DAH CHONG HONG (ENGINEERING) LTD v. HENRY MARBLE CO LTD AND OTHERS

HCA 3238/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3238 OF 2002

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ASSESSMENT OF DAMAGES

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Background

1.  The Plaintiff is the sub-contractor for a project known as “Hok Un Redevelopment Phases IVA and IVB at K.I.L. 11056, Hung Hom, Kowloon” (“the Project”).

2.  By a sub-sub-contract between the Plaintiff and the 1^st Defendant, the Plaintiff sub-sub-contracted certain stonework installation for the Project to the 1^st Defendant.  The terms of the sub-sub-contract are set out in a Letter of Intent dated 31 July 2000 and a written agreement dated 25 May 2001 (“the sub-sub-contract”).  The price for the sub-sub-contracted work payable to the 1^st Defendant is set out in the sub-sub-contract, and the Plaintiff further agreed in the sub-sub-contract to provide finance to the 1^st Defendant, which is repayable as a debt and carry interest at 1% over prime.

3.  The relevant provisions of the sub-sub-contract are set out in paragraph 5 of the Statement of Claim and I do not intend to repeat herein. 

4.  The 2^nd and 3^rd Defendants acted as guarantors for the 1^st Defendant and by a Deed of Guarantee, guaranteed to the Plaintiff for the due and punctual performance of the sub-sub-contract by the 1^st Defendant.  The Deed of Guarantee provided, inter alia, that-

“If the Sub-sub-contractor…fails to execute the Sub-sub-Contract or commit any breach of its obligation duties and undertakings under the Sub-sub-contract the Guarantor will indemnify the Sub-contractor…against all liability loss damages costs and expenses which may be suffered or incurred by the Sub-contractor by reason of any failure default or omission on the part of the Sub-sub-contractor in performing and observing obligations duties and undertakings on its part under or in connection with the Sub-sub-contract.

The total joint and several liability under this Guarantee shall under no circumstances exceed the sum of HK$6,000,000.00.”

5.  It is the case of the Plaintiff that the 1^st Defendant was in breach of the sub-sub-contract in failing to complete the work to be done.  As a result the sub-sub-contract was terminated and the Plaintiff was entitled to recover loss and damage from the 1^st Defendant.  And based on the said guarantee, the 2^nd and 3^rd Defendants are liable to the Plaintiff for such loss and damages up to the limit of HK$6,000,000. 

6.  Interlocutory judgment has been granted against the 2^nd and 3^rd Defendants for damages to be assessed.  The application before me is to assess the loss suffered by the Plaintiff and which the 2^nd and 3^rd Defendants are liable as guarantors.  The 2^nd and 3^rd Defendants did not appear in the assessment but their solicitors were present in Court.  Unfortunately, they had no instruction from the 2^nd and 3^rd Defendants and could not assist the Court.  No evidence had been produced and no argument had been advanced for the 2^nd and 3^rd Defendants.

7.  As in all assessment cases, the Plaintiff in proving its damages is bound by its pleadings.  I would first refer to the Statement of Claim.

The Claim

8.  Paragraph 9 of the Statement of Claim stated that the Plaintiff had advanced the sums of HK$928,000 and HK$1,000,000 to the 1^st Defendant pursuant to terms of the sub-sub-contract.

9.  The Statement of Claim then set out the breach of the 1^st Defendant leading to repudiation of the sub-contract by the Plaintiff.  The Plaintiff claimed loss and damages it suffered as follows –

Overpayment	HK$3,718,760.19
Advancement	HK$1,928,000.00
Management fees for administration of the sub-contract by Plaintiff afterTermination	HK$1,542,844.45
Interest on Advancement to date of Writ	HK$189,054.00
Consultancy fees incurred by thePlaintiff by reason of 1st Defendant’sBreach	HK$229,491.67

Amendment

10.  Before I heard evidence, I enquired with Ms. Cheung, counsel for the Plaintiff, if overpayment could be considered as loss and damages; or should it be claimed for money had and received.  Having taken instruction, Ms. Cheung applied to amend the Statement of Claim, which I allowed.

11.  The new paragraph 9A (after the amendment) provided that according to the sub-sub-contract, any advance may be recovered as debt due by the 1^st Defendant.  And paragraph 17 had been amended to claim “loss and damages and additionally is entitled to claim and demand against the 1^st, 2^nd and 3^rd Defendants in the amount” I just set out in paragraph 9 above.  I had expressly told Ms. Cheung that I would consider if the amendment is sufficient to entitle her client to their claim at the end.  And Ms. Cheung had kindly provided me with a supplemental submission on this issue after the hearing.

The Witness and Evidence

12.  Only one witness was called for the Plaintiff.  Mr. Chan Shui Wah, the manager of the finance department of the Plaintiff gave evidence.  He adopted his witness statement filed on 6 September 2006 as his evidence in chief.  He explained how the contract came to be terminated.  Since interlocutory judgment has been granted, I do not have to visit the issue again.

Overpayment

13.  He first dealt with overpayment.  He relied on the term of the sub-sub-contract which provided that the Plaintiff should make payment to the 1^st Defendant on “back-to-back” and “pay-when-paid” basis.  In respect of the work covered by the sub-sub-contract, the Plaintiff was to receive a sum of HK$43,557,890 from the principal contractor.  And the price payable under the sub-sub-contract to the 1^st Defendant was HK$38,031,162.  He suggested that the sum due and payable to the 1^st Defendant is therefore 87.31% (38,031,162/43,557,890) of any amount the Plaintiff received from the principal contractor.

14.  He further said that, in respect of the sub-sub-contract work, the Plaintiff received HK$41,814,300 from the principal contractor and therefore the Defendant is entitled to a payment of HK$36,508,065.33.  Mr. Chan further confirmed that the Plaintiff had paid a total of HK$41,165,169.42 to the 1^st Defendant.  The Plaintiff now seeks to recover HK$4,657,104.09, being a sum overpaid to the 1^st Defendant.

15.  On examination, Mr. Chan could not refer to any clause in the sub-sub-contract which provided that the Plaintiff is to release 87.31% of the contract price received from the principal contract to the 1^st Defendant as the contract price payable under the sub-sub-contract.  This is what Ms. Cheung submitted as the most accurate assessment of the amount payable to the 1^st Defendant.  This cannot be right.

16.  According to the payment term in the Letter of Intent dated 31 July 2000 and the agreement dated 25 May 2001 (which contain the terms of the sub-sub-contract), the 1^st Defendant was to be paid in accordance with the rates and prices set out in the Schedule of Rates.  In short, the 1^st Defendant was to be paid in accordance with work done.  If the Plaintiff claimed that it had overpaid the 1^st Defendant, they must prove the same by reference to the actual work done, and work out the price thus payable.  Then, I could assess the amount that the 1^st Defendant would have to repay.  I have no evidence in this aspect.

17.  In conclusion, the evidence of Mr. Chan on the sum that was payable to the 1^st Defendant is not accurate and I cannot assess what is the sum being overpaid.  No award can be made under this head of claim.

18.  Further, overpayment is a common law claim.  In the supplemental submission of Ms. Cheung, she rightly conceded this is a claim on restitution.  She submitted that “the present proceedings (as per the amended Statement of Claim) are, in addition to a claim for loss and damages arising from repudiation (the contractual claim), a claim or demand for repayment of sums overpaid, namely a claim for restitutionary damages or moneys had and received.”

19.  Arguably, the restitution claim is not a direct loss arising from a breach of the terms of the sub-sub-contract.  And I do not agree with Ms. Cheung’s submission that the claim for restitution had been sufficiently pleaded in the Amended Statement of Claim.  I have great doubt if this liability, if proved, is covered by the guarantee.  Since, I found no assessable overpayment, I do not have to rule on this point.

20.  In summary, I make no award for the claim of overpayment.

The Advancements

21.  Mr. Chan proceeded to give evidence on the advancement of loan to the 1^st Defendant.  2 advancements or loans were given to the 1^st Defendant, firstly, HK$928,000 on 17 January 2001 and then HK$1,000,000 on 25 May 2001.

22.  I accept his evidence that the Plaintiff had given the total loan of HK$1,928,000 to the 1^st Defendant.  In accordance with the term of the sub-sub-contract, the Plaintiff should advance finance assistance to the 1^st Defendant and such advancement should be recoverable as debt due.  Since the 2^nd and 3^rd Defendants had guaranteed the due performance of the sub-sub-contract, it must include the obligation to repay such debt.  The liability to repay must have arisen the latest by the issuance of the Writ herein.

23.  According to the sub-sub-contract, the Plaintiff is entitled to interest at 1% over prime rate from date of advancement.  I would give judgment on this claim, namely, for HK$1,928,000 and interest on HK$928,000 at the rate of 1% over prime from 17 January 2001 to date of judgment and thereafter at judgment rate until payment, and interest on HK$1,000,000 at the rate of 1% over prime from 25 May 2001 to date of judgment and thereafter at judgment rate until payment.

Other Loss and Damages

24.  Mr. Chan also gave evidence on other loss suffered by the Plaintiff.  The first was management fee.  It is pleaded in the Statement of Claim that before the termination of the sub-sub-contract, the 1^st Defendant had wrongfully suspended all work at the site.  According to the evidence of Mr. Chan, after the 1^st Defendant suspended the work, the Plaintiff took over the administrative and coordinative works in respect of the 1^st Defendant’s sub-contractor.  The Plaintiff claimed 15% of the total sum paid to the sub-contractors of the 1^stDefendant as the management fee.

25.  If the Plaintiff were to be allowed such damage, such damage should be assessed by reference to the expense or actual work done of the Plaintiff.  It should not be difficult to assess by reference to the man-hour spent by the Plaintiff on such work.  It is not proper to assess the loss by using a percentage of the money paid out.  It appears that Mr. Chan was referring to the trade practice that 15% is the normal or reasonable management fee charged.  But he was not admitted as an expert for any trade practice.  

26.  I reject the suggested formula for calculating the loss in managing the contract.  There being no other evidence, I cannot assess the loss and I make no award under this item.

27.  Finally, the Plaintiff claimed the fees paid to D.G. Jones & Partners (H.K.) Ltd. for carrying out quantity surveying works and providing necessary technical support for the sub-sub-contract works after the Defendant suspended work.  Mr. Chan gave evidence in support with supporting documents.  I accept that these are additional expenses for completing the contract and are loss suffered by the Plaintiff.  I allowed the claim at HK$229,491.67.

Judgment

28.  I therefore give judgment to the Plaintiff for:

a.      HK$928,000 with interest thereon at 1% over prime from 17 January 2001 to the date hereof and thereafter at judgment rate until payment;

b.     HK$1,000,000 with interest thereon at 1% over prime from 25 May 2001 to the date hereof and thereafter at judgment rate until payment;

c.     HK$229,491.67 with interest thereon at judgment rate from date of writ until payment.

29.  I would give a cost order nisi that the Plaintiff do have the costs of the assessment to be taxed if not agreed, such order to become absolute within 14 days from today.