Luen Tat Co v. The Valley View Co-operative Building Society Ltd and Another
Read the full judgment text of HCA 1943/1966 on BabelCite. This High Court CFI judgment was delivered on 14 December 1968.
1. A substantial part of the facts was agreed in the form of a statement of agreed facts and this I need not set out in this judgment. The Society wanted the two blocks built on different levels and the original tender submitted by the contractors was prepared on that basis. The Society then realised that they would have to be a little less ambitious and after consultation with the architect they obtained from the contractors a revised estimate for building both blocks at the same level. This in
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HCA001943/1966 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 1943 OF 1966 -----------------
Coram: Huggins, J. Date of Judgment: 14 December 1968 ----------------- JUDGMENT ----------------- Huggins, J: The plaintiffs are building contractors and the action arises out of a contract which they made with the 1st defendants for the erection of two blocks of flats. The 2nd defendant is the architect employed by the 1st defendants in connection with this work, but the claim against the 2nd defendant was withdrawn on the third day of the trial. In this judgment I shall refer to the plaintiffs as "the contractors", to the 1st defendants as "the Society" and the 2nd defendant as "the architect". 1. A substantial part of the facts was agreed in the form of a statement of agreed facts and this I need not set out in this judgment. The Society wanted the two blocks built on different levels and the original tender submitted by the contractors was prepared on that basis. The Society then realised that they would have to be a little less ambitious and after consultation with the architect they obtained from the contractors a revised estimate for building both blocks at the same level. This involved an actual saving of $339,659.50 on the original tender although one item in the estimate was in fact increased to cover that portion of the contractors' overheads which would have been borne by items not proceeded with. The revised estimate was accepted and formed the basis of the contract between the parties. A copy of the revised bill of quantities was annexed to the contract. At the same time there was an oral agreement that if any of the works originally tendered for but now omitted were to be restored by way of variation of the contract they would be charged for at the original tender rate less a proportion equal to the proportion the figure of $50,000 bore to the amount by which the original tender had been reduced (which, it appears to be agreed, comes to 19.76%). 2. Unfortunately both the original and the revised estimates were based on inaccurate site drawings and when the contractors came to prepare the site they quickly saw that considerably more excavation was required than was indicated by the plans. For this additional excavation they demanded not only payment but also an extension of the time for completion of the contract work. The Society contend that they are neither liable to make any additional payment nor bound to allow any additional time. The contractors' claim is for $201,508.02, being as to $100,000.00 a sum certified by the architect as payable and as to the balance the remaining sum outstanding in respect of work done under the contract. By an unfortunate error the prayer claims the balance only from the architect and not from the Society. Leave was granted on the first day of the trial to amend but no amendment has been made. However, it was, I think, conceded that this was a slip because the Society pleaded on the basis that the sum was claimed from them and I shall not penalize the contractors for the failure to amend. 3. Both sides rely on the fact that included in the revised "Bill of Quantity" which was annexed to the contract was the following item:
It is common ground that the figure of $404,798.00 in fact included an element of $50,000.00 representing the proportion of the contractor's overheads to which I have already referred, but I do not think this is material for our purposes. What the Society say is that the contractors agreed to form the site at the indicated level for the lump sum and that if this involved them in more excavation than they expected they must bear the extra burden. Clause 1 of the contract conditions is important at various stages of the argument and I must cite the greater part of it:
Clause 2 reads in part:
The precise meaning of the first sentence is obscure and no attempt has been made to clarify it. This much is certain, that no one has produced any document purporting to be the Schedule of Rates referred to in the clause. The language of the second sentence cited shows that the Schedule is to be distinguished from any Bill of Quantity. Also relating to bills of quantities is clause 10, which reads:
We must, therefore, look elsewhere than in the bill of quantities, upon which the Society so strongly rely, in order to ascertain the contractual rights and liabilities of the parties. Clause 9 deals with variations and this reads in part:
The Clause goes on to describe in detail how the valuation is to be made. 4. I shall come back to Clause 22 shortly but I now turn to the Specification, which, unlike the Bill of Quantity, does form a part of the contract. Under the heading "Excavator" we find:
As I understand it what has happened is that the surveyor made errors in drawing the existing contours, with the result that in order to cut down the site to the level shown more earth has had to be removed. This involved no "discrepancy or divergence between the Contract Drawings and the Specification" for the Specification did not indicate, directly or indirectly, the quantity of earth to be moved. What I think the contractors say is that under Clause 1(a) there has been the addition of some work which was not disclosed by the Contract Drawings: the only work shown in the contract documents which they were required to do for the contract price was to cut the site to the indicated level from the level shown in the drawings. This shows the point of difference between the parties: both are agreed that the site was to be cut to the indicated level but the contractors go further and say that they agreed to remove only such volume of earth as there would have been if the existing site had been at the levels shown in the plans. They accept that this was a lump sum for the removal of a designated volume of earth, so that the question to be answered is whether any additional work has been ordered. The Society, on the other hand, appear to be following the words of the Specification and they say that the contractors were bound to cut the site to the proper levels, however much work that entailed: they rely on the fact that it was a lump sum contract as showing that the court is not concerned to ask how much earth needed to be moved. They further rely on the note which was endorsed on the Contract Drawings:
The submission is that this endorsement placed on the contractors the burden not only of checking and adjusting all measurements rather than proceeding to execute the works strictly in accordance with the plans (regardless of any errors in the plans which might come to light) but of accepting full responsibility for all errors of measurement in the preparation of the plans. I cannot believe that that was the intention of the parties or that it would be a fair interpretation. The architect admitted that the error here was a "gross" error and in my view it substantially altered the nature of the excavation work to be done. Take an extreme example. Suppose a tender be given on the basis that a building is to be erected on an existing level site at 50 feet above datum so that no earth cutting at all would be required. Then suppose that in fact there be a one thousand foot mountain on the site. It would be absurd to say that the contractor could be required to remove the mountain at his own expense: he tendered on the basis of the plan submitted to him and it is a question of fact in each case whether any error in the plans is of such a nature as entitles the contractor to treat the contract as at an end, or to demand an additional payment, or is such that he must bear the expense of correcting the error himself. Nor do I think it was, as seems to be alleged by the Society, an implied term of the contract that the contractors would assume liability for any additional time and expense incurred as a result of any error in the site plan. I say "seems to be alleged" because paragraph 9 of the Defence alleges an implied term which includes the words "any error in the site plan not rectified by the architect at the (contractors') request". The undoubted fact is that the final plan (which has been referred to as Plan III) is a rectification of the contract plan and it was prepared in such circumstances that I do not think it can fairly be said it was prepared otherwise than "at the (contractors') request". In any event I am firmly of opinion that no implied term was necessary to give this contract business efficacy. Then the Society rely on Clause 22 of the conditions, which reads:
This again, as I understand it, is said to mean that the contractors would obtain information to satisfy themselves that the drawings were accurate and that they would assume liability for any error which might subsequently be found therein. In my view the clause can bear no such construction. 5. The contractors say that, in any event, it is not open to the Society to deny that the rectification of the site plan involved "additional" work and a variation of the original contract, by reason of the issue of a variation order by the architect with the express authority of the Society. This was Variation Order No.1 dated 26th August 1963, which I shall refer to as "V.0.1". This requested execution of earth cutting to the extent of 429,750 cubic feet, that being the amount of extra work attributed by the contractors to the error in the plans (see their letter of 22nd May 1963). The Society in turn have contended that the contractors did not rely upon this variation order and, further, they allege that it was issued as a result of misrepresentation or a mistake. 6. There is no doubt that the architect did issue a variation order requesting the contractor to do (inter alia) earth cutting to an extent of 429,750 cu. ft. and that was clearly a representation that he regarded this as extra work. But the Society say that the contractors did not rely upon V.0.1 so that there can be no estoppel. The error in the plans was pointed out in a letter dated 19th February 1963 to the architect. In a letter dated 13th March 1963 to the architect the contractors wrote of the necessity for new plans "in order to resume work", the implication being that work was suspended when the error in the plans was reported. Whether or not there was a complete suspension of work in the period up to the 19th April, when the new plan was provided, is not clear, but a further letter of 22nd June 1963 indicates that instructions were given on 15th April 1963 for work to continue. I have no doubt that work was continued, although there was complaint of the progress made. I do not believe that there was a suspension of work until the issue of V.0.1 on the 20th August. Mr. Luk of the contractors agrees that work was going on and that by the time V.0.1 was issued 72% of the site formation work actually needed had been completed. By that time a total of $253,599.40 (less 15% retention money) has been paid to the contractors, a sum which included nothing for materials at all and the submission is that it must have related to the site formation: if it related to site formation it cannot be true that the contractors relied upon V.0.1 as the basis of their undertaking the extra work required by Plan III. I agree. Again it is said that the contractors have paid $99,614.15 to their sub-contractors for the additional earth cutting in reliance upon V.0.1. However, I am not satisfied that the variation order given to the sub-contractor was in fact given in reliance upon V.0.1. Not only was that order not dated but it was also altered in circumstances which have not been explained to my satisfaction. I hold that the Society are not estopped by the issue of V.0.1 from denying that this was extra work although the order is strong evidence against the Society. 7. On the other hand, I do not think the contractors are estopped from contending that this was extra work by virtue of an alleged representation by them that the difference between the amount of earth cutting required under Plan II and the amount required under Plan III was extra work. This representation is said to be contained in the letter of 22nd May 1963 to which I have previously referred. The matter arises in this way. The Society say that the bill of quantities shows the original tender for site formation was $414,000. Although that was a lump sum, when discussions took place with a view to reducing the overall cost of the development the contractors handed to the architect a document which shows how the figure was arrived at. This is Ex.E, which it is admitted was written by Mr. Luk of the contractors. Mr. Luk says that the figures in this document were supplied to him by his sub-contractor and that he merely passed them on to the architect in a form which showed what savings to the Society could be effected on the original tender. In other words he suggests that he was not concerned with the detailed calculations but only with the final figure of $59,202, which was the sum by which the cost would be reduced if the two blocks of flats were built on the same level instead of on two levels. The fact remains that in column 2 of the document there is a calculation showing how the figure of $414,000.00 for site formation in their tender had been arrived at. This calculation allowed for excavation of 1,420,000 cubic feet of earth. In column 3 it was shown that, for site formation at the level which was eventually adopted, 1,316,000 cubic feet of earth would have to be excavated. The total cost of site formation at that level would be $354,795.00, which was the figure finally agreed although it appeared in the revised bill of quantities as $404,795.00 because, as we have seen, $50,000.00 was added in respect of overheads. There was some attempt to explain how the apparent discrepancy between the figures in the letter and in Ex.E came to exist. Mr. Luk suggested that the figures of 845,503 cubic feet and 1,275,503 cubic feet which appeared in the letter 22nd May 1963 related to compacted earth and that the figure of 1,316,000 cubic feet in Ex.E relates to loose earth. Indeed, at one point he said he was told by the sub-contractor that his figures were for loose earth and the sub-contractor has affirmed that he expressly instructed his foki to make the calculation on the estimate of loose earth, but I am afraid I do not believe that. Counsel submits that it is inconceivable that such a large error could have been made if both documents related to compacted earth. I am not prepared to go as far as that and I confess that I find it difficult to believe that two different methods of calculation can be in regular use in the building trade, for it would be such an obvious source of possible confusion. Thus it is conceded that the variation order issued by the contractors to their sub-contractors in respect of the extra earth cutting was based on a measurement of compacted earth. I am not satisfied that there was a mistake of the kind suggested. It is much more likely that there was an error by the sub-contractor in calculating the quantity of earth to be excavated under the contract plans, an error which was not discovered by the architect or by the Society. (It is not suggested that the contractors discovered the error and deliberately kept quiet about it). Some of the error might well be attributable to the manner in which the estimate has to be made, with the aid of a planimeter, but it is doubtful whether the whole error is so attributable. In any event, what seems to me the vital question is whether V.0.1 was induced by such a representation as is alleged. 8. The evidence as to that is that when the error in the plans was first reported the architect discussed the matter with the Society and then a meeting was called at which the contractors were asked to explain the necessity for a variation order. This meeting was held at the Queen Mary Hospital in July or August 1963. I accept that the Society's representatives did then discuss with the architect whether they should pay anything extra at all, but so far as the contractors were concerned they were there to justify if they could the unit rate of 24 cents a cubic foot at which the additional earth cutting was being charged: the Society objected because the rate mentioned when the contract was first under discussion was 20 cents a cubic foot. The contractors explained that the higher unit price was due to the greater difficulty in excavating and carting away the earth at the single level. Nevertheless the defendants insisted that they had no recollection at the time of this meeting of the existence of Ex.E, so that what was being discussed was clearly the market price. As to whether the Society should pay anything at all for this work the parties had sought the opinion of a Mr. Dovey, President of the Hong Kong Society of Architects, but the defendant Society were apparently not satisfied that his opinion ought to be adopted. However, Dr. Chan, Secretary of the Society, says that the architect advised them that Mr. Dovey was right and they agreed to the issue of V.0.1. The basis of Mr. Dovey's opinion was that the contract included a lump sum price for site formation "in accordance with the specification and site formation drawings" and that "there does not appear to be any requirement for the contractors to accept responsibility for checking the accuracy of the drawings with actual site conditions in detail prior to submitting his tender for the works". Incidentally, that is an opinion with which I respectfully agree, but the important thing is that I am by no means persuaded that the Society were induced to agree to the issue of V.0.1 by any representation such as that alleged. I think it is clear that what induced them to agree was (1) the opinion of Mr. Dovey and (2) the advice of the architect both that that opinion was correct and that the amount claimed was correct - which involved acceptance by the architect that the extra work had been correctly measured. If the revised figure of $404,798.00 for site formation was agreed on the understanding that the work required excavation of 1,316,000 cubic feet of earth it was then that the Society committed themselves and, as it were, adopted the mistake. The architect had the plans and if he thought (as it seems he did) that the price was on the high side one would have expected him to check the measurements upon which it was based. Assuming that the measurements in the letter of 22nd May 1963 are correct there would seem to have been an error in Ex.E. However, the Society agreed to the price shown in column 3 and it is not open to the court to alter the contract which they entered into. I do not regard the letter of 22nd May 1963 as a representation that the contract work included 1,316,000 cubic feet of excavation and I do not accept that V.0.1 was issued in reliance upon any such representation. Equally any mistake there may have been was not such as to entitle the Society to rely on the calculation by which the lump sum price of $404,758 was arrived at. The result is that in my view the contractors are entitled to be paid for the earth cutting necessitated by the amendment of the plans. 9. The next question is How much are they entitled to receive? They, of course, rely on V.0.1 and claim $98,842.50, being 429,750 cubic feet at 23 cents. The Society attack both the measurement and the rate. As to the measurement they say it is a miscalculation of the extra earth cutting required. Mr. Lau To-hin of the Society calculated the colume of earth to be moved as a result of the amendment of the plans at 300,401 cubic feet against the figure 429,750 cubic feet in V.0.1. Even at 24 cents I am told that would come to no more than $72,096.24 while at 20 cents it would come to $60,080.20. The measurement in V.0.1 was apparently calculated by a Mr. Tsui of Wing Sun Construction Company after there had been an argument over the figure supplied by the architect. Mr. Tsui was not called but the architect says that he made spot checks and was satisfied that the measurement was accurate. The contractors approached Cheng Siu-fai for an estimate for the excavation and handed him the plans. His foki then worked out "the cost and the relevant matters about the site formation which included excavation of earth". The foki supplied the figures which Mr. Luk entered in Ex.E. How the foki arrived at those figures we do not know for he was not called. The same foki is said to have checked the figures in the variation order supplied by the contractors to Cheung Siu-fai, which includes the volume 429, 750 cubic feet, the alleged difference to be excavated as shown by Plans II and III. That variation order was not dated, but Mr. Luk admitted that he gave it after he received V.0.1 from the architect. Counsel for the Society asks me to accept the evidence of Mr. Lau To-hin because his is the only evidence before the court of someone who made the whole calculation himself. Spot checks of his figures were made by Mr. Ng Lin-hing. Counsel for the plaintiffs, however, submits that his evidence carries little weight because he did not say how he made his measurements and admitted that either he or Mr. Tsui might be wrong. For these reasons I am asked to find that the Society have not discharged the burden of proof. Although Mr. Lau did not say expressly how he did his calculations I think it is implicit that he used a planimeter. In any event Mr. Ng did tell us how he did his spot checks and I think it must follow that they adopted substantially the same method otherwise spot checking would have been impossible. I have found it very difficult to decide which figures ought to be taken as correct but on balance I think the evidence of Mr. Lau To-hin is to be preferred. 10. As I have said, the rate charged is also in dispute. The pleadings are by no means clear on a number of points and this is one of them. The Defence admits outright paragraph 4 of the Statement of Claim (which alleges the contract) and then sets out various matter "in further answer". The relevance of those facts appears to be that it is suggested that the rate for the extra earth cutting, if allowable at all (which was of course denied). should be only 20 cents. The basis of the argument is not very clear. It cannot be said that the extra earth cutting was work originally tendered for but which was excluded from the contract and which, when re-ordered, came within the ambit of the oral agreement. What I take the Society to be contending is that the fact that 20 cents was the rate in the tender was evidence that 20 cents was a fair market price. That cannot be right for at least two reasons. Even if the extra work were to all intents and purposes identical to the work covered by the contract the contractors may have tendered for this particular part of the job at a rate lower than the market price. Secondly, it has been shown that the work was far from being identical to the work covered by the contract and was more onerous. I therefore find that the proper rate to be charged is 23 cents and applying that to the figure of 300,401 cubic feet we get a sum of $69,092.23 cents, which means that the total of V.0.1 must be reduced by $29,750.20 to $76,222.23. 11. The plaintiffs claim $11,672.00 (possibly a mistake for $11,627.20) and $19,193.76 by virtue of V.0.10 and V.0.11. Although the photostat copies of these two variation orders which have been supplied to me, difficult as they are to read at all, clearly do not mention any sums of money or any measurements whatsoever, it appears to be common ground that some figures were given. The Society say that these two orders were subsequently replaced by V.0.22 and V.0.23. The Contractors do not deny that they were so replaced but maintain that as they did the work after the figures quoted had been confirmed in writing and as the architect had not dissented from those figures (and as to V.0.11 had in fact confirmed the figure by letter) the Society are estopped from challenging the figures is the earlier orders. I am not satisfied that the contractors did rely upon the figures and it is quite clear that the figures were wrong for the work in question was work which was covered by the oral agreement relating to items in the original tender. Indeed Mr. Luk a dmitted in cross-examination that the difference between the sums shown in V.0.10 with V.0.11 and V.0.22 with V.0.23 ought to be credited to the Society. That seems to me to be an admission that V.0.10 and V.0.11 were made in error and have properly been replaced. The amounts shown in V.0.22 and V.0.23 are $6,204.99 and $11,943.12 but paragraph 17 of the Defence says that "in the circumstances" the contractors are entitled to no more than $5,476.01 and $7,250.64 respectively. What circumstances are relied upon for this reduction is not clear to me. Some allowance has been made for the fact that these works were included in the original tender but I do not pretend to understand all the figures. Take V.0.22. The tendered rate for the concreting was $4.80 and I calculate 80.24% of that (i.e. a reduction of 19.76%) to be $3.85(152), not $3.94 as shown. That means that the total for concreting ought to be 5,482.40 instead of $5,610.56. Adding $594.43 for the mild steel reinforcement the increased cost should be $6,076.83 and that is the sum I allow. I have assumed that the quantity of 1,424 cubic feet shown in the variation order is correct although the tender quoted only 1,335 cubic feet for the same job. Although the contractors' letter of 29th April 1965 which led to the issue of V.0.10 estimated $1,536.00 for labour and $480 for "cement and sand pointing" it would appear to be correct that these items were allowed for in the original rates quoted in the Bill of Quantity. I agree also that the teakwood parquetry covered by V.0.11 and V.0.23 ought to be charged at the rate shown in the latter order. I do not know what area of work was allowed in V.0.11 for the reason already given, but V.0.23 gives the measurement as 42,654 square feet, which is very slightly more than the measurement claimed by the contractors in their letter of 14th October 1965. I accept the calculation shown in V.0.23 and allow $11,943.12 for this work. The difference between the $30,865.76 claimed under V.0.10 and V.0.11 and the $18,019.95 which I allow under V.0.22 and V.0.23 is $12,845.81 and that must be oredited to the Society. 12. As I understand the Defence the society's first contention is that the contractors are not entitled to the contract price which they claim. Paragraphs 16 and 21, however, appear to admit that the contractors are entitled to the contract price but to allege that the Society are entitled to set off part of a sum which exceeds the contract price. Whatever the true nature of their case the major proportion of the total sum alleged by the Society to be due to them consists of damages said to be payable for failure to complete the work on time. The claim is made under the terms of both the principal contract and the supplementary agreement and I come now to the assessment of these damages. Counsel for the Society has indicated that he limits his claim to the amount which will be due if what are described as "liquidated damages" in the contract and supplementary agreement are indeed liquidated damages and not a penalty. Although the Society admit for the purposes of computation of time that the work was finished by 26th September 1965 and although, without admitting liability, the contractors have agreed to give credit in the sum of $2,500.00 in respect of defects alleged to have existed on 26th September 1965, that does not dispose of the matter because the contractors maintain that they finished by 13th September 1965. In support of this contention they rely mainly on a certificate (No.15) which was issued by the architect on 15th September 1966 authorizing payment of $100,000.00, which sum appears to have been the amount of the retention money, then being released. The balance of $101,508.02 was shown in the certificate under the heading "Deductions" as being an amount in dispute. The contractors rely upon this certificate as a "final certificate" within the meaning of Clause 26(f) of the contract conditions and therefore as conclusive evidence as to the sufficiency of the works and materials. On the face of it that would seem to be right for the "value of work completed" which is certified by the architect includes all the work covered by the contract and the subsequent variations. The architect himself admitted that it was intended to be a final certificate and that all the work had been done to his satisfaction in the sense that the plaintiffs were not to be required to do anything further. He even agreed (though I doubt whether he really understood the question) that when issuing the certificate he took into account the possibility that the contractors might have exceeded the time allowed under the contract. In cross-examination he had said that the $101,508.02 was a sum which the Society were not prepared to pay without arbitration. It was also suggested to him, as I understood the question, that this disputed sum related to liquidated damages:
That answer was equivocal. How exactly the figure of $101,508.02 was made up I do not know: it was a figure which could not consist solely of liquidated damages for those damages were assessable in round figures. Certainly the architect did not expressly include in his final certificate any deduction by way of liquidated damages, although in previous certificates deductions had been made. Again I am not clear whether it was suggested that failure to include any deduction was evidence that no deduction ought to be made. If so, I think the suggestion is ill-founded. I doubt whether liquidated damages are properly described as a "deduction": they are a set-off. In any event it is abundantly clear that at the date of the final certificate a dispute had arisen whether liquidated damages were or were not payable under the contract. When the previous certificate (No.14) was forwarded by the architect to the contractors' solicitors he expressly said that he was certifying a round sum because at that time arbitration proceedings were imminent. On more than one occasion he admitted in evidence that the contractors had done all the work which they claimed to have done. I am satisfied that at that time there was no dispute as to the work which had been done up to 13th September 1965: the only disputes were (1) whether the contractors were entitled to an additional payment in respect of the excavation and (2) what liquidated damages were payable by the contractors to the Society for delay in completion of the contract work. Then the contractors rely upon a letter dated 27th September 1965 from the architect to the Superintendant of Crown Lands and Surveys in which he stated that the building work had been completed by 13th September. The contrary argument is that there were defects which had not been remedied, so that it could not be said that the work had been completed. I am satisfied that there were no such outstanding defects as could fairly be relied upon by the Society. No authority has been cited to me on the point but clearly it must be a question of fact whether building work has been substantially completed in accordance with a contract and it is not every defect which entitles the owner to claim damages for non-completion as distinct from damages for remedying the defect. I find that the plaintiffs "completed" the work on 13th September 1965. 13. The date for completion under the supplementary agreement was 30th April 1964. The Society admits extensions of 195 days, against which they claim abridgements under V.0.20 and V.0.21 of 7 days, making a balance of 188 days. The contractors claim that they are entitled to more than this on several grounds. First they claim 145 days under V.0.1 and V.0.2. The Society maintain that the contractors are not entitled to the extra time stipulated for in those two variation orders because the provisions in those orders relating to extensions of time were incorporated in the supplementary agreement dated 7th February 1964. The contractors contend that that argument is not open to the Society because no such intention could be spelt out of the agreement itself and they say that oral evidence is not admissible to explain or add to the agreement. It is an unfortunate fact that the integrity of written documents does not today retain the same inviolability that it did in the past and parol evidence is now admitted in cases where it would have been unheard of a hundred years ago. Whether one likes it or not the trend of judicial opinion is unmistakable: see Kalwani v. Jacobson Van Den Berg (H.K.) Ltd.(1). What I think the contractors are seeking to do here is to prove an additional term in the supplementary agreement, a term which cannot be said to be inconsistent with the writing. If that be right then I take the law to be that parol evidence is admissible. 14. However, the contractors go on to submit that on the evidence there was no intention to incorporate the two variation orders. The mere fact that the orders were in existence at the date of the agreement does not assist the Society but they do rely on the fact that the new date of completion laid down by the agreement is the very date when completion of the work would have been due under the original agreement as amended by the two variation orders. This, it is said, is more than a mere coincidence. Moreover, if the two variation orders were not absorbed it follows that the extensions of time amounting to a total of 145 days allowed by the orders would still be allowable and would run from the date laid down in the supplementary agreement. That would take the date for completion to 22nd September 1964. Yet just prior to the signing of the supplementary agreement Mr. Luk had, on his own admission, submitted a works programme which provided for completion by 10th August. He was questioned about this but gave no really satisfactory explanation of the apparent discrepancy in dates. On the other hand it is said that the correspondence shows that the variation orders were not incorporated in the agreement. Thus the architect's letter or 10th February 1964 gives the contractors permission to continue to use the rock crusher which the Society were blaming for much of the delay in the progress of the work "subject to " the supplementary agreement. This, as I understand the argument, indicates that the architect regarded the rock crusher as the reason for the supplementary and if that was the reason for it then the extension granted by it could have nothing at all to do with the variation orders. I do not think that follows: the fact that the Society agreed to the use of the crusher would not seem to be a good reason for their also giving an extension of time. I attach no weight to this particular letter. The architect's letter of 21st August 1964 to the Society is of greater significance. This was written some six months after the signing of the supplementary agreement and yet the architect clearly states that the plaintiffs are entitled to extensions of time by reason of these two variation orders. I think this letter does tend to support the contractors' case. Then the Society's letter of 25th February 1967 to the architect asked him to cancel V.0.1 (though not V.0.2) and gives two reasons for the request. It makes no mention of the supplementary agreement as having replaced both these variation orders and if such replacement was truly the basis of that agreement it is difficult to believe that it would not have been mentioned. Again, I believe that the Society were seriously worried by the presence of the crusher on the site, probably not without some justification. It is strange that they did not mention the crusher in the supplementary agreement, but I am satisfied that it was one of the factors leading to that agreement. It is further argued that in January 1965 when the Treasury, who were interested on behalf of the Society, made reference to an allowance in respect of V.0.1 and V.0.2 both parties tacitly accepted that the orders were still in force: the Treasury's letter of 23rd January 1965 referred to the architect's letter of 21st August 1964 (itself written after the supplementary agreement had been made) in which the architect had set out in detail the extensions of time which were allowable to date: allowances were made for V.0.1 and V.0.2 in full and the total extensions amounted to 306 days: the Treasury assumed that the 306 days were to run from 7th December 1963 (the date for completion in the original contract) and not from 30th April 1964 (the date in the supplementary agreement) and the architect appears thereupon to have revised Certificate No.10 so that it provided for liquidated damages on that basis. I am not quite sure how this last fact helps anyone because clearly after the execution of the supplementary agreement all extensions should have run from 30th April 1964 whether the extensions under V.0.1 and V.0.2 remained in force or not. I think the argument really amounts to this, that the architect treated it as immaterial whether one calculated 306 days from 7th December 1963 or 161 days from 30th April 1964 but that by issuing the revised certificate he recognised that the contractors were not to have the extensions under V.0.1 and V.0.2 in addition to the extension granted by the supplementary agreement. All I can deduce from the Treasury's letter is that they did not pay any regard to the new completion date stated in the supplementary agreement. The architect's letter of 21st August 1964 did not mention the date from which the extensions were to run. Mr. Lau To-hin in his evidence said it was understood that V.0.1 and V.0.2 were being merged in the supplementary agreement but (perhaps not unnaturally after so long) he was apparently unable to give a detailed account of the alleged conversation. At best, it is said, this was a misunderstanding because even the architect thought these variation orders remained in full force and effect. Counsel for the contractors suggests that there were various delays which would account for the extension granted under the supplementary agreement and which, though related to the original error in the plans, did not flow directly from that error: he says there was an error on the part of the architect in delaying instructions for a soil investigation which was essential to the preparation of amended footing plans consequent upon the change of level and a further error in delaying the provision of revised slab plans for Block A. He has not, however, sought to quantify the delays. In none of the variation orders does one find specific reference to an extension of time to cover the delay from 19th February 1963 (the date on which the contractors pointed out the error in the plans) to 26th August 1963 (the date of V.0.1) but in cross-examination the architect suggested that these delays were covered by V.0.1:
It was argued by counsel for the Society that the alterations in the terms of the contract which were made by V.0.1 and V.0.2 were alterations "necessary to make the principal agreement consistent with (the supplementary) agreement" within the meaning of Clause 5 of the supplementary agreement and that therefore to that extent the principal agreement did not remain in full force and effect. In other words, as I understand it, they say that the extensions of time provided for by the variation orders must have been taken into account in drawing up the supplementary agreement. 15. This is undoubtedly the most difficult aspect of the case and it has given me great anxiety. However, I am unable to say that I am satisfied it was agreed to incorporate the extensions of time provided for by V.0.1 and V.0.2 into the supplementary agreement. 16. Next the contractors say that in respect of work covered by V.0.4, V.0.7, V.0.8, V.0.9, V.0.10 and V.0.11 they are entitled to 151 days instead of the 90 days allowed by the orders themselves. (I have held that V.0.22 and V.0.23 should be substituted for V.0.10 and V.0.11). The first difficulty here arises from the fact that the terms of the contract were not strictly followed when additional work was ordered. I have cited Clause 1 and I will now consider V.0.4 as an example of what in fact happened. It is apparent that the architect gave oral instructions for flooring the store-rooms in teakwood and that the contractors proceeded to carry out the work without confirming the instructions in writing. Subsequently, by a letter dated 29th April 1965, they sought to confirm the instructions, stating at the same time that the work had been done. The letter quoted a price and the extension of time required and asked for approval. No reply was sent by the architect but the variation order was issued on 27th November 1965, nearly seven months later and two months after completion of the building. In these circumstances the contractors, although they cannot claim that that their belated request for approval had the result that the oral instructions should "be deemed to be Architect's Instructions", nevertheless contend that they are not only entitled to payment (which is not denied) but that they are entitled to the extension which they asked for. The Society sought to rely upon Clause 1 of the contract but I questioned whether that was open to them upon their pleadings. At the eleventh hour, therefore, counsel for the Society asked leave to amend. Reluctantly, and in large measure by reason of the generally unsatisfactory state of the pleadings (which were sought to be amended on both sides in the course of the trial), I gave leave to amend, but no amendment has in fact been made. In all the circumstances I am not disposed to give any further latitude and I confess that I feel no sorrow at having to rule that it is not open to the Society to take a technical point which is so unmeritorious. (I mention in passing that the contractors also obtained leave to amend paragraph 12 of the Reply in the course of the trial but no amendment has been made). 17. Some argument was addressed to me, without objection, on the basis of Clause 13 of the contract, which forbids the "sub-letting" of any portion of the works without the written consent of the architect. On the evidence before me it is true there is no suggestion of any written consent to the employment of Mr. Cheung Siu-fai to do the excavation. But whether or not there was any breach of this clause and whether or not, assuming there was such a breach, the breach was waived by the Society, was never raised on the pleadings and I do not propose to consider the matter further. 18. It still remains to decide whether there was any legal basis upon which the contractors can claim the longer extensions. From what I have said it is apparent that they did not do the work in reliance upon the failure of the architect to dissent from their letter of request and there can be no estoppel. Can it be inferred that there was an agreement to allow seven days under V.0.4? I do not think it can: at the most it might be inferred that a reasonable time would be allowed. Although two days does seem very little in view of the number of flats involved the architect gave evidence that that was a reasonable time to add to the whole time for the contract and I am not prepared to say he was wrong. The contractors have pleaded that the issue of the variation order "was not a bona fide exercise of (the architect's) powers". As I see it the position is that the architect was not obliged to issue a variation order at all but by doing so he committed the Society to the payment and to the extension mentioned in it. Nor was he obliged to issue a certificate within a specified period. The position seems to be that the contractor had a choice: he could either refuse to do the additional work until a variation order had been issued or he could go ahead in the absence of a variation order and run the risk that no such order would ever be issued or that if issued it would allow a shorter time than that asked for. It is unnecessary for me to say whether if I was satisfied that two days was not a reasonable time it would have been open to me to allow a different period. 19. The circumstances surrounding V.0.23 were the same: the letter of request was dated 14th October 1965 and showed that the work had been done. Mr. Lau To-hin said the work was commenced before 20th February 1965. 20. V.0.7, V.0.8, V.0.9 and V.0.22 are in similar case except for one thing - it does not appear from the letters of request that the work had already been done. It is to be noted that all the letters bear the same date as that on the letter of request which led to V.0.4 and the difference in wording therefore takes on greater significance: here there was no indication whatever that the work had been done. However, Mr. Lau told me that the work covered by V.0.7 must have been done before 5th December 1964, that the work covered by V.0.8 was started on 27th February 1965, that the work covered by V.0.9 was ordered "several months before 29th April 1965" and that the work covered by V.0.22 was ordered and probably commenced before 20th February 1965. It follows in my view that the contractors are entitled only to the extensions of time stated in the variation orders, i.e. the 90 days. With the 145 days under V.0.1 and V.0.2, the 16 days under V.0.3 and the balance of 188 days under V.0.16 to V.0.21 that makes a total of 439 days. I think it is common ground that 13th September 1965 (the date of actual completion) was 501 days after 30th April 1964 (the date of completion laid down by the supplementary agreement). In the result I find that the contractors were late by 62 days. Under the supplementary agreement the Society were entitled to liquidated damages at the rate of $200 a day until 10th August 1964 (i.e. for the first 102 days) and I therefore find that the total which must be credited to them is $12,400.00. 21. In view of the conclusion which I have just reached it is unnecessary for me to decide whether the provision in the supplementary agreement for the payment of $1,000.00 a day in the event of completion after 10th August 1964 should be regarded as fixing liquidated damages or a penalty, but for the sake of completeness I will deal with the matter very briefly. Counsel for the contractor did not cite any authority in support of his allegation that it was a penalty. Counsel for the Society rely on the evidence that flats of this kind could be let for $1,500.00 a month and they say that it would be reasonable to assess liquidated damages in the region of $32,000.00 a month, this being the equivalent of $1,000.00 a day for 32 flats. Mr. Lau To-hin's evidence suggests that the Society were very much concerned with the possible gain to the contractors through the use of the rock crusher but I have no reason to believe that was their only consideration and in my view $1,000.00 a day must be taken as their assessment of what it would be reasonable for the contractors to pay to compensate them for their own possible loss. I agree that the figure could very properly be regarded as a genuine pre-assessment of that loss. 22. The result is, if my arithmatic is correct, that the contractors are entitled to a judgment in the sum of $144,012.01 with interest at 8% from the date of the writ. No declaration is necessary to enable the contractors to enforce their rights under the contract and in the exercise of my discretion I refuse the declaration sought. The counterclaim is dismissed. 14th December, 1968. Representation: Mr. H. Litton & Mr. ...(illegible) Wong for the Plaintiff Mr. Gittins for the 1st Defendants Mr. R. Arculli for the 2nd Defendant (1) 1964 H.K.L.R. 842. 851. |