Jebsen & Co Ltd v. Watfield Technology Ltd

HCCT 68/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 68 OF 2003

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BETWEEN

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Before: Mr Recorder Kwok SC in Court

Dates of Hearing: 18 – 22, 25 & 26 September 2006

Date of Judgment: 13 March 2007

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J U D G M E N T

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Introduction

1.The Government’s Water Works Department employed Gammon Construction Limited (“Gammon”) in a construction project at Tai Po Water Treatment Works and Pumping Station (“the Project”).  The engineer for this project was Binnie Black & Veatch Hong Kong Limited (“the Engineer”).

2.Gammon sub-contracted part of the works to Chevalier (Envirotech) Limited (“CEL”).

3.CEL sub-contracted part of its works to the plaintiff (“Jebsen”).  The contract between CEL and Jebsen is dated 3 December 1999.

4.Jebsen sub-contracted part of its works to the defendant (“Watfield”).  The contract between Jebsen and Watfield is dated 12 April 1999.  It was for the supply and installation of about 10 dozen cranes/hoists for the Project at a number of buildings and locations.  Jebsen was responsible for the design of the cranes/hoists.  

5.Disputes arose between Jebsen and Watfield.  By its former solicitors’ letter dated 23 November 2000, Watfield called the contract off.  Shortly after that, Watfield left the site.

6.In 2001, Jebsen issued these proceedings (HCA 1161/2001) against Watfield and Watfield counterclaimed against Jebsen.

Contract between Jebsen and Watfield

7.The contract between Jebsen and Watfield dated 12 April 1999 is a 391-page document (“the JW Contract”).  The opening words on p. 1 stated that the agreement between Jebsen and Watfield was “supplemental” to a letter of agreement made between CEL and Jebsen:-

“This Agreement is made on 12^th day of April, 1999 between [Jebsen] ... AND [Watfield] ... SUPPLEMENTAL to the Letter of Agreement ref. cel.l.028.sj2.98007 (hereinafter referred to as ‘the Contract’) made the 11^th day of September 1998 BETWEEN [CEL] (hereinafter called ‘the Contractor’) and [Jebsen]”.

8.The JW Contract contained the following terms and conditions:-

“1      [Watfield] shall have a reasonable opportunity of inspecting and is deemed to have notice of the terms and conditions of the Contract and shall, at his request, be shown a copy thereof and with such information relating thereto as is made available to [Jebsen] with the exception of the detailed prices of [CEL] and [Jebsen].

2(1)   In respect of such parts of the contract works as are defined in part I of the Appendix hereto and are hereinafter referred to as ‘the Sub-contract Works’ [Watfield] shall, except as is otherwise expressly provided by this Agreement, be bound by the same obligations and enjoy the same rights and benefits as those conferred upon [Jebsen] under the Contract.

...

4(1)   Without prejudice to Clause 2, the Sub-contract Works shall be carried out and completed subject to and in accordance with the terms of this Agreement in all respects to the reasonable satisfaction of [Jebsen].

4(2)   In the event of any reasonable written instruction (including any variation, direction and/or requirement) being issued by [Jebsen] to [Watfield], [Watfield] shall forthwith comply with the same.  Such compliance shall not invalidate this Agreement and any amount due arising from such compliance shall be calculated in accordance with sub-clause 6(1) but on the basis of the rates in Part IV of the Appendix hereto, where applicable.

4(3)   Save as is provided in this clause, no variation to the Sub-contracts Works shall be made by [Watfield].

4(4)   The expression ‘variation’ as used in this Agreement shall have the meaning ascribed to it in the Contract.

4(5)   If [Watfield] fails to forthwith carry out the variation, direction and/or requirement as instructed in accordance with clause 4(2), [Jebsen] shall employ other contractors to carry out such variation, direction and/or requirement and shall deduct from the Sub-contract sum the cost of carrying out the variation, direction and/or requirement.

5.1    Subject to clause 2(4), [Jebsen] shall grant [Watfield] an extension of time for completion of the Sub-contract Works to the extent that delay has been caused to the Sub-Contract Works by reason of:

i)     any event which can be a ground under the Contract for an extension of time; or

ii)    any act, neglect or default of [Jebsen] or of any person (other than [Watfield]) for whom [Jebsen] is responsible.

5.2    Subject to Clause 5(1), [Watfield] shall carry out and complete the Sub-contract Works in conformity with the requirements of Part V of the Appendix hereto and in such a manner as to avoid hindrance to the progress of others.

...

6.1      i)   Unless stipulated otherwise elsewhere in the Sub-contract, [Watfield] shall apply monthly to [Jebsen] for interim payment for materials delivered to site and for the Sub-contract Works done.

ii)    Subject to Clause 7, the rules under the Contract for calculating the gross amounts due to [Jebsen] shall, mutatis mutandis, be deemed to be incorporated into this Agreement.

6(2)   If [Watfield] is entitled to or should allow [Jebsen] amounts in respect of variations, fluctuations or loss and/or expense which themselves should properly be taken into account in the certification of amounts due to or be allowed by [Jebsen], then such amounts shall only become due upon issue of the certificate which so takes them into account.

...

Appendix

PART  I

Clause 2(1)       The Sub-Contract Works

To design, supply (excluding free issue material supplied by [Jebsen]) install, test and commission all electrical and mechanical installation which constitutes to a complete lifting appliances systems and related accessories in accordance with the Contract Specification, Drawing and Scope of Works.  Free issue materials are detailed in the Addendum to the Particular Specification.

PART  II

Clause 2(3)       Special Requirements

The requirements of the Contract Specification and Drawings and the terms and conditions of this Agreement shall override the contents of [Watfield’s] quotations and their subsequent amendments or supplements all attached hereto.

PART  III

Clause 3           Price for Sub-Contract Works

The price of the sub-contract works is ... HK$5,480,000 ...

PART  V

Clause 5(2) Programme: As per contract document and subject to revision to meet master programme from [CEL].

Other requirement: [Watfield] is to carry out the Sub-contract works in accordance with short term programme(s) issued by [Jebsen] from time to time.

...

PART  X

PARTICULAR  SPECIFICATION

...

1.4    Site Survey

[Watfield] shall undertake the survey on site and clearly mark, as the result of such survey, on site the position of the equipment to be positioned or installed by [Watfield] and shall carry out all such setting-out on site as is required by [Watfield] for the execution and completion of the Sub-contract Works.

[Watfield] shall, before the start of the manufacture and fabrication of any equipment items to be installed or erected on site, measure all such dimensions on site as are relevant to the installation or erection of these equipment items and check that these dimensions are consistent with the dimensions of the equipment as shown on the related drawings approved, for the purpose of the proper installation or erection of such equipment.  [Watfield] shall notify [Jebsen] of any discrepancies, deviations and divergences of the dimensions of the equipment stated on the approved drawings from those corresponding dimensions measured on site by [Watfield].

2.0    Co-ordination

2.1    Co-ordination With Other Trades

In order to minimize uneconomic working and unnecessary conflicts on site [Watfield] shall work in agreed areas by prior approval with [Jebsen] and must be prepared to accommodate other trades or move out of areas as instructed in order to allow other trades to complete their works.  [Jebsen] shall make every effort to minimize unnecessary disruption.  To this effect, [Jebsen] undertakes to provide [Watfield] when necessary with a weekly schedule of work.  [Watfield] is responsible for identifying all co-ordination problems concerning the Sub-contract Works where they conflict or where they conflict with other works and to bring them to the immediate attention of [Jebsen] resident site staff.

...

6.0    Materials & Goods

6.1    Ordering of Materials and Goods

[Watfield] shall obtain the necessary particulars for ordering materials only from the latest drawings, details and information supplied by [Jebsen].

...

7.0    PROGRESS

7.1    Continuity of Work

[Jebsen] shall provide [Watfield] with continuity of work and ensure that he has the necessary ‘Approved for Construction’ drawings for a minimum of 2 weeks future work, and if possible 4 weeks future work, for his current site work force.

...

7.4    Instructions

All instructions to vary or stop [Watfield’s] work shall be issued by [Jebsen] in writing and shall be acted upon promptly by [Watfield] whose permanent site representative shall be authorised to accept and act upon such Instructions at all times.

...

7.6    ‘Approved for Construction’ Drawings

[Watfield] shall only work to ‘Approved for Construction’ drawings signed by [Jebsen’s] Resident Project Manager or his authorised representative, this will include sketches of brackets etc.  This stipulation will avoid any misunderstanding regarding contradictory instructions which may involve [Jebsen] or [Watfield] in extra costs.

9.A number of copy documents were attached to the JW Contract.

10.Clause 5 of the Notes to Sub-contractor (i.e. Watfield) attached to the JW Contract provided that:-

“5.     The Sub-contract Works shall be carried out all in accordance with the following:

i)     All drawings approved by the consultant and client.

ii)    All specifications and conditions of contract included in the contract between [Jebsen] and the Contractor [CEL] which are related and applicable to the carrying out and completion of the Sub-contract Works by [Watfield], as if [Jebsen] were [CEL] and [Watfield] were [Jebsen] under the Contract.

iii)    The specifications named in ‘Attachment to [the JW Contract]’.”

11.Clauses 6 and 9 of the General Requirements attached to the JW Contract provided that:-

“6.     [Watfield] shall complete the installation, testing and commissioning and demonstration of the lifting appliance installation for the captioned project all in accordance with builder’s ,(sic) master programme and [Jebsen’s] programme.”

“9.     [Watfield] shall liaise and co-operate with all relevant parties and/or other subcontractors employed by [Jebsen] so as to ensure smooth execution of the project and to minimize delays.”

12.Clauses 2, 13, 14 15 f) and F) of the Scope of Works attached to the JW Contract provided that:-

“2.       The delivery of the lifting appliance has to be delivered to Site as shown in the attached programme.  The programme will be adjusted from time to time to reflect the site situation and will be agreed by both parties.  Moreover, CEL/Jebsen will confirm to Watfield in writing about the commencement date of the individual lifting equipment.  The minimum notification period of commencement date of the individual lifting equipment are listed as follows:

a)    6 weeks before start the fabrication of steelworks.

b)    3 weeks before start the site installation.”

“13.     Relevant Specification and forming part of this contract

...

Clause 2.75 to 2.78  Drawings”

“14      The general Conditions of Purchase of Goods and Services are attached which form part of the sub-contract agreement.” 

I interpose here to note that there was no such attachment.

“15 f)   CEL will provide the reference datum for installation.”

“15 F) [Watfield] shall verify all dimensions on site and check civil work and equipment and submit all fabrication drawings, loading calculations for [Jebsen’s] checking and approval.”

13.Clauses 2 and 3 of the letter dated 31 March 1999 from Jebsen to Watfield attached to the JW Contract provided that:-

“2.     Price

...

Remark:   In view of the complete design of the project is still under preparation, it is agreed that the steel work tonnage (excluding equipment like hoists) of the lifting appliance under the sub-contract between Jebsen and Watfield will only be limited to 290 tonnes.  Should the tonnage exceeds or under the agreed limit, Jebsen will adjust the sub-contract value at a unit rate of HK$15,000/ton, however if the addition or deduction of tonnage of the steel work is beyond 10% of 290 tonnes, the unit rate of those tonnes outside the 10% will be subject o mutual negotiation and agreement.”

3.      Programme of Delivery:

As per the master project programme.  The programme will be adjusted from time to time in accordance with the site situation.”

14.Clause 2 of an attachment (at p. 38 of 391) to the JW Contract provided that:-

“2.     Programme of Works

The delivery of the lifting appliance has to be delivered to Site as shown in the attached programme.  The programme will be adjusted from time to time to reflect the site situation and will be agreed by both parties.  Moreover, CEL/Jebsen will confirm to Watfield in writing about the commencement date of the individual lifting equipment.  The minimum notification period of commencement date of the individual lifting equipment are listed as follows:

a)    6 weeks before start the fabrication of steelworks.

b)    3 weeks before start the site installation.”

15.According to the “Programme of works from [CEL]” attached to the JW Contract:-

“(a)   the sequence of works was as follows (the only item which is out of sequence is the site availability date of the Administration Building) – preparation of design information, submission of design to Engineer, Engineer’s 1^st review of design, revise (sic) of design information, final submission of design to Engineer, approval of design by Engineer, manufacturing testing & delivery of hoist, fabrication of steelworks, site available day instructed by Gammon, site installation, testing and commissioning;

(b)     approval by Engineer of design preceded any work by Watfield;

(c)     Watfield’s first activity was the fabrication of steelworks of the Administration Building which was to start on 4 December 1998, after approval of design by Engineer on 3 December 1998;

(d)     site must be available before site measurement and site installation by Watfield; and

(e)     all works by Watfield were to finish by 21 April 2000.”

16.Clause 2.77(3) of the “Particular Technical Specification from [CEL]” attached to the JW Contract provided that:-

“Unless specific instructions are given by the Engineer in writing, no drawing other than approved drawings shall be used for the execution of the Works.”

17.What was referred to as “the Contract” was a letter dated 11 September 1998 from CEL to Jebsen.  The JW Contract was made on the basis of being “supplemental” to “the Contract”.  By this letter, CEL gave notice of intention to appoint Jebsen its sub-contractor under CEL’s contract with Gammon.  In this letter, CEL stated that:-

“We hereby confirm to you that we intend to entering (sic) into a Contract with you for the following works subject to the finalization of the Sub-Contract document, acceptance of your equipment and approval of the General Arrangement drawings and design calculation by the Engineer.

...

4.      Programme of Works

The delivery of the lifting appliance has to be delivered to Site as shown in the attached programme.  The programme will be adjusted from time to time to reflect the site situation and will be agreed by both parties.  Moreover, CEL will confirm to JEBSEN in writing about the commencement date of the individual lifting equipment.  The minimum notification period of commencement date of the individual lifting equipment are listed as follows:

a)    6 weeks before start the fabrication of steelworks

b)    3 weeks before start the site installation

...

16.    Terms and Conditions

The general Conditions of Purchase of Goods and Services are attached which form part of the sub-contract agreement.”

18.I was supplied with copies of what appears to be the 10 September 1999 version of CEL’s “Conditions of Purchase Goods and Services”.  Neither counsel took any issue on the date of issue.  Clause 5.1 provided that:-

“Where time is specified such provision shall be of the essence of the Contract.”

Contractual position between Jebsen and Watfield

19.Clause 5.1 of CEL’s Conditions of Purchase provided that time was of the essence.  Clause 16 of the Contract (i.e. the letter agreement between CEL and Jebsen) incorporated CEL’s Conditions of Purchase by reference.  The JW Contract was supplemental to the Contract.  By clause 2(1) of the JW Contract and clause 5 of the “Notes to [Watfield]”, the Contract was incorporated into the JW Contract by reference. 

Time was of the essence under the JW Contract.

20.Under clause 5.2, Part V of the Appendix, clause 4 of the Contract and the “Programme of works from [CEL], the period for Watfield’s first activity under the JW Contract and the completion of works was from 4 December 1998 to 21 April 2000, a period of about 16 ½ months.  Variation of the Programme by mutual agreement was permissible under clause 2 of the Scope of Works, clause 2 of the attachment at p. 38 of the JW Contract and clause 2(1) of the JW Contract incorporating clause 4 of the Contract.  Jebsen was obliged to give Watfield at least 6 or 3 weeks’ notification of commencement date of the individual lifting equipment.  Under Part X clause 7.1, Jebsen had to provide Watfield with continuity of work and ensured that it had the necessary “Approved for Construction” drawings for a minimum of 2 weeks’ future work, and if possible, 4 weeks’ future work. 

21.The approval of drawings by the Engineer played a crucial part under the JW Contract.  Clause 5 of the “Notes to [Watfield]” provided that the Sub-contract Works should be carried out in accordance with “all drawings approved by the consultant and client” and incorporated the specifications and conditions of contract between Jebsen and CEL.  Clause 13 of the Scope of Works incorporated clause 2.77(3) of the “Particular Technical Specification from [CEL]” which provided that:-

“Unless specific instructions are given by the Engineer in writing, no drawing other than approved drawings shall be used for the execution of the Works.”

In the context of a specification from CEL, it is plain that Jebsen could not be the person to approve drawings.  “Approved drawings” was defined in clause 2.74(1) of the “Particular Technical Specification from [CEL]” as:-

“drawings which the Engineer has marked ‘Approved’ and returned to the Contractor.  Approval in this context means that the work described therein may proceed.”

Clause 2.74 was not incorporated by clause 13 of the Scope of Works but a copy was attached to the JW Contract.  Under the “Programme of works from [CEL]”, drawings/design had to be submitted to the Engineer for review and approval.  Drawings “approved” by Jebsen alone was not “approved drawings”.  “Approved drawings” meant drawings approved by the Engineer. 

I do not think Clause 7.6 mitigated against this conclusion.  The contractual position between CEL and Jebsen was clear in that drawings had to be approved by the Engineer.  The JW Contract was “supplemental” to the Contract between CEL and Jebsen.  Under the Programme for both the JW Contract and the Contract, review of drawings by the Engineer leading to approval by the Engineer preceded other activities.  The prohibition under clause 2.77(3) of the “Particular Technical Specification from [CEL]” which was incorporated into the JW Contract was also clear and unequivocal.  Clause 7.6 cannot be construed in a way which is not consistent with the above.  It was an administrative provision for Jebsen to identify drawings approved by the Engineer. 

22.As Jebsen’s sub-contractor, Watfield had no business or locus to contact Jebsen’s client, CEL, or CEL’s client, Gammon, or the Engineer.  Any duty to co-ordinate under Part X clause 2.0 was coupled with a requirement to bring any conflict to the immediate attention of Jebsen Resident site staff.  The duty to co-ordinate under clause 9 of the General Requirements did not carry with it the right to approach Jebsen’s client direct and did not create any duty on the part of CEL, Gammon or the Engineer to respond to Watfield.

Primary issue on liability

23.The primary issue on liability is whether Watfield’s termination of the JW Contract on 23 November 2000 was lawful.

Progress under the JW Contract

24.The date of the JW Contract is 12 April 1999.

25.By letter dated 25 June 1999, Watfield offered to reduce the contract sum to $5,480,000 in consideration of Jebsen’s agreement to supply all the Elephant Chain Block and Trolley.  By an Invoice dated 25 June 1999, Watfield invoiced Jebsen for $411,000, being 7.5% of the contract sum payable on the confirmation of the JW Contract.  By fax dated 28 June 1999, Jebsen accepted Watfield’s offer.  By an Order dated 30 June 1999, Jebsen placed an order under the JW Contract for works at the price of $5,480,000.  One bound booklet of the JW Contract and copies of the Order were transmitted to Watfield on 5 July 1999.  Watfield accepted the Order on 5 July 1999.  On 12 July 1999, Jebsen certified the first payment of $411,000.

26.By letter dated 14 September 1999, Jebsen sent Watfield 9 approved drawings for 2 lifting appliances for Watfield’s “retention”. 

27.By letter dated 19 October 1999, Watfield noted that it had only received two sets of approved drawings, requested Jebsen to provide a revised installation programme and stressed that Watfield “shall therefore seek reimbursement from Jebsen for all acceleration and additional costs incurred for the delay of site office mobilization and installation of equipment”. 

28.Jebsen replied by letter dated 25 October 1999 saying that Watfield’s “concern on the reimbursement for your acceleration and additional cost can not be entertained”.

29.By letter dated 24 November 1999, Jebsen told Watfield that the site would be ready for site office mobilisation and that container office would be delivered to site on 3 December 1999.

30.CEL placed a formal Purchase Order dated 3 December 1999 and Jebsen’s acceptance was dated 10 March 2000.

31.There was little work for the supply and installation of lifting appliances, so little that Jebsen wrote to CEL by letter dated 25 January 2000 in these terms (written exactly as in the original):-

“Re:  Supply and Installation of Lifting Appliances for

Tai Po Water Treatment Works and Pumping Station

Re-submission

It has been a fairly long time for our re-submissions have been proceeded.  Since our first submission, we are in progress to re-submit the revised content as required by the engineers.  Our engineers are working with the best effort to fulfil the requirement.

As you already aware that this project has been delayed for more than one year, I would like to request your assistance to speed up the approval status from the engineers.  Meanwhile we are also facing the price increase demands from our supplier especially for the I-beams and the associated accessories.”

32.By letter dated 23 February 2000, Jebsen informed Watfield that 1 March 2000 was the re-scheduled date for site measurement for the Workshop Building, the Chemical Building I lower level and the Chemical Building II lower level.

33.By letter dated 28 February 2000, Jebsen informed Watfield that one drawing had been revised and submitted for the Engineer for approval and that Jebsen would inform Watfield of the outcome.  Jebsen also enclosed 3 “updated drawings” for Watfield’s “information”.

34.The Minutes of Meeting prepared by Jebsen for Meeting No. 14 held on 16 March 2000 recorded that:-

“Item	Description	Action by	Action Date
5.	Drawings
5.1	[Jebsen] confirmed that 1 copy of the approved drawings (approved by the consultant) would be despatched to Watfield for their reference and action.	Noted
5.2	Watfield raised that the approved drawings should be signed by the engineer and chopped with “Approved”.  [Jebsen] would check with [CEL] and confirm Watfield later	[Jebsen]”

35.By letter dated 17 March 2000, Jebsen sent Watfield a “revised Project Programme” dated 13 March 2000 for Watfield’s “information and comment” and requested Watfield to confirm in writing by 22 March 2000 so that Jebsen could submit the revised programme to Jebsen’s client for approval. 

36.By letter dated 20 March 2000, Jebsen asked Watfield to submit by 24 March 2000 a detailed programme for works at the Workshop Building, Chemical Building I lower level and Chemical Building II lower level as per instructions given orally.

37.By letter dated 20 March 2000, Jebsen informed Watfield that 3 amended drawings had been sent to the Engineer for approval and that Jebsen would inform Watfield of the outcome.  A copy of 3 drawings were enclosed for Watfield’s “information”.

38.By letter dated 21 March 2000, Jebsen sent Watfield for its “information” 419 “updated drawings” which had been submitted to the Engineer for approval and stated that it would inform Watfield of the outcome.

39.Watfield replied to Jebsen’s letter dated 17 March 2000 by fax dated 1 April 2000 addressed to “Mr. Frank T.K. So/Mr. Pomfret Leung” giving what I would describe as its conditional acceptance in these terms (written exactly as it stands in the original):-

“... we would like to confirm the acceptance of your programme under the conditions that any loss in time due to the unavailability of the building by [Gammon] will be compensated by extending the duration of the subsequent activities in the installation programme and that any extra labor cost arising from this change of proceeding activities will be liable to be claimed by us”.

The copy of this fax in the hearing bundle bore the manuscript notes “Pomfret, Please executed (sic).  3/4/2000”.  Jebsen made no attempt to explain how Mr Pomfret Leung was to “execute”.  My attention has not been drawn to any written acceptance or response by Jebsen of or to Watfield’s conditional acceptance or counter-offer.   

40.The Minutes of Meeting prepared by Jebsen for Meeting No. 15 held on 6 April 2000 recorded that:-

“Item	Description	Action by	Action Date
5.	Drawings
5.1	[Jebsen] confirmed that 1 copy of the approved drawings (approved by the consultant) would be despatched to Watfield for their reference and action.	Noted
5.2	As per [CEL’s] verbal confirmation, the approved drawings should be marked with ‘D1’ at the right hand side corner of [CEL’s] title block.	Noted”

41.The Minutes of Meeting prepared by Jebsen for Meeting No. 16, 18 – 25 contained words to the effect that “As per [CEL’s] verbal confirmation, the approved drawings should be marked with ‘D1’ at the right hand side corner of [CEL’s] title block.”

42.By letter dated 18 April 2000, Jebsen asked Watfield to check and confirm by 27 April 2000 whether the steel material (such as I-beam and steel plate) for the lifting appliances at the Chlorine Store could be made available to Jebsen for inspection.

43.Watfield’s hand-written reply dated 19 April 2000 stated as follows (written exactly as in the original):-

“Pl. let us have approved drawing of the said equipment before its procurement can be proceeded.  Our Samual Law did not agree with your Pomfret Leung on the phone to buy anything for your inspection prior to the receipt of approved drawings.”

44.Under the JW Contract Programme, all works should be finished by 21 April 2000.  However, by June 2000, most of the buildings were still not available and Watfield could not possibly start installation works.  By letter dated 12 June 2000, CEL advised Jebsen of tentative installation dates on which further confirmation would be provided closer to the dates.  The proposed dates for handover inspection of the 13 buildings were 24 July 2000, 22 June 2000, 17 April 2001, 13 November 2000, 13 November 2000, 22 May 2000, 18 September 2000, 5 October 2000, 8 September 2000, 12 September 2000, 28 September 2000, 18 September 2000 and 11 November 2000.  By letter dated 14 June 2000, Jebsen passed on the information to Watfield and requested Watfield to check and provide Watfield’s revised work programme by 19 June 2000.

45.CEL’s fax to Jebsen dated 10 August 2000 is an important document on the quality of Jebsen’s drawings.  CEL stated that:-

“About the approval progress of CLS building, we would like to highlight that the ER has not immediately responded to your submission but your design submission was not up to the required standard for this Contract.  Therefore, the ER rejected your submission due to your careless mistakes and inconsistencies within submitted document (please refer to our letter ref ... dated 22 December 1999).  You should improve the quality of your submission/design to avoid repeating errors and ensure design quality in your future submissions.  Otherwise, approval of your carnage’s design will be rejected which will further delay delivery of equipment and your site works.”

Serious allegations were made by CEL against Jebsen and if Jebsen had rebutted the allegations, Jebsen could and should have adduced evidence on Jebsen’s rebuttal.  What we have is resounding silence.  I asked Mr Lee Shun Fook, Charles, the only factual witness called by Jebsen, whether he knew if there was a reply by Jebsen.  His reply was that he was on leave at that time and he would have to check.  He was asked in cross-examination if Jebsen had made errors in calculations and drawings again.  His answer was that he had not checked other drawings.  He also said he had no idea why CEL asked Jebsen to improve the quality of Jebsen’s drawings. 

46.By letter dated 12 August 2000, Jebsen sent Watfield 3 drawings with “D1” markings (signifying approval by the Engineer) on the design of a single jib crane.  According to the Craneage Schedule, there were 121 cranes/hoists.  Mr Lee Shun Fook, Charles, confirmed that these 3 drawings were the only drawings with “D1” markings. 

47.By fax dated 30 August 2000, Watfield wrote to Jebsen complaining about the delay in having approved drawings in these terms (written exactly as in the original):-

“The current progress at the captioned site is getting alarming that, as of to-date, more than a year from the date of contract was signed, we have not received from you the approved drawing (bearing with mark D1) to allow us to commence production for cranes and steel works, except the jib crane, the small portion of the Workshop Building, whereas, the fabrication work for the Administration Building, Chlorine Store Building, Surge Vessel Chamber etc., should have been commenced production yet.  We however, do not see any sign of receiving the approved drawing from you in the near future for commencement of production.

Enclosed please find the table which indicates that you are far behind the schedule of getting consent of production from the relevant party.

Please advise by return before 4^th September 2000, when do we commence production.

We reserve the right to claim against your company for all consequent losses due arising.

Look forward to your prompt reply.”

Not having received any reply, Watfield sent its first reminder dated 6 September 2000.

Not having received any reply, Watfield sent its second reminder dated 3 October 2000.

Not having received any reply, Watfield sent its third reminder dated 12 October 2000.

Not having received any reply, Watfield sent its fourth reminder dated 21 October 2000.

Not having received any reply, Watfield sent its fifth reminder dated 3 November 2000.

48.By fax to Watfield dated 9 September 2000, Jebsen complained that only the jib crane, and not the steel structures for Workshop and Chlorine Store, would be ready for inspection.

49.Watfield replied by fax dated 12 September 2000 as follows (written exactly as in the original):-

“We are disappointed at your letter ... dated 9^th September 2000 regarding Request Inspection of Crane Steel Structures for WB and CLS, which we have repeatedly reported to your Mr. C. Y. Law that, we have been awaiting letter of approval and approved drawings from your office prior to any procurement of material for fabrication. 

Please refer to your [an error for “our”] fax Aug-197/00 dated 30^th August 2000 and the first reminder on 6^th September 2000, which stated clearly that, none of the drawing has been approved, except jib crane for the workshop drawing were approved sometime ago.

Should you insist to proceed procurement of material for fabrication according to your drawing without approval stamp from the relevant parties, we will not be responsible for any consequent cause and losses, please confirm to us in letter.

Besides, we would like to remind you that, to ensure availability of the designated material, at ex-stock (some of material are tailor-made product and may not be available in the market) please allow 3 months for delivery of material from order confirmation, we will not be responsible for any delay arised.”

50.By fax to Watfield dated 18 September 2000, Jebsen passed on CEL’s fax dated 16 September 2000 instructing Jebsen to proceed with material fabrication of a crane in the TPT ‘D’ Compressor Room according to Jebsen’s drawings which had not been approved by the Engineer.  Jebsen also informed Watfield that site measurement on the roof floor of Chlorine Store could be carried out on 20 September 2000.

51.Watfield replied by fax dated 20 September 2000 agreeing to complete the works in 3 weeks from the time of receiving Jebsen’s drawing revision E.  Watfield stated that Watfield was required to work on the basis of each individual building, not piecemeal basis, and reserved the right to claim for any “consequent cost due caused”.  Watfield also stated that any alteration in future by reason of its working in accordance with the drawing which had not been approved by the Engineer would be subject to additional cost.

52.By fax dated 29 September 2000, Mr Lee Shun Fook, Charles, wrote to Watfield informing it that Mr Frank So had tendered his resignation and that all correspondence to Jebsen should be marked for his attention.

53.By fax dated 12 October 2000, Watfield asked Jebsen for the list of drawings approved by the Engineer.

54.By fax dated 24 October 2000, CEL enclosed a letter from Gammon regarding the waterproofing work schedule to be carried out by them and asked Jebsen how Jebsen was to “achieve the required time frame”.  By fax dated 24 October 2000, Jebsen enclosed a copy of CEL’s fax which Jebsen said was self-explanatory and stated that Watfield’s “prompt reply on or before 28^th October is appreciated”.

55.By letter dated 24 October 2000, Watfield asked Jebsen for its letter of consent to proceed with fabrication and installation in accordance with Jebsen’s drawings not approved by the Engineer (written exactly as in the original):-

“We note that installation works at Workshop Building, Chlorine Store Building and Tai Po Tau ‘D’ Pumping Station will be on next batch of works to go very soon, however, as of to-date, none of the fabrication and installation drawing for the above said buildings has been officially approved by the relevant parties, besides, revised paint schedule is still in course of getting approval.

To avoid any delay, we urge you to send us letter of consent for us to proceed fabrication and installation soonest.

Any delay arising from this issue will be at your responsibility, we reserve the right to claim for extension of time and losses due caused.”

56.By letter dated 25 October 2000, Jebsen sent Watfield a copy of CEL’s fax of 24 October 2000 and 4 drawings, none of which had been approved by the Engineer, for Watfield to proceed with fabrication of I-beam and base plate and Watfield was asked to provide tentative programme.

57.Jebsen replied to Watfield’s letter dated 24 October 2000 by letter dated 26 October 2000 in these terms (written exactly as in the original):-

“We refer to your letter ... dated 24 October 2000 regarding the fabrication and installation drawing for Workshop Building, Chlorine Store Building and Tai Po Tau ‘D’ Pumping Station and would like to reply to you as follows:

Workshop Building

1) Craneage no. 006-HJC-0001, drawings approved and already informed you in our letter ... dated 12 August 2000.

2) Craneage no. 006-HTC-0002, please refer to our letter ... dated 25 October 2000 already informed you to proceed the fabrication works.

Chlorine Store

1) Our letter ... dated 18 April 2000 already informed you to proceed the fabrication work.

TPT ‘D’

1) Compressor Room, [CEL] and we have already instructed you to use the following letter mentioned drawings to proceed the fabrication and installation works, our letter ... dated 18 September 2000.

2) Surge Vessel Chamber – you have already carried out the fabrication work and we shall finalized the drawings with [CEL] soonest.

Furthermore, we advise you to spend your time to monitor your site supervision and co-ordination work rather than asked us the questions which we have already replied to you.

Finally, according to the captioned condition, we do not accept the last paragraph in your letter ‘Any delay arising ... losses due caused.’ ”

58.Watfield replied by letter dated 28 October 2000 stating that (written exactly as in the original):-

“In response to your letter ... dated 26th October 2000, we are prohibited from further execution due to the following reasons, which, we are still awaiting your written confirmation.

Workshop Building

1) We have completed fabrication of Craneage No. 006-HJC-001 sometime ago, however, approval of revised painting schedule is still outstanding before we can move on to shot blasting and painting work.

2) As you said, Carneage No. 006-HTC-002 was just approved on 25th October, 2000, which, is under evaluation for price adjustment due to change of design and additional requirement in order to fit the actual site condition.

Besides, we are awaiting your acceptance for additional price and approval of revised painting schedule before we can move on to shot blasting.

Chlorine Store

Please see the attached with our marked up comment on your letter ... which was sent back to you on 19th April, 2000.  Your further confirmation is required.

Besides, the said letter has not confirmed approval of your construction drawing.

TPT ‘D’

1) We have completed installation of craneage for compressor room on 20th October 2000.

2) As confirmed by your last paragraph, ‘we shall finalise the drawing with [CEL] soonest’ in other words, we are still waiting for your approved drawing and letter of consent before we commence our fabrication works.

Based on the above reasons, and due to no fault of us, we reserve the right to claim against you for extension of time and any losses due caused.”

59.By letter dated 28 October 2000 Watfield informed Jebsen that despite repeated demands, it had not been provided with approved construction drawings, letter of consent or acceptance of price adjustment and that it would not procure any material or commence fabrication.

60.Watfield’s former solicitors, Messrs Fung Wong Ng & Lam, wrote to Jebsen by letter dated 30 October 2000; referred to the Project and continued as follows:-

“We are instructed that the Project comprised lifting appliances to be installed in 16 buildings.  According to the Schedule of Craneage and Programme of Works included in the Sub-contract, approved drawings should have been provided and installation work should have been commenced for all 16 buildings by now.  Even according to the revised Project Programme dated 13th March 2000 prepared by you, site installation of all 16 buildings should have already been commenced.  However, at present, only some approved drawings have been provided for the Workshop Building.  Approved drawings are outstanding for all other buildings, and site installation work could not be commenced in the absence of your valid notification.

It is your duty under the Sub-contract to provide Watfield with approved drawings for fabricating the lifting appliances and to notify Watfield the site installation commencement date for each individual lifting equipment.  You are in breach of the Sub-contract by failing to provide Watfield with the said drawings, and to give the said notification according to the Sub-contract programme.  At present, Watfield has suffered substantial undue delay, despite repeated reminders being sent to you since 30^th August 2000 asking for confirmation of date for commencing fabrication.

Without prejudice to the rights of Watfield under the Sub-contract, which are hereby all expressly reserved, we are instructed to give you notice that the time for providing the approved drawings for fabricating the lifting appliances, the time for commencing site installations and the time for giving notification thereof will be of the essence to the Sub-contract.

We are further instructed to notify you that the approved drawings for all the buildings shall be provided to Watfield within 14 days from the date of this letter.  Your failure to provide all the approved drawings on or before 13 November 2000 will be regarded as a breach of condition of the Sub-contract, which Watfield will be entitled to terminate.

We are also instructed to notify you that the buildings shall be available for site installation work to commence according to the attached Schedule.  Notification to Watfield confirming the commencement date for site installation work shall be given at least 3 weeks in advance or 6 weeks before start of the fabrication of steelworks (as stipulated by Clause A2 of the Scope of Works of the Sub-contract at p. 24).  Your failure to allow site installation work to commence by the scheduled date(s) and/or your failure to give due notification prior to the schedule date(s) will be regarded as a breach of condition of the Sub-contract, which Watfield will be entitled to terminate.”

61.By a letter dated 1 November 2000, Jebsen wrote to Watfield as follows (written exactly as in the original):-

“We refer to your letter ... dated 25^th October 2000 ... dated 27^th October 2000 ... dated 28^th October 2000 ... dated 28^th October 2000 and would like to instruct you to proceed the site measurement fabrication work and installation work as per the attached drawings without further delay.

We would also like to draw your attention that according to [the JW Contract] page 9, Clause 5(2), Programme, the Subcontractor is to carry out the subcontract works in accordance with short term programme(s) issued by [Jebsen] from time-to-time.  Therefore you should carry out as per our letter ... dated 24^th October 2000.”

The 12-page schedule attached to the letter listed some 480 drawings.  None of the drawings was marked “D1” in the revision number shown on the schedule.

62.The Minutes of Meeting prepared by Jebsen for Meeting No. 25 held on 10 November 2000 recorded that:-

“5.		Drawings
5.1	i)	As per [CEL’s] verbal confirmation, the approved drawings should be marked with ‘D1’ at the right hand side corner of [CEL’s] title block.	Noted
	ii)	[Jebsen] already gave the approval letter based on the updated drawings to Watfield to proceed the site measurement, fabrication and installation works.  Watfield will check the drawings status and advise [Jebsen] accordingly.”

63.By letter dated 16 November 2000, Messrs Fung Wong Ng & Lam responded on behalf of Watfield to Jebsen’s letter 1 November 2000 as follows:-

“... Our client has examined the drawing list and the drawings provided by your said letter in detail and discovered that there are discrepancies between them.  Please find enclosed a marked up copy of the drawing list showing the result of our client’s checking.  Please confirm whether our client’s checking is correct.

More importantly, our client discovered that most of the drawings provided by you are not drawings approved by the consultant and client.  Under the sub-contract between our client with you (‘the Sub-contract’), our client is obliged to carry out the works according to drawings approved by the consultant and client (Clause 5(d) at page 21 of the Sub-Contract Document).  It is our client’s understanding that approved drawings would be marked with ‘D1’ at the right hand side corner of [CEL’s] title block.  However, our client could not see the mark in most of the drawings.

Further, we wish to point out that painting schedule has not been approved and/or provided to our client up to date.

We wish to draw your attention that our letter dated 30^th October 2000 to you making time of the essence for, inter alia, the provision of approved drawings to our client.  Unless drawings duly approved by the consultant and client for all the buildings are provided to our client on or before 20^th November 2000, our client shall exercise its proper contractual right to terminate the Sub-contract.

Finally, during our recent site inspection, our client discovered that except the workshop building, the buildings are not yet ready for full site measurement to proceed.  Without prejudice to any of our client’s rights, we hereby notify you that the time for making the buildings ready for full site measurement will also be of essence if the buildings are not all made ready on or before 20^th November 2000 for full site measurement to take place.”

64.By letter dated 20 November 2000, Mr Lee Shun Fook, Charles, replied on behalf of Jebsen to the letter dated 16 November 2000 from Watfield’s former solicitors, in these terms (written exactly as in the original):-

“With reference to your letter of 16th November 2000, we would like to draw your attention to the following:

1. Please ask your client ... to proceed with the work immediately according to those drawings which are marked with ‘ticks’ by your client.  As for the other not marked with ‘ticks’ we will send the drawings to your client today.  Please ask your client to urgently discuss with us so as to double check the drawings accordingly.

2. As the painting schedule submitted by your client was not complete, they were instructed to revise these several times for re-submission to the consultant engineer before final agreement was reached.  We now would like to approve herewith the painting schedule as proposed by your client on 19th October 2000.

3. In addition to Workshop Building, your client can now proceed with the full site measurements for the other three buildings of TPT ‘D’, CBI as well as SRGF.  Kindly ask your client to carry out the required measurements without further delay.

4. We are sorry to say that we could not find clause 5 (d) page 21 of the Sub-Contract Agreement as mentioned by your client.  However, we wish to draw your client’s attention to clause 7.6 page 16 of 391 ‘Approved for Construction’ Drawings of the Sub-Contract Agreement (The Sub-contractor shall only work to ‘Approved for Construction’ drawings signed by [Jebsen’s] Resident Project Manager or his authorized representative, this will include sketches of brackets etc.  This stipulation will avoid any misunderstanding regarding contradictory instructions which may involve [Jebsen] or the Sub-contractor in extra costs].

In order not to lose any more time, please inform your client to carry out the work subcontracted to them by Jebsen without delay.

In case of any queries from your client, please ask your client feel free to contact us.”

65.By letter dated 23 November 2000, Watfield’s former solicitors called the contract off in these terms:-

“We refer to your letter dated 20th November 2000 ...

It appears from paragraph 4 of your said letter that drawings provided by you to our client ... have only been approved by you but not by the consultant and client as required under Clause 5(i) at page 21 of the Sub-contract Document (the reference to Clause 5(d) in our previous letter dated [16th November 2000] was a typographical mistake).  In the circumstances, Watfield is not obliged to accept such drawings as ‘approved drawings’.  Clause 7.6 at page 16 of the Sub-contract Document should obviously be read together with Clause 5(i) at page 21, and could not be relied upon to dispense with the need to obtain approval for the drawings from the consultant and client.  It was further evidenced by your minutes of meeting no. 24 dated 20th October 2000 that the approved drawings should be marked with ‘D1’ at the right hand side corner of the [CEL’s] title block.

Further, we are instructed that contrary to the allegation in paragraph 3 of your said letter, no building is yet ready for full site measurement other than the Workshop Building.

In the premises, you failed to comply with the notices which we gave to you on behalf of Watfield by our letters dated 30th October 2000 and 16th November 2000, making time of the essence for:

(a)     providing all approved drawings for fabricating the lifting appliances; and

(b)     making all buildings ready for site measurement, on or before 20th November 2000.

We are instructed to give you notice that the Sub-contract is therefore hereby terminated with immediate effect.  Such termination is an exercise of Watfield’s lawful contractual right.  Watfield will quantify the loss and damage suffered by it and will provide you with the particulars once they are available.

If you have any dispute on the parties’ rights and duties under the Sub-contract, Watfield is ready and willing to have such dispute resolved expediently by Court or arbitration in accordance with the provisions in the Sub-contract or by further (if any) agreement between the parties.  We have instructions from Watfield to handle further correspondence with you in relation to all matters connected with the Sub-contract.

Without prejudice to any of Watfield’s rights and subject to agreement by the parties, we are instructed to notify you that Watfield is willing to carry out the lifting appliance installation work at fair market rates under a new contract which reflect the substantially changed circumstances, especially the lapse of time since the Sub-contract was entered into.  In particular, under the new contract to be agreed, Watfield is willing to carry out fabrication works according to drawings approved by you alone, provided of course that you will be solely responsible for any risk of subsequent disapproval from the consultant and client.”

66.By a further letter dated 27 November 2000, Watfield’s former solicitors referred to Jebsen’s 2 letters both dated 24 November 2000 and stated that as Watfield had terminated the JW Contract, Watfield was no longer bound to follow Jebsen’s instructions in the absence of a new agreement.

67.By letter dated 15 December 2000, Messrs W. K. To & Co., solicitors for Jebsen, sent former solicitors for Watfield a copy of the contract made between Jebsen and CEL, with the prices being covered up.

68.By letter dated 12 January 2001, solicitors for Jebsen informed former solicitors for Watfield that:-

“Your client’s conduct has constituted blatant breach of the Sub-contract and our client hereby accepts your (sic) repudiation of the same.”

Analysis on liability

69.I have already held that under the JW Contract, time was of the essence.  I have also held that approval of drawings/design was by the Engineer, not by Jebsen whose job was to submit drawings/design through CEL and Gammon to the Engineer for review and approval.  

70.The respective dates for:-

(a)     approval of drawings by the Engineer;

(b)    commencement of fabrication of steelworks;

(c)     site availability; and

(d)    commencement of site installation;

under the “Programme of works from [CEL]” attached to the JW Contract and Jebsen’s revised Programme dated 13 March 2000 were as follows:-

Building	Task	Original	Revised
Administration Building	Engineer’s approval	3/12/98	29/4/00
	Fabrication of steelworks	4/12/98	25/6/00
	Site availability	8/11/98	25/7/00
	Site installation	31/3/99	25/7/00
Chemical Building I	Engineer’s approval	23/12/98	29/4/00
	Fabrication of steelworks	7/6/99	19/10/00
	Site availability	14/8/99	2/8/00
	Site installation	14/18/99	1/12/00
Chlorine Store	Engineer’s approval	23/12/98	29/4/00
	Fabrication of steelworks	15/7/99	19/10/00
	Site availability	20/11/99	8/3/00
	Site installation	20/11/99	21/11/00
Supernatant Tank and Pumping Station	Engineer’s approval	18/1/99	29/4/00
	Fabrication of steelworks	26/7/99	19/10/00
	Site availability	13/9/99	11/9/00
	Site installation	13/9/99	18/11/00
Primary Aerated Biological Filter	Engineer’s approval	18/1/99	29/4/00
	Fabrication of steelworks	13/7/99	9/12/00
	Site availability	25/8/99	1/12/00
	Site installation	25/8/99	3/3/01
Sludge Press House	Engineer’s approval	8/2/99	29/4/00
	Fabrication of steelworks	9/4/99	8/12/00
	Site availability	1/9/99	30/11/00
	Site installation	1/9/99	8/1/01
Washwater Recovery Tank & Sludge Holding Tank	Engineer’s approval	19/2/99	29/4/00(SHT) 17/6/00(WRT)
	Fabrication of steelworks	16/9/99	6/10/00(SHT) 6/12/00(WRT)
	Site availability	2/11/99	19/6/00(SHT) 19/6/00(WRT)
	Site installation	2/11/99	2/11/00(SHT) 3/1/01(WRT)
Secondary Rapid Gravity Filter	Engineer’s approval	12/3/99	29/4/00
	Fabrication of steelworks	27/7/99	19/12/00
	Site availability	22/9/99	9/12/00
	Site installation	22/9/99	10/3/01
Pipe Gallery No. 4	Engineer’s approval	8/2/99	29/4/00
	Fabrication of steelworks	28/7/99	28/10/00
	Site availability	22/9/99	16/10/00
	Site installation	23/9/99	18/1/01
Surge Vessel Chamber	Engineer’s approval	19/2/99	29/4/00
	Fabrication of steelworks	22/2/99	18/10/00
	Site availability	1/3/99	15/6/00
	Site installation	3/8/99	16/11/00
Chemical Building II	Engineer’s approval	25/3/99	29/4/00
	Fabrication of steelworks	27/9/99	20/10/00
	Site availability	3/11/99	24/6/00
	Site installation	3/11/99	17/11/00
Treated Water Pumping Station	Engineer’s approval	14/4/99	29/4/00
	Fabrication of steelworks	1/7/99	27/10/00
	Site availability	7/12/99	19/10/00
	Site installation	7/12/99	25/11/00
Chemical Building III	Engineer’s approval	25/3/99	29/4/00
	Fabrication of steelworks	8/2/00	20/10/00
	Site availability	13/3/00	11/10/00
	Site installation	13/3/00	14/11/00
DAF Building	Engineer’s approval	14/4/99	17/6/00 & 29/4/00
	Fabrication of steelworks	15/4/99	30/4/01
	Site availability	11/8/99	21/4/01
	Site installation	23/9/99	29/5/01
Inlet Work & PAC Contractor	Engineer’s approval	26/4/99	29/4/00
	Fabrication of steelworks	10/8/99	27/1/01
	Site availability	17/9/99	19/1/01
	Site installation	5/10/99	28/2/01
Workshop	Engineer’s approval	26/4/99	29/4/00
	Fabrication of steelworks	4/10/99	13/11/00
	Site availability	19/11/99	8/3/00
	Site installation	19/11/99	14/12/00

71.By 14 September 1999 when Jebsen sent Watfield 9 approved drawings for 2 lifting appliances, all the dates for Jebsen to supply Watfield with drawings/design approved by the Engineer had passed.  Watfield’s request by letter dated 19 October 1999 for a revised programme received a negative response from Jebsen.

72.By 25 January 2000 when Jebsen wrote to CEL, all the dates for Jebsen to supply Watfield with drawings/design approved by the Engineer had passed. 

73.By 17 March 2000 when Jebsen sent Watfield Jebsen’s revised programme, all the dates under the original programme for:-

(a)     Jebsen to supply Watfield with drawings/design approved by the Engineer;

(b)    commencement of fabrication of steelworks;

(c)     Jebsen to make site available; and

(d)    commencement of site installation;

had passed.  Jebsen had to give at least 6 weeks’ written notification of commencement of fabrication works and at least 3 weeks’ written notification of commencement of site installation.  Variation of the original programme was permissible but this required the mutual agreement of both Jebsen and Watfield.  Watfield’s conditional acceptance was by fax dated 1 April 2000.  Jebsen did not accept Watfield’s conditions and did not communicate its acceptance (if such be the case) of the conditions.  In my judgment, the original programme remained unchanged.

74.By 20 March 2000, only one building, i.e. the Workshop Building, and parts of two other buildings, i.e. Chemical Building I lower level and Chemical Building II lower level, had been made available.

75.In late February and March 2000 when Jebsen sent Watfield 1, 3 and 419 drawings, they were for “information” and Jebsen expressly told Watfield that Jebsen would inform Watfield of the outcome of Jebsen’s submissions.

76.The 3 approved drawings of a single jib crane sent under cover of Jebsen’s letter dated 12 August 2000 were the only drawings with “D1” markings.

77.By written communications dated 19 April 2000, 30 August 2000 (and 5 written reminders), 12 September 2000, 12 October 2000 and 28 October 2000, Watfield reiterated its requests for, or demands for, or complaints against lack of drawings approved by the Engineer. 

78.By written communications dated 30 August 2000 (and 5 written reminders), 12 September 2000, 20 September 2000, 24 October 2000 Watfield complained about the delay and the scarcity of work. 

79.By 30 October 2000 when Watfield’s former solicitors wrote to Jebsen making time for:-

(a)     providing drawings approved by the Engineer;

(b)    giving written notification of the commencement of fabrication of steelworks; and

(c)     giving written notification of the commencement of site installation; 

of the essence, all the dates under the original programme had passed.  Assuming, contrary to my judgment, that the original programme had been revised, all the dates under the revised programme for approval by the Engineer of drawings/design had passed and the dates under the revised programme for site availability of most of the buildings had passed.

80.The quality of Jebsen’s drawings was a matter within Jebsen’s knowledge.  Given CEL’s fax dated 10 August 2000, evidence by Jebsen on the quality of its drawings was called for.  The evidence of Mr Lee Shun Fook, Charles, was evasive and unhelpful.  In the absence of any evidence from Jebsen on the quality of its drawings, adverse inferences may be more easily drawn against Jebsen.  This is of course providing that the rest of the evidence allows such inferences to be drawn and that such evidence is credible in the first place. See Kao Lee & Yip v Koo Hoi Yan and others [2003] 3 HKLRD 296 at paragraph 34, Polaroid Far East Ltd v Bel Trade Co Ltd [1992] HKLR 447 at 454; and Jones v Dunkel (1958-1959) 101 CLR 298.  The original programme envisaged one round of comments by the Engineer and then approval by the Engineer on Jebsen’s revision.  It is clear from the revised programme that numerous revisions had been made in respect of drawings for most of the buildings.  The irresistible inference  that I draw is that Jebsen’s drawings were not up to standard, poor, careless and inconsistent.  Jebsen was clearly to blame for the delay or absence of approval by the Engineer of drawings.   

81.There was no reason why Watfield should work on the basis of Jebsen’s drawings before approval by the Engineer and Jebsen was not entitled to instruct Watfield to work in accordance with the 480 drawings referred to in its letter dated 1 November 2000 or in accordance with the drawings referred to in its letter dated 20 November 2000. 

82.Clause 4(2) did not assist Jebsen because the instructions were not reasonable and also because Jebsen would in any event be in continuing breach of its contractual duty to supply Watfield with drawings approved by the Engineer.

83.Wholesale departure from, and indeed contravention of, the prohibition under clause 2.77(3) of the “Particular Technical Specification from [CEL]” was unreasonable. 

84.Hitherto, drawings not approved by the Engineer were sent to Watfield for information only.  It was unreasonable for Jebsen to make a sudden U-turn and instruct Watfield to work in accordance with the 480 drawings without the Engineer’s approval. 

85.Moreover, Jebsen had never agreed to pay or bear the consequence of Watfield being required to work in accordance with drawings which had not been approved by the Engineer and which I have found to be not up to standard.  This was unreasonable.  

86.Mr Lee Shun Fook, Charles, asserted in paragraph 46 of his witness statement that he had instructed Mr M. S. Lee to instruct Watfield to proceed with drawings provided by Jebsen and that “any additional works due to the alleged lack of Engineer’s explicit approval could be treated by [Watfield] as variations”.  This is neither here nor there unless Mr M. S. Lee had told Watfield about it.  There was nothing in writing from Jebsen and there was no evidence that Watfield had been told. 

87.In his testimony, Mr Lee Shun Fook, Charles, asserted that in September 2000, he told Watfield that if Jebsen was at fault, Jebsen would be willing to pay.  I reject his assertion.  His assertion ran against the tenor of Jebsen’s correspondence which had been denying liability and avoiding any commitment to pay.  If he had said what he alleged and if he meant what he had attributed to himself, there was no reason for him not to have put it in writing to Watfield.  Moreover, if Watfield had been told, the probabilities were that Watfield would have put what he had said on record.

88.Even if, contrary to my judgment, it were permissible for Jebsen to give Watfield instructions under clause 4(2), Jebsen was still in breach of its contractual obligation to provide Watfield with drawings approved by the Engineer and was in continuing breach of its obligation.  Time being of the essence, it was lawful for Watfield to call the contract off by its former solicitors’ letter dated 23 November 2000.  Even if time was not of the essence, Watfield had made it so by its former solicitors’ letter dated 30 October 2000.  At the hearing I was concerned that the time for compliance was too short but am persuaded by counsel for Watfield who was helpful in his conduct of the case and in his submissions that the notice was reasonable, see Charles Richards v Oppenhaim [1950] 1 KB 616 at p. 624:-

“In my opinion, however, the words of Lord Parker in Stickney v. Keeble [1915] AC 386, 419, apply to such a case as the present just as much as they do to a contract for the sale of land. He said that ‘in considering whether the time so limited is a reasonable time the court will consider all the circumstances of the case. No doubt what remains to be done at the date of the notice is of importance, but it is by no means the only relevant fact. The fact that the purchaser has continually been pressing for completion, or has before given similar notices which he has waived, or that it is specially important to him to obtain early completion, are equally relevant facts’ - to which I would add, in the present case, the fact that the original contract made time of the essence of the contract.”

Significantly, Watfield had continually been pressing for drawings approved by the Engineer and complaining about the scarcity of work.

89.Under clause 4(2), Watfield was to comply with the written instruction “forthwith”.  There was no time limit in Jebsen’s letter dated 1 November 2000.  Watfield pointed out that there were discrepancies between the drawings and the drawing list.  In response, Jebsen changed its written instructions by letter dated 20 November 2000 by confining it to drawings marked with “ticks” by Watfield, pending the supply of further drawings.  Even if the amended instructions were reasonable, Watfield could not be said to be in breach at the time when Watfield called the contract off by letter dated 23 November 2000.

90.There were squabbles between Jebsen and Watfield.  They were minor in nature, had no effect on the question of lawfulness of the termination of the JW Contract by Watfield, and have no or no material effect on the quantum of damages.  Suffice it to say that Jebsen was in the wrong in these squabbles.

Judgment on liability

91.For these reasons, I conclude that Watfield’s termination of the JW Contract on 23 November 2000 was lawful.

92.Jebsen’s claim against Watfield falls to be dismissed and Watfield succeeds in its counterclaim against Jebsen.

Quantum of Watfield’s counterclaim

93.Watfield counterclaimed for value of works completed prior to termination, loss and damage arising from prolongation and disruption caused by Jebsen’s breaches, and further loss and damage arising from termination.

Value of works completed prior to termination

94.Watfield’s expert witness argued for assessment on the basis of the contract value.  Jebsen’s expert witness argued that “incomplete work should not be valued at all” and that the works had not been “certified completed”.  I accept Watfield’s approach and reject Jebsen’s arguments.  Works had not been completed because Watfield lawfully terminated the JW Contract on the grounds of Jebsen’s breaches.  Jebsen cannot rely on its own breaches.  Hudson’s Building and Engineering Contracts, 11^th edition, opines at paragraph 8-172 that the contractor is entitled to the full contract value of any work done up to the time of termination:-

“(b)   Loss of Profit

(i)    Terminated Contracts

In ‘total prevention’ cases, where a contract has been discontinued as a result of owner breach, the Robinson v Harman compensatory principle will, in the more usual case where work has been partially performed at the time of termination, entitle the contractor to the full contract value of any work done up to that time, less sums previously paid and possibly also (although subject to a number of important factual reservations) a sum for profit lost on the remaining work.  It will also, of course, be possible for the contractor to recover damages for any increased cost of work already done caused by earlier breaches of the owner prior to termination.”

95.I accept Watfield’s expert witness’ estimate of the percentage of work done in respect of the Compressor House (95%), Supernatant Tank Building (10%), Chemical Building I (10%) and DAF Building (10%) and assess the respective amounts at $33,725, $13,200, $21,800 and $46,100.

96.I accept that Watfield had carried out work offsite.  Counsel for Watfield conceded that Jebsen’s estimate of $52,000 was a better estimate and I assess the amount in respect of the Surge Vessel Chamber, Chlorine Store Building and Workshop Building at $52,000.

97.Watfield claimed $10,957 for value of paint supplied.  Jebsen’s expert witness contended that the value should be $9,416 and argued that there was no evidence of purchase.  I reject Jebsen’s argument.  It is not disputed that the crane for TPT ‘D’ Compressor Room had been painted.  I assess this item at $10,187.

98.There is no dispute on Watfield’s claim for $4,500 as value of labour waiting for information and I assess it at $4,500.

99.Watfield claimed $2,700 as value of labour setting out datum lines.  Jebsen’s expert witness agreed quantum but argued that it was within Watfield’s scope of work.  I reject Jebsen’s argument.  Clause 15 f) of the Scope of Works provided that “CEL will provide the reference datum for installation” and clause 5 ii) of the Notes to Sub-contractor provided that:-

“All specifications and conditions of contract included in the contract between [Jebsen] and the Contractor [CEL] which are related and applicable to the carrying out and completion of the Sub-contract Works by [Watfield], as if [Jebsen] were [CEL] and [Watfield] were [Jebsen] under the Contract.”

I assess the value at $2,700.

100.The amounts for works completed prior to termination add up to a sub-total of $184,212 ($33,725 + $13,200 + $21,800 + $46,100 + $52,000 + $10,187 + $4,500 + $2,700).

Loss and damage arising from prolongation and disruption caused by Jebsen’s breaches

101.By a Purchase Order dated 9 August 1999, Watfield sub-contracted the works under the JW Contract to King’s Welding & Steel Works Ltd (“King’s”) for $4,900,000.

102.Watfield claimed $645,165 as wages (after making allowances) for 3 site staff employed by King’s on the ground that it would be liable to King’s.  Site overhead incurred by Watfield was wasted because of scarcity of work and because of the termination.  I reject Jebsen’s expert witness’ contention that this was covered by Hudson’s formula because this was site overhead (and for that matter, wasted site overhead), not head office overhead.  Jebsen’s expert witness opined that a reasonable allowance would be $24,000 per month.  Taking a work period of 19.4 months from 12 April 1999 to 23 November 2000 gives $465,600.  I allow $555,000 for this item.

103.Jebsen’s expert witness contended that Watfield’s claim for engineer’s remuneration should cover the period from 12 April 1999 to 1 November 2000 arriving at the figure of $292,971.09.  Counsel for Watfield accepted Jebsen’s computation.  I disagree.  I see no reason why the period should end on 1 November 2000 instead of 23 November 2000.  Taking a monthly salary of $17,000, I would increase the figure of $292,971.09 to a round figure of $305,000.  Jebsen’s expert witness contended that engineer’s remuneration should be reduced on the ground that the engineers also attended to other projects.  6 projects, including the Project, were identified.  The engineers were Mr Chung Wai Man (Eric) (3 December 1998 – February 2000), Mr Wong Wai Man (7 January 2000 – 26 February 2000) and Mr Law Wing Yue (Samuel) (13 March 2000 to November 2000).  According to the meeting minutes prepared by Jebsen, Mr Chung Wai Man (Eric) attended Meeting numbers 1 – 10, 12 and 13 and Mr Law Wing Yue (Samuel) attended Meetings numbers 14 – 24.  Their respective involvement in the Project was substantial.  I assess this item at $152,500.

104.Watfield claimed $312,400 as rental cost for workshop.  Taking Jebsen’s expert witness’ figure of $5,000 per month and taking the period of 10 months starting from February 2000 when steel member was delivered, this gives $50,000.  I assess this item at $50,000.

105.Watfield relied on Hudson’s formula and claimed $1,113,132 as loss of overhead (and profit).  This item is explained in Hudson’s as follows:-

“In a delayed contract the basis of the contractor’s loss is the postponement of the time when the contractor’s organisation, viewed as a profit-earning entity, is free to move on and earn elsewhere in the market the combined profit and necessary contribution to fixed overheads (commonly known in the industry as ‘head office’ (United Kingdom) and ‘home office’ (United States) overheads, and to be distinguished from ‘site overheads’ (United Kingdom) and ‘job-related overheads’ (United States)) of which it is reasonably capable.  Such a claim does not depend in any way on the profitability or otherwise of the delayed contract itself, which will be wholly irrelevant (except possibly as some evidence that the contractor was or was not habitually successful and competitive).” (para. 8-176)

“(iii)     Profit and fixed overhead relationship

... it is often inherent in construction contracts, which must be carried out elsewhere on the land of individual building owners, that the construction contractor’s enterprise as a whole will incur a range of off-site expenditure which by its nature will not vary or be affected by the experience of an individual contract, or the degree to which that contract may have been delayed (or its performance rendered more costly), as a result of the owner’s breaches of contract.  For convenience, this class of expenditure is usually referred to in this book as ‘fixed overheads’, although, as stated, it is also widely described in the industry as ‘HO overhead’ (for head office or home office).  However, the range of such expenditure is potentially far wider than simple head office rents and salaries, and will include contributions to pension funds, board salaries, auditors’ fees and all other expenditure referable to the company or enterprise as a whole not affected by costs of an individual contract or profit.  On the other head not every item of off-site expenditure will necessarily be fixed in this special sense, if its cost can be shown to vary with that of an individual contract as a result of owner breach.” (para. 8-177)

“A contractor pricing an individual project, therefore, after providing for the estimated total ‘prime-cost’ of all kinds which will be required to carry out the contract itself, (any part of which may potentially be shown to increase as a result of an owner’s breaches, and will include, for example, supervision or other time-related or quantities-related and therefore ‘job-related’ site overheads or preliminaries) must then additionally estimate for a combined operating margin on this total prime-cost which will not only produce his required net or ‘pure’ profit, but will also serve to make an appropriate contribution, together with that from his other projects, to the fixed overheads of the enterprise as a whole (which, like his ‘pure’ profit, can only be funded from combined turnover of all the various contracts of the enterprise).” (para. 8-178)

“... in the case of a delayed contract, where the concern is to ascertain the ‘profit’ which the delayed organisation might have expected to earn elsewhere in the market on other contracts, it is this necessary combined operating margin of profit and fixed overhead which, in appropriate market conditions, the contractor’s enterprise will have lost as a consequence of the period of the owner-caused delay on the individual project, and to which he will be entitled as damages.  It is the purpose of the Hudson and Eichleay formulae to offer a reasoned calculation, derived from the contractor’s own annual accounts or other available information, as some improvement on the ‘general (and perhaps conjectural) sum for loss of business’ envisaged by Asquith L.J. as being recoverable under the first branch of the Hadley v Baxendale rule in the Victoria Laundry case.”  (para. 8-179)

“... the object of these formulae is to produce a reasoned estimate of the sort of profit and fixed overhead recovery combined which a delayed contract organisation, viewed as a profit-earning entity, might be expected to earn in the market had it been free to demobilise and leave the project on time.  The Hudson formula, first put forward in the tenth edition in 1970, at a time of high production and inflation world-wide, was relatively simple, and was as follows:

H.O/Profit Percentage x  Contract Sum  x   Period of Delay
100	Contract Period	(in weeks)”
	(e.g. in weeks)

(para. 8-182)

“The Hudson formula involved the selection of an appropriate combined percentage to be applied to the contract sum, which it was suggested in the tenth edition might vary between 3 and 7 per cent. of total turnover for a major United Kingdom contractor at that time in 1970.  The formula made little demand on plaintiffs beyond production of evidence in support of the particular percentage used.” (para. 8-183)

This formula approach was preferred by Sir William Stabb QC, sitting as a deputy judge, in JF Finnegan Ltd v Sheffield City Council, 43 Build LR 124 who said this on the claim for off-site overheads and profit:-

“It is generally accepted that, on principle, a contractor who is delayed in completing a contract due to the default of his employer, may properly have a claim for head office or off-site overheads during the period of delay, on the basis that the work-force, but for the delay, might have had the opportunity of being employed on another contract which would have had the effect of funding the overheads during the overrun period.  This principle was approved in the Canadian case of Shore & Horwitz Construction Co Ltd v Franki of Canada [1967] SCR 589, and was also applied by Mr Recorder Percival QC, in the unreported case of Whittal Builders Company Limited v Chester le Street District Council. Furthermore, in Hudson’s Building Contracts, at page 599 of the 10th edition, a simple formula is set out to determine the amount of the loss of funding of overheads and profit during the period of overrun.

... this claim for overheads during the period of overrun is not related to actual loss but is assessed by allowing the contractor's average yearly percentage for overheads on turnover for the period of overrun, provided of course that expenditure on overheads was incurred in that period.  It is a notional figure in the sense that it applies the average values of the company's working figures to the period of overrun, as if the company had been able to deploy its work-force on another contract during that period.

... I infinitely prefer the Hudson formula which, in my judgment, is the right one to apply in this case, that is to say, overhead and profit percentage based upon a fair annual average, multiplied by the contract sum and the period of delay in weeks, divided by the contract period.”

I accept the evidence given by Watfield’s Mr Yan Kin Ming that Watfield lost the opportunity to bid for 9 projects during July – September 2000.  The fact that Watfield was involved in 6 projects, including the Project, also pointed to the ample supply of work.

Jebsen’s expert witness agreed that gross profit divided by turnover equalled the relevant percentage in Hudson’s formula.  Adopting this approach, the average percentage for Watfield over a 3 year-period from 1999 – 2001 (with 30 June as financial year end) was 27.81%.  Adopting the periods suggested by Jebsen’s expert witness, the computation using Hudson’s formula is as follows:-

27.81% x $5,480,000 x 215 (days)/375 (days) = $873,753.

I assess this item at $873,753.

106.Watfield claimed a sub-total of $185,117.55 for other items.  Jebsen resisted on the ground of absence of receipts and suggested a sub-total of $26,400.  That there should be receipts for most of the items is clear.  It is also clear that most items had been incurred.  Doing the best I can, I make a global award of $105,000 for the remaining items under loss and damage arising from prolongation and disruption.

107.The amounts for loss and damage arising from prolongation and disruption add up to a sub-total of $1,736,253 ($555,000 + $152,500 + $50,000 + $873,753 + $105,000).

Further loss and damage arising from termination

108.The price under the JW Contract was $5,480,000 and the price under King’s sub-contract was $4,900,000.  Watfield would make a gain of $580,000.  After making allowances of $150,000 for Watfield’s own work force and for the profit from contract work completed, Watfield claimed $380,213 for loss of profit.  Jebsen’s expert witness contended that if Watfield’s average gross overhead was 27.81%, Watfield would make a loss instead of a profit.  I have no hesitation in rejecting such contention.  27.81% was the relevant percentage under Hudson’s formula for overhead and profit, not overhead alone.  Jebsen’s expert witness also pointed to the wages of King’s workforce.  Had the JW Contract been performed, King’s overhead would have been borne by King’s, not Watfield, and no deduction ought to be made on this ground.  Watfield’s off-site overhead had been incurred and this was quite irrespective of the JW Contract.  In my judgment, the allowance of $150,000 for Watfield’s site overhead was reasonable, bearing in mind my award of $152,500 for Watfield’s claim for engineer’s remuneration for a 19.4 month period whereas the work period under the JW Contract programme should have been 16 ½ months.  I assess the loss of profit at $380,000.

109.I regard it as reasonable to retain an engineer for 2 months post termination.  Watfield claimed $31,656.06.  It should be reduced on the ground that the engineer was also involved in other projects.  The monthly remuneration of Mr Law Wing Yue (Samuel) was $17,000.  I award $17,000 under this head.

110.Watfield claimed $26,822.79 for post termination storage.  The period claimed seems long.  I award $13,000 for this item.

111.I make no award for Watfield’s claim for loss of finance by withholding payments to King’s.  There is no reason for me to assume that Watfield would be paid in time by Jebsen and Watfield would be in breach of its payment obligations to King’s. 

112.I do not intend to make any separate award for Watfield’s claim for loss of finance on profit/amounts due but not paid.  Counsel for Watfield agreed with my suggestion that an appropriate award on interest would cover the claim.

113.The amounts for loss and damage arising from prolongation and disruption add up to a sub-total of $410,000 ($380,000 + $17,000 + $13,000).

Judgment on quantum

114.The sub-totals add up to $2,330,465 ($184,212 + $1,736,253 + $410,000).  Giving credit for the payment of $411,000, the quantum is $1,919,465.  This sum should carry interest from 24 April 2001, date of service of the Counterclaim.

Quantum on Jebsen’s claim

115.Having regard to my judgment on liability, the question of quantum of Jebsen’s claim does not arise.  I will deal with it briefly in case I am wrong on liability.

116.Jebsen claimed loss arising from the replacement of the sub-contractor, administration cost in seeking a replacement and overpayment to Watfield.

117.The price under the JW Contract was $5,480,000.  By an agreement dated 8 March 2001, Jebsen subcontracted works to DK Engineering Ltd (“DK”) for $7,800,000.  Unlike the JW Contract, DK’s subcontract works included design.  Jebsen’s expert witness accepted that the final account approach was the general method used by quantity surveyors in assessing loss arising from termination.  Jebsen’s expert witness did not adopt that approach because he had not been provided with the necessary details by Jebsen.  In my judgment, Jebsen must suffer the consequence for its failure to supply its expert witness with necessary details.  That is not a ground for adopting a different approach.  There is no evidence that Jebsen had in fact paid DK a total of $7,800,000.  All I have is a Settlement Agreement dated 21 June 2004 between Jebsen and DK under which the parties reached final settlement on a number of projects, including the Project, for $1,400,000.  Jebsen has thus failed to prove that it has suffered any loss or damage beyond nominal damages and I would have awarded $100 to Jebsen under this item had I held in favour of Jebsen on liability.  I should add that Jebsen’s expert witness’ deduction of $18,000 for design was unreasonably low.  The Work Order dated 25 November 1998 issued by Jebsen to Watfield was for provision of draughtsman service at $14,000 per month.  I have already held that the quality of Jebsen’s design/drawings was not up to standard and it clearly had to source outside help to prepare up to standard design/drawings.

118.By its Amended Statement of Claim dated 18 April 2006, Jebsen claimed $39,900 as administration cost in seeking a replacement sub-contractor.  By paragraph 88 of his witness statement dated 29 December 2003, Mr Lee Shun Fook, Charles, claimed a staggering sum of $3,887,000 under this item, alleging that he himself spent 320 hours on it.  This paragraph was excluded from his testimony when he gave evidence at trial.  I prefer the assessment by Watfield’s expert witness and I would have awarded $15,000 under this item had I decided in favour of Jebsen on liability.

119.Watfield had been paid $411,000.  I have assessed the value of works completed prior to termination at $184,212.  Had I decided in favour of Jebsen on liability, I would have awarded $226,788 under this item.

Orders

120.I order that:-

(a)     the plaintiff’s claim against the defendant be dismissed; and

(b)    judgment in the sum of $1,919,465, with interest thereon at judgment rate(s) from 24 April 2001 to the date of judgment, be entered for the defendant against the plaintiff.

Costs nisi

121.I make an order nisi under Order 42 rule 5B(6) of the Rules of the High Court, Cap. 4, that the plaintiff pay the defendant its costs of the action and the counterclaim (including all costs reserved) to be taxed if not agreed.

James Lee, instructed by W K To & Co., for the Plaintiff

David Tsang, instructed by Wong Poon Chan Law & Co., for the Defendant