CHAN TUNG LOI AND ANOTHER v. WING HONG CONTRACTORS LTD AND OTHERS

HCA1751/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTIONNO. 1751 OF 2002

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JUDGMENT

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1.  In this action, the plaintiffs claim against the 1^st defendant for the sum of HK$797,000, being the balance of the price of work done pursuant to two contracts.  The core dispute is whether in making the two contracts with the plaintiffs, the 2^nd and 3^rd defendants were in fact and in law the agents of the 1^st defendant

Background

2.  The 1^st named plaintiff (“Chan”) and the 2^nd named plaintiff (“Tsoi”) are the partners of Tung Yin Civil Engineering Company (“Tung Yin”) and carry on the business of construction work.

3.  The 1^st defendant (“Wing Hong”) was engaged by the Territorial Development Department as the main contractor under a minor works contract no. KL33/2000 executed on 11 September 2000 (“TDD Contract”).

4.  By a Term Contract for Minor Works for 2000-2002, Wing Hong subcontracted to the 2^nd defendant (“Ko”) some of the works under the TDD Contract.  The Term Contract was terminated by Wing Hong in April 2002.

5.  Ko and the 3^rd defendant (“TK Chan”) are the partners of a company called Great Wall Engineering Co. (“Great Wall”).  By another Term Contract for Minor Works, Wing Hong also subcontracted to Great Wall works under the TDD Contract.

6.  Between the end of 2000 and March 2001, Chan had undertaken four jobs that were part of the works under the TDD Contract. It is the plaintiffs’ case that they carried out these jobs for Wing Hong.  Wing Hong however says that the four jobs were sub-contracted by Ko to Chan.

7.  Thereafter, the plaintiffs had prepared two quotations dated 3 April and 24 August 2001 respectively (“the 1^st Quotation” and “the 2^nd Quotation” respectively).  Both relate to works to be carried out at Man Kwok Village, Sheung Shui (上水文閣村).  Ko had signed on the 1^st Quotation as “confirmor” (確認人) on 10 May 2001.  As for the 2^nd Quotation, TK Chan had signed on it.

8.  It is not disputed that the plaintiffs and their workers had carried out works at the Man Kwok Village construction site under the 1^st and 2^nd Quotations.  The plaintiffs had produced two invoices for the works done.  The first is dated 12 September 2001 covering works carried out from April to August 2001.  Ko and TK Chan had signed on it.  The second is dated 4 December 2001 covering the works from September to 4 December 2001.  It is Wing Hong’s case that it had never received the invoices.  The total price for the work done amounts to HK$1,170,900, of which HK$373,000 had been paid, leaving an unpaid balance of HK$ 797,900.

The plaintiffs’ claim

9.  The plaintiffs issued the Writ herein on 9 May 2002.  The plaintiffs’ pleaded case against Wing Hong on the unpaid balance of the price is that Ko signed the 1^st Quotation as the foreman of Wing Hong whereas TK Chan signed the 2^nd Quotation as an agent of the Wing Hong.

10.  Alternatively, the plaintiffs claim against Ko and TK Chan for damages in breach of warranty of authorization in the event that they were found to have signed the agreements without the authority.

11.  On 5 May 2004, the plaintiffs wholly discontinued their claim against Ko and TK Chan with no order as to costs.

The 1^st defendant’s defence

12.  Wing Hong denies that Ko and/or TK Chan are its foremen or agent.  It says that Ko is one of the sub-contractors under TDD Contract and that the 1^st and 2^nd Quotations are contracts between the plaintiffs and Ko or TK Chan.      

The issues

13.  The main issue for resolution at trial is whether Wing Hong is contractually liable to pay the plaintiffs for the work they rendered under the 1^st and 2^nd Quotations.  There are in turn two sub-issues:

(1)     Whether, as a matter of fact, Ko and/or TK Chan were the agents of the Wing Hong and had actual authority to enter into contracts with the plaintiffs.

(2)     Whether, as a matter of fact and law, Ko and/or TK Chan had been held out by Wing Hong having the authority to enter into the contracts on behalf of Wing Hong.

The determination of these issues turns largely on the credibility of the witnesses.

The witnesses and the evidence

14.  Both Chan and Tsoi had given evidence.  According to Chan, he had known Ko for many years and he used to work as a foreman for Ko until Ko’s company went into liquidation.  Chan said that in about the end of 2000, Ko asked him to take up some temporary jobs of his employer, Wing Hong.  Subsequently, Chan was given the contracts for the four jobs referred to in paragraph 6 above to sign.  Chan stated that he did not know the contents of the contracts, as he was illiterate. Then in December 2000, Ko took him and Tsoi to see Mr Siu Wang Chi (“Siu”), a contract manager of the defendant.  Siu told Chan and Tsoi to form a company and to obtain a business registrationbefore they could subcontract works from Wing Hong.  Chan and Tsoi therefore formed Tung Yin and eventually did the business registration in February 2001. 

15.  Meanwhile on 15 December 2000, Chan went to the office of Wing Hong to sign a contract for the works at Ming Kam Road (明琴路).  On that occasion, Siu told Chan that Ko had full authority to represent the defendant to enter into contract.  Ko then also gave Chan his name card, which described him as a foreman of Wing Hong.  

16.  It is Chan’s testimony that in about March 2001, Ko asked Chan to prepare a quotation for the works in Man Kwok Village.  Chan therefore prepared the 1st Quotation.  On 10 May 2001, they went to Wing Hong’s office and discussed with Siu the contents of the 1^st Quotation.  Upon reaching agreement, Siu instructed Ko to sign on the 1^st Quotation, saying that Ko had full authority to enter into contract on behalf of Wing Hong.

17.  Chan said that in July 2001, Ko brought TK Chan to the site and introduced him to the plaintiffs.  Ko told Chan that TK Chan was a foreman of Wing Hong and was in charge if the Sheung Shui site on behalf of Wing Hong, and that he could be contacted for any matters relating to the works and payments.  Chan said he was led to believe that TK Chan was an agent and represented Wing Hong.

18.  Chan stated that because payments for the works of Man Kwok Village were falling behind, he and Tsoi had gone to Wing Hong on a number of occasions to look for Ko and to chase for payments.  On one of these occasions, Siu gave TK Chan some money, which was in turn passed to them.  On another occasion on 22 August 2001, Ko asked Siu to see Chan and Tsoi, during which Siu gave a $100,000 cheque to Chan directly, and on Ko’s request, Chan signed and gave a receipt to Siu.  Siu further assured them that Wing Hong would settle all the payments upon completion of the works.  According to Chan, since November or December 2001, they had not been able to contact Ko.  After the works were completed on 4 December 2001, Chan and Tsoi went to Wing Hong again for payment and were told by Siu to wait.  Then on 11 January 2002, they went to Wing Hong to look for Siu.  Siu located TK Chan and further told TK Chan to issue a cheque for $73,000 to Chan.  However, several days later, when they went to Wing Hong again, Siu gave them a name card of TK Chan, telling them that TK Chan was a subcontractor and they should look to him and not Wing Hong for payment.

19.  In cross-examinations, Chan was referred to the receipts for the payments paid to him and the plaintiffs.  They were either made out in favour of Great Wall or TK Chan.  Although he did not dispute that he had received the payments mentioned in the receipts, Chan had reservations whether the signatures on some of the receipts were his.  He also stated that he was not aware of the contents, as he was illiterate.

20.  Tsoi’s account is similar to Chan.  He was present on occasions when Chan signed the four contracts and on occasions when Chan signed receipts and received payments.  He confirmed that before Ko signed the 1^st Quotation, Siu had told them that Ko had the authority to sign.  In addition, Tsoi testified that on 24 August 2001, because Chan was out of Hong Kong, he went to Wing Hong’s office to submit the 2^nd Quotation to Siu and TK Chan.  After they had agreed on the contents of it, Siu instructed TK Chan to sign on the 2^nd Quotation. Tsoi also said that he had brought the invoice dated 4 December 2001 and shown it to Siu sometime after the works had been completed.  Although he can read and write Chinese and had prepared some documentations (e.g. payment records and invoices) for Tung Yin, Tsoi said he did not draft the 2^nd Quotation and had not read the receipts signed by Chan.  Hesaid that although he was together with Chan when Chan signed receipts for the sums received, he had not looked at the receipts.

21.  Wing Hong had called two witnesses, Mr Tong Wai Man (“Tong”) and Siu.  Tong is the quantity-surveying manager of Wing Hong. He works under Siu and is responsible for handling payment applications and certificates under the TDD Contract.  He testified that Ko was a subcontractor of Wing Hong and TK Chan was Ko’s partner.  Tong explained that Wing Hong had subcontracted the works under the TDD Contract to five subcontractors and Ko was one of them. After May 2001, in view of his unsatisfactory performance, Wing Hong did not subcontract further works to Ko.  Instead the works were subcontracted to Great Wall. 

22.  Tong explained that in order to enable Ko to directly respond and deal with the TDD in relation to the subcontracted works under the TDD Contract, Wing Hong had issued name cards to Ko describing him as the general foreman.  According to him, it had been the practice of Wing Hong to issue name cards for its subcontractors in relation to government contracts. 

23.  Tong also testified that as a result of discovery in this action, he came to know that Ko had further subcontracted some of the works to Chan under four contracts dated 15 December 2000, 26 March 2001, 15 and 30 December 2001.  It was also through discovery that he came to see the 1^st and 2^nd Quotations.  Tong testified that Wing Hong had never received the two invoices prepared by the plaintiffs.  Tong stated that upon Ko’s request by letter dated 22 August 2001, Wing Hong had made an advancement of $100,000 to Ko.  On Ko’s instruction, the payment was made directly to Chan.  This was also the first time he realized that Chan was involved in the works of the TDD Contract.

24.  As for Siu, he is the contract manager of Wing Hong, responsible for supervising and approving payment applications. His version is diametrically different from that of Chan in relation to the encounters he had with Chan and Tsoi.  According to Siu, he first saw Chan and Tsoi in June or July 2001 when they came to Wing Hong looking for him.  On that occasion, Chan and Tsoi said that they had worked for Ko on the TDD Contract but had difficulties getting payments. Siu told them to discuss the matter with Ko as his contract was with Ko. Thereafter, he spoke to Chan twice on the telephone when Chan enquired whether TDD had made payment for the works.  Siu denied having seen Chan and/or Tsoi before Ko and TK Chan signed the 1^st and 2^nd Quotations.

25.  As for the $100,000 payment made to Chan on 22 August 2001, Siu said that was as a result of Ko’s request for a loan.  He said Ko first made the request orally on about 18 August 2001.  He then sought the approval of Wing Hong’s director.  When the papers and cheque were prepared, Ko went to Wing Hong on 22 August 2001 to collect the cheque and signed the written request for the loan.  Siu explained that the cheque was made directly to Chan so as to ensure that the money would not be used for purposes other than paying Ko’s workers.  Siu denied he had seen Chan or Tsoi on the day or had asked Chan to give a receipt.

26.  Siu also denied that he had on one occasion given cash to Ko to be given to Chan.  According to Siu, at a meeting in November 2001 attended by Chan and Tsoi and a Mr Lau, he had told them that Wing Hong did not owe Ko any money and he also showed them Ko’s requests for loan and the payment certificates.  As for the occasion that TK Chan came to Wing Hong to meet Chan and Tsoi in January 2002, Siu said that he was merely present and did not fully know what was discussed because the three spoke in a dialect that he did not completely understand.  He denied he had asked TK Chan to issue a cheque to Chan.

Assessment of evidence and credibility

27.  When approaching and assessing the evidence and the witnesses’ credibility, I have born in mind that Chan is not an educated person and can barely read and write. It is also clear that he is not a sophisticated or articulated person and he is not good at dealing with dates. Similar observations can also be made about Tsoi.  Nevertheless, when their evidence are analyzed and tested against other objective evidence and contemporaneous documents, it appears that their accounts of the events are inherently incredible.  Mr Wong has in his final submissions set out in great details his arguments on this point.  It is not necessary to repeat them, but only to set out the major and prominent ones as below.

28.  Chan and Tsoi’s evidence that Ko and TK Chan were agents of Wing Hong and the 1^st and 2^nd Quotations were contracts made with Wing Hong are simply not borne out by the documentary evidence.  Firstly, the 1^st Quotation makes no reference to Wing Hong at all.  Although the name of Ko appeared on it, he was not described as acting for and on behalf of Wing Hong.  Secondly, the 2^nd Quotation likely did not indicate that it was a contract with Wing Hong, although it contains a reference to “Wing Hong project”.  On the contrary, it clearly states that it is a contract made between Chan and TK Chan.  Thirdly, it is Tsoi’s evidence that he had asked a friend of his to draft 2^nd Quotation.  That being the case, it is more likely than not that the contents of the 2^nd Quotation accurately reflects the position, namely, it is a contract between Chan and TK Chan.

29.  Fourthly, the four Chinese contracts signed by Chan all state that Wing Hong was the employer, Ko was the contractor and Chan was the subcontractor.  While Chan claims he was illiterate thus did not appreciate this, it is most difficult to accept that Tsoi who was all the time present, had not read the documents and did not see these clear descriptions of the parties.  In particular, it is Chan’s evidence, although after much prevarications, that he had asked Tsoi to explain them to him before he signed the contracts.

30.  Fifthly, the cheques and receipts that were in evidence shows that Ko had made advancements from Wing Hong and had given receipts for the loans.  Moreover, Chan had also signed receipts in favour of Great Wall and TK Chan in their capacity as subcontractor.  The cheques also show that the payments were from TK Chan and Great Wall.  For cheques drawn by Wing Hong in favour of Chan, they were supported by requests for loans and receipts signed by Ko in favour of Wing Hong.  Chan and Tsoi’s evidence on the incident on 22 August 2001 is unsustainable.

31.  Sixthly, the subcontracts, payment applications and certificates produced by Wing Hong show clearly that Great Wall and Ko are subcontractors of Wing Hong.  That being the case, there is conceivable reason for Siu to represent to Chan and Tsoi that Ko was a foreman or agent of Wing Hong and had the full authority to act on behalf of Wing Hong.  Similarly, it is illogical for Siu to ask TK Chan to issue cheque to pay Chan if indeed Chan was a foreman and agent of Wing Hong.  Any payment would have come from Wing Hong if the plaintiffs’ case that Wing Hong is responsible to pay them were true.

32.  Indeed, Chan and Tsoi got into great difficulties when being questioned about the documentary evidence.  They were unable to reconcile their evidence with the documents.  Chan was therefore driven to say that he had doubts whether those were his signatures or that he only saw some of the documents in court for the first time.  It is however to be noted that the plaintiffs had never challenged the authenticity of the documents.  It is also most likely that the plaintiffs’ legal advisers would not shown these material documents to him when preparing for trial.  Similarly Tsoi had to say that he had no knowledge of the documents or their contents though it was his evidence that he was together with Chan most of the time.

33.  As for Tong and Siu, they had given straightforward accounts, which are in my view credible and logical.  Their evidence is also well supported by the documentary evidence.

34.  In short, I accept the evidence of Tong and Siu.  I reject the account given by Chan and Tsoi.  I accept that Ko and TK Chan were and are not the foremen or agents of Wing Hong.  I also accept that Wing Hong issued Ko with name cards describing him as a foreman merely for the purpose of enabling him to liaise with TDD so as to facilitate the performance of the TDD contracts.  I do not accept that the 1^st and 2^nd Quotations were signed in the presence of Siu and in circumstances described by Chan and Tsoi.

Ko and TK Chan’s capacity in signing the 1^st and 2^nd Quotations

35.    Having regard to my findings on the evidence and especially considering the two Term Contracts made between Wing Hong and Ko and Great Wall, and also the payment certificates, the plaintiffs have failed to make out a case that Ko and/or TK Chan signed the 1^st and 2^nd Quotations as agents for Wing Hong.

36.  Mr Wong had made submissions commenting on whether the 1^st Quotation is capable of amounting to an agreement.  I agree with his reservations.  In my view, the 1^st Quotation at the most can only be a document evidencing an agreement and cannot be the agreement itself.  Mr Wong also submitted that even if Ko and TK Chan were in fact foremen of Wing Hong, they would not have the necessary authority to conclude contracts for Wing Hong.  I agree that it must be doubtful whether a foreman has implied or apparent authority to enter into subcontracts on behalf of its principal: see Armages Ltd v. Mundogas S.A. [1986] 1AC 717 at 734B-G.  Given that Chan himself had been Ko’s foreman for several years, he is unlikely to have any mistaken belief as to a foreman’s authority in this regard.

Holding out

37.  Given that I reject the evidence of the plaintiffs, the plaintiffs’ case of holding out based on oral representations by Siu and the name card of Siu cannot be maintained. 

38.  Miss Chan has referred to Special Condition 1 of the Term Contracts between Wing Hong and Ko and Great Wall which states as follows:

“Confidentially: The Sub-contractor shall at all times represent and conduct themselves on this Project, including his employees and subcontractors, as agents of the Company and shall keep the existence and the terms of this Agreement Confidential.”  

39.  Miss Chan argues that this tends to show Ko had actual authority to act for Wing Hong vis-à-vis the plaintiffs and also support a case of holding out.  Three points need to be made on this argument.  Firstly, this is not the plaintiffs’ pleased case.  Secondly, it would appear that the emphasis of this clause is on confidentiality of the terms of the Term Contracts.  Thirdly, there is no evidence that the plaintiffs were aware of the provision before or after they made the 1^st and 2^nd Quotations.

Conclusion

40.  For the reasons mentioned above, the plaintiffs have failed to prove the claim against the 1^st defendant.  Accordingly, I dismiss the plaintiffs’ claim against the 1^st defendant.  Applying the normal rule of costs follow event, I make an order nisi that the plaintiffs pay the 1^st defendant the costs of the action, to be taxed if not agreed.