SMARTEK E & M ENGINEERING (HK) LTD v. WIN WIN WAY CONSTRUCTION CO LTD

DCCJ 5104/2017

[2022] HKDC 32

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5104 OF 2017

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BETWEEN

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JUDGMENT

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INTRODUCTION

1.  This is the trial involving a dispute between 2 building contractors over some building works during the construction of a new building.

2.  The trial was originally fixed to commence on 9 March 2020 but was adjourned twice, firstly due to the outbreak of Covid-19; and secondly due to the poor preparation of the trial bundles on the part of the plaintiff’s solicitors at the adjourned hearing on 3 & 4 November 2020: See my Decision dated 4 November 2020 in [2020] HKDC 1005.

BACKGROUND

3.  Both the plaintiff and the defendant are contractors engaged in building and construction works. The plaintiff was a sub-contractor of the defendant, the defendant being the main contractor in respect of the residential development situated at 4 Monmouth Terrace, Kennedy Road, Hong Kong (“the Project”).

4.  In the course of carrying out the Project, allegedly:-

(a) the plaintiff additionally did extra works with the consent and approval of the defendant; and

(b) the defendant only paid partial payment of the Project.

5.  The plaintiff therefore claims outstanding debts in the sum of HK$804,241.38 under the Project. According to the plaintiff, this sum was allegedly agreed and confirmed by the defendant on or about 19 November 2011 after discussion amongst the parties pursuant to the relevant terms of the subject contract (“the Debt”). Thus, the plaintiff claims that the parties had once and for all resolved all their disputes and differences arising from the Project.

6.  However, the plaintiff claims that the defendant had retracted of what it agreed upon and refused to pay the Debt to the plaintiff.

7.  The defendant mainly raises 2 lines of defence:-

(a) The Debt is time-barred; and

(b) The plaintiff’s works are defective and/or incomplete. A substituted contractor was appointed by the defendant to rectify and resolve those problems. As a result, the defendant incurred and paid a total sum of HK$638,000, which should be set off against the plaintiff’s claim.

DISCUSSION

The undisputed facts

8.  As can be seen from the pleadings and witness statements, the following facts are not in dispute in this case: -

(a) The plaintiff is a limited company in Hong Kong conducting business in relation to building services. The defendant is a limited company in Hong Kong conducting business in relation to building works: §3(1) and (2) of the Amended Defence (“AD”); §3 of the Amended Reply (“AR”);

(b) The plaintiff submitted a written tender (“the Tender”) enclosed with a copy of schedule of rates for building service installation in the Project (“the Schedule”). The Schedule covered (i) mechanical, ventilating & air conditioning installation (“MVAC installation”); (ii) electrical installation; (iii) plumbing & drainage installation; and (iv) fire services installation: §4 of the amended statement of claim (“ASOC”); §9 of the witness statement of Kwok Lai Him (“WS of Kwok”);

(c) The plaintiff agreed to be a sub-contractor of the defendant in the Project to carry out the works covered by the Schedule at a consideration of HK$3,600,000 (“Contract Sum”): §7 of ASOC; §10 of WS of Kwok;

(d) A Lead Architects Limited (“A Lead”) was the appointed architect of the Project: §3(9)(a) of AD; §8(a) of AR;

(e) Far East Consulting Engineering Limited was the electrical & mechanical consultant of the Project (“E&M Consultant”): §6(c) of ASOC; §3(9)(h) of AD;

(f) On or about 3 August 2009, the plaintiff commenced to work at the Project site: §3(7) of AD; §6 of AR; and

(g) The defendant paid a total sum of HK$3,222,938.62 to the plaintiff for its work done: §3(8) of AD; §7 of AR.

The plaintiff’s case

9.  The following is the plaintiff’s case as summarized by its counsel Mr Paul Wong.

10.  In or about the middle of 2009, Mr Frankie Kwok (“Kwok”), the project manager of the defendant, invited Mr Anthony Hui (“Hui”), the project manager of the plaintiff, to submit a Tender for the Project.

11.  The plaintiff did shortly afterwards submit the Tender detailing the scope of each and every item of works with the proposed rate[1]. The tender is a standard form designed by the defendant for the plaintiff’s filling in the proposed rates. The plaintiff’s works consisted of 4 broad areas with the following proposed rates under the Schedule:-

(1)	MVAC installation	HK$645,000
(2)	Electrical installation	HK$1,783,630
(3)	Plumbing / drainage installation	HK$993,800
(4)	Fire services installation	HK$850,000
	Total:	HK$4,272,430

12.  Upon further negotiations between Hui and Kwok, the plaintiff ultimately agreed to reduce the above proposed sum to the Contract Sum. Although the plaintiff and the defendant did not sign any written contract, the plaintiff says that the Schedule clearly accounts for each and every item of works to be carried out by the plaintiff.

13.  Further, Hui for the plaintiff and Kwok for the defendant orally agreed that, inter alia:-

(a) The plaintiff is entitled to additional works outside the original ambit of the Schedule known as variation order works (“VO Works”) upon further agreement with the defendant as to their quantities and prices; and

(b) Upon completion of the Project, they should further discuss, negotiate, confirm and resolve any outstanding payments or defects if any (“the Oral Contract”).

14.  In around August 2009, the plaintiff commenced the Project. Allegedly, it finished all works, including VO Works, in or around September 2010.

15.  On or about 1 November 2010, the Buildings Department issued the “permit to occupy a new building”[2].

16.  Based on the Schedule, the plaintiff claims that the works undertaken by it mainly concerned with common facilities and utilities.

17.  During the course of the plaintiff’s works, the plaintiff additionally carried out VO Works from time to time, and issued a total of 5 invoices (“VO Works Invoices”)[3]:-

(1)	VO No 1 dated 5 July 2010	HK$97,620
(2)	VO No 2 dated 5 July 2010	HK$103,750
(3)	VO No 3 dated 4 December 2010	HK$144,700
(4)	VO No 4 dated 4 December 2010	HK$329,250
(5)	VO No 5 dated 14 December 2010	HK$641,600
	Total:	HK$1,316,920

18.  However, the plaintiff says that the defendant only paid it a total sum of HK$3,222,938.62 (“Interim Payment”) under the Oral Contract even after the plaintiff’s works covered by the Schedule and the VO Works had been fully completed. The plaintiff says the sum even was not sufficient to satisfy the agreed Contract Sum of HK$3,600,000, not to mention the VO Works.

19.  It is common ground that the defendant only paid the plaintiff the Interim Payment and nothing else.

20.  Since the middle or late 2011, Hui and Kwok had met and discussed about the outstanding payments and allegedly defective and/or outstanding works so as to mutually try to conclude a final net sum payable by the defendant to the plaintiff pursuant to the Oral Contract. According to the plaintiff, the plaintiff and the defendant did allegedly reach a global settlement on or around 19 November 2011 and thereby agreed and confirmed the Debt.

21.  During the negotiations, the plaintiff allegedly made 2 concessions. First, the plaintiff agreed to deduct a total sum of HK$526,290 from the Contract Sum, being the agreed cancelled works (“the Cancelled Works”) so as to avoid any further disputes on any disputed or incomplete works. The particulars are as follows:-

(1)	MVAC installation	HK$193,200
(2)	electrical installation	HK$223,350
(3)	plumbing/drainage installation	HK$26,800
(4)	fire services installation	HK$82,940
	Total:	HK$526,290

22.  Secondly, the plaintiff allegedly agreed to revise the total sum of the VO Works and reduced it from HK$1,316,920 to HK$953,470. Therefore, on or about 11 August 2011, the plaintiff issued the “updated and consolidated invoice” for the VO Works for this revised sum[4].

23.  On 19 November 2011, the plaintiff issued a final statement to the defendant with the title of “Outstanding Payment” in the sum of HK$804,241.38, allegedly as the Debt for the defendant to pay[5]:-

Contract Price	HK$3,600,000.00
Less: Cancelled Works	HK$526,290.00
Less: Interim Payment	HK$3,222,938.62
Add: VO Works	HK$953,470.00
Debt:	HK$804,241.38

24.  The plaintiff’s claim therefore appears to be rather simple and straightforward. Pursuant to the Oral Contract, the plaintiff says that the parties had successfully resolved their disputes and differences on or around 19 November 2011. Hence, the plaintiff issued the above final statement to the defendant, which, at least according to the plaintiff, has all along been in default.

25.  Under those circumstances, the plaintiff therefore claims that the defendant’s breach took place on or about 19 November 2011. The plaintiff says that as the gist of the Oral Contract requires the parties to put their heads together for reaching a final account, it was actually done and completed on or about 19 November 2011. Hence, it claims that the breach took place on that day.

26.  On 25 May 2017, the plaintiff issued a demand letter to the defendant and requested the payment of the alleged Debt. The defendant did not respond at all. On 10 November 2017, the plaintiff’s solicitors sent the “final” demand letter to the defendant [6] but once again the defendant ignored it.

27.  On 16 November 2017, just a few days before the alleged limitation period had expired (at least as understood by the plaintiff based on the final statement issued by it to the defendant on 19 November 2011), the plaintiff commenced the present proceedings. However, that did not stop the defendant in raising the limitation defence.

28.  Alternatively and if necessary for dealing with this limitation defence, the plaintiff argues that on or about 19 November 2011, the defendant made “part payment” of the VO Works in the sum of HK$149,228.62 by way of set-off:-

Contract Price	HK$3,600,000.00
Less: Interim Payment	HK$3,222,938.62
Less: Cancelled Works	HK$526,290.00
Net Sum owed by P to D	(HK$149,228.62)
Add: VO Works	HK$953,470.00
Debts	HK$804,241.38

29.  Therefore, the plaintiff claims that, as shown above, it had owed the defendant a sum of HK$149,228.62 as overpayment of the Contract Price but at the same time the defendant owed the plaintiff a sum of HK$953,470.00 being the VO Works. The plaintiff claims that the defendant had partly paid this VO Works by setting off the plaintiff’s own indebtedness in the sum of HK$149,228.62. As a result, according to the plaintiff, the defendant only owes HK$804,241.38 for the VO Works, because part of the sum (ie HK$149,228.62) was paid by way of set-off.

30.  The plaintiff says that “part payment” under s 23 of the Limitation Ordinance, Cap 347 (“the Ordinance”) could make the cause of action accrued afresh. Therefore, the plaintiff claims that the relevant date started to run again on 19 November 2011.

The defendant’s case

31.  The defendant’s case has been summarized by its counsel Mr Bosco Cheng as follows:-

(a) The agreement between the plaintiff and the defendant was made partly orally and partly in writing (“the Agreement”);

(b) The express terms of the Agreement were those contained in a document written in Chinese titled “萬茂臺4號機電工程合約” (“the Written Contract”)[7] and the implied terms of which were those pleaded in §§3(6)(a) to (e) of AD;

(c) The plaintiff was in breach of the Agreement because:

(i) the quality of insulation for refrigerant pipe was of poor quality and could be damaged easily, and that resulted in A Lead certifying that the said works done were not in compliance with the contract specifications[8], thereby breaching clause 1 of “合約細則” ie the written contract’s conditions (“the Written Contract’s Condition”) as contained in the Written Contract and/or the implied term pleaded in §3(6)(b) of the AD;

(ii) On or about 19 November 2010, the plaintiff left the Project site without the consent of the defendant: (See (§3(9)(b) of the AD), thereby breaching clause 2(a) of the Contract Terms and clause 8 of Written Contract’s Conditions as contained in the Contract and/or the implied term pleaded in paragraph 3(6)(e) of the AD;

(iii) Despite repeated requests by the defendant ^[9], the plaintiff failed and/or refused to take any action to rectify the defects of its works, thereby breaching clause 19 of the Written Contract’s Conditions as contained in the Written Contract and/or the implied term pleaded in paragraph 3(6)(c) of the AD; and

(iv) Despite repeated requests by the defendant^[10], the plaintiff failed and/or refused to submit the Operation and Maintenance Manual (“O&M Manual”); the as-fitted drawings and the photo records of rectification works thereby breaching clause 2(b) of the Contract Terms as contained in the Written Contract and/or the implied term pleaded in paragraph 3(6)(c); and

(d) Due to the aforesaid alleged breaches, and in order to mitigate its loss, the defendant allegedly exercised its right under clause 19 of Written Contract’s Conditions as contained in the Written Contract to engage Ocean & Colman Engineering Ltd. (“OCE”) to carry on and complete the outstanding works of the plaintiff under the Agreement, and the cost of which was HK$648,300^[11]. Pursuant to clause 20 thereof, the defendant says that the said sum of HK$648,300 should be borne by the plaintiff.

The defendant’s defence to the plaintiff’s claim

32.  The defendant relies upon the following defences to defend the claim of the plaintiff:-

(a) The plaintiff’s claim is time-barred, even on its pleaded case;

(b) Alternatively, as a result of the plaintiff’s breach of the terms of the Agreement, the final account of the Project had not yet been finalized, and thus the defendant’s obligation to settle the outstanding payments under the Agreement had not yet arisen; and

(c) In any event, the defendant says that it can utilize the said sum of HK$648,300 to set off the plaintiff’s claim by way of equitable set-off.

Credibility of witnesses

33.  Before I go into the determination of the issues in this case, I would like to mention briefly about the credibility of witnesses who gave evidence in this case.

34.  In Progetto Jewellery Company Limited v Lau Chiu Ying & Anor [2020] HKCFI 209, Deputy High Court Judge MK Liu set out the relevant guidelines in §§ 28-29 of his judgment:

“28. In respect of evaluating the evidence given by witnesses, a valuable guidance has been given by DHCJ Eugene Fung SC in Hui Cheung Fai and another v Daiwa Development Limited, in which the learned judge said:-

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) ……

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: e.g. Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).” ”

35.  In Evergreen (FIC) Limited v Golden Cup Industries Limited trading as Super Star Group [2016] 5 HKLRD 636 at §17, Deputy Judge Wilson Chan (as he then was) stated:

“17. I agree that the cotemporaneous documents provide the best guide as to what actually happened. This is particularly so in building and construction cases, as Kaplan J observed in EU Asia Engineering Ltd v Wing Hong Contractors Ltd, HCCT 16/1990 (Judgment dated 23/12/1991) at [9]:

In construction cases, as in most other cases, I attach great significance to the contemporaneous documents. These are usually prepared in good faith before a dispute has arisen or at any rate crystallised. It is a particularly devious contractor, employer or sub-contractor who systematically manufactures documents to assist in a future dispute. Fortunately, such instances are rare. I accept that once a dispute has been identified it is necessary to pay careful attention to the documents created after that time because it is only natural that parties will reflect their grievances and justification for actions taken in those documents…” (emphasis added)

36.  Hui gave evidence on behalf of the plaintiff in this case. He was the plaintiff’s only witness at the trial.

37.  Moreover, besides Kwok, the defendant had also called Mr Yuen Kai Hing (“Yuen”) to give evidence. He was the project manager of the defendant at the material time.

38.  Having heard the parties’ witnesses, I find the evidence of Hui contradicts the contents of the undisputed contemporaneous documents; defies common sense and goes against the common practice in the construction industry. In short, I find it is inherently improbable that the events had taken place as related by him in evidence.

39.  On the other hand, I find both the evidence given by Kwok and Yuen are reasonable; inherently probable and entirely consistent with the undisputed contemporaneous documents. More importantly, they are in accordance with common sense and common practice in the construction industry in Hong Kong.

40.  Hence, I do not find Hui’s evidence to be credible and I have no difficulty in rejecting his evidence on different issues for which I shall go into more detailed discussions hereinbelow.

41.  Further, where there is any difference between the evidence given by Hui on one hand and those given by Kwok and Yuen on the other hand, I would prefer the latter’s evidence.

Findings on the disputed issues

(1) Whether the plaintiff had completed its work under the Written Contract and the VO Works?

42.  First, based on the clear and unambiguous evidence of the defendant, there is no doubt in my mind that this is a partly written and partly oral agreement. Thus, the Written Contract, eventhough had not been signed by the parties (which was most likely due to an oversight on both sides) formed the very basis and framework of the Agreement. Otherwise, I do not see how the parties would be able to perform the Agreement without the Written Contract as the foundation. I find the subsequent discussions between Hui and Kwok would form the oral part of the Agreement.

43.  For the above defined issue, I agree with Mr Cheng for the defendant that the answer to this question must be “No”.

44.  The plaintiff claimed that it had completed all the works under the Written Contract in September 2010. In this regard, the plaintiff relied upon the fact that the occupation permit of the building had been issued by the Buildings Department in November 2010 to support its case.

45.  In my judgment, this part of the plaintiff’s case had been completely rebutted by the letter dated 19 November 2010 issued by A Lead to the defendant[12], which stated that:

“We refer to the progress meeting dated 17 Nov 2010. We hereby record that the quality of insulation for refrigerant pipe is of poor quality and can be damaged easily.

In this regard, we hereby certify that the aforementioned works done were NOT in compliance to the contract specifications. Your remedial proposal and action are hereby requested immediately.” (emphasis added)

46.  In view of the letter from A Lead, the defendant wrote an email to the plaintiff on 23 November 2010, attaching the same and stated the following:

“For your immediate action. You are instructed to provide evidence to prove your material on-site is approved.

Or you will be held responsible for any expenses subsequently incurred.”

47.  The plaintiff did not respond to the said email. On 10 December 2010, the defendant issued a letter to the plaintiff, stating:

“… we must record that we cannot contact anyone of you and your staff since the meeting three weeks ago. A lot of outstanding works and variation works had been left un-attended and interruption to the interior decoration works is recorded. One of the major items is the outstanding completion of the meter application for individual flats. Apart from site works, you are instructed to provide detail substantiation of VO works so that we can further negotiate with the Project QS for payment application. But up to the date of this letter, we received nothing from you and our interim payment was jeopardized.

Due to your irresponsible attitude, we have no alternative but employ other subcontractors to complete all your outstanding works and any costs will be contra-charged to your account. In addition, we reserve our rights to claim all the costs and losses subsequently incurred due to your incompletion of works under this project.”

48.  On the same date, the defendant wrote an email to the plaintiff, attaching the above letter and stating:

“Your lack of response will definitely cause damage to your goodselves.”

49.  Again, the plaintiff did not respond to the said email.

50.  I agree with the defendant and find the above contemporaneous correspondence (albeit it was “one way” only as the plaintiff had chosen not to reply to any of them) shows that:

(a) The refrigerant pipes installed by the plaintiff were defective;

(b) It was A Lead, and not the defendant, who considered the refrigerant pipes defective;

(c) The defendant had informed the plaintiff of such defects and had requested the plaintiff to rectify them;

(d) The plaintiff completely ignored the requests of the defendant and took no action to remedy the defects;

(e) The plaintiff left the Project with a lot of uncompleted works behind; and

(f) The plaintiff had not provided any substantiation of VO Works to the defendant.

51.  I agree with Mr Cheng’s submission that if the plaintiff had fully completed all the works under the Written Contract and the VO Works, as Hui has insisted in his evidence, it begs the question of why the plaintiff did not respond to any of the emails and letters sent to it by the defendant and to state its position clearly and emphatically.

52.  The same question had been put to Hui under cross-examination, but he was unable to give any satisfactory explanation. I do not see what explanation he could have given in view of the dire lack of any documentary support of his claim.

53.  Further, the contemporaneous documents as evidenced by the various emails and letters of the concerned parties, another task the plaintiff had never fully completed was the as-fitted drawings and O&M Manual.

54.  By an email dated 22 February 2012, A Lead informed the defendant that:

“… Kindly Note that the following documents are still outstanding:

1. O&M Manual;

2. As-fitted Drawing;

3. Photo record of rectification works;

Unless the above mentioned document were submitted and found satisfied by consultant team. Otherwise, NO Made Good Certificate will be issued. Attached please find the email from E&M consultant dated 22 February 2012 for your reference.” (emphasis added)

55.  In the email dated 22 February 2012 from the E&M Consultant to A Lead[13], the E&M Consultant specifically stated that “please note no E&M O&M manuals and as fitted drawings were submitted. It is suggested that no final payment could be allowed unless the outstanding documents were received.”

56.  Further, the issues relating to as-fitted drawings and O&M Manual had never been resolved. By a letter dated 7 August 2012[14], the defendant informed the plaintiff that:

“Referring to your email dated 6 august 2012, we must point out that the final account for the above project had not been finalized due to your incompletion of your defects and contract liabilities. Please find attached a fax copy dated 7 August, 2012 from the Consultant requesting as-fitted drawings and O&M manuals which hindered the settlement of payment of the main contract. You are hereby instructed to provide the said documents in order to fulfill your contractual obligation prior to the further assessment of the final account.” (emphasis added)

57.  In the fax copy dated 7 August 2012 referred to in the above email, the E&M Consultant complained that:

“Reference is made to your letter … dated 1 August 2012 regarding as-fitted drawings submission. The submission was found again in bad quality without reflecting the actual as-fitted conditions on site. Please note the project completion was 31 December 2010 and your office has still failed to submit a set of reasonable E&M as-fitted drawings and O&M Manuals these years.

Your office is requested to submit a set of complete E&M as-fitted drawings and O&M manuals by the end of August 2012 for our approval. If you are fail to provide the drawings and manual before deadline or the submissions are found unacceptable again, a third party will be invited by the client to produce the set of as-fitted drawings and all the costs incurred will be deducted from your account. Moreover, retention money will be deducted due to your failure in providing a set of acceptable O&M manuals.” (emphasis added)

58.  On 8 August 2012, for the first time over 2 years since the plaintiff left the Project in November 2010, it purportedly tried to make a reply to the defendant’s letters/emails. In its email to the defendant dated 8 August 2012, the plaintiff stated that “(A)ccording to our record, our company had already submitted the As-fitted Drawings and O&M manual to Mr. Frankie Kwok already.”.

59.  On 19 August 2012, the defendant replied to the plaintiff’s email, stated inter alia the following:

“As the previous attachment, as-built (sic) drawings were rejected by the Consultant and no resubmission was made from your side. Therefore your liability under the contract is still incomplete.

You are requested to fulfil your contractual obligation at the soonest.” (emphasis added)

60.  I note that the plaintiff did not reply to the above email and did not submit any revised as-fitted drawings and O&M Manual to the defendant as requested.

61.  I accept the defendant’s submission and find the above letters and emails showed that:

(1) The plaintiff was responsible for preparing the as-fitted drawings and O&M Manual;

(2) No such as-fitted drawings and O&M Manual had been prepared by the plaintiff at least until February 2012;

(3) Due to the plaintiff’s failure to prepare the as-fitted drawings and O&M Manual, the E&M Consultant refused to release the final payment to be made to the defendant;

(4) The as-fitted drawings subsequently submitted by the plaintiff was of such poor quality that it did not reflect the actual as-fitted conditions on site;

(5) The defendant had informed the plaintiff that the as-fitted drawings it prepared had been rejected by the consultant; and

(6) The defendant had requested the plaintiff to revise its as-fitted drawings, but the plaintiff did not respond to such request.

62.  In my judgment, the contents of the above letters and emails were entirely consistent with the oral testimony of Yuen, the then assistant project manager of the vendor, who testified that it is highly likely that the vendor had deducted the cost of preparing the as-fitted drawings from the defendant’s account because his boss had specifically instructed him to ask another company to provide quotation for the as-fitted drawings. I find Yuen’s evidence particularly convincing as he no longer works for the defendant and therefore can be considered as an independent witness.

63.  The defendant submits and I so find that there are overwhelming undisputed contemporaneous documents to show that the plaintiff had not fully carried out its works and the Written Contract and the VO Works as he alleged.

(2) Whether the defendant’s obligation to settle the outstanding payments under the Project had arisen yet?

64.  It is the pleaded case of the plaintiff that the cause of action for the Revised VO Sum accrued afresh on or about 19 November 2011 because the defendant had on or about the said date made a part payment in the sum of HK$149,228.62 by way of set off against the Revised VO Sum.

65.  Accordingly, the plaintiff bears the burden to prove the following facts:

(a) The plaintiff had fully completed the works under the Written Contract and the VO Works;

(b) The defendant had acknowledged the Revised VO Sum as being owed by it to the plaintiff on or about 11 August 2011;

(c) The defendant had made a part payment in the sum of HK$149,228.62 by way of set off against the Revised VO Sum on or about 19 November 2011; and

(d) Pursuant to the agreement reached between the plaintiff and the defendant, the defendant was liable to settle the VO Works once the plaintiff had completed the works thereunder.

66.  As for the defendant, its burden is to prove that it had engaged OCE to complete the defective and outstanding works which ought to be completed by the plaintiff but for its departure in November 2010 and that the cost of the engagement was at HK$648,300.

67.  I agree with Mr Cheng for the defendant that since the defendant does not have any counterclaim and its reliance of the HK$648,300 engagement cost is only for the purpose of setting up equitable set-off, this issue will only become relevant if this court finds in favour of the plaintiff.

68.  It is the plaintiff’s pleaded case that the Written Contract (as defined by the plaintiff) is subject to, inter alia, the following terms: -

(a) The plaintiff is entitled to additional payments for VO Works upon further agreement and confirmation with the defendant as to their quantities and prices: §7(c) of ASOC;

(b) The defendant would likewise make payment to the VO Works upon their completion within a reasonable time: §7(d) of ASOC;

(c) Upon completion of the whole Project, the parties should further discuss, negotiate for and confirm any outstanding payments, works or defects under the Project within a reasonable time, and that parties should resolve all outstanding issues within a reasonable time again thereafter” (“Warranty Term”): §7(e) of ASOC; and

(d) The plaintiff should from time to time follow and liaise with the E&M Consultant so as to comply with all requirements and specifications in accordance with the said Tender or as might be imposed by the E&M Consultant (“Co-operation Term”): §7(f) of ASOC.

69.  In Evergreen (FIC) Ltd v Golden Cup Industries Ltd [2016] 5 HKLRD 636 at §17, Deputy High Court Judge Wilson Chan (as he then was) stated:

“17. I agree that the cotemporaneous documents provide the best guide as to what actually happened. This is particularly so in building and construction cases, as Kaplan J observed in EU Asia Engineering Ltd v Wing Hong Contractors Ltd (unrep., HCCT 16/1990, [1991] HKEC 72, 23 December 1991) at [9]:

In construction cases, as in most other cases, I attach great significance to the contemporaneous documents. These are usually prepared in good faith before a dispute has arisen or at any rate crystallised. It is a particularly devious contractor, employer or sub-contractor who systematically manufactures documents to assist in a future dispute. Fortunately, such instances are rare. I accept that once a dispute has been identified it is necessary to pay careful attention to the documents created after that time because it is only natural that parties will reflect their grievances and justification for actions taken in those documents…”

70.  In my view, as evidenced by the aforemetnioned contemporaneous documents, it is plain that, despite repeated requests by the defendant, the plaintiff still failed or refused to:-

(a) provide evidence to prove the materials used by the plaintiff for the refrigerant pipes had been approved;

(b) complete, at least, the meter application for individual flats; and

(c) provide the as-fitted drawings and O&M Manual.

71.  By failing or refusing to do the above acts as per the requests of the defendant and/or the E&M Consultant in accordance with the “warranty term and co-operation term”, I find the final account for the Project had not been finalized. Thus, the defendant’s obligation to settle the outstanding payments, if any, under the Agreement had not yet arisen.

(3) Has the plaintiff’s claim been time-barred?

72.  The defendant’s defence of limitation is rather straightforward.

73.  It is the plaintiff’s case that it had carried out the following VO Works: See §19 of WS of Hui:-

VO No	Date	Amount (HK$)	Ref
1	5 July 2010	97,620	[C2/387-388]
2	5 July 2010	103,750	[C2/389]
3	4 December 2010	144,700	[C2/390]
4	4 December 2010	329,250	[C2/391]
5	14 December 2010	641,600	[C2/392]
		Total:1,316,920

74.  It is trite that the cause of action for the supply of goods or services arises when the goods or services have been delivered or supplied in the absence of the special terms of the contract for supply or delivery. It has been held that procedural provisions for the assessment of payment or demands and the like before paying is due do not affect the situation: China Light & Power Company Ltd v See Kong Silk Ltd & Ors [1994] 2 HKLR 334.

75.  Accordingly, I find the cause of action for each of the VO Works would arise on the respective dates stated on the VO Works Invoices and start to run since that date.

76.  As pleaded in §12(a)-(b) of ASOC, in or about “middle” or “late” 2011, upon “checking and confirming relevant books and accounts”, the parties agreed that:-

(a) The plaintiff had “fully” and “properly” carried out all works under the Agreement; and

(b) The “aggregate VO works should be revised to a sum of HK$953,470.00 notwithstanding the 5 issued invoices”.

77.  Although the plaintiff did not plead the date or month as to when the parties reached the said agreement, the defendant says that it would have been on or before 11 August 2011, as evidenced by the consolidated invoice issued by the plaintiff (“Consolidated Invoice”) for the sum of HK$953,470 (“Outstanding VO Sum”) on the said date: §12(b) of ASOC.

78.  It was the pleaded case of the plaintiff that the defendant received and accepted the Consolidated Invoice without any complaint or objection: §12(b) of ASOC.

79.  According to the plaintiff, the legal effect of the said agreement and the defendant’s acceptance of the Consolidated Invoice was that the limitation period for the recovery of the Outstanding VO Sum would run afresh on 11 August 2011.

80.  The plaintiff does not dispute that the limitation period applicable to its claim is 6 years[15]. Thus, the defendant says that the limitation period for the recovery of the Outstanding VO Sum should be from 11 August 2011 to 11 August 2017.

81.  The defendant claims that since the writ of summons was issued on 16 November 2017, which was outside the applicable limitation period of 6 years, it was issued out of time and the plaintiff’s claim contained therein is time-barred.

82.  The plaintiff alleged that its cause of action under the Agreement had been accrued on or about 19 November 2011 afresh purportedly on the ground that the defendant had on or before the said date made a part payment by way of set-off in the sum of HK$149,228.62: §12(a)-(b) of ASOC. The plaintiff relied upon s 23(3) of the LO to support its case.

83.  In Re Lau Wan, ex p (a Debtor) [2013] 3 HKLRD 567, §27-29, Anthony Chan J accepted that, when dealing with part payment arguments in the context of the LO, 2 matters had to be considered:-

(a) what underpins a part payment in terms of s 23(3) of the LO is the fact that it constitutes an admission of the debt in question:

“A part payment, like an acknowledgment, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time.”

(b) to constitute “payment in respect thereof” under s 23(3) of the LO, the court must look at the act and intention of the debtor, citing Re Footman Bower & Co Ltd [1961] Ch 443, 449:

“... In my judgment, however, one must still look at the act and intention of the debtor to see whether the payment is made in respect of the particular debt. Payment is in this subsection dealt in close conjunction with acknowledgement. Just as an acknowledgment can only acquire that character by the act of the debtor or his agent, so also, I think, a payment can for the purposes of the subsection only acquire the characteristic of being made ‘in respect of’ the debt by the act of the debtor or his agent. Consequently, in my judgment, appropriation by a creditor of a sum received from the debtor towards satisfaction of a particular debt, be it statute-barred or not, cannot make such appropriation a ‘payment in respect thereof’ within the meaning of section s23(4).” (emphasis added)

84.  However, the plaintiff has not pleaded when, how and by whom the alleged part payment of HK$149,228.62 was made against the Outstanding VO Sum.

85.  It is also worth-noting that the plaintiff did not raise the defence of part payment by way of set-off in the SOC. The plaintiff only sought leave to amend the SOC to add the said defence during the hearing for the striking-out summons dated 27 August 2018 on 10 December 2018^[16].

86.  In its opening, the plaintiff also argues that, even if no actual monies were paid to the creditor, “payment” could still be effected. 3 authorities in this regard are cited: §§39-42 of the plaintiff’s opening.

87.  By citing those authorities, it appears that P is trying to argue that, even if the defendant had not made any money payment against the Outstanding VO Sum, the defendant could still be regarded as having done so if it had entered into some private arrangements with the plaintiff, which could constitute part payment of the debts.

88.  Nevertheless, the plaintiff has not pleaded any arrangements that the plaintiff and the defendant entered into which could constitute the so-called “non-monetary” part payment.

89.  It is the pleaded case of the plaintiff that it had prepared and sent to D a Statement of Outstanding Payment dated 19 November 2011 (“SOP”): §12(e) of ASOC.

90.  It is unclear whether the plaintiff will rely on the SOP in an alternative manner, ie as an acknowledgement of the plaintiff’s claim under s 23(3) of LO. The position of the defendant is that, since the defendant did not sign on the SOP, it does not constitute a valid written acknowledgement as required under s 24 of LO, and thus the issuance of which will not revive the cause of action for the recovery of the Outstanding VO Sum accrued on or before 11 August 2011.

(4) Whether the defendant can utilize the cost of engaging OCE to set off the plaintiff’s claim by way of equitable set-off?

91.  Under the Agreement, the defendant was entitled to engage another contractor to complete the incomplete and/or defective works previously carried out by the plaintiff. Clause 19 of the Written Contract Conditions (合約細則) provides:

“19. 保養期限 : 在保養期內，由於乙方之做工或材料致完成工程出現缺點，經收到甲方通知後乙方有責任在合理期間內，派足夠員工修補執妥而不得另索費用，若乙方不進行或不能依期完成，甲方有權另派人為執行，一切費用均在乙方賬户扣回。保養期滿，所有缺點及其它不妥善處均由乙方修補妥當至建築師／工程師、業主及甲方負責人滿意驗收為準，保固金於驗收滿意後辦理。”

92.  The plaintiff left the Project Site on or about 19 November 2010 and could not be reached thereafter. As a result, a lot of outstanding works and defective works were left unattended, which further caused interruptions to the interior decoration works: See §24 of WS of Kwok at [B/108].

93.  In order to mitigate its loss, the defendant decided to engage another contractor to complete the outstanding works and to rectify the defective works.

94.  Before doing so, the defendant had by letters informed P that, if it failed or refused to complete the incomplete or defective works previous carried out by it, the defendant would engage another contractor to fulfill its contractual obligation and the plaintiff would be liable for any cost so incurred. By a letter dated 10 December 2010, the defendant informed the plaintiff that:-

“…Due to your irresponsible attitude, we have no alternative but employ other subcontractors to complete all your outstanding works and any costs will be contra-charged to your account. In addition, we reserve our rights to claim all the costs and losses subsequently incurred due to your incompletion of works under this project.”

95.  The plaintiff, like many other letters and emails the defendant had sent to it previously, did not respond to the said letter at all.

96.  In or about mid-December 2010, the defendant finally engaged OCE to carry on and complete the outstanding works and defective works previously carried out by the plaintiff. The total cost the defendant had incurred was at HK$648,300. This was fully documented: §§28-32 of WS of Kwok at [B/109-111].

97.  Since the defendant does not have any counterclaim, the set-off of HK$648,300 against the plaintiff’s claim was used as a defence. The defendant is relying on equitable set-off, but not legal set-off, and such kind of a defence is not subject to any time-bar: Health Base International Limited v Hui Chiu Yuen DCCJ 3297/2006, 25 May 2007, unreported, §§18-25.

98.  Accordingly, I find that even if the plaintiff is able to prove its claim, the defendant is entitled to utilize the cost it incurred to engage OCE, ie HK$648,300 to set off against the plaintiff’s claim.

(5) Whether the defendant had acknowledged the Revised VO Sum on or about 11 August 2011?

99.  Again, I find the answer to this question is an emphatically “No”.

100.  First, the defendant had by its letter to the plaintiff dated 7 August 2012 made it clear that “the final account for the above project had not been finalized due to your incompletion of your defects and contract liabilities”.

101.  If Kwok had finalized the account with Hui on or about 11 August 2011 as alleged, it begs the question of why did the plaintiff not state in its reply email that the account had already been finalized between Hui and Kwok on 11 August 2011 and the outstanding sum was HK$804,241.38.

102.  The simply answer of this I find must be it had never happened.

103.  Hui’s answer under cross-examination was just that he did not do it. However, he could not explain why he did not do such an obvious thing if it actually took place.

104.  Secondly, in order to finalize the account with the plaintiff, the defendant needed to be provided with substantiation of the VO Works and the defendant had made it clear to the plaintiff in its letter to the plaintiff dated 10 December 2011.

105.  The plaintiff argued that once it had completed the works, the defendant was liable to pay. There was no need for the plaintiff to provide any substantiation.

106.  That must be wrong. If this was the case, I do not see why did the plaintiff not reply to the defendant’s letter dated 10 December 2011 and put its stance on record. The fact that it did not show that the plaintiff was fully aware that it was not entitled to those payments until it had finished all the outstanding works to the satisfaction of the defendant and A Lead/E&M Consultant.

107.  Again, Hui’s answer under cross-examination was just that he did not do it. However, he could not provide any plausible explanation as to why he did not do so. I find his evidence on this, like most of his evidence, simply not believable.

108.  Further, under cross-examination, Hui had been questioned for a number of times as to why he did not put on record what he had agreed with Kwok. On each occasion, he either repeated that he had already finalized the account with Kwok or that he had provided the VO Works Invoices to Kwok. He admitted that he did not reply to the defendant’s letters and emails in writing, but he was unable to explain why he did not do so.

109.  I agree with Mr Cheng that one must bear in mind that Hui is not an amateur or an inexperienced player in the construction industry. At the material time, he was the project manager of the plaintiff with at least 10 years’ experience. Before that he had worked in the same industry for a long period of time. Hence, he would be very familiar with the usual payment practice or mechanism in construction industry and also the importance of putting the differences and/or disputes arose during the contract between the parties in writing. The fact that he did nothing of the sort show that he must know the plaintiff had failed to do exactly what was being accused of by the defendant in their various letters and emails. I so find that was the case.

110.  On the other hand, I find Kwok’s evidence in this regard was unequivocal and consistent with the usual payment practice adopted in the construction industry. He explained clearly in his evidence why substantiation for VO Works was necessary. The reason being that, prior to allowing any payment to the contractors, the quantity surveyor needs to assess the variation order to see if the amount claimed is reasonable and will recommend an amount based on the information provided. In order to carry out the assessment, the quantity surveyor needs to be provided with detail breakdowns of the work done, including unit rate, labour costs, installation costs, etc.

111.  Having carefully considered the evidence of the parties and the contemporaneous documents, I find the defendant could not have acknowledged the Revised VO Sum on or about 11 August 2011 for the following reasons:

(1) At the material time, no substantiation had been provided by the plaintiff to the defendant for the VO Works. In the circumstances, even if Kwok was to conduct the assessment himself without the approval of A Lead, the E&M Consultant and the quantity surveyor, he would not be in a position to do so because he did not have the necessary information to carry out the assessment;

(2) As Kwok stated in his evidence, it is the usual payment practice in the construction industry that payments for variation orders had to be approved by the architect, consultant and quantity surveyors in the project and he was merely following the same practice in the Project. Whilst Hui insisted that Kwok had settled the VO Works with him, the plaintiff did not suggest any reason as to why Kwok chose to depart from this usual practice in the present case, bearing in mind the consequence of doing so would be very serious to Kwok. He would literally be putting his job on the line. If A Lead, the E&M Consultant and the quantity surveyor refused to certify the HK$953,470, the defendant will have to bear the difference between the Revised VO Sum and the amount allowed by the quantity surveyor. Hence, it is in my view inherently and highly improbable that Kwok would choose to do that. Based on the existing evidence, particularly the contemporaneous documents, I find there is absolutely nothing to support that Kwok had agreed the Revised VO Sum with Hui on or about 11 August 2011.

(3) Last but not least, if what Hui said was true, there is in my view no reason, indeed it defies all common sense, that Hui never put down in black and white that Kwok had finalized the VO Works with him and agreed to the Revised VO Sum on or about 11 August 2011.

112.  In the aforestated premises, I find Kwok had never acknowledged the Revised VO Sum on or before 11 August 2011 with Hui.

(6) Whether the defendant had made part-payment in the sum of HK$149,228.62 by way of set off against the Revised VO Sum on or about 19 November 2011?

113.  Again, in my judgement, the answer to this question must be a resounding “NO”.

114.  I agree with Mr Cheng, the defendant’s counsel that there is ample evidence showing that this allegation was a recent fabrication invented for the purpose of avoiding the plaintiff’s claim being struck out.

115.  This allegation was not stated in the SOC, but was added to the ASOC only after the defendant’s striking-out application on 27 August 2018. I note that the SOC had not been amended before, but only after, the hearing of the said striking-out application.

116.  Implicit in the amendments introduced to §12(a) to (b) of the ASOC, the plaintiff acknowledged that the cause of action for the Revised VO Sum had been time-barred, and therefore it needed to amend the SOC by adding the allegation of part payment by set-off, so that it could rely on s 23(3) of the LO in order to argue that the cause of action for the alleged Debt shall be deemed to be accrued on the date of part payment.

117.  Under cross-examination, when being asked why the part payment allegation was not pleaded in the SOC, Hui kept silent for 55 seconds (according to the court’s record) and at the end he only managed to give an answer of “I cannot recall”.

118.  I find such evidence from a plaintiff’s main and only witness to be appalling and showing that its claim is not credible from day one of this case.

119.  I agree with the defendant that if Kwok had agreed to use the “overpayment” of HK$149,228.62 to partly set-off the Revised VO Sum as alleged, there was no plausible reason for the plaintiff not to mention it in the SOC.

120.  Indeed, the alleged part payment by way of set-off was not even mentioned in the SOP[17], a document heavily relied upon by the plaintiff to prove its case.

121.  At the end of the cross-examination, Hui revealed the truth as to why the SOP did not contain any information relating to the alleged part payment, namely, he was told by the plaintiff’s lawyers that the defendant had overpaid the plaintiff a sum of HK$149,228.62 and hence the plaintiff had to deduct the said sum from the Revised VO Sum.

122.  In any event, as the defendant had not signed or in any way acknowledged the SOP, I therefore do not see how it would become binding on the parties.

123.  Based on the evidence of Hui and the contemporaneous documents, I find it is blatantly clear that the SOP was a self-serving document in accordance with his own wishful thinking and calculations. It had not been verified by any supporting documents and had not been finalized and confirmed by Kwok or any of the defendant’s officers. I have no hesitation to reject the plaintiff’s frivolous claim based on this document.

(7) Whether the defendant is liable to settle the VO Works immediately once the plaintiff had completed the works thereunder?

124.  Again, I find the answer to this question must be ‘No’ also.

125.  First, I agree with Mr Cheng that this is contrary to the usual payment practice and mechanism in the local construction industry as I have found above.

126.  Second, if this was what had been agreed between the parties, it begs the question of why the plaintiff did not respond to any of the emails and letters sent to it by the defendant and state its position at all.

127.  Third, when Hui was being cross-examined by the defendant’s counsel, he had been referred to a number of correspondences issued by the defendant, A Lead and E&M Consultant. If the defendant had to pay the plaintiff without first obtaining approval from A Lead and the E&M Consultant, it begs the question of why Hui did not raise this under cross-examination.

128.  In the premises, I find the plaintiff’s allegation is groundless and I have no hesitation to reject the same.

(8) Whether the defendant is liable to pay the alleged Debt?

129.  Following my finding that the defendant had not acknowledged the Revised VO Sum on or about 11 August 2011, I agree that the defendant could only sue on the VO Works Invoices.

130.  The cause of action for each of the VO Works would accrue on the respective dates stated on the VO Works Invoices and expire 6 years thereafter.

VO No	Reference	Accrual date	Expiry date
1	[C2/387]	5 July 2010	5 July 2016
2	[C2/389]	5 July 2010	5 July 2016
3	[C2/390]	4 December 2010	4 December 2016
4	[C2/391]	4 December 2010	4 December 2016
5	[C2/392]	14 December 2010	14 December 2016

131.  Based on the above table, I find the plaintiff’s claim for the sums due under the VO Works has been time-barred.

132.  Even if I were to find that the defendant had acknowledged the Revised VO Sum on or about 11 August 2011, by virtue of s23(3) of the LO, it is my view that the cause of action for recovery of Revised VO Sum would deem to have accrued on 11 August 2011 and the limitation period for which would run afresh and would not expire until 11 August 2017.

133.  However, since the writ of summons in the present proceedings was issued on 16 November 2017, more than 3 months after 11 August 2017, I find the plaintiff’s claim for the sum HK$953,470 has also been time-barred.

134.  Accordingly, in order to sustain a claim for recovery of the alleged Debt, the plaintiff needs to persuade the court to find that the defendant had made part payment in the sum of HK$149,228.62 by way of set-off against the Revised VO Sum on or about 19 November 2011. As I have found against the plaintiff on this, his claim based on this will not take off the ground.

135.  I further agree with the defendant that, even if this Court does so, the alleged Debt claim would still fail because Hui was unable to confirm on which date the alleged part payment was made. Under cross-examination, Hui said the agreement he made with Kwok was before 19 November 2011, but he could not recall it was how many days before.

136.  The wording of s23(3) of the LO is clear:

“… the right should be deemed to have accrued on and not before the date of the … of the last payment.”

137.  Since the plaintiff is unable to establish the exact date on which the alleged part payment was effected, it cannot establish when the cause of action for recovery of the alleged Debt would deem to have accrued and when the limitation period starts to run and become expired.

138.  In such circumstances, even if the alleged part payment qualifies as a part payment under s23(3) of the LO, I find that the plaintiff still cannot prove that the writ of summons was issued within the limitation period.

139.  For the above reasons, I find the plaintiff’s claim against the defendant is still time-barred and I have no difficulty in dismissing the same.

140.  In any event, even if I were to find all the above issues in favour of the plaintiff, and that the defendant is liable to pay the alleged Debt, I am of the view that the defendant will be able to utilize the cost of engaging OCE (i.e. HK$648,300) to set off any such sum by way of equitable set-off.

141.  It is clear from the evidence of Kwok and Yuen that, but for the unexpected and sudden departure of the plaintiff from the Project Site in November 2010, the defendant did not have to engage OCE to carry out the outstanding and defective works which ought to be carried out by the plaintiff.

142.  As explained by Kwok, although some of the works carried out by OCE were VO Works, those works were supposed to be carried out by the plaintiff as the E&M sub-contractor. I agree with the witness that if the plaintiff did not leave the Project Site, it would have to carry out those works and would be paid subject to the approval of A Lead, the E&M Consultant and the quantity surveyor.

143.  It is also clear that, at the end of the day, the defendant was not paid by the vendor in accordance with the usual payment practice. Yuen testified that the defendant could not claim for cost incurred for all the defective works under the original contract. In fact, as Kwok explained under cross-examination, out of the 16 OCE quotations, only 2 quotations were variation orders.

144.  Since only 2 quotations out of the OCE quotations were variation orders, I find the defendant must have suffered a loss of HK$530,800 (HK$648,300 - HK$51,000 - HK$66,500) as such cost was for rectification of defective works, but not variation orders.

145.  In the premises, I find that even in the event that the defendant was liable to pay the alleged Debt, the defendant will be allowed to utilize the said sum of HK$530,800 to set off against the alleged Debt.

146.  Thus, the plaintiff’s so-called claim of the alleged Debt against the defendant must be dismissed on this ground also.

CONCLUSION

147.  In light of my aforestated findings, I find the plaintiff has failed to establish any claim against the defendant on the basis of the alleged Debt. I also find that none of the plaintiff’s claim contained in the ASOC has been proven against the defendant. In the premises, the plaintiff’s claim is hereby dismissed with costs in favour of the defendant.

148.  I further make an order that the costs will be taxed on the District Court scale on an indemnity basis, given the frivolous and groundless nature of the plaintiff’s claim from day one of this action, such costs to be taxed if not agreed with certificate for counsel. I will make the costs order on a nisi basis and in the absence of any application from the parties to vary the same within 14 days after the handing down of the judgment, the costs order will become absolute.