MARCO CONSULTANTS LTD v. KITAK MACHINERY ENGINEERING CO LTD

  DCCJ 1773/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1773 of 2008

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J U D G M E N T

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1.  The Defendant was a regular contractor for the Hong Kong and China Gas Corporation (“Towngas”), installing gas pipelines for Towngas. One of the contracts between the Defendant and Towngas involved gas pipeline installation along Hiram’s Highway and Clearwater Bay Road.

2.  In the course of the contract with Towngas, the work was delayed. This delay was, on the Defendant’s version, caused by Towngas. The Defendant claimed compensation, but its claims were rejected by the Engineer in charge of the project, Mott Connell Limited (“Mott Connell”).

3.  The Defendant sought the assistance of the Plaintiff, a construction industry claims consultant, to present its claims to Mott Connell. The Defendant engaged the Plaintiff to prepare written submissions for the claim for presentation to Mott Connell. The engagement was on written terms embodied in an agreement dated 06.07.2006.  (“the 1^st Retainer Agreement”)

4.  The parties entered into another agreement for the Plaintiff to prepare supplementary claims on behalf of the Defendant to Mott Connell in relation to matters other than delay. This engagement was embodied in a second written agreement (“the 2^nd Retainer Agreement”) dated 07.12.2006.

5.  The Plaintiff also prepared, on the Defendant’s instructions, documents for an intended reference to arbitration on behalf of the Defendant.

6.  The Plaintiff claims that it has not been fully paid for the services it rendered to the Defendant. The Defendant says it has paid the Plaintiff all that the Plaintiff was entitled to, and/or that the Plaintiff is estopped from claiming more than the sums paid by the Defendant, and/or that the 1^st Retainer Agreement was obtained by misrepresentation and should be rescinded. In relation to the documents for arbitration, the Defendant says that they were not properly chargeable by the Plaintiff.  The Defendant also counterclaims for a declaration that the 1^st Retainer Agreement has been validly rescinded, or rescission of the same; a declaration that part of the term concerning the fees payable to the Plaintiff in the 1^st Retainer Agreement is unenforceable against the Defendant.

The Claim

7.  The 1^st Retainer Agreement was dated 06.07.2006. It was in English, and signed by Terence Kwan, also known as Kwan Nam Wai (“Kwan”) on behalf of the Plaintiff, and Ma Chiu Fung (“Ma”) on behalf of the Defendant.

8.  The following are the terms of the 1^st Retainer Agreement which I consider are relevant for the purposes of this case :

1   Scope of Services

MCL [the Plaintiff] will undertake to prepare a written submission concerning with the claim for all loss and expenses due to the prolongation of the contract period, loss of productivity, etc. (“the Financial Claim”) including all follow-up negotiation and settlement with the Employer or its representatives, drafting of all contractual correspondences specifically related thereto.

3.   Fee Charged

A lump sum non-refundable fixed fee of HK$120,000…AND a contingency fee calculated on the higher value achieved from the following formulae :

3.1 The contingency fee is ascertained by multiplying the applicable contingency fee percentage (“AFCP”) as defined in 3.3 by the higher value of the following

3.1.1  Aggregate value of all payments certified or paid over and above the threshold amount of $52,500,000; or

3.1.2  Gross value of workdone certified by the Employer or its representatives for the month ended July 2006.

3.2 The contingency fee is ascertained by multiplying the AFCP as defined in Clause 3.3 by the value of the Financial Claim certified or paid by the Employer or its representatives.

(emphasis original)

9.  The Plaintiff submitted Draft Submissions for the claim dated 05.12.2006. This claim was submitted to Towngas on 12.06.2007. The value of the claim submitted was $20,270,702.88. Thereafter, Kwan attended meetings with the Defendant and Mott Connell to discuss and negotiate settlement.

10.  The 2^nd Retainer Agreement was dated 07.12.2006. It was again in English, and the signatories were the same as for the 1^st Retainer Agreement. The 2^nd Retainer Agreement was for the Plaintiff to prepare all documents for supplementary claims in relation to additional insurances, sureties and levies for the extended period of the project, and also for claims or re-rating exercises in relation to omission of the BQ items for the initial Air Test. These items did not form part of the claims under the 1^st Retainer, it being one for delay or prolongation.  The 2^nd Retainer Agreement provided that  “a lump sum non-refundable fixed fee of HK$5,000 is charged…AND a contingency fee calculated as 8% of the value of claim certified or assessed by the Employer or its representatives.”

11.  Further draft letters including those claims were drafted by the Plaintiff and sent to the Defendant.

12.  As no response had been received from Mott Connell by August 2007, the Plaintiff advised the Defendant to institute proceedings for Arbitration and the Plaintiff advised that the fee for drafting the Notice to Arbitration and Appointment of Arbitrator was $6,000. The Plaintiff then did proceed to draft these Notices for which an invoice for $6,000 was issued and paid on 08.10.2007.

13.  Further work was done on the reference to Arbitration including notice to the Secretary-General of the HK International Arbitration Centre to appoint an arbitrator, and the Plaintiff submitted an invoice dated 11.12.2007 for $8,000, having first sent a fax to the Defendant on 27.11.2007 of its intention to do so subject to any objections from the Defendant. This work for the intended reference to Arbitration is referred to as the 3^rd Retainer Agreement.

14.  On 25.01.2008, the Defendant faxed to the Plaintiff a calculation of the amounts payable to the Plaintiff in relation to the project. Without going into the details of the calculation, the sum due to the Plaintiff on these 2 pages was some $369,825.30 under the 1^st Retainer and another $134,900.61 under the 2^nd Retainer. The Defendant was asked to issue an invoice for such  sums, and the Defendant’s invoice for $504,725.91 was duly issued the same day.

15.  Ma and Kwan subsequently met at a restaurant on 28.01.2008, where Ma handed Kwan a cheque for the amount on the invoice. However, no final figures were provided to the Defendant.

16.  Finally, the Defendant requested Mott Connell to provide it with a calculation of the final account, which Mott Connell did. The final account shows that the total sum of $61,858,878.33 was certified for the Project.

17.  The Plaintiff therefore makes its claim on the 1^st Retainer on the basis of the final sum, less the threshold amount multiplied by the contingency fee percentage, or ($61,858,878.33 - $52,500,000) x 11% = $1,029,476.62.

18.  For the 2^nd Retainer, the Plaintiff relies on the fax of 25.01.2008 by which the sum of $1,974,273.56 was ascribed to the amount awarded by virtue of the work done in respect of the 2^nd Retainer, and calculates the Plaintiff’s entitlement as $1,974,273.56 x 8% = $157,941.88.

19.  A sum of $8,000 is claimed for further work done in Arbitration proceedings.

20.  Credit is given for the  sum of $504,725.91 previously paid.

The Defences

21.  A number of defences are raised. Firstly it is said that Kwan of the Plaintiff misrepresented to Ma the effect of the 1^st Retainer Agreement. The representation as pleaded is that “the 1^st Written Agreement contained inter aliaterms as that discussed and agreed between the parties on 5 July 2006”. The terms discussed and agreed between the parties is that

(a)   “Apart from the fixed fee of HK$120,000 payable by the Defendant, the Defendant shall pay the Plaintiff a contingency fee to be calculated according to the amount successfully claimed by the Defendant with the Plaintiff’s assistance;

(b)  the contingency fee shall be varied from 8% to 11 % of the successfully claimed amount”

22.  It is said that this statement was not true when compared with Clause 3.1 of the 1^st Retainer. The Defendant says that the 1^st Retainer Agreement should be rescinded or it would be inequitable to enforce the 1^st Retainer Agreement according to the written terms.

23.  The second defence is one of promissory estoppel. The Defendant says that issuing the invoice for $504,725.91 and accepting the cheque in that amount, the Plaintiff is estopped from claiming more than that sum.

24.  The third defence is based on a construction of the 1^st Retainer Agreement. The Defendant says that Clause 3 (the payment clause) of the 1^st Retainer Agreement needs to be construed by reference to the examples of calculations given in that clause.

25.  The fourth defence is also a matter of construction, relating to the 2^nd Retainer Agreement. The Defendant says that this varied the ‘effect of’ the payment terms of the 1^st Retainer Agreement. I pause here to note that variation was never pleaded.

26.  In relation to the 3^rd Retainer Agreement, the Defendant says that the work claimed should be covered under the 1^st Retainer Agreement. This is effectively a plea that there was no consideration.

27.  The Counterclaim is the other side of the coin of the Defence. Should the Defendant succeed on its defence, the corresponding relief under the Counterclaim would follow. Likewise, if it fails in its defence, the counterclaim would similarly fail. I therefore do not intend to give separate consideration to the Counterclaim.

My Impression of the Witnesses

28.  Before I proceed to assess each of the various defences, it would be helpful for me to indicate my impression of the main witnesses for each party. Kwan and Ma gave evidence for the Plaintiff and the Defendant, respectively. The Defence called another witness, Mr. Chow Wing Kwan. However, nothing turns on his evidence.

29.  Kwan gave evidence first. He struck me as a man who was careful with his words. He is obviously familiar with the dispute resolution process, having been awarded a MA degree in Arbitration and Dispute Resolution in 1998, and in the same year being admitted as a Fellow of the Chartered Institute of Arbitrators.

30.  As noted by Mr Jim for the Defendant, Kwan did have a tendency under cross-examination to repeat parts of his witness statement. Whilst this reduced the spontaneity of his answers, I do not consider that this was deserving of any criticism. He was cross-examined at length (although not unduly so) and he was unshaken in his testimony. I found him generally to be a credible witness.

31.  Ma is a hardworking man, and an example of the sort of man who made Hong Kong a success. With limited education, he started off as a welder’s apprentice and got to his current position as the ‘boss’ of a construction company undertaking substantial, multimillion dollar construction works by dint of his hard work.

32.  However, as someone who made his living through physical labour, Ma gave me the impression that he did not fully trust those who did not. He was obviously emotional and unhappy that the money he earned through his own blood and sweat was being shared by someone who had not shed the same blood and sweat for it as he had.  The idea to instruct the Plaintiff did not come from him. It came from the Defendant’s sub-contractor Figurewell, and he may have felt that he had been manipulated into the agreements. 

33.  As someone who made his way in the world to become the boss of his own construction company, he also left me with the impression that he was used to getting his own way. This was reflected in the way he saw his relationship with Figurewell, the Defendant’s regular sub-contractor. He emphasized that Figurewell, represented by Chan Kwok Cheung (“Chan”) and Joe Lee (“Lee”), trusted him, that he would do right by those who did, so that if the price quoted by Figurewell was too low, he would raise it higher of his own accord.

34.  Although I do not find Ma to be deliberately dishonest, I find that the way he saw his relationship with sub-contractors, together with his mistrust of Kwan who appeared to be undeservedly partaking of the fruits of his own hard labour, affected the way he perceived and recollected events and consequently his testimony in Court. I generally find him to be a less than reliable witness. Where his evidence on facts is at odds with Kwan, I generally prefer Kwan’s evidence.

Misrepresentation

35.  The defence of misrepresentation depends very much on the credibility of the respective witnesses for the Plaintiff and the Defendant. As mentioned, I generally prefer Kwan’s evidence to Ma’s. However, my findings on this issue are not made solely, or even primarily, on the basis of my impression of the witnesses.

36.  I consider that the inherent probabilities point towards there having been no such misrepresentation made by Kwan. The 1^st Retainer Agreement was in writing. Even though Ma himself may not be all that familiar with the English language, Chan and Lee of Figurewell were. It will be recalled that Chan and Lee were regular sub-contractors for the Defendant. The relationship between Figurewell and the Defendant was in fact close to the extent that Chan and Lee were represented to be part of the Defendant’s organisation. Figurewell’s profits were tied to the Defendant’s in that the Defendant took a percentage off the contract sum leaving the balance to Figurewell. It is not inherently credible that any attempt at misrepresentation would not have been spotted by Chan or Lee, who had their own interest in the matter.

37.  The Defendant also employed a clerk who understood English. In these circumstances, any blatant attempt at misrepresentation would be bound to fail, and it is inherently improbable that Kwan of the Defendant did attempt to make such a misrepresentation.

38.  Furthermore, Ma’s denial of knowledge of the figure of $52.5M (the threshold figure) does not ring true. Ma was an experienced businessman. He would not have failed to see the figure in the 1^st Retainer Agreement, nor ask what it was about.

39.  Still further, the response of the Defendant’s solicitors to the Plaintiff’s letter before action speaks volumes for its silence on this point. If Ma had been as shocked as he professed to be on discovery of such misrepresentation, one would have expected this to be the first matter raised by the Defendant’s solicitors. Yet, no mention of any misrepresentation is made, although other matters are raised.

40.  For the avoidance of doubt, I have carefully considered all the points raised by both the Plaintiff and the Defendant and their respective counsel. I mention the points above only because they spring to mind more readily. Suffice to say that having considered all the evidence on this point, I find that Kwan did not misrepresent the effect of the 1^st Retainer Agreement. 

Estoppel

41.  The estoppel is said to arise because the Plaintiff accepted the calculations produced by Ma, issued the invoice and accepted the cheque. The Defendant relies on the doctrine of promissory estoppels.

42.  The law on promissory estoppels is well settled. Mr. Jim for the Defendant relied on the exposition of the doctrine in Dixie Engineering Company Ltd. v. Vernaltex Company Ltd. Unreported, CACV 343 of 2002. Mr. Chang for the Plaintiff cited Luo Xing Juan Angela v. The Estate of Hui Shui See Willy, Deceased & Ors. now reported at (2009) 12 HKCFAR 1. I do not see any difference in principal between the cases. For myself, I would adopt the summary by Ribeiro PJ. at paragraph 55 of Luo Xing Juan Angela v. The Estate of Hui Shui See Willy, where the learned judge said :

“A promissory estoppel may be said to arise where

 (i) the parties are in a relationship involving enforceable or exercisable rights, duties or powers;

(ii) one party (“the promisor”), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance to the other (“the promisee”) that the promisor will not enforce or exercise some of those rights, duties or powers; and

(iii) the promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.”

43.  The promise or representation relied on by the Defendant is the issue of the invoice based on the information from the Defendant’s faxed calculation, this being said to be a representation that the Plaintiff accepted and agreed the sums and method of calculation stated in the fax.

44.  I have no hesitation in rejecting the issue of the invoice as being a clear and unequivocal promise or assurance to the Defendant that the Plaintiff will not enforce or exercise any rights, duties or powers under the 1^st or 2^nd Retainer Agreements or any of them.

45.  First of all, the claim of promissory estoppel does not sit at all well with the claim of misrepresentation.  If there was such a misrepresentation as alleged, it would be highly unlikely that the Plaintiff would not seek to rely on his misrepresentation, else why make such a misrepresentation in the first place? If the Plaintiff did so, there would be no question of the Plaintiff giving any assurance to the Defendant that it would not enforce its legal rights. The two strands of the Defence are to a certain extent inconsistent with each other, and the attempted reliance on both detracts from their credibility.

46.  The issue of the invoice does not, in my judgment, convey a clear and unequivocal assurance that the Plaintiff will not seek to recover from the Defendant the full amount due under the 1^st and/or 2^nd Retainer Agreements. The invoice provided only that the total for that particular invoice was $504,725.91. It did not expressly state that it was in full and final settlement of all sums due, nor did it give any breakdown or calculation, nor is there anything on its face to indicate that the Plaintiff was abandoning the balance of its claims or in any way not insisting on its strict legal rights. Although the words “Contingency fee as per Clause 4 of the Agreement” may signify a claim for whatever is due under the Agreement (and we do not know which agreement is being referred to here), it would be going too far to say that this invoice whether on its own or read together with the faxed computation is a clear and unequivocal assurance that the Plaintiff would not enforce its legal rights.

47.  The Defendant is also in difficulty in that there is no evidence that the Defendant had altered its position so that it would be inequitable or unconscionable for the Plaintiff to go back on its promise. This case is very different from the cases where, eg the lessee had remained in occupation at a reduced rent (Central London Property Trust v. High Trees House [1947] KB 130– change of position because a reduced rent had been paid for the period claimed) or Hughes v. Metropolitan Railway (1877) 2 AppCas 469(lessee changed its position by not acting on a notice of repair). The Defendant has not changed its position by not paying what it should have. There is no suggestion that the Defendant has changed its position such that it would now be placed in more difficulty to pay the proper sums. The position would be different if, eg the Defendant had in reliance on the representation spent the money on something which it had never any intention to purchase.

48.  Looking at the case in the round, I do not find that it would be inequitable or unconscionable to allow the Plaintiff to insist on receiving the sums to which it is entitled by virtue of the 1^st and/or 2^nd Retainer Agreements. Indeed, it would be inequitable and unconscionable to deprive the Plaintiff of what it was plainly entitled on the 1^st and/or 2^nd Retainer Agreements, especially considering that the faxed calculations supplied by the Defendant contained admittedly unjustified deductions for items such as insurance etc.

Construction

49.  The Defendant seeks to say that the payment clause in the 1^st Retainer Agreement should be construed with reference to the examples there given, and suggests that as the examples given do not involve any calculation by reference to the threshold amount, the proper construction of the payment term in the 1^st Retainer Agreement does not involve the threshold amount either.

50.  The short answer to this submission is that an example by its very nature is only a mere illustration of a wide spectrum of factual scenarios that may occur. There may be an infinite number of examples for a given principle. To construe the contract by reference to an example while ignoring the clear words of the terms of the contract would be an example of the tail wagging the dog.

Variation of the 1^st Retainer Agreement by the 2^nd Retainer Agreement

51.  The Defendant argues that the 2^nd Retainer Agreement varied the payment terms of the 1^st Retainer Agreement, because a global settlement figure would mean that the Plaintiff would recover twice under the 1^st and the 2^nd Retainer Agreements. Or, the claims in the 2^nd Retainer Agreement would form (as part of construction of the agreements) part of the “aggregate value of all payments certified or paid over and above the threshold amount”.

52.  As mentioned above, variation was never pleaded. Furthermore, the 1^st and the 2^nd Retainer Agreements dealt with different matters, the 1^st Retainer Agreement being a claim for prolongation costs for delay caused by the employer, whilst the 2^nd Retainer Agreement was for additional insurance as well as certain BQ (bills of quantity) items. There was no overlap and in the normal course of events there would be no double recovery. The 2^nd Retainer Agreement cannot, as a matter of construction, be held to have varied the 1^st Retainer Agreement.

3^rd Retainer Agreement included within 1^st and 2^nd Retainer Agreements

53.  The scope of the services provided by the Plaintiff under the 1^st Retainer Agreement was “…to prepare a written submission concerning with the claim for all loss and expenses due to the prolongation of the contract period, loss of productivity,…including all follow-up negotiation and settlement with the Employer or its representatives, drafting of all contractual correspondences specifically related thereto.” The scope of services under the 2^nd Retainer Agreement was “…to prepare all necessary documents for the following supplementary claims…including all follow-up negotiation and settlement with the Employer or its representatives, drafting of all contractual correspondences specifically related thereto…”.

54.  The fees claimed under the 3^rd Retainer Agreement started with formal notification of dispute, notice to refer to arbitration, and notice to concur in appointment of single arbitrator. These were invoiced by the Plaintiff and paid by the Defendant. What is outstanding are sums claimed for drafting letters to the Secretary General of the HKIAC for appointment of arbitrator, reply to the Employer’s objection, further letter to the HKIAC including the final letter for withdrawal of the application for appointment of arbitrator.

55.  There is a clear watershed between prior correspondence and the correspondence covered under the 3^rd Retainer Agreement. In the previous correspondence, the Defendant was submitting its claims and seeking settlement of its claims. In respect of the 3^rd Retainer Agreement, the work done were steps taken in a reference to arbitration. Such work would be analogous to work commencing with a writ of summons, if the matter went to litigation.

56.  I am satisfied and I so find that work under the 3^rd Retainer Agreement was not covered under the 1^st or 2^nd Retainer Agreements which dealt with submissions of claims with a view to settlement. Whether or not the Defendant had a real intention to arbitrate or the steps taken were simply to put further pressure is neither here nor there. Those letters and steps taken initiated the formal dispute resolution process, and the work had gone beyond what was agreed under the 1^st and 2^nd Retainer Agreements.

Double Recovery

57.  I reject the Defence submissions and therefore find that the Plaintiff succeeds on his claim for payment under the 1^st and the 3^rd Retainer Agreements. 

58.  However, that does not mean that I find for the Plaintiff on the 2^nd Retainer Agreement as well.

59.  I am satisfied, having considered all the evidence including the testimony of Ma that the Defendant did indeed enter into a global settlement of all outstanding claims with Towngas, resulting in Mott Connell certifying an extra $6.7M payment to the Defendant.

60.  That Ma then foolishly tried to ascribe an arbitrary figure to the 2^nd Retainer Agreement should not mean that the Plaintiff should obtain double recovery, as that is essentially what the Plaintiff would get if I were to give judgment to the Plaintiff on its claim under the 2^nd Retainer Agreement.

61.  The 2^nd Retainer Agreement provided that the contingency fee would be “8% of the value of claim certified or assessed by the Employer or its representatives”. The value of the claim must relate only to the matters claimed under the 2^nd Retainer Agreement.

62.  As the final certification by Mott Connell did not certify or assess any value of the claim made under the 2^nd Retainer Agreement, I find that no sum is payable thereunder.

Conclusion

63.  I give judgment to the Plaintiff for the sum of $532,750.71 being the sums claimed under the 1^st and 3^rd Retainer Agreements ($1,029,476.62 + $8,000) less the sum already paid by the Defendant ($504,725.91). I award interest on such sum of $532,750.71 at the rate of 1 % above the best lending rate as from time to time quoted by the Hongkong and Shanghai Bank from the date of the writ to the date hereof, and thereafter at judgment rate until payment;

64.  I make a costs order nisi that costs of this action be to the Plaintiff, to be taxed if not agreed, with certificate for counsel.