TAI YING FAT t/a FAT KEE ENGINEERING CO v. SUN FOOK KONG CONSTRUCTION LTD

HCCT 48/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 48 OF 2009

(Transferred from HCA No. 81 of 2006)

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BETWEEN

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J U D G M E N T

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INTRODUCTION:

1.  In 1994, the defendant, SFK, entered into a contract with the Hong Kong Housing Authority, (HKHA), in relation to the refurbishment of vacant Housing Authority flats in a large number of public housing estates in the New Territories.  The contract was known as Contract No. 84/1994.  SFK subcontracted the whole of the work to Many Harvest Construction Company Ltd, (Many Harvest).  Mr Tai, trading as Fat Kee became a sub-contractor to Many Harvest.  He was engaged in refurbishment work in three housing estates in the Tai Po area, Fu Shin, Kwong Fuk and Tai Yuen.  The subcontract between Mr Tai and Many Harvest was an oral contract.  Mr Tai’s rights arose originally from that oral sub-contract.

2.  There is no doubt that Mr Tai ceased working for Many Harvest in the latter part of 1997.  There is equally no doubt that Many Harvest has not paid Mr Tai, and other sub-contractors, all that might be due to them.  It appears that Many Harvest was suffering financial difficulties. On 20 January 2000, a settlement agreement, was entered into between SFK, Many Harvest, and a number of sub-contractors including Mr Tai. As a result of the settlement agreement Mr Tai received a sum of $565.75.

3.  With the settlement agreement providing for further payments to be made to the sub-contractors, from payments made by the HKHA to SFK, Mr Tai might reasonably have expected further payments.  But no further payments were made to him.  In April 2001, SFK acquired Many Harvest which then became a wholly owned subsidiary of SFK.

4.  In 2006, at about the same time as these proceedings were commenced, Mr Tai commenced proceedings against Many Harvest in respect of amounts Mr Tai claimed were due to him by Many Harvest in respect of the refurbishment subcontract.  That action was set down to be heard at the same time as these proceedings, but was discontinued approximately two weeks before the trial began, when the Legal Aid Department withdrew Mr Tai’s legal aid certificate in respect of that action.  I understand that those proceedings were discontinued principally because Mr Tai recognised that Many Harvest was, by that time, merely a shell company and had no assets against which any judgment might be enforced.

5.  The present proceedings were commenced by Mr Tai on 12 January 2006, and, as Mr Lee is obliged to concede, are entirely dependent upon the settlement agreement, that being the only contractual relationship between Mr Tai and SFK.  The action was commenced against SFK a mere 12 days before the expiry of the limitation period in respect of the settlement agreement, and was served on 8 January 2007, only four days prior to the expiration of the writ.

6.  The trial accordingly concerns events that occurred some 15 years ago, in respect of which a settlement agreement was made 11 years ago, on a writ that was not served until nearly seven years after the settlement agreement was signed.  Further, the proceedings are between parties who were not parties together in the original contractual arrangement that gives rise to the bulk of complaints made by Mr Tai.  The difficulties inherent in a claim with such a background are compounded by the fact that Mr Tai is illiterate, kept no personal records, instead relying on other contracting parties records.  Unfortunately Mr Tai had no proper filing system in respect of those documents the other parties gave him.

7.  I set out the matters I have in the preceding paragraphs not by way of criticism of Mr Tai, but to illustrate the difficulties Mr Tai faces in meeting the burden of proof required to establish his claim.

The areas of dispute between Many Harvest and Mr Tai:

8.  There is no dispute that prior to a point in time, represented by the issue by the HKHA of certain works orders in relation to the refurbishment of flats known as batch 137, Mr Tai had been engaged in painting works, as what is known as a trade sub-contractor to Many Harvest.  A trade sub-contractor is engaged in respect of a specific trade.  Certain sub-contractors were engaged by Many Harvest to undertake what were known as builder’s works.  Such a sub-contractor undertook the whole of the trades required for the refurbishment work except the electrical work, for which a registered sub-contractor had been engaged.  A builder’s works sub-contractor undertook a total of 19 trades, some of which he might subcontract to others.

9.  Under the main contract, the extent of the works required were contained in instructions from the HKHA, issued from time to time during the term of the contract which was between 1995 and 1997.  The instructions were in the form of works order, which were issued in batches. Under the main contract, payment for the works orders would be made in two stages, first an Automatic Interim Payment, (AIP), of 80% of the estimated value of the works order as work progressed, and second, a final payment, paid after finalisation of the final account upon completion of the works order. The second payment followed the final accounts, the payments which were also known as the final bills.

10.  The case for Mr Tai is that shortly prior to the issue of the works orders comprised in batch 137, he was approached by a director of Many Harvest, who was known in the proceedings as Uncle Wah. Mr Tai’s evidence was that Uncle Wah told him that Many Harvest was having difficulties in having the builder’s works completed, and that if Mr Tai was prepared to take on the builder’s works subcontracts in respect of the three Tai Po estates, instead of just the painting works, when the final payments were received by Many Harvest in respect of the work undertaken in respect of batch 108 to batch 136, those final payments would be paid, not to the builder’s works sub-contractors who had performed the works, but to Mr Tai.  The prospect of this future payment, Mr Lee submits, was intended to be an incentive to Mr Tai to take on the remaining builder’s works in respect of the three Tai Po estates.  It is the case for Mr Tai that he agreed to this proposal.

11.  SFK says that the evidence is not such as to establish this additional oral contract.

12.  There is no dispute that no payment has been made by Many Harvest to Mr Tai in respect of those final payments.  The case for Mr Tai is that not only is he entitled to those payments, but that by virtue of clause 6 and/or clause 8 of the settlement agreement, SFK has become directly liable to Mr Tai for those payments.

13.  There is a dispute as to the number of works orders for which Mr Tai undertook the whole of the builder’s works.  There is no dispute that Mr Tai began the builder’s works from batch 137.  It is also common ground that at some point in time Mr Tai ceased to carry out the whole of the builder’s works, and thereafter Mr Tai carried out one of the 19 trades, painting works again.  There is a dispute as to the point in time at which this change took place.  It is agreed that the rate at which Mr Tai was to carry out painting works was $2,100 per flat, and there is no dispute in respect of the number of flats completed during the period from January 1997 to the end of the project (those comprised in batches 188 to 223).

14.  One of the 19 trades to be carried out by a sub-contractor undertaking builder’s works was entitled “conveyance”. This is the removal and disposal of the rubbish that arises in a flat when it is being prepared for refurbishment.  This particular trade involves the removal of any internal fixtures or structures left by a tenant, and the stripping and removal of electrical wiring and fixtures.   Mr Tai says he alone carried out conveyance work in respect of both the builder’s works and the electrical works. 

15.  SFK contend that Mr Tai was not involved in any of the conveyance work relating to the electrical wiring and fixtures, but SFK may accept that, at worst, that the most he could have carried out would have been 50% of that work.  The basis of this argument is that the balance of the conveyance work was undertaken by the electrical works sub-contractor.

The settlement agreement:

16.  Mr Tai ceased work as a sub-contractor to Many Harvest in the latter part of 1997.  The whole of the contract between SFK and HKHA was substantially completed in 1997, and SFK then entered into a final account negotiation with the HKHA. 

17.  At the same time there was an ongoing dispute between SFK and Many Harvest involving two other, quite separate, ASD term contracts undertaken by Shing Lee Engineering Co Ltd (Shing Lee) to whom SFK had provided a loan of HK$14M.  SFK had been unable to recover that loan from Shing Lee.  The connection between Many Harvest and Shing Lee, so far as SFK were concerned, was that a Mr Hung Tak Kay was a common shareholder and director of both Shing Lee and Many Harvest.  As a result of that dispute, by the end of 1999, SFK had withheld retention money and project payments due to Many Harvest to the sum of $10,584,275.06 under the HKHA Contract, which Many Harvest in turn withheld from its sub-contractors, that sum including any entitlement that might be due to Mr Tai.

18.  It appears that other deductions were made by SFK from payments received by it, from the HKHA in respect of Contract No. 84/1994, but in relation to the liability of Shing Lee.  Those deductions, and the withholding of retention money and project payments, had been made in accordance with contractual arrangements[1] between SFK, Many Harvest and Shing Lee.  The sub-contractors, including Mr Tai, were not a party to this arrangement.

19.  On 21 January 2000, following a negotiation in which it appears that Mr Tai was not extensively involved, if at all, a settlement agreement, written in Chinese, was entered into by SFK, Many Harvest, and seven sub-contractors, including Mr Tai.  Mr Tai’s evidence was that Uncle Wah had contacted him and asked him to come to the office.  At Many Harvest’s office, Mr Tai signed the settlement agreement.  He acknowledged that he did so without having it properly explained to him, and that he did not know or understand its content, other than from what he was told by Uncle Wah. 

20.  The recitals of the settlement agreement recorded the above background, which had led to SFK withholding payments due to Many Harvest under the HKHA Contract. The settlement agreement dealt with the application of the retention money and future project payments in respect of Contract No. 84/1994 to Many Harvest.

21.  The settlement agreement provided first, that a sum of $7 million would be deducted from the monies due by SFK to Many Harvest in respect of Contract No. 84/1994.  Mr Tai does not complain about this provision.  Next, the settlement agreement provided that as at 31 December 1999, the retention money and project payments kept by SFK, that were due to Many Harvest, (and payable in part by them to the lower tier sub-contractors), was a sum of $10,584,275.06. 

22.  The agreed sum of $7 million was to be deducted, first as to $5 million, to be shared between Many Harvest and the lower tier sub-contractors on a specific basis, with Mr Tai’s share being $84,404.26.  No complaint is, nor could be, made about this provision by Mr Tai.  The remaining $2 million still to be deducted, was to be dealt with pursuant to clause 3(B) of the settlement agreement, which was in the following terms:

“In respect of the second deduction of the remaining HK$2 million, upon negotiation such deduction shall be shared pro rata by (the 7 subcontractors including Mr Tai) who shall jointly and severally be responsible for the $2 million. In the subsequent four installments of the final bills payment with invoices returned for the subcontractors aforesaid, Many Harvest shall verify the amount of any project payments due to them and submit the same to (SFK) for processing the deduction (the total deduction from each payment instalment shall be HK$500,000. Any insufficient deduction from a payment instalment shall be made up in the next payments).” (sic)

23.  After the deduction of $5 million from the total retention money and project payments of $10,584,275.06, there was a balance still kept by SFK, due to Many Harvest and the sub-contractors, in the sum of $5,584,275.06.  The settlement agreement provided that this sum was to be divided between Many Harvest and the sub-contractors in amounts in the document.  Under this clause, Mr Tai received a modest sum of $565.76.  No complaint can now be made about this.

24.  The next provision is crucial.  It is this provision by which Mr Lee says SFK became liable not only for the distribution of any amounts received after the making of the settlement agreement from the HKHA, but also for any other liability that SFK might have towards Mr Tai.  Clause (6) provides:

“Thereafter, every time when (SFK) receives final payments with invoices returned from the Housing Authority under Contract No. 84/1994, Many Harvest shall verify the payments and submit the same to (SFK) and (SFK) shall within 14 days directly release the payments to the respective subcontractors after making such deductions according to clause (3) above. All subcontractors shall be entitled to enquire of (SFK) directly about the matters in relation to the final payments with invoices returned.” (sic)

25.  The final provision of the settlement agreement that is relevant in these proceedings is that contained in clause (8):

“Save as varied otherwise by this Agreement, the content of the MANAGEMENT AGREEMENT entered into between (SFK) and Many Harvest as well as the agreements entered into among Many Harvest and those sub-contractors including (7 sub-contractors including Mr Tai) remain unchanged.”

26.  This clause is important because Mr Lee rests his case in part, on it, for his contention that SFK is directly liable to Mr Tai for the separate oral contract between Many Harvest, and Mr Tai, in relation to the final payments for batches 108-136.

Further deductions claimed by SFK:

27.  In the final calculation made between SFK and the HKHA there was a dispute as to whether or not liquidated damages should be deducted from the final payment, and whether or not an adjustment should be made in respect of a dispute relating to a barralastic coating.  Deductions were made by the HKHA, apparently following a dispute process with SFK, in which none of the sub-contractors were involved.  In its calculation, when dealing with the final payment to the sub-contractors, SFK first added back to the sum received from the HKHA the total amount of the deduction, and then apportioned the deduction amongst the sub-contractors, deducting what it determined, without any consultation, to be the appropriate portion from each sub-contractor.

28.  Mr Lee for Mr Tai says SFK were not entitled to make this deduction.  The appropriate deduction, if any, Mr Lee said, must be resolved by the terms of the settlement agreement.

Quantum:

29.  There is essentially no dispute as to the expert evidence as to quantum, and the two experts have provided a joint report in which they have assessed various scenarios depending upon the factual findings made in this judgment. Once the factual findings are made the calculation of the quantum is a matter of applying the appropriate findings to the appropriate scenario.

THE ISSUES:

30.  From these facts the following principal issues arise which must be determined:

(i)   whether or not Mr Tai and Many Harvest entered into an oral agreement entitling Mr Tai to the final payments received by Many Harvest from SFK in respect of batches 108-136;

(ii)   if so, whether by virtue of the settlement agreement, SFK assumed that liability to Mr Tai;

(iii)   the date and batch at which Mr Tai ceased to be a builder’s works sub-contractor in respect of batches 166-196, and became solely a painting trade sub-contractor;

(iv)   whether or not Mr Tai carried out all Works Orders under batch 137 or just Works Orders 950550487 and 950550562;

(v)   whether or not Mr Tai is entitled to be payment in respect of five works orders for Temporary Hoardings;

(vi)   whether or not Mr Tai carried out trade 19 (conveyance work) in respect of electrical wiring and fixtures;

(vii)   whether or not SFK are entitled to make any deductions from the sums due to Mr Tai, whether by way of:

Clause (3)(B) of the settlement agreement; or

Clause (6) of the settlement agreement

in respect of:

(a)   liquidated damages

(b)   barralastic coating

(c)   the remaining HK$2M

Issue (i) – whether Mr Tai made an oral contract with Many Harvest entitling him to the final payment for batches 108-136:

31.  There is no dispute that in or about November 1995, an oral subcontract was concluded between Mr Tai and Uncle Wah and his nephew, Mr Koong Tak Kay, (Mr Koong) on behalf of Many Harvest whereby Mr Tai agreed to undertake whole builder’s works, instead of working merely as a painter. 

32.  According to Mr Tai, as part of that oral agreement, Uncle Wah and/or Mr Koong suggested to him that if he would become a builder’s works sub-contractor for the three Housing estates, Many Harvest would pay him, not only for the builder’s works completed by him, but also all future final payments yet to be received, in respect of the builder’s works completed by the previous builder’s works sub-contractors.  Mr Tai says he accepted this offer.  SFK are not able to deny the agreement, but instead say that such an agreement is wholly incredible and cannot be established on the evidence. It is upon the determination of this dispute that Mr Tai’s claimed entitlement in respect of batches 108 to 136 first depends.

33.  Only Mr Tai gave evidence on this issue.  The other two protagonists from Many Harvest, Uncle Wah and Mr Koong, were not called.  Uncle Wah passed away in 2006.  Mr Koong did not appear as SFK’s witness.  Mr Lee submits that as neither did Uncle Wah nor Mr Koong give evidence, Mr Tai’s evidence stood unchallenged and must be accepted by the court.  Mr Lee also invites the court to draw adverse inferences from the failure of SFK to call Mr Koong.

34.  It is right that a court may draw adverse inferences from the failure to call a witness.   The principles relating to a party’s failure to tender witnesses at trial are set out by Lord Diplock in Herrington v British Railways Board [1972] AC 877 at 930:

“The appellants, who are a public corporation, elected to call no witnesses, thus depriving the court of any positive evidence as to whether the condition of the fence and the adjacent terrain had been noticed by any particular servant of theirs or as to what he or any other of their servants either thought or did about it. This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if the court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold.”

35.  But it does not follow that, because a witness is not called, the court must find for the plaintiff.  I do not accept Mr Lee’s proposition that wherever an attesting witness alleges an oral agreement, the court must accept his evidence as to the existence of an alleged oral agreement, simply because the other side is unable to call any live witness to challenge his testimony.  There is no principle of law or evidence compelling the courts to take such a mechanistic approach.  Weighty though oral testimony generally is, judges are also guided by many things, including inherent probabilities, any contemporaneous documentation or records, any circumstantial evidence tending to support one account rather than the other, and their overall impression of characters and motivations of the witnesses. 

36.  The court was told during the course of these proceedings that there had been legal proceedings between SFK and Many Harvest.   I am not prepared to speculate whether the fact of those proceedings was the reason that Mr Koong, a man involved with Many Harvest, did not give evidence in these proceedings.  Nor do I consider such an exercise useful to my determination of this issue.  I must consider Mr Tai’s testimony carefully as well as all other available evidence, relevant to my deciding where the truth lies.

37.  Mr Tsang, for SFK, submits that it would be quite illogical for anyone in the position of Uncle Wah (or Mr Koong) to have suggested such a favourable term to a potential builder’s works sub-contractor. First, the primary liability for the final payments when received by Many Harvest would be to pay them to those sub-contractors who had carried out the work.  If Mr Tai was right, Many Harvest exposed itself to a liability to both the other sub-contractors and Mr Tai from the same sum.  That makes no commercial sense at all, even having regard to difficulties Many Harvest might have been having in getting the work completed.

38.  Mr Tsang also drew the court’s attention to the fact that the allegation of an oral agreement was not made by Mr Tai, until Uncle Wah had passed away.  Significantly, no such allegation was made when these proceedings were first issued in 2006.  Second, it was not until 2009, after the death of Uncle Wah, that Mr Tai’s pleadings were amended to include a claim of an oral contract for the final payments due to other sub-contractors.

39.  This long delay, and the circumstances in first asserting an oral agreement, militates strongly against the court finding such an agreement.  First, if such an oral agreement existed, I have no doubt that Mr Tai would have required that it was recognised in the settlement agreement. At the very least, he would have asked if provision was made in the settlement agreement in respect of that special entitlement which he claims to have had. 

40.  Second, if such an oral agreement existed, I would have no doubt that Mr Tai would have given his solicitors instructions in relation to that oral agreement at the time that proceedings were first issued. That no such oral agreement was pleaded when the proceedings were first issued makes it plain that nothing was said by Mr Tai to his solicitors at the time of the issue of proceedings.

41.  No proper explanation, other than that Mr Tai did not know the content of the settlement agreement in respect of the settlement agreement, was offered for the failure to raise the matter earlier. That is no answer to his failure to raise the issue earlier.

42.  It is in those circumstances that it is not appropriate to draw an adverse inference against SFK, in the absence of a witness they might have called.

43.  Mr Lee says that the court must consider the factual matrix leading to the oral agreement.  Of that factual matrix, Mr Lee says the most relevant facts are that three builder’s works sub-contractors, namely Chi Fat, Seawell and Mr Wong had abandoned the builder’s works one after the other.  He submits that the factual matrix would offer reasonable explanation to Uncle Wah being desperate to have Mr Tai agreeing to take over the builder’s works. 

44.  I agree that factual matrix is relevant.  I do not, however, find that the factual matrix relied upon by Mr Lee assists Mr Tai.   It is difficult to accept that Uncle Wah or Mr Koong, having just seen three sub-contractors abandon the builder’s works one after the other, would have agreed to pay Mr Tai all final payments in respect of the builder’s works already completed, and due to those other sub-contractors, to a sole trader who is unlikely to be in any better position than the other sub-contractors.  There was certainly no evidence to suggest that Mr Tai was in any better position. Further, the evidence established that the final payments for batches 108-136 were included in statements made at the end of September 1999, in relation to two other sub-contractors, Chi Fat and Seawell.  That those payments were then made, long before the dispute arose, is entirely inconsistent with the arrangement for which Mr Tai now contends.

45.  Weighing the evidence as a whole, I am not satisfied that the oral term alleged by Mr Tai can be established. 

46.  On these findings, Mr Tai’s claim in respect of the final payments due for batches 108 to 136 must fail.

Issue (ii) – Did SFK assume liability to pay Mr Tai for batches 108-136:

47.  It follows from my conclusion on Issue (i) that it is not necessary to consider whether SFK have assumed any liability from Many Harvest for payments independent of the settlement agreement.  As I find that there was no oral contract between Mr Tai and Many Harvest for the additional payments for batches 108-136, then there can be no liability for SFK to assume under the settlement agreement.

Issue (iii) – Mr Tai’s claim for batches 166-196:

48.  There is no dispute that Mr Tai carried out batches 137-164.  There is a dispute, however, as to the date and batch at which Mr Tai ceased to be a builder’s works sub-contractor.  Mr Tai says he ceased in such a capacity towards the end of 1996.  SFK says that Mr Tai ceased after June 1996, and thereafter resumed his previous capacity as a painting sub-contractor.  The batches at stake are those from 166 to 196, there being no batch 165.

49.  Mr Tai alleges, and SFK does not dispute, that he received no payment for builder’s works during the period from July to December 1996.  

50.  The plaintiff’s case again relies entirely on Mr Tai’s testimony.  SFK called Mr Hung Tak Kay, (Mr Hung).  Mr Hung’s evidence was that Mr Tai was unable to continue as a builder’s works sub-contractor after June 1996, and as a result Many Harvest had to take over from Mr Tai, who was then assisted by a Mr Ling Kin Kwong, (Mr Ling) who had been working as Mr Tai’s plastering sub-contractor. 

51.  SFK rely also on Many Harvest’s contemporaneous documentation and records in the form of computer data base, minutes of site meetings and payment certificates.  These are:

(i)   Many Harvest’s data base showing Mr Tai’s builder’s works to be limited to batches 137 to 164[2];

(ii)   Minutes of Site Meeting No. 11 held on 1 January 1997 showing that during the period from June to December 1996 Mr Tai had completed “61 flats up to Batch 164” and Mr Ling “234 flats starting from Batch 166.”[3];

(iii)   Many Harvest’s payment records showing Mr Tai’s builder’s works ceasing at batch 164[4].

52.  Mr Tsang refers me to the judgment of Kaplan J in Eu Asia Engineering Ltd v Wing Hong Contractors Ltd (unreported, HCCT 16/1990, 23 December 1991), for the role of contemporaneous records in construction contracts.  His Lordship said:

“In construction cases, as in most other cases, I attach great significance to the contemporaneous documents. These are usually prepared in good faith before a dispute has arisen or at any rate crystallised. It is a particularly devious contractor, employer or sub-contractor who systematically manufactures documents to assist in a future dispute. Fortunately, such instances are rare. I accept that once a dispute has been identified it is necessary to pay careful attention to the documents created after that time because it is only natural that parties will reflect their grievances and justification for actions taken in those documents.”

53.  When cross examined by Mr Tsang, Mr Tai said that he started as a builder’s works sub-contractor with a working capital of between HK$500,000 to HK$600,000.  Mr Tsang relies on this evidence in support of his submission that Mr Tai could not have continued the builder’s works after batch 146 for another six months, without any payment from Many Harvest.

54.  It is Mr Lee’s case that Mr Tai carried out builder’s works from January to June 1996 (up to batch 164) with a total value certified by Many Harvest to the amount of HK$4,080,336.63.  According to Many Harvest’s minutes of site meetings, Mr Tai completed 54 flats in January[5], 12 flats in February[6], 44 flats in March[7], 23 flats in April[8], 56 flats in May[9] and 61 flats from June to December[10], making a total of 250 flats.  This means, on average, about 20 flats per month with an appropriate certified value of HK$16,321 per flat.  This is close to the estimated value of HK$15,000 for Flat # 2419 Shin Kwan, at Fu Shin Estate at batch 137[11].

55.  As noted in §51(ii) above,  The Minutes of Site Meeting No. 11 recorded Mr Ling as having completed 234 flats from batch 166 during the period June to December 1996.  If Mr Tai’s evidence is accepted, he would have completed builder’s works to a certified value of about HK$3.82M over a period of six months without any payment from Many Harvest.  In the light of Mr Tai’s evidence as to his working capital I cannot accept that he could have completed such a large amount of builder’s works without any payment from Many Harvest.

56.  Next, just as Kaplan J attached great significance to the contemporaneous records in Eu Asia, I prefer to give full weight to the contemporaneous computer data base, minutes of site meetings and payment records prepared by Many Harvest.  It is significant that most of these records were created at least three years before date of the settlement agreement and all of them nine years before Mr Tai commenced these proceedings.  Quite simply, all of these records were created before there was any suggestion of this dispute.

57.  Further, I note that these different categories of contemporaneous record were not created by the same person but a number of different persons.  They performed different functions, either on site or at the head office at the time.  To question the veracity of these records would amount to accusing those unknown people of devising a contrivance together to falsify records of different kinds with a view to depriving Mr Tai of his rights to payments at some unknown future time.  I find not a scintilla of evidence, or even any accusation on the part of Mr Tai (in my view quite rightly) to justify such a challenge to the records.

58.  It is right that there was no evidence from the persons who prepared the database, or made the various entries.  But it is plain from the nature of the database that it would have been constructed over a period of time, by various people, using contemporaneous documents, from which the relevant information was obtained.  It is simply beyond belief that it could not be sufficiently accurate to be relied upon for the purpose of these proceedings.

59.  Viewed from a slightly different perspective, the real issue that I have to resolve is whether it was Mr Tai who completed the 234 flats recorded in the Minutes of Site Meetings No. 11, or Mr Ling, as the record says.  The database shows that after batch 164 the building works contractor was Many Harvest.  That is entirely consistent with Many Harvest having taken over from Mr Tai at that stage and he then becoming a painting sub-contractor.

60.  I am satisfied that, as the contemporaneous record shows, Mr Tai ceased to be responsible for builder’s works after batch 164.  Mr Tai’s claim for batches 166-196 therefore must fail.

61.  As a consequence of my above findings, and on the basis of the parties’ case that Mr Tai did carry out work from June to December 1996 either as a builder’s works sub-contractor or a painting sub-contractor, I have no  difficulty in holding that Mr Tai was working as a painting sub-contractor during this period.  This finding inevitably results in Mr Tai being entitled to nothing against SFK, the fact that he has or has not been paid in full for such painting work by Many Harvest being quite irrelevant.  SFK cannot have become liable to pay Mr Tai anything but the final payments relating to the builder’s works performed by him under the settlement agreement.

Issue (iv) – Mr Tai’s claim for two works orders under batch 137:

62.  This dispute revolves around two Works Orders 950550487 and 950550562 under batch 137.  Mr Tai’s case is that he completed all the works orders under batch 137, including therefore these two Works Orders. As I have already indicated, Mr Tai has no documentary record of the work he undertook in this respect, and relies entirely on his memory.  SFK dispute Mr Tai’s claim. 

63.  Mr Tsang submits the contemporaneous records are to be preferred to Mr Tai’s oral evidence.   Unlike the contemporaneous records relating to Issue (iii) which directly identified who carried out batches 108-136, the so-called contemporaneous records relied upon by SFK in this case are merely records of the dates on which SFK (Many Harvest) acknowledged the receipt of the keys relating to the works orders under batch 137 from the HKHA. Mr Tsang submits that the hand-over date in respect of the keys under the undisputed works orders was 20 October 1995[12].  This date was later than the dates when the keys under the two disputed works orders, which were respectively 16 and 18 October 1995[13]. Mr Tsang describes Mr Tai’s case that he took over these two disputed works orders from the out-going builder’s works sub-contractor, Seawell as “surprising” and invites me to reject this claim. 

64.  The contemporaneous records, genuine undoubtedly that they are, on this particular issue, prove nothing.  There is nothing surprising, as Mr Tsang suggests, that Seawell might have abandoned the project without completing these two works orders and Mr Tai took Seawell’s place and finished the remaining works required under these two works orders. If Seawell ceased work at a point in time when they were financially unable to go further, there were no compelling reasons why Seawell must have completed all the builder’s works in the flats they had commenced. 

65.  I hold that these contemporaneous records of the dates on which the relevant keys were handed to SFK have little probative value to resolving this issue one way or the other and I accordingly place no weight on them.

66.  This leaves the oral evidence of Mr Tai.  In this respect, I accept Mr Tsang’s submission that Mr Tai’s memory is vague, which is not surprising when the relevant events occurred over 15 years ago.  Mr Hung’s evidence is not directly in point either.

67.  As the burden of proof rests with Mr Tai, I am not satisfied that it is more probable than not, that Mr Tai carried out these two works orders.  Accordingly, this claim must be rejected.

Issue (v) – Mr Tai’s claim for the five works orders in respect of the temporary hoardings:

68.  This claim relates to five works orders in respect of the temporary hoardings, which were also known as “soil debris warehouse”. 

69.  There is no dispute that the soil debris warehouse was constructed by the previous builder’s works sub-contractor as a temporary holding area for storage of the debris and rubbish arising from the preparation of the vacant flats before they were to be carted away to the dumping areas.  Upon Mr Tai becoming the replacement builder’s works sub-contractor, he was required to make use of the soil debris warehouse and to pay for it. Either Mr Tai, in advance out of his limited working capital, or later by way of set off from his AIP, made this payment.  Many Harvest’s records of payment record deductions having been made for HK$75,000 from the AIP in respect of the builder’s works he had carried out.  Mr Lee relies on such deductions as evidence in support of his contention that the five relevant works orders should be counted towards Mr Tai’s builder’s works, thus qualifying for final payments under the settlement agreement.  It is one thing that Mr Tai paid for the use of the soil debris warehouse (which was constructed by others under earlier works orders) and it is quite another that Mr Tai himself constructed the soil debris warehouse.  It is in the latter situation to which the right to final payment under clause 6 was intended to apply.

70.  I am unable to accept the evidence of payments by Mr Tai for the use of the soil debris warehouse as evidence of the performance of work as a builder’s works sub-contractor which would bring Mr Tai within clause (6) of the settlement agreement and, accordingly, I reject this item of claim.

Issue (vi) – Mr Tai’s claim for Trade 19 ‘Conveyance’ work:

71.  This claim concerns a simple finding of fact: “Who took down and removed the wiring, antenna cable, telephone wire, power sockets, MCB box, etc. within the vacant flat?”   The answer can only be either Mr Tai (as the builder’s works sub-contractor at the time) or ATAL (the electrical works sub-contractor).

72.  SFK rely on their payment records showing that they have paid 50% of the certified value of Trade 19 to ATAL.  Mr Tsang contended, initially, that only registered electrical contractors could remove electrical wirings and fixtures.  Mr Tai’s evidence was that the main switch board from which power was supplied to the flats was located at the switch room at the end of the corridor and power had been disconnected by ATAL before such electrical wirings and fixtures were taken down by his men. 

73.  Mr Tsang has not been able to identify any legislation or regulation requiring disconnected electrical wiring and fixtures to be removed by registered electrical contractors only.   Mr Tsang submits in that regardless whether a registered electrical contractor was necessary for the removal work, it was “logical” for ATAL as the electrical works sub-contractor to have done such work.  He refers me to Work Order No. 96055734, a works order dealing with B.S., (Building Services), works.[14] This work order, however, is stated for the supply and fixing of B.S. works.  Although the accompanying assessment included an item for ‘Conveyance’, it says nothing about who should carry out the preceding removal works.  I cannot accept that either can assist me in deciding who carried the removal works.

74.  On balance, I prefer Mr Tai’s direct evidence to SFK’s indirect evidence of payment of 50% to ATAL.  I am of the view that it would be much more practical and cost effective for all the removal and cart away works within a confined space to have been carried out by one single sub-contractor rather than two sub-contractors.  Accordingly, I allow this head of claim.

Issue (vii)(a) – Deduction for Liquidated Damages (LD):

75.  The HKHA imposed LD for delay in completion of a number of vacant flats.  SFK in turn made deductions from the final bills payments to the sub-contractors, including Mr Tai, under the settlement agreement.  In Mr Tai’s case the LD amount withheld from him is HK$29,191.75 under Scenario 10(a) in Situation 2[15].

76.  Mr Tsang, for SFK, relies on clause (6) which provides:

“Thereafter, every time when (SFK) receives final payments with invoices returned from the Housing Authority under Contract No. 84/1994, Many Harvest shall verify the payments and submit the same to (SFK), and (SFK) shall within 14 days directly release the payments to the respective subcontractors after making such deductions according to clause (3)(b) above. All subcontractors shall be entitled to enquire of (SFK) directly about the matters in relation to the final bills payments with invoices returned.”

77.  Mr Tsang submits that SFK’s obligation to pay the sub-contractors is limited by clause (6), namely, to pay only the net final payments received from the HKHA after their deductions for LD.

78.  Mr Lee argues, first, that SFK should deduct LD only from Many Harvest to whom they subcontracted the whole of the HKHA Contract.  Next, he argues, in any event, that LD should only be deducted from the party or parties causing the delay and not from every sub-contractor on a pro rata basis. 

79.  In my view, it is necessary to identify what was the practical object that the settlement agreement was intended to achieve.  It seems to me clear that the intended practical object was achieve an all parties’ compromise by which SFK could deduct a fixed sum of HK$7M under the Contract 84/1994 from the retention monies and project payments belonging to the sub-contractors, such deduction not being permissible in law in the absence of any contractual relationship between them.   In return, SFK undertook to release all final payments, after making this specific deduction, to the entitling sub-contractors.  The recitals I-VI of the settlement agreement make it clear that this was the practical object of the settlement agreement. 

80.  The other matter I consider important is the timing when SFK became aware of the deduction of LD.  Contemporaneous records show that well before completion the HKHA had already issued a  number of “Notice of Liquidated Damages” to SFK[16] and effected such deductions in the final bills.[17]  

81.  SFK made no express provision for any deduction other than the provisions for the agreed HK$7M deduction in the settlement agreement.  Accordingly I consider it too late now for SFK to argue that they can interpret clause 3(B) or clause (6) to allow for a deduction for LD by implication.

82.  The main hurdle for SFK is that the right to deduct LD is always a creature of contract. The deduction of LD by the Housing Authorities arose from the LD provision in the HKHA Contract.  If the Management Contract between SFK and Many Harvest contains a similar provision, SFK no doubt can seek recovery from Many Harvest.  That the settlement agreement contains no provision for LD will provide Mr Tai a complete answer to any direct claim by SFK against him for a deduction. 

83.  I consider that SFK have no right to impose any LD upon Mr Tai and indeed any sub-contractors under the settlement agreement.  Having so found, SFK cannot make exactly the same deduction by construing “the final payments … SFK receives” in clause (6) as limiting their liability to make payments to Mr Tai net of the LD deductions which were imposed upon them by the HKHA.  Under the settlement agreement they are obliged to distribute, pursuant to the terms of the settlement agreement, the whole amount received by way of final payment.  In the absence of a provision in relation to LD, there can be no deduction.

84.  I agree with Mr Lee that even if SFK have the right to impose LD upon the sub-contractors, which I find not to be the case, SFK must first establish liability against a specific sub-contractor for LD, and then assess an amount commensurate with his liability. There is no basis on which it could make such a deduction on a pro rata basis under clause 3(B), as that clause was plainly designed to deal only with the agreed deduction of the HK$7M .  This, SFK having failed to do, their claim for deduction of LD against Mr Tai therefore must fail.

Issue (vii)(b) – Deduction for barralastic coating:

85.  A dispute arose between the HKHA and SFK after completion of the project with the HKHA alleging that they had overpaid SFK for the item of barralastic coating.  Shortly stated, that dispute turned on the construction of the contract specification as to whether the coating should be paid on the basis of the thickness of the coating or of both its thickness and the number of layers. The HKHA initially deducted money from the final bills to SFK on the basis of their interpretation of the relevant specification.  As a result of SFK’s protest and after rounds of subsequent negotiations, the HKHA agreed to reduce the amount of deduction and paid back the over-deducted amount to SFK in subsequent final payments.  SFK seek to deduct HK$59,024.10 from Mr Tai.  Mr Tai was not in any way involved in, and had not been heard on, the dispute.

86.  Again, in the absence of a provision for a deduction in relation to disputes attributable to a specific sub-contractor, there can be no basis for this deduction.

87.  Mr Tsang relies on clause 3(B) and clause (6) of the settlement agreement, which are set out in §22 and §24 above.  Relying on the “net” payment contention as giving SFK the right to make the deduction, Mr Tsang proceeds to deal with the method of assessment and says the deduction should be made on the pro rata basis.  Mr Tsang describes this method of deduction as “the most favourable to Fat Kee.”

88.  Mr Lee has advanced two arguments. First, he submits that there is no evidence of a “back to back” provision in the settlement agreement upon which SFK can make such a deduction.  Mr Lee’s second argument is directed at SFK’s settlement with the HKHA.  He submits that there is no way to know whether that settlement was reasonable. 

89.  The settlement agreement having made no provision for barralastic coating, it cannot be construed, by implication, as permitting SFK to reduce the amount of the final payments so as to allow SFK to seek, in effect, reimbursement of their loss arising from their compromise with the HKHA. 

90.  As a consequence of my finding that SFK have no right to make any deduction for the barralastic coating, there will not be any need to consider the question of reasonableness of SFK’s settlement with the HKHA.

Issue (vii)(c) – Deduction for HK$2M:

91.  SFK seek to deduct HK$116,106.65 from Mr Tai.

92.  Unlike the deductions for LD and barralastic coating, the settlement agreement did provide for deducting the remaining HK$2M. Clause 3(B) is set out at §22 above.

93.  Mr Tsang submits that the language of clause 3(B) is plain and so is the term “pro rata”.  It means simply apportioning the HK$2M deduction among the sub-contractors in proportionate to the amount of the final payments to which they were entitled to receive.  Mr Tsang describes this way of pro rata as being “the most favourable to Fat Kee”.[18]

94.  Mr Lee invites the court to hold that clause (3)(B) is unenforceable.  He submits that the words “upon negotiation” amount in effect to an “agreement to agree”. Mr Lee also submits that there are at least four different ways of pro rata basis and refers me to Mr Battersby’s expert report.  Consequently, he says the court cannot impose its view as to which particular way of sharing by way of pro rata they might have agreed.

95.  Mr Lee also contends that the expression “payments” wherever it occurs refers to the final bills payment, and not in any case to a payment to a sub-contractor.

96.  There is an inherent contradiction in the following two sentences in clause 3(B):

(a)   “…upon negotiation such deduction shall be shared pro rata by (the seven sub-contractors)”.

(b)   “(the seven sub-contractors) shall jointly and severally be responsible for the HK$2 million”.

97.  The first implies that each individual sub-contractor will only be liable for an agreed proportion of the deduction.  The second however clearly states that each shall be jointly and severally responsible for the whole sum.  Thus, if six sub-contractors were not liable for any share of the $2 million the whole sum would have to be deducted against one sub-contractor’s entitlement, whether or not that was the correct sum to be attributed to him.  That cannot be right.

98.  Mr Lee must be right when he says that the words “upon negotiation” mean negotiation by the parties after the making of the settlement agreement as to how the deduction of $2 million should be shared amongst them.  That is an agreement to agree in the future.  The notion of each sub-contractor being “severally liable” for the whole of the HK$2M deduction simply cannot be reconciled with the notion of his liability being a share of that sum on a pro rata basis.  I accordingly hold that clause 3(B) is too vague to enforce.

99.  There is another compelling reason to hold that clause 3(B) is unenforceable, even if I can ignore the “agreement to agree”, and the “severally liable” problem. 

100.  Mr Tsang submits that there is no unfairness if the HK$2M deduction was to be shared on a pro rata basis according to the respective final payments among the sub-contractors.   I understand Mr Tsang to mean, by way of example, that if the total amount of all final bills is, say, HK$20M and if Mr Tai’s total entitlement from his final bills payment is, say, HK$1M, his entitlement would be 5% of the total amount.  What Mr Tsang means, if I understand it correctly, is that Mr Tai’s share of the HK$2M deduction should also be 5%, namely HK$100,000.  At first sight, this might seem fair.

101.  But when one reads the second sentence in clause 3(B) commencing; “In the subsequent four installments ….”, it is immediately realised that it would be impossible to achieve the so-called fairness. 

102.  I illustrate my above view by way of the following analysis. To achieve the suggested fair result, one must leave deduction to the end, which means after SFK have received all payments from the final bills.  Clause 3(B), however, does not operate in this way.  The clause required as the deduction to be made as soon as the first instalment was received and for at least HK$500,000 wherever possible. This process of deduction was to be repeated in the second, third and fourth installments. That is where the problem lies; only sub-contractors who had payments certified in their favour in these four installments would be subject to deduction; those who had no payments would not.  

103.  At this juncture, it seems plain that the ultimate sharing by the sub-contractors will not necessarily be in proportionate to their final payments, as Mr Tsang suggests.  In other words, sharing cannot be made on the pro rata basis as stated in clause 3(B).  That conflict, being incapable of reconciliation, it is not appropriate for the court to embark upon a process of redrafting clause 3(B) by reading into it what it does not contain and deleting words which are there.

104.  I accordingly find that clause 3(B) is unenforceable in law. 

CONCLUSIONS:

105.  The consequence of my above findings is that Mr Tai’s case would fall within Scenario S10a, Situation 1, (see bundle D page 432) but adding back the $88,215.85 on page 433 and that SFK are not entitled to any deduction for LD, barralastic coating or a share of the HK$2M.  

106.  The calculation of these figures is a matter of arithmetic.  Leave is reserved to apply if the parties are unable to agree the figures.

COSTS:

107.  I will hear the parties on the outstanding questions, including all questions of costs and interest, including costs in HCCT47/2009on Friday, 12 August 2011, at 10 AM.