CHOI KEI LTD v. DAVID DECORATION LTD

13.  In respect of the alleged existence of the PWP term, P referred to Wo Hing Engineering Ltd v Pekko Engineers Limited (unrep, HCA 5561/1996, 7 September 1998)  where Suffiad J explained at §47:

“The underlying principle from all these cases seems clear enough – that when having to construe a clause in a sub-contract that the sub-contractor will only be paid when the main contract is paid, commonly called a ‘pay-when-paid’ clause, sufficiently clear words will have to be used before a court will be prepared to construe that such a clause imposes as a condition payment to the main contract which had to be fulfilled before the sub-contractor had the right to be paid as opposed to a clause limiting the time for payment. This principle is readily illustrated in the words of Master Towle in the New Zealand case of Smith & Smith v Winstone [1992] 2 NZLR 473 where he said at page 481:

‘While I accept that in certain cases it may be possible for persons contracting with each other in relation to a major building contract to include in their agreement clear and unambiguous conditions which have to be fulfilled before a subcontractor has the right to be paid, any such agreement would have to make it clear beyond doubt that the arrangement was to be conditional and not to be merely governing the time for payment. I believe that the contra proferentem principle would apply to such clauses and that he who seeks to rely upon such a clause to show that there was a condition precedent before liability to pay arose at all should show that the clauses relied upon contain no ambiguity.

… For myself I believe that unless the condition precedent is spelled out in clear and precise terms and accepted by both parties, then clauses such as the two particular ones identified in this proceedings do no more than identify the time at which certain things are required to be done, and should not be extended into the ‘if’ category to prevent a subcontractor who has done the work from being paid merely because the party with whom he contracts has not been paid by someone higher up the chain’ ” (emphasis added)

Evidence

14.  P called two witnesses, namely, Mr Ip Ching Choi and Ms Ip Hiu Wing Ice whereas D called Mr Stephen Chow and Mr Gerald Lee to testify on its behalf.  I shall set out briefly the relevant evidence given by the witnesses below.

Mr Ip Ching Choi (PW1)

15.  Mr Ip Ching Choi is the director and general manager of the Plaintiff (“Mr Ip”).  Mr Ip adopted his witness statement as his evidence in chief. He agreed that the initial price quoted for the Original Work was HK$2,352,472, but was subsequently amended to HK$1,900,000 upon agreement between the parties.  He confirmed that he signed the AL at the meeting with D’s representatives on 22 March 2018.

16.  He stated that at the meeting, D’s representatives made clear that there would be additional works for P and that he and D’s representatives, Mr Stephen Chow and Mr Gerald Lee agreed that if same items as any of those in the AL were to be further constructed then the same unit price as listed in the AL would be used without applying any discount factor, and if there were new items that were not listed in the AL then P would quote the price for D to consider and accept.

17.  D’s instructions regarding additional works were given on the site or sometimes over the phone.  Once instructions were received, he would inform Ice Ip the amount for the quotation and Ice would email the quotation to D.  Most of the time, it was Wayne Chu who orally negotiated the quoted price with him. Once agreed, he would inform Ice to issue a final quotation to D.  P would request D to sign the issued quotations for P’s internal record-keeping.  D did not always return signed quotations. P would, however, complete the quoted works even if D did not sign and return the quotation.

18.  Mr Ip confirmed that all the works had been completed on time and handed over to D and that he did not receive any “contra-charges” requests from the Main Contractor.

19.  He had never heard of the term “star-rate” item（“星級項目”）before.  He also stated that over the course of the parties’ dealings, which consists of 20 to 30 construction projects in Hong Kong since 2014, the term “star-rate” item has never been used.

Ms Ip Hiu Wing Ice (PW2)

20.  Ms Ip is the daughter of Mr Ip and also gave evidence on the Plaintiff’s behalf. She adopted her witness statement as her evidence in chief. Her evidence can be summarised as follows:

(1)  She assisted her father in the daily management of P.  She was in charge of sending the prepared quotations to D by email.  She would then request D to sign and return the same for P’s internal record-keeping;

(2)  The Approved Quotations and Invoices were prepared and issued by her, and that they were summarized in the RASOC at §18;

(3)  Save for the five unsigned quotations referred to at §43 of her witness statement, D had signed and returned the remaining quotations;

(4)  It was not uncommon for D to return quotations with handwritten amendments.  However, Ice Ip stated that any amendments regarding the price modifications would have been orally agreed between Mr Ip and D beforehand;

(5)  For urgent works, Mr Ip would instruct her to issue a quotation and an invoice at the same time after the works were completed for P’s internal record-keeping.  This is why QT1416 and its corresponding INV190034 are both dated 28 June 2019;

(6)  As to the Site Meeting on 23 October 2019, Ms Ip stated that:

  i.  On that day, she together with her husband, Mr Lee Wai Chuen, met with Mr Wayne Chu and a “Brother Tong” of D, as there was some disagreement as to the quantity and price of the works;

  ii.  D’s main issue was with the handrail (“扶手”)  measurements.  The parties visited a few floors of the Shopping Mall to do physical measurements.  Brother Tong was in charge of all the measurements that day;

  iii.  According to D, the handrails should be measured by straight-line measurements（“直尺”）while P used curved measurement（“弧形”）.  Wayne Chu requested to reduce the amount on the basis of D’s measurements.  She consulted Mr Ip on the phone, he agreed;

  iv.  The parties agreed on the prices to be charged there and then and Wayne Chu made handwritten notes throughout the meeting recording the agreed amounts;

  v.  Wayne Chu told her that he would send her a confirmation email containing what the parties agreed at the meeting.  This email from Wayne Chu (and its attachments)  is the one sent by Wayne Chu on 25 October 2019.

(7)  She did not participate in P’s price negotiations and thus has no knowledge of the term “star-rate” item;

(8)  P never received any “contra-charge” requests from the Main Contractor.

Defendant’s Witnesses

Mr Stephen Chow Ching Kin (“DW1”)

21.  Mr Stephen Chow adopted his witness statement as his evidence in chief.  Mr Stephen Chow stated:

(1)  He has worked at D for 10 years.  His current position is administrative director.  For the Citygate Contract, his position was the project director;

(2)  P and D have been working together for around 8 to 10 years and have maintained a good relationship;

(3)  For this project, in relation to additional works, the parties would follow the unit price if there was a unit price in the AL.  If there was no unit price in the AL, the “star-rate” would be followed, subject to“upper party’s”approval. “Star-rate” means a price that has been certified by the Main Contractor and the Employer;

(4)  Regarding the special payment arrangement for the Citygate Contract“特別方式”, the payment was given on a “work done” basis: Every month, the Main Contractor and the Employer would dispatch Quantity Surveyors (“QS”)  on the Site to assess the completed work (ie “work done”).  After receiving the Main Contractor’s and the Employer’s QS assessment, D would go through its own internal QS assessment.  After receiving its own internal QS assessment, D would notify P of the amount available to pay and issue payment accordingly.  Depending on whether there is a discount according to the Employer’s assessment, D will apply a discount on the amount paid to P.  If there is no discount, D’s internal QS will match and adjust the figures with P;

(5)  Up until this Citygate Contract, D’s role was always as main contractor (not sub-contractor).  This is why D’s previous payment arrangement with P was much simpler (ie. it did not require several layers of QS assessment).

22.  Mr Stephen Chow was cross-examined on a number of matters.  He was asked about the special arrangement“特別方式”he referred to in his witness statement.  When asked to point out where in the documentary evidence supports this special arrangement contention, contradictory answers were given.  Initially, Clause 5 of the AL was said to support this special arrangement.  After being pressed, he said there was no need to put this special arrangement in writing because the parties had a relatively good working relationship.

23.  When asked to point out where in the AL supports his allegation that payment to P was subject to “final account”, evasive answers were given. First, Clause 5 of the AL was relied upon.  However, when pressed, he agreed that the words “final account” did not appear in the clause.  He then sought to rely on Clause 7 of the AL.  When taxed, he said that the words “final account” were not clearly written.  Clause (4)  of the handwritten additional clauses was also cited by him. Similarly, when pressed, he was forced to admit that the words “final account” were not written there either.

24.  Notwithstanding this, he claimed that the top paragraph (“the handwritten additional clause 1”)  provides a contractual basis for the alleged subject to “final account” mechanism.

Mr Gerald Lee Wai Yip (“DW2”)

25.  Mr Gerald Lee adopted his witness statement.  He was the senior project manager of D until he left in June 2023.  He could not remember the meeting on 22 March 2018 between P and D’s representatives.  However, he disagreed that him and Mr Ip discussed the pricing of additional works at the meeting.  He disagreed that he would instruct Mr Ip over the phone or on the Site in relation to additional works.  He claimed that only Mr Wayne Chu and a Mr Chan Kwok Wah of D would instruct P in relation to additional works.

26.  He disagreed that D’s representatives (namely Mr Stephen Chow, Mr Wayne Chu and Mr Chan Kwok Wah)  would discuss quoted prices with Mr Ip over the phone.  However, when pressed, he conceded that he would not have been privy to these conversations, if any.  However, he agreed that for all additional works, P was required to separately quote a price to D.

27.  When asked to clarify his evidence that a 19.23% discount factor had to be applied to additional items which fell within the AL, he referred to Clause 1 of the AL to support his contention.  However, when pressed, he conceded that Clause 1 of the AL did not support a 19.23% discount factor.

28.  Mr Lee was asked to identify the term “payment on account” from the AL and he confirmed that the AL did not contain the words “on account”.

29.  He claimed that if the Employer did not reach a “final account”, D did not have to pay P.  He was asked to identify the term “final account” from the AL and he conceded that the AL did not contain the words “final account” but maintained that Clause 5 included such a term.

30.  He confirmed that the handwritten words “WTP’s assessment”in QT1404 at [C/460] referred to the Employer’s QS.  However, he claimed that “WTP assessment” does not mean final assessment.  According to him, the unit price may be re-assessed again depending on the QS’s professional view.

31.  He agreed that during the meeting on 1 December 2020, he told P’s representatives that D did not have to sign all issued quotations as D would pay P sometime later.

Discussion/Findings

32.  I find both Mr Ip and Ms Ice Ip to be honest and truthful witness.  Their evidence is clear and straight forward.  Their evidence is basically not challenged in cross-examination.  I prefer and accept their evidence on matters where they conflict with the evidence given by the Defence witnesses.

33.  In respect of the issue regarding the price of the additional works to be carried out by P, I accept the evidence of Mr Ip and Ms Ice Ip that the price had been agreed by the parties at the time when P agreed to undertake such work.

34.  Their evidence is supported by contemporaneous documentary evidence which is basically not challenged by D.  For the quotation QT1376 [1] (Item 1 at C/451-453), P issued the quotation for a total sum of $1,308,000 with payment terms of 30% deposit, 60% progress payment and 10% COD (ie payment on delivery).  In response, D wrote on the said quotation and counter-offered for an overall 10% discount with 90% payment on completion and 10% retention.  According to Ms Ip, P disagreed but offered a discount of 7% instead making the total to be $1,216,440 which was then accepted by D.  It is quite clear that the parties had negotiated on the price and payment terms and finally come to an agreement.

35.  It is important to note that there is a chop stating that D had approved and issued a cheque of $1,094,796 on 16/11/2018 (D’s document at C/454), being 90% of the contract sum as agreed.  The payment is clearly made in accordance with the payment terms as agreed by the parties. If it is, indeed, to be subject to a final assessment by the Employer and subject to a “PWP” term as now alleged by D, there is really no reason why D would not have stated these terms on this quotation when D made the counter-offer.  Instead, D also stamped a chop on P’s quotation stating that “No payment shall be made unless the ORIGINAL INVOICE issued by Your Company is received by DAVID DECORATION LIMITED”.  This is the only additional condition D had made clear to P about payment.

36.  In respect of the quotation QT 1403[1] (Item 6 at C/445-447), P quoted a total sum of $2,445,000 with payment terms of 40% deposit and 60% progress payment.  In response, D amended the items of work by deleting two items and counter-offered a total sum of $1,337,000 with payment terms being 95% progress payment and 5% retention.  According to Ms Ice Ip, P accepted D’s counter offer, completed the said work, and issued the invoice to D.  D signed on the Quotation and stamped the chop there stating that “No payment shall be made unless the ORIGINAL INVOICE issued by Your Company is received by DAVID DECORATION LIMITED”.  Again, no mention of any “subject to final assessment” or “PWP” terms.

37.  Similar mode of dealing also applies to Quotation QT1404 (Item 4 at C/459)  where P quoted a total sum of $346,500, and D, in reply, amended the unit price quoted therein and counter-offered a total sum of $241,497 (at C/460)  which, according to Ice Ip, was accepted by P.  P then completed the work and issued the invoice to D.  Similarly, D stamped the chop there stating that “No payment shall be made unless the ORIGINAL INVOICE issued by Your Company is received by DAVID DECORATION LIMITED”.

38.  Another example is the Quotation QT 1417 (Item 3 at C/473)  where P quoted for a sum of $260,000 with payment terms of 50% deposit and 50% COD In response, D accepted the sum of $260,000 but amended the payment terms to 95% progress payment and 5% retention.  Similarly, D stamped the chop there stating that “No payment shall be made unless the ORIGINAL INVOICE issued by Your Company is received by DAVID DECORATION LIMITED”.

39.  Some of the quotations had not been counter-signed by D.  According to P’s witnesses, D agreed with the price quoted and P proceeded with the work.  All the additional works had been completed and handed over to D which Mr Patrick Chow, the representative of D, also confirmed in D’s oral opening submission.

40.  In addition, there was a site meeting on 23 October 2019 in which the parties had conducted site measurements of the works completed by P.  According to Ms Ice Ip, the parties’ representatives negotiated and agreed on the final amounts chargeable by P (for Items 1 to 8 as set out in the Table pleaded under paragraph 18 of RASOC)  and that Mr Wayne Chu recorded the agreed amounts there at the site.  On 25 October 2019, Wayne Chu sent by email the relevant invoices with D's amendments confirming their agreed amounts payable to P.  This is not challenged by D in cross-examination.  Although, D had filed a witness statement of Wayne Chu which purported to dispute Ms Ip’s evidence regarding the Site Meeting on 23 October 2019, D decided not to call Wayne Chu to testify. I shall therefore disregard Wayne Chu’s witness statement.

41.  The evidence shows that regarding the additional works in the present case, the parties followed the procedure and mechanism set out as scenario 4 under Clause 5 of the AL; and the Site Meeting on 23 October 2019 was the occasion where the parties measured and finally confirmed the amounts payable to P for the works completed and I so find.

42.  As regard D’s contention that P’s invoices are subject to final assessment by the Employer’s PQS and the alleged PWP term, the contra proferentem principle would apply to such clauses and that he who seeks to rely upon such a clause to show that there was a condition precedent before liability to pay arose at all should show that the clauses relied upon contain no ambiguity.

43.  On the basis of the evidence before me, I am not satisfied that the amounts quoted in the Approved Quotations and Invoices as subsequently amended and agreed by D at and upon the Site Meeting on 23 October 2019 are subject to final assessment by the Employer’s PQS and the PWP term as contended by D.

44.  The aforesaid site measurement on 23 October 2019 did not cover Items 9 and 10 since instructions for carrying out these works came after 23 October 2019.  Mr Patrick Chow had agreed the amount payable for Item 10 to be $12,000.  For item 9, I accept the evidence of Mr Ip and Ms Ip that P and D had agreed the price to be $150,000 and that the work had been completed and handed over to D.  I do not accept D’s contention that it should be subject to the Employer’s PQS’s assessment or a PWP term as contended by D.

45.  Insofar as D is seeking to rely on the alleged “custom”, I agree with P that there being no sufficient plea advanced by or evidence produced in support.  I do not accept D’s contention that there is the alleged custom whereby P’s Approved Quotations and Invoices are subject to final assessment by the Employer’s PQS and the PWP term as alleged.

46.  As a matter of law, for something to qualify as a custom or usage, it must be "notorious, certain and reasonable", and “must be something more than a mere trade practice”.  It must also meet the requirement of universality: Chitty on Contracts (35^th edn)  at §§17-036 to 17-037.

47.  A mere plea of “custom” without providing a fair and sufficient indication of what that alleged “custom” is nor the “invariable, certain and notorious” nature thereof would be considered as devoid of particulars, and therefore defectively pleaded: Vigers Hong Kong Limited v Michael Andrew Barclay Binney [2019] HKCFI 461 at §§43-45 per Keith Yeung J.

48.  The alleged custom of “payment on account” is totally lacking in particulars as to how it meets the test of “notorious, certain, reasonable and universal”.  In the circumstances, I also reject D’s pleaded case on the customary practice of “payment on account”.

D's other defence/complaints

49.  Mr Gerald Lee alleged that a 19.23% discount factor applied to additional works which fell within the AL.  He referred to Clause 1 of the AL and sought to apply the formula stated there.  When he was asked to explain how he worked out the discount of 19.23%, he attempted to calculate and in the end he conceded that it did not produce a percentage of 19.23% by using that formula.  He was not able to identify any clause in the AL to support his allegation that a 19.23% discount factor applied to additional works which fell within the AL.

50.  More importantly, D had not pleaded a case that a 19.23% discount factor had to be applied to all additional works which fell within the AL. It is, therefore, not open to D to raise such issue at the trial. I will not allow such unpleaded issue to slip in.

51.  As Ma CJ (as he then was)  held in Kwok Chin Wing v 21 Holdings Ltd (2013)  16 HKCFAR 663 at §21:

“21. It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case)  so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues: Wing Hang Bank Ltd v Crystal Jet International Ltd. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Ltd v Crystal Jet International Ltd:

(2)  In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be “slipped in” when evidence is being given in the hope that the other side is not sufficiently alert to object.”

52.  In respect of D’s claim that P should be liable for the contra charges in the total sum of $98,750 allegedly imposed by Hip Hing, I have no hesitation in rejecting such a claim.  There has not been any counter-claim or set-off being pleaded by D.  I accept the evidence of the Plaintiff’s witnesses that P had not received any notice or demand from D or Hip Hing regarding the alleged contra-charges.  None of the defence witnesses had given any evidence regarding such contra-charges.  In the circumstances, I am not satisfied that P is liable for the alleged contra-charges.

53.  D also alleged that P had failed to comply with instructions from Hip Hing to add more manpower to expedite the progress of work, and further failed to deliver ordered items on time.  Firstly, there is no suggestion that D had suffered any loss as a result of such alleged failure/delay.  Secondly, on the basis of the evidence before me, I am not satisfied that D has made out a claim in this regard. It is bare allegation without any evidence in support.

Conclusion

54.  I give judgment in favour of the Plaintiff in the sum of $2,624,155.55 with interest at judgment rate from the date of the writ until payment.  I make a costs order nisi that the costs of this action be to the Plaintiff, including any costs reserved, with certificate for counsel, to be taxed if not agreed.  Unless the parties apply by letter for variation within 14 days from the date of this judgment, the costs order nisi shall become absolute.