ETERNITY CONTRACTING & ENGINEERING CO LTD v. THE JARDINE ENGINEERING CORPORATION, LTD

HCCT 33/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 33 OF 2007

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DECISION ON COSTS

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1.  I have dismissed the plaintiff’s claim on 17 November 2016 with a costs order nisi that the plaintiff do pay the defendant the costs of this action. The defendant has issued a summons on 29 November 2016 seeking to vary the costs order nisi to (i) an order that the plaintiff do pay the defendant’s costs of this action on an indemnity basis or alternatively (ii) an order that the plaintiff do pay the defendant’s costs of this action from the date of the writ to 11 May 2016 on a party and party basis and thereafter on an indemnity basis.

The judgment

2.  The plaintiff claimed HK$4,372,180.8 plus interest and costs allegedly for supply of labour and materials to the defendant to carry out plumbing and drainage installation works (“P&D works”) in the KCRC East Rail Extensions Contract Nos. TCC 200 and TCC 300 (“the KCRC contracts”). 

3.  The plaintiff claimed that it had an agreement with the defendant which was made by an Instruction to Sub-contractor (“ITS”) issued by the defendant to the plaintiff and dated 12 September 2003 and contained or evidenced in the plaintiff’s quotations and invoices made on various dates.  By this agreement, the plaintiff agreed to and did supply labour and materials to carry out the P&D works for the defendant at the four train stations namely: City One, Ma On Shan, Shek Mun and Wu Kai Sha train stations under the KCRC contracts.  All the invoices and quotations for the P&D works pursuant to this agreement had been duly served on the defendant on various dates.

4.  The defendant’s position was that the ITS had no contractual effect and there was no agreement between the parties.  

5.  I decided in the judgment that the ITS was only a conditional contract and would only be effective after the defendant had issued a Work Order to confirm it.  Before a Work Order was issued and whilst it was conditional, neither party had any obligation to render any performance to the other side pursuant to it.  Even if the plaintiff should have supplied labour under it, the defendant would have no obligation to pay for the service.  I therefore dismissed the plaintiff’s claim for costs for supply of labour on this ground.  (§§ 95 - 99 of the judgment)

6.  Since the plaintiff’s claim for costs of materials was pleaded on the same basis, I also dismissed the plaintiff’s claim for labour and materials on this ground.  (§ 100 of the judgment)

7.  Furthermore and assuming that I was wrong on the above ground for dismissing the claim, I also found the plaintiff’s evidence dubious and unreliable.  The evidence as corroborated by the defendant’s evidence only proved that some of its workers had worked at the Sites on some days.  But there was no reliable evidence to show how many workers had worked on what dates at which of the stations.  (§ 195 of the judgment)

8.  I also found that the plaintiff’s claim was full of exaggerations and fabrications.  There was no evidence that the plaintiff was financially capable to defray the alleged payments to the workers and for the purchase of the materials.  The evidence of its two witnesses Mr Chung and Mr Leung were incredible and unbelievable.  Mr Chung (PW2) painted a most curious situation that even Mr Leung (PW1) had not witnessed in his working life since the 1970s.  Mr Leung had also failed to explain many oddities that involved him.  I did not accept that Mr Leung had sent the plaintiff’s invoices (quotations) and the purported annexures (including the monthly summary of attendance by workers and the daily worker records) to the defendant’s head office.  I also did not accept that the plaintiff had paid the workers whether directly or through its worker Chan or at all.  The plaintiff’s lack of financial and accounting evidence was fatal to the plaintiff on this point.  I found that the plaintiff had not proved its case on a balance of probability.  I took the view that the plaintiff was trying to perpetrate a dishonest claim in this action.  (§§ 196 - 197 of the judgment)

The defendant’s grounds for varying the costs order nisi

9.  Mr Niehorster, counsel for the defendant submitted that the plaintiff should pay the defendant’s costs of this action on an indemnity basis because the plaintiff had pursued a dishonest, or at best, dishonestly exaggerated claim. 

10.  Mr Niehorster further referred to Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 where the Court of Appeal held that an order for indemnity costs was appropriate when the plaintiff pursued a bogus claim intending to exert pressure on the respondent to pay as much as much compensation as possible and to well above that which he was otherwise entitled.  Mr Niehorster further referred to my factual findings and submitted that the plaintiff was also pursuing a bogus claim with a view to extract from the defendant as much compensation as possible where any claim was on the facts well above that which was otherwise merited as a matter of law.  He also categorized the plaintiff’s conduct as the kind of vexatious and oppressive conduct that the indemnity costs was designed to apply.

11.  Mr Niehorster also submitted that if an order for indemnity costs is not made, the defendant’s successful outcome in the action would be seriously eroded. 

Discussion and decision

12.  Apart from considering the plaintiff’s conduct, I must not overlook the defendant’s conduct and how this claim could have come about. 

13.  From September 2003 to November 2004, the defendant had to carry out P&D works in four train stations pursuant to the KCRC contracts.  It had to station at least two workers per station throughout this period.  Though its JEMIS system did not record the plaintiff’s existence until very late, it does not mean that it was not aware that there was and must have been someone supplying labour to it to do the work in the four stations as it needed such labour to do the work. 

14.  There was also a letter from its superior sub-contractor JCO dated 19 March 2004 that complained that it was slow in its work progress to ensure completion because of the unreasonably low labour supply to complete the installation and subsequent testing and commissioning (D9/4290-4291).  It must therefore have taken some action to rectify the problem after the receipt of the letter.  It therefore must know that a labour supply sub-contractor was supplying labour to it.  Otherwise, who would finish the installation and commissioning? 

15.  The defendant had also been supplied by the plaintiff a copy of the employee’s compensation insurance policy that had expired on 14 April 2005 (D10/4680-4685).  Its Manager–Administration Services had written to the plaintiff reminding the plaintiff of the need of renewal.  It therefore must have known about the plaintiff’s supply of labour to it as it was concerned that the plaintiff should have an effective EC insurance policy.  The policy must have been provided sometime before November 2004 when the plaintiff was still supplying labour to the defendant (§89 of the judgment).  Though I did not allow the plaintiff to rely on this policy to advance its claim, it does not mean that the provision of this policy by the plaintiff to the defendant can be ignored for all purposes. 

16.  Furthermore, the defendant had applied to its superior sub-contractor JCO for payments for completion of work during the period of September 2003 to November 2004 when the plaintiff was the only labour supply contractor that supplied labour to it.  It made the following payment applications (by reference to table D1) (T5/85/12 – 86/3) (§143 of the judgment):

(i) The defendant made payment application No. 4 dated 8 August 2003 for payment for completion of 68% of its original scope of works it achieved up to the end of July 2003 (before the appearance of the plaintiff). 

(ii) The defendant payment application No. 5 at the end of November 2003 for completion of 80% of the works. 

(iii) The defendant made another payment application by the end of February 2004 for completion of 89% of the works. 

(iv) The defendant made payment application No. 6 at the end of May 2004 for completion of 97%.

17.  The defendant’s management must have been aware that there was somebody supplying labour to do the work for it.  Otherwise, it would not have been able to apply for payment from JCO for completion of the works.  Mr Lam, counsel for the plaintiff also referred to a contract booking form dated 21 September 2004 (D4/3048-3049) which recorded an expected profit of HK$103,450.84.  The form stated that the subcontractor’s cost was at HK$2,129,148.16.  That was only HK$7,200 more than the subcontractor’s cost of HK$2,121,948.16 as recorded in JEMIS as at 27 September 2003 (D4/3033).  Mr Lam submitted that it was impossible for the defendant to have incurred just HK$7,200 subcontractor cost in the course of a year when a lot of work had been done in the meantime.  These submissions show that the defendant must have been aware that it had not paid the labour supply sub-contractor for the supply of the labour that did the work referred to in its payment applications (§158 of the judgment).

18.  The defendant’s management could not have been so ignorant as to think that work was being done so that it could claim payment from JCO but without the need for it to pay for the workers.  They must have ignored the need to pay the labour supply sub-contractor or at least put a blind eye to it.  That was irresponsible to put it mildly.

19.  The above shows that the defendant had paid no regard to the need for ascertaining how much was due to its labour supply sub-contractor and its obligation to make proper payment.  It is impossible and the defendant’s management could not have been so ignorant to assume that the labour supply sub-contractor could just supply the labour without the need to be paid payment.  If there was no payment application from the sub-contractor, then there must be something wrong and possibly gravely wrong.  They should investigate.  They could not have sit back and relaxed.  To ignore its obligation to pay and the due discharge of such obligation is mismanagement to say the least. 

20.  The undesirable situation in this action where the plaintiff had supplied some labour force but is not getting paid for it at all is partly created by the irresponsible attitude and mismanagement of the defendant. 

21.  Regarding whether the defendant’s successful outcome in the action would be seriously eroded even if I do not order indemnity costs, though the defendant did not intend to benefit from the plaintiff’s labour supply without paying, it ended up getting the benefit without the need to pay for it (save the HK$258,170 paid in the labour dispute).  The period of labour supply was from September 2003 to November 2004.  The minimum labour supply was to provide for two workers for each of the four stations for six days in a week.  The rate per worker was HK$700 per day.  The benefit to the defendant, though unintended, is very substantial.  The defendant is already in an advantageous position.  It has benefitted itself substantially by its irresponsible attitude and mismanagement. 

22.  The plaintiff has suffered in not getting paid for the labour it supplied to the defendant.  To order indemnity costs will be too grave a punishment to the plaintiff.  Punishment is not the purpose of the civil courts.  I do not think I should punish the plaintiff in this case by ordering indemnity costs.  The defendant will not suffer even if it does not get indemnity costs.  The defendant’s successful outcome in the action would be seriously eroded even without indemnity costs.

23.  The defendant has an alternative application in reliance on Order 23 rules 1, 3, 4 and 5 for indemnity costs from 11 May 2016 based on the sanctioned payment it paid into court on 13 April 2016.  For the reasons given above, I consider it unjust to so order. 

Order for payment out

24.  The defendant also seeks in the summons an order for payment out of the $2 million paid into court by it on 13 April 2016 together with all interest accrued.  The plaintiff does not oppose this part of the summons.  I therefore make an order that the $2 million paid into court by the defendant on 13 April 2016 together with all interest accrued be paid out to the defendant’s solicitors forthwith.

Order

25.  In the light of my reasoning above, I dismiss this application for variation of the costs order nisi with a costs order nisi that the defendant do pay the plaintiff the costs of this application.