ADVANCE EQUIPMENT SERVICES (HONG KONG) LTD 訴 TONGE (HONG KONG) LTD AND ANOTHER

HCCT56/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 56 OF 2003

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Dates of Hearing : 1, 2 and 5 December 2008

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J U D G M E N T

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1. The plaintiff (“AES”) is in the business of hiring out scaffolding equipment for use on construction sites.

2. In 1999, it hired out such equipment to the 1^st defendant (“Tonge”) who was a sub-contractor on a construction site carrying out substantial building works for the MTRC.  The 2^nd defendant (“Paul Y”) was the main contractor.

3. In late March 2001, Tonge purported to terminate its agreement with Paul Y.  Various termination agreements were negotiated and Tonge left the site.  Tonge’s hiring agreement with AES was however not terminated.

4. From 28 March to 8 May 2001, a company called “Charming” took over Tonge’s work.  After that, and seemingly into 2002, a company called “Shun Fat” took over from Charming.  The terms of Charming’s and Shun Fat’s engagements are matters of dispute.

5. In a nutshell, Paul Y’s position is that it agreed to be responsible for AES’s hire charges from 28 March to 8 May 2001 but not thereafter.  Paul Y say it has never had any contractual relations with AES.  Paul Y say that AES should have either entered into a contract with Shun Fat or demanded back their scaffolding.  In fact, they did neither.

6. Meanwhile, in spite of Tonge’s absence from the site the contract between AES and Tonge continued.  AES’s first action in the litigation was to sue Tonge for breach of contract.

7. AES successfully obtained summary judgment through Order 14 proceedings against Tonge.  That judgment remains unsatisfied.  It should be noted at this stage that Paul Y does not contend that that judgment has any bearing on this case, to the extent that it is accepted that both D1 and D2 can be concurrently liable to the plaintiff on different factual and legal bases. 

8. By these proceedings, AES has continued its action against Paul Y.  The action against Paul Y is a tortious claim in detinue and conversion.

THE SCAFFOLDING

9. Whilst there are many factual disputes in this case, it seems that there is no dispute about the following facts in relation to the use of the scaffolding during the material time.

10. As at 8 May 2001, a large amount of scaffolding was in use and erected.  There was an equally large amount lying idle on site.  Most of it was the property of AES, a small proportion was the property of another hiring company called SGB.

11. Between 8 May and the end of November 2001, such scaffolding as was necessary continued to be erected and used on site.  The surplus scaffolding lying on the ground was causing problems.  Many visits were made to the site by Tonge, AES and SGB to take away scaffolding during the above seven months.  Such scaffolding as was needed always remained in place.  None was ever dismantled without permission.

12. By the end of November 2001, all the scaffolding, both erected and surplus, had been removed.  However, by the end of this period, AES had acquired a small amount of scaffolding which did not belong to them and, more importantly, had lost a large proportion of the scaffolding which it had early delivered to the site.

13. The evidence as to the whereabouts of this “missing” scaffolding is non-existent.  AES’s claim against Paul Y for the missing scaffolding is based on their contention that they had unlawfully retained it for their own use and are liable in conversion because AES never got it back.

LAW

14. The law relating to detinue and conversion was not a matter of much debate between the parties.  However, it is far from a straightforward subject.  I consider some of the issues and ingredients below.  

15. Firstly, however, a controversial issue did arise at trial, namely whether or not AES could pursue an action for breach of contract in addition to its claims in detinue and conversion.

16. Mr Anthony Houghton, SC, for the 2^nd defendant, not unreasonably, complained about the attempt made at trial to widen the scope of the plaintiff’s claim to embrace an alleged breach of an oral contract made on 8 May 2001.

17. A meeting had been held on 8 May 2001.  At that time the company which had stepped in on Tonge’s departure, namely “Charming” was leaving and Shun Fat would take their place soon thereafter.  The basis of AES’s claim in contract is that, at the meeting on 8 May 2001, a Mr William Spencer, on Paul Y’s behalf, said that Paul Y would “take over” the responsibilities of Tonge’s with regard to the hiring charges due to AES.  Paul Y deny this.

18. It is true that the amended statement of claim does refer to the oral representation made on 8 May 2001.  However, no breach of contract is pleaded and the pleaded claim is confined to detinue and conversion.  That is the claim, submitted Mr Houghton, that the 2^nd defendant has come to court to resist.

19. In fact, the extent to which Paul Y is obliged to meet a claim for breach of contract is academic because I find on the evidence that no binding oral contract was made.  I find that whatever may have been said by Mr Spencer at the meeting, in so far as AES construed it as a binding agreement, was a misunderstanding by AES and one they have placed reliance on with hindsight in the light of events as they subsequently unfolded.  In correspondence soon after the meeting, Paul Y made it clear that their acceptance of any responsibility for the hire charges formerly due from Tonge to AES and/or SGB was limited to the period from 28 March to 8 May 2001.  Moreover, when AES sent them a quotation for the remaining scaffolding they promptly returned it.  In fact, AES have never invoiced Paul Y for any hire charges after 8 May 2001 and AES’s contract with Tonge was never terminated.  It is also worthy of note that in July 2003, Mr Jimmy Kuo Chih Ming, a director of AES, in its proceedings against Tonge, affirmed as follows : “It is simply not true that Tonge’s liabilities in respect of this scaffolding equipment had been taken over by Paul Y” and later in the same affirmation, “On the other hand, the plaintiff’s claim against Paul Y is for the use, detention and/or conversion of the plaintiff’s scaffolding equipment and not in contract”.

20. The high water mark of AES’s argument that they have a claim in contract is a letter dated 7 May 2001 written to Tonge in order to arrange the meeting for the next day.  In that letter Mr Spencer expressed his “hope” that “arrangements” could be made for the handover of the scaffolding “to us”.  This may have been his hopeful intent at the time but in fact no such contractual arrangements were made.  A few days later, Shun Fat were on the scene and continued Tonge’s work until the end of the contract.

21. I return therefore to the law relating to conversion and detinue, which is the sole focus of the trial.

22. Halsbury (Laws of Hong Kong), Vol. 25 defines detinue as “a failure to deliver after demand”.  It continues :

“… The gist of the cause of action in detinue is wrongful detention, and in order to establish detinue it is usual to prove demand and refusal after reasonable time to comply with the demand.  The mere keeping of another’s goods does not amount to detinue and it is not conversion by detention merely to be in possession of a chattel without title, as where a finder reduces goods into his possession or a bailee holds over after the period of the bailment has expired.  Where, however, a person has possession of the goods of another and a valid demand is made for them by the owner, an unqualified and unjustified refusal to deliver them up entitles the owner to sue in detinue and is evidence of conversion.

Detinue may be established by methods other than demand or refusal, but in most cases a refusal will constitute the best means of establishing a detinue of goods withheld by the defendant.  A demand and refusal is sufficient evidence of detinue only if at the time of the demand the party who refuses has it in his power to deliver up the article in the condition in which the article is demanded.  However, if the party has wrongfully parted with the article, the wrongful parting will in itself have constituted a detinue.

If there is no refusal before action is brought and there is no other conversion alleged, conversion will not lie.”

23. Clerk & Lindsell (19^th Edition) in its discussion on the subject states that :

“The ordinary way of showing a conversion by unlawful retention of property is to prove that the defendant, having it in his possession, refused to surrender it on demand.  Indeed such a demand is generally a precondition to the right of action for detention, the mere unpermitted possession of another’s chattel is not, as such, a conversion of it.”

24. Mr Samuel Wong, counsel for AES, also refers to Clerk & Lindsell, to support his submissions that a wide interpretation is permissible :

“      Taking and using the goods  Even a still more transitory exercise of dominion, such as unlawful ‘borrowing’ or using goods, may amount to a conversion.  … In short, any taking of a chattel for the use of the defendant or a third party amounts to a conversion; moreover, the fact that the defendant did not intend permanently to deprive the owner of his property is irrelevant.  [If], therefore, a defendant wrongfully takes and uses the chattel of another, and without further default on his part, it is lost or damages before it can be returned to the owner, he is liable for the whole damage.”

and :

“      Other evidence of unlawful keeping  A demand and refusal is not the only form of evidence of an unlawful taking.  There may be a conversion of a chattel by the use and employment of it in a manner altogether inconsistent with the right of the owner …”.

25. In the U.K., the tort of detinue was abolished by the Torts (Interference of Goods) Act 1977.  In Hong Kong, however, it remains.  There are no clear boundary lines between the two torts of conversion and detinue.  Often, both will apply to a given set of facts; as Clerk & Lindsell says : “the law concerning the protection of interests in chattels remains very complex.”  The facts of this case, for example, illustrate that a degree of common sense is required when considering the rigidity of the need for an actual demand for the return of goods.  In this case, if an actual demand had been made by AES and complied with by Paul Y the integrity of a half constructed building might have been compromised.

26. Similarly, the normal requirement in detinue that it only was against a person in possession must be given a wide and sensible interpretation.  On a building site, in these circumstances, the main contractor may be in as much de facto possession of the scaffolding as the scaffolding sub-contractor.

POST 8 MAY ISSUES

(1)   The role of Charming and Shun Fat

27. It is Paul Y’s contention that Shun Fat took over the role of Tonge in all contractual respects.  It was therefore incumbent on AES to enter into a contract with Shun Fat so as to regularise the hiring terms on the same or similar basis as it had had with Tonge.

28. When a concreting and formwork sub-contractor leaves suddenly (as Tonge did) continuity is obviously important.  If possible the concreting should continue uninterrupted and formwork and scaffolding should remain in place.  Any dismantling could be very disruptive, very expensive, counter productive and dangerous.  Paul Y’s exposure to possible liquidated damages, for example, was very high. 

29. “Charming” therefore provided a temporary service to ensure continuity.  It is not disputed that from 28 March to 9 May 2001 (or soon after) they were engaged by Paul Y on a “Day Labour only” basis.  They had no responsibility for scaffolding hire charges.  Accordingly Paul Y has always accepted its responsibility for the charges of $126,414.34 during this period.

30. However, the relationship between Paul Y and Shun Fat is less clear.  I accept that no representative of Shun Fat was present at the meeting on 8 May 2001 (albeit that Paul Y contended that there was).  There is no doubt however that they were on site soon afterwards, a matter of days.  The issue is not when they commenced work but on what terms.

31. If they continued only on a “Day Labour only” basis it lends support to AES’s argument that Paul Y should be liable, at the very least, for the hiring charges of the scaffolding.  Paul Y point to a letter of 9 May 2001 which they sent to Shun Fat.  It was a “letter of intent” offering Shun Fat a fixed price contract for “Labour materials and plant for formwork and concreting for station box”.  Below the place for acceptance by Shun Fat there is an indecipherable sign which has been crossed out.  The date “9-5-01” appears below.

32. AES complained that this letter was only discovered at the 11^th hour, namely a matter of days before the trial, and is equivocal as to evidence of a contract between Shun Fat and Paul Y.

33. Paul Y point out that on 14 May 2001 they forwarded AES’s quotation for the scaffolding to Shun Fat for their “consideration and action” (and informed AES that they had done so) which, they submit, is also consistent with there being a contract for more than just labour, between themselves and Shun Fat.  However, evidence of what Shun Fat’s “consideration” and “action” actually was, is lacking.

34. In short, Paul Y, as part of their defence, submit that it was Shun Fat who was liable for the cost of plant, pursuant to a contract.  They have raised this issue and it is incumbent on them to prove it.  The evidence adduced to this end is not persuasive.  I am not satisfied and therefore do not proceed on the basis that Paul Y can avoid any liability for the scaffolding, their arguments being that (a) it had a contract with Shun Fat which covered it; and (b) AES should have agreed terms with Shun Fat but did not do so.

35. Rather, I proceed on the basis that Paul Y’s relationship with Shun Fat was not materially different from its relationship with Charming.

(2)     The collection and use of the scaffolding

36. The evidence of what actually happened to the scaffolding between 8 May 2001 and the end of November 2001 is less than clear.  Taking a realistic and broadbrush approach to the totality of the evidence, it seems to me to be safe to proceed on the basis of the following scenario.

37. On 8 May 2001, the totality of the scaffolding with which we are concerned in this case was on site.  By 30 November 2001, it had all been taken away.  On 8 May 2001, about half was in use, erected and performing an important purpose.  The remainder (the surplus scaffolding as opposed to the “erected” scaffolding) was lying idle around the site.  Evidence contained in “Schedule 5” provides some support for this.  According to Schedule 5 the value of all the scaffolding on site when Tonge left was approximately HK$5.25 million.  Thereafter “surplus” (i.e. “idle”) scaffolding was collected on numerous visits to the site.  The value of this surplus scaffolding was approximately HK$2.64 million.  

38. Between May and November 2001, when Tonge, AES and SGB all made visits to the site to take away scaffolding only idle scaffolding was actually collected.  During none of these visits did they take away any scaffolding which was, at the time, in use and erected.  They only took scaffolding which was part of the “surplus” as at 8 May 2001 or had become surplus thereafter.

39. As earlier stated, as at 30 November 2001, AES had regained possession of about half of its scaffolding.  Paul Y were not in possession of any scaffolding after 30 November 2001.  Thus I proceed on the basis that on 8 May 2001 half was in use and half was idle.  On 30 November 2001, half had gone missing.  Of course, the half that had gone missing was not necessarily the same half that was either idle or in use in May 2001; however, the 50/50 split of both issues simplifies the outcome of this case.

40. Apart from the above little more of any use can, with any certainty, be distilled from the evidence.

(3)     Paul Y’s position after 8 May 2001

41. As a matter of fact, as so found herein, Paul Y did not have a contract with Shun Fat concerning the responsibility for hire charges for plant, neither did it have any written or oral contract with AES.

42. A sensible view of the correspondence between all the various parties (Paul Y, AES, Tonge, SGB, Charming and Shun Fat), some of which are copied to some others, indicates Paul Y’s stance to be as follows.

43. They were concerned about the scaffolding which was lying idle on site.  Its presence was disruptive.  They demanded its removal.  Slowly but surely, Tonge, AES and SGB did remove it.

44. Paul Y’s initial correspondence on this matter (in a letter to AES) seemed to suggest that their demand was to remove all the scaffolding.  AES replied to express their “confusion” about this, bearing in mind that a great deal of scaffolding was in use and erected.  Later correspondence, over the next days and weeks, clearly pointed to a more sensible demand which was that all the surplus scaffolding be removed.  Moreover, I find that this always was their position, namely that all the scaffolding which was lying idle on site should be removed as quickly as possible.

45. Equally sensible was an expectation that the erected scaffolding would continue to serve its purpose.  In such circumstances it was commercially sensible of AES not to force the issue with Paul Y.  Its contract of hire with Tonge subsisted and to confront Paul Y with a demand for the return of the erected scaffolding would, if granted (which in reality, of course, it would not have been) have caused untold damage to the building works themselves, subjected Paul Y to the risk of liquidated damages and jeopardized their contractual security with Tonge.

46. In the light of the fact that AES had no contract with Paul Y and Paul Y’s contract with Shun Fat was “labour only”, I shall consider AES’s lack of an actual demand for the return of the erected scaffolding in the context of conversion and detinue in due course.  At this stage, however, I turn to the issue of the “missing” scaffolding.

(3)     The “missing” scaffolding

47. Paul Y never needed the use of more than half of the scaffolding as from 8 May 2001 onwards.  It consistently sought the removal of the idle scaffolding after 8 May 2001.  Moreover, there is no evidence to make Paul Y culpable for any missing scaffolding on 30 November 2001.  The evidence portrayed a picture of frequent comings and goings of different scaffolding sub-contractors and hiring companies for collection purposes.  Which particular items were taken by whom and to where is impossible to discern.  Mr Houghton accurately described it as a “somewhat unscientific hit and miss affair”.  Paul Y cannot be held liable for the missing half in November 2001 when it consistently requested the idle half to be removed from May 2001 onwards.  In any event, the Order 14 judgment against Tonge is for a substantial sum which includes the total value of AES’s stock of scaffolding delivered to this particular site.

48. In all these circumstances, in my view, all that remains is to decide Paul Y’s liability in tort, if any, for the hiring charges for AES’s scaffolding actually used on site between 9 May and 30 November 2001.

LIABLITY IN TORT FOR HIRING CHARGES

49. Paul Y’s main thrust in argument is that AES should have made a contract with Shun Fat.  If they had done so, Shun Fat would have simply replaced Tonge as the hirer of AES’s goods and the problems would never have arisen. 

50. But Paul Y cannot force two other parties to enter into a contractual relationship.  It takes two to tango and it seems that, in this case, neither side wanted to dance.  It is true that it might have been better if they had but the fact is that they did not.  Each side, that is, AES and Shun Fat, no doubt had their own commercial reasons for not wishing to do so.  Thus Shun Fat had no contractual liabilities to AES and Paul Y had, as already found, no more of a contract with Shun Fat than it had had with Charming.

51. Given also that I have found no liability in conversion against Paul Y for the missing scaffolding the residue of the claim is in detinue between 9 May and 30 November 2001 for the used scaffolding.  In fact it may not be necessary to specifically identify whether AES’s remedy is in detinue or conversion.  With regard to the scaffolding in use, Paul Y dealt with them in a manner inconsistent with the owner’s rights.  This is consistent with a conversion.  They also continuously detained the scaffolding wrongfully.  This is consistent with detinue.

52. In short, I am satisfied that the following ingredients have been proved to the necessary standard.

53. (1)     That, at the material time, AES had the right of possession over the goods (and that at the same time the goods were in the de facto possession of Paul Y).

54. Mr Houghton submitted that because the goods were still under contract to Tonge, then AES has failed to establish it had any right of possession.  I do not agree.  The reality is that Tonge had left the site and AES was the original owner of the scaffolding.  These simple facts suffice for these purposes.  Moreover, Mr Houghton submitted that Aes should have been “demanding” their return.  A “demand” would surely only come from a party who had rights to the goods.  The requirement that “a demand” should have been made by AES is consistent with AES being a party with such rights.

55. (2)     That, on the particular facts of this case, an unequivocal “demand”, in the usual sense of the word, from AES is not necessary.  As a matter of law an actual demand is not an absolute requirement (see page 6 line S and page 7 lines M and R above).  The scaffolding was “in use”.  To demand its actual return in May or June would have been reckless.  To require a demand, whether oral or in writing, is artificial in the extreme given the fact that it was in everyone’s interest (and in the building’s interest), to leave it in place.  Paul Y’s stance, which was clear from May 2001 onwards, was to insist on the removal of the idle scaffolding and retain the benefit of the erected scaffolding.  This constituted an exercise of dominion and use over AES’s goods.

56. If more is required of AES, they are able to point to and rely on a letter dated 30 June 2001 written by Tonge’s solicitors to Paul Y.  By that letter Paul Y was put on notice that on 3 July 2001 Tonge, AES and SGB would attend the site to remove all the scaffolding.  Needless to say all the scaffolding was not removed.  However, even though the letter was from Tonge, AES can rely on it as they were included in the text and thus it can reasonably be said that it was written on their behalf.

57. (3)     That Paul Y continued to use scaffolding until it was no longer required constitutes a refusal to return it.  In other words, they decided when it would be returned, not anyone else.  There can be little doubt that had attempts been made to dismantle scaffolding that was in use Paul Y would have prevented it.  They were exercising absolute control over its use and movements. 

QUANTUM

58. In Strand Electric and Engineering Co. Ltd v. Bristol Entertainments Ltd [1952] 2 QB 246, Denning LJ said :

“What is the proper measure of damages for the wrongful detention of goods? …. If a wrongdoer has made use of goods for his own purposes then he must pay a reasonable hire for them …. The claim for a hiring charge is, therefore, not based on the loss to the plaintiff, but on the fact that the defendant has used the goods for his own purposes.  It is an action against him because he has had the benefit of the goods.  It resembles an action for restitution rather than action in tort.”

59. In the present case, there was a definable quantity of scaffolding, used for a specific period at a known rate of hire.

60. AES regained possession of about half of its scaffolding from 30 November 2001.  I have already determined that no liability lies against Paul Y for the missing balance.  In my judgment, the proper measure of damages for Paul Y’s use of the erected scaffolding is the cost of hiring that scaffolding and the cost of collecting the idle scaffolding.  A broad brush approach must be adopted.  Mr Houghton rightly said in his submissions : “It is impossible to be precise as to the consequences of this, but some assessment should properly be made” (whilst making no admissions as to liability). 

61. It must also be acknowledged that the assessment of “half” the scaffolding going missing and “half” the scaffolding lying idle in May 2001 is in itself also a broad brush approach.  This case needs finality and, in my judgment, this approach is justified on the evidence.

62. AES’s entitlement to “damages” is as follows :

(a)      Paul Y has conceded that it agreed to pay all the hire charges for AES’s scaffolding from the end of March to 8 May 2001, an agreed sum of $126,414.34.

(b)     Paul Y must also pay hire charges for half the scaffolding from 8 May to 30 November 2001.  Using the figure in (a) above as a starting point, I assess this liability to be approximately $51,000 a month for 7 months, a total of $357,000.

(c)     The transportation charges which are claimed in the Statement of Claim, which I allow, are $107,580.

(a) + (b) + (c) = $590,994.34.

63. There will be judgment for the plaintiff in the sum of $590,994.34 plus interest at prime rate from 1 January 2002.  In my judgment, the amount of the judgment is sufficient to award the plaintiff a proportion of its costs.  I make a costs order nisi that the 2^nd defendant pays 50% of the plaintiff’s costs, to be taxed if not agreed.