MA CHI HUNG v. YIU HIN MING t/a WAI HING STEEL IRON ENGINEERING CO.

HCA 1587/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1587 OF 1998

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J U D G M E N T

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Sorting out documents bundle and identifying issues

1. Contract Number 31/HY/93 ("the Main Contract") was a contract made between the Government and Sun Fook Kong (Civil) Limited ("the Main Contractor") to carry out certain maintenance works of highways in Kowloon. Quadrant Engineering (H.K.) Limited ("Quadrant") was the Main Contractor's sub-contractor. The defendant was Quadrant's sub-contractor and the plaintiff was the defendant's sub-contractor.

2. When the Writ was issued on 3 February 1998, the plaintiff had the benefit of being represented by Mr S. H. Kwok instructed by Messrs Lo Chan & Leung. The plaintiff pleaded an oral agreement "evidenced in writing" with the following express terms:-

"4.1 the Plaintiff was to carry out work orders received by the Defendant from the Defendant's principal contractor,

4.2 the Plaintiff was to provide and pay for workers and vehicles;

4.3 the Defendant was to provide materials or advance funds to the Plaintiff for him to purchase materials for the work orders; and

4.4 the Defendant was to pay to the Plaintiff 70% of the amount that the Defendant received from his principal contractor under the work orders after deduction of the amount for costs of materials provided to the Plaintiff or funds advanced to the Plaintiff for the purchase of materials."

3. The plaintiff claimed $431,253.30 made up as follows:-

"6.1 Underpayment of the Plaintiff's 70% share under Statement of Subcontractor Payment dated 12 September 1994:	$288,973.30
6.2 Erroneous deduction for materials costs from Yau San Galvanizers (Hot-Dip) Company Limited:	$124,740.00
6.3 Non-refund for returned materials:	$5,000.00
6.4 Erroneous deduction for materials costs from Quadrant Engineering (H.K.) Ltd.:	$12,540.00"

4. Messrs Y. C. Lee, Pang & Kwok filed and served the defendant's Amended Defence and Counterclaim. Instead of retyping the whole pleading and deleting or underlining the amendments in red in accordance with Practice Direction 19.1 on Pleadings, Messrs. Y. C. Lee, Pang & Kwok simply worked on a photocopy of the original Defence and Counterclaim with insertions and deletions all over the pages. The original page 2 was renumbered page 4 with more inserted than original words.

5. The defence case is that Quadrant would pay the defendant 79% of the price under the Main Contract which would be inclusive of materials and equipment and penalty charges imposed by the Government in case of delay in completion of the work orders in respect of the metal works. The oral agreement between the plaintiff and the defendant was "on conditions" that the plaintiff should be responsible to pay for the price of the materials and equipment required for the metal works and the penalty charges" imposed by the Government. The plaintiff would receive 70% of the price under the Main Contract, not 70% of what Quadrant paid the defendant.

6. The second Paragraph 5 of the Amended Defence and Counterclaim particularised various payments made, materials provided, and penalty charges totalling $2,445,998.37. By Paragraph 6, the defendant acknowledged that the plaintiff was entitled to $2,265,893.28. The defendant counterclaimed the difference between these two sums, i.e. $180,105.09. Paragraphs 5 and 6 read as follows:-

"5. Pursuant to the said oral agreement, the Defendant had provided materials, settled relevant bills and penalty charges for the Plaintiff as particularised below :

PARTICULARS

	Items	Amounts (HK$)
1)	Work materials supplied by Defendant to the Plaintiff	102,116.00
1a)	money lent to the Plaintiff by the Defendant on 27/4/1995 for payment of meals	6,500.00
2)	Purchase of a truck	23,000.00
3)	Wan Kee Transportation	5,210.00
4)	Tak Cheung Transportation	2,200.00
5)	Yau Sang (Liquid Metal) Factory	197,367.00
6)	Agreed repairing costs of a truck	14,500.00
7)	Payment to Plaintiff for works done	1,162,000.00
8)	Penalty charges for late completion	233,794.37
9)	Purchase of Work materials on behalf of the Plaintiff by Quadrant	699,311.00
	Total: HK$2,445,998.37
	==========

6. Amount payable to Plaintiff pursuant to the said oral agreement is as particularised below :

PARTICULARS

	Items	Amounts (HK$)
1)	Payment for Works from Phase 1 - Phase 3 (being 70% of the price under the said Contract)	2,180,813.33
2)	Net payment for work orders D017907-9 and D021045-1	80,079.95
3)	Returned materials	5,000.00
	Total : HK$2,265,893.28"
	===========

7. By his Amended Reply and Defence to Counterclaim dated 6 August 1998 prepared by Mr S.H. Kwok on the instructions of Messrs Lo, Chan & Leung, the plaintiff asserted by paragraph 3.2(b) that the defendant and Quadrant "were responsible for the payment for the costs of materials". In reply to the defendant's assertion that the oral agreement contained a term that "in case of late completion on the part of the Plaintiff, the Plaintiff shall (sic) should bear the penalty charges imposed by the Hong Kong Government", the plaintiff specifically denied by paragraph 3.3 "that in case of late completion the Plaintiff shall bear the penalty as required. The Defendant is put to strict proof thereof".

8. By his Witness Statement dated 25 October 1999, the plaintiff said the following in respect of his 70% entitlement and on penalty:-

"8. In late March 1994, in his mobile office it was agreed between us that when he received Government figures we would have deduction of the costs for materials first and the balance would be distributed among us as follows ('the balance'):- I was entitled to 70% of the balance ('my entitlement') and the Defendant was entitled to 30% of the balance ...

37. The Defendant got a very high percentage of the Government figure without any risk of non payment. That's not the practice in the trade until and unless he born the late penalty."

9. The plaintiff stated in paragraph 32 of his Witness Statement that he was then claiming the sum of $560,423.64. Needless to say, this exceeded the amount of $431,253.30 claimed in the Statement of Claim. The plaintiff's solicitors stated in the plaintiff's checklist that counsel's advice on evidence had been obtained and that the plaintiff's solicitors were satisfied that no amendment of the pleadings was required.

10. Under Practice Direction 5.6 on Documents for use at trial, it is the responsibility of the plaintiff's solicitors to propose what documents should go in the agreed bundle in adequate time for the defendants to consider the proposal. Failing timely agreement, the plaintiff's solicitors should proceed to prepare the bundle and additional documents can be inserted as required. Bundles must not include documents which are unlikely to be referred to at the trial. Documents should be arranged in chronological order from the front.

11. What was placed before me at the beginning of the trial was a "Bundle of the Plaintiff's Documents" ("the plaintiff's bundle"). There are 280 pages in this bundle. The documents did not appear to be arranged in any particular order. The original index was quite useless and I could neither locate the Statement of Subcontractor Payment dated 12 September 1994 referred to in paragraph 6.1 of the Statement of Claim nor the documents referred to in the defendant's Witness Statement. I would estimate that no more than about 10 per cent of the documents in this bundle had been referred to at the trial.

12. I asked Mr Albert Yau, counsel for the plaintiff, who was not instructed until the previous day about the defendant's documents. A "Bundle of the Defendant (sic) Document" ("the defendant's bundle") was subsequently placed before me.

13. On the first day of trial, Mr Yau sought and obtained leave to amend the Statement of Claim to amend the sum claimed to $560,423.64 and to amend paragraph 4.4 to read as follows:-

"The Defendant was to pay to the Plaintiff 70% of the net amount which represented the difference between the amount received by the Defendant from his principal contractor and the costs of material disbursed by the Defendant as per para. 4.3 above."

14. The plaintiff's case was that the costs of materials would be deducted from the sum received by the defendant from Quadrant and he was entitled to 70% of the balance after such deduction. It was 70% of Quadrant's payment to the defendant, not 70% of the contract price under the Main Contract. Costs of materials were to be deducted before splitting 70 : 30. In other words, he was liable for 70%, not 100%, of the costs of materials. Mr Yau told me in his opening that in January 1995, the defendant departed from his oral agreement, the plaintiff protested and made his position clear.

15. Page 8 of the defendant's bundle is a document which is not in the plaintiff's bundle. It is dated 24 December 1994 and was signed by the plaintiff. The upper half is a table comprising 5 columns and 6 rows. The first column sets out the number of stages from 1 to 6. The second column sets out the Government sums or figures "政 府 數". The third column sets out the actual sums or figures "實 數" which in fact equals 70% of the second column. The fourth column is 80% of the third column and the fifth column is 20% (as retention money upon which there is no issue) of the third column. Immediately below the table, the total Government sum or figure is stated in the document to be 998,775.88 and the sum after deduction of 30% is stated in the document to be 699,143.11. This is followed by 4 items, the first being payment of $517,000, the second being deduction of amount of materials in the sum of $370,464, the third being disbursements as stated in statement "P5" in the total sum $79,280, and the fourth being disbursements as stated in statement "P6" in the total sum of $187,456. The total of these 4 items is stated to be 1,154,200. The document concludes with the statement that the plaintiff overdrew 455,056.90 ($1,154,200 - $699,143.11 = $455,056.89).

16. In the course of Mr Yau's opening in the second day of trial on 15 June 2000, I drew his attention to the above document and asked him to tell me after taking instructions from the plaintiff whether the plaintiff still wished to proceed with his claim.

17. When the hearing resumed, Mr Yau said that his client would not be proceeding on the basis of the case as stated in paragraph 4.4 of the Amended Statement of Claim but was nevertheless proceeding against the defendant. I insisted that the plaintiff's case must be formulated in writing in his pleadings.

18. On 16 June 2000, I granted leave to the plaintiff to re-amend the Statement of Claim and to re-amend the Reply and Defence to Counterclaim. I ordered that as between the plaintiff and the defendant, costs of, occasioned and thrown away by the amendments, including the costs of 15 June 2000 and of 16 June 2000 up to 12:30 p.m. be the defendant's in any event and that other wasted costs, if any, be reserved until the conclusion of the trial.

The issues

19. The effect of the plaintiff's Re-Amended Statement of Claim and Re-Amended Reply and Defence to Counterclaim is that the plaintiff accepted the defendant's case as pleaded in paragraphs 5 (subject to 3 exceptions) and 6 (subject to the addition of 2 further items) of the defendant's Amended Defence and Counterclaim.

20. The first is that instead of having been paid $1,162,000, the defendant had only been paid $1,127,000, the difference being $35,000. The second is that the whole item of penalty charges for late completion in the sum of $233,794.37 is disputed. The third is that the amount of materials purchased by Quadrant on behalf of the plaintiff should be $684,571, not $699,311.00, the difference being $14,740. The fourth item (or the first additional item to paragraph 6) is that the plaintiff should receive a refund of the deposit for the oxy-acetylene apparatus in the sum of $10,800. The fifth (or the second additional item to paragraph 6) is that the plaintiff should be paid the cost of lamp in the sum of $1,669.00.

21. The total amount claimed by the plaintiff is $115,898.28. This is within the jurisdiction of the District Court.

22. In the course of the plaintiff's evidence in chief, the defendant who appeared in person indicated that he accepted the third item in the sum of $14,740, the fourth item in the sum of $10,800, and the fifth item in the sum of $1,669. He stated that the total payment to the plaintiff was $1,137,000 which meant that the difference the parties on this item is $10,000.

23. This meant that there were only 2 items in dispute - a $10,000 dispute on the amount paid by the defendant to the plaintiff and a dispute of whether the plaintiff is liable for what the parties referred to as "penalty" in the sum of $233,794.37.

The $10,000 dispute

24. On this item, the defendant relied on the plaintiff's signature p. 18 of the defendant's bundle acknowledging "advance payment" of $10,000 on 10 April 1996. The plaintiff claimed that the cheque for $10,000 had been returned. This was denied by the defendant. There is no receipt signed by the defendant acknowledging the return, whether on p. 18 or on another piece of paper. Moreover, p. 18 contained the plaintiff's acknowledgment of receipt of $30,000 on 5 May 1996. I reject the plaintiff's assertion and find in favour of the defendant on this $10,000 item.

"Penalty" in the sum of $233,794.37

25. In his evidence in chief, the plaintiff testified that when project fee was paid, costs of materials would be deducted and then 70% would be for him to do the work and 30% would be withheld. He said there was no discussion on what would happen if he was late and claimed that even up to the time when he was giving evidence in court, he was not clear about the deduction.

26. The defendant testified that he did tell the plaintiff that penalty would be imposed in case of late completion although he did not tell him how penalty was to be calculated.

27. Pages 1 and 2 of the defendant's bundle are dated 3 November 1994 with "P1" as a reference and was signed by the plaintiff. Its significance lies in its being a list of various materials and in the statement at the top of the page that the plaintiff began using his own materials in July. Pages 3 - 5 of the defendant's bundle are documents all dated 3 November 1994 with "P2" - "P4" as references, all signed by the plaintiff, listing various materials. Page 6 of the defendant's bundle is the "P5" materials list dated 4 November, 1994 signed by the plaintiff. Exhibit "P-2" is a not completely legible copy of the document dated 4 November 1994 with "P6" as reference. The words written by the plaintiff were highlighted in yellow on the exhibit.

28. I turn now to page 8 of the defendant's bundle referred to above. As highlighted on Exhibit "P-1", the plaintiff wrote out the table and in so doing, he was working on 70% of the Government sums or figures, not 70% of the sums received by the defendant from Quadrant. By signing this document the plaintiff clearly accepted that he was liable in full for material costs.

29. The documents with "P1" to "P6" as references and p. 8 of the defendant's bundle are fatal against the plaintiff's testimony that costs of materials would be deducted before the 70:30 split.

30. Exhibit "D-1" is a statement of account dated 12 February 1996. After some initial evasiveness, the plaintiff finally accepted that the words in red on the face and back of the document were in fact written by him and he highlighted them in yellow on exhibit "D-1A". The effect of what he wrote was that he challenged item 5 for the sum of $79,280 according to the document with "P5" as reference and wrote down $68,480 as the correct figure; and challenged sub-item 2 of item 10 on deduction for exceeding time or being late "扣 过 期" on the ground that there was a duplication of $5,417.25 in item 9. If the plaintiff had not agreed to be liable for "penalty" for delay, he should and would have objected to the whole of item 10 on the ground that he was not liable at all, and should and would not have merely challenged part thereof on the ground of duplicate deduction. Whether he had signed or not is beside the point, it was the ground and extent of his challenge which is in my judgment fatal against him.

31. Page 273 of the plaintiff's bundle is yet another statement of account. It is dated 6 May 1996. The words written by the defendant are highlighted in Exhibit "P-3". What he did was to challenge item 7, and item 7 only, without commenting on item 11 which was on penalty deduction "扣 过 期". In paragraph 29 of his witness Statement he referred to and produced a copy of this document, but he said nothing about item 11.

32. Further and in any event, I find that the plaintiff lied on deduction of costs of materials and on his agreement for penalty charges. I reject his evidence and accept the defendant's evidence.

33. I find that the plaintiff had agreed with the defendant to be liable for penalty charges. The precise formula for working out the penalty charges between the Government and the Main Contractor was not a matter of real concern for the plaintiff and the defendant. What mattered to them was the amount which Quadrant passed on to the defendant. This was a matter which could be ascertained with precision by looking at the accounting position between Quadrant and the defendant. As the only issue is whether the plaintiff is or is not liable for the penalty charges in the sum of $233,794.37, I find in favour of the defendant on this item of $233,794.37.

Conclusion

34. The plaintiff's claim fails and the defendant's counterclaim succeeds. The defendant counterclaims $180,105.09. As the defendant accepted $14,740, $10,800, $1,669, and $25,000 ($1,62,000 - $1,137,000) should be deducted, the amount is reduced to $127,896.09. I order that the plaintiff's claim be dismissed and that judgment be entered in favour of the defendant against the plaintiff on the counterclaim in the sum of $127,896.09 with interest thereon at judgment rate or rates from 30 March 1998 until the date of judgment. I also make an order nisi that the plaintiff pays the defendant costs of the whole action on the claim and on the counterclaim to be taxed on the High Court scale and that the plaintiff's own costs be taxed in accordance with the Legal Aid Regulations.

35. I had questioned whether an order should be made under section 17 of the Legal Aid Ordinance, Cap. 91, but have now decided not to take any step on my own motion.