W K CHANG v. WAI MAN ENGINEERING LTD

DCCJ 7882/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7882 OF 2002

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J U D G M E N T

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Introduction

This is a retrial.

The Plaintiff (“P”) is a quantity surveyor and the Defendant (“D”) a construction contractor.  P sued under a written agreement (“the Agreement”) for an amount of $243,095.  The Agreement reads:

“UNDERGROUND DRAINAGE WORKS AT VISTA PANORAMA

If the provisional sum of $486,190.00 is paid to us in full or in part by the Employer, a success fee of 50% on the amount paid will be paid to you.”

At the first trial HH Judge Wong dismissed P’s claim on the ground that the Agreement is unenforceable in that the parties were at cross-purposes as to the subject matter of the Agreement. 

P appealed. The Court of Appeal (Hon Rogers VP, Le Pichon JA and Cheung JA) had the view that the learned trial Judge failed to consider a material fact when arriving at her decision and ordered that the case be remitted back for retrial. 

The material fact in question is whether there has been a duplication of work stated in the tender of D for the underground drainage maintenance work of Vista Panorama (“the Project”).

Issues

The main issues in the present trial are:-

(a)   Whether the term “provisional sum” under the Agreement refers to an amount, as understood by the parties, being part of or in addition to the contract price of the Project;

(b)   Whether the parties were at cross-purposes at the time of signing the Agreement; and

(c)   Whether P had provided consideration to the Agreement.

Factual Background

1. Vista Panorama (“the Property”) is a multi-storey residential building.  In 2001, the Building Department ordered the Incorporated Owners of the Property (“the Owners”) to carry out underground drainage maintenance work on the Property.

2. The Owners instructed its agent Multiple Surveyor Ltd. (“MSL”) to invite tenders from contractors for the Project.  A printed set of “Tender Documents” was prepared by MSL for contractors to submit tenders. 

3. The mode of tender was in the nature of a “lump sum tender”, which means that the tenderer is required to put down an overall amount of charge for the whole project rather than giving quotations on individual items of work.

4. The Tender Documents composed of different parts. The tenderer was required to fill in a “Lump Sum Fixed Price” on the “Form of Tender” for the Project. 

5. Under the “Conditions of Tender” of the Tender Documents, the Lump Sum Fixed Price given in the Form of Tender shall be the tenderer’s all-inclusive price.

6. D was interested in the Project. According to Mr. Chan Kam Tin (“Chan”), a director of D, he instructed a part-time employee who was still studying at the Polytechnics to fill in the Tender Documents.  The form was then submitted to MSL with Chan’s approval.

7. There was no Lump Sum Fixed Price filled in on D’s Form of Tender but a total price of HK$1,089,680 was put down on the “Summary of Tender” part.  It was however stated on the Summary of Tender that the amount must be the same as the tender sum in the Form of Tender.

8. Although the tender was intended to be a Lump Sum Tender, a “Schedule of Works” comprising 3 different tables was provided for tenderers to fill in.  Two of the said tables filled in by D are as follows:-

9.  It is necessary to set out the above tables in full because they represent the central issue in relation to the suspected duplication of work that the Court of Appeal showed much concern.

10.  As was observed by the Court of Appeal, it is apparent that paragraphs c) and e) of item 2.02 are substantially replicated in paragraphs c) and d) of item 2.01.

11.  The Lump Sum Fixed Price was later reduced to an amount of HK$990,000.  By a letter dated 22^nd August 2001 (“the Building Contract”) signed by MSL and D, D’s tender was accepted with a tender sum of HK$990,000 including a provisional sum of HK$486,190.

12.  In contemplation of a successful tender, D retained P for general assistance in an amount of HK$3,500 per month.  Under the retainer P would assist D on matters including drafting of letters and communications with MSL.

P's case

13. It was P’s case that Chan went to his office on 20^th February 2002 to seek his advice specifically on the problem of the provisional items of work consisted in the latter table above.

14.  According to P, Chan was very much troubled by the fact that duplication of works was put down on the Tender Documents as provisional items and he might therefore be unable to charge for the provisional sum of HK$486,190.  Chan told P that he would not even have sufficient money to finish the Project if the provisional sum was to be deducted.

15.  P indicated to Chan that he might be able to help and suggested that a success fee of 50% of the provisional sum be paid to him for reward should D receive the provisional sum in the end.

16. Chan agreed and P prepared a written contract for signing. 

17.  It was under these circumstances that the Agreement was executed.

18.  According to P, the entire site needed only 60 manholes whereas the price of 122 manholes was quoted under items 2.01 and 2.02 altogether.  Chan realized this problem.

19.  P said his strategy was that D should wait to see if MSL would take issue to the duplication of items.  If MSL takes issue, P would then see if he could do anything within the terms of the Building Contract to prevent the provisional sum from being deducted.

20.  When asked by his counsel if he had done anything in performance of the Agreement, P said he had done something but without going into details.  However, this part of P’s evidence had not been challenged by D in cross-examination.

D's case

21. Chan denied having sought P’s advice in relation to the duplicated items.  He said he visited P at his office on 20^th February 2002 to greet him for the Lunar New Year. 

22.  Out of curiosity, Chan asked P why the term provisional sum was written on the Building Contract.  P then suggested to him that P can do something to enable D to get HK$486,190 more in addition to the contract price.  He understood it as an amount extra to the contract price, not within it.

23.  P then prepared a document within a few minutes.  Chan had no idea how P can get the extra amount, he just signed document without much consideration. Chan said P cheated him.

24.  Chan said paragraphs c) and d) of item 2.01 and paragraphs c) and e) of item 2.02 are not duplicated.   Paragraphs c) and d) of item 2.01 refer to cleaning of water pipes whereas paragraphs c) and e) of item 2.02 refer to replacement of water pipes. 

25.  When Mr. Harris, counsel for P, queried why the quotations for the two different nature of works being the same, Chan explained that they charged more in item 2.01 to cover the deficit in item 2.02.

Finding of facts

26. I have no difficulty in preferring P’s version of facts against Chan’s.

27. It is obvious when we compare the two tables that the rates and amounts quoted under paragraphs c) and d) of item 2.01 and paragraphs c) and e) of item 2.02 are identical. 

28.  “Clean up of drainage” was expressly included under item 2.01(a) and a lump sum was quoted for HK$25,000.  Chan could not provide any reason as to why the cleaning of water pipes is mentioned again in the same table.

29.  Chan’s explanation for the apparently high charge for cleaning work is unsustainable.  It is D’s case that replacement of water pipes was contemplated at the outset and the tender was a lump sum tender.  It follows that a quotation of a higher charge for the replacement work would not prejudice D’s chance of winning the tender, as only the overall price that matters. 

30.  There is simply no reason to do the exercise of quoting a higher charge for cleaning work and on the other hand lower the quotation for replacement work.

31. In relation to what had happened in the meeting on 20^th February 2002, the account of Chan is unbelievable. 

32. “Provisional Sum” and “Provisional Work” are terms not uncommon in the construction field.  Chan had been operating his own business in the field for many years. He should not have any curiosity about such terms being used in the Building Contract.   Chan must have known the meaning of the term “Provisional Sum”.

33. The Agreement refers expressly to “a provisional sum of HK$496,190.00”.  If the discussion between P and Chan referred to an amount extra to the contract sum, this term would not have been used.

34. Furthermore, there was no basis whatsoever given by P at the meeting on 20^th February 2002 for charging an extra amount or even securing extra works in respect of the Project.  It is contrary to common sense that P and Chan would proceed to execute a written contract without even exploring how P would be able to achieve it.

35. P’s version is on the other hand a reasonable one. 

36. Although the tender was a lump sum tender, provisional works are still subject to re-measurement.  Under Clause G of the Schedule of Works of the Tender Documents, the value of work for a provisional item will be ascertained by measurement.

37. Be it a result of inadvertence or otherwise, the quotations in D’s tender are clearly in duplication.  There exists a risk that MSL or the Owners might take issue of this and ask to deduct fees. 

38. Given the long-standing relationship between P and Chan and P’s expertise in construction contracts, one would not be surprised that Chan then went to seek advice from P. 

39. I find P a credible witness and accept his evidence in full. 

40. I find as a fact that Chan visited P to seek his advice on the possible deduction of the provisional sum in view of the duplication of items in D’s tender.

41. I find that P and Chan on behalf of D agreed as what was written on the Agreement.  The term “provisional sum” was understood by both P and Chan as referring to an amount forming part of the contract price of HK$990,000.00 for the Project.  D had in the end received the said contract price including the said provisional sum.

42. The parties were not at cross-purposes at the time of signing the said written contract.

Discussion

Mistake

43. It is submitted by Mr. Li, solicitors representing D, that there was in fact no provisional sum in existence at the time of formation of the Agreement. 

44. Mr. Li submitted that provisional work means work subject to the approval of the Building Department (“BD”).  As such approval had already been given by the time of the Agreement was made, the items ceased to be provisional.

45. Mr. Li also submitted that at the time of the formation of the Agreement, Chan had in his mind no doubt that he would be fully paid.

46. I disagree with Mr. Li.  A provisional item of work does not mean only that it is pending approval by the BD.  Here I accept P’s evidence that theoretically all construction works are subject to BD’s approval. 

47. There is an element of re-measurement within the construction agreement between D and MSL.  The risk of deduction on the provisional sum relates to re-measurement rather than BD’s approval.

48. I accept that it was within the contemplation of MSL and D that the replacement work was to be done in any event.  However, it does not necessarily mean that D could then receive the provisional sum in full.  There was always a risk that MSL might take issue on the duplications on the tender.

49. As I have found as a fact hereinbefore, Chan was worrying about the possible deduction when he signed the Agreement.

Consideration

50. Mr. Li also submitted that P had provided no consideration for the Agreement as P had contributed nothing to the payment of the provisional sum. 

51. It is not very clear in the evidence as to the exact scope of the retainer of P.  What I can understand from the evidence is that P would provide general assistance for clerical and liaison works as regard the Project. 

52. However, the fact that P and Chan entered into a separate agreement as regard the provisional sum indicates that this aspect is outside the scope of the retainer.

53. It is also not clear in the evidence what P had actually done in pursuant to the Agreement.  Nevertheless, P gave evidence that he had put in some kind of effort after the Agreement including the study of the Building Contract.  As I have mentioned before, D did not challenge P’s evidence on this.

54. Furthermore, even if P did not in fact put in any effort pursuant to the Agreement, a promise to perform is still good consideration.  I do not think D can succeed in this point in whatever way.

Illegality

55. At the end of the trial I raised the point of illegality which is not a point taken up by either party.

56. D did not plead illegality in the Defence.  I note that this alone does not bar the Court from refusing to enforce a contract that is plainly illegal.  However, before the Court can take this course it must be satisfied that all material facts have been placed before it for consideration and there is only one conclusion to be drawn.  Chitty on Contracts, 28^th Edition, para.17-196.

57. The Court of Appeal concerned about the possible perpetration of fraud against the Owners in charging them double the fees.

58. Although I find as a fact that the items under 2.01 and 2.02 of the tender are duplicated, it does not necessarily follow that there exists an element of fraud.

59. It must be noted that the tender was a lump sum tender, the quotations as regard individual items of work was immaterial, it was the overall amount that was relevant for the Owners’ considerations.

60. There could be many reasons that the rates and amounts were put down in duplication on the tender apart from a fraudulent one.  Inadvertence or unprofessionalism could be one, or as mentioned by P in his evidence, the tender was simply badly drafted. 

61. The fact that duplicated figures were filled in on the tender and charging a single work done double are two different things.

62. P did not say in concrete terms how he could avoid the provisional sum being deducted.  He mentioned something about looking into the terms of the Building Contract.

63. One may not rule out the possibility that D can still be entitled to the whole contract sum under the Building Contract even a mistaken quotation has been put down on the tender.

64. I do not think there are sufficient materials before me that I can conclude that the Agreement was part of a scheme to deceive the Owners or any others.

65. In the circumstances, I find that P is entitled to the amount claimed.

66. Judgment be entered in favour of P against D for the sum of HK$243,095 with interests thereon at 8% per annum from the date of writ until Judgment and thereafter at Judgment Rate until payment.

67. I can see no reason that costs should not follow the event.  I make an order nisi that costs of this action be to P to be taxed if not agreed, with certificate of counsel.