Chevalier (Aluminium Engineering) Hong Kong Ltd v. Sun Properties Co Ltd

HCCT 63/2017

[2020] HKCFI 1313

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 63 OF 2017

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Before: Hon Mimmie Chan J in Court

Dates of Hearing:  2-4 & 9 June 2020

Date of Judgment: 29 June 2020

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J U D G M E N T

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Background

1.In this action, the Plaintiff (“Contractor”) claims against the Defendant as the owner of a building (“Owner”) at 80 Gloucester Road, Wanchai, Hong Kong (“Building”) for $1,607,260.83 as the outstanding balance of the contract price payable for the renovation of curtain walls for the Building (“Works”) carried out by the Contractor, or alternatively $2,743,514.20 as damages.  The claim is made on the basis of what the Contractor alleges to be the final account agreed between the Contractor and the Owner, and by virtue of a direct contract whereby the Owner had agreed to pay the Contractor for the costs of the Works carried out, despite the fact that the Contractor was the Owner’s sub-contractor, and the Contractor had executed a Sub-Contract with the main contractor for the execution of the Works.

2.The Contractor carries on business as a windows and aluminum cladding design, supply and installation contractor.  In late 2011, the Owner invited the Contractor to submit a tender for the Works, as part of the renovation of the Building (“Project”). 

3.As explained by the Owner’s witnesses, the tender documentation for the Project was prepared, and the Project was administered, on the basis of the Owner itself, as Employer, undertaking the role of the administrator, with no architect appointed for the Project, and the Owner itself exercised the design, quality and financial management of the Project.  In the tender and contract documentation, it was specified that the term “Architect” in all the contract documents and drawings was deemed to denote the “Employer”.  In particular, clause 2 of the tender states:

“I/We agree in so far as no Contractor may have been appointed and until such Contractor shall be appointed to deem all references to the Contractor under the Sub- Contract and the Main Contract to be references to the Employer so far as this would give practical effect to the intention of the parties and assist the implementation of the agreement.”

4.Clause 4 of the tender further states:

“I/We agree if my/our tender is accepted to enter when required by the Employer or the Contractor into a formal Sub-Contract for the carrying out of the said Sub-Contract works with the Contractor in the form described in the tender documents and to release and discharge the Employer from all claims and demands whatsoever in respect of this tender and the Employer’s acceptance thereof and accept liability to the Contractor in lieu of to the Employer in every way as if the Contractor were named herein and had accepted this tender in place of the Employer. I/We agreed that this tender may be accepted directly by the Contractor.”

5.The Owner emphasized that at all material times, the Contractor had tendered for, and well knew that it was tendering for the role as a nominated sub-contractor.

6.On 19 March 2012, the Owner issued a notification of nomination of subcontractor to the Contractor for the Works (“Nomination”), which Nomination was countersigned by the Contractor by way of acceptance.  The Contractor claimed that there was a direct contract made between itself and the Owner on 19 March 2012, but this is not material as its plea is that such direct contract was replaced by a later direct payment agreement.

7.Rider Levett Bucknell (“RLB”) was appointed by the Owner as a consultant, and at all material times provided project management and quantity surveying services for the Project.  Its role included the day to day monitoring of the Project, acting in conjunction with the design and other consultants appointed by the Owner, and in close liaison with the Owner.

8.There is no dispute, that on 5 July 2012, the Owner accepted the tender of Hon Fung Engineering Limited (“HF”) as the main contractor for the Project.  The Contractor was apparently reluctant to execute the Sub-Contract with HF, with concerns as to HF’s ability to pay, and the Contractor claims in its Re-Amended Statement of Claim (“SOC”) that it had agreed with the Owner, on 1 March 2013, that the Contractor was to be a nominated sub-contractor of HF, but it was to receive direct payment from the Owner in respect of the Works (“Direct Payment Agreement”).  The Contractor relies on a meeting between Mr Ng Ping Wah of the Contractor and Mr Ho Yiu Yu of RLB on 1 March 2013, when the Direct Payment Agreement was verbally made.  According to the Contractor, the Direct Payment Agreement was recorded in writing by the Contractor’s letter dated 2 May 2013 to HF, which was copied to the Owner and to RLB.  In the alternative, the Contractor claims that the Direct Payment Agreement was made by the Contractor, the Owner and HF on about 20 May 2013, as evidenced by the correspondence.

9.On the Contractor’s pleaded case, the direct contract referred to in paragraph 7 of the SOC, and which is alleged to have been made between the Contractor and the Owner on 19 March 2012 on the basis of the Notification, was replaced by the Direct Payment Agreement.

10.It is significant, that on the Contractor’s pleaded case (paragraph 11 of the SOC), the Direct Payment Agreement was made amongst the Contractor, the Owner and HF, and was collateral to the nominated sub-contract between the Contractor and HF (“Sub-Contract”).

11.It is the Contractor’s claim that the Owner had, through RLB, agreed to the value of the Works at $17,366,260.83, on about 26 April 2017 (“Agreed Final Account”).  This was based on an agreement reached in August 2014 between the Contractor and RLB as agent of the Owner, as to the value of some abortive works and delay related costs of the Contractor. According to the Contractor’s claim in paragraph 15 of the SOC, a sum of $1,607,260.83 remains the unpaid balance of the Agreed Final Account, after deducting the total amount of $15,759,000 which the Owner had paid and the Contractor had received from the Owner for the Works carried out.  This includes the value of works which had been omitted or aborted under the Sub-Contract, and additional costs incurred by the Contractor as a result of the delay in the handover of the site to the Contractor, particulars of which were set out in paragraph 15 of the SOC.

12.Alternatively, the Contractor claims that it is entitled to damages, being the value of work which had been wrongfully omitted and deleted from the scope of the Works under the Sub-Contract, including loss of profits, and relies on the assessment (made by the single joint expert) of such damages in the total sum of $2,743,514.20.

13.On its part, the Owner denies that there was any Direct Payment Agreement, or any direct contract, between the Owner and the Contractor for the Works.  The Owner highlights its plea (in paragraph 5.3 (ii) of the Re-amended Defence and Counterclaim (“Defence”)) that the direct payment arrangement referred to in the parties’ correspondence, culminating in the letter dated 20 May 2013 from RLB to HF, and copied to the Contractor and the Owner (“RLB 20/5 Letter”), was expressly stated to be supplementary to the Main Contract, and subject to the proviso stated in the 20/5 Letter that “each payment direct to (the Contractor) shall require (HF’s) consent prior to the release of the monies to (the Contractor)”, and that all of the terms and provisions in the Main Contract shall remain applicable.

14.The Owner claims (in paragraph 5.3 (iii) and (iv) of the Defence) that HF’s prior consent was required before the release of any money to the Contractor, and that no such consent had been produced.  The Owner further claims that as the Direct Payment Agreement alleged by the Contractor is supplementary to the Main Contract and the Sub-Contract, the Contractor is not entitled to any payment from the Owner under the alleged Direct Payment Contract, if it cannot claim such payment under the Sub-Contract with HF.

15.The Owner admits in paragraph 6B (i) of the Defence that the work referred to in paragraph 11B of the SOC (namely, schedule of rates items SR2/1/2, SR2/2/12, SR 3/2/8, SR 3/2/9, SR 3/2/13, SR 3/2/14 and SR 3/2/15 (“Omitted Works”)) had been omitted.  However, the Owner denies (in paragraph 6B (iii)) that the Contractor is entitled to make any claims therefor, referring to clauses 3.02 and 10.05 of the Specification Preliminaries of the Sub-Contract (“SP”).

16.It is not disputed that the SP forms part of the terms and conditions of the Sub-Contract.  Clause 3.02 of the SP states as follows:

“Scope of the Sub-Contract Works

The Works to be carried out under this Sub-Contract comprise design (to the extent required by the Sub-contract), carrying out, taking full responsibility for, management, co-ordination, manufacture, supply, delivery, installation, taking care of, testing, commissioning, issuing, submission and obtaining the Authorities approvals, protection, removal of protection, completion and maintenance for the purpose of the following works for the Composite Building at 80 Gloucester Road, Wanchai, Hong Kong as shown on the design intent drawings and described in the Specifications….” (Emphases added)

17.Clause 10 of the SP deals with variations, and clause 10.05 states:

“Sub-contractor’s claims for extras due to omission of works

The Sub-contractor shall not be entitled to any monetary claims of whatsoever nature including loss of profit due to omission either entirely or partly of the Works and the Employer has right to instruct to delete such works from the contract and employ other parties to supply and/or construct.” (Emphases added)

18.The Contractor’s claim includes (in paragraph 11C of the SOC) the value of “abortive design works”, as a result of changes made by the Owner from June 2012 to September 2013.  In answer, the Owner pleads (in paragraph 6C of the Defence), inter alia, that the design changes were necessitated by the Contractor’s own failure to achieve the designs to comply with the Owner’s requirements, and that such changes were not variations. The Owner pleads and refers to clause 13 of the standard conditions of the Sub-Contract (“General Conditions”) as well as clause 10.05 of the SP.

19.By way of Reply to paragraph 6B (iii) of the Defence which deals with the Omitted Works, the Contractor only pleads that clause 10.05 of the SP is not applicable to works which had already commenced at the time when they were omitted, and avers that the Owner cannot rely on clauses 3.02 and 10.05 of the SP, by virtue of the non-prevention principle - as the Owner had breached the implied terms of the Direct Payment Agreement and the Sub-Contract, that the Owner/HF would not hinder or prevent the Contractor from carrying out the Works.  The same plea is made in reply to paragraph 6C (iii) of the Defence, in respect of the design changes and the abortive design costs, and to the Owner’s plea on the application of clause 10.05 of the SP.

20.In respect of the Contractor’s claim (in paragraph 11E of the SOC) for additional expenses incurred as a result of the delay in the handover of the site, the Owner pleads that no extension of time had been allowed, and further relies, firstly on clause 25 of the General Conditions and what it claims to be Special Condition 27 of the Sub-Contract, and further, clause 6 of the SP. Special Condition 27 sets out an amended General Condition 27, on the Owner’s contention, and states:

“The Contractor shall not be entitled to any addition to the Contract Sum, or any additional payment (whether as damages or otherwise) in respect of any cost, damage, loss or expense suffered during or arising from the extensions of time granted under clause 25,and the Contractor is deemed to have waived all rights, claims and damages to which he might have become entitled in respect of these extensions of time, whether under the Contract or as a result of the breach of the Contract by the Employer, its employees, agents or delegated persons.” (Emphases added)

The above provision is in fact in identical terms to clause 10.04 of the SP, with reference to the Sub-Contract sum. It is also worth pointing out that clause 5.03 of the SP, which deals with amendment of the General Conditions of the Sub-Contract, provides for the same amendment and replacement of clause 28 of the General Conditions.

21.The Owner claims that there was no agreement on the alleged Agreed Final Account, or any final account on the Project.  It further claims that there has been no agreement on the cause of, and the party responsible for, the delay in the completion of the Project, and whether the Contractor is liable for liquidated damages under the Sub-Contract in respect of the delay in the Works.  The Owner claims that all payments made to the Contractor pursuant to its applications in the course of the Works were interim payments only.  According to the Counterclaim, the Owner has overpaid a sum of $1,509,313.17, which it seeks to recover from the Contractor.

22.The Contractor’s plea of the existence of an express or implied promise by the Owner to pay for the expenses/costs claimed are unparticularised in the SOC. Counsel did not pursue these claims in closing.

23.The issues which arose and remained for determination at trial are: (1) the terms of the Direct Payment Agreement; (2) whether the Contractor is entitled to payment of the sums claimed under the terms of the Direct Payment Agreement/Sub-Contract; (3) if yes, the amount to which it is entitled; and (4) whether there was overpayment to the Contractor.

Existence and terms of the Direct Payment Agreement

24.As the relevant events took place over 7 years ago, the contemporaneous correspondence, and documents such as minutes of meetings prepared and exchanged in the course of the parties’ day to day involvement in the Project, and before dispute had arisen, are more reliable than the witnesses’ assertions in their statements prepared for the adversarial litigation.

25.The Contractor’s claim, that the Direct Payment Agreement was concluded at a meeting held between its Mr Ng and Mr Ho of RLB on 1 March 2013, is inconsistent with the contemporaneous correspondence, and is rejected.

26.The Contractor relies on a letter dated 2 May 2013 from the Contractor to HF (“2/5 Letter”) as record of the agreement allegedly made between Ng and Ho on 1 March 2013.  However, even on the face of the 2/5 Letter, there is no concluded agreement, as alleged.  The 2/5 Letter states:

“With reference to RLB’s letter in regarding the ‘Notification of Nomination of Subcontractor’ dated March 19, 2012 ref 6414/0224 and numerous discussion on the sub-contract payment arrangement, we would like to inform you that it was requested to have your agreement in regarding our work proposal on the arrangement of direct payment from the Employer for our sub-contract payment.

Should you have any further inquiry, please do not hesitate to contact us at your convenience.”

27.The 2/5 Letter referred to discussions on the payment arrangement, and on its face, the Contractor sought by the letter to inform HF that its agreement had been “requested”, with regard to the Contractor’s “proposal” on the arrangement for direct payment from the Owner.  There was no mention of any agreement having been reached.  If there had been a concluded agreement, it would not have been necessary for the Contractor to request HF, by the 2/5 Letter, to agree to what had been “proposed” by the Contractor.

28.On 2 May 2013, Mr Ho of RLB had also emailed HF. He referred to their previous discussions on the direct payment arrangement from the Owner to the Contractor, and stated:

“We previously discussed … and you expressed no objection to the proposal of making direct payment to (the Contractor) from the (Owner), instead of through (HF), subject, of course to your endorsement of all payment figures to (the Contractor) prior to the release of monies to (the Contractor).”

29.On 7 May 2013, HF replied to RLB, stating that it had no objection to the direct payment proposal.  However, HF’s letter stated clearly that its agreement was without prejudice to its rights and the other terms and conditions under the Main Contract and the Sub-Contract.  It was only in the RLB 20/5 Letter that RLB confirmed, on behalf of the Owner, and with reference to HF’s aforesaid letter of 7 May 2013, that the Owner had no objection to the direct payment arrangement.  The RLB 20/5 Letter added that such arrangement:

“shall be treated as supplementary agreement to the Main Contract and be implemented with immediate effect until instructions otherwise, provided always that each direct payment to (the Contractor) shall require (HF’s) consent prior to the release of the monies to (the Contractor); and all other terms and provisions in the Main Contract shall remain applicable.”

30.Counsel for the Owner highlighted the fact that even the Contractor’s internal email of 3 March 2013 contradicts its assertion of a Direct Payment Agreement having been concluded on 1 March 2013.  In the Contractor’s email of 3 March 2013, from Mr Ng to Mr Wong, Ng referred to his meeting with Mr Ho on 1 March 2013 and the direct payment arrangement discussed, with Ho stating at the meeting that he had discussed the matter with HF “with no objection”.  The email ended with Mr Ng telling Mr Wong to “get this case done ASAP by formalizing with black and white”.  Counsel highlighted that if agreement had indeed been reached on 1 March 2013, there would have been no necessity for Mr Wong to get the matter done and to further formalize it.

31.It was only by the RLB 20/5 Letter that the 3 relevant and necessary parties to the tripartite Direct Payment Agreement agreed on all the terms of the arrangement, which included, as HF pointed out in its letter of 7 May, such payment arrangement being without prejudice to the other terms of the Main Contract and the Sub-Contract, and as confirmed in the RLB 20/5 Letter, subject to each payment obtaining the prior consent of HF to the release of monies to the Contractor, and the other terms and provisions of the Main Contract being applicable.

32.The correspondence is consistent with Mr Ho’s evidence on the Direct Payment Agreement, and such evidence is accepted.

33.By its expressed terms as contained in RLB’s email of 2 May 2013 and the RLB 20/5 Letter, the Direct Payment Agreement is supplemental to the Main Contract, and further, is without prejudice to the terms of the Sub-Contract between the Contractor and HF.  The effect of the Direct Payment Agreement is that the only change to the Main Contract and the Sub-Contract and the structure of the parties’ relationship thereunder, is for the Owner to have the direct responsibility to make payment to the Contractor, of what is properly due to the Contractor under the Sub-Contract, instead of the Owner making payment of what is due to HF as the main contractor, and HF making payment to the Contractor.  I accept the submissions made on behalf of the Owner, that the Contractor is only entitled to claim from the Owner what is properly payable and due to it under and in accordance with the terms of the Sub-Contract.

The Contractor’s entitlement to payment under the applicable terms

34.It is trite, that the parties’ subjective understanding of the meaning and effect of the contractual provisions is irrelevant and inadmissible.  The witnesses’ declarations and purported understanding of the meaning and operation of the General Conditions and other terms of the Sub-Contract are not relevant to the Court’s findings on the parties’ rights and liabilities in this case.

35.On the Owner’s case, the Contractor is not entitled, as a matter of contract, to any of the claims asserted against the Owner in these proceedings.  According to the Owner, all the Contractor’s claims are precluded by the terms of the Sub-Contract.

36.Dealing first with the Contractor’s argument that it was only in January 2013 that the Contractor was shown the terms of the Sub-Contract for the first time, this is untenable on the face of the relevant documents.  Clause 1 of the Form of Tender itself, signed by the Contractor in December 2011, clearly states that the Contractor had examined the drawings, the Conditions of Sub-Contract, the Conditions of Main Contract and Specification for the Works tendered, and that the Contractor offered to carry out and complete the Works in conformity with these documents.

37.Second, the Sub-Contract recites the documents which had been supplied to the Contractor, and states that the Contractor had the opportunity of inspecting a copy of the Main Contract, and would be deemed to have knowledge of all the provisions of the Main Contract.  It is no answer for the Contractor to claim that, in fact, it had not taken the opportunity to carry out such an inspection.  The Sub-Contract was a document which the Contractor had signed, and it is bound by the provisions and terms of the document.

38.Clause 2 of the General Conditions of the Sub-Contract also specifically states:

“Sub-Contractor to comply with the provisions of the Main Contract that relate to the Sub-Contract

The Sub-Contractor shall be deemed to have full knowledge of all the provisions of the Main Contract except the Contractor’s rates.

The Sub-Contractor shall observe, perform and comply with all the provisions of the Main Contract which the Contractor has to observe, perform and comply with in so far as they relate to the Sub-Contract Works and are not inconsistent with the provisions of the Sub-Contract as if these provisions were set out in the Sub-Contract Conditions.” (Emphases added)

39.The Contractor is therefore bound by the terms of the Main Contract in all respects which relate to the Works. 

40.Further, from the contemporaneous email correspondence exchanged between the parties, it is clear beyond peradventure that the Contractor had been given the Sub-Contract in July 2012.  This contradicts the assertions of the Contractor and the suggestion sought to be made in paragraph 14 of Mr Ho’s witness statement, that he had only received the Sub-Contract “for the first time” in January 2013. 

The “condition precedent” to the Direct Payment Agreement

41.In paragraph 5.3 (ii) of the Defence, the Owner refers to the RLB 20/5 Letter and its conditions, as follows:

“on 20 May 2013, (RLB) notified (HF) that (the Owner) has no objection to the Direct Payment Arrangement provided that (a) it should be treated as supplementary agreement to the Main Contract and to be implemented until instructions otherwise (b) each direct payment shall require (HF’s) consent prior to release of monies and (c) all other terms of the Main Contract shall remain applicable…”

42.Paragraph 5.3 (iii) of the Defence also pleads that “(HF’s) prior consent was required prior to the release of money to (the Contractor) under the Direct Payment Arrangement”.

43.On my review of paragraph 5.3 of the Defence, I am satisfied that the Owner has adequately pleaded that it was a condition of the direct payment arrangement that each direct payment shall require HF’s consent prior to release of all monies.  Whether such consent was referred to as a “proviso”, or a “requirement”, or “condition”, makes no material difference in this case on the dispute as to whether there was breach, and whether the requirement or condition was complied with.  The Contractor has adequate notice since the Court Order of 15 May 2019 (at the latest), whereby leave was granted for the amendments to be made to the Defence, of the Owner’s case as to the requisite consent from HF, before release of any money to the Contractor.

44.The Contractor argued, on the evidence, that by making application to the Owner/RLB for interim payments, HF had consented to the claims for payment made by the Contractor.  As HF’s applications to RLB/Owner included the amounts claimed by the Contractor for the Works carried out, any condition to the direct payment, as claimed by the Owner, had been satisfied.

45.On behalf of the Owner, it was argued that what was required under the Direct Payment Agreement, as evidenced by the email dated 2 May 2013 from RLB to HF (and copied to the Contractor), was HF’s “endorsement of all payment figures”, namely the specific amounts to be paid after an assessment had been made by RLB and accepted by the Owner.  The application for interim payments made by HF throughout the course of the Project, which included the sums claimed by the Contractor, were still to be assessed and approved by the Owner, prior to release to the Contractor.  However, it cannot be disputed that payments had been made by the Owner to the Contractor pursuant to HF’s application, without any objection by HF.

46.The better argument, which I accept, is that the applications for payment made by the Contractor and by HF, and the payments which had been made by the Owner in the course of the Project, were all in the nature of interim payments.  Unless and until a final account has been issued in respect of the Project under the Main Contract and Sub-Contract, the fact of applications for payment having been made, assessed and paid, is not determinative of the entitlement of the Contractor to the payments due and payable under the Sub-Contract.  The Direct Payment Agreement is subject to the Sub-Contract as well as the Main Contract, and the parties remained bound by the conditions of the Sub-Contract as to their respective rights to and liability for payment in respect of the Works done.

The claims of omissions/deletions

47.It is common ground that the Omitted Works referred to in paragraph 11B of the SOC were the crystal signboard, the double leaf glass door on the ground floor, the LED façade light to the tower curtain wall, the architectural fins to the tower curtain wall, and the building signage, LED façade lighting and architectural fins which form part of the tower curtain wall of the Building.  There is no dispute that they were deleted from the original scope of the Works.

48.It is pertinent to consider the Contractor’s pleaded case.  Its claim (in paragraph 11B of the SOC) is that the costs of its site management team and design costs for the Omitted Works were not priced for or included in the preliminaries of the Sub-Contract, but the relevant work had commenced and the costs had been incurred when the Omitted Works were deleted from the scope of the Works.  The value of the Omitted Works was deducted from the total price payable to the Contractor.  The Contractor claims in paragraph 11B of the SOC that it is entitled to recover the site management and design costs, as well as loss of profits for the Omitted Works, as a result of the Owner’s breach of an implied term of the Sub-Contract, that the Owner/HF would not hinder or prevent the Contractor from carrying out the Works.  The costs total $677,195, and loss of profits thereon calculated at 10% total $703,945.

49.The Contractor seeks to place reliance on clause 13.4 (3) of the General Conditions, which sets out rules for valuation of permissible variations under the Sub-Contract.  It states:

“Where the Valuation relates to the omission of work included in the Sub-Contract Bills:

the rates for the work in the Sub-Contract Bills shall determine the Valuation of the work omitted; and

if, in the Quantity Surveyor’s opinion, the Sub-Contractor has reasonably incurred expense which has become wholly or partly unnecessary as a result of the omission of the work, a fair adjustment shall be made to the Valuation in respect of that expense.” (Emphasis added)

50.On behalf of the Contractor, it was argued that clause 13.4 (3) of the General Conditions permits valuation of the Omitted Works to the extent of permitting expenses which, in the opinion of the quantity surveyor, were reasonably incurred by the subcontractor.  The Contractor claims that these include the design and administration costs incurred in relation to the Omitted Works. 

51.It should be stated at the start that the Sub-Contract is not simply for the Contractor to carry out installation works in accordance with the drawings and designs supplied to it.  It is a design and build contract, and a contract for the Contractor to execute the Works defined in the Sub-Contract for a fixed lump sum.  The scope of the Works is described in detail in Clause 3.02 of the SP.  This is stated to comprise “design” to the extent required by the Sub-Contract, as well as “management and coordination”, all for the purpose of the Works as shown in the design intent drawings and as described in the Specifications.  Under the “inclusive price principle”, the work and materials to be provided by the Contractor under the Sub-Contract extend to all “indispensably or contingently necessary work” included in the Contractor’s obligation to complete the expressly described work (para 5-017, Hudson’s Building and Engineering Contracts, 14^th ed). 

52.With regard to its duties of site management and supervision, clauses 10 (1) and (2) of the General Conditions require the Contractor to maintain an experienced and competent site management and supervisory team on the site to organize, manage, plan and supervise the carrying out of the Works.  The scope of the Works specified in clause 3.02 of the SP also includes management and coordination.

53.The Contractor is not entitled to claim that any work which falls within the scope of the Sub-Contract can be charged at any additional costs, over and above the fixed contract sum of $19,232,356, unless it can be established that the conditions of the Sub-Contract permit the payment.  The burden lies on the Contractor to establish this to the satisfaction of the Court.

54.As the Owner highlighted, clause 10.05 of the SP expressly provides that the Contractor is not entitled to “any monetary claims of whatsoever nature” due to omission of either the entirety or part of the Works.  The clause states expressly, that the Owner has the right to instruct to delete such works from the Sub-Contract and to employ other parties to supply or construct the deleted works. 

55.Clause 10.05 (set out in paragraph 17 above) is drafted in wide terms, covering expressly even the right of the Owner to delete works and to employ others to carry out the Works instead of the Contractor.  The Owner claims that the deletion of the Omitted Works from the Sub-Contract was permissible under clause 10.05, and that as the Contractor is not entitled to any monetary claim, it cannot claim for either the costs of the Omitted Works, which must include the design and site management costs expressly included in the pricing of the Works under the scope of the Sub-Contract, or the loss of profits resulting from the omission of such works.  As Counsel for the Owner argued, allowing such a claim for omission would be permitting the Contractor to be paid for site management and coordination costs through the backdoor, when they were not allowed to do so under the Sub-Contract, even if the Omitted Works had not been deleted.

56.Counsel for the Owner contends that as clause 13.4 (3) of the General Conditions (on which the Contractor relies for its claim of expenses already incurred and rendered unnecessary as a result of the omissions) is inconsistent with clause 10.05 of the SP, the SP which are specific provisions governing omissions and the Owner’s right to delete any part of the Works under the Sub-Contract, should take precedence, and be given greater weight than the standard General Conditions of the Sub-Contract (paras 7.04 and 7.05, Lewison, The Interpretation of Contracts (6^th ed, 2015)). 

57.The Owner has referred to other provisions of the Sub-Contract, to illustrate that when the Sub-Contract is read and construed as a whole, it is clear that the Contractor was not intended to have any right to claim any additional payment at all for omission of any of the Works, or as a result of any alleged delay or disruption, as the Contractor’s right to additional payment over and above the Contract Sum was consistently deleted in the SP.  In addition to clause 10.05 of the SP, which excludes the Contractor’s entitlement to “any monetary claims of whatsoever nature” due to omission, clause 28 of the General Conditions was deleted by express provision (SCC 28 and clause 10.04 of the SP), and replaced by a new clause.  This excludes the Contractor’s entitlement to “any addition to the Contract Sum, or any additional payment (whether as damages or otherwise) in respect of any cost, damage, loss or expense suffered during or arising from extensions of time granted”. 

58.I have taken due heed of the submissions made on behalf of the Contractor, that the Court should seek to construe a contract as a whole, and try to arrive at an interpretation which is consistent with both the standard terms and the special terms, “if there is no necessary inconsistency” (Bayoil SA v Seawind Tankers Corp (1888) 13 App Cas 294, cited in para 7.04 of Lewison).  Having reviewed the provisions of clause 10.05 of the SP, and bearing in mind that clause 5.03 of the SP made amendments to the Standard Conditions of the Sub-Contract, I agree that the provisions of the SP were intended to take precedence over the General Conditions, and that accordingly, clause 10.05 of the SP takes precedence over clause 13.4 (3) of the General Conditions, and should govern the present case. 

59.If I should be wrong in my conclusion on clause 10.05 of the SP taking precedence, and if clause 13 of the General Conditions may be reconciled with clause 10.05, it may be arguable that the valuation of any variation under clause 13.4 (3) applies to a case in which the Architect (Owner in this case) issues an instruction omitting work included in the Sub-Contract, to be carried out by others, without the written consent of the Sub-Contractor when it is required under clause 13.1 (1) (c) of the General Conditions. 

60.Counsel for the Contractor did seek to argue that any right of the Owner in this case to delete any part of the Works under the Sub-Contract must be subject to the Contractor’s written consent.  It relies on clause 13.1 (c) of the Sub-Contract General Conditions, which provides as follows:

“Architect’s authority to issue instructions requiring a variation

13.1 (1) The Architect may issue an instruction requiring a Variation to the Sub-Contractor provided that:

(a) …

(b) …

(c) the Sub-Contractor’s written consent is given to an instruction omitting work included in the Sub-Contract which is to be carried out by the Sub-Contractor in order for it to be carried out by others.” (Emphases added)

61.In this regard, I accept the submissions of the Owner, that for lack of a necessary and proper plea, the Contractor cannot be permitted to argue, at trial, that clause 10.05 of the SP and the Owner’s right to omit works are not applicable, because there was no written consent to the Owner’s instructions to omit, as required under clause 13.1 (1) (c) of the General Conditions.  Order 18 rule 8 RHC requires a party, in any pleading subsequent to a statement of claim, to plead specifically any matter which he alleges makes any claim or defence of the opposite party not maintainable, or which, if not specifically pleaded, might take the opposite party by surprise, or which raises issues of fact not arising out of the preceding pleading.

62.On behalf of the Contractor, it was argued that paragraph 11B of the SOC, which pleads the Contractor’s entitlement to claim for the Omitted Works, includes (implicitly since there is no express allegation) a plea that the Owner was in breach of contract by omitting the items in question. 

63.In this respect, it is pertinent that what was pleaded in paragraph 11B of the SOC is not the breach of clause 13.1 of the General Conditions, but the breach of the implied term, that the Owner should not hinder or prevent the Contractor from carrying out the Works (“non-prevention principle”).  In relation to this averment, it is trite, as a cardinal rule, that a term cannot be implied if it contradicts an express term (Marks and Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, BP Refinery (Westenport) Pty Ltd v Shire of Hastings (1978) 52 AJLR 20).  The express terms of clause 10.05 of the SP permit the Owner to delete and omit Works, and the non-prevention principle relied upon by the Contractor simply does not apply (Kensland Realty Ltd v Whale View Investment Ltd [2002] 1 HKLRD 87).  The rule of construction, as described and explained by Lord Diplock in Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 at 188-189 (and applied in Kensland Realty Ltd v Whale View Investment Ltd [2002] 1 HKLRD 87) is as follows:

“the well-known rule of construction that, except in the unlikely case that the contract contains clear express provisions to the contrary, is to be presumed that it was not the intention of the parties that either party should be entitled to rely on his own breaches of his primary obligations as bringing the contract to an end, ie as terminating any further primary obligations on his part then remaining unperformed. This rule of construction, which is paralleled by the rule of law that a contracting party cannot rely on an event brought about by his own breach of contract as having terminated a contract by frustration, is often expressed in broad language as ‘A man cannot be permitted to take advantage of his own wrong’”.

64.The terms of the Sub-Contract clearly provide for the Owner to delete the entirety or part of the Works.  In such circumstances, I fail to see how it can be argued that the Owner was relying on its breach of contract, in disallowing the Contractor’s claim for costs of the Omitted Works.

65.Even if it is to be accepted, that the Contractor has made it clear in paragraph 11B of the SOC that it relies on the omission of the deleted works as the Owner’s breach of the Sub-Contract, paragraph 6B of the Defence pleads the Owner’s reliance on clause 10.05 of the SP, by way of denial to paragraph 11B of the SOC.

66.If the Contractor’s case is that clause 10.05 of the SP does not apply to the facts of the case, because of the absence of the Contractor’s written consent to the instructions omitting the Works in question, this fact of the absence of written consent (as allegedly required under clause 13.1 (c) of the General Conditions) must be pleaded in the Reply (Order 18 rule 8 RHC).

67.It is, again, trite that a party’s case is defined by its pleadings, the importance and purpose of which have been clearly explained and highlighted by the Court of Final Appeal in Sinoearn International Ltd v Hyundai-CCECC Joint Venture (a firm), unrep FACV 22/2012 and Kwok Chin Wing v 21 Holdings Ltd, unrep FACV 9/2012 (see para 18/0/3 Hong Kong Civil Procedure 2020).  A party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken.  The purpose of pleadings is not just for the benefit of the parties, but also for the benefit of the Court in managing and trying cases.

68.As pointed out by Counsel for the Owner, if the issue of the absence of the Contractor’s written consent to the Owner’s instruction to omit part of the Works had been put in issue and pleaded in the Reply, the Owner would have adduced evidence as to the reasons for the omission, whether the Contractor’s consent was required and obtained, whether the variation/omission was necessitated by any breach or default by the Contractor, and whether the omission of the relevant Works was otherwise justified in the context of the Project and the Works executed and omitted.

69.In this case, since the absence of written consent was not pleaded, the Contractor cannot be permitted to argue that its claims fall within clause 13.4 (3) (b) of the General Conditions.  Clause 10.05 of the SP governs and determines the matter, and excludes the claims relating to the Omitted Works.  By its plain language, clause 10.05 excludes all entitlement to monetary claims of whatsoever nature, with no distinction made between costs incurred and work done before the omission, and loss of profit for work done or anticipated to be done.

Costs of aborted designs

70.To a great extent, there is duplication in the bases of the claim for the Omitted Works and the claim for the costs of aborted design work.

71.The Contractor’s claim in paragraph 11C of the SOC is for the costs of aborted design costs, relating to changes made to the design of the signboard, tower curtain wall and the ground floor shop front, which it claims were rendered aborted when the items of work in the schedule of rates were omitted, and alternatively were variations pursuant to clause 13.1 of the General Conditions.  It claims that the design costs element of the Omitted Works are recoverable as variations despite the omission, and alternatively as damages.

72.To the extent that the abortive design costs were incurred and said to be aborted as a result of the omission, the Owner maintains that they are precluded by clauses 3.02 and 10.05 (dealt with above). The Owner also denies in paragraph 6C of the Defence that they were variations, claiming that the design changes were necessitated by the Contractor’s own failure to achieve the designs which comply with the requirements of the Owner. The Owner further pleads that there was no variation order issued or approved under the Sub-Contract in respect of the disputed changes.  Other variations as were agreed had already been assessed and allowed.

73.Before the Contractor can claim under clause 13.1, it must first establish that the instructions regarding the disputed changes in design were variations within the meaning of the Sub-Contract.  Clause 13.1 also specifies a procedure or mechanism for the issue of variations.

74.As highlighted in the earlier parts of this Judgment, the Sub-Contract is a design and build a contract, and the scope of the Works set out in Clause 3.02 of the SP covers design, and the submission and obtaining of the approvals from the building authorities for the Works.  The Contractor was to be responsible to develop the design of the Works to meet the requirements in the technical specification, to the approval of the Owner, and to obtain all necessary approvals and consent from the authorities.  Clause 3.02 expressly requires the Contractor to submit shop drawings and calculations, and to carry out tests as necessary, to substantiate its design to the satisfaction of the main contractor, the Owner and the authorities and to obtain their respective approvals and consents prior to the execution of the Works.

75.Under Clause 7.06 of the SP, shop drawings had to be submitted by the Contractor before the Work proceeds, and the Owner may reject, approve or amend the shop drawings for the Works.  The clause expressly states that no claim would be accepted for disapproval or amendments required by the Owner, and that any approval by the Owner of such drawings shall not relieve the Contractor of its duties and responsibilities under the Sub-Contract. 

76.The Owner pointed out that during the entire design development process of the Project, the Contractor had the duty to produce schematic drawings for the consideration of the project team, and to circulate the schematic drawings and revisions to the team for comment and approval.  It was only upon approval by the Owner and the consultants of the design submitted that the detailed shop drawings, construction details and structural calculations should be produced by the Contractor in anticipation of submission to the Buildings Department.  If any submission was rejected by the Buildings Department, the Contractor had the duty under the Sub-Contract to undertake further design work, to the satisfaction of the Owner and to secure the approval by the Buildings Department for the Project.  According to the design consultants, the design for the curtain wall of the Building had not yet been finalized or “frozen”, and the parties were still at the stage of design development when most of the changes now made the subject matter of the Contractor’s claims were asked for at the regular design meetings, agreed, and produced.  Complaint had been made by the consultants at meetings with the Contractor that the detailed drawings of the Contractor had been submitted prematurely and unnecessarily.

77.There is also evidence from the Owner that the alterations made in 3 sets of drawings for which the claims were made were caused by the Contractor’s wrong advice that approval from the Buildings Department could not be obtained for the original tender requirement for a 4-sided concealed frame system.  The Contractor prepared the drawings and calculations for a two-sided mechanism instead, but changes were later made to revert to the original tender requirement for which the authorities’ approval was successfully obtained.  I accept that the Contractor should not be permitted to benefit from its own advice to deviate from the tender requirement, and to obtain payment for the altered design.

78.The Contractor claims that the changes made to the design were “changes of design intent” which were not covered by the scope of work in clause 3.02 of the SP and clause 7.06 of the SP (which provides for the Owner’s right to amend and reject shop drawings).  The Contractor as plaintiff has the burden to establish its claims.  I have not been referred to the design drawings in detail, for the alleged “design intent” of the original drawings to be explained and established, to show that the changes made by the Owner and which the Contractor claims to be variations, and a change of design intent, should be allowed as work which fell outside the scope set out in clause 3.02.  I have, however, been referred to evidence as to minor alterations and changes, in the thickness of materials used, in the number of the panels, and in the dimension or location of the support, which do not appear to me objectively, without further guidance and elaboration, to constitute major changes of design intent, as alleged.

79.Having regard to the scope of the Works as provided for in clause 3.02 of the SP, the duties of the Contractor as set out in clause 7.06 of the SP, the drawings to which I have been referred and the work involved for which the claims of variations are made, I am not satisfied that the changes for which the Contractor seeks additional payments were not part of the overall design development, to fall within the scope of the Works and the Contractor’s duties under the Sub-Contract.  I accept the submissions made on behalf of the Owner, that the cost of the relevant design work is part of the design development undertaken within the scope of the Works, as opposed to design changes and variations, and was included in the lump sum of the Sub-Contract.  To the extent that the design costs are claimed as part of the Omitted Works, they are likewise excluded by clause 10.05 of the SP as I have found.  The Contractor has no contractual basis to claim any additional costs, when the design of the Works had to be further developed and changed in accordance with Owner’s requirements, and to obtain the approval of the Buildings Department.  There is no provision in the Sub-Contract which restricts the Contractor to the production of one set of shop drawings according to the design intent, and for submission to the Buildings Department, as alleged by the Contractor. 

80.Having rejected the Contractor’s claims on the ground of the scope of the Works, it is not necessary to deal with the merits of the Owner’s defence on quantum.  The valuation by the single joint expert is all subject to the Court’s findings on liability.

81.The claim of breach of the implied term of non-prevention is rejected for the same reason set out in the earlier part of this Judgment: the implied term has no application when it is inconsistent with the express terms of the Sub-Contract which exclude claims for additional payment.  The clear provisions of the Sub-Contract are that the design work and extras claimed are included within the scope of the Works, and the Contractor is not entitled to any additional payment.  The Owner is not relying on any breach on its part to disallow the Contractor’s claim.

Prolongation costs

82.The Contractor’s pleaded case on its alleged entitlement is that (according to paragraph 11E of the SOC) owing to the late handover of the site to the Contractor for the installation works, the Contractor had to incur extra costs for the temporary storage of the completed wall units, extra labour costs, as well as additional insurance costs for the period of delay.  The Contractor pleads that it is entitled to claim for these costs as common law damages due to the Owner’s breach of the implied term, on the non-prevention principle.

83.In its Defence, the Owner denies the Contractor’s alleged entitlement, and refers to clauses 25 and 28 of the General Conditions (clause 28 being essentially the same as what the Owner referred to as Special Condition 27), and clause 6 of the SP. 

84.The claim of breach of implied term has been rejected.

85.In the context of resisting both the Contractor’s claims for aborted design as variations, and for prolongation costs, Counsel for the Owner argued and highlighted that not only was clause 28 of the General Conditions (headed “Direct loss and/or expense”) replaced, but clause 29 of the General Conditions (“Notice of claims for additional payment”) was also deleted.  The original clause 28 provided for the Contractor’s right to give notice of a claim for additional payment on the basis that the progress of the Works had been delayed or disrupted by a qualifying event, which included an instruction requiring a variation (clause 28.1(2)(c)), and an instruction postponing the commencement of the Works and the possession of the site (clause 28.1(2)(e)).  Clause 29 deals with the manner of giving notice of claims for additional payment by reason of the occurrence of any event which the Contractor alleges gives rise to a claim. 

86.Counsel argued that the deletion of the original clause 28 and the mechanism under clause 29 for making claims demonstrates that the Contractor is not entitled, and was not intended to be entitled, to any additional payment, whether by reason of delay and extensions of time granted, or for omission, or variation.

87.In arguing that clause 29 of the General Conditions had been deleted in its entirety, Counsel for the owner relies on the special conditions at page 3564 of Bundle D11 (“Bundle”), and contended that the reference there to “SCC 28-Notice of claims for additional payment” and to clause 28 of the Standard Conditions should be a reference to clause 29 of the General Conditions of the Sub-Contract.

88.Although the relevant page is marked “Sub-Contract for Curtain Wall” at the bottom left, having carefully reviewed the documents comprising the Sub-Contract (from page 3407 of the Bundle), the Contents page on pages 3408 and 3409 of the Bundle, as well as clause 6 of the SP which includes a list of the standard conditions of the Main Contract clause headings, I conclude that the amendment sought to be made by SCC 28 on page 3564 was amendment to clause 28 of the standard conditions of the Main Contract, and not the Sub-Contract. A comparison of the clause numbers and headings of respectively the Main Contract and the Sub-Contract shows that there is an additional clause 26 in the General Conditions of the Sub-Contract, which explains the deviation in the clauses numbers of the Main Contract and the Sub-Contract. The reference in “SCC 28-Notice of claims for additional payment” on page 3564 to clause 28 should be a reference to the Main Contract, and not a typographical error as Counsel for the Owner argued.

89.The Special Conditions of the Main Contract (from pages 3558 to 3565 of the Bundle) were included in the Sub-Contract documents, since the Contractor agreed by clause 2 (2) of the Sub-Contract to observe, perform and comply with all the provisions of the Main Contract (as may be amended), of which the Contractor was deemed by clause 2 (1) to have full knowledge. However, by the express terms of clause 2 (2), the conditions and provisions of the Main Contract bind the Contractor, and have to be observed by it, to the extent and in so far only as such terms “are not inconsistent with the provisions of the Sub-Contract”.

90.Clause 5.03 of the SP amended specific terms of the Sub-Contract, including clause 25 of the General Conditions, and deleting clause 28 and replacing it with a new clause 28. However, clause 5.03 of the SP did not make any provision for the deletion of clause 29 of the General Conditions of the Sub-Contract.

91.To the extent that clause 29 of the general conditions of the Main Contract (headed “Notice of claims for additional payment”) was deleted by SCC 28, without a corresponding deletion of clause 29 in the Sub-Contract, there is inconsistency with the provisions of the Sub-Contract. The deletion of clause 29 of the Main Contract does not apply to the Sub-Contract, to bind the Contractor.

92.Clause 29 of the General Conditions provides for the mechanism of giving notice of claims, if the Contractor alleges that it had incurred loss and expense and intends to make a claim for additional payment under the Sub-Contract. The giving of notice in accordance with clauses 29.1 and 29.2 is a condition precedent to the Contractor’s entitlement to additional payment (as provided for in clause 29.3), but clause 29 itself does not provide for the Contractor’s entitlement to additional payment. That entitlement, and the disputed right of the Contractor to claim for prolongation costs in this case, are determined by construing clauses 25 and 28 of the General Conditions.

93.Clause 25 provides for extensions of time for completion of the Works, and notice to be given if extensions of time are required by the Contractor.

94.The original clause 28 of the General Conditions permitted the Contractor to claim “additional payment” if it had incurred or was likely to incur “direct loss and/or expense because the progress of (the Works) had been or was likely to be delayed or disrupted” by a qualifying event. Qualifying events included instructions for the postponement of the date of possession of the site and/or the postponement of the commencement date of any part of the Works, as well as instructions for variations.  Clause 28.1(1) required the Contractor to follow the procedures for making claims as set out in clause 29 of the General Conditions.

95.Clause 5.03 of the SP amended the General Conditions of the Sub-Contract.  Under clause 5.03, the original clause 28 was deleted in its entirety and replaced by the following:

“The Sub-Contractor shall not be entitled to any addition to the Contract Sum, or any additional payment (whether as damages or otherwise) in respect of any cost, damage, loss or expense suffered during or arising from extensions of time granted under clause 25, and the Sub-Contractor is deemed to have waived all rights, claims and damages to which he might have become entitled in respect of these extensions of time, whether under the Contract or as a result of a breach of the Contract by the (Owner), its employees, agents or delegated persons.” (Emphases added)

96.I agree with the Owner, that when the deletion of the original provisions of clause 28 is read in conjunction with the replaced provisions, and the Sub-Contract is construed as a whole, the purpose and intent of the amended clause 28 should be to preclude the Contractor from claiming any additional payment, whether as damages or otherwise, in the event of delay.  If commencement of the Works and delivery of the site was delayed such that the Works were affected, the Contractor was entitled to seek an extension of time under clause 25 of the General Conditions, by giving notice under and in accordance with the provisions of the clause.  The grant of an extension of time would absolve the Contractor from liability for any liquidated damages, but that was the limit of its entitlement, by virtue of the deletion of the original clause 28 providing for the right to claim its direct loss and expense, with the consequence that such and any additional cost and expense which may arise during, or which may be caused by, the delay have to be borne by the Contractor. 

97.Whether or not an extension of time is applied for and granted should not alter the position of the Contractor’s entitlement. If the Contractor claims that its Works had been affected by the delay in the handover of the site, gives notice pursuant to clause 25 and is granted an extension of time thereunder, it is not entitled under the amended provisions of clause 28 to any additional payment or damage suffered during or arising from the extension of time granted, and it is deemed to have waived all such rights and claims.  If the Contractor claims that it had been affected by delay, but does not apply for an extension of time notwithstanding the delay, yet claims that it had incurred or suffered cost and damage as a result of the delay, it contradicts the objective intent and purpose of clause 28, and defies common sense to permit the Contractor to recover the cost and damage as additional payment. 

98.The parties to the Sub-Contract and the Main Contract had sought to apportion the risk of loss in the manner provided for in clauses 28 and 25.  Contrary to the submissions of Counsel for the Contractor, I do not see the necessity to construe these provisions by any special or harsher rules of construction, since the modern trend of the courts is to recognize and permit the parties’ agreed manner of limiting recovery of damages as part of the apportionment of risks (para 6-082, Hudson’s Building and Engineering Contracts, 14^th ed and the cases cited therein).

Whether there was an Agreed Final Account

99.The Contractor’s claims for the amounts included as abortive design works, prolongation costs and variations are primarily on the basis of the Agreed Final Account referred to in paragraph 15 of the SOC, and which is alleged to have been finalized and agreed between the Contractor and RLB on behalf of the Owner on about 26 April 2017.  The Agreed Final Account (in an amount of $17,366,260.83) is said to be an agreement in consideration of an early settlement of the final account for the Project, and included the amounts of abortive works and the prolongation costs resulting from the delay. 

100.On the Owner’s case, there had been dispute amongst the parties from an early stage of the Project on issues of liability for delay, and the claims made by HF and the Contractor for cost adjustments relating to their work.  There had been numerous meetings and discussions amongst the parties to resolve these matters, but they all ended without agreement.

101.The Contractor’s evidence on the Agreed Final Account is mainly from Mr Wong Ming Chi, and supplemented by the evidence of Ms Lam Wai Shan.  According to Mr Wong, there was agreement between himself and Mr Chan of RLB, first, on a “settled figure”, in August 2014.  This was pursuant to “an overall interim assessment” of the Sub-Contract issued by RLB on 15 August 2014, which included RLB’s assessment of the Contractor’s claim for additional costs for late handover and design costs for changes and variations, at $16,996,585.49 (“Settled Figure”).  Mr Wong claims (in paragraph 63 of his witness statement of 30 November 2018) that although he had not been provided with details as to how RLB’s adjustments were arrived at, he had informed Mr Chan that by way of a commercial concession, the Contractor was agreeable to RLB’s overall assessment as “the Settled Figure for the Sub-Contract”.  As evidence, Mr Wong referred to the fact that the Settled Figure, rounded up to $17 million, was thereafter adopted by the Contractor as the “agreed base sum” for the Contractor’s payment applications, from its interim payment application No 20 dated 30 August 2014 to its interim payment application No 34.  He pointed out that the Settled Figure was also adopted by RLB as the base for assessing the Contractor’s applications for Payment Advice Nos 6 to 10.

102.On Mr Wong’s evidence, after the substantial completion of the Works in December 2015, the Contractor produced its draft final accounts in January 2016 for RLB’s assessment.  RLB eventually submitted its assessment in June 2016, and issued to the Contractor on 22 July 2016 the first draft of the final account, for the parties’ consideration.  This was for $17,920,578.81.

103.According to the Contractor, further meetings were held between the parties on the assessment of the final account and on 26 April 2017, RLB issued its final assessment of the final account for the Works, in the value of $17,366,260.83, for the parties’ agreement.  On Mr Wong’s evidence, notwithstanding the reduction from the earlier figure produced in July 2016, he considered that it was a “close enough valuation” of the $17 million Settled Figure, and accordingly informed Mr Yip of RLB of the Contractor’s agreement to the Agreed Final Account.  As evidence, Mr Wong relies on his email of 8 May 2017, by which he asked for release of the payment due to the Contractor under the Agreed Final Account.

104.On Ms Lam’s part, she claimed in her evidence that she had attended a meeting with Mr Chan and Mr Ho of RLB on 14 August 2014. It was a meeting on the Contractor’s claims for variations, including additional costs for the late handover, and the design costs for the changes and variations.  On her evidence, the Contractor’s claims were discussed in detail at the meeting, but no conclusions were reached.  She claimed in her witness statement that RLB indicated that they would work on the figures and provide the Contractor with an assessment.  Such assessment was issued on 15 August 2014, for the Settled Figure of $16,996,585.49.  Ms Lam also relied on the fact that the Contractor had submitted its payment applications using the Settled Figure as a base for RLB’s assessment.

105.On the Agreed Final Account, Ms Lam’s evidence is simply that this was the final assessment of the final account which was issued by RLB on 26 April 2017, and which was agreed to by the Contractor. 

106.On the evidence of the Owner, the focus of the parties was to resolve the differences and disputes as to costs entitlement by a “commercial and global settlement”, and that meetings and discussions were held without prejudice to the parties’ respective rights under the Main Contract and the Sub-Contract, if no global settlement was reached.  Counsel for the Owner highlighted the fact that the contemporaneous correspondence and documents are overwhelmingly against the assertions made by Mr Wong and Ms Lam, as to an Agreed Final Account having been reached.

107.In relation to the Settlement Figure, Ms Lam accepts in her witness statement that RLB’s assessment of the Contractor’s claim was issued after the meeting on 14 August 2014, when no conclusions had been reached.  Mr Wong’s evidence is that he had called Mr Chan of RLB upon receipt of the assessment, and had informed him that the Contractor was agreeable to the Settled Figure. 

108.On the Owner’s case, Mr Ho’s evidence is that following extensive discussions and clarification between the contractors and the consultants as to the costs claimed by HF and the Contractor, he and Mr Hui of the Contractor had a telephone discussion on 7 August 2014, during which they tried to resolve their differences by reaching “a commercial and global settlement”.  Mr Ho said that he and Mr Hui tried to target an overall and global figure of approximately $17.4 million, without taking into account the parties’ responsibilities for the long delay in the completion of the Project. The target and global figure was for all parties to explore and work on, and subject to comments and directions from HF and the Owner.

109.The Owner’s emphasis was on an overall and global settlement, as the aim and purpose of the discussions in August 2014.  This is supported by Mr Ho’s email of 15 August 2014 at 6:27 pm.  It was sent to Ms Lam of the Contractor, copied to Mr Chan, and marked “On without prejudice basis”, stating:

“We previously spoke. (Mr Chan) has prepared a very rough figure on overall settlement approach as attached for your reference. We still need time to explore and continue to discuss with you in the next couple of weeks.” (Emphasis added)

110.Ms Lam’s reply to Mr Ho’s email, on 21 August 2014, was as follows:

“We would like to take this opportunity to express our heartfelt thanks to you for putting so much time and effort on handling our prolongation claims with all parties in the past few months. We are pleased to keep discussion with you, could you please advise your availability for arranging a meeting in coming week?”

111.As Counsel pointed out, Ms Lam’s email contradicts her testimony that the Settled Figure had already been settled and agreed by the time.  If it was true that the Settlement Figure had been agreed and finalized between Mr Wong of the Contractor and Mr Chan of RLB in the course of their telephone conversation on 15 August 2014, there would have been no necessity for further discussions and meetings, as Ms Lam stated in her email of 21 August 2014.

112.Mr Wong and Ms Lam both claim that the agreement on the Settled Figure is evidenced and supported by the Contractor’s applications for payment, and the Owner’s payment advices, from 30 August 2014, which the Contractor claims adopted the Settled Figure as the basis for the application, assessment and payment.

113.First, the applications and the payments were interim payments.  If they evidenced any agreement, it was only evidence of agreement for payment on interim basis, subject to the assessment by RLB of the final accounts and also subject to the final agreement of the Owner to the final accounts of the Project.  In the absence of a clear expression to the contrary, the application for payment and the payment upon RLB’s assessment and certification are, at most, certification of the value of the Works for the purpose of making the interim payment, and are meant to be provisional and only an approximation (Wong Chuk Kin v Millennium Engineering Ltd [2007] HKEC1521).

114.The Contractor’s claim of a Settled Figure is difficult to comprehend.  On Mr Wong’s case, the figure was agreed between himself and Mr Chan of RLB as the “Settled Figure for the Sub-Contract”.  This should mean a figure for the settlement of the entire Sub-Contract, and of the payment due to the Contractor under the Sub-Contract.  However, even on the evidence relied upon by the Contractor, including the applications for payment made from and after 30 August 2014, the Contractor had used different amounts as the value of the Works payable under the Sub-Contract.

115.It is true, as the Contractor emphasized, that the relevant applications for interim payment refer to the “Contract Sum” as $17 million, which the Contractor claims is the Settled Figure rounded up, but the relevant applications were for payment of sums which varied from $16,986,231.73 (for the application dated 30 August 2014) to $16,963,793.53 (for the application dated 10 October 2014).  The Contractor’s witnesses explained in Court that the discrepancies took into account the value of works which were continuing.  However, that contradicts the meaning of and undermines the necessity for a Settled Figure, as alleged, and is also inconsistent with Mr Wong’s assertion that the Settled Figure was agreed in August 2014 as settled for the Sub-Contract.  At most, it is consistent with the Settled Figure having been agreed simply as the basis to be used for applications for interim payment, until the final accounts can be agreed under and in accordance with the Main Contract and the Sub-Contract.

116.The Works were not in fact completed until December 2015, which explains why the accounts using the Settled Figure could not have been final, nor representative of a global and overall settlement of the Contractor’s claims, as RLB sought.

117.As for the alleged agreement on the Agreed Final Accounts in April 2017, after substantial completion of the Works in December 2015, there is no document or contemporaneous correspondence to support the conclusion of such agreement, apart from Mr Wong’s cursory assertion in paragraph 74 of his 1^st witness statement.  This was without any particulars as to how and when Mr Wong had allegedly informed Mr Yip of the Contractor’s agreement to the sum of $17,366,260.83.  The email of 8 May 2017 from Mr Wong, to Mr Yip and Mr See of the Owner, did not refer to any agreement he had reached with Mr Yip on the telephone, which is surprising given the disputes and discussions which had taken place since June 2014, and if the Contractor and RLB allegedly on behalf of the Owner did finally agree on a compromise of the long-standing disputes.  The email was brief, and equivocal as to whether there was any agreement or consensus, as it only stated:

“As referred to the captioned project and the below assessment, please be requested to release the long outstanding balance payment accordingly.”

118.Mr Wong received, by way of response to his 8 May 2017 email, a reply from Mr See of the Owner, in which Mr See stated that before the long outstanding balance payment was to be released, the Contractor had to provide a list of supporting documents for consideration by the Owner.  If there was indeed agreement reached on 26 April 2017, as Mr Wong alleged, it is again astonishing that Mr Wong had not immediately responded, to refer to the agreement.

119.Significantly, even if there was a Direct Payment Agreement between the Contractor and the Owner, it was supplemental to the Sub-Contract between HF and the Contractor, and without prejudice to the terms of the Main Contract between the Owner and HF.  It was a tripartite agreement involving the Owner, HF and the Contractor, affecting their rights and liabilities under the Main Contract and the Sub-Contract.  If there was a final account in respect of the claims made by and payments due to the Contractor, it would require the agreement of not only the Contractor and the Owner (allegedly acting by RLB), but also the agreement of HF.  There is no evidence even on the part of the Contractor that HF had agreed to the Agreed Final Account for the Project, and I reject the Contractor’s claim of such an Agreed Final Account having been concluded, as improbable.

120.It is indisputable, from the minutes and other records after May 2017, that there were further discussions and correspondence on the breakdown of the payments claimed, with no agreement reached, and the parties including the Contractor decided thereafter to revert to their contractual claims and entitlement under the respective Sub-Contract and Main Contract.

121.The Contractor’s claims made under and by virtue of the Agreed Final Account are rejected.

Conclusions and orders

122.It is unfortunate that the parties had to resort to expensive litigation to resolve a claim of an insubstantial amount.  The Court is not in a position to rewrite contracts for parties, and a claimant bears the burden of proving on a balance of probabilities its entitlements to the relief claimed, on the basis of the pleadings formulated in preparation for trial, and on the available evidence adduced at trial.

123.On the basis of the findings made, the Contractor’s claims are all dismissed.  There is no dispute on the payments received by the Contractor, and it follows from my findings that the Owner’s counterclaim for overpayment of the sum of $1,509,313.17 is allowed, with interest from the date of service of the Writ, and costs of the action and of the counterclaim.

Mr Solomon Lam, instructed by Norton Rose Fulbright Hong Kong, for the plaintiff

Mr Anthony Chan, instructed by Hobson & Ma, for the defendant