BESPARK TECHNOLOGIES ENGINEERING LTD v. A TECH M & E ENGINEERING LTD

HCCT 65/2019

[2022] HKCFI 3024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 65 OF 2019

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________________________

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JUDGMENT

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Introduction

1.  The plaintiff (“BeSpark”) was a nominated Electrical and Mechanical sub‑contractor in the construction of a residential development, now known as The ALTO Residences, in Tseung Kwan O.  The development comprised 7 multi-storey apartment buildings (“Towers 1 – 8”, with 7 omitted), 23 townhouses (“Houses 1 - 27”, with 4, 13, 14 and 24 omitted), and a clubhouse.  BeSpark in turn engaged the defendant (“A‑Tech”) to carry out part of the electrical installation works for the Houses and Towers 5 and 6. 

2.  A‑Tech worked accordingly from mid‑2016 up to 7 September 2016 when its engagement was terminated.  In February 2019 BeSpark sued A-Tech in the District Court claiming damages for defective work, and A-Tech made a counterclaim.  BeSpark’s claim was eventually abandoned in its written opening submissions.  The trial was therefore solely about A-Tech’s counterclaim, in which A‑Tech alleges that there were two lump-sum contracts which were wrongfully terminated by BeSpark, that BeSpark failed to pay for the work A-Tech had done, and further that A‑Tech suffered a loss of profit as a result of BeSpark’s wrongful repudiation.  BeSpark contends that there was no lump-sum contract but only an agreed temporary arrangement for A-Tech to carry out the works terminable by one day’s notice.  The principal issues arising concern the nature and terms of the contracts between the parties, the value of the work done by A‑Tech and whether BeSpark has to compensate A‑Tech for loss of profits and, if so, in what amount.

The factual background

3.  I shall first set out the background facts and events below most of which are not controversial.

4.  The invitation for tender for the electrical installation works of the development as a whole was issued on behalf of the developer in late 2015.  BeSpark intended to submit a tender and then to sub-contract the works.  In mid-December 2015, Mr C P Chung (“Chung”), Manager of BeSpark, asked Mr Chan Kam Chiu, also known as “Sam Chan”, a director and the representative of A-Tech, to provide a quotation for the whole works.  A‑Tech was given the tender documents issued by the developer.  The deadline imposed by BeSpark was 21 December 2015. As A‑Tech considered there was not enough time to prepare a quotation, Sam Chan told Chung that A-Tech would not provide one.

5.  In February 2016, Chung asked Sam Chan again to provide a quotation, but this time in relation to the Houses only.  Sam Chan agreed to do so.  On 1 April 2016, A‑Tech provided a quotation (“First Quotation”) to BeSpark as follows:

“ Houses at Lot No. 95 Tseung Kwan O

We thank you for your kind invitation and have pleasure to submit herewith our quotation at the amount of HK$7,978,000.00 with details below, for your kind consideration.

Please note that the following items are excluded:

(1) Temporary lighting and power for the work execution.

(2) Clearing debris away from site.

(3) Builder’s work including fire rate enclosure, cutting in slabs, make good, excavation, cable pits, earth pits, trenches and underground ducts.

(4) All insurance, such as workman compensation, third party and all risks, etc.

(5) Levy Charges,

(6) Provision of working platform for high level works.

(7) Scaffolding for external works.

(8) Supply of MCB unit, MCB board, light fitting, isolator, light switch and socket, outlet plate, connection unit and ELV System.

(9) Supply and Installation for Incoming power cable to the MCB board.

(10) Incoming pipe / trunking for Telephone and ELV System.

We hope that you will find our above offer acceptable and look forward to receiving your valuable order.”

6.  According to A-Tech, on 30 April 2016, Sam Chan was invited to attend a meeting at BeSpark’s office.  Those from BeSpark attending included P K Wong (“Wong”) (Director), Chung (Manager), Thomas Chan (Senior Engineer) and Neville Lee (“Lee”) (Project Manager). BeSpark denies there was such a meeting.  Whether this meeting took place and what exactly was said and agreed are in dispute.

7.  On 3 May 2016, Chung sent an email to A‑Tech as follows:

“ Dear Sam,

Signed quotation is attached for your follow-up actions.

In order to enable us to prepare contract documents for the captioned works, please submit your schedule of rates asap.

Regards,

C P Chung

BeSpark Technologies Engineering Limited”

8.  On the copy of the First Quotation attached to the email, the figure of $7,978,000 was crossed out and substituted by $7,579,100.  The excluded item (6) was also crossed out, and Chung signed and stamped BeSpark’s company chop next to the deletion.  At the bottom, the following was added in handwriting:

“ Quoted Price (Original)	:	HK$7,978,000.00
Less Special Discount (5%)	:	HK$ 398,900.00
(*) Quoted Price (Revised)	:	HK$7,579,100.00
		==============

Remark

(*)  The offered price for the above electrical installation inclusive of project management duty is on back to back basis.”

This was followed by Chung’s signature and name and BeSpark’s company chop and the date of 30 April 2016.

9.  Sam Chan said he considered a contract based on the First Quotation (as amended) was formed.  On the same day, A‑Tech started preparing the shop drawings for the Houses and mobilised its resources to commence the works.

10.  On 12 May 2016, Lee and Sam Chan exchanged messages as follows:

   Lee:  “Sam: 可否立即準備上 shop drawings?”

   Lee:  “暗喉及留吼”

   Sam Chan: “OK”

11.  On 19 and 20 May 2016, A-Tech provided certain shop drawings for House 1 to BeSpark.

12.  Meanwhile, shortly after 3 May 2016, Chung asked Sam Chan to submit another quotation for the electrical installation works, this time for Towers 5 and 6.  On 24 May 2016, A‑Tech submitted a further quotation to BeSpark (“Second Quotation”) as follows:

“ Quotation for Electrical Installation for

Tower 5 & 6 at Lot No. 95 Tseung Kwan O

We thank you for your kind invitation and have pleasure to submit herewith our quotation at the amount of HK$17,361,000.00 with details below, for your kind consideration.

1. Please Note that the Following Materials are Included in the Quotation:

1.1 Supply and conduit installation and cables wiring.

1.2 Supply of all single core PVC cables and power company meter leads.

1.3 Supply of cable lug and cable gland.

1.4 Supply of extension box for switchgear.

1.5 Supply of metal bracket.

1.6 Shop drawing, As‑fitted drawing, O & M Manual.

2. Please Note that the Following Items are Excluded in the Quotation:

2.1 Supply of armoured cable, branch cable, MCCB board No. T5 & T6, and main incoming indication lamp box.

2.2 Supply of MCB & MCCB unit, MCB & MCCB board, light fitting, light switch, socket, fused connection unit, TPN connection unit, DP switch w/ pilot lamp door bell outlet plate and switchgear.

2.3 Supply and Installation for incoming power cables to MCCB board No. T5 & T6 (However, the cabling and termination of the cables have been included).

2.4 Supply of trunking and cable tray.

2.5 Supply and installation of incoming trunking for Telephone, EL, ELV and Data System.

2.6 Temporary lighting and power for the work execution.

2.7 Clearing debris away from site.

2.8 Builder’s work including fire rate enclosure, cutting in slabs, make good, excavation, cable pits, earth pits, trenches and underground ducts.

2.9 All insurance, such as workman compensation, third party and all risks, etc.

2.10 Levy Charges.

2.11 Provision of working platform for high level works.

2.12 Scaffolding for external works.

2.13 Supply and installation of Home Automation and Data Network System.

We hope that you will find our above offer acceptable and look forward to receiving your valuable order.”

13.  According to A-Tech, on 6 June 2016, Sam Chan attended a meeting at BeSpark’s office with Wong, Lee and Thomas Chan.  BeSpark accepts there was a meeting although it says it took place in late May 2016.  What was said and agreed is however in dispute.  Thomas Chan, either at the meeting or shortly thereafter, wrote the following on the quotation:

“ Original Quoted Sum: $17,361,000

Less Discount: (868,000)

16,493,000

(Special) Less 2% discount: (329,860)

   $16,163,140 ”

Thomas Chan also signed and affixed his name chop below these words.  This copy of the Second Quotation, as signed by Thomas Chan, was given to A-Tech.

14.  Sam Chan considered that a further contract was formed on the basis of the Second Quotation (as amended).  On 7 June 2016, A‑Tech started preparing the shop drawings for Towers 5 and 6 and mobilised resources to commence the installation works. On 20 June 2016, A-Tech’s workers, many of whom were supplied by A-Tech’s labour sub-contractor Luen Hing Electrical Engineering Co (“Luen Hing”), began work at the site, although the records show that they started preparatory work on 17 June.

15.  On 22 June 2016, Thomas Chan sent an email to A‑Tech (as well as another electrical installation sub-contractor called Sothis who was responsible for the other residential towers), stating:

“ As directed to you before award of contract, you are requested to submit as follows:

1. Summary of tender for each Tower, House & Podium

2. Schedule of UR

We need your submittal to include in our execution of Contract to your goodself & payment thereafter.

Please return within 10 days.”

16.  On 24 June 2016, A‑Tech received an email from Lee attaching a draft “Letter of Acceptance”, setting out certain terms and conditions for the works covered by the First and Second Quotations combined.  Sam Chan verbally confirmed to Lee that the draft letter was acceptable subject to two amendments.

17.  On 19 July 2016, A-Tech received a further email from Lee attaching a revised draft Letter of Acceptance which incorporated Sam Chan’s comments and read as follows:

“ We refer to your quotation ref. T16/Q004 & T16/Q006 as attached for the above work and your best offer dated May 12, 2016 & June 6, 2016 respectively in sum of HK$23,724,830.00.

We are pleased to confirm accepting your above best offer in sum of HK$23,724,830.00 for the carrying out of the electrical works complying to the specification, conditions and tender drawings of the above electrical Sub-Contract inclusive of the following:

(1) The above price has included the electrical works as per the scope of the above Sub-contract for the areas as follow:

(a) Houses 1 to 3, 5 to 12, 15 to 23, 25 to 27);

(b) Tower 5 and 6;

(2) The above price has included the installation and the supply of part of the materials as follow:

(a) All non-amoured cables including 1/C PVC and PVC/PVC cu cables;

(b) All couduits and accessories for both PVC and G.I. type including flexible conduct;

(c) All cable glands, lugs, cable entry boxes and accessories;

(d) Fire rating material, cladding and etc for backfilling;

(e) All fixing brackets and supports for respective electrical works including fixing rods, unistruts and etc as specification;

(f) All sundries and other minor items that are required for the completion of the said work like primer paint to cut surface, steel wire, screw, nut polyfoam and etc;

(3) The above price has included site coordination and preparation of shop drawings for conduit work and related electrical services as per specifications;

(4) The above price has included attending meetings related to the said work including subcontractor progress/coordination/safety meetings and etc;

(5) The above price has included all tools and working platforms not provided by the Main Contractor;

(6) The above price has included all testing and commissioning and provision of test records for WR1 and as-fitted record drawings (CAD files) as per specifications;

(7) You are required to deploy all necessary resources to complete the said electrical work suiting the Main Progress that will be revised from time to time;

(8) Variation work will be assessed basing on site record and agreed schedule of rates;

(9) Payment Terms:

(a) 95% monthly progress payment with 10% retention for work done up to maximum 5%;

(b) Payment to be applied on 24^th day of each month and will be paid in 30 days;

(c) Monthly wage plus MPF including A-tech’s’ portion i.e. $855 + $45 + $45 = $945 to your workers will be paid by us through bank-auto-pay basing on the monthly site entry record report received from Main Contractor, and the paid amount will be deducted from your monthly assessed entitled payment;

(10) All insurances will be covered by other;

Please prepare for submission of your equipment and shop drawing to meet with the site progress.”

This final version was also sent by Lee at around the same time to Chung for comment and to Thomas Chan for preparation for signature the next day.  There was no response from them disclosed by BeSpark that suggested there was anything amiss with the signing arrangement.

18.  On the next day, Sam Chan replied by email to Lee, thanking him for the draft Letter of Acceptance, which A-Tech had “checked and accepted”.  At Lee’s request, Sam Chan went to BeSpark’s office and signed the Letter of Acceptance.  Lee told him that he would send him a copy of the letter after Wong signed it.  But A-Tech never received it.

19.  Meanwhile, A-Tech continued with its work on the project.  On 25 July 2016, A-Tech submitted to Chung and Lee a pro forma invoice (with breakdown) for Interim Payment No. 1 for the Houses and Towers 5 and 6, together with details of number of days worked by the individual workers, as follows:

“ In carrying out the work of the captioned project, we would like to submit the Proforma Invoice for the Application for Interim Payment No.1 at the amount of HK$203,000.00 with detail as follows, for your kind consideration.

Contract Amount	:	HK$23,742,240.00
Work Done up to Date	:	HK$     226,530.00
Less Retention Money	:	HK$     22,653.00
(Max. 5% of Sub-Contract Sum)
		________________
Total	:	HK$     203,877.00
		________________
This Claim (correct to nearest Thousand)	:	HK$     203,877.00
		==============

   We enclose herewith a copy of Application for Interim Payment No.1 for your kind approval.

   In addition, attached please find a copy of 分判商工人薪金簽收表for your easy reference.”

20.  BeSpark did not pay the amount of the invoice, but on about 5 August 2016 it paid a portion of the wages of A-Tech’s workers (for the period 24 June to 23 July) directly through their bank accounts, in the total sum of $77,055.

21.  On 20 August 2016, Sam Chan provided a “Summary of Tender” together with a Schedule of Rates to Lee.

22.  On 25 August 2016, A-Tech sent a pro forma invoice for Interim Payment No. 2 to BeSpark, as follows:

“ In carrying out the work of the captioned project, we would like to submit the Proforma Invoice for the Application for Interim Payment No.2 at the amount of HK$713,000.00 with detail as follows, for your kind consideration.

Contract Amount	:	HK$23,742,240.00
Work Done up to Date	:	HK$     878,640.00
Less Retention Money	:	HK$     87,864.00
(Max. 5% of Sub-Contract Sum)
		________________
Total	:	HK$     790,776.00
Less Payment for Our Workers	:	HK$     77,055.00
(24/06/2016 to 23/07/2016)
** Less Previous Payment Received		Nil
		________________
Total	:	HK$     713,721.00
		==============
This Claim (correct to nearest Thousand)	:	HK$     713,000.00
		==============

   We enclose herewith a copy of Application for Interim Payment No.2 for your kind approval.

   Please note that our Interim Payment No.1 still not yet received.

   Your early Payment would be highly appreciated.”

23.  On the same day, Lee forwarded Sam Chan’s email to Mr Cyrus Lam (“Lam”), an engineer in BeSpark directly under Lee and responsible for supervising the progress and quality of the works, stating “FY [i.e. For your] certification” (the email was copied to Chung, Thomas Chan and two others).

24.  On 26 August 2016, Thomas Chan provided his recommended unit rates to Sam Chan.  On 29-30 August 2016, Sam Chan met with Lee and Thomas Chan to discuss the unit rates.

25.  On 1 September 2016, A-Tech provided a Bill of Quantities to BeSpark.  In the email, Sam Chan reminded Lee that “our 1st Payment is still outstanding”.  On the next day, Lee forwarded that email to Lam (copied to Chung and K H Liu), stating: “Please help check the attached BQ from A-Tech and assess their payment applications.”  In an email to Lam, Sam Chan again chased for the “Outstanding Payment for 1st Payment Application”. 

26.  On 5 September 2016, Sam Chan met with Lee and Lam.  He was told that A-Tech’s engagement would be terminated.  On 6 September 2016, Lee sent an email to Sam Chan that read as follows:

“ Further to yesterday’s meeting with you regarding your quotation for the above work we write to confirm as agreed between us that you will carry out the temporary conduit work up to 6:00 p.m. of Sept 7, 2016 (Wed). After that we shall take up the said work ourselves on Sept 8, 2016.

Please submit the quotation as soon as possible for your work done for this project with substantiation document like payroll record and invoices copy for materials for our assessment and making payment as you.”

A-Tech and its workers left the site accordingly after work on 7 September 2016.  Two replacement sub-contractors were engaged by BeSpark to carry on with the works on the Houses and Towers 5 and 6.

27.  Meanwhile, on about 5 September 2016, BeSpark had paid part of the wages of A-Tech’s workers directly (for the period 24 July to 23 August), in the total sum of $126,180.

28.  On 30 September 2016, A-Tech wrote to BeSpark as follows:

“ We refer to the meeting held on 5 September 2016 discussing the further discount on the agreed quotation for the Electrical Installation for House 1 to 27, Tower 5 and Tower 6. Please note that our concealed conduit work have already been installed and completed as follows:

1. House 1 to 27

1.1 The concealed conduits for ELV System, Lighting and Power at Basement 2 have been completed for House 10 to 17 and House 20 to 27.

1.2 The concealed conduits for Staircase Lighting and ELV System at Basement 1 have been completed for House 10 to 17.

2. Tower 5

2.1 The concealed conduits for ELV System, Lighting and Power from Basement 2 to 2/F partition wall have been completed.

3. Tower 6

3.1 The concealed conduits for ELV System, Lighting and Power for Basement 2 to 2/F floor slab have been completed.

Since we received your order confirmation and acceptance 12 quotations (Ref. : T/16/Q004 dated 1 April 2016 and T/16/Q006 dated 24 May 2016), we have executed the installation work in line with the Main Contractor Work Program. We have not received any written complaint about the workmanship of our installation works from you or Consultant until 7 September 2016. You suddenly informed us by Phone to stop the works and confirmed by E-mail on 6 [September] 2016. We have no doubt suffered heavy losses and damages and would like to claim for the reimbursement from you.

We Summarise the Expenses Incurred for the Completion of the Captioned Concealed Conduit Works as Follows: …”

The letter then set out 9 items of charges including profit calculated at 15% of the sum of the first 8 items.  The total amount claimed was $2,797,436.52.

29.  On around 3 October 2016, BeSpark paid a portion of the wages of A-Tech’s workers (for the period 24 August to 7 September) directly through their bank accounts, in the total sum of $151,570 (of which $69,300 was payment of wages in lieu of notice, for which BeSpark had accepted responsibility).

30.  On 14 October 2016, Lee replied to Sam Chan that the assessment of A-Tech’s claim was underway.  However, Lee said that the claim for staff salary and overheads was unreasonably high and more substantiation was required.  Lee said that BeSpark would assess the claim based on “actual costs incurred (full substantiation required) plus certain % (say 10%) of mark-up that is subject to further agreement”, and that BeSpark would consider first settling the labour and material costs if the assessment was agreed.  Sam Chan replied by email on the same day, stating that A-Tech would submit the supporting documents and that during the meeting on 5 September 2016 it had requested 15% mark-up on the costs incurred.

31.  On 19 October 2016, Sam Chan wrote to Chung and Lee, referring to the meeting two days before where they had agreed to pay the costs incurred with the support of bank statements, and submitted an invoice for various amount including a mark-up of 15%.  After BeSpark responded that A-Tech had misinterpreted its suggestion, on 27 October 2016 A-Tech submitted an application for payment of $386,090 with supporting documents, which represented interim payments made by A-Tech to Luen Hing for labour costs.

32.  On 15 November 2016, Sam Chan had a meeting with Wong, Chung, Lee and K H Liu where it was agreed that a 12% mark-up on the costs incurred would be used for assessment.  On the same day Sam Chan sent a letter to BeSpark to apply for payment of $187,967.52 based on material costs and facilities expenses with 12% mark-up.  This was revised by Sam Chan’s letter two days later to $148,771.86 based on material costs and a 12% mark-up.  This amount was paid by BeSpark.

33.  On 28 July 2017, A-Tech wrote to BeSpark with 8 appendices setting out the breakdown of various heads of expenses which totalled, including 12% mark-up, $2,707,232.30.  BeSpark did not pay this amount.

34.  Despite various telephone conversations between K H Liu and Sam Chan between October 2017 and October 2018, BeSpark did not pay any further amount to A-Tech.  On 29 October 2018, A-Tech wrote to BeSpark and again set out the heads of expenses listed in the letter of 28 July 2017, together with the supporting documents.  The total amount was reduced to $2,421,727.30, after giving credit for workers’ salaries and MPF contributions paid directly by BeSpark in the sum of $285,505.  A-Tech gave BeSpark “final notice” to settle the outstanding payment within 30 days.

35.  On 14 November 2018, BeSpark’s solicitors wrote to A-Tech stating that BeSpark had no outstanding liability towards A-Tech as claimed or at all, and that BeSpark reserved its right to claim for loss suffered caused by A-Tech’s sub-standard work.

36.  On 31 January 2019, A-Tech’s solicitors replied, stating, inter alia, that BeSpark had agreed to pay A-Tech the amounts of $7,579,100 and $16,163,140 as lump sum fixed prices under the First and Second Quotations as discounted, and that by evicting A-Tech and terminating its work, BeSpark was in repudiatory breach of the contracts.

37.  On 27 February 2019, BeSpark commenced the action in the District Court, claiming $152,500 in damages, said to be the amount paid by BeSpark to engage another contractor to remedy the defective works done by A-Tech.  As mentioned above, this claim was dropped in BeSpark’s opening submissions.

The parties’ cases and the issues arising for determination

38.  A‑Tech’s case is that there were two contracts between the parties based on the acceptance by BeSpark of the First and Second Quotations (both as amended) respectively.  BeSpark wrongfully repudiated both contracts, and A-Tech accepted the repudiation by vacating the site on 7 September 2016. A-Tech therefore claims payment for value of work done less payments received, in the sum of $3,226,459, and loss of profit on the remaining works in the sum of $3,012,225.56.

39.  BeSpark’s case is that no contracts were formed with A-Tech that were based on the First and Second Quotations (whether as amended or otherwise).  Instead, at a meeting in late May 2016, it was agreed, and a contract was formed, that A-Tech would be engaged on the basis of a “Temporary Arrangement” (代工).  A-Tech’s remuneration would be based on the number of workers who actually worked at the site, at the rate of $1,500 per worker per day, and the material costs actually incurred.  A-Tech would also be entitled to a 12% mark-up on such costs.  The arrangement could be terminated by either side with one day’s notice.

40.  The principal issues that arise for determination are as follows:

(1)  What was agreed between the parties?

(2)  If there were agreements as contended for by A-Tech, did they contain the essential terms to be binding contracts?

(3)  On the basis of lump-sum contracts, what is the proper relief for A-Tech in respect of the work already done?

(4)  On the basis of lump-sum contracts, what damages is A-Tech entitled to for loss of profits?

(5)  If there was no contract (for want of essential terms), is A-Tech entitled to a quantum meruit for the work done?

Nature and terms of the parties’ agreements

41.  It is common ground that the parties came to agreement.  The dispute is the nature and terms of their agreement.  The competing contentions are (1) as contended by A-Tech, they agreed on two lump-sum contracts based on the First and Second Quotations with the agreed discounts and amendments; and (2) as contended by BeSpark, they agreed on the Temporary Arrangement which was terminable by one day’s notice under which A-Tech was reimbursed the workers’ salaries and material costs together with a 12% mark-up.

A-Tech’s evidence

42.  Sam Chan’s evidence was that because of time constraints, Chung told him that A-Tech was only required to quote a lump sum price.  Chung also told him that A-Tech’s quotations should cover the scope of works in the tender documents except for certain works which would be supplied by BeSpark such as trunking, cable tray, armoured cable, branch cable, MCCB unit, MCCB board, MCB unit, MCB board, light fittings, isolator, light switch and socket, outlet plate, connection unit and ELV system.

43.  Following the First Quotation, there was a meeting on 30 April 2016, attended by Sam Chan on behalf of A-Tech, and by Wong, Chung, Thomas Chan and Lee on behalf of BeSpark.  Wong asked him to offer a substantial discount from the quoted price of $7,978,000.  After negotiation, he offered to reduce the price by 5% (ie to $7,579,100), which was agreed by Wong.  They went through the excluded items in the First Quotation and agreed to remove one of them, namely, the provision of working platform for high‑level works.  Wong also agreed that A‑Tech would apply for 95% monthly progress payment with 10% retention for work done up to a maximum of 5%; payment was to be applied for on the 24^th day of each month and to be paid in 30 days; and monthly wages for the workers would be paid by BeSpark at $945 per head plus MPF contributions through bank auto-pay to the workers’ accounts, based on the site entry records, and the amount paid would be deducted from the assessed monthly payment for A‑Tech.  The balance of the workers’ wages would be paid by A‑Tech to them.

44.  Sam Chan said that Wong urged him to commence the works immediately by preparing shop drawings for submission as soon as possible.  No one mentioned the term “代工” and no one told him that this was an arrangement terminable by one day’s notice.  After receiving the amended First Quotation signed by Chung, A-Tech started preparing the shop drawings for Houses 1-27 and prepared for commencement of work on site.

45.  Sam Chan said that shortly after 3 May 2016, Chung invited him to submit a quotation for the electrical installation works for Towers 5 and 6 based on the same technical specifications as set out in the tender documents provided in December 2015.  After A-Tech issued the Second Quotation as requested, there was a meeting on 6 June 2016, attended by Sam Chan on behalf of A-Tech, and by Wong, Thomas Chan and Lee on behalf of BeSpark.  Wong asked Sam Chan for a bigger discount because the scope of works was more substantial.  Sam Chan initially offered a 5% discount as before, but eventually agreed to offer a further special 2% discount off the discounted price.  Wong told Thomas Chan to record their agreement by writing the remarks on the Second Quotation (see §13 above), a copy of which was given to Sam Chan subsequently.  No one told him that this was an arrangement terminable by one day’s notice.  On the next day, A-Tech started preparing the shop drawings for Towers 5 and 6 and readied itself for commencement of works.

BeSpark’s evidence

46.  On BeSpark’s side, Chung and Thomas Chan had since left their employment and were not called to give evidence.  Wong and Lee had given witness statements on behalf of BeSpark, but only Wong gave evidence at trial.  There was no explanation offered as to why Lee was eventually not called.  The other witness called by BeSpark was Lam but he only joined BeSpark on 20 June 2016 and was not present at the initial meeting(s).

47.  Wong’s evidence was that there was no meeting shortly after the First Quotation, and that his meeting with Sam Chan took place after BeSpark had received the Second Quotation.  At the meeting, he told Sam Chan that A-Tech’s two quotations were too expensive and that without substantial discounts they were unlikely to be selected.  He told Sam Chan that BeSpark would hold a tender and invite bids from other companies and this would take several months.  He invited A-Tech to work in the meantime on the basis of the Temporary Arrangement (代工).  Material costs would be reimbursed, and workers’ salaries would be paid according to site attendance based on palm recognition records.  A-Tech would be paid a 12% mark-up on costs.  The arrangement could be terminated by either side with one day’s notice.  According to Wong, Sam Chan agreed at the meeting to work on this basis.  Lam also sought to support Wong’s evidence on the Temporary Arrangement, even though he only joined BeSpark on 20 June 2016.

Discussion

48.  I do not accept Wong’s and Lam’s evidence where it conflicts with Sam Chan’s.  Their evidence is improbable and inconsistent with objective facts.  I think it unlikely that Wong was as uninvolved in the exercise of getting quotations from potential sub-contractors as he portrayed. At one stage Wong said he only knew at the end of May 2016 that his staff had not approached the sub-contractors BeSpark used to work with for quotations on this project; but later he said he knew in April that they had only obtained quotes from two new sub-contractors, A-Tech and Sothis.  It is also difficult to believe that he did not see the First Quotation shortly after it was issued to BeSpark, and that Chung amended, signed and stamped on it without Wong’s knowledge, as Wong claimed.  It is far more likely that the 30 April 2016 meeting did occur as Sam Chan said.  The idea that Wong was not interested in finding out the prices quoted until the end of May seems to me incredible.

49.  In Chung’s email to Sam Chan dated 3 May 2016, he specifically said “signed quotation is attached …”.  The signature of Chung, together with BeSpark’s company chop, are indications of acceptance of the First Quotation (as amended).  Chung also asked Sam Chan for the Schedule of Rates in order to prepare contract document.  There was no suggestion that BeSpark needed to prepare a further tender exercise.  It is significant that the First and Second Quotations were signed by senior officers of BeSpark.  Had they merely been offers revised by A-Tech for BeSpark’s consideration, they should have been signed by Sam Chan on A-Tech’s behalf rather than by Chung and Thomas Chan for BeSpark.

50.  Wong’s claim that he first had a meeting with Sam Chan at the end of May is also inconsistent with the fact that on 12 May 2016, Lee had already instructed Sam Chan to submit shop drawings forthwith (see §10 above).  When asked why Lee would do so if their first meeting only took place at the end of May, Wong simply said he did not know.  The person best placed to give an explanation – Lee – did not testify.

51.  Wong claimed that the company chop stamped on the First Quotation was a chop that could be used at construction sites for acknowledging deliveries and not the real company chop.  He tried to trivialise that chop but had no explanation for why the First Quotation was stamped with it. Generally, of course, a company chop is often used to signify a company’s agreement.  It should be noted that the same chop was applied to the written agreements subsequently entered into by BeSpark with other sub-contractors in place of A-Tech.

52.  Wong was initially categorically certain that his meeting with Sam Chan took place at the end of May and not on 6 June 2016, but when faced with the WhatsApp messages between Lee and Sam Chan dated 1 June which show that the meeting was scheduled for 6 June, Wong evaded the question by claiming that end of May and 1 June were only one day apart.

53.  Wong said that neither Chung nor Thomas Chan gave him the amended First or Second Quotation which they had written on and signed at the time, and that Wong only saw those documents much later, after they had left BeSpark.  At the meeting with Sam Chan, Wong said he was looking at the unamended quotations, and that Sam Chan agreed to revert later with reductions after Wong said the quotes were expensive.  I find this evidence wholly incredible.  There was no reason for Chung and Thomas Chan to hide the documents from Wong.  Wong did not explain where he got the clean, unamended quotations from.  It did not make sense that Wong would be provided with the unamended First Quotation for the purposes of the meeting when the amended version had existed since 30 April or 3 May.  It also made no sense that Wong would not have been provided with the amended Second Quotation at the time.  Further, if, as Wong claimed, he told Sam Chan on the basis of the unamended First Quotation that his quote was too expensive, surely Sam Chan would have immediately told Wong that that quotation had already been amended and reduced. 

54.  Wong said that a 12% mark-up was agreed at the meeting with Sam Chan.  This is inconsistent with BeSpark’s Amended Reply and Defence to Counterclaim which pleaded that the 12% was agreed at a meeting in November 2016 and also inconsistent with the contemporaneous documents: (1) A-Tech’s letter of 30 September 2016 suggests that it had understood that the percentage of 15% was agreed or at least requested at the meeting of 5 September 2016; (2) Lee’s email of 14 October 2016 shows that BeSpark considered that the percentage had yet to be agreed; (3) A-Tech’s letters of 15 and 17 November 2016 show that the figure of 12% was agreed at the meeting of 15 November 2016; and (4) BeSpark’s solicitors’ letter dated 14 November 2018 stated that it was after the termination of the contract in early September 2016 that the parties agreed an overall mark-up of 12%.

55.  BeSpark’s Statement of Claim pleaded that under the Temporary Arrangement, A-Tech would be remunerated based on the number of days worked by its workers at a “market rate” of $1,500 per worker per day (together with reimbursement of material costs and a 12% mark-up).  Wong’s witness statement was inconsistent with this and stated that the actual labour costs would be paid.  When asked why there was a discrepancy, Wong said that $1,500 was the maximum.  It seems to me that this discrepancy is another indicator that there was no agreed Temporary Arrangement as alleged.  There is evidence from Mr Kong, the proprietor of Luen Hing, which I accept, that A-Tech agreed to pay Luen Hing $1,900 per worker per day (inclusive of tools and trivial materials).  There are also receipts showing the sums paid by A-Tech to Luen Hing.  This makes it highly unlikely that A-Tech would have agreed to an arrangement that would reimburse it for labour cost capped at $1,500 per worker per day.  Furthermore, the direct payments made by BeSpark to the workers were based on $900 per worker per day plus MPF.  This is consistent with Sam Chan’s and Mr Kong’s evidence that this was only part of the workers’ salaries, and inconsistent with Wong’s version of the agreement, which meant that BeSpark should be paying the whole of the workers’ salaries.  Wong himself said that even for casual workers the wages should be as much as $1,100 per worker per day.

56.  Wong also could not explain how the so-called Temporary Arrangement would remunerate A-Tech for work done in its own office such as preparation of shop drawings, which would not be evidenced by any site attendance records.  At one stage Wong tried to claim that the drawings, if done by hand, could be done by experienced labourers at the site.  But when shown the elaborate drawings done by A-Tech with computers, Wong said A-Tech could also charge for such work based on expense.  When asked how the payment would be calculated, Wong said it would depend on the quality and complexity of the drawings, and that the parties could discuss it.  I consider this another indicator that BeSpark’s version of events ought not to be accepted.

57.  In late June to July 2016, Lee prepared a letter of acceptance for execution by the parties, based on the prices in A-Tech’s two discounted quotations.  Lee arranged for Sam Chan to sign it.  It seems to me incredible that if Wong had simply rejected A-Tech’s quotations as being too expensive and none of the discounts and terms had been discussed at the meetings (as Wong alleged), Lee would have produced that letter of acceptance for signature containing the terms that were consistent with Sam Chan’s evidence. As Wong accepted, Lee was by his position in the company required to know and understand the contents of the sub-contracts.  When asked why Lee had prepared the document, Wong said it was superfluous (“呢個夥計做多咗”) and he did not know why Lee did it.  I do not accept this evidence.  It seems to me that Wong knew the reason was that the terms were discussed and agreed at his meetings with Sam Chan.  The fact that BeSpark did not sign a formal written contract does not mean that the parties had not reached informal but nevertheless binding agreements before.

58.  Further, pursuant to what it considered to be the contracts entered into between the parties, and based on the First and Second Quotations as discounted, A-Tech issued two applications for interim payment dated 23 July and 23 August 2016 respectively.  Both were addressed to Chung and Lee.  Not only did BeSpark not immediately reply that A-Tech was only working on the Temporary Arrangement and not entitled to apply for interim payment in the way it did, but Lee actually forwarded the second application to Lam on 25 August for certification (see §23 above).  Nor did anyone in BeSpark tell A-Tech it should claim payment at costs plus 12% instead.  Lam’s evidence that he found out from the accounts department that the Temporary Arrangement was still in place is inconsistent with Lee’s conduct and was plainly made up by Lam.  He could not explain why Lee asked him again on 2 September 2016 to assess A-Tech’s payment application, and did not provide any credible evidence of his communication with Lee on this matter.  Lee was not called by BeSpark to give an explanation.  In contrast, prior to being terminated, A-Tech never submitted any request for payment of a mark-up of 12% or any other percentage on labour or material costs.

59.  The notion that the contract could be terminated by one day’s notice also seems to me to be improbable, given the commitments that A-Tech had to make in order to carry out the works.  In the first draft of the letter of acceptance prepared by Lee, there was a provision that if A-Tech failed to proceed with due diligence even after being required by BeSpark to do so by not less than three days’ written notice, BeSpark could terminate the sub-contract.  This in itself is quite inconsistent with the alleged term allowing termination by one day’s notice.  In fact, that clause was removed from the final version prepared by Lee and signed by A-Tech.

60.  During the meeting at the end of August 2016, Sam Chan discussed the Schedule of Rates A-Tech submitted with Lee and Thomas Chan.  Sam Chan said that he was instructed to revise the documents on the basis that the two “agreed contract sums” would remain unchanged.  In an email to Lee, Chung and Thomas Chan dated 31 August 2016, Sam Chan said he understood “that the contract document with agreed amount is proceeded”.  In his email the next day, Sam Chan attached the Schedule of Rates for attachment to the “contract document”.  These contemporaneous communications do not seem to me to be consistent with Wong’s version that Sam Chan had been told that there would be a tender and that he was working on the Temporary Arrangement in the meantime.  No one in BeSpark wrote back to disabuse Sam Chan.

61.  The inferences from the conduct of Lee referred to above are, in my view, strengthened as against BeSpark by its failure to call Lee to testify.  But even without any such adverse inference, I prefer Sam Chan’s evidence on the meetings to that of Wong. 

62.  BeSpark submits that A-Tech’s quoted prices were high and unattractive from BeSpark’s point of view, and therefore unlikely to have been accepted.  The prices might be high with hindsight in comparison with the contract sums agreed with the replacement contractors at a later time in 2016.  But there was time pressure in late April and May 2016 since works had to start and at that time BeSpark only had quotations from A-Tech and Sothis and not from any of the sub-contractors it usually worked with.  Sam Chan’s evidence, which I accept, was that Wong was very anxious that A-Tech should start work soon.

63.  On behalf of BeSpark, Mr Chain relies on the fact that A-Tech had claimed a percentage mark-up in correspondence after termination.  But A-Tech’s first letter of claim dated 30 September 2016 already referred to the “agreed quotation” and BeSpark’s “order confirmation and acceptance to our quotations” (see §28 above).  I do not think that A-Tech’s subsequent conduct in engaging with BeSpark in an attempt to obtain payment based on reimbursement of costs and mark-up detracts from Sam Chan’s evidence.  After all, A-Tech’s claim based on 12% mark-up was for over $2.4 million.  If by that route A-Tech was able to recover acceptable compensation and resolve the matter amicably, then it would be entirely understandable if it did not wish to insist on its strict legal rights or take a more confrontational stance.  As Sam Chan said, if A-Tech could recover something on the basis of a mark-up, then it could move on to other projects and not waste time on further dispute.  Likewise I am not impressed by BeSpark’s reliance on the fact that the termination of work was peaceful. 

64.  Mr Chain also relies on the absence of unit rates and breakdown in the two quotations.  This can be relevant in two ways. First, Mr Chain submits that it is unlikely that the parties had agreed on binding lump-sum contracts without unit rates and breakdown.  Secondly, there may also be an argument that an agreement lacking these details, even if intended to be binding, cannot constitute a contract either because as a matter of law such an agreement is unenforceable for want of uncertainty or because those terms are objectively regarded by the parties as essential for the formation of legally binding relations.  The second point is dealt with as a separate issue below.  As to the first point, one has to look at the circumstances.  Given all the other evidence and the undisputed fact that BeSpark had received no quotations other than from A-Tech and Sothis when there was time pressure, it does not seem to me the point goes very far.

65.  A Schedule of Rates was submitted by A-Tech and there were discussions between the parties on the unit rates in August 2016. But as Sam Chan said, A-Tech was kept in the dark and not informed that BeSpark intended to invite or had invited other sub-contractors to tender for the works. A-Tech’s Schedule of Rates was discussed for the purposes of future variations, and when revised and sent over by A-Tech on 1 September 2016 it was said to be for attachment to the “contract document”.  There was no explanation at all from BeSpark otherwise why A-Tech was asked to produce the Schedule of Rates if it was merely engaged on the Temporary Arrangement and not invited to tender. 

66.  Mr Chain submits that since Sam Chan accepted in his evidence that variations could consist of deductions, the scope of works or contract was still subject to change and there could not therefore be any binding lump sum contract.  But it seems to me that in that evidence Sam Chan was discussing the amount of reduction in scope that he would be prepared to accept, which could be viewed as mutually agreed variation of the contract. This goes towards his approach as a commercial man.  He was not, as it seems to me, referring to the legal rights of the parties under a lump sum contract, nor was he qualified to give any views on that matter.  In any event, any such uncommunicated subjective opinion has no relevance to the objective intentions and agreements between the parties.

67.  For all these reasons I find Wong’s and Lam’s evidence unreliable and in certain respects not truthful.  Sam Chan in contrast was a straightforward witness who impressed me as having made an honest attempt to tell the truth.  Whilst his testimony might in parts be clumsy he was firm on the agreements in the two meetings with Wong.  I prefer his evidence where it conflicts with Wong’s and Lam’s.

68.  Approaching the question objectively, I find on the evidence that the parties had arrived at two lump-sum agreements at the two meetings respectively, as evidenced by the amended First and Second Quotations. The payment terms referred to by Sam Chan were also agreed at the meeting on 30 April 2016 as subsequently recorded in the letter of acceptance.

Whether the contracts contained all the essential terms

69.  By a late amendment made in July 2021 to its Reply and Defence to Counterclaim, BeSpark alleges that the First and Second Quotations did not contain any unit rates (for individual items of works) or breakdown (of the lump sums) which are “essential” for any building contract. Mr Chain submits that unit rates are essential for variation works which practically every construction contract will involve, and a breakdown is essential for calculating the interim payments for the contractor. 

70.  Based on the evidence that I accept as explained above, the parties did not, viewed objectively, regard the unit rates or breakdown as essential for the formation of legally binding agreements between them.  The remaining question is whether as a matter of law those parameters are essential.  The following summary of the applicable principles for approaching this question found in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14 at §49 is not controversial between the parties:

“ In his judgment in the Court of Appeal in Pagnan Lloyd LJ (with whom O’Connor and Stocker LJJ agreed) summarised the relevant principles in this way at page 619:

‘ (1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole ...

(2)  Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled.  That is the ordinary ‘subject to contract’ case.

(3)  Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed ...

(4)  Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled ...

(5)  If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty

(6)  It is sometimes said that the parties must agree on the essential terms and it is only matters of detail which can be left over.  This may be misleading, since the word ‘essential’ in that context is ambiguous.  If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract.  If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous.  If by ‘essential’ one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue.  It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant.  It is the parties who are, in the memorable phrase coined by the Judge [at page 611] ‘the masters of their contractual fate’.  Of course the more important the term is the less likely it is that the parties will have left it for future decision.  But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later.  It happens every day when parties enter into so-called ‘heads of agreement’.

The same principles apply where, as here, one is considering whether a contract was concluded in correspondence as well as by oral communications and conduct.”

71.  Mr Chain has not been able to point to any authority that lays down a rule of law that a lump sum construction contract without unit rates or breakdown is void for uncertainty.  Nor is there any evidence of industry custom whereby such terms are treated as essential for contractual validity.  So far as unit rates are concerned, it is said that they are needed where there are variations.  But Wong accepted that in works similar to those in question, it is not unusual to have no variation.  As Mr Tsang has pointed out, the final contract sum payable to the sub-contractor that replaced A-Tech for Towers 5 and 6 was exactly the same as the price it quoted.  If a variation was indeed ordered in the course of the works, the parties could be required to adopt reasonable rates.  In BeSpark’s own contract with the main contractor, there is a provision that variations shall be valued in accordance with, inter alia, a rule that the prices in the schedule of rates, where work is not of a similar character or executed under similar conditions as work priced therein, “shall be the basis of prices for the same so far as may be reasonable, failing which a fair valuation thereof shall be made”.[1]  Having valuation or measurements done by a third-party professional such as the engineer, architect or quantity surveyor is commonplace in the construction industry.

72.  Similarly, a breakdown of the lump sums as between the various constituent parts of the works will no doubt facilitate interim payments.  But interim payments only affect the timing of the payments and not the ultimate overall sum which is agreed.  Again I can see no insuperable difficulty of requiring the parties to accept a fair or reasonable valuation by the engineer or quantity surveyor if necessary.  It is not disputed that A-Tech had prepared breakdowns (for itself) when it produced the two quotations, and had no difficulty subsequently in producing two interim payment applications.  BeSpark did not raise any objection to those applications based on lack of breakdown. In fact Lee forwarded the second application right away to Lam for certification.

73.  Both unit rates and breakdown are details that may be relevant for the operation of the agreements.  But their absence does not seem to me to preclude a binding contract from coming into existence.  In appropriate circumstances the law is prepared and able to substitute standards based on reasonableness if necessary.  The fact that work has already been done may be a factor that inclines the court towards finding a binding bargain.  As observed in Scammell v Dicker [2005] EWCA Civ 405 at §40: “it is only in the absence of agreement as to essential terms that a contract is in danger of failing for uncertainty because further agreement is required.  The world is otherwise full of perfectly sound contracts which require further agreement for the purpose of their implementation.”  There are in the cases plenty of examples of agreements found to be binding despite lack of detail: see Chitty on Contracts (33^rd ed), §2-121.  This of course still leaves the question of what is essential.  For my part I do not regard a prior agreement on the unit rates and breakdown as indispensable before the parties here could agree to be bound.  These parameters were not without limits.  They were bounded both by the scope, requirements and specifications of the project and by the need for the product of the unit rates and the quantities to coincide with the lump sums.  There seems to me to be no insuperable difficulty if any subsequent variation or interim payment is approached – to borrow an expression used in a different context – from the stand-point of parties “both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain”: Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109 at 117D-E per Litton PJ.

Relief in respect of work already done

74.  There is no dispute that if the contracts between the parties were lump-sum contracts as contended for by A-Tech, BeSpark repudiated them by unilaterally terminating A-Tech’s engagement and requiring A-Tech to vacate the site at the end of 7 September 2016.  I find BeSpark to be in breach accordingly.  The relief provided by the law in such a situation is encapsulated in the following passage in Keating on Construction Contracts (11^th ed), §9-060, p 306:

“ Where the contract work has been partly carried out and the contract is brought to an end by the employer’s repudiation, the contractor is entitled to be paid the value of the work done at contract prices, and to claim, in addition, damages, the measure of which is normally the loss of profit on the unfinished balance.”

75.  This leads to the question of how A-Tech should be remunerated for the work that it had done under the two contracts.  Although the contracts were for lump sums but prematurely terminated, it is not in dispute that the law implies an obligation to pay reasonable remuneration for the work done: Keating on Construction Contracts (11^th ed), pp 104 & 307.  There are however issues of (1) the extent, and (2) the value, of the work done.

76.  On the extent of performance, Sam Chan gave evidence of the shop drawings and site work that A-Tech had done, which was not credibly contradicted.  A table appended to his witness statement set out the percentage and value of work done for a number of broad items.  48 shop drawings had been done which were almost all the shop drawings required, and many if not all of them were included in the trial bundles.  On the site, concealed conduits had been installed by A-Tech on certain floors of some of the Houses and Towers 5 and 6.  There were in evidence photographs taken at the site which showed in part the work done.  The extent of the site work was also stated in A-Tech’s letter dated 30 September 2016 (see §28 above).  The two interim payment applications submitted by A-Tech also gave an indication of the extent of the work done, though they were, according to Sam Chan, based on an estimate done very conservatively in order to expedite payment.  Lam accepted in cross-examination that the concealed conduits at Towers 5 and 6 had been completed by A-Tech up to the 2/F floor slab and partition walls.  There is also evidence from the main contractor’s report (for the period from 31 August to 13 September 2016) that the extent of installation of concealed conduit was 16.4% for Tower 5 and 14.3% for Tower 6, though I note that the report covered a period up to 13 September 2016, 6 days after A-Tech’s termination.

77.  The single joint expert, Mr Tang Lim Kit, who had much experience as a contract adviser and quantity surveyor in the construction industry, was asked to provide his opinion by reference to each item of work listed in A-Tech’s Schedule of Rates.  His reasoning and methodology were not challenged as such, and neither party required him to attend the trial.  But Mr Chain disputes his figures on the basis that he had relied on a summary of work done together with 43 worksheets produced by A-Tech after the proceedings began.  It is said that the provenance of the summary and worksheets is not dealt with by Sam Chan’s evidence.

78.  I do not think that the expert’s opinion should be discarded for this reason.  The provenance of the summary and worksheets was disclosed in solicitors’ correspondence which formed part of the documentary evidence.  The fact that they were prepared after litigation commenced (in fact one of the worksheets was a printout of contemporaneous WhatsApp messages between Sam Chan and Lam regarding the scope of works) is a matter that affects their weight but does not preclude them from being used by the expert.  There were other documents and sources of information disclosed which have a bearing on the extent of work done.  There is no real dispute as to on which floors concealed conduits had been installed by A-Tech, and the work done can be worked out from the drawings relating to those floors.  The concealed conduits had been concreted over by the time of A-Tech’s termination, but the evidence which I accept is that all the locations of the sockets and switch points had been checked by BeSpark before the concreting work.  The contents of the summary and worksheets had not been challenged by BeSpark as false or as inconsistent with the other evidence.  The expert has properly explained the basis of his measurements.  I accept his evidence on the extent of work done. (In any event, the expert has done an alternative assessment based on the lump sums and the number of floors where concealed conduits had been completed, which I would accept as a fall-back position.)

79.  The expert’s assessment of the value of works comprises two components: (1) value of individual items of works; and (2) preliminaries.  On the individual items of works, the expert’s primary assessment was a total value of $1,013,086.39.  His alternative, secondary assessment was a total value of $741,994.89. 

80.  BeSpark stated in its opening that, in the event the court finds there were two lump-sum contracts, BeSpark would be content to accept the value of works of $741,994.89.  The difference between the two alternative assessments depends on whether the works at (i) Tower 5, B2/F, and (ii) Tower 6, G/F and 1/F, are included.  This difference has arisen because there is an issue whether the works at the basement of Tower 5 had already been completed as at 21 June 2016 before A-Tech’s workers entered the site, and whether works had been done on G/F and 1/F of Tower 6 as in Tower 5.  On the basis of Sam Chan’s evidence in his supplemental witness statement which dealt with, inter alia, this issue, and A-Tech’s letter dated 30 September 2016, I take the view that those works were done by A-Tech and that the expert’s primary assessment of $1,013,086.39 should therefore be accepted. 

81.  The Preliminaries comprised principally the calculations, preparation, and design and drafting (computer-aided) of shop drawings, and supervision and coordination by engineer, but also included miscellaneous costs such as workshop set-up, equipment and safety measures.  The expert assessed the Preliminaries in the amount of $893,713.  This he did by prorating the amount of $3,078,000 for Preliminaries in A-Tech’s Schedule of Rates submitted on 1 September 2016 by reference to the duration of A-Tech’s work (6 May to 7 September 2016, being 125 days) compared to the overall contract period of 520 days (i.e. 24.04%).  The expert did an alternative itemised calculation based on the individual items of Preliminaries in the Schedule of Rates, which resulted in a marginally higher overall amount which he decided not to use.  The expert also did a further valuation, at BeSpark’s request, based on the agreed lump sums and the summary of tender provided by A-Tech to BeSpark on 20 August 2016, which produced a higher figure for individual items of works (totalling $1,156,044.23) and a lower figure for Preliminaries ($311,538.46), i.e. $1,467,582.69 in the aggregate, but which the expert did not adopt in his own opinion.

82.  Mr Chain submits that A-Tech’s Schedule of Rates had not been agreed between the parties.  Furthermore, since A-Tech was only one sub-contractor of BeSpark carrying out part of the electrical works and only had workers on site, it should not be entitled to be paid for Preliminaries.  I do not agree with this submission.  The whole set of tender documents were provided to A-Tech for preparation of quotations.  On the evidence of Sam Chan which I accept, Chung did specify certain matters that A-Tech need not cover but did not tell A-Tech that the Preliminaries should not be included.  On the contrary, Chung wrote on the First Quotation that the price was “inclusive of project management duty”.  The expert, asked to value the works, took the view that, on the basis of the agreed lump-sum prices, the Preliminaries in the Schedule of Rates should be used.  He should be taken to be of the view that based on the agreed lump sums, the value of Preliminaries he had arrived at was a reasonable one.  After all, the total of the Schedule of Rates equalled the agreed lump sums.  BeSpark chose not to cross-examine the expert on this matter.  There is nothing wrong in principle for him to have regard to the Schedule of Rates for this purpose even if it was not a document agreed between the parties: Keating on Construction Contracts (11^th ed), pp 108-109.  In Way v Latilla [1937] 3 All ER 759, 764, it was said: “the court may take into account the bargainings between the parties, not with a view of completing the bargain for them, but as evidence of the value which each of them puts upon the services.”

83.  I find therefore that A-Tech was entitled to the sum of $1,906,799.39 ($1,013,086.39 + $893,713) for the works carried out as at 7 September 2016.  It is common ground that credit should be given to BeSpark in the amount of $434,276.86 (being the sum of $148,771.86 and $285,505 already paid).  The net amount payable is $1,472,522.53.

Damages for loss of profits

84.  A-Tech claims damages for loss of profits on the basis that it was deprived of the opportunity to complete the remaining works under the two contracts and has suffered a loss of profit equal to 15% of the remainder of the two lump sums.  15% is A-Tech’s claimed profit margin.  A-Tech’s case is that the two quotations as accepted had allowed for a profit margin of 15% and that the evidence suggests that the two contracts should be quite profitable for A-Tech.  Mr Tsang refers to A-Tech’s audited accounts for 2015 and 2016 (as adjusted by the expert) which show that overheads and net profits combined accounted for 14.08% and 16.17% respectively of the engineering revenue.  He also relies on the fact that the replacement sub-contractors that BeSpark eventually engaged quoted lower prices even after making allowance for the work already done by A-Tech.

85.  In riposte, Mr Chain contends that 15% is a figure plucked out of thin air and that there is no proof or proper proof of that percentage.

86.  The expert starts with the value of work done including Preliminaries as calculated by him ($1,906,799.39).  Subtracting this from the lump sums yields the remaining value of the contracts ($21,835,440.61). In his view, for the small to medium-size electrical installation contractor in Hong Kong, the reasonable profit is in the range of 5% to 15% of the contract sum.  Taking into consideration the profits declared by A-Tech in its audited accounts in the two years preceding the contracts in question, the size of A-Tech and the revenue generated or to be generated, he takes the view that 7.5% is the profit that a reasonably competent contractor would have made having regard to the nature of the works and the contract sums.  Applying this percentage to the remaining contract value, his evidence is that the profit that A-Tech could have made had it completed the remaining works amounted to $1,523,402.83. 

87.  The expert has also done two alternative calculations based respectively on (1) 15% of the remaining contract value, and (2) 12% mark-up over the total labour/staff and material costs.  He has given in a subsequent report his explanation as to why the approach based on a percentage on contract sum has been used by him. 

88.  Where the hypothetical cost of further performance of a repudiated contract could be accurately measured, the profits would of course normally be represented by the difference between the remaining contract sum and the remaining cost of performance; but such cost is often a difficult matter for proof: Macgregor on Damages (21^st ed), §§31-022 – 31-023. 

89.  I accept the expert’s estimate using a percentage of 7.5% on the remaining contract sum.  It would be difficult to gauge the hypothetical future cost of performing the rest of the contracts over the course of almost 400 days.  It seems to me there is sufficient evidentiary basis based on A-Tech’s audited accounts and the expert’s opinion founded on his experience for the percentage approach to be used.  This is necessarily an approximate approach but the difficulty in being more precise should not lead to nominal damages being awarded for a likely real and substantial loss.  On the other hand, while it is possible that the profits would have been higher if A-Tech had performed the contracts to the end, especially if A-Tech could source cheaper labour than the workers supplied by Luen Hing, there was uncertainty and there could also be disputes and claims.  In all the circumstances it seems to me 7.5% is more likely a better reflection of the profits A-Tech would have earned than 15%.

90.  Accordingly, A-Tech is entitled to damages for loss of profits in the sum of $1,523,402.83.

Quantum meruit if there was no contract

91.  There is a debate as to whether it was open on the pleadings for A-Tech to claim a quantum meruit if there was no or no enforceable lump sum contract found.  In the light of my conclusion above, it is unnecessary to deal with this issue.

Conclusion and disposition

92.  By its own abandonment, BeSpark’s action is dismissed.

93.  For the above reasons, I find that there were two lump-sum contracts that BeSpark repudiated.  A-Tech succeeds in its counterclaim and is entitled to the sum of $1,472,522.53 for the works carried out pre-termination (net of credit), and damages in the sum of $$1,523,402.83 for loss of profits.  There will therefore be judgment for A-Tech in the total sum of $2,995,925.36.

94.  There will be interest on that sum from the date of the counterclaim (8 April 2019) to the date of this judgment at the rate of prime + 1% per annum. 

95.  There will be an order nisi that BeSpark do pay A-Tech the costs of the action and the counterclaim, to be taxed if not agreed, with a certificate for two counsel where necessary.