CHAN CHI SHING AND ANOTHER v. LUK WING CHIN t/a SIGNTECH CO

HCA 9621/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9621 OF 2000

______________

______________

______________

J U D G M E N T

______________

Background

1.  This is an action for damages for breach of contract.  The Plaintiffs, the father of the 2^nd Plaintiff (“Mr Lam”) and the Defendant were formerly business partners in a signage business called Signtech Company (“Signtech”).  Both parties are un-represented.

2.  On 9 November 1999, the 1^st Plaintiff negotiated and entered into a sub-contract on behalf of Signtech with Penta-Ocean Construction Co Ltd (“Penta-Ocean”) for the supply and installation of signage work in Tin Shui Wai Area 102 Phase 7 for a sum of $779,000 (the “102 Work Order”).  On 6July 2000, the 1^st Plaintiff negotiated and entered into a similar sub-contract on behalf of Signtech with China State Construction Engineering Corporation (“China State”) in Tin Shui Wai Area 105 Phase 2 for a sum of $150,223.50 (the “105 Work Order”).  The signage works under the two sub-contracts (collectively, the “Work Orders”) were to be installed in properties of the Hong Kong Housing Authority (the “Housing Authority”). 

3.  The works under the Work Orders were carried out by Signtech through the Plaintiffs, particularly the 1^st Plaintiff.  At all material times, Signtech possessed at its office, in paper form or in electronic form, the main contract, colour shop drawings, sign schedules, location plans, AO layout plans and correspondence containing comments by Penta-Ocean, China State or the Housing Authority on Signtech’s shop drawings (the “Comments”).  The information is referred to hereunder as the “Information”, or the “Documents” insofar as the information is in paper form, or the “Data” insofar as the information is in electronic form stored in the ‘Tiny’ computer in the office of Signtech.  

4.  In about July 2000, the trust and confidence among the Plaintiffs and the Defendant broke down.  It was orally agreed that the Plaintiffs and Mr Lam would buy out the Defendant’s shares in Signtech and pay off the debts owed by Signtech to Madam Loke and Mr Luk in the total sum of $1,394,600.  However, in August 2000, the 1^st Plaintiff informed the Defendant that the Plaintiffs’ party did not have enough funds to pay Madam Loke and Mr Luk and suggested to retire from the partnership on terms to be agreed.  Shortly before 23 September 2000, the Plaintiffs, the Defendant, Mr Lam, Madam Loke and Mr Luk reached agreement on the terms and conditions of, inter alia, the retirement of the Plaintiffs and Mr Lam from Signtech for a payment of $500,000 by the Defendant.  The agreement was reduced in writing in the form of a Deed of Compromise (the “Deed of Compromise”) prepared by the Defendant’s then solicitors, Messrs Albert KK Luk & Co and approved by the Plaintiffs’ then solicitors, Messrs Sit, Fung, Kwong & Shum (“SFKS”).  The Deed of Compromise was executed by the Defendant, Madam Loke and Mr Luk on 23 September 2000 and by the Plaintiffs and Mr Lam on 26 September 2000.  The Deed of Compromise took effect immediately upon execution, i.e. on 26 September 2000.

5.  Clauses A10 and A11 of the Deed of Compromise are relevant to this dispute.  Under Clause A10, as from the date of the Deed of Compromise, all the partnership assets, save those in the 7^th Schedule, shall belong to the Defendant.  One of the assets in the 7^th Schedule was the ‘Tiny’ computer, which contained the Data in connection with the execution of the works under the 102 Work Order and the 105 Work Order which the Plaintiffs had been working on and other data in connection with other signage works of Signtech.  Under Clause A11, the Defendant shall sub-contract the 102 Work Order and 105 Work Order to the Plaintiffs on the same terms and conditions as contained in Signtech’s sub-contracts with Penta-Ocean and China State.  Pursuant to that clause, the Defendant duly executed two written Chinese agreements sub-contracting the 102 Work Order and 105 Work Order to the Plaintiffs with effect from 22 September 2000 (the “102 Sub-contract” and the “105 Sub-contract” respectively, or the “Sub-contracts” collectively). 

The dispute and the issues

6.  The relationship between the Plaintiffs and the Defendant deteriorated further after the execution of the Deed of Compromise.  The Deed of Compromise took effect on 26 September 2000.  The Plaintiffs say they had reached an oral agreement with the Defendant in mid September 2000 to continue to work at the office of Signtech up to 30 September 2000 for the purpose of performing the Sub-contracts provided that the Plaintiffs would contribute half of the rental and outgoings of the office.  The Defendant disputes that he had entered into the said oral agreement.  In my view, the existence or otherwise of this oral agreement is irrelevant to the central issue in dispute, except as to credibility of the parties.  I accept the Plaintiffs’ evidence as more credible.

7.  It is common ground that on 28 September 2000, the 1^st Plaintiff was locked out of the office of Signtech as the Defendant had changed the lock of the office overnight.  He was given access to the office by an employee of Signtech, Mr Ma.  The Defendant returned to the office later that morning with three security guards and accused the 1^st Plaintiff of unlawfully breaking into his office.  Then the 2^nd Plaintiff arrived.  The Defendant refused to allow the Plaintiffs access to the Data in the ‘Tiny’ computer to enable them to perform the works under the Work Orders claiming that all data, including the Data in the ‘Tiny’ computer belonged to Signtech.  At the suggestion of the 1^st Plaintiff, police was called.  Despite mediation by the police officers, no compromise could be reached.  Eventually the Plaintiffs left.  On the same day, the Plaintiffs made a written demand to the Defendant to provide them all the Documents to enable them to perform the works under the Work Orders and the delivery of the properties listed in the 7^th Schedule pursuant to Clause A10 of the Deed of Compromise.  On 30 September 2000, the Plaintiffs were asked to collect their properties listed in the 7^th Schedule.  However, they refused to take delivery of the ‘Tiny’ computer as they discovered that the Data contained in the computer had been removed.  The Plaintiffs repeated their demand, through SFKS, to the Defendant to provide them the Data and Documents (i.e. the Information) for the purpose of executing works under the Work Orders.  The Defendant supplied some black and white drawings but refused to provide the Data from the ‘Tiny’ computer, the coloured drawings and the Comments.  Eventually, the Plaintiffs did not install the signage works under the Sub-contracts while the Defendant took over the Sub-contracts and installed the signage works through Signtech.

8.  The Plaintiffs’ case is that without the Data in the ‘Tiny’ computer or the Documents, they were unable to complete the installation work within the limited time available.  They pleaded that the Sub-contracts contained implied terms and conditions that the Defendant would not hinder or prevent them from performing the works under the Sub-contracts in a regular and orderly manner; would timely deliver to them all relevant information, instructions and drawings; would co-operate with them so as to facilitate the execution of works under the Sub-contracts and would not withdraw any part of the Sub-contracted works without good cause.  They claimed damages for breach of the Sub-contracts, an indemnity in respect of all claims by Penta-Ocean or China State or the Housing Authority in respect of the Sub-contracts and an account for all sums actually received and receivable by Signtech in respect of the Sub-contracts.  There were other claims under the Statement of Claim which the Plaintiffs have now abandoned as being academic.

9.  The Defendant’s case is that the Data, which the Plaintiffs used to have access and used to work on while they were partners of Signtech, were intellectual property belonging to Signtech which the Plaintiffs no longer had right to access after their retirement from Signtech.  He says that the 1^st Plaintiff having negotiated the Work Orders were familiar with their terms and conditions and in any event he had provided them with adequate drawings and information for the execution of the works under the Work Orders.  He alleges that the Plaintiffs were in breach of the Sub-contracts in failing to execute works regularly, as a result of which he had to take over the Sub-contracts.  He counterclaims for damages.  He has also counterclaimed for an injunction to restrain the 2^nd Plaintiff from using the name of Signtech in his business, but he has abandoned that claim at trial.

10.  The Plaintiffs do not seek to argue that the right to the ‘Tiny’ computer referred to in the 7^th Schedule carried with it the right to the Data previously stored in it; nor do they seek to argue that they had a proprietary right over the Data as being the maker of the Data.  They are content to base their case on implied terms.  Thus, despite the many factual disputes between the parties, the real issues are:

(1)    whether the terms and conditions relied on by the Plaintiffs may be implied into the Sub-contracts;

(2)    if yes, whether the Defendant was in breach of the implied terms; alternatively, if not, whether the Plaintiffs were in breach of the Sub-contracts; and

(3)    what is the measure of damages for the breach by the Plaintiffs or by the Defendant.

The Sub-contracts

11.  Clause A11 of the Deed of Compromise provides:

“	After due assignment, transfer of all shares, interests and assets of the Partnership in the manner under clause A2 herein, the Continuing Partner shall procure the Partnership to sub-contract the work as particularized under the two work orders (‘the Sub-contracted Orders” which include all work orders supplemental thereto and variation orders related to the same sites, existing and future) as annexed to the 9th Schedule hereto to LTH and CCS of the Outgoing Partners and on the same terms and conditions as contained in the Sub-contracted Orders to the intent that as between the Outgoing Partners and the Continuing Partner.
	(a)	the Outgoing Partners will discharge all further obligations of the Partnership under the Sub-contracted Orders;
	(b)	the Continuing Partner will as trustee account to the Outgoing Partners all sums actually received and receivable and exercise all rights pertinent to the Sub-contracted Orders in favour of the Outgoing Partners provided that all cheques to be received by the Continuing Partner shall have been honoured; and
	(c)	the Continuing Partner will give a cheque posted dated for four days to LTH and CCS of any sum received under the Sub-contracted Orders upon actual receipt of such sum and provided that such cheques to be received by the Continuing Partner shall have been honoured.”

12.  The “Continuing Partner” referred to in the above clause means the Defendant.  The “Outgoing Partners” means the Plaintiffs and Mr Lam.  “LTH” and “CCS” means the 2^nd Plaintiff and the 1^st Plaintiff respectively.  The Sub-contracts were entered into by the Plaintiffs and the Defendant pursuant to Clause A11.  They are home made contracts written in Chinese.  The Sub-contracts were in identical terms except as regards the subject matter.  They are lacking in details and the language used is somewhat convoluted.  In the Sub-contracts, the principal contractor, i.e. Penta-Ocean and China State were described as “Party A”, Signtech was described as “Party B” and the Plaintiffs were described as “Party C”.  The 102 Sub-contract and 105 Sub-contract are in similar terms and read as follows:

「	乙方將會於2000年9月22日正式分判天水圍105區二期(102區7期)工程(包括未知的后加工程)給丙方。
	乙方享有甲方的所有條款將與丙方完全相同。
	付款形式      當乙方收到甲方支票之後(要張支票生效)將會立即發出4日內之期票於丙方，如未能履行以上條款，丙方的一切損失概由乙方負責並追究法律責任。」

13.  The parties have no dispute that the Sub-contracts provide as follows:

(1)    Party B would formally sub-contract the works under the Work Orders to Party C with effect from 22 September 2000;

(2)    the terms and conditions under the Sub-contracts between Party B and Party C shall be the same as those under the sub-contracts between Party A and Party B, i.e. the Sub-contracts were back-to-back with the respective Work Orders between Signtech and Penta-Ocean or China State. 

(3)    upon receipt of payment from Penta-Ocean or China States, Signtech would issue to the Plaintiffs a cheque for the same amount post-dated by four days. 

The effect of the Sub-contracts is that the Plaintiffs would continue to execute, for their own benefit, under the name of Signtech, the works under the Work Orders which they had formerly successfully secured for Signtech and which they had been performing prior to 22 September 2000 and Signtech would handover to the Plaintiffs all sums it would receive from Penta-Ocean and China State in respect of the Work Orders.  Signtech would gratuitously act as a go-between for the Plaintiffs in their business with Penta-Ocean and China State in respect of the Work Orders.  This is consistent with Clause A11 of the Deed of Compromise. 

The implied terms

14.  In paragraph 10 of the Amended Statement of Claim, the Plaintiffs pleaded the following implied terms:

(a)    Signtech would not hinder or prevent the Plaintiffs from performing the Sub-contracts and from carrying out the sub-contracted works in a regular and orderly manner;

(b)    Signtech would timely deliver to the Plaintiffs all relevant information, instructions and drawings including the Documents and the Comments;

(c)    Signtech would co-operate with the Plaintiffs so as to facilitate the execution of the sub-contracted works;

(d)    Signtech would not withdraw any part of the sub-contracted works without good cause.

15.  In my view, there is no need for the Plaintiffs to plead or to rely on implied term (d).  It would be a breach of the Sub-contracts for the Defendant to withdraw any part of the sub-contracted works from the Plaintiffs.  It is up to the Defendant to justify the withdrawal because of the Plaintiff’s breach.  The question is simply whether the Plaintiffs were in breach of the Sub-contracts. 

16.  As for implied terms (a) to (c), they are different aspects of a superior contractor’s duty to co-operate with his sub-contractor and can be dealt with together.  The subject matter of the co-operation was the Data stored in the ‘Tiny’ computer, the Comments and the Documents.  The Defendant argues that he had also contributed to the Data which together with other data stored in the ‘Tiny’ computer were intellectual properties belonging to Signtech which the Plaintiffs had no right to access after their retirement from Signtech.  Even assuming he is right, the question remains whether a term may be implied into the Sub-contracts that he would provide the Plaintiffs with such co-operation by giving them such access to such part of the Data and/or such of the Documents and Comments as would enable them to perform the Sub-contracts in accordance with the time schedule under the Work Orders.

17.  The Sub-contracts are silent as to the obligation of Signtech towards the Plaintiffs as their superior contractor.  In this regard, no assistance could be drawn from the express terms in the Work Orders between Signtech and Penta-Ocean or China State and the contract documents therein.  Under such circumstances, in accordance with The Moorcock principle, (1889), 14 PD 64, the court may imply such term as will implement the presumed intention of the parties to give business efficacy to the Sub-contracts. 

18.  The Defendant argues that such co-operation was not necessary because the Plaintiffs had negotiated the Work Orders, had been performing them and was familiar with the works required.  He also argues that if necessary the Plaintiffs could re-obtain the Comments from Penta-Ocean, China State or the Housing Authority.  I think The Moorcock test is not founded on necessity in the absolute sense but necessity in the business sense i.e. business efficacy and presumed intention of the parties who are business men.  In The Moorcock, Bowen LJ explained the nature of the implication at page 68-70 as follows:

“I believe if one were to take all the cases, and there are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties, with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have.  In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men.  …  The question is what inference is to be drawn where the parties are dealing with each other on the assumption that the negotiations are to have some fruit, and where they say nothing about the burden of this unseen peril, leaving the law to raise such inferences as are reasonable from the very nature of the transaction.”

19.  In Reigate v Union Manufacturing Co, [1918] 1 KB 592, Scrutton LJ emphasised the necessity in the business sense and formulated the test as follows at 605:

“A term can only be implied if it is necessary in the business sense to give efficacy to the contract, i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties: ‘What will happen in such a case?’ they would both have replied: ‘Of course so and so will happen; we did not trouble to say that; it is too clear.”

20.  Thus, a term will be implied if it is so obvious that if it was suggested to the parties to include it in their agreement during their negotiation they would have said ‘it goes without saying.’  Mackinnon LJ put it thus in Shirlaw v Southern Foundries (1926) [1939] 2 KB 206 at 227:

“Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, ‘Oh, of course.’ ”

21.  A more recent statement of the test is to be found in Lord Pearson’s speech in Trollope & Colls  v North West Metropolitan Regional Hospital Board [1973] 2 All ER 260.  His Lordship emphasised that the term must be so obvious that it goes without saying that the parties must have intended that it formed part of the contract.  His Lordship said at 268:

“An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract:  It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them; it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which although tacit formed part of the contract which the parties made for themselves.”

22.  Generally speaking, in building contracts, where a contractor is employed by his employer to do a piece of work which requires the employer’s co-operation, it is implied that the necessary co-operation will be forthcoming: per Lord Simon in Luxor (Eastbourne) v Cooper [1941] AC 108 at 118, HL.  The courts have shown readiness to imply an agreement on the part of the employer that he has agreed to do all that is necessary on his part to bring about completion of the contract: see for example, MacKay v Dick (1881) 6 App Cas 251 at 263, HL and London Borough of Merton v Leach (1985) 32 BLR 51 at 81. The same applies as between a principal contractor and his sub-contractor or as between a sub-contractor and his sub-sub-contractor, and all the way down the line.  Of course, where the principal contractor’s co-operation is absolutely necessary, it must be efficacious for such a term that the principal contractor shall provide co-operation to be implied.  Thus, a term requiring a principal contractor to handover a building site to his sub-contractor within a reasonable time has readily been implied by the courts in building contracts: see Freeman v Hensler (1900) HBC (4th ed), Vol 2, p 292, CA.  Short of absolute necessity, a term may be implied if it is efficacious to give business sense to do so.  For example, a term requiring an employer to co-operate with certification of payment by his certifier even to the extent of requiring the certifier to perform his duty properly has also been implied by the court: see Panamena v Leyland (1943) 76 Lloyd’s Rep 113. 

23.  In the present case, the Plaintiffs and the Defendant were formerly business partners.  The 1^st Plaintiff secured the Work Orders for Signtech and worked on them.  The parties agreed to split on certain terms including that the Plaintiffs be given the benefit of the Works Order under the name of Signtech and paid $500,000 for their retirement from Signtech.  The Defendant would act as a go-between for the Plaintiffs with Penta-Ocean and China State without reward in relation to the execution of the works in the Work Orders.  Part of the Plaintiffs’ work was stored in the form of Data in the ‘Tiny’ computer prior to the split.  The Defendant agreed that the ‘Tiny’ computer would be given to the Plaintiffs.  The Data stored in the ‘Tiny’ computer included shop drawings which the Plaintiffs prepared and, in particular, feed backs in the form of Comments by Penta-Ocean, China State and the Housing Authority.  The Data were effectively work-in-progress, which the Plaintiffs might conveniently perfect and turn into finished products, through the process of approval by Penta-Ocean and China State and then production and installation.  It is not absolutely necessary for the Plaintiffs to have access to the Data in order to complete the works under the Work Orders.  They could start from scratch or continue with the out-dated drawings without the necessary Comments given to them by the Defendant.  It is convenient, if they had access to the Data.  They could have quickly perfected their designs from previous drafts.  That is why I consider the Data also as work-in-progress.  Access to the Data is reasonably necessary to enable them to complete the works in accordance with the time schedule.  Such access would save delay caused by communicating with Penta-Ocean, China State and the Housing Authority.  It saves costs.  It makes good business sense.  On the contrary, it makes no sense, business or otherwise, that the Plaintiffs should set their progress back in time by seeking comments from Penta-Ocean, China State and the Housing Authority and to work on out-dated drawings when up-dated ones were readily available.  Furthermore, in the absence of contractual relationship with the Plaintiffs, there was a real likelihood that Penta-Ocean, China State and the Housing Authority would not see fit to respond to the Plaintiffs’ enquiry or requests for comments.  The Defendant may have his personal motive for refusing the Plaintiffs’ access to the Data.  But the test to be applied is not based on the parties’ subjective intention, but what the parties as business men must have presumed or intended to give business efficacy to the transaction.  These business men must be possessed of robust business sense intending to see the transaction through to fruitful completion.  Applying the test of Scrutton LJ, I am confident if someone had asked the Plaintiffs and the Defendant at the time of negotiating the Deed of Compromise or the Sub-contracts ‘what about the Data stored in the ‘Tiny’ computer?’ they would both have replied, ‘Of course the Plaintiffs shall retain the Data or have access to the Data for the purpose of executing the Works Order (but not otherwise).’  They must have intended that this term should form part of the Sub-contracts.  Accordingly, I imply into the Sub-contracts the implied terms as pleaded in sub-paragraphs (a), (b) and (c) of paragraph 10 of the Amended Statement of Claim (i.e. terms (a), (b) and (c) of paragraph 14 above).

Breach of implied terms under the Sub-contracts

24.  The Defendant does not dispute that he had removed the Data from the ‘Tiny’ computer and that despite repeated request he had refused to allow the Plaintiffs access to the Data.  The Defendant’s case is that he had provided the Plaintiffs with drawings which would be sufficient for the Plaintiffs to execute the works under the Work Orders.  This defence is quite besides the point.  The Defendant was clearly in breach of the implied terms under the Sub-contracts.  If his duty was to allow the Plaintiffs access to the Data, or to provide the Documents and Comments for the efficient execution of the works, it does lie in his mouth to say that he had provided the Plaintiffs with something else which could have enabled the Plaintiffs to execute the works albeit in a less efficient manner.   But even then, the Plaintiffs say that the drawings were insufficient for them to execute the works.  For completeness, I give hereunder a summary of the events and my finding of fact leading to the breach of the Sub-contracts.  Much of the evidence is not in dispute and is documented by contemporaneous documents.  The dispute is who was in breach of the Sub-contracts.  

25.  Upon the lockout on 28 September 2000, the Plaintiffs made a written demand to the Defendant for the Documents to enable them to execute the works in the Work Orders.  Despite the urgency of the works, the Defendant provided the Plaintiffs with 239 drawings for the 102 Work Order and 76 drawings for the 105 Work Order on 7 October 2000 and another 141 drawings for the 102 Work Order on 13 October 2000.  The drawings were black and white drawings.  Those drawings were not adequate as colouring is a very important aspect of the signage works.  The Defendant unreasonably withheld the Comments from Penta-Ocean, China State and the Housing Authority which were very important information for the Plaintiffs to finalise their design.  There were 380 drawings for the 102 Work Order.  The Defendant provided 239 drawings on 7 October 2000 which the Plaintiffs complained were not up-to-date.  Yet, three days later on 10 October 2000, the Defendant demanded the Plaintiffs to submit up-dated plans by noon on 12 October 2000.  The Plaintiffs replied repeating their demand for the Documents and Data.  Their demand was again ignored.  On 13 October 2000, the Defendant informed the Plaintiffs that Penta-Ocean demanded the finalised design drawings on the same date and completion of the installation by 18 October 2000, failing which Penta-Ocean would charge daily penalty of $250,000 for the delay.  This shows the extreme urgency with which the Plaintiffs had to progress with work and the importance of the co-operation required from the Defendant.  Yet, the Defendant refused to allow the Plaintiffs access to the Data but provided the Plaintiffs with drawings which were not in colour, not up-to-date and without the Comments from Penta-Ocean or the Housing Authority.  The Defendant only provided the last batch of 141 drawings on the very day when finalised designs were required by Penta-Ocean.  Some of those drawings were blurred and distorted.  At a site meeting on the same date, the 1^st Plaintiff indicated that in the circumstances they could not complete the works under the 102 Work Order before 18 October 2000.  Given the last minute production of the 141 drawings, the lack of Documents and Comments and the lack of access to the Data, I find it an impossibility for the Plaintiffs to finalise their design within the rest of the day and to complete the production and installation of the signage works on or before 18 October 2000.  The Plaintiffs’ intimation of their inability to complete the works was reasonable and was caused by the Defendant’s breach of implied terms to allow them access to the Data or to provide them with proper Documents.  On the following day, i.e. 14 October 2000, the Defendant wrote to the Plaintiffs alleging them of breach of the 102 Sub-contract and intimated that the Defendant would take over the 102 Sub-contract and claim them for damages.  Later on the same day, the Defendant wrote to the Plaintiffs again giving them until 15 October 2000 to resume work failing which he would take over the 102 Sub-contract on 16 October 2000.  By a letter dated 16 October 2000, the Defendant formally informed the Plaintiffs that he would take over the 102 Sub-contract on that day.   Of course, at the time of the first letter of 14 October 2000, the Defendant had already crystallised his contractual relationship with the Plaintiffs by allegedly taking over the 102 Sub-contract. 

26.  On 17 October 2000, SFKS wrote to the Defendant and on behalf of the Plaintiffs accepted the Defendant’s repudiation of the 102 Sub-contract.  They repeated the Plaintiffs’ demand for Documents in respect of the 105 Sub-contract and allowed the Defendant until 4 pm on 19 October 2000 to provide the Documents, failing which the Plaintiffs would treat the conduct as repudiation of the 105 Sub-contract.  The demand for Documents for the 105 Sub-contract was ignored.  On 20 October 2000, SFKS wrote to the Defendant accepting on behalf of the Plaintiffs the Defendant’s repudiation of the 105 Sub-contract.

27.  The Defendant was in clear breach of the implied terms under the Sub-contracts to provide proper Documents and/or Data to the Plaintiffs and to render co-operation to the Plaintiffs to enable them to perform the works under the Work Orders.  By refusing to provide the proper Documents and Data he was hindering and obstructing the Plaintiffs in the performance of the Sub-contracts.  By withholding the Data and the Comments from Penta-Ocean, China State and the Housing Authority and by delaying the provision of the up-to-date drawings, the Defendant was putting it beyond the Plaintiffs’ means to complete the works under the Work Orders.  The Plaintiffs’ inability to perform the Sub-contracts was caused by the conduct of the Defendant.   The Defendant cannot complain of breach of the Sub-contracts by the Plaintiffs.  Furthermore, there is evidence that as early as 13 and 14 October 2000, the Defendant had submitted drawings to Penta-Ocean for approval.  On the Plaintiffs’ evidence, the Defendant must have started working on the Plaintiffs’ drafts in the ‘Tiny’ computer at least two weeks prior to 13 October 2000 before he could come up with perfected drawings for Penta-Ocean’s approval on 13 and 14 October 2000.  From the Defendant’s conduct, the inference could readily be drawn that he was having second thoughts about the Deed of Compromise and the Sub-contracts and his conduct was calculated to create an excuse for him to take over the Sub-contracts.  But of course, I do not need to draw on this inference to reach my conclusion that the Defendant and not the Plaintiffs was in breach of the Sub-contracts.  The Defendant’s breach is obvious and beyond dispute, his motive is immaterial.

Quantum of damages

28.  It is beyond dispute that the loss of profit under the Sub-contracts was clearly within the contemplation of the parties as the natural consequence of the Defendant’s breach of the implied terms.  Both Sub-contracts carry with them the privilege of performing variation works and additional works.  Loss of profit from the execution of those variation works and additional works was also within their contemplation.

29.  The Plaintiffs exhibited a schedule which they prepared from information obtained from Penta-Ocean in respect of the works done under 102 Work Order as at 17 October 2000, i.e. the date on which they accepted the Defendant’s repudiation.  On the basis of the application for payment submitted by Signtech, they calculated the value of works to be $596,560.  However, this amount is at variance with Penta-Ocean’s payment certificate which certified works to the value of $530,736.60 only as at 15 December 2000.  This must mean that some of the claims in respect of the works done had been disallowed by Penta-Ocean or their architect.  According to that payment certificate, a further amount of $79,807 was certified as at 15 February 2001.  Assuming the Defendant started installation of the signage works two weeks after his submission of drawings to Penta-Ocean on 13 and 14 October 2000, based on the works certified for the eight weeks between 15 December 2000 and 15 February 2001, I estimate the works done by the Defendant for the six weeks between 1 November 2000 and 15 December 2000 to be $59,855.25 (i.e. $79,807 x 6/8).  On that basis, I assess the value of the works executed by the Plaintiffs as at 17 October 2000 to be $470,881.35 (i.e. $530,736.60 - $59,855.25).  The amount disallowed on certification was 11.28%, which is well within the usual range of disallowance in construction contracts.  This is the amount the Plaintiffs are entitled in respect of works executed by them prior to 17 October 2000.  The Defendant having obtained payment from Penta-Ocean is obliged to account for this sum to the Plaintiffs under the terms of the 102 Sub-contract.

30.     According to the statement of final account issued by Penta-Ocean in respect of the 102 Work Order, the contract works amounted to $779,000 as per contract and variation orders and contra-charges amounted to $512,906, making a total of $1,291,906 paid to Signtech.   I estimate the value of the balance of the works executed by the Defendant to be $821,024.65 (i.e. $1,291,906 - $470,881.35).  Had the Defendant not been in breach of the 102 Sub-contract, works of this value would have been executed by the Plaintiffs.  The Plaintiffs submit that their gross profit margins for 1998/1999 and 1999/2000 were 31.09% and 30.62% respectively, say 30%.  This is not disputed by the Defendant.  Hence, the Plaintiffs claimed that the profit which they would have made from the balance of the works under the 102 Work Order was $246,307.40 (i.e. $821,024.65 x 30%). 

31.  The Plaintiffs argue that had the Defendant not been in breach, the signs under the 102 Work Order would have been manufactured by their factory in China.  Hence, they claim wastage of overhead expenses of their factory in China.  In my judgment, the overhead expenses of their sub-sub-contractor must be regarded as too remote.  I disallow that claim.

32.  Thus, I assess the damages suffered by the Plaintiffs as a result of the Defendant’s breach of the 102 Sub-contract were $717,188.75 (i.e. $470,881.35 + $246,307.40).

33.  As for the 105 Sub-contract, according to the payment voucher issued by China State for the 105 Work Order, the contract works amounted to $97,874, variation works amounted to $30,107.77 and additional works amounted to $118,754.52, making a total of $246,736.29 paid to Signtech.  The Plaintiffs referred to the Defendant’s invoice to China State demanding payment in the amount of $446,125 and queried if the amount in the payment voucher was all the Defendant had received under the 105 Work Order.  The Defendant explained that he had lengthy negotiations with China State but was unable to obtain a higher amount and he was forced to settle for less.  He said he made a loss under this contract.  The payment voucher showed a date chop of November 2004 which supported the Defendant’s evidence of his lengthy negotiation with China State.  Payments under construction contracts are always subject to certification.  I have no doubt that the payment voucher issued by China State was genuine and that Signtech was only paid $246,736.29.  The amount disallowed on certification was exceptional, being 44.69%.  Even assuming the usual 10% disallowance on certification and the 30% profit margin claimed by the Plaintiffs, the costs incurred under the 105 Work Order would be $267,675 ($446,125 x 60%) which is higher than the amount Signtech was paid.  I am satisfied that Signtech made no profit under the 105 Work Order.  I believe that had the Plaintiffs performed the 105 Sub-contract, the result would be the same.  Accordingly, I make no award in respect of the claim under the 105 Sub-contract.

Conclusion

34.  I find the Defendant was in breach of the Sub-contracts.  I assess the damages suffered by the Plaintiffs as a result of the Defendant’s breach to be $717,188.75.  Accordingly, I enter judgment in favour of the Plaintiffs against the Defendant in the sum of $717,188.75 with costs, together with interest from the date of issue of the writ.  The Defendant’s counterclaim is dismissed.