Tin Shui Wai Development Ltd v. Attorney General

HCCT000005/1987

Construction List 1987, No. 5

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Godfrey J

Date of Judgment: 30 September 1992

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STATEMENT

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I dismiss this action, for the reasons given in the written judgment which I have prepared; as stated in my judgment, I will hear counsel on a date and at a time to be appointed for that purpose on any question of costs or otherwise which may arise as a result of the judgment.

Because of the length of the judgment I shall not take up time by reading it. I shall instead follow the practice sanctioned by Order 42 rule 5B of the Rules of the Supreme Court, in accordance with which, after I have risen, a copy of the judgment will be handed down for each of the parties; one copy will be lodged in the Supreme Court Library; and one copy will be made available for public inspection in the Supreme Court Registry. Any request for additional copies of the judgment, or for, further information, should be directed to the Principal Information Officer, Supreme Court.

Construction List 1987, No. 5

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Godfrey J

Date: 7, 21 - 25, 29 - 31 May 1990, 1, 4 - 8, 11 - 14 June 1990, 2 - 5, 9 - 12, 16 - 19, 23 - 26 July 1990, 8 - 11, 15 - 18, 22 - 25, 29 - 31 October 1990, 1 - 2, 5 - 7, 12 - 15, 19 - 20, 26 - 28 November 1990, 3 - 6, 10 - 11 December 1990, 8 - 10, 14 - 15, 21 - 25, 28 - 31 January 1991, 1, 5 - 7, 11 - 12, 18 - 21, 25 - 28 February 1991, 1, 4 - 7, 15, 18 - 21, 25, 27 March 1991, 15 - 18, 22 - 25, 29 - 30 April 1991, 1 - 2, 6 - 9, 14 - 16, 20 - 23, 27 - 30 May 1991, 3 - 6, 10 - 11, 13, 27 June 1991, 1 - 5, 8 - 12, 16 - 19, 22 - 26, 29 July 1991, 7 - 9 October 1991, 25 - 28 November 1991, 8 June, 22 - 27 June 1992; 30 September 1992.

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J U D G M E N T

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Part I - Prologue

1. The plaintiff in this action is a company called Tin Shui Wai Development Limited ("TSW"). TSW is the wholly owned subsidiary of a company called Mightycity Company Limited ("MCL"); I shall when convenient refer to them together as "MCL/TSW". The shares of MCL are now held as to 51% by China Resources (Holdings) Co., Limited, a trading arm of the People's Republic of China ("PRC") and as to 49% by Cheung Kong (Holdings) Limited, a substantial Hong Kong property and investment company.

2. The defendant in the action is the Attorney-General, representing the interests of the Hong Kong Government ("HKG").

3. TSW's claim in the action is a claim against HKG for damages for breach of contract. It alleges it has suffered loss because of failures by HKG in the performance of HK G's contractual obligations to TSW under or in connection with an agreement constituted between HKG and TSW on the terms of a letter dated 29th July 1992 and addressed by HKG to MCL/TSW ("the 7/82 Agreement"). The 7/82 Agreement provided for the surrender by TSW to HKG of some 488 hectares of low-lying land (consisting largely of fish ponds), then owned by TSW and situate at Tin Shui Wai in the north-western part of the New Territories. Part of this land was to be developed as a new town for a proposed population of 135,000 people. (It was contemplated that MCL/TSW would effect the reclamation of the land, and provide or procure the necessary fill, under contracts to be negotiated with HKG; but the negotiations ultimately broke down.) The area of the initial development zone was to be 169 hectares, out of which 38.8 hectares was to be re-granted to TSW for private development.

4. The 7/82 Agreement had been preceded by negotiations with HKG initiated by MCL in January 1980. By the date of the 7/82 Agreement, much preparatory work, in some of which HKG had co-operated, had already been done, in connection with the much larger development (of a new town for 535,000 people) originally envisaged for the site, by MCL and their consultants; these consultants were, on the financial side, Peat Marwick Mitchell & Co. ("PMM"); on the town planning side, Shankland Cox Partnership ("SCP"); and, on the engineering side, Binnie & Partners ("BP").

5. By August 1980, the consultants had produced, among other things, a report (Tin Shui Wai Urban Development Studies, Master Plan, Stage II Report) in which they had recorded that they had given initial consideration to the organisation, and administrative structure and arrangements, including links with HKG, required to ensure the successful development of Tin Shui Wai, including a proposal (which eventually came to nothing) for a development corporation which would be "basically, a creature of Government”. The prime mover on MCL's side at that stage was the then managing director of MCL, Mr John Wu. At a meeting between representatives of MCL and the consultants held on 29th August 1980, a discussion took place, part of which was recorded by PMM's representative as follows:-

"Discussion: Management

John Wu alleged that he was not clear of the implications of the development corporation concept, an ignorance one found it difficult to take at its face value.

The intention of putting forward the various permutations of Government/private interest participation, ranging from government department to private enterprise control via the development corporation and the ordinance backed registered company with additional directors appointed by Government, was explained.

Whilst the interest of Mightycity to maximize private control was acknowledged, it was mentioned that the intention, at this stage, was to setout various approaches so that Mightycity could choose what it wanted to stress to Government, whilst also deciding the minimum participation it would be willing to accept in any compromise. John Wu made it plain he was not for compromise, and required a full private enterprise control of the development, with no Government delegates on any board. He was insistent that bureaucracy could only make a deadening and expensive contribution. More than once, he emphasised that, whilst to a private developer a quarter of an hour meant the possible loss, or gain, of thousands of dollars, to the Government satrap, who would often be some dead-beat found a niche to get him out of the way of his colleagues, time merely meant an approach to an inflation - proofed pension completely unconnected to any incentive other than to prolong one's life to retiring age.

Wu, who was in a mood of almost unclouded optimism about the future of the development, felt that the Government's need for an urban construction programme such as Tin Shui Wai, and the willingness of Mightycity to meet this need, were quite enough advantages for the bureaucrats, without any requirement to make room for them to enjoy representation on any board of the developing company.

It was said that the structure endorsed by the Government must be the subject of the overall negotiations connected with the premium calculation."

6. The need for effective management control of this sort of project (agreement over the detail of which was later to prove elusive) was very clearly understood by both sides. From MCL's point of view, the matter is summed up well in the following extract from the chapter on Management Organisation which constituted part of Appendix C to the Master Plan report produced by the consultants in November 1980 for the development then envisaged:-

"1.3 The Need for Effective Management Control

The programme for the implementation of the town must, of necessity, be tight. Delays in the planned recovery of the very large initial investment would have a significant detrimental effect on the profitability of the project. In addition, not only should the development be virtually completed by 1997 for political reasons, but the developer company has undertaken to contribute to Hong Kong's accommodation needs at a rate that is better than could be achieved elsewhere.

Furthermore, any imbalance in the implementation of the development plan would endanger the balanced plan concept. Maintaining a balance in the town over the course of the implementation of the plan has been a prime objective in the growth pattern of the proposed town. The phasing of the work on the town calls for an efficient application of the various inputs so that the town functions well throughout its growth period. This need, not merely to complete the project to schedule, but to implement its components in the programmed order, allied to the very large injection of funds that must earn a suitable financial return, underline the requirement for effective control of the project and the critically important role to be contributed by company management.

The need to co-ordinate the multiple activities that must be pursued in parallel in a project of the size of the Tin Shui Wai development, calls for an organisation structure supplying essential full time leadership and staffed by qualified and competent staff operating as an integrated team. Such an organisation would help to ensure that the efforts of the many contracted parties are brought together to enable the programme as a whole to progress in accordance with the predetermined time scales and within the predetermined cost margins.

With the number of interdependent operations that would be needed to achieve the development programme, any slippage in performance by any contributor would tend to have far-reaching and unfortunate financial implications for the project. The number and calibre of the managerial staff would need to be such as to reduce variances from programme to a minimum, and to ensure that expeditious and effective decisions are made to restrict the harmful effects of any uncontrollable deviations to a minimum."

7. These concerns, including misgivings on MCL's side about going into a project and sharing control of it with HKG, were matched by similar concerns and misgivings on HKG's side.

8. In 1977, HKG had established a "Special Committee on Land Production" to identify potential areas for future urban development. The committee was reconstituted in 1979 to keep under review the needs of the public and private sectors for new land On 1st June 1981, the name of the committee was changed to "The Special Committee on Land Supply" in recognition of the committee's responsibilities towards not only the adequacy of programmes for the production of new land but also programmes for the disposal of land and for making optimum use of existing land resources. In August 1981, recognizing the ability of private developers to mobilize resources more quickly and thereby produce and develop land faster than possible under HKG procedures then in place, it recommended that a working group be appointed to study in more depth how private sector participation in land production could be expanded. The working group was duly constituted, under the chairmanship of the Hon. Lydia Dunn, OBE (as she then was). Its membership included the Secretaries for Lands and Works, Economic Services and City and New Territories Administration; the Directors of New Territories Development, Land Survey and Town Planning and Lands (Designate); and the Principal Assistant Financial Secretary (I) and (as the Secretary) the Assistant Secretary (Lands and Works).

9. The working group reported in March 1982. It made a number of recommendations for the evaluation of proposals submitted by developers; among others, that private sector participation should not result in programme constraints being placed on HKG, and that adequate staff resources should be available within relevant government departments. It considered the feasibility of involving the private sector on a much larger scale than theretofore and particularly the concept of the private sector undertaking the development of a complete new town. It found that approach not feasible. It said:-

"Experience with large development proposals has demonstrated that very large scale land production and development by the private sector cannot be considered in isolation as the Government must be involved in producing major external infrastructure links and in the provision and running of community facilities. Private developments must be completed within a rigid timescale to ensure their profitability [emphasis added] and we accept that it would be very difficult for the Government to assume the necessary long term commitment to meet its part of such a development, which would involve land acquisition, clearance and provision of Government facilities. Such a commitment would entail according an absolute priority to the development which the Government might later find it is able to meet only at the expense of other projects which at that time have a higher social or economic priority. We therefore find that the concept of the private sector undertaking land production and development of a new town would have overriding disadvantages from the Government's point of view."

10. There can be no doubt that, when MCL/TSW and HKG tied the knot in July 1982, each of them was conscious of the needs and shortcomings of the other, and of the problems of timing and otherwise that their manifest incompatibility could (and, unhappily, did) create.

11. It is, accordingly, not surprising that MCL/TSW should have wanted (as they did) as firm an indication as possible of the development programme which HKG had in mind before concluding an agreement with HKG; nor, on the other hand, that HKG should have wanted (as it did) to avoid, so far as possible, any commitment to a programme which would constitute a constraint on its own activities. It was in these circumstances that the first "programme" which I have had to consider came into existence, as an enclosure to a letter dated 12th October 1981 from the then Secretary for Lands and Works ("SLW"), Mr D.W. McDonald, to MCL. Mr McDonald, noting that MCL had expressed the view that it could not consider his proposals in depth unless he let MCL have a fairly firm indication of the development programme he had in mind, said "a tentative programme is now being prepared and I attach a copy for your use". He added that the proposals made by him were tentative only And HKG was not itself bound in any way. His tentative programme looked forward to a start on "private building work" in April 1984.

12. Another concern of MCL/TSW was that they had invested a lot of money in the project, including of course the cost of acquiring the land. They were anxious to negotiate an agreement under which they would in the first instance surrender the land to HKG in consideration of a "front-end" payment from HKG. Mr McDonald is recorded, at a meeting with representatives of MCL/TSW held on 13th may 1982, as having said that such a payment could be made "on the basis of an agreed letter of intent between government and MCL with the details of the remainder of the agreement to be negotiated subsequently". This idea was originally MCL/TSW's idea. On 20th August 1982, one John Betteley of MCL (who was and has throughout remained the engineer in charge of the project on MCL/TSW's side) in a Memorandum to Mr Wu recorded as follows:-

"The nature of [the 7/82] Agreement should be kept in mind as I believe it is important:-

It was initiated upon MCL's Suggestion to Government that a conclusion of negotiations (and payment) could be achieved by the use of a LETTER OF INTENT rather than face the possibility of protracted delays ..."

So this was the genesis, and the aim, of the letter which eventually became the 7/82 Agreement.

13. The first draft of the letter was prepared on 2nd June 1982 by the Registrar-General (Lands Office), Mr Noel Gleeson. It contained some language, reminiscent of the Balfour Declaration of November 1917 ("His Majesty's Government ... will use their best endeavours to facilitate the achievement of that object"), and owing more perhaps to the art of diplomacy than to the science of the law, which was reflected (as will be seen) in the final form of the 7/82 Agreement. I note in particular Clause 6 of the draft, which provided as follows:-

"6. It is stressed that in completing the Surrender and the Payment the serious and genuine intention of both the Government and Mightycity is that, subject to but without in any way detracting from or altering or making further conditional the Surrender and the Payment, which should otherwise be and be deemed to be a separately completed transaction, Mightycity and the Government will, at all times use their respective best endeavours in a spirit of sincere and constructive co-operation to facilitate and accomplish in timely fashion in accordance with the intent therein reflected the proposals described hereunder (hereinafter called 'the Proposals' in respect of the Land."

(Mr Betteley, in an MCL internal memorandum dated 8th June 1982, commented on this:-

"Considering the uncertainty of the scope of work and programme [emphasis added] I can see no other realistic means of dealing with such a vague situation and I believe MCL are fortunate in obtaining [HKG's] agreement to use this 'intent' approach.")

14. On 16th June 1982, and in anticipation of the 7/82 Agreement, the then Director of the New Territories Development Department ("DNTD"), Mr J.S. Don, gave instructions to Mr S.S. Lee, acting for the Government Engineer (New Territories) ("GE(NT)"), to prepare a paper for the Public Works Sub-Committee (of which more later) covering the planning commitment for the preparation of a development plan for the 169 hectares development zone initially contemplated, which included the 38.8 hectares site or sites to be established and allocated to MCL/TSW. The paper was to refer to engineering commitments, which would be dealt with separately; provision was not to be made for them in the paper. Further, Mr S.S. Lee was to discuss and agree with Mr Betteley a "target programme" to take the planning work through to establishing the MCL/TSW development sites. Mr Don recorded that it was intended that this "target programme" should be attached to the formal agreement with MCL/TSW.

15. On 23rd June 1982, Mr Betteley wrote to SCP and BP referring to a meeting set up for them to meet Mr S.S. Lee, the object of the exercise being "to agree a programme with which Government feel comfortable in respect of the implementation of the agreement between the Government and MCL". Mr Betteley added:-

"It is particularly important that the times reflect the duration of Government procedures in obtaining staff, negotiating contracts (including MCL's), making contract awards, etc. The times required for the provision of temporary housing, land clearance and access for both site works and marine fill are obviously critical and depend very much upon Government activities. We should, therefore, obtain a Government time input or endorsement of our own time assessment for these. In your discussions with Mr Lee, please bear in mind that he will not be as familiar with the inter-related and complex activities as you will be after two years of study, so please take time to explain the critical items.

We are concerned more with the first 4 years of activity than subsequently as both HKG and MCL accept that the speed of actual building development, whether it be public or private, would depend upon market demands and need and there is provision for extension of time in this phase.

Mr Lee has been advised that both your companies have functioned as an extension of MCL's own organization in the development of our submission to Government and that you are authorized to discuss and agree a provisional programme on our behalf We enclose our own draft of a programme appropriate to the agreement dated 16th June 1982. This programme, together with the original networks (time base moved to present date) should form a sufficient basis for a programme for the first 4 years' activity.

Please keep in mind that the object of the exercise is 'to agree some broad periods for incorporation in a letter of agreement' and it might not be necessary to include a programme.

We are not out to establish a detailed contractual programme, that can only flow from the re-planning and detailed engineering work that will be done during the year ahead."

16. This programme of MCL/TSW's, enclosed with Mr Betteley's letter, and all subsequent revisions of it, showed "private development" commencing in January 1985, in 2½ years' time.

17. On 2nd July 1982, Mr Wu sent to Mr S.S. Lee a revised copy of what he called the "target programme" which incorporated amendments requested at a meeting held on 30th June 1982. In a memorandum dated 16th June 1982 to Mr Don, Mr S.S. Lee, referring to the discussion of 30th June 1982, recorded that MCL/TSW had said that there was no need for a target programme to be attached to the formal agreement between HKG and MCL/TSW but rather that the target programme would be attached to the contract relating to construction. Prophetically, he concluded "the attached programme appears quite enthusiastic and does not allow for slippages. It assumes Government resources, including staff, will not be a constraint".

18. On 13th July 1982, Mr S.S. Lee wrote to Mr Wu stating this:-

"To avoid any possible misunderstanding, I would like to put on record that the programme attached to your letter has not yet been agreed to by this office. As pointed out to you at our meeting on 30th June 1982 we will have to obtain agreement from relevant government departments before we can formally endorse your programme. You said that there is no need for the target programme to be attached to the formal agreement between Government and Mightycity Co. Ltd, but rather the programme can be attached to the contract relating to construction."

19. In these circumstances, no such programme was ever "formally endorsed"; nor was any such programme attached to the 7/82 Agreement.

20. The background to the 7/82 Agreement, including its purpose and intent, is described in some detail in press release (the terms of which were agreed between the parties) by which the 7/82 Agreement was announced. One important matter of background, not touched on in the press release, does however need to be added; that is that, in 1982, no-one could be certain what rights would subsist in land in the New Territories after 1997. (It was generally believed in Hong Kong in 1982 that rights in land subsisting in 1997 would, in one way or another, be extended so as to continue after 1997. But it was to be 1984 before the uncertainty was resolved.) It should also be added that, although the press release does mention a requirement that the land would be formed by "the developer", it does not mention the fact that subject to HKG's agreement MCL/TSW intended that the necessary reclamation of the land should be accomplished using marine based fill and not land based fill (it had been made clear to MCL/TSW at an early stage of its negotiations with HKG that it could not expect to rely on land based fill from Hong Kong being available for the reclamation).

The press release reads as follows:-

"                                        Press Release

July 29, 1982

Agreement Reached On

Development of Tin Shui Wai

The Government has entered into a joint venture with Mightycity Company Limited to develop Tin Shui Wai in Yuen Long and to provide homes for 135,000 people.

The agreement involves a novel arrangement which will require the developer to plough back into the land the entire sum that the Government will pay for its acquisition, thereby locking the company into the development.

This was announced by the Secretary for Lands and Works, Mr. Nicky Chan, at a press conference today following the signing of an agreement to this effect.

Mr. Chan said that under the agreement the developer would surrender its land, measuring about 488 hectares, in the north-western part of the New Territories to the Government.

'Of the 488 hectares, about 170 hectares will be set aside as a development zone for a population of 135,000 people split equally between private and public housing. The balance of 318 hectares will be formed by the developer and retained by the Government as a land bank,' he said.

‘Within the 170 hectares, the developer will be granted about 40 hectares for building private housing, leaving about 130 hectares for complementary public development by the Government.'

Apart from providing private housing to about 67,500 people, the developer will be required:

* to form the whole site of 488 hectares, [emphasis added],

* to provide trunk stormwater drainage in the area, and

* to provide engineering infrastructure within the development zone of 170 hectares.

These works will be carried out by the developer under contract to the Government. [emphasis added]

Works to be undertaken by the Government consist of:

* the development of public housing, in the form of rented housing and home-ownership schemes, for 67,500 people and

* the provision of schools, clinics, open space and other community services within the development zone.

On the cost of acquisition of the land, the 488 hectares to be surrendered is worth $2.258 billion calculated on the basis of standard zonal rates paid by the Government for land resumed in the New Territories.

After deducting from this amount $800 million, the development value of the 40 hectares to be granted back to Mightycity for private development, the net payment to the developer is $1.458 billion.

Contrary to general belief the $1.458 billion is less than the expenditure incurred on the land so far by the developer. The reported $600 million auction was the result of a High Court order to establish at that point in time a value which could be placed on a small number of outstanding shares in the original company which owned the land. Such shares reflected untraceable shareholders and represented 14 out of a total of 770 shares in the original company. The auction served therefore the purpose of setting a price for these small number of outstanding shares.

'The cost of the land purchased by the Government is $46 per square foot,' Mr Chan said.

'This is appreciably less than what the Government normally pays for resuming land for new town development, which is $71 per square foot today or $103 per square foot when the negotiations began last year.'

On the payment of $1.458 billion, Mr Chan said, it would be made in the form of a development advance.

This means that the developer must spend not less than $1.458 billion towards its part of the development within a building covenant period of 12 years.

`The agreement contains several provisions to ensure that the development is carried out and that the expenditure is incurred,' Mr Chan said. 'If the developer fails to complete the development, the 40 hectares of land and the $800 million premium will be subject to forfeiture. If the developer spends less than $1.458 billion on the development the balance will have to be paid back to the Government.'

The developer will be required to submit a Master Layout Plan for-the 40 hectares for approval by the Director of Lands before the commencement of building works. The work will be carried out under Government control and in accordance with the Government's planning requirements for the whole 170 hectares.

The 12-year period will begin after the approval of the Master Layout Plan or the developer being given possession of the 40 hectares, probably in two to three years time. [emphasis added]

Referring to the history of the land, Mr Chan pointed out that it was privately held and had been changing hands since it was sold by Government in 1916. 'There is no question of the Government buying back the land at an excessive price.'

It-is estimated that the Government will spend about $3.92 billion on works associated with the development during the next 12 years or so.

The amount includes $1.62 billion on site formation, $960 million on infrastructure, including roads, drainage, waste water and sewage treatment systems and water supply in the development zone; $675 million on Government, institution and community facilities such as schools, clinics, open space and other community services; $670 million on external highway links, clearance and resumption.

Mr Chan said that more accurate estimates of these costs would be made when detailed planning and development proposals were formulated.

Commenting on the project, Mr Chan said that it would make an essential contribution towards meeting housing needs in the late 1980's.

'As land production from first generation new towns will start to run down from 1987-88 onwards, alternative sources of supply will be required,' he added.

A major feature of the agreement is that the land bank formed will create a strategic reserve which will enable the Government to respond quickly to changing policies and external factors affecting economic development.

Mr Chan said that when land for the present Housing Programme ran out in the second half of the 1980's the Tin Shui Wai site would be available as most of the land formation work there would have been completed by about 1987/88.

'Also, the general area of Tin Shui Wai has been identified in the North West New Territories Development Investigation as an area with good long-term development potential,' he said.

'It will, therefore, form a nucleus for further development in the 1990's when the need for additional urban growth is anticipated.'

The agreement between the Government and Mightycity was reached after protracted negotiations.

Mr Chan said that the original proposal submitted in January 1980 called for the development of a new town of about 535,000 people.

Under the proposal, the project was to be carried out in three phases with each phase having a population of 135,000, 190,000 and 210,000 people respectively.

This proposal coincided with a study which was being carried out by Government-appointed consultants to investigate the development potential of the North West New Territories.

The results of this study later confirmed the feasibility and suitability of developing this area.

However, Mr Chan said, the magnitude of the developer's proposal was such that a new town of over half a million people could not be viewed in isolation from other strategic issues which affected the long term economic and social balance of Hong Kong.

Therefore, it was necessary to evaluate the project in relation to the disposition of resources among the competing needs for new highways, land for industry, major infrastructure for expanded social services and so on. Moreover, it was necessary to conisder the pressures such requirements would place on the economy and the construction industry.

'The conclusion was that the Government needed to reserve its position in considering other longer term development options for the area. A long-term commitment by the Government to the full development of Tin Shui Wai would have prejudiced these options, in addition to placing unacceptable demands-on Government resources and having an adverse effect on other more urgent undertakings elsewhere in the Territory,' Mr Chan said.

'It was finally decided that a limited scale of development, which will help satisfy medium term housing needs, should be accepted.'

He said, 'Among the advantages arising out of this decision are that involvement with the private sector not only allows for the land to be developed quickly but also means a reduction in the demand on Government resources.

'The present arrangement is also in keeping with the Government's policy of developing new towns in packages, which is more easily manageable and prudent in economic terms.'

'Tin Shui Wai comprises a quarter of all flat land in the New Territories and is one of Hong Kong's largest remaining sources of land with good development potential. It is also sparsely populated and in single ownership,' Mr Chan said. 'Tin Shui Wai, therefore, offers the quickest and probably the cheapest opportunity for land production that is available currently.'

Mr .Chan said the Government was determined to develop the land bank to the fullest advantage and that the details and timing would be decided after the completion of several engineering studies in the middle of next year and an assessment of the resources involved.

Commenting on the sequence of events leading up to the present agreement, Mr Chan said that following an initial evaluation of the original proposal in May 1980 it was made quite clear to the developer that the Government was not committed at that stage to permit the development to proceed but would take a view on the matter after considering the results of the first two stages of the company's own development studies when they were completed.

He said the idea of purchasing the land was proposed by the Government in July 1981 at the same time that it was decided that the original proposal by the developer should be scaled down.

'The proposal by the developer offered a good opportunity which, for several reasons, the Government chose to take up,' Mr Chan said. 'By acquiring the land the Government will assume full control of the future development of an area already identified for its substantial development potential. In addition, the cost of resuming the land at a later date would probably be higher than the purchase price today.'"

21. It is important to note that (as I have emphazised) this press release looked forward to the reclamation being carried out by the developer and to its being given possession of the land to be regranted to it "probably in two or three years time". That was indeed what the parties expected, and was undoubtedly the basis on which the $800m premium, referred to in the press release as "development value", had been negotiated. In fact, possession of the first part of the land was not given to TSW until much later, on 5th May 1989. The parties' expectations were, accordingly, disappointed. That is not in issue; what is in issue is whether this consequence was the result of failures by HKG in the performance of its contractual obligations to TSW under or in connection with the 7/82 Agreement.

22. The letter of 29th July 1982 constituting the 7/82 Agreement reads as follows:-

Dear Sirs,

Re:    Tin Shui Wai Development New Territories, H.K. Mightycity Company                          Limited ("Mightycity") Tin Shui Wai Development Limited ("TSW")

1.       I refer to the present position relating to certain land situate at Tin Shui Wai in the New Territories and our negotiations which I can now summarise as follows:-

(a) On 7th January 1980, Mightycity submitted a proposal to the Hong Kong Government ("the Government") for the development of a fully integrated new town on the land (described in paragraph 3 below) for a proposed population of 535,000.

(b) That proposed development was considered inappropriate by the Government which instead invited consideration of a number of other options for a smaller development to accommodate a population of some 135,000 persons.

(c) Recent negoitations have proceeded on the basis that part of this development will be developed by Mightycity or TSW and another part by the Government, both in conjunction with each other, and that Mightycity or TSW should provide certain development services for the purpose of the whole development.

(d) The stage has now been reached in these negotiations where the Government is prepared to make an offer to you aimed at achieving the purpose referred to in (c) above. It is stressed that the offer is a complete package, the purpose of which is to secure such development, and that it is therefore capable of acceptance only as a whole. In particular it is of importance to the Government, as regards its part of the proposed development, to be assured that TSW will ensure that its development is carried out and that the expenditure hereinafter referred to is incurred in respect thereto.

2. This letter follows and supersedes the negotiations referred to above and is intended to record our agreement and understanding in respect of the land at Tin Shui Wai (described in paragraph 3 below) of which TSW is presently the legal owner of the leasehold from the Crown.

3. The land is more particularly known and registered in the District Land Office, Yuen Long, as Lot-665 section B subsection 1 and Lot 665 section B Remaining Portion, both in Demarcation District 126, and comprises an aggregate area of 487.99 hectares approximately (hereinafter called 'the Land').

4. (a) The agreement to be constituted on your acceptance of the terms and conditions set out in

this letter is subject to the fulfilment of the following conditions precedent, namely

(i) That TSW is able to surrender and surrenders a good and valid title to the Land, as is and where is, without vacant possession but otherwise free from any charge, mortgage or similar legal or other encumbrances before the 31st July 1982;

(ii) That the Legislature will have approved and provided the necessary funds for the payment of the sum of $1,458,400,000.00 hereinafter mentioned before the 31st July 1982; and

(iii) That at the date on which TSW surrenders the Land TSW is a wholly-owned (beneficially) subsidiary of Mightycity and that China Resources Company is the beneficial owner, directly or indirectly, of not less than 51% of the issued and paid-up share capital and has effective control of Mightycity.

(b) The agreement is also subject to the following continuing conditions :

(i) that at all times hereafter, and for so long as TSW has not foregone or surrendered its interests described in paragraph 12(b)(ii) below, the beneficial shareholding of China Resources Company in the issued share capital from time to time of Mightycity will remain the same as set out in sub-paragraph (a)(iii) above and that during that period TSW will remain a wholly-owned subsidiary of Mightycity; and

(ii) That for so long as TSW is obliged to carry out the terms and conditions of this Agreement and of the Crown lease or Crown leases referred to in paragraph 6 below and either of them, Mightycity unconditionally and irrevocably guarantees and undertakes to ensure the due performance by TSW of all and singular the obligations undertaken by TSW under this Agreement and/or such Conditions of Grant and Crown lease or Crown leases.

5. Subject to fulfilment of the conditions referred to in paragraph 4(a) above the Government will select and grant to TSW out of the Land surrendered an area or areas of approximately 38.8 hectares (388,0000) of land, be the same more or less, ('the 38.8 hectares').

6. Since at the present time it is not possible precisely to define the 38.8 hectares to be selected and granted in accordance with paragraph 5 above, that transaction will be implemented in the following manner

(a) On a date to be specified by the Government and in any event not later than the 31st July 1982 TSW will surrender to the Crown all of its right, title, benefit and interest in and to the Crown lease of the whole of the Land free from encumbrances but without vacant possession.

(b) As soon as is practicable after the surrender of the Land the Government will use its best endeavours to reach agreement with TSW in selecting or, failing such agreement, the Government will select out of the Land an area of 169 hectares approximately which will be designated as a development zone ('the 169 hectares') to accommodate a population of 135,000 persons.

(c) The remainder of the Land, after setting aside the 169 hectares, will be part of the Government's land reserves to be utilized and disposed of by the Government in such manner as in its absolute discretion it may at any time and from time to time think fit.

(d) As soon as is practicable after the signing of this Agreement the Government will use its best endeavours to come to agreement with TSW in selecting or, failing such agreement, the Government will (but in any event not later than 24 months from the date of this Agreement) select and as soon as practicable thereafter grant back to TSW without charge or premium out of the 169 hectares one or more Crown leases in respect of the 38.8 hectares to be used by TSW for development purposes on the detailed terms and conditions of such grant.

(e) The Crown lease or Crown leases, if and when granted, will reflect the terms of this Agreement but in the event of any conflict between the terms of this Agreement and the terms of the said Crown lease or Crown leases the terms of the Crown lease or Crown leases will prevail. Such Crown lease or Crown leases will be subject to and will contain all exceptions, reservations, covenants, clauses, conditions and provisos as are now inserted in Crown leases issued by the Government as the same may be varied, modified or extended by this Agreement and by the terms and conditions referred to in paragraph 7 hereunder.

7.The detailed terms and conditions of grant of the 38.8 hectares will include the following

(b) Payment by the Government to TSW of the Total Consideration will be subject to the fulfilment of either of the two following conditions, that is to say,

23. That recital of the provisions of the 7/82 Agreement (which of course I must treat as having superseded anything said in the course of the negotiations which led to it) brings me to the central issue in the case: Did HKG assume under the 7/82 Agreement any (and, if so, what) contractual obligation to reclaim the land and to deliver to TSW its 38.8 hectares ready for development (by which I mean "in a buildable state" or "ready to be built upon"); and, if so, by when? The case for TSW is that HKG did assume such a contractual obligation. HKG, it says, was bound to reclaim the land and to deliver to TSW its 38.8 hectares ready for development, either by some prescribed date or dates (as to which it suggests a number of possibilities) or within a reasonable time after the date the 7/82 Agreement. But the 7/82 agreement contains no provision at all expressed to place on HKG any obligation to reclaim land and deliver it to TSW ready for development, let alone an obligation to do so by a prescribed date. In my judgment it is impossible for the court, by any legitimate process of construction or interpretation of the 7/82 Agreement, to impose on HKG an obligation in this connection which it did not expressly assume. And it is equally impossible for the court to do so by any legitimate process of implication, because there is nothing in the 7/82 Agreement itself, nor in the factual matrix in which the parties were contracting, which necessitates such an implication. It is true that it was necessary that the land should be reclaimed, and that possession of the 38.8 hectares should be given to TSW, if the 7/82 Agreement was to work. But in my judgment it does not at all follow that it was necessary for the 7/82 Agreement to have contained a contractual term imposing on HKG whether expressly or by implication an obligation to form the land by a prescribed date, or even an obligation to form the land within a reasonable time after the date of the 7/82 Agreement. There are more ways than one of achieving fundamental objectives. It is only if the contractual approach is necessary that a term can be implied (see Hughes v. Greenwich LBC, "The Times", 22nd may 1992, per Lord Donaldson of Lymington MR).

24. Take this case. What is the court expected to find as to the term to be implied? TOW has put forward several candidates (I paraphrase them without any pretence to complete accuracy; the case of TOW on implied terms is more fully set out in paragraphs 7, 8 and 9 of its Statement of Claim, to which I shall refer later). One is that HKG would give possession to TOW by 1st July 1985 (a date approximately 3 years from the date of the 7/82 Agreement and exactly 12 years before 30th June 1997) of sufficient of the 38.8 hectares in a state fit to enable TOW then to start building on it. Another is that HKG would give possession to TSW within a reasonable time after 29th July 1982 (it says, by 1st July 1985) of sufficient of the 38.8 hectares in a state fit to enable TOW then to start building on it, and then that HKG would give possession to TOW at reasonable times of sufficient further areas of the 38.8 hectares in a state fit to enable TOW to continue its development in a timely fashion and to complete the same within 12 years from 1st July 1985. These two are alternatives, which mirror the alternative terms which TOW advances as alternative express terms to be derived by some process of construction of the 7/82 Agreement. A third candidate is that the formation and servicing of the 38.8 hectares and the making of the same ready to be built upon would be completed by HKG, in respect of any particular part of the 38.8 hectares, in time for HKG to give possession of the land to TSW in compliance with HKG's contractual obligations express or implied relating to the giving of possession.

25. In my judgment this whole process is patently illegitimate. "If experienced counsel find it necessary to proffer [several] alternative implied terms it is perhaps not unreasonable to suggest that there can be no certainty what the right implied term (if any) is" : see Liverpool City Council v. Irwin [1976] QB 319 per Roskill LJ at p.338. For no term ought ever to be implied unless "the court can have no doubt what covenant or undertaking [it] ought to write into the agreement" : cp R. v. Paddington Rent Tribunal, ex parte Bedrock Investments Ltd [1947] KB 984 per, Lord Goddard CJ at p.990. On TSW's case the court is left in very considerable doubt as to what term it ought to write into the 7/82 Agreement.

26. If an officious bystander had pointed out to the parties on 29th July 1982 that the agreement they were about to make contained no provision which expressly and in specific terms placed on HKG any obligation to reclaim the land and give possession of it to TSW by a prescribed date (or even within a reasonable time) and had asked them if, despite the absence of any such provision, the creation of such an obligation was what they both intended, he would not have been suppressed by both of them with a testy "Yes, of course; we need not bother to say so. It is too obvious." On the contrary. He would have been suppressed, at any rate on HKG's side, with a testy "No, of course not. Look at Clause 10. That does provide, expressly and in specific terms, for HKG to clear the land; and you will see that there is no comparable provision for HKG to reclaim it. That is to be done, at HKG's cost, by the developer, pursuant to the Clause 11 contracts yet to be concluded". If he had persisted "But what if the negotiations for those contracts break down?" he would have been told, by both sides, "Well, HKG will obviously then have to make other arrangements for the reclamation so that both parties can get on with' the development as soon as possible."

27. It is fair to protest, as TSW does, that, once you refuse to construe the 7/82 Agreement as imposing an obligation on HKG to reclaim the land by some prescribed date or within a reasonable time, and refuse to treat such an obligation as implied in the 7/82 Agreement, you do reveal a lacuna in the 7/82 Agreement, which might have to be filled to make the contract workable. It makes no express provision, so far as reclamation is concerned, for what is to happen if the parties' expectations are confounded and the negotigations for the Clause 11 contracts fail (which is what happened). In fact, the lacuna was filled when negotiations between HKG and TSW over the Clause 11 contracts did break down, and HKG then made arrangements for the reclamation which excluded participation by TSW in that work. TSW's hopes (in July 1982 entirely reasonable and shared by HKG) of obtaining within 2 to 3 years possession of land ready for development were dashed, but not because of any breach of any express or implied obligation on the part of HKG to reclaim the land within that time. TSW might have tried to stipulate for such an obligation. But it can perhaps console itself with this thought; that if it had tried to stipulate for HKG expressly to assume an absolute obligation to give it possession, by 1st July 1985, or by any other specified date, or even within some (unspecified) reasonable time, of land ready' for development, I am satisfied on the evidence that the chances that HKG would have agreed to assume such an obligation would have been nil, particularly so since the land was to be formed for HKG by MCL itself under a contract with HKG yet to be negotiated.

28. I have not overlooked the impact of Clause 15 of the 7/82 Agreement on this matter of the Clause 11 contracts. HKG did undertake to use its best endeavours to facilitate the development in timely fashion and this must mean that it did assume from the start an obligation, among other things, to use its best endeavours to facilitate the reclamation of the land in timely fashion and to deliver to TSW the latter's part of it ready for development. In the context of the 7/82 Agreement this would in my judgment require HKG from the start to prosecute in good faith and with due diligence the negotiations with TSW for the Clause 11 contracts, and pending the successful conclusion of those negotiations to co-operate with TSW in doing such preparatory work (including site investigation and design work) as might be necessary or desirable to enable the reclamation to be achieved without any unjustified delay. (I should make it clear that this latter obligation arises under Clause 15, not under Clause 11 itself. Although an agreement to negotiate is unenforceable, because it lacks the necessary certainty, the same does not apply to an agreement to use best endeavours: see Walford v. Miles (1992] 2 WLR 174, per Lord Ackner at p.181E.) It would in my judgment be inconsistent with its contractual obligations for HKG without TSW's concurrence to take steps directed at procuring the formation of the land by some other contractor while these negotiations were still taking place (I would not hesitate to imply a term to that effect in the 7/82 Agreement.) But HKG would certainly come under an obligation (and would in my view have done so even without Clause 15) to use its best endeavours to facilitate the formation of the land outside Clause 11 if the Clause 11 negotiations failed. Since they did fail, it follows that HKG thereafter was bound to use its best endeavours to facilitate the formation of the land by other means. In fact, HKG (without, as I find, any unreasonable delay) entered into the necessary contract with another party on 26th October 1987 and became able to give TSW possession of some of its land on 5th May 1989.

29. As I have said, TSW's case on implied terms (which is dependent on the result of its case on express terms) is more fully set out in paragraph 7 (dealing with express terms) and paragraphs 8 and 9 (dealing with implied terms) of its Statement of Claim; which for completeness I now reproduce:-

"THE CONSTRUCTION OF THE EXPRESS TERMS

8. The July 1982 Agreement contains the following implied terms:-

(1) If, contrary to the contention of TSW Ltd., the July 1982 Agreement does not contain the express term pleaded in paragraph 7(1)(a) hereof and the Master Development Plan does not have the effect set forth in paragraphs 11(4) and 11(5) hereof, it contains an implied term

(i) 'that the Government will give possession to TSW Ltd. by 1st July 1985 of sufficient of the 38.8 Hectares formed and serviced to enable TSW Ltd. then to start building upon it,

alternatively to (i)

(ii) 'that the Government will give possession to TSW Ltd. within a reasonable time after 29th July 1982 of sufficient of the 38.8 Hectares formed and serviced to enable TSW Ltd. then to start building upon it'.

TSW Ltd's primary case is that a reasonable time was that which would give TSW Ltd. 12 years for its building development of the 38.8 Hectares, that is to say, by 1st July 1985. In the alternative a reasonable time was such time as the Court may declare to have been reasonable.

The nature of TSW Ltd's primary case in relation to reasonable time is that:

(a) The parties to the July 1982 Agreement contemplated that a maximum of 3 years from the date thereof would be a reasonable period within which to clear, service and form the land and have the same ready for building (as indeed it was a reasonable period); TSW Ltd. repeats and relies upon the matters set forth in paragraph 10 hereof and in Schedule 1 hereto.

(b) At the time of the execution of the July 1982 Agreement the Government's interest in the 488 Hectares was due to expire on 1st July 1997 and any Crown Lease granted of any part thereof would have fallen for expiry 3 days before that date. Therefore, if TSW Ltd. were to have 12 years for their building development they would have to commence the same by 1st July 1985.

(c) The Master Development Plan itself provided for clearance to begin in February 1984 and for the first delivery of formed and serviced land to TSW Ltd. to take place in October 1986, a period of 2 years and 8 months.

(d) The July 1982 Agreement by Clause 7(1) provided for an extension of the said twelve year period which extension would only be possible if TSW Ltd. were given part of the 38.8 Hectares before 1st July 1985.

(2) If, contrary to the contention of TSW Ltd., the July 1982 Agreement does not contain the express term pleaded in paragraph 7(1)(b) hereof, and the Master Development Plan does not have the effect set forth in paragraphs 11(4) and (5) hereof, it contains an implied term

'that after 1st July 1985 the Government will give possession to TSW Ltd. at reasonable times of sufficient further areas of the 38.8 Hectares formed and serviced as to enable TSW Ltd. to continue its development in a timely fashion and to complete the same within 12 years from 1st July 1985'.

The nature of TSW Ltd.'s case in relation to reasonable time is that:

(a) The period of 12 years referred to is based upon the facts and matters set forth in the preceding paragraph hereof.

(b) Reasonable times for the delivery of areas of formed and serviced land after the first delivery of part of the 38.8 Hectares (if all the 38.8 Hectares were not delivered at the same time) would be those which would have conformed to Figure 9.6 of the Master Development Plan had the dates therein been advanced so as to express a date for first delivery of formed and serviced land to TSW Ltd. of 1st July 1985.

(3) If, contrary to the contention of TSW Ltd., the July 1982 Agreement does not contain, in relation to formation and servicing, the express terms pleaded in paragraph 7(1) hereof, it contains an implied term

'that the formation and servicing of the 38.8 Hectares and the making of the same ready to be built upon will be completed by the Government, in. respect of any particular part of the 38.8 Hectare, in time for the Government to give possession of the same to TSW Ltd. in compliance with the express or implied terms pleaded herein relating to the giving of possession'.

9. The terms set out in paragraph 8 hereof are to be implied because:

(1) they are founded upon the intention of the parties; and/or

(2) they are necessary to give effect to the express terms of the July 1982 Agreement; further or alternatively

(3) they are necessary in a business sense to give efficacy to the July 1982 Agreement; further or alternatively

(4) they are reasonable and equitable as between the parties."

30. The summation of this series of allegations is, in my judgment, really this. TSW is saying "The court should conclude that HKG undertook to let us have land ready for development by 1st July 1985, or at any rate at some predetermined time long before it actually did so on 5th May 1989. We do not care how the court arrives at this conclusion so long as it finds some way or another to do it".

31. Obviously this will not do, and in my judgment TSW's case on express and implied terms pleaded in paragraphs 7, 8 and 9 of its Statement of Claim must be rejected.

32. But TSW has another string to its bow. It invokes Clause 15 of the 7/82 Agreement (which I have already mentioned in connection with Clause 11) in order to arrive at the identical result.

33. Clause 15, as I read it, among other things recorded the parties' mutual obligation to use their respective best endeavours to facilitate the accomplishment in timely fashion of the development of the new town at Tin Shui Wai. TSW, relying on this, pleads, as we have seen, that HKG was, from day to day after 29th July 1982, obliged to use its best endeavours to "ensure" that the clearance, formation, servicing and giving possession to TSW of its 38.8 hectares took place in timely fashion. TSW says that if HKG had so used its best endeavours to "ensure" all this, TSW could have been given possession of land ready for development by 1st July 1985; whereas, in fact, it got no such land until 5th May 1989. Therefore, says TSW, HKG is in breach of the obligation it assumed under Clause 15.

34. Once again, I must hold that this approach is illegitimate. Clause 15 did not oblige HKG to use its best endeavours to "ensure" anything. It imposed no absolute obligation of any sort at all on HKG. But it did impose or recognise a qualified obligation on the part of HKG, to use its best endeavours to facilitate the accomplishment in timely fashion of the development of the new town at Tin Shui Wai. The only question, then, is whether HKG did or did not use its best endeavours to do this TSW's only complaint can be that it did not. An undertaking to use your best endeavours to do a piece of work in timely fashion must not be equated with an undertaking (which would impose an absolute obligation) that you will in fact complete the work within a reasonable time, using your best endeavours to do so: compare Vickers v. Overend (1861) LJ Ex 388. Yet this is what TSW's argument came at times close to suggesting.

35. However that may be, since, under the 7/82 Agreement, HKG took possession of the land on which the new town was after reclamation to be built, HKG did come under an immediate (and continuing) obligation to use its best endeavours to facilitate the reclamation of the land; until that was done the development of the new town at Tin Shui Wai could not proceed at all.

36. But what is the approach to be adopted, and the standard of performance to be achieved, by HKG in discharging this obligation?

37. In my judgment, what is required of HKG, in the context of the 7/82 Agreement, is really not difficult to discern. HKG's obligation generally, and in connection with the reclamation of the land in particular, was to adopt a positive attitude to the project and to do what it could reasonably be expected to do to keep the project moving forward. 'Any unjustified act or omission on the part of HKG calculated to slow down, or stop, the necessary work would be a breach of that obligation. An act or omission, reasonable in all the circumstances and justified on sound engineering or financial considerations, would not be such a breach. Any such act or omission would have to be viewed objectively, taking into account the interests of TSW as well as HKG. It was the object of the 7/82 Agreement to accomplish in timely fashion the development of a new town at Tin Shui Wai which was to incorporate a mix of public and private housing. An act or omission calculated to slow down, or stop, the necessary work, which could be justified only from the point of view of HKG's own interests (whether in the provision of public housing or otherwise), would not be justified at all, however sound the engineering or financial considerations.

38. This duty of HKG diligently to keep the project moving forward in this way, did not, by definition, require of it a standard of performance beyond the bounds of reason. Here a subjective element enters into the matter. The best endeavours to be expected of HKG are those which HKG can reasonably be expected to exert. It is nothing to the point that the best endeavours of somebody else might have accomplished the development (or, more particularly, the reclamation) of the land at an earlier date. The best endeavours of HKG are those which can reasonably be expected of HKG. HKG is not a commercial developer whose only responsibility is to himself; whose first and paramount concern is to achieve the best return on his investment that he can reasonably expect to obtain; and whose guiding principle must be that time is money, so that when a decision is needed it must always be made and implemented so as to ensure the integrity of his development programme and keep his project on schedule. HKG is responsible and accountable for a wide range of policies and activities affecting the administration of the territory and the health, safety and welfare of those who live here. Its duty to give proper consideration to these matters; its nature, structure, capacity, qualifications and experience; and its other responsibilities, must all be taken into account in assessing its performance in making and implementing necessary decisions. To expect HKG to have treated this project for the development of a new town at Tin Shui Wai as one overriding every other interest of HKG (as TSW at one stage submitted that it should have done) is to go beyond the bounds of reason. Provided that it adopted the approach and met the standard of performance which I have held was to be expected of it, HKG was in my judgment entitled to treat the development of the new town at Tin Shui Wai just as it would that of any other new town.

39. During the course of counsel's closing submissions, I put to them this view of the attitude of mind and standard of performance to be expected of HKG in the performance of its obligations under Clause 15 of the 7/82 Agreement. Mr Derek Wood, QC, for HKG, was, by and large, prepared to accept it. Mr Anthony Machin, QC, for TSW, was not. When I suggested to him that the best endeavours to be expected of HKG were those which HKG could reasonably be expected to exert he protested that this view of the matter set at "much too low" a level the standard of performance to be expected of HKG. He accepted that under Clause 15, HKG was not required to treat its interest in accomplishing in timely fashion the development of the new town at Tin Shui Wai as an interest overriding (and thus taking priority over) all its other interests. But HKG had, he said, to act with prudence and determination, and to take the right decisions. A wrong decision, even if reasonable, would not do.

40. Mr Machin was right not to contend that the parties intended, when entering into the 7/82 Agreement, that HKG should thereafter become bound to give priority (in, for example, the expenditure of money and the deployment of manpower) to the development of Tin Shui Wai over all the other competing calls on it. Certainly, if you undertake to use your best endeavours in the prosecution of some object you have to go about the exercise diligently and wholeheartedly; your second-best endeavours will not do. But the person to whom you give your undertaking is not, in my judgment, entitled to demand of you a greater degree of endeavour than in all the circumstances, it would be reasonable for him to expect from you. In the present case for TSW to require of HKG that it should have exerted better endeavours than could reasonably have been expected of HKG would be to go well beyond what TSW was entitled to demand. TSW was entitled to expect HKG to adopt a positive attitude towards the project; and to keep the project moving forward at a rate of progress reasonable in all the circumstances. But, in my judgment, no more. TSW was not entitled to expect that every decision taken by HKG woudld necessarily be right; only that it would be reasonable. A failure to make the best decision is not to be equated with a failure to use best endeavours. Being in love may mean never having to say your sorry; but suing your best endeavours does not mean never having to admit to an error of judgment. Mr Machin submitted that if I were to come to the view that TSW's fast-track approach would have been the better one to adopt for the purposes of completing the development of the new town at Tin Shui Wai in general, and of achieving an earlier formation of the land in particular, that would dictate, almost by definition, a finding that HKG, which did not adopt that approach, must have been guilty of a failure to use its best endeavours. I regard this as setting HKG too high a standard of performance and I reject this submission. So long as, in any particular instance, an honest and reasonable decision was taken by HKG mindful and desirous of discharging its obligation to TSW to use its best endeavours to facilitate the development of the land in timely fashion, TSW is not entitled, in my judgment, to impugn it as a failure to use best endeavours, even if I were of the opinion that an alternative decision might have been a better one. Of course, a decision which disregarded the interests of TSW would be another matter, as would any other decision which could not be justified as a reasonable decision, such as one arrived at in bad faith, or without a proper exercise of skill and care. But an agreement to use your best endeavours does not import a warranty that everything you do will be incapable of being bettered. When Mr Machin submitted that the way that is not the better way is not the use of best endeavours, he went, in my judgment, too far.

41. Mr Machin sought to support his contention in favour of a more rigorous standard of performance by reference to authority: I will review the authorities on which he relied, but first I warn myself that expressions such as "best endeavours" and "in timely fashion" have no meaning in the abstract. They take their colour from their context. That being so, authorities in which their use in an entirely different context has been considered are at best of only limited assistance.

42. As to "best endeavours", Mr Machin cited in support of his argument IBM United Kingdom Limited v. Rockware Glass Limited [1980] FSR 335. In that case the defendant ("Rockware") agreed to sell land to the plaintiff ("IBM") on terms that IBM would "make an application for planning permission and use its best endeavours to obtain the same". IBM applied for planning permission. Its application was refused. It did not appeal against the refusal. Had it used its "best endeavours" to obtain planning permission? It was held by the Court of Appeal (reversing Goulding J) that IBM might not have used its best endeavours to obtain planning permission (on the evidence the court was unable to reach a concluded decision). Buckley LJ (with whom Goff LJ agreed on this point) took IBM's obligation to be to do all it reasonably could to obtain the planning permission. Buckley LJ said that IBM was bound to take all those steps in its power which were capable of producing the desired result, namely, the obtaining of planning permission, being steps which a prudent, determined and reasonable owner, acting in its own interests, and desiring to achieve that result, would take. Geoffrey Lane LJ said that IBM was obliged to take all those reasonable steps which would have been taken by a prudent and determined man acting in his own interests and anxious to obtain planning permission would have taken. (He also said : "It seems to me that the citation of authorities which were dealing with different contracts and different words provide very little assistance to the court in the task of deciding the meaning of this particular contract between these parties.")

43. I accept that TSW was entitled to expect HKG in our case to act in a prudent and determined manner in the exertion of its efforts; but otherwise I am afraid I obtain no assistance from this case. The facts in it bear no resemblance whatever to the facts in our case. All the case does is to define the extent of IBM's obligation to use its best endeavours under the contract into which it had entered.

44. It may-fairly be said that, on my construction of the phrase, "best endeavours" connotes no greater degree of endeavour than "reasonable endeavours". I accept that this is so. Since I cannot believe that anyone who undertakes to use his "best endeavours" intends to undertake to do more than can reasonably be expected of him, I regard this equation, on a proper analysis, as inevitable. I know that in the unreported case of UBH (Mechanical Services) Ltd. v. Standard Life Assurance Co., 7th March 1986, Rougier J expressed the opinion (based on a concession by counsel) that an undertaking to use "reasonable endeavours" must mean an undertaking to do appreciably less than an undertaking to use "best endeavours"; but I do not think he can have thought this through and, with regret, I must disagree with him. Although, superficially, the argument that best endeavours must mean more than reasonable endeavours seems attractive, I am satisfied that it is wrong. No-one in his right mind would promise that the quality of his endeavours will be better than he can reasonably manage.

45. I do not understand Mr Machin to have cited any other authority in support of his argument that I was proposing to set HKG "much too low" a standard of performance; but among other cases he did refer (as did Mr Wood) to Sheffield District Railway Co. v. Great Central Railway Co. [1911] 27 TLR 451. In that case the Great Central Railway Co. (the respondent) undertook to use its best endeavours to develop the through and local traffic of the Sheffield District Railway Co. (the applicant). The applicant complained to the Railway and Canal Commission that the respondent had not done so. The Commissioners (whose decision was delivered by A.T. Lawrence J.) found for the applicant. They held that the respondent had assumed a quasi-fiduciary position to the applicant; that it was bound to treat the applicant at least as well as it treated itself in the matter of traffic; and that it had failed to do so. The judge stated that the respondent had "sought to rely upon cases decided in this court upon other words and in different circumstances. We think that nothing is more misleading than this use of precedent. We think 'best endeavours' means what the words say; they do not mean second-best endeavours .... [but] they do not mean that [the respondent] must so conduct its business as to offend its traders and drive them to competing routes. They do not mean that the limits of reason must be overstepped with regard to the costs of the service; but short of these qualifications, the words mean that [the respondent] must, broadly speaking, leave no stone unturned to develop traffic on the Sheffield District Line." I do not take this passage to go further than this; that one who undertakes to use his best endeavours must prosecute the object he has undertaken to promote in good faith and in a diligent and whole-hearted manner. I do not think that the judge's reference to the familiar metaphor ("leave no stone unturned"), which Mr Machin adopted, was intended to impose on the respondent in the case any greater burden. If that is wrong, then I disagree with the judge. But if it is right, then the whole passage seems to me to militate against TSW's case, rather than advance it, as do the several other cases on this point which the parties invited me to consider but which, for this reason, I do not propose to review.

46. As to "in timely fashion", Mr Machin contended that that expression means "within a reasonable time". I do not agree. It does not import any period or periods of time at all, whether reasonable or otherwise. It imports a degree of celerity. If I undertake to do something "in timely fashion" I must get on with it as quickly as I reasonably can and not dawdle or procrastinate. In other words, I must not go about the business "in leisurely fashion". The expression "in timely fashion" has in my opinion nothing to do with the end date on which the task in question is to be completed.

47. If I am right about this, the cases cited by Mr Machin as to the meaning of "within a reasonable time" are irrelevant (neither side cited to me any authority as to the meaning of the expression "in timely fashion"). But I will briefly mention two cases cited to me by Mr Machin, Pantland Hick v. Raymond and Reid [1893] AC 22 and British Steel Corporation v. Cleveland Bridge and Engineering Co. Ltd. (1981) 24 BLR 94.

48. In the Pantland Hick case, the House of Lords decided that what was a reasonable time for discharging cargo depended on the actual circumstances of the case. A dock labour strike had held up the ship beyond what would have been the ordinary time for discharging the cargo, and the ship owner sued the consignee for damages. The House of Lords rejected the contention that a reasonable time meant a time which was reasonable under ordinary circumstances, not actual circumstances. In considering whether the consignee had discharged the cargo within a reasonable time, it took into account the delay (beyond the ship owner's control) caused by the strike. The ground of the decision is, accordingly, that a reasonable time for discharging cargo must be determined by reference to the actual events which occurred. A reasonable time is the time you need to do whatever it is you have to do, using all reasonable exertions: see Taylor v. Great Northern Railway (1866) LR 1 CP 385 per Erle LJ at p.387 (cited with approval in the leading speeches in the Pantland Hick case).

49. Mr Machin's submission upon the case fastened on the fact that the strike was beyond the control of the ship owner. If the cause of the delay is within the control of the party whose performance within “a reasonable time” is in issue, that party, he said, cannot rely on that cause to exceed the “ordinary time”. I agree; and I agree, too, that this is supported by the decision of Robert Goff J. (as he then was) in the Cleveland Bridge case. It would follow from this that if HKG had been under an obligation to reclaim the land within a reasonable time, it could not have relied on causes within its own control to excuse any delay.

50. But none of this is relevant to anything that I have to decide. I recall of course that the parties expected that private development at Tin Shui Wai would be able to start within 2 to 3 years after the date of the 7/82 Agreement but I am not prepared to hold that it could at that date have been predicated of the reclamation of the land that there was some "ordinary time" in which, but for delays within the control of HKG, it would have been completed. In my judgment, that was not at all what was contemplated by the parties when they entered into the 7/82 Agreement. I cannot allow TSW to obtain under Clause 15 what I have already denied it on other grounds, a finding that under the 7/82 Agreement HKG assumed an absolute obligation to reclaim the land within a reasonable time from the date of the 7/82 Agreement. HKG's only obligation was to use its best endeavours to facilitate the development of the new town (including the reclamation of the land) in timely fashion.

51. A qualified undertaking, such as this, to use your best endeavours to do something "in timely fashion", even if this is (contrary to my view) taken to mean "within a reasonable time", cannot impose on you a more onerous obligation than an unqualified undertaking to do that thing within a reasonable time. And nothing in the cases cited by Mr Machin seems to me to militate against my view that even an unqualified undertaking to do that thing within a reasonable time creates no more than an obligation on you to do it without unreasonable delay, having regard to your other commitments; it does not oblige you to do it as soon as you possibly can. (Even an undertaking that you will do something "as soon as possible" does not go that far. You will perform that obligation by doing within a reasonable time that which you have undertaken to do; that is how I read Attwood v. Emery (1856) 1 CB(NS) 110 and Hydraulic Engineering Co. v. McHaffie, Goslett & Co. (1878) 4 QBD 630.)

52. Then did HKG fail to reach the standard of performance which I have held was to be expected of it? Although I have rejected the higher standard suggested by TSW this question still arises; and it requires the Court to consider the history of the development of Tin Shui Wai between 29th July 1982 and 5th May 1989, and to test HKG's performance against the appropriate standard. I now embark upon that task, reminding myself that this is a court of law, considering whether TSW has made out its allegations of breach of contract against HKG, not a tribunal of inquiry, considering the broader question why the reality, that no land ready for development came into the possession of TSW until 5th May 1989, fell so far short of the parties' expectations at the date of the 7/82 Agreement that that would happen "probably in two or three years time".

Part II - History

53. Although, no doubt, the history of the 7/82 Agreement starts, strictly speaking, on 29th July 1982, it will be recalled that on 16th June 1982, in anticipation of the 7/82 Agreement, Mr Don had given instructions to Mr S.S. Lee to prepare a paper for the Public Works Sub-Committee ("PWSC") covering the planning commitment for the preparation of a development plan for the whole of the initial development of 169 hectares. This plan was what was to become known as the Master Development Plan ("MDP"). By 13th July 1982 a draft planning brief for the necessary cartographic plan and accompanying statement had been prepared, and by 22nd July 1982 circulated for comment. SCP and BP had done a lot of work for MCL/TSW in this connection, as Mr S.S. Lee was aware; he felt that a high percentage of that work could be re-used and that SCP might be asked to do the planning study.

54. On 14th August 1982, a fortnight after the making of the 7/82 Agreement, there was a meeting at which (among others) Mr McDonald and Mr N.K. Chan (then Mr McDonald's deputy), on HKG's side, and Mr Betteley, on MCL/TSW's side, were present. Mr Betteley's notes of the meeting reveal that the importance of establishing and setting out the respective staff organizations, the points of liaison and lines of communication was recognised by HKG and MCL/TSW; and that HKG's staff resources were already heavily committed (to other work). They reveal that it had yet to be decided in whose name and in what form the consultant and construction contracts (for the clause 11 work) would be placed, the possibilities appearing to be HKG being the client; MCL/TSW being the client; or MCL/TSW being the main contractor to HKG. They reveal that, similarly, the conditions of contract had to be decided and that the procedures for selection of tenders, evaluation of tenders and contract award would also require to be defined and agreed.

55. Mr Betteley noted that MCL/TSW considered that there were "three separate streams of activity to be undertaken concurrently [emphasis added] at this time". These were (a) land clearance and temporary housing; (b) preparation of the MDP; and (c) continuation of the engineering work relating to land preparation. MCL/TSW considered that "all these would ultimately be interrelated on the programme but that at this stage they had virtually no dependencies".

56. (Events were to show that this fast-track approach differed substantially from the conventional approach of HKG. So far as clearance was concerned, HKG regarded this as an activity which had to await the MDP. To clear the land before the MDP was settled, and anyway before there could be any question of needing possession of it, was not HKG's favoured course or practice. So far as the preparation of the MDP itself was concerned, this was already in hand. So far as the engineering work related to land preparation was concerned, again HKG regarded this as an activity which had to await the MDP; the fact that much work on this had already been done in connection with the developer's original proposals made no difference. So, the view that these three activities had "virtually no dependencies" was one to which HKG did not in fact subscribe.

57. This difference in approach is a matter fundamental to the case. On the one hand, MCL/TSW has always preferred a fast-track approach to the project; on the other hand, HKG has always preferred a conventional one. This is fundamental because MCL/TSW contends, while HKG denies, that under the 7/82 Agreement HKG was obliged to follow the preferred approach of MCL/TSW and was not at liberty to prefer its own, since the former was calculated to achieve the accomplishment of the development at an earlier date than the latter. In my judgment, HKG was not so obliged. So long as its standard of performance did not fall short of the standard which I have held was to be expected of it, it was in my judgment entitled under the 7/82 Agreement to prefer its own approach. A pedetentous approach to the project was a reasonable approach for HKG to adopt, so long of course as it did not drag its heels. I do not want, in saying this, to be taken as criticising MCL/TSW's approach. It was equally reasonable for MCL/TSW to want the project to proceed on as fast a track as the very high level of professional expertise available to it, both in the person of Mr Betteley himself and within the planning and engineering consultancies engaged on the project, would render possible. For this approach a management contract between HKG and MCL/TSW would have been the ideal procurement system, had the parties chosen to agree on it; had this approach found favour with HKG this project might well have been accomplished not only more quickly but more cheaply, too. But the question is whether HKG, under the 7/82 Agreement, was obliged to adopt this approach and in my opinion it was not.

58. I look at the matter in this way. Two reasonable parties can perfectly reasonably come to opposite conclusions on the same matter without either of them forfeiting his title to be regarded as reasonable. Not every reasonable exercise of judgment is right and not every mistaken exercise of judgment is unreasonable. There is a band of decisions within which the court should not seek to replace the judgment of a party with its own judgment. (For these propositions, of general application although advanced in an entirely different context, see the speech of Lord Hailsham of St. Marylebone in In re W (an infant) (1971] AC 682 at p.700 D-E.) Since the conventional approach of HKG was in my judgment a reasonable approach and I find nothing in the 7/82 Agreement which obliged it to prefer the approach of MCL/TSW, it goes in my judgment beyond the bounds of reason to expect HKG to have adopted the approach of MCL/TSW in preference to its own.

59. The importance of this conclusion in the context of this case can hardly be overstated, since many if not most of the differences which, as we shall see, came to bedevil the relationship between MCL/TSW and HKG, can be attributed directly to this difference of approach.)

60. On 17th August 1982, there was another meeting at which Mr Betteley was again present for MCL/TSW and took a note of the discussion, which largely related to the MDP. He recorded (among other things) that a "high level of engineering detail" in the MDP was not required as that could best follow in the later detailed design stage; that the early completion of the MDP would be required to provide information for gazetting access and working areas required to undertake the reclamation and engineering works; that the engineering design work would be kept separate from the MDP which could identify the overall engineering requirements; that there was a requirement to proceed with the engineering work relating to the reclamation as soon as possible, as site investigation and selection of dredging contractors and preparation of tender documents was an early consideration; and that he had himself said that whilst the MDP, land reclamation and engineering design and clearance work could commence and proceed as separate tasks initially (probably the first 9 months), they would obviously have to merge into one task and programme before on-site reclamation work could proceed.

61. On 20th August 1982, as I have already mentioned, Mr Betteley sent a memorandum to Mr Wu in connection with the genesis of the 7/82 Agreement as a "letter of intent". That memorandum contains other matters of interest. It reveals that Mr Betteley had appreciated that the 7/82 Agreement superseded all previous negotiations; that the 7/82 Agreement fell far short of the detailed contract document, which could not be prepared until the MDP was completed and TSW's 38.8 hectares identified; that to have waited for that document would have delayed TSW's receiving payment for the land by at least 1 year and possibly 2 years; and that MCL/TSW now had the 7/82 Agreement "with its broad statements of intent/agreement".

62. On 7th September 1982, Mr Betteley wrote to Mr Don about the reclamation. He proposed action, which he believed to be essential, for MCL/TSW to fulfil its obligations to HKG in respect of clause 11(a) and (b) of the 7/82 Agreement. He recorded that all MCL/TSW 's development proposals were based on the premise that marine material would be used for filling, due to what he said was HKG's "original stipulation that the development should not make demands on Hong Kong's limited land fill sources". He said that if there was now to be any contemplation of using a land fill source a comparison of land fill costs with marine fill costs would clearly be required. He indicated that MCL/TSW had located suitable and adequate marine filling in the Pearl River estuary. He said that this was an ideal time to do the following: (a) outline provisional reclamation requirements and programmes; (b) invite completion of pre-qualification documents; (c) prepare an agreed list of tenderers; (d) agree the basis of tender; (e) prepare tender; (f) invite tenders; (g) evalute tenders; (h) undertake price and viability comparisons between marine filling and land filling operations; and (i) award contract accordingly. He proposed that this work should be continued by BP "as a natural extension of their previous work".

(Mr Betteley, then, was of the view that all this work should have been started at this time. But Mr P.D. Orange (then HKG Senior Engineer/Special Duties), told me in evidence that HKG would never have accepted that. His own view was that to carry out such an exercise, purely for the purpose of undertaking price comparisons and prior to establishing the detailed (as distinct from provisional) reclamation requirements, would not be responsible. Asking contractors to go to tender puts them to considerable trouble and expense; Mr Orange believed contractors would lose confidence in any organization that did this if it had no real intention of letting a contract on the basis of what the contractors were tendering. This is typical of the difference in approach between MCL/TSW and HKG. In my judgment, the approach of Mr Orange was reasonable, and was not inconsistent with HKG.'s obligations under the 7/82 Agreement to use its best endeavours to facilitate the accomplishment of the development of the new town at Tin Shui Wai in timely fashion.)

63. Mr Betteley re-iterated in his letter of 7th September 1982 that in his view this work was not dependent upon the completion of the MDP. (Again, Mr Orange thought otherwise. He told me that in his view the immediate requirement was to get on with the MDP. "You need to know the site and the-particular requirements of the site before you could do the detailed design [of the reclamation]" he told me; and "that's coming from the [MDP]". In my judgment, there is nothing unreasonable about that. Nor was there in Mr Don's comment on Mr Betteley's letter : "... before we go much further I think we need to give some thought to procedures, organization, committee structure and authority". So Mr Betteley's proposal, for an immediate reactivation of the detailed design of the reclamation did not command support in the HKG camp. The HKG side wanted, perfectly reasonably, to take its own advice from its own appointed consultants about the reclamation of the land; particularly since the development now comtemplated was different from and smaller than that originally proposed.)

64. On 27th September 1982, the two sides met, at the request of MCL/TSW, to discuss progress on MCL/TSW's proposals. Mr Betteley was present for MCL/TSW; so was Mr Peter Churchouse of SCP, and Mr Peter Stephenson of BP. HKG was represented by Mr George Chien, now GE(NT), and Mr orange, appointed as Senior Government Engineer for Tin Shui Wai on 22nd September 1982. Mr Chien said that his office, the New Territories Development Branch ("NTDB") had insufficient experienced staff to cover its workload. Application had been made for a complete project team to handle Tin Shui Wai but this had not so far been approved; however the appointment of Mr Orange as Senior Government Engineer for Tin Shui Wai had been approved. Mr Betteley cautioned about over-emphasising the size of the project and the staff needs, particularly for the first 2-3 years; Tin Shui Wai could not be a rapidly moving project requiring a large staff in the initial period because land clearance would take at least 1 year and land reclamation at least years to provide sufficient land areas for infrastructure and building sites to follow.

(This supposed problem of sufficiency of HKG staff was repeatedly stressed by TSW in argument but I am satisfied on the evidence that shortage of staff at no time caused any failure on the part of HKG to perform its obligations under the 7/82 Agreement. When staff were needed for work on the project but were not immediately available for that purpose, they were taken off the projects they were currently working on and assigned to Tin Shui Wai. The constitution of a complete project team to handle Tin Shui Wai at an early stage might or might not have been desirable; but I am certainly not prepared to hold that the failure to constitute such a team in September 1982 was a failure on the part of HKG in the performance of its contractual obligations under the 7/82 Agreement.)

65. Mr Chien considered that an early resolution of the procedures to be-adopted within HKG to deal with the method of implementing the Tin Shui Wai project, involving MCL/TSW, was essential. (He was quite right. The 7/82 Agreement, as we have seen, left all. this entirely open. And Mr Chien soon began work on guidelines for this.)

66. Mr Betteley asked if a decision had yet been taken on his request to reactivate the consultancy work required in connection with land reclamation, marine filling and land filling; and re-iterated his view that it was essential that tenders be obtained so as to obtain a realistic price for the financial viability study that formed part of the MDP. He and Mr Stephenson explained how the original studies had been carried out under two separate contracts, master plan and land preparation; they had proceeded concurrently and with very close liaison but were still separate activities.

67. Mr Betteley was disappointed with the negative response he received. He opined, in a memorandum to Mr Wu dated 4th October 1982 "At present there are no signs whatever of any great sense of urgency in [HKG]". (Mr Orange saw it differently. He told me in evidence that HKG was "doing at that moment in time all things that we considered necessary and possible to do at that time in order to get the project moving" and was doing them "as fast as they could reasonably be expected to be done".)

68. Mr Betteley opined, too, that there appeared "to be fairly powerful financial forces at work in [HKG] keeping considerable pressure on efforts to increase (NTDB] staff and also to contain expenditure".

(This supposed problem, of financial constraints operating to delay the necessary work, has been' advanced by TSW as one of the most important reasons of all why it took so long to reactivate the land formation design and do the reclamation. But I am satisfied on the evidence that this is just not so. Whenever those in HKG responsible for decisions on engineering matters gauged that they were ready to proceed with an activity and applied for the funding to do so that funding was never once refused on the ground of financial stringency. If the process did indeed take too long it was because those engineering decisions themselves-could-and should have been taken sooner; not because, when taken, they were stultified for the purpose of containing expenditure. So far as staff were concerned it is true that NTDB did not always get the people it wanted as soon as it wanted them; but I am not prepared to treat the usual treasury resistance to increase of staff in spending departments of government as a failure by HKG in the performance of its contractual obligations to TSW under the 7/82 Agreement.)

69. Mr Betteley felt that HKG would want to await the preparation and agreement (by HKG departments) of the MDP before "real signs of urgency or commitment" could be expected. He concluded that "regrettably we appear to be still 12 months away from having a very active project on our hands" but he recognised that "Tin Shui Wai was always a slow start up project". "Time", he said, "was on [MCL/TSW's] side".

70. In my judgment HKG did, at this very time, in fact display a sense of "urgency and commitment". On 21st October 1982, Mr Chien wrote to the Engineering and Associated Consultants Selection Board ("EACSB") whose job it was among other things to approve the briefing out of studies to consultants, to ask for approval of the appointment of consultants for a preliminary site investigation in relation to marine fill, notwithstanding that he referred to the preparation of the MDP as "the very first task in the development process". He noted that it was necessary to decide on a suitable source of fill "in order to ensure that engineering design can follow on from preparation of the [MDP]”thus indicating I think that although he did not consider that engineering design could sensibly proceed in advance of the preparation of the MDP he would not want it to be held up once the MDP was ready. He noted that urgent approval had been sought (as was the fact) for the creation of an item in category A of the Public Works Programme ("PWP") for the preparation of the MDP and for site investigation; and that this had already been approved (on 13th October 1982) by the Finance Committee ("FC") for inclusion in category A.

71. This last requires some explanation. The PWP, which had been in existence for a long time, and the more recently introduced Capital Works Reserve Fund ("CWRF"), had been established as essential features of HKG planning for commitment to and expenditure on works projects of a non-recurrent nature. (The CWRF had been constituted to take capital works extending over several years out of the annual estimates.) On 15th July 1982, just before the date of the 7/82 Agreement, the Government Secretariat issued Financial Circular 16/82 ("Circular 16/82"), in this connection, which introduced certain important changes in financial procedures made as a result of the setting up of the CWRF and of certain changes in the organization of HKG. Circular 16/82 and its requirements are central to the history of the reclamation of the land at Tin Shui Wai and I must set out the provisions of Circular 16/82 in full.

"              FINANCIAL CIRCULAR NO. 16/82

Public Works Proqramme

(Note: This circular explains the Public Works Programme and certain important procedural changes that have been made. Except where otherwise dated, separate circulars will NOT be issued during the course of any year to remind departments of action required under the procedures outlined in this circular. Distribution is Scale C.

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Introduction

As a result of the establishment of the Lands and Works Branch in the Government Secretariat, the break up of the Public Works Department and the setting up of the Capital Works Reserve Fund (C.W.R.F.), it is necessary to make some changes to the procedures for the Public Works Programme (the Programme). This circular explains the new procedures and replaces Financial Circulars Nos.14/80 and 17/81 which are cancelled.

2. For the purpose of this circular, the term 'works departments' means the Engineering Development Department, the Building Development Department, the New Territories Development Department and the Water Supplies Department.

Part I THE PROGRAMME

3. The Programme is a list of all public works projects of a non-recurrent nature. The projects in the Programme are arranged according to categories as defined below.

Categories

4. The categories are as follows -

Category C -projects for which the justification has been accepted to enable client departments to plan their requirements, but on which the works departments have no work commitment.

Category B - projects on which planning may proceed up to and including the preparation of sketch plans in the case of buildings, and working drawings in the case of engineering projects.

Category AB - projects on which site investigation, detailed design (including working drawings in the case of buildings), and the preparation of tender documents may proceed.

Category A - projects which are ready in all respects and which, subject to final authority, may proceed to tenders and construction.

Category -D-projects estimated to cost less than $500,000 on which work may proceed and expenditure may be incurred, subject to the availability of funds in the block votes provided for the purpose.

5. No subheads may be created and no expenditure may be incurred in respect of projects in Categories B and C. A subhead may be created for a project in Category AB, but no expenditure may be incurred until this project is upgraded to Category A. Such subheads will be reserved until that upgrading is approved. Where it is necessary to incur expenditure on site investigation, detailed design or the preparation of tender documents, a separate Category A project for these purposes is required. A subhead may be created for a project in Category A and no expenditure may be incurred until such a subhead is created.

6. The system of categories is designed to ensure an orderly progression of events, and each category constitutes the authority to proceed with a specific stage of work. Thus planning resources in the works departments may not be allocated to a project until it is upgraded to Category B. And projects may not be upgraded from Category B to Category AB until the planning (including approval of a schedule of accommodation in the case of buildings) has bee completed. Certain other factors, such as the availability of a site, may also affect the readiness of a project for upgrading to Category AB. In Category AB, final detailed design (including working drawings in the case of buildings) and the preparation of tender documents is carried out. A project may not be upgraded from Category AB to Category A until it is ready in all respects for tenders to be invited and for construction work to proceed.

Authorities

7. The progress of a project from conception to implementation is governed by a series of authorities as follows -

Approval of entry to (or deletion from) Category C	Public Works Vetting Committee (P.W.V.C.)
Approval of upgrading to (or downgrading from) Category B	Public Works Priorities Committee (P.W.P.C.)

Approval of upgrading to (or downgrading from) Category AB	Public Works Sub-Committee (P.W.S.C.) on the recommendation of the P.W.P.C.
Approval of upgrading to (or downgrading from) Category A	Finance Committee, on the recommendation of the P.W.S.C.
Approval of entry to (or deletion from) Category D	Finance Secretary

8. Changes to the scope of a project or to an approved project estimate also require the approval of the authorizing body responsible for placing the project in its existing category. Certain delegated powers exist for the revision of approved project estimates within specified limits.

Part II PROCEDURES

9. The procedures set out below are designed to minimize delays, while ensuring that proper consideration is given to proposals at each stage of a project's progress. The procedures follow a_ logical sequence which in normal circumstances will provide a smooth progression of events. Experience has shown that delays are likely to arise where the procedures are not strictly followed.

New projects

10. All new projects proposed for inclusion in the Programme in Category C must be vetted by the P.W.V.C. to ensure that the proposed projects are properly justified before they are included in the Programme. All proposed new projects must enter the Programme at Category C (or Category D if appropriate) - but see Part V below.

11. Proposals from client departments for the inclusion of new projects in the Programme should be addressed to the Secretary, P.W.S.C. Submissions in the form of a memorandum may be made at any time during the year and should include -

(a) the justification for the project;

(b) a statement of any relevant approved policy, with confirmation of policy branch support for the project;

(c) a description of the scope of the project and a rough order of cost;

(d) an indication of exceptional urgency, if any; and

(e) a comprehensive statement of all the financial implications.

As regards (b), all transport projects (highways, railways, ferry facilities and other building and civil engineering projects which are part of the transport infrastructure) must first be considered by the Transport Policy Co-ordinating Committee under the chairmanship of the Secretary for Transport, and submissions must include that Committee's recommendation. As regards (c), a rough order of cost should be determined in consultation with the relevant works department, but only after policy branch support for the project has been obtained.

Upgrading to Category B

12. A call circular will be issued by the Secretary, P.W.S.C. from time to time (normally twice a year) inviting submissions from client departments for the upgrading of projects from Category C to Category B. Further details will be given in the call circulars, but essentially submissions in the form of a memdorandum should include -

(a the justification for planning to proceed at that time - i.e. for priority to be given to the project; and

(b) a brief re-statement, or up-dating, of the scope of the project and rough order of cost.

13. A schedule of submissions will then be prepared by the Secretary, P.W.S.C. for consideration by P.W.P.C., together with an assessment by the Secretary for Lands and Works of the capacity of the works departments to take on the planning of these projects. Having considered this schedule, P.W.P.C. may approve the upgrading to Category B of projects which they consider should proceed and which are within the capacity of the works departments to plan.

Upgrading to Category AB

14. Proposals from the appropriate works department for the upgrading of projects from Category B to Category AB should be addressed to the Secretary for Lands and Works. This is because readiness for upgrading is dependent upon the progress made by the works department on planning work. Client departments wishing to have their projects upgraded should take the matter up with the appropriate works department, and should in any event give the works department every assistance in preparing the submission for upgrading.

15. Submissions by the works department in the form of a draft P.W.S.C. paper may be made at any time during the year and should include -

(a) a re-statement of the justification for the project;

(b) an up-to-date description of the scope of the project;

(c) a project estimate;

(d) confirmation that sketch plans have been completed (in the case of buildings) or that working drawings have been prepared (in the case of engineering projects); and

(e) in respect of building projects, confirmation that a schedule of accommodation has been approved by the Schedule of Accommodation Vetting Committee (draft schedules should be prepared by the client department and passed to the Principal Government Architect who will arrange for them to be vetted by this Committee).

(a) and (b) are necessary as this will be the first occasion on which P.W.S.C. will be made aware of the details of the project.

16. When the Secretary for Lands and Works is satisfied that upgrading to Category AB is justified, he will forward the draft paper to the Secretary, P.W.S.C. who will submit it to P.W.P.C. for a recommendation to be made to P.W.S.C. P.W.P.C. in considering the paper will have regard to the advice of the Secretary for Lands and Works as to the capacity of the works department and the likely need for a separate Category A project for site investigation, detailed design and the preparation of tender documents (see paragraph 5 above).

Upgrading to Category A

17. Proposals for the upgrading of projects from Category AB to Category A may only be made by the appropriate works department and should be addressed to the Secretary, P.W.S.C. Submissions in the form of a memorandum should include -

(a) an up-dated detailed project estimate; and

(b) confirmation that site investigation and detailed design have been completed, including working drawings in the case of buildings, and that tender documents have been prepared.

18. Submissions should normally be made once a year, in the context of the Annual Review (see Part IV below), but in exceptional cases of great urgency consideration may be given to the upgrading of a project to Category A as and when necessary. Following examination in Finance Branch, the Secretary, P.W.S.C. will arrange for the proposal to be put to P.W.S.C. for a recommendation to be made to Finance Committee.

Changes to projects

19. Where the scope of a project requires substantial change, the client department should submit its proposal to the Secretary, P.W.S.C. in the form of a memorandum. The Secretary will decide whether the proposed change is of such importance as to require reference to the appropriate authority. Submissions may be made at any time.

20. Where the approved project estimate of a project in Category A requires amendment (with or without a change of scope), a submission in the form of a draft P.W.S.C. paper should be submitted by the works department to the Secretary, P.W.S.C. An indication of any exceptional urgency (for instance if tenders are outstanding) should be given.

Development Programmes

21. The balanced development of a defined geographical area may involve the co-ordination of a number of inter-related but separate projects falling under different policy programme areas. In such circumstances, and subject to the agreement of P.W.V.C., such projects may be brought together in a Development Programme (c.f. the Development Programmes which already exist for the New Towns and certain rural areas of the New Territories). But the progress of each individual project in a Development Programme is governed by the normal authorities, and each new project must enter the Public Works Programme in Category C and be subsequently upgraded through Categories B and AB to Category A.

22. However, each Development Programme is updated annually, and each updated edition contains recommendations for the inclusion of new projects (if any) in Category C or the upgrading of projects from Category C to Category B. To the extent that the Development Programme and each updated edition is submitted to P.W.V.C. for approval of the inclusion of new projects (if any) in Category C and then to P.W.P.C. for approval of upgrading of projects from Category C to Category B, individual papers for each project are not required. Each updated edition of the Development Programme is subsequently put to P.W.S.C. for information.

23. For the upgrading of projects from Category B to Category AB, or from Category AB to Category A, the normal procedures are followed (see paragraphs 14-18 above). Individual submissions must be made by the relevant works department, quoting the appropriate paragraphs of the latest edition of the Development Programme. The normal procedures must also be followed for changes to projects (see paragraphs 19-20 above).

24.Standing authority exists for the Development Programme for the New Towns and certain rural areas of the New Territories. For these, the P.W.V.C. is replaced by the New Towns and Public Housing Sub-Committee for the vetting of new projects proposed for inclusion in Category C (see paragraph 22 above).

Part III THE SIZE OF THE PROGRAMME

25. Expenditure on the Programme is met from the C.W.R.F. which was established by Resolution of the Legislative Council on 1st April 1982. Within the resources available in the C.W.R.F., expenditure on each Category A project is limited by its approved project estimate.

26. The intention is that once a project is upgraded to Category A, work should start on it as soon as possible, but in any case, within 18 months. While the actual start date is determined having regard to economic implications and to the estimated outturn of expenditure for the year, the upgrading of a project to Category A is in effect a commitment to provide funds for it, as required, within the approved project estimate.

27. It is therefore necessary to control the timing of upgrading of projects to Category A. This is done by the setting of a ceiling on total outstanding commitments. The Financial Secretary sets this ceiling with reference to the beginning of each financial year (i.e. the over-hang at 1st April). Total outstanding commitments at 1st April each year comprise the total approved project estimates for projects given a subhead in the draft Estimates less estimated cumulative expenditure on those projects as at 31st March.

28. Thus, before a project may be upgraded to Category A at the Annual Review (see paragraph 18' above), regard will be had to the ceiling. If the upgrading of the project would cause the ceiling to be breached, upgrading will be deferred. The upgrading of a project to Category A during the year may only be considered in exceptional cases of great urgency, and in such circumstances it may be necessary for the ceiling to be breached.

Part IV ANNUAL REVIEW

29. The main purpose of the Annual Review is to determine the new projects to be shown with subheads in the draft Estimates for the ensuing financial year. These new projects will include projects in Category A not yet given a subhead and those projects in Category AB which it is proposed to upgrade to Category A.

30. It is therefore important that those projects for which subheads are to be sought for inclusion in the draft Estimates are upgraded at least to Category AB in time for them to be considered in the Annual Review. But upgrading to Category AB is dependent upon the readiness of the project as explained in paragraphs 14-16 above, and premature upgrading will not be agreed in respect of projects which are not ready.

31. The Annual Review process begins with the setting of a cash expenditure guideline by the Financial Secretary for the ensuing financial year.

32. Following the setting of the cash expenditure guideline, the Secretary for Lands and Works determines the funds likely to be required in the ensuing financial year for contracts already let, for new contracts in respect of on-going projects and for block votes. These funds are then deducted from the cash expenditure guideline to show the balance of funds likely to be available for expenditure on new projects in the ensuing financial year.

33.At the same time, a calculation is made of the likely room available for new projects within the ceiling on total outstanding commitments set by the Financial Secretary (see paragraph 27-28 above).

34. Within the parameters of the cash expenditure guideline and the ceiling on total outstanding commitments, proposals are then put to the P.W.P.C. for consideration. These proposals are co-ordinated by the Secretary, P.W.S.C. following consultation between the Finance Branch, the Lands and Works Branch and the authorities responsible for the Development Programmes. The proposals are in the form of a list of new projects to be given subheads in the draft Estimates, comprising projects in Category A not yet given subheads and projects in Category AB proposed for upgrading to Category A.

35. Following consideration by the P.W.P.C., the agreed proposals are put to P.W.S.C. at the Annual Review, including specifically any proposal for upgrading of a project from Category AB to Category A. Subject to P.W.S.C.'s agreement, a recommendation will then be made to Finance Committee for the upgrading of the project to Category A. If a project is not yet ready for upgrading to Category A, it may nevertheless be given a subhead while remaining in Category AB (see paragraph 5 above).

36. The final step in the process in respect of projects not brought together in a Development Programme is the finalization of the Annual Programme of Works. This is the responsibility of the Project Steering Group (P.S.G.), under the chairmanship of the Deputy Financial Secretary. The Annual Programme of Works sets out the detailed start dates for all new projects given subheads in the draft Estimates, and P.S.G. monitors the likely outturn of expenditure and makes appropriate adjustments to the Annual Programme of Works. Subject to a subhead being provided which is not reserved, tenders may be invited and work may start in accordance with the timing envisaged in the Annual Programme of Works, as amended from time to time.

37. Where a Development Programme exists, it will include a programme of start dates. The authority responsible for the Development Programme is required to monitor the likely outturn and to make appropriate adjustments to start dates.

38. The overall situation will also be monitored by the P.S.G., which will from time to time consider reports from the authorities responsible for the Development Programmes in conjunction with the Annual Programme of Works, in order to contain expenditure as far as possible within the cash expenditure guideline.

39. Where any project is exceptionally upgraded to Category A during the year (not having been given a subhead in the draft Estimates as a Category AB project) the P.S.G. will determine a start date having regard to the Annual Programme of Works or to the programme of start dates in a Development Programme, as appropriate. But until a subhead is formally created, tenders may not be invited and work may not start.

Part V ENTRUSTED PROJECTS

40. Public works projects are sometimes carried out on behalf of the Government by agencies other than the works departments, for example by the Mass Transit Railway Corporation (M.T.R.C.), the Housing Authority (H.A.) or by a private developer. It is necessary to seek prior approval for such works before entering into any commitment with the outside agency. This approval takes the form of the inclusion of an item in Category A of the Programme.

41. Since the categories of the Programme are designed to ensure an orderly progression from one stage of planning to the next, and since such progression is dependent on the capacity of the relevant works department, it is not appropriate for projects carried out by outside agencies to progress through each category in the Programme in the normal way. Instead, direct entry into Category A is permitted.

42. The client department proposing the work should forward a submission, in the form of a draft P.W.S.C. paper, to the Secretary, P.W.S.C. Submissions may be made at any time and should include -

(a) the justification for the project

(b) a statement of any relevant approved policy, with confirmation of policy branch support for the project;

(c) a description of the scope of the project;

(d) an estimate of the construction costs of the project;

(e) a comprehensive statement of all the financial implications;

(f) an indication of exceptional urgency, if any; and

(g) a recommendation to P.W.S.C. that the project should be recommended to Finance Committee for direct entry into Category A.

The requirement to obtain a recommendation from the Transport Policy Co-ordination Committee for all transport projects still applies (see paragraph 11 above). The fact that an accurate estimate of the construction costs of the project is not yet available should not delay the submission, but an explanation of this should accompany the submission and a rough order of cost should be given.

43. Where expenditure is involved, every effort should be made by client departments to plan sufficiently far ahead to have such items included in Category A in time for them to be considered in the context of the Annual Review.

Part VI TIMETABLE

44. The normal timetable governing the procedures laid down in this circular is as follows -

(a) P.W.S.C. meets regularly to deal with amendments to approved project estimates, changes of scope for projects in Category AB or A and upgrading of projects to Category AB. In exceptional cases of great urgency P.W.S.C. can deal at these meetings with upgrading of projects to Category A. Recommendations by P.W.S.C. for upgrading of projects to Category A are normally put to the next meeting of Finance Committee;

(b) P.W.S.C. meets in November each year for the Annual Review (see paragraph 35 above). At this Annual Review P.W.S.C. will consider the upgrading of projects to Category A for subheads to be given to them in the draft Estimates for the ensuing financial year. Consideration by Finance Committee of recommendations made by P.W.S.C. at the Annual Review normally takes place in December or early January;

(c) P.W.P.C. meets as necessary or considers papers by circulation at any time. Once a year in October, P.W.P.C. holds its main meeting to select new projects to be given subheads in the draft Estimates for the ensuing year;

(d) P.S.G. meets as frequently as necessary to monitor the Annual Programme of Works and likely total outturn. Once a year in February P.S.G. holds its main meeting to draw up the Annual Programme of Works;

(e) P.W.V.C. meets as required during the year to consider proposals for new items and substantial changes in scope, P.W.V.C. may also consider individual proposals by circulation; and

(f) Policy branches will be invited to forward their comments on the priorities of projects in Category AB for the purpose of the Annual Review before mid-September. These comments may include Category B projects if they are ready for upgrading to Category AB.

Clarification

45. If departments require further clarification, they should contact Assistant Secretary (FE)1 who is the Secretary, P.W.S.C. (Telephone 5-95564).

72. So (to return to the narrative), under the procedures prescribed in Circular 16/82, commencement of work on the project had been authorised. HKG had authorised the expenditure of $5m on the MDP and $5m on a preliminary site investigation (this was an investigation in Deep Bay as a prospective source of marine fill). The request of the works department for this authorisation, and for the work to be placed in category A without making its way through the inferior categories, had been circulated (for reasons of urgency) and approved. A start had been made, and, in my judgment, made in timely fashion. But there were important decisions still to be taken as to how the project was to proceed.

73. As Mr Betteley observed in a memorandum dated 29th October 1982 to the board of MCL, the management and implementation of the project could not be successfully achieved "in a casual manner". But as yet no other manner had been agreed. Mr Betteley expressed his perception of the matter in these words: "At present there is every indication on the [HKG] side' due to staff shortages, pressures to contain [HKG] staff expenditure and deficits on the current account that they have a preference for [MCL/TSW] to take a leading role and to have maximum participation ... Does [MCL/TSW] wish to have a maximum participation in management and construction work or solely management?" It was vital, he said (quite rightly) that the implementation should proceed on the basis that all parties fully understood what was required of them and that the organization structures should clearly show this.

74. Mr Wu endorsed Mr Betteley's memorandum in his own handwriting and in emphatic and unambiguous terms: "Active participation with minimum risk to the company. We want to do the reclamation - period".

(Since this was indeed the aim of MCL/TSW, at all times until the negotiations for TSW "to do the reclamation" broke down, I find incomprehensible TSW's case to the effect that the 7/82 Agreement imposed on HKG an immediate obligation to use its best endeavours to "ensure" that the reclamation was at least partially completed by 1st July 1985 even if that result could have been achieved only by awarding the reclamation contract to somebody else in sufficient time to produce land ready for development by 1st July 1985. If HKG had been ready to let the reclamation to some other contractor, in time to have achieved this, and had done so, it would have received brickbats, not bouquets, from MCL/TSW; and the brickbats might well have come wrapped in writs alleging that what HKG was doing in letting the reclamation contract elsewhere was a breach of its obligation of good faith owed to MCL/TSW under the 7/82 Agreement.)

75. Also on 29th October 1982, Mr Betteley wrote to Mr Don. He noted that the MDP brief was nearing the point of circulation and that the preliminary site investigation, in the waters of Deep Bay, was shortly to be initiated. He asked for "the earliest possible instructions concerning the recommencement of the engineering work as set out in our letter to you of the 7th September 1982" (to which I have referred above). He continued :

"This work is critical in three respects:

(1) No return on the substantial capital investment by Government and MCL can be expected or achieved until this work is completed and the land reclamation method decided.

(2) The Master Development Plan cannot be completed without it.

(3) The programme of occupation dates required for public housing (on a three year handover to occupancy basis) cannot be achieved unless the reclamation/engineering work necessary for the preparation of reclamation tenders and civil engineering work detail design briefs is commenced shortly.

An outline programme summary is attached which shows the close and critical relationship of these activities.

MCL are most anxious to ensure that when required by Government [emphasis added) they will have taken all measures necessary for the land reclamation work to proceed expenditiously and economically.

The costs of initiating this work now and the small additional demands on Government and MCL staff are minimal in relation to the finance charges that arise should the development be delayed whilst awaiting this information at a later stage."

Mr Betteley enclosed' with his letter of 29th October 1982 a programme prepared by BP, in the form of a bar chart with explanatory notes, showing the design of the reclamation proceeding in parallel with the preparation of the MDP; an award of the land reclamation contract in mid-1984; and "building construction" starting in January 1986. This was put forward as the minimum programme then allowable to meet a taget occupation date of the beginning of 1989.

(As we have seen, however, the thinking on HKG's side was that although it was possible for the preparation of the MDP and of the engineering design for land formation to proceed separately, as was in fact noted in a briefing paper prepared on 29th October 1982, the better course was in accordance with the usual practice to postpone detailed design of the reclamation until there was sufficient output from the MDP study to enable that to be done. So the approach of MCL/TSW, and its programme, was bound to lead to disappointment. For myself, I think I would have preferred the approach of MCL/TSW, which would have seen the MDP team and the engineering team working at this stage in parallel, and in close liaison, each of them benefiting from the work of the other. But I am not prepared to treat HKG's approach, which I do not regard as unreasonable, as a breach of its obligations under the 7/82 Agreement.)

76. On 30th October 1982, Mr Betteley recorded in a memorandum to Mr Wu that "except for failure to obtain approval to proceed with engineering work the other tasks are proceeding at a pace which we have to regard as satisfactory".

(So I regard MCL/TSW's only complaint at this stage to relate to the failure to obtain approval to proceed with the engineering work. But this "failure" was due to the difference of approach between HKG and MCL/TSW to which I have referred, and since I have refused to treat HKG's approach as unreasonable I cannot find this complaint justified. Mr Betteley added: "By [MCL/TSW]'s standards progress is painfully slow". I have no doubt of this. But as I have already indicated, I can find nothing in the 7/82 Agreement which would justify my holding that under it HKG bound itself to accept MCL/TSW's standards in preference to its own.)

77. On 4th November 1982, at a meeting between the two sides, Mr Betteley inquired if any decision had been taken on starting the engineering work in connection with the land reclamation. The reply was that the priority was to get the MDP started first. Mr Betteley suggested that the MDP could not be completed unless land reclamation material, method, rate of progress and costs had been determined, as the development programme was totally dependent upon the progress of land reclamation. If the MDP existed now it would serve no useful purpose without conclusion of the other issues. Mr Betteley, in a note which he made of the meeting, recorded (in my view optimistically) that the other side "confirmed the importance of the engineering work was appreciated ...". Mr Betteley's note also recorded some discussion of the MDP itself. It will be recalled that Clause 11(d) of the 7/82 Agreement contained a provision to the effect that, if required by HKG, MCL/TSW would "prepare or cause to be prepared" the MDP. MCL/TSW had submitted a brief for the MDP on the basis that MCL/TSW would prepare the MDP, using SCP and BP as sub-consultants. But a preference had been expressed within HKG that the better course would be for HKG to instruct SCP and BP directly in this connection. Mr Betteley, although surprised by this, thought it would be advantageous to MCL to adopt the suggestion made (as he recorded in a memorandum dated 5th November 1982 to Mr Wu).

78. On 5th November 1982, Mr Chien wrote to SCP, attaching a draft brief for the MDP and asking for a fee proposal. He stated that he understood that SCP proposed to employ BP as engineering sub-consultants for the study.

79. The design of the reclamation was hanging fire. HKG had not yet organised itself for this and therefore it was unlikely that it could be carried out concurrently with the MDP. At a meeting on 10th November 1982 between representatives of HKG, and representatives of SCP and BP, it was suggested that it would be easier to put the contract for this work direct with MCL/TSW, who would use BP as sub-contractors.

80. The question how the project was to be implemented was also hanging fire, and was exercising HKG as well as MCL/TSW. Mr Don, in a memorandum dated 17th November 1982, said that he thought it essential to determine early how the project was to be implemented, the role of departments and branches involved and how responsibilities for various actions were to be allocated. He had prepared a discussion paper on the management and control of the project which he attached to his memorandum. He proposed that a working group be set up urgently to produce firm recommendations on the management arrangements to be adopted so that departmental responsibilities could be clearly identified. He mentioned that the more immediate work (preparation of the MDP and the preliminary site investigation) was being progressed through existing HKG procedures and that this allowed some breathing space for the most appropriate management and control structure to be worked out. But he also noted that, with the short time available for some activities which would require financial commitment, final recommendations on the organisational structure and procedure should be completed by, say, February 1983, so that MCL/TSW could be made aware of HKG's thinking. He concluded that he was receiving requests from MCL/TSW for instructions concerning the engineering work. He said: "I am not able to respond adequately without the staff which have been sought and the clarification in my status and responsibilities with regard to this project".

(It can be seen that the parties were beginning to pay the price for having entered into an agreement on 29th July 1982 which left so much to be decided in the future. On the one hand, it was essential, if the project was to be completed as, soon as possible, for the reclamation to be completed as soon as possible; and the vital step in the achievement of this would be the initiation of the land formation design. On the other hand, there was no formal management structure or organisation in place, and no agreed programme, which would have made it possible for the project to proceed otherwise than one step at a time, whereas what was really needed was some concluded agreement for overall control of the management of the whole project.)

81. On 22nd November 1982, the appointment of SCP as consultants for the MDP, was approved; and negotiations with MCL for the site investigation were also approved.

82. On 25th November 1982, there was another meeting between the two sides, at which Mr Stephenson (of BP) was present. Mr Betteley's note of this meeting includes a note of his own observation that MCL/TSW's programme for the land reclamation engineering work was extremely critical "as they could not see government making quick decisions to place ... contracts for this work unless all sources of filling had been investigated and methods properly costed." (Mr Betteley was quite right. As we shall see, differences between HKG and MCL/TSW about sources of fill and the cost of fill were to prove, in the end, impossible to resolve.)

83. At about this stage Mr Stephenson seems to have thought that instructions for the design of the reclamation had been held up for want of funds; but Mr B.H. Newman, then Deputy Director, NTDD, told me in evidence that Mr Stephenson had been "quite wrong" about that; and I accept Mr Newman’s evidence. However, it was the fact that if work was to be done on preparing a paper for submission to the PWSC (as required by Circular 16/82) it was unlikely that funds would become available, and therefore that any work could be commenced, before 1st April 1983.)

84. In a memorandum from Mr Chien to Mr Don dated 29th November 1982, Mr Chien had recorded his view that: "although it does appear that we should be proceeding with PWSC action to enable us to start on engineering design as soon as possible, there is insufficient information in MCL's letter and attachment [of 29th October 1982] on which to base a PWSC submission". He understood that MCL/TSW were prepared to provide additional, more detailed, information. He enclosed a draft reply to the MCL/TSW letter for consideration by Mr Don before taking further action on preparation of the PWSC paper.

85. Mr Don's letter to Mr Betteley, based on Mr Chien's draft, was dated 9th December 1982. It was in the following terms:-

"Because of the special nature of the Agreement entered into between Government and yourselves it has been necessary for Government to give some consideration to how this project might best be organised, financed and managed. These matters are under active consideration at the present time.

While such matters are under consideration it is of course important to ensure as much as possible that delays are not caused now which will adversely affect the provision of land for public housing, occupancy of which will be required by 1989. To this end a Consultancy agreement has been negotiated with Shankland Cox Partnership for preparation of the Master Development Plan and negotiations are in hand with yourselves for a study covering Investigation of Fill Material in Deep Bay. It is of course hoped that the results of this study will settle the question of where the fill material is to come from. It is appreciated however that additional work is likely to be required to finalise the source of fill even after the results of the Deep Bay study are known, particularly if these results are negative.

It is noted in the programme of engineering works accompanying your letter that that months has been proposed for preparation of a design statement and 12 months for detailed design and preparation of tender documents for land formation and associated works. A number of issues have been referred to which require addressing in the design statement. However insufficient detail has been provided as to the critical nature of the timing of the various different issues. Also no mention is made of clearance which surely must be one of the critical items to be considered. Before I can take further action to include an item in the PW Programme enabling design work to commence I will need more detailed information on these points.

I would be grateful therefore if you could break down the necessary work for the design statement and detailed design into packages, showing how each fits into the overall programme and indicating the criticality of each package. It would be helpful to indicate where staging of design work can be undertaken if possible. I would further be grateful if you could provide some estimate of the financial commitment to Government of the various packages e.g. fees, investigation and survey costs and the like. This information is essential to me before I can seek the provision of funds. Your cooperation in this matter would therefore be much appreciated.

Further liaison in the provision of the appropriate information may be obtained by direct contact with Government Engineer New Territories."

86. On 10th December 1982, HKG and SCP signed the consultancy agreement for the MDP.

87. On 23rd December 1982, Mr Betteley replied to Mr Don's letter of 9th December 1982, limiting his reply to the matter of further engineering work. Mr Betteley remarked that Tin Shui Wai was known "in our organization as a project where, if you can save a day, you save $400,000 and if you can save a year $146m". Mr Betteley noted that there was an urgent need for HKG and MCL/TSW to agree how the project was to be controlled during the critical 2-year period of the start up. He continued-:

"We believe the Deep Bay investigation should be proceeding in parallel with an ongoing engineering study of all potential filling sources, land reclamation methods and associated engineering issues as this work is not only critical to the use of the land but it is also an item of very significant cost.

Even if three potential filling sources were investigated simultaneously and two were ultimately discarded, the cost of the abortive engineering and investigation work would be insignificant in relation to the result and savings in time and investment on the project as a whole.

We somehow feel we have failed to convince government of the need to initiate the work proposed in detail in our letter of 7th September 1982 and further emphasised in our letter of the 29th October 1982".

88. Mr Betteley set out a programme of future activities, with their durations, and said that they prompted the earliest possible approval of engineering consultancy work on land reclamation related activities. He referred to a land fill investigation (if required) as part of the essential engineering design work for 1983. He concluded as follows:

"We apologise for the length of our reply in response to your brief letter but we do feel there are many immediate decisions which have to be taken if government's and MCL's financial investment in this project is to be maximised. A tremendous amount of basic information is available from TSW's studies already completed and we believe that this information can be used to facilitate an effective start-up once necessary decisions to proceed have been taken.

There is concern within MCL at the slow rate of progress since the agreement was concluded on 29th July 1982 and we sincerely hope that during the next few weeks we will see the project moving forward much more vigorously. We are enthusiastic and available to participate with you in the execution of any work you may require and we await your further instruction".

(It is clear that from the beginning MCL/TSW regarded the project as a scaled-down version of the project originally envisaged and on which, as Mr Betteley saw it, virtually all the essential preparatory work had already been done; and it wanted and expected the project to proceed accordingly. It was ready "to hit the ground running". It is equally clear that HKG did not see it like that at all. HKG saw the project as another new town, incorporating MCL/TSW's private housing element, but generally speaking to be tackled in the same way as it had previously (so it believed) successfully tackled the development of other new towns in Hong Kong. HKG was of course aware of the work which had been done by MCL/TSW and their consultants on the project originally envisaged and was prepared to make such use of it as might be helpful. But it wanted and expected its own, fresh, blueprint for the preparation of the land and the development of the new town at Tin Shui Wai. It did not, for a moment, intend simply to take over from MCL/TSW the project originally envisaged, scale it down in size, and then let MCL/TSW get on with it, as MCL/TSW wanted and expected it to do. This difference in the parties' wants and expectations went unnoticed in the 7/82 Agreement and was, unhappily, never resolved.)

89. On 24th December 1982, Mr Betteley made a further reply to Mr Don's letter of 9th December 1982, this time dealing with matters not dealt with in his earlier letter of 23rd December 1982. He appended notes prepared by BP and headed "Tin Shui Wai Urban Development Engineering Works - Implementation. Expanded programme and explanatory notes".

90. Mr Betteley said, referring to this, that he believed the need to initiate engineering design work as proposed in his letter of 7th September 1982 was clearly demonstrated. But the programme (as the notes made` clear) was not a working programme; it was designed only to illustrate the need for an early commencement of engineering work, if first occupation of housing at Tin Shui Wai was to be achieved by January 1989 (this would involve reclaiming the land, so that building work could commence on it, by January 1986). BP assumed that marine fill would be used; the programme would be invalid if land fill was to be used. BP recognised that the conclusions reached in the final reports prepared in relation to the development originally envisaged had not been formally addressed to HKG and, further, that those conclusions would need modification to reflect circumstances which had changed since the reports were produced. The programme envisaged detailed design of the reclamation commencing before the completion, or virtual completion, of the MDP; but on the assumption that a decision on the source of fill had first been reached. BP pointed out that the detailed design of the reclamation would take 12 months including preparation of tender documents. BP expressed the view that the useful work that could be done would initially be limited to completion of site investigations on the development area and other site specific issues until decisions on the type of fill material to be used had been made, or until the required outputs from the MDP were available.

91. On 7th January 1983, Mr Chien sent an urgent memorandum to the Secretary for Security about the proposed preliminary site investigation into marine fill in Deep Bay.

It reads as follows:-

"1. Background

On 29th July 1982, a joint venture agreement was entered into between H.K. Government and Mightycity Company Ltd. (MCL). Briefly, MCL surrendered to Government 488 ha of land in fish ponds at Tin Shui Wai near the head of Deep Bay and received payment of $1,458 million. MCL will in due course receive a regrant of 38.8 ha of land from within the 488 ha. As part of the agreement MCL will enter into a contract with H.K. Government to provide or procure the provision of sufficient fill material to reclaim the whole site to an agreed time-table and at a price to H.K. Government to be agreed between MCL and DNTD.

2. Purpose of Reclamation

On about 169 ha of the site, MCL will provide engineering infrastructure for a town of 135,000 persons also to H.K. Government's cost. It is proposed that half of the population will be accommodated in public housing which will in large measure accommodate a shortfall in public housing provision which has been predicted to occur toward the end of the 1980s. The remainder of the formed site (319 ha) will provide a land bank and may be required for additional future urban expansion.

3. Timing of Work

In order to meet the Housing Department's required dates for first occupation of public housing at Tin Shui Wai by 1989 the first formed sites for building will have to be ready by January 1986, which is exactly 3 years hence. A preliminary time-table of critical start dates for various activities to meet this target shows that work on detailed design for land reclamation including preparation of tender documents should commence by 1st April 1983. Before this can be done, all preliminary work on land reclamation method and sufficient investigations to enable a decision on the source of fill should have been undertaken.

4. Possible Sources of Fill and their Suitability

The approximate estimated quantity of fill material required is in the order of 30 x 106 cu. metres.

a) Marine Fill - Pearl River

Some initial work has already been carried out by MCL on possible sources of marine fill in connection with their previous development proposal. They have established that suitable fill exists in two areas in the Pearl River Estuary at distances of approx. 45 km. and 65 km from the site respectively. The cost of using this fill is likely to be relatively high because of the long haulage distances and the likelihood of having to pay royalties to the Chinese Government.

b) Marine Fill in Deep Bay

MCL looked first originally in Deep Bay but did not locate any suitable surface deposits. Subsequently deeper boreholes on the actual Tin Shui Wai site indicated the presence of

substrata sand/gravel deposits suitable for filling which if extending over sufficient areas out into Deep Bay could by methods now in use elsewhere in the world, be extracted and used for filling the site very economically. Geophysical survey data in the form of seismic profiles have been re-examined and show promising indications that appropriate strata variations containing alluvial material exist. The geomorphology of the site also favours the existence of such deposits.

c) Land based Fill from H.K.

As part of the Development Investigation of the North West New Territories an assessment of fill resources for the sub-region was undertaken. This is at present being refined by the Consultants carrying out the NWNT Base Strategy Study who will be providing a paper on fill resources including a comparison of the effect of having to use various quantities of land based fill for reclamation at Tin Shui Wai. Unfortunately this paper is not yet available. However there is sufficient information available to conclude that use of land based fill would be relatively expensive particularly in terms of the additional infrastructure required for its transportation, that it would involve considerable loss of amenity benefit to the community in the short term, that its extraction would involve considerable fung shui, compensation and other problems, and that it would represent a considerable total loss of limited reserves of an already rapidly diminishing resource. It has been established in broad terms that natural & committed growth in the North West New Territories and Tuen Mun excluding Tin Shui Wai is already going to place heavy demands on available fill resources within the area.

5. Marine versus land based Fill

Although a detailed comparison on which to make a final choice of a suitable' source of filling for Tin Shui Wai has yet to be completed, it is considered reasonable to state that there are likely to be considerable advantages to H.K. Government in using a source of marine fill for the Tin Shui Wai Development. It is likely that the final placed cost of fill will be cheaper for marine fill, although in the case of fill from the Pearl River Estuary this will be dependent on the nature of any Royalty charged by Chinese Government. Use of marine fill places no extra demands on the limited supply of land based fill available in H.K., and the filling operation places no additional demands on the transport infrastructure within the region. There will be no need to deal with the consequental social, cultural, transportation and environmental problems that would arise from the excavation and transportation of 30 million cu. metres of fill within the region over a period of five or more years.

6. Deep Bay versus Pearl River Estuary

If sufficient deposits of suitable material were located in Deep Bay, Binnie & Partners who are MCL's engineering consultants have indicated that there is a possible saving of $20 per cu. metre in filling cost. This represents a possible saving of $600 million. This is excluding the question of royalties which it is presumed would be charged for material from Pearl River Estuary but not for material from Deep Bay. The method of extraction of the fill material from the underlying strata is by suction dredging. This involves sucking the material up through pipes which are sunk down to the appropriate depths. The effect is to lower the sea bed level over the areas from which material is being removed, but the actual physical disturbance to the sea bed surface is mininal. The effect on oyster beds in the vicinity is not certain but it is expected that damage to oyster beds directly over areas of removal would occur. The material would be pumped though a pipeline from the fixed drillhead platform directly ashore to the Tin Shui Wai site. Lateral disturbance in Deep Bay would be minimal.

In the case of material coming from the Pearl River Esturary, a possible method is for the material to be transported from the excavation area into Deep Bay by a continuous barging operation, stockpiled in an area of Deep Bay close to the site and then pumped ashore using a suction dredger and pipeline. A channel for the barges would need to be dredged up Deep Bay. Both methods have environmental and security objections but the implications in respect of taking material from Deep Bay are considerably less in both environmental and security terms. The barging operation for material from the Pearl River would need to be continuous over a 24 hour period. Both methods have a possible long term environmental benefit in that water circulation in Deep Bay is likely to be improved thus improving water quality. The effect is likely to be greater in the case of removal of fill from Deep gay.

7. Present Drilling Investigation

It can be seen that although a decision has not yet been made on the source of fill for Tin Shui Wai that there could be considerable financial, economic, environmental and social benefits in using material from Deep Bay if suitable material exists there in sufficient quantity. However although present indications are promising the presence of sufficient suitable material has not yet been proved. What is required at present is an investigation comprising about 30 holes drilled to depths not exceeding 50 metres and a number of additional seismic profile lines to provide sufficient information to prove (or otherwise) the size and quality of deposits. The work is required mainly in the north eastern part of the bay and would involve the use of four or five barges from which drilling can take place. These barges can generally only be moved in the shallow tidal areas involved at the upper parts of the tide, and drilling takes place while the barge is moored and lit. If work was not permitted at night, because of the nature of the tides it would be extremely difficult if not totally impractical, prohibitively expensive and very time consuming to obtain the same level of information that can be obtained in eight to twelve weeks if night working is permitted. Night working would not require the movement of any barges, boats or service vessels at night. It would only require that the barges be lit and manned and drilling work proceed during the night hours.

8. Previous Drilling Operation

The method of operation required for the present investigation is in fact no different from that used during the previous investigation carried out by MCL in Deep Bay and the Pearl River Estuary. During this contract 19 holes were put down in Deep Bay after work started on 9th October 1980. The permissions from Security Branch only prohibited movement of boats at night and required that rigs (survey craft) should be well lit. These requirements were fully complied with and we are given to understand by the Consultants supervising the work that relationships with the security forces were maintained at a high level and no adverse comments over night working or having the rigs well lit were received.

9. Level of Information for Final Decision on Operation in Deep Bay

The information provided in this paper is based only on data readily available so far and on assumptions which can reasonably be made on the basis of information which could be collected in the brief time allowed for presentation of this paper. If limited approval for night drilling could be given covering the present investigation only, a more comprehensive appraisal of the relative merits of the various alternatives could then be made including information presently under preparation by the North West New Territories Study Consultants. It would certainly seem premature to make a final decision on the nature of restrictions to possible dredging/barging operations in Deep Bay until the need for such operations has been established and the consequential costs can be established. It is also worth noting that the cost of the present proposed Consultants' investigation at $5 million is very small compared with the financial implications at stake.

10. Summary of Issues

(1) Government is committed to substantial expenditure on major land formation and urban development at Tin Shui Wai through an agreement with a private company to which it has advanced a considerable sum of money.

(2) One of the main benefits to Government of this commitment will be the ability to meet a predicted public housing shortfall in the late eighties if work on the project proceeds in timely fashion.

(3) One of the major present problems to be solved in order that this project can proceed is a decision on the source and availability of fill.

(4) In order to make such a decision which could have considerable financial, social, transportation and environmental implications, it is considered necessary as a matter of urgency to carry out investigation work in Deep Bay which includes drilling operations at night.

(5) Similar investigations and drilling operations have recently been carried out in Deep Bay including drilling at night. No adverse results have been observed or reported as a result.

(6) It is not considered necessary or desirable to make a decision at this stage on whether full scale dredging operations should be permitted in Deep Bay.

11. Decision Required

In view of the importance of the issues at stake and because similar operations have already been mounted apparently without adverse effect, it is hoped that further discussions may be held with Security Branch that will lead to permissions being granted which will enable the present site investigation to proceed."

(I have set out the contents of this memorandum in full because it provides a useful summary of the background and an indication of how matters then stood on the question of fill; and because, in addition, it reveals in my judgment an approach to the project consonant with HKG's obligations under Clause 15 of the 7/82 Agreement.)

92. On 10th January 1983, Mr Chien submitted a draft brief for the Deep Bay investigation, with MCL's offer to do the work for a fixed sum of $4.8 million, for the approval of EASCB, which had to approve it. His accompanying memorandum mentioned that in order to meet target dates for public housing provision at Tin Shui Wai "a decision on source of filling is required as a matter of extreme urgency". He noted that because of the 7/82 Agreement MCL had a similar interest to HKG in seeing that the proposals proceeded with a minimum of delay. He noted that funds were already available for the work.

93. On 13th January 1983, Mr Chien sent a memorandum to Mr Newman, commenting on Mr Betteley's letter of 23rd December 1982. He referred to BP's programme mentioned in the letter and said that if it was reasonable, and it appeared to be so, then it was agreed that full engineering studies should be proceeding now in parallel with the preparation of the MDP, and that a decision on the source of fill and method of reclamation was required as a matter of urgency, if Housing Department targets were to be met. He said that it would be necessary for a PWSC paper to be submitted as a matter of urgency, to have the whole project in Category C and engineering investigation and design in Category AB. He said that a draft paper was under preparation and would be forwarded for consideration as soon as possible. He said that although it was appreciated that it would not be possible to proceed to the work stage before the management structure for Tin Shui Wai was set up and the contract with MCL prepared, consideration could perhaps be given to proceeding with the engineering investigation and design shortly under a consultant's agreement prepared under existing regulations and controls, if the necessary resources could be provided in 1983.

94. On 17th January 1983, EASCB approved the proposal for MCL to do the preliminary site investigation at Deep Bay for $4.8 million.

95. Also on 17th January 1983, an internal HKG meeting was held to discuss the management and control structure to be adopted for the development of Tin Shui Wai. There were present Mr Don; Mr G.B. O'Rorke (DNTD designate); Mr B.H. Newman; Mr N.K. Chan (Deputy Secretary, Works (Lands and Works Branch)); Mr A.N. Savage (Principal Assistant Financial Secretary (1), Finance Branch); Mr P.T. Nunn (Senior Crown Counsel, Legal Department); Mr J.T. Allen (Deputy Principal Solicitor, Registrar General's Department); Mr Chien; and Mr Orange (now Senior Engineer, Tin Shui Wai). Mr Don chaired the meeting. He said that HKG was under pressure from MCL/TSW to proceed quickly with the project; that the Government had already paid over $1.4 billion to TSW, and that if the Housing Department's target was to be met, implementation would need to commence very urgently. He referred to the MDP and to the preliminary site investigation into marine filling in Deep Bay, and he said that it was necessary to proceed now with MCL towards the formation of the land and provision of infrastructure; but that as yet no HKG resources had been made available or clear direction given on how and at what pace to proceed. He confirmed that similar exercises had been conducted before between government and private interests but never on such a scale and complexity as this. He said that there was considerable pressure from the China Resources Company to get on with the project and indeed from the Housing Authority to meet public housing programme needs. It was necessary to get started on site formation urgently. Various options were considered. The option generally favoured was the appointment of MCL/TSW as the main contractor to HKG. It was agreed that a separate works progress committee would need to be set up; and it was agreed that Mr Chien would initiate action for inclusion of a works item in the PWP as a matter of urgency. (After the meeting, and after discussion with Mr Betteley, it was agreed that a set of draft guidelines would be prepared and circulated to all members for their comments and agreement.)

96. On 21st January 1983, Mr Don submitted to the Secretary PWSC a paper (a draft of which he had received from Mr Chien the day before) supporting his recommendation to go to PWVC for (a) the inclusion of a new works item "Tin Shui Wai Development - engineering works" in Category C; and (b) inclusion of a new item "Tin Shui Wai Development - engineering investigation and design" in Category AB. The estimated case of (a) was $2,640 million, and of (b.) $120 million.

(In doing this, HKG was moving the project forward. In October 1982, as we have seen, the MDP had been included in the PWP in Category A, and was proceeding accordingly. It was now considered necessary to have a "parent" item in Category C to enable the engineering work to be progressed. Part of that work, the investigation and design work, needed to be placed in the higher category, Category AB, so that essential investigation and design in respect of the engineering work could commence in 1983/1984.)

97. The paper submitted by Mr Don took account of the fact that the Housing Department's current programme envisaged public housing becoming available at Tin Shui Wai in 1988/89 and it was on that (by now unrealistic) basis that the paper proceeded. The paper estimated that the lead time required to verify a suitable source of 30 million cu.m. of fill material, carry out the necessary engineering design and arrange tenders for the site formation contract would be at least 15 months and that this would require work on the detailed engineering investigation and design to commence during 1983. The paper recorded the following:-

"Since the agreement between [HKG] and [MCL/TSW] was executed in July 1982, the latter companies had been pressing the New Territories Development Department for an early start of the engineering work on site. This is not only due to the fact that a total of 38.8 hectares of land were required to be handed back to the companies for a private development to house 67,500 people, but also to the companies' view that they do have a moral obligation to see that the development will be completed as soon as possible".

98. The paper assumed the use of marine fill and that the whole site of 488 hectares could be filled in a total time of 3 years. The paper recognised that the time schedule was tight. (It referred to the work being "entrusted to a private developer"; but this was not, I think, intended as a reference to the special provision made in Circular 16/82 for "entrusted" projects and which had been used in relation to the preparation of the MDP.) The proposal was described in this way:-

"That a new item for the necessary formation infrastructure works be included in Category C and that a separate new item for the engineering investigation and design work, estimated at $120m, be included in Category AB direct".

99. On 24th January 1983, a meeting took place between Mr Chien, Mr Orange and Mr Betteley informally to discuss HKG/MCL joint management proposals on the implementation contract for the development at Tin Shui Wai. The meeting had been convened to make MCL/TSW aware of HKG's preferences as to the most appropriate form of contract. Mr Betteley's note of the meeting records that there had been much discussion of the subject between HKG departments. 5 possible forms of contractual relationship had been considered which were broadly:-

"(a) all contracts direct to HKG with MCL in a supervisory role;

(b) HKG in direct contract with consultants and MCL placing and supervising works contracts;

(c) HKG and MCL forming a joint management organization;

(d) MCL to be awarded a turnkey contract for design and construction and the contract to be awarded in their own name;

(e) agreement of a lump sum between HKG and MCL/TSW - not seriously considered."

100. According to Mr Betteley's note, HKG had come round to the view that the award of a design and construction contract to MCL was the most suitable arrangement, with MCL then awarding contracts in its own name. This would ensure effective control by MCL leaving NTDB with the straightforward task of supervising and liaising with MCL only. Mr Betteley advised that, whilst that provided a perfectly normal basis of contracting, MCL would require a great deal more information before making a final commitment. In the discussion that followed, NTDB outlined some of the aspects that they considered were essential to a successful use of the design and construction contract. Mr Betteley thought that these procedures would provide an effective method of implementation and thanked the others for giving guidance on the main aspects of concern to MCL in arriving at a decision. Mr Betteley undertook to respond formally (as requested by NTDB, setting out both the proposal and their response) as early as possible.

101. On 28th January 1983, PWVC decided to recommend to PWSC the inclusion of a new item "Tin Shui Wai Development - engineering works" in Category C, at an order of costs of $2,640 million consisting of an estimated $120 million for investigation and design fees, an estimated $1,578 million for formation and an estimated $942 million for infrastructure. (Mr Newman in evidence described the rate of progress of this item as "unusually quick".)

102. On 8th February 1983, Mr Betteley wrote to Mr Chien referring to the meeting on 24th January 1983 and recording that the MCL Board regarded the HKG proposal for a design and construct contract as an appropriate basis upon which to negotiate and draft a formal contract for the implementation of the development in Tin Shui Wai in accordance with the 7/82 Agreement. It was ready to proceed with such negotiations as soon as HKG wished.

103. On 18th February 1983, HKG and MCL entered into a consultancy agreement for the preliminary site investigation in Deep Bay (EASCB having approved this).

104. On 25th February 1983, the Commissioner for Environmental Protection ("CEP"), by Mr Paul Holmes, wrote to Mr Chien. He had got wind of the draft brief for the MDP (the distribution of which had been limited in order to save time, as Mr Newman told me in evidence), and he was surprised and concerned that the Environmental Protection Agency ("EPA") had not been consulted. He stated that the development of a town for 135,000 people on an area of 170 hectares obviously had very significant environmental consequences which had to be fully assessed, but he asserted that the brief made only passing reference to environmental aspects of the study and failed to deal in any way with the issues to be considered. He contended that the various matters which arose should not be looked at in a piecemeal' fashion but by the conduct of, a thorough environmental impact assessment ("EIA"). He said that he trusted that those concerns would be taken into account, even at that late stage in the preparation of the MDP.

105. On 7th March 1983, Mr Ian Brownlee, for GE(NT), confirmed to CEP that a separate comprehensive EIA was not being carried out as part of the planning studies. He said it would appear difficult to carry out an environmental assessment before sufficient details of the proposed development, including method of construction, was available. He said that if the CEP should decide that a more detailed environmental assessment was necessary, it would be beyond the scope of his planning and engineering work and would best be undertaken by CEP'S office.

106. On 10th March 1983, there was a meeting of what was known as the consultants management group ("CMG"). Mr Stephenson (of BP) gave a brief description of the future programming of the project. He pointed out that even using the shortest possible time periods for each aspect of the design and reclamation process, the first housing starts had now slipped by 9 months from financial years 1988/89 to 1989/90. The representative of the Housing Department said that any slippage at this stage would of course have to be accepted by the Housing Department, which was more concerned that a realistic programme could be agreed as soon as possible so that action could be taken to accelerate sites elsewhere.

107. On 14th March 1983, Mr Chien made a submission to the Secretary, PWSC, to lead to the upgrading, from Category C to Category B, of the Tin Shui Wai development. He commented that construction work was expected to start in mid-1984 and that upgrading' it to Category B was necessary now, in anticipation of a special submission for upgrading of a design and investigation item to Category A to enable that work to commence in mid-1983. He pointed out that (as BP had recommended) the main construction work was to be preceded by the construction of an access road (to become known as the South West Access Road) and drainage work (to become known as the Tai River Diversion Culvert) to commence in late 1983, and that upgrading of part of the works covering the South West Access Road ("SWAB") and the Tai River Diversion Culvert ("TRDC") would be sought in advance of the usual date. (The SWAR was needed to provide access to the site for the construction works and the TRDC to avoid flooding of the works and save the cost of temporary measures for that purpose.)

108. On 28th March 1983, PWPC approved the upgrading of the item "Tin Shui Wai Development", the "parent item" previously in Category C, to Category B. (Mr Newman told me in evidence that this too was ahead of the usual time.)

109. On 14th April 1983, SCP submitted to Mr Chien the first draft of chapter 9 of the written statement which was to accompany the MDP, dealing with the outline development programme. SCP pointed out, in a covering letter, that the programme included in that chapter indicated that first occupation of public housing would not be achieved before July 1989, which was a slippage from the requirement in the brief. They pointed out that, to achieve first occupation by July 1989, the award of the reclamation contract would have to be made by the end of 1984, and that to reach that point a number of critical activities needed to be undertaken, including a decision on the source of fill material and the design of the reclamation.

110. On 15th April 1983, MCL and Gammon (HK) Ltd. entered into a contract for the preliminary site investigation work in Deep Bay.

111. On 27th April 1983, Mr McDonald wrote a memorandum to the Deputy Financial Secretary about the Tin Shui Wai development. In this memorandum Mr McDonald stated: "In view of the commitment entered into with Mighty City, it would seem that the Tin Shui Wai development must proceed without unnecessary delay ...".

112. On 29th April 1983, Mr Chien sent to Mr Don copies of a draft PWSC paper to lead to a decision by the Finance Committee that part of the parent item be upgraded directly to Category A, namely, a separate item entitled "Tin Shui Wai Development - Design and Investigation". The estimated cost of this work was (now) $100m. He requested that the paper be circulated for consideration by PWPC during the month of May and in time to be considered by PWSC at its June meeting. In the paper he set out the history of the matter and noted that in order to avoid further slippage and to enable a formed site of 38.8 hectares to be handed back to MCL/TSW for private development in 1986, it would be necessary for reclamation to commence by the end of 1984; and that several critical activities would have to be undertaken in the interim period. He noted that following on from the investigation in Deep Bay, which it was expected would enable a decision on the source of fill to be made, it would be necessary to proceed with more detailed investigation, preparation of detailed layout plans, design, impact assessment, and pre-qualification of tenderers for the dredging contract. He noted that these activities would need to start in mid-1983 if construction work was to commence by the end of 1984. He noted that, in parallel with the above activities, design of the SWAR would also be required to commence in mid-1983, to enable resumption and clearance of the necessary land and subsequent construction of the road to be substantially completed in advance of the main reclamation works. He therefore proposed that DNTD should recommend that that part of the parent item should be upgraded to Category A to allow design and investigation to commence in July 1983 (the remainder of the project would be retained in Category B).

113. Also on 29th April 1983, the Hong Kong Industrial Estates Corporation ("HKIEC") wrote to Mr Macdonald to seek agreement for HKIEC to surrender land at the Yuen Long Industrial. Estate ("YLIE") surplus to HKIEC's current forecast of demand. (This matter later became important, as we shall see, because it led to some discussion among officers of HKG as to whether, if this surplus industrial land was used for public housing, it might not be possible to defer the provision of public housing at Tin Shui Wai.)

114. On 9th May 1983, SCP's draft MDP, and a progress report, was circulated to the CMG. The report commented on the outline development programme set out in Chapter 9 of the MDP. In particular, it mentioned the sequence of tasks required to begin the reclamation contract, including the construction of access roads and flood protection works, these being the critical factors affecting first occupation. SCP advised that at that time, and based on the immediate commencement of certain tasks, the earliest time considered realistic for the award of the reclamation contract was the end of 1984, with first occupation in mid-1989. SCP noted that this represented some slippage from the housing programme set out on the study brief. SCP also noted that achievement of even this programme was dependent on a number of key tasks being set in motion almost immediately, namely initial design and layout plans and land procedures.

115. SCP's draft MDP report noted that the MDP was the first step in achieving development at Tin Shui Wai, and that the MDP would identify the main steps and commitments required in order that the prime target of achieving first occupation in 1988/89 could be achieved. It noted that it was important that one of the principal access routes should be constructed at an early date to take the construction traffic.

116. In Chapter 9 itself, SCP dealt with the outline development programme. The chapter set out the timing and sequence of activities and works required to achieve a continuous build-up of population commencing in 1989, and included an outline development programme which set down the main principles of the implementation of the development. But SCP commented that before detailed design commenced, a full project network should be drawn up to show the programme in greater detail and allow monitoring of the project throughout implementation. (This seems obvious and sensible; but until the manner in which the project was to be implemented had been settled by agreement between MCL/TSW and HKG, it was not going to be possible to draw up any such full project network, and accordingly this would constitute an impediment to the commencement of detailed design.)

117. The outline development programme assumed the use of marine fill. SCP referred to the brief for the MDP, which had anticipated first occupation in 1988/89; but commented that occupation by this time was now regarded as unrealistic due to delays in critical activities leading up to the award of the first construction contracts. This slippage had led to a revised estimate for first occupation of July 1989 which had been determined from the critical activities of site investigation for fill material; decision on the borrow areas to be used; detailed site investigation of borrow areas and part of the reclamation area; reclamation design, preparation of contract awards and award of the contract for reclamation; land procedures and construction of the access route; the design and construction of catchment and drainage; land filling and settlement; and infrustructure and building construction. They looked to January 1985 for the award of the reclamation contract. That was accounted for mainly by the time needed to design and clear the land for and construct the SWAR to a standard sufficient for heavy construction traffic; and the time needed for site investigations for and the design of the reclamation and borrow areas, and to award the main reclamation contract.

118. On 10th May 1983, the draft MDP and the progress report were discussed at another meeting of the CMG. At that meeting Mr Holmes reiterated the EPA view that a full EIA should have been carried out. He was told that the time scale for preparation of the MDP had not permitted a full EIA to be carried out, but that at every stage of the project, a full assessment of the environmental effects of the development would be made.

119. Mr Stephenson (of BP) gave the meeting a brief description of the future programming of the project. He pointed out that, even using the shortest possible time periods for each aspect of the design and reclamation process, the first housing start had now slipped by 9 months. Even this time scale assumed that many activities on the critical path were carried out without any delay at all. (Mr Chien told me in evidence that in his view, with which I agree, the programme produced by the consultants had been "very, very optimistic".)

120. Also on 10th May 1983, Mr Don sent to Mr Macdonald copies of the draft PWSC paper which Mr Chien had suggested be submitted to lead to a recommendation to FC that the design and investigation work be upgraded to Category A. The memorandum accompanying the draft paper noted that it was necessary to commence detailed investigation and design in mid-1983.

121. At about this time, a briefing paper was prepared in Finance Branch ("FB") on the likely timing of works for Tin Shui Wai; the cashflows likely to be required; and HKG's commitments under the agreement with MCL/TSW. The author of the paper, a Mr Stephen Selby, remarking on HKG's commitments as far as timing of the necessary works was concerned, wrote that the commitment did not extend beyond making its "best efforts". He noted that the Deputy Political Adviser had advised that the China Resources Company, as a major shareholder in MCL which was in turn the owner of TSW, would be likely to express considerable concern at any delay of formation works due to HKG's failure to start. However, he rated political considerations as less important than the necessity to make a timely start on a project on which HKG had already made a substantial financial commitment. He noted that an area of uncertainty existed in the matter of what arrangements were to be made between HKG and MCL/TSW as to the arrangement of the work.

122. On 14th May 1983, MCL advised HKG that work in connection with the investigation of the filling material in Deep Bay was virtually completed and had established beyond question that, from an engineering point of view, there was an adequate source of suitable reclamation filling material lying in Deep Bay. The letter suggested that NTDB's decision to support MCL's September 1982 proposal to investigate the area had been fully justified, as extraction of material from Deep Bay as an alternative to more distant borrow areas would achieve savings of the order of $200m in total land reclamation costs. MCL proposed further investigations in the area using the present consultants and contractors, but recognised that the decision was not its own to make. The letter indicated an appreciation that NTDB operated under the more rigid restraints of HKG policies and procedures and recognised that the funds to continue immediately with such additional work were not likely to be forthcoming in the required time frame.

123. On 16th May 1983, Mr Macdonald wrote to the Secretary, PWSC recording (as was the case) that a draft PWSC paper requesting recommendation of PWPC for upgrading part of the parent item to Category AB as a new item entitled "Tin Shui Wai Development - Design and Investigation" had been forwarded to him. He asked for a recommendation by PWSC to FC that this part of the scheme be upgraded to Category A and that the remainder of the scheme the works item, be retained in Category B. He said that it should be noticed that the paper was submitted in anticipation of approval of the various posts required for the Tin Shui Wai project management team for management of the consultants for the design and investigation work.

124. Also on 16th May 1983, BP wrote to MCL stating that the result of the Deep Bay investigation so far were generally encouraging, but they did not feel confident that the feasibility of the Deep Bay fill source had been demonstrated. They considered a further phase of borehole investigation was necessary properly to evaluate the Deep Bay fill source. They suggested this be done by way of an extension to the existing investigation contract. The cost would be about $1.3 million.

(Mr Orange told me in evidence that his reaction to this was that funds had been obtained for a feasibility study, including dredging, before detailed investigations proceeded as part of the design of the land formation work. He considered the evidence was strong and considered there was no need to do any more at this stage. His judgment was that feasibility had been proved already. The sort of work now sought to be done would have required the approval of the Central Tender Board ("CTB") not EASCB (the former was concerned with works contracts, the latter with consultants' contracts). He said that an application would have to be made for more funds and that would have needed more time. So he did not favour BP's suggestion. His view seems to me to have been perfectly reasonable.)

125. On 17th May 1983, MCL forwarded BP's letter of 16th May 1983 to Mr Chien.

126. Also on 17th May 1983, Mr Macdonald wrote to HKIEC to tell it that its proposal to surrender land at the YLIE was not one which at that stage he would consider it approriate to recommend HKG to accept. On 20th May 1983 HKIEC replied noting that.

127. On 23rd May 1983, SCP's draft MDP was distributed to HKG departments for comment.

128. On 24th May 1983, the paper to which I have referred, recommending upgrading part of the parent item to Category AB as a new item entitled "Tin Shui Wai Development - Design and Investigation", and the retention of the remainder of the item in Category B, retitling it "Tin Shui Wai Development - Works" was circulated to members of PWPC for a decision. (The recommendation was approved.)

129. Also on 24th May 1983, there was an HKG internal meeting to discuss the guidelines for the management and control structure for the project, which were accepted. Among other things discussed was the provision of necessary resources. Mr Chien commented that, in respect of the contract for the land reclamation, even if no expenditure were incurred until the first quarter of 1985/86, approval would be required to go to tender and, if possible, to let a contract before the end of the 1984/85 financial year. It was agreed that the reclamation works should be included in the 1984/85 review for upgrading to Category A, and also that the SWAB and the TRDC should be included in Category AB in the current financial year. Mr Chien said that no action on this had been taken yet because of the uncertainty with regard to finance and staff resources. He said that although it was possible to put up a paper for upgrading these items to Category AB for the July meeting, it was not possible to proceed further without the staff requested for the project. He confirmed that the number of complex issues to be dealt with was increasing. He mentioned the drafting of the consultancy agreement for the design and investigation, site investigation and environmental issues, and also the discussion with MCL on the drawing up of contract documents. Issues related to gazetting for access roads, pipe lines and dredging in Deep Bay and so on also had to be dealt with but could not be looked at without staff. Mr Newman who chaired the meeting, said that GE(NT)'s position had become so difficult that other than preparing the PWSC paper already prepared, it was clearly not possible to proceed any further with the project until the posts were created and the manpower available.

(It does sound from all this as though the project was now at a stop for want of resources. But I am satisfied that was not in fact so. Staff were redeployed to work on

the project when necessary and items were created in the PWP accordingly. Mr Chien told me in evidence that at this meeting Mr Newman was taking "a very hard line"; he did not know Mr Chien's plans for the redeployment of his staff to meet the TSW commitment as and when required, and all this talk was really designed for the purpose of putting pressure on FB to create more posts. I accept this evidence. It would have been better for the work of NTDB if that had been done; but the fact that it was not done did not, in my judgment, hold up the work which did have to be done on the Tin Shui Wai project.)

130. On 25th May 1983, the Director of Housing wrote to Mr Chien referring to the draft MDP. He recorded that the public housing development programme currently utilised a completion date of January 1989 for the first public housing at Tin Shui Wai. He also noted the MDP now proposed July 1989 for the first completion, with corresponding slippages to the later phases. He said he was concerned with these delays. He said that he appreciated that the consultants appeared to have an "extremely tight overall programming schedule" for the entire Tin Shui Wai development and he questioned if the current completion dates proposed were still realistic. (Mr Betteley told me in evidence that he agreed with this comment about the programme; there was, he said, "no slack in it".)

131. On 26th May 1983, Mr Chien wrote to Mr Betteley, thanking him for MCL's letters of 14th and 17th May 1983, and stating that Mr Betteley had raised some important points "in relation to where we go from here" with the present investigation. He referred to the HKG internal meeting of 24th May 1983, and said that he had delayed replying to Mr Betteley until after that meeting. He said that draft guidelines on how the development should be progressed were discussed at the meeting and had received HKG support and he enclosed a copy for Mr Betteley's information. He said that it would be seen from the draft guidelines that it was proposed that the first step following from joint acceptance of the general procedure would be a consultancy agreement between HKG and MCL for the investigation and design of the site formation. He said that it was proposed that all subsequent investigations should be carried out under that new consultancy agreement with any site investigation contracts to be let with HKG as the client. This was the normal procedure.

132. The draft guidelines to which reference has been made were prepared by a Mr Jayasekera. In his paper, he noted that details of the management and contractual procedures would have to be agreed with MCL in the next month or so if detailed design was to commence by mid-1983. He noted that since the 7/82 Agreement provided that the Clause 11(a) and (c) contracts should be on a "cost plus basis", it was of paramount importance that any contract procedures adopted should positively provide for HKG to be able to control the cost of the work on such contracts. It would not be possible to carry out the work on the basis of a standard remeasurement contract; MCL, not being a construction organization in its own right, would have to let contracts for the works and would be the client in respect of such contracts. Since HKG was in fact the client for the development of Tin Shiu Wai, it would require special contractual relations with MCL governing each of the works contracts. These arrangements would need to be such as to ensure that HKG maintained a high degree of control over all aspects. He noted that in previous discussions on how best to proceed it had been concluded that a "design and build" type contract between HKG and MCL was the most appropriate way to proceed. However, he also noted that in preparing such a contract, it would be very difficult to ensure that HKG maintained adequate control over all aspects. He therefore proposed that, instead of one overall "design and build" type contract, the contractual arrangements between HKG and MCL should be broken down into two consultancy agreements and a number of works contracts. The consultancy agreements, between HKG and MCL, would be agreements (1) for the preliminary report and design/contract stages for the formation of the land; and (2) for the preliminary report and design/contract stages for the provision of the engineering infrastructure. The consultancy agreement for formation of the land would generally follow the standard government format. Since MCL were not registered consulting engineers in their own right, special conditions would have to be written into the agreement to require them to engage such consulting engineers. The normal procedure for obtaining a technical presentation from MCL would be followed and EACSB approval would be sought for negotiating fees with them. Such fees would be based on HKG's approved schedule of fees, but would include for MCL's own "on-cost" and profit. Thereafter, final approval of EACSB would be sought and a formal agreement between HKG and MCL entered into. Since it was expected that fill material for the formation of the land would be obtained by deep dredging in Deep Bay and pumping direct at the site, such work would have to be carried out by specialist international contractors with experience in this type of work on large scale projects. It was therefore suggested that, when the design stage was adequately advanced, MCL be required to invite applications for prequalification of tenderers. In preparing contract documents, MCL would be required to use the latest edition of the standard Government Conditions of Contract for Civil Engineering Construction, appropriately adapted, so that MCL was the client in place of HKG. The guidelines dealt with a large number of ancillary matters. (They were a very thorough and, in my judgment, reasonable set of guidelines for the implementation of the project.)

133. On 4th June 1983, Mr Betteley reported to Mr Chien that all the site work within Deep Bay had been completed. He said that the completion of the investigation assured him that adequate quantities of suitable filling material was present under Deep Bay but that MCL had yet to determine suitable methods of extraction and costs to assess viability. He added that, subject to cost estimates for reclamation being favourable, further boreholes would be required to positively identify the thickest/most convenient part of areas, and thereafter more boreholes within a selected borrow area, to remove all possible doubt as to the quantity and nature of the filling material. He said that the preparation of the report on the investigation was proceeding satisfactorily. (It was, in fact, finally produced on 9th August 1983.)

134. Also on 4th June 1983, FB, in dealing with a memorandum about the creation of further posts for the Tin Shui Wai development, recognised that there was an imminent need to ensure that HKG's interests in the development were not adversely affected and that the project was not delayed; accordingly, the officer concerned, with some reluctance, supported the proposal which had been made for the creation of a Chief Engineer post for the project.

135. On 8th June 1983, PWSC decided to recommend to FC the upgrading of the "Tin Shui Wai Development - Design and Investigation" item to Category A at an estimated cost of $100m and to retain the remainder of the item in Category B and retitle it "Tin Shui Wai Development - Works". One of the members, at the meeting, asked whether it would not be cheaper to reclaim the land by dumping. Mr Macdonald replied that the extent of filling at Tin Shui Wai would be so great that to reclaim by this conventional method would take many years. It had been made clear to TSW that any option for reclamation they might propose would only be accepted by HKG if it represented value for money, otherwise HKG would look elsewhere for filling options.

136. On 16th June 1983, Mr Betteley wrote to Mr Chien acknowledging receipt of the draft implementation guidelines which had accompanied Mr Chien's letter of 26th 'May 1983. Mr Betteley apologised for his delay in replying. He said that MCL had carefully studied the proposals and, whilst there were some points they would like to discuss, they felt that the proposals formed a sound basis from which to jointly develop effective management and implementation procedures and, in due course, a detailed HKG/MCL contract. He said that MCL fully supported Mr Chien's view that the agreement should be approached in stages, as at this time it would be difficult to identify the full scope of work, a detailed working programme or firmer budgets until further design work on land preparation had been initiated. MCL were equally concerned regarding the establishment of systems and control that not only satisfied HKG but were also capable of refuting any criticism of extravagance or inefficiency that "cost plus" contracts sometimes attracted. He said that he recognized that developing the procedures and contract would take some time; and that, whilst this was taking place, he would urge that other critical work should be initiated to avoid further delays to the Tin Shui Wai implementation programme.

137. On 29th June 1983, FC approved the recommendation of the PWSC made on 8th June 1983 (see above).

138. On 4th July 1983, BP wrote to MCL about the implementation of preliminary works contracts and summarising the present stages of the Tin Shui Wai development programme. As to programme, they said that the programme for the development included in the revised draft MDP took account of the slippage that had occurred during the first 6 months of 1983. They said that the revised programme demonstrated that, because of the slippage that had occurred as a result of certain activities not being authorised to commence, the first occupation dates specified in the MDP brief could not be achieved. In order to minimise the effect of the slippage, the revised programme assumed that some critical activities would proceed in July/August 1983 before the MDP was finalised. This assumption had had to be made in all programmes for the project. They added that at the present time there were no indications when those critical activities would commence. They were becoming increasingly concerned that the first occupation date would slip further and that the administrative procedures to be adopted had not yet been adequately defined to enable package programmes to be finalised and staff resources estimated. They said that they had had therefore to identify the activities which appeared on the critical path to award the reclamation contract in January 1985, and which could proceed independently of all other activities, in each of the following packages : (1) SWAR; (2) TRDC; and (3) Prequalification of dredging contractors. They remarked that it was their view that the prequalified dredging contractors should witness and comment on the detailed investigation of the borrow areas to reduce the risk of subsequent claims relating to the methods, results and scope of investigation. They said that the prequalification procedures must therefore be initiated now.

139. On 6th July 1983, Mr Betteley wrote to BP thanking them for their letter of 4th July 1983 which MCL had, he said, used to support their own "pleadings" to NTDB to approve further critical design work and to employ staff to work with MCL on defining implementation procedures. He said that he shared BP's concern that critical design work had not yet been authorised and could only hope that, now financial approval had been received by NTDB, MCL would shortly receive instructions to proceed.

140. On 6th July 1983, Mr Betteley wrote a letter to Mr Chien (a copy of which he had sent to BP with his letter of the same date mentioned above). He put forward a number of points for consideration. First, he referred to HKG's commitment to TSW's implementation of the project. He stated that MCL's appraisal and subsequent proposals were based on the assumption that HKG wished to proceed with the implementation of the 7/82 Agreement and development at Tin Shui Wai at the earliest possible opportunity. If that was not the case, then MCL would like to be advised as to what timing was envisaged. Secondly, as to the 7/82 Agreement itself. Mr Betteley said that the general nature of the 7/82 Agreement did not result from any lack of desire on the part of HKG or MCL for a fully detailed contract setting out each party's benefits, liabilities, and obligations. He continued:

"At the time of drafting, it was fully recognized by lawyers for the both parties, and indeed by all participants in the negotiations, that a period of two years was likely to elapse before requirements were sufficiently defined for the detailed contracts to be prepared and negotiated.

Now, almost one year later MCL believe that two year estimate was realistic for we are still a considerable time away from a final master plan, a master layout plan, gazetting of new town plan, resumption areas, dates for land clearance, programme, etc. all essential information to any properly drafted and detailed HKG/MCL implementation contract.

The 1982 Agreement anticipated these difficulties and provided for them to be largely overcome by the adoption of a cost plus method of reimbursement for the several implementation contracts to be drafted.

We believe this cost plus method of reimbursement remains an authorised and valid basis for proceeding with any work required on Tin Shui Wai and to obtain the information needed to draft such contracts."

141. As to the draft implementation guidelines, Mr Betteley said that whilst MCL welcomed their receipt and were enthusiastic to pursue them with NTDB, MCL did not believe this task could be completed quickly in view of the lack of detailed project information to which he-had referred. In addition, he said, HKG had to decide the extent and level of participation of its own staff, and through which channels their input was to be co-ordinated, so that MCL could fill the remaining staff functions. He referred to the management systems plan which MCL had prepared in connection with the larger development originally envisaged, and said that the very nature of the proposed cost plus contracts dictated that MCL's every activity in implementing the 7/82 Agreement was fully accountable to HKG. He said that to achieve this, procedures, contract conditions, etc. must be defined from the outset in a management systems plan or similar document. He made proposals for the allocation of staff, and he made further reference to critical design work. He said that at that time there existed several design tasks, the completion of which were regarded as critical if further slippages of programme were to be minimised. He identified those design tasks as (1) the preparation of tender documents for site investigation for the SWAR and TRDC; (2) the design of the SWAR; (3) the design of the TRDC, and (4) the prequalification of dredging contractors. He said that none of the design work was seen as being dependent upon the adoption of the MDP as it would be equally essential if the concern was solely with the earliest provision of a reclaimed land area. He said that BP had presented their own case in the letter of 4th July 1983 and that MCL fully supported their submission. He said that MCL believed that BP should be instructed to proceed with that work on a time cost or other established basis of reimbursement acceptable to HKG. If considered necessary, the amount so expended and reimbursed for the work could be regarded as deductible from any overall percentage fee that might be agreed for further consultancy design work. He said that MCL would supervise the work and accept responsibility for the output, leaving the matter of reimbursement to be resolved under the implementation contract terms which were still subject to agreement. He said that MCL believed that this approach to implementation of the development at Tin Shui Wai would be the most cost effective and would enable the most timely start to be made on active construction work when HKG was ready to proceed. He said that MCL had given very serious consideration and deep thought to virtually all matters relating to the development; and the accruing interest charges in excess of $400,000 per day that MCL had incurred over a prolonged period had conditioned it to take decisions promptly and authorise any necessary work that would save time or result in a better level of control of the work.

(Save for one point, the suggestions made by Mr Betteley in his letter seem to me to be reasonable. The one point about which I have some doubt is the suggestion that none of the design work proposed was dependent upon the adoption of the MDP as it would be equally essential if the concern was solely with the earliest provision of a reclaimed land area. The object of the 7/82 Agreement was not to produce a reclaimed land area as an end in itself. It was to produce a new town at Tin Shui Wai, for the purposes of which land would need to be reclaimed. There is much to be said for planning and engineering proceeding together; but if one is to provide a constraint on the other, then it seems to me that the engineering would have to proceed subject to planning constraints, and not the other way around.)

142. On 7th July 1983, Mr Holmes of CEP wrote a memorandum about the draft MDP. He said it was disappointing to find that a planning study for a development of this magnitude had not incorporated a comprehensive assessment of the interaction between the development and its environment and that an EIA ought to be carried out at the earliest stage in planning. He said that EPA had fundamental reservations about the proposed MDP and that it was a matter for considerable regret that short cuts taken in the matter of consultation at the start of the project appeared to have resulted in a thoroughly unsatisfactory plan. (It is clear that Mr Holmes was piqued by what had happened; but what had happened had been prompted by HKG's determination to get on with the project.)

143. On 8th July 1983, Mr Betteley wrote to BP inviting BP's opinion as to the best approach to handling an environment impact study for Tin Shui Wai and as to what should be the scope of such a study. Mr Betteley said it was his belief that an effective and beneficial study could be carried out without causing delay to the project. He added "we think the starting attitudes are crucial to success as we see no prospect of anyone paying interest charges of $400,000 per day whilst completion of a protracted environmental impact study is awaited".

144. Also on 8th July 1983, Mr Betteley wrote to BP about the critical design work. Mr Betteley said that the minimum time the HKG approval procedures would take would be 6 to 8 weeks and that MCL regarded this as a realistic and acceptable period. In anticipation of such a formal approval, MCL felt obligated under the terms of the 7/82 Agreement to instruct BP to proceed with this work commencing immediately. It was necessary to prepare tender documents for site investigation for the SWAB and the TRDC and for the design of those works. In connection with the land reclamation tender, it was required to prequalify dredging contractors and obtain preliminary method assessments. (All this was in anticipation of a successful conclusion of the negotiations for the Clause 11 contracts.)

145. On 11th July 1983, Mr Chien wrote to Mr Betteley about the implementation guidelines and the further work proposed. Mr Chien told Mr Betteley that HKG had indicated its wish to programme the Tin Shui Wai development in order that occupation of first public housing at Tin Shui Wai should commence as early as possible in 1989. That timing was only subject to the feasibility of procuring and assembling the necessary resources to design and execute the works within the required time scale. He said that the provision of finance for public housing related projects was accorded a high priority within HKG and that this project was expected to receive a similar order of priority as that accorded other new towns where public housing was a major element. He noted that items had been created in the PWP (1) for the preparation of the MDP; and for site investigations; (2) for a Tin Shui Wai development - parent item; and (3) for Tin Shui Wai development - design and investigation; and that an application was in hand for the creation of a separate item in Category AB for consideration at the August meeting of PWSC, entitled "Tin Shui Wai development, Package III, Part I - Construction Access and Initial Drainage Works". He noted that this work had proceeded with the agreement of MCL on the basis that the most appropriate method of progressing the project was by using existing HKG procedures as far as was possible.

146. As to the draft implementation guidelines, Mr Chien said that HKG had been conscious of the need to reach agreement with MCL on the more detailed aspects of the joint implementation of the project and to this end had produced the draft implementation guidelines. Mr Chien said he recognized that the guidelines served only as a starting point for more detailed discussion and that considerable further discussion would be required before final agreement was reached on procedures and lines of communication.

147. As to approval for the initiation of critical design work, Mr Chien said that in the meantime it was recongized that, in order to avoid further slippage on initial detailed investigation and design tasks, work should proceed as quickly as possible on certain items as discussed. He said he was therefore preparing a submission to EACSB for permission to extend the present consultancy agreement, for investigations for fill material, to enable work to continue on investigation and design for the SWAR; for a works area for the site formation contract; for the TRDC; and also for initial work on prequalification of dredging contractors. He said that as soon as he had received authority from EACSB, which should be in a short time (2 or 3 weeks), he would be in a position to negotiate an extension to the present agreement. He pointed out that until an extension to the agreement had been authorised by EACSB and the funds confirmed by FB, he was not in a position to authorise any additional work. However, he said that those necessary steps were being taken as quickly as possible.

(This approach to the matter was, in my judgment, entirely reasonable. It was dictated by a need to save time; and bolting on this additional work to an existing consultancy agreement was a sensible way to achieve that object. It might have been possible and maybe even better to subsume all this activity under a new contract with the consultants for the entire land formation design work; but without further information that would have been difficult and, in any event, would be likely-to have taken more time.)

148. On 12th July 1983, Mr Chien submitted a draft paper for the upgrading to Category AB of part of the "parent" item for Tin Shui Wai as a separate item entitled "Tin Shui Wai Development, Package 3 Part I - construction access and initial drainage".

149. On 13th July 1983, BP submitted to GE(NT) a proposed draft outline brief for the critical design work for the SWAR and works area and the TRDC and also for input to the implementation of procedures for prequalifying dredging contractors. The draft brief suggested that the TRDC needed to be constructed early. (Mr Betteley told me in evidence that he did not agree with this advice. He took a similar view about the SWAR. His view was, as I understood him, that the better course would have been for HKG to have commissioned the entire land formation design under which these items would be subsumed, as I have said. I am inclined to agree with Mr Betteley; but in all the circumstances BP's approach was perhaps more realistic.)

150. On 14th July 1983, at an HKG internal meeting, Mr Holmes reiterated EPA's general concerns over the need for a comprehensive EIA of the entire project before irreversible planning and engineering commitments were entered into. Mr Orange noted that the object of the meeting was to arrive at a solution for the environmental aspects of the Tin Shui Wai study as soon as possible and that the available options were constrained to a degree by the 7/82 Agreement. It was concluded that in view of the time constraints and the volume and magnitude of the decisions already taken in respect of the Tin Shui Wai development, a full EIA of the whole development proposal was not possible, and that the EIA study would, of necessity, thus focus on the impacts associated with marine borrowing proposals, the impacts on Deep Bay and environs, and the land fill process. It would essentially be a scoping exercise to identify those areas where an impact could be expected and then, with more detailed study, to propose measures to minimise or reduce those adverse impacts. Mr Orange said that because the commencement of the site formation was a critical event on the development programme and was set at the beginning of 1985, it was necessary to settle the environmental issues as quickly as possible.

151. On 15th July 1983, Mr Chan submitted to the Secretary, PWPC, a paper for consideration of PWPC at the next meeting (in fact, it was circulated and approved by 2nd August 1983) containing a recommendation to PWSC for upgrading to Category AB of the item "Tin Shui Wai Development - Works". He remarked that, in June 1983, FC had approved the upgrading of part of the item to Category A for detailed investigation and design and that it was now necessary for preliminary site works to be undertaken. As a pre-requisite it was necessary for a part of the item to be upgraded to Category AB in order that it might be considered for upgrading to Category A at the Annual Review. The submission was supported on the understanding that funds would be available outside the provisional financial guidelines (it was an injection not allowed for originally in the year under review). The paper made it clear that in order to meet proposed targets for occupation of the first public housing at Tin Shui Wai by mid 1989, it would be necessary to start certain preliminary works not later than 1984/85 in order to avoid any delays or disruption to the main site reclamation contract which was planned to commence in early April 1985/86 (these preliminary works were the TRDC, the SWAR and the works area).

152. On 20th July 1983, Mr Chien submitted to EASCB a paper for circulation, seeking urgent approval to negotiate with MCL for additional work. He recorded that, following the 7/82 Agreement, work had proceeded on two consultancy agreements, for the preparation of the MDP and for engineering investigations for fill material. He mentioned that at the same time work had continued within HKG to reach a decision on how best to implement the terms of the agreement requiring HKG and MCL to enter into contracts to procure fill, form the land and provide infrastructure for the development. He referred to the guidelines which had been prepared and which had been accepted on 24th May 1983. He remarked that, under the guidelines, it was proposed that MCL would act as consultants to HKG for the investigation and design of the site formation and that they would be required to employ suitable engineering consultants. Further discussions with MCL, he said, revealed that considerable work was still required in detailing the responsibilities and relationships between HKG and MCL and that staff was not yet available within HKG to carry out the work. He remarked that in the meantime, if the target programme set for production of the first public housing was to be met, it was essential that certain design and investigation tasks should be proceeded with now. He explained those tasks as follows. In order to provide the first parcel of land for building of public housing by the target date, the main site formation contract would have to start by the beginning of 1985. It would be necessary to start on prequalification of dredging contractors in the near future (he remarked that authority to prequalify would be sought separately). In addition, it would be necessary to construct an access road to the site (the SWAR), prepare a works area, and carry out diversion works to the Tai River (the TRDC) in advance of the main site formation contract. He said that investigation and design and preparation of tender documents for these works items needed to be carried out now in order to keep to the overall project timetable. He therefore proposed that those tasks be carried out as an extension to the existing agreement for engineering investigations for fill material. (The proposal was circulated on 27th July 1983 and duly approved.)

153. On 5th August 1983, Mr Chien wrote to Mr Betteley to tell him that approval had been given by EACSB for him to enter into negotiations with MCL for the additional work.

154. On 10th August 1983, PWSC approved the upgrading to Category AB of the items "Tin Shui Wai Development - construction access and initial drainage".

155. On 11th August 1983, Mr Brownlee sent to Mr Orange a draft paper about the MDP for consideration by the Development Progress Committee ("DPC") dealing with Tin Shui Wai. In this paper, Mr Brownlee noted (among other things) that at that stage it was possible to conclude that HKG was currently not sufficiently well organised to guarantee that the critical activities could be successfully completed on time. Sufficient staff were not available within NTDD, he said, to enable adequate management of further consultancy work. He also mentioned that it was necessary to finalise the formal contractual arrangements with MCL regarding the management of the project. Initial discussions had been carried out, but those needed to be formally completed before any additional contracts were signed. Considerable government staff time would be required to complete the process and to commence preparation of the forthcoming contract documentation. (Mr Chien told me in evidence that this was accurate; but that the possibility of redeploying staff to the TSW project had not been taken into account.) The programme contained in the MDP was described as "realistic but very tight".

156. On 19th August 1983, Mr Chan (now SLW) wrote a memo to Mr Chien referring to the draft paper prepared by Mr Brownlee and in particular to the outline development programme outlined in Chapter 9 of the MDP. The draft paper had referred to this "as a basis for future work". He said that for reasons relating to staff and in view of the present financial climate, there was a need to be extremely circumspect about making such a commitment. He added that nevertheless, provided it was agreed that the outline development programme was to be used as a guide for future work rather than the basis, he thought it would be practicable to look at the Tin Shui Wai project in the context of a slightly more realistic time scale, with expenditure and commitments phased over a longer period. (Mr Chan told me in evidence that this was intended to refer to the possible reclamation of the initial development zone only, rather than the whole 488 hectares.) The memorandum continued by pointing out that if a decision was made to proceed (presumably, in accordance with the recommendations mentioned in the draft paper) there would be at least a further year's work to be undertaken on planning, design, preparation of documents and gazette or-procedures. One of the first big commitments would be the site formation. He noted that the cost estimates referred to in the MDP were based on a unit cost of fill of $35 per cu.m. (excluding royalties) and that if a suitable type and quantity of fill could be obtained from Deep Bay, this could be reduced to around $15 per cu.m. As about 30m. cu.m. of fill was required, that potential saving in cost was significant and could influence a decision on whether or not to proceed with all or only part of the formation.

157. On 22nd August 1983, Mr C.R. Saunders, Deputy Secretary (Works), informed Mr Chan that the results of the Deep Bay investigation were promising as regards availability but that the bad news was that the estimated cost of the placed fill was still $28 to $32 per cu.m. exclusive of royalties or compensation.

158. On 23rd August 1983, there was a meeting at which Mr Chien, Mr Betteley, and representatives of SCP and BP were present. Mr Chien introduced the draft DPC paper by noting that approval of the MDP was the crucial item necessary to allow the further progression of planning and engineering works. He mentioned that further approvals had recently been obtained within HKG to advance the implementation of the project. A Category A item in the PWP had recently been approved by Finance Branch for site investigation and engineering design and the item for the SWAB and TRDC had been upgraded to Category AB. It was therefore clear that the finalisation of the MDP was essential for the detailed design of the project. (Mr Chien told me in evidence that he did not recall anyone objecting to this statement.) Mr Betteley mentioned, in relation to fill, that it was considered beneficial to competitive tender prices to keep all the fill source options open as long as possible. Mr Holmes stated, as to the EIA, that EPA's view was that a full and comprehensive EIA study should have been done earlier in the development assessment but agreed that the position now reached made a more limited EIA appropriate.

159. On 7th September 1983, Mr Betteley wrote to Mr Chien mentioning that he had received the draft brief for the EIA issued by the EPA (on 23rd August 1983). He said MCL had carefully studied the brief and fully supported the proposal for such an EIA. MCL believed it would prove to be of considerable benefit both to the parties likely to be affected by the land preparation operations and to those involved with this implementation. He added that everybody was aware that there was a very limited period in which a meaningful EIA could be carried out if the results obtained were to be available for incorporation in the first contract documents. Mr Betteley said that time was therefore of the essence and approval to proceed must be given on an urgent/priority basis. He said that MCL was therefore prepared to support this assessment in every possible way.

160. On 8th September 1983, the DPC considered the latest version of the MDP and the accompanying written statement. In the course of the discussion, Mr Chan said that he wished to see the justification for the industrial provision made in the revised MDP (the MDP had provided in accordance with HKG policy for what is known as "balanced development" in Tin Shui Wai by allocating some land for industrial use within the initial development zone, thus expanding its area from the 169 hectares originally contemplated to 228 hectares, but with the proviso that this might be changed if the planned demand for industrial land did not materialise). It was pointed out that the original intention was for Tin Shui Wai to depend on Yuen Long for job opportunities, given the proximity of the YLIE. Mr Chan also pointed out that significant changes might be introduced at subsequent detailed design and planning stages. The DPC decided to endorse the revised MDP as a suitable basis for further detailed planning and design; and accepted the proposed development programme in principle "as a basis for future work". (This version of the MDP was subsequently printed, and dated October 1983. But it was not signed or approved by Mr Chan as the final version, and it has no contractual significance, although MCL has attempted to treat it as if it had.)

161. On 26th September 1983, Mr Chien wrote a memorandum to the District Lands Officer/Yuen Long ("DLO/YL") on the subject of construction access and initial drainage for the Tin Shui Wai development. He was concerned about resumption and clearance. He mentioned that although parts of the area would eventually be required for the construction of roads, initially, the land was required primarily for construction purposes, such as construction access, works area and drainage diversions. He said that, for these reasons, it was considered more appropriate to proceed initially under the Crown Lands Resumption Ordinance, Cap.124 ("CLRO") but that a scheme would be drawn up under the Roads (Works, Use and Compensation) Ordinance, Cap.370 ("RWUCO") proposing the creation of new roads when more detailed planning and design information was available. (This was to become an important matter, because the procedure under CLRO for the resumption of land is a shorter procedure requiring less detailed work than resumption under the RWUCO. If it could be achieved, therefore, the proposal made by Mr Chien was a sensible one for the purpose of moving the project forward. Mr Betteley accepted in evidence that this was so; but unfortunately, a late objection to the works frustrated this proposal and delayed a start on the SWAR.)

162. On 27th September 1983, Mr Churchouse (of SCP) wrote to Mr Chien, to tell him that, in finalising the MDP, SCP would like to bring to Mr Chien's attention the critical nature of the development programme. He said that the programme outlined in the MDP was considered realistic to achieve HKG's required occupation dates but did depend on certain key tasks being initiated very quickly. In particular, he noted that, to meet the programme, the land formation contract needed to be awarded by January 1985. Prior to this, a number of other critical tasks needed to be undertaken; and he instanced land clearance and resumption procedures; design and construction of the SWAB; design and construction of the TRDC; site investigation of dredging areas; site layout plans and detailed design; and (most importantly) the design of the reclamation. He said that all these tasks needed to be commenced now or in the very near future if the development programme and occupation dates were not to be jeopardised. It was the view of SCP that this work could and should be started before presentation of the final MDP. He offered any support Mr Chien might require to start these tasks.

163. On 30th September 1983, EACSB approved the proposed extension of MCL's consultancy in relation to the SWAR and TRDC, and the prequalification of dredging contractors.

164. On 6th October 1983, Mr Orange, in a memorandum to DLO/YL, indicated that it was intended that tender procedures for the TRDC work would commence in February 1984 with a contract start date in April 1984. He said that the access road and works area would not go to tender until April 1984 with a proposed contract start date of June/July 1984. He said that these timings were necessary to meet the programme approved in the MDP report. (Mr Chien told me in evidence that this programme was accepted as the basis on which to work.)

165. On 8th October 1983, Mr Chien wrote a memorandum to Mr Newman about the source of fill and the EIA. Mr Chien said that options then under consideration in respect of the source of fill material for Tin Shui Wai were either using dredged material from Deep Bay or from the Pearl River estuary. No suitable land based source of fill had become apparent and Deep Bay was the most favoured source in terms of direct engineering cost. He said that steps were in hand for the execution of a consultancy agreement with MCL for carrying out an EIA. In parallel with the EIA, he said, a prequalification exercise would be carried out with the two-fold purpose of preparing a list of suitable contractors for the work and also for defining, and if necessary, narrowing down the range of options for source, and fill method, as much as possible. Those two exercises would proceed together and the EIA was dependent on input from the prequalification exercise. Partly for this reason and partly because of their Chinese connections, it was proposed to have MCL (using BP as sub-consultants) carry out the EIA, which was hoped would commence before the end of November 1983. The EIA would be divided into 2 parts, the first part of which would include submission of an initial assessment report (IAR), developing a model for the second, evaluation, stage, and was expected to take about 2 months from commencement of the study. The IAR would, among other things, describe the major feasible options for the dredging and associated filling operations and would describe the key elements of the community and environment likely to be affected by the various options.

166. On 21st October 1983, Mr A.R. Crosby, of the Housing Department, wrote a memorandum concerning clearance at Tin Shui Wai, in which he expressed his concern that if the site was not cleared by January 1985, there might be delay, and a possible legal claim against HKG for financial loss. He said "we are dealing with an unusual case of a developer already appointed before clearance and one who has a legal agreement with [HKG] to be allowed to develop a certain amount of private residential and commercial property by a certain timetable". (Mr Chien told me in evidence that he was very surprised by this and that he thought Mr Crosby should have known better. Mr Orange told me in evidence that, so far as he was concerned, there was no such "certain timetable":)

167. On 27th October 1983, Mr Chien wrote a memorandum to Mr Newman about the programme and manpower resources for the Tin Shui Wai development. He wrote that the impetus in respect of the project and flexibility to the programme was not entirely in the department's hands. He mentioned that the original agreement with MCL stated that development would be in accordance with a phasing plan which might be varied from time to time by mutual agreement. He added that a development programme had been included in the MDP, and that it was clear that MCL had accepted that as the "phasing plan" and had geared itself to the MDP programme. It was applying constant pressure on Mr Chien's office to maintain the necessary impetus to meet that programme. It was in fact undertaking certain activities (at its own risk) in assuming approvals in advance of HKG action. That, by itself, was a problem for MCL but it did set dangerous precedents and put unacceptable pressure on NTDB. He said that MCL had demonstrated a willingness to proceed in accordance with the stated programme which was only matched by Mr Betteley's ignorance of the constraints imposed by HKG's acounting and control procedures and the inadequacy of manpower resources.

168. Mr Chien said that it was possible to separate out the necessary work by HKG into separate streams, which should be proceeding in parallel and which should come together in time for the letting of the first works contract in early 1984.

169. On the one hand, the normal project management work should be proceeding, covering detailed planning, progressing various items through the PWP, ensuring the timely provision of necessary finance, progressing initial consultancy agreements covering detailed planning investigation, design and environmental impact studies, initiating clearance and resumption procedures as well as procedures for compliance with other ordinances as required.

170. In addition to that, a second work stream was required to provide detailed information on the overall management and procedures to be followed by both parties in the project. This work had been commenced with the production of the draft guidelines for management of the Tin Shui Wai project, but a considerable amount of detailed work was necessary, before the first works contract came to the tender stage, to settle such points as how the contracts were going to be drawn up; detailed procedure for tender, checking and acceptance; general conditions for the main site formation contract; details of procedure for supervision, quality control and technical audit; and a basis for negotiating MCL's "on-costs".

171. Mr Chien pointed out that at present there was only one Senior Engineer available full time on normal project management together with a Town Planner who had been borrowed from other projects. This was insufficient to ensure that normal project management could proceed in timely fashion. No staff at all were available to consider overall management procedures and virtually no work had been carried out on that aspect since consideration of the draft guidelines at the meeting on 24th May 1983.

172. Mr Chien mentioned that the MDP report had been completed and an initial investigation into sources of marine fill had been completed. He pointed out that the main Tin Shui Wai development item, the parent item, was in Category B; design and investigation in Category A; and Package 3 - Part I, construction access and initial drainage, was in Category AB. A consultancy agreement had been signed with MCL for design of the SWAR and TRDC. That work was already in hand and briefs had been prepared for a consultancy agreement for the EIA and for the detailed planning. In addition, steps were already in hand for prequalification of tenderers for the site formation contract. Clearance and resumption procedures had also commenced.

173. In summary, Mr Chien said, a certain momentum had been built up leading towards the production of tender documents for two works contracts (that is to say, the SWAR and TRDC) early in 1984, and anticipating the commencement of the consultancy agreement for design of the main site formation works, also by early 1984: That was all based on acceptance of the works programme set out in the MDP. There was, he said, insufficient staff available now to deal satisfactorily with the work already being generated by the present project momentum. But, more importantly, unless staff were allocated now to deal with the overall management procedures and in particular, the methods for dealing with the works contracts, the project would grind to a halt in early 1984. To avoid the latter happening, he suggested that an experienced senior officer be deployed immediately to undertake this task. In that respect it would be desirable if a Senior Engineer post could be created to accommodate that person. That request was in addition to any previous requests made in regard to non-directorate posts and was intended to act as a stop-gap measure pending the creation, among others, of a Chief Engineer post for Tin Shui Wai.

(Mr Orange told me in evidence that the problems mentioned in this memorandum were resolved by reallocation of duties within NTDB; and I accept his evidence. Mr Chien told me in evidence that he was short of staff; but that their ordering was his prerogative. I find that the problems were real; but that Mr Chien did all he could reasonably be expected to do to overcome them and to keep the project moving forward.)

174. On 3rd November 1983, Mr Orange replied to SCP's letter of 27th September 1983. After mentioning that SCP had referred to a number of critical tasks which needed to be carried out in advance of the award of the land formation contract, he stated that the department was conscious of the need to maintain the necessary momentum for the Tin Shui Wai project and in fact work was under way or in an advanced planning stage for most of the items on the list.

(I find that this accurately reflects the position. HKG was conscious of the need to maintain the necessary momentum for the project, although it did not consider itself bound to the timetable to which MCL/TSW and its sub-consultants considered that HKG should be working.)

on 4th November 1983, Mr Chien wrote to Mr Betteley to inform him that approval had been given by EACSB for Mr Chien to enter into negotiations with MCL for an extension to its consultancy to cover the EIA. Mr Chien enclosed a draft supplementary brief for this, which noted that the development programme for Tin Shui Wai was outlined in the MDP, and that the programme necessitated that a dredging contract be awarded early in 1985. It noted that to provide sufficient lead time for the findings of the EIA to be incorporated in the dredging contract, recommendations were required by the middle of 1984; and that therefore, to fulfil its purpose, the EIA had to be completed within that time frame. The purpose of the EIA was said to be to provide information on the proposed development at Tin Shui Wai in relation to the nature and extent of environmental impacts of the dredging and associated filling operation, which would be 1 required to enable decisions to be made on the selection of dredging and associated filling methods; the conditions to be placed on dredging and associated filling methods; and any environmental control measures that might be required; and the acceptability of any environmental consequences likely to result from the dredging and associated filling operations. The assessment was to consist of an initial assessment report; and an evaluation report; and a summary report highlighting the major aspects of the study.

175. On the same day, 4th November 1983, Mr Chien wrote to Mr Betteley to inform him that authority had been given by CTB for the prequalification of dredging contractors. (Mr Betteley said in evidence that this could and should have been done in August 1982. That, as I understand it, was on the basis that by then a consultancy covering the whole of the land formation design ought to have been in place. That might have happened, if MCL had been solely responsible for the project; but this was not what was provided for by the 7/82 Agreement.)

176. On 17th November 1983, Mr Betteley wrote to Mr Chien about the EIA, stating that MCL felt the work was extemely important in helping to determine what conditions and restraints should be applied to the dredging and land reclamation contract. He noted that the cost of the work was considerable, but that MCL believed that it was fully justified in relation to the multimillion dollar dredging contract that might be brought to a halt by lack of consideration of the effects of the operations on the environment.

177. On 9th December 1983, Mr Brownlee wrote a memorandum to DLO/YL initiating preparation of the conditions of grant for the 38.8 hectares to be regranted to MCL/TSW under the 7/82 Agreement.

178. On 16th December 1983, Mr Betteley wrote to Mr Chien stating that MCL was now in a position to proceed with the drafting of an outline brief for the land reclamation design.

179. On 19th December 1983, Mr Orange wrote to DLO/YL asking him to implement as soon as possible all necessary procedures for the resumption of land in connection with the SWAR. (Mr Orange was here referring to CLRO, not RWUCO.)

180. On 20th December 1983, Mr Chien circulated to a wide distribution copies of the brochure for the prequalification of dredging contractors. In an accompanying memorandum, he stated that the Tin Shui Wai development programme required that site formation works should commence in April 1985; that l the detailed site investigations into potential marine borrow areas in Deep Bay should proceed early in 1984; and that it was considered prudent to allow tenderers for the dredging contract to witness and comment on those investigations. He added that the prequalification exercise would also provide much of the necessary input to the EIA recently commissioned to examine and minimise the effects of the dredging and land formation works.

181. On 21st December 1983, HKG and MCL signed the consultancy agreement for the EIA.

Also on 21st December 1983, Lands and Works Branch issued a general circular about control of expenditure on capital works. This circular explained that the CWRF was established in April 1982 with a view to removing the annuality from the Capital Works Programme. By separating expenditure on capital projects from the normal annual budget into a fund, it was recognised that for a variety of reasons a project might go slower or quicker than anticipated and that in consequence the financial controls employed to regulate capital works expenditure were different from those applied to current expenditure and were based on the approval of start dates and total estimated costs for individual projects. The circular explained that the intention expressed in paragraph 26 of Circular 16/82 was that, once a project was upgraded to Category A, work would start on it as soon as possible, but in any case within 18 months. Having once upgraded a project to Category A, and obtained approval of a start date from the Project Steering Group, commitment existed within the approved project estimate to provide all the funds required for its completion in accordance with the approval scope as set out in the PWSC paper. Work should then proceed to ensure completion of the project as quickly as possible. It followed that, in the normal course of events, work on a project should not be slowed down, or the letting of contracts delayed, purely because the allocation shown in the CWR annual estimates appeared to be inadequate.

(I am satisfied that HKG followed this policy, and that the Tin Shui Wai project was never delayed for want of commitment of money for work ready to proceed.)

182. On 10th January 1984, DLO/YL sent to Mr Chien a memorandum in which he suggested that it was not entirely realistic to assume that the land acquisition procedures for the SWAR would be completed by the end of June 1984. He added that he could not find any justification that RWUCO was not to apply in the case. If it did, additional time would have to be allowed for more lengthy and complex procedures.

183. On 24th January 1984, Mr Betteley wrote to Mr Chien about the Clause 11 contracts. Mr Betteley said that the work undertaken since the 7/82 Agreement under HKG's direction had given a more realistic picture of what form the implementation contract should take. He said that MCL, like HKG, had a substantial vested interest in seeing the Tin Shui Wai land tansformed into a commercially viable and successful new town, and that MCL would do everything possible to work for HKG and with HKG to achieve this.

184. On 25th January 1984, there was a meeting between the parties to discuss the relationship between MCL and HKG for implementation of the engineering works for the Tin Shui Wai development. Mr Betteley's note of the meeting referred. to MCL's proposal that a firm commitment to the work mentioned in the MDP was proposed 2 years in advance. But at the meeting there was considerable discussion on what constituted a firm commitment. It was explained (as Mr Betteley's note made clear) that HKG's degree of commitment to works items was not clearly defined in single project terms. Nor did commitment to any part, for example investigation and design, automatically infer full financial commitment to any or all works items. It was agreed that this should be further examined, in the light of existing HKG practice. MCL also requested a 2 year advance commitment to what it termed "the Master Programme". But the response was that the Master Programme would be a statement of intent. HKG could not under existing procedures be totally committed to such a programme.

185. On 30th January 1984, am internal HKG information note referred to the investigations at Deep Bay and the Pearl River estuary and remarked that, although the possibility of having to revert to land sources had not been entirely ruled out, that would necessitate re-examination of available sources in greater detail and a reappraisal of the construction programme.

186. On 8th February 1984, Mr Betteley wrote to Mr Chien about the land formation design, saying that for the reclamation to proceed by the date then proposed (April 1985) it would be necessary to have completed previously various items of land reclamation design work and that the design and consultancy work should be undertaken by BP. A draft brief for the proposed work was appended for consideration and comment. In preparing it, Mr Betteley said, MCL had endeavoured to prepare a "package" of essential work only and one which did not involve NTDB in long-term commitments. The brief proceeded on the basis that marine fill would be used for the reclamation, as that was likely to be cheaper than other sources and, incidentally, better suited for placement on the weak foundation materials which underlay the development site. It mentioned that previous investigations had shown that fill material would be available from borrow areas in Deep Bay and from Kongsu Bank and Nei Ling Ting Bank in the Pearl River estuary, but that the extent of those borrow areas and the quality of the fill material available needed to be proven by further more detailed investigations. It mentioned the preliminary works which needed to be constructed prior to the start of the main dredging and land formation contract. It said that these were currently being designed, and would be constructed under separate contracts. It identified those contracts as contracts for the SWAR; the works area for the dredging and land formation contract; and the TRDC. It mentioned that the design of the dredging and land formation contract and further investigations into the possible borrow areas needed to proceed urgently to meet the requirements of the MDP. Construction was programmed to commence in April 1985. The dredging and land formation contract was critical to the development programme and any delay in the contract would cause a delay in first occupation. As to marine fill, it mentioned that the report on fill material investigations in Deep Bay led to the conclusion that there were 4 areas in Deep Bay which might prove suitable as borrow areas. The 2 borrow areas in the Pearl River estuary (Kongsu Bank and Nei Ling Ting Bank) were both located in waters controlled by the PRC and the borrow areas in Deep Bay were located in waters between Hong Kong and the PRC, parts of which were claimed by the PRC. In addition, all the borrow areas might be environmentally sensitive. Negotiations with PRC authorities regarding permissions and royalty payments would be carried out by MCL, and in order that those negotiations might be completed before award, selection and preliminary design of the borrow areas needed to proceed urgently. The brief mentioned that prequalification of contractors for the land formation contract had been undertaken under a separate agreement and that, as part of their prequalification submissions, contractors had submitted method statements indicating their proposed method of extracting material from the borrow areas and their preferred area or areas. (As we shall see, the brief was later amended to indicate that further studies would be required to assess the feasibility of providing land based fill from Hong Kong in order to provide a cost comparison with marine fill and with land based fill from PRC.)

187. On 16th February 1984, Mr Betteley wrote to Mr Chien about the SWAR. Mr Betteley mentioned that there had been a delay in commencement of the work; but noted that the works area was being incorporated in the TRDC works contract.

188. On 22nd February 1984, Mr Betteley wrote to Collier Petty ("CP"), MCL/TSW's own land agent, dealing with the implementation contract proposals. (His letter included some-comments about the 7/82 Agreement which, in my judgment, are important as indicating TSW's understanding of that agreement. Mr Betteley said of the 7/82 Agreement that "it took the form it did because HKG wanted full control to proceed at whatever speed and to what extent it could afford" [emphasis added]; MCL wanted to proceed at whatever speed was commercially viable, but MCL could also disengage from the agreement totally or partially at any time (except in Clause 11); the plan was not defined or committed; "the programme was not defined or committed" [emphasis added]; and that to define the contract in detail would have caused a major delay.) As to Clause 11, Mr Betteley stated that it related to all the work described, and that if MCL were to enter into to a series of separate design and construction contracts for pieces and packages of work (as the guidelines proposed), that would be undermining the total and continuing nature of the Clause 11 provisions which were very much to MCL's advantage.

189. Also on 22nd February 1984, there was a meeting between the parties at which Mr Orange is reported to have stated that although work on the draft brief for the land formation design had started, the main contract consultancy for the land formation design would not start until after 1st April 1984 "due to financial reasons". (Mr Orange told me in evidence that he did not accept this note of what he had said. He did accept that, as the note records, he stressed that until HKG's contract with MCL was agreed and signed, the work and design sub-contracts could not be commenced.)

190. On 25th February 1984, Mr Betteley wrote to Mr Chien about (among other things) the implementation of the engineering works. He enclosed what he called the "framework" of a memorandum /contract in this connection Paragraph 1.3 of this read as follows:-

"1.3 The [MDP] and programme represent the anticipated nature of the work but it is without a long-term committment by [HKG]."

In paragraph 1.4 Mr Betteley wrote:

"1.4 MCL fully appreciated this situation …”

191. On 27th February 1984, Mr Chien gave MCL authority to proceed with the evaluation phase of the EIA study.

192. On 3rd March 1984, MCL submitted the JAR, which was the first part of that study.

193. On 7th March 1984, Mr Chien authorized MCL to proceed to the design contract stage of the SWAR.

194. On 17th March 1984, Mr Betteley prepared a position paper about the implementation contract conditions. Mr Betteley thought that this was required because after a prolonged period of inactivity, NTDB were now in a considerable hurry to agree contract terms. (Mr Orange told me in evidence that the implementation contract was wanted in time for the commencement of the preliminary engineering works; he denied the charge of inactivity, but agreed that the drafting had not proceeded very far.)

195. In the position paper Mr Betteley again made some comments which are of importance in that they shed light on MCL/TSW's understanding of the 7/82 Agreement. Mr Betteley said that the agreement was conceived on the basis that HKG could proceed with the reclamation and infrastructure virtually on an "as required" or "as funds permitted" basis and that the timing was therefore very open-ended. He said that since MCL's commitment on development did not start until fully serviced site's were made available "the speed of reclamation did not affect MCL financially". Mr Betteley mentioned that the then current proposals had been developed jointly by NTDB and MCL, key requirements being to have one HKG/MCL implementation agreement covering the entire period (whatever it might be) envisaged by the 7/82 Agreement and to use existing HKG conditions of contract which logged into established EKG procedures without which financial approvals and decisions were very difficult to obtain. It also indicated that NTDB should totally control the scope of work and expenditure.

196. On 15th March 1984, there was a meeting of PWSC, at which concern was said to have been expressed by Mr Chan about the possible cost of marine fill; and enquiries had been made about progress generally.

197. On 21st March 1984, CEP distributed the IAR.

198. On 22nd March 1984, Mr O'Rorke (now DNTD) sent to the Secretary, PWSC an information paper in the nature of a more comprehensive progress report dealing particularly with marine fill and the implementation of engineering works. The paper referred to the MDP and the programme included in it for the implementation of the project, which had been based on the need to meet a projected shortfall in the provision of public housing by the end of the decade. All subsequent action had been based on the programme in the MDP. The MDP had been prepared with the overriding consideration of the need to make public housing available over the period 1989 to 1992, and had proposed that formed land should be made available in time to meet this housing requirement. The paper noted that with these principles in mind it was considered appropriate to proceed on the basis of assuming the use of marine fill and assuming a latest start date, for the land formation process, of April 1985. It mentioned the preliminary engineering works, i.e., the SWAR and the TRDC. It mentioned, in relation to fill, that MCL in previous studies had located sufficient quantities of suitable filling material in the Pearl River estuary and that the investigation carried out in Deep Bay in the early part of 1983 had proved the existence of more than adequate quantities of suitable material in various parts of Deep Bay. It mentioned that work had already commenced on the prequalification of dredging contractors and on an EIA. It mentioned that those two exercises would provide essential input to the detailed design of the main site formation, which was expected to commence by the end of April 1985.

199. It had been necessary, the paper continued, to consider how most effectively to utilize MCL's services as envisaged by the 7/82 Agreement. It mentioned that an agreement was under preparation for a "design and build" contract for the works. In relation to source of fill, the paper mentioned that although HKG was well organized and experienced in carrying through the engineering implementation of such a project, there were certain advantages in involving MCL in the implementation, the principal advantage being the considerable role that MCL could play in the procurment of fill. Because of the shortage of land based fill in Hong Kong and the rapidly increasing constraints of consequential costs associated with its extraction and use, great reliance was being placed in the Tin Shui Wai project on being able to obtain suitable filling material-from-marine sources, which were favoured, or alternatively from a PRC land based source. Land based fill for formation of development land had become increasingly difficult and expensive to obtain, and it had therefore been of considerable advantage in respect of land formation at Tin Shui Wai to be able to consider the possibility of obtaining fill from marine sources either in Hong Kong or PRC waters or from PRC land based sources. It was considered highly likely that marine fill would be less expensive than land based fill, and would enable the desired targets for land production and public housing construction to be met. The order of preference for source of fill for the project was therefore (a) marine fill; (b) land based fill from China; (c) land based fill from Hong Kong. It was therefore proposed to proceed to the tender stage on the basis of marine fill. When tenders had been received and evaluated, the unit cost would be compared with estimated unit costs for the other two sources. Should the cost of the marine fill prove unacceptably high, it would be necessary to investigate the other sources. Such a course of action was allowed for in the agreement with MCL but a switch to land based fill could involve some delays to the programme for the provision of public housing.

200. On 22nd March 1984, CP wrote to HKG to indicate MCL's acceptance of HKG's selection of 38.8 hectares to be regranted to MCL under the 7/82 Agreement. CP asked for an initial draft of the conditions of grant.

201. On 23rd March 1984, Mr Chan sent a memorandum to Mr O'Rorke referring to the fact that the MDP included some land for industry. He pointed out that there was a surfeit of industrial land in the North West New Territories, particularly at the nearby YLIE, and said that he thought it would be prudent to exclude their provision in the initial formation contract. He said he would be grateful if Mr O'Rorke would let him know how many hectares he was contemplating to provide, and at what cost, as well as any implications of deferral. (This important memorandum was intended to be and was taken as an instruction to exclude the industrial land from the MDP.)

202. Also on 23rd March 1984, Mr Betteley wrote to Mr Chien about the implementation agreement structure. He enclosed a draft describing the services to be provided by MCL. This referred to the land reclamation and infrastructure works and added:-

"It is relevant to the extent of services to be provided at any time to note that the extent, programme [emphasis added] and expenditure on the works is entirely under the control of [HKG] and that work will only be released on an incremental basis. The rates of implementation may therefore vary and may include periods of very low or no activity."

203. On 26th March 1984 Mr Betteley wrote to Mr Chien about the design of the land reclamation, stating "time continues to slip by and we see the planned start date for reclamation approaching without the basic design work having been initiated". (Since the planned start date was then April 1985, this apprehension was justified. Mr Chien told me in evidence that he so agreed.)

204. On 27th March 1984, Mr Chan sent another memorandum to Mr O'Rorke, questioning the assumption which had been made that marine fill was less expensive than land based fill. He said that, presumably, this assumption was based on the large quantities required; the consolidation timing factor; and the fact that no monetary value had been assumed for land formed by land base borrowing. He asked Mr O'Rorke to reconsider the matter on the basis of assumptions (a) that the quantity was reduced initially, by not forming the land for industry, and by using sites formed by borrowing on land; and (b) that some deferral in timing of requirement for public housing sites might be possible through rezoning of currently empty land in Yuen Long (then zoned for industrial use). He added "This may entail major re-thinking". (This was "a completely new approach", as Mr Orange told me in evidence. But I am do not accept TSW's submission that it exhibits an intention deliberately to delay the project.)

205. On 3rd April 1984; Mr O'Rorke replied to Mr Chan's memorandum of 23rd March 1984, stating that 36.5 hectares was provided for industrial use in the MDP. He said that the cost of filling the initial development area (then 228 hectares) was estimated to be $450m; therefore on a simple pro rata basis the cost of filling an area of 36.5 hectares would be about $70m. He said that land formation could be reduced by 36 hectares by deferring formation of certain areas which he specificed. Mr Chan annotated this memorandum "good".

206. On 6th April 1984, CEP sent MCL a paper about the scope of the EIA, and a note for a meeting. The note recorded that by far the most significant impact indentified in the IAR was the possible effect on the oyster industry, primarily in Deep Bay but also possibly at Kongsu Bank. In Deep Bay, disruption to the oyster industry was expected to precipitate political and social problems which might seriously delay the project. On environmental grounds, Inner Deep Bay was the least preferred borrow area option. It should be recommended for exclusion at this stage. Outer Deep Bay remained a viable borrow area option. The scoping decisions should allow for the scenario whereby all Deep Bay options needed to be excluded. It was emphasized that the boundary of Inner and Outer Deep Bay was indefinite. It was defined by the presence or not of oyster beds. An emphasis in the evaluation stage had therefore to define more clearly those areas with oyster beds. It was recommended that Inner Deep Bay be excluded as a source of fill and that the focus should shift to Outer Deep Bay, particularly regarding the definition of areas without oysters.

207. Also 6th April 1984, Mr Churchouse (of SCP) wrote to Mr Munz of NTDB about the possible implications of deferring the reclamation work (and therefore development) in the northern part of the initial development zone (the industrial land). He stated that deferment of reclamation would imply a departure from a basic principle of the plan for the town, that of "balanced and self-contained" in employment terms. A decision to depart so significantly from the basic principles of the MDP would affect the work on which SCP was presently engaged.

208. On 7th April 1984, Mr Betteley wrote to Mr Chien about the commencement of implementation of the project. Mr Betteley said that, after some 4 years of continuous study of the development potential of Tin Shui Wai, without having built anything, MCL fully shared HKG's concern at the ever-widening areas of study that were being identified in relation to the environmental aspects of land preparation. He said that MCL saw the Tin Shui Wai situation as a $2 billion capital outlay, incurring interest charges of $500,000 each day it stood still, rather than making progress towards the objective for which the outlay was made. He said MCL believed that such a situation put a distinct limit on time for decisions. He wanted to emphasize that MCL was not in any way seeking to diminish the benefits that could be derived from the EIA. MCL believed great benefits could be derived but only if a definite direction of study was selected.

209. Mr Betteley mentioned that the analysis of the dredging prequalification data showed a 70% preference by the recommended contractors to use Deep Bay as the borrow area, and that the Deep Bay borrow area was seen as preferable to Kongsu Bank or Nei Ling Ting. He said that MCL believed that the Deep Bay borrow areas should be accepted as having already been "selected" by the dredging contractors as presenting the best potential for the lowest cost reclamation option. He also proposed that the land reclamation design should be initiated on the assumption of using Deep Bay material as filling material. If that assumption was not made, the land reclamation design would have to be repeated to reflect the design implications of using material from all three potential sources. He argued that if a decision was not taken on a preferred filling source, there would have to be 3 reclamation designs; 3 marine investigations; 3 environmental impact assessments; and 3 filling source evaluations for 10 or more tenders.

210. Mr Betteley said that if Deep Bay was adopted, it had the advantages of the greatest potential volume and the best quality material; and that no decision on an Inner or Outer Deep Bay borrow area was necessary before the marine investigation was completed. He said that if the present programme dates for the first public housing sites were to remain tenable, MCL believed its proposals must be adopted.

211. On 13th April 1984, Mr Orange wrote to Mr Betteley about the prequalification of dredging contractors, mentioning that some slippage in the date for calling tenders might occur, and that it was possible that prequalified tenderers might have to wait up to 1 year before submitting a tender. He considered that in such case it would be prudent to assume that considerably more than 30% of the prequalified tenderers might have withdrawn by the tender stage. Accordingly, he said, he would like if possible to recommend that the cut off point be taken after the first 16 contractors rather than after the first 10.

212. On 14th April 1984, Mr Betteley replied that if tenders were not expected for up to 1 year, he shared Mr Orange's concern that the 10 selected contractors might have reduced in number considerably and that the competitive tenders sought might not be received. He concluded--that selection of 16 contractors was correct in the circumstances. He emphasized that there was an explicit requirement for the contractors to participate in viewing the marine investigation work and samples, so as to be familiar with the material, and the environment of the working areas, before tendering. He said that MCL believed it had derived a considerable benefit by the early prequalification exercise and believed it would continue to do so by further contact with the contractors during the marine investigation period.

213. On 16th April 1984, Mr Chien sent to Mr O'Rorke a memorandum enclosing a draft reply to Mr Chan's memorandum dated 27th March 1984, dealing with the implications of programming on site formation. The draft pointed out that it would be possible to defer the public housing element of the programme by about 1 year, but that it would be unwise to allow a deferment greater than that. The draft considered the legal and contractual implications. It referred to the 7/82 Agreement including a statement that both parties acknowledged their intention that the package agreement for the development described be fully accomplished in timely fashion. Clearly it was possible to vary the timing of part or all of the development by mutual agreement. It was considered, however, that acceptability to changes by MCL was going to be related to the continued viability of their own part of the development. In other words, they would not desire changes that would put them in the position of leading the development. It would seem-that they were much more likely to accept delays to the programme as a whole than delays to HKG's part of the development. However, if HKG wished to impose changes on MCL, then it would appear that MCL had very few sanctions which they could apply under the 7/82 Agreement and would therefore have to agree, albeit reluctantly, unless the changes were so extreme that they were forced to abrogate the 7/82 Agreement. MCL had continuously, since the 7/82 Agreement was signed, indicated a willingness and desire to get on with the project.

214. The draft further pointed out that there would be a number of problems associated with acquiring the quantity of fill required for the Tin Shui Wai development from land based sources. It would require further detailed studies to identify suitable land based borrow areas and unit costs for filling. It was considered essential, in view of the likely problems associated with land based fill, to continue to assume the use of marine based fill. It was confirmed that the proposal to make land at YLIE available for public housing for 50,000 persons could justify delaying provision of the first public housing at Tin Shui Wai by about 1 year.

215. On 17th April 1984, Mr Chien submitted a draft paper for the upgrading to Category A of the item "Tin Shui Wai Development - Package 3, Part I - construction access and main drainage" at a cost of $120m.

216. On 18th April 1984, at a further meeting of the parties, a number of matters were discussed, including the proposed design and build contract for the reclamation. Mr Orange mentioned that ways and means of carrying out the TRDC work in advance of that contract were being investigated. The draft brief for the land formation design had been amended and widened in scope and it was hoped to present it to the next EACSB meeting.

217. On 19th April 1984, Mr Betteley wrote to Mr Chien with a proposal for a detailed investigation of potential borrow areas within Deep Bay. (Mr Chien did not reply to this letter. He told me in evidence that he expected that this work to be part of the land formation design work under the consultancy which was being considered.)

218. On 24th April 1984, Mr O'Rorke sent an urgent memorandum to the Secretary, PWSC. He attached the paper about the item "Tin Shui Wai Development Package 3, Part I, construction access and initial drainage" for submission to the PWSC meeting on 16th May 1984, with a recommendation that the PWSC should recommend to FC the upgrading of this item to Category A at an estimated cost of $120 million. AS the paper mentioned, this was the item which had been upgraded to Category AB in August 1983. The paper mentioned that in order to meet proposed targets for occupation of the first public housing at Tin Shui Wai by 1989/90, it would be necessary to start the preliminary works in 1984/85 in order to avoid any delays or disruption to the main site reclamation contract which was planned to start in early 1985/86. The essential site investigations, the detailed design and preparation of contract documents had been carried out. (At this stage, the prospect of starting the reclamation in early 1985/86 was in fact already remote.)

219. On 28th April 1984, Mr Betteley wrote to Mr Chien about the drafting of the implementation contract. Mr Betteley said that the jointly developed proposal for the implementation contract to take the form of a design and construction contract using the existing HKG conditions of contract and dealing with expenditures by a series of nominated sub-contracts was acceptable in principle to MCL. He considered that the draft implementation agreement could be completed in about 2 months; circulated for comment for a further 2 months; and completed and signed within 5 months. But the time frame required was such that the agreed contract conditions would not be ready in time for the initial preliminary works contracts needed to ensure a timely commencement of the reclamation works. He said that-the land reclamation design should be allowed to proceed as a separate consultancy, as HKG had proposed. In view of the efforts made to clear the land, both parties would prefer not to delay the initial contracts. Whilst MCL felt that more than sufficient time to complete the implementation contract had elapsed since the 7/82 Agreement, the longer period required would enable HKG's updated contract conditions (then already drafted) to be incorporated; that was seen as being of significant benefit. Mr Betteley said that MCL would like to see the proposed end of September 1984 completion date for the implementation contract as a key date to be achieved. MCL felt it would be contrary to the intent of the 7/82 Agreement to delay the implementation work further while drafting the implementation contract. MCL confirmed its willingness to continue to use its best endeavours and resources to expedite the implementation of the 7/82 Agreement and trusted that the special arrangement proposed would be restricted to the initial critical work and not prejudice the earliest completion of the implementation contract.

220. On 1st May 1984, Mr Lo Chai-wan of the NTDD wrote a memorandum to the Director of Housing, referring to a telephone conversation he had had with Mr Crosby and another concerning the possible reprogramming of site formation works on public housing sites reserved in the Tin Shui Wai development area. Mr Lo said that he understood that, although Tin Shui Wai was expected to contribute towards the current public housing programme by 1989-90 to meet its target, with a possible rezoning of land uses in the YLIE, that contribution could, with benefit, be deferred by about 3 years. (It is unclear where the suggestion of a period of 3 years for deferment originated. All the evidence was that 1, or possibly 2, years, would be the maximum.)

221. Also on 1st May 1984, there was an HKG internal meeting to consider the EIA. The proposal which had emerged from the IAR that dredging in Inner Deep Bay should be excluded on environmental grounds was endorsed. A proposal that Outer Deep Bay be retained as a dredging option was also endorsed.

222. Also on 1st May 1984, Mr Chien assigned Mr S.S. Lee to full-time management of the TSW project.

223. On 2nd May 1984, Mr Chien sent to Mr O'Rorke a paper drafted by Mr Orange about a feasibility study for landbased borrow areas.

224. In the introduction to this paper, it was explained that the original concept for the development of Tin Shui Wai put forward by MCL, and a subsequent MDP for a town of 135,000 people plus a land bank, had leaned heavily on the concept of marine filling for the site formation. The main advantages had been considered to be that (a) marine fill could be placed on the weak foundation soil of Tin Shui Wai without the need to remove those materials; (b) marine fill was expected to be less expensive for the quantities and rates of supply envisaged; (c) difficulties were envisaged in obtaining sufficient material from landbased sources; and (d) landbased fill at the quantities and rates of supply envisaged were expected to have serious problems affecting cost and timing of the project.

225. It had therefore been envisaged that marine filling would be used, subject to a final check at the tender stage that the tender prices for marine fill (including any procurement charges) were reasonably competitive with the estimated cost of using fill from landbased sources, taking into account other delays, e.g. time delays and environmental issues.

226. In order to check the competitiveness of marine fill, it had always been intended that a desk-top study be carried out to identify an estimated rate for landbased fill from Hong Kong sources against which the tendered rate for marine filling could be compared.

227. Such recent considerations as a lack of demand for industrial land, the introduction of additional alternatives to meet the demand for public housing in the second half of the decade (e.g., the YLIE) and a pressing need to reduce commitments on the CWRF particularly in the next few years, indicated that it might be possible and desirable to reduce the requirement for land formed initially at Tin Shui Wai, and also the rate at which the land was formed. If such was the case, marine fill might become less competitive and some of the problems associated with landbased fill less serious.

228. Because of this it was considered appropriate to carry out a more detailed appraisal of landbased sources of fill for Tin Shui Wai, including an appraisal of the effects of using landbased fill on the proposed site formation programme included in the MDP, as soon as possible. That would enable greater flexibility in terms of options for rate of expenditure and land formation to be retained until such time as a decision needed to be taken. A decision had to be taken by the time tenders were received for marine filling.

229. The paper added that it would be appropriate at that stage for MCL also to investigate possible sources of landbased fill from the PRC.

230. The paper noted that much of the timetable for site formation and land production included in the MDP was dependent on the assumption that fill would be carried out continuously (24 hours a day) without the need to remove underlying materials from the site. Such an approach made the use of marine fill likely to be very competitive. If a slower rate of filling with discontinuous supply could be accepted, then use of landbased fill might come more into contention. However, use of dry fill placed by normal methods might necessitate prior removal of weak materials from at least parts of the site. It would be necessary to derive alternative strategies and programmes for site formation based on consideration of these factors and on various options for transportation, delivery and placement of filling material, so that the relative costs and effects on project timing could be assessed.

231. The paper noted that the 7/82 Agreement required HKG and MCL to enter into contracts to procure the fill, form the land and provide the infrastructure for Tin Shui Wai. The contractual arrangements for the execution of those tasks were not yet finalised and were expected to be completed by September 1984. In the meantime it had been necessary to press on with certain urgent works, e.g., investigations of marine borrow areas, design of preliminary engineering works, prequalification of dredging contractors and an EIA of the land formation. It had become obvious that work would also -have to commence on design of the main site formation in advance of completion of final contractual arrangements between HKG and MCL, and preparations were being made for a design consultancy with MCL which it was hoped would commence in June 1984. The brief for that design consultancy already included provision for carrying out some studies on alternative landbased sources of fill, and it was proposed that that be expanded to cover a full feasibility study and site investigation of landbased source of fill for Tin Shui Wai, including any modifications required to site formation design; need to remove unsuitable material and identification of disposal areas; methods of extraction, transportation and placement on site; effects on land formation programme; possible after-use, rehabilitation and landscaping proposals for borrow sites; and estimates of costs. It would be necessary as part of the study to carry out additiional site investigation in recommended borrow areas to obtain more detailed information on quantities, quality and design criteria and also to investigate and resolve any potential environmental and fung shui problems which were likely to arise.

232. The paper noted that up till then and for the reasons stated, the strategy for land formation had been based on the assumption of use of marine filling. To obtain greater flexibility of choice as to the rate of expenditure on land formation it was considered appropriate to widen the scope of preliminary planning, investigation and design and to allow for alternative strategies based on use of marine fill or landbased fill. In order to keep those alternative options open for as long as possible, it would be necessary to carry out parallel investigations and feasibility studies. Additional costs would be incurred.

233. Under the land formation strategy based on the use of marine fill, it would be necessary to carry out the appropriate gazetting procedures, and if alternative landbased fill sources were also being proposed, it would be necessary to consider gazetting transport corridors required for delivery of the material to the site. No actual resumption or clearance could actually take place until after a final decision on the alternative to be used had been made. That might result in some minor delay in signing the contract for marine filling, should that be selected as the appropriate method, while final resumption and clearance procedures were completed. In the event of a decision to proceed with landbased fill, it was expected that there would be a minimum of 6 months dplay in commencing work. If no action on RWUCO procedures in respect of landbased fill was initiated until after a decision was taken, the delay would be about 1 year.

234. The paper concluded that although the strategy for. land formation at Tin Shui Wai had been based on the use of marine fill as that was expected to be the cheapest and quickest means of filling the site, recent trends suggested that it might be prudent to examine in parallel a strategy based on use of land fill up to the stage of receipt of tenders for marine fill. At that stage a decision would need to be made as to which strategy to follow, which would be made on the basis of information available at that time. Should a decision be taken at that time to pursue the alternative strategy of using landbased fill, the switch could be made with a minimum delay period of about 6 months. That period would in any event be required to enable necessary resumption and clearance procedures to be carried out. If, as might well be the case, a greater delay in commencement of the work was desirable for other reasons, then a decision on which strategy to use might be made earlier but without the benefit of a firm cost for marine fill.

235. On 3rd May 1984, Mr O'Rorke sent an urgent memorandum to Mr Chan, based on the draft Mr Chien had sent to him the day before, about the possible reprogramming of the main site formation. He noted that the 7/82 Agreement envisaged that the site formation would form part of a complete package for construction of a town of 135,000 persons in accordance with a phased development programme to be jointly agreed between MCL and HKG. The MDP which represented the "agreed phased development plan" was prepared on the basis of the need to meet a predicted shortfall in public housing provision from 1989 onwards. The resultant timescale for land formation required in order to meet the agreed MDP programme was such as to make marine filling the more attractive alternative. In addition, it was estimated that with the large quantities required for the total land reclamation, the use of marine fill could be more economical, have fewer consolidation problems and a smaller environmental impact than landbased fill.

236. However, he said, some of the principles on which the MDP was prepared had changed and it was necessary to consider the effects that those changes would have on the original approach to the implementation of the Tin Shui Wai development. He mentioned that Mr Chan had requested reconsideration on the basis of initial reduction in demand for industrial land; use of sites formed by landbased borrowing; and deferral in timing of requirement for public housing sites made possible through the rezoning of land at Yuen Long. He said that some changes could be made in respect of the industrial land but drastic changes would necessitate a complete reassessment of the MDP. As to use of sites formed by landbased borrowing, he thought it was not possible to comment realistically until specific areas had been identified. But in respect of the deferral timing of requirement for public housing, Mr O'Rorke stated that the Housing Department had agreed that public housing at Tin Shui Wai could with benefit be deferred for about 3 years (as we have seen, this seems to have been a mistake).

237. Mr O'Rorke assessed the implications for reprogramming under the headings "legal/contractual implications" and "engineering implications" (largely adopting Mr Chien's draft of 16th April 1984, as we shall see).

238. As to the legal/contractual implications, Mr O'Rorke said that the 7/82 Agreement had stressed that the devleopment of a town of 135,000 would be a complete package with part being done by MCL and part by HKG, both in conjunction with one another. It also required that development to proceed in accordance with a phasing plan which could be varied from time to time by mutual agreement. The 7/82 Agreement also stated that both parties acknowledged their intention that the package agreement for the development described be fully accomplished in timely fashion. Clearly it was possible to vary the timing of part or all of the development by mutual agreement. It was considered however that acceptability to changes by MCL was going to be related to the continued viability of their own part of the development. In other words, they would not desire changes that would put them in the position of leading the development. It would seem that they were much more likely to accept delays to the programme as a whole than delays to HKG's part of the development. However, if HKG wished to impose changes upon MCL, then it would appear that MCL had very few sanctions which they could apply under the 7/82 Agreement and would therefore have to agree, albeit reluctantly, unless the changes were so extreme that they were forced to abrogate the agreement.

239. Mr O'Rorke said that MCL had continuously, since the 7/82 Agreement was signed, indicated a willingness and desire to get on with the project; it was not certain whether they would now willingly accept deferment of 3 years. Although deferring a large commitment from starting in 1985/86 would considerably relieve the CWRF, HKG would no doubt wish to allow for the fact that it had already invested some $1.4 billion in the project.

240. As to engineering implications, Mr O'Rorke listed the advantages of marine filling, and also the uncertainties, as to the exact cost of dredging, transportation and placement of materials; as to the exact source and properties in the material and method of operation; as to the environmental and social effects of dredging, depending on area and method used; and as to levies to be charged by the PRC, if any, in respect of dredging within PRC waters or in areas affecting PRC border security. There would be a number of problems, however, associated with acquiring the quantities of fill required for development from landbased sources. It would require further detailed study to identify suitable landbased borrow areas and unit costs for filling. Until then and because of the timing involved, investigations had concentrated on a marine source. However, if the development might be deferred, it would be appropriate to investigate further at that stage the alternative of landbased fill.

241. It seemed necessary to examine further the implications of the proposal for public housing at the YLIE in relation to the timing of Tin Shui Wai and possibly other public housing projects since it might not be politic to defer Tin Shui Wai for as much as 3 years, if at all, for the reasons indicated.

242. On 4th May 1984, the then Deputy Secretary (Lands), Mr Eason, sent his comments on this memorandum to Mr Chan. Mr Eason said that, given the combination of the contractual considerations and the predicted long-term public housing requirements, there seemed little doubt that although the Tin Shui Wai contribution to public housing might legitimately be postponed, it could not be completely foregone. He said that it would seem appropriate to discuss with MCL an adjustment to the timing of the project to permit another careful look at the economic and engineering aspects of the filling operation. That need not, however, start from the premise that a three year delay was acceptable, and therefore the intention, but accept a time factor dictated by the circumstances of the re-investigation, e.g. a one year "delay". Politically, HKG could not be seen to lurch at this stage away from Tin Shui Wai in favour of some alternative. Mr Eason said he believed that everything should proceed "unadjusted" as regards what he called "our fresh thinking on Tin Shui Wai" for the time being, at least until something had been worked out with MCL.

(TSW has submitted that the approach of Mr Chan, and the responses of Mr Eason and Mr O'Rorke, to this question of a possible reprogramming of the reclamation, constituted a conspiracy between the three of them deliberately to delay the development of Tin Shui Wai. The purpose of this conspiracy, it was said, was to relieve pressure on the CWRF. I reject this submission. I have had the benefit of evidence about this matter from Mr Chan (though not from Mr Eason or Mr O'Rorke). Mr Chan denied the alleged conspiracy. Having seen and heard Mr Chan give evidence, I am satisfied as to his truthfulness, good faith and integrity. The allegation of conspiracy against him, and accordingly also against Mr Eason and Mr O'Rorke, collapses. I find that Mr Chan did not approach the matter of reprogramming the reclamation with a view to finding an excuse to defer or delay the project. I find that Mr Chan's approach was dictated by genuine concern as to the cost of the reclamation, and that it appeared to him at the time (in my judgment, not unreasonably) that the cost of land fill for the reclamation could no longer be considered as so clearly so much greater than the cost of marine fill as to justify its continued exclusion from serious consideration. He was, of course, aware that a reconsideration of the assumption that marine fill ought to be used for the project might lead to a delay in achieving the reclamation. He was also aware that that would be something over which MCL would have to be consulted, and he was anxious that the approach to MCL should not be such as to give the wrong impression. If MCL was to conclude that it was, indeed, HKG's intention deliberately to delay the project, they would have every cause for complaint. Since it was not HKG's intention so to do, any approach to MCL would have to be made in a way which would avoid suggesting this. However, I do understand the concern which MCL/TSW must have felt when the memoranda to which I have referred, and subsequent memoranda to which I shall have to refer, first came to its attention and to the attention of its legal advisers in the course of discovery. Much of the material which I have had to consider is, on the face of it, as consistent with an intention deliberately to delay the project as with an intention merely to consider whether land based fill might be a cheaper alternative to marine fill. I do not accept Mr Wood's strictures, on this allegation of conspiracy, that the charge was not one which should ever have been raised, or at any rate persisted in. TSW was entitled, in my judgment, to have the charge investigated. But I have now investigated it; and I find that it has not been proved.)

243. Also on 4th May 1984, Mr Chan sent a memorandum to Mr O'Rorke, adopting what Mr Eason had said in his memorandum to Mr Chan of the same date. Copies of the memorandum went also to the Deputy Financial Secretary; the Director of Housing; and to Mr Chien. (Mr Chien told me in evidence that he was very much surprised by the reference in the memorandum to a 3 year delay; but anyway the memorandum made no difference to his own programme. For him it was "business as usual".)

244. The reaction to the memorandum in the Housing Department was that it was agreeable in principle to slipping Tin Shui Wai, provided that the YLIE was rezoned for public housing; the absolute maximum delay the department could tolerate would be 2 to 3 years, but it should press for any deferment to be confined to 1 to 2 years.

245. On 7th May 1984, a meeting of the New Towns and Public Housing Sub-Committee of the PWPC was held at which the Chairman informed members that the DPC would shortly consider whether the YLIE should be rezoned, with zoning for housing as one option. That would allow further thought to be given to delaying a start in formation at Tin Shui Wai or elsewhere. However, Mr Chan had ruled that HKG should not be seen to be lurching away from Tin Shui Wai at present. The Chairman noted that if it was agreed to use this land for public housing, Tin Shui Wai development could be slipped. However, on Mr Chan's instructions NTDB were currently working on pre-qualification (of dredging contractors) on the basis of a start in 1985/86.

246. On 8th May 1984, Mr Chien wrote a letter to Mr Betteley to inform him that the Legal Department proposed a draft of comprehensive conditions for the design and build contract in the form of a one-off document specifically for the Tin Shui Wai development contract, to be accompanied by "Guidance Notes on Contract Arrangements between HKG and MCL for the Implementation of Engineering Works" on the basis that, provided the parties agreed in principle to what was contained in that document, it could be used as the basis for preparation of the "Design and Build" contract documents without the need for the execution of a further formal agreement. (The effect was to downgrade the "Memorandum of Agreement", originally contemplated, to "guidelines".)

247. On 11th May 1984, Mr Savage, then acting as Deputy Financial Secretary, wrote a memorandum to the Deputy Political Adviser, referring to the 7/82 Agreement, and stating that it required HK G to notify MCL in July 1984 of the area they would be required to develop, and to "make best efforts" to start soon thereafter with a jointly-let contract to fill the area to form the land required for devleopment. Preparatory site access and clearance for the land formation had already started. It was now being considered whether MCL should be sounded out on their reaction to a year's delay in starting the main reclamation works, i.e. starting in 1986-87 instead of 1985-86, because there were some outstanding doubts on the method of reclamation it was proposed to use and its environmental effects; the possibility had opened up of utilizing land, now lying unused in nearby Yuen Long, for public housing, which took off some of the pressure from Tin Shui Wai; and because Mr Chan foresaw some financial difficulties in getting started with Tin Shui Wai in 1985 (although FB did not view those problems with quite the same seriousness). Mr Savage said that, before MCL was sounded out, he would like to check whether this approach might give rise to disproportionate suspicions on the part of the Chinese authorities, or create other difficulties.

248. On 14th May 1984, there was an HKG internal meeting to discuss further the management and control of the implementation works. The Chairman, Mr O'Rorke, pointed out that about a year had passed during which time Mr Chien had been proceeding with various aspects of the project ,but there were now a number of matters on which decisions and/or guidance were necessary to enable the project to continue to move forward.

249. Mr Chien pointed out that "work had been progressed as best they could under the circumstances", but that a critical stage had now been reached, which required decisions as to how best to proceed. He referred specifically to the need to proceed with preliminary works in advance of other works. Because of the time it would take to finalise contractual arrangements between MCL and HKG, he thought it was important to ensure that these preliminary works and the commencement of design work were not held up and were allowed to proceed independently of the HKG/MCL contract, at least initially. The period of construction of the TRDC was such as to necessitate an early commencement. The SWAR was intended as a separate contract with a shorter construction period and could therefore commence after the completion of contractual arrangements with MCL.

250. Mr O'Rorke drew attention to the prequalification of dredging contractors, a report on which had been prepared and was ready for submission to FB. One of the reasons, he said, for prequalifying so far in advance of the tender period was to enable all prospective tenderers to participate in the detailed site investigations and thus minimise the uncertainties that tenderers would have to price for in submitting their tenders. There was of course the problem of uncertainty as to exactly when the site formation would be started, but Mr Chan considered that the prequalification exercise should proceed. It was agreed that the report should be forwarded to FB, and following a decision, that tenderers might be advised of some uncertainty in the exact date of commencement of the contract.

251. Mr Chien explained that it was important to proceed with the TRDC as quickly as possible. Work on design and preparation of contract documents had reached an advanced stage and clearance of the site was already in hand. If it were necessary to wait until after signing the "design and build" contract before proceeding to call tenders for this work, a considerable delay to overall progress was inevitable, and non-use of the cleared site for sometime could cause a problem. MCL had been approached, and had indicated their agreement in principle to the TRDC contract being gazetted as soon as possible and let as a HKG contract, with MCL as consultant and HKG as the client. Mr Chien advised that the present consultancy agreement for design of this work was only for the design and contract stages, and would need to be extended to cover construction stage and site supervision. It was agreed that the matter should proceed as suggested.

252. Mr O'Rorke turned to the feasibility study for landbased fill. He pointed out that originally, because of the time scale envisaged, the method of site formation at Tin Shui Wai was tied to the use of dredged marine fill. However, if there was some possibility of some relaxation in the programme, it was considered appropriate to examine in more detail the feasibility of the use of landbased sources of fill as an alternative to marine fill. Landbased fill from PRC was mentioned and Mr O'Rorke said this would be retained as an option. Mr Chien mentioned that the Castle Peak Firing Range contained huge quantities of suitable filling material; although previous approaches to the Ministry of Defence had been unsuccessful, he wondered if the situation might now be changing. Although the general view was pessimistic, it was agreed that a further approach could do no harm. It was pointed out by Mr Chien that the feasibility study of landbased fill would involve some additional expenditure over and above that required for a purely marine based investigation.

253. On 14th May 1984, Mr Betteley wrote to BP accepting the conclusion that the MDP programme dates were no longer realistic. MCL had done everything possible to press for approval to initiate implementation of the site formation design work, but could not claim much success. He said that NTDB were well aware of the now unrealistic programme, and whilst MCL could criticize them for lack of action, MCL recognized that they had to operate under the restraints placed upon them by HKG's financial situation. (There was not in fact any evidence that HKG's financial situation led to any such restraints being placed on the project.)

254. Mr Betteley concluded that MCL's realistic appraisal of the present financial situation in Government was such that MCL believed that the Tin Shui Wai project was more likely to proceed at a much slower pace than MCL would like.

255. Also on 14th May 1984, Mr Betteley wrote to Mr Chien, about the EIA. He noted that a great deal of time had been spent in deciding the scope and extent of the evaluation stage work and in identifying the decision making processes. He also noted that after much deliberation, some fairly strong recommendations had been made concerning the rejection of certain borrow areas (this is a reference to Inner Deep Bay) without resulting in any significant savings in either the scope or cost of the EIA but with potentially massive cost penalties for the land reclamation work. He said that after some 3 years of searching MCL had come to regard a 30m cu.m. source of suitable reclamation material as a difficult commodity to find. He said that he considered the EIA study to be a most difficult study to undertake and control. He, therefore, concluded that it would be untimely for any decisions to be taken about the EIA that might restrict the potential use of the borrow areas indicated as "most preferred" by prequalifying dredging contractors. (In effect, Mr Betteley was anxious to keep Inner Deep Bay as a potential borrow area; he dissented from the view that it ought to be excluded on environmental grounds.)

256. On 15th May 1984, Mr Crosby replied to the memo of 1st May 1984 from Mr Lo. Mr Crosby confirmed that he agreed in principle to slipping the Tin Shui Wai development in the event that the equivalent of public housing could be provided in the YLIE. He said that he could not accept that deferment be as much as 3 years but he would accept slippage of 1 year and could even could live with 2 years, but this would not be desirable. He mentioned that in any case a 3 year delay would be politically unacceptable and that only a year's delay should be entertained. He said that he understood that the possibility would be taken up with MCL.

257. On 16th May 1984, at a meeting between the parties, the design sub-consultancy for the land formation works was considered. The proposal was that a paper be submitted to the next meeting of EACSB, seeking approval to enter into discussion with MCL with a view to refining the draft brief and negotiating suitable fee terms and conditions for the land formation design. Mr Orange said that after the EACSB meeting he anticipated that negotiations would take a few weeks. If a finalised brief and fee terms were to be put to the June meetng of EACSB, those would have to be completed and ready to submit by 22nd June 1984.

258. In reply to a question from Mr Betteley on whether the landbased alternative should be carried through to the tender stage, Mr Orange said that a more realistic approach and price for landbased fill was required. This would entail additional detailed investigation of possible sites, determining quantities and formulating proposals. The effect of land fill on filling method and programme would also have to be considered. The provision of landbased fill would be taken up to the preliminary design stage to allow a realistic comparison to be made with marine fill. However, detailed design and contract documents were not required at this stage. He pointed out that the prequalification had been for a marine based operation and this was still the favoured method. Mr Orange said that the present programme should be followed as far as practicable but the start date for the main site formation contract would need to follow land acquisition procedures. The consultants should allow realistic times for HKG's statutory procedures in programming for both fill options. Mr Aspden (of BP) commented that it was impractical to complete the preliminary report stage required in the draft brief within 3 months in view of the additional work on landbased borrow areas, etc. It was agreed that this would be adjusted as part of the joint refinement of the brief.

259. There was a discussion as to the programme for the main site formation works. Mr S.S. Lee said that there was now a need to draw up what he called "a more realistic programme" for design and investigations for the main site formation works with a more realistic start date for the contract. The TRDC and SWAR could be modified to fit the revised main site formation programme, possibly extending the present "tight" contract periods.

260. Also on 16th May 1984, PWSC decided to recommend to FC that that the item "Tin Shui Wai - construction access and initial drainage" should be upgraded to Category A.

261. On 17th May 1984, Mr Chan asked Mr Eason for his comments on a document which I have not seen (since public interest immunity from production was successfully claimed for it). In his request for comments, Mr Chan said that the line he would like to see taken would be that HKG would wish to investigate the feasibility and desirability of land fill versus marine fill, recognizing that this could lead to a delay. Obviously deferment was a different matter altogether in dealing with MCL. Mr Chan asked Mr Eason to look into the terms of the agreement to see whether there was scope for such an investigation as he had suggested. Mr Eason got on with this (to use his own word) "pronto". He asked for the 7/82 Agreement to be "tracked down".

262. On 18th May 1984, Mr Stephen Ip, a Principal Assistant Secretary (Lands), who had a qualification in economics but not in law, gave some consideration to the 7/82 Agreement and expressed himself in these terms:

"As I see it, the Agreement is a binding contract and Government is bound to grant back a site of 38.8 hectares to TSW (Tin Shui Wai Development Ltd.) by end of July 1984. The site need not be formed (as it is not so stipulated in the Agreement) but it would be reasonable for TSW to expect site formation within a reasonable period after granting back because it is required to expend not less than $1.458 million in the development within 12 years of being given possession of the site. It is stated in para. 11(b) of the Agreement that Government and TSW will enter into a contract to provide or procure the provision of fill material and a timetable for which is to be stipulated in the contract. As Government will bear the cost of forming the site, it would not be unreasonable for Government to spend some time considering the kind and source of fill to be used. TSW may think otherwise as it can argue that modification premium for the site was calculated on the assumption that return on investment would be recouped in 12 years. From the viewpoint of TSW, any extension of this period by Government should result in a reduction in the modification premium. On balance, I tend to believe that, from a legal viewpoint, it would be in order for Government to investigate the feasibility and desirability of alternative sources of fill. My interpretation may not be correct and I think the Registrar General (Lands Office) should also be invited to the meeting."

263. Mr Ip added that the Deputy Director (Lands) was of the view that political considerations deserved higher priority than legal implications in this case. The Deputy Director (Lands) thought that it would be inadvisable for HKG to ride roughshod over TSW but he did not rule out the possibility of TSW consenting to the proposed deferment.

264. On 18th May 1984, BP wrote to Mr Betteley, confirming their agreement with Mr Betteley's views on not eliminating at that stage the use of Inner Deep Bay as a potential borrow area. However, those views were in conflict, as they said, with the recommendations made. BP were of the opinion that BP, acting on MCL's behalf, had no alternative but to proceed according to those recommendations if the evaluation stage of the EIA was to proceed within the existing constraints of the programme and budget. The conflict needed early resolution, as a change in instructions would affect the approach to and outcome of the evaluation stage and probably the programme and budget.

265. Also on 18th May 1984, Mr Chien applied to EACSB, as a matter of urgency, for approval to enter into discussions with MCL with a view to refining the draft brief for the dredging and land formation design, and negotiating suitable fees, terms and conditions for that design. At this stage, the brief included a feasibility study into an alternative strategy for using landbased fill from Hong Kong for site formation. It had not yet been amplified to include any further investigation of land borrow areas.

266. On 19th May 1984, Mr O'Rorke submitted a draft PWSC paper to lead to upgrading to Category AB a separate item entitled "Tin Shui Wai Development, Package 3 Part II - land reclamation and main drainage", and asked if that item could be considered at the PWSC meeting to be held on 13th June 1984. This related to the reclamation work for the initial development zone. The paper indicated that the works comprising in the item would include the provision of fill either from marine or landbased sources.

267. On 22nd May 1984, Mr Chan submitted to the Secretary, PWSC the draft paper which he had received from Mr O'Rorke for submission to PWSC's meeting on 13th June (having first made some amendments not presently material).

268. On 23rd May 1984, Mr Betteley wrote to BP proposing that a detailed investigation of the Deep Bay borrow areas preferred by 70% of the prequalified dredging contractors should be initiated immediately; that the detailed design should be completed; and that the dredging tender with provision for defining and pricing environmental protection measures using Deep Bay borrow areas only should be sent out. (Mr Orange told me in evidence that these proposals were premature. The appropriate time for these activities would be after the evaluation of the EIA.)

269. On 26th May 1984, Mr Betteley wrote to Mr Chien referring to the meeting of 16th May 1984 and to the discussion of the design brief for dredging and land reclamation. Mr Betteley said that it had already been recognized that the MDP programme and the later anticipated reclamation contract award date of April 1985 were no longer feasible (as he put it) "due to lack of instructions to proceed" and in consequence one of the most important tasks now was to jointly agree an implementation programme that reflected HKG's timing and policy requirements. He recorded that MCL had sought and obtained from HKG a general clarification of draft brief items upon which a variety of options were possible and he now listed those as they had a direct bearing on the duration of various programme activities and the optimum reclamation commencement date. He mentioned that a commencement date of 1st August 1984 was anticipated for the reclamation design consultancy; that, subject to a demonstrably cheaper price, HKG's preference was for land reclamation with filling material originating from a marine source rather than other land sources; that the most suitable borrow areas were to be identified, fully investigated (with prequalified dredging contractors participating as observers) and the reclamation designed to a sufficient degree to enable tender documents to be prepared and tenders invited; and that suitable land borrow areas were to be identified, investigated, planned and quantitied including their access routes to and from Tin Shui Wai, fung shui aspects and likelihood of local opposition so as to determine a feasible alternative filling material source should marine material prove to be too costly. Reclamation tender documents were not to be prepared for using land sourced material; the cost of using land material had to be submitted by the consultants as a "Confidential Land Cost Estimate" at the same time as dredging reclamation tenders were received so that a valid cost comparison could be made; the marine versus land cost comparison parameters must be agreed in every respect; and marine and land site investigation work in the marine borrow area, the land borrow area and the Tin Shui Wai reclamation area itself would have to proceed concurrently as the information was critical to the progress of the design brief.

270. On this basis, Mr Betteley said, MCL had prepared three programmes for Marine Filling - Land Procedures Post Tender; Marine Filling - Land Procedures Pre Tender; and Land Filling - Land Procedures Post Tender, and he confirmed that MCL would meet with HKG to discuss this on 28th May 1984.

(Mr Betteley's complaint of "lack of instructions to proceed" was a harking back to his own letter of 9th September 1982, in which he had expressed the view that the land reclamation design work should commence immediately, and to his subsequent requests for the re-activation of this work.)

271. On 28th May 1984, the meeting mentioned in the letter of 26th May 1984 was held and the programme discussed.

272. Also on 28th May 1984, Mr S.S. Lee wrote to Mr Betteley about the EIA. (Mr S.S. Lee referred to items presently in the "hold" mode; but Mr Chien told me in evidence that NTDB was proceeding with "all haste"; and I accept that, at any rate, HKG was doing that which could reasonably be expected of it.) Mr S.S. Lee noted Mr Betteley's concern at any premature decision regarding limitation of possible borrow areas and said that that concern was understood. He did, however, reiterate that any major disruption to existing oyster beds (which was likely to occur if marine fill from Inner Deep Bay was used) would certainly affect in a substantial way the livelihood and indeed the way of life of an appreciable number of people and that that might be regarded unacceptable on environmental grounds. He concluded (in my judgment, rightly or at least reasonably) that it was prudent for HKG to accept that there were clearly major problems associated with direct physical interference with the oyster beds, and that investigative efforts at that stage should be concentrated on areas outside the areas under oyster cultivation.

273. On 30th May 1984, FC upgraded to Category A the item "Tin Shui Wai Development Package 3 - Part I construction access and initial drainage".

274. On 31st May 1984, Mr Chan wrote a memorandum to the Deputy Financial Secretary in reply to a memorandum received from him dated 15th May 1984. (I have not seen the memorandum dated 15th May 1984, since public interest immunity from production was successfully claimed for it.)

275. Mr Chan's memorandum of 31st May 1984 was one on which TSW placed considerable reliance in support of its claim that HKG had deliberately delayed the Tin Shui Wai development. It is accordingly an important document and I shall set it out in full. It reads:-

“                 Tin Shui Wai Development

As discussed at various times in recent days (Chan/Eason/O'Rorke/Margolis/Frost/Ip/Ward), it is agreed that a preliminary approach should be made to MCL regarding possible sources of fill.

2. The approach should be in the context of following up sub-para. 11(b) of the formal letter issued by SLW and received by MCL and TSW on 29 July 1982 which deals with the matter of a contract to be entered into by Government and TSW regarding fill material.

3. The approach should be tentative and on the basis that it would be prudent to examine possible alternatives for engineering and cost reasons. Any suggestion that it is the intention or wish of Government to defer any part of the project or delay the programme overall should be avoided.

4. The aim should be to sound MCL/TSW out on the matter cautiously and for any implications for the timing/programming of the project which may emerge to be taken into account in the course of considering the matter.

5. Para. 11 of the 29 July 1982 letter refers for the most part to Government and TSW. However, DNTD is referred to specifically in sub-para. 11(b). Nevertheless, a joint approach DNTD/DL to MCL/TSW might be appropriate in the circumstances of Tin Shui Wai. By copy of this memo DNTD is asked to proceed accordingly."

(There are two ways of reading this memorandum; one sinister, the other innocent. It can be read as suggesting that HKG had taken a decision to defer the project, or to delay the programme overall, but wished to hide that decision from MCL/TSW. Alternatively, it can be read as meaning that it was not the intention or wish of HKG to defer any part of the project, nor to delay the programme overall, and that therefore anything which might wrongly suggest that that was the intention or wish of HKG should be avoided. I have heard Mr Chan examined at length about this and I am satisfied that the innocent explanation is the correct one.)

276. Also on 31st May 1984, Mr Orange sent Mr Betteley a copy of the latest revision of the guidelines for the design and build contract for implementation of the works at Tin Shui Wai. He mentioned that the target date for signing the contract was September 1984, and asked Mr Betteley to contact his office if he had any specific comments on the present draft of the guidelines. He said that HKG's legal department had commenced a first draft of the general conditions and that in due course a copy of the draft would be made available to Mr Betteley for comment. He concluded that the parties should now be jointly proceeding with the detailed description/specification parts of the contract document and that he, Mr Orange, had welcomed Mr Betteley's initial comments on how best to proceed with this. The draft guidlines contained the following paragraph:-

"It has been recognised that the proposed works are extensive and costly and that the time required for full implementation will be lengthy. It is further recognised and has been assumed in the July 82 Agreement that the rate of devleopment and expenditure on development may need to be varied from time to time, but that mutually acceptable means by which the programme can be varied need to be agreed and incorporated into any detailed contracts."

277. Also on 31st May 1984, Mr Betteley wrote to BP about the implementation programme, saying, among other things, that HKG's "casual approach" to the implementation of the 7/82 Agreement remained a concern to MCL. (This was, in my judgment, unfair. I do not think that HKG's approach to the implementation of the 7/82 Agreement was "casual" at all.)

278. Also on 31st May 1984, the Secretary of EACSB wrote to GENT) recording approval of his proposal, made on 18th May 1984, for him to approach MCL with a view to refining the draft brief and negotiating suitable fees, terms and conditions for the land formation design. (Mr Chien told me in evidence that in his opinion, the time taken since 8th February 1984, when MCL sent him the draft brief, to obtain approval for this "very, very big consulting assignment" was not completely out of order. I agree with Mr Chien.)

279. On 6th June 1984, Mr Chien circulated to a wide distribution within HKG a revised version of the MDP which had been approved by DPC on 8th September 1983 (but not signed by SLW) together with a paper explaining the revisions proposed.

280. On 12th June 1984, Mr S.S. Lee wrote to Mr Betteley, in reply to Mr Betteley's letter to Mr Chien of 26th May 1984. Mr S.S. Lee set out HKG's answer to the charge made against it by Mr Betteley that the project had been delayed by a "lack of instructions to proceed" with it. Mr S.S. Lee said this :

"The Master Development Programme was originally dictated by Government's own anticipated need to provide public housing at Tin Shui Wai in time to meet predicted shortfalls. It was accepted that the timing was tight and that not all possible problems might have been perceived at the time of preparation of the programme. Subsequent events have shown the programme to be unrealistic for two main reasons viz (i) insufficient time has been allowed to enable all investigations and preliminary studies to be carried out so as to narrow down the design choices to a cost effective single approach and (ii) insufficient time has been allowed for Government's own procedures and policy decisions. This has been complicated by the 'joint venture' approach envisaged for this project. It is not the lack of instructions to proceed that has been the cause of the delay, but rather ascertaining where and on what to proceed. As you have pointed out it is most important at this stage to agree a realistic programme that enables the choices to be soundly based leading to a single cost-effective solution."

(This does reflect a major difference between HKG and MCL. Mr Betteley made it clear in evidence that he did not regard this reasoning as a satisfactory answer; but I. consider the reasons given by Mr S.S. Lee for what he calls "the cause of the delay" do afford a satisfactory answer to the charge.)

281. In this letter, Mr S.S. Lee also dealt with the matter of programme. He said this :-

"In respect of programming, as discussed at the meeting on the 28th May, the most likely option is Option II which assumes marine filling and allowance for final land procedures (4 months) after receipt of tenders and before signing contract. For the purpose of preparing the 1984 Development Programme and advising affected Government departments such as Housing Department, District Lands Office and District Office we are assuming a revision to the date of commencement of the site formation contract of 1 year from 1/4/85 to 1/4/86."

(This was a realistic assumption, based solely on the engineering considerations which dictated it. I reject the suggestion that it was based on a decision on the part of HKG deliberately to defer the project.)

282. On 13th June 1984, Mr S.S. Lee sent to Mr Betteley the formal revised draft brief for the land formation design.

283. Also on 13th June 1984, PWSC accepted the recommendation to upgrade the item "Tin Shui Wai Development, Package 3, Part II - Land Formation and Main Drainage" to Category AB and to retain the remainder of the item in Category B retitled "Tin Shui Wai Development - Remaining Works".

284. On 20th June 1984, Mr Chien forwarded to Mr Chan a revised version of the MDP (which had been approved by the DPC) and on 22nd June 1984 Mr Chan signed it. The industrial land had been excised. The area of the initial development zone had been reduced to 169 hectares.

285. On 22nd June 1984, Mr Orange sent a memorandum to the Director of Housing about the revised programme for site formation at Tin Shui Wai. Mr Orange recorded that the target date for commencement of site formation had now been revised from 1st April 1985 to 1st April 1986; a delay of one year. He added that this had come about as a result of a critical review of results of preliminary work/investigations into sources of fill material carried out to date, and a realistic reappraisal of selection works still required to finalise source of fill, time required for detailed design including trial embankment and time required for essential statutory procedures, most of which needed to await the final choice of borrow areas. (This seems to me to be a fair summary of what had happened.)

286. On 23rd June 1984, Mr Betteley wrote to Mr Chien about the land formation design. He thanked Mr Chien for Mr S.S. Lee's letter of 12th June 1984 and said that MCL had found it particularly helpful in clarifying the draft design brief. He noted (I must remark, without protest) the one year revision in the date of commencement of site formation from 1st April 1985 to 1st April 1986 and said that MCL would prepare a detailed programme leading up to that date in the design brief. As to the Master Development Programme, Mr Betteley said that MCL noted and accepted the observations made on the Master Development Programme and would only wish to reiterate that since signing the 7/82 Agreement with HKG, MCL had remained available and enthusiastic to proceed with the discharge of its obligations under the 7/82 Agreement whenever instructions were received from HKG. (Mr Betteley's acceptance in this letter of the observations on the Master Development Programme contained in the letter of 12th June 1984 makes it, in my judgment, impossible to accept the contention in which, as I understand him, he still persists, i.e., that the whole project was delayed by HKG's "lack of instructions to proceed" with the land formation design. For my part, I accept what Mr S.S. Lee said in the letter of 12th June 1984; i.e., that it was not the lack of instructions to proceed that had been the cause of the delay, but rather "ascertaining where and on what to proceed". I do not accept Mr S.S. Lee's description of the original programme as "unrealistic"; I think a better word would have been "over-optimistic". The original programme was only "unrealistic" because it was falsified by events. As Mr S.S. Lee had pointed out "the timing was tight". But the programme was not an unreasonable one to adopt in the light of HKG's need to provide public housing at Tin Shui Wai in time to meet predicted shortfalls. It would have been folly to have adopted it as a programme contractually binding on the parties; but that is not what they did, despite MCL/TSW's attempts in this action to treat it as if they had.)

287. On 27th June 1984, Mr Chien sent to MCL a copy of the revised MDP signed by Mr Chan on 22nd June 1984. He asked for MCL's agreement to its adoption; but this was not forthcoming, and so it, too, never had any contractual effect.

288. On 12th July 1984, Mr Betteley wrote to Mr Chien, thanking him for his letter of 27th June 1984 and for the revised MDP, but commenting that it appeared to show fundamental changes from the original by abandoning the planning concept of a balanced town for one of a dormitory town. He mentioned that although MCL had not been invited to participate in the development of the amendments to the new plan now proposed, MCL felt sure the amendments proposed had received the same level of consideration as the original plan. Mr Betteley asked for further explanation of the revisions.

289. On 18th July 1984, Mr S.S. Lee replied to Mr Betteley's letter of 12th July 1984, stating that the planning rationale behind the changes to the plan was to reduce to a minimum the costs related to the initial development zone. He said that the industrial land, future possible hospital and certain roads had been deleted from the initial development zone because the requirement for those uses was uncertain and therefore implementation could not be justified at that stage. However, it was intended to monitor closely requirements for industrial land and additional transport links and those could then be programmed as and when required. Mr S.S. Lee did not agree, therefore, that the concept of balanced development had been abandoned.

290. On 20th July 1984, Mr Petty, of CP, went, apparently on his own initiative, to see the Chief Secretary. He complained that the revised plan of June 1984 was quite different from that agreed in September 1983. The plan was no longer one of balanced development; the industrial land element had been deleted; and it was altogether an unacceptable document. He believed that his principals still wished to go ahead with the project but not on the basis of the present plan.

291. On 28th July 1984, Mr S.S. Lee sent a memorandum to Mr Chan to enable Mr Chan to give the Chief Secretary the background to the matter for which the Chief Secretary had asked. Mr S.S. Lee stated that, following the acceptance of the original MDP by DPC on 8th September 1983, some very critical issues had arisen which had prompted HKG to reconsider the MDP. The original MDP allocated 36.6 hectares of land for industry in accordance with the normal "balanced development" objective which had been used in all of the other new towns in Hong Kong. Take-up of existing industrial sites in the sub-region had been poor and therefore there was no immediate pressure to form more land for industry which might lie undeveloped for several years. Mr S.S. Lee added that detailed investigations were proceeding to determine the most cost-effective method of providing fill and forming the site and that it was becoming clear that, in order to reduce the very high costs of the project, some phasing of reclamation would be desirable. He said that a revised MDP had therefore been drawn up and that the planning rationale behind it was to reduce to a minimum the costs related to the initial development zone. He gave the same explanation for this which he had already given to Mr Betteley. He mentioned that the revised MDP had been submitted to DPC on 14th June 1984 for approval and that it had been stated that the original MDP for 228 hectares would still form the basis for the long term development of Tin Shui Wai with scope for expansion beyond 135,000 people, provision for industry, and provision for some sub-regional government institutional and community facilities. He said that the revised MDP permitted a less costly, smaller area of about 169 hectares to be developed first whilst still maintaining the integrity of the overall MDP. He pointed out that the 7/82 Agreement had made no provision for the supply of industrial land within the development zone.

292. On 21st July 1984, Mr Betteley wrote to Mr Chien about the "guidelines" for the implementation contract. He said, among other things :

"It is understood by both parties that the extent of and programme [emphasis added] of works will not have been decided at the time of signing this contract ..."

293. On 31st July 1984, Mr Betteley wrote to Mr Chien stating that "as joint venture partners in this project" MCL were unable to agree to the adoption of the revised plan signed by SLW on 22nd June 1984 as the basis for the development of Tin Shui Wai. He set out MCL's argument against the revisions and said that MCL felt most strongly that if the development was to proceed, it must be on the basis of a firmly approved and properly conceived plan in accordance with the understanding of the agreement reached in 1982. In his concluding paragraph he said this :-

"In conclusion, we would like to categorically assure you that we did not enter into the 1982 agreement lightly and we placed strong reliance on Government's integrity when entering into this agreement on the basis of a joint venture and the 'use of best endeavours in a spirit of continuing and constructive co-operation to facilitate the development in a timely fashion'. From our Company's point of view, we wish to proceed with the development on the basis that has already been agreed between us which is reflected in the Master Development Plan which was approved by the Development Progress Committee on 8th September, 1983."

294. On 16th August 1984, Mr Eason, for SLW, announced by memorandum the creation of the Tin Shui Wai Development Steering Committee ("TINDSC") primarily as a means of resolving major problems relating to the development. TINDSC was to be concerned only with matters of major significance. Routine matters would continue to be dealt with by normal procedures through DPC, CTB, EACSB and other established channels. TINDSC was to meet only as often as business warranted and MCL would be invited to attend when the need arose.

295. On 20th August 1984, Mr Chien wrote to Mr Betteley about sources of fill. The possibilities were: marine fill; land-based fill from PRC; or land-based fill from Hong Kong. Mr Chien mentioned paragraph 11(b) of the 7/82 Agreement, with its reference to HKG and MCL entering into a contract to provide or procure the provision of fill material. Although the 7/82 Agreement spoke separately of contracts for forming the site and providing or procuring the provision of fill, Mr Chien felt that it was in fact more convenient to consider the provision of fill and the site formation as part of a single operation. Mr Chien mentioned that discussions were taking place within HKG on how best to proceed with the contractual arrangements for site formation envisaged in paragraph 11 of the 7/82 Agreement. HKG had proposed a single "design and build" contract which would enable work to proceed as a series of separate design and construction packages. Included also would be the requirement for MCL to procure the fill as required. Design of the site formation would be carried out under a separate design package which it was intended as a matter of expediency to commence in advance of the "design and build" contract. In drawing up the brief for this design consultancy, HKG had assumed that marine filling would be used and that tenders would be called on that basis; it also allowed for flexibility to change to a land-based fill strategy by including in the brief a feasibility study of land-based fill from Hong Kong. Allowance had not been made for consideration of land-based fill from China because of uncertainties about how such a study could be conducted. Mr Chien pointed out that it would be necessary to examine a11 the options in sufficient detail to enable a realistic cost comparison to be made even if it were to be assumed that marine filling was the most likely option. The costs of marine filling would be provided by comparative tender, and of land-based fill from Hong Kong by a feasibility study carried out as part of the site formation design package. Mr Chien said he would be grateful for Mr Betteley's earnest consideration of the general issue of alternative sources of fill, and would welcome his comments and suggestions.

296. On 28th August 1984, Mr Chien applied to EACSB for approval to appoint MCL to carry out additional works by extending the supplementary agreement which provided for the design of the preliminary engineering works (the TRDC and SWAR), and for the prequalification of dredging contractors, to include the construction stage for the preliminary engineering works. In his memorandum, Mr Chien pointed out that, to avoid delays to the construction programme for Tin Shui Wai, it was necessary to proceed with the construction stage of the preliminary works in advance of the main "design and build" contract being negotiated between MCL and HKG.

297. On 1st September 1984, Mr Betteley wrote to Mr Chien expressing considerable concern about what he called "the very serious situation" created by the recent HKG revisions to the MDP. Mr Betteley mentioned that the Tin Shui Wai development was a joint venture led by HKG in programme and rate of investment, but, nevertheless, a joint venture in which the need to communicate was a paramount one. (This acknowledgement that the venture was to be led by HKG "in programme" seems to me impossible to reconcile with TSW's case that HKG had entered into contractually binding time obligations with TSW. It demonstrates rather an acceptance on the part of TSW that that was not the case. Mr Betteley's letter makes it clear that he considered the October 1983 MDP to be the final MDP subject to change only by mutual agreement. But, as we have seen, it was not until 22nd June 1984 that SLW signed the MDP; and this was rejected by MCL/TSW. I am not prepared to accept the argument that the October 1983 MDP was the final version of the MDP contemplated by the 7/82 Agreement. Mr Betteley did make, however, a forceful case against what was now proposed by HKG. The 7/82 Agreement had envisaged a dormitory town of 169 hectares. But the 1983 brief for the MDP required planning for a balanced town of 228 hectares including industrial land. As Mr Betteley said in his letter, one and a half years of planning and some $15m had gone into this concept. He urged that the October 1983 MDP providing for a balanced town had far greater merit than an MDP for a dormitory town. He also argued that if there was to be a change of concept (a prospect which, it is to be noted, Mr Betteley did not altogether exclude) this would entail the commission of a new MDP and not merely a plan for a balanced town out of which a dormitory town had simply been "carved out". Mr Betteley concluded by saying that in principle, MCL believed there were no real differences between the attitudes of HKG and MCL to Tin Shui Wai, and that both wished to see the development as successful and cost effective. A little more force and care, he said, was needed on both sides to decide what direction the planning should now take. MCL, he said, regarded it "as a patient and undemanding joint venture partner, enthusiastic to proceed with implementation whenever (HKG] is ready". Again, this seems to me impossible to reconcile with TSW's case that HKG had bound itself to contractual time obligations in relation to the development of Tin Shui Wai.)

298. On 3rd September 1984, a meeting was held to discuss the revision of the MDP. Both Mr Chien and Mr Betteley were present. Mr Betteley said that MCL would prefer to have industrial land planned as an integral part of the first stage of development, but would accept whatever plan HKG produced provided it was a good plan, well-designed and likely to make the town a viable proposition. It was agreed that a short revised planning brief would be prepared, which should, however, contain provisions to ensure that the land formation programme was not delayed.

299. On 20th September 1984, Mr Betteley wrote to Mr Chien thanking him for his letter of 20th August 1984 about sources of fill. Mr Betteley did not feel any comment on the approach to obtaining a realistic reclamation cost using Hong Kong land-based fill or marine-based fill was necessary, as this would be adequately covered by the brief for the land formation design contract. The PRC land-based option created more difficulties. But Mr Betteley clearly treated it as a serious option, for he set out in detail his proposals for finding out the cost, stating that "it could well prove to be cheaper" than marine fill

300. On 21st September 1984, GENT) applied to EACSB for approval to enter into an agreement with MCL for the engineering consultancy for the land formation design.

301. On 26th September 1984, Mr Chien (who was just about to leave HKG service and who was to be succeeded by Mr Y.Y. Ng) forwarded to MCL a further revised plan which defined the 169 hectare development zone and which was intended to be that required by clause 6(b) of the 7/82 Agreement. Mr Chien expressed the hope that MCL would be able to advise him of its acceptance of the plan as soon as possible. (The proposal to reduce the area of the initial development zone from 228 hectares to 169 hectares had come about, as we have seen, as a result of Mr Chan's proposal that consideration be given to amending the MDP to exclude industrial land as superfluous to requirements. MCL had believed, in my judgment wrongly, that the proposal was motivated by a desire to reduce the amount of the adjustment to the basic consideration payable under the 7/82 Agreement. The agreement now proposed, for a 169 hectare development zone based on the original MDP, would serve to put the adjustment issue to rest.)

302. Also on 26th September 1984, the Property Services Agency wrote to DLO/YL confirming that the Ministry of Defence was not prepared to allow borrow activity in the Castle Peak range. (This made it extremely unlikely that the land at Tin Shui Wai could be reclamed using land-based fill from a Hong Kong source.)

303. On 28th September 1984, Mr Chien left HKG service and Mr Y.Y. Ng succeeded him. Also on 28th September 1984, EACSB approved MCL's appointment as consultants for the land formation design.

304. On 9th October 1984, Mr Y.Y. Ng, as GE(NT), wrote to MCL enclosing another revised plan and stating that MCL had indicated verbally that that revised plan was acceptable (a) as a means of determining the 169 hectares development zone as required under clause 6(b) of the 7/82 Agreement; and (b) as a revision of the MDP for Tin Shui Wai. Mr Y.Y. Ng asked for MCL's early written confirmation of the plan.

305. On 15th October 1984, Mr Betteley wrote to Mr Y.Y. Ng about the revised plan. He made some detailed comments about it, but said that it was acceptable in principle [emphasis added] for the purposes of calculating the adjustment to the basic consideration and acceptable without qualification [emphasis added] in relation to the implementation work.

306. On 19th October 1984, HKG and MCL entered into the consultancy agreement for the land formation design.

307. On 29th October 1984, the HKIEC withdrew its proposal to surrender surplus land at YLIE.

308. On 2nd November 1984, Mr Betteley sent Mr Y.Y. Ng a summary of BP's Working Paper No.1 - Site Investigation Proposals which, he said, helped to focus on those aspects for which a early decision was required. The Working Paper proposed further marine and land investigations for the formation of the land at Tin Shui Wai. For the first stage of marine investigations, there was proposed a check to see whether there were deep sand deposits beyond the mouth of Deep Bay, so that that could be taken into account before selecting the principal borrow area. The second stage would be detailed investigations of the principal borrow area, focusing on only one of the options identified.

309. On 7th November 1984, HKG let the contract for the construction of the TRDC.

310. On 8th November 1984, the first meeting of TINDSC was held. The single item on its agenda was to agree a modified MDP and the selection of the land to be allocated to MCL in accordance with it. The meeting was?asked to approve a revision which MCL had indicated was acceptable although they had complained of the decision to reduce the area of the initial development zone from 228 hectares to 169 hectares. The meeting was of the view that, because of the 7/82 Agreement, it was not in HKG's interest politically nor financially now to drag its feet in delaying Tin Shui Wai notwithstanding the doubts that several departments might have had in the past. TINSDC accepted the revised MDP and deemed it suitable for recirculation to all concerned.

311. On 22nd November 1984, Mr D.S. Paterson, for GE(NT), wrote to Mr Betteley about the Working Paper No. 1 - Site Investigation Proposals. As to land borrow areas, Mr Paterson said that a desktop study would be needed to identify whether there were land based borrow areas with sufficient material and with solvable constraints. The most appropriate one (or more) should be selected to price in order to establish comparative costs of winning material. Only sufficient investigation was required reasonably to verify the likelihood of up to 10 million cu.m. for the initial stage site formation. A reassessment of the scope and time scale for this work was required, which would need to be done when the results of the desktop study were available.

312. Also on 22nd November 1984, Mr Chan signed the final version of the MDP, limited to the 169 hectares as by now agreed.

313. On 11th December 1984, Mr P.Y. Tam, for GE(NT), informed MCL that, on 8th November 1984, TINSDC had agreed the revised plan, which it deemed suitable for circulation to HKG departments for comments and as a basis for further development work.

314. Also on 11th December 1984, Mr S.S. Lee wrote to Mr Betteley enclosing the first draft of (most of) the design and build contract. (It was now years since the 7/82 Agreement had been made; and this does seem a very long time to have taken to produce this draft. But it will be remembered the parties had always realised that it would indeed take a long time to come to agreement about the terms of the contracts envisaged by clause 11 of the 7/82 Agreement, and that agreement in principle as to the nature of the contractual arrangements was necessary before the drafting could commence.)

315. On 19th December 1984, the Governments of the United Kingdom and the PRC signed the Joint Declaration on the question of the future of Hong Kong (this settling, more or less, the previous uncertainty here about long-term interests in land).

316. On 12th January 1985, Mr Betteley wrote to Mr Y.Y. Ng about the work programme for the land formation design. Mr Betteley said that MCL remained concerned regarding the present status of the work programme for the contract, without which control of work and timely decision making was not possible. He pointed out that although he had received a very prompt response to the submission of Working Paper 1 - Site Investigation Proposals, instructions to proceed with the critical work had not been received. (Mr Orange told me in evidence that problems arose because (a) the term contractor who was to do the work did not have standard rates for it; (b) there was a question whether the term contractor could let the geophysical work; and (c) the amount of work to be done under the contract was so considerable that the approval of FB would be necessary. I accept this explanation of the delay.)

317. On 21st January 1985, Mr Y.Y. Ng sent a memorandum to DNTD about the requirement of engineers in NTDB. Mr Y.Y. Ng referred to the Tin Shui Wai development and noted that the time schedule for completing the works was tight and that HKG "has an obligation under the land development agreement with MCL to complete its works with the best endeavours in a timely fashion". (I have no doubt that Mr Y.Y. Ng, like his predecessor, was well aware of this obligation and was doing his best to discharge it. His branch was at all times short of staff, in the sense that it always could have done with more engineers to relieve the heavy workload on those in post; but I am satisfied that readjustments made internally enabled NTDB to do what wasrequired of it in connection with the development at Tin Shui Wai in accordance with the obligations of HKG under the 7/82 Agreement.)

318. On 28th January 1985, Mr Paterson, for GE(NT), replied to Mr Betteley's letter of 12th January 1985 stating that he fully appreciated and shared Mr Betteley's concern over the lack of progress on the Stage I marine site investigation. He said he was doing his utmost to expedite these works with the Geotechnical Control Office. He noted Mr Betteley's offer to place a direct contract for the work and would seriously consider it, should the GCO term contractor not be able for any reason to undertake the work.

319. Also on 28th January 1985, Mr S.S. Lee wrote to Mr Betteley about the detailed work programme. Mr S.S. Lee said this :

"As indicated to you at our-various meetings, my general comment is that the programmes appear to be very tight and optimistic. Though your amended programmes show a more reasonable period for those activities requiring Government approval, it is only on the assumption that such activities are straightforward and your recommendations or submissions will receive favourable acceptance by Government. There are many factors which may easily upset the programme, and one can quote a lot of them such as insufficient details submitted, options not fully evaluated, proposals queried by Government departments, difficulties in obtaining financial approvals etc. etc. etc. As you know, for example, the stage I marine investigation works are already behind schedule due to administrative problems ... Furthermore, your programmes have not allowed for any statutory procedures. Nevertheless, I am quite sure that some of these procedures would form part of the critical path in the overall programme.

Having stated my general observation, however, I must offer my compliment to you for a timely completion of the programmes, which do represent the result of a well-considered effort to try to achieve an admirable goal aiming for an early commencement of the land formation contract. I think we should treat your programmes as our common target. They can be used as guidance and may be reviewed periodically as we proceed."

(This letter highlights the difference in the approach of MCL and HKG respectively towards matters of programme. To MCL, a programme of work meant a commitment. To HKG, a programme of work meant a target. MCL wanted an agreed and accepted programme. But that was not at al what HKG wanted. Mr Betteley told me in evidence that “we were trying to pin the government down to a programme” and that when he saw this letter he would “probably have hit the roof”. I am not prepared to hold that the adoption by HKG of the approach which it favoured amounted to a failure to perform its obligations towards MCL/TSW under the 7/82 Agreement, under which it had not committed itself to any programme at all, as Mr Betteley well Hnew.)

320. Also on 28th January 1985, Mr S.S. Lee wrote to the Chief Geotechnical Engineer/Materials about the stage I marine site investigations, emphasizing their urgency, and pointing out that lack of information would delay the whole design, contract and construction programme.

321. On 31st January 1985, Mr Betteley wrote to Mr Y.Y. Ng thanking him for his letter of 11th December 1984 and for the first draft of (most of) the design and build contract. Mr Betteley said that it was perhaps worth recording at this point that HKG and MCL were endeavouring to modify a construction contract normally priced by competitive tendering into a suitable format for a "design and build contract" to which a cost-plus basis of reimbursement would apply. MCL had yet to conclude whether or not this approach was the most suitable. Although MCL's previous inputs to earlier efforts to modify the 1977 general conditions of contract had been "downgraded" to guidelines, MCL still felt much of the introductory information was most relevant and should be reviewed for eventual inclusion in the contract. That could take the form of a "Statement of Intent, Introduction or Preamble" and would generally assist in presenting a clear overall picture of the contractual arrangements. MCL regarded the draft contract as a useful step forward towards the implementation of clause 11 of the 7/82 Agreement. It had taken MCL an appreciable time to check the draft which indicated that a much greater time and effort had been put into the drafting by NTDB and HKG's Legal Department. Clearly the progress of the task was one dependent upon available manpower and MCL hoped that resources were available to continue the drafting. MCL would very much like to see the contract document finalised so that its authority and responsibilities were clearly defined.

322. Also on 31st January 1985, Mr Orange replied to Mr Betteley's letters of 20th September 1984 and 10th January 1985 about landbased fill from PRC. Mr Orange said it was his own opinion that land fill from China was likely to come in third behind marine fill and landbased fill from Hong Kong. He did not consider it worthwhile at that stage to proceed with any major investigation into fill resources in China. But he considered that the position in respect of fill from China needed to be brought up to date in a short report which could be used as input to the paper on fill strategy (which he was preparing).

323. On 1st February 1985, MCL submitted the (final) evaluation report concluding the EIA.

324. On 2nd February 1985, Mr Betteley sent a memorandum to the Chairman and Board of MCL about the Tin Shui Wai development programme. In this memorandum, Mr Betteley said this:-

"The 1982 Agreement was not particularly specific in programme requirements due to a wish for flexibility by both MCL and Government [emphasis added]. Nevertheless the planned expenditure programme is worth keeping under review since further significant slippages by Government might well prejudice achievement of the objectives of the 1982 Agreement and result in MCL being in a position to seek a refund or interest on the $800 million advance premium paid by MCL within the 1982 Agreement settlement terms."

Mr Betteley added that he would express concern to HKG regarding the delay and effect on availability of sites for MCL development. (This thinking is, in my judgment, inconsistent with TSW's present case. In this memorandum Mr Betteley acknowledges that the 7/82 Agreement was not "particularly specific in programme requirements" and is expressing concern, rather than any protest, about the progress of the development.)

325. On 6th February 1985, Mr Betteley wrote to Mr Y.Y. Ng thanking him for the letter of 28th January 1985 about the detailed work programme for the land formation design. Mr Betteley said that the reluctance of HKG to accept the programme as originally submitted, and the failure to initiate the criticial marine site investigation work by the dates required, was a particular disappointment not only because it would delay the entire project but also because it was fully discussed in detail during the preparation of MCL's offer and pre-proposal for this first major land formation design contract. He said that it might well be that MCL's sense of frustration on the programme resulted from a combination of a genuine desire to make some real progress at Tin Shui Wai and an acute awareness that the joint HKG/MCL investment in the Tin Shui Wai development of some $2.5 billion lay static without providing anyone any benefit whatsoever, whilst delays prevailed, programmes slipped and under the customary business climate an interest charge of $5m accrued for each week of delay. He said that NTDB as HKG's representative was MCL's client on this contract, and that MCL should perhaps not question its client's wish that the programme should be "our common target". He said that clause 9 of the brief required the detailed work programme to have "the agreement of the directors' representative" which indicated a much firmer level of commitment by HKG. He said it was quite apparent from the letter of 28th January 1985 that NTDB considered the programme period inadequate and since the marine site investigation work was currently some six weeks late, it would seem more practical for NTDB to specify what approval period and also what statutory periods they considered appropriate for activities under HKG control. MCL could then redraft a programme that both NTDB and MCL believed to be realistic and achievable. MCL did not see how the work could proceed and be controlled in a cost effective manner on any other basis. He said that in the event that MCL's concern regarding delays and wish for a firm programme was not shared by HKG and NTDB, due perhaps to the lack of financial resources referred to in the letter, then MCL would appreciate Mr Y.Y. Ng's notification to that effect so that MCL could acquire a more relaxed attitute to the progress of the implementation work. He concluded that the present programme situation was quite clearly unsatisfactory.

(This letter reflects, in my judgment, the difficult position in which MCL had placed itself by choosing to wear "two hats", a description used by Mr Betteley in evidence; the one as consultant to HKG, and the other as partner with HKG, in the development of the new town at Tin Shui Wai. In its capacity as consultant, it was of course at all times subject to the instructions of the client, which was HKG; whereas in its capacity as partner in the development of the new town, it had a separate and independent interest in the expedition of the work.)

326. Also on 6th February 1985, Mr Betteley wrote to Mr Y.Y. Ng advising him that due to-the 6 week delay in initiating the marine investigation work, it had been necessary to review and redraft the implementation programme for land formation which was required as part of the preliminary report due for submission on 11th February 1985, a date which could not now be met. It was proposed to submit that report one week later, on 18th February 1985. It would consist of (a) an implementation report and (b) a technical report.

327. Also on 6th February 1985, Mr Orange wrote to the Regional Surveyor of the Properties Services Agency mounting another attack on the Castle Peak Firing Range, despite the disappointing results of previous skirmishes. Mr orange pointed out that although he was reasonably confident of the viability and costs effectiveness of marine filling, nevertheless, it was considered prudent to examine alternatives based on land fill and to derive an alternative landbased fill strategy to cover the eventuality that for one reason or another, the costs of marine filling might turn out to be unacceptably high, and in any event to determine an estimated cost for using landbased fill against which the tendered price for using marine fill might be assessed. He asked for discussions to be arranged as to the viability of borrowing operations in and adjacent to the north-west part of the Castle peak Firing Range.

328. On 11th February 1985, Mr Betteley sent another memorandum to the-chairman and Board of MCL about progress at Tin Shui Wai. After setting out the details, he concluded that HKG seemed “quite unconcerned” about the overall situation but a private developer could simply not afford to operate at such a poor level of performance. MCL was making every effort and offering every assistance possible to NTDB, but they seemed “quite unwilling” to take the decisions necessary to make real progress. (I regard these strictures as unjustified. HKG was not simply “lolling around on the job and dragging its feet” as suggested in evidence by Mr Betteley. Nor was it unwilling to take decisions necessary to make real progress. It is true that HKG's nature, structure, and ultimate aims, were quite different from those of a commercial developer and made it impossible for it to proceed in the way in which such a developer would proceed. But I am satisfied that HKG at this stage, as at all others, was doing what could reasonably be expected of it to keep the project moving forward.)

329. On 1st March 1985, Mr Orange sent Mr Betteley revised draft conditions for the design and build contract.

330. On 6th March 1985, DLO/YL, by Mr R.M. Lee, Senior Estate Surveyor, sent to CP the first draft of the conditions of grant proposed for the grant to TSW of the 38.8 hectares.

331. Also on 6th March 1985, a meeting was held between Mr O'Rorke, Director, NTDD, and his deputy Mr Kenneth Kwok, and Mr Betteley. The purpose of the meeting, which was requested by MCL, was to enquire whether the poor rate of progress in implementing the 7/82 Agreement was of concern to HKG. Mr Betteley noted that progress, and NTDB decision-making, had been so protracted, it seemed as if a definite policy to delay the implementation of the project was operating and that only MCL were interested in pushing the job and making progress. He had requested the meeting because progress was minimal and critical action by HKG departments was not being taken. HKG departments were not under any central direction for TSW activities, neither was there any programme for HKG actions though MCL had repeatedly offered to prepare and monitor such programmes. MCL was pushing for progress in order to honour its 7/82 Agreement obligations. HKG had paid MCL a substantial sum to implement the development and lack of action by HKG was now frustrating this obligation. If HKG did not want the development to proceed or wanted to slow it down, they should say so, then MCL would reduce the pressure for progress. Mr O'Rorke said that HKG wal still very keen to develop Tin Shui Wai and that all the necessary funds were available. The starting of a new town was a slow business and involved a lot of HKG departments. The New Territories was a difficult area to work in and things might take a little longer there. Progress always seemed slow at the beginning. Mr Betteley noted it was almost three years since the 7/82 Agreement was finalised and even the elementary steps for drafting the design and build contract and clearing the land had not been accomplished. He mentioned the financial aspect and said that by the normal financial criteria of return on capital employed, Tin Shui Wai would be regarded as a financial disaster. Mr Kwok took note of the $3m per week potential interest lost to HKG for each week of no action and the similar $1.5m to MCL. He stated that HKG wished to see a return on their investment in Tin Shui Wai as soon as possible. The difficulties which had been encountered were discussed, including staffing difficulties. Mr Betteley accepted that staff limits always applied and in deciding what was to be a realistic programme, the starting point was to determine what needed to be done and what staff resources were available to do it. Mr Betteley emphasized that he had made no reference or criticism of any individual staff in any of his remarks and none was implied. He said there was an apparent general lack of direction and enthusiasm regarding Tin Shui Wai at higher levels of authority in HKG and that was thought by MCL to be the principal reason for poor progress. (Mr Betteley told me in evidence in the morning of 17th October 1990 that at the end of this meeting he was uneasy; but he hoped that TINDSC, of the constitution of which he had been advised, would set the development on course again.)

332. On 8th March 1985, Mr Betteley wrote to Mr Y.Y. Ng about the delays in site investigation work, stating that it was MCL's opinion that this work could have been initiated much faster and that it had taken an extraordinarily long time to arrange a straightforward marine investigation contract of minor value but critical programme significance. (I am of the opinion that this stricture is justified; but that it would not be right to treat this delay as resulting from a want of best endeavours on the part of HKG. Everyone concerned in the matter had, in my opinion, been doing his best; the problem was due to the nature of HKG's procedures for authorising this sort of work.)

333. On 13th March 1985, Mr Betteley wrote to Mr O'Rorke about the meeting of 6th March 1985. He said he had found the meeting most useful. He said that more than $2.5 billion of HKG and MCL finance had been committed to Tin Shui Wai since mid 1982. He said that the public and private development upon which this investment was predicated was very little nearer realisation that it was in 1982. He said that to be ready and able to proceed with such development when required (and he emphasised these two words) must surely have been one of the fundamental reasons for the investment in the first instance. He said that one could question whether the long delays that would result from marine source and land source borrow areas being kept open was debatable (sic). He pointed out that a land source would take approximately another year to implement and result in a further year's delay in a return on the $2.5 billion invested. He attached a series of programmes and said that an endorsement of these programmes, if considered realistic by HKG, was seen as an important step towards initiating the implementation work; and he said that he would like to see the HKG/MCL implementation contracts formalised so that MCL's limits of liabilities and authorities were defined.

334. On 14th March 1985, at an NTDB progress meeting, Mr S.S. Lee advised that NTDB had asked for commencement of the reclamation work.

335. On 18th March 1985, Mr Betteley wrote to CP about the conditions of grant. Mr Betteley said that MCL was not seeking a special treatment in respect of this grant or subsequent crown leases and its only area of concern was that the conditions of grant must not in any way conflict with the conditions of the 7/82 Agreement since (as Mr Betteley had appreciated) grant conditions would take precedence over the 7/82 Agreement.

336. Also on 18th March 1985, Mr Betteley wrote to BP about approvals for detailed design work, stating that MCL had advised NTDB of the staff resources problems that delays in approval created, and that NTDB had responded positively in M CL's view by at least showing a willingness to release those items of detailed design work not dependent upon the land formation policy recommendation of the preliminary report to which he referred.

337. On 26th March 1985, there was a meeting of the parties to discuss the conditions of grant. Mr Petty, of CP, sought the insertion of a special condition in these terms (suggested by Mr Betteley) :-

"Possession of each lot shall be given and taken when it has been formed and serviced by the Government and is ready to be built upon on the date to be specified in a letter from the Director."

Mr Petty also asked that the conditions should contain a proviso in the following term :-

"Provided that such consent shall not conflict with the established intention of the 1982 Agreement, the Master Development Plan prepared pursuant thereto, and the Master Layout Plan referred to in those Conditions".

338. On 28th March 1985, Mr Orange prepared some written comments on Mr Betteley's letter to Mr O'Rorke dated 13th March 1985. Mr Orange noted that delays in clearance had occurred in relation to the TRDC and SWAR works. There had been difficulty with the Housing Department over the former and with the Lands Department over the latter. Mr Orange did not agree that the development was very little nearer realisation than it was in 198-2. He said that he thought a very great deal of ground in preliminary planning and feasibility studies had been covered and that considerable initial work was already under implementation. He concluded that HKG was still on course to provide the development when required. He acknowledged that Mr Betteley was saying that HKG should be firm on marine filling because the delay of about one year in having to switch from a marine fill strategy to a landbased strategy would be more costly than having to pay up to, say, 20% more for marine fill. He said that the strategy for proceeding further on the study of alternative landbased fill sources would be reviewed as soon as the present short study on costing alternative landbased sources and the preliminary assessment of the mainland PRC sources was completed. It would be necessary to approach TINDSC at that time for a ratification of the further strategy in respect of alternative sources of fill. However, he said, assuming that it would always be necessary to check the cost of alternatives so as to provide a basis for assessing the viability of marine filling, no final decision could be made until after the marine tenders were in. At that time, the relative effect of further delays if marine filling was rejected would be part of the equation. He said that it was already proposed to approach TINDSC on the strategy of fill sources as soon as further information then under study was produced. (I am satisfied that this approach was entirely reasonable.)

339. On 16th April 1985, Mr Paterson wrote to Mr Betteley to tell him that in the light of the results obtained from the stage I marine site investigations, he wished to confirm that it was not now necessary further to consider the Kongsu Bank as a source of fill.

340. On 17th April 1985, Mr Y.Y. Ng sent to SLW an information paper on progress and general approach to the preparation of the design and build contract documents, for circulation to members of TINDSC, which was to meet on 2nd May 1985. In this paper Mr Y.Y. Ng observed that it had been easier initially to agree on what was unsuitable than what was appropriate for the contract. A normal engineering remeasurement contract; a management contract; an entrustment agreement; all of those were considered inappropriate. What was evolving was a type of contract which took something from all of the foregoing, and was designed especially to satisfy the unique requirements of the present situation. The extent and timing of completion of the works was to be flexible and under HKG control. MCL had participated in the working group which prepared the draft contract, as it was considered necessary to involve both parties throughout the preparation stages of the documents in the belief that this would simplify the process of acceptance of the final documents and make the negotiations easier. MCL had indicated that it would require to have its legal advisers examine the draft documents on completion. The draft programme for implementation of the development included in the preliminary design report required tender documents for the main site formation works to be prepared and tenders to be called in November 1985. Those works (he said) should be implemented as a nominated sub-contract to the design and build contract and it was desirable that negotiations be completed and that the contract between HKG and MCL should be signed before tenders for the sub-contract were called. A programme for completion of the draft design and build contract documents had been prepared which would result in a draft of the complete documents being available for TINDSC to consider and approve by the end of June. Mr Y.Y. Ng referred to Clause 11 of the 7/82 Agreement. He said it was considered reasonable for HKG to permit an element of mutual trust in drawing up the contract conditions. It must also be remembered however (he said) that HKG was paying for the cost of the work and therefore needed to retain a high degree of financial control. Other complications (he said) had become evident relating to the definition of the scope and timing of the works. At the time of entering into the design and build contract, it would not be possible to precisely define the scope of the works or specify the requirements in detail and it would not be possible to give exact completion dates for all parts of the works. The contract documents had to provide the necessary flexibility progressively to define new sections of the works and their completion dates over a comparatively long period. This was a complete departure from normal engineering remeasurement contract practice and necessitated considerable redrafting and alteration to existing contract conditions. The 1985 version of the HKG conditions of contract for civil engineering construction was the appropriate starting point. The first draft of those conditions had been prepared, but many shortcomings were evident and it was presently under revision. It would not be possible to complete the revision until draft conditions of employment of approved subconsultants and draft conditions of nominated subcontract were prepared. Those would clearly define the extent to which contractual liabilities would be placed with subcontractors and subconsultants and therefore enable MCL to have a clear understanding of its contractual responsibilities, liabilities and risks. (This information paper, with its attachments, covered 26 pages of foolscap. I have merely highlighted certain points in it. This should however be sufficient to indicate just how difficult it had been, and was going to be, to arrive at some appropriate and acceptable form of design and build contract.)

341. Also on 17th April 1985, Mr Betteley wrote to Mr Y.Y. Ng and Mr Orange, attaching a first draft of a brief for the preparation of the design and build contract and giving, as Mr Bettleley called it, "a lead-in" to the subject.

Paragraph 1.5 of this draft brief read as follows:-

"1.5 Work Subsequent to 1982 Agreement

Since the 1982 Agreement Government and MCL have entered into interim agreements and supplementary agreements thereto for the execution of work necessary to the timely implementation of the project in the spirit of the 1982 Agreement as follows:-

(a) investigation into the availability and suitability of fill material within Deep Bay.

(b) design of preliminary engineering works including the Tai River Diversion Culvert, the South-West Access Road and a works area for the main site formation contractor.

(c) prequalification of dredging-contractors for the main site formation contract.

(d) an environmental impact assessment of the land preparation aspects of the project.

(e) the preliminary report stage of the land formation design.

(f) the construction of the Tai River Diversion Culvert and the works area for the main site formation contractor.

(g) the design, commissioning and supervision of a contract for site investigation of a further marine borrow area.

The foregoing works which were executed prior to signing the Design & Build Contract shall be regarded as having been executed under Nominated Subcontracts within the terms of the Design & Build Agreement."

Paragraph 2.0 read as follows:-

"2.0 Structure of the Design & Build Contract

2.1 Before writing this brief it has been necessary for Government and MCL to jointly identify the structure of a Design & Build Contract for which reimbursement on a Cost Plus basis is envisaged. Any such contract must recognize that the proposed T.S.W. works are extensive and costly and that the time required for full implementation will be lengthy. It is further recognized and has been assumed in the July 1982 Agreement that the rate of development and expenditure on development may need to be varied from time to time and that mutually acceptable means by which the programme can be varied need to be agreed and incorporated into any detailed contract(s).

2.2 This has now been done and it is proposed that from a mutually agreed programme for the building development work Government and MCL will determine a suitable implementation programme for the land formation and infrastructure work. [emphasis added] All such work will be released in increments as appropriate to the implementation programme.

2.3 Design Requirements

Investigation, design, contract administration and site supervision will be executed in a series of Sub Consultancy Contracts and undertaken by a Sub Consultant/s nominated by MCL and approved by Government.

The Sub Consultancy Contracts will use the Government's current 'General Conditions of Employment of Consultants for the Construction of Civil Engineering Works' modified only as is necessary to be compatible with the Design & Build Contract and to meet any special requirements of Government.

The sub-consultant agreement will provide as is customary for the Design work to proceed through the following stages :-

Each of the separate stages will require a specific written Government (N.T.D.B.) approval to proceed and in this way Government retains complete control of the extent, quality (in terms of design requirement), cost and timing of the work to be carried out. [emphasis added]

2.4 Construction Work

Construction requirements will be executed by a series of nominated subcontracts covering the various sections and phases of development. The Government's new 1985 General Conditions of Contract for Civil Engineering Works will be used as the basis for these nominated subcontracts and will be modified only to the extent necessary to be compatible with the terms of the Design & Build Contract and will be further modified by any special conditions mutually agreed by Government and MCL as appropriate.

Tenders for the construction work will be on a competitive basis and will be invited from the lists of Government's approved Contractors or from separately prequalified contractors where this is deemed necessary for work of a specialist nature. Existing Government procedures will apply to tender, tender evaluation and contract award procedures.

2.5 Provision of Filling Material

To meet the obligations of Clause 11(b) of the 1982 Agreement MCL will be required to provide a source of filling material sufficient to meet the requirements of the project in every respect.

To minimize problems of control and measurement it is proposed that payment for filling material will be based upon the volume placed and consolidated in position on site. A single payment rate is preferred but this will be dependent upon eventual programme requirements and level of support services required by the filling operations.

The terms and conditions relating to the provision of filling material are particularized later in the brief."

Paragraph 3.0 read as follows:-

"3.0 Role of MCL

The role of MCL in the Design & Build Contract will be that of "Contractor".

Working under the direction of Government (N.T.D.B.) it will be MCL's principal responsibility to initiate, manage and control the activities of the respective Nominated Subconsultants and Nominated Subcontractors and make filling material available to meet the Government's requirements in respect of land formation and infrastructure necessary to sustain the mutually agreed Development Programme.

MCL's performance in this respect will be judged by Government in terms of the cost effectiveness, quality and timely completion of the required section of the works.

The level of MCL's participation in taking over responsibilities and duties customarily undertaken in N.T.D.B. themselves will be at Government's discretion and may vary from a minimum to a maximum involvement. The varied level of participation will vary the cost to Government of MCL's activities but will not vary the profit percentage to be applied to the 'Cost of Works'.

Whatever the level of participation and responsibility assigned by Government to MCL at any time it will also be necessary for Government to delegate to MCL the necessary authority-to carry out the duties set out in this brief and the contract conditions."

Paragraph 4 read as follows:-

"4.0 Control by Government

4.1. The Government controls referred to in earlier paragraphs are reflected in the Development Programme prepared annually that details the timing and estimated cost of anticipated works.

4.2. Through the medium of this document Government shall have the controlling decision as to the timing for execution of works [emphasis added] but shall liaise with MCL in the annual updating of the Development Programme.

4.3 Development programme preparation and contents

The development programme shall be prepared by the New Territories Development Department in accordance with its standard format for New Town development programmes and shall include general forecasts of expenditure, population growth, land availability as well as a detailed section in bar chart form showing commitment status (Category in the Public Works Programme), start and finish times (to the nearest quarter) and estimated costs by year for all items of design and construction and provision of services and community facilities associated with the Project. The starting point for the Development Programme shall be the programme contained within the Master Development Plan and from which the 1983 Edition of the Tin Shui Wai Development Programme was prepared by the New Territories Development, Department.

4.4 Programme updated annually

The period covered by the Development Programme shall be 10 years with the second half regarded as tentative. The Development Programme shall be updated annually by the New Territories Development Department in liaison with MCL and approved by Government's Finance Committee in about November each year."

Paragraphs 5.0 and 5.1 read as follows:

"5.0 Scope of Work

The scope of the land formation and infrastructure works covered by this Agreement shall be generally as described in the MDP and more fully set out in the detailed layout plans prepared under the directions of the Director and approved by Government, and subject to such additions, deductions and/or modifications of detail as may be required by the Director from time to time and including the following provisions

5.1 Site formation

In respect of site formation it is as yet uncertain as to when and for what purpose Government will require the use of the land bank beyond the Development Zone, pending the analysis of recently completed results of territory-wide strategic planning studies. Therefore although the site formation of the whole of the landholding is included in the scope of the Works, it shall be entirely at Government's discretion as to when and what rate particular parts of the site formation shall be executed. [emphasis added]."

(I regard these paragraphs in this draft brief prepared by MCL as inconsistent with TSW's present case that HKG, in the 7/82 Agreement, had' entered into time obligations which it was by now about to breach.)

342. On 22nd April 1985, Mr Betteley wrote to BP about the release of selected design work. He commented that MCL did not have an "agreed" programme and delays of the development programme did not appear to be of any concern whatsoever to NTDB. He added that MCL was in a wholly unsatisfactory position due once again to NTDB's lack of decision and commitment to the project. (I find these strictures to be unfair and unjustified.)

343. On 22nd April 1985, Mr R.M. Lee wrote to CP about the conditions of grant. He said that various amendments which had been suggested by CP to the conditions of grant had been agreed. He enclosed a copy of a draft incorporating CP's required amendments. He said that CP seemed concerned that HKG was attempting to depart from the provisions of the 7/82 Agreement. In order to allay any doubt CP or its client might have in this regard, he had included special condition 47, which linked the conditions of grant to the 7/82 Agreement, and provided that there could be no inconsistency between the two. Condition 47 read as follows :-

"AND IT IS HEREBY AGREED AND.DECLARED that the provisions of the 29th July 1982 Agreement and made between the Government of Hong Kong of the one part and Mightycity Company Limited and Tin Shui Wai Development Limited of the other part, shall be deemed to be incorporated herein insofar as they are not inconsistent with or contrary to the conditions of this grant."

344. On 24th April 1985, Mr Betteley sent a memorandum to the Chairman and Board of MCL, appending a copy of the draft conditions of the re-grant. Mr Betteley demonstrated his understanding of clause 47 when he described that one of his aims had been "to ensure we do not undermine the 1982 Agreement or introduce points of conflict since the Regrant Conditions take precedence over the 1982 Agreement in such a situation".

345. On (or about) 1st May 1985, NTDB produced a paper on the strategy on source of fill for site formation at Tin Shui Wai for consideration by TINDSC on 14th June 1985. (It is to be emphasised that the paper was intended to lead to a decision on the strategy, not to a decision on what source of fill was ultimately to be used; because at this stage the tendered cost of marine fill was of course not yet known.) The options were : to continue to complete detailed design and tender action for the site formation of the initial development zone on the basis of using marine fill whilst preparing an estimate of cost of land fill for comparative purposes; to continue to complete detailed design and tender action on the basis of using marine fill whilst at the same time carrying out detailed investigation, design and tender action on the basis of using land fill; or to discontinue detailed design based on marine fill and change to a strategy based on landbased fill for detailed design and tender action. All the information obtained so far, it argued, tended to support the viability of using marine fill for the development. Although there was perhaps more uncertainty about the tender price for marine fill than there was about landbased sources, there seemed to be little justification for assuming that it would be more expensive than landbased fill. It was recommended that the consultants should be instructed to proceed with detailed design based on marine fill. The draft paper referred to the 7/82 Agreement and to the MDP. The programme included in the MDP was based primarily on the perceived need to provide public housing by a certain date. It was at that time considered feasible to provide the land in the time predicated, but would have required a heavy up-front investment in manpower and resources to achieve. Subsequently, it had been shown that a more realistic and practical programme for land formation would be acceptable in terms of meeting the current needs of the housing programme. The adjustments to the programme had also made it possible to devote more realistic amounts of time to the preparation of suitable contract arrangements with MCL as required by the 7/82 Agreement and to carry out and complete the many investigations and feasibility studies which had been proceeding as adjuncts to the detailed design stage of the project. It was suggested however that the available "float" had now been used up and that real problems in respect of meeting public houing targets could result from any further delays. MCL being a commercial organisation had tended to regard these "delays" as counter-productive. Their attitude had been consistently that, once money had been invested in the project, there was a continuing interest charge cost against that investment until such time as the development had been advanced to the point of being "revenue earning". Although HKG might not view it in exactly the same way, it was true to say that HKG's investment in the land was an investment for future public housing and assuming that the need for the public housing still continued to exist, then no "return" on the investment could be realised until the public housing was built and occupied. However, it had to be accepted that external factors might also affect the timetable for further commitment and expenditure. Finally, in respect of timing, MCL had expressed considerable concern about further delays to the project arising out of their perception of indecision on HKG's part in respect of the source of fill and its effect on the design consultancy and the progress of the project as a whole. MCL had indicated that although it accepted the need fully to investigate relative costs of the alternative sources of fill for the project, it did not accept the need to slow down the previous strategy based on marine fill in order to do so.

346. The paper recommended the second option, in order to avoid further considerable delays in the event that the overall cost of marine fill proved unacceptably high.

347. On 1st May 1985, Mr Betteley wrote to Mr O'Rorke about the release of selected design work. Mr Betteley was anxious about the prospective demobilization of approximately 25 members of the design team while a decision on fill strategy was awaited. He mentioned that the land formation design consultantcy was constituted to undertake the preliminary design and contract stage of the land formation design so that the tendered cost of marine source reclamation from a proven source could be compared with an estimated cost of land source reclamation (assuming a realistic and feasible source of land material could be found). He accepted that this approach was naturally inferior to one in which a tendered cost for both marine and land source material was obtained, but the approach adopted was an approach that considered marine source material would result in the most cost effective solution. He pointed out that the $2.5 billion deployed was wasted if the further direction of the development was not decided. To continue immediately to the design and contract stage of marine source filling would cost a fraction of what it would cost in interest charges to deploy $2.5 billion in the private sector. He said that to increase the scope of work to obtain a landbased reclamation tender, including site investigation, would result in an additional increased costs of approximately $10m; again a fraction of the interest charge. He said that there was a clear understanding in the minds of all concerned that if a decision to revert to a land source was taken after receipt of marine fill tenders, then a further delay of at least one year would occur before land borrow areas would be accessible. The additional interest charges would have to be offset by any potential savings that the land source might provide. He argued that no matter how one viewed the situation, there was no reason whatever for demobilizing the resources deployed. He concluded that in making this submission, MCL was well aware that HKG funds were not unlimited; but he complained that there appeared to be no sense of direction and he urged that this situation be remedied as a matter of urgency. (I am not satisfied that, as a matter of engineering judgment, there was anything unreasonable in the approach of HKG to the strategy relating to source of fill, particularly having regard to the problems which would be involved in justifying expenditure on what might prove to be abortive work.)

348. On 9th May 1985, MCL's solicitors, Woo, Kwan, Lee & Lo, wrote to the District Lands Officer, Yuen Long, about the conditions of grant. In particular, they addressed one point. They referred to Mr R.M. Lee's letter of 22nd April 1985, in which he had said that to allay any doubts on the part of MCL that HKG was attempting to depart from the provisions of the 7/82 Agreement, he had included Special Condition 47 which linked the conditions of grant to the 7/82 Agreement. They said MCL was grateful for the reassurance that the provisions of the 7/82 Agreement would be followed, but they were instructed that since the several revisions of the draft that had been made, MCL was now satisfied that in all major respects the present draft did not depart from the 7/82 Agreement. That being the case, there no longer appeared to be any need to incorporate the 7/82 Agreement into the conditions of grant. They added that for their part, their view was also that there was no need or necessity for incorporating the 7/82 Agreement into the conditions. From a conveyancing point of view, that would also be undesirable as it would make the 7/82 Agreement a document of title with the result that purchasers would be entitled to a copy thereof and to raise requisitions thereon, which they thought was undesirable because wholly unnecessary. Further, it should be borne in mind that literally thousands of purchasers would eventually be involved. It would be greatly preferable to have the title commence simply with the conditions of grant, as in almost every other similar case. For these reasons, it was MCL's request that Special Condition 47 be removed.

349. On 10th May 1985, Mr Y.Y. Ng wrote to Mr Betteley about the matter of approval to proceed with selected detailed design work. Mr Y.Y. Ng said that he fully appreciated the problem of maintaining sufficient workload for MCL's staff team. Mr Y.Y. Ng agreed with Mr Betteley that demobilising the staff team would case disruption to the smooth progress of the Tin Shui Wai design work. On the other hand, he said, he hoped Mr Betteley would realise that a premature instruction to proceed with the design and contract stages could result in abortive design work and unnecessary expenditure if the consultants' recommendations, (expected in August or September) were not accepted by HKG. He reminded Mr Betteley that a final decision on the choice of fill had not yet been made, and that the issue of fill strategy was to be submitted to TINDSC for consideration very shortly. He noted that it had been agreed (at a meeting on 6th May 1985) that those items of work which were independent of the sources of fill should be allowed to proceed at the design and contract stages since they were most unlikely to be altered. The remaining items of work, however, should await deliberations by TINDSC.

350. Also on 10th May 1985, Mr Betteley wrote to Mr O'Rorke. Mr Betteley expressed serious concern regarding. GE(NT)'s recent intimation that a decision to enter into the design & contract stage of the land formation design agreement would not be taken until August 1985. He said that if that was to be permitted, an additional 3 months' delay to the development would occur. He said that an additional and unnecessary interest charge of $75m would accrue to the joint investment of HKG and MCL in the development. MCL would have no alternative but to seek recovery of the $25m abortive interest charge arising on their portion of the investment. He said that BP would have to make between 20 and 25 members of their design team redundant. He said that such a situation would not be acceptable to MCL as a commercial organization investing jointly with HKG in the development and that MCL would feel obliged to seek a written endorsement from TINDSC if it was to be allowed to occur. He repeated his argument on the source of fill strategy and proposed that the brief for the land formation design should be expanded in scope to include for simultaneous preparation of the design and contract stage for both land and marine source filling material. He said that it was not MCL's desire to commit HKG to any reclamation contract until it was sure that the best material, cost and terms had been obtained. MCL was pleading simply to be permitted to continue immediately with the only work that would take the development and investment further forward towards the point of implementation. There was, he said, absolutely no reason to stop design work now on marine fill, the only proven source of reclamation material. If it was believed that there were viable sources of land fill they should be pursued with conviction to a tendered cost by approval of the design and contract stage work without further delay. (I find this argument persuasive. But it does not at all follow that the approach adopted by HKG, which was different, was necessarily unreasonable or otherwise a breach of its obligations towards MCL under the 7/82 Agreement. I am not prepared to hold that it was.)

351. On 16th May 1985, there was an NTDB progress meeting at which it was reported that the marine site investigation stage I had been completed. It was indicated that the Outer Deep Bay borrow area would extend to Urmston Road outside the mouth of Deep Bay (Urmston Road was, as we shall see, the area ultimately favoured.)

352. Also on 16th May 1985, Mr R.M. Lee sent to Mr Betteley a copy of the final draft of the conditions of grant.

353. On 20th May 1985, the MCL board approved this draft of the conditions of grant. Among other things, the conditions provided that possession of each lot should be taken when it had been formed and serviced by HKG and was ready to be built upon, and that TSW's building works should be completed before the expiration of the term thereby granted. Since this term was to expire on 27th June 1997, this gave TSW just over 12 years (but only just over 12 years) to complete work which it was not now going to be able to start for some considerable time.

354. On 25th May 1885, Mr Y.Y. Ng wrote to Mr Betteley, giving authority to proceed with selected items of design work in order to avoid the demobilization of the design team while the fill strategy remained undecided.

355. On 31st May 1985, Mr Y.Y. Ng wrote to Mr Betteley in reply to his letter of 10th May 1985 addressed to DNTD. Mr Y.Y. Ng referred to a meeting of the parties held on 28th May 1985. He said that he had stated, at the beginning of the meeting, that HKG did not accept any liabilities in respect of the "abortive interest charges" stated in Mr Betteley's letter. He referred to the instructions given on 25th May 1985 to proceed with selected design work. He turned to the question of the cost of marine fill. He said that although the Stage I report did not provide all the necessary information for a decision to be made on whether land fill or marine fill should be used for reclamation, the findings in respect of the cost of providing marine fill did give rise to concern. The unit rate quoted for marine fill in the region of $30 was higher than that normally assumed for land fill, resulting in the use of marine fill becoming debatable. It would therefore be advantageous from a programming point of view that an earlier start to seek further information about landbased borrow areas should be pursued so that the merits and economics of land versus marine fill could be more fully assessed and debated prior to committing on the choice of material. He referred to the proposal made in his letter of 10th May 1985 that the brief for land formation design should be expanded in scope to include for simultaneous preparation of the design and contract stage for both land and marine source filling material. He mentioned that at a meeting of 28th May 1885 the problems of undertaking additional studies on landbased borrow areas and the actions required to achieve the objectives had been discussed. He said that it had been agreed that Mr Betteley would provide him with a brief paper on the subject so that further action could be taken on the preparation of a suitable brief and obtaining approval for its implementation.

356. On 7th June 1985, Mr Betteley wrote to Mr Y.Y. Ng, thanking him for his letter of the 31st May 1985 (although he stated the date incorrectly). He repeated his charge that an appreciable investment was being wasted and that unnecessary interest charges were being incurred by persistent delays with no progress being made towards implementation of the project. He said that this situation should be of even greater concern to HKG than to MCL as more than two thirds of the total investment was from HKG sources. He confirmed his appreciation of NTDB's decision to release selected design work, thus avoiding immediate demobilization of much of the design team. But he said that this action did not reduce the potential delay he was addressing whilst the source of land reclamation material was being reconsidered. He said that a decision on that matter was critical and that a realistic implementation programme could not be prepared until that decision was taken. He confirmed having forwarded a supplementary brief to include the design and contract stages of land formation based upon filling material from a landbased source being used. He said that he understood a full appraisal of the merits of purusing marine and/or landbased filling sources of reclamation material would be made at the next TINDSC meeting scheduled for 14th June 1985. He said that he sincerely hoped that the decisions taken then would enable the current delay on the critical land formation design work to cease.

357. Also on 7th June 1985, Mr Lee sent to MCL the conditions of grant, stating that they had been registered in the District Land Registry.

358. Also on 7th June 1985, HKG invited tenders for the SWAB contract.

359. On 11th June 1985, Mr O'Rorke wrote to Mr Betteley, saying that it was difficult to see why MCL's claim relating to abortive interest charges should arise. However, said Mr O'Rorke, he hoped that MCL would not be pursuing this now that agreement had been reached on proceeding with selected design work. Mr O'Rorke said that HKG was very conscious of the investment which it had made in the project, and was exercising its best endeavours to proceed; but before committing itself finally to such major works as were involved, it wished the feasibility of all aspects to be established. His department looked to MCL as consultants to carry out investigations for this and to make recommendations for consideration by HKG.

360. On 11th June 1985, the Secretary of TINSDC circulated to members a paper on the strategy on source of fill for site formation.

361. On 12th June 1985, Mr S.S. Lee, for GE(NT), wrote to Mr Betteley about the land formation programme; Mr S.S. Lee suggested that Mr Betteley's ideas on the programme were too optimistic. And Mr S.S. Lee disagreed with Mr Betteley that the programme would be the key factor in TINDSC's decision as to fill strategy. Mr S.S. Lee said that whilst the programme was a very important factor in the overall consideration, other factors such as cost, cash flow, economy, environmental impact, etc. should all be considered before a final decision can be made. (On this point, the interests of MCL/TSW and HKG clearly diverged. From the point of view of MCL/TSW, I have no doubt that the programme was of first and paramount importance. From the point of view of HKG, I have no doubt that it was not. In my judgment, the approach to this divergence adopted by HKG was a reasonable one. HKG was prepared to treat the programme as a very important factor, although not of paramount importance. I find myself unable to criticize that approach.)

362. On 12th June 1985, Mr Savage (of FB), wrote a pungent memorandum about the paper on fill strategy to be submitted to TINDSC. He had always been an advocate of marine fill and had felt frustrated by Mr Chan's insistance on investigating land fill. He had not appreciated that the estimated cost of marine fill had turned out to be relatively high and his evidence was that he had underestimated the complications. He said in his memorandum that his own impression was, after reading the paper, "that the agonising continues and a decision is again being put off by adopting Option B. Why can't we simply go for Option A?" The "option A", preferred by Mr Savage, was to continue with marine fill as the preferred option, simply checking it by reference to estimated cost of land fill. This would have accelerated the matter, not delayed it. (In my judgment, this gives the lie to TSW's case that the “dead hand” of FB was responsible for delaying the development of Tin shui Wai. That contention is simply unsupported by any evidence. Mr Orange told me in evidence, when Mr Machin put it to him, that he would probably have given three cheers if he had known of this robust view taken by Mr Savage. The truth is that there were some differences within HKG, created in particular by Mr Chan (SLW) who was more doubtful about the use of marine fill and more optimistic about the use of landbased fill than anybody else concerned in the matter. Nevertheless, I find nothing unreasonable in the position taken by Mr Chan, althouhg for my part I think I too would have gone along with the sentiments expressed by Mr Savage, whose evidence that in fact the progress of the project was never impeded by financial constraints I accept.)

363. On 14th June 1985, TINDSC met to consider the question of fill strategy. The decision was taken to go for the first option. There was discussion of the one available land borrow area, at Tai Tong (South), which led to the general conclusion that the resumption, clearance and environment al problems associated with a separate haul route was such as to rule out this option. (Mr Chan told me in evidence that he accepted this reluctantly.) As Chairman, Mr Chan summed up. He said that the decision of the Committee was to proceed to tender on the basis of marine fill in accordance with the first option. MCL was to negotiate with the PRC on procurement of fill.

364. On 20th June 1985, at an NTDB monthly progress meeting, Mr S.S. Lee gave a summary of the points discussed at the TINDSC meeting and said that the programme for land formation was to be based on 1st January 1987 as the start date.

365. On 25th June 1985, Mr Betteley wrote to Mr Y.Y. Ng, stating that TINDSC's decision to pursue the most readily available single source accessible and most suitable filling material was commendable and welcomed by MCL. He added that he trusted it would now enable NTDB to issue the approvals and instructions necessary to initiate work on the critical activities on the land formation design contract that were then on hold.

366. On 27th June 1985, Mr S.S. Lee, for GE(NT), wrote to Mr Betteley about the decisions of TINDSC, stating that the land formation programme which he had prepared, and which indicated a construction commencement date of January 1987, was considered optimistic at TINDSC. However, Mr S.S. Lee suggested that that date be adopted for programming purposes.

367. On 29th June 1985, Mr Betteley wrote to Mr O'Rorke about the land formation design contract. After reviewing the history, Mr Betteley stated that MCL was fully conscious of its $800m investment in the development paid as an advance premium as part of the 7/82 Agreement and would have to seek recovery of interest charges if avoidable and unnecessary delays occurred. He complained that there was a general lack of appreciation that MCL was both an investor in the development and the agency for implementation of the land formation and infrastructure work. He said that MCL's interim status as a consultant resulted only from the two and a half year delay in drafting a suitable design and build contract. Nevertheless, he said, it was a role which MCL had fulfilled in an efficient and cost-conscious manner and perhaps more importantly, with a sense of urgency and commitment to the development that the considerable investment in Tin Shui Wai justified. MCL had received no reimbursement for its consultant services to date but that had neither diminished its enthusiasm and interest, nor its wish to see something worthwhile achieved after more than five years of studies. Mr Betteley said that TINDSC took some useful decisions at the 14th June 1985 meeting and that he hoped to see those reflected shortly in an increase in activity towards implementation.

368. On lst July 1985, (the very date by which MCL/TSW now claims that HKG should have given it possession of land ready for development), Mr Betteley met Mr C.T. Wood, the Assistant Political Adviser, to discuss the political implications of the decision to use marine fill. Mr Wood explained to Mr Betteley that it was intended, as a courtesy, that HKG should now formally notify PRC of its intentions about Tin Shui Wai. He stressed his particular concern that HKG should not take any steps which would compromise its long-held position on sovereignty and territorial waters. Although HKG would prefer not to exclude all the options too early, it might be necessary to limit dredging works to operations on the Hong Kong side of the notional median line (between the PRC and Hong Kong) in Deep Bay. It was decided that any agreement with PRC should be phrased to cover payment for specific services, and not to create the impression of payment of royalties. There was discussion about the effects on oyster farmers on both sides of Deep Bay (it was of course the concern of the Assistant Political Adviser only to consider the effects on PRC farmers).

369. On 3rd July 1985, Mr Betteley wrote to CP about the prospects of recovering interest on the $800m premium MCL had paid under the 7/82 Agreement. Mr Betteley said that MCL was fully aware of the implications of the continuing delays in implementation of the land formation work. He said that whilst MCL saw little prospects of recovering interest on this premium or adjustment on it due to delays "at this time" [emphasis added], MCL did feel it was an important aspect to record as in due course continuing delays might give MCL sufficient grounds to seek a premium adjustment. (It seems clear from this that even Mr Betteley did not believe that the delays up to 3rd July 1985 would have justified any such claim.)

370. Also on 3rd July 1985, Mr Betteley wrote to Mr Y.Y. Ng about the land formation programme, stating that the land formation construction commencement date of 1st January 1987 would now be used as an implementation "Key Date" and MCL would restructure all its activities to achieve that date. But he did add this:-

"To conclude whilst MCL will use their very best endeavours to see this programme is achieved we can by no means regard such a belated commencement as justifiable under the terms of the 1982 HKG/MCL Agreement (29/7/82). To be contemplating starting reclamation 4 years and 5 months after making such major investment in the Development demonstrates that the best endeavours pledged in the 1982 Agreement have not been very evident or effective. MCL does not regard the programme as a mutually agreed phasing programme since we are quite convinced it could have been shortened appreciably had the spirit of the 1982 Agreement prevailed in Government."

(It is to be observed that, in making this protest, Mr Betteley makes no mention of the 1st July 1985 date which, throughout this action, TSW has contended is the date on which land ready for development should have been handed over to it. And yet this letter is written only two days after that date. In any event, Mr S.S. Lee told me in evidence that he disagreed with what is here said by Mr Betteley. He was aware, he told me, of the "best endeavours" requirement in the 7/82 Agreement. His understanding was that HKG should try to use its best efforts to achieve the results in an efficient and effective manner and to deal with everything as quickly as possible, within, of course, the confines of HKG's procedures. He and his staff knew that they had to work very hard to get everything done as quickly as possible. He disagreed that he and his staff were not using their best endeavours. I accept this evidence. And it is important; for the pace at which the development progressed was dependent on the efforts of NTDB.)

371. On 4th July 1985, Mr D.N. Mudd, for GE(NT), acknowledged Mr Betteley's letter of 25th June 1985 and saying, as to the land formation programme, that the programme was "very optimistic". It was likely to need revision in the light of events.

372. On 18th July 1985, Mr Mudd wrote again to Mr Betteley, in reply to Mr Betteley's letter of 3rd July 1985. He referred to the last paragraph of Mr Betteley's letter which I have quoted above. He said this:-

"We are speaking of a mutually agreed phasing programme to which we will both be working, at this point in time. If, you find you cannot agree, then it is not 'mutually' agreed. In that event what programme could you agree to? We view the programme as somewhat optimistic with so many obstacles still to be overcome. If you seriously consider we can achieve a different, earlier, date please demonstrate how."

373. On 2nd August 1985, there was a meeting of TINDSC at which the preliminary reports presented to the meeting was considered. One of the main proposals in the report was that the principal borrow area should be in Outer Deep Bay (including Urmston Road). This was agreed.

374. On 5th August 1985; Mr Betteley wrote to Mr Y.Y. Ng to thank him for NTDB's letter of 18th July 1985. Mr Betteley stuck by what he had said. He said that whilst the current programme was not "mutually agreed", it was a programme that MCL would fully and actively endeavour to implement. He believed it could be bettered if enthusiasm for progress within HKG and NTDB were to match that within MCL and BP. In response to the request for actions that could improve the present programme, Mr Betteley said that MCL believed that earlier release of design work; the award of the land and marine investigation contract; the award of the SWAR contract; and the strengthening of land and marine land clearance staff to expedite negotiations, would probably enable 4 months to be saved from the current land formation programme.

375. On 6th August 1985, Mr S.S. Lee sent a memorandum to Mr O'Rorke commenting on Mr Betteley's letter of 29th June 1985. Mr S.S. Lee said he took exception to it. Mr S.S. Lee pointed out that MCL were fully aware of the number of committees and working groups set up in HKG to get work actually started on the ground. Each had to be satisfied before work could start and part of the "persuasive arguments" put forward emanated from MCL. He said "we are as concerned as MCL at seeing work actually commence"; the "activity towards implementation" had proceeded at a reasonable pace. (In my judgment, this memorandum accurately reflects the position. I accept that HKG was as concerned as MCL at seeing work actually commence, although its approach may well have seemed to Mr Betteley to exhibit the slowness of the tortoise rather than the speed of the hare; and I accept that the "activity towards implementation" had, in all the circumstances, proceeded at a reasonable pace.)

376. On 15th August 1985, at an NTDB monthly progress meeting, it was noted that TINDSC had approved the preliminary design reports and that instructions to proceed with the remainder of the detailed design for the land formation would be issued by NTDB.

377. On 22nd August 1985, the land needed for the SWAB was cleared.

378. On 3rd September 1985, Mr Y.Y. Ng wrote to Mr Betteley, giving approval to MCL to proceed with the design and contract stage for the remainder of the land formation works. Mr Y.Y. Ng said that the principal borrow area was to be limited initially within an area in outer Deep Bay, the exact location of which was subject to further clarification now under discussion. He added that with regard to the formation of the land bank, no financial commitment had yet been made for its implementation.

379. On 18th September 1985, Mr Betteley wrote to BP about the implementation contract. Among other things he said this:-

"The principal difficulty in deciding the format has been that of reconciling a contract document (which implies a binding and explicit agreement) with a situation in which [HKG] does not wish to make any long term commitment or agree the scope, cost or programme [emphasis added] for the anticipated works."

380. On 1st October 1985, HKG let the contract for the construction of the SWAB.

381. On 5th October 1985, Mr Chau Wing Shum, the Chairman and Managing Director of MCL, wrote to Mr Chan about the $800m premium. Mr Chau said that during the negotiations to draft the 7/82 Agreement, the Principal Government Land Agent calculated, and MCL had accepted, that an advance premium of $800m was due in respect of the private development envisaged and this sum was deducted by HKG from what was due to MCL for purchase of the land holding. This $800m discounted premium was calculated on the basis that the first private development land would be available within three years from the date of the 7/82 Agreement. Due to substantial slippages in the develpment programme, it was now apparent that such land would not be available for at least 6 years from the date of the 7/82 Agreement. (I accept the accuracy of these statements.) Mr Chau concluded by saying that he and his board would like to meet Mr Chan as a matter of urgency to discuss how the additional interest charges arising on the $800m premium paid for land not provided as originally intended was to be reimbursed.

382. On 9th October 1985, Mr Eason, for SLW, replied to Mr Chau's letter of 5th October 1985 stating that Mr Chan was at present away from Hong Kong but that Mr Chau's letter would be drawn to Mr Chan's attention upon his return. In the meantime, said Mr Eason, the matters Mr Chau had raised were being studied and a substantive response would be prepared as soon as possible. But he concluded that in order to safeguard the HKG's position, he felt it would be appropriate to state at that stage that there appeared to be no grounds, either within or without the context of the 7/82 Agreement, for adjusting the financial arrangements entered into in connection with it, either for the reasons given or along the lines Mr Chau had proposed.

383. On 12th October 1985, Mr Betteley addressed a memorandum to Mr Y.Y. Ng referring to the latter's caution that NTDB had received authorisation and approval to proceed only with the formation of the initial development zone. Mr Betteley pointed out that the 7/82 Agreement provided for the entire land holding of 488 hectares (plus 83 hectares of continguous land) to be formed. He put forward a number of cogent arguments why the land bank, as well as the initial development zone, should in fact be formed.

384. On 16th October 1985, Mr Chau wrote to Mr Eason, thanking him for his letter of 9th October 1985. Mr Chau drew attention to the fact that the calculation of the $800m premium was made on the basis of HKG's own programme indicating when private development land would be made available. (This was a reference to the programme prepared by Mr D.W. MacDonald dated 12th October 1981. But this programme was, as I have indicated earlier in this judgment, only "a tentative programme"; Mr MacDonald had made it clear that HKG was not itself bound in any way. It is however the case that this tentative programme did look forward to a start on "private building work" in April 1984 and I accept that the calculations made in order to arrive at the $800m premium were made on this basis.) Mr Chau added that he fully supported and respected Mr Eason's wish to safeguard HKG's position but felt that such a wish must be accompanied by an equally strong desire to ensure HKG's obligations were fulfilled. He said that in the case of the $800m premium, paid for development land to be made available within a 3 to 8 year time frame, such obligations had not been fulfilled and delivery of the land would be at least 3 years late. He claimed that in such a situation, an equitable basis of adjustment was clearly called for. He did not accept Mr Eason's view that such an adjustment was impossible either within or without the context of the 7/82 Agreement. He said that certain aspects of the 7/82 Agreement remained to be negotiated and that necessary adjustments to accommodate HKG's substantially changed land formation programme and its effect on the premium could be incorporated if such an approach was mutually acceptable. Alternatively he said, the matter of adjusting the premium payment or the funding of it could be dealt with equally effectively outside the 7/82 Agreement since it was calculated in that manner in the first instance.

385. On 8th November 1985, Mr Betteley wrote a memorandum to Mr Chau about the charge for the supply of filling material. He said that although he had talked to Mr Chau about this subject many times, they had, for one reason or another, been able to avoid reaching a conclusion. Mr Betteley said that HKG had been asking how much the filling material would cost and said that MCL had been able, for one reason or another, to avoid making a commitment. But he said that MCL had now reached a position where it was advantageous to agree a rate with HKG as required by the 7/82 Agreement. There were issues involved that he would prefer to discuss rather than write about.

386. On 11th November 1985, Mr Betteley wrote to Mr Y.Y. Ng about a problem which had been recently resolved, the formation of two areas forming part of the initial development zone which at one stage it had been suggested might be left unformed. Mr Betteley commented that it would seem that NTDB had a totally divfferent concept of the 7/82 Agreement the MCL and that it might perhaps be beneficial if a emmting were to he held, including the persons in HKG who participated in its drafting so that a common basis of approach might be identified. He said that he believed that while the principal difficulties in NTDB arose from a lack of appreciation that the development was a joint venture, and that when one had operated in an autonomous and authoritative manner for many years, it was difficult to adjust to the essential need to communicate with your joint venture partner. He concluded that it must surely be essential to a successful joint venture for both parties to be aware of and working towards implementation of the same programme. (Emphasis original.) He asked for a resolution of "this most unsatisfactory situation".

387. On 14th November 1985, there was a meeting to consider MCL's claim against HKG. MCL was represented by Mr Chau and Mr Betteley. Mr Chan represented HKG (together with a Mrs E.M. Bosher). Mr Chan asked Mr Chau to outline the reasons why MCL considered they had a claim. Mr Chau said that MCL had paid a large premium for land which was not provided when due. Mr Betteley said that the 7/82 Agreement reflected the several agreements reached between HKG and MCL before the 7/82 Agreement could be drafted. The basic consideration of $1,458,000,000 was derived from a $2,258,000,000 purchase price for the land less an $800m premium. Mr Chan said that MCL was not aware of the exact manner in which HKG calculated the premium. Mr Betteley replied that since the $800m was a compromise premium value resulting from negotiations between HKG's Land Agent and CP, it was probable that there was no precise calculation, due to the final "horse trading" that invariably settled such negotiations. Mr Chau commented that the persons who calculated the premium could very easily be asked to set out the basis for the calculation. Mr Chan said that MCL should have expected there would be delays in getting such a large project started. Mr Betteley said that he believed that many of the delays were unnecessary. He felt that the problem arose entirely from HKG insisting on taking an advance premium for the land. They were holding $800m of MCL's money and at the same time were not implementing the land formation programme. If the $800m was in MCL's bank, the delays would have a much less serious financial impact. Mrs Bosher remarked that the deal was a complete package and the premium was part of the "package". Mr Betteley said MCL was well aware of the "package concept" but was equally aware that the requirement of the package deal was for the package to contain what the parties purchased, and it was equally important that the package should be delivered on time. Mr Chan said that HKG did not know the timing at the date of the 7/82 Agreement. Mr Chau said this did not prevent HKG calculating an advance premium. Mr Betteley agreed that, other than the "premium programme", the 7/82 Agreement did not contain a programme, but it did contain a requirement for the preparation of an MDP to control the implementation. The MDP prepared under HKG's direction set out the development programme in detail and was adopted by HKG in 1983. It confirmed the "premium programme" as realistic. Mr Chan said that the MDP only gave an outline of what was proposed. Mr Chau disagreed and said that the land showed HKG's intentions, as it was prepared by HKG. The MDP gave extensive details on the programme and critical activities and these had not been actioned by HKG despite pressure to do so from MCL. Mr Chan confirmed that the meeting had been useful and he was now more aware of the situation. He undertook to reply to MCL shortly.

388. On 20th November 1985, Mr Betteley wrote to CP about MCL's claim for "additional premium funding cost" caused (he said) by HKG's "programme delays". Mr Betteley said it would be useful to have the method of calculating the $800m premium defined, particularly if MCL had to have recourse to legal action to recover premium, interest charges and loss of development profits. He asked CP to confirm or agree with the Government Land Agent the ingredients of the calculation leading to the $800m premium. He said he well appreciated that there were some elements of "horse trading" to reach that figure but there were certain fundamentals that remained constant in this type of negotiation at any particular time. He said he envisaged no difficulties demonstrating programme slippage. He referred to the programme produced by Mr D.W. MacDonald on 12th October 1981; the 1983 MDP programme; the 1983/TSW development programme (part of the 1983 Yuen Long Development Programme) and "the current programme". (This reasoning was, in my judgment, seriously at fault. None of these programmes had any contractual effect. A "slippage" from any of them could have no effect on the contractual rights of the parties. By the time this action was called on for trial, TSW appears to have deluded itself that HKG had become bound by contract to some programme or other behind which it had, in breach of contract, allowed itself to slip. But that had never been the case. Despite constant pressure from MCL/TSW to commit itself to some particular programme, HKG had never done so, either contractually or at all. It has always been adamant that it had no such intention. The refusal of MCL/TSW to recognise this has been most unfortunate. TSW has reasoned that because the development has fallen well behind every programme for the formation of the land ever brought into existence (whether by HKG, or by MCL/TSW and its sub-consultants) it must follow that HKG is responsible for the slippages which have occurred and liable in damages to TSW accordingly. But non sequitur. It does not at all follow that, simply because the land formation was not completed according to the various progammes for the work brought into existence from time to time, this must be due to some blameworthy conduct on the part of HKG. Still less does it follow that, whether its conduct was blameworthy or not, HKG had entered into any contractual commitment to any of these programmes and so has became liable for damages for breach of contract for any "slippage".)

389. On 22nd November 1985, Mr Chan wrote to Mr Chau to record the main points made at the meeting between them on 14th November 1985. Mr Chan said, as to the $800m premium, that it was agreed after lengthy negotiation and with both sides having had the benefit of professional advice. He said it was not based on mutually agreed assumptions or calculations and that HKG had in fact assumed a period longer than three years for the production of the new land in assessing the premium. (This was not correct. As Mr Wood accepted in the course of the trial, both sides had proceeded, for valuation purposes, on the same assumption, namely that land would be available for development after three years.) Mr Chan mentioned that the 7/82 Agreement did not specify when possession of the 38.8 hectares would be given. As to the October 1983 MDP, which Mr Chau regarded as a mutually agreed plan for the development of Tin Shui Wai, indicating that the first site would be available by mid-1985 and the remainder by 1988, Mr Chan stressed that HKG considered that that sort of document described target [emphasis original] development programmes, the achievement of which depended on many factors. He said that he had pointed out to Mr Chau that the 7/82 Agreement referred to both parties using "their respective best endeavours" to achieve the development "in timely fashion" and that, in HKG's view it had, at all times, used its best endeavours at Tin Shui Wai. Mr Chau had felt this to be not so. Mr Chan said he would be replying fully to Mr Chau's letters of 5th October 1985 and 16th October 1985, and to the points raised at the meeting on 14th November 1985, as soon as possible.

390. On 3rd December 1985, Mr Y.Y. Ng replied to Mr Betteley's letter of 11th November 1985, implying that the parties did not have "a common basis of approach". Mr Y.Y. Ng referred to the numerous meetings held to discuss progress and programmes and said that generally speaking, he had understood Mr Betteley to be in agreement with the arrangements made. Mr Y.Y. Ng rejected the suggestion that HKG was departing from the spirit of the 7/82 Agreement in the implementation of the project. He said that if Mr Betteley considered that there were specific areas where opinions differed, he would be only too glad to discuss them with Mr Betteley at the regular meetings or at any other special meeting if Mr Betteley considered that necessary.

391. On 4th December 1985, Mr Betteley wrote to CP again about the additional funding of the $800m premium. He described MCL/TSW's claim as "a very simple one and hard to fault". (At this stage MCL was thinking only of a claim for interest against HKG on the basis that it had paid an $800m premium for the right to develop land which was to be available for the purpose within three years from the date of the 7/82 Agreement, but had not had the benefit of the payment because the land had not so become available for that purpose. There is no suggestion that MCL had in mind any other claim.)

392. On 9th December 1985, Mr Betteley wrote to Mr Y.Y. Ng to thank him for his letter of 3rd December 1985, the most disconcerting feature of which (Mr Betteley said) was NTDB's apparent belief that all was proceeding according to plan and programme. Mr Betteley said that the real situation was that work was now proceeding some three years behind the MDP programme adopted in September 1983. He said that the meetings to which Mr Y.Y. Ng had referred could be effective but were not because NTDB's actions were not being taken within the required time frame. He said it was apparent that within HKG there was no real pressure to achieve the development programme that was set, and that it was probable that if MCL were not involved, there would be little concern for the three year programme slippage so far incurred. He said MCL was already in communication with SLW regarding the severe financial repercussion of the three year delay on the funding of the $800m premium MCL had paid in advance to HKG in 1982 on the basis of a programme MCL believed HKG had the resources, knowledge and ability to achieve. He said that MCL would continue actively to support and bring a sense of urgency and commmercialism to the monthly meetings in the hope that ultimately a sense of responsibility and desire to achieve the programme would develop. He said MCL found it most unrewarding having to keep revising programmes to reflect continuing slippages on NTDB activities.

393. On 11th December 1985 Mr Betteley wrote to Mr Y.Y. Ng about the design and build contract. In the course of this letter, Mr Betteley recorded that a decision on the additional funding in relation to the $800m had to be made before MCL could conclude the design and build contract. MCL's reason for that approach was that if future slippage to the land formation or infrastructure programme was to occur, the provision for reimbursement of further additional funding costs had to be made somewhere. He said that if HKG chose to delay land formation further, the additonal premium funding could be regarded as an annually recoverable item.

394. On 17th December 1985, Mr D.N. Mudd, for GE(NT), replied to Mr Betteley's letter of 9th December 1985, saying that it seemed to break no new ground and was unrealistic in implying that programmes did not need revising. He pointed out that numerous meetings had been held to resolve problems related to keeping "the programme" on the tracks, some of which had been fruitful, others not so.

395. On 30th December 1985, Mr Mudd wrote again to Mr Betteley. He said that the site formation contract would last about three years. Before finalising it, HKG wanted to be sure that its priorities and requirements were up to date. The programmes in the MDP were prepared nearly three years ago. It was logical that HKG should review them prior to implementation to make sure that land was formed in the desired order. He said it had always been the wish of HKG to produce as quickly as possible the first public housing site to meet the demand of land for public housing.

396. Also on 31st December 1985, Mr Mudd wrote to Mr Betteley about the design and build negotiations. He said that the team working on drafting the design and build document last met on 12th December 1985 and had nearly completed the task. MCL had however, recently, through its solicitors Messrs Masons and Marriott, produced a radical change of philosophy for the document.

397. On 15th January 1986, Mr Betteley wrote to Mr Y.Y. Ng about progress on the design and build contract. In the course of his letter, he stated that Masons and Marriott had questioned whether the parties' approach to the design and build contract was in accordance with the 7/82 Agreement; in the best interests of HKG; and in the best interests of MCL. They had concluded that there was a more suitable approach. Mr Betteley did not accept the suggestion that MCL was proposing a "radical change of philosophy for the document". MCL, he said, was simply trying to caution HKG on the deficiencies of the present draft design and build contract which had been drafted in a piecemeal fashion over a three year period by a variety of NTDB and HKG staff. Further delay, he said, was simply not acceptable to MCL and MCL was willing to conclude the contract on the basis of the present drafts or the alternative outlined. The choice rested with HKG. In the meantime, MCL had instructed Masons and Marriott to draft an HKG/MCL document on the lines they proposed in an effort to save time should HKG come to the same conclusion as Masons and Marriott.

398. On 31st January 1986, Mr Betteley wrote to Mr Ng with a quotation for the procurement of filling material. He said that MCL would wish it to be on record that arrangement for the supply of filling for Tin Shui Wai had been a much more complicated negotation than MCL would ever have imagined when it embarked upon its search for marine filling material five years ago. In view of HKG's requirement for filling to be procured under a service agreement and not by purchase of I filling at a unit rate, MCL had to be specific in terms of the periods quoted. On this basis, MCL had prepared a payment schedule under which the total cost of the procurement of fill amounted to $175.41m.

399. On 18th February 1986, there was a meeting of a sub-committee of TINDSC on procurement of fill. The sub-committee considered that MCL's proposal should be rejected. It proposed that it should be pointed out to MCL that HKG could obtain fill much cheaper in waters which did not impinge on any right that PRC might claim in Deep Bay and that even land fill would be cheaper.

400. On 21st February 1986, Mr Bettley wrote to Mr Y.Y. Ng proposing a "Supplemental Agreement" as the framework for the design and build contracts.

401. On 24th February 1986, Mr Chan wrote to Mr Chau giving a definitive reply to Mr Chau's letters of 5th October 1985 and 16th October 1985. Mr Chan said that it was the considered view of HKG that, at no time, had it bound itself either within the terms of the 7/82 Agreement, or otherwise, to any defined time scale for the development at Tin Shui Wai. On that understanding, HKG had used its best endeavours towards implementing the development at Tin Shui Wai and had acted with reasonable expedition given the scale and complexity of the project. He said that he did not wish to reopen discussions on any aspects of the negotiations which led to the signing of the 7/82 Agreement. It was sufficient to say that details of all financial commitments were clearly spelt out in the 7/82 Agreement. As a matter of fact, Mr Chan said, HKG had now paid to MCL a sizeable amount of $1.458 billion, by way of development advance, together with a further amount of $74m by way of adjustment thereto, which sums had since been at MCL's disposal. Mr Chan referred to the correspondence which had been exchanged on the subject of the adjustment to the basic consideration. He said that HKG regarded and had always regarded the MDP prepared in 1983 as no more than a preliminary blueprint and target programme for the development at Tin Shui Wai. Until the Tin Shui Wai MDP was finally approved by him in November 1984, it would have been quite inappropriate, indeed impossible, to calculate the sum of the adjustment payable to the basic consideration under clause 13 of the 7/82 Agreement. HKG did not accept that there had been any delay in the payment of the adjustment and the claim for interest thereon was also rejected. In conclusion, Mr Chan said that he would like to record that, while rejecting both claims, HKG remained fully committed to realising the development at Tin Shui Wai New Town in accordance with the 7/82 Agreement. (In my judgment, the argument of Mr Chan in this letter, that at no time had HKG bound itself either within the terms of the 7/82 Agreement or otherwise, to any defined time scale for the development of Tin Shui Wai, was correct. His contention that HKG had used its best endeavours towards implementing the development at Tin Shui Wai and had acted with reasonable expedition, given the scale and complexity of the project, was, in my judgment, also correct. I also accept the explanation given by Mr Chan as to the status of the MDP. I hold that it was not until November 1984 that the MDP was finally settled.)

402. On 6th March 1986, Mr Y.Y. Ng wrote to Mr Betteley about procurement of fill. He said that the TINDSC sub-committee had met to consider MCL's offer. He said that the offer was unacceptable and asked for a revised offer. He said that if MCL was unable to give HKG an acceptable offer, it would be compelled to dredge material from Hong Kong waters only.

403. On 11th March 1986, Mr Ng wrote to Mr Betteley about the suggested improvements to the design and build contract, stating that the supplemental agreement concept seemed to provide a way to resolve differences over the previous version. Mr Ng said that he believed that the changes were fundamental, but that if a fundamental change could be an improvement to future understanding of the contract, HKG was prepared to take on the change in finalising its work.

404. On 15th March 1986, Mr Chau wrote to Mr Chan in reply to his letter of 24th February 1986, stating that the MCL Board noted with great concern his statement that it was the considered view of HKG that, at no time, had it bound itself either within the terms of the 7/82 Agreement, orotherwise, to any defined timescale for the development of Tin Shui Wai. He asked if he correctly understood HKG to be saying that it could do what it pleased and when it pleased in relation to the Tin Shui Wai development. He said that that would make a mockery of the 7/82 Agreement and the conditions of grant for the 38.8 hectares. MCL also respectfully reminded HKG that a sum of $800m was deducted from the consideration for the land at Tin Shui Wai as premium on the future grant of 38.8 hectares. That $800m, he said, was assessed on the basis of what he called "a stated programme" for land delivery. He asked whether HKG said that it had no obligation in that respect, legal or otherwise. He said that the MCL Board considered it justified to require HKG to confirm that it accepted the principle that HKG was legally bound to perform its obligations within a reasonable time limit; to agree a legally binding programme with MCL regarding future progress; and to pay compensation to MCL for the delay that had occurred hitherto. (It will be observed that while this letter did refer to "a reasonable time limit" it did not suggest that HKG had legally bound itself to deliver formed land ready for development to MCL by 1st July 1985, its primary claim in this action.) He said that if a satisfactory response was not received from Mr Chan within the next three weeks, MCL would have no alternative but to put the matter in the hands of its legal advisers with a view to compelling HKG to perform its legal obligations. In the meantime, he said, MCL expressly reserved its legal rights against HKG.

405. On 22nd March 1986, Mr Betteley wrote to Mr Y.Y. Ng in reply to his letter of 6th March 1986 about procurement of fill. Mr Betteley noted it was clear that HKG did not consider the price quoted to be acceptable and in consequence would be compelled to dredge material from Hong Kong waters only, unless a substantial reduction in price was forthcoming. He said that MCL quite obviously could not compete with HKG on the price for making fill available when HKG could value their marine deposits at zero value if they so chose. He concluded that HKG had indicated MCL's price to be unacceptable and that whilst MCL seriously questioned HKG's basis of assessment, it had no alternative but to accept its rejection on MCL's offer. It saw no rational basis on which a price reduction could be offered.

406. On 26th March 1986, clearance of the 169 hectares was finally completed.

407. On 1st April 1986, Mr Chan wrote to Mr Betteley stating that HKG did not accept his allegation that it had failed to honour its obligations under the 7/82 Agreement. Mr Chan accepted that there was an obligation to proceed with the development in timely fashion, as stipulated in the 7/82 Agreement. He said it was the firm view of HKG that that obligation had been honoured. The development was of immense size and complexity requiring careful and detailed planning and the timetable adopted by Mr Betteley in his claim for interest on the $800m premium was frankly impossible to achieve. Mr Chan said he was happy to confirm that HKG was bound to perform its obligations under the 7/82 Agreement within reasonable time limits. In that respect, he understood that a programme for the site formation, to be updated from time to time, had been drawn up and was being finalised. He was not prepared to change his view on the question of MCL's claim for interest for alleged delay by HKG.

408. On 23rd April 1986, Mr Betteley replied to Mr Chan's letter of 1st April 1986, stating that "the timetable" was that put forward on 12th October 1981 by Mr D.W. MacDonald, his predecessor as SLW. As that programme provided the very basis for drafting the 7/82 Agreement, MCL was unable to agree that the matter had proceeded in a timely fashion. He alleged that Mr Chan had clearly admitted HKG's default in putting forward an unrealistic programme. (It does not seem to me that Mr Chan had made any such admission.)

409. On 22nd May 1986, HKG instructed MCL that it had selected the area for the procurement of fill, and indicated where it was (it was in Urmston Road on the south side of outer Deep Bay, in waters regarded by HKG as Hong Kong waters, not PRC waters).

410. On 31st May 1986, Mr Savage, after reviewing some of the correspondence, prepared a memorandum which said this :-

"I am frankly perturbed by this complicated correspondence. Unlike some Government officers involved, I know that NTDD did not get on with the work as expeditiously as they should have done. This was partly because they thought it would not be possible to fit the expenditure within the guideline figures a few years back.... This then became an excuse to go slow."

(Mr McDonald, Mr Orange, and Mr Chien all gave evidence disagreeing with this assessment. I disagree too. There was much "agonising", as Mr Savage might have put it, over the question of how expenditure on Tin Shui Wai was to be fitted within the relevant guidelines. But I am satisfied that none of this led to any dragging of heels on the part of those in NTDD or NTDB responsible for progressing the work. Mr Savage called this "an off-the-cuff remark". He told me in evidence that he was getting somewhat frustrated with regard to the progress of the project by this time. He had no doubt that his engineering colleagues would not have agreed with him and that probably a great deal of the difference would have concerned whether or not they had adequate staff earlier on; he also held the view that their forecasting had not been exactly accurate in terms of when the project was likely to come forward at various times. He said it had always seemed to FB that the engineers were much more worried as to whether it would be possible to fit the work in within future guidelines than FB was. He could only say that FB was fully aware of the need to accommodate the Tin Shui Wai project and it would be most surprising if the engineers had not picked that up along the way. He believed that they were trying their best as well. I put to him the following questions:

"Q.: Having picked it up along the way, they still failed to get on with the work as quickly as they should have done, did they?

A. : I wasn't too happy about the need to look at the possibility of using landbased fill, but I believed that in the event that additional activity did not hold up the design work and preparations for preparing the project for a start ...

Q. : Mr Savage, if they didn't get on with the work as quickly as they should have done, one of the reasons for that, if I have understood you correctly, is that they were fiddling about with the idea of using landbased fill?

A. : That was one aspect which had worried me.

Q. : What were the other reasons why they didn't get on with it as quickly as they should have done?

A. : The other one which I have mentioned as a possibility is that they were overly concerned about not having adequate resources, staff resources particularly, and it just seemed to me that this was a case where they had to grit their teeth and get on with it; but we may have taken a rather harsh view, a rather hard view in Finance Branch. We were, as I have already mentioned, My Lord, particularly the year 1983 and, to a certain extent, the year 1984, were very difficult financially.

Q. : If they had to grit their teeth and get on with it, there are two things they could have done ... one was actually to do it, that is to say to grit their teeth and get on with it; or the other was to sit down and wring their hands and not get on with it. Now, what do you think they did?

411. A. : I think they got on with it in their way." In the end, I find that the views expressed in Mr Savage's memorandum made on 31st May 1985 were unjustified. I hold that the engineers did "get on with it" as best they could.)

412. On 5th June 1986, Mr Siu Chen of NTDB (now upgraded to a "development office") wrote to MCL making it clear that although HKG had selected the area for the procurement of fill from within the many areas which had been investigated, HKG had not decided to make its own arrangements to procure the fill. It appreciated that it was because MCL had carried out part of its responsibilities under clause 11(b) of the 7/82 Agreement that HKG had been able to select the area, but HKG had no intention of terminating what he called "the existing contractual relationship" for the procurement of fill. HKG continued to wish MCL to procure the fill.

413. On 9th June 1986, Mr Chan wrote to Mr Betteley pointing out (in my view rightly) that Mr Chan's statement that the timetable which MCL had adopted in support of its claim for interest on the $800m was impossible to achieve had been wrongly interpreted by MCL as an admission that HKG was in default in putting forward an unrealistic programme. He said that his statement implied no such admission. The timetable in question was sent to MCL in good faith, some ten months before the signing of the 7/82 Agreement. Paragraph 6 of the letter to which it was attached clearly stated that it was "tentative" and that, at that stage, a "broad brush" approach would have to be adopted to valuation. Paragraph 8 of the letter further emphasised "the proposals made by me are tentative only and [HKG] is not itself bound in any way". Mr Chan said that he could only reiterate that there was no defined timescale for the development of Tin Shui Wai in the 7/82 Agreement. The obligation on HKG was to proceed with the development in a timely fashion and this obligation was being honoured. He told Mr Betteley that he could be assured that clearance of the balance of the Tin Shui Wai landholding would be completed in good time to meet the requirements of the land formation contract. (I find myself in entire agreement with Mr Chan's argument contained in this letter.)

414. On 25th June 1986, Mr Betteley replied to Mr Siu Chan's letter of 5th June 1986 stating that MCL was pleased to note HKG's wish to continue with the existing contractual relationship for the procurement of fill. HKG's decision to limit the available area for the selection of borrow areas was noted, accepted, and would be fully supported by MCL. It was nevertheless, in MCL's opinion an ill-considered decision that carried a cost penalty without any compensating savings that MCL had so far been able to identify.

415. Also on 25th June 1986, Mr Betteley replied to Mr Chan's letter of 9th June 1986. Mr Betteley said that Mr Chan's several letters on the topic of the claim for additional premium funding indicated his interpretation of HKG's obligations under the 7/82 Agreement to be quite contrary to MCL's. They did however, go some way to explain HKG's apparent indecision, lack of action and poor progress in accomplishing the fundamental steps necessary to enable implementation of the development to proceed. As to the 12th October 1981 programme, Mr Betteley accepted that it had been referred to correctly as "tentative" and "broad brush" and was indeed similarly regarded by MCL. Following its issue, however, there followed a lengthy period of HKG/MCL detailed negotiations that resulted in the 7/82 Agreement. The programme was endorsed by these negotiations, which wree concluded on the basis that the MCL development land would be handed over in a three to nine year time frame. Without such a programme, no assessment of MCL's financial liability which was an agreed and fundamental condition of any agreement would have been possible. The validity of the October 1981 programme, and the 1982 programme agreed for the premium calculation, were both confirmed and endorsed by the programme subsequently prepared under HKG direction. (I accept that the negotiations were concluded on the basis that the MCL development land would be handed over in a three to nine year time frame; but the rest of the argument is, in my judgment, fundamentally misconceived. On whatever basis the negotiations were concluded, the parties' contractual rights are governed exclusively by the contract into which they entered. None of the programmes referred to by Mr Betteley were "confirmed" or, "endorsed" in any sense material to the contractual obligations of the parties. Nor did HKG ever intend that they should be.) Mr Betteley continued by stating that MCL rejected Mr Chan's statement that there was no defined timescale for the development of Tin Shui Wai. He referred to clause 6 of the 7/82 Agreement, with its reference to 1st July 1997; and to clause 12, which confirmed a 12 year period for MCL to complete its private development. He said that HKG could not now disregard those specific time limits, which were compatible with the land delivery programme upon which HKG assessed the $800m premium. (But this too is misconceived. Nothing in either clause 6 or clause 12 has the effect of obliging HKG to deliver formed land ready for development by any specific date, although Mr Betteley has I know persuaded himself otherwise.) Mr Betteley went on to refer to the design and build contract. He said (in my judgment unfairly) that the fact that the drafting of that contract was still not completed once again indicated HKG's lack of commitment to any land formation programme.

416. On 22nd July 1986, Mr Chan wrote to Mr Betteley saying that he was now in a position to give a more detailed reply to Mr Betteley's letter of 25th June 1986. He said that HKG was fully committed to the development at Tin Shui Wai, and had all along sought to proceed with the development on a timely basis as required by the 7/82 Agreement. He reiterated that HKG did not accept MCL's claim for interest on the $800m premium. He pointed out that the 7/82 Agreement contained no reference at all to a premium or to an "advance premium". He repeated that the 7/82 Agreement did not include any defined timescale for the development but that HKG had used its best endeavours to implement the development, given the scale and complexity of the project. In particular, he said (a) adequate staff resources had all along been committed to the project; (b) HKG had proceeded with the clearance of the land in timely fashion; most of the development zone had been cleared, there was a phased programme for the clearance of the remainder of-the area, and clearance posed no delay to the main land formation contract; (c) HKG had a target programme for the whole development, which it was willing to discuss with MCL in the context of discussions on the "design and build" contract; (d) changes to the MDP and the standard HKG contract conditions had had no adverse effect on the development programme; (e) there had been no lack of HKG legal staff committed to the production of the various documents which would comprise the "design and build" contract in accordance with the format and programme agreed between HKG's and MCL's lawyers; HKG had retained its own legal counsel throughout the period of production of these documents, whereas MCL's lawyers did not become involved until December 1985, some one and a half years after work on production of the documents commenced; (f) HKG's commitment to the development was exemplified by the fact that up to then it had spent some $130m on planning, investigation, design and construction works in connection with the development. A number of site investigation and engineering contracts were in progress, and preparatory work was continuing with a view to letting further major contracts in the latter part of 1986.

(This paints I believe rather more rosy a picture than the facts justified; but, generally speaking, I accept it. I reject Mr Betteley's contention, advanced in evidence, that "this letter is full of lies". I myself believe, as Mr Betteley believes, that by July 1986 much more progress on the project could have been made than had in fact been made. But I remind myself that I am concerned only with the question whether or not this was due to a breach by HKG of its contractual obligations under the 7/82 Agreement.)

417. On 23rd July 1986, Maunsell Consultants Asia, a firm of consulting engineers which HKG had retained to advise it on the tender documents for land formation, mentioned that it had seen neither the proposed general conditions of sub-contract, nor the design and build conditions of contract. However, it was unhappy with the contractual concept as a whole. From what it had seen in the tender documents, it was of the opinion that HKG was proceeding in a way which was contractually and administratively unsafe and it strongly recommended urgent re-consideration.

418. On 5th August 1986, the TRDC was completed.

419. On 8th August 1986, Mr Betteley wrote to Mr Mudd about the design and build contract. He complained that, from the outset of the drafting, HKG had been unsure as to which direction to take or what form of contract to adopt. HKG had been told by MCL many times that you cannot draft a binding contract without basic requirements being decided. All that had been achieved was an omnibus contract that was incomplete, built up from HKG's "standard" consultancy and construction contract which would have to be "disassembled" by special conditions every time a contract was placed because neither the consultants nor contractors would be prepared to accept liabilities in respect of the other's work. He said that MCL's legal adviser was engaged solely to make a risk appraisal of the "near-completed" documents. He advised that the proposed contract was not binding due to uncertainty, and because it was infinite in risk, timeless in duration and unpriceable. He recommended that HKG should reconsider its form of contract and reappraise its intentions. MCL's solicitor (Masons and Marriot) was now doing what was never intended, namely, drafting HKG's contract. (The question as to the nature and contents of the contracts which were necessary to implement clause 11 of the 7/82 Agreement was not answered by that agreement and the issues were of very considerable complexity and importance. In my judgment, Mr Betteley's strictures were unfair. Everybody concerned, on each side, with the drafting of these contractual arrangements had at all times been doing his best to try and achieve an appropriate and acceptable form of contractual documentation. But the situation now was that both sides were dissatisfied with the results of these efforts.)

420. On 9th August 1986, Masons and Marriot submitted to HKG's solicitors, Simmonds and Simmonds, a draft Supplemental Agreement in relation to the design and build contract.

421. On 14th August 1986, Mr Chan replied to Mr Betteley's letter of 29th July 1986. He said that in his previous letters he had stated clearly HKG's position with regard to MCL's claim for interest on the sum of $800m. He said that the lease term was not intended to set a timetable for the Tin Shui Wai development. In any case, according to the Joint declaration of the United Kingdom Government and the Government of the PRC on the Question of Hong Kong, leases expiring before 30th June 1997 might be extended if the leasee so wished for a period expiring not later than 30th June 2047. He said that he did not see that the overall staff situation in the civil service had affected the deployment of adequate staff resources for the Tin Shui Wai development; he said that a clearance programme had been drawn up in accordance with submissions made by MCL to HKG. He said that clearances were scheduled to be completed in time for the commencement of the land formation contract. He said that the target development programme for discussion with MCL took account of the latest land formation programme. Investigation had now proved the quantities of fill available from Deep Bay and enabled the extent of the marine borrow area to be defined. The fact that the various interim works  had been carried out so far ahead of the commencement of the land formation contract itself was a clear indication of HKG's commitment to the development.

422. On 8th September 1986, Dr A.W. Malone, for SLW, wrote to Mr Betteley rejecting suggestions which Mr Betteley had made about clearance. Dr Malone (echoing Mr Chan's letter of 22nd July 1986) said that HKG had proceeded with the clearance of the land in timely fashion. Most of the development zone had been cleared; there was a phased programme for the clearance of the remainder of the area; and clearance posed no delay to the land formation contract. The clearance programme was drawn up on the basis of details of the land needed and the time required contained in a report submitted by MCL to HKG as HKG's consultants. Land clearance had not delayed site formation. Detailed information on sand deposits in Deep Bay was necessary before land formation using this source of fill could be decided upon. For a development of this magnitude, HKG needed to be certain that the fill was not only of the right quality, but was also in a suitable location for economical extraction. Dr Malone said that HKG attached great importance to those engineering works, and believed that they must be carried out prior to the main site formation works. (This logic, so far as clearance was concerned, seems to me to be reasonable. The timing of clearance operations is a matter of judgment. If clearance operations are commenced too soon, the subjects of it are displaced unnecessarily. If clearance operations are commenced too late, there is a risk that subsequent work dependent upon the result of the clearance operations will be held up. I accept that in the present case, land clearance did not delay site formation. It was, it is true, carried out in many instances much later than had originally been contemplated; but there were many other reasons why site formation could not commence earlier in any case. The fundamental difference between the parties, as to the date on which the project was ready for a contract for the design of the land formation to be let, lies at the root of the matter. If the contract for the design of the land formation had been let at an early date, much of the work in fact done separately at an earlier stage could have been subsumed under it. But the desire of HKG to adopt a step by step approach to this does not seem to me to have been an unreasonable one. That being so, the preference I have in fact myself formed for MCL's approach to this matter is, for legal purposes, irrelevant.)

423. On 28th September 1986 (after intermediate discussions), Simmonds and Simmonds rejected the supplemental agreement proposed by Masons and Marriott on 9th August 1986.

424. On 30th September 1986, again after intermediate discussions, there was a meeting of the parties, the purpose of which was to obtain an HKG decision as to whether HKG or MCL was to provide the filling material to reclaim the land at Tin Shui Wai, and to ascertain whether the price and terms of supply quoted by MCL to HKG were reasonable and acceptable. Mr Betteley made a note of the proceedings, recording that MCL did not mind whether it supplied the fill or whether HKG did so. He pointed out that since HKG had only a limited borrow area and a far away dumping ground, the land formation would cost more if HKG chose to supply the fill itself. The work would take longer. It would also increase MCL's claim for late land delivery. The price quoted by MCL, $11.06/cu.m. in place, was both fair and competitive. MCL would not lower it. It was already below HKG's minimum quarrying royalty charge. For HKG, Dr. Malone said that he could not see why HKG should pay for material in its own territory. (The difference here was that MCL regarded the mineral rights in HKG's selected borrow area as owned by PRC.) Dr Malone said that the answer to the question whether MCL was to be required to provide the fill or whether HKG was to provide the fill itself depended on the price; and HKG saw no reason to pay a royalty. Mr Tony Bunch, of Masons & Marriott, said (in my opinion, rightly) that it was apparent that HKG and MCL had failed to reach agreement on the question of ownership of the filling material, not on the question of price.

425. On 17th October 1986, Mr Graham Barnes (who had succeeded Mr Chan as SLW) wrote to Mr Chau about a discussion they had had concerning the development at Tin Shui Wai and confirming that, as then indicated, it was HKG's intention itself to provide the fill material for the development. Mr Barnes also suggested that HKG might itself let the contract for the land formation work (thus by-passing MCL altogether in relation to the clause 11 work).

426. On 23rd October, 1986, Mr Chau replied to Mr Barnes, among other things saying this:-

"I must also stress that we are perfectly satisfied with the 1982 Agreement in its present form. It sets out in the most clear terms the primary development objectives, the time frame within which they have to be accomplished and provides sufficient flexibility in its secondary objectives for the implementation of the development to be achieved in the most cost effective manner."

(Throughout the trial of this action, from first to last, both HKG and TSW were united at any rate upon one point; namely, that the 7/82 Agreement was a very good agreement. With regret, I have to differ. If it had set out in "the most clear terms" the time frame within which "the primary development objective" had to be accomplished, this litigation would have been altogether avoided.) Mr Chau made it clear in this letter that MCL was not willing to abandon its involvement and interest under clause 11 of the 7/82 Agreement. He said that the drafting of the supplementary agreement and other contracts (to be part of the design and build contract) had now been virtually completed to the satisfaction of both parties. He proposed that the relevant documents be formally executed prior to the end of November 1986 to avoid any further delay to land formation work. He referred to MCL's claim in relation to what he called "the continuing late delivery of MCL's private development lots". He said there was no mystery about the claim. Its basis was entirely straightforward and needed little, if any, elucidation. If there were no prospects of a speedy resolution of the dispute, then HKG would leave MCL with no alternative but to formally serve and issue the statement of claim.

427. On 13th November 1986, Mr Barnes wrote to Mr Chau saying that HKG remained convinced of the mutual benefit that would result from HKG.taking over responsibilities for carrying out the works (i.e., the clause 11 works mentioned in Mr Chau's letter of 23rd October 1986).

428. On 21st November 1986, Mr Chau wrote to Mr Barnes, refusing to accept what Mr Barnes had told him. He said :

"As I stated in my letter of the 23rd October, 1986, MCL's rights and interests under clause 11 of the 7/1982 Agreement remain an important and indeed essential part of the commercial 'package' embodied in the 1982 Agreement. MCL consider that Government's inordinate delay in progressing the development compounds the need to give immediate effect to the clause 11 contracts. There are now no impediments to executing the clause 11 contracts and as you will know MCL has proposed that they are executed at the end of this month. We still adhere to that proposal."

(The problem here is that the 7/82 Agreement contained no legally enforceable obligation on EKG to enter into the clause 11 contracts with MCL; before me no such contention was advanced. Further, there did remain impediments to executing the clause 11 contracts; because no final agreement had been reached between the parties as to what those contracts should contain.)

429. On 2nd December 1986, Mr Chau forwarded to Mr Barnes particulars of what he called the "full claim" of MCL against EKG, in the form of a draft statement of claim, enclosed with the letter. This draft advanced a claim for damages for breach of the 7/82 Agreement; damages for HKG's breach of a collateral agreement said to have been made orally between MCL as agent of TSW and EKG on 13th May 1982; and damages for misrepresentation made orally and in writing by or on behalf of EKG to MCL as agent for TSW between about August 1981 and 30th July 1982. The contents of the draft bear little resemblance to the final version of the statement of claim extant when this action was called on for trial. The claims based on collateral contract and misrepresentation made in the draft were, not to put too fine a point upon it, absurd, and have been abandoned. The damages alleged to have been suffered were put at $3.4 billion.

430. On 10th December 1986, at a meeting between the parties, Dr Malone said that HKG would shortly be writing to state why the contractual documents were not satisfactory. Mr Betteley said that they took a lot of effort to put together and that clause 11 had financial consequences. MCL had entered into the interim arrangements for the critical works in good faith and without prejudice to the eventual agreement. It was agreed that it was necessary to press on with the land formation contract. There were discussions as to how the documents could be modified prior to tender acceptance, having regard to any later decision as to who should be the principal contracting parties.

431. On 11th December 1986, Mr Betteley wrote to Dr Malone, referring to the meeting held on 10th December 1986. Mr Betteley said it was abundantly clear that all activities relating to the implementation of clause 11 of the 7/82 Agreement had now come to a halt. It inevitably followed that the development could only be further materially delayed. It was clear to MCL that HKG was intent on abandoning the contractual arrangements agreed upon for the implementation of clause 11(a) and (c) of the 7/82 Agreement. MCL could only record in the strongest of possible terms its surprise and concern at that abrupt change of philosophy and approach. Mr Betteley complained that HKG's proposal for letting the direct formation and engineering infrastructure works direct varied the express terms of the 7/82 Agreement. (In my judgment, it did not in fact do so, because there was no enforceable contractual obligation contained in the 7/82 Agreement which obliged HKG to let the contracts for these works to MCL, although undoubtedly that was the intention of the parties when they entered into the 7/82 Agreement. And in fact TSW contended throughout the trial not only that HKG was at liberty to let the contract for these works elsewhere; it was its duty to have done so if that were necessary in order to ensure that formed land ready for development should be available for MCL before 1st July 1985.) Mr Betteley said that if HKG really did intend to pursue its proposal to effect such a radical change to clause 11 of the 7/82 Agreement, then HKG must set out its reasons in full for so doing, identifying clearly the basis of MCL's future involvement in and remuneration for the construction and design of the land formation and engineering infrastructure works.

432. On 23rd December 1986, MCL submitted to HKG draft contract documentation for the land formation work, prepared at the request of HKG on the footing that HKG would let the contract itself.

433. On 6th January 1987, Mr Betteley wrote to Mr Barnes saying that the MCL/TSW Board had rejected an offer made to MCL's solicitors in a letter from the Attorney-General's Chambers, in which MCL had been told that HKG had now determined not to enter into the supplemental agreement which was to be part of the design and build contract and that it was totally unacceptable to HKG that MCL/TSW should pursue its claim for delay to the development whilst carrying out the clause 11 contracts. Mr Betteley said that as MCL/TSW had made perfectly clear to HKG in the past it was quite satisfied with the 7/82 Agreement in its present format since its principal objectives were clearly defined and its intentions were adequately re-enforced, if such were necessary, by both preceding and succeeding actions and correspondence by and between HKG on the one hand and MCL/TSW on the other hand. Mr Betteley complained that HKG appeared to be totally preoccupied with clause 11 of the 7/82 Agreement and the contract conditions under which the work envisaged therein was to be implemented. Such conditions, he said, emanated from guidelines set out by HKG. If HKG now took the view that it was always entitled itself to let the clause 11 contracts to its own contractor, it could and should have done so to enable land preparation to be completed within three years of the date of the 7/82 Agreement. (Perhaps HKG could have done this; but the contention that it should have done so is absurd.)

434. On 4th March 1987, the SWAR was completed.

435. On 6th March 1987, TSW commenced these proceedings.

436. On 9th March 1987, Mr K.K. Chan, for the Project Manager (NT/Northwest) wrote to MCL, after MCL had submitted the draft tender document for the main land formation and drainage contract, stating that the last major purpose of the land formation design contract itself had now been fulfilled. His letter stated that HKG intended to appoint BP directly as consultants for the main land formation and drainage contract.

437. On 22nd April 1987, HKG let to BP the contract appointing BP as HKG's consultants for the main land formation and drainage contract.

438. On 4th May 1987, HKG invited tenders for the main land formation and drainage contract.

439. On 30th September 1987, the tender report on the tenders for the main land formation and drainage contract, and recommendations, were submitted for consideration at a meeting of CTB; following a number of queries from members, it was approved by CTB at its meeting on 14th October 1987.

440. On 14th October 1987, FC approved a recommendation from PWSC to upgrade to Category A a works item for the formation of the initial development zone.

441. On 26th October 1987, the land formation contract was awarded to a consortium of contractors led by China State Construction Engineering Corporation.

442. On 24th March 1988, FC approved a recommendation from PWSC to upgrade a Category A a works item for the formation of the land bank.

443. On 5th May 1989, possession of the first part to be formed of TSW's 38.8 hectares was given to TSW.

444. On 7th May 1990, this case was called on for trial. It concluded on 26th June 1992. The case had stood in the lists for 200 days.

445. In this chronological review of the history of the development of Tin Shui Wai I have confined myself to reciting the facts material to the decisions at which I have had to arrive in order to determine whether or not HKG is in breach of its obligations to TSW under clause 15 of the 7/82 Agreement. Many peripheral issues arose on the pleadings and were canvassed in evidence and in argument. But none of them need to be explored for the purpose of disposing of this action and I do not propose further to protract a judgment already of inordinate and I fear inexcusable length by doing so.

Part III - Epilogue

446. In the first part of this judgment (Part I - Prologue) I rejected TSW's case that the 7/82 Agreement obliged HKG, either expressly or by necessary implication, to reclaim the land at Tin Shui Wai and to deliver to TSW its 38.8 hectares ready for development by some prescribed date or within a reasonable time after the date of the 7/82 Agreement. As to its alternative case, invoking Clause 15 of the 7/82 Agreement, I held that HKG's obligation generally, and in connection with the reclamation of the land at Tin Shui Wai in particular, was to do what it could reasonably be expected to do to keep the project moving forward.

447. In the second part of this judgment (Part II - History) I reviewed chronologically the history of the project from 29th July 1982, the date of the 7/82 Agreement, to 5th May 1989, the date on which TSW first received land ready for development, and found that never at any stage (despite TSW's delusions to the contrary) had HKG committed itself to any of the various programmes produced by one party or the other which had given dates on which formed land ready for development was expected to become available (it had indeed always refused so to commit itself). I set out the facts (and, where there was dispute, my findings of fact and my conclusions upon them). I now state my finding that, upon the whole matter, I am satisfied that HKG did all that the 7/82 Agreement (in particular, Clause 15) obliged it to do; i.e., it did what it could reasonably be expected to do to keep the project moving forward. It follows that I must also reject TSW's alternative case founded upon Clause 15. TSW's action therefore fails.

448. I do not lose sight of the fact that the parties, when they entered into the 7/82 Agreement, expected that land ready for development would be handed over to TSW, "probably in two to three years time"; nor of the fact that, nevertheless, it was not until 5th May 1989 (nearly seven years, rather than "two to three years", later) that this was done. TSW led engineering evidence, which (despite Mr Wood's criticisms of it) I accept, that this could in theory have been accomplished by 1st July 1985. Mr Machin said, and Mr Wood agreed, that the failure to do so was not due to any breach by TSW of its contractual obligations. Mr Machin said that the failure to hand over land ready for development to TSW before 5th May 1989 was "an abysmal performance" on the part of HKG. Mr Wood shrugged that off. He said simply that "it took as long as it took". I am not, as I see it, called on to express my own opinion on these very different views of the matter: much can be and indeed was said in support of each. I have only to decide whether HKG was in breach of its, contractual obligations under the 7/82 Agreement; and my conclusion is that it was not. The law is concerned with legal obligations only and the law of contract only with legal obligations created by mutual agreement between contractors - not with the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do, as Diplock LJ once sagely observed (see Lavarack v. Woods of Colchester Ltd [1967] 1 QB 278, at p.294C). But although I find myself forced to a conclusion adverse to the interests of MCL/TSW on this crucial issue I do wish to record my understanding of its sense of frustration over the course matters took. It had in Mr Betteley a project manager who, given a free hand on 29th July 1982, could in my opinion have produced land at TSW ready for development by 1st July 1985. It is no doubt a pity that, for reasons which I equally understand, it was not possible for HKG to give Mr Betteley that free hand. A contract doing so would have amounted to a surrender by HKG of its own responsibilities. Such responsibilities dictated the adoption by HKG of a prudent approach, militating against the making of decisions with the same speed as that at which those decisions could be made by a commercial developer whose own approach required no more than the balancing of risk and reward.

449. In coming to my conclusion adverse to TSW's case I have considered all the documents put before me and all the oral evidence. In relation to the oral evidence I have not only seen and heard the witnesses; I have had the benefit of reading all the transcripts of their testimony with which I was helpfully provided. Most of the witnesses, on both sides, were civil engineers. Some were better witnesses than others; but the differences between them in this regard were due simply to differences in manner and temperament. All of them exhibited a clarity of thought and (usually) of expression which did credit to their profession generally and themselves in particular. Each of them did his best to assist the court. All of them were subjected to lengthy but perfectly fair cross-examination. All of them emerged from this as demonstrably truthful. But of course none of them was perfect; and from time to time, I found myself preferring the evidence of one to the evidence of another on a matter of engineering judgment. However, I see no necessity to mention any of the witnesses individually, except Mr Betteley. Mr Betteley was not only the project manager for MCL/TSW; he was its principal witness, at one point unkindly described by Mr Wood as its "project manager - litigation". Mr Betteley did bring to the witness box the same enthusiasm for the job in hand which he had manifested in all he had done outside it. I formed a very favourable opinion of Mr Betteley, who to my mind stood out as a civil engineer of conspicuous ability. But there were moments when as a witness his enthusiasm ran away with him so as to colour his own interpretation of the 7/82 Agreement and of past events in which he had played a part. As I have pointed out in Part II of this judgment, the contents of a number of letters and memoranda and other documents which went out over his signature cannot easily be reconciled with an understanding on the part of Mr Betteley that he believed HKG to have committed itself to the contractual time obligations which TSW now contends HKG undertook.

450. But the real problem in this case does not stem from any conflict as to fact.

451. The real problem in this case is that so far as the matter of formation of the land was concerned the 7/82 Agreement was a half-baked agreement (an "inchoate" agreement, for those who might find my description of it too strong) which TSW went into with its eyes fully open, but (unfortunately) its mind firmly shut to the problems which the open-ended nature of the 7/82 Agreement on this matter, and the manifest incompatibility of approach between a commercial developer and HKG, were bound to create. I do not criticise the drafting of the 7/82 Agreement. Its defects are conceptual, not semantic. It provides no starting point from which anybody's "delay" in connection with the formation of the land can be measured; no doubt, because it was never intended to do so.

452. In conclusion, I propose to refer to Meates v. Westpac Banking Corporation Ltd. 5th June 1990 (mentioned in "The Times", 5th July 1990, but otherwise, so far as I am aware, unreported). This was a Privy Council appeal from New Zealand. The facts were quite different from our case, save that, as in our case, the claim arose in relation to projects for regional development, proposed by a private developer; supported by the government (of New Zealand); and partly executed before all the necessary machinery for their accomplishment had been put in place.

453. Lord Oliver of Aylmerton, giving the opinion of the Board, ended with the following:

"The claims which have been pursued have rested upon ignoring the express terms of the formal documents which have been executed and seeking to supplement and contradict them by reference to contracts and duties of care alleged to have arisen by implication from conversations, press statements and other unsuspected traps into which the parties are alleged to have fallen. To say that, as a general rule, governments and large corporations intend to be bound only by formal written engagements assumed after mature consideration, reflection and negotiation may seem something of a truism; but in the light of the history of this litigation, it may not be inappropriate to reiterate it and to stress that anyone impatient of official delays, whether avoidable or unavoidable, who anticipates the conlcusion of negotiations does so at his own risk."

These words are in several respects as well applied to our case, so far as formation of the land is concerned, as they were to the case with which Lord Oliver was dealing. I gratefully adopt them. They are an authoritative expression of some very simple propositions of pure common sense. The mistake made by MCL/TSW here was unwisely to chance its arm on a successful and timeous conclusion of the negotiations for the clause 11 contracts.

454. If there is anything beneficial to anybody (other than the lawyers) to come out of this litigation, it will be the lesson it teaches that if in the future a commercial developer proposes entering into a contract for land production (or the like) with HKG, it should insist on HKG's commitment to a predetermined time scale as part of the contractual arrangements. If it cannot achieve this it should refuse altogether to have anything to do with the project, unless indeed it is prepared to shoulder a serious and unquantifiable risk. Any such contract for a joint venture between a commercial developer, and HKG which does not provide in terms for a commitment on the part of HKG to a defined time scale for the execution for the work seems to me to be destined to end in tears.

455. For the reasons I have given, I propose to dismiss this action; and I will hear counsel, on a date and time to be appointed for the purpose, on any question of costs or otherwise which may arise as a result of this judgment.

Representation:

Mr Tony Machin, Q.C., Ms Gladys Li, Q.C. and Ms Teresa Cheng, instructed by Messrs Masons for Plaintiff.

Mr Derek Wood, Q.C., Mr Ribeiro, Q.C. and Mr Anselmo Trinidad Reyes, instructed by Messrs Johnson, Stokes & Master for Defendant.