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Construction Law Reports/Volume 10 /Mitsui Construction Co Ltd v Attorney-General of Hong Kong - 10


ConLR 1
10 ConLR 1

Mitsui Construction Co Ltd v Attorney-General of Hong Kong


COURT OF APPEAL OF HONG KONG
SIR ALAN HUGGINS V-P, CONS AND FUAD JJA
19 JANUARY 1984
JUDICIAL COMMITTEE OF THE PRIVY COUNCIL
LORD BRIDGE OF HARWICH, LORD ROSKILL, LORD GRIFFITHS, LORD ACKNER AND SIR JOHN
STEPHENSON
13, 14, 15 JANUARY, 10 FEBRUARY 1986
Tunnelling work - Major discrepancies between estimated quantities of different types of lining and actual
quantities - Whether engineer entitled to agree or fix new rates
O It is a mistake in interpreting a construction contract to pay too much attention to decisions on apparently
similar wording in different contract forms.
O If words are used which are capable both of a businesslike and an impractical construction the
businesslike should usually be preferred. This presumption is stronger when the contract is clearly badly
drafted.
The appellants (Mitsui) entered into an agreement with the Government of Hong Kong for civil engineering
works intended to improve the water supply of Hong Kong. The present dispute concerned the excavation
and construction of a tunnel some 3 227 m long and 3.6 m in diameter from Ma Mei Ho to Nam Chung. It
was impossible to predict in advance the nature of the ground through which the tunnel was to pass. The
contract provided for five different types of lining and for the engineer to decide which type was needed for
particular parts of the tunnel as work proceeded. The bills of quantities contained estimates of the lengths of
each
10 ConLR 1 at 2
type of lining which would be required. In the event these estimates turned out to be quite wrong. So the
billed length to be left unlined was 1 885 m and that in fact left unlined was 547 m; the billed length for the
most expensive lining was 275 m, whereas the actual length of that lining was 2 448 m. As a result of these
unexpected developments work on the tunnel took much longer than expected. The engineer granted an
extension of 784 days.
The contractors had been paid at the bill rates for the amount of linings actually carried out. They contended
that they were entitled to a fresh determination by the engineer of the amount of the rates, The employer
contended that the engineer had no power to agree or fix any adjusted rates. The dispute was referred to

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arbitration and the arbitrator stated a special case for the decision of the High Court.
HELD (by the Hong Kong Court of Appeal, Huggins VP dissenting): The contractor, by entering into a
contract in the form which he had, had agreed to provide so much of each of the kinds of linings as should be
actually required at the quoted rate (see pp. 33-34).
HELD (by the Privy Council): On the true construction of the contract and on the agreed facts the differences
between the measured quantities and the billed quantities were such as to entitle the engineer, if he thought
the amount of the differences was such as to make the billed rate inapplicable, to agree a suitable rate with
the contractor or, in the event of disagreement, to fix a new rate (see p. 45).

SIR ALAN HUGGINS V-P.


Whatever else this case may establish, the civil engineers are likely to think it establishes that they have
adjusted to the needs of the modern world better than the lawyers. The Water Works Office of the Public
Works Department, as it then was, decided to bring water in large quantities from the west of the New
Territories to Plover Cove in the east. A range of mountains stood in the way and it was decided that a tunnel
should be bored through the mountains for the purpose. The contractors were engaged to undertake the
work and it was eventually completed. However, the construction had taken more than four years instead of
the estimated two, and the contractors claimed that they should be paid, pursuant to the terms of their
contract, more than the Government (the employer) considers it is bound to pay. The matter was referred to
an arbitrator, who stated a case for the opinion of the High Court. It is against the decision of the High Court
that the employer now appeals.
As is customary for civil engineering projects of this magnitude, the contract was contained in several
documents, but is was expressly agreed by clause 6(1) of the General Conditions of Contract (the general
conditions) as follows:
10 ConLR 1 at 3
"Except if and to the extent otherwise provided by the Contract the provisions of these Conditions shall prevail over
those of any other document forming part of the Contract."

By clause 1 of the general conditions the "Contract" was defined as meaning.


"The Articles of Agreement, Tender (including the Appendix thereto) and the acceptance thereof by Government,
drawings, Conditions of Contract, Specifications, Bills of Quantities and Schedules of Rates (if any)".

In the event the issues we have to decide arise not from any discrepancies between the different documents
but from an alleged ambiguity in the terms of the general conditions, an ambiguity which the engineer would
not acknowledge, with the result that he declined to certify that the contractor had been involved in an
expense which it had no reason to anticipate.
The tender documents included drawings, specifications and a bill of quantities. From these it appeared that
the tunnel with which we are concerned would be approximately 3 227 m in length "with an unlined diameter
3.30 m". The documents provided for the lining of the tunnel where necessary. The necessity for lining and
the nature of the lining, if needed, depended upon the nature of the ground surrounding the excavation,
which could not be determined with any degree of accuracy before tunnelling commenced. Accordingly six
different designs had been prepared, one for unlined sections of tunnel and five, giving different degrees of
support, for sections of tunnel which would require permanent lining. The decision as to which permanent

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lining (if any) was to be inserted was to be decided by the engineer when the beginning of each new section
of tunnel was reached, and he was given power to change his mind after each section had actually been
excavated. Some geological exploration had been made, but it is common ground that such information as
had been obtained left much uncertainty as to what length of each of the permanent linings would be
required. Nevertheless a bill of quantities had been prepared by the employer and it contained estimates of
the lengths which would have to be constructed. It is the fact that those estimates proved to bear little relation
to the lengths actually required which has led to the present dispute. For example, the estimated length of
the most expensive type of lining was 275 m and the actual length constructed was 2 448 m. The quantity of
steel estimated as being required for the linings was 40 tonnes and the quantity actually used was 2 943.681
tonnes. The contractor's tender quoted rates for all the relevant work done and materials supplied, and these
rates have been paid by the employer, but the contractor contends that the rates were based on the
estimated quantities and are unreasonable for the actual quantities executed, and it says that the engineer
has power to vary the rates accordingly.
10 ConLR 1 at 4
As I understood him, counsel for the employer at the very end of his reply was in effect contending that the
claim for additional payment now made by the contractor was expressly forbidden by clause 15 of the
General Conditions, although he disclaimed any intention to rely on clause 15 for this purpose. Clause 15
reads:
"(1) The Contractor shall be deemed to have inspected and examined the Site and its surroundings and to have
satisfied himself, before submitting his Tender, as regards existing roads or other means of communication with and
access to the Site, the nature of the ground and sub-soil, the form and nature of the Site, the risk of injury or damage to
property adjacent to the Site or to the occupiers of such property, the nature of the materials (whether natural or
otherwise) to be excavated, the nature of the work and materials necessary for the completion of the Works, the
accommodation he may require and generally to have obtained his own information on all matters affecting his Tender
and the execution of the Works.
(2) No claim by the Contractor for additional payment will be allowed on the ground of any misunderstanding or
misapprehension in respect of the matters referred to in sub-clause (1) or otherwise or on the ground of any allegation
or fact that incorrect or insufficient information was given to him by any person whether in the employ of Government or
not or of the failure on his part to obtain correct and sufficient information, nor shall the Contractor be relieved from any
risks or obligations imposed on or undertaken by him under the Contract on any such ground or on the ground that he
did not or could not foresee any matter which may in fact affect or have affected the execution of the Works."

It was certainly suggested that the contractor was making its claim because the rates quoted were based
upon the estimated quantities, that it would have quoted higher rates if it had appreciated that the nature of
the ground and subsoil was as it was found to be, that the quotation of the lower rates was due to the
contractor's failure to obtain correct and sufficient information and that the claim was therefore made "on the
ground of [a] misunderstanding or misapprehension in respect of the matters referred to in sub-clause (1) ...
or on the ground of ... failure on his part to obtain correct and sufficient information". If that was in truth being
advanced as an argument for rejecting the contractor's claim in limine, I would reject it on two grounds. First,
such a contention had not been advanced before and it was too late to raise it by way of reply on an appeal.
Secondly, for reasons which I will have to elaborate later, I think this contract was concluded on the basis that
it was not reasonably practicable to obtain "correct and sufficient information" in the sense of precise
information which would enable the contractor to know in advance what lengths of each type of lining the
engineer might properly
10 ConLR 1 at 5
order. I do not accept that the present is the sort of claim which is forbidden by clause 15(2).
It is unquestionably part of the employer's case that the claim was barred by clause 65(4) of the general
conditions by reason of the granting of an extension of time for completion of the Works. It is common ground
that the engineer did issue an order extending the time. It was in these terms:

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Water Supplies Department, Hong Kong


Additional Water Supply from East River - Stage II Title Pipelines & Tunnels from River Indus
Pumping Station to Plover Cove Contract No 620 of 1977 Variation Order No 16
To Mitsui Const Co Ltd
Ref WWO(K) 11/920/77
Rm 1627 Ocean Centre
5 Canton Road
Date 6 September 1982
Kowloon

Please execute Works as set out below.


This Variation Order amounts to an estimated increase/decrease in the contract sum of Nil
The Contract Period is increased by 784 days. Revised Date for completion of Contract 31 May 1983 Description Of
Works:
The extension of time is granted as special circumstance under clause 65(2) of the General Conditions of Contract to
compensate for the extra time required to cope with ground conditions in executing the tunnel excavation and lining
works as follows:
Tunnel excavation
(WSD letter ref (116) in WWO(K) 12/920/77 dated 18.5.81)
Tunnel lining
(WSD letter ref WWO(K) 12/920/77 Part II dated 23.8.82)
Total
Signed (Lee Gun-cheung)
Chief Engineer/Construction
Water Supplies Department

304 days
480 days
784 days

The contractor's claim, it is then argued, was framed in paragraph 4 of the contractor's brief to the arbitrator
as one for compensation for "reasonable and proper payment for the costs of that extra time, principally
under clause 74(4) and (5) of the conditions of contract". Clause 65(4) of the general conditions reads:
"Any extension of time granted by the Engineer to the Contractor shall, except as provided elsewhere in the Contract,
be deemed to be in full compensation and satisfaction for and in respect of any actual or probable loss or injury
sustained or sustainable by the Contractor in respect of any matter or thing in connection with which such extension
shall have been granted and every extension shall exonerate the
10 ConLR 1 at 6
Contractor from any claims or demands on the part of Government for or in respect of any delay during the period of
such extension but no further or otherwise nor for any delay continued beyond such period."

Therefore, counsel argues, the contractor has expressly agreed that the compensation claimed should not be
payable. As I understand it, the contractor has now formulated its claim as one for loss related to, but not
necessarily arising directly from, the extra time required. In the event nothing turns upon what might be
described as a pleading point, because clause 65(4) is limited by the words "except as provided elsewhere in
the contract".
The issues stated for the determination of the judge and falling for our decision on the appeal and crossappeal were as follows:
(A) Whether on the true construction of the contract the contractor is entitled to further compensation for any
losses sustained by reason of the extra time required to cope with ground conditions.

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(B) Whether on the true construction of the contract the site instructions referred to in paragraph 5 of the
statement of agreed facts were variation orders for the purpose of clause 73 of the general conditions.
(C) Whether on the true construction of the contract an excess of executed over billed quantities as set out in
the statement of agreed facts, without having been ordered by the engineer as a variation, is within clause
74(4) of the general conditions.
The judge dealt first with issue (C) and we were invited to do the same. It must be borne in mind that issue
(C) only arises if a negative answer is given to issue (B), for issue (C) presupposes that
"An excess of executed over billed quantities as set out in the statement of agreed facts [has not been] ordered by the
engineer as a variation".

The judge, when embarking on his consideration of issue (C), stated it without the words which I have
emphasised, i.e. he assumed that the particular excesses with which we are concerned had not been
ordered by the engineer, although it is, of course, true that he did eventually give a negative answer to issue
(B). It has been the contractor's contention, first, that the excesses were ordered by the engineer as
variations and, secondly, that even if they were not so ordered they were "within clause 74(4) of the General
Conditions".
It is important to bear the two contentions in mind throughout.
The contractor's claim is made under clause 74(4) of the general conditions, but for a proper understanding
of the argument it is necessary to set out the fasciculus of clauses of which this forms part:
"73(1) The Engineer shall make any variation of the form, quality or quantity of the Works or any part thereof that may
in his opinion be necessary for the completion of the Works and for that purpose or, if
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for any other reason it shall in his opinion be desirable, shall have power to order the Contractor to do, and the
Contractor shall do, any of the following:
(a) increase or decrease the quantity of any work included in the Contract;
(b) omit any such work;
(c) change the character or quality or kind of any such work;
(d) change the levels, lines, position and dimensions of any part of the Works;
(e) execute Additional Works and Extra Works;
and no such variation shall vitiate or invalidate the Contract but the value (if any) of all such variations shall be taken
into account in ascertaining the amount of the Final Contract Sum.
(2) No such variation shall be made by the Contractor without an order in writing from the Engineer:
Provided that

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(a) no order in writing shall be required for any increase or decrease in the quantity of any work where such increase or
decrease is not the result of an order given under this clause but is the result of the quantities exceeding or being less
than those stated in the Bills of Quantities;
(b) if for any reason the Engineer shall consider it desirable to give any such order verbally the Contractor shall comply
with such order and any confirmation in writing of such verbal order given by the Engineer whether before or after the
carrying out of the order shall be deemed to be an order in writing within the meaning of this clause; and
(c) if the Contractor shall confirm in writing to the Engineer any verbal order of the Engineer and such confirmation shall
not be contradicted in writing by the Engineer before the commencement of the work concerned it shall be deemed to
be an order in writing by the Engineer.
74(1) The Engineer shall determine the amount, if any which in his opinion shall be added to or deducted from the
Contract Sum in respect of any Additional Works or Extra Works done or work omitted by his order.
(2) All Additional Works or omitted work shall be valued at the rates set out in the Contract.
(3) All Extra Works shall be valued at rates agreed upon between the Engineer and the Contractor.
(4) If the nature or amount of any omission or addition relative to the nature or amount of the Works or to any part
thereof shall be such that in the opinion of the Engineer the rate contained in the Contract for any item of the Works is
by reason of such an omission or addition
10 ConLR 1 at 8
rendered unreasonable or inapplicable then a suitable rate shall be agreed upon between the Engineer and the
Contractor.
(5) In the event of disagreement the Engineer shall fix such rates as shall in his opinion be reasonable and proper.
75 No increase of the Contract Sum or variation of rate under Clause 74 shall be made unless as soon as is
practicable, after the date when the order was given under clause 73 and, in the case of Additional Works or Extra
Works before the commencement of the work or as soon thereafter as is practicable, notice shall have been given in
writing-(a) by the Contractor to the Engineer of his intention to claim extra payment or a varied rate; or
(b) by the Engineer to the Contractor of his intention to vary a rate as the case may be:
Provided that no notice shall be required in respect of Additional Works and omitted works where such works are to be
measured as constructed."

It will be seen at once that these clauses deal with "variations" and "additions", so that the question
immediately arises: variations and additions to what? It is this question which is the root of the three issues
which have been formulated for our opinion. The contractor submits that what Mr Waller has called "the
norm", but which I prefer to refer to as "the base", is the quantity of work as estimated in the bill of quantities,
whereas the employer says that it is the quantity of work necessary to construct the tunnel in the form in
which it was contemplated at the time the contract was made. On the employer's case, therefore, the
contractor's quoted rate for each item in the bill of quantities is applicable and conclusively binding even
though the estimated quantities were greatly exceeded, whereas the contractor contends that it ceases to be
conclusively binding if the estimated quantities are so far exceeded that the rates become unreasonable.
Here, the contractor alleges, the rates have become unreasonable, and it is argued that it matters not why
they have become unreasonable - whether as a result solely of the extra time necessary to do the work or as
a result of a combination of that with other reasons, e.g. the expense of handling the extra materials required.

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Since many of the terms used in the general conditions have been defined in clause 1, I must set out those
which are important to the argument:
"Additional works" means all such works which in the opinion of the engineer are of a character similar to
those contemplated by the contract and which can be measured and paid for under items in the bills of
quantities or schedule of rates.
"Contract sum" means the sum named in the articles of agreement for the construction, completion and
maintenance of the works.
10 ConLR 1 at 9
"Extra works" means all such works as are not, in the opinion of the engineer, of a character similar to those
contemplated by the contract and which cannot be measured and paid for under items in the bills of
quantities or schedule of rates.
"Final contract sum" means the contract sum subject to such additions thereto or deductions therefrom as
may be made under the provisions hereafter contained.
"Works" means all the work and things to be executed or supplied by the contractor under the contract and
includes temporary works.
"The works" are differently defined in the recitals to the articles of agreement, which suggest that this was to
be a lump-sum contract. The definition for the purpose of those articles is:
"The Works shown on the Drawings and described in the Specifications and set forth in the Form of Tender (including
the Appendix, thereto) and the Acceptance thereof by the Government, Bills of Quantities and/or Schedule of Rates."

The difficulty here is that "the Works shown in the Drawings and described in the Specifications" and "set
forth in the Form of Tender ... and the Acceptance thereof are not the same as those "set forth in Bills of
Quantities". However, the operative words of the articles of agreement suggest that "the Works" for the
purpose of the articles are all the works as defined in the general conditions other than "Extra Works and
Additional Works as may be ordered or required under the said Conditions". The operative words are
inconsistent with a lump-sum contract, because the consideration expressed ignores the recited lump sum,
the "Contract Sum" of the general conditions not being a sum of which payment was to be made. When all
the documents forming "the Contract" are considered, there is no room to doubt that this was a remeasurement contract, but that is in no way inconsistent with the contractor's argument as to what
constitutes a variation. Indeed, the articles appear to contemplate "Additional Works" which are only
"required" and not "ordered" under the general conditions.
As is customary in definition provisions, the definitions in the general clauses apply "except when the context
otherwise requires" and it is obvious that the context requires different meanings to be assigned to the word
"works" on the first two occasions on which it is used in clause 73(1). The meaning assigned by the definition
clause is appropriate on the second occasion but not on the first: "the Works" first referred to are the base for
the variations (if any) which will produce "the works" as defined. Equally, the word "contract" in paragraph (a)
cannot mean the contract as defined in clause 1.
Both counsel submit that their construction of clauses 73-75 produces a fair result. On the other hand it is
said that, as the contractor had agreed to insert any of the linings shown in the drawings upon receipt of

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10 ConLR 1 at 10
information from the engineer as to which he had chosen, the contractor had assumed the risk that the
engineer would find it necessary, by reason of the ground met during tunnelling, to direct more of the
stronger lining than had been estimated, so that it was fair that the contractor should be held to his tender
rates, for he should have tendered on that basis. On the other hand it is said that in a civil engineering
contract of this kind, where accurate assessment of the conditions underground was recognised to be
impracticable and the contract itself gave unilateral power to the engineer to choose which lining was to be
used, the parties cannot have intended in effect to embark upon a gigantic gamble: the greater the obvious
risk of gross errors in the bill of quantities, the more likely the parties would be to make provision for re-rating.
Both parties accept that the aim of the court must be to ascertain their intentions as revealed by the contract
documents, yet it must be remembered that, if events have operated upon the contract to produce a result
which is disadvantageous (even severely disadvantageous) to one party upon a proper construction of the
contract, that does not necessarily mean that the contract itself was unfair. If we assume for a moment that
the construction contended for by the employer is correct and that the contractor knew it to be correct when
invited to tender, there were two alternatives open for the avoidance of the risk to which Mr Waller refers:
either the contractor could have refused to tender on the basis of a contract which may well not be suitable to
this kind of subterranean work or it could have quoted different rates for quantities in excess of those
estimated in the bill of quantities. If, as Mr Waller suggested, the latter alternative involved such massive
calculations as to make it impracticable, a prudent contractor would have adopted the first alternative. The
whole foundation of the contractor's case was the inherent uncertainty which existed at the time the contract
was made as to the amounts of labour and materials which it would be called upon to provide: so in effect we
are asked to approach the contract with the thought that no contractor in his right mind would have agreed
and, in the event, to say that the parties must have intended something different. I am well aware that
authority can be found for an approach which amounts to this, that the court should ask itself what it would
like to decide, or in other words, what it would itself have been prepared to agree if it had been in the shoes
of each of the parties in turn, and then to construe the written terms accordingly, but that appears to me to be
a dangerous and fundamentally wrong approach. One must start with the written terms and give to them their
natural and ordinary meaning, if they have one. The assumed intention may be a guide, but it must never be
the master. For the reasons I have just given I do not think that either construction argued before us makes
such commercial nonsense that it cannot possibly be correct.
I do not think the argument has been assisted by references to a
10 ConLR 1 at 11
"lump-sum contract" and to a "contract for an unlined tunnel". As I understand it, a lump-sum contract is one
in which a lump sum is agreed for the completion of the entire project, although provision may be made for
an increase or decrease if the employer changes his mind during the course of the construction as to what
he requires: see Mr I. N. Duncan Wallace QC on the ICE Conditions of Contract (5th edition) at p. 306, where
the author indicates that such contracts are used where "the work is capable of more precise estimation".
The contractor has not suggested that this was a lump sum contract but only that a lump sum was agreed for
the work quantified in the bill of quantities, which quantification was never intended to be more than a basis
for subsequent calculation. Again, it has never been suggested by the contractor that this was a contract for
an unlined tunnel: what Mr Waller submits is that if the engineer had failed to give information as to his
requirement of permanent lining the contractor could have gone ahead on the basis that no permanent lining
was required, and from this he went on to argue that any direction to insert a section of permanent lining was
a "variation order". (For reasons which I will give later I am not persuaded that the contractor was ever
entitled to assume that no permanent lining was required and to proceed accordingly: it was intended that the
engineer should not only indicate which lining was to be inserted where a lining was required, but also
indicate that no lining was to be inserted where he thought a lining was not required.) Yet again, I am unable
to agree that the contractor's argument would even turn the contract into a "cost-plus contract", for it is only
when a quoted rate is thought by the engineer to be unreasonable or inapplicable that another rate can be
applied under clause 74(4).
The judge came to the conclusion that, if clauses 73-75 were construed without reference to clauses 13 and

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14, they showed an intention not to cover those "increases" which consisted of the differences between the
billed quantities and the executed quantities necessarily flowing from the giving by the engineer of
information as to which of the several alternative lining designs shown in the tender documents he had
selected for each section of the works. There is a danger in the present case in referring to such increases
as "automatic increases". That phrase was used in Grinaker Construction (Transvaal) (Pty) Ltd v Transvaal
Provincial Administration (1982) (1)SA(A) 78; 20 BLR 30 to mean any increase of the quantities shown in the
bill of quantities which was not due to a variation order. In that case there was no question of the engineer's
choosing between alternative designs and therefore no issue whether the giving of information as to the
choice of design was a "variation order". I shall refer to the type of increases with which we are concerned as
"choice of design increases" and the works to which they relate as "choice of design additions".
Although the judge would have construed clauses 73-75 in favour of
10 ConLR 1 at 12
the employer had they stood in isolation, he thought that clause 13 changed the whole tenor of the
agreement and showed that choice of design additions were "additions" in respect of which "suitable rates"
could be agreed under clause 74(4). His initial approach to clauses 73-75 followed that adopted by the
Supreme Court of South Africa (Appellate Division) in Grinaker, and I do not think Mr Waller was disposed to
challenge the correctness of that decision. There the project was the construction of a road and appurtenant
works. Clause 49 of the contract contained the substance of our clauses 73-75 in five sub-clauses. As in the
present case there was a bill of quantities containing estimates of each item of work that would be required.
As in the present case there were terms in the agreement which left no doubt that the quantities stated in the
bill of quantities were merely estimates and that the quoted rates were to be applied to the measured
quantities necessary to complete the project in accordance with the drawings and specifications. The
estimates turned out to be bad estimates and the contractor sought payment on the basis of other rates to be
fixed in accordance with a provision comparable to our clause 74(4). It was held that, as the increases in
respect of which the contractor claimed were due not to orders varying the quality or quantity of the work to
be done but to inaccurate estimation, no re-rating was possible under the terms of the contract. The court
said that the basic flaw in the argument on behalf of the contractor was that it equated a variation of the
quantity of the works as envisaged in the equivalent of our clause 73(1) with an increase of the quantities
shown in the schedule of quantities. I think, with respect, that most of the reasoning of the court was
unassailable, although I question whether the words "for that purpose" in that sub-clause should (as was
suggested) have read "if for that purpose": the paragraph was grammatically and sensibly correct as it stood.
Beyond pointing out (1) that under the contract in that case there was a limitation which prevented the
engineer from ordering higher rates for work covered by a variation order unless that work constituted a
specified proportion of the whole works and (2) that there could be a re-rating only if the contractor produced
evidence of "loss or damage", I do not think it is necessary to detail the contractual terms, and I merely cite
this passage from the judgement at (1982) (1)SA(A) 85
"The scheme of clause 49 demonstrates that it deals solely with variations emanating from orders made by the
engineer in respect of the matters set out in clause 49(1)(a) and the rights of the contractor emanating therefrom. This
concept dominates clause 49 and regulates the subsequent unilateral variations by the engineer of the contract and is
not concerned with a difference on measurement concept. The 20 per cent margin in clause 49(1) was intended to
grant a measure of protection to the contractor against such unilateral orders of the engineer made after the conclusion
of the
10 ConLR 1 at 13
contract and the reference to such 20 per cent and 25 per cent must be read within the context of clause 49, i.e. a
variation order issued by the engineer as aforesaid. That clause 49 deals with variation orders issued by the engineer
(and not 'an increase or decrease in quantity of any work where such increase or decrease is not the result of an order
given under the aforesaid clause 49, but is the result of the quantities exceeding or being less than those stated in the
schedule of quantities') (the difference on measurement concept) appears not only from the express wording of clause
49(1) and (3) but also from the fact that it is inconceivable that notice in terms of clause 49(5) would be required as a
precondition to a claim by the contractor in respect of such increase or decrease in respect of the difference on
measurement concept. Furthermore, the provisions of clause 49(5) require an order and a date; this provision is totally
inapposite to the appellant's contentions. Moreover, clause 49(4) provides that, in the case where the margin of 20 per
cent or 25 per cent is exceeded, the engineer shall fix other rates or prices subject to the production of satisfactory
evidence that loss or damage has been sustained by the contractor 'as a result of such variation or variations'. It is

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inconceivable that the contractor can sustain 'loss or damage' in a legal sense simply as a result of a difference on
measurement. The whole basis of the contract is that the contractor would execute the contract works irrespective of
the actual quantities involved in carrying them out."

At this point I must say two things about the argument of the contractor to the effect that clauses 13 and 14
alter the whole tenor of the agreement in our case. First, the argument is based upon the interpretation of
"variation" in clause 73(1) and, as we have just seen, does not necessarily conflict with the decision in
Grinaker, because of the distinction between "automatic increases" and "change of design increases" which I
have already drawn. An automatic increase is one for which no variation order is required and Mr Waller's
submission is that a giving of information as to a lining required is a variation order. Secondly, not only
clauses 13 and 14 but also 73-75 must be construed in the light of the entire contract. If "variation order" had
been expressly defined in clause 2 as including in all contexts, and in particular in clause 73(1), a notice
giving information as to which of the specified linings was required, it could hardly be said that the result
contended for by the contractor was impossible. We shall, therefore, have to consider whether clauses 13
and 14 were intended to have the same effect as such a definition.
I now set out those clauses:
"13. When Bills of Quantities are included in the Tender documents the quality and quantity of the work included in the
Contract Sum shall be deemed to be that which is set out in the Bills of Quantities. 14. When Bills of Quantities are not
included in the Tender
10 ConLR 1 at 14
documents the Contractor shall, prior to signing of the Contract, provide the Engineer with three copies of a fully priced
and detailed Schedule of Rates and the approximate quantities which formed the basis of the Contract Sum, and the
quality and quantity of the work included in the Contract Sum shall be deemed to be that which is shown in the
Drawings or described in the Specification."

Since a bill of quantities was included in the tender documents in the present case, it is clause 13 which is
directly applicable. The effect of it, the contractor argues, is that the quantities estimated in the bill of
quantities became the base for any variations or additions. The obscurity of the clause is not reduced by the
obvious confusion between the work and the price to be paid for the work: the contract sum is a sum of
money and neither the nature nor the quantity of work can be described in terms of money. Nevertheless Mr
Waller contends that whatever the clause was intended to mean, it must have been more than a mere
repetition of the definition of the contract sum in words referable to the works rather than to the price: had
that been the intention the draftsman need not have mentioned "the quality and quantity of the work", nor
would it have been necessary to "deem" something which was a fact: he could merely have said: "When bills
of quantities are included in the tender documents, the contract sum shall be the sum obtained by adding
together the quotations for all the quantities estimated in the bills of quantities."
Although Mr Graham was unwilling to agree that the clause could, if his construction were correct, equally
well have been drafted in that form, he was unable to suggest why the draftsman should have used the
words which cast doubt upon that construction. I do not, of course, overlook the fact that a business contract
is not to be construed with the strictness of a statute, but a contract which reflects an attempt to attain
precision may fairly be construed more strictly than one that does not. The employer's argument, it seems to
me, does fail to give any meaning whatever to substantial parts of clause 13. The Contractor's argument, on
the other hand, gives some meaning to the whole sub-clause, even though the suggested intention could
have been more clearly expressed.
That suggested intention can be summarised as follows. The distinction between clauses 13 and 14 is that,
in the one, bills of quantities are included in the tender documents and, in the other, they are not: where they
are included, they regulate the quality and quantity of the work covered by the contract sum and, where they
are not included, the quality and quantity of the work covered by the contract sum are regulated by the

Page 12

drawings and specifications. What difference does it make which document regulates the quality and quantity
of the work covered by the contract sum? Or, to put the question in another way, what is the relevance of the
quality and quantity of work covered by the contract sum? Mr Graham's argument does not satisfactorily
answer
10 ConLR 1 at 15
these questions. As we have seen, he suggests that clauses 13 and 14 do no more than repeat what is self
evident from the definition of contract sum and, to use his own words, that clause 13 "means that the
contract sum is the grossed-up total of the priced items in the bill of quantities". He goes on to explain why
the bill of quantities contains estimated quantities and cites from Duncan Wallace on The ICE Conditions of
Contract, 5th edition at p. 307, to show what are "the three quite separate contractual functions" of a bill of
quantities in the modern English contract of which quantities form part,
"Namely (a) as a basis for valuing variations, (b) as a basis for assessing interim payments and (c) as a
basis for producing a final re-measurement or re-calculation of the ultimate contract sum, whether or not the
work has been varied."
The author continues:
"This last function, with which the present article is primarily concerned, is frequently confused, even by the most
ardent and experienced protagonists of bills of quantities, with the variation valuation function, and it is of cardinal
importance to understand the distinction. How the ultimate quantities can differ from the original contract quantities
independently of any variation of the work being called for may at first sight seem puzzling, but broadly speaking, this
can happen in two ways. Firstly, while wherever possible the rules for measuring quantities enable them to be
calculated with precision from the drawings and specification without any need for physical measurement on site, the
precise quantities of some work items cannot be the subject of exact calculation beforehand and often will need
physical measurement - e.g. the removal of soft or unsatisfactory material from excavations and the substitution of
imported fill, which will depend upon the ascertainment of the suitability of the subsoil after excavation has taken place,
and on physical measurement or estimation of the quantities of unsuitable material ultimately replaced. Again, separate
prices may be included for excavation in rock where found, which obviously cannot be determined precisely
beforehand. This type of difference in quantities is particularly to be expected in civil engineering contracts, or in the
'engineering' parts (i.e. excavation, for example) of building contracts, and can at times be relatively substantial.
Secondly, there may simply have been errors in 'taking-off' or estimating the quantities from the contract drawings or
other documents when preparing the bills. In a large and complicated project this can easily happen."

It is true that in the present case separate prices were quoted for each of the linings and it obviously could
not be determined beforehand how much of each would be required, but the case contemplated by Mr
Duncan Wallace was not one where a unilateral decision lay with the
10 ConLR 1 at 16
engineer: the applicability of a particular rate quoted depended on a simple issue of fact - rock or no rock?
Here the applicability of the quoted rates depended upon the opinion of the engineer and it was an opinion
which he was expressly allowed to change while the excavation was in progress. Mr Waller does not, I think,
challenge the assertion that there are three quite separate contractual functions of the bill of quantities: he
confines himself to saying that clause 13 would not be necessary if it were not in order to establish what is a
variation for the purpose of function (a). The contract sum is defined in clause 2 and no further provision is
required to show how that is to be arrived at: the estimated quantities are admittedly necessary for that
purpose and clause 13 was not necessary to make them so. He submits that the only possible intention of
clauses 13 and 14 is to establish the base for the determination of variations and additions. A comparable
provision was not required in the contract in Grinaker because there could be no doubt what was the base for
the determination of variations and additions or, therefore, what constituted a variation or addition. In cases
of the kind we have here the draftsman needed to make it clear whether a change of design addition was or
was not a variation and clauses 13 and 14 were inserted for that purpose.
I think we must assume that clauses 13 and 14 were not inserted merely to be repetitive and to state the

Page 13

obvious, unless any possible alternative construction raises insoluble conflict with other parts of the contract.
Mr Graham contends that there is such conflict. First he submits that the contractor's construction conflicts
with the clear intention that the quantities indicated in the bills of quantities were to be treated as estimates
only. Indeed, it is beyond doubt that the contractor must have been fully alive to the fact that there might be
differences between the estimated quantities and the quantities measured for remuneration purposes. The
"contract sum" here was 82 816 657 and one thing is certain: no one expected that that was the precise
sum which would be paid: it was, to use Rhind J's words, a figure "which was arrived at by a totting up
exercise after multiplying the quantities shown in the bills of quantities by the unit rates quoted by the
contractor". (I shall refer to those rates as "quoted rates"). Equally, no one has suggested that, if the
contractor had stopped work as soon as it had put in all the quantities shown in the bills of quantities, it would
have fulfilled all its obligations. That the quantities shown in the bills of quantities were intended to be nothing
more than a rough estimate was made abundantly clear in several places. We can start with the preamble to
the bill of quantities itself, paragraph 3 of which reads:
"The quantities of works and materials in the Bill of Quantities are approximate only and shall not be considered as
limiting or extending the work to be done and the materials to be supplied by the Contractor. All the work done and
materials supplied by the
10 ConLR 1 at 17
Contractor will be measured and paid for at the rates quoted in the Bill of Quantities."

That is echoed by clauses 91 and 92(1) of the general conditions:


"91. The quantities set out in the Bills of Quantities are the estimated quantities of the Works but they are not to be
taken as the actual and correct quantities of the Works to be executed by the Contractor in fulfilment of his obligation
under the Contract.
92. (1) The Engineer shall, except as otherwise stated, ascertain and determine by measurement the value in
accordance with the Contract of work done in accordance with the Contract."

Next Mr Graham says, the contractor's construction conflicts with the provisions which
"fixed the Contractor with knowledge of the nature of the sub-soil: if the Tender was submitted on the basis of an
assumption of knowledge of the ground through which the tunnel would pass it could not have been intended to treat a
choice of lining as a variation".

Here he points to section 1.13 of the particular specification, to clause 15 and to the recital in the form of
tender to this effect that the contractor has "inspected the site".
Thirdly, the contractor's construction is said to conflict with the natural construction of clauses 73-75 as a
comprehensive scheme for dealing with what may be described as "specification variations", all the linings
having been included in the specification and drawings.
I must deal with each of these alleged conflicts in turn. For my part I do not see any difficulty arising from the
fact that this was a re-measurement contract. The "additions" referred to in the definition of final contract sum
include, first, increases of quantities due to underestimation in the bills of quantities. By virtue of clause 92
the engineer was responsible for measuring the work actually done. If that work were no more than had been
"contemplated by the contract", the work would be paid for strictly in accordance with the rates set out in the
bills of quantities but based on the actual measurements instead of on the estimates in the bills of quantities.
Thus the estimated quantities have, prima facie, no relevance to the calculation of the final contract sum. The
"additions" could also include works ordered by the Engineer but not contemplated by the parties at the time
of the contract: "additional works" and "extra works". The contractor does not suggest that, if the engineer
does not consider the tender rates "unreasonable or inapplicable", they are otherwise than the rates which

Page 14

ought to be paid. All that is sought is a declaration that the engineer has power to apply other rates if he is of
opinion that the tender rates are unreasonable or inapplicable. The appropriate rate, whatever it may be, is
admittedly to be applied to the quantities as measured and to regard Mr Waller's argument as
10 ConLR 1 at 18
implying that this was a lump-sum contract is to misunderstand it. There is no conflict here. I recognise that
any re-rating would apply to the billed quantitites as well as to the excess over the billed quantities, but that is
a matter which the engineer would doubtless bear in mind when fixing a "suitable rate".
The second alleged conflict, which amounts to an argument of imputed knowledge, is allied to the
submission referred to at the beginning of this judgement to the effect that a claim for additional payment was
expressly forbidden by clauses 15 and 65(4). I set out clauses in that connection and now need only add
section 1.13 of the particular specification:
"The geological information given in Appendix II was prepared from field observations, drilled cores and bored samples,
these latter are available for inspection at the WWO depot at Argyle St, Kow-loon. Government does not guarantee this
information and the Contractor shall satisfy himself on his own responsibility as to the extent which the information
represents the conditions to be encountered. (Drilling Contractors used for site investigation: (1) Enpack Ltd (2)
Gammons SI Div)."

The employer cannot have it both ways: either this is essentially a re-measurement contract or it is not. If it is
and if, as is admitted, both sides were well aware of the impossibility of ascertaining in advance what
conditions would be met in the course of tunnelling, it would need very clear language to show an intention
on the part of the contractor to contract on the basis of assumed knowledge. I am not persuaded that clause
15 was intended to relate to the ground along the site of the tunnel at all: it concerned an examination of "the
site and its surroundings" and imputed to the contractor only such knowledge as such an examination by a
competent contractor would reveal. Section 1.13 merely provided that the geological information supplied by
the employer was not a representation upon which the contractor was entitled to rely: he was to satisfy
himself as to the extent to which that information represented the conditions to be encountered. That was a
very different thing from deeming the contractor to know what conditions would be encountered - knowledge
which, as is to be inferred from the terms of the contract itself, no one could ascertain until each section was
reached. Moreover, even precise knowledge of "the conditions to be encountered" would not enable the
contractor to say with certainty which particular lining the engineer would consider appropriate to those
conditions. Mr Graham then relies on section 2.6.18 of the particular specification, the first two paragraphs of
which are in these terms:
"In accordance with clause 15 of the Conditions of Contract the Contractor shall be deemed to have ascertained the
general nature of the ground through which the tunnels will be constructed and must
10 ConLR 1 at 19
make allowance in pricing the Bill of Quantities for the probability of meeting dykes, fault zones, water bearing ground
and for any contingency which may be expected.
Excavation for all tunnelling will be paid for by the linear metre. Where the engineer considers that the ground requires
minimum temporary support for bad ground, he shall define the tunnel as being in 'bad ground'. Where tunnelling is not
classified by the engineer as being in 'bad ground' the contractor shall nevertheless provide such support as he
considers necessary for the safety of the works and the rate of tunnelling shall allow for such costs. From the portal
faces a minimum of 10 m will be classified as tunnel in 'bad ground'."

This might at first sight appear to support the employer's contention, but two things need to be noticed. First,
the contractor is not to be deemed to have ascertained what could obviously not be ascertained but only "the
general nature of the ground through which the tunnels will be constructed". Secondly, what has to be
allowed for is "the probability" of meeting difficulties and for any contingency "which may be expected". In my
view that falls far short of making allowance for any possible difficulty which could be met and for any

Page 15

contingency whether expected or unexpected: it is common case that the problems experienced were neither
probable nor expected. The rates quoted did make allowance for the probable and expected conditions and I
am not persuaded that the intention of the parties was "very clear indeed" that all risks arising from bad
ground were to be borne by the contractor. The second paragraph of the very section shows that the parties
were contracting on the basis that the extent of the bad ground was uncertain and would be defined as the
excavation proceeded.
Two other provisions must be referred to in relation to this argument of imputed knowledge. First clause 16
reads:
"The Contractor shall be deemed to have satisfied himself before tendering as to the correctness and sufficiency of his
Tender for the Works and of the rates stated in the priced Bills of Quantities and the Schedule of Rates, if any, which
rates shall except in so far as it is otherwise provided in the Contract, cover all his obligations under the Contract and
all matters and things necessary for the proper completion and maintenance of the Works."

This, again, is said to show that the contractor has assumed all the risks arising from the ground conditions. I
do not think it does so. The words "except in so far as it is otherwise provided in the contract" indicate that
the quoted rates do not necessarily cover all the contractor's obligations under the contract. Moreover, the
tender was not for "the Works" as defined in clause 1 but for "the Works" as understood in the articles of
agreement. It begs the question we have to decide to say that those words include the works made
necessary by choices of lining. The contractor
10 ConLR 1 at 20
does not deny that it must be deemed to have satisfied itself as to the correctness and sufficiency of its
tender for the quantities of works specified in the bill of quantities.
Section 1.15 of the particular specification is also relied upon. It reads:
"The Contractor shall fulfill all the requirements and obligations of all clauses of the Conditions of Contract and
Specifications. Rates tendered in the Bill of Quantities shall be deemed to include for everything necessary to provide
complete and finished work to the full intent of the Drawings and all work shall be complete and ready for use to the
entire satisfaction of the Engineer without extra payment."

I am not clear what is the significance of the word "for" after "include", but I cannot see that the paragraph
could possibly assist the employer's argument. The drawings do not indicate the lengths required of each of
the lining designs. In so far as the lengths do not grossly exceed the quantity estimated in the bill of
quantities it is not disputed that the quoted rates "include everying necessary to provide complete and
finished work to the full intent of the Drawings". The paragraph is not inconsistent with the contention that the
engineer has power to apply different rates if the measured lengths are such that the quoted rates are
rendered unreasonable and inapplicable.
The third alleged conflict requires us to consider in detail clauses 73-75. It is with "Variations" that clause 73
is concerned. Information as to which of the specified linings was required was without doubt necessary for
the completion of the works and it would be unreasonable to view the contract in the light of a supposition
that the contractor could complete the works in the absence of any such information. It is true that section
2.6.30 of the particular specification does not expressly say that the contractor will be informed if no
permanent lining is required. The section is in these terms:
"Whilst tunnel driving is in progress the Engineer will order the type of permanent lining to be subsequently installed
and separate items for excavation are provided according to the type of lining ordered. The Contractor will be informed
of the type of permanent lining required for a length of tunnel immediately before it is drilled for blasting and separate
items are provided in the Bill of Quantities for additional costs arising from this decision being changed after the length
has been excavated.

Page 16

These items shall include for all additional overbreak filling, relocation of services, survey work and other necessary
work and excavation necessitated by the change of decision."

It seems to me that this shows an intention not only that the contractor would be informed of the type of
permanent lining required where the
10 ConLR 1 at 21
engineer thought that permanent lining was required, but that it would be informed if the engineer thought
permanent lining was required. The parties appear to have been of that opinion, since we find (for example in
site instructions Nos 65 and 79) directions to excavate for unlined sections. Mr Graham contends that to
regard the making of a choice of specified lining as a "variation" was prima facie to stretch the ordinary
meaning of that word; he would have us hold that such a choice was not a variation because, whatever the
choice made, the resulting work was no more than was contemplated by the parties at the time of the
agreement.
The only indication I have been able to find as to what is normally understood by architects and civil
engineers as a "variation" is to be found in Hudson's Building and Engineering Contracts (10th edition) at p.
506:
"Works which are not expressly or impliedly included in the original contract and, therefore, are not included in the
contract price, are generally termed variations, whether they represent a change or alteration of the original work, or
simply an addition to or omission from it, and may occur without authorisation by the employer or his architect, in which
case they will be a breach of contract by the builder, or may be ordered by the employer or his architect."

Mr Graham says that the linings were expressly or impliedly included in the original contract "and therefore ...
included in the contract price", but Mr Waller says that, although it may be that they were expressly or
impliedly included in the original contract, they were not included in the contract sum save to the extent of the
quantities stated in the bill of quantities and he equates "contract sum" to Hudson's "contract price". On
balance I incline to the view that choice of design increases would not normally be regarded as variations
any more than would the automatic increases in Grinaker. I think it would be difficult to regard the giving of
information as to the choice of lining required to be a variation order where the result was an excess over the
quantity specified in the bill of quantities for a particular lining and not a variation order where it was not. It is
also to be noted that choices of lining were in practice notified in the form of "Site Instruction" under section
2.6.30 of the particular specification and not in the form of "Variation Orders", a fact which, although not
conclusive, is some indication that both parties looked upon choices of lining in a different light from that in
which they viewed other "variations". One must therefore remember that, when the contractor argues that "as
the tunnel was being constructed the engineer ordered much greater lengths of permanent lining than had
been foreseen", this begged the question whether "by reason of clause 13, the site instructions were to be
regarded as variation orders".
To this extent, therefore, Mr Graham is right, that he says the contractor's construction places a strain on the
plain language of clause 73(1). However, if the choice lies between giving a strained construction
10 ConLR 1 at 22
to clause 73(1) and giving no effect whatever to some of the words in clause 13, I would think that the former
alternative is to be preferred. What we have to decide is whether that strained construction is forced upon us
by clause 13. Obviously the answer must be "No" if the result is to make clause 73 and its associated
clauses unworkable, and for the moment I will assume that a choice of design addition is a variation. Clause
73(1) requires the engineer to make necessary variations and confers on him power to give specified
consequential orders to the contractor. Paragraph (a) allows him to order the contractor to "increase or
decrease the quantity of any work included in the Contract" and para (e) to "execute Additional Works and
Extra Works". The latter paragraph seems to me to be clear enough: it is paragraph (a) which is difficult. It

Page 17

would be impossible to increase the work included in the contract as defined in clause 1. What does "work
included in the contract" mean in this context? Mr Waller says in effect that it means "work quantified in the
bill of quantities and forming the basis for the calculation of the contract sum". Mr Graham says that
paragraph (a) was only intended to show that an automatic increase (in which he would include a choice of
design increase) is not a variation at all. With respect, paragraph (a) seems to me a strange way of trying to
achieve such an object. Mr Graham reasonably says that all "the works" were contemplated other than
"additional works and extra works", but why then include paragraph (a) at all, since paragraph (e) covers
additional work and extra works?
Whatever paragraph (a) was intended to mean, the clause does seem to contemplate that any "variation" to
which it relates shall be the subject of an order. As a general rule that order must also be in writing: clause
73(2). That sub-clause draws a distinction between increases which are "the result of the quantities
exceeding or being less than those stated in the Bills of Quantities". Sub-clause (2) can only apply where
there is a variation under sub-clause (1) and it follows that the proviso can only apply where sub-clause (2)
clearly requires an order in writing for any variation within sub-clause (1) unless such variation is an
automatic increase or decrease; but such an automatic increse or decrease would not, on Mr Graham's
construction, be a variation within sub-clause (1) anyway. The difficulty is that, if such an automatic increase
or decrease was not a variation in the first place, it was unnecessary to insert proviso (a) at all. It is thus not
the contractor's construction but the employer's construction which produces difficulty here. Mr Graham
seeks to get round the difficulty by suggesting that proviso (a) "is explanatory and declaratory" and "enables
the contractor to be paid for an increase in quantities for work within the scope of the contract without it being
disputed on the basis that there was no order in writing". However, the contractor could be so paid for both
automatic increases and choice of design increases without the proviso.
10 ConLR 1 at 23
We then come to clause 74. Sub-clause (1) relates to the valuation of additional works and extra works done
by the engineer's order. Mr Waller submits that choice of design additions are additional works and he seeks
to refute the argument that they cannot be additional works because they are not "similar to" but are "the
same as" "those contemplated by the contract" by saying that only the specified quantities of linings were
"contemplated by the contract". I cannot accept that. It seems to me clear that the contract contemplated all
the linings required for the 3 227 m of tunnel. To the extent that the tunnel was extended in length by
variation orders there were additional works, but to the extent that the total length of all the various design
finishes did not exceed 3 227 m nothing was done which was not "contemplated by the contract". Mr Waller
argued that "the question is not "what was contemplated by the contract." but "was this within the contract
Sum?" The answer to neither of those questions gives the complete answer to our problem because we still
have to decide whether works can be an "addition" for the purpose of clause 74(4) without being additional
works. On a strict construction they can, especially as it would have been more logical to place sub-clause
(4) immediately after sub-clause (2) if "addition" was intended to be synonymous with additional works. Even
so, can "additions" include choice of design additions? There seems to me to be no possible reason for
excluding them other than the argument that, despite the natural meaning of clause 74(4) the whole of
clauses 73-75 appear to provide a comprehensive scheme for dealing with "variations" as that word is
normally understood. The word "additions" in clause 74(4) clearly cannot include extra works, the rates for
which are, by sub-clause (3) to be valued at rates agreed upon between the engineer and the contractor.
Why then should the draftsman not have said "additional works" if that is what he meant? He had done so in
sub-clauses (1) and (2). It is then said that clause 75 operates against such a construction, because it
appears to contemplate that an order under clause 73 will normally have to be made before there can be a
variation of rate under clause 74(4). Although clause 75 refers to "increase of the contract sum" that is one of
the many examples of bad drafting in the contract documents and clearly means "amounts added to ... the
contract sum" under the other terms of the contract: "the contract sum" is as unchangeable as was the law of
the Medes and Persians. Clause 75 cannot have been intended to require two notices in the case of
additional works and extra works and it seems to me that the word "and" at the beginning of the third line in
the printed version must of necessity be read as "or" (with all respect I differ as to this from the judges in
Grinaker). Clause 75 therefore requires that before there can be a variation of rate under clause 74(4) in
respect of an "addition" which is not additional works there shall have been notice given "as soon as is

Page 18

practicable after the date when the order was given under clause 73".
10 ConLR 1 at 24
It follows that an order is necessary before there can be a re-rating under clause 74(4). Once again one
comes back to the questions whether the choice of design additions are such that a variation order is
required and whether site instructions can properly be regarded as variation orders.
The judge finds strong support for the contractor's contention in J. Crosby & Sons Ltd v Portland UDC.
(1967) 5 BLR 121. With respect I think he misunderstood that case at least in one respect, although it must
be said that some of the reasoning in the judgment is difficult to understand. There were two points which
were material to the present case. The first related to the materials to be used in performance of the contract.
The contract gave the contractor a choice between using pipes manufactured by one company and pipes
manufactured by another. The engineer insisted that the contractor use the pipes of the second company.
Rhind J found it "difficult to accept that where the engineer has to choose between two items which are both
within the contemplation to the contract he is somehow making a variation".
The answer is that, although both were within the contemplation of the contract, the engineer not only was
not obliged to make a choice between them: he had no right to make it: it was the right of the contractor. By
forcing the contractor to use the pipes of one particular manufacturer he deprived the contractor of his right of
choice and thereby varied the terms of the contract. It was therefore just that the contractor should be
compensated. In the present case the decision as to which (if any) lining was to be used in a particular
section of tunnel was not the choice of the contractor, as we have seen from section 2.6.30 of the particular
specification. Accordingly, by specifying the type of lining the engineer was exercising a right conferred upon
him and was not depriving the contractor of a right which belonged to it. Thus there was no variation as
normally understood.
The only other point in J. Crosby & Sons Ltd v Portland UDC is more obscure. The arbitrator found that the
work done (including laying, jointing and moulding the pipes) was "an increase in the quantity of work as
stated in the Bills of Quantities". Item 1 of the bill of quantities No 2 allowed for excavation not exceeding 5ft
deep and averaging 4ft 6in deep. There were provisional items to cover "additional excavation
supplementary to item 1 to be taken out of trench bottoms only over 5ft deep but not over 10ft deep" and for
"ditto only over 10ft deep but not over 20ft deep". There was no provisional item for laying, jointing and
moulding the pipes at a depth below 5ft. Donaldson J said at p. 130:
"In my judgment the excavation item was in excess of the quantity stated in the bills of quantities and accordingly no
written variation order was required: (see the second sentence in clause 51(2) of the contract."

The second sentence in clause 51(2) was:


10 ConLR 1 at 25
"Provided that no order in writing shall be required for increase or decrease in the quantity of any work where such
increase or decrease is not the result of an order given under this clause but is the result of the quantities exceeding or
being less than those stated in the Bill of Quantities."

That the excavation item was in excess of the quantity stated in the bills of quantities would appear to have
been a finding of the arbitrator rather than a decision of the judge. The judge held that it followed from that
finding that no written variation order was required. That is understandable. However, the judge went on:
"If the additional excavations were such that in the opinion of the engineer (or arbitrator) the contract rate was
unreasonable or inapplicable, he was entitled to vary that rate: see 52(2). This is what occurred in this case."

With respect to him this is not entirely clear. By the "contract rate" he appears to mean the rate specified in

Page 19

the bills of quantities for laying, jointing and moulding the pipes. Clause 52(2) allowed for revision of that rate
"if the nature or amount of [the] ... addition relative to the nature or amount of the whole of the contract work
made the rate unreasonable". Presumably he regarded the laying of the pipes at depths of more than 5 ft as
having produced an addition to the quantities stipulated in the bills of quantities in the same way as the
excavation to such greater depths led to one decrease and two additions to the various excavation items, but
was that correct? It was, if the item for laying, jointing and moulding pipes was so expressed as to relate only
to work at not more than 5ft depths, but not otherwise. If the item had been expressly for laying, jointing and
moulding pipes throughout "at any depths" it could not possibly have been said that that item was exceeded.
The report does not indicate the terms of this item and I can only assume that the judge thought that it, at
least implicitly, covered only work at not more than 5ft depths. In that event there was, on the one hand, a
decrease of the quantity under that item and, on the other, a quantity which was not covered by any item and
therefore could not strictly be described as an "excess" or an "addition". It is the words "he was entitled to
vary that rate" which produced the difficulty. What the judge appears to have done in fact was not to vary a
contract rate for laying, jointing and moulding pipes at up to 5ft depths but to supply the omitted rates for
depths in excess of 5ft. Yet he disclaims having done that: he implicitly rejected the alternative argument for
the claimant that, there being an omission in the bills of quantities, "the Engineer (and thus the arbitrator)
[was] entitled to fix a price or rate for laying and jointing at depths in excess of the standard depth" and
accepted the contention "that the Engineer was bound or at least entitled to vary the Bill of Quantity rate in
the exercise of the power contained in clause 52(2) of the Contract". Whatever the real basis of this decision,
I
10 ConLR 1 at 26
cannot accept the case as good authority for the proposition that wherever a quantity stated in a bill of
quantity is exceeded the engineer has power under clause 52(2) of the ICE Conditions to increase the
"contract rate".
In the result I find nothing in the contract which makes the strained interpretations of "variation" in clause
73(1) completely untenable. On the other hand I must decline to give to clause 13 a meaning which not
merely deprives it of all sensible purpose but introduces concepts of quantity and quality which are wholly
irrelevant to the suggested purpose. With the judge I think that that clause was intended to provide that
choice of design increases were to be deemed to be variations.
At the very least, it seems to me the intention is uncertain. I come therefore, to the contra proferentem rule.
Mr Waller expressly said that he did not rely heavily upon this. Although I suspect his stance was largely
dictated by his contention that the intention of the parties was clear, a contention which would be inconsistent
with the existence of the necessary foundation for the application of the rule. Nevertheless, the rule was
described by Lord Selbourne in Neill v Duke of Devonshire (1882) 8 AC 135, 149 as "well settled". It will only
be applied in the last resort, when all other rules of construction have failed to produce a satisfactory answer.
Mr Graham does not suggest either that the rule is unsound or that it does not operate against the Crown:
he, too, argues that the intention is clear. In my view if anything is clear after nearly a week of argument, it is
that this contract is an appalling conglomeration of obscure provisions, some of which have been taken (not
necessarily in precisely the same form) from sets of institute clauses having a different conceptual basis and
which cannot conceivably have been intended to mean what they plainly purported to say. We have been
referred at length to comparable sets of institute clauses and to decisions upon them. For my part I have
obtained no assistance from this. Chameleon-like, words can change their colour in a different context, and
in the final analysis it is the contract signed by these parties that we have to construe. Such signposts as this
contract contains are contradictory and any one who confidently asserts that he is on the right road is as
likely to find himself in Baghdad as in Rome. It is in just such a case that the contra proferentem rule can be
applied - and deservedly so. It cannot fairly be said that the construction contended for by the contractor
would work a wrong to the employer: rather would it be said that the construction contended for by the
employer would work a wrong to the contractor because the contractor may have been misled by the failure
to state clearly what the employer contends was intended.

Page 20

In the event I would uphold the decision of the judge and of the arbitrator on issue (C).
On issue (B) the employer contends that, even if "site instructions" could properly be regarded as "variation
orders", the relevant site instructions here were ineffective as such. The argument is that a
10 ConLR 1 at 27
variation order has to be signed by the engineer and that, although clause 2(3) of the general conditions
empowered him to delegate in writing any of his functions, the only written delegation did not include a
reference to clause 73: the site instructions not being signed by him, they could not be variation orders. Mr
Waller acknowledges the force of this argument but seeks to avoid its impact by saying first that power was
delegated under "all clauses of the particular specification", and the letter of delegation therefore empowered
the senior engineer/construction to give orders under section 2.6.30, even if they were variation orders for
the purpose of clause 73(1) of the general conditions. Secondly, he says that the engineer ratified the orders
of the senior engineer/construction and that in any event the contractor treated the site instructions as valid
variation orders and that the employer paid for the work at the quoted rates, so that the employer cannot now
be heard to contend that the orders were invalid. The judge took the view that variation orders under section
2.6.30 were different in nature from variation orders under clause 73(1) and that a separate delegation under
the clause was essential before the site instructions could be relied upon. Mr Waller says that that is to fail to
distinguish between the power to order and the "ministerial act" of signing the order. That is, I think, too
artificial a distinction. However, the judge did not deal with the argument based on ratification and this seems
to me to have greater force: if the site instructions are properly to be regarded as variation orders it would lie
ill in the mouth of the employer, having accepted their validity for the purpose of measurement, to deny their
validity for the purpose of considering increased rates. The judge, who disagreed with the arbitrator on this
issue referred to "the fallacy of supposing that just because here is an order it is a variation order". That
would, indeed, be a fallacy, but it is not necessarily a fallacy to suppose that a site instruction which is in truth
a variation order is invalid because it is not signed personally by the engineer. On issue (B) I would restore
the decision of the arbitrator.
I have already expressed by view at the beginning of this judgment that issue (A) was framed upon a
misapprehension of the real basis of the claim. The issue does not arise and I would say no more about it.
I would dismiss the appeal and allow the cross-appeal. However, as the other two members of the court have
reached a different conclusion the appeal is allowed, and issues (B) and (C) will be answered No. The crossappeal is dismissed. There will be an order nisi under Order 42, r. 5A that the respondent pay the costs here
and below, application to vary that order to be made within 14 days.

CONS JA.
I have had the advantage of reading in draft the judgment which my lord has just delivered. The major
question with which we are faced permits, as my lord has amply illustrated, of no confident
10 ConLR 1 at 28
answer. On balance however I regret that I have come to a different conclusion.
My main difficulty is that to the extent that they constitute "variations" or not, I find myself unable to draw any
distinction between what were termed "automatic increases" in Grinaker and what my lord has termed
"choice of design increases" in the present instance. I would therefore be forced to accept, as Mr Waller
indeed argued, that any deviation, however small, from the figures contained in the bill of quantities is a
"variation" within the contract. The size of the variation would be relevant only if it were such as would
warrant an adjustment of the rate originally quoted.

Page 21

It is suggested by Mr Graham that as far as automatic increases are concerned Grinaker has already
provided the answer. Mr Waller seeks to distinguish that decision on the grounds that it dealt with increases
which could have been discovered from the actual drawing in the very first instance and that the contract
there contained no equivalent of our clause 13.
The full provisions of that contract do not appear in the report so that it is difficult to estimate the strength of
these distinctions. However, quite apart from that authority, I would not be satisfied that automatic increases
amount to "variations" under the present contract. Paragraph 3 of the preamble to the bill of quantities states:
"3. The quantities of works and materials in the Bill of Quantities are approximate only and shall not be considered as
limiting or extending the work to be done and the materials to be supplied by the Contractor. All the work done and
material supplied by the contractor will be measured and paid for at the rates quoted in the Bill of Quantities."

Then again there is clause 91 of the contractual conditions:


"91. The quantities set out in the Bill of Quantities are the estimated quantities of the Works but they are not to be taken
as the actual and correct quantities of the Works to be executed by the Contractor in fulfilment of his obligations under
the Contract."

These provisions show that the contractor was required to complete the work specified in the contract
documents as a whole regardless of the actual figures inserted in the bill of quantities. That was his
obligation under the contract. It is to my mind inconsistent to suggest that by faithfully fulfilling that obligation
he was at the same time making a variation of it.
When it comes to choice of design increases the position is strengthened by paragraph 2.6.30 of the
particular specification:
"2.6.30 Whilst tunnel driving is in progress the Engineer will order the type of permanent lining to be subsequently
installed and separate items for excavation are provided according to the type of lining
10 ConLR 1 at 29
ordered. The Contractor will be informed of the type of permanent lining required for a length of tunnel immediately
before it is drilled for blasting and separate items are provided in the Bill of Quantities for additional costs arising from
this decision being changed after the length has been excavated.
These items shall include for all additional overbreak filling, relocation of services, survey work and other necessary
work and excavation necessitated by the change of decision."

The details of the various types of lining are to be found in drawings 59 to 62.
Mr Waller contended that the contract documents did not require the contractor "to supply an open ended
rate for any number of combinations of lining which might have taken 50 years to complete".
But with respect it seems to me that, so far as providing the actual linings was concerned, paragraph 2.6.30
did just that. It may have been, as my lord has already observed, that neither the employer nor the contractor
expected that so much of the most difficult type of lining would be required, but the obligation to provide it if
necessary was there within the contract. All that the engineer subsequently did was to require the contractor
to make good that obligation, not to vary it in any way.

Page 22

A consideration of clauses 73 to 75 leads me to no other conclusion. Clause 73(1) authorises the engineer to
order what would, upon any view, be variations [the learned judge set out clause 73(1): see pp. 6-7 above].
The clause is perhaps not too carefully worded, but in my view we cannot expect even from standard form
contracts the meticulous drafting appropriate to a statute. Moreover we understand that the basic form of
contracts such as these has become traditional. I take then head (a) to refer simply to an actual piece or kind
of work specifically set out in the contract, e.g. a contract to build a house might include provision for an
outside patio at the back, the patio to be of certain size. That would seem to me to be aptly described as a
"work included in the contract". If ground conditions subsequently compelled the patio to be increased or
decreased in size the appropriate order could be given under head (a). On the other hand, if it were
subsequently decided to have a patio in the front as well, that would be an "additional work" under head (e).
It was not included in the contract but is of a character similar to work that was. I do not read any significance
into that use of the slightly different wording in the definition section, i.e. "contemplated by the contract".
There will, of course, be instances where it is not easy to say under which head that particular variation
would fall, e.g. the extension of a central heating system to more rooms in the house than was originally
planned, but in practice it would not really matter.
This view of clause 73(1) seems consistent with clause 74. Subclauses (2) and (3) of the latter deal with
additional and extra works, i.e.
10 ConLR 1 at 30
head (e). The remaining heads fall within sub-clause (4). The purist might argue for the inclusion of the word
"changes" together with "omissions or additions", but taken in a broad sense those words are sufficient to
cover any kind of order that the engineer is there authorised to make.
Clause 73(2)(a) presents difficulties, for at first glance its presence seems to imply that automatic increases
are variations, otherwise it would not be necessary to exclude them from the need of a written order. It is
suggested by Mr Graham, quoting from Mr Duncan Wallace QC, The International Civil Engineering
Contract, at p. 98:
"The present proviso (like so many other parts of the contract) spells out what the position would be in any event
independently of the proviso, and it is probably inserted ex abundante cautela to protect contractors presenting
perfectly proper claims for measurement of increased quantities ... being met with the objection that they lack an order
in writing."

I have eventually come to the conclusion that that must be so. It is perhaps after all not surprising. I would
think that those responsible for standard form contracts such as these would have in mind to reduce the
need of those using them to seek particular legal advice and to that extent the standard terms may well be
explanatory as well as contractual.
It is against the same background that I approach clause 13:
"13. When Bills of Quantities are included in the Tender documents the quality and quantity of the work included in the
Contract sum shall be deemed to be that which is set out in the Bills of Quantities."

The effect of these, said the judge below, is that "the billed quantities become the measure of the work
included in the contract sum, so that any excesses over the billed quantities ... can amount to variation".
With every respect to the learned judge I do not think clause 13 goes that far. It is part of a process which
enables the parties to arrive eventually at the final price to be paid, and explains how that is to be done when
a bill of quantities has been included in the tender documents. Clause 14 explains how that is to be done

Page 23

when there is no bill. It could again perhaps have been better worded - in particular there seems no reason
for the use of the words "quality and quantity" - yet I am not persuaded that the actual words chosen are
themselves alone sufficient to change the whole nature of the contract, which to my mind is clearly apparent
from other parts of the documents.
For these reasons I would, for my part, allow the appeal with respect to question (C). I agree with my lord
that question (A) does not arise. I also agree with his conclusion on what appears to be the real issue raised
by question (B), but if the question be taken literally an affirmative answer would accept that the choice of
design increases were in fact variations. I would therefore dismiss the cross-appeal on that issue.

10 ConLR 1 at 31
FUAD JA.
I have had the advantage of reading in draft the judgments just delivered, and the Vice-President's review of
the facts, contractual documents, issues and submissions makes it possible to make my own observations
quite brief.
The proper construction of building contracts is a notoriously fruitful source of litigation and the task of a court
where, as in the present case, the competitive arguments are so nicely balanced, bristles with difficulties.
These difficulties are not reduced by the fact that the parties have apparently adopted, as they are fully
entitled to do, contractual arrangements drawn from different standard forms which do not necessarily have a
common conceptual foundation.
Central to the controversy which still divides the parties is the question whether upon a true interpretation of
the contractual documents read as a whole, in the light of the agreed facts, the contractor who has received
full payment for all the work done and materials supplied at the rates provided for in the bill of quantities is
entitled to insist upon the exercise by the engineer of the duty imposed upon him by clause 74(4) of the
general conditions to determine whether or not in his opinion the rate for any particular item has been
rendered inapplicable so that a suitable rate should be agreed or determined. As I understood the position at
the conclusion of the able and helpful arguments addressed to us, it was conceded on behalf of the
contractor that no such claim could succeed unless he could bring himself within the ambit of clause 74.
In my view the intention of the parties, expressed by the words they used, that the items in the bills of
quantities were to be regarded as mere estimates is made plain by certain express provisions in the
agreement. There is paragraph 3 of the preamble to the bills of quantities itself which states that the
"quantities of works and materials in the Bill of Quantities are approximate only and shall not be considered
as limiting or extending the work to be done and the materials to be supplied ...". Then we have clause 91 of
the general conditions which provides that the quantities set out in the bill of quantities gave the estimated
quantities of the Works but they are not to be taken as the actual and correct quantities of the works to be
executed ... As regards payment, paragraph 3 of the preamble to the bills of quantities stipulates that "All the
work done and materials supplied ... will be measured and paid for at the rates quoted in the bills of
quantities" and clause 92(1) of the general conditions requires the engineer to "ascertain and determine by
measurement the value in accordance with the contract of work done in accordance with the contract". I
would remark in passing, that if an obligation to pay for the work done and materials supplied beyond that
stated in the bills of quantities is not to be inferred from clause 91(1), the matter is put beyond argument by
the sentence with which paragraph 3 of the preamble concludes.
What then is the effect of clause 13 of the general conditions in the
10 ConLR 1 at 32

Page 24

context of the whole agreement? The learned judge thought that this was "the Achilles heel of the
Government's case", and Mr Waller urged upon us the construction accepted by the judge that its effect is to
define the works for the purpose of clarifying whether any departure from the quantities in the bills shall be
regarded as a variation.
With due respect to the arguments advanced before us, in my opinion, it is not helpful to attempt to
categorise the agreement here as a "lump sum contract" or a "measurement and value contract", or to seek
to attach to it any of the other labels used by the text-book writers to describe the different types of standard
building contracts encountered. We have, of course, to examine and construe the actual words used and all
that can safely be said as to the nature of the contract before us, is that as regards the issues that fall for
determination, it contains certain features of, for example, the ICE Conditions of Contract and of the RIBA
Form.
Clause 13 of the general conditions states that "When Bills of Quantities are included in the Tender
documents the quality and quantity of the work included in the Contract Sum shall be deemed to be that
which is set out in the Bills of Quantities". Clause 12(1) of the RIBA Form contains a parallel provision, but
unlike our contract, goes on to provide in sub-clause (2) "Any error in description or in quantity or in omission
or items from the Contract Bills ... shall be corrected and deemed to be a variation required by the Architect".
The ICE Conditions omit any provisions of the kind just mentioned and contain clauses similar to our clauses
91 (quantities are estimated quantities) and 92(1) (the engineer is to measure the value of the work) - ICE
clauses, respectively, 55 and 56.
Whatever might be the effect of provisions drawn on the lines of clauses 55 and 56 of the ICE conditions, or
of clause 12(1) of the RIBA Form, cannot be the same as the effect of a contractual arrangement which
includes the salient features of both sets of provisions. Put quite simply, it seems clear to me that the duty of
the court is to give effect, if it is at all possible, in the light of all the other relevant terms, to clause 13 and to
clauses 91 and 92 of the general conditions. It is, of course, not necessary to resort to clause 6 (that the
general conditions prevail over other documents) or to the contra proferentem rule unless these provisions
cannot be reconciled.
The learned judge considered that "the effect of creating the quantity of work included in the contract sum as
being the same as that set out in the bills of quantities in my view is that the billed quantities become the
measure of the work included in the contract sum, so that excesses over billed quantities, provided they are
sufficiently substantial to make the existing rates unreasonable, can amount to a variation". And later he says
"clause 13, on the view I take, makes the quantities in the bills the measure of the work included in the
contract sum, so there is no reason
10 ConLR 1 at 33
why an increase or decrease in the quantities of the bills should not amount to a variation of the quantity of
the works".
With the utmost respect to the learned judge, I consider that this was to read into clause 13 more than it
says. Where the RIBA Form is used, the problem does not, of course, arise due to the existence of clause
12(2). But here we have clause 13 without the equivalent of RIBA clause 12(2), and we also have paragraph
3 of the preamble to the bill of quantities, as well as clauses 91 and 92(1). In my judgment, clause 13 means
no more than that the work described in the bills is the precise measure of the work included in the contract
sum and in its effect infers that all other work not embraced by the contract sum must be paid for, an
inference confirmed, in this particular contract, by paragraph 3 to the preamble to the bills and clause 92 of
the conditions. The clause may indeed add little to the other contractual arrangements but this is not to say
that it is meaningless. It is not, after all, unknown for a draftsman to include a provision in a contract that
another reader might regard as otiose.

Page 25

In my view the contractor cannot rely on clause 13 as indicating that any excess over the billed quantities
amounts to a variation for the purposes of clauses 73-75.
As regards the interpretation of clauses 73-75 of the general conditions I will add little to what has been said
by my lords. Despite the differences in wording between the provisions before us and those considered by
the Appellate Division of the Supreme Court of South Africa in Grinaker Construction (Tvl) (Pty) Ltd v
Transvaal Provincial Administration (1982) (1) SA (A) 78, I respectfully agree with and would follow that
decision, preferring the reasoning to that adopted by Donaldson J (as he then was) in Crosby v Portland
UDC (1967) 5 BLR 121.
Speaking in broad terms, what I might call "variation provisions" commonly feature in building contracts, for
no right to order variations can be implied. Where there is no express power to order them a contractor, of
course, is not obliged to carry them out. And so, it seems to me that, where a contractor is obliged to do
certain work, even though alternative methods of carrying out the work are prescribed by the express terms
of the contract by which he has bound himself (whether upon the instruction of the engineer or not), the work
actually done cannot by any fair use of language be said to be a variation, unless the contract otherwise
provides. It would be wrong, I think, to equate obligations which arise only as the result of an order with the
obligation undertaken by the contractor when the contract was entered into.
The matter might perhaps be tested in this way. Several provisions of the contractual arrangements are
relevant to this point, but more specifically paragraph 2.6.30 of the particular specification - which states that
"whilst tunnel driving is in progress the engineer will order the type of permanent lining to be subsequently
installed ... The contractor will be
10 ConLR 1 at 34
informed of the type of permanent lining required for a length of tunnel ... and separate items are provided in
the bills of quantities for additional costs from this decision being changed after the length of tunnel has been
excavated ..." In the light of this provision, if clauses 73-75 had been omitted, could it have been successfully
maintained that the contractor's obligations were limited to the work and the supply of materials contained in
the bills of quantities? I think not. For in such circumstances, to read clause 13 in the way urged upon us on
behalf of the contractor would, it seems to me, to give it the effect of stipulating that for the contract sum, the
contractor had undertaken only to complete certain precisely stated quantities of work. This is to fly in the
face of paragraph 3 to the preamble to the bills of quantities itself and clause 91 of the general conditions. I
think it would be quite unrealistic to suggest that at the time agreement was reached either party thought for
one moment that as work progressed it might possibly turn out that the quantity of work undertaken had
indeed been precisely estimated. In the circumstances, an increase or decrease in quantities was inevitable.
I have reached the conclusion that with the background of the agreed facts and upon a proper construction of
the contractual documents, clauses 73-75 of the general conditions have no application. The contractor has
not brought himself within the contemplation of the scheme for ordering and valuing variations envisaged by
those clauses and cannot therefore rely on clause 74(4). I would here note that in the "measurement"
provisions contained in the general conditions we are required to interpret (clauses 91-93) there is nothing
equivalent to clause 56(2) of the ICE conditions, which expressly allows an increase or decrease of the rate
to be considered by the engineer when he is measuring the value of the work done.
For these reasons, in my judgement, each of the three questions raised by the preliminary points of law we
have to decide should be answered in the negative, and the appeal should be allowed on issues (A) and (C)
and the cross-appeal dismissed on issue (B).
[Appeal allowed; cross-appeal dismissed.]

Page 26

LORD BRIDGE OF HARWICH.


The appellant company (the contractors), concluded an agreement with the Hong Kong Government (the
government), represented as a party to these proceedings by the Attorney General of Hong Kong, to
undertake major civil engineering works required to improve Hong Kong's water supply by bringing water
from the River Indus Pumping Station to Plover Cove. The only part of the works with which this dispute is
concerned is the excavation and construction of a tunnel some 3 227 m in length and 3.6 m in diameter from
Ma Mei Ha to Nam Chung. The Government had obtained certain
10 ConLR 1 at 35
geological information which is described in the contractual documents. But it is common ground that,
however thorough the pre-contract site investigations, the nature of the ground through which the tunnel was
to pass could not be predicted accurately in advance but would only be discovered as excavation proceeded.
In these circumstances the contract, not surprisingly, specified five different types of lining, suitable no doubt
for different ground conditions, but did not specify, save with respect to the portals at either end of the tunnel,
where lining was to be required or of what type. The contract provided for this to be decided by the engineer
as the work of excavation proceeded. The contract, however, included bills of quantities priced by the
contractors with reference to estimated lengths of tunnel which were to be left unlined and to be lined with
each of the different types of lining respectively.
No one doubts that the estimated lengths of lined and unlined tunnel included in the bills were based on the
best assessment which the Government's technical advisers were able to make in the light of the geological
information available. Unfortunately the estimates turned out to be wildly wrong. This can be sufficiently
shown by reference to three items in the bills of quantities and comparing the billed quantities with the
measured quantities of work in the event required and carried out in each case.
The billed length of tunnel to be left unlined was 1 885 m; the length left unlined in the event was 547 m. The
billed length of tunnel to be lined with the heaviest and most expensive type of lining was 275 m; the length
so lined in the event was 2 448 m. The billed quantity of steel required for lining support was 40 tonnes; the
quantity required and used in the event was 2 943 tonnes.
As a result of these differences work on the tunnel took very much longer than it would have done if the
quality and quantity of lining required had corresponded reasonably closely with the billed quantities. The
time allowed by the contract for completion was two years. The engineer exercised his power under the
contract to grant an extension of time of 784 days "to compensate for the extra time required to cope with
ground conditions in executing the tunnel excavation and lining works". The contractors have been paid for
the work as executed and measured at the rates in the bills of quantities. They claim that, in the events which
have happened, they are entitled to an adjustment of rates to be agreed with or fixed by the engineer. The
position taken by the government is that, on the true construction of the contract, the engineer has no power
to agree or fix any adjusted rates.
The dispute was referred to the arbitration of His Honour Edgar Fay QC on the basis of a statement of
agreed facts and the contractual documents. The issues as formulated for his decision as preliminary points
of law were as follows:
10 ConLR 1 at 36
"(A) Whether on the true construction of the contract the contractor is entitled to further compensation for any losses
sustained by reason of the extra time required to cope with ground conditions.
(B) Whether on the true construction of the contract the Site Instructions referred to in paragraph 5 of the Statement of

Page 27

Agreed Facts were variation orders for the purpose of clause 73 of the General Conditions.
(C) Whether on the true construction of the contract an excess of executed over billed quantities as set out in the
Statement of Agreed Facts, without having been ordered by the Engineer as a variation, is within clause 74(4) of the
General Conditions."

Mr Fay made an interim award in the form of a special case for the decision of the High Court. He answered
all three questions of law affirmatively in favour of the Contractors. In the High Court Rhind J, in substance,
upheld the arbitrator by answering questions (A) and (C) affirmatively, though he answered question (B)
negatively. On appeal by the Government the Court of Appeal reversed the judge by a majority. All thought
that question (A) did not arise. Cons and Fuad JJA answered questions (B) and (C) negatively. Sir Alan
Huggins V-P dissented. He would have answered questions (B) and (C) affirmatively. The contractors now
appeal to Her Majesty in Council by leave of the Court of Appeal.
The contract was embodied in a number of documents of which those presently relevant are the articles of
agreement, the general conditions, the particular specification, and the bills of quantities. It will be
convenient, even if somewhat cumbrous, to set out en bloc all the provisions which, in their Lordships'
judgment, are capable of throwing any light on the question of construction in dispute.
The articles of agreement contain the following recital:
"WHEREAS the Government is desirous of constructing the Works shown on the Drawings and described in the
Specifications and set forth in the Form of Tender (including the Appendix thereto) and the Acceptance thereof by the
Government, Bills of Quantities and/or Schedule of Rates (hereinafter referred to as 'the Works') in accordance with
such Drawings, Specifications, Form of Tender (including the Appendix thereto) and the Acceptance thereof by the
Government, Bills of Quantities and/or Schedule of Rates and in accordance with the Conditions of Contract which
Drawings, Specifications, Form of Tender and Acceptance thereof by the Government, Bills of Quantities and/or
Schedule of Rates are annexed hereto and/or have been signed by the parties hereto and WHEREAS the Contractor
has agreed to execute the said Works for the sum of Dollars Eighty-two Million Eight Hundred Sixteen Thousand Six
Hundred Fifty-seven only ($82816 657.00) and to do
10 ConLR 1 at 37
such extra works and additional works as may be ordered or required upon and subject to the said Conditions of
Contract (hereinafter referred to as 'the said Conditions')."

The following are the relevant provisions of the general conditions:


"1(1) In the Contract the following words and expressions shall have the meaning hereby assigned to them except
when the context otherwise requires:
'Additional Works' means all such works which in the opinion of the Engineer are of a character similar to those
contemplated by the Contract and which can be measured and paid for under items in the Bills of Quantities ...
'Contract Sum' means the sum named in the Articles of Agreement for the construction, completion and maintenance of
the Works;
'Extra Works' means all such works as are not, in the opinion of the Engineer, of a character similar to those
contemplated by the Contract and which cannot be measured and paid for under items in the Bills of Quantities or
Schedule of Rates;
'Final Contract Sum' means the Contract Sum subject to such additions thereto or deductions therefrom as may be
made under the provisions hereinafter contained;
'Works' means all the work and things to be executed or supplied by the Contractor under the Contract and includes

Page 28

Temporary Works.
6(1) Except if and to the extent otherwise provided by the Contract the provisions of these Conditions shall prevail over
those of any other document forming part of the Contract.
(2) Subject to the foregoing the several documents forming the Contract are to be taken as mutually explanatory of one
another but in case of ambiguities or discrepancies the same shall be explained and adjusted by the Engineer who
shall thereupon issue to the Contractor instructions directing in what manner the work is to be carried out:
13 When the Bills of Quantities are included in the Tender documents the quality and quantity of the work included in
the Contract Sum shall be deemed to be that which is set out in the Bills of Quantities.
15(1) The Contractor shall be deemed to have inspected and examined the Site and its surroundings and to have
satisfied himself, before submitting his Tender, as regards existing roads or other means of communication with and
access to the Site, the nature of the ground and sub-soil, the form and nature of the Site, the risk of injury or damage to
property adjacent to the Site or to the occupiers of such property, the nature of the materials (whether natural or
otherwise) to be excavated, the nature of the work and materials necessary for the completion of the Works, the
accommodation he may require and
10 ConLR 1 at 38
generally to have obtained his own information on all matters affecting his Tender and the execution of the Works.
(2) No claim by the Contractor for additional payment will be allowed on the ground of any misunderstanding or
misapprehension in respect of the matters referred to in sub-clause (1) or otherwise or on the ground of any allegation
or fact that incorrect or insufficient information was given to him by any person whether in the employ of Government or
not or of the failure on his part to obtain correct and sufficient information, nor shall the Contractor be relieved from any
risks or obligations imposed on or undertaken by him under the Contract on any such ground or on the ground that he
did not or could not foresee any matter which may in fact affect or have affected the execution of the Works.
73(1) The Engineer shall make any variation of the form, quality or quantity of the Works or any part thereof that may in
his opinion be necessary for the completion of the Works and for that purpose or, if for any other reason it shall in his
opinion be desirable, shall have power to order the Contractor to do, and the Contractor shall do, any of the following:
(a) increase or decrease the quantity of any work included in the Contract;
(b) omit any such work;
(c) change the character or quality or kind of any such work;
(d) change the levels, lines, position and dimensions of any part of the Works;
(e) execute Additional Works and Extra Works;
and no such variation shall vitiate or invalidate the Contract but the value (if any) of all such variations shall be taken
into account in ascertaining the amount of the Final Contract Sum.
(2) No such variation shall be made by the Contractor without an order in writing from the Engineer:
Provided that-(a) no order in writing shall be required for any increase or decrease in the quantity of any work where such increase or
decrease is not the result of an order given under this clause but is the result of the quantities exceeding or being less
than those stated in the Bills of Quantities;

Page 29

(b) if for any reason the Engineer shall consider it desirable to give any such order verbally the Contractor shall comply
with such order and any confirmation in writing of such verbal order given by the Engineer whether before or after the
carrying out of the order shall be deemed to be an order in writing within the meaning of this clause; and
(c) if the Contractor shall confirm in writing to the Engineer any
10 ConLR 1 at 39
verbal order of the Engineer and such confirmation shall not be contradicted in writing by the Engineer before the
commencement of the work concerned it shall be deemed to be an order in writing by the Engineer.
74(1) The Engineer shall determine the amount, if any, which in his opinion shall be added to or deducted from the
Contract Sum in respect of any Additional Works or Extra Works done or work omitted by his order.
(2) All Additional Works or omitted work shall be valued at the rates set out in the Contract.
(3) All Extra Works shall be valued at rates agreed upon between the Engineer and the Contractor.
(4) If the nature or amount of any omission or addition relative to the nature or amount of the Works or to any part
thereof shall be such that in the opinion of the Engineer the rate contained in the Contract for any item of the Works is
by reason of such omission or addition rendered unreasonable or inapplicable then a suitable rate shall be agreed
upon between the Engineer and the Contractor.
(5) In the event of disagreement the Engineer shall fix such rates as shall in his opinion be reasonable and proper.
75 No increase of the Contract sum or variation of rate under clause 74 shall be made unless as soon as is practicable
after the date when the order was given under clause 73 and, in the case of Additional Works or Extra Works before the
commencement of the work or as soon thereafter as is practicable, notice shall have been given in writing-(a) by the Contractor to the Engineer of his intention to claim extra payment or a varied rate; or
(b) by the Engineer to the Contractor of his intention to vary a rate as the case may be:
Provided that no notice shall be required in respect of Additional Works and omitted works where such works are to be
measured as constructed.
91 The quantities set out in the Bills of Quantities are the estimated quantities of the Works but they are not to be taken
as the actual and correct quantities of the Works to be executed by the Contractor in fulfilment of his obligation under
the Contract.
92(1) The Engineer shall, except as otherwise stated, ascertain and determine by measurement the value in
accordance with the Contract of work done in accordance with the Contract."

The Particular Specification, by clause 2.6.30, provides:


"Whilst tunnel driving is in progress the Engineer will order the type of permanent lining to be subsequently installed
and separate items for excavation are provided according to the type of lining ordered.
10 ConLR 1 at 40
The Contractor will be informed of the type of permanent lining required for a length of tunnel immediately before it is
drilled for blasting and separate items are provided in the Bill of Quantities for additional costs arising from this decision
being changed after the length has been excavated."

Page 30

The preamble to the bills of quantities, by clause 3, provides:


"The quantities of works and materials in the Bill of Quantities are approximate only and shall not be considered as
limiting or extending the work to be done and the materials to be supplied by the Contractor. All the work done and
materials supplied by the Contractor will be measured and paid for at the rates quoted in the Bill of Quantities."

There is no dispute that the measured quantities of relevant work executed in the tunnel which are set out
and compared with the corresponding billed quantities in a document which forms part of the statement of
agreed facts resulted from proper compliance by the contractors with orders given by the engineer pursuant
to clause 2.6.30 of the particular specification. It is equally accepted that these instructions were prompted by
the unexpectedly difficult ground conditions encountered in the course of excavation.
The submission for the contractors may be briefly summarised thus. In the context of all the relevant terms of
the contract, the expression "any omission or addition", whose "nature or amount" must be compared with
"the nature or amount of the Works" under clause 74(4) so as to trigger an adjustment of any rate in the bills
of quantities, if "in the opinion of the Engineer the rate contained in the Contract for any item Works is by
reason of such omission or addition rendered unreasonable or inapplicable", is apt to cover every difference,
whether by way of increase or decrease, between the quantity of any item of work priced in the bills of
quantities and the measured quantity of work executed which is covered by that item. It is immaterial whether
the difference results from orders given by the engineer in express exercise of the power to "make any
variation of the form, quality of quantity of the works or any part thereof under clause 73(1), or, as in this
case, from orders with respect to tunnel lining given pursuant to clause 2.6.30 of the particular specification,
or without any specific order when the quantity of measured work properly completed in accordance with the
contract turns out for any reason to differ from the billed quantity.
For the Government it is submitted, again in brief summary, that the only "omission or addition" which
qualifies for consideration under clause 74(4) is one which results from an express exercise by the engineer
of the power to order a variation under clause 73(1); that an order under clause 2.6.30 of the particular
specification is not such an order because "the Works", when first referred to in clause 73(1) and again in
clause
10 ConLR 1 at 41
74(4), are not to be quantified by reference to the bills of quantities but must be taken to embrace whatever
quality and quantity of tunnel lining the engineer chooses in the event to order under clause 2.6.30 of the
particular specification. Counsel for the Government relies heavily on clauses 15 and 91 of the general
conditions and clause 3 of the preamble to the bills of quantities.
In order to resolve the issue arising from these rival contentions their Lordships do not find it necessary to
give any answer to questions (A) or (B). The single issue requiring resolution has been refined as the case
has progressed through the courts. Question (C) is not perhaps as precise a formulation of that issue as one
might have wished. But an affirmative or negative answer to question (C) will be sufficient to indicate whether
or not the engineer has jurisdiction, in the events which have happened, to consider the differences between
the relevant measured quantities and billed quantities and, if he is of opinion that those differences are such
as to render any bill rate "unreasonable or inapplicable", to agree a "suitable rate" under clause 74(4) or fix a
new rate under clause 74(5).
It is obvious that this is a badly drafted contract. This, of course, affords no reason to depart from the
fundamental rule of construction of contractual documents that the intention of the parties must be
ascertained from the language they have used interpreted in the light of the relevant factual situation in which
the contract was made. But the poorer the quality of the drafting, the less willing any court should be to be
driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention, if the
language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes

Page 31

to the parties an intention to make provision for contingencies inherent in the work contracted for on a
sensible and businesslike basis. As already stated, the ground conditions which would largely dictate the
scope of the tunnel lining works required were unpredictable. As the Government themselves stated in a
document entitled a "brief which was before the arbitrator in lieu of a pleading: "All tunnelling work is mainly
determined by ground characteristics on which planning and methods of construction are largely dependent".
Later they added: "... time related costs are a significant factor and are closely determined by ground
conditions".
Against this background of facts, if the contract documents were understood in the sense contended for by
the Government, engineering contractors tendering for the work would have two options. They could either
gamble on encountering more or less favourable ground conditions or they could anticipate the worst case
and price their tenders accordingly. It is clear from what happened here that the worst case might double or
more than double the time required to do the work with a consequent increase in time related costs. On this
basis, tenderers gambling on favourable ground conditions would risk a large loss, while
10 ConLR 1 at 42
conversely, if all tenderers anticipated the worst case, but in the event reasonable conditions were
encountered, the Government would be the losers. It follows that, if the Government are right, there is a large
element of wagering inherent in this contract. It seems to their Lordships somewhat improbable that a
responsible public authority on the one hand and responsible engineering contractors on the other,
contracting for the execution of public works worth many millions of dollars, should deliberately embark on a
substantial gamble.
By contrast, if the contractors' submission is correct, tenderers can and will base their tenders on the
expectation that the scope of the tunnelling and lining work is reasonably to be inferred from the billed
quantities. Then, if unexpectedly bad ground conditions dictate so large a departure from those quantities,
and consequent alteration of the scope of the work, that, in the opinion of the engineer, the bill rates are
"rendered unreasonable or inapplicable", the rates can be suitably adjusted. Given the inherent uncertainty
as to the scope of the work that will be required, a provision to this effect would seem an eminently sensible
means of ensuring that the contractors receive no less, and the Government pay no more, than a reasonable
price for the work actually done.
Not the least infelicity in the drafting of the contract is that it contains two definitions of "the Works" and uses
the expression indifferently in both senses. Which meaning is to be attributed to it can only be ascertained
from the context in each case. The first definition is embodied in the recital in the articles of agreement set
out earlier in this judgment. The parenthesis "(hereinafter referred to as the Works)" follows words which
include a reference to the bills of quantities. "The Works" as so defined are quantified by the billed quantities.
It is by reference to the works so quantified (referred to later in the recital as "the said Works") that the
contract sum is calculated. This is emphasised by clause 13 of the General Conditions. It will be convenient
to refer to "the Works" in this sense as "the basic Works". On the other hand "Works", as defined in clause 1
of the General Conditions, is all-embracing and apt to include "Additional Works" and "Extra Works" as
therein defined. In this sense "the Works" refers to what may be conveniently called "the executed Works".
Prima facie it seems to their Lordships clear that "the Works" when first referred to in clause 74(4) must
mean "the basic Works". It would follow from this that any difference between billed and executed quantities
gives rise to an "omission or addition" the nature or amount of which is to be considered relative to the nature
or amount of the basic works as indicated in the bills of quantities. Their Lordships find it difficult to
understand how, on the argument advanced for the Government, the "amount of the Works", which are to
provide the standard of comparison in considering omissions and additions, can be quantified at all.
However, it is said rightly that clauses 73, 74 and 75 of the general

Page 32

10 ConLR 1 at 43
conditions must be read together. The argument for the Government then proceeds thus. The words "by his
order" in clause 74(1) govern the whole of clause 74. They refer back to variation orders, strictly so called,
under clause 73. No such order was given here. Proviso (a) to clause 73(2) was inserted ex abundanti
cautela to protect the contractors against a refusal to pay for work properly carried out without any order
which results in an increase of measured quantities over billed quantities, but does not dispense with the
need for a variation order to activate the machinery under clause 74. Likewise clause 75 presupposes that a
variation order will have been given before the clause 74 machinery can be set in motion and the proviso to
clause 75 does not refute this presupposition.
Clause 73(1) raises again the question of deciding in what sense the expression "the Works" is used. Their
Lordships think the sense of the opening words must be: "the Engineer shall make any variation in the form,
quality or quantity of the basic Works or any part thereof that may in his opinion be necessary for completion
of the executed Works etc.". On this reading, reinforced by the language of clause 73(1)(a), there is much to
be said for the view that proviso (a) to clause 73(2) amounts to a deeming provision whereby any difference
between measured quantities of work properly carried out pursuant to the contract and billed quantities is
deemed to result from a variation order. However, it is quite unnecessary to decide whether this view is or is
not correct. On any view it is clear that proviso (a) to clause 73(2) plays an important part in relation to the
operation of the machinery of clause 74.
By the definition in clause 1(1) of the General Conditions the final contract sum requires to be calculated by
making additions to or deductions from the contract sum "under the provisions hereinafter contained". The
only provision in the General Conditions to which this definition can refer is clause 74 and the
correspondence between the language of clause 74(1) ("shall be added to or deducted from the Contract
Sum") with the language of the definition is unmistakable. Here then is the only contractual machinery by
which the difference between the contract sum and the final contract sum can be determined and that
determination must, ex concessis, take account of differences between measured quantities of work properly
executed and billed quantities, whether or not resulting from any order given by the engineer. Clause 74(1)
and (2) and clause 92(1) together provide the necessary machinery for calculating, by reference to the rates
in the bills of quantities, the appropriate amount to be added to or subtracted from the contract sum. There is
nothing to confine the operation of clause 74(2) to differences between measured and billed quantities which
arise from variation orders. Contrary to the submission for the Government, the definition of "Additional
Works" is not so limited. It follows, although the drafting is inelegant and clumsy, that the words "by his order"
in clause 74(1) must be read subject to the proviso to
10 ConLR 1 at 44
clause 73(2) (a) if the plain purpose of clause 74 is not to be frustrated. This enables all differences between
measured and billed quantities to be taken duly into account under clause 74(2). Their Lordships can see no
reason why they should not equally be taken into account under clause 74(4).
This reading of clause 74 is reinforced by clause 75, which applies alike to any increase of the contract sum
as it does to any variation of rate. This again would lead to absurdity if it precluded any increase of the
contract sum in the absence of an engineer's order. But here again the proviso makes clear that this was not
intended.
Clause 73 to 75 embody the terms of the contract providing expressly for the manner of calculating the final
contract sum. It remains to consider whether there is any other provision of the contract capable of displacing
or modifying the meaning which, in accordance with the views already expressed in this judgment, those
clauses, and in particular clause 74(4), appear on their face to bear. Neither clause 91 of the General
Conditions nor clause 3 of the preamble to the bills of quantities could possibly do so. The Government place
heaviest reliance on clause 15 of the General Conditions. This clause, so runs the argument, is effective to
cast upon the contractors all risks from difficult ground conditions, including the risk that the quality and
quantity of tunnel lining required will differ, no matter to what extent, from the estimates in the bills of

Page 33

quantities. Their Lordships cannot agree. Clause 15 can be given ample content without impinging on
clauses 73 to 75. Under clause 15 the contractors take the risk, for example, that in excavating particular
lengths of tunnel they will encounter unforeseen difficulties from roof and sides repeatedly caving in, which
can only be met by providing elaborate and expensive temporary support. But if the quantities of tunnel lining
works as ordered and executed under clause 2.6.30 of the particular specification are so different from the
estimated quantities in the bills of quantities as to attract the operation of clause 74(4), it is quite immaterial
that the engineer may have been prompted to order those quantities by the nature of the ground conditions.
Their Lordships cannot help thinking that much of the difficulty felt by both courts below in construing the
contract before them arose from the attention they devoted to reported decisions on the construction of other
contracts containing supposedly similar provisions. In particular the Government relied on a decision of the
South African Court of Appeal in the case of Grinaker Construction (TVL) (PTY) Ltd v Transvaal Provincial
Administration [1982] 1 SALR 78. Rhind J and Sir Alan Huggins V-P thought it necessary to distinguish this
case. The majority in the Court of Appeal expressly purported to follow it. With all respect, their Lordships
think the decision in the case of Grinaker is simply irrelevant. The case was concerned with a differently
worded contract applied to different facts.
10 ConLR 1 at 45
Certain phrases in the contract which has to be construed in the instant case are mirrored by the same
phrases in the contract which had been construed in the case of Grinaker. To fasten on those phrases and
ignore the differences in the context in which they were found and to treat Grinaker as a relevant, even if only
persuasive, authority in this case was erroneous. It would be both wasted effort and an impertinence for their
Lordships to consider and express a view as to whether Grinaker was rightly or wrongly decided. Such a
view would be of no assistance in construing the contract in the instant case.
Their Lordships must also say respectfully that they think Fuad JA fell into error in the comparisons he made
between some of the terms of the contract presently in issue and analogous but differently worded terms in
other forms of building and engineering contracts commonly in use and in the significance he attached to
those comparisons. It is, of course, always legitimate to say that parties to a contract might have expressed
themselves more clearly than they have with respect to the point at issue. But comparison of one contract
with another can seldom be a useful aid to construction and may be, as their Lordships think it was in this
case, positively misleading.
Their Lordships are satisfied that on the true construction of the contract and on the agreed facts the
differences between the measured quantities and the billed quantities are such as to give jurisdiction to the
engineer, if he is of opinion that the nature and amount of those differences relative to the nature and amount
of the corresponding items in the bills of quantities are such as to render the billed rate for any item
unreasonable or inapplicable, to agree a suitable rate with the contractors under clause 74(4) or, in the event
of disagreement, to fix a rate under clause 74(5). Their Lordships will, therefore, humbly advise Her Majesty
that this appeal should be allowed, the order of the Court of Appeal set aside and the order of Rhind J, save
as to issues (A) and (B), restored. The Government must pay the Contractors' costs of the proceedings in the
Court of Appeal and before the Board.
COUNSEL
For the appellants: (before Hong Kong Court of Appeal) Mr Mark Waller QC and Robert Kotewall;
(before Privy Council) Mr S. Kentridge QC and Mr P. Naughton (instructed by Lovell White and King).
For the respondents: (before Hong Kong Court of Appeal) Mr Martin Graham QC and Mr Graham Wheatley
(before Privy Council) Mr Martin Graham QC and Mr P. Nunn.