MR. TONG PUN CHUNG v. BLESSGAIN CONSTRUCTION ENGINEERING LTD

DCCJ 4618/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4618 OF 2008

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JUDGMENT

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1. The Plaintiff's claim against the Defendant is for work done in respect of cabling works carried for the Defendant.  The Main Contract Employer is CLP Engineering Limited (中電工程有限公司) ("CLP") and the project (“the Project”) relates to the distribution cable trenching and laying works in North Region (Contract No. Ref. No. CBE12102).  CLP awarded the main contract ("the Main Contract") to Excel Engineering Co Ltd (怡益工程有限公司) ("Excel") which sub-contracted (“the Sub-contract”) it to the Defendant which in turn sub-contracted part of the same to the Plaintiff.  The present case before me does not concern the issue of liability between the Plaintiff and the Defendant.  Rather it is a purely matter of quantum - what the Plaintiff is entitled to be paid pursuant to  his oral agreement with the Defendant.  By the time this matter came before the Court, the amount in dispute is only HK$53,630.25.  The Plaintiff claims the sum of HK$77,809 plus interest and the Defendant admits the sum of HK$24,178.

(HK$)	Plaintiff	Defendant	Difference
Total remuneration	1,292,389.00	1,279,371.30	13,017.70
Amount paid already	905,981.00	905,981.00	0.00
Deductions	308,599.00	349,211.55	40,621.55
Amount payable	77,809.00	24,178.75	53,630.25

Background

2. It is commonground that the Plaintiff and the Defendant had an oral agreement made in or about December 2004 whereby the Defendant agreed to carry out cable trenching and laying works in Tin Shui Wai, New Territories, Hong Kong.  The modest operandi was that CLP would issue work orders which would be passed down the line to the Defendant which would issue the same to, amongst other sub-contractors, the Plaintiff. The Plaintiff would carry out and complete the cable  laying works contained in such work orders and would be paid.  During the course of the Plaintiff's works, the Defendant issued to the Plaintiff eight payment certificates (“the  8  Certificates”) from January to August 2005 and certifying the total sum of HK$905,981 as payable.  It is commonground that the sum certified has already been paid by the Defendant to the Plaintiff.

The Issues

3. There are three issues in this case :-

(i)     what the terms of the oral agreement ("the Agreement") between the Plaintiff and the Defendant are?  Specifically, whether the terms of the oral agreement were subject to the terms of the Main Contract and the Sub-contract;

(ii)    whether the 8 Certificates were final payment certificates or interim payment certificates;

(iii)   whether the Defendant is entitled to make the deductions that it has made so far, and, if not, what deductions the Defendant is entitled to make.

Witnesses

4. The Plaintiff himself gave evidence.  Mr. Cheung Kwok Ming (張國明) and Mr. Law Kwok Shing (羅國成) gave evidence for the Defendant.  Their witness statements stood as their evidence-in-chief.

Terms of the Agreement

5. It is commonground that the Agreement was reached between the Plaintiff and Mr. Cheung Kwok Ming (張國明) of the Defendant.  It is the Plaintiff's case that the terms of the Agreement were as follows :-

(i)     the Defendant would pay    the Plaintiff at the rate of HK$410 per metre for the laying of  high voltage underground electricity cables;

(ii)    the Defendant would pay the Plaintiff  at the rate of HK$240 per metre for the laying of low voltage underground electricity cables;

(iii)   the Defendant would supply the Plaintiff with wirings, cables and insurance cover;

(iv)   the retention monies would be 5% to be paid by the Defendant to the Plaintiff within 3 months upon completion of each work order (Check).

6. It is the Defendant's case that the terms of the Agreement as pleaded in paragraph 6 of the Defence :-

 (a) the amount payable by the Defendant to the Plaintiff is the amount payable by CLP to Excel after measurement and verification in accordance with the Main Contract in respect of work done by the Plaintiff less 18%;

(b) the amount of retention is 10% of the amount payable by the Defendant to the Plaintiff;

(c) the costs of materials provided by the Defendant to the Plaintiff is to be deducted from the amount payable to the Plaintiff;

(d) for the purpose of enabling the Plaintiff to pay his employees, the Defendant would first pay the Plaintiff the amount stated on draft bills submitted by the Plaintiff to the Defendant less retention money and the cost of materials provided by the Defendant to the Plaintiff;

(e) the difference between the amount paid under sub-paragraph (c) above and the amount payable under sub-paragraph (a) above would be deducted from the retention money;

(f) other sums to be deducted from the retention money include the amounts paid by the Defendant on the Plaintiff's behalf, and the amounts incurred by the Defendant in respect of remedial works undertaken by the Defendant on the Plaintiff's behalf;

(g) the retention money, after deductions, would be released to the Plaintiff after CLP settled final payment to Excel Engineering;

(h) if not inconsistent with the terms of the [oral agreement], the terms and conditions of both [the Main Contract] and the Sub-contract apply; and

(i) in the event of any inconsistency between the terms and conditions of [the Main Contract] and that of the Sub-contract, [the Main Contract] prevails."

8.     In cross-examination, the Plaintiff was referred to 8 Certificates which he relied on in support of his present claim against the Defendant.  He conceded that if the Defendant had paid money on his behalf, it could be deducted from his payments.  In this respect, his understanding is inconsistent with his pleaded case on the terms of the Agreement which contained no provision for contra-charges.  Indeed, if his pleaded case on the Agreement were correct, there would be no room for the deduction of any expenses from the 8 Certificates. The Plaintiff was further asked  whether he would be paid more if more than one cable was laid in a trench and his answer was in the affirmative although the extra amount paid to him would only be marginally more. This suggested that he was not paid just 2 rates and is contrary to his own case that only two rates of HK$410 or HK$240 per metre for high voltage and low voltage cables. Rather the evidence before the Court goes to show that there was a system of contra-charges against the work carried out by the Plaintiff. 

9.     In contrast, the evidence of Mr. Cheung Kwok Ming of the Defendant is more consistent with the contemporaneous documentary evidence and the factual matrix of this case with the exception of the percentage of retention monies which I shall deal with below.  He explained the background to the contracting arrangement for the Project.  Excel sub-contracted the whole of the works to the Defendant at 10% less than the Schedule of Rates (“the Schedule of Rates”) of the Main Contract and the Defendant would further retain 8% for itself in sub-sub-contracting to the Defendant.  That explained the figure of 18% reduction from the Schedule of Rates as mentioned in his witness statement and the contemporaneous documentary evidence.  He denied any agreement as contended by the Plaintiff for the reason that this did not fit into the present factual matrix.  The Defendant had more than one sub-contractor for the works and its approach with the other sub-contractors was the same.  This was not challenged by the Plaintiff.

10.   Mr. Cheung for the Defendant further went on to explain that the Defendant would only be paid by Excel if the Defendant completed the whole of each work order issued.  However, in ensuring that its sub-sub-contractors like the Plaintiff could pay his workers,  the Defendant would pay on the basis of provisional estimates of the Plaintiff’s monthly work done. Each month the Plaintiff would assess the amount of work done by each sub-sub-contractor and the Defendant would then pay on an interim basis.  The 8 Certificates relied upon by the Plaintiff were interim payment certificates as opposed to final ones.

11.   The interim nature of the 8 Certificates was corrobated by Mr. Law for the Defendant.  He went to great lengths to explain how the 8 Certificates contained provisional estimates of the work done and how the final account of the total amount of work done by the Defendant was calculated as well as explaining the methodology of deducting contra-charges in respect of the Plaintiff’s work with reference to the contemporaneous documentary evidence of the Defendant.

12.   Returning to the terms of the Agreement between the Plaintiff and the Defendant, I do not agree that the terms of the Agreement were those as contended by the Plaintiff. As I mentioned in paragraph 7 above, it would have been illogical for the Plaintiff to agree only to one rate for each of the high or low voltage cables when he did not know how much of his work would be carried out under the pedestrian pavements and  roads. Further the evidence shows that he would only be paid a little more as opposed to double the amount for laying of two cables within the same trench. This suggests that there were more than the 2 rates of payment as contended by the Plaintiff.  I prefer the evidence of the Defendant as follows :-

(i)     the Defendant would issue work orders to the Plaintiff to carry out excavation of trenches and laying of cable in relation to the Project and that the Plaintiff would be

paid in accordance with the final measurement and verification by CLP in accordance with the Main Contract at the rate of 18% less from the Schedule of Rates. 

(ii)    there would be deducted from such payments, costs of any labour or  materials provided by the Defendant to the Plaintiff or the amounts paid by the Defendant on the Plaintiff's behalf;

(iii)   the Defendant would pay the Plaintiff on a  monthly interim basis amount stated in the 8 Certificates less retention monies and the costs of any labour or materials provided by the Defendant and other contra-charges which the Defendant was entitled to deduct as aforesaid;

(iv)   the retentions would be released one year after the completion of the Defendant's works under its Sub-contract with Excel and after CLP paid all sums payable to Excel;

13.   I further find that it was a term of  the Agreement that upon final measurement and verification by CLP of the workdone under the Project and upon finalisation of the amount of contra-charges referred to in paragraph 11(ii), the Plaintiff and the Defendant would carry out a final accounting  exercise to determine the final amounts payable to the Plaintiff  or, as the case may be, the Defendant.

14.   I do not, however, find for the Defendant on paragraphs 6(h) and (i) of  the Defence. I do not believe that the discussions between the Plaintiff and Mr. Cheung of the Defendant were that sophisticated or detailed as they both stated that they received minimum education.  On this issue,  I only find that the agreed term was that the Plaintiff had to carry out his  work in accordance with the technical and construction specifications and requirements of the Main Contract. This is logical because if the Plaintiff did not lay the cables to those requirements, he would not be able to be paid in accordance with the Scheduled of Rates, albeit discounted.

Retention Monies

15.  On the issue of percentage of retention monies, the Plaintiff's evidence was that after he received  the payment  certificate for January 2005 he noted that retentions  to the tune of

HK$20,000 were retained which represented approximately 10% of the amount payable to that certificate.  He  then raised  his objection with Mr. Law with the Defendant.  In subsequent months of February 2005 onwards a retention of  5%  was retained. In one month no retention monies were retained at all.  The Defendant's evidence on this point was provided by Mr. Cheung who contended that it was 10%.  I prefer the evidence of the Plaintiff as it is in line with the percentage set out in the 8 Certificates and this does not support the contention of the Defendant.

16.   As  to the time of release of the retention monies, I prefer the evidence of  Mr. Cheung in that it should be  released one year after completion of the Defendant's works under the Sub-contract and after CLP paid all sums payable to Excel.

Whether the 8 Certificates were final or interim in nature

17.   It is the Plaintiff's case that the 8 Certificates were final in nature and Mr. Tsang for the Plaintiff sought to persuade that all I needed to look at were the 8 Certificates and no more.  The Plaintiff's evidence in this regard was no more than a bare assertion in his witness statement.  However,  when one has a closer look at the 8 Certificates, one is not able to conclude that they are final in nature.  In the payment certificates, there is one column clearly entitled "provisional deduction of materials" (暫扣材料) this suggests that the costs of the materials to be deducted are provisional or interim in nature and it is anticipated that there will be a final accounting exercise where the finalised sums will be identified and finalised.  Mr. Law of the Defendant in his evidence explained the temporary nature of such deductions and quoted one example of compaction tests (泥辦) which appeared in the January 2005 certificate.  In fact when the finalised figures later came to be known, the actual cost of each compaction test was HK$790 instead of HK$900 and the Defendant in its final accounting exercise apportioned the amounts back to the Plaintiff.

18.   I accept the evidence of Mr. Law of  the Defendant.  Indeed, there is no suggestion on the

part of the Plaintiff that Mr. Law should not be believed or that his evidence should not be accepted. On the basis of the foregoing, I find that the 8 Certificates were not final payment certificates as contended by the Plaintiff. Rather they were interim in nature pending the finalisation of the final amount of work done by CLP. 

Proof of Work Done

19.   Mr. Tsang  accepts that once I find that the 8 Certificates are only interim as opposed to final in nature, he has no other proof of the amount of work done carried out by the Plaintiff.  The Plaintiff's own notebook as proof of his work done has been lost.  This, however, is not detrimental to the Plaintiff's case.  As admitted by the Defendant, upon final measurement and verification of the works under the Main Contract and upon finalization of the total amount of contra-charges, the Plaintiff would carry out a final accounting exercise to calculate the final amount payable together with retentions which should be released in accordance with the Agreement.  The Defendant's evidence is logical and is in line with the common practice in the construction industry.  The 8 Certificates upon which the Plaintiff relies lends credence to this finding.

20.   What then is the amount of work carried out by the Plaintiff ?  The Plaintiff seeks to rely on the total sum certified under the 8 Certificates which total HK$1,292,389.  The Defendant asserts that the total amount of work done by the Plaintiff is HK$1,279,371.30.  The difference between the parties is HK$13,017.70.  Mr. Ngai for the Defendant relies upon a schedule of work done ("the Schedule of Work Done") by the Plaintiff which is calculated by the Defendant at page 81 of Trial Bundle I. The substantiation  (“the Substantiation”) of each of these figures is contained in pages 81 to 316 of Trial Bundle I and  Mr. Law of  the Defendant gave extensive evidence on how the figures in the Schedule of Work Done were arrived at with reference to Substantiation.  At this juncture I duly note that Mr. Tsang for the Plaintiff does not dispute the admissibility of such evidence. He accepts the figures have been correctly calculated as figures although he submits that the documentary evidence in support is self-serving and it is a matter for the Court to consider what weight it should attach to such evidence.  During the course of this trial, I ventilated my concern as to why there was nothing in the Statement of  Mr. Law as to how he arrived at  the figures  in the Schedule of Work Done with reference to the supporting documentation.  This not only would have assisted the Court but also the Plaintiff in understanding the Defendant's case. No doubt in due course this will be relevant on the question of costs. Returning to  the evidence of Mr. Law  of the Defendant on his calculation of the amount of  work done by the Plaintiff.  I am willing to accept the same subject to the specific objections by the Plaintiff below.  It is in line with the Agreement which I have found above i.e., the Plaintiff would be paid 82% of the final measurement and verification of his work done; in other words, 18% would be deducted from the payment rates to Excel by CLP. I do not think the Schedule of Work Done is self-serving.  Rather it is methodical and  logical. By the same taken the same may be said of the Schedule of  Contra-charges which I shall refer to below.

21.   I therefore find that the total amount of work done by the Plaintiff is HK$1,279,371.30.

Contra-charges

22.    It is the Plaintiff's case that all the Defendant is entitled to deduct by way of contra-charges is the sum of HK$308,599 which is stated in the 8 Certificates.  It is the Defendant's case that the deductions in the 8 Certificates are provisional or interim in nature and a final accounting exercise needs to be conducted to ascertain the finalised amounts.  It is the Defendant's case that the total amount of contra-charges should be HK$349,211.55 which is set out in the Schedule of contra-charges ("Schedule of Contra-Charges") at pages 82 and 83 of Trial Bundle I.  On this issue, Mr. Law of the Defendant explained logically and clearly the methodology of the amount of deductions, which I accept.  Mr. Tsang for the Plaintiff accepted that the figures contained in the Schedule of Contra-Charges were correctly calculated as figures with reference to the Substantiation.

23.  I posed the question to Mr. Tsang for the Plaintiff as to whether the Plaintiff's only objection to the Schedule of Contra-Charges was contained in paragraph 30 of the Plaintiff's witness statement which was admitted as evidence-in-chief.  Mr. Tsang submitted  that  those  items set out in paragraph 30 were  not exhaustive and  were  only

examples of deductions to which the Plaintiff objected.  With respect, I disagree. The Plaintiff does not state in paragraph 30 of his witness statement that the five  items of  the Schedule of Contra-charges to which he objected were not exhaustive. On the contrary, he states that there were the 5 items to which he objected.

24.   Mr. Ngai for the Defendant has helpfully assisted the Court in analyzing the difference of the contra-charges/deductions to identify the differences between the Plaintiff and the Defendant's case which I extract as follows:-. 

	Plaintiff’s case	2nd Tranch	3rd Tranch	4th Tranch	5th Tranch	6th Tranch	Defendant’s case
泥辦/ Compaction Tests	18,810	790	6,320	3,950	3,350	4,550	18,960
Concrete /石屎	77,107	22,600	21,446	4,384	9,132	14,460	72,022
Oil / 呔油	40,066		18,819.45	3,002.40	16,318.80	3,008.40	41,149.05
中美交通			2,000	1,000	3,000	1,000	7,000
中港石屎							5,418
夾泥車9月							700
5 disputed items**							31,346.5
4 common items	172,616						172,616
Total	308,599						349,211.55

26.   That leaves eight disputed items as follows :-

(i)     Media Engineering Co Ltd (中美交通工程有限公司)                         HK$7,000

The Defendant has not explained the reasons for such deduction  save a bare averment in its witness statements that the sums should be deducted.  The burden of proof is on the

Defendant to show the reasons for deduction which it has failed to do so.  In the circumstances, I disallow the sum of HK$7,000.

(ii)    Hong Kong China Concrete (中港石屎)                                             HK$5,418

It is the Plaintiff's case that all the contra-charges are already set out in the 8 Certificates. 

Mr. Ngai for the Defendant has helpfully drawn my attention to the fact that the sum of HK$5,418 being a contra-charge from Hong Kong China Concrete has actually been included in the list of provisional  deductions in the January 2005 payment certificate.  I therefore allow this deduction of HK$5,418.

(iii)   Soil carting away September (夾泥車9月)                                            HK$700

        The Defendant concedes that it has no supporting documentation for the sum of HK$700.  I therefore disallow this sum.

(iv)   Employee compensation settlement for 陳德銘                                     HK$20,600

        This relates to compensation paid by the Defendant to a Mr. Chan Tak Ming (陳德銘).  It is an agreed term of the Agreement that the Defendant would be responsible for  employee compensation insurance and the Plaintiff's objection onto this contra-charge is on this ground.  There is no averment as to the reasons for such a deduction by the Defendant other than a bare denial and averment that the sum should be deducted.  As it is the agreement of the parties that the Defendant will be responsible for employee compensation insurance, then any payment or settlement made and in this case in the sum of HK$20,600 should be borne by the Defendant as employee compensation insurance would cover such an event.  I therefore disallow the deduction of HK$20,600.

(v)    Daywork contra-charge re 陳紫強                                                       HK$2,000

The Plaintiff's objection is that this consisted of the work done in respect of bricklaying dayworks   in   October 2005 which  is  after the Plaintiff had completed the works and

ceased to work for the Plaintiff in August 2005.  There is no explanation in the evidence of the Defendant for this contra-charge and I find that they have not proved their entitlement to deduct the sum of HK$2,000.  I disallow this deduction.

(vi)   The seventh  tranch of contra-charges of 25 November 2005                 HK$2,290

This contra-charge consists of two items : a traffic penalty in the sum of HK$1,500 and  compaction tests in the sum of HK$790.  The Plaintiff contended that all that has been relied upon by the Defendant was a notice of payment against a Mr. Chan Po Kun from the Tuen Mun Magistrates' Courts directing Chan Po Kun to pay HK$1,500.  It is not addressed to the Defendant or the Plaintiff.  There is no evidence explaining why the sum of HK$1,500 should be contra-charged to the Plaintiff other than a bare averment by Mr. Cheung of the Defendant that the sum should be deducted.  I am therefore not prepared to allow this sum to be deducted.

With regard to the compaction test in the sum of HK$790, I likewise disallow this deduction as the evidence shows that the test was carried out on 23 September 2005 and the Defendant had already completed his work and no longer worked on this project for the Plaintiff. 

(vii)  Trial pit dayworks of 11 April 2006: 林章協                                          HK$1,500

        The Plaintiff’s objection is that there were dayworks for carrying out trial pits works to verify the depth of the cable(s) laid in March 2006. This was some 6 months after the Plaintiff finished his work for the Defendant. Further there is  no allegation of defective work  by the Defendant. Nor is there any explanation as to why this is attributable to the Plaintiff.  It is common practice that if one suspects that any covered up works are defective and orders the opening up to verify the same, then in the absence of any terms to the contrary,  if the works are not defective, the party ordering the opening up will be   responsible   for    the  cost  of opening up and the contractor   which  carried out the original works would not be liable  for such costs. I therefore disallow it.

(viii)  Granite works (麻石拆石及重裝工程) of 12 June 2006                        HK$4,956.50

On the pleaded case of the Defendant there is no allegation that the works carried out by the Plaintiff were defective.  Further, the Defendant has not proved its case as to the circumstances and the reasons for the deduction of this sum.  The Defendant has simply failed to come up to proof and I find that a simple averment in the Defendant’s witness statements that the sum should be deducted is insufficient.  For this reason, I disallow the deduction of the sum of HK$4,956.50.

27.    The total amount outstanding is therefore as follows :-

28.   As to the element of interest payable, the same shall be payable from 4 September 2008 at the rate of 1% above the prime lending rate of The Hongkong and Shanghai Banking Corporation Limited to the date of Judgment and thereafter at the Judgment Rate.

29.   Costs

        At the outset of the hearing, I have already informed the parties that the costs of a 3-day hearing vastly outstrip the difference between the parties and indeed, during the course of the hearing I noted that Mr. Ngai has had to take DW1 through the Schedule of Contra-Charges and Schedule of Work Done. This could have been avoided had the Defendant's solicitors prepared adequate witness statements.  This is especially so when the Court ordered that the witness statements were to stand as evidence-in-chief. 

30.   For present purposes, since the Plaintiff has been largely successful in his claim, I make a order nisi that the Defendant does pay the Plaintiff's costs to be taxed if not agreed.

Representations: