WAI HANG CONSTRUCTION CO LTD AND ANOTHER v. HARVEST ENGINEERING (H.K.) LTD

DCCJ2363/2014

[2018] HKDC 523

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2363 OF 2014

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JUDGMENT

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Introduction

1.  This is a breach of contract case.  The action concerns steel bending and fixing works carried out in Tuen Mun Lok On Pai Salt Water Pumping Station (“the Pumping Station”). It was built for the purpose of supply of flush water in Tin Shui Wai, Eastern Tuen Mun (“the Works”).   

Background

2.  The 1^st plaintiff is a limited company incorporated in Hong Kong, carrying on business in the steel bending and steel fixing industry.  The 2^nd plaintiff is employed as a foreman of the 1^st plaintiff.  The defendant is a limited company incorporated in Hong Kong, carrying on business as a specialist contractor in reinforced concrete structure, watermain laying and drainage works. Lau Yuk Yam (“Lau”) is and was its director and shareholder.  CPC Construction Hong Kong Limited is a general building contractor (“CPC”).

3.  The Water Supplies Department (“the WSD”) engaged CPC as the main contractor of works carried out in the Pumping Station.  The main contract was signed by CPC and WSD on 4 February 2010. The main contract works commenced on 9 February 2010 and the contract period was fixed for 1095 days.

4.  CPC engaged the defendant as a subcontractor of the Works. The subcontract was entered into between CPC and the defendant on 9 February 2010 with a subcontract followed on 11 May 2010.  

5.  The defendant sub-subcontracted the 1^st and/or 2^nd plaintiffs steel bending and fixing works for part of the Works. The written sub-sub contract (“the sub-subcontract”) was entered into between the 2^nd plaintiff and the defendant on 16 April 2010.  Upon request of the defendant, the 1^st plaintiff was incorporated on 7 July 2011.  It was the parties’ understanding the 1^st plaintiff will be the contracting party to the sub-subcontract (collectively referred to as “the plaintiffs”).

6.  It was thereby agreed, the steel bending and fixing works to be carried out at the Pumping Station in or about late 2010.  A project item list, namely in four areas, (i) Bill No 2 pumping station; (ii) Bill No 3 intake culvert and twin box intake; (iii) Bill No 5 piling work (provisional); and (iv) Bill No 5 watermain laying were concluded on the basis that the steel bending works to be done at a price of HK$1,750 per tonne for 1,580 tonnes.  The estimated consideration was HK$2,765,000.  It was further agreed, inter alia, the plaintiffs were responsible for material, labour and works.  The plaintiffs were required to submit bending schedule on a monthly basis to the defendant or the main contractor for quantity surveying purpose.  The quantity of work done by the plaintiffs should be those approved by CPC.  The defendant will pay the plaintiffs the price of the contract within 30 days from the payment from the main contractor, less 5% retention money.  The maximum amount of retention money shall be no more than HK$140,000.

7.  The progress of the works was behind schedule.  On 8 November 2012, WSD issued a warning letter to CPC, complaining the delay of works by the defendant.  On the other hand, the plaintiffs complained the defendant delayed in settling their payments.  On 12 December 2012, the 2^nd plaintiff sought assistance from CPC with a hope to solve the late payment problem.  In or about mid-December 2012 to 4 January 2013, various meetings were held by CPC with the plaintiffs and the defendant to discuss the progress and payment of the works.  The plaintiffs’ steel bending and fixing works were completed on 31 March 2013; the additional works were completed by 30 September 2013.  Unfortunately, the main works of the project did not complete.  CPC was not satisfied with the works.  On 3 October 2013, CPC issued a letter to the defendant to terminate their sub contract.  The defendant was made to leave the work site without the opportunity to retrieve anything from the site on the same day.

The plaintiffs’ claim

8.  The 2^nd plaintiff said the sub-subcontract was partly written and partly oral.  In light of Clause 6 and 7 of the sub-subcontract, he agreed with the defendant that the retention money shall be released no later than one year after the completion of the works or within a reasonable time. The 2^nd plaintiff said, in or about August 2010, after the 2^nd payment certificate, he and the defendant had verbally agreed a raise in the price per tonne of the steel bending and fixing works from HK$1,750 to HK$1,870 per tonne.

9.  After the commencement of the Works, the 2^nd plaintiff and the defendant further agreed that the 2^nd plaintiff shall carry out additional steel bending and steel fixing works outside the Pumping Station.  The additional works were categorized into (i) steel bending works for concrete blocks; and (ii) steel bending and fixing works for the pipe pier connecting the nullah.  The plaintiffs would call for extra manpower to carry out the additional works. The costs of the additional works will be calculated, in accordance with the manpower involved at market rate on a daily basis. The 2^nd plaintiff would submit invoices of the additional works to the defendant for payment accordingly. The defendant further agreed no retention money will be withheld for additional works.   

10.  It was the parties’ practice that the plaintiffs would submit bending schedules to the defendant on a monthly interval. For payment record, Wong Leung Pan (“Wong”), the quantity surveyor/manager of the defendant, would issue a payment certificate by making updates, amendments and adjustments on the electronic copy of the running accounts. The payment certificates were affixed with the defendant’s chop. The 2^nd plaintiff, on reliance of the payment certificates issued by the defendant, was capable to maintain a running account of the works so approved.

11.  The 2^nd plaintiff complained, there were inordinate delay on the part of the defendant to make payments to the 2^nd plaintiff.  As at 15 December 2012, not only the defendant has withheld HK$140,000 as retention money from the plaintiffs, there was an outstanding sum over HK$500,000 due and owing by the defendant.  The plaintiffs approached CPC for assistance.  After negotiation, the defendant undertook to pay the plaintiffs the retention money within one-year retention period from the estimated completion of works on 1 April 2013.  

12.  By September 2013, the plaintiffs completed both the works in the Pumping Station and additional works.  After deduction of the retention money, the value of work done was HK$4,634,161.  Up to this date, as evidenced by the payment certificates and running accounts maintained between the parties, the defendant paid the plaintiffs an aggregate sum of HK$4,120,000 only.  The defendant failed to satisfy an outstanding sum of HK$514,161 plus retention money $140,000, i.e. $654,161. The plaintiffs claim both sums against the defendant.

The defence & counterclaim

13.  The defendant pleaded in the defence the sub-subcontract was entered into between the defendant and the 2^nd plaintiff.  The 1^st plaintiff was only a shell company nominated by the 2^nd plaintiff to receive part of the payment of the works, it is not a party to the contract.  

14.  There was no agreement between the plaintiffs and the defendant on (i) variation of unit price of HK$1,870 per tonne and (ii) the additional works. If there were any additional work done, it should be valued at the original price of HK$1,750 per tonne.

15.  The defendant said it has suffered detriment by making various advanced / interim payments to the plaintiffs, the plaintiffs are estopped from claiming the defendant of any sum other than the works at the agreed rate of HK$1,750 per tonne in the sub-subcontract.

16.  The defendant said, there was an implied term that the retention money would only be released to the plaintiffs upon (i) the defendant’s receipt of payment from CPC and (ii) after the warranty period. 

17.  The defendant said the plaintiffs are further estopped from claiming the defendant for the outstanding sums and retention money, if any, under the sub-subcontract since the defendant has acted to its detriment by procuring its associated company, Fortune Engineering (K.K.) Limited (“Fortune”) to employ the 2^nd plaintiff as its sub-subcontractor in the project in Tan Kwai Tsuen. Fortune has paid a total sum of HK$335,780 to the 2^nd plaintiff and the 2^nd plaintiff agreed to waive all claims, including both the outstanding sum and the retention money against the defendant of this sub-subcontract.

18.  Alternatively, the defendant said there was a collateral agreement that the plaintiffs would waive all their claims arising from this sub-subcontract in consideration of being continuously employed as a steel bar fixing worker by the defendant or its associated companies.

19.  The defendant further pleaded, on request of the 2^nd plaintiff, it has made advanced / interim payments to the 1^st plaintiff in satisfaction of the work done in sum of HK$4,120,000.  The final quantity of work surveyed by the WSD was later known to be HK3,526,495 only.  The defendant has over paid the 1^st plaintiff and therefore counterclaimed HK$593,505.

The plaintiff’s defence to the counterclaim

20.  The plaintiffs replied, the certification of final measurement  of works has never been provided.  The plaintiff accepted, save the defendant has paid HK$200,000 in advance as a gesture of goodwill, all other payments were partial payments of the work done. The plaintiffs denied they have waived the outstanding sums and retention money of this sub-subcontract in return by job opportunity offered by Fortune, such offer was unrelated to the dispute.

The issues

21.  The issues to be determined at trial are as follows:-

(i)  Who were the parties to the sub-subcontract. Was the sub-subcontract entered into between the 1^st plaintiff and the defendant by reason of ratification or estoppel?

(ii)  The nature of the sub-subcontract.

(iii)  Whether the defendant agreed to vary the unit price of HK$1,750 per tonne to HK$1,870 per tonne.

(iv)  Whether there was an agreement on additional works and if so, at what price.  Whether there was an agreement that the additional works are subject to retention money.

(v)  Whether the plaintiffs have waived their right to claim the outstanding sum and retention money from the defendant.

(vi)  What was the measurement of work done by the plaintiffs. Whether the defendant has failed to satisfy the outstanding sum (and the retention money) to the plaintiffs or had overpaid them.

(vii)  Whether the plaintiffs would be estopped to claim the defendant for outstanding sums (and retention money), if any, arising from this sub-subcontract by way of estoppel or collateral agreement.

Evidence

22.  The 2^nd plaintiff testified and had called Wong to give evidence for the plaintiffs; Lau was the only witness testified for the defendant.  

Issue (i) – who are the contracting parties

23.  The defendant disputed the 1^st plaintiff was a party to the sub-subcontract.  Lau insisted the 2^nd plaintiff was the only contracting party of the sub-subcontract.  

24.  The sub-subcontract is capable to be ratified pursuant to section 32A of the Companies Ordinance, Cap 32[1]. Ms Chan, counsel for the plaintiffs submitted for reason the 1^st plaintiff was incorporated in 2011, the pre-2014 version is the applicable law.  She further relied on Poon Yee Kan v New Paradigm E-Technology Ltd (unreported, CACV 325 & 326/2004, 6 December 2006).  The Court of Appeal explained, there could be express or implied ratification.  The relevant or applicable part here is implied ratification, as stated in paragraphs 2-073 of Bowstead and Reynolds on Agency, 17^th edition:

“Rule (3). Implied ratification. Express ratification will however be comparatively rare, and a ratification will more often be implied from words or conduct. Such words or conduct must be unequivocal: they must not be such that they could be accounted for by other interpretations, e.g. that the principal is simply resuming possession of his own property.”

25.  In the evidence, the 2^nd plaintiff has been working as a steel bending / fixing worker, he was Lau’s ex-employee and had come to know Lau for more than 10 years.  The 1^st plaintiff was particularly incorporated for the works in the Pumping Station.   The 2^nd plaintiff signed the sub-subcontract for and on behalf of the 1^st plaintiff.  Lau admitted in cross examination that he required sub-subcontractors of the works of the Pumping Station to hold a valid business registration, one reason being provision of MPF to its employees.  His evidence tallies with the 2^nd plaintiff, saying the 1^st plaintiff was incorporated for taking up the such works.

26.  The 2^nd plaintiff testified, in order to finance machineries to carry out the works in the Pumping Station, he invited Chan Ching Han to inject funds and be one of the shareholder of the 1^st plaintiff.  Furthermore, in or about July 2011, after commencement of the works in the Pumping Station, the 2^nd plaintiff, as a representative of the 1^st plaintiff, attended the meeting with CPC. CPC raised no issue on capacity of the 1^st plaintiff.

27.  Wong was a staff of the defendant. He was responsible for preparing documents, including but not limiting to invoices and bending schedules. He confirmed the 1^st plaintiff was identified as a sub-subcontractor of the works in the Pumping Station.

28.  Lau was being asked during cross examination whether he had seen documents bearing the name of the 1^st plaintiff as a sub-subcontractor of the Works, Lau simply replied he could not recall there were such documents.   

29.  Apart from the above, Lau said on request of the 2^nd plaintiff, he settled advanced / interim payments by way of cheques drawn to the 1^st plaintiff.  The 2^nd plaintiff admitted there was once Lau had issued cheque to him, not the 1^st plaintiff.  He explained he had accepted it because there were already arrears of payments, he was in need of cash, he did not insist on the formality.   The 2^nd plaintiff recalled, in one circumstance, Lau paid HK$200,000 as advanced payment to the 1^st plaintiff.  He rebutted, it would be implausible for Lau to pay a substantive sum to an unrelated party for the purpose of settling payments of the Works.  

30.  When substantive amount of arrears of payment became due, the defendant issued a letter to CPC to call for a meeting. In that letter, the 1^st plaintiff was identified as a sub-subcontrator of the Works.  CPC offered “special payments” to the sub-subcontractors, including but not limiting to the 1^st plaintiff. CPC paid the 1^st plaintiff in or about July 2013.  The 2^nd plaintiff argued it would be impossible that CPC, the main contractor of the Works to settle “special payments” to an entity which was not a sub-subcontractor.

31.  Having considering the evidence and applying the applicable law at time of the incorporation of the 1^st plaintiff, on a balance of probabilities, I accept the plaintiffs’ evidence that the 1^st plaintiff was a party to the sub-subcontract. The sub-subcontract was ratified by the words and conduct between the 2^nd plaintiff and the defendant.  I find the parties have unequivocally participated in the sub-subcontract on the basis that the 1^st plaintiff as a sub-subcontractor.

Issue (ii) – the nature of the sub-subcontract

32.  The plaintiffs said the sub-subcontract was partly written and partly oral.  The defendant disagreed.

33.  During cross examination, Lau testified repeatedly the sub-subcontract was a lump sum contract. It is also a kind of re-measurement contract and that was why a quantity surveyor has been appointed. Lau said, it did not matter to him what rate was adopted by the 2^nd plaintiff to do the steel bending and fixing works. He claimed it is the usual practice between the 2^nd plaintiff and himself in previous dealings, that the 2^nd plaintiff and himself will work out a final account at the end at the completion of the entire project.  He expects a sub-subcontractor to shoulder part of the loss if the defendant did not make a profit from this project. Lau emphasized, should the 2^nd plaintiff suffered a loss in the Works, he will compensate the 2^nd plaintiff by offering him job opportunities in other construction sites, that explains the defendant had continuously paid the plaintiffs interim or advanced payments without verifying the amount of work done prior to the dispute arose. 

34.  Lau’s evidence had by large, is contrary to the defendant’s pleaded defence.  Lau’s evidence was not believable and therefore shall be rejected. On a balance of probabilities, I accept the 2^nd plaintiff’s evidence under this head.

Issue (iii) – whether there was a unit price variation

35.  The 2^nd plaintiff testified the parties have reached an agreement to vary the original unit price of the sub-subcontract.  In August 2011, the parties agreed the original price at HK$1,750 per tonne.  As the daily wage of steel bending and fixing worker has been increased from HK1,100 to HK$1,230, the 2^nd plaintiff requested Lau to raise the unit price per tonne so as to ensure sufficient skilled workers can be retained to carry out the Works.  In or about November 2011, Lau agreed to raise the unit price to HK$1,870 per tonne. The defendant had paid the plaintiffs such sum at an increased rate from the 2^nd payment certificate and onwards.  

36.  Lau testified during cross examination, he did not pay heed to unit price at all.  The interim payments paid to the plaintiffs were not calculated by the unit price.  At the time when Lau was aware of the unsatisfactory work progress, he merely injected monies to fund the Works  without considering the unit price.  He explained, he could negotiate with the 2^nd plaintiff at the completion of all works.

37.  Wong’s evidence corroborated with the 2^nd plaintiff.  Wong agreed there was a raise of unit rate per tonne. He confirmed during cross examination that Lau raised no objection to raise the unit price, he then issued the payment certificates accordingly.

38.  To the contrary, Lau said there was no variation of unit price, and if there were such agreement to increase the same, it would be  unenforceable for want of consideration.  Lau simply denied he had agreed to such a raise.  When Lau was referred to the payment certificates, he said he would not accept them because he had not countersign on them.   Nevertheless, he admitted during cross examination that unit price in a sub-subcontract could be raised under special circumstance, for instance, when the works were behind schedule and more skilled labour be engaged. It showed a possibility in the industry at times, when the progress of works falls behind schedule, the subcontractors can attempt to speed up  the progress by engaging more workers with a higher rate of daily wage.   

39.  I do not find Lau’s evidence believable. The reason being, it would be untenable for Wong, an employee of the defendant, to adopt the increased unit price without the approval of Lau; and it would be highly unlikely that Wong to bypass Lau to make such a decision. The defendant had issued numerous payment certificates with the revised unit price, all payment certificates were affixed with the defendant’s company chop.  Lau, the director of the defendant, paid no regard to this matter. Lau did not make clear to the plaintiffs that the unit price will be re-considered at time when the works were completed.  He could re-negotiate with the 2^nd plaintiff about the level of the unit price. 

40.  What Lau has said about the reconsideration of unit price was neither pleaded in the defence, nor was contained in Lau’s witness statement.  I can only say this is Lau’s attempt to displace the defendant’s responsibility. The defendant argued, should it agreed on the increase of unit price, the agreement would be invalid for lack of consideration.  I do not agree.  The performance by a party of his existing contractual duty may provide a practical benefit to the other party.  Therefore, if the party’s promise, act or forebearance does not impose on him any new burden it still may constitute consideration if it is done at the other party’s request and confers a benefit on him. (See Formation and Variation of Contracts, paragraph 9-13; Keating on Construction Contracts, 10^th edition, 4-070; UBC (Construction) Ltd v Sung Foo Kee Ltd [1993] 2 HKLR 207 at pp 227 – 229).  

41.  In this case, the elevation of price was agreed upon for reason to speed up the works which were behind schedule.  It is not surprising in the construction industry, or simple supply and demand principle, that higher wages could able attract more workers, which is indeed consideration.

42.  Having considered the evidence, I find Lau’s denial the raise of unit price per tonne came without basis. On a balance of probabilities, I find the plaintiffs’ evidence more probable and I accept there was an agreement to raise the unit price from HK$1,750 to HK$1,870 per tonne.

Issue (iv) –  Whether there was an agreement on additional works and if so, at what price.  Whether there was an agreement that the additional works are subject to retention money.

The additional works

43.  The plaintiffs’ claim was that the defendant had agreed on the sub-subcontract only contained works within the Pumping Station, any other work done outside the Pumping Station, including chambers, concrete blocks and pipe piers were additional works.  The defendant agreed, the 2^nd plaintiff will look for manpower to do the additional works, the defendant would pay each of the workers on a daily basis, no deduction of the payment for retention money was necessary. 

44.  The defendant disputed the additional works.  It was pleaded in the defence that such works shall be included in the sub-subcontract and were to be measured at the same rate of HK$1,750 per tonne, in other words, all works done by the plaintiffs fell within the sub-subcontract.

45.  The 2^nd plaintiff explained, the additional works were not within the Pumping Station, but at a distance.  He deployed Yip Shun Man as the foremen to arrange transportation for the workers.  Yip Shun Man would report to him the number of additional workers when they had arrived the site.  The 2^nd plaintiff would then inform Wong of the number of additional workers engaged each day for payment. The defendant would pay the requisite sum to the 2^nd plaintiff accordingly. As a result of this arrangement, the plaintiffs completed the additional works in September 2013.  The defendant issued payment certificates of the additional works at HK$1,200 per day for the workers. 

46.  Wong’s evidence was in line with the 2^nd plaintiff, he confirmed the manner which the 2^nd plaintiff has testified.  Wong said the 2^nd plaintiff would submit bending schedules within the Pumping Station as payment applications for the steel bending works. The quantities of works were measured in tonnes per unit. The calculation of the additional works was very different from normal application, it was not measured by tonne per unit but by daily wage of the workers.  Because of this, Wong was required to recalculate the amount of work done and the payment.

47.  Lau denied there were additional works, he maintained all works were done under the sub-subcontract.  Nevertheless, he accepted in cross examination that the plaintiffs did carried works outside the Pumping Station.  He first maintained the works outside the Pumping Station were measured by tonne and later the day he said he would negotiate with the plaintiffs at time of completion.  At the end of the day, the payment of works done by the plaintiffs outside the Pumping Station was unanswered.  Lau’s evidence has no substance in defending the plaintiffs’ claim for additional works.  The only conclusion and my finding of fact would be, the existence of the additional works agreement and the plaintiffs were paid on a daily basis.

The retention money

48.  Pursuant to clause 6 to 8 of the guideline attached to the sub-subcontract, the payment from the defendant is subject to a deduction of 5% as retention money capped at a maximum of HK$140,000.  The plaintiffs and the defendant verbally agreed that the retention money shall be released to the plaintiffs within 1 year after the completion of the sub-subcontract, or alternatively, an implied term that such sum shall be released within a reasonable time after the plaintiffs have completed the works.

49.  The plaintiffs then complained to CPC that the defendant failed to release the retention money to them.  After negotiations, in a letter issued by CPC to the 1^st plaintiff dated 4 January 2013, the defendant undertook, should the plaintiffs were able to complete the Works by 1 April 2013, it will release the retention money to the plaintiffs no later than 1 April 2014.  As the date of trial, the defendant failed to release the retention to the plaintiffs.

50.  The defendant disagreed, it averred the retention monies will only be released to the plaintiffs subject to (i) receipt of payment from CPC and (ii) after the maintenance period. The defendant claimed, alternatively,  the plaintiffs (or the 2^nd plaintiff) had waived its entitlement to retention money in return of the defendant’s offer of employment by the defendant’s associated company in the Tan Kwai Tsuen project. His evidence was inconsistent with the letter issued by CPC dated 4 January 2013 which had stated the retention money will be released to the 1^st plaintiff after completion of the works.

51.  Lai gave evidence that the works agreed in both the sub-subcontract and the additional works were completed on 13 September 2013, in particular, the works in the Pumping Station were completed by the end of March 2013 and the corresponding bending schedules were submitted to CPC.

52.  During cross examination of Lau, he alleged the plaintiffs did not complete the works but could not identify the outstanding works.  His best evidence, could only be allegation that the outstanding works were located outside the Pumping Station, without particulars.  

53.  What flows from the evidence must be that the additional works were not subject to the deduction of the retention money. The retention money of the payment of the sub-subcontract should be released no later than one year from the completion of works within the Pumping Station.  In a contract which provided provisions for retention of payment without specific time for release, such retention would become payable following completion of the works ought to be paid within a reasonable period after completion, not necessarily the time when the final accounts process be completed.  (See Keating on Construction Contracts, 10^th edition, paragraph 4-102).

Issue (v) – whether the plaintiffs have waived their right to claim the outstanding sum and retention money from the defendant

54.  I do not accept Lau’s evidence that the plaintiffs had agreed to waive their claims against the defendant on the outstanding amount (and the retention money) in exchange to the job offer in Tan Kwai Tsuen.  The defence of either waiver or receipt of payment from the Tan Kwai Tsuen project must fail.  The reason being, as seen from the plaintiffs’ documents, the 2^nd plaintiff was an employee of the project, not a subcontractor.  Lau’s evidence on the allegation that the 2^nd plaintiff had been paid HK$335,780 in the Tan Kwai Tsuen project could not be right.  On the other hand, the 2^nd plaintiff’s evidence is more probable with the support of documents that the sum was the salary of himself and his co-worker given by Fortune and such payments have no relation to the sub-subcontract.  

Issue (vi) – What was the measurement of work done by the plaintiffs. Whether the defendant has failed to satisfy the outstanding sum (and the retention money) to the plaintiffs or had overpaid them.

55.  With regard to the payments, it was the parties’ practice that the plaintiffs would submit work records to the defendant (i) bending schedules for the work done in the Pumping Station; and (ii) the daily work record for the additional works outside the Pumping Station.  Wong verified the bending schedules and the daily records, he kept a running account. After verification, the plaintiffs then issue invoices to the defendant for payments and the defendant would pay the plaintiffs accordingly. 

56.  On 30 September 2013, the defendant issued a work certificate to the plaintiffs and had stated therein the value of work done by the plaintiffs was HK$4,634,161.  In the same document, it expressly recorded the defendant had paid the plaintiffs HK$4,120,000 leaving an outstanding balance of HK$514,161 and retention money HK$140,000.  The 1^st plaintiff then issued an invoice to the defendant for the outstanding sum due and owing.

57.  The defendant denied the outstanding sum owed to the plaintiffs. Lau testified, to ease the 2^nd plaintiff’s financial difficulty, he had been making on-account advanced payments to the plaintiffs when CPC has not yet paid the defendant.  Lau explained, this is so because the 2^nd plaintiff has requested repeatedly.  Such interim payments were paid to the plaintiffs prior to the certification of work done by CPC (or WSD). The amount of interim payment was HK$4,120,000. Subsequently, CPC (or WSD) quantified the work done, as at 3^rd October 2013 was 2,015.4 tonnes, i.e. the final contract sum should be HK$3,526,495 only. As a result, the defendant has overpaid HK593,505 to the plaintiffs. The defendant counterclaimed the said sum against the plaintiffs. 

58.  I do not find Lau’s evidence believable. The reasons are as follows.  

59.  Firstly, in April 2012, the 1^st plaintiff complained to CPC of the outstanding payment owed by the defendant. In December 2012, the defendant claimed it has been suffering from serious cash flow problem. By way of correspondence, CPC acknowledged the defendant’s default in payment exceeded HK$500,000. It was also evidenced by the payment certificates issued by the defendant that there have been outstanding sums due to the plaintiffs around that time. Lau admitted he did not keep an account of the money advanced to the 2^nd plaintiff. Lau merely stated he was generous enough to the 2^nd plaintiff.

60.  Lau, as the shareholder and director of the defendant, I fail to see it is plausible for him to give away money to the plaintiffs in a casual manner without keeping a proper record. It was equally improbable that the defendant has overpaid the plaintiffs for such a long period of time.

61.  Secondly, the defendant’s evidence on the measurement of works was unclear. Lau relied on Clause 4 of the guidelines which had stated the method of measurement for the sub-subcontract works shall be the same as the main contract, to be calculated in accordance with the quantities certified by the CPC or WSD. On the other hand, the defendant relied on a computer record in support of the total quantity of work done in the amount of 2,015.14 tonnes. Having said that, Wong gave evidence that the measurement should be the work certified by the defendant to the plaintiffs. The different methods on the measurement of works could not have assisted the defendant in substantiating its defence. The plaintiffs were at all times not involved in the payment applications between the defendant and CPC or WSD. The plaintiffs, as recipient of funds, relied on the payment certificates at all times. It would be unfair for the defendant to say, when dispute on measurements / payments had arisen, that such measurements were subject to various calculations.

62.  Lau testified, the sum due and owing to the plaintiffs, if any, would be apparent at time of the final account of the entire project be compiled. Neither did the contract itself (nor the guidelines) mentioned the arrangement of the payment of the Works would be subject to the final account between the plaintiffs and the defendant. In this case, the defendant’s main contract was terminated by CPC prior to the completion of works.  The plaintiff’s work, would have been assessed on a quantum merit basis. The defendant’s payment certificates must be good evidence to indicate the quantity of work done by the plaintiffs.  For this reason, I do not find the plaintiffs have agreed to do a final account with the defendant, to bear loss of the defendant in this project.   

63.  I do not accept Lau’s evidence, more particularly, saying CPC will shoulder responsibilities to settle the outstanding amounts to the plaintiffs. It was never pleaded in the defence. If it were pleaded, CPC would likely be joined as a party to this action. During cross examination, when Lau was being reminded of the CPC letter which has been referred to in his witness statement, he conceded the existence of such letter and then explained he has only briefly flipped through it when preparing his witness statement.

64.  In the same letter, CPC stated it would ensure the plaintiffs to receive payments on work done after 15 December 2012. CPC only agreed to act as a facilitator to resolve the dispute between the parties. For the period from 15 December 2012 until September 2013, The total work done by the 1^st plaintiff which has already been certified was HK$1,280,792.96, whilst the total sum received by the 1^st plaintiff was HK$1,310,000.

65.  I conclude the plaintiffs have completed both the steel bending and fixing works in the Pumping Station and additional works. The defendant is liable to pay the outstanding sum and retention monies to the plaintiffs as claimed. There was no overpayment made to the plaintiffs by the defendant. The measurement of works should be those payment certificates issued by the defendant.

Issue (vi) – Whether the plaintiffs would be estopped to claim the defendant for outstanding sums (and retention money), if any, arising from this sub-subcontract by way of estoppel or collateral agreement.

66.  Mr Fan, counsel for the defendant submitted, the determination of this issue depends on whether the finding of facts would give rise to the issue on estoppel. The finding of facts in this judgment does not support any of those. It would be unnecessary for me to decide on this point.

Conclusion

67.  I accept the plaintiffs’ evidence, both the 2^nd plaintiff and Wong are honest and truthful witnesses, their evidence and the plaintiffs case must be my finding of facts.  I reject the defendant’s evidence, I do not find Lau’s evidence credible. The defendant’s defence and counterclaim must fail. I give judgment to the plaintiffs; the defendant’s counterclaim be dismissed.

68.  I make the following orders:

(i)  The defendant do pay the 1^st and 2^nd plaintiffs damages in sum of HK$654,161 (HK$514,161 + HK$140,000) jointly and severally.

(ii)  Interest of the judgment sum at the rate of 2% per annum from the date of the writ to the date of this judgment, and thereafter at the judgment rate until full payment of the judgment sum.

(iii)  The defendant’s counterclaim against the 1^st and 2^nd plaintiffs be dismissed.

(iv)  A costs order nisi that the costs of this action be paid by the defendant to the 1^st and 2^nd plaintiffs, with certificate for counsel, to be taxed if not agreed. 

(v)  The costs order nisi shall be made absolute in absence of application to vary by way of inter parte summons within 14 days from the date of this judgment.