Brington Engineering Ltd v. Cheerise Asia Ltd

HCCT2/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 2 OF 2010

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BETWEEN

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Before : Deputy High Court Judge Cheng, SC in Court

Dates of Hearing : 12-15 April 2011

Date of Judgment : 18 August 2011

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J U D G M E N T

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1.There were three buildings that had to be demolished at 50-53, 54-56, 57-59 Connaught Road Central (the “Site”).

2.The plaintiff is a building contractor and was awarded the ground investigation, demolition and hoarding works for the Site (“the Main Contract”).  The defendant was a Sub-Contractor to the plaintiff responsible for the hoarding and demolition works (“the Sub-Contract”). 

3.A team of consultants was engaged by the owner of the Site.  They were responsible for, inter alia, designing and preparing the demolition and hoarding plans and securing approval by the Buildings Department of such plans.  They were also the representatives of the owner for the purposes of administration of the Main Contract. 

4.The tender procedures for the Main Contract and the Sub-Contract overlapped. 

5.The Main Contract was awarded to the plaintiff by a Letter of Award dated 14 September 2007 (the “Main Contract Letter of Award”).  By a letter dated 19 September 2007, the plaintiff issued a Letter of Award to the defendant for the hoarding and demolition works (the “Sub-Contract Letter of Award”).  The defendant signed and returned the Sub-Contract Letter of Award on 20 September 2007. 

6.The Main Contract sum of HK$11 million was comprised of :

“Contract Sum

The Awarded Contract Sum is built-up as follows :

		HK$
	Original Tender Sum (Tender ‘A’)	11,485,075.00
Less	Cost saving based on Alternative Design as described in Davis Langdon & Seah’s letter dated 17 August 2007	(485,075.00)
	Awarded Contract Sum:	11,000,000.00”

The Sub-Contract sum for the hoarding and demolition works was in the amount of HK$5,347,700 :

“Sub-Contract Sum

The Awarded Sub-Contract Sum is built-up as follows :

		HK$
	Original Tender Sum (Tender ‘A’) (see attached BoQ itemized Sub-Contract sum built up)	5,467,700.00
Less	Cost saving based on Alternative Design as described in fax CLF/055 dated 21/08/07 (This is confirmed that this cost saving will not be refund in case of your mentioned Alternative Design is not to be approved by Building Department)	(120,000.00)
	Awarded Contract Sum:	5,347,700.00”

7.There is a dispute between the parties as to the extent or coverage of the Alternative Design referred to in the two letters of award. 

8.The two letters of award are identical save and except the provision of these terms in the Sub-Contract Letter of Award :

“…

We are pleased to confirm that the Tender ‘A’ based on Alternative Design submitted by you for the captioned works under your quotation via faxes ref: CLF/022, 031 & 055 dated 05/07/07, 05/08/07 & 21/08/07 is acceptable and the works are awarded to you in the lump sum fixed price of HKD5,347,700.00.

…

Pricing Documents

You have been provided with all details and/or drawings for your pricing purpose. All pre-contract documents between Brington and all parties of Consultant as listed in appendix ‘A’ were send to you before for your review of your Sub-Contract offer(s). We are given to advise that you are fully acquainted the nature and standard of Works to be executed. No claim will be considered by whatsoever reason(s) of misunderstanding.

…

Lump Sum Fixed Price Sub-Contract

This is a lump sum fixed price Sub-Contract. No adjustment to the Sub-Contract Sum is to be made unless in the case of adjustment of provisional quantities, provisional sums and variation instructions which have cost effects are issued by the Contract Administrator of Main Contract.

The basis of this subcontract is to execute as ‘Back to Back’ in terms and conditions within our Main Contract. Principle of variation, addition and/or omission to the original Sub-Contract sum shall also be settled in the same ‘Back to Back’ basis.

…

It is also agreed that the Sub-Contractor may hire the plant owned by Brington at the rates to be agreed.

Nevertheless, this is a full discretion to both parties, the material and plant supplied is subject to the request of Sub-Contractor and availability of plant owned by Brington.

There should be no claim to each other if this clause was not complied with.

…”

9.Some of the letters attached to Appendix A in the Main Contract Letter of Award are missing from the letters listed in Sub-Contract Letter of Award.  Of relevance are two letters, one dated 17 August 2007 from the owner’s consultant, Davis Langdon & Seah (“DLS”) and another dated 22 August 2007 from the plaintiff to DLS. 

10.The defendant’s argument as to what the “Alternative Design” was is that it relates primarily to the removal of the steel plate in the lift core in No. 54-56 only.  The plaintiff contends that the Alternative Design is set out in the 22 August 2007 letter.  

11.There are three sets of drawings that are relevant :

(1)  The first set is the contract drawings, demolition plans prepared by the owner’s consultant and approved by the Buildings Department on 17 August 2007 (“August 2007 Approved Drawings”). 

(2)  The second set is the submissions that were made by the defendant via the plaintiff and the consultant to the Buildings Department in November 2007 (“November 2007 Submission Drawings”). 

(3)  The third set is the revised demolition plan approved by the Buildings Department on the 12 February 2008 (“February 2008 Approved Drawings”). 

THE TENDERING PROCESS FOR THE MAIN CONTRACT AND THE SUB-CONTRACT

12.In mid June 2007, Mr Bill Chong of the plaintiff and Mr Y.P. Yeung of the defendant were in contact regarding the tendering of the hoarding and demolition works for the Site. 

13.A quotation was provided by the defendant to the plaintiff by its fax dated 5 July 2007.  Pricing was made by reference to BQ pages S3.1/1 and 3.1/2 for items 8F and items A-D respectively.  The total contract price for the demolition works was quoted as $5,467,700.  The pricing for the demolition works is a lump sum price after giving credit to a lump sum value of materials arising from demolition works. 

14.The covering page of the defendant’s quotation dated 5 July 2007 provides :

“We submit herewith the duly completed BQ rate for the demolition of the building in the captioned premises. Your attention is drawn that

(1) The preliminary items and ground investigation works should be provided and priced by BEL.

(2) Conditions survey and site monitor should be carried out and priced by BEL.

(3) The signage and signboard screen shall be provided and priced by BEL.

(4)   Our prices including preparing method statement, drawings/plan, hoarding, catch fans, asbestos survey, asbestos abatement, all temporary and precautionary works for the demolition works, demolition of building and disposal of debris as per contract specifications and TCP for demolition works.”

15.A set of working drawing was issued by the Registered Structural Engineer (“RSE”), one of the consultants of the owner of the Site, on 4 August 2007 and the same was provided to the defendant by the plaintiff.  The drawings have been prepared based on a particular method of demolition and demolition sequence, which had to be shown in the drawings in order to secure approval by the Buildings Department.  In the light of this set of drawings, the defendant wrote to the plaintiff on 5 August 2007 stating :

“Further to the review of the updated working drawing issued by the RSE on 4 August 07, we would like to confirmed that there may be no additional cost implication though there were additional shoring at 50-53 and 57-59 Connaught Road Central and temporary works for demolition operations. However, we must reinstated that we must reserved our right to revised the demolition method statement and forming additional waste disposal chute at 54-56 Connaught Road Central for disposal of demolition wastes such as metal and domestic waste provided that our proposal was accepted and approved by BD.”

16.From this fax, it is clear that the defendant wanted to have the opportunity to use a demolition method or sequence it preferred and different from what was shown in the drawings prepared by the RSE, subject to approval by the Buildings Department. 

17.There is no dispute between the parties that the Preliminary Specifications and the Technical Specifications for the Demolition Works were provided to the defendant during the tendering process. Mr Yeung also accepted that the defendant would be responsible as the demolition contractor for the obligations under the Technical Specifications for Demolition Works.  

18.On 14 August 2007, the Buildings Department approved a set of drawings.  This set of August 2007 Approved Drawings was provided to the plaintiff by the consultant and they were passed on to the defendant by the plaintiff. 

19.The parties differed as to whether the letter from the consultant, DLS to the plaintiff dated 17 August 2007 was in fact provided to the defendant even though it did not form part of the Appendix A attached to the Sub-Contract Letter of the Award.  Mr Chong of the plaintiff said that this must have been shown to the defendant as the defendant had been kept informed of all relevant discussions and correspondences pertaining to the demolition and hoarding works at all times.  Mr Yeung of the defendant did not agree that he was shown the letter at the time but admitted that he must have seen it in due course.  Indeed in a subsequent claim that was made by the defendant for onward transmission to the owner, this specific letter was referred to. 

20.In the DLS letter dated 17 August 2007 it sets out the factors relating to “conforming design” represented by the August 2007 Approved Drawings as well as “Tenderer’s Alternative Design”.  The letter provides :

“Conforming Design

5. The Hoarding Plans and Demolition Plans issued to you have been approved by the Building Departments. Minor revisions to these plans, subject to the Contract Administrator’s approval, may be initiated by the Contractor. However, your attention is drawn to Specifications Preliminaries Clause 2.3 that the drawings are deemed to be adopted by you as your own design and you should be responsible for re-submitting or revising as the case may be for these drawings for obtaining permits and approval/ consent from the Building Authority for subsequent demolition and hoarding works. You shall include all the time and cost incurred as a result of these amendments/re-submissions and Building Department’s review and approval (or disapproval) process.

Tenderer’s Alternative Design

1. Factors listed under Conforming Design above

2. You are requested to further propose alternative design which may include a fundamental change to the approved plans mentioned in item 5 above. In the event of the tender being accepted based on this alternative design, the associated cost saving or any part of it offered to the Employer will not be reimbursed back to the Contractor if the alternative design is eventually disapproved by the Buildings Department. The Contractor should also bear the additional cost incurred as a result of adopting the design as shown on the approved plans.

3. You are requested to submit the following information, but not limited to, for your Alternative Design:

a. Precautionary measures

b. Methodology of demolition works

c. Demolitions sequence

d. Programme.”

21.By this stage, a point to note is that the discussion of the contract period has crystallised into an agreement of 270 days and it is on this basis that DLS asked the plaintiff to submit the “best offer” on the basis of 270 days as the contract period. 

22.Some discussions took place between Mr Chong and Mr Yeung which resulted in a fax dated 21 August 2007 from the defendant to the plaintiff which provides :

“We would like to confirm that there will be cost saving of HKD120,000 if the steel cover in 54-56, Connaught Road Central were deleted for forming additional debris chute in the captioned lift shaft. Should our proposal be approved by BD, the captioned saving would be deducted from our quotation.”

23.The evidence from Mr Chong and Mr Yeung shows that discussions then took place and matters which relate to the proposal or request from the defendant were then incorporated in the letter dated 22 August 2007 from the plaintiff to the consultant of the owner Parsons Brinckerhoff (Asia) Limited (“PBA”). The 22 August 2007 letter was the final offer from the plaintiff to the owner and included the following :

“We would submit the following information to reply item 3 of ‘Tenderer’s Alternative Design’;

3.a) Minor alternative amendment submission regarding precautionary measures is intended to propose for;

3.a.1) amendment of popping system;

3.a.2) deletion of steel plate covers to lift shafts of all floor at No 54 and propose to erect material hoist and vertical transportation access for long size material other than C&D;

3.b) Minor alternative amendment submission regarding methodology of demolition is intended to propose for;

3.b.1) revised location of plant access ramps and their consequent popping system to all floors related;

3.b.2) review to the modification of existing 1/F slab and its related popping system at site entrance of No. 50 & 59;

3.b.3) chain saw cutting method for demolition of side walls immediately adjacent to lots 50 & 59.

3.c) Minor alternative amendment submission regarding demolition sequence is intended to propose;

3.c.1) detail of demolition sequence at G/F at earlier stage;

3.c.2) backfilling to basement, after G.I. works completed, in order to ask approval to delete all popping system at basement floor.

3.d) Program will be the same as submitted on 08/08/2007 (TQ No.5)”

24.Mr Yeung also disagreed that he had seen this letter.  Mr Chong’s recollection was otherwise although he said Mr Yeung would not have been shown the main contract price attached to the 22 August 2007 letter. 

25.Whilst the two letters (DLS letter of 17 August 2007 and plaintiff’s letter of 22 August 2007) do not form part of the letters listed in Appendix A of the Sub-Contract Letter of Award, I prefer Mr Chong’s evidence that save for the prices in the 22 August 2007 letter, the defendant must have been kept informed of the content of these letters and would have been shown these letters.  Both parties were indisputably involved in the discussions relating to the contract period of 270 days.  This is consistent with the practice the witnesses were explaining to me.  The plaintiff was relying on the defendant so far as the demolition part of the works is concerned.  The defendant also wanted to alter the demolition sequence to suit its method of working and planning.  I find it incredible that just the two letters were not shown to the defendant. I accept Mr Chong’s explanation that there may have been a clerical error when Appendix A for the Sub-Contract was prepared.  

BACK-TO-BACK BASIS

26.In brief, the plaintiff’s arguments are as follows :

(1)  The plaintiff contended that the defendant was responsible for the design as this was a back-to-back contract.

(2)  Further also by reason that it was a back-to-back contract if the consultant disallowed a claim made by the defendant in the name of the plaintiff, the defendant would not be entitled to anything.

(3)  Finally, it said that it was entitled and did claim contra charges against the defendant which claim had been settled on a without prejudice basis between the parties.

27.The defendant’s contentions are, in brief :

(1)  The defendant accepted that it was a back-to-back contract but denied that the design obligation/responsibility had been passed on.

(2)  It also contended that the plaintiff had to consider its claim independently.

(3)  The plaintiff was not entitled to claim contra charges and the settlement was on a without prejudice basis. 

28.The term “back-to-back” is referred to in paragraph 3 of the Sub-Contract Letter of Award.  The phrase back-to-back is by no means precise.  In the case of WH-SCG JV Limited v. Hong Kong Construction (Holdings) Limited, Reyes J, by way of obiter, stated that :

“…

But ‘back-to-back’ is at best a vague expression. It is neither a legal nor a technical term.

…

‘Back-to-back’ can mean many things.  It may simply mean, for example, that it was envisaged that WH-SCG would undertake, ‘back-to-back’, all HKC’s performance obligations and liabilities under the Main Contract.  Use of the expression does not necessarily imply that the arbitration agreement in Condition cl. 35 was intended to apply between HKC and WH-SCG …”

29.The witnesses gave evidence that the term back-to-back was common and therefore its application should be clearly understood in a particular way.  Yet that is simply not the case.  As here, the parties differ fundamentally on the exact meaning of back-to-back.  The scope of the work and the risks to be assumed by the lower tier contractor is unclear; the rights of the lower tier contractor to claim against the upper tier contractor may or may not be identical to the rights of the upper tier contractor under the main contract; the assumption of responsibility or risks by the lower tier contractor may be one which is beyond its competence, ability and contemplation.  It is unfortunate that such uncertain terms have been commonly resorted to in contractual documentations in the construction industry. 

30.Counsel for both sides have tried but was in difficulty in giving me a precise meaning of the term.  In gist, the plaintiff’s case is that all the phrases in the Main Contract that refers to the employer should be understood as the Main Contractor and the reference of Main Contractor should be understood as Sub-Contractor in the Sub-Contract.  That clearly will not work for all the terms.  There is no need to go through the terms in the Main Contract to appreciate that.  Provisions such as arbitration agreement as was considered in the WH-SCG JV Limited v. Hong Kong Construction (Holdings) Limited is an example.  The defendant’s case is simply that the works that it has sub-contracted would have to comply with the relevant Main Contract specifications.  It begs the question, what are these relevant provisions. 

31.In order to construe the back-to-back phrase, resort has to be made to some fundamental cannons of construction of contract.  The proper construction of contract is a question of law, but the ascertainment of the meaning of a word or a phrase is a question of fact.  In particular, the words back-to back is of imprecise meaning, it will be a question of fact as to whether certain circumstance is within or outside the contractual stipulation.  (Lewison on The Interpretation of Contracts, FourthEdition, paragraphs 4.01, 5.05.)

32.In the context of this case, three specific matters fall to be considered: what is the scope of the Sub-Contract works, what are the Specifications that govern the Sub-Contract works, and the contractual rights and obligations of the parties under the Sub-Contract.  Whether a given state of affairs, rights or risks, fall within the stipulation of back-to-back depends on the construction of the written instrument by ascertaining as best one could the meaning of the English phrase back-to-back.  

33.I cannot ascertain any unambiguous meaning to this phrase on its own and it has to be understood and construed in context.  In choosing between rival constructions, the reasonableness of the result of the construction is a relevant consideration. 

34.This is a question of fact and turns on the evidence adduced before me as to what the phrase in context entailed.  One matter not in dispute by reason of the evidence of the witnesses and admissions from the Counsel is that the specifications governing the demolition would apply.  This is the Technical Specifications for Demolition Works.  This admission of Mr Yeung is pivotal to one of the main issue in this case, namely that of the responsibility of design which is dealt with below. 

Scope of works

35.On first sight and perhaps simplistically where a part of the main contract works to be executed was sub-contracted on a back-to-back basis to a sub-contractor, the phrase back-to-back poses no problem in identifying the scope of work.  In a broad sense, that would be so. There were three general areas of works in the Main Contract, ground investigation, demolition and hoarding.  The latter two were sub-contracted to the defendant on a back-to-back basis.  So ground investigation is not the defendant’s responsibility.  

36.But what exactly is within that broad description of demolition and hoarding works cannot be ascertained by the phrase back-to-back.  The scope of works should be clearly defined, and the importance of that is plain.  From the sub-contractor’s perspective he could properly price for the works as well as the risks associated with it.  From the Main Contractor’s perspective he can ensure proper planning and coordination amongst all the other parties on site.  

37.In this case, the disputed item of works are the design responsibility and the levy to be paid to the EPD.  The plaintiff said it was the responsibility of the defendant by means of back-to-back.  The defendant contended that the design responsibility was imposed on the plaintiff in the Main Contract and could not be passed on by the phrase back-to-back.  As to the levy the defendant relied on the quotation which excluded Preliminaries and as the EPD levy was covered in the Preliminaries, the plaintiff was responsible for such levy. 

38.The physical execution of the demolition and hoarding works are indisputably the responsibility of the defendant. Difficulty arises where there are ancillary matters related to the execution of the sub-contract works.  Do such “works” fall within the scope of works under the sub-contract?  Take the example of the provision of electricity.  It is related to the execution of the demolition and other works.  But it is not the practice nor practical that each of the sub-contractors would arrange for a connection.  As in this case, the Main Contractor was responsible for the overall set up and it would claim the relevant sub-contractor for the charges that relate to its works unless the contract provides otherwise.  

39.The payment of dumping levy and the design obligation is included in the Preliminaries section of the Main Contract works.  The Sub-Contract quotation expressly provides that preliminary is excluded.  As a result, these would not form part of the Sub-Contract works. The vague phrase “back-to-back” cannot override such clear wordings of exclusion.  The plaintiff is therefore responsible for the dumping levy. 

40.However the issue relating to design responsibility does not end here.  It is also dealt with in the Technical Specifications for Demolition Works.  The second aspect of “back-to-back” has to be considered.  

Specifications of the Sub-Contract works

41.Both parties submitted that the phrase back-to-back should be understood to mean that Sub-Contract works had to comply with the Technical Specifications set out in the Main Contract.  The Main Contract specifications have been provided to the Sub-Contractor.  If the  Sub-Contractor has no notice of the specifications at the time of the tender, the position may be different. 

42.Mr Yeung admitted that the defendant had agreed to assume the obligations set out in the Technical Specifications for Demolition Works.  Mr Chong’s evidence is to the same effect. 

43.In considering the applicable specifications to the Sub-Contract works, the relevant phrase of the back-to-back provision is :

“The basis of this subcontract is to execute as ‘Back to Back’ in terms and conditions within our Main Contract.”

44.There are two provisions in the Specifications that are relevant in the context of the design responsibility, Clause 2.3 of the Preliminary Specifications and Clause 7(b) of the Technical Specification for Demolition Works which provide respectively as follows :

“Clause 2.3 of the Preliminary Specifications:

… The Contractor shall note that drawings showing the requirement of the hoarding ad demolition works were prepared and which are for reference and information only and such drawings have been submitted to the Building Authority for approval. These drawings are deemed to be adopted by the Main Contractor as their own design and he shall be responsible for re-submit or revising as the case may be for these drawings for obtaining permit and approval/consent from the Building Authority for subsequent demolition and hoarding works. The Main Contractor shall include all the time and cost incurred in the Contract Sum for amending/revising the drawings and resubmitting to the Buildings Department and no claims of whatsoever nature in this respect will be entertained should the contractor failing to observe the above requirements. Moreover, the carrying out of the hoarding and demolition works all in accordance with these drawings shall not relieve the Contractor’s liability and responsibility for the completion of the hoarding/demolition works. The Contractor shall still be responsible to provide any additional temporary support, temporary works, hoardings and screens etc. as deemed necessary…

Clause 7(b) of the Technical Specification for Demolition Works :

Demolition Contractor’s Responsibility

The demolition contractor shall make inspection and all investigation of the existing buildings on site as considered necessary by him and perform his own appraisal of the existing buildings and prepare his own appraisal report and stability reports.

The information shown in Demolition plans and stability reports submitted by the AP/RSE which approved by the Building Authority are the minimum requirements only. The demolition contractor is responsible to satisfy himself the information shown in the plans and reports provided by the AP/RSE are suitable for the subject demolition works, and shall be responsible for the design (including necessary resubmission and amendment to BD throught the AP/RSE), execution and supervision of all demolition works whether he chooses to base on the details provided by the AP/RSE or to propose his own alternative.

When the demolition contractor adopts the information provided by the AP/RSE for the demolition works, the demolition contractor shall be deemed to accept the design responsibility of the demolition plans and stability reports prepared by the AP/RSE as his own design. The demolition contractor shall be responsible for providing and carrying our any additional documents/design/works as required for the execution of the works, or as required by the AP/RSE or Building Department.

The demolition shall be responsible at all times for the stability of the existing buildings, partially demolished buildings, structures and temporary works during the course of the contract.”

45.The defendant denied that clause 2.3 of the Preliminaries would be applicable and referred to clause (1) of the quotation stating that “all preliminary items … shall be provided and priced by BEL”.  That however has to be construed in the light of clause 4 of that same document which shows that the defendant would be responsible for preparing method statement, drawings/plan as well as all temporary and precautionary works for the demolition works in accordance with the contract specifications.  The contract specifications include the Technical Specifications and Clause 7(b) which is couched in the same terms as Clause 2.3 of the Preliminary Specifications.  Clause 7(b) sets out the demolition contractor’s responsibility insofar as the information in the demolition plans, the design, execution and supervision of all demolition works are concerned.  The demolition contractor would be responsible for any resubmission and amendment to the Buildings Department through the AP/RSE.  Mr Yeung admitted that the Technical Specifications for the Demolition Works applied to the Sub-Contract. This is sufficient to dispose of the issue on design responsibility. 

46.Further, I accept the evidence of Mr Chong and Mr Yu that it would not be in the interest of the plaintiff to make amendments as it was the defendant who would be actually carrying out the works.  In other words, if the method and sequence has to be altered to suit the defendant’s preferred methodology, it would be up to the defendant to make the necessary amendments and resubmission to the Buildings Department through the AP/RSE.  It is reasonable therefore to conclude in the light of Mr Yeung’s admission that upon a proper construction of the Sub-Contract terms in the light of the back-to-back basis, Clause 7(b) applies to the Sub-Contract.

47.As has happened in this case, the defendant prepared the November 2007 Submission Drawings and passed the same to the plaintiff for onward transmission to the AP/RSE and ultimately to the Buildings Department.  Whether the plaintiff was actively involved is neither here nor there given that the defendant bears the responsibility for the design under the Sub-Contract. 

Contractual entitlement

48.The third aspect of the back-to-back clause is the contractual entitlements of the parties to the sub-contract.  The relevant part of the back-to-back basis provision is :

“Principle of variation, addition and/or omission to the original Sub-Contract sum shall also be settled in the same ‘Back to Back’ basis.”

49.The plaintiff argued that by reason of this back-to-back provision, the plaintiff was not obliged under the Sub-Contract to pay the defendant any additional sums or grant any extension of time if the plaintiff’s claim to the employer was not accepted by the consultant.  This, the plaintiff said was the meaning of back-to-back.  I do not agree.  

50.First, the back-to-back provision refers only to the principle of variation, addition or omission.  It makes no reference to grounds for granting extension of time or deduction of liquidated damages.  In the absence of express wordings of incorporation of the provisions in the Main Contract regarding extensions of time and liquidated damages, I do not accept that they have been incorporated by reason of the phrase back-to-back.  The only thing that can be said to be common to both contracts by reason of a back-to-back basis would be the way in which such claims for variations, additions or omissions are to be valued.  There is nothing to indicate that the position of the consultant could be mechanically applied to the sub-contractor’s claim or binding on the parties under the Sub-Contract. 

51.Secondly, the Sub-Contractor is only responsible for one part of the Main Contract works and therefore any delays or obstruction caused by works of another Sub-Contractor would not, in the context of the Main Contract give rise to any extension of time to the Main Contractor. However in the context of a Sub-Contract, it would be grossly unfair if the Sub-Contractor would not be entitled to seek its contractual compensation or remedy.  Similarly, the defendant should be entitled to be paid for variations ordered by the plaintiff irrespective of whether it would be paid under the Main Contract. 

52.Thirdly, the phrase back-to-back can only mean that the rights to make claim and the principle of valuation of variations have to be the same as those in the Main Contract.  It cannot possibly be said that this phrase back-to-back would effectively mean “pay when paid” or “pay if paid”.

53.Fourthly, if back-to-back is intended to mean that the Sub-Contractor's entitlement will be lost if the Main Contractor is not entitled to compensation under the Main Contract, clear words should be used.  This is because such argument curtails the rights of the Sub-Contractor to claim payment under the Sub-Contract and hence cannot be lightly implied.  It certainly cannot be implied for the usual reasons such as giving Sub-Contract business efficacy nor by operation of law. 

54.Lastly, the Main Contractor has sought contra-charges against the sub-contractor.  A back-to-back provision must be two-way.  If the plaintiff’s contentions were correct, it could not claim against the sub-contractor for contra-charges for the simple reason that the employer did not charge the Main Contractor for such charges.  This proposition cannot be right.  The Main Contractor should be entitled to claim against the sub-contractor if it has incurred costs as a result of the sub-contractor’s failures or breaches irrespective of the position under the Main Contract. 

55.As a result, insofar as the Sub-Contractor's contractual entitlement is concerned, I do not accept that it is determined by the decisions of the consultant.  The Main Contractor has an obligation to consider the claims made by the Sub-Contractor and to assess them accordingly. 

56.In this case, the Main Contractor passed on the Sub-Contractor’s claims in full to the employer whose consultant rejected them.  This alone is simply not a defence to the sub-contractor’s claims.  The consultant’s decision is relevant evidence but not conclusive in the Sub-Contract context.  The Sub-Contractor is still entitled to pursue the claims against the plaintiff if they can be proven and established under the terms of the Sub-Contract and substantiated by evidence. 

HANDLING OF CLAIMS FOR VARIATIONS AND EXTENSIONS OF TIME BY THE DEFENDANT

57.The plaintiff frankly admitted that the claims from the defendant were all passed on to the owner of the Site irrespective of their views on such claims.  In at least one instance, the plaintiff has expressed reservations about a particular part of the claim but nonetheless still forwarded the same to the employer.  Mr Yeung said, but without being able to specifically identify, that there were instances where parts of the defendant’s claims were not passed on to the consultant.  I find that what was done was that the plaintiff passed all the claims from the defendant to the employer merely adding on a 15% mark up on the defendant’s claim.  The plaintiff also admitted that it relied on the decision of the consultant to decide whether it has an obligation to pay the defendant or to grant extensions of time. 

58.The defendant submitted that the quantification in relation to its variation claims cannot be disputed.  They rely on the fact that the information was submitted pursuant to the Sub-Contract and they were then passed on by the plaintiff to the employer without any query.  They said there was no objection raised at the time or even after discovery in this proceeding.  Counsel for the defendant further submitted that given that there was no evidence to rebut the figure, the court has to accept this quantum as being the amount to be awarded if liability is established. 

59.The plaintiff submitted otherwise.  It is said that the substantiation that had been provided even as of today is not adequate.  The passing on of the claims from the defendant to the employer does not amount to an admission.  On the plaintiff’s understanding of the term “back-to-back”, they have an obligation to pass the same to the employer irrespective of their views on the quantification or liability.  It therefore does not amount to any admission on liability nor quantum.  The burden of proof in substantiating the amount claimed is on the defendant.  The lack of substantiation by the defendant at the time meant that the plaintiff could not verify these figures then and even now. 

60.The defendant’s arguments are flawed.  A party cannot rely on lack of objection as the basis of being released of the duty of discharging the burden of proof.  Furthermore, the acts of the plaintiff in passing on the figures have been clearly explained as merely complying with what it understood as the obligation arising for the phrase “back-to-back”.  Indeed, there is evidence to show that the defendant’s figures were not entirely accepted as there were some comments but yet the whole claim was nonetheless passed on to the employer. 

61.The claims under the Sub-Contract have to be established independently and neither party can rely on the passing on of the claims to the consultant nor the decisions of the consultant. 

DISPUTED ITEMS IN SCOTT SCHEDULE

62.The parties have identified a number of the items that remain in dispute and provided a Scott Schedule. 

Variations

63.These claims have been made on the basis that these works were required in the Buildings Department’s approved plans.  Given that Mr Yeung admitted that the Technical Specifications for the Demolition Works apply to the Sub-Contract, the defendant has assumed the responsibility of the design that would be subject to the approval of the Buildings Department.  As a result, none of the defendant’s counter-claim items relating to the requirements of the Buildings Department are sustainable. 

Quantification of amount claimed by defendant

64.In the light of my findings on design responsibility, I do not need to consider quantum.  However I would note that it is important to bear in mind the distinction between an assertion and evidence.  The formulation of the table showing the amount claimed amounts to no more than assertion.  The figures have to be supported by source evidence such as invoices or market price.  In the premises, the only way in which any quantum on the part of the defendant’s counterclaim can be established will depend on whether there is any evidence.  The defendant tried to persuade me that if I was not satisfied with the detailed breakdown, the court can assess and form a view of the quantum.  No authority was relied upon or reasoning put forth to support this submission and in my view that cannot be right.  

Extension of time

65.The Sub-Contract Letter of Award deals with extension of time and liquidated damages in the following clauses :

“4. Contract Period

The Date for Commencement shall be 21st September 2007 and the Date for Completion shall be on 16^th June 2007 (i.e. a contract period of 270 days including Sundays and Public Holidays).

5. Liquidated and Ascertained Damages

The Liquidated and Ascertained Damages shall be at the rate of $7,000 per day.

…

7. Loss and Expense Caused by Disturbance of Regular Progress of the Works

Notwithstanding the Special Conditions of Contract Clause SCC-11 (regarding Main Contractor’s Claim for Extension of Time) and General Conditions of Contract Clause 24, it is now agreed after negotiation that you shall not be entitled to claim any loss and/or expense, extended preliminaries and prolongation costs whether directly or indirectly incurred in respect of any matter for which an extension of time has been granted pursuant to Clause 23 of the General Conditions of Contract for the first 120 days.  From the 1221^st day of the extension of time onward, you must submit the substantiated claim within a reasonable time after the occurrence of the event giving rise to the claim.  Any lapse of time longer than two months shall be deemed to be an unreasonably distant time for this purpose and you are deemed to have waived your right on such claim.”

66.The extension of time claim is made on the basis of late possession of site relating to ground investigation works and change of shoring materials for which 13 and 61 days were respectively claimed.  

67.The change in shoring materials cannot be a valid ground for extension by reason of the assumption of design responsibility by the defendant under the Technical Specifications for Demolition Works.  Any delay arising from this must be within the responsibility of the defendant.  

68.Under clause 4, the Sub-Contract period was to be 270 days as in the Main Contract.  For the purposes of analysing extensions of time, it matters not whether one looks at the program that was actually included in appendix A to the Sub-Contract or the actual contract program that was attached and referred to in the Letter of Award of the Main Contract.  The reason is that in both these contracts, the methodology and logistics of the program show that the ground investigation works and the submission of the Ground Investigation report, which is the basis for the extension of time claim, was a separate and independent activity from all the other activities that were to be carried out by the defendant.  The alleged causes of delay have not been shown to be critical to the defendant’s works.  

69.The defendant argued that the ground investigation works commenced late and therefore affected the hoarding and demolition works.  The lack of detailed evidence of what happened at the time and a critical path analysis make it difficult to decide this question. Mr Yeung explained that the delayed commencement of certain ground investigation works affected the erection of temporary shoring and propping works that was necessary for the consent application.  In my view, he misread the links between the activities shown in the programme.  The temporary shoring and propping for consent application activity was not linked to the ground investigation works but was in fact linked to the erection of scaffolding and metal catch fence.  Importantly, by reason of what actually happened on site as explained by the witnesses, when the temporary shoring and propping works was supposed to commence, there was an intervening event, namely the application for an amended approval of the demolition drawings, that is the November 2007 Submission Drawings that was submitted to the Buildings Department by the defendant.  On balance, the application for consent would not have been affected by the ground investigation works but by the intervening application to amend the approved drawings.  

70.I am not satisfied that the basis for extension of time has been made out and this claim is dismissed. 

71.Clause 7 of the Sub-ContractLetter of Award refers to Special Conditions of Contract Clause SCC-11 (regarding Main Contractor’s claim for extension of time) and General Conditions of Contract Clause 24.  It is expressly provided there that the sub-contractor shall not be entitled to claim any loss and expense, extended preliminaries and prolongation costs incurred in respect of any matter for which an extension of time has been granted pursuant to Clause 23 of the General Conditions of Contract for the first 120 days.  The ground investigation works was completed within that first 120 days.  

Liquidated damages

72.In both the Main Contract and Sub-Contract, liquidated damages for delay have been set at $7,000 per day.  The contract period for both the Main Contract and Sub-Contract was 270 days.  The original date for completion was 16 June 2008 and the extended date of completion was 23 August 2008. 

73.The extension of time granted by PBA is as follows :

(1)  On 16 December 2007, PBA granted 51 days extension of time as a result of Hong Kong Electric’s obstruction to the works.

(2)  On 8 May 2009, PBA granted a further 17 days extension of time pursuant to the claims made under the grounds of late possession of site due to ground investigation works, change of shoring materials, disruption of site regular progress due to neighbourhoods emotional actions, making good of existing brick wall of United Building, additional works at the boundary of Yu Sung Boon Building. 

74.The works were certified as having been practically completed on 7 November 2008 by a letter from PBA dated 27 November 2008. 

75.By 19 May 2009, a certificate of completion of making good defects was issued by PBA. 

76.By a letter dated 20 August 2009 (wrongly typed as 2008) PBA issued a revised non-completion certificate to the plaintiff stating that the employer shall be entitled to deduct liquidated and ascertained damages at the rate of HK$7000 per day from 23 August 2008 (the extended date for completion) to 7 November 2008 (the certified date of completion).  $7000 per day is also the liquidated and ascertained damages under the Main Contract. 

77.The defendant contended that the liquidated damages amounted to a penalty because the plaintiff would be unjustly enriched if the defendant were to bear the same amount of liquidated damages for the whole of the Works.  It said that it could not be applied back-to-back. 

78.In general, the defendant’s submission is correct.  In a contract where the scope of works is much wider and a sub-contract is only covering a part of the main contract works, it will be unfair and arguable that a provision imposing the same amount of liquidated damages as that in the main contract may not be enforceable on the ground that it is not a genuine pre-estimate.  But in this case, the ground investigation works is the only other work beyond the scope of the sub-contract works.  The ground investigation works have not been shown to cause any delay to the completion of the whole of the works and as a result, the delay to the whole of the works was caused by the defendant’s works.  As a result the arguments of the defendant is not accepted.  

79.The defendant has to pay the liquidated damages in the sum of $532,000 ($7000 X 76 days dealy). 

Double recovery of insurance premiums

80.The defendant is correct to point out that the plaintiff cannot recover under the claim of extension of insurance policy in the light of the liquidated damages provision. 

Provision of plant to the defendant

81.The plaintiff said that it has provided plant to the defendant to assist them in executing the works.  The defendant denied that was so and disputed the claim on liability and quantum.  

82.On balance, the plaintiff has not been able to show that the plants were provided at the request of the defendant.  Further I am not convinced that the rates should be charged at that claimed by the plaintiff. The defendant has shown from objective market evidence that the rates claimed were unreasonably high.  This claim is therefore dismissed. 

SUMMARY OF CLAIMS

83.The variation claims of the defendant in items 38 to 43 of the Scott Schedule fail.  

84.The contra-charge claims in items 46 to 48 of the plaintiff fail. 

85.The defendant has to pay the plaintiff the sum of $532,000 as liquidated damages for the delay of 76 days. 

COSTS

86.I make an order nisi that the defendant shall bear and pay the costs of the plaintiff on a party and party basis and to be taxed if not agree on District Court scale. 

Mr Yan Kwok Wing, instructed by Messrs LCP, for the Plaintiff

Mr Liu Chin Yu, instructed by MessrsWong Poon Chan Law & Co., for the Defendant