DECOR FLOORS ENGINEERING LTD v. WING HONG CONTRACTORS LTD AND ANOTHER

DCCJ31/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 31 OF 2003

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Judgment

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1. This is a claim for goods sold and delivered. The 1^st defendant (“Wing Hong”) was a contractor undertaking repair and maintenance work at various Government offices for the Architectural Services Department (“ASD”). It subcontracted the whole contract to the 2^nd defendant (“Tai Fong”). The plaintiff (“Décor”) was a supplier of carpeting. There is no dispute that in late 2001 and early 2002 Décor supplied carpet tiles and laid them in various Government offices, and that it is now owed money for its goods and services; but the dispute here is as to which defendant is liable. There are also third party proceedings between the two defendants, which originally formed part of these proceedings but were later severed and no longer come into the picture before me.

2. In brief, this case concerns four contracts. In all of them, the plaintiff issued a quotation addressed to Wing Hong. In the first three cases the quotation was signed as accepted by an officer of Tai Fong, who was authorised to represent Wing Hong for certain purposes and chopped with Tai Fong’s chop, and a 20% deposit was paid by Tai Fong. In the fourth case, the quotation was signed by the same person but chopped with Wing Hong’s chop. Carpet tiles were supplied and laid pursuant to the quotations, but full payment was not made. 

3. Décor’s case is that the first three contracts were made between it and Wing Hong, or alternatively between it and Tai Fong acting as Wing Hong’s agent, or in the further alternative between it and Tai Fong. In respect of these contracts, Décor claims an outstanding balance of $288,470.00 against Wing Hong or alternatively Tai Fong. As to the fourth contract, the plaintiff’s case is that it contracted with Wing Hong directly and it claims an outstanding balance of $8,256.00 against Wing Hong alone.

4. Wing Hong’s case is that none of the contracts was made between Décor and itself; they were all made between Décor and Tai Fong. The latter was its subcontractor and not its agent and did not contract on Wing Hong’s behalf. 

5. Tai Fong’s pleaded case is that the it was a term of the subcontract that it represent and conduct itself as Wing Hong’s agent in relation to the subcontract and the principal contract, and that the first three contracts were executed by itself as Wing Hong’s agent. Alternatively, the signatory of the contracts, Tai Fong’s employee Mr Man Sik Hang had been appointed to act as Wing Fong’s authorised representative in respect of the subcontract works including for the purchase of materials, and had entered into the contracts on Wing Hong’s behalf. Wing Hong had provided him with chops for this purpose. In fact, Tai Fong did not call any witnesses and counsel argued primarily that there was simply no evidence of any contract between Décor and Tai Fong, although the averments of agency were not abandoned.

6. The background facts are not in dispute or are incontrovertible on the documents. Wing Hong, which was a contractor approved by the ASD for Government contracts contracted with the ASD for maintenance of buildings in Kwun Tong, Mong Kok, Yau Ma Tei and Tsim Sha Tsui under contract no. TCK 031 dated 29 March 2001. Wing Hong subcontracted the whole of the works to Tai Fong, which was not a company approved by the ASD, under a subcontract dated 21 June 2001.

7. In brief, the arrangement under the subcontract was that Tai Fong was to do all the work and supply all the materials, except for some specific materials which were to be supplied by Wing Hong and which do not concern us here. Tai Fong got 96% and Wing Hong 4% of the price of the works paid by ASD. The works commenced in about May 2001. On 5 May 2002, Wing Hong terminated the subcontract on the ground of Tai Fong’s persistent failure to perform.

8. Under the provisions of the principal contract, Wing Hong was required to notify the ASD of the identity of its management staff. It provided to ASD an organisation chart of such staff, who were in fact all direct employees of Tai Fong. This chart showed the address of Wing Hong’s maintenance sub-office as Unit D2, 8/f, Hang Fung Industrial Building Phase 2, 20 Hok Yuen Street, Hung Hom (“the Hung Hom office”) which was in fact also the address of Tai Fong’s office. At the time of the contracts in this case, the name and logo of Wing Hong was displayed above that of Tai Fong outside the office and the two names were displayed together on the directory board on the ground floor of the building in which the office was situated.

9. Wing Hong also provided the persons named in the organisation chart with name cards bearing its own name and logo, and showing the holder’s position as contract manager, project manager or group representative. Some of these cards showed the address of Wing Hong’s principal office in Wanchai as well as that of the Hung Hom office; some showed only the latter address. According to Wing Hong, they were issued to identify the holders to ASD and to the occupants of the various Government offices at which maintenance work was required. Tai Fong also issued to its management employees similar cards, bearing Wing Hong’s name and logo, and in most but not all cases showing only the Hung Hom office address.

10. The four contracts under which Décor supplied and laid carpet tiles in Government offices under the main contract TCK 031 and the subcontract. In each case, the plaintiff issued a quotation to the 1^st defendant, as follows:

Quotation	Date	Price
Q20889R1YC	30 October 2001	$471,360.00
Q20666R2YC	28 November 2001	$125,975.00
Q20973R1ET	4 December 2001	$163,200.00
Q21137ET	21 February 2002	$97,290.00

11. Each of these quotations provided for payments of 20% on confirmation, 40% on delivery of the carpets and 40% on completion of the work, with 10% as retention money to be released 1 month after completion.

12. The first and second contracts were dealt with by Décor’s director Mr Yuki Chung Loi Lau; the “YC” on the quotation number is his code. The first quotation, dated 30 October 2001 was sent by fax and post to Wing Hong at the Hung Hom office, for attention of Mr Tsoi Chik Fu, a person named on Wing Hong’s organisation chart and name card as a group representative. The quotation was signed and chopped as confirmed and accepted and faxed back to Décor. The chop is not that of Wing Hong, but Tai Fong. The signature is that of Mr Man Sik Hang, a direct employee of Tai Fong who was shown on Wing Hong’s organisation chart and name card as a project manager of Wing Hong.

13. Décor issued an invoice dated 5 November 2001 ad addressed to Wing Hong for the 20% down payment. This sum was paid by a cheque drawn by Tai Fong and dated 15 November 2001. Décor accepted this cheque. It delivered the carpet tiles to the site with a delivery note addressed to Wing Hong dated 19 December 2001; the note is signed to acknowledge receipt by an unknown person and bears no chop. Décor further issued to Wing Hong invoices dated 17 December 2001 for the 40% of the price due on delivery of the carpets and 14 May 2002 for the 40% due on completion of the work.

14. The second quotation was likewise sent by Mr Yuki Chung to Wing Hong at the Hung Hom office for attention of Mr. Edmond Tse, which appears to be the English name of Mr Tse Choi Lam who is also identified by the organisation chart and name card as a group representative of Wing Hong. It was returned signed by Man Sik Hang and chopped with a Tai Fong chop.

15. Décor issued an invoice dated 1 December 2001 addressed to Wing Hong for the 20% down payment. This sum was paid by a cheque dated 17 December 2001 drawn by Tai Fong. Décor accepted this cheque. It delivered the carpet tiles to the site with a delivery note addressed to Wing Hong dated 2 January 2002, but this too is signed by an unknown person and not chopped. Décor issued to Wing Hong an invoice dated 3 January 2002 for the 40% of the price due on delivery of the carpets and two dated 1 June 2002 for 30% due on completion of the work and 10% retention money.

16. The third quotation was prepared by Décor’s sales executive Mr Escort Tam Kin Hung (“ET” in the quotation number), signed by Mr Yuki Chung and likewise sent to Wing Hong at the Hung Hom office, for attention of Mr Tse Choi Lam. It also came back signed by Man Sik Hang and chopped by Tai Fong. Décor issued an invoice dated 11 December 2001 addressed to Wing Hong for the 20% down payment. This sum was paid by a cheque dated 26 December 2001 drawn by Tai Fong. Décor accepted this cheque. It delivered the carpet tiles to the site with a delivery note addressed to Wing Hong dated 28 February 2002, but this too is signed by an unknown person and not chopped. Décor issued to Wing Hong a series of invoices for different amounts, totalling the 40% of the price due on delivery of the carpets and the first of these, for $6,912.00 was met by Tai Fong’s cheque dated 1 March 2002. Décor also issued to Wing Hong invoices dated 1 and 12 June 2002 totalling the 40% due on completion of the work.

17. When Décor received the cheques drawn by Tai Fong mentioned above, it issued a receipt addressed in one case to Wing Hong and in the others to Wing Hong (Tai Fong). The address on the receipts was the Hung Hom address.

18. The fourth quotation was likewise prepared by Mr Escort Tam. It was signed by Man Sik Hang, but it bears a chop in the name of Wing Hong. No down payment was made on confirmation but Décor delivered the goods with a delivery note to Wing Hong dated 22 April 2002. As with the other contracts the invoices were issued to Wing Hong.

19. In about April 2002, Décor suspended work on the ground that it was not being paid for the carpet tiles. There were some negotiations between Décor and Wing Hong. Meanwhile on 5 May 2002 Wing Hong terminated the subcontract with Tai Fong. Between March and May 2002 Wing Hong issued three cheques in favour of Décor, the proceeds of which were applied towards the four contracts. The cheques were as follows:

18 March 2002	$246,614.00
30 April 2002	$197,217.60
17 May 2002	$49,356.00

20. I will deal with the parties’ evidence as to the reasons for and effect of these payments below.

21. Dealings between the parties, whereby Décor supplied and laid carpet tiles in Government offices commenced in about May 2001. Documents have been put in evidence showing the course of dealings which is relevant to what happened in connection with the contracts which are the subject of these proceedings, so I will set them out here. In each case, a quotation was issued by Décor addressed to Wing Hong at the Hung Hom office. As with the contracts which are in dispute the terms of the quotation required payments on confirmation, delivery completion. In each case the quotation was returned to Décor, signed as “confirmed and accepted” and chopped with Wing Hong’s chop. However, payments were made by Tai Fong or in some cases by other companies. The quotations and payments were as follows:

22. “Headway” is Headway Construction Engineering Ltd. and “Wa Sang” is Wa Sang (Hong Kong) Engineering Co. Ltd. The first payment shown above was apparently covered by a cheque for $105,984.00 drawn by Tai Fong. There is also a cheque dated 30 May 2001 for $141.360.00, drawn by Tai Fong and this appears also to be related to the quotations dated in May 2001 although I am not quite clear as to how it is related. Nor am I clear as to which of these cheques, if any relates to quotation no. Q20537R1ET. In any event, the point is that in these various transactions Décor issued a quotation to Wing Hong, which apparently accepted it; but payment was made, in whole or in part by Tai Fong or another company. Where part payment is concerned, it is not clear who paid the balance. But there is no dispute that for all of these transactions, Décor was paid in full.

23. Evidence for Décor comes from Messrs Yuki Chung and Escort Tam. In brief, Mr Chung says that he was contacted by one Walter Lun who claimed to be employed by Wing Hong and produced his business card with Wing Hong’s name and logo on it. Walter Lun told him that Wing Hong was an approved ASD contractor. He said that Tai Fong was a subcontractor but he did not say for which contract Tai Fong was engaged as such. Mr Chung made quotations to Wing Fong at Mr Lun’s request. Later Mr Chung found out that the two companies had the same office; their names were displayed at the Hung Hom office. He saw the signs when he went there. His signature appears on the various quotations sent out in May, June and July 2001 which had come back signed and chopped on behalf of Wing Hong; and he had accepted the cheques from Tai Fong and Wa Sang because to his knowledge it was common in the trade for different company names to be used on the contract and for actual payment.

24. Mr Chung sent the quotation dated 30 October 2001 to Wing Hong for the attention of Mr Tsoi Chik Fu because the ASD had given him that person’s name and asked him to call Mr Tsoi at the office; Mr Lun worked on site. When the quotation came back, he saw that it was chopped and signed for Tai Fong and not Wing Hong; so he contacted Mr Lun and asked for Wing Hong’s chop to be put on instead. Mr Lun told him that he should go ahead, there was no problem, and payment would be made and also said that the Wing Hong chop would be put on the document. As to the cheque he accepted it because of his belief that it was common in the trade for different names to be used, because this had happened in the earlier cases and because once the cheque came in Décor’s accountant would contact the number on the quotation, i.e. the telephone number of the Hung Hom and confirm that the cheque could be paid in.

25. Mr Chong’s evidence in respect of the second quotation was the same. This time he had sent it for the attention of Edmond Tse because Mr Tsoi had given him that name, by telephone. On seeing the chop of Tai Fong he had again contacted Walter Lun, been told the same story and given the same assurances.

26. Mr Chong did not prepare, but did sign, the third and fourth quotations. Apparently he told Mr Escort Tam who had prepared the document to find out why the Tai Fong chop was on it. The fourth quotation came back with a Wing Hong chop on it, but this was after various telephone conversations with the people at the Hung Hom office in which Décor had threatened to stop delivering carpet tiles unless it got the quotations back chopped by Wing Hong.

27. Mr Chong went on to say that after Décor had stopped working, because it was not being paid, he had a meeting with a Mr Leung of Wing Hong, at the latter’s office in Wanchai. Mr Leung asked him to prepare four new contracts, to replace the original ones, and he did so, but ultimately Mr Leung refused to sign them. He received the cheques from Wing Hong, which are set out above, at this and subsequent meetings; according to him, Wing Hong agreed to pay directly. Under cross-examination, he did not accept that Wing Hong paid on behalf of Tai Fong, with the intention of back-charging Tai Fong for what it paid. Invoices remained outstanding and Mr Chong instructed Décor’s solicitors to send a letter of demand, not to Wing Hong but to Tai Fong; he said that he did this because Mr Leung had told him that if Décor issued a letter to Tai Fong to demand payment, Wing Hong would have sufficient reason to pay on behalf of Tai Fong; and Wing Hong would be able to receive interest.

28. Mr Escort Tam also gave evidence. According to him, he had had many contacts with the staff of Wing Hong at the Hung Hom office, which he visited frequently; he had received business cards from them including one from Mr Man Sik Hang which bore the Wing Hong name and logo. He had never received any cards bearing Tai Fong’s name. At the Hung Hom office both the company names were displayed, with that of Wing Hong above that of Tai Fong. He gave evidence of his dealings with Wing Hong in connection with the earlier contracts. He had also dealt with the third and fourth of the contracts which are concerned here. When the quotation for the third contract came back, he saw that it bore the Tai Fong chop; he told Mr Chong who instructed him to tell Wing Hong to change the chop. He telephoned Mr Tse Tsoi Lam at the Hung Hom office about this, and Mr Tse said that he would follow it up. Then about a week before he issued the quotation for the fourth contract, he telephoned Mr Tsoi and told him not to use Tai Fong’s chop again; and on this quotation, Wing Hong’s chop was affixed.

29. It appears from cross-examination that Mr Tam’s first contacts with the Hung Hom office were with a Mr Lai and Mr Man Sik Hang. He was told that they worked for Wing Hong, and that is what he thought all along.

30. Both witnesses were of course cross-examined at length and I do not propose to rehearse all their evidence here. In brief, they both admitted that about half of Décor’s business was done with subcontractors; but they both insisted that they did not know, or even consider the possibility that Tai Fong was Wing Hong’s subcontractor, rather than simply a related company. They thought that they were dealing with Wing Hong all along; and it did not bother them that cheques came from Tai Fong or even the other companies Headway and Wa Sang, because it was common in the building trade for this to happen. I will deal with other aspects as necessary in evaluation.

31. Evidence for Wing Hong came first from its senior quantity surveyor, Mr Chiu Koon Tung. His evidence was concerned mainly with the terms of the principal contract and the subcontract, and what he thought they meant. He also spoke to the steps taken by Wing Hong, when it found out in about August 2001 that Tai Fong was using its name to buy supplies. By a letter dated 6 August 2001 Wing Hong reminded Tai Fong that it must use its own account for material purchasing except for materials or services covered by Clause 6.1 of the General Conditions of the subcontract. Also Wing Hong sent Tai Fong a letter in Chinese, dated 1 September 2001 in the following terms:

Matters relating to purchasing materials in the name of our company

Our company hereby informs your company that in relation to the above project, if your company needs to purchase any materials and to enter into any contracts in relation to the purchasing of such materials in the name of our company, your company shall inform our company and provide to our company particulars in relation to that and also submit a copy of the contract beforehand as a record.

If your company enters into a contract to purchase goods and materials in the name of our company without providing the relevant information to our company first, then our company would reserve the right to claim against you.

32. So far as the contracts concerned here were concerned, Mr Chiu identified the signature on them as that of Mak Sik Hang of Tai Fong. He said that Wing Hong had never authorised the contracts and never knew anything about them until the supplier later demanded payment. Generally, he said that Tai Fong had never been authorised to contract on Wing Hong’s behalf. Nor had it been supplied with any chops in Wing Hong’s name.

33. In cross-examination Mr Chiu agreed that Wing Hong had provided name cards bearing its name and logo to the various employees of Tai Fong at Tai Fong’s request, because these people had to “contact the ASD and follow up matters in relation to the works”. Later he said that the cards were also provided so that the employees of Tai Fong could identify themselves to the occupants of the Government offices where the works were to be done. But there was no clear or written instruction that the cards were not to be given to material suppliers and it was possible that this could happen. It was also possible that if Tai Fong’s people said they were from Wing Hong, the suppliers would give more favourable terms. Indeed, it appears from later correspondence that Tai Fong claimed that most suppliers were unwilling to contract with it directly. From Wing Hong’s point of view however, there was no need for Tai Fong’s people to say they were from Wing Hong, because Tai Fong was in any event responsible for paying for the supplies. However once it was known that this was happening, no positive action was taken to inform the various suppliers that they were not contracting with Wing Hong but with Tai Fong.

34. Mr Chiu also agreed that he “probably” knew that in May 2001 there was a signboard on the on the ground floor of the building at the Hung Hom address showing both Wing Hong and Tai Fong as occupying the same unit; that he knew that Tai Fong’s address was that same unit; that Wing Hong, knowing this gave the name cards of Wing Hong to the officers of Tai Fong operating there; and that Wing Hong had no complaints that the signboard showed that both companies occupied the same unit, at any rate until after the subcontract was terminated and the signs were taken down.

35. Mr Leung Chu Kai, Wing Hong’s purchasing manager, gave evidence of his dealings with Mr Yuki Chung in May 2002. According to him, it was agreed that Wing Hong would be liable for materials ordered by Tai Fong but only after 5 May 2002, when the subcontract was terminated. Any amount so paid would be “back-charged” against Tai Fong’s receivables. It was on this basis that the payment of $49,536.00 was made. So far as the new or duplicate contracts were concerned Mr Leung said that Mr Chung had produced these; he did not ask for them; and he would not sign them because they were “a nonsense”; Wing Hong never intended to pay for materials bought by Tai Fong before 5 May 2002.

36. Mr Yiu Kai Yeuk, Wing Hong’s project director, also gave evidence. As with Mr Leung his evidence did not directly relate to the contracts concerned here but rather to the background and no doubt the statements of these witnesses are primarily concerned with the questions between Wing Hong and Tai Fong to be decided in the third party proceedings. In brief his evidence was that Tai Fong asked, as early as November or December 2001 for Wing Hong to make advances to it by way of direct payments to materials suppliers, which would then be back-charged against Tai Fong’s receivables, with a 3% handling charge added. It was on this basis that the three payments set out above were made between March and May 2002.

37. Mr Yiu also said that Wing Hong never authorised Tai Fong or its officers to contract in Wing Hong’s name. Wing Hong learnt that Man Sik Hang had been signing quotations from suppliers in Wing Hong’s name and after that, key officers of Tai Fong were warned verbally against doing this in future; to which those officers agreed. Other warning letters than those to which I have referred above were also sent; although it appears that most of these were sent in mid-2002.

38. Mr Chong’s credibility is attacked particularly because of the solicitor’s correspondence which went first to Tai Fong. If he knew or thought that he was dealing with Wing Hong, why send solicitor’s letters to Tai Fong? I think the answer lies in what Mr Fong says he was told by Mr Cheung, namely that if he did that Wing Hong would have sufficient reason to pay on behalf of Tai Fong; and Wing Hong would be able to receive interest. This is consistent with Wing Hong’s own evidence about the back-charging arrangements into which it was prepared to enter.

39. Generally, I found both Mr Chong and Mr Tam credible on the point of what they understood and did at the time when the four contracts came into being. Maybe Mr Chong took a different tack later, but that does not affect the situation when the contracts came into being. I accept that at that stage Décor, through its employees intended to contract with Wing Hong and did not know anything about Tai Fong except that it occupied the same office. It could have been a subcontractor, or simply a related company. I accept that it is common for a company to pay a debt with a cheque drawn by a related company; it is a situation which commonly appears in evidence before the courts.

40. There are three questions for decision here. The first is whether the four contracts were made directly between Décor and Wing Hong; this is Décor’s primary case on the pleadings, but not in argument. The second is whether the contracts were made directly between Décor and Tai Fong; Wing Hong argues that this may be the case and in any event there was no direct contract between Décor and itself. The third is whether Tai Fong or its officer Man Sik Hang entered into the contracts as agent of Wing Hong.

41. The defendants rely heavily in argument on the case of Shogun Finance Ltd v Hudson, 2004 1 AC 919 (HL) on the question of the intention of parties to a contract to contract with one another, or with someone else. In particular counsel for Tai Fong, Mr Lam, relies on Lord Millet’s dictum at page 948-949 that

“It is not possible for a person to accept an offer made to someone else, or to intercept an acceptance of someone else’s offer and treat it as an acceptance of his own”.

42. It is said that the contracts must be interpreted according to what is on the face of them and, of course, by reference to the background factual matrix; the parties’ own subjective views being irrelevant and inadmissible. In the first three contracts, at any rate, there was an offer by Wing Hong and an acceptance by Tai Fong. There could be no contract between Décor and Wing Hong. At best, says Mr Wright for Wing Hong,  the acceptance by Tai Fong could be treated as a counter-offer, accepted by the conduct of Décor in accepting Tai Fong’s down payments. However, says Mr Lam, there could be no contract between Décor and Tai Fong because all along, Décor intended to contract with Wing Hong; it sent delivery notes, further invoices and demands to Wing Hong and Tai Fong never came into the picture.

43. All the evidence from Décor’s witnesses points to an intention to deal with Wing Hong; all they knew about Tai Fong was that it occupied the same office, and sometimes paid cheques in Décor’s favour for materials and labour which, as far as it was concerned was supplied to Wing Hong. This is indeed what the documents show. There is nothing to show that, once Décor got back the quotations with Tai Fong’s chop on them, they took this as an offer from Tai Fong and accepted it by conduct; what its officers did was to demand, unsuccessfully until the fourth contract, confirmation from Wing Hong and to deliver the goods to, and demand further payments from Wing Hong. If Tai Fong intended to deal directly with Décor – and of course there is no evidence from Tai Fong as to its intentions – this was never known to Décor. So it seems to me that, though the proposition is a tempting one, and would accord with the way the subcontract was supposed to work, a direct contractual relationship between Décor and Tai Fong has to be ruled out.

44. There was also no direct contractual relationship – in the sense of a relationship which came into being directly rather than through an agent – between Décor and Wing Hong. Although Décor thought that it was dealing with Wing Hong, Wing Hong had no intention to deal with Décor. Its intention, as appears from the subcontract, was that Tai Fong should buy the materials. It was possible, as appears from the letter dated 1 September 2001 for Tai Fong to get Wing Hong’s agreement to use its name so that Wing Fong would pay for materials, subject to back-charging. This does not appear to be restricted to the situation where Wing Hong had to provide materials under Clause 6.2 of the subcontract. But it would only come about where Wing Hong had agreed and Wing Hong’s evidence, which is not contradicted, is that it had not.

45. I turn to the question of agency. Article 73 of Bowstead and Reynolds on Agency, 17^th Ed. at para 8-001 says

(1) A disclosed principal, whether named or unnamed, may sue or be sued on any contract made on his behalf, and in respect of any money paid or received on his behalf, by his agent acting within the scope of his actual authority or whose acts are validly ratified.

Article 74 of the same work at para 8-013 says

Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority.

46. Wing Hong and Tai Fong appear to have followed the building industry practice of “borrowing a shell” or “licence borrowing” described by H. H. Judge Carlson in Atal Engineering Ltd. v Evergreen Engineering and Construction Co. Ltd. [2004] HKEC 786 whereby a main contractor substitutes a subcontractor for itself, for the purpose of carrying out works, at a price a few percentage points lower than its price to the employer, and makes its own profit by virtue of having been awarded the main contract. So far as the employer is concerned the works are done for it by the main contractor; and the employer is commonly unaware of the existence of the subcontractor.

47. In this connection Special Condition SCSC1 of the subcontract is significant. It appears in Schedule II along with a note of the services and materials to be provided by Wing Fong. It reads

Confidentially [presumably this means “Confidentiality”]: The Sub-Contractor shall at all times represent and conduct themselves on this Project, including his employees and sub-contractors, as agents of the Company and shall keep the existence and terms of this Agreement confidential.

48. In this case Wing Fong certainly held out Tai Fong’s management staff, including Man Sik Hang as its representatives to the employer, the ASD. As was required by the main contract, it held out persons identified as project managers as assisting the contract manager in managing and co-ordinating the builders’ works and it held out those identified as group representatives as assisting the project managers for all project matters including acquisition of materials. Some attempt was made on Décor’s behalf to say that this gave these officers actual authority to acquire materials on Wing Hong’s behalf, but I do not see that that can be right, because overall it was Tai Fong’s responsibility to acquire and pay for the materials, except, as I have noted above, where Wing Hong agreed to do so and then back-charge for them.

49. I do not see that Tai Fong or its employees (specifically Mak Sik Hang and the two group representatives who dealt with the contracts) had actual authority to contract on behalf of Tai Fong. However, the question remains whether they had the “apparent” or “ostensible” authority referred to in Bowstead and Reynolds’ Article 73.

50. Such authority of course requires in the normal way a representation by the principal and not the agent. See Bowstead and Reynolds para. 8-022:

As already stated, the essence of apparent authority is an appearance emanating from the principal. Therefore the representation must be made by the principal or by another agent authorised to act for the principal, as described above. It is usually said that a representation by the agent himself that he has authority cannot create apparent authority in him, unless the principal can be regarded as having in some way instigated or permitted it, or put the agent in a position where he appears to be authorised to make it…. [My emphasis]. 

51. The learned authors cite AG for Ceylon v Silva [1953] AC 461 at 479 as authority for the last sentence shown above. They go on to say that “pragmatic exceptions eat into the principle” that the representation must come from the principal and not the agent. It seems to me that a pragmatic exception exists here.

52. Wing Hong held out Tai Fong’s staff as its own, and Tai Fong’s office as its own, to the ASD. It is true that it did not hold them out directly to anyone other than ASD in the sense that the organisation chart was only given to ASD. But Wing Hong gave Tai Fong’s staff name cards which bore to show that they were its project managers, group representatives and so on, without giving clear instructions that such cards were only to be used to identify those persons to ASD or the occupiers of Government offices where they were to work. Moreover Wing Hong provided these cards in the knowledge that the persons to whom they were provided were operating out of an office which bore to be Wing Hong’s office. In other words, any third party dealing with a person in that office, who produced such a name card would naturally conclude that he was dealing with a representative of Wing Hong.

53. Lastly, there is the confidentiality clause set out above. Wing Hong placed a positive duty on Tai Fong and its employees to represent and conduct themselves as its agents for the project and to hide the fact of the subcontract. The point has not been canvassed but I can find nothing to show that this duty of confidentiality was restricted only to keeping the subcontract secret from the ASD, and not from third parties. Indeed, it appears that the earlier contracts with Décor where the quotations were signed by Tai Fong’s employees, but chopped with Wing Hong’s chop were entered into precisely on this basis.

54. In the circumstances, it appears to me that while the representation was made by Tai Fong, Wing Hong instigated or permitted it, or put Tai Fong in a position where it appeared to be authorised to make it. I take the point that the agent cannot “pull himself up by his own shoelaces”, to use the words of Lord Donaldson in United Bank of Kuwait Ltd. v Hammond & Ors, [1988] 1 WLR 1051 at 1066 but in this case, to extend the metaphor, Wing Hong practically handed Tai Fong the shoelaces, and told it to pull. It therefore seems to me that Wing Hong must be liable to Décor on the basis of Tai Fong’s ostensible authority.

55. It follows that Décor succeeds against Wing Hong and is entitled to judgment. There will be judgment for Décor against Wing Hong for $296,726.00.00 with interest at the prime rate plus 1% from the date of the Writ to the date of judgment and thereafter at the judgment rate until payment. Décor fails against Tai Fong on its alternative claims and those claims are dismissed.

56. As to costs, it seems to me that the position is this. Décor must in any event have its costs against Wing Hong, on the basis that costs will follow the event. Because Décor sued the two defendants in the alternative, that same principle would require that Tai Fung should have its costs against Décor. However, that seems to me to be an unjust result.

57. There was never any dispute that Décor supplied and laid the carpet tiles. It should have been paid for them. To that extent, this case did not simply have an air of unreality. It was a nonsense. In the normal way, Tai Fung should have paid, as it was required to under the subcontract as part of its outgoings. But it did not. Alternatively, Wing Hong should have paid Décor, and back-charged against Tai Fong; as indeed it purports to have done in respect of the three cheques which it paid. If it charged 3% that would amount to the princely sum of $8,901.78 p.a. What and how much it may recover from Tai Fong is of course a matter for the third party proceedings and not for me.

58. Either way, Décor should never have been kept out of its money, and put to the invidious choice of suing one defendant or the other. No doubt it might have succeeded against either. It has succeeded against Wing Hong; but as Mr Wright pointed out it could have claimed against Tai Fong on the basis of breach of warranty of authority. If it had pleaded that, it might have got judgment against Tai Fong as well; but it did not.

59. Whoever it succeeded against, I do not see why Décor should have to pay the price of being put in the position of having to make the invidious choice. For that reason I will depart from the principle that costs should follow the event. I order that Wing Fong pay Décor’s costs of the action to be taxed if not agreed, with certificate for counsel but that there be no order for costs in favour of Tai Fong against Décor. In the pessimistic expectation that this order will engender dissatisfaction, and long and costly further argument, I make the costs orders nisi.