Consort Engineering Co. Ltd. v. Leung Wai Ying alias Tommy Leung t/a Kin Ming Co.

DCCJ 11356/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 11356 OF 2001

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JUDGMENT

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1. The Plaintiff is an electrical works contractor. The Defendant is a building contractor of the Water Supplies Department (hereinafter called "WSD") for the Construction of Pak Kong Treatment Works Laboratory Building under Contract No. 17/WSD/96 (hereinafter called "the main contract"). In the present action, the Plaintiff claims against the Defendant for payment for work done in the sum of $163,801.

2. On 2nd August 1997, the Plaintiff entered into an agreement with the Defendant for the electrical installation of the Pak Kong Treatment Works Laboratory Building. The contract document was drafted by the Plaintiff at the Defendant's request and typed by Defendant's staff and signed by the parties. It was given the contract number KM-WSD-AG-01 ("the said sub-contract").

3. The Defendant's defence is that the Plaintiff was fully paid for the work done under the contract for the Plaintiff had agreed under the sub-contract to the scope of work for electrical installation set out in the main contract, and that it was on a back to back basis. The Defendant claims that in fact the Plaintiff was overpaid by $4,012.80. The Defendant counterclaims against the Plaintiff for the overpayment and losses for payment of the penalty imposed by the WSD due to the delay in completion of work.

4. The Plaintiff disagrees and claims, in particular, 3 items of additional work or variation of work done. These are the installation of:-

1. power supply for the outdoor A/C unit;

2. power supply and control wiring point for water booster pump; and

3. change of lighting fittings in the male and female toilets.

The Plaintiff alleged that the aforesaid first 2 items were additional work not included in the contract, while the last item was variation of work.

The Plaintiff's case

5. The Plaintiff's director Chow Moon Tong (PW1) was called to give evidence on Plaintiff's behalf. He claimed that when undertaking the electrical installation work, he had made a statement to the Defendant that the work would not include low voltage installations ("ELV installations") but would include the metal piping works.

6. He claimed that before starting work on the 3 items referred to in paragraph 4 above, he had sent to the Plaintiff separate quotations for the aforesaid 3 items (power supply for the outdoor A/C unit and water booster pump and the change of light fittings in the toilets) (hereinafter called "the said 3 items"). The Plaintiff did not dispute or make any changes to them. After the work was completed he sent updated invoices to the Defendant from time to time and had chased after the Defendant for payment, but the Defendant told him he had to confirm the figures with the WSD. And, at the end of the day, the Defendant refused to pay for the said 3 items.

7. In answer to the Defendant's counterclaim, the Plaintiff claims that the delay was caused by the electrical and mechanical installation work relating to the air-conditioning and ventilation system.

The Defence case

8. The Defendant gave evidence at the hearing and confirmed the work done on the said 3 items. He, however, claimed that the work on the first 2 items was part of the work under the main contract, while the third item was defective work, for the light fittings did not fit the ceiling of the two toilets, the WSD's electrical engineer had rejected them and insisted that it was a defect and demanded a replacement. He admitted that he had agreed with the Plaintiff initially that the light fittings could be installed and he had obtained the approval from the WSD's civil engineer who would in turn obtain the final approval from the electrical engineer. He denied that the reasons that the light fittings did not fit was due to wrong construction work on his part, because, if it were, the WSD would not have accepted it. He claimed the Plaintiff purchased the wrong model of light fittings, as the original model was not available in Hong Kong the Plaintiff had purchased a different model instead. He said he had obtained the WSD's approval (a "no adverse comment" remark) prior to installation, he had told the Plaintiff to go ahead with the installation. It was unfortunate that the electrical engineer of the WSD had rejected the light fittings later on. On one hand, he accepted that WSD was wrong in insisting the light fittings be replaced. On the other hand, he admitted the WSD was at fault, but as the contract was on a back to back basis, he believed the Plaintiff was responsible for the replacement.

9. As to the first 2 items, the Defendant claimed that the Plaintiff was responsible for all electrical installations set out in the main contract. The scope of work under Clause 13.09 of the main contract clearly included electrical installation for power supplies for air-conditioning installation and the Hydro-pneumatic Booster System etc. As his contract with the Plaintiff was a sub-contract on a back to back basis with the main contract, he claimed the first 2 items were not additional work. He counterclaimed for loss suffered due to the delay caused by the Plaintiff, though he produced no particulars on the loss suffered or the penalty imposed by the WSD at the hearing.

Findings

10. It is not disputed that the agreement between the Plaintiff and the Defendant was on a 'back-to-back basis'. This fact was set out in the said sub-contract No. KM-WSD-AG-01 dated 2 August 1997. The one paragraph sub-contract stated:-

'Under this agreement, Kim Ming & Company (Kim Ming) with registered address at 68 Electric Road, 1st Floor, Causeway Bay, Hong Kong, agrees to sub-contract the mentioned work to Consort Engineering Co. Ltd. (SUB-CONTRACTOR) with registered address at Flat 6, 20/F., Lucida Industrial Building, 43-47 Wang Lung Street, Tsuen Wan, N.T. with the sum say HONG KONG DOLLAR EIGHT HUNDRED AND SEVENTY THREE THOUSAND ONLY （$873,000.00）. All scope of works should be identical as described in WSD Tender Documents related to Contract No. 17/WSD/96 which sub-contractor has inspected. Therefore, sub-contractor should note that work to be carried out in back to back basis.'

This written agreement was signed and witnessed.

11. The evidence of Mr. Leung Wai Ying, the Defendant, was that he had successfully tendered for the contract of the construction of Pak Kong Treatment Works Laboratory Building after obtaining the individual quotations from his sub-contractors for different parts of the main contract. The sub-contracts were all on a back to back basis to the main contract. When the original electrical works sub-contractor suffered a heart attack, he requested the Plaintiff to submit its quotation based on the electrical installation part of the main contract on a back to back basis. He said though the Plaintiff's price of $873,000 was higher than the original sub-contractor's price, he accepted it and entered into the said sub-contract with the Plaintiff. It is not disputed that the Plaintiff had read the main contract before the parties entered into the agreement. My attention is drawn particularly to the clause in the said sub-contract that said "...all the scope of works should be identical as described in WSD Tender Documents related to Contract No. 17/WSD/96 which the sub-contractor has inspected. Therefore, sub-contractor should note that work to be carried out in back to back basis."

12. Under clause 13.09 of the main contract, "Scope of Building Services Installation relating to electrical installation" in the main contract stated the following:-

"(1) Electrical Installation

(a) Description of Works

(i) The electrical installation of the Laboratory Building shall include the design, supply, installation, testing and commissioning of the following items as indicated on the Drawings:

1. Main and Sub-main Distribution

2. General Final Circuits and Equipment

3. Conduit/Trucking System for other services

4. Power Supplies for Air-Conditioning Installation

5. Power Supplies for Fire-Services Installation

6. Power Supplies for the Hydro-pneumatic Booster System

7. Lightning Protection System

8. Earthing Protection System

9. Hand Dryer Protection System

At the trial, the complete main contract/tender documents was not produced. The Defendant had filed only the relevant parts concerning electrical installations of the main contract as part of his defence. Under clause (e) relating to power supply to Air-Conditioning and Ventilation Equipment, it stated further that:-

"(i) The Contractor shall supply and install the power distribution system for the air-conditioning and ventilation equipment as detailed in this particular Specification and Drawings.

(ii) The Contractor shall supply and install the final circuit distribution systems from the distribution equipment to the various indoor units and ventilation fans as shown on the Drawings. The distribution system shall comprise continuous trunking part and surface/concealed conduits part. The fused connection units for the indoor units shall be flush mounted on the structural floor slab or ceiling beams. The exact positions of the outlets shall be determined on site.

(iii) The power distribution system for ventilation fans supply shall comprise continuous trunking and surface/concealed conduits to the Fresh Air Intake Fans Control Cubicle located in Switchgear Room on the ground floor.

(iv) The Contractor shall supply and install one 100A 3 phase 380V isolator in the A/C Switchgear Room for the power supply to all the outdoor units.

(v) The Contractor shall supply and install the final circuit distribution system from the 100 A isolator to all the A/C outdoor unit. The distribution system shall comprise continuous cable tray, trunking and conduit parts, cables and protective switchgears.

(vi) The Contractor shall supply and install the control cables between the indoor and outdoor units of the split type A/C units and complete with concealed conduits, trunkings and all necessary accessories in accordance with the manufacturer's recommendation.

(vii) The Contractor shall submit the cable route drawings and power distribution diagrams and drawings for the Engineer's approval prior to the commencement of work."

13. It is the Defendant's evidence that he had not signed a separate written agreement with his other sub-contractors, he had signed the said sub-contract with the Plaintiff at the insistence of the Plaintiff. This is not disputed by the Plaintiff.

14. Under the parol evidence rule, where the parties appear to have embodied their agreement in a written document, it is a rule of law that verbal evidence is not allowed to be given to vary or qualify the written contract ( see Chitty on Contracts Vol.1 28th ed. ch.12-094 on page 624) This longstanding rule has been set out in Goss v. Lord Nugent (1833)5 B and Ad 58, 64 and upheld in a long list of authorities that followed. In the case of Australasia v. Palmer [1897] A.C. 540 Lord Morris accepted that :-

"parol testimony cannot be received to contradict, vary, add to or subtract from the terms of a written contract, or the terms in which the parties have deliberately agreed to record any part of their contract."

15. PW1 Chow Moon Tong said in his evidence in Court that he had stated to the Defendant after the signing of the sub-contract that 'low voltage work' will not be included. Obviously, such extrinsic evidence cannot be accepted as part of the sub-contract. Had it been part of the agreement of the parties, it would have so specified in the written subcontract.

The claim for power supply and control wiring point for water booster pump and power supply for outdoor A/C unit

16. It is the Defence case that though the drawings for the air-conditioning and pump room were prepared by the sub-contractors responsible for those two respective areas, it was the Plaintiff's job to install electrical supply to the air-conditioning units and the pump room. That the lump sum contract price of $873,000 included the whole electrical installation package set out in the main contract. That was why the Defendant had insisted on a back-to-back agreement with the WSD contract. Since there was an agreement of the lump sum contract price of $873,000, the Plaintiff now claims that these 2 items were extra work (invoices 1430 and 1431) and the change of light fittings in the toilets was variation work (invoice 1503) (see page 26 of bundle of documents.)

17. Reading from the relevant parts of the main contract referred to in paragraph 12 above, I am satisfied that the two items of power supply to the outdoor air-conditioning unit and the water booster pump cannot be regarded as additional work. The reason why quotations of various items of equipment and work relating to the electrical installation were sent to the Defendant was so that the Defendant can send these on to the WSD engineer for approval. I accept that the WSD engineer would vet the quality and value of each item before granting the approval for the work to commence and the equipment to be installed. Final payment of each piece of equipment installed and work done on the building would be based on the valuation and approval given after completion of work. Consequently, the fact that a quotation was sent by the Plaintiff to the Defendant immediately before installation cannot be construed directly that it is a piece of additional work. The surrounding circumstances have to be looked at

18. Looking at the evidence before me, I am satisfied that the fact that the Plaintiff delivered invoices to the Defendant from time to time does not mean that their work done exceeded the scope of work described in Clause 13.09, or that it is entitled to claim for work done within the scope of work because the Plaintiff had exceeded the lump sum which it contracted for, unless such work was accepted as additional work by the WSD engineer.

19. At the same time, should the Plaintiff failed to install any or any part of the equipment under Clause 13.09, the lump sum price would be reduced accordingly. That was why the Defendant in his letter to the Plaintiff's solicitor dated 23rd July 2001 (on page 27 of the bundle of documents) made an adjustment to the claims submitted by the Plaintiff. One can see in this letter and the chart prepared by the Defendant (pages 63-63 of the bundle of documents) that there were deductions of the "hand dryer" and "FAI from Central Cubicle" from the lump sum of $873,000 because these items were not installed, and there were additions of certain items which had been approved by the engineer and the Defendant arrived at the figure of $49,144.50 in response to the Plaintiff's solicitor's letter of 7th June 2001 enclosing the Plaintiff's breakdown figures (see pages 25 and 26 of bundle of documents). I understand that the Defendant had paid to the Plaintiff the aforesaid sum of $49,144.50 since these proceedings commenced.

20. Comparing the Defendant's chart (pages 63-64 of the documents bundle), the Plaintiff's breakdown of the claim enclosed in its solicitor's letter of 7th June 2001 (pages 25-26 of the documents bundle) and the Defendant's reply of 23rd July 2001 (page 27 of the bundle of documents), the Defendant had accounted to the Plaintiff 3 items of variation/extra work which the Defendant had obviously accepted were extra work outside the main contract, not covered by the main contract.

21. The Plaintiff further queried the 15% P & E deducted by the Defendant in the approved valuation by the WSD engineer. The Defendant explained that it represented the 15% profit and administration charge that the WSD had allowed the main contractor on the sub-contractor's fees on the extra work done. Under cross examination, the Defendant Mr. Leung, claimed that he was entitled to add a 15% for profit and administration on extra work done by the sub-contractor but he would not be paid an extra 15% for profit and administration on the lump sum tender price with the WSD. He admitted that he had sent the invoices from the Plaintiff on to the WSD for negotiation and the payments were subject to the WSD engineers' deduction or in some cases increases. The table produced by the Defendant on page 63-64 of the bundle of documents showed the Plaintiff's claim and the payments the Defendant obtained from the WSD and the payments he made to the Plaintiff and the reasons for such payments. The Plaintiff was indeed paid for those 3 items of extra work under C, D and E. Two of the item, items D and E, the Defendant had paid the Plaintiff $16,417.15, and $34097.50, sums below the Plaintiff's claimed price of $17,870 and $51,044 respectively; while the third item, the Plaintiff was paid $17,501.50 a sum higher than the Defendant's claimed price $17,870 (see page 27 of documents bundle).

22. Under Clause 13.09 of the main contract, the 2 items of power supply to the outdoor A/C unit and control wiring point for water booster pump are indeed part of the contract work under the main contract. On a back-to-back basis, the Plaintiff cannot deny it had no knowledge of the work involved when the sub-contract was entered into for $873,000. As the sub-contract was in writing and unambiguous, failing strong evidence or compelling reasons shown to me, I cannot accept extrinsic parole evidence from the Plaintiff that the lump sum contract should exclude any part of the work it was bound to perform on a back-to-back basis to the main contract.

23. It follows that the Plaintiff must fail in his claim for these two items.

Supply and install lighting fitting for Male and Female Toilets

24. The Plaintiff claimed that the Defendant had agreed to the Plaintiff's installing the light fittings after it was discovered that the light fittings purchased by the Plaintiff would not exactly fit the ceilings of the 2 toilets. The Plaintiff blamed it on the faulty construction work of the ceiling. The Defendant denied it was faulty work as the construction work had been approved by the WSD engineer. He attributed fault on the Plaintiff's failing in obtaining the right model of light fittings and after consulting the WSD engineer and obtaining a "no adverse comments' remark which the Defendant claimed to be the equivalent to an approval, he had agreed to the Plaintiff's request to install the light fittings. When the electrical engineer demanded replacement of the light fittings, the Defendant claimed he had obtained an agreement from the civil engineer for payment of the replacement light fittings subject to the approval of the electrical engineer. He then requested the Plaintiff to replace the light fittings. However, the final certification for payment by the WSD's electrical engineer did not come through because the original set of light fittings were considered to be defective work. I accept such was the case although I have not been shown any documents in support at the hearing.

25. It is unfortunate that the Defendant and the Plaintiff did not sort out this item with the WSD before the light fittings were replaced. I accept that the Plaintiff's replacement of the light fittings had the prior consent and approval of the Defendant who had consulted the WSD engineer beforehand. Furthermore, it is not disputed that the Plaintiff had received the engineer's 'no adverse comment' approval prior to installation. On this basis, the Defendant could have successfully negotiated for the approval for payment of the replacement of the light fittings. For this reason, I allow the recovery of this item by the Plaintiff in the sum of $10,740. As the Defendant claims an overpayment of $4,012.80 set out in chart on page 64 of the documents bundle, I allow a set off in that sum. The sum recoverable by the Plaintiff is therefore $6,727.20 with interest at half judgment rate from date of writ and judgment rate from the date of judgment until full payment.

The Defendant's counterclaim

26. As the Defendant failed to adduce any evidence in support of his counterclaim, the counterclaim is dismissed.

27. Costs nisi to the Plaintiff.