W K CHANG v. WAI MAN ENGINEERING LTD

cacv 385/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 385 of 2004

(on appeal from DCCJ NO. 7882 of 2002)

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J U D G M E N T

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Hon Rogers VP:

1.  I have had the advantage of reading the judgment of Le Pichon JA in draft.  I agree with it. 

2.  As has been pointed out in the judgment, on the face of the tender documents it would appear that there had been duplication.  On the basis of the documents and what this court was told in the course of argument, that duplication would appear to have resulted in the Incorporated Owners paying, effectively, twice as much as they should have done.  As far as can be determined, the plaintiff’s evidence in relation to the number of manholes would appear to be confirmed by the plans which were included in the court bundles.  But the manholes were only one of the items and nearly all items appear to have been duplicated.

3.  If the plaintiff’s evidence is correct, both the plaintiff and Mr Chan, who appears to have been the person responsible on the part of the defendant, were well aware of the fact that the Incorporated Owners were being charged twice for the work that was being carried out.  They were both well that although there was a fixed price contract of $990,000 that price included a provisional sum of $486,190.  They were both well aware that the provisional sum related to work which was in effect a duplication of the primary work to be carried out.  They were both well aware that the Incorporated Owners were entitled to have the charges in respect of any work not carried out as part of the provisional works, deducted from the final amount.  Put bluntly, they were well aware that the Incorporated Owners were to be cheated.  The defendant’s witnesses did not address the question as to the “provisional” items in the tender being almost entirely a duplication.  In this court, counsel for the defendant was unable to explain why it was that the defendant sought to charge the Incorporated Owners for 120 manholes and not 60 or thereabouts.

4.  On the plaintiff’s evidence, the agreement was that he would assist the defendant in extracting double payment from the Incorporated Owners, to that extent cheating them, and if their joint-venture to cheat the Incorporated Owners were successful, he would share half the proceeds of that cheating with the defendant.

5.  On the defendant’s case it would appear that the defendant had not been content with charging the Incorporated Owners for double the work which was actually done, but its case in answer to the plaintiff’s claim, amounts to the result that it wanted to charge three times for the work which had been done and that it had agreed with the plaintiff that if the defendant had successfully received threefold payment for the work, the plaintiff and the defendant would share the extra element of booty.

6.  Quite how it came about that the defendant was able to proceed on the basis that it had been instructed to carry out “provisional” work has not been fully explored, but there is reason to consider that the history behind the giving of the instructions should also be looked into.

7.  There is, in my view, sufficient here to warrant the matter being looked into as to whether there has been a conspiracy to cheat the Incorporated Owners and as to how many parties were involved in that “venture”.  In these circumstances, in addition to a copy of this judgment being sent to the Incorporated Owners, I propose to order that a copy of this judgment together with copies of the papers be sent to the Commercial Crimes Bureau so that the matter can be investigated with a view, if indeed it appears that one or more criminal offences have occurred, that the appropriate prosecutions take place.

Hon Le Pichon JA:

8.  This is an appeal from the judgment of HH Judge H C Wong dated 3 September 2004 whereby she dismissed the plaintiff’s claim against the defendant to be paid 50% of the provisional sum of $486,190.  At the conclusion of the appeal judgment was reserved.

Background

9.  The plaintiff is a quantity surveyor and the defendant a construction company.  In 2001, the Incorporated Owners of “Vista Panorama” (“the owners”) were required by the Buildings Department to carry out certain underground drainage works.  In about March 2001, Multiple Surveyors Ltd (“MSL”), the owners’ agent, prepared the tender documents.  The defendant retained the plaintiff to provide consulting services in relation to that contract at a flat fee of $3,500 per month. 

10.  Following a successful tender, the defendant was awarded the contract on or about 7 July 2001.  By agreement, this was cancelled on 11 July 2001 due to the amendment of the possession date and the contract commencement date.  On 16 July 2001, MSL wrote to the defendant seeking clarification of the final tender sum of $990,000 reflecting a discount from the original tender sum of $1,064,180.  At MSL’s request made on 31 July, the defendant reconfirmed the tender sum of $990,000 for the project.  On 22 August 2001, MSL accepted the defendant’s tender dated 27 April 2001.  The letter stated as follows:

“The tender sum accepted is HK$990,000 … including a provisional sum of HK$486,190.”

11.  At paragraph 8 of the judgment, the judge referred to the fact that it was not disputed that the plaintiff and Mr Chan of the defendant met on 7 February 2002 to go through the contract and subsequent contract documents and discovered that the MSL letter of 22 August 2001 referred to the tender sum as “including a provisional sum of HK$486,190”.  Mr Chan apparently became concerned that he would not be paid the provisional sum and accepted the plaintiff’s offer to pursue the matter on his behalf.  On 20 February 2002, Mr Chan signed a letter on behalf of the defendant addressed to the plaintiff to the following effect:

“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.”

12.  The judge identified the issue she had to resolve in these terms:

“9. The issue in dispute is what was the agreement reached on 7^th and 20^th February.  Was it for [the plaintiff] 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?”

The judgment below

13.  The judge considered that the matter she had to resolve meant resolving four issues which she did as follows: (1) accepting the evidence of Mr Chan of the defendant and MSL’s Mr Wong, the judge concluded that the contract was a lump sum contract including the replacement of all underground drains at a lump sum price of $990,000; (2) again accepting the evidence of Mr Wong that “the circumstances of this job had overridden the provisions in the contract”, she was satisfied that the contract was a lump sum contract with no provisional sum payable; (3) as to what was in the minds of the plaintiff and Mr Chan when they entered into the February agreement, the judge noted that according to the evidence, Mr Chan for the plaintiff was going to obtain an extra $486,190 from the employer while the plaintiff said that he would stop the employer from deducting that amount or any part of it from the lump sum price of $990,000.  She concluded that the parties were at cross-purposes and not ad idem; and accordingly, (4) she found the February agreement to be of no effect and unenforceable. 

The tender documents

14.  These included a summary of tender consisting of 4 pages.  Of particular importance is item 2 of the Schedule of Works which is made up of 2 separate parts, viz. 2.01 and 2.02:

15.  When item 2.02 is juxtaposed with item 2.01, it is readily apparent that paragraphs c) and e) of item 2.02 are substantially replicated in paragraphs c) and d) of item 2.01.  There are minor descriptive differences but in terms of specification, quantity, unit, rate and amount, there is no difference.  The total costs shown for paragraphs c) and e) of item 2.02 is $800 less than that shown for paragraphs c) and d) of item 2.01 but that is attributable to an arithmetical error in paragraph d) of item 2.01 in respect of the cost of manholes, the correct figure being (40 x 3200) 128,000 and not 128,800.

The evidence

16.  Prima facie, it seems strange that the bulk of the work included in the provisional sum should replicate work that had to be carried out under item 2.01 which was the ‘firm’ part of the contract.  The judge made no mention of this feature in her judgment.  The evidence of the plaintiff is relevant in this regard.  He was cross-examined at length about it.  Surprisingly, when asked by this court, counsel for the defendant was unable to state whether or not it was her client’s case that the work covered by the provisional sum corresponded to work that had to be done under the ‘firm’ part of the contract although that was the drift of her cross-examination. 

17.  The plaintiff’s evidence dealt, inter alia, with the following matters:

(1)	duplication
	That there was duplication of work emerges clearly from the following passages in the transcript:
	A.	In the schedule of works, you have about 120 manholes and associated drain runs.
	Q.	Yes.
	A.	The entire site needed only 60 manholes and associated drains.  Now, the defendant was concerned that if somebody was to notice this huge surplus, somebody might want to say -- to query why the employer was being made to pay for 60 manholes it did not need.
	Q.	So, Mr Chang, are you saying that the tender document does not reflect the real situation of the site?
	A.	The quantity in the schedule of works had twice the quantities required for the works.
	Q.	Yes.  Yes.  So that is the only discrepancy between the tender document -- the number of manholes.  That is the only discrepancy in the tender document and in the site.  Is that what you mean?
	A.	No, it’s the manholes, the associated drain runs, the associated gully traps and the whole package.
	…
	Q.	So you mean that -- so this is what you mean to be the duplication of work covered by the provisional works on the tender document, am I correct?
	A.	The duplication between the provisional and the firm, yes.
	(Tr. pp. 29K-30B)
	Q.	Yes, so that means that at the end of the day the site only permits works as stipulated on items 2.01.  Am I correct?
	A.	If he carried out 60 manholes in accordance with 2.01, then he couldn’t possibly have carried out another 60 manholes under 2.02 …
	(Tr. p. 35C-D)
(2)	the defendant’s concern
	The plaintiff’s evidence was that Mr Chan of the defendant visited him in his office sometime in early February when he told the plaintiff about the duplication and his concern that the provisional sum would be deducted from the tender sum of $990,000:
	Q.	So according to you, the defendant would only be paid for works carried out on 60 manholes.
	A.	That was his concern and I accept that concern as being proper.
	Q.	Yes, and that is your observation too because you observed that the site only permits the replacement of 60 manholes.  Is it correct?
	A.	Yes, I confirm his …
	Q.	Yes.
	A.	… his observation.
	Q.	Yes.  So even if the contract price was stated to be $990, at the end of the day the defendant would only be able to recover from the employer the amount of works stated on 2.01, is it correct?
	A.	If somebody took the point that only 60 manholes were required, then the employer would only pay for 60 manholes.
	Q.	Yes, so do you mean that at the time Mr Chan expressed that he was only able to be paid for items at 2.01 and you agreed with that view?
	A.	He was concerned that he wouldn’t get paid double.
	(Tr. p. 35L-T)  (emphasis added)
(3)	the plaintiff’s role
	I can do no better than to cite the plaintiff’s own perception of his role.
	A.	The schedule of works allowed for 120 manholes.  The site only required 60.  My approach was not to address the architect on this point.  My approach was not to ask him, “Hey, Mr Architect, what would you like us to do about these 60 manholes you don’t need?”  My approach was to let sleeping dogs lie.
	Q.	Yes, but if the architect goes on site, he would have discovered that the site really required 60 manholes.  Am I correct?
	A.	I believe so, yes.
	Q.	Yes.  So there’s really no way to escape from the site of the architect if there is any 60 manholes extra on the tender document.
	A.	He may not take the point.  It’s -- he hasn’t so far.
	(Tr. p. 30K-P)
	Q.	Yes, so back to the question.  How could you -- what methods could you use in order that MSL did not deduct the so-called duplication work then?
	A.	The first approach was to let sleeping dogs lie.
	Q.	Just ignore it?
	A.	Not to draw to the attention of the surveyor.  That’s the basic approach.  Not to tell him about this duplication and ask him what he wants to do with it.  And then thirdly, if he were to take the point himself and to meet this deduction with defences and arguments.
	(Tr. p. 36B-E)
(4)	the February agreement
	According to the plaintiff, the agreement with the defendant to split the provisional sum of $486,190 if it were not deducted from the tender sum of $990,000 came about on 20 February:
	A.	As I said before, I mean he expressed his concern once again and I said, “Look, if you want me to look at it, I will do it and you sign this agreement.”
	Q.	Yes, did you say to Mr Chan that you would use your method so that Multiple Surveyors would not deduct $486,000 and would help him getting the money back?  Did you not say that to him?
	A.	It was assumed that it’d be me doing the work.
	Q.	Mr Chang, did you not say to Mr Chan that you would make sure that Multiple Surveyors would not deduct the $486,000 and would help him get the money back?  Did you not say that to him, Mr Chang?
	A.	I said that, “If we succeeded in our aim, then you should pay me a success fee.”
	Q.	Yes, so you did tell him that you would use your endeavours to recover or to get that $486,000.  Am I correct?
	A.	I would use my endeavour so that that sum is not deducted.
	(Tr. p. 31H-N)

18.  To summarise the plaintiff’s evidence, both parties knew of the duplication of the work.  If the defendant were paid the full amount of $990,000, it would effectively be compensated twice over.  The plaintiff was prepared to help the defendant achieve that aim and if he succeeded in doing so, he would be entitled to one half of the provisional sum.  Regrettably, Mr Chan’s evidence did not deal with these matters at all.

19.  It is quite clear from the judgment that the judge failed to appreciate the possibility that the work listed under item 2.02 substantially duplicated the work that had to be carried out under item 2.01.  If this was indeed the case, she might well have taken a wholly different view of how the February agreement should be construed.  Nor did she come to any finding as to the cause of Mr Chan’s concern that the provisional sum would be deducted.  Had she done so, the outcome might well have been different.  Of course, the enforceability or otherwise of the arrangement may also merit attention.  In the circumstances, there is really no alternative to sending the case back for a retrial before a different judge.

20.  I should mention that there are other matters emerging from the evidence that I find troubling.  During his examination in chief Mr Wong of MSL was asked about the duplication of work.  His explanation appears from the following passage of the transcript:

Q.	Yes, and over at the next page, the manholes altogether is 60.  So adding those together is 120.  Is that a correct description?
A.	There were not as many on the site.
Q.	Yes, so am I correct to say that the total tender sum is actually quite overstated if you compare it to the items of manholes on the site?
A.	Under the circumstances at that time, we could not be 100 per cent sure.
Q.	But can you explain why you and the incorporated owners nonetheless agreed to contract this works to the defendant at the price of $990,000?
A.	Although the defendant’s tender sum is as such, but considering the fact that the defendant’s company’s tender sum is far less than what the incorporated owners were prepared to pay and its performance at the meeting, it was decided that no matter what this works was to be awarded to Wai Man at the price of $990,000, including all the pipes.
(Tr. pp. 58P-59B)

21.  One may well raise one’s eyebrows at that approach from a professional man whose firm was engaged to look after the interests of the owners.  I say no more at this stage than that a copy of this judgment should be forwarded to the owners.  If indeed it were to be found as a fact in the retrial that there had been duplication of work, the owners may well decide to take matters further.  The question would also arise as to why the Architect’s Instructions dated 11 January 2002 were ever issued.  Although it would appear that they were issued by MSL, it could only have been on behalf of the architects engaged by the owners whose role in the whole affair has not been explored.

Order

22.  I would set aside the judgment below and order that there be a retrial before a different judge.  The Registrar be directed to send a copy of this judgment to the owners, Chairman, Vice-Chairman, secretary and other members of the Management Committee of the Incorporated Owners of Vista Panorama.  I would make an order nisi that the costs of this appeal be to the plaintiff and that the costs below be costs in the cause.

Hon Cheung JA:

23.  I agree with the judgments of Rogers VP and Le Pichon JA.

Hon Rogers VP:

24.  There will therefore be an order in terms of paragraph 22 above and in addition the Registrar be directed to send a copy of this judgment together with copies of the papers in this case to the Commercial Crimes Bureau.