Pfeiffer Gmbh v. Cheung Hay Kit t/a Sun Wai Construction
Read the full judgment text of HCA 1369/2011 on BabelCite. This High Court CFI judgment was delivered on 24 October 2013.
1. This is a construction dispute where the plaintiff, Pfeiffer GmbH (“Pfeiffer”) [1] , a German company operating out of Dresden, Germany with a worldwide business in the construction of pipelines and sewers, is claiming damages from the defendant, Cheung Hay Kit trading as Sun Wai Construction (“SWC”) [2] , a sole proprietor of a civil engineering business in Hong Kong, for the times Pfeiffer’s crew and equipment stood idle while awaiting the completion of certain preparatory works by SWC in r
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HCA 1369/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1369 OF 2011 ____________
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______________ J U D G M E N T _______________ Introduction 1.This is a construction dispute where the plaintiff, Pfeiffer GmbH (“Pfeiffer”)[1], a German company operating out of Dresden, Germany with a worldwide business in the construction of pipelines and sewers, is claiming damages from the defendant, Cheung Hay Kit trading as Sun Wai Construction (“SWC”) [2], a sole proprietor of a civil engineering business in Hong Kong, for the times Pfeiffer’s crew and equipment stood idle while awaiting the completion of certain preparatory works by SWC in relation to rehabilitation works of water mains in Hong Kong. Pfeiffer is suing SWC for a sum of HK$3,025,650.00 being the total amount claimed under 8 invoices for idling times during various periods between 15 August 2005 and 14 December 2007. SWC denies that it is liable for the sums claimed by Pfeiffer. 2.In seeking to resolve this dispute, it will be necessary to consider in detail the nature and terms of the agreement between the parties and in particular whether it was specifically agreed between themthatSWC would be liable for damages to Pfeiffer, if and when Pfeiffer’s crew and equipment stood idle, and if so, whether the relevant provision or provisions in the event of a breach resulted in damages which in fact and in law were recoverable by Pfeiffer in whole or in part or at all. Background 3.The background to this dispute is the state of Hong Kong’s water supply systemwhich consists of an extensive network of water mains,most of which are underground. A substantial proportion of them were laid more than 30 years ago and as a consequence they are progressively approaching the end of their service. The Water Supplies Department (“WSD”) implemented a programme to rejuvenate the water supply network by the replacement and rehabilitation of the ageing water mains. 4.It was for this purpose that the WSD undertook a project of replacing and rehabilitating water mains in various districts of Hong Kong. The contract for the project was Contract No 23/WSD/02,Replacement and Rehabilitation of Water Mains, Stage 1 Phase 1, Mains in Yau Ma Tei, Tsim Sha Tsui, Mong Kok and Sham Shui Po (“the Contract”). The Employer of the Contract was WSD. The Engineer for the Contract was a joint venture of MWH and Atkins China Limited (“MAJV”). The Contractor was China State Construction Engineering (Hong Kong) Limited (“CSHK”). The Contract consisted of 4 volumes of documents and was executed by the parties on 10 February 2004.[3] The works under the Contract generally described, consisted of the laying of pipes, the replacement, rehabilitation and removal of water mains and the supply of all pipes and other materials.[4] As is usual for projects of this nature, an Engineer appointed by the Employer was to supervise the progress of the works and make sure they were being done in accordance with the Contract and according to specified completion dates. In this case, the Contractor was required to submit to the Engineer a project programme which would be the basis for the issuance of a Works Order (“WO”) that would set out the works to be done and the dates for completion.[5] 5.The Contract stipulated, amongst other things, that upon the issuance of WOs, the works described were to be commenced and completed as specified. There were various provisions addressing these matters, including the provision of liquidated damages for failure to complete the works within the time specified.[6] 6.By an agreement dated 22 May 2004, CSHK subcontracted the whole of the works to SWC which included the terms and conditions of the original contract.[7] SWC in turn subcontracted part of its obligations with respect to the execution of the water mains rehabilitation works(“the Works”) to Pfeiffer by an agreement dated 25 January 2005. 7.It appears that SWC wanted to do the rehabilitation works using the methods of swagelining or compact pipe for which Pfeiffer was a specialist. 8.Swagelining or compact pipe are rehabilitation processes for the renewal of pipelines. Theyinvolve lining internally an existing pipe with an extremely tight-fitting polyethylene (PE) pipe. With respect to the swagelining process, the PE pipe has an outside diameter slightly larger than the inside diameter of the pipe to be lined. During the installation process the outside diameter of the PE pipe is temporarily reduced by steaming allowing it to be easily pulled through the outer pipe. With respect to the compact pipe process, the PE pipe is pre-folded in such a way as to allow it to be easily inserted into the existing pipe which is then expanded by steaming. In both processes, after the PE pipe has been installed, it presses tightly against the inside of the outer pipe. 9.These two processes rehabilitatethe piping from within and allow large tracts of pipeline to be done at one time without the need for an open trench. They only require the excavation of a launching pit where the old pipe is cut into to allow for the installation process and a receiving pit where the process is completed. This reduces the excavation and disruption normally associated with open trench replacement or rehabilitation of pipelines. 10.Mr Thomas Meyer is the general manager of Pfeiffer, a position he has held since 2000. He was the person at Pfeiffer who negotiated the subcontract with SWC. As part of his duties, he travels outside of Germany to negotiate business and oversees projects all over the world. However, this was the first time that Pfeiffer was undertaking work in Hong Kong. Sometime in 2004, representatives of SWC met with Mr Ludwig Pfeiffer, the owner of Pfeiffer, and invited him to submit a quotation to SWC for the Works and perform an on-site demonstration of Pfeiffer’s water mains rehabilitation system to the Contractor and theEngineer of the project. As a result, Mr Meyer came to Hong Kong on various occasions to discuss Pfeiffer’s expertise and methods in water mains and drainage rehabilitation. He met with Mr Ko Chun Wa and Mr Cheung Hay Kit of SWC who explained that they saw an opportunity to develop a market in water mains rehabilitation because of the age of Hong Kong’s water supply system which required to be replaced and rehabilitated over the next 15 years. They expressed the desire to develop this market in cooperation with Pfeiffer as well as carrying out the project they were negotiating. 11.In an email dated 2 December 2004, Mr Ko submitted a new schedule of works for the project to Mr Meyer and invited him to submit a quotation to SWC.[8] He mentioned that the commencement date of the works was November 2005 and that the tentative completion of all the works was November 2007. He also suggested that due to the holidays over Christmas and Chinese New Year the demonstration for the approval of the Contractor and the Engineer of the project could be postponed to March 2005 although this was subject to Pfeiffer’s availability. There was further communication between them on 14 December 2004 where Mr Meyer informed Mr Ko, amongst other things, that Pfeiffer’s daily rate for labour was 760 Euro and that settling the site included transportation of the equipment and staying on site during the project.[9] Mr Meyer explained that Mr Ko had inquired about Pfeiffer’s labour rate and the figure quoted was the daily rate of the crew in Hong Kong for the Works. Mr Ko in a further communication with Mr Meyer noted they were close to finalizing an agreement “in collaboration of carrying out the rehabilitation works” under the Contract and requested they be given the schedule and/or tentative programme. [10] He noted that Pfeiffer’s daily charge for idling was 760 Euro and queried whether the monthly charge amounted to 15,200 Euro at 760 Euro per day based on 20 working days. He then mentioned that they had a suggestion in saving costs in case there was “long idling on site” in that if it was more than one month, Pfeiffer’s staff could be released back to Germany. He also said that until the deadlock of idling was resolved, they would rearrange the work and the staff could come back again to carry it out. It appears that the various references to the “site” was the site of the project being Hong Kong. 12.On 21 January 2005, Mr Meyer submitted to Mr Ko by e-mail a quotation for the project. It set out Pfeiffer’s charges for works it was to perform in relation to the swagelining/compact pipe system. There was a charge for settling the site which was item (1) and other charges for materials and the works it was to perform which involved cleaning the pipe, calibrating it by measuring its diameter and relining it with the PE pipe. There were also charges for idling under items (20), (21) and (22) and other comments which I will discuss later. 13.On 25 January 2005, a written agreement with an appendix prepared by SWC was signed by Mr Meyer on behalf of Pfeiffer and Mr Ko on behalf of SWC. Also incorporated into the agreement was the quotation. SWC’s chop was impressed on all of the relevant documents making up the agreement between the parties. I note in passing that Mr Cheung, the proprietor of SWC, did not sign the agreement for SWC although he witnessed Mr Ko’s signature who was signing on behalf of SWC. No issue is taken by Mr Cheung on this point and I take it that is because, having signed the agreement as a witness to Mr Ko signing on behalf of SWC, he was fully aware of the agreement and its terms and that Mr Ko was duly authorized to sign on his behalf. [11] The agreement documents 14.The agreement between the parties is a compendium of three documents. The first is the agreement dated 25 January 2005. It consists of eight clauses and purports to be a subcontract.[12] It refers to Appendix A which is incorporated as part of the agreement between the parties. Appendix A consists of five paragraphs and it refers to the quotation dated 21 January 2005 which is stated to form part of the subcontract. The quotation sets out 22 items with commentary and charges as well as other comments by Pfeiffer about the works and what it required. I shall refer to these three documents as “the Agreement”, “Appendix A” and “the Quotation” respectively. 15.I should say at the outset that the documents in question are poorly drafted, and either individually or together do not appropriately, if at all, deal with the range of responsibilities and obligationsthat one would expect to be contained in an agreement of this type. However, this is the agreement that the parties have struck between them and it calls for an interpretation of certain provisions of the documents in order to determine the meaning and legal effect of them. (1) The Agreement 16.The Agreement consists of eight clauses to which the parties agreed and they read as follows:
17.Under this document it is agreed that Pfeiffer is a rehabilitation specialist that will enter into a subcontract with SWC for the execution of the water mains rehabilitation under the Contract and that for payment terms and conditions of the Contract reference is made to Appendix A. This is the only reference to Appendix A. It is agreed under clause 6 that the terms of the Agreement are valid for a period of 36 months from the month of the acceptance of Pfeiffer as the specialist of the Contract. Pfeiffer was approved as a specialist in May 2005 after an on-site demonstration conducted in Hong Kong. 18.Under clauses 2 and 3, Pfeiffer agrees to provide “the necessary technical support, plant and resources, etc.”in the execution and completion of the works in full compliance with the requirements, terms and conditions of the Contract with SWC agreeing to provide “all necessary provision and civil engineering works” in assisting Pfeiffer to execute and complete the rehabilitation works. Accordingly, Pfeiffer is agreeing to execute the water mains rehabilitation works under the Contract with SWC agreeing to assist Pfeiffer to comply with the requirements, terms and conditions in relation to the Works. 19.Clause 4 makes provision for SWC to terminate the agreement if Pfeiffer is found not performing or shown to be unable to execute the Works. 20.Clause 5 provides for the appointment of SWC as Pfeiffer’s exclusive agent in Hong Kong to carry out the water mains and/or drainage rehabilitation. It also provides that SWC will assist Pfeiffer to develop a market in rehabilitation works by cultivating potential customers. 21.That is in essence the agreement between the parties as far as this document is concerned. It acknowledges that Pfeiffer is the specialist in rehabilitation works of water mains. It provides that the works under the Contract for the rehabilitation of the water mains are subcontracted to Pfeiffer with SWC assisting Pfeiffer. It appoints SWC as the exclusive agent of Pfeiffer to carry out rehabilitation works of water mains and drainage. 22.Mr Meyer testified that no one at Pfeiffer, including himself, read or was aware of the terms and conditions of the Contract which formed the subject of the subcontract. He said Pfeiffer was required to do only a small part of the work of the Contract which was limited to relining the pipes. He expected the terms and conditions of the Contract were the usual ones for carrying out rehabilitation works. The point is however, that Pfeiffer by this agreement subcontracted with SWC to do the rehabilitation works as specified by the Contract. It seems to me unusual that Pfeiffer did not make sure of what was required, notwithstanding its experience in this area of work. With respect to SWC, it had its contractual obligations under the subcontract with CSHK, agreeing to all the responsibilities and obligations under the Contract, and its contractual obligations under the subcontract to Pfeiffer, to assist it in ensuring that the rehabilitation works were done as specified by the Contract. (2) Appendix A 23.I turn next to Appendix A and the Quotation. There are five paragraphs in Appendix A and they read as follows:
(3) The Quotation 24.The Quotation is a copy of the email already mentioned from Mr Meyer to Mr Ko dated 21 January 2005. It is entitled “Offer Swagelining/Compact Pipe 23/WSD/02”. It sets out 22 items with a brief description of the works and the charges by reference to the unit or quantity, the unit price (EP) and the total price (GP). Mr Meyer explained that the EP and GP were the initials of the German words for unit price and total price respectively. It is necessary to focus on items (20), (21) and (22) which were expressed in the following terms:
25.Also of relevance to this dispute are some of the comments that follow the 22 items in the Quotation which read:
26.It needs to be appreciated that this document was submitted to SWC as a quotation before the agreement was struck on 25 January 2005. It was stated in paragraph 2 of Appendix A that the quotation “would form as part of the subcontract between Pfeiffer and SWC.” In paragraph 3 the payment terms are set out for item (1) of the quotation of settling the site under subparagraph (a) and the other items of the quotation are stated to be paid on a back to back basis under subparagraph (b). This would normally mean that Pfeiffer would be paid when SWC had received payment from its immediate contractor.[13] 27.It is an issue as whether items (20) to (22) were included under paragraph 3(b) as they are specifically mentioned under paragraph 4, which provides that items (20), (21) and (22) “are the rates for back charge” to the Engineer. A back charge is commonly understood to be a billing made to collect a charge incurred in a previous billing period. 28.Under paragraph 5, although not well expressed, it appears that the parties agreed to cooperate to prepare a working schedule to shorten the construction period and that there would not be any claims of idling from each other following the agreed schedule no matter what the reason. The plaintiff’s case 29.The case pleaded by Pfeiffer is that SWC was the subcontractor of CSHK for the execution of water mains rehabilitation works under the Contract which in turn subcontracted the works to Pfeiffer. SWC was required to provide all necessary provision and civil engineering works in assisting Pfeiffer in the execution and completion of the water mains rehabilitation works in full compliance with the requirements, terms and conditions of the Contract. Pfeiffer claims that during each period of stay of Pfeiffer’s crew in Hong Kong they were unable to perform the works according to the agreed schedule and as a result Pfeiffer’s crew, plant, machinery and equipment were left idle beyond the agreed work schedules and as a consequence it suffered substantial loss and damage. In particular, Pfeiffer claims that SWC failed in time or at all to complete the civil engineering works for the work sites; to have the preparation work of the work sites done according to Pfeiffer’s specifications; and to apply to the relevant authorities for temporary traffic arrangement and suspension of water supply at the vicinity of the work sites; and further failed to have at least 3 work sites ready at a time to enable Pfeiffer’s crew to work continuously; and to provide alternative work sites or re-schedule the work orders to enable full utilization of Pfeiffer’s crew, plant, machinery and equipment. [14] 30.Pfeiffer’s claim against SWC is for damages of idling. In support of this claim, Pfeiffer relies on items (20) to (22) of the Quotation which purport to set out a charge rate by Pfeiffer against SWC on an hourly, daily and incidentbasis for the time its rehabilitation system was at a standstill. Pfeiffer relies on item (21) in particular which provides for a fixed sum of HK$19,075.00 per day for the standstill of the swagelining system caused by SWC. 31.Pfeiffer’s claim consists of 8 invoices for payment of the idling time with the total sum of HK$3,025,650.00, particulars of which are as follows:
32.As can be seen all the invoices purport to make a claim for the unit price under item (21) except that the first invoice has a different unit price. The invoices were all addressed to SWC but as to the first 5 invoices, variously dated from 25 November 2005 to 17 August 2007,they were all sent to a postal address care of City Grand Construction Engineering Ltd,[15]whereasthe last 3 invoices were simply addressed to SWC, without a postal address. 33.The plaintiff in support of its case has filed and exchanged the witness statements of Mr Thomas Meyer and Mr Petr Havelka together with numerous documents. The defendant’s case 34.The defendant’s case is that the agreement between the parties was that there would not be any claims for idling from each other following the agreed schedule no matter what the reasons, in that “SWC is not liable to pay Pfeiffer’s charges for idling time beyond the agreed work schedule and that each party is to bear its own risk of idling time beyond the agreed work schedule during the performance of the Contract.” [16] It is also argued that the cause and the quantum of the claims cannot be proved by Pfeiffer. [17] It is claimed that the inability of Pfeiffer’s crew to perform the works according to the work schedule was not due to SWC but, amongst other things, to the poor condition of the existing pipes and the substandard quality of Pfeiffer’s plant, machinery and equipment which constantly broke down, and for reasons and conditions beyond the control of SWC, including time required to obtain the necessary permits and clearances from the various government departments or the refusal thereof; to arrange temporary traffic arrangements and/or suspension of water supply, to facilitate the conduct of the works, and/or obstacles in the work sites obstructing work progress. It is further argued that any claim for idling was to be on a back to back basis in that it would only be paid to Pfeiffer if and when SWC received payment for such items from the Contractor. [18] 35.The defendant in resisting this claim filed and exchanged a witness statement from himselftogether with some documents. The trial proceedings 36.The hearing of this case was fairly straight forward though it is to be noted that the defendant elected not to give evidence. 37.As a general rule at trial, any fact that needs to be proved by the evidence of witnesses is to be proved by their oral evidence given in public. As a prelude to the trial, parties are required to serve on each other any witness statement of the oral evidence which the party serving the statement intends to rely on in relation to any issues of fact to be decided at the trial. If a party has served a witness statement and he wishes to rely at trial on the evidence of the witness who made the statement, he must call the witness to give oral evidence unless the court orders otherwise or he puts the statement in as hearsay evidence.[19] 38.The plaintiff opened its case and called the two witnesses who had filed statements in support of its claim. As is provided under the rules the parties exchanged statements of the oral evidence of the witnesses that they intended to rely on at trial.[20] This is an essential requirement to ensure that there is proper case management and that the issues at trial are focused and clearly defined. It is also to ensure that the parties put their cards on the table and that there are no surprises. The plaintiff’s two witnesses gave evidence. The whole of their statements stood as their evidence in chief at trial with further questioning by the plaintiff’s counsel being permitted and with the witnesses being subject to cross-examination and questions from the Court.[21] The plaintiff closed its case whereupon the defendant in the presentation of his case elected not to give evidence. By doing so the defendant did not put his witness statement in evidence.[22] I therefore had no evidence from the defendant which meant that the evidence before me was the testimony of the two plaintiff’s witnesses and the documents filed in these proceedings. I did not draw any adverse inference against the defendant for electing not to give evidence, that was his prerogative, but I did disregard his witness statement as evidence before me. I should add that if the necessity arose, a witness statement which has been filed but not put into evidence, may be relied on to ascertain the pleaded case or address a change to it. The pleadings 39.In the lead up to the trial, it was ordered that the plaintiff identify the work schedules relied upon pursuant to paragraph 14 of the Statement of Claim and that the defendant identify the documentary evidence in support of the allegations under paragraph 8 of the Amended Defence by cross-reference to the work schedules identified. 40.Paragraph 14 of the Statement of Claim stated that in each period the plaintiff’s crew came to Hong Kong, a work schedule was provided by the defendant to the plaintiff and the plaintiff’s crew were unable to perform the works according to those agreed schedules and that they only worked for a small number of days in each period due to the default of the defendant. In response to the order, the plaintiff by reference to each of the 8 invoices referred to various documents in relation to the first 3 invoices which were schedules or a written record of WOs with relevant dates, while for the remaining 5 invoices no work schedules or other documents were identified. 41.In paragraph 8 of the Amended Defence it is admitted that a tentative work schedule was provided by the defendant to the plaintiff and it is averred that the inability of the plaintiff’s crew to perform the Works according to the work schedule was not due to the fault of the defendant but to the poor condition of the existing pipes and the substandard quality of the plaintiff’s plant, machinery and equipment and for reasons and conditions beyond the control of the defendant resulting in them being left idle beyond the agreed work schedule. 42.In response to the order the defendant produced a table of the documentary evidence cross-referenced to the written work schedules relied upon by the plaintiff. The defendant referred to various documents produced by the plaintiff for the first 3 invoices and none for the rest except for one document for the fifth invoice which did not appear to be of significance. It was stated by the defendant that in relation to the first 3 invoices that “No specific work schedule(s) identified by the plaintiff” and in relation to the remaining 5 invoices that “No work schedule(s) relied upon by the plaintiff.” 43.Counsel for the defendant argues that the plaintiff has changed its case as pleaded by suggesting in closing submissions that the term “agreed schedule” cannot possibly be construed as any schedule imposed unilaterally on the plaintiff by the defendant. In my judgment, this is a question of fact as to whether a schedule of works was agreed or not. It ignores the wording of paragraph 5 of Appendix A which I will address later. This paragraph applied if the agreed work schedule was followed by the parties, and if it was, neither party could make a claim against the other for idling. If it was not followed, then it could not be relied upon. In any event, the complaint of the plaintiff is that the defendant did not do what he contractually agreed to do which resulted in the schedules not being followed. 44.Counsel for the defendant also seems to be arguing that as the plaintiff has not produced work schedule documents with respect to an invoice then the claim must fail as the plaintiff cannot show whether or not an agreed schedule was followed. 45.It should be borne in mind that the pleadings in an action are constituted by the statement of claim, the defence and the reply. All parties to an action have to declare their position through their pleadings in order to clearly define the nature and ambit of the dispute. That applies both to the plaintiff and the defendant. It is a well established principle that pleadings should only contain the material facts relied upon and not the evidence by which these facts are to be proved.[23] This highlights the important distinction between pleadings and evidence. An unpleaded case is not permissible unless the leave of the court has been granted.[24] 46.The plaintiff pleaded that its crew and equipment were idle beyond the agreed schedules. As to how a party proves its pleaded case, is another issue. There should not be any confusion between the case that is pleaded and the evidence relied upon to prove it. How a party proves its case depends upon all the evidence before the court at trial. The pleaded case can only be varied with leave of the court and by an appropriate amendment but the evidence to prove the pleaded case may change for a variety of reasons during the course of the trial and whether or not the pleaded case has been proved will be ultimately a decision for the court based on all the evidence at trial. I should add that as much as the plaintiff is bound by its pleaded case, so is the defendant bound by its defence, until and when, it is appropriately amended with leave of the court. 47.It would have been abundantly clear to the defendant, that in instances where written work schedules were not produced by the plaintiff, it would rely on other evidence to prove an agreed schedule of works. That was consistent with the plaintiff’s pleaded case. A history of the works 48.Mr Petr Havelka, an employee of Pfeiffer, was the site manager for the water mains rehabilitation works under the subcontract. The Works were initiated by the issue of a WO from CSHK to SWC. Mr Havelka testified that the main duties and responsibilities at each individual rehabilitation work site were as follows: [25]
49.Mr Havelka was instructed to conduct an on-site demonstration of Pfeiffer’s water mains rehabilitation system in Hong Kong and on 16 March 2005 he arranged the shipment from Germany to Hong Kong of the necessary materials, accessories, tools, plants and machinery.[26] He then led a crew from Germany to Hong Kong who arrived on 24 April 2005. He claims that due to SWC not attending to certain requirements and preparing the site for the demonstration, it was unable to take place as planned and was delayed to late May 2005. Upon the completion of the demonstration, the crew returned to Germany on 23 May 2005 to await the approval of Pfeiffer’s rehabilitation system by the Contractor and the Engineer in order to proceed with the works under the subcontract. Approval was given in May 2005. 50.Mr Havelka and his crew were informed by SWC to return to Hong Kong to commence the water mains rehabilitation works. They arrived on 10 August 2005, and commenced work on a site the next day. It took 4 days to do the job which was completed on 15 August 2005. However, the excavation of work pits for the next work site was not completed and needed three more weeks to be done. As a consequence, the Pfeiffer’s crew for the month of August had no other work to do. It seems that as 1 September 2005 was the commencement of the new school year, official notice was given to all road works contractors cancelling temporary traffic arrangements for two weeks until 14 September 2005. It should be noted that no claim for idling was made by Pfeiffer against SWC for the period up to 19 September 2005 as the cancellation of the temporary traffic arrangements was an act beyond the control of SWC. Nevertheless, the lack of work orders for the crew was the subject of complaint by Mr Meyer to Mr Ko. 51.It was stated in the Quotation that Pfeiffer required “three reconstructions segments as preliminary work for continuous works” so as to avoid “still stand”. Mr Havelka claims this required SWC to have three worksites ready simultaneously at any one time so that they could work on them one after the other. This did not happen and as a consequence Mr Havelka stated that the Pfeiffer’s crew were constantly idle on the occasions they came to Hong Kong during the period they expected to do the Works. The periods the crew came to Hong Kong were from 10 August to 26 November 2005; 20 January to 29 March 2006; and 30 April to 2 August 2006. The crew also came to Hong Kong during 2007 but no particulars have been provided. 52.The project consultant in various site meetings made comments about the progress of the works and the need to avoid unnecessary site idling. From time to time it was pointed out that the submission and processing of water suspension proposals for the rehabilitation works were not being done promptly or in line with the works programme. There had also been complaints from the public as a result of the delay in carrying out the works orders which had been noted as being due to a lack of resources and poor workmanship. 53.Mr Havelka blamed SWC for the delay in completing the works and for the idling. He claimed that the material causes of the idling were the lack of sufficient labour and equipment to handle multiple worksites at one time and the disorganized management of works and worksites, principally due to the delay by SWC in making applications for temporary traffic arrangements and water suspension. He claimed that the situation improved in March 2006 but problems arose in May 2006 as a result of unsatisfactory arrangements having been made with respect to traffic control. Thereafter the situation improved to a tolerable level and no more claims were made for idling in the remaining months of 2006 and for the first half of 2007. He said the situation became worse again and the works came to a standstill. In mid December 2007, CSHK terminated its subcontract with SWC and entered into a subcontract with Pfeiffer to do the remaining rehabilitation works under the Contract. The interpretation of the agreement 54.As already mentioned, Pfeiffer is a German construction company that does work worldwide. Whilst keen to expand its operations into Hong Kong, it stands to reason that Pfeiffer was also keen to make sure that it maximized the time and productivity of its crew and equipment whilst doing works here. Equally, a party is likely to seek to resist liability for the time the crew and equipment of another party were not gainfully employed. It is not unusual in construction contracts for deadlines to be set with fixed sums to be paid by the offending party to the injured party. This is commonly seen in the nature of a liquidated damages clause. This is what Pfeiffer sought to impose on SWC by items (21) to (22) when it submitted its quotation to them on 21 January 2005. Whilst the Quotation formed part of the subcontract between the parties, it was one of three documents. Paragraphs 3(b), 4 and 5 of Appendix A refer or relate to items (20) to (22) of the Quotation and need to be considered together and in context of the agreement as a whole. 55.The terms of the agreement of the parties in this case call for interpretation. This requires interpreting the terms in their context by objectively ascertaining what the parties meant by the language used. It essentially involves ascertaining what a reasonable person would have understood the parties to mean by using the language of the documents against all the background which would reasonably have been available to them at the time of the agreement. A provision of liquidated damages 56.Before I examine the relevant provisions in order to interpret what they meant, I need briefly to address whether or not items (20) to (22) are liquidated damages. 57.A liquidated damages clause provides for the payment by one party to the other party to an agreement of a sum certain and ascertainable by the party in breach of the contract to the other party by way of agreed damages for that breach. [27] I have applied the principles in relation to liquidated damages as stated by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 and the more recent statement of the principles by Ribeiro PJ in Polyset Ltd v Panhandat Ltd [2002] 3 HKLRD 319 at 341-344 and Jackson J in Alfred McAlpine Capital Projects v Tilebox [2005] BLR 271 at 277-280. In summary, if the sum agreed upon is not a genuine pre-estimate of loss or damage for the breach of contract but is stipulated as a deterrent in that it is “extravagant and unconscionable” and “out of all proportion” to the loss or damage likely to be suffered, it will be held to be a penalty and not recoverable. The fixed sum in question does not have to be an exact measure of the loss or damage that may flow from the breach and as long as it is within an acceptable range the courts will be reluctant to strike down a clause as a penalty where the sum has been fixed in a commercial contract between parties of equal bargaining power and is commercially justifiable. In other words, the contractual function of a liquidated damage clause is to compensate a breach and not to deter a breach. 58.In my judgment, items (20) to (22) provide for liquidated damages. There is no dissent on this point from the defendant. He is not advancing a case that they are penalty clauses and not recoverable. [28] The defendant’s case is that item (21) is not a term of the agreement between the parties because of paragraph 5 of Appendix A, but if it was, he is not liable under it because of paragraphs 3(b) and 4 of Appendix A which he argues provide that such damages can only be recovered by Pfeiffer if he has recovered them in turn from the Main Contractor or Engineer. He further argues that item (21) has not been satisfied as it cannot be shown that the idling or standstill of the swagelining system was attributable to SWC. Construction of contractual documents 59.The principles by which contractual documents should be construed have changed. The literal interpretation of contractual documents [29] has given way to a contextual and commercial common sense interpretation with the aim of determining what the parties meant by the language used. [30] This is ascertained by what a reasonable person would have understood the parties to have meant. A reasonable person is someone having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. 60.I respectfully adopt the principles articulated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Society [1998] 1 WLR 896 at 912 to 913:
61.In Skanska Rashleigh Weatherfoil Ltd v Somerfield Shares Ltd, Neuberger LJ (as he then was) whilst stressing that words in a contract have to be construed in their overall context, also pointed out the importance of the fact that the parties have chosen the words they have used.[31] He said:
62.More recently, Neuberger MR (as he then was), in Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429, has provided a helpful summation of the principles that apply when dealing with a question of interpretation of a provision in a commercial context at paragraphs 16 to 22:
Findings 63.Mr Meyer and Mr Havelka both gave evidence in support of the plaintiff’s case. There was no evidence from the defendant. I found Mr Meyer to be a witness of truth and I accept his evidence. He presented as an honest person who sought to answer questions directly and according to his first hand knowledge. He also struck me as a man of his word and someone who would honour and abide by his commitments. He said as much in evidence and I accept that to be the case. He was also supported by the documentary evidence and the table of the rehabilitation works of the WOs. He holds a senior position in Pfeiffer and is very experienced and knowledgeable in the field of pipeline construction. 64.I also found Mr Havelka to be a witness of truth who gave honest and frank answers to questions asked of him. He was also supported by the documentary evidence which included minutes of meetings and correspondence. He was the site manager for Pfeiffer for the Works and directly dealt with SWC. 65.It was never alleged against either of them that they were being untruthful or embellishing their evidence in this case, and for the good reason that they were not. I should note that both of them testified in English, notwithstanding that English is not their first language. Whilst there were times when there was some misunderstanding or questions needed to be repeated, they were clearly trying their best to answer questions or provide an explanation to matters raised with them. Accordingly, I found I could accept their evidence and rely on their testimony. 66.A number of documents have been filed in these proceedings, mainly from the plaintiff, which I have considered and where necessary will mention in my findings. 67.Prior to trial, I directed the parties to provide and incorporate as part of the record, the Contract and the subcontract from CSHK to SWC which had not been included. I was somewhat surprised they were not, as they were obviously relevant to this dispute. They were produced under subpoena by CSHK at the commencement of the trial. 68.The following are my findings in relation to this case. 69.SWC is a construction business under the sole proprietorship of the defendant since 1997 carrying out a range of civil engineering works. Pfeiffer is a German based company operating a worldwide business in the construction of pipelines with established expertise in the rehabilitation of pipelines by a trenchless method using the close fit lining technique which involves the insertion of a temporarily reduced diameter or pre-folded PE pipe as a lining into an existing pipe. 70.There is no dispute that CSHK on 10 February 2004 entered into a contract with WSD to undertake a major project of replacing and rehabilitating water mains in various districts in Hong Kong. This was Contract No 23/WSD/02. The works under the Contract in brief involved the laying, replacement, rehabilitation, and removal of pipelines with some of the works involving rehabilitation through the trenchless method. 71.There is also no dispute that SWC undertook all the responsibilities and obligations of the Contract in a subcontract with CSHK dated 22 May 2004. As the Contract title states, this involved the replacement and rehabilitation of water mains in the districts of Yau Ma Tei, Tsim Sha Tsui, Mong Kok and Sham Shui Po. The works were mainly to be done by the open trench method, although a significant proportion of the works were required to be done by the trenchless method. As previously mentioned, the trenchless method involved rehabilitating the existing pipeline by installing internally a PE pipe from a launching pit to a receiving pit. It was a highly technical method of repair of underground pipelines and required particular expertise to do. SWC needed this expertise and were keen to secure the services of Pfeiffer, a specialist in this field of pipe construction. 72.Negotiations took place throughout 2004 mainly between Mr Meyer for Pfeiffer and Mr Ko for SWC in order for Pfeiffer to come to Hong Kong to do the rehabilitation works under the Contract. It was apparent that SWC were also keen to enter into a long term relationship with Pfeiffer because of the work that was available as a result of the state of Hong Kong’s water supply system and the potential demand of the rehabilitation technique of which Pfeiffer was a specialist. 73.As this project required Pfeiffer to bring a crew and equipment to Hong Kong to do the works, they were keen to ensure their productivity was maximized. There were discussions between the parties about idling and at one stage Mr Meyer advised Mr Ko upon his inquiry that Pfeiffer’s daily labour rate for idling was 760 Euro. 74.On 21 January 2005, Mr Meyer submitted a quotation to Mr Ko which included items with a fixed rate for idling of Pfeiffer’s system on an hourly, daily and incident basis. On 25 January 2005, Pfeiffer entered into a subcontract with SWC to do the water mains rehabilitation works under the Contract. The Agreement and Appendix A had been prepared by SWC and it incorporated the Quotation as part of the subcontract. There is no dispute between the parties that this was a subcontract agreement between them, notwithstanding the wording of clause 1 of the Agreement which is expressed in the future tense and states that Pfeiffer will enter into a subcontract with SWC. 75.As I have already noted, the agreement between the parties was poorly drafted both in terms of content and language. It is a compendium of three documents, one of which was the Quotation in its original form. There is a paucity of provisions addressing the range of responsibilities and obligations that one would expect to be included in an agreement of this type and what provisions are there are poorly expressed and lack specificity. 76.It is important to bear in mind that SWC had subcontracted with CSHK to accept all responsibilities and obligations under the Contract and it was only a small part of those responsibilities and obligations with respect to rehabilitation works of water mains that SWC subcontracted to Pfeiffer. 77.The provisions relating to idling in the subcontract are a key issue in the dispute and call for an objective ascertainment of the contractual meaning of the language used which I now do. 78.I find that Pfeiffer agreed to do the rehabilitation works of the water mains under the Contract insofar as it was to employ the swagelining/compact pipe system which involved calibrating the existing pipe by measuring its diameter, cleaning the existing pipe and relining the existing pipe with a PE pipe. As stated in the Agreement, Pfeiffer agreed to provide “the necessary technical support, labour, plant and resources etc.” 79.In addition to having undertaken all the responsibilities and obligations of the Contract, SWC had agreed to provide “all necessary provision and civil engineering works in assisting Pfeiffer” which included all the preparatory and follow up works for Pfeiffer to carry out the installation of the PE pipe in the existing pipe. This included arranging the suspension of the water supply and temporary traffic arrangements, excavating and cleaning the pits in readiness for Pfeiffer to carry out the installation of the PE pipe. Pfeiffer’s works were mentioned in the Quotation which formed part of the subcontract. It is clear from the Quotation that Pfeiffer was only agreeing to do the installation of the PE pipe with SWC doing the rest. I accept the description of the works and the role of parties involved as stated by Mr Havelka, and whilst in some of the works that SWC had to do other parties were also involved, it remained that SWC was responsible for them. 80.Although there are three provisions for idling set out in the Quotation, it is item (21) that Pfeiffer relies on in its claim against SWC. There are also the three related provisions in Appendix A of paragraphs 3(b), 4 and 5. 81.It is not disputed that items (20), (21) and (22) of the Quotation are liquidated damages clauses. In light of the status of Pfeiffer as a foreign company without a base in Hong Kong, the parties agreed to a fixed sum for damages on an hourly, daily or incident basis when SWC caused Pfeiffer’s swagelining system to be idle. It is acknowledged by the defendant that the expressions, idling, halt and still stand (or standstill) were used interchangeable. I agree. Mr Meyer explained in evidence that the “swagelining system” referred to Pfeiffer’s crew and equipment employed to conduct the swagelining/compact pipe processes for the installation of the PE pipe. I accept that was the case and this is supported by the rest of the subcontract agreement where in paragraph 4 of Appendix A the labour rate is mentioned separately but obviously inclusive of the rates in items (20), (21) and (22) and in paragraph 5 where it is implicit that SWC and Pfeiffer can make claims against each other for idling. It is clear in my judgment that items (20), (21) and (22) are agreed damages that are only available to Pfeiffer against SWC upon the requirements of the item being satisfied. Each item stipulated a fixed rate if Pfeiffer’s system was caused to be idle by “your company” which I find to be a reference to SWC. 82.I will focus on the wording of item (21) which is the basis of Pfeiffer’s claim. It states that “Still stand with reservation of the swagelining system per day Halt causes by your company.” I find the expression “still stand (or standstill) with reservation” meant that the system, being the crew and equipment, were not being utilized or worked as expected or arranged. I find the expression “Halt causes by your company” meant that the system had not been utilized or worked as expected or arranged and this had been caused by SWC doing inappropriately or not doing an act which it was contractually obliged to do. I find that the idling within the terms of items (20), (21) and (22) has been caused by SWC if it can be shown that “but for” SWC doing inappropriately or not doing an act it was contractually obliged to do, the system would have been utilized or worked as expected or arranged. In other words, it needs to be shown that “but for” the conduct complained of, the claimant would not be in the situation and suffer the damages of which complaint is made.[32] 83.It is set out in the Quotation that “We require 3 reconstruction segments as preliminary work for continuous works, to avoid still stand.” The question is whether this was a term or condition of the subcontract that SWC was obliged to do, and if it failed to do it, what were the consequences to SWC? In my judgment, it is a pre-condition expressed more in terms of a request rather than a term or condition. It should also be noted that this was expressed as a requirement to avoid idling. It would require SWC to do a range of preparatory works in readiness for Pfeiffer, including arranging the suspension of water supply and temporary traffic arrangements, excavating and cleaning a launching pit and receiving pit. It was therefore at SWC’s option as to whether or not this was done. I do not find, as was submitted by the plaintiff, that this was a condition of the subcontract which SWC had to fulfill. 84.It is argued that paragraph 3(b) of Appendix A provides for the terms of payment “for other items as per the attached quotation” and this included items (21) to (22). I find that the terms of the paragraph were only meant to apply to items (2) to (19). It is stated that the payment would be made on a back to back basis which meant that SWC would pay Pfeiffer when paid by the Contractor. This would cover items (2) to (19) but not items (20) to (22) for the following reasons. First, the items are of a nature that fall within the scope of the works under the Contract and likely to be paid on a pay-when-paid basis. Secondly, items (20) to (22) are separately referred to in paragraph 4 which suggests that they were not the subject of paragraph 3(b). Thirdly, items (20) to (22) are liquidated damages clauses for idling which were unique to the contractual arrangement between SWC and Pfeiffer and therefore not the subject of a back to back payment arrangement. 85.Paragraph 4 of Appendix A in my judgment is a provision that stated no more than that the rates in items (20), (21) and (22) were for back charge to the Engineer. This would be applicable if and when a back charge to the Engineer was made. In terms of the rates, it was also stated in paragraph 4 that Pfeiffer’s labour rate was 760 Euro per day. It should be appreciated that items (20), (21) and (22) were agreed damages clauses only between SWC and Pfeiffer and could only be relied on by Pfeiffer against SWC when the requirements of the items were satisfied. 86.It is argued by the defendant that under paragraph 4, SWC was not liable for any of idling invoices and that they should have been back charged to the Engineer. SWC had undertaken the full responsibility of the Contract and needed a specialist to do the rehabilitation works. Pfeiffer, a foreign company, wanted to make sure its crew and equipment was gainfully employed while in Hong Kong for the Works. Pfeiffer sought and obtained an agreement with SWC for idling. It was a contractual arrangement solely between them and no one else. 87.Paragraph 5 of Appendix A although poorly expressed asserted that the parties would cooperate together to prepare a working schedule for the Works in order to shorten the construction period and that they would not make any claims against each other for idling whatever the reasons if they followed the agreed schedule. The wording of paragraph 5 implies that either party can make a claim against the other for idling. In the case of a claim by Pfeiffer, there were the agreed damages clauses of items (20), (21) and (22). There were no agreed damages in the event SWC wished to make a claim against Pfeiffer on this basis. If there was an agreed schedule and the parties followed it, then neither of them could make a claim against the other for idling. 88.I find that the works schedule that the parties originally agreed was the one attached to the email of Mr Ko dated 2 December 2004. It fixed a commencement date in November 2005 and a completion date in November 2007 with a timeframe for the works which were described according to the diameter and length of pipe to be installed. It fixed the demonstration in March 2005 but that later changed to May 2005 because the site was not ready and certain matters had not been done. Pfeiffer was approved as a specialist after the demonstration in May 2005. The equipment for the system had been shipped to Hong Kong from Germany on 16 March 2005 and was to remain in Hong Kong until the works under the Contract were completed. 89.I find that the parties agreed to bring the rehabilitation works forward to take place from 10 August to 26 November 2005. Mr Havelka, the site manager, and 3 other crew came to and stayed in Hong Kong during that period. At this stage of the project, the Works were done in accordance with a WO issued by the Contractor. A WO initiated the process of the works required to perform the rehabilitation of the existing pipeline and involved the preparation of a site and the excavation of the launching pit and receiving pit for the installation of the PE pipe by Pfeiffer. 90.The works did not get off to a good start. WO35 was the first job. It was one of 3 sites that had been prepared by SWC in readiness for Pfeiffer. It took the Pfeiffer’s crew 4 days to do the installation from 11 to 14 August 2005. SWC experienced difficulties with the other sites in carrying out its tasks and works in preparation for Pfeiffer. As it transpired, there was an issue with the new lining of WO35 which Pfeiffer agreed to do again. At this time, there was also a direction issued by the police that all road works stop from 1 September 2005 for the first two weeks of the new school year. This meant that the sites prepared by SWC had to be filled in or covered. SWC backfilled the pits of the sites and as later complained by Pfeiffer this left them idle as the pits had to be excavated again. It seems it was a requirement to backfill a site area whenever possible in order to minimize site hygiene and stagnant water problems. Whilst from the minutes of site meetings and other records it was apparent that SWC was not handling its tasks and duties very well, there were matters beyond SWC’s control that resulted in slow progress of the Works. I find, at this initial stage, there were factors not attributable, or not attributable to a large extent, to SWC, that resulted in WOs not being done according to the agreed schedule which caused Pfeiffer’s system to be idle. I am not satisfied on a balance of probabilities that SWC caused Pfeiffer’s system to be idle during the months of August and September 2005. 91.Whilst there were teething problems with the parties to start with, I find that SWC did not adhere overall to the agreed schedule and that was apparent by the relatively small number of WOs that were done in the entire period from August to November. In my judgment, the parties agreed on a claim for idling where, in the case of Pfeiffer, the crew and equipment were expected or arranged to work but SWC did an act inappropriately or not at all which it was contractually obliged to do, and this caused Pfeiffer’s crew and equipment not to work as expected or arranged because the agreed schedule of works had not been followed. 92.I find that the parties agreed a works schedule in June 2005 for Pfeiffer to perform rehabilitation works from August to November 2005. As I have mentioned the first job was WO35 which Pfeiffer commenced on 11 August and finished on 14 August 2005. There was a problem with the lining and it was agreed to be done again. As part of the arrangement of having three work sites prepared for Pfeiffer, SWC also arranged the preparation of WOs 33 and 47 for that purpose but they were not ready. As a consequence, no further work was done for August. According to the works schedule, WOs 54 to 58 were planned for September and WOs 46 to 69 were planned for October (which probably excluded WOs 54 to 58).[33] 93.The Engineer would meet regularly with the relevant parties under the Contract to discuss the progress of works which was referred to as a Site Progress Meeting. At the meeting on 3 October 2005, the Engineer expressed his concern about the slow submission for water suspension proposals which needed to be done before he would endorse the temporary traffic arrangements drawings for implementation. It was noted that there were 14 water suspension proposals for rehabilitation works still outstanding which needed to be expedited in order to be in line with the programmed works. The Engineer also expressed his concern generally about the slow progress of the WOs for rehabilitation works which appeared to be due to a lack of labour and resources. He noted there was idling or a lack of work at the work sites.[34] 94.At a weekly meeting on 18 October 2005,[35] the Engineer yet again expressed his concern about the delay in the WOs for rehabilitation works. It was clear that the WOs planned for this period were not being done and there was slow progress and delay in relation to the water suspension proposals. I find there was a serious hold up with the submissions for water suspension for the WOs by SWC which caused in turn the work sites not being ready for Pfeiffer to do its installation work. Similar comments were made about the tardiness of the submission for water suspension proposals in the weekly meetings on 1 and 10 November 2005. [36] 95.In a letter from Mr Havelka to Mr Ko dated 21 November 2005, it is complained that the preparation works for WO88 were not completed and no one from SWC was working on the site on 21 November which was a Monday. There was an exchange of correspondence between the parties but I am satisfied that the fault lay with SWC and WO88 was put off to January 2006 as a result. It also resulted in Pfeiffer’s crew waiting until the end of the week without any work to do. The crew left Hong Kong on 26 November and returned to Europe. 96.On 25 November 2005, Pfeiffer issued an invoice to SWC for idling to which SWC responded by letter dated 5 December 2005. SWC claimed there were unforeseen site conditions and incidents, a breakdown of Pfeiffer’s steamer and a temporary suspension of the work due to the start of the new school year in early September 2005. What appears to be a reference to WO88, it is noted that the works were abandoned after a CCTV inspection on 24 November 2005 confirmed the poor condition of the pipe. It was claimed more works would be planned in December 2005 but it was appreciated that the Pfeiffer’s crew wished to take leave over the Christmas and New Year holiday season. It was also claimed that SWC had postponed the works to mid January 2006 and would revise the tentative schedules for January to April 2006. Mr Havelka disagreed and explained that the reason his crew had left was because there was no work to do due to SWC not having done its work and that was why the works were put off to the following year. I find that the evidence supports Mr Havelka and the inability of Pfeiffer to do its work was due to SWC not performing at a satisfactory level of competency and not fulfilling the tasks and duties it contractually was bound to do. 97.As set out in the invoice dated 25 November 2005, I am satisfied on the probabilities that Pfeiffer’s system was idle in the months of October and November 2005 due to the fault and sole cause of SWC. I find that SWC was responsible to arrange the suspension of the water supply and temporary traffic arrangements as well as excavate and prepare the pits of the WOs which it did not do or did not do appropriately, in particular SWC failed to submit and/or process in a timely manner the water suspension proposals and the temporary traffic arrangements and provide adequate labour and resources to the sites of the WOs, which caused Pfeiffer’s system to stand idle when it was expected or arranged to work. I am also satisfied on the probabilities that SWC did not follow the agreed schedule of works and that works expected to be ready by Pfeiffer were not as a result of SWC not fulfilling its contractual obligations. 98.It is argued by the defendant that it assisted parties to get the pre-rehabilitation steps done and there were other intervening factors that operated which stalled the performance of WOs. This argument, in my view, ignores the reality and contractual nature of the situation. SWC had undertaken to perform all responsibilities and obligations under the Contract. The process started with SWC making all the necessary arrangements for the works which included the water suspension proposals and the temporary traffic arrangements. Whilst other parties may have been involved, it was ultimately the responsibility of SWC to initiate the processes and ensure the tasks were done. The key to doing the rehabilitation works was arranging the suspension of the water supply and temporary traffic arrangements and the excavation and cleaning of the pits. This was SWC’s responsibility. 99.On 19 January 2006 there was a meeting between Mr Cheung and Mr Ko for SWC and Mr Meyer and Mr Havelka for Pfeiffer. A note was made of what was discussed. It was argued by the defendant that this was an agreement that changed what was agreed on 25 January 2005.[37] I disagree. I find that this meeting took place to discuss Pfeiffer’s concern that payments of their invoices be made within 30 days and the exchange rate of the Hong Kong dollar to the Euro under the subcontract. It records that “End date for rehabilitation works is November 2007. After that time we have to make a new offer or to invoice standstills.” It also records that the starting date for further installations is 6 or 7 February 2006. I do not find, as argued by the defendant, that this was an agreement to only invoice standstills after November 2007. It was soon thereafter in February 2006 that Pfeiffer invoiced SWC for idling. This argument was not part of the defendant’s pleaded case and is also contrary to the correspondence between the parties. 100.A serious problem was emerging with SWC’s inability to organize the water suspension proposals for the rehabilitation works. It was recorded in the minutes of the meeting on 16 February 2006 that the Engineer noted that the submission of the water suspension proposals for the rehabilitation works was generally slow and could not be finalized in time for the works. This fell squarely on SWC. It was also recorded that there were complaints and a lack of labour and resources for the number of works as well as site idling.[38] 101.By an email dated 13 January 2006 from Mr SK Tang of SWC to Mr Havelka, it was requested that Pfeiffer’s crew return to Hong Kong to complete 4 WOs[39] before Chinese New Year. The crew returned to Hong Kong on 20 January 2006 but only completed one WO[40] as the rest were not ready. I find this was due to SWC’s failure to arrange water suspension for WOs 33, 54, 74, 56 and 44. The crew remained idle while awaiting the next rehabilitation works. At the meeting on 19 January 2006 it was agreed by the parties that the starting date for further installations was 6 or 7 February 2006. However, it was apparent that SWC had not arranged the water suspension for the rehabilitation works and this was the subject of critical comment at a Site Progress Meeting on 16 February 2006.[41] I find that the letter from SWC dated 10 February 2006, suggesting that the delay of the water suspension was due to WSD’s advice, to be self-serving and contrary to the minutes and the correspondence from Pfeiffer.[42] I accept the evidence of Mr Havelka that Pfeiffer’s system was idle for most of February 2006 due to SWC not preparing the relevant work sites as required.[43] At this stage, according to Mr Havelka, the situation improved in March 2006 until the crew went on leave on 29 March 2006. 102.Previously on 3 March 2006, Mr Mathew Fung of CSHK informed Mr Havelka by email of the scheduled rehabilitation WOs for March, April and May.[44] Pfeiffer’s crew came to Hong Kong to carry out the rehabilitation works for the WOs planned from 30 April to 2 August 2006. I accept the evidence of Mr Havelka that Pfeiffer system was idle throughout May 2006. Pfeiffer’s crew came to Hong Kong from 30 April to 2 August 2006. The crew had been requested by SWC on 24 April 2006 to do WOs 87 and 82[45] as well as WOs 81, 65, 72 and 77.[46] However, only WO82 was ready for the rehabilitation works and the rest were unprepared due to SWC’s failure to arrange temporary traffic arrangements. 103.I am satisfied on the probabilities that Pfeiffer’s system was idle in the months of February and May 2006 due to the fault and sole cause of SWC. I am satisfied that SWC failed to comply with the necessary requirements for the Works which caused Pfeiffer’s system to stand idle when it was expected or arranged to work. I am also satisfied that SWC did not follow the agreed schedule of works and that the works expected to be ready for Pfeiffer were not as a result of SWC not fulfilling its contractual obligations. 104.The 5 invoices for 2007 are more problematical. In all possibility, Pfeiffer system was idle for the times claimed from May to December 2007, but a mere assertion to this effect is not enough. I have to be satisfied on a balance of probabilities based on the evidence. In essence, all I have before me is the testimony of Mr Havelka that the situation from May 2007 became worse and the works nearly stopped, notwithstanding promises from SWC for new WOs from time to time until CSHK terminated its subcontract with SWC in mid December 2007. To claim and receive the agreed damages under item (21) Pfeiffer has to prove, in circumstances where an agreed schedule of works had not been followed, that Pfeiffer’s system was idle and that this had been caused by SWC. 105.There is an important piece of evidence in relation to the invoice dated 15 June 2007. It is a letter addressed to Alan from Petr (Mr Havelka) and purports to be signed by Mr Ladislav Svitacek of Pfeiffer and Mr Allen Cheung (the defendant). It is dated 4 June 2007.[47] It refers to a telephone conversation that week and states, amongst other things, :
106.No issue has been taken about the contents of the letter and no evidence has been presented by the defendant to contradict it. I am satisfied that as at the date of this letter, Pfeiffer crew were in Hong Kong during the period referred to in the letter and that a schedule of works had been agreed which was constantly being changed due to the sole fault of SWC. So much so, that there was no installation works done by Pfeiffer from May until the date of the letter. To that extent, I am satisfied on the balance of probabilities that Pfeiffer’s system was idle during this period as a result of SWC failing to follow an agreed schedule and not doing the work it was contractually obliged to do. I find that SWC’s conduct caused Pfeiffer’s system to be idle during this time. 107.As for the rest of the occasions in 2007 that Pfeiffer is making claims against SWC for idling, I cannot be satisfied on the probabilities on the evidence before me that SWC is liable. There is insufficient evidence to show when Pfeiffer’s system was idle, and on what basis and to what extent SWC was the cause. 108.For the foregoing reasons, I find on the balance of probabilities that the plaintiff is entitled to recover from the defendant the sums for items 3, 4 and 5 of the invoice dated 25 November 2005, the items of invoice dated 28 February 2006, the items of invoice dated 30 May 2006 and items 1 to 5 of the invoice dated 15 June 2007 and that the plaintiff has not made out its claim for items 1 and 2 of the invoice dated 25 November 2005, items 6 and 7 of the invoice dated 15 June 2007, items of the invoices dated 17 August, 8 November, 7 December and 14 December 2007. The amount recoverable 109.I have calculated the amounts that the plaintiff is entitled to recover on the basis that the working days allowed be Monday to Friday, excluding Saturdays, Sundays and public holidays. I have also taken into account the dates of installation for WOs set out in the plaintiff’s document entitled “Table of Installation”.[48] As for the invoice dated 25 November 2005, I allow 9 days for item 3, 4 days for item 4 and 10 days for item 5 and at the rate of HK$12,200.00 per day this amounts to HK $280,600.00. As for invoice dated 28 February 2006, I allow 5 days for item 1, 3 days for item 2, no days for item 3 and 1 day for item 4 and at a rate of HK $19,075.00 per day this amounts to HK$171,675.00. As for the invoice dated 30 May 2006, I allow 7 days for item 1 and 4 days for item 2 and at a rate of HK $19,075.00 per day this amounts to HK $209,825.00. As for the invoice dated 15 June 2007, I allow no days for item 1, 5 days for item 2, 5 days for item 3, 4 days for item 4 and 5 days for item 5 and at the rate of HK$19,075.00 per day this amounts to HK$362,425.00. The total amount due to the plaintiff is HK$1,024,525.00. Result 110.Accordingly, there will be judgment for the plaintiff in the sum of HK$1,024,525.00. I will hear counsel as to the costs and interest.
Mr Damian Wong, instructed by Winnie Mak, Chan & Yeung, for the plaintiff Mr Sanjay A Sakhrani, instructed by Hart Giles, for the defendant [1] The plaintiff is a company incorporated under the laws of Germany and has its registered office in Dresden, Germany. [2] The defendant since 1997 has been the sole proprietor of SWC, a construction business which includes doing concrete formwork, reinforcement bar-fixing, concreting, general civil works, painting works, metal works and pipe jacking works. [3] Volume 1 consisted of the letter of acceptance, tender documents, the general conditions, special conditions and particular specification. Volume 2 consisted of technical matters and proposals. Volume 3 consisted of method of measurements, rates and proportions. Volume 4 consisted of drawings. [4] Contract No 23/WSD/02 Vol 1, Particular specification, section 1.01A (4). [5] Ibid, section 1.01A (4). [6] Ibid, General Conditions of Contract, 2002 Edition, clauses 49-55. [7] See the English translations of the Preamble and Special Conditions of the Subcontract between CSHK and SWC. [8] Trial Bundle II at 106-108. [9] Ibid at 109. [10] Ibid at 110. [11] The defendant agreed in paragraphs 2 and 4 of his Amended Defence that he is the sole proprietor of SWC and he entered into the written agreement dated 25 January 2005. [12] Clause 1 of the Agreement is expressed in such a way as to suggest this was an agreement to enter into a subcontract but no issue on this point has been taken by the parties. It is expressly stated by the parties that these documents were a subcontract between them. See plaintiff’s Statement of Claim at paragraph 4 and defendant’s Amended Defence at paragraph 5. [13] See Tim Lee Construction Engineering Co. Ltd v Kwong Wah trading as Super King Engineering Co., HCCT 18/2010, 20 April 2012; Wo Hing Engineering Ltd v Pekko Engineers Ltd, HCA 5561/1996, 7 September 1998. [14] Pfeiffer’s Statement of Claim at paragraphs 14 and 15. [15] This appeared to be a company associated with Mr Ko Chun Wa. [16] Amended Defence, paragraph 6. [17] Ibid, paragraph 8. [18] Ibid, paragraph 9. [19] See RHC Order 38. [20] Order 38, rule 2A (1) and (2). [21] Ibid, rule 2A (7). See also Order 38, rule 1. [22] Ibid, rule 2A(11). See Society of Lloyd’s v Jaffray, the Times, August 3, 2000. See also Phipson on Evidence (17th Edition (2010) paragraph 10-10). [23] Order 18, rule 7. [24] Sinoearn International Ltd v Hyundai – CCECC Joint Venture, FACV No 22 of 2012, unreported, 30 September 2013, per Ribeiro PJ at paras 27 to 34; Kwok Chin Wing v 21 Holdings Ltd & Anor, FACV No 9 of 2012, unreported, 30 September 2013, at paras 18 to 27 per Ma CJ. [25] Plaintiff’s Answer for Further and Better Particulars at paragraph 3 it is stated that the civil engineering works included formation and excavation works of the work sites – the launching pit and the receiving pit. [26] Plaintiff’s Answer for Further and Better Particulars at paragraph 2 states the plant, machinery and equipment were a steam boiler, a drum trialer, a welding machine, a swageline expander, a 10 tons winch, a 5 tons winch and a container of small equipment. Pfeiffer’s crew consisted of Mr Petr Havelka and 3 others. [27]See Sir Anthony Mason, NPJ entitled “Liquidated Damages and Penalties in Construction Contracts”, 2012 Australian Institute of Building Annual Address, 18 April 2012, at paragraphs 6 and 8. [28] If there is a challenge to an agreed damages clause, the onus lies on the party seeking to establish that the clause is a penalty. See Robophone Facilities Ltd v Blank [1996] 1 WLR 1428 at 1446. [29] As Lord Hoffmann so aptly described in Jumbo King Ltd v Faithful Properties Ltd & Ors (1999) 2 HKCFAR 279 at 296D-E, the construction of a document is not a game with words.“It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have read, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.” [30] Lord Steyn in Sirius International Insurance Co v FAI Insurance Co [2004] WLR 3251 at 3257-8 explained that the task involves objectively ascertaining “the contextual meaning of the relevant contractual language”. [31] The point was also stressed in a recent judgment of the Court of Final Appeal in Sinoearn International Ltd v Hyundai-CCECC Joint Venture, FACV 22/2012 at paras 74-79 per Tang PJ. [32] Keating on Construction Contracts, Ninth Edition, Sweet and Maxwell, Chapter 9-062. [33] Email dated 8 September 2005 from Mr Meyer to Mr Ko, Trial Bundle II at 111. [34] Minutes of Site Progress Meeting, 3 October 2005, Trial Bundle II at 30-42. [35] Minutes of Weekly Progress Meeting, 18 October 2005, Trial Bundle II at 43-57. [36] I have allowed for Monday to Friday excluding Saturdays, Sundays and public holidays. A total of
[37] This was not pleaded by the defendant in the Amended Defence. [38] Minutes of Site Progress Meeting, 16 February 2006, Trial Bundle II at 91. [39] Trial Bundle II at 128 – WOs 33, 54, 57 and 74. It is stated that the WOs arranged for the next two months were WO66, 44, 65, 87, 82 and 81. [40] The installation of WO57 was completed on 26 January 2006. [41] Trial Bundle II at 91-98. [42] Ibid at 136. [43] Ibid at 136 and 137. [44] WOs 66, 65, 33, 87, 54 for March; WOs 77, 81, 82, 33, 89, 91, 65, 98 for April and May. [45] Trial Bundle II at 143. [46] Ibid at 145. [47] Ibid at 226. [48] Trial Bundle II at 236. See also Table A attached to the letter of Ho & Partners, Trial Bundle II at 177-178. Please refer to CACV245/2013 for the relevant appeal(s) to the Court of Appeal. | ||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 1369/2011