ROTEGEAR (ENG) CO v. TS WONG & CO LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

CONSTRUCTION AND ARBITRATION LIST

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JUDGMENT

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1. The defendant was the main contractor on a building development. The plaintiff was the domestic sub-contractor in respect of the electrical works.

2. The plaintiff says it was an implied term of its agreement with the defendant that the defendant would be responsible for the management and security of the work site. In breach of this implied term, the plaintiff alleges, the defendant failed to maintain adequate security at the site and, as a result, there were thefts. The plaintiff goes on to allege that, in accordance with the request and instructions of the defendant, and in order to assist in the mitigation of the effect of the thefts on the defendant, the plaintiff replaced and reinstalled the stolen goods at a cost of $694,320. The plaintiff says that, on about 21 April 1991, the defendant paid to the plaintiff the sum of $250,000 as an advance part payment of the loss claims, but has failed to pay the balance of $444,320. The defendant, the plaintiff says, has also failed to pay the balance of the final account amounting to $171,859.30

3. The defendant denies that there was any implied term as to security. The plaintiff's allegation that it replaced and reinstalled the stolen goods at the request of the defendant, although not denied, is not admitted. The defendant says that the plaintiff was under an obligation to complete the work, and, consequently, was liable, "if the ... works failed before completion for the cost of bringing them to completion by whatever means and whatever might be the cause of failure." The defendant admits the payment of $250,000, but says this was "on account of the electrical installation works", not as an advance payment of the loss claims. The defendant says it has overpaid the plaintiff to the extent of $78,140.70, and counterclaims this sum.

4. Mr Wong Yan Wai gave evidence on behalf of the plaintiff. He said in his written statement, which was adopted as his evidence-in-chief, that, at the time the plaintiff's original tender was accepted, he spoke to Mr Ng, who was the defendant's deputy managing director at the time. Mr Ng confirmed acceptance of the plaintiff's tender, and said that progress payments would be made monthly. Mr Ng also said that, the plaintiff being a domestic sub-contractor, the defendant would be responsible for all insurance. After each of the thefts, Mr Wong wrote to the defendant giving details of the costs on replacement and reinstallation. In respect of each theft, the plaintiff also advised the defendant to report the matter to the insurance company. He wrote to the defendant, several times, saying that the thefts were due to insufficient site security. He said that the plaintiff would not proceed with some reinstallation work until the security was improved. He asked the defendant to improve its security on the site several times, but it was not until after the last theft that Mr CM Hau of the defendant wrote to him on 4 April 1991 about this. In this letter Mr Hau said the defendant was also concerned about the thefts, and "In order to eliminate any further loss until handover of the project, we have taken immediate steps to strengthen our site security by employing additional gang of securitors who are of duty and patrolling at night time.". He went on to say that the certificate of compliance was to be obtained by mid-April 1991 and flats handed over to owners, so "you are requested to arrange all stolen MCB to be reinstalled in order to meet the handover requirement." He enclosed a programme of work that required the plaintiff to do the work within seven days. Mr Wong telephoned Mr Hau to discuss payment for the work to be done by the plaintiff. Mr Hau told him the defendant was making a claim under its insurance policy, and asked the plaintiff to reduce its claim to take account of excess to be paid by the defendant. Mr Wong told Mr Hau that the insurance claim did not affect the position that the defendant owed $694,320 to the plaintiff for the work, but if the excess was small, his firm would consider this. He asked Mr Hau to pay 90% of the cost, and Mr Hau agreed.

5. Mr Wong then wrote to Mr Hau confirming this conversation, and asking for a decision as to whether the plaintiff should proceed with the works to meet the schedule. Mr Hau replied saying that the defendant had decided "to pay you HK$150,000 being the advance payment for your loss claims provided that you could arrange all the stolen MCB to be re-installed for handover on or before 20 April 1991.". Mr Wong telephoned Mr Hau to say that the payment was not sufficient. Mr Hau agreed to pay $250,000. Mr Hau wrote confirming this.

6. None of this evidence was contradicted or challenged. However, on 2 May 1991, Mr Yip, on behalf of the defendant, wrote to the plaintiff saying that the defendant would hold the plaintiff to the contract, implying that the plaintiff must complete the works at its own cost, although the defendant would seek to mitigate the plaintiff's loss through the insurance policy. Mr Yip said that the advance payment of $250,000 was made "to enhance your cash flow for the re-ordering of the replaced MCB", and this payment would be deducted from the next interim certificate. Mr Yip said that the plaintiff's loss would be assessed and settled on finalisation of the insurance claim.

7. The defendant made a claim against its insurance company. This claim was contested, and the matter went to arbitration. On 4 February 1995, an award was made in favour of the defendant. It is agreed that the insurance company has paid the defendant.

8. It is quite clear from the defendant's statement of claim and the terms of the award that the defendant's claim in the arbitration was based on its liability to pay the plaintiff the amounts for the materials supplied and work quoted by the plaintiff for re-doing the work. Mr Chan concedes that this is the case, but says that the defendant made a mistake in resting its claim on this basis. What the defendant should have done, he says, is to make a claim for the loss of the plaintiff "as an agent for the plaintiff." There is no evidence that the defendant made its claim against the insurance on any other basis than that it believed that it was liable to the plaintiff to pay what it had agreed to pay under the agreement with the plaintiff to re-do the work necessitated by the thefts.

9. These indisputable, and undisputed, facts emerge from the evidence and the contemporaneous documents -

10. Mr Chan does not dispute any of this. What he argued was, as I understood him, that there was no consideration for the defendant's promise to pay the plaintiff for re-doing the work because what the plaintiff undertook to do was already its contractual duty. I do not accept this.

11. I do not accept it because I do not accept that it was the plaintiff's contractual duty in this case to re-do the work without any additional compensation. It may be so, of course, that where a sub-contractor agrees to do work for an entire sum, he cannot claim for the work until the work is complete, even if the fact that the work is not complete is due to no fault of the sub-contractor. But this a matter of construing the contractual relationship between the parties, and in a contract in which the main contractor assumes the risk of an eventuality preventing the completion of the work, it must be the intention of the parties that the main contractor bears the risk he has assumed, and not the sub-contractor. Here, it is clear that the defendant agreed to assume the risk of what happened because it insured against it, and undertook the responsibility of providing security designed to prevent what happened. The fact that it was the intention of the parties that the defendant should bear the loss suffered by the eventuality insured against is shown by its conduct in pursuing a claim against the insurance company to recover that loss; the loss being, amongst other things, what it was liable to pay the plaintiff, and by the conduct of the plaintiff in making and pursuing its claim against the defendant. In these circumstances, it cannot be said, as matter of construction, that the pre-existing contractual relationship between the plaintiff and the defendant required the plaintiff to re-do work that had been undone by others, without fault by the plaintiff.

12. I also do not accept Mr Chan's argument because, even assuming that the plaintiff had a contractual obligation to re-do the work, this was an obligation to do the work within a reasonable time, and the agreement was, at the insistence of the defendant, that the plaintiff would do the work within a tight schedule of seven days so that the building would be ready for handover on or before 21 April 1991.

13. There may be other reasons in law, apart from in justice, to hold the defendant to its agreement, but these, to me, seem sufficient.

14. The plaintiff's claim is for $171,859.30 being money due under the final account and $444,320 being the balance of the money that the defendant agreed to pay for the additional work. The defendant does not dispute the claim for $171,859.30, save to say that this has already been paid by means of the payment of $250,000. I have found that this payment was in respect of the additional work, and not in respect of work done under the original contract. Accordingly, I find that the plaintiff is entitled to judgment for the sums of $171,859.30 and $444,320. It follows that the defendant's counterclaim must be dismissed, and I do so.

15. I must confess that there were times during the hearing of this case when I could not see any argument at all for the defendant's defence, and I expressed the view that it might be that a special order as to costs should be considered. My belief in this respect was bolstered by the fact that, when I put points to Mr Chan, he gave me the impression that he had no answer to them. Perhaps it should be said that usually, when a judge puts points to counsel, he is not making rulings, but inviting argument. On a closer examination of the defendant's case, and particularly Mr Chan's helpful closing written submission, it seems to me that it was not as hopeless as it first appeared to me.

16. On this basis, it is my inclination to award costs to the plaintiff on the usual scale. I make an order nisi to this effect.

17. From the date of judgment, the amounts awarded will bear interest at the judgment rate. I have not heard argument on the rate of interest before judgment, but Mr Coleman drew attention to the fact that the arbitrator awarded interest to the defendant at "compound interest at commercial rates". This may be a basis for an argument that there should be a similar award in this case. In the absence of agreement, I will hear argument on this.