Housing Construction

The fist litigation that occurred was between Shanghai Pudong New Areas Links Executive Community Ltd, the Chinese subsidiary of Shanghai Links Executive Community Ltd, and a Joint Venture between Bouygues SA and Pomerleau International Inc.

In late 1996 and early 1997, Shanghai Links tendered out the construction of 50 luxury homes (villas), several kilometres of roads, a large scale water treatment plant, a tertiary sewage treatment plant, and an electrical substation, and back-up power generating station. The tender documents included the excavation of 14 storm water ponds whose materials were needed to bring all of the housing lands up to the correct elevation. They also included construction of warehouses for safe and dry storage of housing materials, as well as a concrete mixing plant. Three companies bid on the project. Ellis-Don bid $US37million, and the Bouygues-Pomerleau JV bid $US33.5million (at the time about $CAN50milion) The tender documents occupy twelve 4 inch binders, and are therefore too voluminous to post on this site. Needless to say, millions of dollars were spent on the architecture and engineering for the first stage of the housing project.

The Construction Contract, in the form of a FIDIC, was executed in the first week of April 1997. The Construction Contract required that an $US11million deposit be paid to the JV Contractor upon agreement of any outstanding details. The FIDIC contract permits the contracting party to try to substitute lesser quality products if the products specified can not be sourced. The JV Contractor then went through more than two (2) months of submitting substantially inferior substituted products to WZMH Architects in Toronto Canada. Ultimately, it became clear this was an endeavour intended to stall for time. Shanghai Links issued a notice that it intended to terminate, and only then did the JV Contractor stop its daily effort to substitute inferior products but only after the Housing Project agreed to remove excavation of the fourteen (14) storm water ponds from the Contract. Out of desperation, the agreement was made, and the $US11million deposit was paid.

The completion date had been contracted as the first week of December 1997. On the completion date, the Independent Project Engineer, Associated Engineering, determined that the Housing Project was completed in the following approximate percentages:

1. Water Treatment Plant: 0%
2. Sewage Treatment Plant: 0%
3. Electrical Substation & Generator: 0%
4. Roads & Underground Services: 2%
5. Housing: 4.6%

By this time, Associate Engineering had issued several warnings for breaches of the contract, which included:

1. No temporary access roads had been constructed
2. No warehouses had been constructed
3. Housing materials shipped in from offshore had been left in containers onsite in the Monsoon rains (This is why the warehouses were so important)
4. No concrete mixing plant was built
5. Road construction had been subcontracted to a Chinese State Company that was expressly listed as forbidden because of their consistent history of bad work
6. Grossly inadequate number of expatriate construction trades people were brought in to train locals in North American housing technology and techniques

The outside Investors, lead by Bankers Trust, refused to consider that the JV Contractor should be terminated. They indicated that Bouygues was a major client and that termination would not be tolerated. The CFO of the Housing Company, Mr. Paul Turner, was charged with negotiating a remediation plan with the JV Contractor. The targets in this plan were missed. Further notices were issued to the JV Contractor that they were “gross breach” of their contract. Again Bankers Trust were adamant that they would not permit Bouygues to be terminated. In total, Mr. Turner negotiated four (4) remediation plans, but none of the targets were ever met.

In March 1998, on the advice of the Hong Kong office of the leading Australian law firm, Mallesons, Stephens & Jacques, Associated Engineering decided that because the Construction Contract was still less than 10% complete, and more than 30% of the monies for the Construction Contract had been paid out, they had no option but to issue a termination notice to the Bouygues-Pomerleau Joint Venture.

By the latter half of March 1998, Sealand Housing Corporation in Canada had recruited more than 220 journeyman trades people. Shanghai Links Executive Community Ltd, had recruited management from John Laing plc, and from the new Airport in Hong Kong. Shanghai Pudong New Area Links Executive Community Ltd recruited more than 2000 Chinese trades people who were put on a training programme imported from offshore. Team s of 10 Chinese trades people, one offshore journeyman, and one translator, were established and the Shanghai Links Housing project was underway.