KIN WAH J F CONSTRUCTION & ENGINEERING CO LTD v. L & M FOUNDATION SPECIALIST LTD

HCA 226/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 226 OF 2003

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J U D G M E N T

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1.  The plaintiff’s claim against the defendant is for amounts owing by the defendant to the plaintiff for work done and materials supplied under a sub-contract.  The plaintiff was the sub-sub-contractor of the defendant for the construction of receiving shafts for the KCRC West Rail, Nam Cheong Station at Yen Chow Street (“the site”).  The defendant was the sub-contractor of Balfour Beatty Zen Pacific Joint Venture (“the Main Contractor”) for the construction works at the site under Contract No. CC402.  The plaintiff’s works at the site as the sub-sub-contractor of the defendant represented only a small portion of the works under the sub-contract that the defendant entered into with the Main Contractor.

Background

2.  The defendant is a specialist contractor for pipejacking works and was interested in getting the sub-contract for the pipejacking works for the utilities diversion at the site from the Main Contractor.  Peter Tse of the Main Contractror was a friend of Tin Wan Tung(“Tin”) one of the directors of the plaintiff.  The plaintiff is a specialist contractor for shaft works and was interested in constructing the shafts at the site.  According to Tin, Tai Hok Hoi (“Tai”) of the defendant invited Tin on behalf of the plaintiff to join with the defendant for the tender for the construction of pipejacking works for the utilities diversion (“the sub-contract works”) at the site which works were awarded to the Main Contractor under Contract No. CC402.  

3.  The plaintiff’s case is that although Tin attended meetings held with the defendant and the Main Contractor, the plaintiff did not know the terms and conditions of the contract between the Main Contractor and the defendant. Also, it did not participate in the negotiations the Main Contractor had with the defendant and it was not given a copy of the tender documents.  In his supplemental statement, however, Tin said that he had only been given the first two pages of the letter dated 11 October 1999, which is an unsigned copy of the joint bid by the plaintiff and the defendant for the sub-contract with the Main Contractor, but he denied that he had seen the entire letter at the time or that he had signed it or given authority to the defendant to make a joint bid for the sub-contract.

4.  According to Tin, Tai on behalf of the defendant agreed to award the plaintiff the sub-contract for the construction of two shafts, namely, a receiving shaft for $250,000 and a jacking shaft for $450,000 making a total of $700,000 for the two shafts.  Also according to Tin, the amounts payable for the receiving and jacking shafts would be paid at monthly intervals within 15 days after progress payment application by the plaintiff to the defendant.

5.  The plaintiff also alleges that it was required to do variation and additional works for which it should be paid.  The plaintiff also claims that it should be compensated for idling time when the defendant required the plaintiff to be ready on site with its foreman, plant and machinery even before works commenced at the site.  Hence it should be compensated for idling time.

6.  There is also a claim by the plaintiff for the value of sheet piles which it was unable to remove from the site after completion of works.  The plaintiff also claims loss of profit due to the omission of the jacking shaft which the defendant did not require the plaintiff to construct in breach of the oral agreement.

7.  The defendant’s case is that the plaintiff was the sub-sub-contractor of the defendant for the construction of the receiving shaft and the jacking shaft pursuant to an oral agreement made on or after 29 October 1999.  The price agreed was the sum of $250,000 for the receiving shaft and the sum of $350,000 for the jacking shaft making a total of $700,000.  It is also pleaded by the defendant that the contract between the plaintiff and the defendant “would otherwise be on a back-to-back basis”(para. 4 of the re-amended defence).  Tai gave evidence as to what was agreed between the parties.

The Issues

8.  The agreed issues between the parties are as follows :

(1)    whether “back to back” / “pay when paid” is a term of the oral agreement;

(2)    whether there were any variation works, if so, whether the plaintiff was entitled to recover the additional costs and the quantum;

(3)    did the sheet piles belong to the plaintiff? if so, the costs of the same;

(4)    whether the plaintiff can claim the costs in the idling period, if so, how much;

(5)    whether the plaintiff can claim the loss in respect of the omission of the jacking shaft at the rate of 15% of the original contract price; and

(6)    was there a settlement agreement? if so, what were the terms and is it still valid.

The witnesses

9.  Tin gave evidence on behalf of the plaintiff.  Tai gave evidence on behalf of the defendant.  There are parts of the evidence given by Tin which I accept as being true and reliable whilst there are also parts of his evidence which I reject as untrue and unreliable.  There are also parts of the evidence given by Tai that I accept as being true and reliable whilst there are parts of his evidence that I also reject as untrue and unreliable.  I shall deal with this when dealing with the various matters set out herein.

10.  Apart from Tai, Yeo Hui Peng (“Yeo”) and Sin Kin Lau (“Sin”), both of the defendant at all material times, also gave evidence.  I accept their evidence as truthful and reliable evidence.

11.  Tin gave evidence that as he knew Peter Tse of the Main Contractor, Tai wanted him to introduce Peter Tse to him as he thought that it would assist the defendant in its tendering successfully for the sub-contract.  He attended meetings the defendant had with the Main Contractor but he said that he did not speak fluent English and was not interested in pipejacking works as he had no knowledge of the same. e wasHh He was interested in helping his friend out.  He denied that he had signed a joint tender bid with the defendant by letter dated 11 October 1999 with the defendant for the tender of the sub-contract works.  In his supplemental witness statement, however, he said that he had received the first two pages of the letter dated 11 October 1999 but that he had not signed the same.  However, subsequently he was asked to withdraw from the joint bid.  It appears that the Main Contractor would only sub-contract the works to one party and that was the defendant.  The plaintiff was hopeful of the defendant sub-contracting the construction of the shafts to the plaintiff.

12.  Tin gave evidence that Tai faxed the dimensions of the shafts to him and asked for a quotation.  The measurements of the receiving and jacking shafts were handwritten in the fax he received.  This is in the copy letter dated 19 November 1999 from the defendant addressed to the Main Contractor.  Tin said that he worked out the cost of constructing the two shafts and he wrote the same in the copy fax that he received.  This was written in pencil in exhibit P1.

13.  Tai denied faxing the measurements to Tin.  The measurements of the receiving shaft were written in as “4 x 4 x 6.5”. 

14.  Although he accepts that he was invited to make a joint tender with the defendant, Tin denies that he ever signed a joint tender bid with the defendant. 

15.  Tai gave evidence that Tin did sign the joint tender bid dated 11 October 1999 which was submitted to the Main Contractor.  No signed copy of the joint tender bid dated 11 October 1999 has been produced in evidence.  Tai said that he did not keep a copy of the same.  Tin maintains that he never signed the tender bid. 

16.  On this dispute of fact, I prefer the evidence of Tai to that of Tin.  I believe Tai and disbelieve Tin on this matter.  The copy letter produced shows both the plaintiff’s and the defendant’s name typed in at the end of the letter for signatures to be added and it was, in my view, obviously intended for both the plaintiff and the defendant to sign and send the same to the Main Contractor.  I find that the letter was signed by Tai and Tin and was sent to the Main Contractor.  It seems, however, and I so find that the Main Contractor was only prepared to engage one sub-contractor and that was the defendant.  The plaintiff and the defendant agreed that the plaintiff would be the sub-sub-contractor for part of the sub-contract works, namely, the construction of the receiving shaft and the jacking shaft at the site.

The oral agreement

17.  There is no doubt that there was an oral agreement between the parties.  What is in dispute are its terms.  

18.  Tin gave evidence that after he received the fax with the measurements of the shafts and the price he worked out the calculations. After that, he told the defendant that he would be able to do the works at the amount offered by the defendant namely, $250,000 for the receiving shaft and $450,000 for the jacking shaft making a total of $700,000.  He said that he told Tai that the said sum was only for the agreed dimensions and that if there was any enlargement in the dimensions the price had to be increased based on the unit price stated.  The plaintiff would be responsible for the provision of workers, materials, the installation, dismantling and the removal of sheet piling and clearance work.  He also said that payment would have to be made once every month and should be made 15 days after submission of the bills.  Also, if there were any additional works they would be included in daily records and an extra 15% would be charged.  Those were the terms of the oral agreement which he said that Tai agreed to. 

19.  It is accepted by the defendant that the plaintiff was appointed the sub-sub-contractor for the construction of the receiving and jacking shafts.  However, Tai gave evidence that the agreement was for the sum of $250,000 for the receiving shaft and $350,000 for the jacking shaft, making a total of $600,000 instead of the sum of $700,000. 

20.  There is no doubt that the sum of $700,000 was the sum that the defendant had agreed with the Main Contractor for the construction of the 2 shafts.  Despite the submissions of Mr. Tang, for the plaintiff, I am unable to accept that the defendant would agree with the Main Contractor to construct the 2 shafts for the exact price that it had agreed to pay the plaintiff.  This is wholly unrealistic and is contrary to commercial sense.  On this issue I prefer the evidence of Tai to that of Tin.  I find that the plaintiff agreed to construct the receiving shaft for $250,000 and the jacking shaft for $350,000 making a total of $600,000 and that in respect of these two items the defendant agreed to provide the same to the Main Contractor for the total sum of $700,000.  

21.  As to the oral agreement, Tai said that after the Main Contractor awarded the sub-contract to the defendant, Tin on behalf of the plaintiff agreed to undertake the construction of the receiving shaft and the jacking shaft as sub-sub-contractor. Tai said that the terms were “back to back”.  He elaborated that the terms were that upon receipt of payment from the Main Contractor the defendant would pay the plaintiff in accordance with the application for payments received and that Tin agreed to this.  Tai said that they also discussed details relating to additional works.  It was agreed that Tin would provide the defendant with the information and the defendant would add its overhead and profits in its application for payment to be submitted to the Main Contractor.  Tai said that he stressed at the time that the amount of payment would depend on how much the Main Contractor certified and this was agreed to by Tin.  He said that he never showed Tin the dimensions of the shaft because the exact dimensions of the shaft could not be ascertained.

22.  On these matters, I much prefer the evidence of Tin to that of Tai.

23.  I do not believe that there was any discussion about the sub-contract being on a “back to back” or “pay when paid” term with the plaintiff.  This is denied by Tin.  There is no contemporaneous documentary evidence supporting the same and I reject Tai’s evidence on this.  This is denied by Tin and on this issue of fact I prefer the evidence of Tin to that of Tai.  I believe Tin and disbelieve Tai. 

24.  I find that there was an oral agreement between the plaintiff and the defendant whereby the plaintiff agreed to construct the receiving shaft for $250,000 and the jacking shaft for $350,000 and that additional works were to be paid for by the defendant.  I also find that it was agreed that payment would be made within 15 days of submission of the bills.  I find that there was no “back to back” or “pay when paid” provision in the agreement between the plaintiff and the defendant and that the defendant was bound to pay the plaintiff for works done irrespective of whether it received payment from the Main Contractor.

25.  Issue (1) is resolved in favour of the plaintiff as I find that there was no “back to back”or “pay when paid” provision in the agreement.

26.  The evidence shows that the relationship between the defendant and the Main Contractor turned sour at some stage and that there were disputes between the defendant and the Main Contractor over the sub-contract.  However, as I have found that there were no “back to back” or “pay when paid” provision in the agreement between the plaintiff and the defendant, the fact that disputes arose between the defendant and the Main Contractor does not provide an excuse for the defendant not to pay the plaintiff. 

Site Instruction 00047

27.  The Main Contractor issued site instruction No. 00047 (“SI 47”) dated 31 January 2000 to the defendant asking the defendant to carry out the works described therein.  The effect of this was to enlarge the receiving shaft in accordance with the drawing referred to therein.  The plaintiff duly completed the works required under SI 47.  Tin said that he calculated the cost for the additional works based on the unit price as agreed.  In the plaintiff’s application for interim payment No. 1 dated 30 April 2000 addressed to the defendant, the amount for the works carried out under SI 47 was $313,783.  This is fully particularized in the document at page 60b of the Bundle of Documents.

28.  The defendant did not raise any objection to the plaintiff’s application for payment.  It forwarded the same together with an additional 15% to represent its overheads and profits to the Main Contractor for payment.  As I have found that there was no “back to back” provision in the oral agreement, the plaintiff is entitled to be paid for extra works carried out.  SI 47 represented instructions to carry out additional works as set out therein and these were performed by the plaintiff.  I am satisfied that the plaintiff is entitled to be paid for such additional works carried out save for one item namely, the extra charges for blinding concrete.

29.  Included in the said sum of $313,783 is the sum of $69,282 for blinding concrete of 500 mm thickness.  Tin explained that because the site was on reclaimed land extra concrete of up to 500 mm thickness had to be used to keep the water from the sea out.  Instead of 100 mm to 200 mm thickness for blinding concrete, it was necessary to increase the thickness of the blinding concrete to 500 mm. 

30.  I am unable to accept that the plaintiff can properly charge the defendant for the cost of the blinding concrete at $69,282.  The plaintiff’s pleaded case at para. 3 of the amended statement of claim is that the construction works included the application of blinding layer.  The plaintiff was a specialist contractor in constructing receiving and jacking shafts.  He must have known that the site was on reclaimed land.  It is unreasonable, in my view, for the plaintiff to charge extra for the blinding concrete layer of 500 mm thickness.  I disallow the sum of $69,282 out of the said sum of $313,783 leaving the sum of $244,501 which I am satisfied is payable by the defendant to the plaintiff under the works completed under SI 47.

Site Instruction 00136

31.  The Main Contractor issued site instruction 00136 (“SI 36”)dated 23 March 2000 asking the defendant to carry out the works set out therein.  This was in relation to the manhole MH1-290A.  It is not is dispute that additional works were ordered by the Main Contractor by way of SI 36.  The plaintiff’s claim for the additional works under SI 36 is $60,900.  This is contained in the plaintiff’s application for interim payment no. 2 to the defendant dated 24 May 2000.  The defendant raised no objection to the application for interim payment. It included its overheads and profits by adding 15% to the said sum and claimed the same from the MainContractor.  This was also treated as additional works by the defendant in its claim against the Main Contractor.

32.  Tin said that Jackson To, the project engineerof the defendant at the material time, requested the plaintiff to rent out plants and provide labour for the works.  I believe him.

33.  I find that the plaintiff is entitled to the said sum of $60,900 for the additional works completed under SI 36 pursuant to an oral agreement with Jackson To of the defendant.

Working platform at Pit B

34.  From 12 April 2000 to 20 April 2000 the plaintiff constructed a working platform at Pit B of the site.  It is not in dispute that the plaintiff was instructed to and did construct a working platform at Pit B of the site.  The plaintiff’s claim for this in the sum of $69,745.20 was included in the plaintiff’s application for interim payment No. 1 dated 30 April 2000. The defendant raised no objection to the same.  It included the same with 15% extra for its overheads and profits and submitted the claim to the Main Contractor.  I am satisfied that the plaintiff is entitled to claim this sum from the defendant.

Sheet piles

35.  The plaintiff claims the sum of $255,555 for sheet piles belonging to the plaintiff which the plaintiff was unable to remove from the site after completion of works because of the presence of a flyover which was constructed there.  In his closing submissions, Mr. Tang reduced this claim to $77,274.  The sum of $255,555 included the cost of H beams and as the plaintiff failed to plead any claim for H beams, this claim was reduced to $77,274.  Tin’s evidence was that due to the defendant’s poor co-ordination at the site a flyover was erected above the works constructed by the plaintiff thereby rendering the removal of sheet piles by the plaintiff impossible.  He said that Tai verbally agreed to compensate the plaintiff the sum of $255,555 on or around 28 July 2000.  This is denied by Tai.

36.  Tin was cross-examined about the sheet piles and denied that he had taken sheet piles from another project at Tin Shiu Wai, where the plaintiff was also a sub-contractor of the defendant, for use at the site.  He maintained in evidence that he had a stock of old sheet piles in a warehouse and that that he used the old sheetpiles in that warehouse for use at the site. The plaintiff’s case is that the sheetpiles used at the site were taken from the warehouse and not from Tin Shui Wai as the defendant claimed.

37.  I also heard evidence from Sin, the project superintendent of the defendant.  In 2000 he was also a site superintendent of the defendant and he was positioned at theTin Shui Wai project.  The plaintiff was also the sub-sub-contractor of the defendant there.  The defendant also did pipejacking works there and the plaintiff was the sub-sub-contractor for the construction of the receiving and jacking shafts. 

38.  Sin gave evidence that the sheet piles used for the Tin Shui Wai project were provided by the Main Contractor of that site namely, Chun Wo.  The cost of the same would be deducted from project monies due to the defendant.  He said that in February or March 2000 he saw one of the plaintiff’s staff, whom he knew by the nickname Wo So Chai, lifting sheet piles and H beams and when he asked him about it he was told that they were to be taken to the site at Nam Cheong Station.  Sin said that these were new sheet piles. As he knew that the plaintiff was also the sub-sub-contractor of the plaintiff at the site he did not stop him from doing that but he told his superior Tai about it.

39.  Sin was cross-examined but on these matters but, in my view, his evidence was not undermined.  I have no hesitation in accepting Sin as a witness of truth who has given credible and reliable evidence. I accept his evidence.  Tai also said that he never agreed to compensate the plaintiff for the sheet piles as Tin had said.  I believe him.  I reject Tin’s evidence on this issue.  I find that the sheet piles used by the plaintiff at the site were not taken from its own stock of old sheetpiles but were taken from the sheetpiles at the Tin Shui Wai project for use at the site.  The plaintiff has failed to establish its claim for this item.  The plaintiff is not entitled to the sum of $77,274 claimed for this item.

Idling period

40.  The plaintiff’s claim for this is the sum of $199,207.  The breakdown for this is given by Tin as follows :

41.  Tin gave evidence that he placed a general foreman at the site since 1 December 1999 and mobilized various plants and machineries on the site as particularized above. 

42.  Tai denied that the plaintiff was asked to commence the sub-sub-contract works on 1 December 1999. 

43.  It seems that the defendant was instructed by the Main Contractor to mobiliseon 29 January 2000.  This is confirmed in the letter dated 2 February 2000 from the defendant to the Main Contractor where the defendant stated, inter alia, that they have mobilized the sheet piling plant on 29 January 2000 as per the Main Contractor’s instructions.  This confirms that the site was mobilized on the 29 January 2000 and not before.  In my judgment, the plaintiff is entitled to claim for the idling period from 29 January 2000 but not before.

44.  The claim under this item is allowed in the sum of $149,207, namely, $199,207 less the claim for $50,000 for the general foreman from 1 December 1999 to end January 2000. I do not believe Tin when he said that a foreman was sent to the site from 1 December 1999 but I accept his evidence that the plant and equipment as particularized were left idling at the site from 29 January 2000 to 13 February 2000.  I am satisfied that the plaintiff is entitled to claim the cost of the same from the defendant.  The plaintiff is entitled to the sum of $149,207.

Loss of profit due to the omission of jacking shaft

45.  By letter dated 16 June 2000 from the Main Contractor to the defendant the Main Contractor deleted the pipejacking element from the sub-contract it had with the defendant.  The plaintiff was, therefore, not required by the defendant to construct the jacking shaft as orally agreed with the defendant.  This was a breach of the oral agreement and the plaintiff is, in my judgment, entitled to claim its loss of profit for the omission of the jacking shaft.  I have found that the price agreed for this was $350,000.  15% of the said sum as profit is reasonable as that was also the manner in which the defendant calculated its profit when presenting its bills to the Main Contractor for payment.  Tai also said that this was normal in the construction industry.  I would, therefore, allow the sum of $52,500 for this head, being 15% of the said sum of $350,000.

Settlement Agreement

46.  There is a dispute of fact as to whether there was a settlement agreement between the parties.  The defendant’s case is that at a meeting at the defendant’s office on or about 5 September 2001 attended by Yeo of the defendant, Tin and a staff of the plaintiff called Sam, the plaintiff agreed to accept the sum of $179,169.90 in full and final settlement of the plaintiff’s work done and materials supplied. This was denied by Tin when he gave evidence.

47.  Yeo was the Operations Director of the defendant from 1995 to 2003 and was stationed in Singapore.  He gave evidence that on or about 5 September 2001 he met Tin and a male staff of the plaintiff called Sam at the defendant’s office in Hong Kong.  They discussed the claims of the plaintiff and it was agreed that the claims between the plaintiff and the defendant should be settled based on the payment received from the Main Contractor less retention and deductions of materials.  The balance would be paid to the plaintiff within 10 working days.

48.  There is contemporaneous documentary evidence confirming that a settlement was arrived at with the plaintiff.  In his email to Tai, Yeo wrote as follows :

     “This is to confirm that on 5^th September 2001, it was agreed between Kin Wah’s Andrew Tin, his partner Sam and me that the following calculation was acceptable by them.  Please arrange payment for Kin Wah.

	FOR KCRC 402 ACCOUNT
	NAM CHEONG STATION YC-2.
Amount received from BBZP			HK$ 366,063-22
	Less retention 10%		HK$ 36,606-32
			________________
		Sub Total	HK$ 329,456-90
	Less Material (sheet pile)		HK$103,220-00
			________________
			HK$ 226,236-90
	Less L&M O/H		HK$ 47,067-00
			________________
			HK$ 179,169-90

I have agreed with them to pay within ten working days.”   

49.  In my judgment this confirms that there was a settlement agreement with the plaintiff reached on 5 September 2001 with the express condition that payment would be made within ten working days. Instead of making payment within the stipulated time, Tai on behalf of the defendant wrote to the plaintiff by letter dated 5 October 2001 asking for confirmation of the settlement in the said amount.  No payment was tendered or made to the plaintiff within ten working days or at any other time.

50.  On the issue of fact as to whether there was a settlement agreement, I prefer the evidence of Yeo to that of Tin. I believe Yeo and disbelieve Tin on this matter.  However, it is clear that the express condition of the agreement that payment would be made within ten working days was not observed by the defendant as it made no payment to the plaintiff within the stipulated time or at all.  In the circumstances, the settlement agreement came to an end and the plaintiff is not bound by the same.  The settlement agreement does not prevent the plaintiff from claiming the amounts that I have found that the plaintiff is entitled to.

Conclusion

51.  The plaintiff is entitled to the following sums :

52.  I give judgment to the plaintiff against the defendant in the said sum of $826,847.20 with interest thereon from date of writ i.e. 17 January 2003 at 1% above prime rate until judgment and thereafter at judgment rate until payment.  I also make an order nisi that the defendant do pay the plaintiff its costs of the action, such costs to be taxed on the High Court scale, if not agreed.