Paul Lee Engineering Co Ltd v. Winner Land Investment Co Ltd
Read the full judgment text of HCA 1456/1966 on BabelCite. This High Court CFI judgment was delivered on 23 January 1968.
1. The plaintiff company claims against the defendant company under the terms of a written contract entered into and signed by them on the 3rd of September 1964 whereby the plaintiff company undertook to construct upon the defendant company's site a concrete caisson foundation for a multi-storey building. The plaintiffs' essential duties under that contract are outlined in the wording of Article II of the preliminary Articles of Agreement which is in the following terms:
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HCA001456/1966 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION No. 1456 OF 1966. -----------------
----------------- Coram: A.M. McMullin, J. in Court. Date of Judgment: 23 January 1968 ----------------- JUDGMENT ----------------- 1. The plaintiff company claims against the defendant company under the terms of a written contract entered into and signed by them on the 3rd of September 1964 whereby the plaintiff company undertook to construct upon the defendant company's site a concrete caisson foundation for a multi-storey building. The plaintiffs' essential duties under that contract are outlined in the wording of Article II of the preliminary Articles of Agreement which is in the following terms:
2. Article IV of these Articles stipulates that the contract price for these works is to be $541,000 without deduction at the time and in the manner specified in the said conditions. Condition 2 of the Conditions which then follow deals with the terms of payment and it is in the following terms:
3. The Appendix then specifies that the first payment of $54,000 is to be paid upon the signing of the agreement; the second payment is to be in the sum of $216,500 and is to be paid on the day of commencement of the work; and the third payment in the sum of $270,500 is to be paid on the day of completion of work. 4. It is common ground that the first payment was in fact made upon the signing of the agreement and that the second payment was made tardily and by instalments, but eventually in full. It is the third payment which forms the subject of the plaintiffs' present claim, the same having not yet been paid in full. 5. It is also agreed between the parties that by virtue of a certain alteration in the size of caissons being constructed, the original contract price was, by mutual agreement, later raised by another $50,000.This subsequent arrangement was made about April 1965 after the payment of the first instalment of $54,000 and the result of this mutual consent of the parties was, therefore, that the second payment was revised upwards from $216,500 to $241,500 but remained payable upon commencement of the work. The figure for the third and final payment of $270,500 to be paid on the day of completion of the work was similarly revised to a figure of $295,500. The revised second instalment was eventually paid in full. It is also common ground between the parties that by mutual consent the third and final instalment as revised, although under the original terms to be paid in one lump sum, became, by agreement, payable in instalments. It was agreed that these instalments would be $50,000 each and would be paid upon the completion of every twenty concrete caissons, each lot of twenty to be completed in a period of ten days and payment therefor to become immediately due. These revised arrangements are to be found in the correspondence numbered 43, 46, 47 and 48 of the agreed bundle of documents Exh.A. It is further agreed that the actual concreting of the caissons was commenced in October 1965 and that the total number of caissons some 58 in all was completed by the 9th of December 1965. It is also a matter of common agreement that for the concreting of these 58 caissons payment in the sum of $50,000 only for the first twenty completed caissons has been made leaving outstanding the balance of $245,000 which is the sum presently claimed by the plaintiffs. 6. The impasse to which the parties to this simple-seeming agreement came, and out of which the present dispute arises, stems from the differing views which they hold in respect of the interpretation of certain of the contract terms but this difference of interpretation would scarcely have arisen had it not been for the fact that the performance of their contractual obligations has from the start been bedevilled by a protracted dispute between two parties who are not signatories to the agreement at all. These two parties are, firstly, Mr. Philcox, the engineer appointed by the contractor with the consent of the defendant company to be the onsultant engineer for the purposes of the contract and, secondly, the Government of Hong Kong in its public works manifestation, more particularly the Buildings Ordinance Office. 7. I do not think it is necessary to recite in detail with chronological particularity the sad tale of the vicissitudes through which the carrying out of this work had to pass. The performance of the job would appear to have got off to a fair start. No trouble might ever have arisen and the contract might have been performed in full in the stipulated contract period had it not been for the unfortunate collapse due to heavy rain and, perhaps, in part due to the excavations on the defendant company's site, of a face wall of an adjoining property sometime in December 1964. The immediate result of this was that a notice was issued on the 14th of December to the plaintiff company with a copy to Mr. Philcox ordering the immediate cessation of all work on the site. During the ensuing pause certain remedial works were, with the compliance of P.W.D., carried out, but the cease-works notice was not withdrawn until the 24th of June 1965 by letter dated 24th of June in which the Buildings Ordinance Office informed the contractor, i.e. the plaintiff Co. that the site formation consent which had originally been issued had by then lapsed and that an application was required for the renewal thereof before work should be re-commenced. It would appear that thereafter, work, on the advice of Mr. Philcox was re-commenced by the contractor without getting this consent and that this was done apparently upon the basis of Mr. Philcox's professional opinion that it would be unsafe to delay with the continuing of the works until consent had been obtained since the continuing of the works would have the effect of stabilizing the position upon the site having regard to the collapse of the adjoining face-wall. I have no doubt whatsoever that this flouting of the letter of the law-was advised by Mr. Philcox with the very best intentions in the world. He, as a former high official in the Public Works Department was, doubtless, well aware of the clogging and delaying effects of red tape and of the practical propriety of occasionally cutting through it with some decisive action. Nevertheless it would appear that from this point onward a certain friction developed between Mr. Philcox and the officials of his former department over what they evidently regarded (if I interpret the correspondence aright) as his high-handed disregard of the filling in and submission of the necessary forms. 8. It would be tedious to pursue this aspect of the case in detail; its significance is that the parties to the present contract found themselves and their contractual obligations subject to a heavy sidewind from the difference of opinion that thus arose between the officials of the department and one whom they had clearly come to regard as a somewhat turbulent, not to say heretical, ex-official. They may not have been wholly wrong in this view. From my observation of Mr. Philcox in the witness box, I would judge him as one who might not suffer fools gladly but who might also be somewhat injudicious in his choice of fools. He gave me no reason to suppose that his professional competence was anything less than he himself clearly believed it to be but laudible though his intentions were I think it is also clear that he succeeded very thoroughly in ruffling the feathers of the particular officials charged with the duty of seeing that the right forms are submitted at the right time and the right steps taken thereafter. To a large extent this was private war fought out between M. Philcox and the department with an occasional shot-fired in the direction of one or other of the contracting parties. That it was also to some degree a paper war is evidenced by the fact that the Building Ordinance Office, notwithstanding its repeated expressions of displeasure at Mr. Philcox's conduct, eventually did issue the necessary permission to commence the caisson construction works almost one year after those works had actually been carried out and at a time when the contractor had not only withdrawn from the site and repudiated the contract but when also the necessary forms under the building regulations had been passed to the Building Office, signed by Mr. Philcox and the plaintiff company, notifying the Office that they had ceased to be, respectively, contractor and engineer in charge of the work in question. 9. That was, however, only one side and the less important side of the Philcox - P.W.D. dispute. The other part of this dispute concerned a very much more practical matter and one which has a direct bearing upon the present dispute between the parties in relation to the terms of their contract. Clause 12 of the Conditions of the Contract provides as follows:
10. Now it is the whole basis of the defence of Messrs. Winner Land Investment Co. Ltd. that this Clause imposes upon the plaintiff a clear obligation to carry out a loading test if so required, and since it is common ground that no loading test has, even to the present date, yet been carried out, that the contractual obligations undertaken by the plaintiff company under the contract have therefore not been duly discharged by it and that it is in breach of its obligations to such an extent that it is debarred from recovering the sums claimed by it in the statement of claim. The defendant company further maintains that the plaintiff company is consequently liable under the various heads of damage raise in the defence and counterclaim. We might however pause at this point and note one rather curious fact. Although this question of the loading test on the caissons has figured very prominetly both in the evidence and in the argument of counsel, there is, so far as I can ascertain, nothing either in the evidence or in the agreed correspondence to show that either the engineer or the P.W.D. ever specifically domanded of the plaintiff company that they should carry out such a test. By saying that I do not imply that the question was never raised to the knowledge of the plaintiff for most clearly it was. Not only did the P.W.D. request Mr. Philcox to see that a test was carried out but the defendant company had in several letters berated the plaintiff company for not carrying out such a test. Nevertheless it is clear that the obligation to carry out such a loading test on the part of the plaintiff company was contingent upon its being required to do so by either of the stipulated parties and that it was never actually called upon to do so. It was, I think, this fact which obliged the defendant company to raise, among several other subsidiary issues, the question as to the status of Mr. Philcox under the contract. Since the dispute over the load test arose between Mr. Philcox and P.W.D. it was necessary for the defence to seek to identify him with the plaintiff company. the more so because clause of the contract specifically laid the responsibility for such matters on the engineer's shoulders. 11. I do not propose to follow in detail the whole course of the difference of opinion between Mr. Philcox and the P.W.D concerning the load test on the caissons. In outline the matter went as follows: It would appear that P.W.D. was not, originally, going to insist upon a load test at all and that the officials of the relevant office might have been satisfied with an alternative test in the form of a soil test. This was a very much less expensive and troublesome procedure the purpose of which would have been likewise to establish the load bearing capacity of the soil immediately beneath the proposed concrete caisson foundation. This would have necessitated the carrying out of the process known as cement grouting upon the caissons, a soil sample before being taken and after the grouting for the purpose of comparing the consistency of the soil after grouting with its consistency prior to grouting. 12. At the time that this particular test was called for it was, however, the case that the caissons had all been grouted already and that the department had not been kept informed of the progress of this grouting work. According to the P.W.D., (see for instance Document No. 95 of the bundle) although they had not proposed to call for a load test but might have accepted the results of soil tests, they were now, by Mr. Philcox's ill considered action, as they regarded it, placed in the position of having to demand a load test. Mr. Philcox it seems was not abashed by these strictures having before this, in December 1965, already announced to Messrs. Winner his intention to carry out a load test on one caisson to a weight of 700 tons at the end of February 1966. As I understood his evidence on this point, he would not have accepted anything in the nature of a soil test as being sufficient and was at this juncture in the position of going one better than the P.W.D. as guardian of the public safety insisting that only a load test could give the necessary clearance to the structure. It is difficult for this court to say upon which side the truth lies in this wholly technical matter and as it will appear, I do not find it necessary to do so, but one is tempted to conjecture that it was Mr. Philcox's dogmatic self-assurance in this regard that caused the Building Authority later to take up the idea of a load test with an enthusiasm which redounded greatly to the discomforture not merely of Mr. Philcox but of the contracting parties as well. 13. The matter came about in this way: it would appear, to put aside as far as possible the technical details, that a load test upon a caisson of diameter 3 feet 6 inches to a weight of 700 tons was, according to the book, a perfectly acceptable test to determine the load bearing capacity of the soil under the caisson foundation within the context of this particular design. Follwoing upon the original wall-collapse, however, it would appear that there was a revision in the actual caisson design whereby all or most of the caissons were re-designed to larger specification, the smallest of them being not 3 feet 6 inches but four feet. Apparently this was done both to hasten the works, since it is easier to excavate inside larger caissons, and also to give an added degree of stability in the site formation generally. However, it would appear that according to the tables and calculations with which engineers and architects are familiar it is necessary in order to establish a soil bearing capacity of a given figure in respect of a proposed super-structure to load test a caisson with a weight which varies proportionately to its diameter. A smaller caisson will give the desired information as readily and as accurately as will a larger caisson but the load to be imposed upon the smaller is very much less than that imposed upon the larger in order to arrive at the same datum point i.e. the actual consistency and load-bearing capacity of the soil beneath the caisson which is being tested. Confronted as they were with a fait accompli in the form of a finished caisson construction it may not have been without a certain grim satisfaction that the Buildings Ordinance Office finally made clear its requirements in relation to load testing by the letter dated 16th September 1966 which appears as document No. 95 of the bundle. Para. 5 of that letter goes as follows:
14. Mr. Philcox regarded this as a bombshell and he made it clear that he considered the requirements detailed therein as being simply unnecessary. 15. The short point concerning the testing the larger caissons to these higher values was that, tested to these higher values, the costs would be enormously increased and the actual physical difficulty of carrying out such a test would be increased to a degree more remarkable still. It is clear that the contract parties were by now observing these exchanges from the sidelines with growing misgiving. Perhaps, however, at this late date, the department was merely intending to chasten Mr. Philcox by bringing him to a belated realization of the effects of his own precipitancy for the immediately subsequent paragraph in the same letter goes as follows:
16. At this point it should be remembered that by the date of this letter, i.e. 16th of September 1966, the plaintiff company had already long withdrawn from the site had long since refused to carry out any loading test whatsoever on the basis that it had not been paid the money due to it under the contract in respect of the third instalment. Indeed, only three weeks later the document signed by Paul Lee Engineering Co. Ltd. and Mr. Philcox (Form 19) was submitted to the Building Athority informing the Authority that the plaintiff company and Mr. Philcox have ceased to be appointed in respect of the caisson foundation works and that those works had bee carried out in accordance with the Buildings Ordinance. This document appears as document 99 of the agreed bundle. The solemn comedy is played out a few pages later in document No.106 in which the Building Authority gives consent to the commencement and the carrying out of those very works which the plaintiffs now say had been completed one year earlier. 17. It would have been possible to have entered into very much greater detail in the description of the conflict which arose between Mr. Philcox and the P.W.D. and of the manner in which both the plaintiff and the defendant were from time to time drawn into that conflict, but I do not think that it is necessary to do so. What has been said already is, I think, sufficient exposition of the facts of the case to render intelligible the legal issues raised by counsel both in the very thorough and full pleadings and in their arguments concerning the true interpretation of the contract document. If I feel now in a position to pluck from those issues the one which seems to me to be central and conclusive and to discard the very many other matters which have been debated it is through no want of respect to the ability of the practitioners on both sides. Indeed the position is quite the reverse of that. I am deeply indebted to Mr. Swaine and to Mr. Gittens for the thoroughness with which they have explored every nuance and possibility of the pleadings and of the contract document and more indebited still to them for their ability in making clear the many possible alternatives to the principal matters at issue and their respective positions thereon. I have had the experience which perhaps, a judge does not enjoy as often as he would like of feeling that everything has been said and that there is no possibility, alternative, corollary, or quilibet of any sort, which has not been explored or touched upon. I have noted that out of 145 pages of record in this case, some 63 are taken up with purely legal submission in none of which have I been able to detect anything in the nature of unnecessary padding. If I may be pardoned a facetious but apposite phrase, I have had a tour of the ruins which was not only extremely extensive and painstaking, but accomplished without any sensation of fatigue upon my part by virtue of the fair-minded manner of the presentation of arguments on both sides. I make particular reference now to this great fullness and painstaking elaboration in argument because it accounts alike for the fact that judgment has been somewhat delayed and for the fact that now that I have come to it I find myself able to do so without serious doubt and at no great length. Had I not had the benefit of having both the facts and the issues exposed and sifted with such extreme thoroughness I might have felt called upon to deal at length with issues which, on the whole picture as I now see it and in the light of the arguments advanced I find in the last analysis irrelevant and unnecessary to consider. I hasten to add that I find them irrelevant only in the sense that they do not fall to be considered in view of the answer I propose to give upon the central issue raised between the parties. The other issues were raised and dealt with by counsel on both sides by way of alternatives which might arise should the court be disposed to hold in favour of the defendant upon this principal issue. In particular I have spent considerable time in the consideration of Mr. Gittins' four alternative propositions should I be against him on the interpretation of the words "Date of completion of the work" in clause 7. I do not think he is right in his primary contention that these words are to be understood in a different sense where they appear in the appendix nor do I think that there is substance in the alternative propositions that if read in the same sense, in both places a question of repugnancy or ambiguity arises between them and the provision in part II that the word is to be preferred to meet the requirements of the Building Authority. I can only add, in relation to my slowness in coming finally to this opinion that I have delayed over these arguments in deference to the deftness of the forensic joinery displayed therein which I took, to some extent diverted by attention from what I have termed the central issue. 18. The core of this issue is to be found in the wording of Clause 7 itself. That clause reads as follows:
It is common ground between the parties that the casting of the concrete for the caissons was in fact completed by the 9th of December 1965. It is further agreed between the parties that, with due allowance for stoppages due to bad weather, etc., this work was completed within the contract period i.e. 122 good weather working days as provided in the Appendix to the Conditions of Agreement. This being the situation, the plaintiffs case is simply this: that he has done all the work necessary under the terms of the agreement to entitle him to demand payment for his work having regard to the specific provision in clause 7 as to what constitutes the completion of the work and that in the light of the clear provision in the Appendix that the third and final payment is to be made upon that date. 19. The defendant company replies that the provisions of clause 7 are irrelevant to his complaint which is that, although the plaintiff company may have completed the work as defined in clause 7 it has not completed the job which required the delivering to the defendant company of a completed concrete caisson foundation duly approved and passed by the Building Authority in such a condition that it was then capable of being employed for the purpose intended i.e. as the foundation upon which a certain superstructure was to be erected. It is common ground between the parties that the completion of the building has been, (and as far as I know is to this date) held up by the fact that the bearing capacity of the caisson foundation has never yet been proved by the carrying out of any load test. The defendant company, therefore, who for the purpose of their counterclaim asked me to regard the engineer Mr. Philcox as being the agent of the plaintiff company and not as their own agent, say firstly that the job has not been satisfactorily completed and secondly that this has come about through the default of the plaintiff company in not satisfying the Building Authority by a proper load test of the capacity of the caisson foundation so that the Building Authority has been unable to issue the necessary permission to proceed with the next stage of the entire job. The next stage is the putting on of caisson caps and strap beams, work which was the subject of a separate contract between the plaintiffs and the defendant companies and which is the intermediate stage of the job preparatory to its completion in the third stage by the erection of a multi-storey building upon the caisson foundation completed by the addition of caps and strap-beams. In this connection the defendant company relies strongly upon the wording of Article II of the preliminary Articles of Agreement in document 1 of exhibit A in particular pointing to the words "to meet the requirement of the Building Authority". To this the plaintiff company replies that while it does not deny that its duty under the contract was to supply a foundation capable of sustaining the load of the eventual multi-storey building planned to be placed upon it, it was the defendant company which caused the contract arrangement to break down by its failure to observe its clear duty under conditions 2, 3, 7 and the provisions in the Appendix relating to terms of payment. 20. Now, it appears to me that Mr. Swaine's argument is well-founded in this regard. Clearly there was a duty upon the plaintiff company to make for the defendant company a caisson foundation capable of discharging the function for which it was designed. But within that overall obligation the parties were mutually agreed that in the course of the carrying out of this job certain things were to be done. It is the plaintiff company's point that it has never neglected or refused to carry out such test as it might have been required to do but that a point came when it legitimately refused even to consider carrying out a load test or any test of any description following upon the failure of the defendant company to make payment upon the due date for the completion of the work as defined in the agreement. 21. It was not denied by the defendant company that there had been quite considerable delay in relation to the payment of the second instalment i.e. that which was due on the date of commencement of the work. When the actual concreting of the caissons, whether with or without approval of the Building Authority, had been completed on the 9th of December almost a month passed before the plaintiff company made a formal demand for payment. This they did by letter dated January the 7th which appears as document 71 of the agreed bundle 'A' and in the same letter they informed the defendant company that they had retreated from the site and that the defendant company has requested to take over the site. To this letter the defendant company replied on the 10th of January stating for the first time explicitly, that they regarded the caisson work as being completed only when tests demanded by the Building Authority had been complied with. There is no doubt that at this date the defendant company, being aware of the difficulties into which the whole question of testing had fallen as a result of the difference in opinion between Mr. Philcox and the Building Authority on the subject were reluctant to make final payment until this question had been settled. No doubt also the plaintiff company, in the hope that this matter would be effectually settled between Philcox and the Building Authority, did not press the defendant company for payment with greater urgency than they did. The next formal demand letter which appears in the agreed bundle dated March the 29th 1966. It was after this, on the 20th of May 1966, that a meeting was held between representatives of the plaintiff and defendant companies, at which Mr. Philcox was present, at the Blue Heaven Restaurant when the whole question of the loading tests was discussed as also the question of payment for the work actually completed. It is common ground between the parties that although a tentative time schedule for the completing of all the work on the foundation, including the work under the separate contract relating to caisson caps and strap-beams, was agreed at this meeting that nevertheless, the question of payment came to no satisfactory issue. The plaintiff company regarded this meeting as the point at which the contract relationship had effectively broken down due to the failure of the defendant company to perform its duty and it is clear from the correspondence after this meeting that the affairs of the two companies fell into the hands of their lawyers. 22. In relation to this alleged default of payment in accordance with the strict terms of the contract the plaintiff company points to Condition 19 of the Terms of Agreement which provides that if there is any delay in the making of payments under Clauses 2, 6, 9b, 13b and 15 the contractor is to have the option to treat the agreement as at an end without prejudice to his rights to claim against the principal for money due and unpaid. 23. What the plaintiffs' case comes to is this, that the prolonged quarrel between the engineer, and the Building Authority concerning the loading test is largely a red herring drawn by the defendant company across what had been a clear trail of contractual obligations in an effort to divert attention from the plain fact that a point did come in the course of the performance of the contract at which work had been done and when, under the clear terms of the contract, they were entitled to be reimbursed for that work without further delay. The plaintiff company says that if the $245,500 due under the third instalment had been paid when demanded the whole trouble as to the load test would never have arisen and the question of whether it was to be a heavy test or a lighter test could satisfactorily have been worked out between the parties. Mr. Philcox lends support to this view when he says that the parties, meaning the plaintiff company and the defendant company, had reached an impasse and that he therefore took no further steps to try and resolve the difference of opinion which had arisen between himself and the Building Authority in relation to the loading test. He gave it as his opinion that this could readily have been done. This impasse, therefore say the plaintiff company, had come about, not through any neglect on the part of the plaintiffs to carry out a test which they were obliged to do under the terms of the agreement but by the failure of the defendants to make timely payment to the plaintiff company of moneys presently due. 24. To my mind this is the correct way to look at the matter. It is specifically provided by clause 12 of the Conditions of Agreement that any load test which may be demanded either by the engineer or the P.W.D. shall be carried out by the plaintiff company that the time for performing the same shall be excluded from the working time specified under Clause 5. This I think, makes it clear that the parties from the start must have envisaged that a point must come in the performance of the contract when all the work had been completed by the contractor insofar as the actual physical construction of the foundation was concerned but when, nevertheless, a further obligation still rested upon them to take one final step the effect of which would be to render the result of their labours usable by the defendant company for the ultimate purpose for which it was intended. In other words, it was clearly in the contemplation of both parties that the load test would be carried out after the actual completion of the physical structure. If the defendant company realizing this chose, nevertheless, to bind itself to making payment for the work carried out on the completion of the physical structure immediately that structure was completed it can scarcely turn round now and ask the court to say, notwithstanding the clear working of Condition 7 read in conjunction with the Appendix, that payment for the carrying out of that work was to be dependant upon the satisfactory subsequent performance of a load test. It must be remembered that the expense of carrying out this test was, under the terms of the contract, to be borne by the plaintiff company, and the defendant company could have held the plaintiff company to the performance of any test which was demanded once they themselves had fulfilled their obligations by making payment for the carrying out to the completion of the work. If the test had proved the foundation to be unsatisfactory the, under the contract, as it stood, the defendant company was subjected to its right in damages. There was nothing obviously deficient in the plaintiffs work such as might have justified retention of the final instalment on the basis of anticipatory breach. 25. I have come to the conclusion, therefore, that it was the defendant company which was in breach of its contract obligations. Mr. Gittins has suggested that I should offset against the sum claimed the cost of the load test which would have been borne in any event by the plaintiff company. To my mind there are two reasons why I should not do so. Firstly the right to a free load test was a right secured to the defendant company under the terms of the agreement and once it had broken its agreement by failure to make payment upon due demand it effectively abrogated its own rights under the contract; secondly the actual cost of any such load test is now of a highly speculative character. It appears that since the breakdown of the contract between the present parties the defendant company has totally altered its original plan and has decided to build upon the concrete foundation a smaller building comprising units whose user will be more in keeping with the present demand of the market. What load test will be required in view of this alteration or whether any load will eventually be insisted upon are alike matters of speculation and I think it would be inequitable to make any estimates in respect thereof even should I think, on other grounds, that some deduction from the contract price claimed by the plaintiff company was desirable. 26. The plaintiff company will therefore have judgment to the amount claimed together with costs. The counterclaim of the defendant is dismissed with costs thereof to the plaintiff company.
Representation: Swaine (Lam & Tong) for Plaintiff. Gittins Q.C. & B. Liu (W.I. Cheung & Co.) for Defendant. |