Hang Kee Development Co Ltd v. Ming Hing Civil Contractors Ltd

HCA 1724/2018

[2022] HKCFI 455

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1724 OF 2018

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JUDGMENT

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A. INTRODUCTION

1.This is a construction dispute where the Plaintiff, Hang Kee Development Company Limited, claims against the Defendant, Ming Hing Civil Contractors Limited, for wasted expenses amounting to HK$7,896,934.16 under two sub-contract agreements entered into between the two parties (collectively, the “Sub-Contracts”).

2.The Plaintiff, whose business is the provision of waterworks services, was engaged by the Defendant as one of the subcontractors in 2 water mains replacement and rehabilitation projects in East Kowloon commissioned by the Water Supplies Department (“WSD”).

3.The Defendant was the main contractor of the said projects, which were awarded to the Defendant by the WSD by virtue of two contracts, namely, 14/WSD/10 made in July 2011 (“14/WSD/10”) and 13/WSD/11 made in January 2012 (“13/WSD/11”).

4.By this Action, the Plaintiff alleges that the Defendant acted in breach of the Sub-Contracts giving rise to the damages sought by the Plaintiff. The Plaintiff’s original claims were for:

(1)   Loss of profit of approximately HK$21M;

(2)   Loss of wasted expenditure of approximately HK$3.3M (later revised to HK$7,896,934.16) said to have been incurred by the Plaintiff in reliance on the oral agreement it reached with the Defendant.

5.The Defendant counterclaimed for a sum of HK$7,179,208 in respect of amounts said to have been overpaid to the Plaintiff under the Sub-Contracts.

6.Before the trial commenced, the parties informed the Court that:-

(1)   the Plaintiff would no longer pursue its claim for loss of profits;

(2)   the Defendant would abandon its counterclaim; and

(3)   the Plaintiff revised its claim for damages to the amount of HK$7,896,934.16 against the Defendant.

B.      AGREED FACTS

7.On 5 July 2011, the Defendant was awarded 14/WSD/10 by the WSD.

8.On 13 January 2012, the Defendant was awarded 13/WSD/11 by the WSD.

9.In around mid-2014, the Plaintiff (as sub-contractor) and the Defendant (as main contractor) entered into (1) a sub-contract in relation to 13/WSD/11 (“13/WSD/11 Sub-Contract”); and (2) a sub-contract in relation to 14/WSD/10 (“14/WSD/10 Sub-Contract”). 

10.On 9 April 2014, the Plaintiff commenced work for the Defendant under the 13/WSD/11 Sub-Contract.

11.On 21 July 2014, the Plaintiff commenced work for the Defendant under the 14/WSD/10 Sub-Contract.

12.The parties executed a Chinese agreement (分判工程合约 ) dated 2 May 2014 in relation to the 13/WSD/11 Sub-Contract (“13/WSD Chinese Agreement”). The 13/WSD Chinese Agreement was signed by Mr Yip Chi Yung (“Mr Yip”) on behalf of the Plaintiff and Mr Ma Ving Hoo (“Mr Ma”) on behalf of the Defendant. A schedule of rates in relation to the 13/WSD/11 Sub-Contract works was appended thereto.

13.The parties also executed a Chinese agreement (分判工程合约 ) dated 10 July 2014 in relation to the 14/WSD/10 Sub-Contract (“14/WSD Chinese Agreement”). The 14/WSD Chinese Agreement was signed by Mr Yip on behalf of the Plaintiff and Mr Ma on behalf of the Defendant. Similar to the 13/WSD Chinese Agreement, a schedule of rates was appended thereto.

14.Pausing here, the terms of the 13/WSD Chinese Agreement and the 14/WSD Chinese Agreement are largely identical. I shall refer to them collectively as the “Chinese Agreements” and the schedule of rates appended to the respective Chinese Agreements collectively as the “Schedules of Rates”.

15.The total value of the works described in the Schedule of Rates for the 13/WSD/11 Sub-Contract and the 14/WSD/10 Sub-Contract was $104,216,573 and $120,198,855 respectively.

16.According to the latest interim payment certificates, the total interim payments certified by the Defendant to the Plaintiff under the 13/WSD/11 Sub-Contract and the 14/WSD/10 Sub-Contract were $23,202,694.35 and $918,732.15 respectively.

17.On 26 July 2018, the Plaintiff commenced the present Action.

C.      ISSUES

18.I am of the view that the issues in dispute between the parties are as follows: 

(1)   Whether there was an oral agreement between the parties that the Defendant was to assign all of the works in the Schedules of Rates to the Plaintiff (“Oral Agreement Issue”)?

(2)   If not, whether the Defendant was required to assign to the Plaintiff all of the works set out in the Schedules of Rates under the Chinese Agreements (“Construction Issue”)?

(3)   Whether the Defendant acted in breach of the Sub-Contracts by:

(a)    failing to assign part of the works set out in the Schedules of Rates to the Plaintiff; and

(b)   deferring the assignment of works to the Plaintiff beyond the respective period of the Sub-Contracts (“Breach Issue”)?

(4)   If so, whether the Plaintiff suffered any loss and what relief was the Plaintiff entitled to (“Quantum Issue”)?

D.      ANALYSIS

D1     Oral Agreement Issue

19.In gist, the Plaintiff’s case is that:

(1)   the Plaintiff and the Defendant entered into the 13/WSD/11 Sub-Contract and 14/WSD/10 Sub-Contract orally at various meetings held between Mr Yip and Mr Ma in March 2014 and May 2014 respectively (the “2014 Meetings”);

(2)   in addition, at the 2014 Meetings, Mr Ma provided a copy of the Schedules of Rates to the Plaintiff and orally promised that the Defendant would assign all of the works set out therein to the Plaintiff, which the Plaintiff accepted;

(3)   accordingly, the Sub-Contracts were said to be “partly oral and partly in writing: the written part being the sub-contract schedules of rates provided by Mr Ma and the oral part being the promise made by Mr Ma that the Defendant would assign works set out on the schedules to the Plaintiff”; and

(4)   insofar as the Chinese Agreements were concerned, the Plaintiff contends that these were not signed by the parties until later in 2015 and then backdated to 2014.

20.I have summarised the Court’s approach to assessing evidence and oral testimony in Salleh Abu Baker v Anway Limited [2021] HKCFI 3407 at [12]-[15]. The following matters are pertinent to the present case:-

(1)  the Court starts with an analysis of the contemporaneous documentary evidence. Most agreements or discussions which are of legal significance, even if not embodied in writing, would leave some form of electronic footprint;

(2)  As to oral evidence, the Court would have regard to:

(a)    whether the party’s case is inherently plausible or implausible;

(b)   whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable;

(c)    where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests.  This is relevant to the assessment of his overall credibility; and

(d)   the demeanour of the witnesses.

21.Applying these principles in my assessment of the parties’ evidence, and having carefully considered the parties’ submissions, I am of the view that:

(1)   Oral agreements were respectively entered into between the Plaintiff and the Defendant to engage the Plaintiff as a subcontractor in relation to 13/WSD/11 Sub-Contract and 14/WSD/10 Sub-Contract at the 2014 Meetings;

(2)   However, there was no oral agreement between the parties that the Defendant was to assign all of the works in Schedules of Rates to the Defendant.

22.The starting point is that I accept the Plaintiff’s submissions that the Defendant did engage the Plaintiff as a subcontractor in respect of the Sub-Contracts at the 2014 Meetings. This is not seriously contested by the Defendant; it is common ground between the parties that the Plaintiff commenced work for the Defendant under the Sub-Contracts some time before the parties had negotiated and signed the written Chinese Agreements. Such works are also evidenced by interim payment invoices submitted by the Plaintiff in around May 2014 for the 13/WSD/11 Sub-Contract and in around August 2014 for the 14/WSD/10 Sub-Contract.

23.However, having heard and considered the evidence adduced in this trial, I am not persuaded that the parties had reached an oral agreement, or that the Defendant had made an oral promise to the Plaintiff, to the effect that the former was obligated to assign all of the works in the Schedules of Rates in the 13/WSD/11 Sub-Contract and 14/WSD/10 Sub-Contract to the Defendant (“Alleged Oral Agreement”). My reasons are as follows.

24.First, whilst I accept Mr Sit’s submissions that the failure on the part of the Defendant to call Mr Ma as a factual witness does not assist the Defendant, I have not lost sight of the fact that the burden of proving the existence of the Alleged Oral Agreement rests squarely on the Plaintiff.

25.This Court notes Mr Yip’s strong view that the Alleged Oral Agreement was indeed reached with Mr Ma of the Defendant. However, it is important to also note that the parties subsequently signed the Chinese Agreements to set out the terms of the contracts between the parties. There is nothing in the Chinese Agreements to support the Plaintiff’s case of the Alleged Oral Agreement. Mr Chung for the Defendant is right that if the parties did enter into the Alleged Oral Agreement, it would have been very easy for the said terms to be documented and recorded in the Chinese Agreements.

26.However, it is not only the absence of any express contractual terms evidencing the Alleged Oral Agreement which concerns this Court. What is puzzling and unexplained is that the terms of the Chinese Agreements, in my view, actually negate the existence of the Alleged Oral Agreement.

27.The salient terms of the Chinese Agreements[1] are as follows:

(1)   Clause 1: “甲方同意將香港特別行政區政府水務署之下列合約部分工程分判給乙方。” (Emphasis added.)

(2)   Clause 2: “分判工程範圍為甲方[sic]與主承建商合約内之更換及修復水管工程第四階段第二期 – 東九龍區。”

(3)   Clause 3.1: “分判合約價格將根據實際完工數量及分判商合約内的工程單價表(Schedule of Rates)(附錄一)計算。” (Emphasis added.)

(4)   Clause 3.2: “分判工程包括所有承建合約條款及其他所有分判合約註明或暗示的工程，分判商已擁有及了解清楚承建合約中和分判合約相關並能適用於分判合約的文件，文件包括圖則，施工要求，章程，規範和量度方式内容。” (Emphasis added.)

(5)   Clause 4.1: “分判合约期由2012年1月30日至 2015 年12月27日止[2]。如有任何延期或修改(Extension of Time)，則依承建商最後修訂合約期為準。” (Emphasis added.)

(6)   Clause 4.2: “所有更換及修復水管工程會以Works Order 形式推出，推出次序必需依照顧問公司所訂執行而不得爭議，分判商必須根據Works Order内所示之開工日期，完工日期，承建商之工程進度表及其後之修訂工程進度表依期完成。” (Emphasis added.)

28.To begin with, if the Alleged Oral Agreement did exist, it is difficult to fathom why the parties agreed to the wording of Clause 1 of the Chinese Agreements which expressly stated that only part of the works would be assigned to the Plaintiff. Further, Mr Yip of the Plaintiff (and other staff of the Plaintiff who had substantively reviewed the Chinese Agreements) did not raise any comment or objection to Clause 1, nor questioned why this deviated from the supposed arrangements under the Alleged Oral Agreement (and indeed omitted a material and very favourable term to the Plaintiff).

29.I note that it is not the Plaintiff’s case that “part of” the contract works as referred to in Clause 1 means all the works as set out in the Schedules of Rates which thereby formed part of the works under 13/WSD/11 and 14/WSD/10. If that were the case, Clause 1 ought to have been drafted in different terms. It would simply state that all the works as set out in the relevant Schedule of Rates were to be assigned to the Plaintiff.

30.Significantly, Clause 4(1) of the General Conditions of Contract for Term Contracts for Civil Engineering Works (2002 Edition) (“GCC”) provides that:

“The Contractor shall not sub-contract the Whole of the Works. The Contractor shall be permitted, unless expressly prohibited by the Contract, to sub-contract any Works either on the basis of the provision by the sub-contractor of labour and materials or by the provision of labour” (Emphasis added.)

31.Given the express prohibition against sub-contracting of the whole of the Works, it is, in my view, inconceivable that the Defendant would choose to breach Clause 4(1) of the GCC by agreeing to sub-contract all the works that it received from the WSD. Hence, “part” of the works could mean part of all the works that were assigned by the WSD to the Defendant rather than all of the works as set out in the Schedule of Rates.

32.When asked by this Court whether he had read the terms of the Chinese Agreements, Mr Yip’s evidence was that he did not read them as they were standard terms. However:-

(1)   this is inconsistent with the Plaintiff’s own evidence that the Chinese Agreements had gone through iterations in the drafting process and were reviewed by at least Mr Yip and Mr Lin Chung Yiu (“Mr Lin”) of the Plaintiff prior to signing;

(2)   there is no suggestion that the Plaintiff did not understand or was not fully apprised of the terms of the agreements it was entering into; rather, it seems to me that the Plaintiff had more than sufficient opportunity to consider and make necessary amendments to the same;

(3)   these were important contractual terms. In particular, they do not sit comfortably with the Alleged Oral Agreement. Hence, one would have expected the Plaintiff to read and understand the same before it was signed; and

(4)   even if Mr Yip did not read the terms of the Chinese Agreements before he signed them, the Plaintiff was still bound by the terms of the Chinese Agreements.

33.Secondly, Clause 3.2 of the Chinese Agreements provides that the contracts between the Plaintiff and the Defendant are subject to the terms and conditions of the 14/WSD/10 and 13/WSD/11 contracts entered into between the Defendant and the WSD. However, under the 14/WSD/10 and 13/WSD/11 contracts between the Defendant and the WSD, the WSD was not contractually obliged to assign all the works as set out in the Schedules of Rates to the Defendant. The amount of works that the Defendant would be assigned depended on the Works Orders to be issued by the WSD. It is therefore inherently improbable that the Defendant would have committed itself to assigning all the works as set out in the Schedules of Rates to the Plaintiff when it has not been suggested to this Court that the Defendant was already contractually entitled to all of these works. 

34.Thirdly, as stated earlier, it is evidently clear from the terms of the Chinese Agreements that:

(1)   There is no provision in the Chinese Agreements that obligates the Defendant to assign all of the works under the Schedules of Rates to the Plaintiff;

(2)   Similarly there is no provision in the Chinese Agreements which provides that the “Measured Quantity” in the Schedules of Rates (“Measured Quantity”) defined the scope of works under the Sub-Contracts.

(3)   I also note that the Plaintiff has not pleaded any implied terms to such effect.

35.Given such terms, I find it hard to believe that the parties had entered into the Alleged Oral Agreement which was flatly contradicted by the written agreements that they entered into shortly thereafter.

36.In this connection, Mr Sit for the Plaintiff relied on an internal email dated 24 March 2015 and complained that the Chinese Agreements were in fact backdated to 2 May 2014. For instance, the draft Chinese agreement for the 13/WSD/11 Sub-Contract was slightly different from the executed version in three aspects, namely, the sub-contract number on the cover page, the date of the document and the address of the Plaintiff. Mr Sit submitted that the Plaintiff’s address stated in the executed version was an office that it only started to rent in August 2015. Hence, as at March 2015, the Chinese Agreements had yet to be finalized. I accept that the Chinese Agreements were backdated.

37.But this argument does not assist the Plaintiff. Parties are free to backdate a contract such that it can take effect retrospectively: Achieve Goal Holdings Ltd v Zhong Xin Ore-Material Holding Co Ltd [2018] HKCFI 2718 at [267] per Au Yeung J; Northern & Shell Plc v John Laing Construction Ltd [2003] EWCA Civ 1035 at [51]-[52].

38.In the present case, even if the parties had backdated the Chinese Agreements, it was clearly intended by the parties that the Chinese Agreements were to take effect retrospectively on 2 May 2014 and 10 July 2014 respectively.

39.Indeed the parties’ act of backdating the Chinese Agreements lends greater force to the proposition that the parties had deliberately intended that the Chinese Agreements were to reflect the parties’ final and entire contractual arrangements as from the date of the respective Chinese Agreements and to supersede any prior or subsisting contractual arrangements between the parties at the time.  

40.Accordingly, in my view, the act of backdating does not support the existence of the Alleged Oral Agreement. To the contrary, it tends to negate the existence of the Alleged Oral Agreement as both parties knew that the Chinese Agreements were backdated. If indeed the Alleged Oral Agreement existed, it is difficult to understand why both parties would sign backdated agreements which did not reflect the full term and effect of the agreements ultimately reached between the parties. In any event, the internal email dated 24 March 2015 does not evidence the Alleged Oral Agreement.

41.In my view, that should be the end of the analysis.

42.Fourthly and for the sake of completeness, I also note that in Mr Yip’s witness statements, insofar as the Alleged Oral Agreement is concerned, his evidence is that at the meeting in March 2014, the following exchange took place between Mr Yip and Mr Ma:

“馬先生這次拿了另一份 13/WSD/11的單價表給我説明單價表上大約一億的喉坑工程可以分判給恆記” ，“應該夠我做” ，問我 ‘接唔接…那時馬先生特地要求這一億工程需要在20個月完成。”

43.At a subsequent meeting in May 2014, the following exchange is said to have taken place between Mr Yip and Mr Ma:

“這次馬先生拿了一份14/WSD/10的單價表出來，表示明興有單價表上一億零的工程分判給恆記，要在13個月内完成，問我能否承接。這份14/WSD/10的單價表，與13/WSD/11的相若，均列明了每項工程的“已量度數量”，“單一價格” 及“價錢”。”

44.Mr Chung for the Defendant submitted that these were records of the actual words used by Mr Ma, not a gist of his words. Mr Chung further submitted that:

(1)   It was not clear that Mr Ma had agreed to sub-contract the whole of the 100 million odd dollars of works under each of the Sub-Contracts to the Plaintiff exclusively;

(2)   There was no dispute that the Chinese Agreements, which were signed at some later stage, contained the term that the value of the sub-contract works was to be calculated by re-measurement. The fact that Mr Yip made no mention of re-measurement as discussed and agreed between Mr Ma and himself as an oral term of the Sub-Contracts showed that his evidence was selective and incomplete;

(3)   Having accepted that the value of the sub-contract works was to be calculated by re-measurement, Mr Yip failed to give any meaningful answer as to how the “guaranteed quantity and amount” could work with re-measurement but kept avoiding the question by saying he trusted Mr Ma;

(4)   Mr Yip’s failure to explain how the Alleged Oral Agreement could operate was fatal to the Plaintiff’s case when Mr Yip was the only witness to set out the terms and the scope of the Alleged Oral Agreement. Mr Yip’s failure to tell what he perceived to be the consequences should the Defendant fail to provide the guaranteed quantity begs the questions of: (i) if the consequence of breach was not discussed or even known, what would be left in the “guarantee”, and (ii) whether the parties had agreed on the “guaranteed quantity” as alleged at all;

(5)   The “guaranteed quantity and amount” might well be Mr Yip’s own misunderstanding or even wishful thinking. In fact, an ongoing theme of Mr Yip’s evidence was that he believed in Mr Ma. Mr Yip’s unwavering belief is highly questionable whereas, according to the Plaintiff, the two sub-contracts worth over HK$200 million and the 13/WSD/11 Sub-Contract were only the first dealings between the Plaintiff and the Defendant, and there were “continuous mal-treatments” of the Plaintiff since the very early stages of the Sub-Contracts.

(6)   The suggestion that the “guaranteed quantity and amount” could work separately from re-measurement was an “awkward concept” as it was not the evidence from Mr Yip, there was no evidence as to the re-measured quantity of any item(s) provided to the Plaintiff, and the failure of the Plaintiff to obtain information in this regard showed the Plaintiff could not have understood the Sub-Contracts were operable in such manner.

(7)   Under cross-examination, Mr Yip gave additional evidence that on top of the measured quantity Mr Ma also agreed to provide a certain sub-quantity of pipe works per month to the Plaintiff. Such evidence must be viewed with caution as  this had never been the Plaintiff’s pleaded case or evidence. There is also no explanation for the late introduction of this evidence.

45.I make the following observations in respect of the above:-

(1)   I agree that the two paragraphs in Mr Yip’s witness statement do not amount to an unambiguous offer and acceptance that the Defendant would assign to the Plaintiff all the contract works that had been assigned to the Defendant by the WSD or all of the works in the Schedules of Rates.

(2)   I also agree that it makes little common or commercial sense for the Defendant to have agreed to provide the “Measured Quantity” and “the Amount” under the respective Schedule of Rates to the Plaintiff when the same were subject to re-measurement by the WSD upon completion of the relevant works.

(3)   It is undisputed that (i) the exact scope of the work was only confirmed when a Works Order had been issued by the engineer and served on the Defendant and (ii) the value of the works under the two Main Contracts was subject to re-measurement. As submitted by the Defendant, the Schedule of Rates in the 13/WSD/11 project, for example, existed as early as March 2013, when none of the 112 relevant works order had been issued. It makes no commercial sense for the Defendant to have agreed to guarantee the quantity and the resulting amount of works to be provided to its sub-contractors.

(4)   Mr Chung for the Defendant also submitted that identical Schedule of Rates was adopted by the Defendant in its sub-contract agreements with other sub-contractors under 13/WSD/11. Mr Chung submitted that given that the Defendant had entered into sub-contracts with other sub-contractors before and after it did so with the Plaintiff that were similar to the Chinese Agreements and Schedules of Rates, the Plaintiff’s argument that the Chinese Agreements alone imposed obligations on the Defendant to assign all of the works in the Schedules of Rates to the Plaintiff must fail. Whilst I do not think that one can necessarily reach such a conclusion simply because the Defendant chose to enter into identical contracts with other sub-contractors, I do agree that it is inherently improbable for the Defendant to enter into the Alleged Oral Agreement with the Plaintiff given the exposure it would have to face when it had entered into sub-contracts with other sub-contractors on similar or identical terms.

(5)   There is no contemporaneous written complaint or record which evidences the failure of the Defendant to assign all the works as per the Schedules of Rates to the Plaintiff. Whilst I appreciate Mr Yip’s evidence that the Plaintiff was not in an equal bargaining position as the Defendant, it is still highly unusual that there were no formal or recorded complaints in any written or electronic format.

46.In the circumstances, despite the valiant efforts of Mr Sit for the Plaintiff, I consider the Plaintiff’s case to be inherently implausible and improbable, especially in light of the contemporaneous documents. 

D2     Construction Issue

47.The Plaintiff submits that even if there was no oral agreement that the Defendant was to assign all of the works in the Schedules of Rates to the Plaintiff, the Plaintiff was nevertheless “guaranteed” such works under the Chinese Agreements as per the Schedules of Rates. It is the Plaintiff’s case, in gist, that:-

(1)   Clauses 1 and 3.2 of the Chinese Agreements together impose a contractual obligation on the Defendant to assign “works expressly referred to in the Chinese [Agreements]” to the Plaintiff;

(2)   The Measured Quantity defined the scope of works under the Sub-Contracts;

(3)   Accordingly, the Defendant was contractually bound to assign to the Plaintiff all of the works set out under the Measured Quantity in the Schedules of Rates.

48.I have set out the salient terms of the Chinese Agreements above and do not propose to repeat the same here.  However, as I said earlier, there is no provision in the Chinese Agreements that obligates the Defendant to assign all of the works under the Measured Quantity / Schedules of Rates to the Plaintiff. Similarly, there is no provision in the Chinese Agreements which provides that the Measured Quantity defined the scope of works under the Sub-Contracts.

49.The Chinese Agreements are expressed to be the “sub-contracting agreement” between the parties. Each of the Chinese Agreements contains detailed provisions in relation to the Sub-Contracts and the parties’ respective rights and obligations. Yet there is no reference at all in the Chinese Agreements to the matters alleged by the Plaintiff and described in §47 above.

50.This Court cannot read obligations into the Chinese Agreements which were not expressly agreed to. That should be the end of the matter.

51.The Plaintiff has advanced a case that, as a matter of construction, Clauses 1 and 3.2 and the words “Measured Quantity” in the Schedules of Rates of the Chinese Agreements should be construed to mean that the works set out thereunder were to be guaranteed to be assigned to the Plaintiff by the Defendant.

52.The applicable legal principles that guide the Court when it construes a commercial agreement have recently been summarised in Eminent Investments (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFAR 487 at [42]-[45] per Ribeiro PJ and Lord Collins of Mapesbury NPJ, which I gratefully adopt:-

(1)   the starting point is the ordinary and natural meaning of the words of the contract;

(2)   however, in the more difficult cases it is not particularly helpful to refer to the "ordinary and natural meaning" of words because in such cases there can be much debate over exactly what is the ordinary or natural meaning of words; and in those cases the surer guide to interpretation is context;

(3)   interpretation is a unitary exercise. Where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense;

(4)   it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the Court balances the indications given by each;

(5)   the Court must be alive to the possibility that one side may have agreed to something which with hindsight did not serve its interest, or that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms;

(6)   some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals, whereas the correct interpretation of contracts which are marked by informality, brevity or the absence of skilled professional assistance may be achieved by a greater emphasis on the factual circumstances;

(7)   negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement; and

(8)   commercial common sense and surrounding circumstances should not be used to undervalue the importance of the language of the provision which is to be construed, and the mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly for one of the parties, is not a reason for departing from the natural language.   

53.Applying these principles to the present case, I am unable to find that the Chinese Agreements, on proper construction, obligated the Defendant to assign all of the works in the Schedule of Works to the Plaintiff.

54.The starting point is to look at the natural and ordinary meaning of the terms of Clauses 1 and 3.2 of the Chinese Agreements and the Schedules of Rates. There is absolutely nothing in these provisions that gives rise to the meaning alleged by the Plaintiff.

55.On the contrary, Clause 1 states that the Defendant only agreed to provide “part” of the 14/WSD/10 and 13/WSD/11works to the Plaintiff. On a plain reading of this clause, and reading it in conjunction with and in the context of other provisions in the Chinese Agreements, it appears that the Defendant was entitled under this Clause 1 to assign works to the Plaintiff as it reasonably saw fit, provided that it discharged the obligation of assigning “part” of the works to the Plaintiff. There is no dispute between the parties that the Defendant has done so. It is, in my view, a huge stretch to say that an obligation to assign “part” of the works to the Defendant can take on a significantly augmented meaning and morph into a far-reaching obligation to assign all the works in the Schedules of Rates to the Defendant. 

56.Further, as I have already discussed in §29 above, it seems to me that if the parties had truly intended for the Defendant to assign all of the subcontracting works in the Schedules of Rates to the Plaintiff, that would have been a simple and obvious term to incorporate into Clause 1 (or elsewhere in the Chinese Agreements).

57.The Plaintiff also derives no assistance from Clause 3.2, which is a provision that clearly operates for the benefit of the Defendant in having the Plaintiff acknowledge its understanding of the documents and matters in the main contract that are applicable to the Sub-Contracts.

58.As to the meaning of the words “Measured Quantity”:

(1)   This is not a term defined under the Chinese Agreements;

(2)   The Plaintiff has not referred this Court to any cogent evidence or authority that indicates “Measured Quantity” constituted a term of art or carries any specialist or technical meaning;

(3)   The literal meaning of these words is simply a reference to the fact that the quantities that have been measured, presumably as of the time of the document;

(4)   In view of the above, there is again nothing that suggests these words carry any alternative meaning beyond their literal meaning, let alone the meaning alleged by the Plaintiff. 

59.Even on a contextual analysis, there is nothing to support the Plaintiff’s submission. 

60.Clause 4.2 of the Chinese Agreements expressly provides that all works were to be assigned by way of a Works Order. Under Clause 4.2, the Plaintiff was obligated to comply with the requirements and work specifications set out by AECOM under the Works Order.

61.Under the Chinese Agreements, works orders therefore played a key role in the assignment of works and ascertaining works needed to be carried out. This is particularly the case when dealing with a term contract. In this connection, I agree with the Defendant’s submission that 14/WSD/11 and 13/WSD/10 were term contracts. According to the evidence of Mr Ip Pak Wing Alexander, who gave evidence for the Plaintiff:

“On the main contract [Schedule of Rates], there was only 1 column of “Quantity”. These quantities were estimated figures given by WSD to the potential contractors at the time of invitation for tenders. They were merely for the contractors to prepare tender documents and were not conclusive and binding on any parties…WSD would only confirm the works that need to be done, and so their quantities, after the award of the contract. It would set out its actual instructions, including scope of works, time for completion, etc, on a document called “Works Order”. The Works Order would contain a detailed engineer’s drawing of the site. WSD would divide the contract works into various Works Orders and issue them to Ming Hing from time to time…” [Emphasis added].

62.Accordingly, an important feature of a term contract was that the actual work to be undertaken by the main contractor depended on and would be ascertained upon the issuance of a Works Order by WSD. Without the relevant Works Order containing the actual instructions, the main contractor (and by extension, the subcontractor) would not possess or know the relevant details and work specifications, including the scope of works, the detailed engineer’s drawing of the site, the time for completion, and other matters.

63.Such relevant and important information was not contained in the Schedules of Rates, nor was it the purpose or function of the Schedules of Rates to define the scope of works. This is apparent from the face of the document, which is described as the “Proposed Sub-Contractor’s Rates”. Further, according to Clause 3.1, the Schedules of Rates were to fix the unit rate of the subcontractor only. The ultimate contractual price to be paid to the Plaintiff would be determined by the “actual works completed”; and not (if the meaning asserted by the Plaintiff were true) by simple reference to the “amount” column (being the sum of the unit rates multiplied by the Measured Quantity) in the Schedules of Rates. It must follow that the information contained in the Schedules of Rates in respect of the works were either estimates or dynamic measurements to provide a reference point as to the parameters of the project. This flies in the face of the Plaintiff’s contention that the Schedules of Rates had the effect of “defining” the scope of works to be assigned to the Plaintiff.

64.All of these circumstances lead me to the conclusion that the Chinese Agreements cannot be construed in the way that the Plaintiff alleges which is divorced from the objective meaning of the terms of the Chinese Agreements and commercial common sense. 

65.For the foregoing reasons, I find that the terms of the Chinese Agreements, properly construed, did not contain any obligation of the Defendant to assign all the works described in the Schedules of Rates to the Plaintiff. 

D3     Breach Issue and Quantum Issue

66.It is obvious from the above that the Defendant did not act in breach of the Sub-Contracts as it was not obligated to assign all of the works set out in the Schedules of Rates to the Plaintiff. The first breach alleged by the Plaintiff against the Defendant therefore necessarily falls away. 

67.The Plaintiff alleges a second breach by the Defendant, viz., the Defendant is said to have deferred the assignment of the works to the Plaintiff beyond the respective period of the Sub-Contracts. In this regard, Mr Sit for the Plaintiff submitted that:

(1)   The 14/WSD/10 Sub-Contract and 13/WSD/11 Sub-Contract were supposed to end on 31 July 2015 and 27 December 2015 respectively as provided in Clause 4.1;

(2)   It is then said that “[c]oupled with Clauses 1 and 3.2, it isnatural to assume that the Defendant was obliged to assign works to the Plaintiff under the [Sub-Contracts] within their respective contractual periods”;

(3)   The Sub-Contracts were “prolonged” beyond the said dates and thereafter the Defendant continued to assign works to the Plaintiff;

(4)   The Sub-Contracts were both only completed on 13 September 2017 when the Defendant released the retention monies held under the Sub-Contracts to the Plaintiff;

(5)   Accordingly, the Defendant was in breach of its obligations under Clause 4.1.

68.In my view, this alleged second breach is also not made out by the Plaintiff.

69.First, it is common ground that the Defendant did in fact assign works to the Plaintiff during the respective contractual periods of the Sub-Contracts. I note that these works were not inconsiderable. As mentioned above, the Defendant’s obligation under Clause 1 was therefore duly discharged. 

70.Secondly, it is clearly envisaged under Clause 4.1 that the Sub-Contracts may be extended by way of an “Extension of Time”. In light of such provision, it seems to me that a reasonable construction of the clause is that if WSD extended the time for completion, the Defendant has the right to revise and extend the same correspondingly.   

71.Thirdly, Mr Chung for the Defendant suggests that the Defendant did not actually assign any further “subcontract works” under the Sub-Contracts to the Plaintiff after the end of the respective contractual periods and therefore cannot be said to be in breach of prolonging the Sub-Contracts. This, Mr Chung submitted, is supported by evidence from Mr Yip himself who said that the works assigned to the Plaintiff under the 14/WSD/10 Sub-Contract after December 2014 and the 13/WSD/11 Sub-Contract after October 2015 were “zero”.

72.Instead, the work undertaken by the Plaintiff after the contractual periods of the Sub-Contracts were “Dayworks”. It was also explained by Mr Lin in his witness statement that Dayworks were a type of “extra” work and did not constitute subcontract works, each having a different pricing regime. Indeed, this point seems to have been conceded by Mr Sit for the Plaintiff who in his closing submissions stated that:

“After all, it was the Defendant who chose to prolong the [Sub-Contracts] and assign dayworks, rather than sub-contract works, to the Plaintiff throughout the prolonged period...”

73.Fourthly, as the Defendant submitted, it was accepted by Mr Yip in his oral testimony that pursuant to the Sub-Contracts, the Plaintiff was not actually required to carry out the Dayworks. As such, even if the Dayworks constituted works under the Sub-Contracts, the fact that the Plaintiff agreed to carry out such works when it had no obligation to do so beyond the contractual period can only mean that it had accepted the extension of the term of the Sub-Contracts and/or waived any potential breach by the Defendant.

74.Fifthly, Mr Chung of the Defendant submitted that the Plaintiff has yet to identify which particular terms of the Sub-Contracts it seeks to rely upon. The Sub-Contracts do not contain terms, nor has it been pleaded by the Plaintiff, which give the Plaintiff a legal entitlement to recover its loss if there was a “deferral of assignment of works by the Defendant.”

75.In the circumstances, given that there was no breach of the Sub-Contracts by the Defendant, it is not necessary for me to consider the issue of quantum.

76.For the sake of completeness, even if this Court is wrong on the issue of liability, I am of the view that the Plaintiff has failed to prove the quantum of its damages. I accept the evidence of the Defendant’s witness, Mr Lai, that sub-contractors are not required to make available all resources at the outset. Instead, when a work order is confirmed, they would then make proper arrangements in terms of both labour and equipment. This is in line with the Plaintiff’s case that it did not have any labour, plant and machinery, etc, idled and wasted during the relevant contract periods. The Plaintiff only claims for wasted expenditure after the contract periods.

77.I also note and accept the Defendant’s submission that the Plaintiff has never informed the Defendant, nor has it ever disclosed any documents or records which show whether any of the Plaintiff’s labour, plants and/or machineries had been idled and at what locations.

78.Importantly, Mr Yip of the Plaintiff gave evidence that in fact there was no idling of any labour, plants and/or machineries as they were all actually deployed to carry out Dayworks assigned by the Defendant from January to September 2017.  On Mr Yip’s own evidence, the Plaintiff was not required to carry out the Dayworks under the two Sub-Contracts and the Plaintiff was not required to carry out Dayworks under the two Sub-Contracts beyond the contract periods.

79.Indeed, Mr Yip said that but for Mr Ma’s telling him to wait for the works under the two Sub-Contracts, the Plaintiff would not have agreed to carry out the Dayworks.

80.I agree that the alleged “wasted expenditures” were dispensed for the purpose of the Dayworks and cannot be said to have been wasted for the Sub-Contracts works which Mr Yip said that Mr Ma promised him. Mr Chung for the Defendant is right that the Plaintiff is not relying on and has not pleaded a case of misrepresentation by the Defendant which caused the Plaintiff to undertake Dayworks which it would otherwise not have agreed to undertake.

81.Finally, I also agree that the Plaintiff has not adduced sufficient documentary evidence to prove its loss and damages.

E.      DISPOSITION

82.For all of the reasons stated above, the Plaintiff’s claims are dismissed.

83.I make an order nisi that the Plaintiff shall pay the Defendant’s costs of and occasioned by this action, to be taxed on a party and party basis, if not agreed.

84.The above costs order nisi will be made absolute within 14 days herein hereof unless the parties take out an application to vary the same within 14 days.

85.Finally, it remains for the Court to thank Mr Sit for the Plaintiff and Mr Chung for the Defendant for their helpful assistance.

Mr Bache Sit, instructed by Ivan Tang & Co., for the Plaintiff

Mr Jerry Chung, instructed by Wong & Lawyers, for the Defendant