Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – To Idle Or Not To Idle: How Effective Are Idling Rates?

25 June, 2014

 
 

Idle minds may be the devil’s workshop, but idle sites can prove to be surprisingly profitable. This was the effect of the decision in Pfeiffer GmBH v Cheung Hay Kit T/A Sun Wai Construction [2013] HKCU 2470. Sun Wai was the sub-contractor on a project for the Water Supplies Department to modernise the water supply system. Sun Wai subsequently sub-subcontracted the relining of pipes to Pfeiffer, a German company specialising in pipe rehabilitation. The sub-subcontract required Sun Wai to carry out “all necessary provision and civil engineering works in assisting Pfeiffer”, which was interpreted by the Court to include any preparatory and follow-up work. 


Pfeiffer was keen to maximize the productivity of its crew as they had to fly in from Germany to carry out the works. Therefore, Pfeiffer’s quotation (which was incorporated into the Agreement) specifically required at least three work sites to be readily available to Pfeiffer at any given time to minimise the idle time for its crew. The quotation also required Sun Wai to prepare the construction pits for Pfeiffer to work on and provided for Pfeiffer to be paid idling charges on an hourly, daily and per incident basis for any delay caused by Sun Wai. 


Upon commencement of the works, it transpired that a number of work sites were not properly prepared and Pfeiffer could not proceed in accordance with the agreed schedule. The delay left Pfeiffer’s crew and machinery idle for extended periods and Pfeiffer claimed for damages. Sun Wai’s main defence was that the delay was due to poor condition of existing pipes and unexpected directions by the police to stop work, which were not within their control. 


The Court applied a “but for” test in considering whether the idle periods and the damages flowing from them suffered by Pfeiffer were caused by the actions or inactions of Sun Wai. Zevros J was satisfied on the balance of probability that most of the delays were attributable to Sun Wai’s failure to adequately prepare for Pfeiffer’s installation works and awarded damages for Pfeiffer’s idle times to the extent that the delays were caused by Sun Wai. 


This case is unusual in that the contractor (i.e. Pfeiffer) was seeking to impose liquidated damages for delay costs on its employer (Sun Wai). In effect, Pfeiffer was recovering its prolongation and disruption related costs by reference to a fixed sum that they had provided in their quotation. The advantage to Pfeiffer was that they were not required to prove their losses which can be a significant challenge in such cases. The Court treated this as an ordinary liquidated damages clause and, once it was satisfied that the sum was not a penalty, was prepared to apply the rate set out in the quotation without any further scrutiny.
This case also illustrates how important evidential records can be when making a claim even when the contractor has avoided the difficulty of proving its actual loss. In respect of one particular delay, Pfeiffer’s entire entitlement to claim for the idling time between May 2006 and June 2007 was solely dependent on one letter to show that Pfeiffer’s system had remained idle during that time.


This case is also a cautionary note for employers and main contractors for another reason. Although Pfeiffer’s quotation was incorporated into the Agreement, Sun Wai did not consider that the idling rates would apply and, amongst other arguments, pointed to wording in other contract documents indicating a ‘back to back’ payment basis. The judge described the Agreement as ‘poorly drafted in terms of content and language’ but found on a proper construction that the idling rates applied. Sun Wai’s position would obviously have been different had care been taken to expressly exclude the idling rates from the Agreement or to formulate the contract without inclusion of the quotation.

 

Pinsent Masons

 

For further information, please contact:

 

Grace Fok, Pinsent Masons
[email protected]

 

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