MAYSUN ENGINEERING CO LTD v. WORMALD ENGINEERING SERVICES LTD

DCCJ 2885/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2885 OF 2003

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JUDGMENT

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1. The Plaintiff was at all material times and is a company incorporated in Hong Kong under the Companies Ordinance Cap. 32 and carrying on the business of a plumbing and fire services engineering contractor for more than 25 years.

2. The Defendant is a company with limited liability incorporated in accordance with the Companies Ordinance of the Laws of HKSAR and is carrying on the business of Fire Protection Engineering.  It was at all material times and is a subsidiary of a public listed company.

3. By a Contract No. 68 of 1996 entered into by one Daido Construction Company Limited (hereinafter called “Daido”) and the Hong Kong Housing Authority (hereinafter called “HKHA”), Daido agreed to construct housing for small households at Shui Pin Wai, Yuen Long, Hong Kong (hereinafter called “SPW Project”).

4. On 26 July 1996, the Defendant as the sub-contractor submitted its tender to Daido for the SPW Project for fire services and water pump installation at the price of HK$5,306,923.00.

5. It is the Plaintiff’s pleaded case that the Plaintiff and the Defendant entered into an oral agreement as evidenced in a letter dated 16 March 1997 (“the 1^st Agreement”), at pages 40 – 41 of the Bundle of Documents-2 (“BD-2”) whereby the Defendant and the Plaintiff agreed that the payment formula for payment by the Defendant for variation or additional works in relation to the SPW Project by the Plaintiff was to be calculated by the following formula (“payment formula”):-

i.e. the sum specified in the Plaintiff’s tender and agreed by the Defendant over the contract sum agreed by the Defendant and HKHA less provisional sum for contingencies and provisional sum for fluctuations in the cost of labour and materials.

6. Further it is the Plaintiff’s pleaded case that the Plaintiff and the Defendant entered into a subsequent oral agreement as evidenced by a draft Purchase Order No. 7511 dated 15 May 1997 (“the Purchase Order”) (see pages 43 – 47 of BD-2), whereby the Defendant retained the Plaintiff to provide works and services for the SPW Project at the contract sum at HK$4,371,385.00.  Notwithstanding the draft Purchase Order, the parties failed to agree on the allowance on price fluctuation on the labour and material costs in the terms stated in Clause 11 of Appendix 1 thereof, and the Plaintiff did not sign the draft Purchase Order as a result of such disagreement on price fluctuation.

7. It is the Plaintiff’s pleaded case that it is an implied term of the two oral agreements that the Plaintiff would perform the SPW Project and the Defendant would pay to the Plaintiff the contract sum for SPW Project at HK$4,371,385.00 and sums for the variation or additional works calculated according to the payment formula.  By this formula, the Defendant has to pay the Plaintiff 85.698% value of such works received by them.  It is not in dispute that the Plaintiff entered the SPW Project site and commenced its work on the tender sometime in 1997.   

8. Subsequently, the Plaintiff was advised on 12 December 1997 that site work at SPW Project was suspended.  This was because Daido’s contract with HKHA was terminated.

9. On 30 April 1998, the Defendant as subcontractor submitted a new tender to provide the same fire services and water pump installation to a new subcontractor Hanison Construction Company Limited under a new Main Contract No. 284 of 1995 with HKHA for the SPW Project at the sum of HK$5,209,923.00.  The Defendant was awarded the sub-contract.

10. The Plaintiff pleaded that by an agreement in writing dated 2 September 1998 (“the Supplemental Agreement”) as evidenced by a letter of even date at page 152 of BD-2, the Defendant and the Plaintiff agreed that the terms and conditions in the Purchase Order No. 7511 will remain in force in relation of the SPW Project subject to two amendments one of which is that the Plaintiff shall not be entitled to claim any price fluctuation in respect of labour and material.

11. It is not in dispute that the Plaintiff performed the Purchase Order and completed the SPW Project as agreed and in the course of performance by the Plaintiff, the Defendant received from Daido and Hanison Construction Company Limited the contract sum and payments for variation works from time to time and the Defendant was liable to pay within 7 days from the date of the receipt by the Plaintiff of sums pursuant to clause 10 of the Purchase Order.

12. It is not in dispute that the Defendant after repeated demands by the Plaintiff, finally , by way of a letter dated 16 October 2002 tendered to the Plaintiff a draft final account statement for the outstanding balance due and owing to the Plaintiff in the sum of HK$203,285.51.

13. By a letter dated 7 December 2002 from the Plaintiff’s solicitors Messrs. Shaw & Ng, solicitors, to the Defendant, the Plaintiff amended the draft final account with the balance due to the Plaintiff at HK$541,358.29.  The Plaintiff demanded the Defendant to pay HK$541,358.29.

14. By another letter dated 24 December 2002, from the Defendant’s solicitors Messrs. C.C. Lee & Co., the Defendant did not agree to the amended account of claim and finally by the letter dated 15 April 2003 from Messrs. C.C. Lee & Co., the Defendant submitted a final account for the outstanding balance at HK$214,278.51.  A copy of the final account is annexed as Appendix A to the Statement of Claim.

15. By a letter dated 25 April 2003, the Plaintiff made further amendments to their final account for the outstanding sum at HK$552,350.29.  A copy of the revised final account is annexed as Appendix B to the Statement of Claim.

The Plaintiff’s Claim

16. The Plaintiff’s claim against the Defendant is delineated in their final account in Appendix B of the Statement of Claim and comprises of 5 items as follows:-

1.	14.302% of L.D. (being liquidated damages) charged(14.302% x $179,340.00) =	$25,649.20
2.	14.302% of Contra-charge (14.302% x $137,572.44) =	$19,675.61
3.	Additional Sum of $200,000.00 under contract No. 284/97between Defendant and Hanison less 14.302% =	$171,396.00
4.	Fluctuation $12,603.02 under Surveyor’s Cert. No. 12 dated 23.10.1997 less 14.302% =	$10,800.54
5.	Fluctuation $129,000.00 under Surveyor’s Cert. No. 3 dated 10.9.1998 less 14.302% =	$110,550.42
		$338,071.77

17. The Defendant does not dispute that the Supplementary Agreement was entered into between the Plaintiff and the Defendant as evidenced in the letter dated 2 September 1998 at page 152 of BD2.  This letter is signed on behalf of each of the parties.  The letter states in words “Notwithstanding the fact that the Main Contract No. 184 of 1995 had been terminated by HKHA, it is agreed that your Purchase Order 7511 of the captioned will remain in force subject to two amendments”.  The only significant amendment is the statement that “Maysun Engineering Co. Ltd. (MECL) is not entitled to claim any price fluctuation in respect to labour and material.”  It is the Plaintiff’s pleaded case that the terms of the Supplemental Agreement should come into effect from the 2 September 1998.    

18. It is therefore clear that as from 2 September 1998, this letter stipulates that the Purchase Order 7511 will remain in force.  However the amendment cited above and referred to in the Supplemental Agreement in effect merely states that the existing Clause 11 of Appendix I to the Purchase Order applies in this Supplemental Agreement.

19. Of the five items of claim, apart from the two items of price fluctuation claimed, the remaining three are governed by the Supplemental Agreement as they are items in the final account after 2 September 1998.  However in relation to the two items of price fluctuations, the Plaintiff claims that these two items became due before 2 September 1998.  These two items of price fluctuations relate to work done before 2 September 1998.  The Plaintiff’s pleaded case in paragraph 7 of the Statement of Claim is that after the Purchase Order which was a draft copy thereof, was faxed to the Plaintiff, the parties failed to agree on the contents of Clause 11 of Appendix I attached to the Purchase Order.  This stated that the Defendant “shall be deemed to have allowed for any material and labour fluctuation.  As such, MECL (the Defendant) is not entitled to any price fluctuation claim.”  It was because of this disagreement that the Plaintiff did not sign the draft Purchase Order.  As the Plaintiff’s case is that they did not execute the Purchase Order, the Purchase Order does not apply in relation to his claim for the two items of price fluctuation.  The Defendant’s case is that the Purchase Order evidenced the agreement between the parties and the Plaintiff is bound thereby.  In the course of the trial the Plaintiff stated in evidence that there was an oral agreement reached with the Defendant that the Plaintiff would not be bound by Clause 11 related to price fluctuations.  This is denied by the Defendant.  

20. I shall address each of the five items of claim of the Plaintiff herein and the evidence as well as issues and state my finding hereunder. 

The Price Fluctuation Items

What are Price Fluctuations

21. DW1, Yung Choi Hei, the Director of Sales of the Defendant who gave evidence on behalf of the Defendant explained that in HKHA contracts, HKHA provides a term to enable a contractor to claim for price fluctuations.  The price fluctuations have nothing to do with actual changes in market price related to labour and materials but are calculated in accordance with government indexes.  If the government index showed movement in prices they will automatically adjust payment without regard to whether a loss has been suffered or gain earned because of price fluctuations.  

22. He stated that it is not the policy of the Defendant Company to give price fluctuations to its subcontractors.  The reason is, if there is a huge price fluctuation of over $100,000 in a period of deflation, the subcontractor would lose this sum and their ability to continue the contracted work may be affected as they may not be able to sustain such a loss.  

23. From the pleading and evidence, it is clear that a number of issues have to be addressed in deciding whether the Plaintiff is entitled to the two items of price fluctuations claimed.  :-

1.	Whether the Plaintiff signed the Purchase Order.
2.	If no, whether the Plaintiff is still bound by the Purchase Order.
3.	If the issues 1 and 2 are answered in the negative whether the Plaintiff and Murray Mok of the Defendant orally agreed that the Plaintiff would be entitled to price fluctuations.
4.	If the aforesaid oral agreement existed whether the Plaintiff is entitled to claim for price fluctuations before 2nd September 1998.

The 1st Issue - Whether the Plaintiff signed the Purchase Order

24. PW1 Mr. Yung Chun Hung the Director of the Plaintiff gave evidence on behalf of the Plaintiff.  He adduced his witness statements into evidence and confirmed its truth.  He stated that the Plaintiff first submitted a tender to the Defendant on 16 July 1996.  After the Defendant’s tender to Daido was accepted, on 24 October 1996, he went to see Mr. Murray Mok of the Defendant at the Defendant’s office and after discussion revised their price in their tender downwards at a discount of 4%.  The Plaintiff started work on site on 31 January 1997.  About this time in January 1997, there was a merger within the Defendant company and Mr. Yung Chor Hei (“DW1”) took the place of Mr. Murray Mok.  

25. On 14 March 1997, he went to see Mr. Yung, DW1, and he was asked to reduce the price yet again.  He agreed and he recorded the agreement in writing in their letter dated 16 March 1997 referred to in his Statement of Claim.  In this letter, the Plaintiff set out the payment formula for payment by the Defendant to the Plaintiff for variation and additional works.  The Defendant would have to pay the Plaintiff sums for variation and additional works based on the formula to be applied to the sums for such work received by the Plaintiff from Daido.  DW1 denies that the Defendant received this.

26. At the end of May 1997, the Defendant faxed a draft copy of the Purchase Order to the Plaintiff.  He disagreed with Clause 11 where it states that the Plaintiff would not receive any price fluctuations.  He telephoned Mr. Murray Mok to raise his disagreement.  Mr. Murray Mok orally agreed that the Clause 11 could be changed to allow the Plaintiff to receive price fluctuations.  It was agreed as evidenced in the draft Purchase Order that the Defendant retained the Plaintiff to provide the contract works and services for the project stated in the Purchase Order.  He stated that he had not signed the Purchase Order, which was a draft.  He stated that the agreement between the Plaintiff and the Defendant was the oral agreement evidenced by the letter dated 16 March 1997 and the oral agreement to start work at the price stated in the Purchase Order.

27. Mr. Yung Chor Hei (“DW1”) the Sales Director of the Defendant gave evidence for the Defendant.  He stated that the Plaintiff had signed the Purchase Order.  Hence, Clause 11 of Appendix I to the Purchase Order would apply.  He denied that a draft of the Purchase Order was faxed to the Plaintiff by the Defendant and said that the Plaintiff’s witness went to the Defendant’s office to collect two copies of the Purchase Order being the copies marked “Vendor” and “Copy”.  They are not draft copies but original copies executed by the Defendant’s authorized signatories.  He denied that there was any agreement between the Plaintiff and the Defendant that Clause 11 of the Purchase Order would not apply.  Further, the Defendant’s Counsel in final submission stated that even if the Purchase Order was not signed by the Plaintiff, it is stated under Shipping Instruction/Shipping Marks in the bottom of page 1 of the Purchase Order that the “order should be confirmed within 2 weeks from date of issue, otherwise we assume that this order has accepted and confirmed as correct”.  Hence the Purchase Order was deemed to have been accepted by the Plaintiff.  However this is not pleaded.  The Defendant’s Counsel also referred to Clause 19 of the Purchase Conditions, which states:

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19.

Upon acceptance of the Purchase Order by the Seller, it is mutually understood and agreed by both the Buyer and the Seller that the Purchase Order shall constitute the entire agreement between the Seller and the Buyer as to the purchase of the Goods Works or Services.  Any written or verbal communications prior to the Order Date are hereby superseded.”

28. The Defendant’s Counsel also referred to Clause 2 of the Purchase Conditions which, state:

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2.

No alteration to or variation of the purchase Order will be recognized unless authorized by the buyer in writing.”

29. The Defendant did not plead clauses 19 and 2 of the Purchase Conditions.  It is the Defendant’s case that the Purchase Order governed the contractual arrangement between the Plaintiff and the Defendant.

30. The Defendant was unable to produce the copy of the Purchase Order headed “Copy” which is the duplicate copy the Plaintiff would have to sign and return to the Defendant if they did sign and return the Purchase Order to the Defendant.  The Defendant has no evidence to support their allegation that the Plaintiff has signed the Purchase Order and returned it to the Defendant.  A copy of a Purchase Order signed by the Vendor is an important contractual document and in the normal course of dealings of a company would have been properly filed and kept.  It is surprising that the Defendant has not been able to produce such a copy.  The only copy they could produce is the copy headed “Account” which is the copy that had not been given to the Plaintiff and retained by their accounts office.  I find it hard to believe that if the Plaintiff had signed the Purchase Order and returned it to the Defendant, the Defendant would be unable to locate the copy signed by the Plaintiff.  Further DW1 admitted that he had never seen the copy of the Purchase Order signed by the Plaintiff’s signatory.  

31. In the face of the aforesaid, I accept the evidence of the Plaintiff’s witness Yung Chun Hung that the Plaintiff did not sign and return the Purchase Order to the Defendant.       

The 2^nd Issue – Is the Plaintiff still bound by the Purchase Order

32. The Defendant’s Counsel sought to refer to the clause under Shipping Instruction/Shipping Marks in the bottom of page 1 of the Purchase Order which states that the “order should be confirmed within 2 weeks from date of issue, otherwise we assume that this order has accepted and confirmed as correct”.

33. She also relied on Clause 19 and Clause 2 referred to aforesaid.  However, none of these clauses have been pleaded in the Defence of the Defendant.  For that reason I find that the Defendant could not rely on these clauses (see para 18/7/7 of Hong Kong Civil Procedure 2006 at page 299 citing Davie v. New Merton Board Mills Ltd [1956] 1 W.L.R. 233).    

34. The Plaintiff’s pleaded case is that the parties could not agree on Clause 11 and the Plaintiff did not execute the draft Purchase Order.  As I found that the Plaintiff did not execute the Purchase Order nor returned it to the Defendant, I find it highly probable that the reason was because of the disagreement on the terms of Clause 11.  On that basis the parties were not able to agree on the terms of the Purchase Order.  I find that the Purchase Order does not evidence the contract reached between the Plaintiff and the Defendant as regards Clause 11 of Appendix I of the Purchase Order.

The 3^rd Issue – Was there an Agreement between Mr. Murray Mok and PW1?

35. The PW1 of the Plaintiff stated in oral evidence that he had told Mr. Murray Mok that he did not agree to the effect of Clause 11 of Appendix I of the Purchase Order and he refused to sign the Purchase Order. For that reason he did not return the Purchase Order to the Defendant duly signed.  He said that Mr. Mok agreed to change the term so that he would be entitled to price fluctuations.  However this is at variance with his pleaded case in paragraph 7 of his Statement of Claim, which states that “the parties failed to agree on the allowance on price fluctuation on the labour and material costs”.

36. Paragraph 18/7/7 in Hong Kong Civil Procedure 2006 at page 299 states “if the plaintiff succeeds on findings of fact not pleaded by him, the judgment will not be allowed to stand, and on appeal the court will either dismiss the action (Rawding v. London Brick Co. (1971) 4 K.I.R.207) or in a proper case will if necessary order a new trial ( Lloyde v. West Midlands Gas Board [1971]1 W.L.R. 749).”

37. Hence, I cannot rule against the pleaded case of the Plaintiff and I therefore find in accordance with the pleaded case of the Plaintiff that there was no agreement between Mr. Murray Mok and the Plaintiff allowing the Plaintiff to be paid price fluctuations.  

The 4^th Issue – Whether an oral agreement existed as evidenced by the letters dated 16 March 1997 and 18^th August 1998?

38. The pleaded case of the Plaintiff is that on 14 March 1997, the Plaintiff and the Defendant had entered into an oral agreement, which is evidenced in the letter from the Plaintiff to the Defendant dated 16 March 1997 found in page 40 of BD2.  The contents of this letter refer to the formula for the contract sum for the sub-contract to be awarded to the Plaintiff which will be calculated on the basis of the percentage arrived at by dividing the sum specified in the Plaintiff’s tenders and agreed by the Defendant (referred to as “A”) and the contract sum agreed between the Defendant and HKHA less the provisional sum for contingencies and provisional sum for fluctuations in the cost of labour and material (referred to as “B”).  Paragraph (3) of the letter dated 16 March 1997 stated that the lump sum for “A” related to this contract as $4,351,142.00.  Paragraph (4) thereof states that this same “formula will be applied for the V.O. (meaning “Variation Orders”), further tenants and all other works to be carried out by the Plaintiff for” the contract in question.  

39. However, there is no reference to price fluctuations.  There is no clear statement that this same formula would be applied to price fluctuations.  

40. In evidence the Plaintiff referred to yet another oral agreement evidenced by his letter dated 18 August 1998.  However this oral agreement was not pleaded in his Statement of Claim.

41. The letter dated 18 August 1998 is at page 147 of BD-2.  It is written on the letterhead of the Defendant by the Plaintiff for it is not in dispute that the Plaintiff was authorized to use the letterhead of the Defendant in relation to this contract.  It appears to have referred to be the new contract between Plaintiff and the Defendant pursuant to a telephone conversation between PW1 and DW1.  It states that, “it has been agreed during the said conversation that,

“

; ; ; We would also confirm that as agreed, a discount of 14% on each contract unit rate (under the contract between Wormald and Housing Authority) will be used and applied for all future variations, tenants, fluctuations and all other works to be carried out by Maysun for the abovesaid Sub-contract”.

42. DW1 of the Defendant denies the receipt of this letter from the Plaintiff to the Defendant.  This letter appears to be an original copy and there is no explanation why it is an original copy.  The letter was signed by the signatory for the Plaintiff but the space for the Defendant’s execution was left blank.  There is no proof or supporting evidence that it has either been sent to the Defendant or faxed.  

43. As this oral agreement was not pleaded and appeared as part of the evidence, having regard to the rules of pleading referred to earlier, it should not be considered.

44. However as an issue of credibility of PW1, I will mention this that the fact that such an oral agreement was reached was entirely incredible as the Defendant and the Plaintiff had failed to agree on price fluctuations in May 1997 and again in 2 September 1998 the parties formally agreed that the Defendant would not be entitled to price fluctuations.  I find PW1’s evidence that such an agreement was reached to be wholly incredible and PW1’s credibility as a witness is very much in issue.  

45. I do not accept the authenticity of the letter dated 18 August 1998 nor that there was an oral agreement between the Plaintiff and the Defendant evidenced thereby that the Defendant would pay the Plaintiff price fluctuations. 

Is the Plaintiff Entitled to Price Fluctuations?

46. PW1 refers to evidence that the Defendant has made the 1^st payment to the Plaintiff on 23 September 1997 in the sum of $120,319.98.  The payment relates to the payment made by Daido to the Defendant in the sum of $140,400.00 and is at 85.698% thereof to the Plaintiff.  This payment price fluctuation included in the payment from Daido to the Defendant.  Again, on 11 November 1997, the Defendant made the second payment to the Plaintiff at HK$108,750.66.  This is equivalent to 85.698% of the Surveyor’s Certificate No. 12 at page 87 of BD2 and evidence of payment to the Plaintiff is at page 103 of BD2.  The payment includes the price fluctuation paid by Daido to the Defendant.  Thereafter the Defendant refused to make payments of price fluctuations to the Plaintiff, despite the Plaintiff’s contention that they were entitled to it.  It appears that the Plaintiff continued to apply for payment from the Defendant of sums, which included price fluctuations.  It is the Plaintiff’s case that the Supplemental Agreement at page 152 of BD2 point to the fact that there was an agreement between the Plaintiff and the Defendant that the Plaintiff would be entitled to price fluctuation as it states that the Purchase Order would remain in force with the exception that the Plaintiff would not be entitled to price fluctuations.  DW1 gave evidence of the reason why it was stated in the Supplemental Agreement  “it is agreed that your Purchase Order 7511 of the captioned will remain in force subject to two amendments.”  With the significant amendment being the statement that “Maysun Engineering Co. Ltd. (MECL) is not entitled to claim any price fluctuation in respect to labour and material”.  DW1 stated that the Plaintiff had asked for price fluctuations and the Defendant refused and therefore they set out this term in the Supplemental Agreement.  

47. In relation to the two payments of price fluctuation to the Plaintiff referred to earlier DW1 has an explanation.  He stated that the reason why the Plaintiff was paid the two price fluctuations referred to above was because the engineer who made calculations used the lazy method of calculation and omitted to notice that the Plaintiff should not have been granted any part of the price fluctuations.  

48. Despite the aforesaid arguments I find that in view of the pleaded case in paragraph 7 of the Statement of Claim which states, “Notwithstanding the draft Purchase Order, the parties failed to agree on the allowance on price fluctuation on the labour and material costs and the Plaintiff did not sign the Purchase Order as a result of such disagreement on price fluctuation,” the Plaintiff is not in a position to challenge its own pleaded case.  Further, all through his evidence PW1’s credibility is very much at issue with shifts and changes in his evidence.  I shall refer to this at a later stage.

49. That being the case, I find that the Plaintiff is bound by its pleading in the Statement of Claim which states that there was no agreement reached as at 15 May 1997 on price fluctuation.  Further, I find PW1’s credibility is very much at issue and I cannot accept his evidence at face value.  Because of that, the Plaintiff’s claim on price fluctuations must fail.  

Liquidated Damages and Contra-charges

50. It seems liquidated damages relate to 6 days of delay in completion of work by the Plaintiff.  Contra-charges mean charges for work that should be done in the contract but the Plaintiff did not do or was done by another.  Hanison charges for these and deducts these.  The Plaintiff’s claim on liquidated damages and contra-charges is clearly set out in paragraph 6 of the Supplemental Witness Statement of PW1 at page 62 of BD1.  These are deductions charged to the Plaintiff.  The Plaintiff claims that the Defendant should be responsible for a proportion of these at 14.302%.  The Defendant is paid 14.302% of the value of additional and variation work done by the Plaintiff.  PW1 gives evidence to state that the Defendant ought to pay 14.302% of these deductions.  He stated that after the completion of the contracted works there were various meetings between the Defendant and Hanison related to these.  He negotiated on behalf of the Defendant with Hanison on these and therefore attended meetings with Hanison where these were discussed.  He stated that Hanison was responsible for causing various delays to the Plaintiff and was partly responsible for the Plaintiff’s delays.  For the sake of simplicity and to avoid going into tedious details and discussions as to who was responsible for what item, it was agreed at the meeting, between the Defendant and Hanison that Hanison would pay one general lump sum to the Defendant which would cover unpaid variation orders and settle the disputed liquidated damages and contra-charges.  However he was told that Hanison needed to have sums allocated as liquidated damages and contra-charges for their accounts and therefore Hanison put down the sums for liquidated damages stated in the Defendant’s Final Account.  In relation to the sum of contra-charges charged by Hanison and stated in the Defendant’s Final Account, PW1 referred to contra-charges in the tables attached to the letters dated 8 October 2001 and 2 May 2002 at pages 248 –253 and 221 and 223 of BD2 respectively from Hanison to the Defendant.  PW1 stated that such items are in nature variation and additional works.  As such, it would be fair for the Defendant to bear 14.302% of these sums.  

51. As contra-charges in fact are charges for work that ought to be done and not done or are remedial work for defective work these may give the false appearance that they are additional items of work.  However, clearly, remedial work could not be in the nature of variation work or additional work.

52.  As can be seen by the tables in the letter from Hanison dated 8 October 2001 at page 182C which contains “Table A - Liquidated Damages” setting out the liquidated damages claimed and how it is calculated.  Here it states figures for debit and credit for deduction of liquidated damages.  This clearly shows how the debit of $179,340.00 is arrived at.  As regards contra-charges, Table B sets out the items of outstanding works and defective works with a column for debit and a column for credit.  It clearly sets out the items of outstanding or defective work some of which had been fully rectified or had been partially rectified.  The value of outstanding works is listed with the total sum comes to $137,572.44.  There is a clear statement of how the contra-charges were calculated.  In my view the items of charge for the work that needed to be done but not done or partially done are not in the nature of variation or additional works.  The evidence of PW1 that Hanison and the Defendant had arrived at a settlement to set off variation works against liquidated damages and contra-charges cannot be substantiated from these Tables. 

53. PW1 stated in evidence for the first time in the trial that Mr. Terry Sy of the Defendant when asked his view related to the amount of contra charges and liquidated damages charged by Hanison, stated that “the Defendant did not have a stance on these since the Defendant was only responsible for 14.302% of these sums”.  However the fact that Mr. Terry Sy said this was denied by DW1 who said that he raised this with Mr. Terry Sy who denied he said this.  The allegation of PW1 related to the statement of Mr. Terry Sy is a bare allegation and is not able to support this claim which must fail in the face of the evidence aforesaid and also the contractual provisions referred to hereunder.  

54. PW1 further stated that the Defendant was responsible to supervise the Plaintiff’s progress of work and should not be without responsibility.  This argument and all arguments in support of this claim must fail when considering the contractual provisions.  The Supplemental Agreement apply in relation to this claim.  Hence the Purchase Order and Appendix I thereof apply.  Clause 12 of Appendix I of the Purchase Order state that the Plaintiff is liable to pay late delivery charges at the rate as set out by the HKHA specification.  There is no allegation that the liquidated damages charged is not at the rate set out by the HKHA specification.  I therefore find there is no basis for the Plaintiff’s claim for liquidated damages.

55. Clause 14 of the Appendix I of the Purchase Order state that the Plaintiff is liable for rectification of all defects during the defect liability period.  Clause 15 of Appendix I, state that damage and loss of materials and equipment is solely the liability of the Plaintiff.

56. It is clear that the Plaintiff’s claim in respect of contra-charges must fail.

Additional Charge of $200,000.00

57. In the course of trial PW1 stated in evidence that the basis of this claim is Clause 11 where it refers to additional works which are not covered in the tender to the Defendant. 

58. The Plaintiff’s case is that the Plaintiff is entitled to the Additional Charge of HK$200,000.00 given to the Defendant under the Defendant’s contract with Hanison.  

59. In his witness statement, PW1 stated that when the Defendant resubmitted its tender to Hanison for the subcontract work on the site after the suspension of work, Danny Seto of the Defendant asked him whether there were additional costs for re-entry on site and PW1 informed Danny Seto that the additional costs would be $200,000.00.  He said this sum included the cost of removing equipment from the construction site during the suspension of work and again moving equipment back on the site.  When they started work they had to re-submit drawings and material and had to conduct some checks on the cables and the water pipes and conduits for the pipes and cables.  For this work they claimed this sum.  This sum was based on calculation of the number of day wages for workers to do the work.  He stated that the Plaintiff did the additional work.  Clause 11 of the Purchase Order on which this claim is based states,

“

For works which are not yet covered in this purchase order, the sub-contractor shall make arrangement with Wormald Engineer prior to execution of the relevant work.  No claim will be entertained unless prior written consent from Wormald.  For variation addition (additional amount) work, Wormald is entitled to 14.302% of the variation amount.”

60. DW1 denies that the Plaintiff had submitted this item of additional work at $200,000.00 to the Defendant.  DW1 stated that they filed their tender including this sum to Hanison via their letter dated 16 March 1998 to Faithful & Gould Limited.  The breakdown for this additional cost is stated in the letter which is at page 117 of BD2.  The Defendant added this sum because at the time they thought of subcontracting the contract to the Plaintiff but they could have other choices.  They thought as they were entering a new contract if they did not subcontract to the Plaintiff they would have additional costs.   

61. DW1 stated that the Plaintiff was awarded a lump sum contract in the Purchase Order and under Clause 11 they are not entitled to enter into variation additional work without prior written consent from the Defendant.  The Plaintiff had not obtained prior written consent.  Further, the Plaintiff had not filed claim for this additional cost with supporting documents for the actual additional work done.  DW1 stated that the Plaintiff sought this sum only when they found out that the Defendant was paid this sum by Hanison. 

62. Having heard evidence from both parties, I make my finding on the basis of the contractual provisions between the parties.  The terms of the Supplemental Agreement governs the contractual relationship between the Plaintiff and the Defendant.  At the time when the Supplemental Agreement was entered into on 2 September 1998, as evidenced by the letter of the same date at page 152 of BD2, this additional sum of $200,000.00 for additional work was not included in the Supplemental Agreement.  The Purchase Order clearly states that the contract between the Plaintiff and the Defendant is a lump sum contract.  

63. The Plaintiff had not complied with Clause 11 of the Purchase Order in obtaining prior written consent before the variation additional work.  Further, in relation to work done, the evidence adduced in the trial during the trial shows that it was the normal practice before payment was released to the Plaintiff that the Plaintiff had to submit application for the work done with supporting documents so that the value of work done could be assessed.  The evidence shows that the Plaintiff applied to the Defendant for payment at various stages for work done.  In relation to the additional cost of $200,000.00 claimed herein, the Plaintiff had not applied for payment with supporting documents.  The evidence of PW1 does not refer to an agreement by the Defendant to pay the Plaintiff the additional sum of $200,000.00 without the Plaintiff having to make application for this additional work with proof of the work done.  For all these reasons I find that there is no contractual basis for this claim.  

Credibility of PW1 Yung Chun Hung

64. In the aforesaid findings, I have only referred briefly to the credibility of PW1 being very much in issue.  I shall state further the basis of my coming to that conclusion.  PW1 stated in evidence and it was also pleaded in the Statement of Claim that the Defendant did not deliver copies of the Purchase Order to the Plaintiff but only faxed a draft copy of the Purchase Order to the Plaintiff.  DW1 gave evidence that each Purchase Order given to subcontractors by the Defendant comes in a set of 6 attached copies.  Each copy has a heading and these are, respectively, “Vendor”, “Copy”, “Contract”, “Store”, “Account”, & “Purchase”.  Each set of Purchase Order has a pre-printed Number.  It is therefore unlikely that the Purchase Order number 7511 referred to by the Plaintiff in its Statement of Claim could have been a draft because it has a pre-printed number.  He produced a set of Purchase Order in evidence marked Exh D1.  This set of Purchase Order clearly shows a pre-printed number.  He says that the “Vendor” and “Copy” duly executed by the Defendant, out of the set of 6 of the Purchase Order was given to the Plaintiff who came to collect it.  He denied that a draft copy was faxed to the Plaintiff.  The faint marks of signatures in the space for execution by the Defendant is seen in the photocopy of the Purchase Order being “Purchase” copy produced marked Exh D2.  It is highly unlikely that the Purchase Order was a draft Purchase Order.  Further, in the course of the trial in support of the Plaintiff’s claim for 14.302% of liquidated damages and contra-charges, PW1 referred to a conversation with Mr. Terry Sy where Mr. Terry Sy suggested that the Defendant would only have to pay 14.302% of such.  This new evidence was advanced to support his case.  However, this was wholly new evidence advanced less than one month before trial in his supplementary witness statement and was not referred to in his witness statement.  Again, in his oral evidence he stated contrary to the Plaintiff’s pleaded case that an oral agreement had been reached with Mr. Murray Mok that Clause 11 of the Purchase Order would not bind the Plaintiff.  This evidence is diametrically different from his pleaded case.  It is improbable that his pleaded case which must have been drafted and confirmed on instructions could be so different from his oral evidence.  Apart from this PW1 changed and shifted his evidence under cross-examination giving rise to questions about his credibility.  I come to the conclusion that PW1 is not a reliable witness. 

65. Having found aforesaid, I disallow this amount.

66. The Defendant admitted in its Defence that a sum of $214,278.51 is due to the Plaintiff in accordance with the Defendant’s Revised Final Account in Appendix A of the Statement of Claim.  I grant judgment for the Plaintiff in the sum of $214,278.51 together with interest thereon at judgment rate from the date when this became due on 24 December 2002 to the date of judgment and thereafter until payment at judgment rate.  Even though the Defendant had admitted this sum being due to the Plaintiff in the Defence, and had tendered a cheque to the Plaintiff by letter on 24 December 2002 for this sum, I do not know whether the Defendant had made payment into Court for this sum.  Payment into Court is a provision enacted by the District Court Rules to protect the Defendant’s position in relation to costs.  I make an order nisi for costs of the action to the Plaintiff to be taxed if not agreed with Certificate for Counsel.  The parties have 14 days to make application for variation of the costs order nisi so that full submissions could be heard on the issue of costs of the action.