SENTRY BUILDERS HARDWARE AND TRADING CO. LTD. v. FONG ON CONSTRUCTION & ENGINEERING CO. LTD.

HCA12973/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.12973 OF 1996

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J U D G M E N T

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1. The plaintiff claims against the defendant the sum of $420,287.75, being the balance of payment due to it for work done and material supplied, alternatively, damages for breach of contract. Not only is the plaintiff's claim denied by the defendant who, on the other hand, counterclaims against the plaintiff for the sum of $187,323.50, being the cost for works left outstanding and unfinished by the plaintiff, as well as the sum of $500,000.00, being liquidated damages arising from the plaintiff's delay in completing the works.

The facts

2. The plaintiff was the subcontractor of the defendant in respect of carpenter and joiner works, as well as the supply of ironmongery for those works in relation to the construction of a proposed building at Nos.574-576 Nathan Road, Kowloon.

3. There is no dispute that the plaintiff had submitted a quotation to the defendant for carpenter and joiner works in the amount of $400,215.70 and dated 3 April 1995, which was accepted by the defendant ("the Main Contract"). The plaintiff had also submitted a quotation to the defendant for the supply of ironmongery in the amount of $113,979.72 under the cover of a letter dated 7 June 1995 which was also accepted by the defendant ("the Supply Contract"). The plaintiff started work at the site in or around April 1995.

4. There is also no dispute that during the work at the site, Architectural Instructions would be issued by the architect engaged in the project to carry out additional or variation works. In this case, Architectural Instructions Nos.14, 22 and 25 concerning additional/ variation works were in fact issued by the architects for the project and passed on to the plaintiff to carry out by the defendant. The plaintiff then issued quotations to the defendant for such additional/variation works.

5. It is also common grounds that the works which the plaintiff was subcontracted to carry out was initially scheduled to be completed by the end of 1995. However, due to the fact that completion of the entire project was considerably delayed, the Occupation Permit for the building was issued only towards the end of 1996.

The dispute

6. The first matter in dispute between the parties concerns the quotations issued by the plaintiff to the defendant concerning the additional/variation works in Architectural Instructions Nos.14, 22 and 25. The plaintiff's case is that these quotations and the amounts quoted were accepted by the defendant, whereas the defence case is that the additional works by the plaintiff were subject to being assessed by the architects of the project before the plaintiff would be entitled to be paid for the additional/variation works, and that the amounts contained in these quotations for the additional/variation works was never agreed between the parties.

7. The second matter in dispute between the parties is that the defendant alleges that the plaintiff had failed to complete the works which it had undertaken and, in fact, had abandoned the site some time in June 1996. As a result, the defendant had to engage another contractor, United Aim Doors and Furniture Factory ("United Aim"), to complete the unfinished works and had to pay to United Aim the sum of $187,323.50 for same. This forms the counterclaim by the defendant. The plaintiff, whilst admitting that not all the works had been completed by the plaintiff, alleges that the reason for the uncompleted works was because of various obstructions caused by the defendant at the site which prevented the plaintiff from carrying on or completing its work. The plaintiff further denies abandoning the works but says that because it was prevented from carrying on with the works, its workers had left the site temporarily until such obstructions were removed. In the meantime, the plaintiff says that it did send someone to the site from time to time to check whether the obstructions had been removed, but some time in September 1996 had discovered that the defendant had engaged another contractor to do works which the plaintiff was supposed to do. In so doing, the plaintiff alleges that the defendant was in breach of the contract.

8. The defendant further counterclaims against the plaintiff the sum of $500,00.00, being liquidated damages for the delay in completing the works as provided for in the contract between the parties.

The evidence

9. Evidence was firstly given by Ryan Chan Sui Ki ("Chan"), the managing director of the plaintiff. His evidence was that the plaintiff had successfully tendered for the subcontracted works from the defendant in or about April 1995. In or about October 1995, the plaintiff was asked by the defendant to carry out the additional/variation works as contained in Architectural Instructions Nos.14, 22 and 25. In this respect, the plaintiff had submitted further quotations for such additional works to the defendant. The defendant had never disputed the quotations and, in fact, one of the quotations had been revised because of further changes to the additional works. After the quotations had been given, the defendant had asked the plaintiff to start doing the additional/variation works.

10. As the variation works proceeded, the plaintiff had made various applications for payment from time to time but the defendant had failed to make any payment in respect of the additional works. When confronted by Chan in this respect, the defendant's director, Lau Chi Ming ("Lau"), told Chan that no payment for the additional works could be made until the Occupation Permit was issued for the building under construction and assessment was made by the architect. When Chan approached the architect for the project, he was told that this was not the case.

11. In or about February 1996, the plaintiff had insisted on receiving some partial payment for the works already done. The defendant promised a further sum of $100,00.00, but had only made payment of $46,335.00 and $50,000.00 on 23 April and 9 May 1996 respectively. According to Chan, by early May, the defendant had only settled a total amount of $330,830.42 out of $504,622.39 invoiced.

12. Chan also explained that by the end of May 1996, because of obstructions caused by other tradesmen on site, the plaintiff was prevented from completing its work. He reported this to the defendant and had told the defendant to sort out the problem of the obstructions. He also told the defendant to inform the plaintiff when such obstructions were cleared and the plaintiff will then resume its works.

13. In or about September 1996, the plaintiff sent someone to the site only to find that another contractor had been engaged and was carrying out the works which the plaintiff was supposed to do. The plaintiff then instructed solicitors to issue a letter of protest to the defendant. It was only then that the defendant replied by letter to say that they had engaged another contractor to complete the works left unfinished by the plaintiff.

14. The plaintiff also called David So Yuen Kam, the site supervisor of the plaintiff whose evidence supported that of Chan relating to the obstruction on site from other tradesmen causing the plaintiff's stoppage of work in May 1996.

15. The evidence called by the defence came mainly from Martin Tang Cheuk Kuen ("Tang"), the quantity surveyor employed by the defendant in relation to the said project. He acknowledged that the plaintiff was the subcontractor to the defendant in respect of the carpenter and joiner works under the Main Contract, as well as for the supply of ironmongery under the Supply Contract. The plaintiff commenced those work on site in April 1995.

16. According to him, since Architectural Instructions Nos.14, 22 and 25 were issued by the architects of the project to vary some of the building works in July, October and November 1995, the plaintiff was required to carry out such additional/variation works to the subcontracted works. Tang agreed that the plaintiff had submitted quotations for the additional/variation works but he had considered that the quotations for the additional works were excessive. As a result, he had asked the plaintiff for a breakdown of those rates quoted so that it could be put to the architect for assessment, but the plaintiff refused to provide any breakdown.

17. Moreover, according to Tang, the subcontracted works should be completed by 8 November 1995, but because of the variations ordered by the architect, the completion date was postponed to early January 1996. It was also at about early January 1996 that the inspection of the fire doors was to take place.

18. Tang gave evidence that at a meeting with Chan in early January 1996 in the defendant's office, attended also by Lau and the defendant's site agent, Jackson Lau ("Jackson"), Chan had informed them that the plaintiff was short of money to complete the outstanding works and requested the defendant for a sum of $100,000.00 before the outstanding works would be completed. After doing a review, he recommended to the defendant to release a sum of $46,335.00 to the plaintiff, and that was paid to the plaintiff on 15 February 1996. Despite that, the plaintiff failed to complete the subcontracted works and, moreover, withdrew its workmen from the site at the end of February 1996.

19. In May 1996, Tang said he had a phone conversation with Chan about the completion of the works by the plaintiff as well as the issue of the fire certificates for the fire doors. Chan said to him that if the plaintiff received another $50,000.00 the plaintiff would complete the outstanding works. As a result, a further payment was made to the plaintiff by the defendant for $50,000.00 on 9 May 1996. Despite this, the plaintiff again failed to complete the works.

20. Tang also gave evidence that in June 1996, he again contacted Chan chasing after the plaintiff to complete the works left unfinished, but was told that the plaintiff had no intention to complete the work unless and until the invoices for the variation works were settled immediately. According to Tang, the plaintiff also threatened to undo the work it had done and to retrieve from the site the ironmongery it had supplied. Tang also gave evidence that he had never been told by Chan or anyone else of any obstruction on site which prevented the plaintiff from continuing or carrying out the works.

21. Because of the plaintiff's refusal to complete the outstanding works, Tang told the court that in July 1996, he instructed United Aim to complete the works left unfinished by the plaintiff, the cost of which was $161,390.00 paid by the defendant to United Aim.

22. Lastly, Tang said that in relation to the additional/variation works claimed by the plaintiff pursuant to Architectural Instructions Nos.14, 22 and 25, the amounts have not been assessed by the architects and the defendant has not been paid any of those amounts by the employer of the project. Moreover, because of the delay caused by the plaintiff failing to complete the works, the architect has deducted as liquidated damages $495,000.00 from the payment due to the defendant.

23. The defendant also called as witness the site agent of the defendant, Jackson. He gave evidence that at the end of January 1996, the architect of the project had asked the defendant to withdraw its application for fire service inspection of the building because of the incomplete works by the plaintiff, in particular the fire doors for which the plaintiff was under a duty to issue fire door certificates.

24. Jackson also confirmed the evidence of Tang in respect of the meeting with Chan at the defendant's office in early January when Chan requested a further $100,000.00 from the defendant and also confirmed the abandonment of the works by the plaintiff by the end of February 1996. He further confirmed that he had never received any complaint from anyone from the plaintiff about any obstructions on site which prevented the plaintiff from continuing or carrying out its work.

25. The third witness called by the defence was Lun Chin Yung ("Lun"), the marketing manager of United Aim. His evidence was that in early July 1996, United Aim was asked by the defendant to prepare a list of uncompleted carpentry and joiner works at the site and, thereafter, asked by the defendant to complete those works for which United Aim was paid $162,890.00 by the defendant.

26. However, in cross-examination of Lun, it became apparent that the cost of the unfinished carpentry and joiner works amounted to only $120,290.00. The balance of what was paid by the defendant to United Aim was for some further additional work requested by the defendant which was wholly unconnected to the works left unfinished by the plaintiff.

Assessment of the evidence

27. Having heard all the evidence, I have come to the conclusion that the witnesses on both sides have not been completely frank and honest with this court.

28. I was wholly unimpressed by Chan's evidence that between February and June 1996, there was very little that the plaintiff could do at the site because of the obstructions by other tradesmen on site, yet the plaintiff had sent its workers to the site everyday during that period, and that it was only from June onwards that the plaintiff withdrew its workers from the site after informing the defendant to notify the plaintiff when the obstructions have been removed for the plaintiff then to return to resume its works.

29. I cannot conceive that if Chan's evidence in this respect is to be believed, there seems to be a total absence of urgency in the matter despite the fact that this project had been considerably delayed in its completion already. Moreover, the kind of obstructions referred to by Chan was of the nature such that it could quite easily be removed, yet if one accepts Chan's evidence that when the defendant was informed of the obstructions, it did not seem that the defendant took any active steps in seeing to it that the obstructions would be removed for the plaintiff to continue its work.

30. I also note that when in cross-examination, Chan was asked about the failure of the plaintiff to provide the fire door certificates, Chan expressed surprise that the defendant was able to obtain such fire door certificates from some source other than the plaintiff. He further said in evidence that as far as he was aware, that could not be the case since it was the plaintiff who had installed those doors, therefore, it could only be the plaintiff who could give certificates for them. However, he acknowledged that the defendant must have obtained the certificates from somewhere else because firstly, the plaintiff did not issue them and, secondly, without them the fire service inspection could not be passed and the Occupation Permit would not have been issued.

31. Coming now to the evidence of the defendant, I am equally unimpressed by a number of aspects of Tang's evidence. These are as follows :-

(a) He gave evidence that he found the quotations given by the plaintiff for the additional/variation works to be excessive, yet it was also his evidence that the defendant had, based on the plaintiff's quotations, marked up its own quotations which were submitted to the architect for the project.

(b) Tang's evidence that there was a commercial settlement between the defendant and the employer without the involvement of the architects, such that even at the time of the trial, the additional/variation works had never been assessed for payment by the architect.

(c) Despite the fact that the additional/variation works had never been assessed for payment by the architect, Tang admitted that the sum of $43,200.00 (which relates to the variation works under Architectural Instructions No.14) invoiced by the plaintiff on 1 October 1995 was certified by him for payment and, in fact, paid by the defendant on 27 October 1995. When asked in cross-examination how it came about that this amount was paid by the defendant to the plaintiff without any assessment by the architect, Tang answered that it might have been due to his negligence.

(d) In his evidence-in-chief, Tang said after the January 1996 meeting with Chan in the defendant's office, one of the sums which he had recommended the defendant to pay to the plaintiff was the sum of $46,335.00 when Chan requested for a further $100,000.00 before the plaintiff would continue with the unfinished works. However, in cross-examination, even when he was confronted with the invoice from the plaintiff for this same exact amount dated 2 January 1996, Tang said he could not remember seeing that invoice. This answer was, no doubt, prompted by the fact that he had anticipated the next question, namely, why did he recommend such payment when there was no assessment by the architect since it is not disputed that this invoiced amount relates to the variation under the Supply Contract?

(e) In so far as the plaintiff's application for payment dated 1 February 1996 is concerned, that application was for a total sum of $243,097.45 with detailed breakdown as to the amount applied for and to what work they related. Tang's evidence was that he had deducted from that amount applied for a sum of $105,619.00 which represented the total of previous payments paid to the plaintiff by the defendant because it was the defendant's policy that all applications for payments by subcontractors should be cumulative (i.e. inclusive of previous payments already paid). However, it should not have been difficult for Tang to have noticed from this application for payment by the plaintiff that the sum applied for was not cumulative but only related to the work which was done to by the plaintiff for the month of January 1996. Despite that nothing was done by either Tang or the defendant to put right this matter and, as a result, the plaintiff was deprived (at least temporarily) of the sum of $105,619.00 to which it should otherwise have been entitled.

Findings of facts

32. From all the evidence put before me in this case, I make the following findings of facts :-

(a) The original contract sum agreed between the parties for the Main Contract was $400,215.70 and for the Supply Contract was $113,979.72. These two amounts are not disputed. The amounts quoted by the plaintiff for the additional works in respect of Architectural Instructions No.14 was $43,200.00; that in respect of Architectural Instructions No.22 was $197,000.00; that in respect of Architectural Instructions No.25 was $12,000.00 and for the additions to the Supply Contract it was $46,335.00. There is also no dispute that the amounts of $11,026.20, $33,575.00 and $17,011.05 were to be deducted from the Main Contract as a result of the variation works pursuant to Architectural Instructions Nos.14, 22 and 25 respectively.

(b) There was no agreement, oral or otherwise, between the parties that the payment for the additional/variation works pursuant to Architectural Instructions Nos.14, 22 and 25 and or under the Supply Contract was to be assessed or agreed by the architect for the project.

(c) The defendant had, since the end of 1995 and/or early part of 1996, been wrongly withholding and/or delaying payment to the plaintiff in respect of works done by the plaintiff and to which the plaintiff was entitled.

(d) It was because of this that at the meeting in early January 1996 the plaintiff was chasing the defendant for the payment that was due to it, but despite that, the defendant still failed to make payment to the plaintiff for those amounts to which the plaintiff was entitled.

(e) It is also not disputed that the defendant had, on various occasions, paid to the plaintiff totally the sum of $330,830.42 arising from these works.

(f) As a result of not getting its full payment from the invoices and applications submitted by it, the plaintiff had considerably slowed down its work on site by the end of February, and by about May 1996 had withdrew all its workers from the site before the work was completed as a means of arm-twisting the defendant into effecting payment. I have no doubt that in so doing, the plaintiff thought that its trump card was the fact that the defendant would be at its mercy if the plaintiff withheld issuing the fire door certificates. When in September 1996, the plaintiff came to realize that the defendant had engaged another contractor to finish the works left uncompleted by the plaintiff, the plaintiff then caused a solicitor's letter to be issued to the defendant registering its complaint. In this respect, I find that there was not the kind of obstructions on site which would have prevented the plaintiff from continuing with its work at site from May to September 1996.

(g) As a result of the withdrawal of its workers by the plaintiff before the works was finished, the defendant had engaged United Aim to finish the uncompleted works. I further find (based on the evidence of Lun) that although $162,890.00 was paid by the defendant to United Aim, the cost charged by United Aim for the work left unfinished by the plaintiff to be only $120,290.00, the rest being paid to United Aim for some other additional works unconnected to the work which the plaintiff should have carried out. I further make the finding that the defendant, before it engaged United Aim to finish off the works left by the plaintiff, did not inform the plaintiff before so doing, possibly because the defendant realized that itself was initially wrong in withholding or delaying the payments which should have been made by it to the plaintiff.

(h) Although the entire project was considerably delayed and the Occupation Permit was not issued until October 1996, upon the evidence produced, in particular the various minutes of meetings relating to the progress of works, I find that the delay to the project as a whole was due mainly to the delay by other contractors or subcontractors dealing with other aspects of the building works. The delay caused by the unfinished works of the plaintiff did not contribute or add to the delay to the entire project which would have still been delayed had the plaintiff completed its work on time.

Decision

33. From the facts which I have found, I hold that the amounts of the quotations for the additional/variation works submitted by the plaintiff to the defendant were accepted by the defendant by conduct when the defendant instructed the plaintiff to commence the additional/variation works.

34. I further hold that the delay by the defendant in making payment to the plaintiff, whilst it may be a breach of the contract between the parties, it did not entitle the plaintiff to repudiate the contract and/or to abandon the uncompleted works. On the other hand, the plaintiff's abandonment of the unfinished work did amount to an act of repudiation of the contract. Although the defendant had not given any prior notice to the plaintiff before engaging another contractor to complete the unfinished works, however, in engaging another contractor to complete those works, that was an unequivocal act on the part of the defendant that they had accepted the plaintiff's repudiation of the contract.

35. It is clear from the above that the defendant owes the plaintiff unsettled amount of payment. I propose to deal with the amount owed in the following manner. Since all the works have now been completed and the Occupation Permit has been issued, the defendant would have been obligated to pay the plaintiff the contract amounts plus the amounts of the additional works less the agreed deductions due to the variations and less the amounts already paid to the plaintiff. This works out as follows :-

	$
The Main Contract	400,215.70
The Supply Contract	113,979.72
Additional Works
A. I. No.14	43,200.00
A. I. No.22	197,000.00
A. I. No.25	12,000.00
to Supply Contract	46,335.00
	812,730.42
Less :
Deductions for the variations	61,612.25
Amounts paid by defendant	330,830.42
Total :	420,287.75 ========

36. In so far as the counterclaim is concerned, the defendant will succeed on its counterclaim to the extent of $120,290.00, being the amount it had to pay United Aim to have the works completed.

37. As for its counterclaim for $500,000.00 liquidated damages, I am not satisfied on the evidence alone of Tang that the defendant had to pay liquidated damages to the employer of $495,000.00 when settling this matter with the employer. No documentary evidence was adduced to support this, the employer was not called to confirm it and the architects did not give evidence in this respect either. I do not accept the evidence of Tang alone on this aspect because throughout this case, it can be seen that the defendant had all along not only been delaying payment to the plaintiff but also using various excuses and other means to delay or defer payment. For that reason, I am not prepared to accept the evidence of Tang alone on this point.

38. The amount of the plaintiff's claim would therefore be set off against the amount of the counterclaim to which the defendant has succeeded on. The final figure comes to $299,997.75.

Order

39. There will be judgment to the plaintiff in the sum of $299,997.75, with interest thereon at the rate of 13% from the date of writ until judgment and, thereafter, at judgment rate.

40. There will be a cost order nisi :-

(a) that the plaintiff will have the costs of the plaintiff's claim;

(b) that the defendant will have half of the costs of the counterclaim on the basis that the defendant did not wholly succeed on the counterclaim; and

(c) the above costs to be taxed, if not agreed.