IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
CONSTRUCTION & ARBITRATION PROCEEDINGS
NO. 23 OF 2005
||HSIN CHONG CONSTRUCTION (ASIA) LIMITED
Before: Hon Reyes J in Court
Dates of Hearing: 1-4, 7-8 August 2006
Date of Judgment: 18 August 2006
J U D G M E N T
1. Hsin Chong was the Main Contractor and Henble the Employer for a residential development at 31 Tin Hau Temple Road. Access to the site was solely through a right of way (ROW) over land belonging to Fu Fai Court at 33 Tin Hau Temple Road. Contract drawings supplied by Henble to Hsin Chong showed that all utilities were to pass from the site over or under the ROW for connection to the trunk public supply systems situated in or around Tin Hau Temple Road (THTR).
2. Hsin Chong makes 5 claims against Henble in respect of sums said to be due and owing for work on the project. Henble in turn claims liquidated damages for delay and seeks an indemnity against sums said to have been paid to the Owners of Fu Fai Court (the Owners) for nuisance caused by Hsin Chong’s workers in the course of construction.
A. Hsin Chong’s claims for non-payment of IPC 17 and 18 and the 2nd half of retention monies
3. Henble has failed to pay $2,868,502 due under Hsin Chong’s Interim Payment Certificates 17 and 18.
4. Henble has also refused the 2nd half of retention monies ($975,000) to which Hsin Chong is now entitled.
5. Henble does not dispute the total due under these 2 claims ($3,843,502). Henble says, however, that the claims are subject to any amounts due under its counterclaims.
B. Hsin Chong’s claims for additional time for completion
B.1 Contract terms
6. The Main Contract was subject to overriding terms stipulated in a Letter of Acceptance (LOA) dated 18 July 2002. The LOA provided for the project to commence on 18 July 2002 and to be completed within 360 calendar days thereafter (that is, 12 July 2003).
7. On extensions of time (EOTs) and liquidated damages (LDs), LOA cl.5 provided as follows:-
“A maximum of 45 days will be granted by the Employer in this Contract for all circumstances including variations required by the Contract and no loss and expenses will be claimed by the Contractor for the extension of time granted by the Employer in this respect. For the avoidance of doubt, the extension of time to be granted for this Contract will follow the same procedures as stipulated in Clause 6 of this Letter of Acceptance for the extension of time granted less than 45 days, and if the extension of time granted under this contract is equal or more than 45 days, the Contractor’s entitlement is only 45 days and thereafter no extension of time whichsoever will be granted to the Contractor under this Contract. However, any late completion of the contract other than the 45 days EOT as stipulated above will be subject to LD deduction of HK$30,000.00 per day.”
8. LOA cl.5(b) provided that a maximum of 5% of the Contract Sum would be paid to Hsin Chong for variations required by the Main Contract and approved by Henble. But “any amount more than the 5% of the Contract Sum for variation works will be absorbed by the Contractor”.
9. To understand its effect, LOA cl.5(a) has to be read in conjunction with the General and Special Conditions of the Main Contract. In particular, GCC 22 and 23 (as amended by SCC 15 and 16 respectively) govern entitlement to additional time.
10. GCC 22(1) gives the Employer the right to impose LDs for delay. Where by reason of specified events not attributable to him, a Main Contractor fails to complete by the Completion Date or any extra time allowed under GCC 23, GCC 22 does not provide for EOTs. Instead GCC 22(3) sets out a procedure by which the Architect may grant a time allowance to the Main Contractor. The grant of such time allowance will result in the Main Contractor being “relieved of the obligation to pay or allow [LDs] in relation to the portion of delay so certified”.
11. GCC 23 allows the Main Contractor to give notice of specified events which are likely to delay or have delayed the progress of the works prior to the Completion Date. The Architect will then estimate the length of delay or likely delay and grant a fair and reasonable extension of time for completion of the works. Note that, although an EOT may be granted under GCC 23, the actual Date of Completion stipulated in the LOA remains unchanged.
12. To obtain a time allowance or an EOT under GCC 22 or 23 respectively, a Main Contractor must notify the Architect of a relevant event within 28 days of its occurrence.
13. The combined effect then of LOA cl.5(a) and GCC 22 and 23 is that up to 12 July 2003 (the Completion Date) delays attributable to events specified in GCC 23 will give an entitlement to EOT up to a maximum of 45 days. Thereafter, events specified in GCC 23 will give an entitlement to time allowance. Any time allowance granted will reduce the LDs payable to the Employer on account of delay. In any eventuality, the Completion Date of 12 July 2003 will remain unchanged.
14. Hsin Chong submits that, in imposing a 45 day cap to EOTs, LOA cl.5(a) operates as a penalty clause and should be treated as unenforceable.
15. Hsin Chong further suggests that LOA cl.5(a) may be a penalty because it enables an Employer to claim LDs even where delay is the result of the Employer’s own conduct. This (Hsin Chong reasons) would be contrary to the prevention principle whereby a wrongdoer should not benefit from his own wrong.
16. I do not agree that cl.5(a) is a penalty.
17. First, it was open to Henble as Employer to stipulate a maximum number of EOTs to which a Main Contractor would be entitled in whatever circumstance. Knowing that such maximum was to be a term of the contract, Hsin Chong would undoubtedly have priced its tender accordingly, factoring in an element for bearing the risk of circumstances leading to more than 45 days’ delay. There is nothing unfair in the arm’s length bargain struck.
18. Second, a specified event entitling the Main Contractor to a time allowance under GCC 22 or an EOT under GCC 23 is:-
“(l) any act of breach or prevention by the Employer, his servants or agents not already mentioned in the foregoing sub-paragraphs...”
19. This sub-clause (l) appears in GCC 23. But where an event falls within the terms of sub-clause (l), GCC 22(3) enables the Main Contractor to apply for a time allowance in respect of such event. The time allowance can then be offset against LDs.
20. Accordingly, where delay is due to the Employer’s own act of prevention, the Main Contractor may apply for an EOT or a time allowance depending on whether the relevant event arises before or after 12 July 2003. The time granted by the Architect would then reduce any claim by the Employer for LDs in respect of delay caused by his act.
21. I do not accept the submission by Mr. Clayton SC (appearing for Hsin Chong) that GCC 23(l) should be read restrictively in light of the foregoing sub-clauses in GCC 23. I agree with Mr. Westbrook SC (appearing for Henble) that sub-clause (l) was plainly meant as a catch-all to obviate the possibility of time being set at large by some act of prevention by the Employer not expressly dealt with in other sub-clauses of GCC 23.
22. Practical completion was certified as at 23 November 2003. The project thus experienced 134 days of delay. The question is for how many of those 134 days Hsin Chong should be allowed time.
23. The Architect certified a total of 88 days’ EOT and time allowance. However, both parties accept that the Architect’s certificate can (and should) be re-opened by the Court.
24. On Hsin Chong’s own expert evidence, 33 of the 134 days’ delay are attributable to Hsin Chong’s delay in performing critical blockwork. Hsin Chong is consequently not entitled to an EOT or a time allowance in connection with those 33 days. Since I have rejected Hsin Chong’s contention that cl.5(a) is penal, it follows that Henble must at least be entitled to 33 days of LDs.
25. I now proceed to examine each of Hsin Chong’s remaining claims for EOT or time allowance. For convenience, I shall continue to identify what were referred to during trial as “EOT Claims” by number (for example, EOT Claim 2, 4, etc.). This is even though some claims have been abandoned (since they involve non-critical delays) and most remaining claims are for time allowance (since they involve events after the contractual Date of Completion).
B.2 EOT Claim 2a: Revised last manhole details and ELS work
26. In August 2002 Hsin Chong dug a 1 m deep trial pit across the pavement between the ROW and THTR. No unusual obstructions to planned drainage works were identified.
27. In March 2003, having obtained a licence from the Highways Department to dig up part of THTR, Hsin Chong discovered obstructions (24 pipes of telephone cables and a 600 mm diameter pipe) obstructing the proposed drainage works.
28. Various options were investigated (including changing the routing of drains and diverting existing utilities). None proved viable.
29. Eventually, it was decided to lay the drainage pipes much deeper than shown in the contract drawings. This in turn entailed connecting with government manholes in THTR at a lower level and constructing deeper manholes for storm water and sewage under the ROW.
30. The ELS (Excavation and Lateral Support) work for the ROW last manholes consequently had to be deeper than originally envisaged. This required a submission to the Buildings Department (BD) for approval. That took from 23 May to 12 July 2003.
31. The relevant...