LAU KAI MING t/a GRANDEUR CO v. CHEUNG KAM PUI AND ANOTHER t/a YEE HOP CONSTRUCTION ENGINEERING CO

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 14382 OF 1983

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JUDGMENT

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Background

1. In 1980 the Industrial Estate Corporation, a body controlled by the Hong Kong Government, entered into a contract with the Construction and Development Corporation of the Phillipines ("CDCP") for the formation of a large industrial estate near Yuen Long. The contract, inter alia, called for the supply of a very substantial quantity of earth fill and this part of the contract was sub-contracted by CDCP to the Plaintiff by a contract dated 1/10/1980. The Plaintiff, who is now aged 68, trades under the name Grandeur Co. from a flat on the 10th Floor of Ming Sum Bldg., Tung Lo Wan Road. His main business was an agency for a waterproofing chemical. He had never contracted any civil engineering work of any sort before and had no relevant experience. The contract provided for payment at the rate of $19 per cubic metre (m³) of fill delivered and about 500,000 m³ was required. It was, therefore, a substantial contract.

2. The Plaintiff then sub-contracted in turn, as was inevitable, firstly to a Mr. Szeto Wah, who traded as Wah Cheuk, at a price of $14 a m³ and, when Szeto could not arrange finance to the Defendants at $15.50 a m³. Mr. Szeto however continued to have an interest in the contract but in what capacity was by no means certain. He has now disappeared. The sub-contract provided that the Defendant firm was to assume all the Plaintiff's rights and liabilities under the head sub-contract.

3. After the usual negotiations agreement was reached with the villagers of Wai Tsai for the use of a borrow area, in return for various payments, and work eventually started at the end of October 1980. There were, however, a series of delays and problems caused mainly by the truck drivers not being paid in February 1981 and by the Police prohibiting the over-loading of trucks in August 1981. Eventually, and surprisingly in view of the resources and experience of the parties concerned, the work was finished at the end of 1981. The head contract however provided that the borrow area had to be finished by putting in proper drainage and by re-turfing and this was done by the Plaintiff, in order to get payment of funds being retained by CDCP as security. The cost of that finishing is a major part of the Plaintiff's claim as the written sub-contract with the Defendants provided that they should carry out all the obligations of the Plaintiff under the head contract.

4. The accounts as between the Plaintiff and the Defendants were confused to say the very least. There were several payments made before March 1981 for which receipts were issued stating they were advance payments for the excavation work. These payments were in round figures and there is no reference to payment per m³. The Defendants used these payments to pay the truck-drivers and the other site expenses. In February 1981 the work stopped as the drivers were not paid and agreement was then reached that the Plaintiff would pay $120 per truck-load of soil. Of that $90 would go to the truck-driver direct, $10 would be retained by the Plaintiff as security and the balance of $20 paid to the Defendants. In August, following complaints by the Police about over-loading, the trucks could not carry as much as before and the drivers' payments were reduced. There was again a total conflict of evidence as to what was agreed between the parties so as to get work started again. However the $20 per load arrangement continued.

5. The Plaintiff now claims that he is entitled to be re-imbursed for the money spent on the finishing works, and for other expenses he paid on behalf of the Defendants, a total put in his re-re-amended claim at $2,052,348.57 and also $131,898.55 being an amount over-paid to the Defendants calculated on the original agreement for $15.50 per m³. The Defendant counter-claims on the basis that in August 1981 in order to get work started again the Plaintiff agreed to pay all expenses, including the hire of all plant, which included the Defendants. He also claims that the Plaintiff agreed to pay him a salary of $3,000 p.m. from March 1981 which has never been paid. The claim for plant hire is $329,839 and for salary to November 1981, $27,000. The Defendant further claims that when the work stopped in August due to the overloading dispute the Plaintiff told him to dismiss his workers and the Plaintiff agreed to pay their severance pay, $23,852. He also agreed to pay the workers their wages in November when the Defendant was in Canton, a sum of $15,000. He has failed to make either payment.

Re-re-re-amendment of Claim and Reply

6. At the hearing Mr. Ng for the Plaintiff sought leave to re-re-re-amend the claim and reply firstly to give credit to the Defendant for soil delivered in November and secondly to include in the reply an allegation that while the $120 a load agreement had been entered into in March 1981 that in no way altered the basic agreement of payment at $15.50 per m³. Miss Kwan did not object to these amendments but reserved the right to comment on the lateness of the amendment. I gave leave accordingly.

The Plaintiff's Evidence

7. Mr. Lau said that he had a business which was mainly an agency for water-proofing material. He had no experience of the construction or earth-moving business but a friend his, one Szeto Cheuk Foon, was in that business and in mid 1980 he had a meal with him in Yuen Long. He also knew a Mr. Richards who was employed as Resident Director of Wilbur Smith & Associates, Civil Engineers. They were Resident Engineers for the Yuen Long development. His relationship with Mr. Richards however was purely social at that stage. He was informed that there was a contract to be let by CDCP for earth-moval at Yuen Long. Mr. Richards asked for his assistance and Mr. Lau approached Szeto who had a company called Wah Cheuk Construction Co. He reached an agreement with Szeto for the moving of the earth at a price of $14 per m³. Following that he was introduced to the 1st and 2nd Defendants by Mr. Szeto whom he regarded as Szeto's employees. Subsequently Mr. Szeto was unable to obtain finance from the bank and therefore there was a transfer of his contract to the Yee Hop Co. owned by the 1st and 2nd Defendants. The price under this contract dated 15th October 1980 was $15.50 per m³.

8. Prior to signing that contract on the 15th October Mr. Lau had already signed a contract with CDCP for the moving of the earth at a price of $19 per m³. It is provided in that contract that, having removed the earth from the borrow area at Wai Chai, the site was to be properly restored and drained and the 1st and 2nd Defendants took over the contract , they agreed to do that work. Indeed the whole of the Plaintiff's obligations under his contract with CDCP were to be carried out by the Defendants under the terms of their agreement of 15th October 1980.

9. Work commenced in October 1980 and as was only to be expected in view of the experience and financial resources of the parties, there were problems right from the beginning. Mr. Lau said initially he paid the Defendants by cheque based on calculations supplied to him by CDCP. He produced a large number of receipts and bank deposit slips, some payments being made direct into the 2nd Defendant's bank account. The receipts and slips are silent as to exactly what each payment represents. By February 1981, Mr. Lau said he found that the Defendants were not in a good financial position and he was asked to pay for various items on their behalf. They also asked him to give them post-dated cheques so they would be able to borrow money from their bank using the cheques as security. The understanding was that the cheques would never be met and each amount would be repaid before the due date. On one occasion however he gave the Defendants a cheque for $200,000 dated the 19th February 1981. He did not receive payment of that sum before that date and accordingly he stopped payment on it.

10. In February 1981 the truck-drivers went on strike because they had not been paid by the Defendants. The Plaintiff said he warned them about this but the same thing happened in March 1981 and he then decided that he would pay the truck-drivers direct by cheque. From then on, the truck-drivers were paid $90 per trip and the various other people such as the service company which kept order at the site was paid separately and the Defendant was paid $20 per truck. It was the evidence for the Plaintiff that this would enable the Defendants to pay for all expenses such as the excavators, bulldozers fuel and watchmen. He said that that did not, however, affect the basic entitlement of the Defendants to be paid at the rate of $15.50 per m³. When all the work was finished there would be a calculation to what was owed to the Defendants on that basis from which would be deducted the $20 per truck load already paid.

11. In order to see that things at the site went properly, the Plaintiff also appointed a Mr. Chan Lun Pui as his Site Foreman and two other men, But Chi Keung and Cheung Muk Lam as Assistant Site Foreman. This is set out in a letter from the Plaintiff to CDCP dated the 15th June 1981 in which he also refers to the 2nd Defendant as "our former Site Foreman".

12. In October 1981, there were complaints made by the Police concerning over-loading of trucks. As a result of this, the loads had to be reduced and the $90 payable to the drivers was reduced to a smaller amount depending on the size of the truck. The $20 payable per truck load to the Defendants, however, remain the same. Mr. Lau agreed there had been a meeting of all concerned at this time to sort out the situation and get work started again. He approached CDCP who eventually agreed to increase the rate of payment to him by $2 to $21 per m³.

13. The removal work of the soil were concluded about November 1981 and the Plaintiff said that he had a meeting on the site on the 6th of February regarding the finishing work. He also had meetings with CDCP and there was correspondence showing that in order to obtain the monies retained by CDCP he had to complete this finishing work. He said he tried to contact the 1st Defendant but without success and eventually he let out various contracts for the work which was duly completed and paid for by him.

14. The Plaintiff said that calculations had been made showing that the Defendants had supplied 603,031.22 m³ of earth but had been paid $9,478,882.45. The amount that they were entitled to be paid was only $9,346,983.90 and they had been overpaid by the sum of $131,898.55. He also said that he had paid on behalf of the Defendant for various expenses which were their responsibility on the site and this came to $816,982.70 and that he had paid out for the finishing work to various sub-contractors i.e. Toyo Greenland Co. $258,625, Yau Li Construction Co. $493,037.21, Chi Shing Transportation Co. $264,237, Yuen Sing Transportation Co. $55,604 and a Mr. Cho Kwok Kwan $50,000.

15. The Plntiff denied that he had ever entered into any partnership with the 1st and 2nd Defendants, as they had claimed, nor that he had agreed to pay the 2nd Defendant any salary. He said that there had never been an agreement for an amalgamation between them nor had he agreed to pay severance pay for the Defendants' workers.

16. The Plaintiff agreed that for each lorry load of soil after March 1981, when the $120 arrangement came into force, he retained $10. He said however, that was not to do the finishing work, it was as security for the performance by Hop Kee of its contract. The Plaintiff denied that there was any agreement between him and the Defendants to hire the Defendants' plant at any stage. He said he paid them $20 per load and that was to cover all expenses including the ring of any machines required.

17. Finally, the Plaintiff agreed that no payment had ever been requested from the Defendants based on the $15.50 per m³. After the finishing works had been completed there was to be an account to see how much was due to them. No such account had been prepared until these proceedings were brought.

18. Evidence was given for the Plaintiff by But Chi Keung who said that he had been employed by the Defendants on the site. He said he drove himself but he also organized the other drivers and he was paid a commission of $1.50 per truck load. He said he was paid by Yee Hop in cash and occasionally by cheque. However, following the strike in February 1981, payments were made to him direct by the Plaintiff. He said that it was his understanding that the $120 per load paid by the Plaintiff to the Defendant was on account of the money which would be due to them based on the $15.50 per m³ and he said that each month a calculation was made showing that amount. No such calculations were however, produced and he said that he never saw any paper reflecting such figures. Evidence was also given for the Plaintiff by Mr. Richards the Resident Director of Wilbur Smith & Associates and also by the Plaintiff's accountant, Mr. Fook Hing Min, who prepared accounts which are in the Plaintiff's bundle, pages 4 and 12. He said he had never seen or prepared any accounts based on the $15.50 per m³.

The Evidence for the Defendants

19. The 1st Defendant gave evidence and said that he had been approached by Szeto to see if he could find a suitable borrow area for the obtaining of soil for the contract. He was then introduced to the Plaintiff and he spoke to the Wai Chai villagers on behalf of the Plaintiff. The Plaintiff told him that he would provide financial support and the contract of 15th October was duly signed. The Plaintiff paid $50,000 for the initial expenses incurred in preparing the road and making suitable payment to the villagers. Initially the Plaintiff gave him money to pay the drivers and he also gave him post-dated cheques which he used to get overdraft facilities from his bank. However one of these post-dated cheques was subsequently stopped and he was unable to pay the drivers. This caused the strike in February 1981. After that there was a discussion at the Pak Lee Restaurant and a new arrangement was made that in future $120 would be allocated for each lorry load. $90 would go to the driver, $20 to the Defendants and $10 would be retained to complete the finishing work. $20 was spent on site expenses and he said that he regarded the $120 as being the final figure payable between the Plaintiff and the Defendants. However, he did say that if additional expenses were incurred due to rain or other causes and the $120 was not enough, the Plaintiff agreed that he would pay any extra. If, however, there was a surplus over that went to the Defendants as their profit. He said that in addition to this the Plaintiff had offered to pay him $3,000 a month as a salary because he was not making enough money on the site. He also said that he asked for a guarantee that he would not suffer any loss and that was given.

20. Following the crisis caused by the over-loading of trucks in August there was a further meeting and Mr. Chan said that at that meeting the Plaintiff said that from then on there would be no distinction between the Plaintiff and the Defendant and that they all had to get together to try and remedy the situation. He went on to say that at that meeting, the Plaintiff said that they would finally settle accounts based on the $15.50 per m³ and that he agreed to that. He said that at this time because they were unable to obtain more money from CDCP, work has stopped and the Plaintiff told him to dismiss his workers. He also said he would be responsible for their severance pay which came to $23,852. This the Defendant paid the workers but the Plaintiff had not reimbursed him. He also said that there was also a claim against him by his workers in the Labour Tribunal for wages and again he paid $15,000 to the workers which Lau had told him he would be responsible for. Again he has failed to reimburse him for that.

21. It was also Mr. Cheung's evidence that when their work resumed, the Plaintiff had agreed that from then on he would rent the Defendants' machines. There was no written agreement setting out any of these near terms. Mr. Cheung agreed that so far as the claim for severance pay was concerned, this had not been mentioned in letters between his and the Plaintiff's solicitors and he also agreed that he had been sued for fuel for the sum of $105,000 at the time when he said that the Plaintiff was responsible for such expenses. He did not however, seek to join the Plaintiff in that action although he was at the time legally represented. He also agreed that no invoices had ever been sent to the Plaintiff regarding the hiring charges. He simply said that records were kept and the agreement was that Hop Yee would not suffer a loss.

Decision

22. The contractual relationships between the parties had after the strike in February 1981 become so confused that I find it quite impossible to clearly decide what they were. Indeed, I do not think the parties themselves really knew. Initially there was a clear sub-contract under which the Defendants assumed all the rights and liabilities of the Plaintiff apart from the payment to him by CDCP of $19 per m³. I am however, satisfied that after the strike when the new arrangements came into force, that agreement was no longer in existence apart possibly from the agreement to pay $15.50 per m³ for soil delivered. However, from that time on, it seems to me from all the evidence that the Plaintiff had in fact taken over the contract and he from then on played a very active roll. He certainly was not in a position of a head contractor who had sub-let all his rights and obligations to a third party. I am also satisfied that so far as the finishing work is concerned, the $10 per load which was deducted was for the finishing work and that the Plaintiff accepted that he had to attend to the finishing work from the funds he had retained. That $10 per load has never been brought into any of the Plaintiff's accounts and I am satisfied it was to cover not only the finishing work but also the miscellaneous expenses paid by the Plaintiff amounting to $516,982.70. I am satisfied that after the agreement for payment at $120 per load payment was made, the Defendants' liabilities for the finishing work finished. The Plaintiff's claim for his expenses paid and the cost of doing the finishing work fails.

23. Similarly, as regards the alleged over-payment, I am also satisfied that as from March 1981 the agreement was that the Defendants were to receive $20 per load and the Plaintiff was responsible for paying the truck-drivers. From the $20 per load paid to the Defendants, they were responsible for incidental expenses on the site such as fuel and hire of outside machinery. Notwithstanding the evidence of both the Plaintiff and the Defendant, I am satisfied that the agreement for payment to the Defendant at the rate of $15.50 per m³ had gone. There was never any account rendered on that basis even up to the time when there was an exchange of correspondence between the solicitors and I am satisfied that if the Defendants' solicitors had not written to the Plaintiff claiming for plant hire, there would never have been any claim for that over-payment. The Defendants were aware that following the August stoppage the CDCP had agreed to increase payment to the Plaintiff by $2 per m³. It seems extraordinary if they were content to let him pocket all of that himself and to go on working on the old basis of $15.50 for them. I am therefore satisfied that the Plaintiff's claim for over payment must also fail.

24. In respect of the Defendants' counterclaim, I am also satisfied that there was never any agreement that the Plaintiff should pay for the hire of any of his plant nor could the flimsy records which have been produced could not support the figure for the amount claimed. No invoices were sent, contrary to what was claimed in a letter from the Defendants' solicitors to the Plaintiff, and I accept the Plaintiff's evidence that he never agreed to hire plant or to be responsible for expenses such as fuel. If he had no doubt he would have been joined as 3rd party when the Defendants were sued for fuel.

25. I am also satisfied on a balance of probabilities that the Defendants have not made out their claim for the severance pay and wages paid to the workers, no mention is made of such payments in the letters from the Defendants' solicitors and the background of the carrying out of the contract makes any such agreement most unlikely. Similarly I am also satisfied there was no agreement to pay the Defendants any salary at any time. They were to get their $20 a load and were to pay expenses and make what profit they could from that. There is again no reference to salary in the solicitors' correspondence. The Defendants' counterclaim also therefore fails.

26. The Defendants are to have their costs on the Plaintiff's claim and the Plaintiff on the Defendants' counterclaim. The amount of time taken with each was the same.

27. Finally may I say that this is a classic case of a major contract being entered into without professional legal advice and then being varied by numerous verbal discussions and agreements, none of which was ever properly recorded. There was an almost total lack of any accounting system between the parties and this makes the task of a Court later trying to unravel what went on and what was agreed almost impossible. The result may well be unsatisfactory to both sides but I am simply unable to say that either has proved any of their claims even on a balance of probability.