AEROTECH ACOUSTICS LTD v. CHEVALIER (ALUMINIUM ENGINEERING) HONG KONG LTD

DCCJ 1937/2017

[2023] HKDC 1849

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1937 OF 2017

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BETWEEN

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JUDGMENT

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A. Introduction

1.  This is the trial of an action concerning a contract between the Plaintiff (“P”) and the Defendant (“D”) for the supply and installation of aluminium acoustic louvre (“AL”) to a steel structure at the roof floor cooling tower of a construction project located at Nos 76-82 Queen’s Road Central (“the Site”).

2.  The main contractor for the Site was Wecon Construction & Engineering Limited (“Wecon”).

3.  D is a company incorporated in Hong Kong carrying on the business of windows and aluminum cladding design, supply and installation conduction. At the material time, D was the nominated sub-contractor of Wecon responsible for the design, supply and installation of external façade including curtain wall, cladding, glass wall, louvres etc at the Site.

4.  P is a company incorporated in Hong Kong carrying on the business of supplying and installing noise and vibration control equipment. Mr Keung Hon Chung Andy (“Andy”) is one of 2 directors and shareholders of P. The only other shareholder and director has not been involved in the running of the business of P.

5.  At the material time, P had 4 staff members. The 2 staff members who were involved with the present dispute were Mr Chris Chan (“Chris”) and Mr Chung Man Wai (“Chung”). However, they were not called as witnesses for P. The only witness who testified for P was Andy. According to Andy, Chris had left the employment of P some time after the Writ of Summons was issued (21 April 2017) but before the Reply was filed by P in this action (18 May 2018). Chung remains employed by P.

6.  Fiona Ip (“Fiona”), a senior manager of D, and Kelvin Lee (“Kelvin”), the assistant project manager of D, were the 2 witnesses who testified for D. There were 2 other staff of D, Yammi Chow (“Yammi”) and Wilson Lam (“Wilson”) who were involved with the present dispute but were not called as witnesses.

7.  Mr Anthony Lo (“Mr Lo”) appeared as counsel for P and Mr Alvin Tsang (“Mr Tsang”) appeared as counsel for D.

B. Background Facts

8.  Save where the parties’ respective case or contention is stated, the following facts are either not disputed or indisputable. I will find those as facts.

9.  In or about October 2016, Chris on behalf of P and Fiona on behalf of D began discussion about the supply and installation of AL to the Site. P and D had no prior business relationship.

10.  On 24 October 2016, Chris issued a quotation to D for the supply and installation of “Sargents” AL 300mm thick (Model SV3) of approximately 277m² for a price of HK$1,001,020.00 (“the Quotation”). Under “remarks” it was stated:

“Steel Structure shall be constructed by others. Special T-shape acoustic louvre can be manufactured to suit site installation sketch as per attached; no extra cost implication.”

11.  From the sketch attached to the Quotation, one can see that AL is in the shape of a “T” because they have notches (reducing its thickness) to accommodate and allow space for steel beams (or what are commonly known as “I-beams”).

12.  The Quotation further provided for terms of payment as follows:

“30% deposit upon signing of contract;

Further 50% against materials on site;

Balance by monthly progress claim.”

13.  After further negotiation between Chris and Fiona, a revised quotation dated 4 November 2016 (“the Revised Quotation”) was issued by P to D. Save for the price being revised to HK$1,176,500.00, the change of materials and the inclusion of “15 years durability warranty for PVF2 coating under normal weather and atmospheric conditions is included” under “remarks”, there was no material difference with the Quotation.

14.  By a Purchase Order (“PO”) dated 10 November 2016 issued by D to P, it was stated that “this purchase order is made by and between [P] and [D], whereby [P] agrees to supply and deliver the foregoing item(s) to [D] on the following terms and conditions”.

15.  Under “Item”, it states “Supply & Install ‘Sargents’ Acoustic Louver (Detail see attachment)”. The quantity is stated to be 1 Lot. The unit price is stated as HK$1,176,500.00.

16.  According to the Detail Sheet (“DS”) attached to the PO, the sizes and models of AL to be supplied and installed are “[t]o supply and install ‘Sargent’ 300mm thick Aluminium Acoustic Louvre (Model-SV3) of area totally 277m² to the Steel Structure at R/F Cooling Tower Plant”.

17.  The following appears under Remarks:

“(1) 25 year warranty star[t] from the completion of Defect Liability Period.

(2) ‘SARGENTS’ Acoustic Louvre casing shall be made of 1.2 mm thick aluminium sheet. Louvre blade shall be made of 0.8mm aluminium and 0.5mm perforated aluminium sheets with absorptive infill. Whole exposed aluminium surface of acoustic louvre shall be finished with PVF2 coating. The supporting sub-frame shall be constructed of G.S. U-channel or angle.

(3) Actual Size subject to final confirmation.”

18.  The DS also provides the following payment terms:

“20% Deposit upon drawing approval, 40% materials on site, 35% complete installation & 5% retention.”

19.  It can be seen that the payment terms in the DS differed from those in the Quotation and Revised Quotation.

20.  According to Fiona, the payment terms were revised pursuant to an oral agreement during a telephone conversation between Chris and her, the time of which she cannot now recall. Fiona had crossed out the printed Terms of Payment of the Revised Quotation and wrote besides it:

“20% deposit

40% material on site

35% complete installation

5% retention”

21.  Her signature and the handwritten date “21/11/2016” appeared next to it.

22.  Although in Andy’s evidence he said he could not find a copy of the Revised Quotation with the hand-written payment terms and he did not agree that those were the terms reached in an oral agreement between Chris and Fiona, nevertheless he accepted that the agreed payment terms were that as set out in the PO.

23.  The PO also provided that the time of arrival is 30 November 2016.

24.  Furthermore, the address to deliver AL to was provided as: “No 76-82 Queen’s Road, Central Site”.

25.  The PO and DS were confirmed and accepted by P on 17 November 2016.

26.  P’s pleaded case, which was maintained in P’s Opening, was that the applicable terms and conditions for the parties’ agreement for the supply and installation of AL were those set out in the PO and DS. P denied the applicability and force and effect of the Revised Quotation. Whereas D’s case has always been that the Revised Quotation together with the PO and DS formed one composite agreement between P and D.

27.  However, during the course of Andy’s cross-examination by Mr Tsang, he agreed that the Revised Quotation, the PO and DS formed one composite agreement and the terms in the Revised Quotation had not been superseded by the PO and DS. In P’s Closing Submissions, Mr Lo accepted that all the terms of the Revised Quotation are part of the parties’ agreement for the supply and installation of AL.

28.  Ultimately, P only produced AL of a total area of 246.7m² (or 89%) in 2 batches or lots: 94m² (“1^st Lot”) and 152.7m² (“2^nd Lot”).

29.  P issued 2 invoices to D dated 22 February 2017 and 10 March 2017 (collectively, “the 2 Invoices”) for the 1^st Lot and 2^nd Lot in the sum of HK$159,700.00 and HK$259,407.00 respectively. D has not settled the 2 Invoices.

30.  Furthermore, it is not disputed that the 1^st Lot and 2^nd Lot were delivered to the Site by D, not P, on 14 February 2017 and 23 March 2017 respectively.

31.  Moreover, there is no dispute that no AL were installed by P on the Site.

C. Summary of P’s Case

32.  It is P’s pleaded case that notwithstanding the drawings for AL that were prepared by P had not been verified by D, on 8 December 2016, Fiona instructed P to proceed with the production of AL in accordance with P’s drawings and promised to pay P for any abortive work caused by misalignment of AL with the main supporting steelframes. As a result of the instructions and on the strength of the promise, P produced the 1^st Lot based on the actual size depicted in P’s drawings. It is P’s case that acting in accordance with D’s instructions, P was only required to manufacture AL in accordance with the drawings submitted and approved by D and did not need to further modify AL after production had commenced or completed.

33.  However, when P was setting up the supporting sub-frame necessary to install the 1^st Lot, it discovered that the mainframe and concrete structures built on site mismatched the drawing sizes previously approved (“the Mismatch”) and Chris immediately informed D of the Mismatch by email on 15 February 2017.

34.  On 22 February 2017, Yammi instructed Chris by WhatsApp to install AL at a new level which was higher than the original installation level by 250mm (“the new instruction”).

35.  Between 22 February and 24 February 2017, P chased D for email confirmation of the new instruction as well as reminded D to place and confirm a new order with P for producing new AL of 150mm thick. Pending confirmation of the new instruction and order of new AL, D was put on notice that installation of AL would be temporarily suspended for a week.

36.  On 24 February 2017, Yammi through WhatsApp notified P to hold on the new instruction until D secured a final confirmation from the Employer of the project. On the same day, Kelvin through WhatsApp notified Chris that another problem was found and installation had to be withheld.

37.  On 25 February 2017, Kelvin demanded P to stop all work on site including the supporting sub-framework. As a result, P did not assign any workers to work on 26 February 2017.

38.  Notwithstanding that D had been notified by P of the Mismatch, Yammi by email dated 6 March 2017 instructed P to produce the remaining AL in accordance with the sizes set out in the latest drawings and D will then arrange a lorry to collect all AL for delivery to the Site after they made changes to AL. Yammi also instructed P in the meanwhile to arrange manpower to install AL.

39.  On 6 March 2017, Chris replied by email to Yammi expressing P’s disagreement, in particular stated that: (1) P would not take up responsibility as a result of the alterations and/or design change that D had caused to AL; and (2) preferred not to take up installation of AL as the method of installation and design would be completely different from the one planned when P had entered into the agreement with D.

40.  Nonetheless, P proceeded with the production of the remaining AL as was instructed by Yammi in her email of 6 March 2017.

41.  By P’s email dated 10 March 2017, D was informed that the 2^nd Lot would be ready for delivery on or about 13 March 2017.

42.  On 11 March 2017, D proposed a meeting with P, together with all concerned parties, for having the issues connected with the Mismatch and the installation of AL discussed and resolved.

43.  On 13 March 2017, Andy (together with Chris and Chung) attended the meeting. However, the parties could not reach any consensual agreement such that the issue of the Mismatch and installation remained outstanding and pending resolution.

44.  It is P’s case that the delivery obligation of AL was altered by the parties’ agreement and was met by D picking up the 1^st Lot at P’s factory in the Mainland and P’s delivery of the 2^nd Lot to D’s factory in the Mainland.

45.  As for P’s entitlement to issue the 2 Invoices, Mr Lo submitted that on a proper construction of the payment terms, this did not mean that 100% of AL had to be delivered but payment would be made proportionally to the amount delivered out of the 40% of the contract sum. Alternatively, he relied upon on the doctrine of substantial performance.

46.  It is therefore P’s case that it was entitled to issue the 2 Invoices and D’s refusal settle the same amounted to repudiatory breach of the parties’ agreement.

47.  Furthermore, D unilaterally and without giving notice to P retained certain workers for carrying out the installation of AL on the Site. By reason of these matters, D had elected not to be bound by the agreement for the production and installation of AL as per the terms of the PO and DS. Accordingly, P was entitled and did elect to accept D’s repudiation and therefore was no longer obliged to further perform the agreement to supply the remaining AL and install AL.

48.  In the Amended Statement of Claim, P claimed the sum of HK$814,609.32, the breakdown of which is as follows:

	Description	Amount in HK$
1.	Costs for producing 277m² AL is HK$1,027,988 x 89% (P produced 246.7m²)	914,909.32
2.	Work carried out for installation up to 23 March 2017 (inclusive of labour and material)	85,000.00
3.	Engineering and design fee for securing approval from the Buildings Department	50,000.00
4.	Minus deposit of 20% of the sum of the PO (HK$1,176,500) received	-235,300.00
		814,609.32

49.  However, in P’s Opening Submissions, a further alternative method was submitted for ascertaining the costs of AL supplied by applying a ratio of 40% and 35% for supplying and installing the AL respectively. On that basis, P claims HK$558,830.42 as the costs for producing 89% of AL supplied. In P’s Closing Submissions, it was submitted that this alternative method is the most sensible approach. On this approach, P claims the total sum of HK$458,300.42.

D. Summary of D’s case

50.  It is D’s case that prior to the signing of the PO, Chris had told Fiona that it was possible to manufacture AL before completion of the Steel Frame by Wecon and if necessary, modifications can be made to the T-shaped AL on site to suit the Steel Frame. Therefore, the delivery date was set in the PO as 30 November 2016. It was also orally agreed that installation work would be completed on or before the end of March 2017. Such oral agreement is denied by P.

51.  Apart from the express terms of the Revised Quotation, the PO and DS, D also relies on the following implied terms:

(1) P will deliver AL and carry out its installation within a reasonable time and such condition as implied by s 6 of the Supply of Services (Implied Terms) Ordinance, Cap 457; and

(2) AL fabricated and supplied by P to D should be of merchantable quality and should be reasonably fit for which they were required for by D and such condition was implied into the PO, DS and/or the Revised Quotation by s 16 of the Sale of Goods Ordinance, Cap 26 (“SOGO”).

52.  D relied upon P’s skill and judgment in performing the supply and installation work to suit that particular purpose as indicated inter alia by D signing the PO and DS.

53.  However, P failed to make notches or T-shape modifications to AL in the 1^st Lot and the 2^nd Lot, and have them delivered to the Site. As a result, they had to be delivered to D’s factory in the Mainland to make the modifications in order for them to be installed on the steel structure.

54.  For the 1^st Lot, D was forced to arrange its own truck to carry them from P’s factory in the Mainland to D’s factory in the Mainland on 11 February 2017 and then to deliver them to the Site on 14 February 2017.

55.  For the 2^nd Lot, P only delivered them to D’s factory in the Mainland on 20 March 2017 and D was forced to arrange its own truck to carry them to the Site on 23 March 2017.

56.  In respect of the installation of AL, D specifically denies that it was informed of the Mismatch. The email from Chris to D on 15 February 2017 merely sought clarification of the bottom level of AL before commencing installation work which Kelvin did confirm to Chris by telephone conversation in early March 2017.

57.  Further or alternatively, it is averred that there was no Mismatch at all and in breach of the PO, DS and/or Revised Quotation, P failed to coordinate with D’s site team to arrange for the Special T-shape Modification, which was anticipated and agreed by P in the Revised Quotation to manufacture free of charge to suit site installation.

58.  Under the parties’ agreement, it was the responsibility of P to figure out how to design, fabricate and install AL to fit the steel frame as built by Wecon. P was not entitled to raise any complaint of the Mismatch or the steel frame which was built in accordance with the Wecon’s Steel Frame Drawings.

59.  The Steel Frame Drawings were sent by Wilson to Chris on 21 and 22 November 2016.

60.  On 30 November 2016, Chris sent a CAD file containing drawings of AL to D for its comment and approval. Upon receiving D’s comments, the drawings were revised and sent to D on 2 December 2016. On the same day, D raised further queries in respect of the revised drawings.

61.  P responded by email on 7 December 2017, sent the further revised drawings to D and requested D to give instructions for its commencement of production.

62.  D denies that it had approved P’s drawings.

63.  By Fiona’s email dated 16 December 2016, D requested P to stop producing AL pending D’s approval of the revised AL drawings and further information. However, P refused to provide further information and already started production of AL despite the absence of approval of the drawings.

64.  Furthermore, concerning the meeting on 13 March 2017, it is D’s case that although it was alleged by P that the alignment of main supporting frame was poorly installed, without providing any further information or evidence, D urged P to carry out the installation work immediately. However, according to P, they were busy on other projects and would only be able to carry out the installation for D about 2 weeks later. D refused to wait another 2 weeks and it was agreed that D would assign or engage its own workers to assist carrying out the installation of AL at the Site so as to speed up the installation. By reason of that discussion and agreement, D did assign workers to assist in the installation from 14 March 2017.

65.  By a letter dated 22 March 2017 to P, D recorded the progress of the installation and P’s failure to assign any or sufficient workers on the installation. In that letter, D stated that it would charge P the daily rate of HK$1,800.00 for each worker assigned by D.

66.  Despite repeated requests and reminders, P failed to assign any workers on the Site to carry out the installation since 24 March 2017.

67.  Further, despite D’s repeated requests and reminders, P failed to deliver the remaining lot of AL as agreed since the delivery of the 2^nd Lot.

68.  D avers P was in breach of the PO, DS and/or Revised Quotation in:

(1) Failing or refusing to deliver the 1^st Lot and the 2^nd Lot of AL to D at the Site;

(2) Failing or refusing to prepare and deliver the remaining 11% of AL to the Site;

(3) Failing or refusing to carry out the installation of AL at the Site or alternatively, failing to assign sufficient workers to carry out such installation;

(4) Failing to complete the installation of AL within the time verbally agreed by the parties (ie before the end of March 2017) or alternatively, within a reasonable time;

(5) The 89% of AL were not of merchantable quality nor were they reasonably fit for which they were required as they failed to pass the welding test and D was forced to rectify the welds and further D needed to trim AL to the proper size on site before installing.

69.  D therefore alleges that P was in repudiatory breach of the PO, DS and/or the Revised Quotation in which D had by conduct and/or by letter dated 6 April 2017 accepted such repudiatory breach.

70.  By virtue of the matters pleaded above, P is not entitled to claim against D and even if P is entitled to any sums claim, D seeks to set off the sums claimed in its Counterclaim.

71.  By reason of the aforesaid breach, D had to arrange its own trucks to carry the 1^st Lot and the 2^nd Lot from D’s factory in Mainland China to the Site. Further, D had to purchase the perforated aluminum panels and fabricate the remaining 11% AL by its own factory in or about mid-May 2017 and engage and assign workers and staff on the Site to carry out and complete the installation of AL in or about late July 2017. Because of the delay, D had to rent a gondola to continue with the installation of AL when the scaffolding was dismantled for on-site inspection by the Building Authority on 4 May 2017.

72.  D therefore counterclaims for the following loss and damages:

	Description	Amount
1.	Expenses incurred for transportation fee and custom duty for the 1st Lot and the 2nd Lot	HK$11,900.00
2.	Costs incurred by D for engaging workers from contractors and/or assigning its own workers and supervisors to carry out and monitor the installation work of AL and carrying out remedial work such as trimming and re-welding AL	HK$718,172.87
3.	Extra costs incurred by D in purchasing the raw materials and fabricating the remaining 11% AL by itself (including the delivery costs)	RMB39,392.40
4.	Expenses incurred by D to rent the gondola	HK$52,000.00

E. The Issues to be determined

73.  Prior to trial, the parties have filed a Parties’ Agreed List of Issues (comprising 11 Agreed Issues and 11 Disagreed Issues). As Mr Lo noted in his Opening Submissions, there are many issues that the parties cannot agree. He submitted that as a matter of general principle, the court would only seek to adjudicate on the real issues and dispute and leave aside technical and irrelevant arguments. I agree.

74.  Mr Lo and Mr Tsang had submitted very lengthy Opening Submissions, Closing Submissions and Reply Submissions (together with the authorities totalling 8 lever-arch files). For the avoidance of doubt, the fact that not each and every argument and authority cited is expressly mentioned in this Judgment should not be taken as having been overlooked. All written submissions and oral submissions have been considered by me.

75.  Based on the pleadings and the concessions made in the parties’ submissions, it seems to me that the following are the main issues that I need to determine:

(1) On a proper construction of the words “material on site”, whether all AL had to be delivered to the Site before P is entitled to payment of 40% of the contract price or payment has to be made proportional to whatever amount of AL delivered to the Site out of the 40% of the contract price (“Issue 1”);

(2) Even if P was required to deliver all AL to the Site to be entitled to payment, whether P had nonetheless substantially performed its obligation to deliver AL by delivering 89% of AL (“Issue 2”);

(3) Whether nonetheless, having accepted and used 89% of AL that was supplied by P, D was obliged to settle the 2 Invoices and could not complain about the failure to deliver to Site and/or the quality of AL? (“Issue 3”)

(4) If D was obliged to settle the 2 Invoices, whether the failure to do settle the 2 Invoices amounted to repudiatory breach by D such that P was not bound to further supply and install AL? (“Issue 4”)

(5) If D was not in repudiatory breach by failing to settle the 2 Invoices, whether P was in breach of agreement for failing to supply the remaining 11% of AL and install AL? Or by causing alterations to AL and/or assigning its workers to install AL without P’s consent, D was in repudiatory breach and P was therefore released from further performance of the contract? (“Issue 5”)

(6) What promise was made by Fiona’s written instructions of 8 December 2016 to P and was it an enforceable promise? (“Issue 6”)

(7) Based on the answers above, whether P’s claim succeeds? If so, whether D can set off P’s claim against its counterclaim? Should the counterclaim be allowed or dismissed? (“Issue 7”)

F. P’s Summons to adduce new evidence

76.  On 23 June 2023 (4 days before the commencement of this trial), P filed a Summons to seek leave to adduce an email dated 24 March 2017 from D to P which attached D’s letter to P dated 22 March 2017. The letter had already been disclosed and is an agreed document in the Trial Bundle so in essence it was only the email which P wished to adduce.

77.  In the supporting Affirmation by P’s solicitor, it was submitted that the email is of high probative value on resolving the issue of whether D actually sent the letter dated 22 March 2017 on the date of that letter. He explained as that email was sent to Chris who had left P’s employment for a long time, it was only on 21 June 2023 that Andy found the email from an old portable external backup harddrive.

78.  Having considered the oral submissions of Mr Lo and Mr Tsang at the beginning of the first day of trial, notwithstanding the lateness of the application, I allowed the application because I took the view that there was no prejudice to D given it is their own document and was only a 1-page document. D ought to have had the email in their possession and ought to have disclosed it for completeness.

79.  Mr Lo agreed for the costs of and occasioned by the Summons be to the D and I so ordered.

G. Approach to resolving factual disputes and assessing the creditability of witnesses

80.  I do not believe there is any dispute between the parties on the applicable principles.

81.  Both Mr Lo and Mr Tsang have cited the case of Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (Unrep) HCA 1957/2005, HCA 714/2007, HCA 886/2007 & HCA 1364/2008, 28 July 2011. Two general points on evaluating evidence were made by Poon J (as CJHC then was) in that case.

82.  First, concerning the court’s approach to resolving factual disputes, the learned judge held at §§16-21 that the following principles may be derived from the cases:

(1) The Court decides a fact in issue on the balance of probabilities. The occurrence of the fact in issue must be proved to have been more probable than not. The burden of proof rests with the party who substantially asserts the affirmative of the issue. If he fails to discharge the burden, then the fact is treated as not having happened;

(2) The task of making a finding when faced with two sharply conflicting versions of events is sometimes a difficult one. The court must still perform it without prejudice and preconceived ideas to its best ability;

(3) In most of the cases, the court will be able to decide which of the two conflicting versions is probable and which is improbable and make a finding on the fact in issue accordingly;

(4) If one version is found to be improbable, it does not necessarily lead to the acceptance of the other when, owing to the unsatisfactory state of the evidence, the court is not satisfied that the latter is probable. There are judicial utterances to the effect that in such scenario, the judge would be forced to say ‘I just do not know’ on which side of the line the decision ought to be drawn. However, such judicial utterances should not be understood to mean that the court will or should shy from making a finding. What the court will do is to resort to deciding the matter on the burden of proof. The court will treat the matter of which the party carrying the burden of proof but failing to discharge it, as having not taken place;

(5) If neither version is improbable, rejection of one may justifiably lead to the acceptance of the other;

(6) Finally, a good dose of common sense is required when the court evaluates the evidence in determining the probability or otherwise of the conflicting versions of events.

83.  Second, concerning the assessment of the witnesses’ credibility, the learned judge held that the court takes into account, among other things, the inherent probabilities or improbabilities of one’s testimony, the contemporaneous documents or any evidence, which is undisputed or indisputable, tending to support or contradict one account or other and the overall impression of the characters and motivations of the witnesses. Where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them (see §24).

84.  Both Mr Lo and Mr Tsang also cited the case of Progetto Jewellery Co Ltd v Lau Chiu Ying [2020] HKCFI 209 for the guidance from previous cases on evaluating the evidence given by witnesses. See §§28-30 per DHCJ MK Liu:

“28. In respect of evaluating the evidence given by witnesses, a valuable guidance has been given by DHCJ Eugene Fung SC in Hui Cheung Fai and another v Daiwa Development Limited [HCA 1734/2009, 8 April 2014], in which the learned judge said:-

‘77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) ……

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).’

29. Similar guidelines can also be found in Lee Fu Wing v Yau Po Ting Paul [2009] 5 HKLRD 513, in which DHCJ Au (as he then was) said:-

‘53. In assessing the credibility of a party’s case on a particular issue, I accept the submissions of [counsel] that the Court should take into considerations the following:-

(1) Whether the party’s case is inherently plausible or implausible.

(2) Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4) The demeanour of the witnesses.’

30. If a witness has told lies on a central issue, that may have a significant adverse impact on the credibility of his or her evidence as a whole. As said by Sir John Dyson in MA (Somalia) v Secretary of State for the Home Department [2011] 2 All ER 65:

‘31. …… where a claimant tells lies on a central issue, his or her case will not be saved by general evidence unless that evidence is extremely strong. It is only evidence of that kind which will be sufficient to counteract the negative pull of the lie. But much depends on the bearing that the lie has on the case……

32. Where the appellant has given a totally incredible account of the relevant facts, the tribunal must decide what weight to give to the lie, as well as to all the other evidence in the case, including the general evidence……

33. …… where the appellant tells lies on a central issue in the case, the [tribunal] may conclude that they are of great significance…… It will be a matter for the [tribunal] to decide whether the general evidence is sufficiently strong to counteract what we have called the negative pull of the appellant’s lies.’”

85.  Another useful summary of the principles is that provided in Hu Lan v David Golden [2023] HKCFI 873 at §36, an authority cited by Mr Tsang. In that case, DHCJ H. Au-Yeung said when considering the credibility of the various witnesses who had given evidence in court the following matters shall be taken into account:

(1) Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) The court will also attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement;

(4) The court should consider a witness’ motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest;

(5) It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie;

(6) On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(7) While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.

86.  In both his opening and closing submissions, Mr Lo emphasized the importance and significance of contemporaneous documents, particularly in construction cases. He cited various passages from the following cases:

(1) Eu Asia Engineering v Wing Hong Contractors Ltd (Unrep) HCCT 16/1990, 23 December 1991, at p 9:

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

(2) Tactful Construction & Engineering (HK) Ltd v Univic Engineering Limited (Unrep) HCCT 57/2016, 20 June 2019 at §17:

“… As the court pointed out in Eu Asia Engineering Limited v Wing Hong Contractors CACV 29/1992, the court places greater significance on contemporaneous documents in construction cases. This is because such documents would usually have been prepared in good faith before any dispute had arisen - as compared with assertions made by parties after a dispute, and for the purposes of legal proceedings, in which they seek to advance claims to support their case or defence. It is improbable that in January 2015, at the commencement of the Sub Contract and before any disagreement had arisen, the Plaintiff or Mr Ho would have devised false emails and created documents which were not in fact sent, or set out in such documents fabricated facts which were not in fact true at the time.”

(3) Simetra Global Assets Ltd and another v Ikon Finance Ltd [2019] EWCA Civ 1413 at §48:

“In this regard I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between parties, but with even greater force to a party’s internal documents including emails and instant messaging. Those tend to be the documents where a witness’s guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence. …”

(4) Evergreen (FIC) Limited v Golden Cup Industries Limited [2016] 5 HKLRD 636 at §17 where Deputy Judge Wilson Chan (as he then was) held he agreed that the contemporaneous documents provide the best guide as to what actually happened, particularly in building and construction cases and referred to EU Asia Engineering Ltd.

87.  I do not believe Mr Tsang disputed the principle that contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility. However, Mr Tsang highlighted that even contemporaneous documents may be self-serving and the court must take into account all the other factors as set out in Hu Lan as mentioned above.

88.  With all these principles in mind, I turn to my assessment of the witnesses’ credibility.

H. My assessment of the witnesses

H1. P’s evidence

89.  As already mentioned, Andy was the only witness to give evidence for P. He adopted his witness statement as evidence in chief and was then extensively cross-examined by Mr Tsang for most of the first day and the morning of the second day of trial.

90.  I agree with Mr Tsang that plainly Andy has a significant interest in P and the outcome of the present proceedings. He cannot be said to be an independent witness.

91.  Furthermore, there were instances where his oral evidence was inconsistent with his witness statements and/or pleaded case and the contemporaneous documents. Although I will discuss in more details his evidence when considering the issues to be decided, the following are some of the more notable matters why overall I do not regard Andy as a reliable witness.

92.  First concerns whether the Revised Quotation formed part of the parties’ agreement. As mentioned already, it has always been P’s case that the Revised Quotation did not form part of the parties’ agreement and was superseded by the PO and DS. This is the case pleaded in the Amended Statement of Claim and the Reply, the Statements of Truth for which Andy signed, and the case in his witness statement which he adopted as his evidence in chief.

93.  During his cross-examination, when shown the handwritten terms of payment on the Revised Quotation and asked if he received it, he said that he could not find such document. When it was put to him by Mr Tsang that the handwritten terms reflected a verbal agreement between Fiona and Chris reached over a telephone conversation, he evaded the question by saying that this was not important as the same payment terms have been included in the PO. However, he maintained his disagreement with Mr Tsang that the terms reflected an oral agreement and retorted if it was so agreed then why it was not signed by P.

94.  Mr Tsang then asked Andy why he would issue an invoice for the 20% deposit to D when there has not been any drawing approval. At first, he answered that he looked at the PO and claimed accordingly. When pointed out that the DS states 20% “upon drawing approval” but there had yet to be any drawing approval when P issued the invoice, he said that Mr Tsang did not say what drawings in his question to him.

95.  When later put to him that P’s invoice did not make any reference to drawing approval consistently with the handwritten payment terms on the Revised Quotation, he retorted that D never told P that they had mistakenly issued the invoice for the deposit. Only upon further cross-examination, Andy finally agreed with Mr Tsang that the Revised Quotation together with the PO and DS formed a composite agreement and that was the true agreement between the parties.

96.  The above exchange illustrates the rather vague and evasive manner when answering the questions of Mr Tsang. It also seems to me that Andy was keen to retract from P’s original position or case when it suited P’s case. Having agreed with Mr Tsang that the Revised Quotation formed part of the parties’ agreement, Andy referred to the lead time of 6-8 weeks in the Revised Quotation to refute the suggestion that the stated time for arrival on the PO as 30 November 2016 was applicable. I do not need to go so far as to find that Andy lied upon a central issue but certainly the inconsistencies in his oral and written evidence and the pleaded case is relevant to my assessment of his credibility.

97.  Second concerns P’s case on the failure to supply the remaining 11% of AL. In his witness statement, Andy said that in his more than 20 years in the trade of AL production and installation, it has always been and will always be the case that the production of the last 10% of AL would only be carried out after installation of the 90% of AL produced and been completed. When cross-examined, Andy retracted from this position and agreed that it was not always the case that the last 10% would be produced after installation of the 90%. In any event, this part of the case is plainly contradicted by Andy’s own email dated 10 March 2017 to D stating that the final lot of AL will be produced after receipt of the revised PO. It is also inconsistent with the payment terms which do not provide a further stage of payment after installation for the supply of the remaining 10%.

98.  Third is the somewhat unsatisfactory and inconsistent reasons given for not calling Chris and Chung. At first Andy asserted that it was not necessary to call Chris to give evidence for P. When Andy was asked by Mr Tsang whether he tried to ask Chris to give evidence for P, Andy said he didn’t because he could not contact him. However, it is not disputed that Chris only left P’s employment after issuance of the writ but before the filing of the Reply so could have been asked to be a witness when proceedings had already commenced and Chris was still employed by P. Besides, according to Andy, Chris had been working for P since 1996 and had his contacts when he was still employed. P or its staff would have Chris’ contacts even after he had left P’s employment. Andy later said in fact he had not tried nor did he try to ask his staff to find out Chris’ contact after he left.

99.  Even if Chris faithfully reported to Andy about the various conversations he had with Fiona or Kelvin, I find it difficult to accept he could honestly believe that there was no need to call Chris. As mentioned already, according to D, there was a verbal agreement over the telephone between Chris and Fiona to vary the payment terms. There were also discussions between Chris and Fiona concerning when installation should be completed and the making of notches to AL. In relation to the installation of AL, there were also discussions on site and the disputed telephone conversation between Kelvin and Chris in early March 2017 to clarify the issues raised by Chris. Also, what was said and agreed at the meeting on 13 March 2017 has been disputed. This meeting was attended by Chris and Chung. Being more independent than Andy, their evidence would have been more compelling on these important incidents which are hotly disputed by the parties.

100.  When asked why Chung was not called as a witness for P, Andy again said it was not necessary as nothing happened at the meeting on 13 March 2017. However, Andy must know or would have been legally advised that what was discussed and agreed at that meeting is a material issue which is disputed by the parties. When asked by Mr Tsang whether P had asked Chung to be a witness, instead of a simple yes or no answer, Andy evaded the question by saying that he needed to ask for legal advice. When pointed out P had been legally represented at least since the issue of the writ, he said he cannot answer.

H2. Fiona’s evidence

101.  Fiona adopted her witness statement as evidence in chief and was extensively cross-examined by Mr Lo from the late afternoon of the second day and almost the whole of the third day of trial.

102.  I do not agree with Mr Lo that Fiona was evasive and did not answer the simplest of questions in a direct manner. It is true that she tended to give long answers but it seems to me that she was only being careful to answer questions fully and to put the questions asked of her in context. I do not agree that the fact that she was familiar with the trial bundles and the witness statements could be a matter against her credibility. Her answers did not appear rehearsed to me.

103.  Mr Lo spent considerable time cross-examining Fiona on Wecon’s Master Programme (“MP”), in particular that it was with reference to MP on or before 4 November 2016 that Chris and her agreed that the installation work would be completed before the end of March 2017. Mr Lo pointed out that the alleged time for completion of the installation was after the milestone date in MP for the issuance of the Occupation Permit of 20 February 2017. If there was such an agreement, his point was that the date for completion of the installation must have been before 20 February 2017.

104.  However, Fiona explained that MP which was issued on 4 February 2015 sets out the baseline dates which are updated from time to time in accordance with actual site progress. She maintained throughout the cross-examination that it remains a valid one because in the event of any delay in the completion of the project, the critical path of the project would be calculated and compared against MP to determine to whom the delay was attributable. I do not agree with the submission of Mr Lo that there was any change of stance on the validity of MP and somehow this can be an attack on her credibility.

105.  Mr Lo also submitted that despite agreeing with him that important matters even if verbally agreed ought to have been reduced in writing, she frequently resorted to relying on oral communications made and agreements reached during face to face meetings or during phone calls which are not supported by any contemporaneous records or documents. The following are the verbal communications and/or agreements which Mr Lo submitted were not supported by contemporaneous records:

(1) Face to face discussion between Chris and Fiona in relation to the milestone date for issuance of the OP;

(2) The oral agreement between Chris and Fiona before the signing of the PO that P should complete installation on or before end of March 2017;

(3) The oral agreement between Chris and Fiona in relation to the manufacture of AL before completion of the steelframe by Wecon;

(4) The oral agreement between Chris and Fiona in relation to the revised payment term;

(5) Site visit and face to face discussions or oral agreements between Chris and Kelvin in relation to the issue of misalignments and making of alterations between late February and March 2017;

(6) D’s oral complaint to P about the quality of AL;

(7) Telephone conversation between Chris and Yammi where D reminded P to make alterations to the AL to suit installation the week before 6 March 2017;

(8) The telephone conversation between Andy and Fiona on 9 March 2017; and

(9) The meeting at D’s office on 13 March 2017.

106.  I accept if the matters which Fiona had said were orally agreed are contradicted by any contemporaneous document, this is a matter which is relevant to my assessment of her credibility and I should rely on the contemporaneous document rather than her testimony. However, in the present case it is not shown that the alleged conversations between her and Chris is contradicted by contemporaneous documents but simply that some were not recorded in any contemporaneous document/​record. I also do not accept as Mr Lo submitted that the parties’ practice was consistently to make use of and rely on written communication whether by way of emails or WhatsApp messaging. Whilst emails and WhatsApp were used, there were also occasions where telephone or face to face discussions were used.

107.  As for why there were no contemporaneous records, Fiona has explained at the time she did not expect there would be litigation between P and D and rather than arguing with Chris in writing, the best way to solve any problem or misunderstanding was to talk with Chris face to face on site, which is what she and Kelvin did. I accept her explanation as reasonable in the circumstances especially at the stage of on-site installation where issues encountered there had to be resolved on the Site.

108.  Mr Lo also submitted that the letter dated 22 March 2017 issued by Fiona was a dubious one. Plainly the letter could not have been issued on that date as it included the manpower on the Site on 23 March 2017. In the Amended Defence and Counterclaim and Fiona’s witness statement, it was stated the letter was dated 22 March 2017. The email that was subsequently disclosed by D shows the soft copy of the letter was sent by email on 24 March 2017. Mr Lo submitted that this letter “carries all kinds of unhealthy features ranging from backdating and/or false information”.

109.  Fiona has explained in her cross-examination that the date of the letter was a typo. She also explained the procedure for sending out mail and it is likely that the letter was placed at reception for sending out but Yammi would also scan the letter and send the letter by email. When put by Mr Lo that she deliberately put the date of the letter as 22 March 2017 to overtake the WhatsApp message sent by Chris to Kelvin on 23 March 2017, she disagreed. With respect, I do not agree that from the misdating of this letter which has been explained by Fiona (which I accept was a reasonable explanation) I can go so far as to find that the content of the letter was also false and that Fiona’s credibility is undermined.

H3. Kelvin’s evidence

110.  Kelvin gave evidence on the last day. He adopted his witness statement as evidence in chief and was cross-examined by Mr Lo and re-examined by Mr Tsang all within 2 hours.

111.  Mr Lo submitted that relatively speaking, as opposed to Fiona, Kelvin was a more honest and reliable witness and he was willing to admit the obvious. I also found him to be an honest witness and his evidence was not shaken in cross-examination.

H4. My overall assessment

112.  Overall, I am of the view generally the evidence given by D’s witnesses (Fiona and Kelvin) are more reliable and are to be preferred over Andy’s evidence. For the record, whilst I have only highlighted some specific evidence of the witnesses in this section, I have considered the totality of their evidence before reaching my conclusion on their respective credibility.

I. Drawing of adverse inference

113.  Both Mr Lo and Mr Tsang have invited me to draw adverse inferences against the other party. Mr Lo submitted that Yammi was a witness that D ought to have called to give evidence. Whereas Mr Tsang submitted that Chris and Chung ought to have been called as witnesses for P.

114.  Where a party against whom a prima facie case is established fails, without explanation, to call a witness who might reasonably be expected to give direct evidence on the matters in question, the court may draw adverse inferences against him or her. Where the court is willing to draw such inferences, they may go to strengthen the evidence adduced by the other party or weaken the evidence by the party who might reasonably have been expected to call the witness. See Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd (Unrep), CACV 90-91, 93-96/2012, 17 September 2013 at §§106 to 107:

“106. The relevant principles are as set out by Brooke LJ in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340:

‘(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4) If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.’

107. And as Lord Sumption has stated in Prest v Petrodel Resources Ltd [2013] UKSC 34 at §44:

‘There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v IRC, ex parte TC Coombs & Co [1991] 2 AC 283, 300:

‘In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.

Cf Wisniewski v Central Manchester Health Authority [1998] PIQR 324, 340.’ ’ ”

115.  Where there are issues that can and should be determined as a matter of pure construction of documents, plainly witnesses should or need not be called to assist my determination of those issue. There is no question of drawing any adverse inference for not calling witnesses.

116.  On the other hand, for matters which are not recorded in any contemporaneous documents which one party relies in support of its claim or in defence of the other party’s claim, such as further terms or conditions of the parties agreement or variation of the agreement by telephone conversations or face to face meeting, then I would consider whether an adverse inference ought to be drawn for failing to call a witness who could might have been able to give material evidence on those matters and might reasonably have expected to call. Therefore if, as submitted by Mr Lo, no part of P’s case rest on any verbal agreements then there is no need to call Chris as a witness and no question of drawing any adverse inference against P.

117.  Furthermore, if a party who bears the burden of proof, whether to prove or to defend a claim, fails to call a witness and that results in that party failing to prove or defend his case then it is a matter of failure of proof. Whereas if that party is able to prove his case without relying on such evidence then he discharges his burden in any event. There is then also no question of drawing of any adverse inferences.

J. My determination of the Issues

J1. Issue 1

118.  Mr Tsang submitted that the payment terms are milestone payments due on completion of a defined stage. “40% materials on site” means 40% of the total price of HK$1,176,500.00 is payable upon reaching the milestone of completion of delivery of 100% of AL (ie 277m²) to D at the Site. In Hudson’s Building and Engineering Contracts, 14^th Edn, §3-068, it was stated that the great majority of substantial construction contracts contain express provisions for interim payment which may be: (1) stage payments or milestone of stipulated sums on completion of various defined stages of the work; or (2) regular periodic payments based on interim valuation of work done to date. For milestone payments, if the milestone is not reached, then in principle nothing is payable.

119.  On the other hand, Mr Lo submitted that it was not expressly stated in the payment terms or anywhere in the PO and/or DS that 40% of the contract sum should only be made when 100% of AL has been delivered to the Site. Rather, he submitted that on a fair and literal interpretation of “40% materials on site”: (1) 40% of the contract sum is reserved for paying AL delivered to the Site; and (2) payment would be paid proportionally to the amount of AL brought to the Site out of the 40% of the contract sum reserved for this purpose. He further submitted that as there is no clear language stating that the payment was only triggered upon provision of 100% of AL, the ambiguity should be resolved against D.

120.  With respect, I do not agree with Mr Lo. “Materials” was defined in the DS. It is clear and not vague. The table in the DS sets out the materials, sizes and model, quantity, unit price and total price of “materials”. It is also pertinent to note that the unit price is stated to be HK$1,176,500.00. The quantity is stated to be 1 lot. Plainly, the parties did not intend at the time the PO was agreed that there would be more than one lot of delivery. Furthermore, if it was intended that payment would be made based on the quantity of AL delivered, a unit price per m² ought to be stated.

121.  I find that the payment terms are clear. I therefore do not need to apply the doctrine of contra proferentem, which Mr Lo invited me to, as I find that there is no ambiguity.

122.  Mr Lo submitted that this interpretation would be commercially unreasonable as it would mean that P would not be unentitled to payment even if a substantial portion of AL had already been supplied. However, even for lump-sum contracts, they do not exclude the principle of substantial performance: see Keating on Construction Contracts, 11^th Edn, §4-007.

123.  Mr Lo also submitted that the payment term must be interpreted in light of the practice of louvre production industry. By that, Mr Lo referred to Andy’s evidence in his witness statement that it is the common practice of the last 10% of AL to be produced after installation of the 90% had been completed to allow for final measurements of 10% of AL of the outstanding areas. However, leaving aside whether P being a party directly interested in these proceedings is competent as an expert to give evidence on trade practice, in cross-examination there was some retraction of his evidence in this regard. He agreed that it was not always the case in his experience that the last 10% would be produced after installation and would depend on the circumstances of the case. Furthermore, his evidence of such trade practice is contradicted by his own email of 10 March 2017 which sought payment for 100% AL even though installation has not been completed. I am not satisfied that the alleged trade practice has been proved on the balance of probabilities. In any event, it is contrary to the payment terms which I found are clear. See Cheung Kwok Keung v Cheung Kwok Hung [2021] HKDC 464 at §65.

124.  I also do not accept Mr Lo’s submissions that by looking at the parties’ conduct, it shows that proportional payments were contemplated. He submitted that when P issued an invoice for each lot, D did not object to the invoices. This of course is not correct because D never settled the 2 Invoices and by their letter dated 3 April 2017 in reply to the letter from P’s solicitors dated 27 March 2017 (“the Letter”), its position that payment would only be made when all 100% of AL ordered had been delivered is made abundantly clear. See also my analysis under Issue 3 in respect of the Letter.

125.  Mr Lo also relied upon Fiona’s confirmation that payment will be made within 45 days after presentation of the invoice. As Fiona explained in cross-examination, which I accept, upon delivery of 100% AL, P would be entitled to issue to D an invoice which has to be submitted together with a delivery order for payment to be approved. She stated that there was a procedure which had to be followed. Therefore, if Fiona’s evidence is properly understood, I do not agree with Mr Lo that it shows that the parties intended payments upon each lot of AL.

126.  I therefore find on a proper construction of the words “materials on site”, all AL had to be delivered to the Site before P is entitled to payment of 40% of the contract price.

J2. Issue 2

127.  The law in respect of substantial completion or substantial performance was explained in Hoenig v Isaacs [1952] 2 All ER 176. In that case, the plaintiff was employed by the defendant to decorate and furnish the defendant’s flat for the sum of £750, the terms of payment being “net cash, as the work proceeds, and balance on completion”. The Defendant paid £400 by instalments, occupied the flat and used the furniture but refused to pay the balance on grounds that certain work done and articles of furniture supplied were defective. It was held that the contractor was entitled to the contract price less a deduction for the defects because the contract was substantially performed.

128.  See at 179A-H per Somervell LJ:

“The question here is whether in a contract for work and labour for a lump sum payable on completion the defendant can repudiate liability under the contract on the ground that the work though ‘finished’ or ‘done’ is some respects not in accordance with the contract … The learned official referee regarded H Dakin & Co Ltd v Lee (2) as laying down that the price must be paid subject to set-off or counterclaim if there was substantial compliance with the contract. I think on the facts of this case where the work was finished in the ordinary sense though in part defective, that is right.”

129.  See also at 180H-181A per Denning LJ:

“In determining this issue the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean the entire performance was a condition precedent to payment. When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contract of any payment at all simply because there are some defects or omissions. The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or, alternatively, set them up in diminution of the price. The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good… It is, of course, always open to the parties by express words to make entire performance a condition precedent. A familiar instance is when the contract provides for progress payments to be made as the work proceeds, but for retention money to be held until completion. Then entire performance is usually a condition precedent to payment of the retention money, but not, of course, to the progress payments. The contractor is entitled to payment pro rata as the work proceeds, less a deduction for retention money. But he is not entitled to the retention money until the work is entirely finished, without defects or omissions.”

130.  In Keating on Construction Contracts, 11^th Edn, §4-019 it was stated:

“In determining whether there has been substantial or practical completion one test, in the absence of a contractual definition, is whether the work was ‘finished’ or ‘done’ in the ordinary sense, even though part of it was defective. It is relevant to take into account both the nature of the defects and the proportion between the cost of rectifying them and the contract price.”

131.  It seems to me that applying the doctrine of substantial completion on the facts and circumstance of the present case, the supply of 89% AL was not substantial compliance with the parties’ contract for the supply of AL.

132.  The failure to supply 11% of AL cannot be considered as work done or finished in the ordinary sense. Even according to Andy’s trade practice (which I have mentioned above I do not accept), the remaining AL had to be produced but it was only that the last 10% ought to be produced after the installation of the 90%. Bearing in mind that the contract was for the supply and installation of AL to the steel structure at the rooftop, without the last 10% AL, the supply of 89% of AL could hardly be considered done or finished. Unlike in the case of Hoenig v Isaacs where the flat could still be occupied or used, 89% of AL could not have covered the whole steel structure at the rooftop, the work done would have been ineffective for its primary purpose. It is not simply partly defective.

J3. Issue 3

133.  Mr Lo submitted that given the evidence of Fiona that 89% of AL were used for installation, D is treated as having fully accepted those AL and cannot raise any issue about its quality.

134.  Mr Lo also relied upon the Letter which he submitted clearly constitutes an admission of acceptance of P’s performance. In particular, he submitted:

(1) D specifically acknowledged that P has delivered approximately 89% of the materials and by specifying the exact percentage D unequivocally confirmed its acceptance of all 89% of AL;

(2) There was no mention of any rejection of the delivered AL nor did D indicate that AL were in any way unfit or unsuitable. Rather D only sought to clarify with P on the remaining 11% of AL;

(3) D failed to return or offer to return 89% of AL delivered despite having ample opportunity to do so and in fact used AL for completing the installation work and therefore D retained the benefit of P’s partial performance;

(4) D did not dispute the fact that P is owed payment for materials delivered but merely seeks clarification for the remaining 11% of AL which suggest that D acknowledged an obligation to pay for 89% of work already completed.

135.  I do not agree that on a fair and proper reading of the Letter that there was any admission of acceptance of P’s performance of the contract. I set out below the material paragraph of the Letter:

“According to the Purchase Order (No AHPOB6K0029) dated 10 November 2016 as confirmed by your client, we would pay 40 percent (%) of the total price after your client had duly delivered all materials on site. Nevertheless, your client had delivered only approximate 89% of the material as at the date of this letter. Despite our reminders, your client has not provided further delivery schedule for the remaining 11% materials we had ordered. In this regard, please be kindly reminded that we will proceed with the payment of the 40% of total sum only in accordance with the milestone as shown on the Purchase Order when the remaining 11% of materials was duly delivered by your client and received by us.”

136.  Firstly, the Letter makes plain that D did not accept it was obliged to pay for AL delivered until there was delivery of the remaining 11% of AL. I therefore do not agree with Mr Lo that D acknowledged that P is owed payment. It was specifically stated that D will proceed with payment when the remaining 11% has been delivered and received by D. As I found in favour of D in Issue 1, D was entitled to insist on delivery of 100% of AL before payment.

137.  Secondly, whilst it is correct D have acknowledged that 89% of AL were delivered and received by D, and there was no mention of any complaint as to the quality of those 89% or that they were to be returned to P, it has to be born in mind the Letter was written by Fiona, a lay person, and should not be read like a letter drafted like a lawyer. In her evidence, she has explained because this letter was in reply to the letter from P’s solicitor dated 27 March 2017 which demanded payment of the 2 Invoices, she only focused on the issue of payment.

138.  Furthermore, D’s use of AL for installation after having made the necessary alteration does not preclude it from raising issue as it their quality. As a matter of law, where there has been a breach of contractual warranty by the seller, the buyer is not entitled to reject the goods but may set up the breach of warranty against the price or maintain an action against the seller for damages for breach of warranty: see s 55 of SOGO and Force Way Engineering Ltd v Incorporated Owners of Grand Court (unrep) DCCJ 3216/2016, 19 December 2017, §180.

139.  I therefore find the Letter does not preclude D from raising in these proceedings the quality or non-delivery of AL.

J4. Issue 4

140.  As I have found that P was only entitled to payment of 40% of the contract price only when 100% of AL has been delivered, the failure to settle the 2 Invoices could not constitute breach of the payment obligation. The further question of whether non-payment constitutes repudiation of the parties’ agreement by D does not arise.

J5. Issue 5

141.  I have already found that on a true construction of the parties’ agreement, it was a contract for the supply and installation of 1 Lot of AL of 277m². The clear stance of P (as evident from the letters from P’s solicitors and by the service of Writ in these proceedings on 24 April 2017), was that it would not further perform the contract because of the Mismatch. As a result, P has failed to supply the remaining 11% of AL and install all AL.

142.  P’s pleaded case is because of D’s causing alteration to AL and in assigning workers to do the installation, D has elected not to be bound by the parties’ agreement and repudiated the agreement.

143.  I do not think it can be or is disputed that under the parties’ agreement, it was agreed that P would supply special T-shaped AL to suit site installation. Andy accepted this during cross-examination. Whilst I accept there is no contemporaneous document which expressly stated T-shape modifications were not done by P, I find on a balance of probabilities, in view of all the evidence and circumstances of the case, T-shaped modification or notches were not made to some of AL supplied by P and therefore D had to make its own alteration.

144.  First, Andy accepted in cross-examination that AL produced by P were not suitable for installation. On his case, it was because of the Mismatch and for the side facing Regent Centre, 150mm AL had to be ordered to install AL. In Chris’ WhatsApp message of 22 February 2017, he stated that owing the obstruction by I-beam, there was a need to re-order 150mm thick AL. D’s evidence was that there was no Mismatch and according to Kelvin’s evidence, the order of 150mm AL would not be necessary if notches were made to AL. Thus at least for the side facing Regent Centre, P must accept there were no notches made to the 300mm AL otherwise the I-beam obstruction would have been accommodated by the notches.

145.  Second, it was never pleaded by P that T-shaped AL were produced nor in cross-examination was it put to D’s witnesses that AL supplied by P had the necessary notches or T-shapes. In response to Yammi’s email dated 6 March 2017, referring to their telephone conversation the week previously that it was mentioned that the remaining AL produced will be collected by D for making change, the email by Chris never denied that there was no agreement or consent for altering AL. Rather, in his email, he only stated that P will not be responsible for their structure, façade, quality, safety and if they do not fit the steel frame. If AL supplied had notches or did not require alteration, one would have expected him to have stated so.

146.  Third, Andy also fairly accepted that under the parties’ agreement (which I have also found) P had the contractual responsibility to produce AL suitable for installation on the steel structure. So whether the problem for installation was fixed by making notches or replacing them with 150mm AL, that was P’s responsibility.

147.  Fourth, if AL supplied by P could be installed without alteration, it just does not make any commercial sense for D to cause alterations to be made and deliver them to the Site themselves when under the parties’ agreement the supply, delivery and installation of AL was P’s responsibility. No doubt additional time and costs would have to be expended by D. The answer from Andy in cross examination that perhaps D wanted to dissemble and copy their AL at D’s factory is nonsensical and entirely baseless.

148.  As for the failure to install AL, P relied upon the Mismatch that Chris allegedly notified D and sought clarification of the bottom level for installing AL but was not resolved. P also relied upon a concrete beam which was obstructing installation.

149.  In respect of the Mismatch, no survey report was ever submitted by P to support P’s case. Andy’s evidence, to the extent based on what he was informed by Chris can only be hearsay. Chris who discovered the alleged Mismatch was not called to give evidence. His email of 15 February 2017 which referred to his marked up drawing and photos attached simply stated, “please clarify the bottom level of our acoustic louvre before we commencing our works”. The photos taken by Chris were admitted by Andy in cross examination to be unclear in the sense one cannot tell where the photos were taken or whether it showed the Mismatch.

150.  On the other hand, Kelvin’s evidence is that after consulting the site architect and taking measurement of the bottom level of the actual steel frame at the Site and the bottom level of AL to be installed, it was found that they matched the steel frame drawings and Chris’ drawing. As a result, by a telephone conversation in early March 2017, Kelvin confirmed to Chris that the bottom level for installing AL would remain the same. Thus according to D, it is not the case that D did not reply to Chris in respect of the issues raised by him concerning installation and that installation could not commence. In Kelvin’s oral evidence, he also said (which he accepted was not included in his witness statement) he would have told Chris that notches would solve the obstruction problem. I have accepted Kelvin as a reliable witness and he has no motive to lie about this matter.

151.  Mr Lo submitted there was simply no reason why D did not simply reject the request to issue the variation order by instructing P to make the alterations. However, as mentioned already, the 1^st Lot had to be altered by D because T-shapes modifications were not done by P and in respect of the 2^nd Lot, if P were willing and able to make the modifications, Andy could have expressly stated the same in his email of 6 March 2017.

152.  Mr Lo also submitted that there was simply no reason for P not making the alterations but took the trouble to chase D for issuing the variation order. Plainly, the making of alterations would certainly be more troublesome than to ask D to reorder the AL of 150mm thick and make the excuse that because the alterations to AL, it would prefer not to carry out the installation.

153.  Apart from Andy’s evidence and the emails and messages sent which have been referred to, there is no other evidence adduced by P in support of its case. Chris was not called to refute either Fiona’s or Kelvin’s evidence. Even without drawing adverse inference against P’s case, on a balance of probabilities, P has failed to prove there was a Mismatch.

154.  As for the obstruction caused by the I-beam mentioned by Chris in his WhatsApp message on 22 February 2017, both Fiona and Kelvin have given evidence that there was no such obstruction. Furthermore, the steelframe drawings supplied to P before D’s work instruction on 7 December 2016 to commence production, showed the existence of concrete elements along the edge of the roof. Indeed, it was confirmed by Andy in cross-examination that those drawings showed all the I-beams. From those drawings, it can be seen both I-beams and the concrete base for fixing the I-beam with screws are clearly shown.

155.  Accordingly, P has also not proved because of the Mismatch and that there was no resolution of the bottom level of AL, and the alleged obstruction caused by the I-beam, that P could not install all AL.

156.  What remains is P’s case that the assigning of workers to carry out the installation amounted to repudiation of the parties’ agreement. That depends on whether I accept P’s case that at the meeting on 13 March 2017 attended by the parties no agreement was reached for D to assign its workers to assist in the installation.

157.  According to D, the parties agreed that D would assign its own workers to assist as P could not deploy sufficient manpower until 2 weeks later. Even though Andy was present at the meeting and gave evidence denying any such agreement was reached, he has an obvious self-interest do deny the agreement. As mentioned already, Chris and Chung were also present but were not called to give evidence. I find that from the WhatsApp message between Chris and Kelvin (the exact date is not known but the message appears to be before 22 March 2017) where Kelvin said “1800 1 工” and Chris responded “嘩😳” is more consistent with P’s case. If there was never agreement for D’s worker assist in the installation work, Kelvin and Chris would not have had the conversation about the price per manday.

158.  Moreover, unless there was an agreement between the parties for D to assign its worker to assist in the installation and that P would be responsible for those costs, there is no reason why D would have arranged its worker to do the installation. The fact there was agreement reached on 13 March 2017 is further supported by D’s letter dated 22 March 2017 (which Fiona has explained was a typo and I have not accepted Mr Lo’s submission that letter is dubious and impinged on the credibility of Fiona as mentioned at section H above.)

159.  Overall, on the balance of probabilities, I find there was discussion and agreement for D to assign its workers to install AL where P was not able or willing to assign sufficient workers to do the installation. P therefore has failed to establish its case that D has acted in repudiatory breach of the parties’ agreement.

160.  I do not agree with Mr Lo the existence of such agreement was absurd to extreme. Firstly, he submitted P would definitely be better off to agree with D for D to take over the entire installation. I do not see why that is the case. If D took over the installation, which was P’s contractual responsibility, it would be faced with a claim for breach of contract and damages which includes the HK$1,800 per manday for D to deploy its workers. Secondly, he submitted that there was no instant response to the complaint by Chris made to Kelvin that D’s workers were carrying out the installation worker wrongly and there was no agreement for them to do the installation. However, according to Fiona, Kelvin reported to her that after receiving this message he did call up Chris for an explanation for such message. Chris then said that it was Andy who asked him to send such message and he had resigned from P. There is no evidence from Chris refuting this evidence.

161.  As I have found that it was P’s contractual obligation to produce T-shaped AL to suit site installation and do the installation, and P has failed to perform its contractual obligation, as Mr Tsang submitted, P cannot rely on its own breach of contract to terminate the agreement: see Chinapro Ltd v Century Fame Ltd [1993] 1 HKLR 234 at 239 and BDW Trading v JM Rowe (Investments) Ltd [2011] EWCA Civ 548, §§29-31.

162.  Furthermore, I simply cannot see how requesting P to install AL, which were modified when P has not made T-shape modification as required under the parties’ agreement as I have found, was additional work or variation of the original work for which P was entitled to insist on a variation order before proceeding to perform the installation.

163.  Mr Lo also relied upon s 37 of SOGO that by the acceptance of 89% and altering of some of them, D is treated as having accepted them. However, this does not assist D where the agreed payment term, as I have found, is that D is only entitled to payment upon delivery of 100% of AL. I have found contractually P was required to delivery 100% of AL. Moreover, s 37 is a deeming provision. On the facts and circumstances as found by me as to how and why alteration were made to AL, D cannot be said to have accepted the AL.

164.  Given my findings above, I therefore find that P was in breach of agreement for failing to supply the remaining 11% of AL and install all the AL. D was not in repudiatory breach by causing alteration to AL and assisting in the installation of AL. Rather, P’s refusal to supply the remaining AL and install all AL at the time allegedly because of the Mismatch, amounted to repudiation of the parties’ agreement.

J6. Issue 6

165.  The meaning of the work instruction of Fiona in her email of 8 December 2016 is disputed.

166.  It is P’s pleaded case that Fiona instructed P to proceed with the production of AL in accordance with the drawings prepared by P and promised to pay P for any abortive work caused by the misalignment of AL with the main supporting steel frame. However, it seems P’s case on what was promised has shifted at trial:

(1) In P’s Opening Submissions, it was stated that Fiona agreed to give an undertaking to pay damages suffered and abortive costs incurred by the misalignment between the AL and the steel frame; and

(2) In P’s Closing Submissions, it was submitted that D agreed to pay P the abortive costs caused by installation of AL produced in accordance with D’s instructions.

167.  On the other hand, D’s case is that D only promised to pay for abortive work due to the misalignment of the steelframe if the steelframe was improperly built by Wecon.

168.  The work instruction was preceded by, and was in response to, Chris’ email of 7 December 2016 which stated:

“Dear Fiona/Yammi,

As discussed, we are requested by Chevalier to commence our acoustic louvre factory production before completion of main supporting steel frame. Dimensions of our acoustic louvers are shown in the attached drawings. Please send us Chevalier’s work instruction to confirm commencing our production and also please mention that the contract sum is subject to re-measurement of acoustic louvre area and Chevalier will bear all cost of delivered acoustic louvre which cannot be used for installation.”

169.  In response, Fiona marked on the email a bracket around the words “to commence our acoustic louvre factory production before completion of main supporting frame” and wrote the word “Agreed” on top of the bracketed words.

170.  Further down the page, the following were handwritten by her:

“Work Instruction by Fiona Ip of CAE:

(1) To order factory production before completion of main supporting steel frame.

(2) Dimensions should follow attached drawings.

(3) Final measurement should based on As-built drawings.

(4) Any abortive work due to misalignment of steel frame will be paid by CAE (CAE to claim main contractor).

(5) Aerotech to reply MOS by 8/12/2016.”

171.  She then signed, dated and applied the company chop towards the bottom of the page.

172.  On my reading of the email, I do not agree with P’s case whether as pleaded or as asserted in Mr Lo’s submissions.

173.  Firstly, I think if Fiona had agreed to the whole of Chris’ email, she would not have just put a bracket around the selected few words which she indicated she agreed with and then to go through the trouble of writing out in full the work instructions which followed. She specifically stated that any abortive work due to misalignment of steel frame will be paid by D which narrows down greatly what costs D is willing to bear. The words in bracket that D will claim the main contractor must also plainly intend the misalignment of steel frame is due to main contractor’s fault for example in not building the steel frame properly or in accordance with the steelframe drawings. I do not accept with P’s case there was any promise that D would bear all cost of delivered AL which could not be used for installation for whatever reason.

174.  Secondly, it would be contrary to commercial sense for D to promise to pay for any abortive work if for any reason AL misaligned with the steelframe when under the Revised Quotation (which P has accepted forms part of the parties’ agreement) special T-shape AL would be manufactured by P to suit site installation and there would be no extra cost implication. Thus under the parties’ agreement, the risk of AL not suiting the steel structure (which the remarks also stated shall be constructed by others) has been allocated to P. There is no good reason why D would agree to the change the risk allocation and bear the costs.

175.  Thirdly, if the parties had intended to change the allocation of risks, there is no pleaded consideration for the variation of the parties’ agreement. Such a promise would not be enforceable by P in any event.

J7. Issue 7

176.  By reason of my findings in the above issues, P’s claim against D fails. D’s counterclaims succeed to the extent that I have found that P was in breach of agreement for failing to make notches to some of AL supplied and D had to make alterations itself to suit installation, failing to supply the remaining 11% of AL and install all AL.

177.  As a matter of general principle, the normal measure of damages where a contract is not completed is the cost of completing the contract and rectifying defects in a reasonable manner less the contract price if that has not yet been paid: see eg McGregor on Damages, 21^st Edn, §§4-006 and 31-005; Hectic Interior Design Ltd v Wong Ching Kai, Angus trading as Essence Industrial Company (unrep) DCCJ 5689/2004, 30 June 2006, §§35-36 and Force Way Engineering Ltd v Incorporated Owners of Grand Court (unrep) DCCJ 3216/2016, 19 December 2017, §223.

178.  Mr Lo submitted that if D’s counterclaim is established, a number of deductions, discounts and/or credits must be taken into account.

179.  First, he submitted that the transport expenses claim should not be allowed because the parties agreed to vary the delivery of AL under the parties’ agreement for D to pick up the 1^st Lot at P’s factory and for P to deliver the 2^nd Lot to D’s factory in China. I would agree that in light of the circumstances of the case, at that time D also wished to assist P in carrying out P’s obligations under the contract, the parties agreed to vary to the delivery obligation of the 1^st Lot and 2^nd Lot. D should not be able to now claim back those transport expenses in the absence of any evidence that parties agreed those costs would not be borne by D. I will therefore not allow the sum of HK$11,900.00 claimed.

180.  Second, the expenses for hiring gondola should not be allowed because Mr Lo submitted: (1) as demonstrated by the letter issued by Wecon to D dated 20 March 2017, there were many causes to the delay in completing the project and installation was just one of the causes so there is no evidence to prove the failure to install was the sole cause of making the project not completed on or before May 2017; (2) even if the installation was carried out, the scaffolding set up at the Site would have been dismantled so the gondola had to be hired. Whilst I do not completely agree with Mr Lo’s points, in particular the second point which premised on some misunderstanding of MP, I would disallow the costs of the gondola because under the parties’ agreement “uplifting of materials” and “scaffolding” were not included as part of the works which P was responsible (see Terms and Conditions 2 of the Revised Quotation). Fiona’s evidence was that because the scaffolding was dismantled that necessitated the renting of a gondola for installation. Therefore, even if the contract was fully performed by P, D would have been responsible for such costs if for whatever reason the scaffolding was dismantled. I therefore would not allow the claim of HK$52,000.00.

181.  Third, it was submitted by Mr Lo that discount should be given to the sum claimed for installation as the staff required for supervision of the installation would have been required whether or not it was carried out by P or other contractors. Fiona has given an explanation why if P had installed AL, Chris on site would have given instructions to workers and D would not have required a supervisor or as much supervision. I do not find the costs unreasonably incurred and would allow the claimed amount of HK$718,172.87. Save for the discount mentioned (and that credit should be given for the contract price which I consider below), the sum claimed has not been otherwise challenged by Mr Lo. I will allow this amount in full subject to deduction of the contract price.

182.  Fourth, it was submitted that the claim for expenses for acquiring the materials and for manufacturing the remaining 11% should be disallowed as this sum would have been incurred by D to pay for the 11% supplied. As mentioned above, the normal measure of damages is the costs of completing the contract less the contract price for 11% AL. D’s Closing Submissions also seem to accept a deduction has to be made from its counterclaim for the costs of acquiring 11% AL which should at most be 11% of the 40% contract price for materials on site, ie HK$1,176,500 x 40% x 11% = HK$51,766.00.

183.  Fifth, it was submitted that credit should be given for the amount had P proceeded to complete the installation and D would have been obliged to pay for the installation under the parties’ agreement. I agree. D accepted that the amount of the contract price to be deducted from its counterclaim for installation should be at most 35% of the total contract price, ie HK$1,176,5000 x 35% = HK$411,775.00.

184.  Therefore the sums claimed by D which I have allowed are HK$718,172.87 and RMB39,392.40 (which applying that prevailing exchange rates is the equivalent of HK$44,464.10) less the contract price of HK$411,775.00 and HK$51,766.00. The net sum which I allow is: HK$299,096.00 (rounded up).

K. Orders

185.  Accordingly, I order P’s claim be dismissed and on D’s counterclaim against P, there be judgment in favour of D in the sum of HK$299,096.00. D should be entitled to interest on that sum. In the exercise of my discretion, applying a broad brush approach, I would order interest should accrue at 1% above prime rate from 1 April 2017 up to the date of this Judgment and thereafter at judgment rate until payment in full.

186.  Costs should follow the event. I would therefore also make an order nisi that D do have the costs of this action and the counterclaim, to be taxed if not agreed, with certificate for counsel. The costs order nisi shall become absolute unless an application to vary is made within 14 days from the date of this Judgment.