 311/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. CACV 311 OF 2000

(ON APPEAL FROM HCCT NO. 3 OF 1996 AND HCCT NO. 66 OF 1996 (CONSOLIDATED))

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Coram: Hon Rogers VP, Stock JA and Le Pichon JA in Court

Date of Hearing: 27-29 June 2001

Date of Handing Down of Judgment: 17 July 2001

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J U D G M E N T

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Hon Rogers VP:

1.This is an appeal from a judgment of Deputy Judge To given on 15 June 2000. The action before the judge was a consolidated action. In the first action he held Mansion Holdings Limited, ("the defendant") liable to Tridant Engineering Company Limited, ("the plaintiff") for breach of contract. In the second action he held the defendant in that action, Tridant Engineering Company Limited liable for breach of contract to the plaintiff in that action, Mansion Fire Engineering Company Limited, ("Mansion Fire").

2.In the first action the judge awarded the plaintiff the sum of $15,798,893.00 in respect of the defendant's repudiation of two contracts namely the fire services subordinate contract (the "FS sub-contract") and the plumbing and drainage subordinate contract (the "PD sub-contract"). The judge also ordered that the defendant should indemnify the plaintiff in respect of all claims, costs and expenses incurred and loss and damages suffered by the plaintiff as a result of the defendant's repudiation of the contracts. In relation to the other action the judge awarded Mansion Fire the sum of $2,242,161.87 in respect of the plaintiff's wrongful termination of the temporary works contract.

The contracts

3.The contracts which are the subject of these proceedings were in respect of works to be carried out in the construction of Sky Central Plaza in Guangzhou. The building was to be the tallest building in the Mainland and was evidently a massive project. There was to be an office tower of 80 storeys and two apartment towers each of 38 storeys. Kumagai Gumi (HK) Limited and Gammon Construction Limited formed a joint venture ("KGJV"). KGJV was the Main Contractor responsible for the building. The plaintiff became the sub-contractor for the mechanical and electrical services. The plaintiff entered two sub-sub-contracts with the defendant. These are both dated 30 April 1994. The first was in respect of the fire services, the FS sub-contract, and the other was in respect of the plumbing and drainage sub-contract, the PD sub-contract.

4.The two sub-contracts were fixed sum contracts. The FS sub-contract was in the sum of $55 million and the PD contract was in the sum of $21 million.

5.The defendant is a public company listed on the Hong Kong Stock Exchange and Mansion Fire is a subsidiary.

6.In October 1994, the plaintiff entered into another sub-contract in respect of temporary fire services and plumbing and drainage installation with Mansion Fire. That sub-contract was in the fixed sum of $4.2 million.

7.By letters dated 10 October 1995 the plaintiff served notice of termination of all three sub-contracts on the basis that the defendant and, in respect of the temporary works sub-contract, Mansion Fire, had repudiated the contracts and that the plaintiff was accepting that repudiation.

8.The judge held that in respect of the FS sub-contract and the PD sub-contract the defendant had repudiated the contracts and that the plaintiff was entitled to accept that repudiation.

9.In respect of the temporary works sub-contract the judge held that the termination had been wrongful and thus awarded Mansion Fire damages. Against that finding there is no appeal.

The trial

10.The plaintiff's claim as originally framed was that the defendant had evinced an intention not to execute and complete the works in respect of the FS sub-contract and PD sub-contract. The basis of that pleading was that the defendant had failed to provide adequate resources and supervision and/or to proceed with the works with due diligence. Specific matters that were relied upon were the failure to provide adequate manpower, the failure to order or deliver necessary equipment and plant to the site, the failure to submit necessary drawings so as to facilitate the execution of the works in time and the failure to provide experienced and adequate supervision.

11.A few weeks before the trial was due to begin, the plaintiff obtained leave to amend the statement of claim by including a further plea of repudiation on the part of the defendant and that the plaintiff had accepted the defendant's repudiation. The particulars in respect of this plea were that the defendant had informed the plaintiff that the defendant would not order further materials for the execution of the works under the two sub-contracts unless and until the plaintiff agreed to enter into two sub-contracts with Mansion Fire in place of the defendant. In the particulars to the plea it was said that the defendant had continued to refuse to arrange for the delivery of material to the site despite repeated requests by the plaintiff.

12.In giving leave to amend the statement of claim, Findlay J said that he considered that the amendment did not raise a radically new case. He considered that it was little different from the case which had been previously pleaded.

13.Whilst I consider that the pleading is rather more than an amplification of the previous pleading, I consider that it was not such a radical departure from the basis upon which the case had previously been put that the new matters should have caused alarm or difficulty.

14.The trial first commenced before Sakhrani J on 12 May 1999. However, seven days were taken up with arguments over interlocutory matters. By the 7th day the pleadings had not been finalised and it was clear that the case was not ready for trial. The matter was thereafter adjourned and did not come on for trial until 15 November of that year. In all, despite the fact that there was scarcely any evidence on behalf of the defendant, the trial took 32 days.

The judgment

15.In a careful and detailed judgment, the judge below held that the plaintiff had not proved its case on the basis originally pleaded. He said that in fairness the manner in which the defendant had carried out the two sub-contracts did not, by itself, establish an intention no longer to be bound by the contracts.

16.However, in respect of the allegation which was founded upon the amended plea the judge held at page 79:

"I have held that Mansion were in breach of their obligation to progress work regularly and diligently because of their falling behind their own programme, failure in supplying sufficient labour and failure in ordering plant and equipment. When examining those breaches in isolation, I have adopted the more assiduous attitude of Russell LJ in Lockland Builders v. John Kim Rickwood and held that those breaches were not in themselves sufficient to evince an intention no longer to be bound by the sub-contracts. However, when those breaches were married to Mansion Holdings' denial that they were the contracting party to the sub-contracts, their insistence that the letters of agreement were not binding, their insistence to have Mansion Fire to replace them as the contracting party, their refusal to order the plant and equipment unless Tridant met their demand to re-write the sub-contracts with significant cost implication to Tridant, I am satisfied on an objective view that Mansion had evinced an intention no longer to be bound by the two subordinate contracts. On that basis, Tridant were entitled to accept Mansion's repudiation."

The appeal

17.The defendant launched this appeal on a number of bases. It challenged the findings of fact in relation to a number of matters. Nevertheless, Mr Whitehead SC, on behalf of the defendant, took the point that unless he could succeed in showing that the finding of repudiation should be set aside because, whatever else had happened, by 10 October the defendant had recanted its threatened refusal to be bound by the sub-contracts and had demonstrated its recantation in a positive way by delivering and ordering materials and plant and equipment and had otherwise proceeded with the contracts in a manner that demonstrated that it considered itself bound thereby, the defendant could not succeed on the appeal. Before considering the defendant's appeal it is necessary to consider the basis upon which the judge arrived at his conclusion.

Findings of the judge

18.In approaching the case, the judge appreciated that the defendant's two sub-contracts with the plaintiff were very onerous on the defendant. The sub-contracts were expressed to be back to back with the KGJV sub-contract with the plaintiff. There was no fixed time for completion and the contract specifically provided for early and delayed completion.

19.The judge had no hesitation in holding that the defendant was obliged to proceed regularly and diligently with the work under the contracts. He came to that conclusion both on the basis of terms implied in the contracts and on the basis of the back to back provisions.

20.In relation to the timing of the works the judge made specific reference to Condition A-4 of the Tender Specification of the plaintiff's sub-contract with KGJV. That provided for completion dates for the fire services installation and the plumbing and drainage works of 30 November 1995 for the apartment and podium and 30 June 1996 for the office tower. Condition A-4 also provided that the completion date was the date when the completed building had to be handed over to the Employer and that the plaintiff would be required to complete its work in advance of the relevant days to enable other work to be completed. Condition A-4 then included the following provision which has assumed some importance in this case:

"The Sub-Contractor shall conform to the Main Contractor's programme of works and shall include everything necessary to complete the Sub-Contract Works within this programme and in a sequential manner acceptable to the Main Contractor.

The above dates are given expressly without guarantee that they can be met and are to be taken as a guide line only for the Sub-Contractor's programming purpose. The Sub-Contractor is deemed to have allowed in his tender for all extra costs and expenses that may be incurred due to early or delayed completion of the individual stages or of the whole development."

21.On the basis of this provision, the judge held that the work to be carried out by the defendant under the sub-contracts was subject to the Main Contractor's programme of works for the whole project. The judge noted that the Works Orders issued by the plaintiff to and accepted by the defendant provided that the completion date was "31 August 1996 and suit construction progress"

22.The judge thus came to the conclusion that the completion date for the works was "ambulatory". In those circumstances, time was not of the essence of the contract. On the other hand, the defendant's principal obligation was to conform to the plaintiff's and KGJV's programme of works.

23.In determining what was the relevant programme of works the judge had regard to the 1st master programme which scheduled the PD and FS sub-contract works to be concluded by mid-July 1996, Revision A, which programmed a completion date in May and June 1996 respectively and Revision B which became available on 18 September 1995. This was very close to the date on which the sub-contracts were terminated and, therefore, the judge understandably expressed some reservation about relying on that.

24.However, there were, from time to time, three-month short term programmes. These were prepared by the plaintiff for the information of and comment by KGJV. These were essentially forecasts according to site construction conditions. The programmes had been drawn up in conjunction with the defendant and should, therefore, have been regarded by the defendant as realistic programmes. The judge considered that it would be fair to the defendant to use the three-month short term programmes as a guide for measuring the defendant's programmes. In view of the fact, as recorded by the judge, that the defendant's own expert, Mr Chang, had confirmed that the short term programme provided a bench mark against which the defendant's progress could be measured, it would seem that it would be difficult to find any other basis. Again, in fairness to the defendant, the judge below approached the case on the basis of the 30 June 1995 short term programme. That related to the months of July to September. He did this in preference to relying on the 4 September programme which related to the months of September to November.

25.In assessing what had been done the judge viewed the completed works as of 25 October 1995. He did so on the basis that although that was a fortnight after the defendant's sub-contracts with the plaintiff had been terminated, little work would have been done in the meantime. The conclusion reached by the judge was that the defendant was badly behind their own programmes. Whilst expressing difficulty in assessing precisely how far behind, the judge considered that the defendant had achieved less than 40% of their programme at the time when their sub-contracts were terminated. This was because the judge held they had failed to progress the works regularly and diligently. The judge said, at page 54, that:

"... Mansion failed to provide adequate resources in terms of supply of materials, plant, equipment and labour, and supervision for the two subordinate contracts works. But so far as supply of materials is concerned, the situation has been rectified before 10 October 1995."

26.The judge considered each of those matters, namely, the materials, the plant and the equipment, the labour and the supervision separately. It is only necessary to refer briefly to his findings in respect of each.

27.In relation to the materials for the FS sub-contract, the judge considered that the defendant "had failed utterly". He referred to the complaints by Kin Ying Engineering Co. Ltd, the defendant's own sub-contractor which had been made in letters in August and September 1995.

28.In respect of the PD sub-contract materials he referred to the shortage of PVC pipes and valves and complaints which had been made by the KGJV's M&E manager. Those complaints had related to a number of items which were, on the judges findings, off the shelf items which the defendant should have had no problem in obtaining. The judge referred to the fact that there was, on 10 October 1995, at the site, unfixed materials to the value of $5,711,445.00. Although this was a significant quantity, the judge expressed reservation as to whether they were the right materials, which were required at that time, and whether they were of the right brand or standard. Nevertheless, the judge considered that the situation had been rectified just before the sub-contracts were terminated.

29.In respect of the plant and equipment there were serious delays in ordering, particularly in respect of the FS sub-contract. In respect of that, we were shown a schedule dated 28 September 1995, which was revision 29, and revision 30, dated 12 October 1995. However, there appears to be no difference of significance between the two versions. In respect, for example, of the fire pumps, the judge considered that the delay caused by failing to order them was serious. The judge found that no letter of credit had been issued to the manufacturer, Wai Tat. The failure to order the CO2 system caused significant delays to the completion of the whole project because the Guangzhou Electricity Company required the system to be installed before they would energise the entire project.

30.In respect of the PD sub-contract plant and equipment, although there was revision 28 dated 28 September 1995, the judge based his decision on revision 27, dated 14 September. Nothing of significance would appear from a comparison of the two revisions. It is difficult to determine from the schedules, as to what would constitute plant and equipment as opposed to materials. Clearly, looking at the schedules, the defendant was substantially behind in the ordering of many of the items listed in the schedules. The judge's conclusion, at page 44, was that:

"All the plant and equipment under that schedule had been approved by the Architect by August 1995 and should have been delivered on site from early 1995 to early 1996. They were not so delivered."

31.In respect of the labour, the judge said that he could safely conclude that the labour provided by Mansion for the two sub-contracts was utterly inadequate (see page 51). That conclusion was arrived at despite the fact that there had been a significant increase in the number of workers from April 1995 to September of that year. However, the inadequacy of the number of workers was highlighted by the fact that the replacement sub-contractors had, in the case of PD sub-contract, employed approximately double the number of workers that had been previously employed and, in respect of the FS sub-contract, had employed four or five times the number of workers that had been previously employed. Despite that, the sub-contract works were only completed three months after the dates originally indicated as completion dates for the defendant's sub-contract works.

32.In respect of the supervision of the works, the judge concluded that he was satisfied that a case of inadequate supervision had been fairly made out. There had been a failure on the defendant's part to supervise the sub-contractors as well as their own staff. The defendant lacked suitably qualified and experienced local supervisors and the remote project manager's attendance four times per month was clearly insufficient to remedy the other inadequacies.

33.As indicated earlier, the judge took the view that, despite the defendant's shortcomings, in fulfilling its contractual obligations the defendant's breaches did not, on their own, constitute repudiation of the two sub-contracts. A material ingredient in the judge's holding of repudiation was the history of the defendant's approach in respect of the two sub-contracts. The judge appreciated at once that the sub-contracts were markedly onerous on the defendant. Not only was the defendant likely to make substantial losses on the two sub-contracts but, in doing so, it would incur heavy cash flow expenditure. Apart from the 5% down payment at the commencement of the two sub-contracts, payment under the sub-contracts would only be made on completion. It was against that background that the judge viewed the defendant's approach to the two sub-contracts.

The defendant's approach to the two sub-contracts

34.The two sub-contracts were brief and clear. The sub-contracts were two pages each. It was clear that the contracting parties in each case were the plaintiff and the defendant. Despite that, until the commencement of the trial proper, the defendant had taken the position that it was not the contracting party under the two sub-contracts. The defendant's case was that the two sub-contracts were letters of intent and that they had been entered with the intention that formal sub-contracts would be drawn up with the plaintiff and Mansion Fire being the contracting parties. The first issue in the agreed list of issues at the trial was drafted on the basis that it was the defendant's case that, insofar as the two sub-contracts had bound the defendant, Mansion Fire had replaced the defendant as the contracting party.

35.The defendant's stance in relation to the two sub-contracts proved not only to be untenable but disingenuous. On discovery it was disclosed that the defendant had entered corresponding sub-sub-contracts with Mansion Fire. The disclosure of this fact was, presumably, not merely the cause of the defendant having to abandon its stance at the commencement of the trial proper, but also was one of the ingredients in the judge concluding, as he did, that the defendant had acted in bad faith.

36.The history behind this stance was recorded by the judge that, in October 1994, Mr Yip of the defendant had requested the plaintiff to agree to have Mansion Fire replace the defendant as the contracting party in the two sub-contracts. That had been refused by the plaintiff. That was hardly surprising in view of the fact that Mansion Fire was a company with a paid up capital of $200,000 as opposed to the defendant, which was a public company. Then, as recorded by the judge, Mr Yip informed Mr James Cheung of the plaintiff that the defendant had financial problems and wanted the plaintiff to help with financing the purchase of materials, plant and equipment. No agreement was reached as to that.

37.There then came a series of events which culminated in solicitors acting on behalf of Mansion Fire, who were also the defendant's solicitors, preparing and sending to the plaintiff's solicitors two draft sub-contracts to be entered between the plaintiff and Mansion Fire. These drafts not only made Mansion Fire the sub-contracting party but also threw upon the plaintiff the cost of provision of the materials to be used in the sub-contract works. These two drafts were submitted on 10 October 1995, the same day that the two sub-contracts were terminated.

38.On 14, 16 and 22 August 1995 the solicitors, writing on behalf of Mansion Fire, addressed themselves to the plaintiff on the basis that Mansion Fire was the plaintiff's sub-contractor. They indicated that they had been instructed to draft formal sub-contracts to be entered between the plaintiff and Mansion Fire. They asked for a copy of the plaintiff's sub-contract with KGJV so that they could do so. They even went so far as to suggest that the work that had been carried out up to date would be charged on a quantum meruit basis.

39.The plaintiff replied to the defendant making it quite clear that it regarded the defendant as the contracting party. Solicitors on behalf of the plaintiff wrote to their counterparts to the same effect. It was then, on 24 August, that the defendant's then solicitors wrote suggesting that the letters of the 30 April 1994 were memoranda of heads of agreement entered into on behalf of Mansion Fire. Again, the response from the plaintiff's solicitors refuting this suggestion was quite clear. In the meantime, it might be mentioned, complaints were addressed to the defendant about their failure to carry out their obligations under the sub-contracts. These originated not only from Kin Ying Engineering Co. Ltd but also from the KGJV joint venture. The latter made a complaint in August 1995 that was passed on by the plaintiff to the defendant by letter dated 6 September 1995.

40.On 8 September the plaintiff wrote to the defendant in the following terms:

"We have been asking from you since January, 1995 for a delivery schedule of all material and equipment for use in the Sub-contracts. Yet, you have failed to provide us with the same.

On September 5, 1995 our Mr. Henry Liu reminded your Mr. Albert Yeung by telephone that the said schedule, including the purchase orders, should be provided as soon as possible. However, Mr. Yeung replied the said purchase orders were yet to be issued pending on the execution of the formal sub-contracts. We do not understand why Mr. Yeung made the said statement and now ask you to clarify, confirm, vary or reverse the same. Our position is that we have already entered into the Sub-contracts which are legally binding, that the formal sub-contracts to be entered into are for the purpose of setting out our respective rights and obligations in more details and that the ordering of material and equipment for performing the Sub-contracts has no relationship to the execution of the formal sub-contracts.

We look forward to hearing from you soon."

41.There was no reply from the defendant to that letter. On 18 September 1995 Mr Yeung, writing on Mansion Fire's letterhead, wrote that it had always been Mansion Fire's understanding and, he believed, the understanding of the plaintiff and the defendant that it was Mansion Fire which had entered the two sub-contracts. With specific reference to the letter of 8 September he said:

"Mr Albert Yeung did indicate to you that the ordering of further materials could only be considered after the execution of the formal contracts. We have been working on site for more than a year by now, and it would be commercially impudent for us to keep on pouring financial resources into the PDFI works without knowing what the terms of the contract governing such works are."

42.Although that letter was written by Mansion Fire it does appear that it was copied to Mr Henry Chan, who apparently had no position in Mansion Fire but was an executive director of the defendant.

43.Further complaints about the progress of the sub-contracts were apparently made. On 18 September the plaintiff wrote to the defendant confirming a complaint which had been made on 15 September. Again, the reply came from Mansion Fire. The letter of 20 September is illuminating in that it contains the statement:

"We must point out that the situation about which you are complaining is the result of your steadfast refusal to let us have the necessary information, so as to enable us to finalize the terms of the formal subcontracts. We fail to see how it can be alleged that we have been in breach of some contracts, the terms of which have yet to be agreed by both of us."

On the following day Mr Simon Ng, signing himself as the project manager, wrote on behalf of Mansion Fire to the plaintiff indicating that Mansion Fire was the sub-contractor.

44.It was the defendant's case on the pleadings and at trial that they admitted the statement made by Mr Albert Yeung on behalf of the defendant in the letter of 18 September 1995. Indeed, it would have been difficult to have done otherwise. The defendant's case on the pleadings, at trial and, indeed, a major point taken on this appeal was that that statement had been recanted at a meeting on 25 September 1995.

45.The judge had before him both the plaintiff's notes of that meeting and Mansion Fire's revised version of those notes, which was sent to the plaintiff under cover of a letter from Mansion Fire on 9 October 1995. The first obvious difference between the two versions is that the three persons namely Henry Chan, Albert Yeung and Simon Ng, stated in the plaintiff's version to be of Mansion Holding Limited, are stated in Mansion Fire's version to have been attending on behalf of Mansion Fire. In the plaintiff's version paragraph 4 states that when deep concern was expressed on behalf of the plaintiff about the ordering and delivery of major equipment and the defendant was requested to provide the status, Mr Albert Yeung said that the defendant "would arrange the material and equipment to site in accordance with their financial planning".

46.The suggestion that the defendant was acting reasonably in suggesting that they should only order material in accordance with their financial planning has to be looked at in its context. Our attention was drawn by Mr Whitehead to a passage in the cross-examination of Mr Liu, the plaintiff's Senior Resident Engineer. A question had been posed to Mr Liu in respect of a hypothetical contractor who had to buy materials only to be reimbursed at the end of the contract. He was asked whether such a person could be expected to buy the materials as and when they are needed. Mr Liu agreed to that suggestion. That question, posed to a resident engineer, and the answer appear to me to be a far cry from what is recorded in the minutes that Mr Yeung suggested that the defendant would only purchase materials in accordance with its own financial planning. What the defendant's financial planning and situation was might have been very different from the question of the need for the materials.

47.Whilst the version of the notes provided by Mansion Fire contains reference to that, it goes on to state also that Mr Chan had said that the plaintiff should clarify their own intention and direction as to whether it wanted to take up certain portions of the installation themselves and that no comment had been made other than that the defendant had been asked to make reference to the letter of the agreement. The note provided by Mansion Fire went on to say that Mr Yeung had stated that the formal sub-contract should be prepared by the plaintiff "as stated in the letter of agreement" and that since the plaintiff had not done so Mansion had taken it up and it was under preparation.

48.Neither of these notes of the meeting would give an indication that there had been any recantation of the defendant's position that no further material or equipment would be ordered until there had been sub-contracts entered into between the plaintiff and Mansion Fire. Indeed, Mansion Fire's version of the notes goes further in clearly indicating that it was still the defendant's position that Mansion Fire was, or at least should be, the contracting party.

49.The judge examined the evidence in relation to the meeting of the 25th with considerable care. He paid particular attention to a statement made by Mr Chan that:

"Mansion is your sub-contractor and working for you. If you squeeze your sub-contractor to death who is going to work for you? Then we will follow the original contract."

The judge asked the witness to repeat in Cantonese what was alleged to have been said in as near as possible the tone as Mr Chan had used. In the end he came to the conclusion that Mr Chan's words were, at best, equivocal as to whether the defendant's real intention was to perform or not to perform in accordance with the letter of agreement. As the judge recorded, he did not have the benefit of evidence from Mr Albert Yeung or Mr Henry Chan as to what they said or as to what was in their minds. The judge came to the conclusion that the defendant had not been addressing the issue of substituting the defendant by Mansion Fire and that it had not expressly withdrawn from their previous position. He then, benevolently to the defendant in my view, went on to consider whether the objective facts at the time could assist in showing that the defendant had recanted. He came to the conclusion that both the subsequent correspondence and the meeting on 29 September between Mr Liu of the plaintiff and Mr Simon Ng indicated that there had been no recantation.

50.One matter should be mentioned. In reaching his conclusion the judge appears to have mistaken the letter of 18 September as being of 28 September. Mr Whitehead placed heavy reliance upon this single error by the judge. In my view, it matters not. The subsequent correspondence emanating from Mansion Fire and the defendant's solicitors including, of course, the draft sub-contracts to which I have referred, leave no room for doubt that it was still the defendant's contention that the two letters of agreement of April 1994 were not sub-contracts binding on the defendant.

51.More significantly, perhaps, as referred to by the judge, was the meeting between Mr Liu and Mr Ng. On 28 September 1995 there had been a meeting between the representatives of the plaintiff, of which Mr Liu had been one, and representatives of the defendant, of which Mr Simon Ng had been one. It was recorded in the minutes that various promises were made including a promise that the defendant would submit a range of documents and information. These included various schedules, programmes, drawings and other information which were to be provided the following day. The evidence was that they were not provided. The evidence was also, as the judge accepted, that Mr Ng had said on 29 September that the defendant had not placed orders for the major materials and equipment as the execution of the formal sub-contract between the plaintiff and Mansion Fire was still outstanding. As pointed out by Mr Thomas SC, on behalf of the plaintiff, that would have been a surprising statement for Mr Ng to have made if there had been a recantation at the meeting on 25 September. Mr Ng had been at that meeting on 25 September and had he heard Mr Yeung withdraw the threat, which had been made on 5 September and repeated in Mr Yeung's letter of 18 September, he would hardly have been likely to have repeated those threats on 29 September.

52.On the hearing of this appeal, Mr Whitehead sought to question whether Mr Liu's recollection of the meeting of 29 September was accurate in the absence of any contemporaneous note or record. I consider that the attempt to question the judge's acceptance of Mr Liu's evidence has no merit. Mr Liu was subjected to cross-examination and the judge was perfectly entitled to accept his evidence, particularly, in the absence of any evidence to the contrary.

53.In my view, the judge rightly came to the conclusion that the threat which had been made by Mr Yeung, that the defendant would not order further materials until the two sub-contracts had been entered between the plaintiff and Mansion Fire, had not been recanted either orally or in writing. Indeed, every indication was that the defendant, its subsidiary and its solicitors maintained the same stance until the end.

54.The judge's finding in this respect was firm. He took the whole position into consideration including the way which the defendant had gone about performing the sub-contracts. His conclusion, at page 83, was:

"In any event, the Mansion's refusal and Tridant's insistence that they should order and deliver materials and plant are unequivocal. The parties knew of their differences. In particular, Mansion Holdings ought to know that they were the contracting party and that they sub-contracted the works to Mansion Fire. They know the letters of agreement are valid agreements and not just agreements to further agree. Mansion were not just failing in their performance or failing in ordering a particular plant or equipment. They were deliberately holding proper performance at ransom and acting totally out of bad faith. This is not the case of "a point which was not taken but which could have been put right." The point has been made by Tridant but Mansion simply refused to adhere to the sub-contracts. Their refusal to perform under such circumstances cannot in equity be the type of breach which an innocent party must put up with. There is nothing unfair to allow Tridant to rely on this refusal to perform as justifying rescission."

55.One of the points taken on behalf of the defendant was that Mansion Fire's letter of 9 October was "littered with expressions consistent only with Mansion's intention to continue with its contracts." The first observation I would make is that the letter is littered with reference as to Mansion Fire being the sub-contractor. The second observation I would make is that it clearly contains a statement that purchase orders will be placed only when Mansion Fire considered it financially prudent. I can see nothing in this letter which assists the defendant in suggesting that it is evidence of any recantation of the threat.

56.The other major point taken by the defendant on this appeal was that the defendant had by its conduct after 25 September demonstrated that it was indeed fulfilling the contract and had recanted any threat not to do so. The major point taken here was that there had been substantial deliveries of materials to the site not only up to 23 September but on 28 September and 9 October. As has already been observed, the judge was well aware of this. He was well aware of the quantity of material that had been accumulated on the site prior to 10 October 1995. There had been orders placed on 26 and 28 September but none thereafter. The defendant sought to justify the absence of further orders on the basis that throughout the contract there had been periods when no orders had been placed.

57.First, and most importantly, in my view, in relation to this plea, is the fact that the delivery of materials, whether they be as a result of orders or as a result of cash purchases by the defendant, was not brought to the attention of the plaintiff. If the defendant wished to rely upon its conduct in ordering and providing materials for completion of the contract as demonstrating that it had recanted its threat not to do so, it would have been essential that at least the provision of materials was drawn to the attention of the plaintiff. The evidence, in particular of Mr Liu, was that the plaintiff had no knowledge and had not been informed by the defendant of any ordering or delivery of materials or equipment. As the judge found, some of the materials which had been delivered were not immediately needed. Other materials, such as the victaulic couplings were delivered late and the late delivery was holding up progress. In respect of the couplings a letter from the plaintiff to the defendant of 26 September sets out that the couplings delivered on 8 September had been to American specifications, which were clearly very different from the British specifications both in terms of size of pipe as well as thread.

58.The shortages of some materials had caused such difficulty that the plaintiff itself had ordered and provided them. This was recorded in a letter of 16 September 1995 from the plaintiff to the defendant in which it was explained that, because of the defendant's failure and as a result of KGJV's threatened termination of its contract with the plaintiff, the plaintiff had itself provided materials, which were scheduled to arrive within a few days. The plaintiff considered it was entitled to do this under the terms of the main sub-contract, which had been incorporated by reference as a back to back term in the plaintiff and defendant's sub-contract. It might be mentioned, here, that, far from there being any dispute as to the plaintiff being entitled to order material and charge the defendant therefor, the defendant goes further and seeks to argue that since the plaintiff was entitled to order materials, if the defendant did not, the plaintiff had an adequate remedy. In my view, simply because the plaintiff could, from time to time, order necessary plant and equipment or materials, it did not mean that the defendant was not in breach of its own obligations by failing to place adequate orders not that its failure would not be an ingredient in its repudiation of the sub-contracts.

59.A considerable amount of the materials that were provided on site by the defendant prior to 10 October would have been ordered well prior to the events of September, which the judge held cumulatively amounted to repudiation. The judge had well in mind the provision of the materials prior to 10 October and this matter was not overlooked when the judge came to his conclusion.

60.As regards the placing of purchase orders, the list of orders placed in September 1995 was set out in appendix A.1.2c to the statement of Evenlyn Kwok. In my view, the judge took a lenient view in respect of this list. The defendant had relied upon this list of orders, but seven of those orders, relating to amounts totalling $1,449,564.42, were found not to be genuine orders. The defendant can consider itself fortunate that the judge rested his observations at that. In my view, the judge was justified in coming to the conclusion, at page 78, that the defendant's attitude to the sub-contacts was that:

"We still want the contract and the benefits of the contract. But we want them to be performed by our subsidiary and in the way we want them to be performed. We want you to purchase the materials, plant and equipment and bear the finance costs we want to progress at the speed we want and not in accordance with the main contractor's programme of works. We are not going to order plant and equipment in accordance with our agreed schedule because it is financially impudent for us to do so. We have also stopped ordering materials. And unless you agree to re-write the sub-contracts in accordance with our terms, we are not going to order materials, plant and equipment."

61.In the circumstances this court considered that the defendant's appeal would fail and said it would give its reasons in writing later.

Costs

62.The defendant took two points on the order of costs below.

Mansion Fire's costs

63.As already stated, Mansion Fire succeeded in its claim against Tridant Engineering Co. Ltd in respect of the temporary services sub-contract. Mansion Fire's complaint in respect of the costs ordered is that instead of ordering costs in favour of Mansion Fire on that action, in the normal way, the judge ordered that Mansion Fire should be entitled to an award of costs of 5% of the plaintiff's costs in the proceedings.

64.The judge's approach was clearly a rough and ready approach. It has this advantage that it would save a separate taxation because, once the plaintiff's costs had been taxed, the figure would be immediately ascertainable. Costs of taxation are in themselves extremely heavy. They put a burden on the parties and on the court. Given the fact that the two actions had been consolidated and were heard together, it is not, in my view, unreasonable that the judge should approach the question of costs of Mansion Fire in its successful action as equivalent to a percentage of the costs incurred by the plaintiff. Even if I would have taken a different course, I do not consider that the judge's approach was wrong in principle such that this court should interfere with that discretion.

Costs prior to the amendment of the statement of claim

65.The addition of paragraph 14A to the statement of claim was made by an amendment on 21 April 1999. This was more than three years after the action had commenced. The trial itself first commenced before Sakhrani J on 12 May 1999 but, as recorded, was then adjourned on 21 May because the parties were not yet ready for trial. It was not until 15 November 1999 that the trial proper got under way before Deputy Judge To.

66.The defendant's argument was that it should have the costs up to the date of the plaintiff's amendment to the statement of claim. In so arguing Mr Whitehead relied upon those cases which related to a late amendment. He said that this case should be treated as one of a late amendment of the pleading. Those cases, however, which are referred to under marginal note 20/8/12 of the Hong Kong Civil Procedure 2001 relate to instances where new cases are raised and in particular are raised either during or so close to the trial that the opposing party had no chance to consider its position under the new pleading or to protect itself.

67.In the present case the trial effectively commenced in November after an amendment which had been made in April. The defendant had had adequate opportunity to consider its position but, right up until the second day of the trial in November, it maintained that it was not bound by the two letters which it subsequently conceded constituted the two sub-contracts. Even then, after the concession as to its being bound by the sub-contracts, the defendant defended the proceedings with full knowledge of the plaintiff's claim. Had the position been different and the defendant conceded once it had considered the plaintiff's amendment, the position might have been different. However, it also has to be borne in mind that the facts raised by the original pleading still had to be considered in respect of the amended pleading.

68.For these reasons I do not consider that the judge's discretion was in any way wrongly exercised in relation to awarding the costs of the action both prior to and after the amendment. Indeed, if a defendant wishes to take such a point, it is, in my view, appropriate to take the point when the amendment is made and ask for a period of time within which consideration can be given as to whether the action will continue to be defended or it will be conceded. If a defendant concedes after an amendment which raises a new case there may be strong grounds for making a costs order which protects the defendant from wasted costs. The judge here was clearly of the view that no costs had been wasted.

Interest

69.The judge below ordered that interest on the judgment sum of $15,798,893 should run at the rate of prime plus one per cent from 1 January 1996 until 14 June 2000. That interest amounted to $6,998,693.18.

70.On this appeal the defendant takes issue with that on the basis that interest should only run from the date upon which a person acting reasonably in the commercial sense would have paid the money. It is said that the plaintiff's claim was only quantified on 16 November 1998 and hence interest should only run at the earliest from that date.

71.As a general proposition, the defendant's contention that interest should only run from a date which payment should be made is, of course, correct. In this case, however, the judge was dealing with a special situation. Because the judge had already held that the plaintiff had justifiably terminated the two sub-contracts with the defendant, it followed that the plaintiff had to engage others to perform the works. In doing so, the plaintiff had incurred considerable additional expenditure. The terms upon which the plaintiff could engage new sub-contractors were very different from those upon which the defendant was engaged. Specifically the plaintiff was required to make substantial outlay at a much earlier time than it would otherwise have had to do. What in effect the judge did was take the time by which the plaintiff had expended in costs an amount equivalent to 50% of the damages which were ultimately awarded. That was, according to a chart which formed Appendix IV to witness skeleton of Kam Wai Chuen dated 8 April 1999, January 1996. It appears to me that what the judge did was to compensate the plaintiff in monetary terms as best he could for the loss which it had suffered. His approach to the question of interest was part of his assessment the damages which the plaintiff had suffered. I would not disturb his order in this respect.

72.Before concluding, it is unfortunately necessary to comment upon the preparation of the papers for the hearing of this appeal. There were 19 box files prepared for this appeal. By far the bulk of the documents contained in those box files were not referred to in the course of argument. There was, therefore, an unnecessary amount of waste, which has, no doubt, caused considerable extra expense. Matters were made worse by the fact that instead of there being one core bundle, the so-called core bundle was constituted by 4 bundles. Again, many of the documents in those 4 bundles were not referred to. Counsel for the defendant then found it necessary to present the court with a bundle containing copies of those documents that he would refer to in his speech. By now, most of those documents were in at least three different box files. Needless to say, many of them were, in fact, copied more than once. The plaintiff's counsel then found it necessary to produce documents for the court that were not in any of the other bundles.

73.This haphazard way of producing documents demonstrated that proper thought had not been given at the appropriate time to what the issues were likely to be and what was necessary for the appeal and what was not. Clearly, although much of the blame must be apportioned to the defendant's lawyers who prepared the bundles, both parties had their share of responsibility for this. Had the plaintiff considered the matter at the correct time there would not have been the need for additional documents. This all added to the difficulties in preparing for the hearing.

74.This was compounded by the fact that no chronology had been prepared by either party. At the request of the Court, the defendant's legal team prepared a chronology at short notice during the overnight adjournment after the first day of the hearing of this appeal. It is to be regretted that this important and necessary document had not been prepared before. Its belated preparation no doubt caused considerable inconvenience.

75.It should also be added that although skeleton arguments had been provided to the court, it became clear when the plaintiff's counsel addressed the court, that many of the points to be taken on behalf of the plaintiff were not referred to or outlined in the skeleton. The proper preparation of skeleton arguments reduces the hearing time, aids the understanding of the case in the court's preparation and the focus of the oral submissions of counsel to what are likely to be the crucial points. What is required is a summary of the points to be made and a brief skeleton of counsel's contentions on the issues with reference to the bundles, if necessary. The propositions to be advanced with reference to, but not extracts from, authorities to be cited, should also be included. When many of the contentions and propositions which counsel intends to advance are omitted, the point of skeleton arguments is lost. It should also be observed however, that lengthy skeleton arguments are equally undesirable. Rarely, if ever should it be necessary that a skeleton argument should exceed 10 pages. Lengthy skeleton arguments fail to fulfil their function of providing a note of the propositions to be advanced.

Hon Stock JA:

76.I agree with the judgment of the Vice-President and have nothing to add.

Hon Le Pichon JA:

77.I agree.

Representation:

Mr Michael Thomas, SC, Mr John Scott, SC and Mr David Tsang, instructed by Messrs Wong & Fok, for the Plaintiff in HCCT 3/1996 and Defendant in HCCT 66/1996/Respondent

Mr Robert Whitehead, SC and Mr Thomas Lee, instructed by Messrs Masons, for the Defendant in HCCT 3/1996 and Plaintiff in HCCT 66/1996/Appellant