YING FU BUILDING MATERIALS LTD v. UBM SPECIAL GLASS LTD

DCCJ 1942/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1942 OF 2011

________________________

________________________

J U D G M E N T

________________________

1.  This is the contractual claim by the plaintiff (“YF”) against the defendant (“UBM”) for the balance of the cost of work done in 2009-2010.

BACKGROUND

2.  The work in question formed part of the construction of the new building now known as “The One” in Tsimshatsui, Kowloon.  The principal contractor of the development was Gammon Construction Limited (“the Development Principal Contractor”), under which Yearfull Construction Company Limited (“the Principal Contractor”) was one of the contractors.

3.  In August 2009, the Principal Contractor contracted UBM for the supply and installation of “Smoke Barrier System for Below the Glass Balustrade”.  UBM then subcontracted to YF part of the work, namely, the supply and installation of Smoke Barrier Frame System and Promat Board.

4.  The Chinese written quotation issued by YF dated 27 August 2009 specified that the Promat Board installed had to be 1-hour fireproof.  YF also relies on the Chinese written contract dated 2 September 2009.  Both documents were signed by YF only.  There is dispute as to whether the contract was also sent to UBM and, if yes, which of the 2 documents contained or evidenced the contract between the parties.  For the following reasons, the dispute in this respect is immaterial to the determination of the real dispute between the parties.

5.  Indeed the quotation and the contract issued by YF differed in the terms of payment, in particular that as to when the balance of the cost of work done became payable.  However the fact is that apart from a total sum of HK$681,011.89 paid between September 2009 and November 2010, which is not in dispute, YF has since received no further payment from UBM for the work done.

6.  A major dispute between the parties is the quantity of the work that UBM is liable to pay for.  In this respect, both the quotation and the contract contained the identical remark that the quantity should be confirmed upon actual site measurement (or 尺數以完工實地量度為準).  The dispute arose only because the parties rely on different measurements.

7.  YF says that actual site measurements in the presence of both parties had taken place after its completion of the work; and it was eventually agreed between the parties in February 2010 that the quantity was 711.13m (or 直米).  At the unit price of HK$1,270/m (and say 711m), the amount payable by UBM would be HK$902,970.

8.  UBM relies on another measurement subsequently conducted by the Principal Contractor but in the absence of YF in September 2010.  According to the certificate issued by the Principal Contractor, UBM says that the quantity was 702.248m.  At the unit price of HK$1,270/m, the amount payable to YF would be HK$891,854.96

9.  But the difference between the parties does not end at the margin of less than 9 m accounting for about HK$11,300; or else UBM would still have been expected to pay at least the amount short of such relatively small difference.  UBM also claims entitlement to withhold and to deduct various amounts.

10.  UBM contends that the contract contained an implied term that UBM would entitled to 5% retention money equivalent to a sum of HK$44,592.75 (based on the sum of HK$891,854.96).  The retention money would be released only upon the issue of a “make good certificate” by the developer; and this would happen only 1 year after the Development Principal Contractor had handed over the site to the developer.  UBM says that even as at the date of this trial, this “make good certificate” had yet to arrive.  Therefore the liability to release the retention money has yet to accrue.

11.  UBM also contends that it is entitled to deductions as a result of the change in specifications for the work, ie from a double layered board to single layered board installation.  UBM claims to be entitled to deduction from the amount payable to YF the amount of savings in the cost of the boards and labour in the respective sums of HK$107,460 and HK$30,000.

12.  As to the other items originally put forward (such as the alleged general service cost) that serve to further reduce the amount payable to YF, UBM abandoned them on the first day of trial.  There is allegation about defective works; but no corresponding claim by way of counterclaim.

13.  In short, UBM now says that besides the retention money, the amount that YF is entitled to be paid should be HK$28,790.32 only.

DISPUTE

14.  In the premises, the major dispute surrounds the following areas:

(1)   the quantity of work done by YF;

(2)   the work specification and the alleged entitlement to deduction from the cost of work done; and

(3)   the alleged 5% retention money.

15.  YF’s director, Mr Yeung, and UBM’s director, Mr Leung, gave evidence.  So did UBM’s manager, Ms Lam.

THE QUANTITY OF WORK DONE

16.  According to Yeung, YF’s works were practically completed in January 2010.  YF issued its invoice on 25 January 2010 where the quantity of work done was said to be 781m. The parties then carried out joint measurements of the work done at the site in early February 2010.  In its invoice to UBM dated 3 February 2010, YF stated the quantity of 716m.  Upon receipt of YF’s invoice, UBM suggested that the quantity should be 713.44m instead.  By email dated 4 February 2010, UBM informed YF that such measurement needed further correction and the quantity should be 711.13m.  On both occasions, UBM actually set out all the measurements in detail in table form.

17.  By fax dated 5 March 2010, Yeung referred to the previous joint measurements and the quantity of 711.13m last adjusted by UBM.  He stated” 現以此尺數計算標準，餘下尺數日後再實地量度”.  Essentially YF accepted the last adjusted measurement; and calculation would therefore be based on 711.13m whilst any balance would be ascertained by further actual site measurement.

18.  UBM argued that the reference to further actual site measurement evidenced that the measurement by then was still not accurate or conclusive.  YF disagreed.  In my view, that UBM saw fit to adjust (or, in its own terms, to correct) the measurements time and time again even within a margin of a few metres would have been out of proportion, if the measurements were nothing but tentative.

19.  In any event, as to the further site measurement, Yeung was literally referring to any outstanding quantity.  As such, the further measurement, if carried out, should only be expected to add to rather than to subtract from the quantity already ascertained by then.  Yeung confirmed that in court.  But he added that in fact YF was not involved in any further measurement at the site.

20.  According to UBM, the quantity of work done was subsequently measured again by the Principal Contractor.  By fax dated 28 September 2010, UBM informed YF that this resulted in the quantity of 702.248m.  This time, the measurement took place in the presence of UBM and the Principal Contractor but not YF.  According to Yeung, he was not aware of such measurement beforehand.

21.  YF then received the last part payment by UBM (or, according to UBM, the final payment) in November 2010.  When no further payment had since been received, YF protested and put on record its position.  By letter to UBM dated 12 January 2011, YF reiterated that the quantity of 711m was agreed after 2 adjustments mentioned above.

22.  Considering the evidence, as between UBM and YF, I find that the quantity of 711.13m was indeed agreed.  That there might have been another site measurement subsequently would have been a matter between UBM and the Principal Contractor.  Whether it would have been reasonable for YF to accept the further measurement is immaterial.  Expecting YF to accept that because of what subsequently transpired between UBM and the Principal Contractor would simply be unilateral, in the absence of an actual back-to-back arrangement from the outset or corresponding subsequent agreement between UBM and YF.

WORK SPECIFICATION AND DEDUCTION FROM THE COST OF WORK DONE

23.  As mentioned, UBM contracted YF to supply and to install the smoke barrier frame system and Promat Board that had to possess 1-hour fireproof quality.  That was how the contracted work was described in YF’s quotation and contract.  That was also how it was described in UBM’s acknowledgements of receipts of payment issued to YF afterwards.  There was no other specification.  This was unlike the works order issued by the Principal Contractor to UBM on 28 August 2009, which incorporated various specifications and drawings as part of their contract.

24.  UBM resorts to what was allegedly the understanding between the parties at the material time.  According to UBM, it was originally understood to be a double layered board installation; and YF provided its quotation and the parties agreed on that basis.  The specification subsequently changed to become a single layered board installation; and therefore UBM should be entitled to deduction from the contractual price payable to YF to reflect the cost that YF saved on the material and labour.

25.  UBM produced a copy of the sectional detail glass smoke barrier drawing which it sent to the Principal Contractor on 30 August 2009, apparently illustrating a double layered board installation.  Relying on that, it was argued that that a double layered board installation was still contemplated even then.  It was also suggested that such a drawing had also been provided to YF.  However it should be noted that UBM produced this document only on the second day of the trial.  Further, Lee, the director of UBM, eventually suggested in court that what was allegedly provided to YF was actually not that drawing but something said to be similar.

26.  Among the documents are a couple of assessment reports on the Promat Board system. One of them was dated 2006, which made recommendations that, if followed, could render the Promat Board fire-resistant for 120 minutes when constructed in single layer and for 240 minutes when constructed in double layers.  Another one was dated 2008, which concluded that a single layered board installation would be suitable where fire rating of up to 2 hours was specified.  Tentative as those assessments might arguably be at the time, the availability of such reports dated well before this project suggested that it was not virtually impossible or extraordinary for a single layered board installation to be conceived when the Principal Contractor contracted with UBM and when UBM contracted with YF.  The response of Leung in court, however, was that all those reports, albeit produced by his company for the trial, were useless.

27.  UBM also sought to argue that YF had the experience of carrying out a double layered board installation in another project, namely the construction of another building known as “I Square” also in Tsimshatsui, Kowloon.  However the pleaded case of UBM contains no specific reference to previous course of dealings between the parties in the present respect.  Further, according to Yeung, YF was contracted to install only the frames but never installation of boards for the “I Square” project.  Among the documents was one invoice issued by YF on 1 September 2009 to UBM for the work done at “I Square”.  It did record the work being confined to the frames as explained by Yeung.

28.  According to YF, shortly after the quotation dated 27 August 2009 had been provided to UBM, YF was invited to inspect a mock-up installation at the construction site.  YF was requested to follow the mock-up installation in the execution of the work.  In accordance with what YF was contracted to do, UBM again emphasized the specification of 1-hour fireproof quality of the board.  The mock-up, according to Yeung, was a single layered board installation.

29.  In any event, the contract was concluded.  Whether the written contract issued by YF on 2 September 2009 was sent to UBM (as UBM disputes that), it only contained variation of the payment terms, but not the unit price.  There is no dispute that UBM also gave its confirmation to YF to commence work; and made the first payment subsequently in the same month.  Yeung in his evidence added that neither the Principal Contractor’s representative at the site nor UBM had ever questioned the single layered board installation during the execution stage.

30.  YF then issued invoices for interim payments on the basis of the quoted unit cost (HK$1,270/m).  It is common ground that UBM had made payments from time to time, though in amounts apparently without regard to YF’s invoices.  The work was practically completed in January 2010.  According to Yeung, it was only then when UBM requested discount on the basis that single layered board instead of double layered board installation was carried out.

31.  Yeung accepted that YF consequentially issued the invoice in late January 2010 proposing for the first time discount of the unit price by HK$50/m.  This was replaced by the invoice in early February 2010 due to adjustment to quantity of work done; but the rate of discount remained the same.  Yeung explained that his company was prepared to negotiate because of pressure to ensure the soon settlement of the outstanding cost of work done.  UBM then made another payment by cheque on the same month.  But the rate of discount offered by YF was apparently not accepted by UBM.

32.  The parties then entered into negotiation for the discount to be calculated by reference to the cost of materials and labour saved.  UBM estimated 298.5 boards had been saved.  The parties differed in respect of the unit cost of such boards.  UBM suggested HK$360 each (or total HK$107,460) whereas YF suggested HK$300 each (or total HK$89,550).  They also differed in respect of the labour cost saved.  UBM suggested a lump sum of HK$30,000 whereas YF suggested 42 man-day at HK$5,500 each (or a total of HK$23,100).

33.  There are some noteworthy points.

34.  The first point has to do with the contract between the Principal Contractor and UBM.  The Principal Contractor’s works order to UBM dated 28 August 2009 stated that the former contracted the latter for work at the lump sum price of HK$1,469,790.  The document referred to UBM’s quotation to the Principal Contractor dated 26 August 2009 but the same was never disclosed.  On the basis of the contention that a double layered board installation was contemplated even on 31 August 2009, UBM’s quotation and hence the contract price agreed with the Principal Contractor could only be based on a double layered board installation as well.  Whilst UBM now claims to be entitled to deduction from the contract price payable to YF due to the alleged change in specification, one sees no suggestion or evidence that the Principal Contractor sought to do the same to UBM.

35.  The second point has to do with the adjustment.  YF had installed a single layered board system from the outset.  In fact the alleged change in specification from the original double layered board installation, according to UBM, must have taken place prior to the commencement of work.  Leung confirmed that in court.  In that case, YF must have known that it had to place order for materials and to engage labour for the changed format of installation.  One wonders why UBM did not seek to adjust the unit price charged by YF prior to the commencement of work.  Instead UBM resorted to the alleged right to deduction only afterwards.

36.  The third point relates to the second point above.  What YF quoted to UBM, which UBM agreed to, was a unit price that had already taken into account the cost of material and labour to be incurred for the work presumably plus YF’s profit margin.  That YF for negotiation first offered discount by way of discount (HK$50/m) was in line with that.  On the contrary, UBM’s attempt to deduct the cost of material and labour allegedly saved from the contract price calculated to the agreed unit price would be arbitrary.  The arbitrariness of UBM is also apparent in its calculation of the retention money, which will be discussed below.

37.  Contrary to what UBM suggested in submission, it is up to UBM, which asserts the right to the deduction, to prove the quantum of the alleged deduction.  The previous directions of the court recorded that the parties elected not to adduce expert evidence in this respect.  Whilst UBM apparently explained the number of boards allegedly saved, it lacks the evidence in support of the alleged unit cost of the board or cost of labour saved at the relevant time.

38.  UBM put forward various statements of account explaining the calculation of each part payment to YF.  But Leung in court described all of them to be inaccurate save and except the final one in November 2010.  YF stated its stance by fax to UBM on 5 March 2010.  As mentioned, receiving no further payment since November 2010, YF eventually made clear by letter dated 12 January 2011 that UBM’s request for deduction would not be entertained.  There was no formal response from UBM.

39.  On the evidence, I find that between UBM and YF, the contract was for the supply and installation a smoke barrier frame system with Promat Board with the specification that it had to possess a 1-hour fireproof quality.  As far as whether YF was expected to execute a single layered or double layered board installation was concerned, I prefer the evidence adduced on behalf of YF.  The evidence, all considered, impress me that the deduction from the contract price payable to YF being sought was more an unilateral attempt than a contractual right of UBM.  In any event, the correspondence shows that the parties simply failed to agree on the deduction.  I am also not satisfied that the quantum of the deduction sought is proved.

RETENTION MONEY AND LIABILITY TO PAY

40.  UBM alleges that the 5% retention money came into existence as a matter of implied term of the contract between the parties.  However the basis for the implication of such term had not been pleaded until the trial began and upon this court’s query.  The pleading was then amended.

41.  The basis for the implied term is said to be trade practice.  Evidence of trade practice would have normally been expected to come from independent expert witness.  But the circumstances of this case were such that notwithstanding the amendment of the pleaded case, the parties had to stand by the evidence that they have put in.

42.  UBM again referred to the “I Square” project where it also kept retention money in the contract with YF.  However, implication of term by previous course of dealings is not the current pleaded case of UBM.  Such reference could not be fairly relevant.

43.  Its various statements of account issued to YF show that UBM indeed factored in the 5% retention money in its calculation of the balance payable to YF.  Yeung acknowledged the practice of retention money in the trade; but explained that the practice existed between the principal contractor and subcontractor but not further down the line of subcontracting unless specifically agreed.  YF argued that there was no such agreement after its quotation dated 27 August 2009 or the contract dated 2 September 2009.

44.  Though the 5% retention money was said to be the accepted practice sufficient for the implication of such a term to a contract in the trade, the fact was that neither the Principal Contractor nor UBM left it at that.  The Principal Contractor specifically set out the retention money as part of the payment term in the works order which UBM accepted.

45.  When it came to the contract between UBM and YF, the latter obviously sought to record the terms of the contract with UBM into writing, including the payment term without regard to any retention money.  Nevertheless, UBM apparently was content to leave it at that; confirmed the commencement of works; and to resort to an implied term that prima facie contradicts the written terms quoted by YF.

46.  In his evidence in court, Leung sought to explain that the Principal Contractor’s works order might be no more than a standard form.  He also explained that whether terms needed to be agreed specifically in writing would depend on the experience of the contractor.  I do not find such evidence to be credible.

47.  Much also need to be said about the alleged term itself, especially about how the amount of the retention money was fixed and when the retention money should be released.

48.  On the basis of the quantity contended by UBM (702.248 m), the contract price payable to YF at the unit price of HK$1,270/m would be HK$891,854.96.  According to the last (and according to Leung in court, the only accurate) statement of account issued by UBM in November 2010, the amount of retention money was HK$43,077.47. This was 5% of the sum of HK$891,854.96 after deducting the general service cost of HK$30,305.60.  Following UBM’s concession that such general service cost should not be so deducted, UBM amended its pleaded case so that the retention money amounted to HK$44,592.75.  This is 5% of the sum of HK$891,854.96. In both calculations, the retention money was calculated before any deduction was made for the cost of material and labour allegedly saved.  In other words, the retention money sought to be withheld was actually more than 5% of the total cost that UBM contends that it is liable to pay to YF.

49.  By pleading, YF emphasized that it had never been informed of the specific requirement and condition as to the release of the retention money.  YF says that the “make good certificate” from the Development Principal Contractor is irrelevant as the same did not concern the parties or form the terms of the contract between the parties.

50.  Yeung had much to say in his second statement about the pleaded case of UBM. Strictly not evidence, some of them as submissions are nevertheless fair.  It was not until 7 months prior to trial when UBM sought to amend its pleading to allege that release of the retention money was referable to the issue of the so-called “make good certificate” issued by the developer 1 year after the construction site had been handed over by the Development Principal Contractor.

51.  Apart from the scepticism about the late contention in respect of such a major issue, the contention also does not sit well with the other circumstances, objectively assessed.  The effect of the contention is that between YF and UBM, the latter’s certification of completion of the works has become irrelevant as the same would not determine whether the retention money would be released.

52.  What UBM seems to suggest is something like what would be expected in a back-to-back arrangement in a chain of subcontracts.  In that case, one would have expected to see an attempt to align the payment terms between each tier of the subcontracting.  However, that did not seem to be the fact.

53.  The order placed by the Principal Contractor of the works to UBM dated 28 August 2009 (ie 1 day after YF’s quotation) provided that 35% of the contract price would be payable within 1 month after completion of works; and the 5% retention money would be released 12 months after completion.  The works, according to that works order, were expected to be completed on or before 10 November 2009.

54.  In other words, even between the Principal Contractor and UBM, the release of the 5% retention money was not referable to the handing over of the construction site by the Development Principal Contractor after completion of construction. Nor was it referable to the issue of the so-called “make good certificate”.

55.  Indeed UBM also expected the Principal Contractor to release the 5% retention money pursuant to the terms of the abovementioned order dated 28August 2009.  On 18 November 2011, UBM requested the Principal Contractor to release the retention money.  In its email on that day, UBM actually described the retention money to be due for quite some time already.  That could not have been right, had the agreement been that the Principal Contractor would not become liable to release the retention money unless and until the “make good certificate” was issued.

56.  In reply to this email, the Principal Contractor “informed” UBM that the make good certificate “for the project” was outstanding and therefore the Development Principal Contractor (or the developer) had yet to release its retention money.  The Principal Contractor suggested that it would release the retention money to its subcontractors once its account had been settled by the Development Principal Contractor (or developer).

57.  Certainly the Principal Contractor made clear its intention to release the retention money to its subcontractors, including UBM, only if and when it was so paid from the upper tier.  However, the above documents between UBM and the Principal Contractor do not impress me that there was an agreed back-to-back arrangement between tiers of subcontracting regarding the release retention money.  It was more like that the Principal Contractor was seeking to impose that on UBM.

58.  Whilst the relevant time must be that of the contract, I cannot ignore the subsequent fact including UBM’s suggestion that not only was the retention money yet to be payable by the commencement of this action, but it is also uncertain even now when it will be released.  The suggestion that this is the result of the lack of the so-called “make good certificate”, notwithstanding YF’s completion of the works in early 2010 and the opening of “The One” for quite some time by now (of which this court takes notice), is simply difficult to accept.

59.  I am sceptical about the alleged term in respect of retention money as at the time of agreement between the parties.  Even assuming that there was common understanding in respect of retention money, I would reject the contention that instead of the completion of the works, the release of the retention money hinged upon the handover of the construction site by the Development Principal Contractor and its issue of the “make good certificate” so that UBM was not liable to release the retention money by the commencement of this action or even now.

LAM

60.  For completeness, I need only briefly refer to the evidence of Lam, manager of UBM.  Lam’s role in UBM was administrative; and was not personally involved in the negotiation and conclusion of agreement between the parties or the execution of the work in question.  Her evidence does not cast much light on the major areas of dispute between the parties.  Rather, her evidence in respect of the nature of the voucher issued for each payment made to YF and whether the same was sent to YF contradicted Leung’s suggestion that by accepting the payments, especially the last one, YF should be taken to have accepted that the last payment was indeed the final one.

CONCLUSION

61.  I find that YF is entitled to judgment in the sum of HK$221,958.11 as claimed (ie HK$902,970 – 681,011.89).

62.  As to costs, the case of UBM used to be denial of liability to pay any amount at all to YF.  That changed with the amendment of its pleaded case on the first day of the trial with the effect that UBM is liable for at least a sum of HK$28,790.32. Even assuming that YF had not managed to prove the balance of amount claimed after the trial, YF should have been entitled to costs of this action up to the first day of the trial.  Failing in its defence completely, UBM should bear YF’s costs of this action.

ORDER

63.  I enter judgment in the above sum with interest thereon at the judgment rate from the date of writ until full payment.  I make a nisi order that UBM shall pay YF’s costs of this action, including any costs reserved but without prejudice to any costs order made during the trial.  Costs shall be taxed, if not agreed.  For clarity, I certify the engagement of counsel.  In the absence of application within 14 days to vary, the nisi costs order shall become absolute.