AU YEUNG LUN KAN v. CHO & PARTNERS ENGINEERING LTD

DCCJ 4297/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4297 OF 2005

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JUDGMENT

1.  The Plaintiff claimed against the Defendant for outstanding payments under: (1) sub contract work at Sheung Shui Slaughterhouse (“SSSH”) for $63,121.00; (2) work under oral contract at Lai King Hospital (“LKH”) of $446,382.63.  Totalling $509,503.63.

2.  The Defendant disputed the value of the Plaintiff’s work and counterclaimed against the Plaintiff for over-payment in the SSSH work of $367,750.98 less payment due under the Lai King Hospital work of $197,078.62, leaving a balance of $170,672.36 to be repaid to the Defendant.

Background of Dispute

The SSSH project

3.  The Plaintiff is a contractor of bar/steel bending and refixing work.  The Defendant is a building contractor.  On or about 12 September 1997 the Plaintiff submitted a quotation to the Defendant for steel reinforcement of manholes for the SSSH project (“the quotation”).  In or about mid-September they entered into a sub-contract under contract no. CON/97/007 (hereinafter referred to as the “SSSH sub-contract”).  The SSSH project main contractor was China State Construction Engineering (Hong Kong) Limited (“China State”), the Defendant was its drainage sub-contractor for the SSSH project.

4.  It is not disputed that the Plaintiff received interim payments for the SSSH sub-contract in the total sum of $1,200,654.40.  The Plaintiff claimed an outstanding payment for work done of $63,121. 

5.  The Plaintiff claimed that the interim certificates issued by the Defendant were final while the Defendant claimed it had a right to measure and assess the value of work done under the contract and after re-measurement the work was valued at $527,318.04.  The Defendant agreed the value of: (a) variation works at $255,010.88, (b) day works at $42,485 and (c) outstanding works of $35,352.10.  It is not disputed that the Defendant had paid to the Plaintiff under measured work the sum of $1,189,257, and $38,660 under day work.

6.  The Defendant counterclaimed for an overpayment to the Plaintiff in the sum of $367,750.98 under the SSSH sub-contract.

The Lai King Hospital project

7.  On or about 9 November 1998, China State Construction Engineering, the main contractor of the Building Department (“the employer”), sub-contracted the plumbing and drainage installation works to the Defendant on the Lai King Hospital project (“The LKH contract”).  In March 1999, the Defendant negotiated with the Plaintiff on sub-contracting the LKH drainage works to the Plaintiff leading to the parties’ oral agreement on the Lai King Hospital work (“the oral agreement”).

8.  The Defendant claimed the parties had agreed the contract rate of the steel reinforcement works would be valued at $2.2 per kg, that the terms and conditions of the oral agreement would be identical to the contract no. CON/97/007 and that the said oral agreement was ‘back to back’ with its contract with China State.  The Plaintiff denied the LKH oral agreement was a ‘back to back’ contract with the Defendant’s contract with China State.

9.  It is not disputed that the Defendant made interim payments to the Plaintiff in the sum of $513,000 consisting of measured works at $395,000 and additional works including cable draw pits at $118,000.

10.  The Plaintiff claimed the approved value of work done on the Lai King Hospital project was $959,382.63.  The Defendant disagreed.  It claimed that on the basis that it was a ‘back to back’ arrangement with the main contractor’s contract, the value of the Plaintiff’s work was $685,089.91 and the Plaintiff would be entitled to the balance of $172,089.91 after deduction of the $513,000 already paid for the work.  On the basis that the Court should find the oral contract was not ‘back to back’ with the main contractor’s contract with the Defendant, the amount outstanding under the LKH project to the Plaintiff is $197,078.62.  The Defendant claimed therefore after taking into account the overpayment under the SSSH project it is entitled to recover the overpayment in the sum of $170,672.36 under the counterclaim.

The Issues

11.  A.  Under the SSSH project:

I. &nbspWhat were the terms of agreement and understanding of the parties?

II.  Does the approval of interim payment applications indicate acceptance of the value of the Plaintiff’s work?  Was the approval final?

B.  The Lai King Hospital project:

III.  What did the parties orally agree under the LKH contract?  Was the oral agreement ‘back to back’ with the Defendant’s contract with China State? 

IV.  Did the Plaintiff agree he would be paid after the final certification of the payment applications by China State?  Is the same rate applicable to the variation and day works?

The Plaintiff’s Case

The SSSH contract

12.  The Plaintiff, Mr. Au Yeung, claimed the quotation was submitted to the Defendant on 12 September 1997.  It was for the construction of manholes at the SSSH including the supply of labour, machineries, transport and removal of debris.  The price quoted did not include the cost of materials such as steel bars and other building materials.  Furthermore, the quotation was based on the external dimensions of the manholes.  These, he claimed were known to and accepted by the Defendant.

13.  Mr. Au Yeung further claimed that the dimensions of the 7 manholes in the quotation were given to him by the Defendant’s site foreman Mr. Ho Wai Keung when he was invited to tender for the SSSH project.  It is common knowledge that the dimensions supplied by the Defendant were indications only subject to the final detail drawings of the engineers and architect, they often differed from those on the quotation.  It was the parties’ understanding that payment for work done would be on a pro rata rate based on the rate in the quotation.

14.  It was Mr. Au Yeung’s practice to record the work done on a piece of paper which he would submit to the Plaintiff’s foreman for certification and approval for interim payment applications.  The applications for interim payment would be processed by the Plaintiff’s office staff who would notify Mr. Au Yeung upon completion of certification and approval of the applications to collect payments from the Defendant’s office.  Save for the first application for interim payment, Mr. Au Yeung claimed he had prepared all subsequent forms based on the format of the first application prepared on his behalf by the Defendant’s office staff.  These applications were all checked and certified by the Defendant’s site manager, site quantity surveyor, senior materials surveyor and the Defendant’s accounts staff before interim payments were released to the Plaintiff.

15.  In or about 1998 and 1999, apart from performing the work specified under the SSSH contract, at the requests of the Defendant’s foreman, Mr. Ho, and Mr. Cho’s wife Madam Ho who was a director and staff of the Defendant, he had further performed additional works at SSSH including cable draw pits, cable trenches, sump pits, lamp post plinths and grease traps etc.  Such additional works were included in the payment applications for interim payment.  He claimed that based on the work performed for the Defendant at SSSH, he was entitled to be paid for work done at $1,200,654.40.  To date the 10% retention money of $11,397.40 is still outstanding for he had only received $1,189,257.00.

16.  Mr. Au Yeung further claimed that there were additional work done by him of $51,724.00 but the Defendant refused to approve the payment for the said sum in spite of repeated demands supported by documentary evidence of work done submitted to the Defendant.

The Lai King Hospital project

17.  Mr. Au Yeung, claimed he had agreed to undertake the LKH work orally with the Defendant’s Mr. Cho during a site visit of the Lai King Hospital in March 1999.

18.  He admitted he had agreed to take up the steel reinforcement work of the fence-wall at the Lai King Hospital at HK$2.20 per kg.  The work area included the car park, the fountain, pump room, guard’s room, the pavilion, the music pavilion and all external steel reinforcement work.  He had also agreed to supply the building materials and machinery for the work.

19.  Except for two types of additional works under a written quotation on 17 March 1999 and 9 June 1999 which was re-submitted on 26 July 1999 for the construction of an oil interceptor and a cable draw pit, there was no written agreement for the LKH project between the parties.  Mr. Au Yeung claimed the work at LKH was urgent and he was not given a written contract to sign.

20.  Consequently, adopting the same procedure in the SSSH project, he submitted applications for interim payments to the Defendant’s foremen in the same manner.  The work done under the LKH oral agreement amounted to $709,491.63, but he was only paid $395,000 to date.

21.  Mr. Au Yeung was asked to perform additional work at the LKH site.  Based on the 26 July 1999 quotation rate, he submitted applications for interim payment in the total sum for additional work of $249,891.  However, in spite of certifications and approvals by the Defendant’s and China State’s site manager, site material quantity surveyor, senior materials surveyor and accounts department, the Defendant refused to pay the said sum.  The Defendant had only made part payments of $118,000, leaving the balance of $131,891.00 outstanding and unsettled.

22.  Mr. Au Yeung denied he had ever agreed with the Defendant to perform work on the two projects on a ‘back to back’ basis with the main contractor’s contract with the Defendant.  Neither did he agree to be paid based on the rate of payments received by the Defendant from the main contractor after the Defendant deducted its cut.  He was never shown the main contractor’s contract with the Defendant or informed of its contents. 

23.  Mr. Au Yeung further emphasized that from his 23 years of experience and the trade practice in the bar bending industry, quotations and tenders submitted are calculated on the estimated labour cost on the external dimensions of the manholes.  He claimed that his quotations to the Defendant were based on external dimensions and this was known to the Defendant.  It was the basis of the understanding of the parties when the SSSH contract and the LKH contract work were entered into.  He admitted he failed to read the SSSH written contract when he was asked to sign it at the end of a day’s work at the construction site believing the contract was based on the parties’ agreement on what they had discussed and understood.

The Defence Case

24.  According to the evidence of the Defendant’s director and shareholder Mr. Cho, the Defendant signed the contract for drainage and plumbing works for the Sheung Shui Slaughter House (“SSSH”) with China State on 7 November 1997.  He admitted he had obtained a quotation for the SSSH project work from the Plaintiff on 12 September 1997 and signed a sub-contract for the SSSH project work CON/97/007 with the Plaintiff in September 1997.  He admitted the Plaintiff had commenced the SSSH project work on 16 September 1997.

25.  Mr. Cho alleged that under the SSSH contract, it was specified that Mr. Au Yeung would be given a reasonable opportunity to read the contract documents and he was further required to perform the work in accordance with the drawings and requirements of the Defendant and the main contractor.  That his work was subject to the approval and certification of both the employer (the Buildings Department) and the Defendant.  It was a term of the SSSH contract that the Plaintiff should understand the terms and conditions of the main contract documents.  The Plaintiff’s work had to meet with the standards and requirements of the Defendant, the architect, engineer and the employer.  In addition, he was required to follow all rules and regulations under the main contract by the Plaintiff, so far as they were not contrary to the terms of the sub-contract (p. 107-109 of the bundle).

26.  As part of the SSSH contract, the Defendant annexed a list of 9 unit price items setting out 9 manhole dimensions and the prices for each of the 9 different dimension.  It further specified that the dimensions set out were internal dimensions (p. 111 of the bundle).

27.  Mr. Cho admitted that the Plaintiff applied for and received interim payments during the contractual period; however, the Defendant later discovered there were duplications of interim payment applications and approvals.  Consequently, the Defendant claimed the Plaintiff was over paid in the sum of $329,090.98.

Lai King Hospital contract

28.  Mr. Cho claimed that the Defendant entered into the Lai King Hospital contract for drainage and plumbing works on 8 November 1998 with the main-contractor, China State.

29.  In or about March 1999, with the understanding of China State that the steel re-inforcement work was part of the works that could be contracted out, Mr. Cho asked Mr. Au Yeung to take up the sub-contract work.  Mr. Cho claimed that the parties had agreed: (1) that the Plaintiff would be paid $2.20 per kg for the steel re-inforcement work; (2) that there would be a monthly payment based on the approval and certification of monthly application for interim payment; (3) that the terms and conditions were identical to the SSSH contract No. CON/97/007; (4) that the LKH contract was ‘back to back’ to the Defendant’s contract with China State; (5) that the Plaintiff would be paid according to the amount certified and approved by China State; and (6) that the variation work was also based on the unit price of the LKH contract.

30.  Mr. Cho claimed that the Plaintiff accepted the aforesaid conditions and commenced work.  He further claimed Mr. Au Yeung was given a copy of the written sub-contract No. CON/99/001 but he had failed to sign it.

31.  Based on the said sub-contract Con/99/001, the Plaintiff received the first interim payment on 29 September 1999.  However, the Defendant failed to agree the unit price on the quotation submitted by the Plaintiff to the Defendant on 26 July 1999.  The Plaintiff continued to be paid interim payments submitted and approved up to December 2001 because the Defendant was anxious that the work had to be completed on time and the Plaintiff’s workers would refuse to work for him if they were not paid.  Meanwhile, due to shortages of skilled steel benders and fixers, the market rate for such works was escalating.  The total amount paid to the Plaintiff was $395,000 and the payment for additional work was $118,000, totalling $513,000.

32.  The Defendant received the final approved payment certificate from China State in December 2005, the same was sent to the Plaintiff for his confirmation but the Plaintiff refused to confirm it.  It is the Defence case that the total sum under the LKH contract for work done by the Plaintiff amounted to $608,275.80.  In addition, the work done on additional work was valued at $76,814.11, the total sum therefore came to $685,089.91.  Consequently, the sum outstanding to the Plaintiff amounted to $685,089.91 - $513,000 = $172,089.91.

33.  The Defendant claimed to set off the outstanding payment under the LKH contract against the over-payment under the SSSH contract and counterclaimed for the balance.

Findings

A. The SSSH contract

I. What were the terms of agreement and understanding of the parties?

34.  It was Mr. Cho’s evidence that the written agreement sub-contract No. CON/97/007 was signed by the parties in mid-September 1997.  The Plaintiff commenced work on the SSSH project shortly after he submitted his quotation for the work on 12 September 1997, a few days later the written agreement was signed.  Mr. Cho admitted the Defendant had only signed the contract with China State in respect of the SSSH project on 7 November 1997, almost two months after signing of the SSSH sub-contract with the Plaintiff.  The written sub-contract was drafted by the Defendant, it specified the contents to include the following:-

(1)  the unit price list （總價清單）;

(2)  the terms and conditions of the sub-contract;

(3)  the Plaintiff’s quotation;

(4)  drawings; and

(5)  the contract terms between the Defendant and the main contract.

35.  Even though the SSSH contract did specify that the Plaintiff would be permitted to look at the terms of the Defendant’s original contract signed with the main-contractor, it was clearly not possible for the Plaintiff to have an opportunity to read the terms and conditions of the Defendant’s contract with the main contractor in mid-September 1997 because the Defendant have not yet signed the contract with the main-contractor.  That contract only came into existence on 7 November 1997.

36.  The SSSH contract also specified the work should comply with the drawings and tables of drawings which were supplied at a later date.  This, however, is different from the main contractor’s contract terms because the contract work could not be completed without drawings and detail specifications from the architect and engineer.  It is common in the construction trade for final detail drawings to be supplied as and when the work was underway.  The binding effect of the terms and conditions of the contract between the Defendant and China State, is a different matter if the contract was not in existence until 7 November 1997.

37.  At para. 12-010 of Chitty on Contract 30^th ed. P. 821, the learned author said:

“Time of notice – The conditions must be brought to the notice of the party to be bound before or at the time when the contract is made.  If they are not communicated to him until after the contract is concluded, they will be of no effect.”

38.  The conditions and terms can only be binding on the Plaintiff if they could be ascertained at the time of signing of the contract with the Defendant.  The Plaintiff cannot be held liable for non-compliance with the terms and conditions the Defendant may agree in future with the main contractor.  Clearly they could not be fully disclosed to the Plaintiff at the time of the signing of the sub-contract.  Further, there were no evidence adduced by the Defendant to show that those conditions have been incorporated by a ‘course of dealing’ between the parties.  In the re-amended defence, the Defendant pleaded that the parties had a long business relationship.  This was categorically denied by the Plaintiff.  For the aforesaid reason, I find the terms and conditions in the main-contractor’s contract with the Defendant not binding on the Plaintiff.

39.  As to the Plaintiff’s quotation and the Defendant’s unit price list on the various dimensions of manholes, the Plaintiff claimed he had always quoted his prices based on the external dimensions of the manholes.  He had done the same in the 21 September 1997 quotation.  He claimed that in the construction trade, the conventional basis of pricing was on the external dimensions of the manholes.  He claimed this was well-known to the Defendant.  The Defendant, on the other hand, relied on the unit price list attached to the SSSH sub-contract in which he had specified that the dimensions of the manholes set out on the list were internal dimensions （「內吼尺寸計算」）。

40.  The Defendant had adopted in its unit price list all 7 different manhole dimensions and unit prices in the Plaintiff’s quotation of 12 September 1997; in addition, the Defendant included two more manhole dimensions namely numbers 8 and 9 which were smaller and different from the 7 quoted by the Plaintiff.  The Defendant further set out under the remarks column that additional items would be based on the ratio set out in the unit price list and that the unit price included: all labour costs, excavation, cutting and steel binding machines and hand held tools etc. 

41.  Under the SSSH contract signed by the parties, there were obvious conflicting terms, such as the inclusion of the terms and conditions in the main contractor’s contract with the Defendant and the differences between the Plaintiff’s quotations and the Defendant’s unit price list.

42.  In the Plaintiff’s expert Mr. T.T. Cheung’s opinion, the major difference in the valuation of work between the Plaintiff and the Defendant lied in the misinterpretation of the Hong Kong Standard Method of Measurement of Building Works (“HKSMM”) and the incorrect use of the method of valuation by the Defendant’s in-house quantity surveyor and its expert (see p. 410-411 para. 3.6 of Mr. Cheung’s report).

43.  Mr. Cheung is of the view that in spite of the suggestion under the HKSMM, that the value of steel re-inforcement be measured by weight, it does not prohibit the contracting parties agreeing to adopt their own method of valuation (para. 3.7 of the report at p. 411).

44.  From the documents referred to in the SSSH contract, it is clear that the parties did agree that payment was to be based on the unit price of each manhole or sump pit according to its size; hence, the quotation and the unit price list came into being.

45.  Mr. Au Yeung claimed he had expressly stated in his payment applications between 16 April 1998 and 15 May 1998 that the measurement of the manholes were based on external dimensions.  There were indeed documentary evidence such as the payment applications in support showing the intention from the start that the dimensions referred to in his quotation of 12 September 1997 were based on external dimensions of the manholes, not internal dimensions.  This was not disputed by Mr. Cho or his wife, they admitted they had failed to correct him.  The reason given by Mrs. Cho was the Defendant did not want the steel benders to stop work and wages of steel benders were escalating at the time.

46.  Furthermore, it is not disputed that the most common dimensions in the 400 odd manholes completed by the Plaintiff have an external dimension of 1160 x 1160 and 1500 x 1100 in length and width (items 8 and 4 on the Defendant’s unit price list).  The corresponding internal dimensions of these two types of manholes referred to above were 760 x 760 and 1000 x 700.  Yet, these latter dimensions are not close to any in the Defendant’s unit price list or the Plaintiff’s quotation.  The Defendant had certified all 26 interim payment applications from the Plaintiff between October 1997 and January 2000.  They were all based on the external dimension of the manholes.  These applications were all certified and approved, evidenced by the signatures of the site quantity surveyor, site manager, senior quantity surveyor and a director of the Defendant.  These are strong evidence in support of the Plaintiff’s case.

II. Does the approval of interim payment applications indicate acceptance of the value of the Plaintiff’s work?  Was the approval final?

47.  It has been argued that the certification and approval of interim payment applications were not final conclusions of satisfactory work or performance; the Defendant accepted, however, the quality or quantity of work done by the Plaintiff is not in dispute.  The Defendant claimed that interim certificates were issued for the Defendant to get payments in the interim to pay his workers.  In my view, it is hardly a good enough reason for the Defendant to pay the Plaintiff 50% more than the contract price.  I have no reason to doubt the efficiency of the Defendant’s and China State’s site professionals, they surely would have refused to approve and certify the payment applications if the Plaintiff’s work was unsatisfactory in quantity or quality.  Further, both the Plaintiff’s and Defendant’s experts agreed it is not normal practice for a building contractor to overpay its sub-contractors.  I find the reason given by Mr. Cho that the Defendant overpaid the Plaintiff $320,000 odd solely to enable Mr. Au Yeung to pay his workers at the time completely unconvincing.  The escalating wages of steel benders is not a matter of concern for the Plaintiff, so long as he was paid the contract rate by the Defendant and so long as his workers employed by him were paid the wages agreed at the time of the quotation.

48.  I accept Mr. Au Yeung’s evidence because it is reasonable and logical, I find him to be an unsophisticated but honest witness.  I reject the Defendant’s claim of an overpayment based on the Defendant’s claimed interpretation of the SSSH contract.  I further accept the Plaintiff’s quotation was based on external dimensions and this was the understanding of the parties and the basis of the SSSH contract.  It is unfortunate if the Defendant failed to persuade China State to pay it on the same basis when it signed the contract on 7 November 1997.  The basis of payment for the construction of manholes under the Defendant’s contract with China State was completely different from the sub-contract between the Plaintiff and the Defendant, therefore final payment pending the re-measurement of the Plaintiff’s work by the main contractor is not applicable to the Plaintiff.  It is important to note that the Defendant’s contract with China State had a value in 8 figures and the Plaintiff’s sub-contract represented a small part of the Defendant’s contract with China State.  I find the Defendant liable to the Plaintiff under the SSSH contract in the sum of $63,121.00.

The Lai King Hospital Contract

49.  The oral contract between the parties was reached during a site visit to the Lai King Hospital in March 1999.  By that time, the Defendant had already signed a contract with the main contractor on 9 November 1998.  Mr. Au Yeung admitted he had, at the site inspection, agreed with Mr. Cho to take up the bar bending and refixing work at $2.2 per kg.  He denied there was any agreement that their oral contract was to be ‘back-to-back’ with the Defendant’s contract with the main contractor.

50.  Mr. Au Yeung subsequently agreed to perform additional works such as oil interceptors (oil separation field), cable draw pits (electrical wiring well), surface channels (drains), lamp post plinth (light pole base) and variation work at Lai King Hospital.  He claimed he had submitted a quotation on the cable draw pits on 26 July 1999 to the Defendant (p. 538 of bundle 2).

51.  Between 20 September 1999 and 17 September 2001, the Plaintiff submitted 12 interim payment applications for work done on the LKH contract totalling $709,491.63 and further submitted 6 interim payment applications for variation works at $249,891.  The sum total came to $959,382.63.  The Defendant certified and approved interim payments of a total sum of $513,000, leaving a balance of $446,382.63.  The Defendant claimed the Plaintiff was overpaid on the basis the LKH contract was back to back with its main contract with China State in the sum of $195,661.07.  The Defendant’s alternative case is, even if it was not a back to back contract, the Plaintiff was overpaid by $170,672.36.

III. What did the parties orally agree under the LKH contract?  Was the agreement ‘back to back’ with the Defendant’s contract with China State?

52.  Mr. Au Yeung claimed he had stated in his 9 June 1999 quotation the measurement of the draw pits were based on external dimensions, and Mr. Cho of the Defendant did not express any disagreement with the basis of his quotation.  He claimed that, in fact, Mr. Cho had agreed with and accepted the external dimensions basis of his 26 July 1999 re-submitted quotation. 

53.  He denied that his oral agreement with Mr. Cho was back to back with the Defendant’s contract with China State.  He also denied he was ever asked to sign a written contract after he commenced the LKH work on 14 March 1999.

54.  Mr. Cho, on the other hand, claimed the parties had orally agreed that the LKH contract would follow the same terms as the SSSH contract, that the interim monthly payment to the Plaintiff would be based on the main contractor’s certification, that the LKH contract was back to back with the Defendant’s contract with China State and the Plaintiff would be paid in accordance with the main contractor’s approved quantity of work done.  As to the variation works, the rate of payment would be valued at the pro rata rate of the contract work.

55.  Mr. Cho denied there was any agreement reached on the Plaintiff’s re-submitted quotation of 26 July 1999 in spite of repeated discussions; as a result, the Defendant continued to pay the Plaintiff based on the LKH contract on the submission of interim payment applications until December 2001.

56.  Mr. Cho admitted that it was not until December 2005 when China State completed the final accounts of the LKH project work that the Defendant forwarded a copy of the final payment accounts to the Plaintiff and the Plaintiff had failed to respond to the final accounts of the Defendant.  According to the Defendant, based on the China State final accounts the final calculated value of the Plaintiff’s work done on the LKH work was $608,275.80, the variation and substituted work was $76,814.11, the total sum was $685,089.91 on the basis the sub-contract was not back to back with the main contract’s contract.  Upon deduction of interim payments of $513,000, the Defendant admitted the sum outstanding under the LKH contract to be $172,089.91.

57.  As in the SSSH contract, the flaw in the Defendant’s case is the continuous certifications and approvals of the Plaintiff’s interim payment applications and the Defendant’s continuous payments to the Plaintiff without raising any queries or objections.  According to the Defendant, under the oral agreement, no re-measurements of the Plaintiff’s work would take place because the Defendant had agreed it would pay the Plaintiff the quantity certified and approved by the main contractor.  The only possible dispute, therefore, lies in the measurement of quantity of work certified by the main contractor.  The agreed rate was $2.2 per kg.  The Defendant relied on its expert’s calculations based on China State’s final accounts.  No independent re-measurement had been conducted.

58.  It is my findings in para. 35 above that Mr. Au Yeung could not have sight of the Defendant’s contract with China State on the SSSH project when the SSSH contract came into effect in mid-September 1997.  The onus is on the Defendant to prove that the terms of its contract with China State was shown to Mr. Au Yeung for the terms to be binding on him.  There was no evidence adduced by the Defendant that the terms and conditions of the contracts with the main contractor of the SSSH project and the LKH project were ever disclosed and shown to the Plaintiff on or before the LKH contract was entered into.  In fact, there was no evidence that even after their oral agreement, the Defendant’s LKH contract with China State was ever shown to Mr. Au Yeung when the oral contract was reached at a site inspection of Lai King Hospital.  Such being the case, those undisclosed terms could not be incorporated into the LKH contract.

59.  By the same token, if the terms and conditions of the contract with the main contractor on the LKH project were not disclosed to the Plaintiff, it would be unreasonable for the main contractor’s contract to be back to back with the Plaintiff’s oral contract with the Defendant.  I find the Defendant’s claim that the LKH contract being back to back with the Defendant’s contract with the main contractor resulting in the terms and conditions being incorporated into the LKH contract completely without support and groundless. 

60.  So far as the variation work is concerned, the Plaintiff based his claim on the 26 July 1999 amended quotation.  The quotation was submitted at the request of the Defendant and the 26 July 1999 quotation was an amended re-submission.  The Defendant claimed that no agreed rate was reached in spite of the amended quotation, yet it continued to pay the Plaintiff interim payments based on the 26 July 1999 quotation rate on per manhole basis.  It is surprising that the Defendant would continue to pay the Plaintiff interim payments based on the amended quotation rate which was never agreed by the Defendant.  It is further inconceiveable that the Defendant, an experienced engineering firm, would overpay its sub-contractor repeatedly.  It is possible that having agreed on the rate, the Defendant subsequently attempted to re-negotiate and vary the agreed rate.  As there were no contemporaneous documentary evidence to show the Defendant’s objection to the quotation of 26 July 1999 or the payment applications for variation and day works save for its later refusal to approve further payment applications after 2 May 2001, it is logical to conclude that the Defendant had accepted the Plaintiff’s amended quotation of 26 July 1999.

61.  Furthermore, the Defendant had accepted the Plaintiff’s rates by conduct. In the case of UBC (Constructions) Ltd. v. Sung Fook Kee Ltd. [1992] 2 HKLRD 207, Kaplan J. held ‘Having been asked to quote and told to go ahead it is not possible for SFK to deny acceptance given that they stood by while these very works were being carried out and what’s more, they made payments at the rate agreed.’  Furthermore, in the case of Smeloan Hong Kong Ltd. v. Today’s Master Ltd. [2005] 2 HKC 135, the Court of Appeal held that if a party possesses information which could be relied upon to challenge the Plaintiff’s claim but refuses to do so, it would be presumed that production would be against the Defendant.

62.  My conclusion is re-inforced by clause 3 of the Defendant’s contract with the main contractor (p. 764 of bundle 2) where it provided that for additional or variation works, payment for such work would be based on the unit price on the tender documents.  If the items were not amongst the tender items, the contractor would be paid a rate based on a similar item.  If there were no similar items, the contractor would submit a quotation for approval.  It is not disputed that the Plaintiff did at the Defendant’s invitation, submitted and amended his quotation to the Defendant in July 1999, upon the commencement of work on the quoted items at the instruction of the Defendant, it is not opened to the Defendant to change the rate of payment for the variation and day works unilaterally unless it has the consent and agreement of the Plaintiff.  In the present case, the Plaintiff did not agree to any rate other than the rate submitted in his 26 July 1999 quotation and he had presented applications for interim payments based on the quoted rate and received payments up to 2 May 2001.  These are clear and strong indications of the parties’ acceptance of the rate of payment for the LKH variation and day works.  On the further basis that the Defendant’s director, Mr. Cho, is an experienced and sophisticated professional, while the Plaintiff, Mr. Au Yeung is an unsophisticated construction site sub-contractor for the supply of bar benders, it is highly unlikely the Defendant would fail to respond to the amended quotation rejecting the Plaintiff’s quotation should it be unacceptable and/or make a counter proposal.  There was no such evidence.

IV. Did the Plaintiff agree he would only receive payments after the final certification of the payment applications by China State?  Is the same rate applicable to the variation and day works?

63.  Based on my findings that the LKH contract was not ‘back to back’ with the Defendant’s contract with China State and the fact that the Plaintiff’s contract price mainly comprised of the supply of labour in the LKH contract, variation and day works, it is inconceivable for a supplier of labour to get his payment 4 years after completion of works for the final accounts to be compiled by the main contractor and approved by the employer in December 2005.

64.  It may be a common practice for an established engineering firm such as the Defendant which had been awarded a major contract worth tens of million of dollars in a large project such as the LKH project to wait 4 years for the main contractor’s final accounts to be approved by the employer.  To a small sub-contractor of labour it would be unimaginable and unworkable.  Furthermore, it is unrealistic for the Defendant to overpay its sub-contractor when it clearly understood the basis of the Plaintiff’s charges were based on the number of mandays deployed.  It is common knowledge that construction workers receive their wages twice a month.  Consequently, it would be close to impossible for a contractor to recover from its sub-contractor of labour over-payments any amount exceeding the 10% retention money on a construction project of this scale.

65.  The only logical conclusion is the Defendant had accepted the Plaintiff’s 26 July 1999 quotation on the LKH work and their agreement was based on the terms as claimed by the Plaintiff.  I therefore give judgment to the Plaintiff in the sum of $446,382.63.

Conclusion

66.  The Plaintiff is entitled to recover $63,121.00 from the SSSH project and $446,382.63 on the LKH project.  The total sum comes to $509,503.63. 

67.  Interests on the judgment sums from the date of writ to date of judgment at ½ judgment rate.

68.  Costs nisi – to the Plaintiff to be taxed if not agreed with certificate for Counsel.