GREATWORTH INDUSTRIAL LTD v. CHEVALIER (CONSTRUCTION) CO LTD

cacv 36/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 36 of 2006

(on appeal from HCA NO. 41 of 2002)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal by the plaintiff from the order of deputy High Court Judge Muttrie dated 22 December 2005.  The plaintiff's claim was for the price of $30,500 for the supply of five sample gates and damages for loss of profit in the sum of approximately $2.4 million in respect of 635 gates following the cancellation of the order for the supply and installation of 640 gates.  The judge allowed the claim for $30,500 and awarded nominal damages of $100 for the loss of profit claim.  At the conclusion of the appeal hearing, the appeal was dismissed with written reasons to be handed down later which we now do.

Background

3.  The defendant was the main contractor for the construction of two housing blocks, each containing 320 domestic flats, for the Housing Authority.  On 26 July 1999, it entered into a subcontract with the plaintiff for the supply and installation of 640 stainless steel gates which the Housing Authority had originally wanted fitted at the entrances of the flats.  The tender which led to the subcontract was issued in March 1999.

4.  In early September, the defendant was advised by the contract manager that the Housing Authority was proposing amendments to the standard of fittings in the blocks and that those amendments included the deletion of the gates.  On 10 December 1999, the defendant was instructed to delete the gates by the contract manager.  This was passed on to the plaintiff, who, on the same day, wrote to the defendant advising that it would incur heavy losses if the subcontract were to be cancelled and that it intended to recover the same from the defendant.

5.  In January 2000, the plaintiff entered into a contract with another contractor, Main Kind Industrial Ltd ("Main Kind"), to supply 1280 sets of stainless steel swing gates to be delivered in batches before 15 May 2000.  Production commenced on 21 February 2000.  The judge found that by this time the plaintiff was capable of its own mass production or production from raw material to the semi-fabricated state.  The plaintiff's evidence, which the judge accepted, was that it took the plaintiff seven months from 21 February to 21 September 2000 to fabricate the 1280 gates for Main Kind, "working to a very tight schedule", that it had to build up a skilled labour force to do that work and that it could not have gone out and hired more workers.

6.  It was accepted by the defendant that for delivery of the gates under the subcontract, it would have taken the plaintiff a period of two months prior to delivery to fabricate the gates.

7.  On the question whether the plaintiff could have made the profit it claimed to have lost through the defendant's repudiation of the contract, the judge held that the plaintiff was only entitled to nominal damages.  He did so on the basis that the plaintiff's evidence that it could have performed the subcontract as well as the contract with Main Kind was not credible.

This appeal

8.  Mr Scott SC who appeared for the plaintiff submitted that the judge was wrong about the plaintiff's performance/delivery obligations under the subcontract when he said this in paragraph 70 of the judgment:

"If called upon in June 2000 to make the gates, it could not have done so, because it was engaged in making gates for Main Kind."

Clause 6C and D of the Form of Tender provided as follows:

"	C.	Commencement Date:	([the defendant] shall give [the plaintiff]  3 -day prior notice).
	D.	Completion Date:	(complete the works in accordance with the instructions of [the defendant] block by block, section by section and stage by stage to keep up with the progress of [the defendant's] Main Contract Works.)"

Mr Scott submitted that there was therefore no fixed completion schedule and that the installation of the gates would ordinarily come at the end of the construction works.  As the evidence of the defendant's witness Chan Chuen-sun was that the project should be completed in early February 2001, it was said that the plaintiff would have been able to perform the subcontract in as much as it would not have been called upon to install the gates till well after the Main Kind contract had been performed.

9.  It should be noted that the judge was merely recording the defendant's submissions in paragraph 70 of the judgment.  Whilst the judge appeared to consider those submissions to be reasonable enough, he went on in paragraph 71 to remind himself of the principle established by In re Vic Mill Ltd [1913] 1 Ch 465 which he stated in these terms: where a contract for the supply or supply and installation of goods is breached, but the supplier later succeeds in supplying the goods to someone else at the similar profit, it cannot simply be assumed that the second contract is in substitution of the first.  There must be evidence that the supplier could not have performed both contracts.  Mr Scott did not quarrel with that formulation.

10.  As regards the plaintiff's performance obligations under the subcontract, it is relevant to note that the subcontract which was entered into on 26 July 1999, whilst incorporating what was in the Form of Tender, also contained additional specific provisions in respect of the commencement date and completion date:

"	Commencement Date:	in or about June 2000 ([the defendant] shall give [the plaintiff] notice three days in advance)
	Completion Date:	As per the date specified by the person in charge of the site ([the plaintiff] shall also keep up with the progress of Main Contract Works of [the defendant] and the future actual arrangement at site shall follow the instructions of [the defendant] to complete the works block by block, section by section and stage by stage)"

Under the subcontract, the defendant was plainly entitled to call upon the plaintiff to commence to perform its obligations under the subcontract on a date no earlier than June 2000 on giving the plaintiff three days' prior notice.  Assuming in the plaintiff's favour that the plaintiff would have been entitled under the subcontract to a reasonable time for installation, it was put to and agreed by the defendant's witness in cross-examination that in practice there would have been a team of people carrying out the installation and "it would be done probably in a month at the most".  Therefore even allowing a reasonable time for installation, the defendant could legitimately have specified a date as early as July 2000.  Mr Scott's submission relating to the plaintiff's performance obligations was premised on the terms of the tender only and disregarded the clear express terms of the subcontract.  That being the case, it must be rejected.

11.  As noted above, the judge considered the plaintiff's evidence that it could have performed both contracts not to be credible.  His reasons were set out in paragraphs 75 and 76 of the judgment:

"	75.	There is, however, a basic inconsistency in Mr Yau's own evidence as it appears in his second supplemental witness statement, adopted as evidence-in-chief, that it took seven months from 21 February to 21 September 2000 to fabricate the 1,280 gates for Main Kind, working to a very tight schedule.  If that is right, any extra work would have needed extra workers, and maybe extra plant and machinery as well.  Given that, on Mr Yau's evidence, he had to build up a skilled labour force to do this work, he could not simply have gone out and hired more workers.
	76.	It is not enough simply to say that because Mr Yau says Greatworth could have performed both contracts, that is an end of the matter.  What he says has to be credible.  Because of the inconsistency, it is not credible.  I do not believe, therefore, that Greatworth could have performed this sub-contract with Chevalier if called on to do so."

Given the plaintiff's evidence and its performance obligations under the subcontract, the judge's analysis and conclusion are plainly sustainable.

12.  Mr Scott also sought to rely on the letter dated 12 May 2000 from the plaintiff to the defendant, stating that the plaintiff was "well prepared to stream (sic) ahead with the full scale operation".  I do not see that the letter assists Mr Scott.  Whilst under the Main Kind contract the plaintiff was scheduled to complete delivery of the 1280 gates by 15 May 2000, it was not even at the halfway mark in terms of the time it eventually took the plaintiff to fabricate the Main Kind gates.  It follows that at the time the letter was written, the plaintiff was in no position to take on any additional work.

Hon Burrell J:

13.  I agree.