CT9 main contractor saves $100m over dumping payments

CT9 main contractor saves $100m over dumping payments

Top court judges rules in favour of joint venture

Eight years after completion, the main contractor on the Container Terminal 9 project has won a high-stakes legal battle, saving itself about HK$100 million in payments to its agent, after taking the dispute all the way to Hong Kong’s top court.

In what must have come as a huge relief to the main contractor, the Court of Final Appeal delivered its decision last Monday, reversing a decision by the Court of Appeal and upholding (largely) the decision of the High Court.

As a result the agent Sinoearn International Limited was only entitled to be paid HK$8.9 million by the main contractor, a joint venture between Hyundai Engineering and Construction and China Civil Engineering Construction Corporation.

In 2000, the joint venture appointed Sinoearn to act as its agent in securing dumping permits from the mainland authorities to dump in mainland waters contaminated mud that was dredged during the construction of Container Terminal 9.

In return, Sinoearn was to be paid at a rate of HK$17 per cubic metre of mud that was dumped.

The quantity was estimated at 6,410,770 cubic metres.

At the heart of the dispute was whether the contract was a supposed to be a fixed sum contract or a measurement contract.

Sinoearn had argued that the contract was a fixed sum contract so it was entitled to be paid HK$108,983,090, that is 6,410,770 cubic metres at a rate of HK$17.

However the joint venture argued that the contract was a measurement one.

As such the agent was only entitled to HK$5,748,176, based on a quantity of 338,128 cubic metres that was actually dumped.

The reason for the huge discrepancy in quantity was due to the Environmental Protection Department refusing to issue further export permits after September 2000 for the contaminated mud after environmental group Greenpeace made a fuss over the dumping.

The joint venture was unsuccessful in appealing against EDP’s decision and later abandoned the plan to use mainland waters for dumping in September 2001.

In the event, Sinoearn was paid HK$8.9 million.

The Court of Final Appeal ruled that on a proper construction of the contract, what was intended was a measurement contract and so the joint venture was entitled to pay only the HK$5.75 million based on the actual quantity.

The joint venture had counterclaimed successfully in the High Court that it had overpaid based on the measurement argument and so was entitled to a refund of the overpaid amount.

However the top court said the additional payment of HK$3,151,824 to Sinoearn was in fact for onward payment to mainland authorities for the dumping permit fees.

Construction of Container Terminal 9 was severely affected by delays in dumping of contaminated mud and concerns over the financial well-being of the South Korean joint venture partner Hyundai Engineering and Construction   (AECOM website)

Construction of Container Terminal 9 was severely affected by delays in dumping of contaminated mud and concerns over the financial well-being of the South Korean joint venture partner Hyundai Engineering and Construction (AECOM website)

“Given that course of events, it appears bizarre to suggest that the clock should be wound back and that the monies paid at the inception of the dumping project should be refunded even though the purpose of the payments had been achieved and exhausted, and their benefits obtained by the defendant [joint venture],” permanent judge Roberto Ribeiro wrote in the top court’s decision.

In 2000, a consortium of Modern Terminals, Hongkong International Terminals and Asia Container Terminals awarded the contract worth HK$3.98 for Container Terminal 9 to the joint venture.

The scope of works included 120 hectares of sea reclamation and construction of a six-berth dock, ancillary facilities and related infrastructure.

The dumping problems coupled with the shaky financial standing of Hyundai, the South Korean partner in the joint venture, led to substantial delays, reported to be by about 10 months in a World Cargo News story published in July 2004, in the completion of the project.

The whole project was completed in July 2005 according to the website of engineering consultant AECOM.

Danny Chung

 

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