W K CHANG v. WAI MAN ENGINEERING LTD

DCCJ 7882/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7882 OF 2002

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JUDGMENT

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1. In the present action, the Plaintiff claims against the Defendant for consultancy fees outstanding for services rendered in the sum of $243,095.

2. The Plaintiff is and was a chartered quantity surveyor with 40 years of construction industry experience. The Defendant is and was a construction contractor in underground drainage works.

Background

3. On or about 7th July 2001 the Incorporated Owners of Vista Panorama ("the Employer") through its agent Multiple Surveyors Ltd. ("MSL") awarded to the Defendant a contract for underground drainage works at Vista Panorama ("the contract"). Such work was to be carried out in compliance with the Building Department's order. The Defendant was handed over the site at 29th August 2001 at a contract price of $990,000 including a provisional sum of $486,190.

4. Due to the uncertainty of the condition of the underground drainage of the Vista Panorama at the time, the parties further agreed that the Defendant would perform a CCTV survey report and replace all underground drainage pipes at the $990,000 lump sum. On 22nd August 2001, the Employer through MSL amended by letter the date of commencement of work to 23rd August 2001.

5. The Defendant conducted detailed CCTV survey on 28th August 2001, this was completed on 4th September 2001. Based on the detail CCTV report, the Architect submitted its recommendation to the Building Department on 29th October 2001 for approval. Preliminary approval was obtained on or about 5th November 2001. Written instructions for such works were issued on 11th January 2002. It confirmed that all the existing underground rain-water drainage and soil and waste drainage were to be replaced by the Defendant.

6. According to Mr. Chan Kam Tin of the Defendant, the Defendant retained the Plaintiff as a consultant for the said contract in or about August 2001 at a flat fee of $3,500 per month. The Defendant duly engaged and paid for the Plaintiff's services for a period of 9 months paying him a total sum of $31,500.

7. On the other hand, according to the evidence of Mr. Chang Woon Kay, the Plaintiff, he supplied services to the Defendant between 19th December 2001 and 18th June 2002 during which time he was paid $3,500 per month.

8. It is not disputed that Mr. Chang and Mr. K.T. Chan, director of the Defendant, at their meeting on 7th February 2002 went through the said contract and subsequent contract documents and discovered that the MSL letter of 22nd August 2001 referred to the tender sum accepted to be "HK$990,000 including a provisional sum of HK$486,190". Mr. Chan became concerned and when Mr. Chang offered to pursue the matter on his behalf, Mr. Chan agreed.

9. The issue in dispute is what was the agreement reached on 7th and 20th February. Was it for Mr. Chang to help the Defendant to obtain a further payment of $486,190 or was it to avoid a deduction of the $486,190 from the tender sum of $990,000 for the work done?

10. It is the Plaintiff Mr. Chang's claim that Mr. Chan agreed to split the $486,190 with him should he 'make sure' that MSL would not deduct the provisional sum of $486,190 from the contract sum, and if it should be deducted from the contract sum he would help him to get the money back.

11. On the other hand, it was Mr. Chan's understanding that Mr. Chang would pursue against the Employer and the Architect through MSL for payment of the 'provisional sum' of HK$486,190 to the Defendant in addition to the tender sum of $990,000. Should Mr. Chang succeed in doing so, the Defendant would split the $486,190 so obtained with Mr. Chang equally.

12. The Plaintiff claims that as the provisional sum of $486,190 was not deducted from the tender sum of $990,000, he is entitled be paid half of the $486,190.

The Issues

13. The issues are:

A.	What was the contract between the Employer and the Defendant?
B.	What was the agreement between the Employer and the Defendant regarding the provisional sum of $486,190?
C.	What were in the minds of the Plaintiff and Mr. Chan when they reached the 7th and 20th February agreement (the 2nd agreement)?
D.	Is the 2nd agreement between the Plaintiff and the Defendant enforceable?

A. What was the contract between the Employer and the Defendant?

14. The Defendant delivered a tender for the underground drainage work on 1st March 2001 enclosing a breakdown of the tender price. According to Mr. Wong Wai Kit, a director of Multiple Surveyors Ltd. ("MSL"), giving evidence for the Defence, the final contract sum agreed on the said contract was $990,000 with no further measurements. This was reached upon discussions with the Incorporated Owners of Vista Panorama ("the Employer"). He agreed that at the initial stage, the 7th July 2001 letter of award (P.135 of the bundle) did specify the tender sum accepted was '$990,000 including a provisional sum of $486,190'. This letter of award was cancelled subsequently due to further instructions from the Employer and the Defendant was notified of the cancellation by the MSL letter of 11th July 2001 (P.139 of the bundle). Following oral negotiations with the Defendant and upon the Defendant's reply to MSL's queries on 13th July 2001 (P.140). Mr. Wong wrote to the Defendant setting out the items for clarification and confirmation on the Defendant's tender and requested the Defendant to reply on the same day (P.141). By a letter of the same date, the Defendant confirmed the items requested by MSL (P.142).

15. On 31st July 2001, MSL requested the Defendant to re-confirm its final tender sum under seal to the Incorporated Owners of Vista Panorama ("the Employer") on or before 12 noon of 1st August 2001. Mr. Wong claimed that this was at the request of the Employer (P.144). On 1st August 2001, the Defendant duly delivered a letter reconfirming the tender sum of $990,000.

16. Mr. Wong, under cross-examination, insisted that the parties had reached an agreement for the work on 17th July 2001. Further, the contract sum was for a price of $990,000 without measurements. The only reason a re-confirmation letter had to be delivered to the Employer under seal was because the Employer had requested it.

17. Mr. Wong further confirmed that, in fact, the agreement reached was oral at the time and the tentative commencement date of work was 16th July 2001 and the agreed lump sum contract price was $990,000. He claimed that the MSL letter date 22nd August 2001 was written to record the amended contract commencement date from 23rd August 2001 to 29th August 2001 (P.146-147). He admitted that the 22nd August 2001 letter (P. 146) was written by an assistant surveyor assisting him who had copied from the 7th July 2001 letter but had wrongly retained in the last sentence of the first paragraph of the earlier letter the words "including a provisional sum of HK$486,190." He alleged that this phrase should have been deleted; at the time, he thought it had been deleted when he signed it.

18. The evidence of Mr. K.T. Chan was that he had confirmed with Mr. Wong orally upon receipt of the 16th July 2001 letter from MSC if they had been given the contract, and he had an oral confirmation that the Defendant had a contract with the Employer.

19. Based on the evidence of Mr. Chan and MSL's Mr. Wong who is not an interested party in these proceedings, it is clear, as far as the Employer, MSL and the Defendant were concerned the contract was a lump sum contract including the replacement of all underground drains at a lump sum price of $990,000.

B. What was the agreement between the Employer and the Defendant regarding the provisional sum of $486,190?

20. According to the evidence of Mr. Wilfred Wong, in the initial agreement of 7th July 2001, the contract sum was to be $990,000 which included a provisional sum of HK$486,190. The provisional sum had represented the fee charged for items under No. 2.02 of the tender i.e. replacement of whatever drainage pipes the CCTV survey might be necessary. However, after studying the initial CCTV survey report and found over 70% of the underground pipes required replacement, he concluded that to avoid further replacements in the near future, all the underground pipes should be replaced. Consequently, he notified the Defendant of his conclusion and specifically informed the Defendant that a fixed sum of $990,000 would be paid including complete replacement of all underground drainage system. On 16th July 2001 the agreement was executed.

21. It is Mr. Wong's evidence that under the 16th July agreement, there would be no provisional items to be performed for all the work contained in the tender would be completed at the lump sum price of $990,000 under the contract. For the same reason, there was no deduction of the contract lump sum of $990,000. It follows that there would be no provisional sum payable.

22. Mr. Wong further said that the circumstances of this job had overridden the provisions in the contract. It is also common practice for the terms of payment to be amended in his experience. On the basis of Mr. Wong's evidence, I am satisfied that the contract awarded to the Defendant by MSL and the Employer was a lump sum contract with no provisional sum payable.

C. What were in the minds of the Plaintiff and Mr. Chan when they reached the 7th and the 20th February 2002 agreement ( the 2nd agreement)?

23. Mr. Chan admitted his English was not proficient. However, from his dealings with MSL, based on the oral confirmation from MSL, he understood the contract was a lump sum contract of $990,000. He was not concerned about the MSL letters until after he retained the Plaintiff's services. He admitted that he had shown the Plaintiff the 16th July 2001 and 31st July 2001 letters and it was the Plaintiff who drafted the 1st August 2001 letter for him to sign. He admitted that he met the Plaintiff over lunch on 1st August 2001 and he requested Mr. Chang to draft the 1st August 2001 letter on his behalf. He further admitted that at that stage he was consulting the Plaintiff whom he knew professionally for many years and had engaged his services paying him a fee of $1,000 per hour. Later, when told by the Plaintiff that the said contract was complicated requiring constant attention, he agreed to retain the Plaintiff at a flat fee of $3,500 per month.

24. Mr. Chan was extensively cross-examined on the type-face of the 1st August 2001 letter and other letters drafted by Mr. Chang. Mr. Chan insisted that the 1st August 2001 letter was typed by Mr. Chang's secretary and that the Defendant had no facilities for typing letters in English whatsoever. Furthermore, by then he thought he had to consult Mr. Chang over this contract because of Mr. Chang's expertise in the construction industry and knowledge of the English language.

25. At the early February 2002 Chinese New Year meeting, Mr. Chang had gone through the contract documents and correspondence with Mr. Chan and they came across the 22nd August 2001 letter. Mr. Chan claimed that he noticed for the first time the retention of the remark 'including a provision sum of $486,190' in the last sentence of the first paragraph after the words 'the tender sum accepted is $990,000'. He told Mr. Chang that since the work being carried out was to be in accordance with the 16th July 2001 agreement, there should be no provisional sum. Mr. Chang then proposed to him that he would pursue against the Employer and the Architect for payment of the provisional sum of $484,190 for the Defendant. In Mr. Chan's understanding of the contract, the contract was a lump sum contract and no further sum would be payable, but Mr. Chang had assured him that he would use his expertise to demand a further payment of $486,190 over and above the contract sum of $990,000. Under those circumstances, Mr. Chan agreed that should Mr. Chang succeed in obtaining a further sum of $484,190 from the Employer and the Architect, the Defendant would pay him half of the extra payment.

26. It was Mr. Chan's evidence that he agreed to Mr. Chang's proposal because he believed Mr. Chang would obtain the extra sum of $486,190 using his expertise, and that the Defendant would not be required to perform any further work on the contract. Since the profit margin of the Defendant on the contract was under 5%, the offer of Mr. Chang to obtain further payment was obviously attractive.

27. On the other hand, it was the evidence of Mr. Chang that the Defendant engaged his services at the end of 2001 to draft correspondence, translate English documents and prepare applications for payments. He claimed that this service was performed between 19th December 2001 and 18th June 2002, he was paid $3,500 per month for those 6 months ("the 1st agreement").

28. Mr. Chang claimed that Mr. Chan had expressed to him at the 7th and 20th February 2002 meetings his concern over an apparent duplication between the scope of work under the contract sum and the provisional sum of $486,190 under the contract. He said Mr. Chan was nervous about a real possibility of a deduction from the contract sum for the value of the duplicated work. In the contract documents, there was a reference to possible deduction of contract price after re-measurement. He then told Mr. Chan that he would make sure MSL did not deduct the $486,190 and would help him to get it back if MSL deducted it from the contract sum. It was Mr. Chang's claim that Mr. Chan agreed to split the $486,190 with him equally if there was no deduction in the end. Mr. Chang also claimed that by 20th February when the agreement was signed ("the 2nd agreement"), the 28th January 2002 deadline for completion had already expired and it was likely that the penalty of $10,000 liquidated damages may be imposed by MSL.

29. In pursuance to the 1st and 2nd agreements, Mr. Chang claimed he performed various services for the Defendant. These included attending conferences with Mr. Chan, drafting correspondence, translating English documents, preparing applications for payments and preparing applications for extension of time and site inspections.

30. He claimed that he attended a mediation meeting on or about 20th February 2002 in relation to the progress of work to be done by the Defendant under the contract and he assisted the Defendant to mediate with MSL in relation to the Defendant's application for payment and extension of time. He also drafted a number of letters on or about 21st February 2002 to answer the queries raised by MSL at the 20th February 2002 meeting.

31. It is not disputed that the Defendant was paid the $990,000 for the work done under the contract certified by a payment certificate dated 11th October 2002 and no further sums were paid under the contract.

32. From the evidence of Mr. Chang and Mr. Chan, they obviously had something completely different in mind when they reached the oral agreement on 7th February 2002 and when the 20th February 2002 agreement was signed. The document was drafted by Mr. Chang in English and given to Mr. Chan to sign.

33. According to the evidence, Mr. Chan thought Mr. Chang was going to obtain from the Employer an extra $486,190 while Mr. Chang thought he would stop the Employer from deducting $486,190 or any part of it from the lump sum price of $990,000.

34. The 20th February 2002 letter reads as follows:-

"Dear Mr. Chang,

Underground Drainage Works at Vista Panorama

If the provisional sum of $486,190.00 is paid to us in full or in part by the Employer, a success fee of 50% on the amount paid will be paid to you."

35. The document apparently supported Mr. Chan's evidence that the provisional sum of $486,190 mentioned in the letter seemed to suggest an extra payment would be claimed rather than it being a part of the contract sum of $990,000. Nothing about the deduction of this sum from the lump sum contract price of $990,000 was referred to in the document. This was the cause of the ambiguity of the 2nd agreement.

36. Furthermore, during the same period of time, there was already in existence the 1st agreement under which the Defendant agreed to pay Mr. Chang a monthly fee of $3,500 to draft letters, attend meetings with the MSL, prepare payment applications etc. it is unlikely the Defendant would agree to pay Mr. Chang half of the $486,190 provisional sum for supplying the same services.

37. According to the evidence of Mr. Wong, he met Mr. Chang on one occasion only and it was in late January 2002. The issue discussed was extension of completion date due to delay caused by rain and interim payment of fees. Mr. Wong claimed that they did not discuss any provisional sum or work at that meeting or at any time. He noticed and was given the impression at that meeting that Mr. Chang was not familiar with the scope of work under the contract at all. Mr. Wong further claimed that he had not engaged in any oral or written exchanges with Mr. Chang at any time other than that meeting.

38. The evidence adduced by the Defence clearly supported Mr. Chan's understanding of the 2nd agreement which was that Mr. Chang would pursue payment of an extra $486,190 over and above the lump sum contract price of $990,000 rather than the recovery or avoidance of deduction of the said contract sum.

39. On a balance of probability, the meeting Mr. Chang attended with Mr. Chan would most likely be in late January 2002, because the completion date under the contract was to be 28th January 2002. It is likely that Mr. Chang had accompanied Mr. Chan to meet with Mr. Wong to discuss the extension of time due to delay in completion before the completion deadline on 28th January 2002 or soon after the deadline rather than in late February. It is evident that the matters discussed were part of Mr. Chang's services under the 1st agreement. If Mr. Chang had agreed to supply the same services under the 2nd agreement as the 1st agreement, the 2nd agreement would have superseded the 1st agreement. However, that is not Mr. Chang's case, he claimed that he was supplying services under both the 1st and 2nd agreements after 20th February 2002, and he was paid $3,500 per month up to 18th June 2002 under the 1st agreement.

40. If Mr. Chang was performing the same services applying for payments and attending meetings with Mr. Chan under both agreements, even if the 2nd agreement did not supersede the 1st agreement and both agreements were being performed at the same time, the 2nd agreement would not be supported by any consideration from Mr. Chang at all. For, according to Mr. Chan and Mr. Wong, Mr. Chang did nothing positive in ensuring that the Defendant would be paid the provisional sum of $486,190 or any part of it. Neither were there any evidence showing Mr. Cheung had done anything over and above what he was required to do under the 1st agreement to apply for payments under the contract on the Defendant's behalf. According to Mr. Wong, he met Mr. Chang on one occasion only over this job and it took place in January 2002 well before the date of the 2nd agreement.

41. Even if the evidence of Mr. Chang is true and his recollection of the agreement is correct, his understanding of the basis of the 2nd agreement was obviously completely different from Mr. Chan's understanding of it. The parties were at cross-purposes and not ad idem.

D. Is the 2nd agreement between the Plaintiff and the Plaintiff enforceable?

42. Chitty on Contract, 29th ed. vol. 1, paragraph 5-060 states:-

"Parties at cross-purposes. In most cases the application of the objective test will preclude a party who has entered into a contract under a mistake from setting up his mistake as a defence to an action against him for breach of contract. If a reasonable man would have understood the contract in a certain sense, then, despite his mistake, the court will hold that the mistaken party is bound. But where parties are genuinely at cross-purposes as to the subject-matter of the contract and the terms of the offer and acceptance are so ambiguous that it is not possible to point to one or other of the interpretations as the more probable, the court must necessarily hold that no contract exists."

43. Based on the evidence of Mr. Chang and Mr. Chan, it is clear the parties were at cross purposes as to the subject matter of the agreement, it follows that the 2nd agreement is void ab initio. It is of no effect and unenforceable because the parties had something completely different in mind when they entered into the agreement. Since their understanding of the 2nd agreement was completely at cross purposes, the agreement is not capable of being enforced.

44. The Plaintiff's claim is therefore dismissed. Costs to the Defendant to be taxed if not agree with certificate to Counsel.