HO YUK CHU t/a SKYFORCE ENGINEERING CO. v. SHUN HING REFRIGERATOR AIR-CONDITIONING ENGINEERING LTD.

HCCT80/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.80 OF 2000

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J U D G M E N T

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1. In this case the principal witness for the plaintiff was Ho Yuk Chu's husband, Mr Cheang Woon Cheung ("Mr Cheang"). In the statement of claim he (Mr Cheang) describes himself as "an electrical works (including A/C works) consultant and contractor". The defence does not admit this description claiming that Mr Cheang was only a general electrical contractor.

2. The plaintiff's claims is pleaded as follows : -

"In consideration of the Plaintiff agreeing, at the Defendant's request, to introduce and recommend the Defendant to one Shui On Building Contractors Limited ("Shui On") and assist the Defendant in preparing the tender for A/C works to be submitted via Shui On and in procuring the award of A/C works to the Defendant, the Defendant agreed to pay the Plaintiff a commission/consultancy fee equivalent to 7% of the contract sums to be received by the Defendant on account of A/C works so performed upon receipt of the same from Shui On or the ASD. The said agreement ("the Agreement") was made orally by Mr. Cheang of the Plaintiff and Mr. Yim of the Defendant at No.24, Ground Floor, 1 Block 1, Wang Cheong Factory Building, 781 Lai Chi Kok Road, Kowloon on or about 7 August 1993 and was evidenced by a letter dated 5 February 1994 from the Plaintiff to the Defendant and a letter dated 14 February 1994 from the Defendant to the Plaintiff."

3. There is no dispute that 7% of the sum paid to the defendant by Shui On amounts to $2,776,680.42, the sum claimed. The defendant admits that no payments have been made under the alleged agreement.

4. The defence alleges there is no liability to pay because firstly there was a total lack of consideration and secondly, that the defendant was induced to enter into the agreement as a result of representations made by the plaintiff which were false.

5. The representations which are alleged and have been falsely made are pleaded in the following terms : -

"(i) [That] the Plaintiff was well acquainted with the decision makers in Shui On Building Contractors Limited (Maintenance Division) ("Shui On"), one of the main-contractors tendering the Main Contract, and could exert personal influence upon them to procure the Defendant being selected as Shui On's sub-contractor for the A/C Sub-contract irrespective of the Defendant's price.

(ii) [That] by reason of the said personal contacts and influence, the Plaintiff could procure a tender from the Defendant with a higher than the market price being accepted by Shui On."

6. Before I deal with the two pleaded defences I shall deal with a third defence which has been raised in final submissions. Mr Kevin Chan, counsel for the defendant submits that the evidence showed that when Mr Cheang approached the defendant he was offering himself as an agent for the defendant. At the time, it is submitted, Mr Cheang had already made a similar agreement with another sub-contractor, named Peterson Engineering Limited. If so Mr Cheang would be acting as agent for two principals with conflicting interest without the consent of the parties concerned. I reject this defence for three reasons.

7. Firstly, it was not pleaded. Secondly, I am satisfied on the evidence that no final agreement had been reached with Peterson, he was therefore not a double agent. Thirdly, describing the plaintiff as an agent in the strict sense involving the fiduciary duties that go with it, and comparing him with an estate agent, as Mr Chan did, is overstating the plaintiff's role in the discussions which took place. I now turn to the pleaded defences.

Lack of consideration

8. The defence case is that apart from a mere introduction, which on its own cannot be sufficient consideration, the plaintiff did nothing to procure the sub-contract for the defendant. It is further submitted that there is evidence to show that the defendant would have got the contract anyway.

9. Mr David Tsang, counsel for the plaintiff, submits that Mr Cheang did procure the contract for the defendant. The procurement came about as a result of introducing the defendant to Shui On, recommending the defendant to Shui On and providing cost information to the defendant to assist him prepare the tender which was ultimately successful. If proved, the above would, in my judgment, constitute adequate consideration.

10. Four witnesses gave evidence at trial. For the plaintiff, Mr Cheang and Mr Ng Kwok Man, Shui On's contract manager at the material time, gave evidence. For the defence Mr Yim Sin Tong, the defendant's project manager and Mr Ku Wing Kai, Shui On's contract manager and Mr Ng's boss, gave evidence. Both the central issues and peripheral issues were examined at length resulting in a sizeable body of evidence containing many conflicts. It would serve no purpose in reciting it herein. In short, not without some difficulty, I have come to conclusion that the plaintiff has, on the balance of probabilities made out a case that there was adequate consideration namely that he did introduce the defendant to Shui On, he did recommend him to Shui On and he did provide cost information for tendering purposes. In return the defendant did agree to pay a commission. Mr Yim, for the defendant company, was concerned first and foremost with getting the contract.

11. The main findings from the evidence upon which this conclusion is reached are as follows : -

(1) Six months after the agreement, and five months after the commencement of the work, in reply to a letter from the plaintiff setting out the terms of the agreement, the defendant by a letter dated 14 February 1994 made no hint of a denial of the agreement (save for one detail).

(2) At the time Mr Cheang approach Mr Yim, the defendant was only tendering to one of the seven pre-qualified main contractors. That contractor did not get the contract.

(3) The evidence showed that the successful tender to Shui On was submitted by Mr Cheang and Mr Yim together. The defendant was also able to tender to the other six contractors as a result of information from Mr Cheang.

(4) The relevant cost information came from another tender (Petersons) which Mr Cheang gave to Mr Yim. This enabled the defendant to revise his tender price upwards and so put him in a stronger negotiating position with Shui On.

12. The consideration issue was the first and primary limb of the defence case. If not all, then certainly most of the defence eggs were in that basket. Mr Chan, for the defence however, by no means abandoned the "misrepresentation" issue, to which I now turn.

Misrepresentation

13. The alleged misrepresentations are that the defendant would get the contract "irrespective of the defendant's price" and that Mr Cheang would procure a tender with "a higher than market price being accepted by Shui On".

14. Having heard the witnesses I find these alleged representations to be inherently improbable. What I find is probable is that the plaintiff offered to introduce the defendant to people he knew in the industry, recommend him to them and help him prepare the lowest tender which would result in his getting the contract.

15. I accept that the discussions were always founded on the basis of their understanding that only the lowest bid would get the contract. Mr Cheang provided the pricing information in order to achieve that end. Mr Yim accepted that even after he had submitted the revised tender he would still be subjected to negotiations with Shui On to bring it down again, which is what happened. He was not and could not have been proceeding on the basis that because of Mr Cheang's alleged influence and contacts at Shui On the contract was "in the bag" and the tendering a mere formality, otherwise he would not have anticipated further bargaining with Shui On.

16. Moreover, Mr Cheang did have an important contact at Shui On in Mr Ng. I accept Mr Ng's evidence that he had the responsibility of selecting the A/C sub-contractor for Shui On. I accept also that Mr Ku was his boss who theoretically had the power to overrule his decision, however the reality was that Mr Ng's decision would almost certainly be final. Mr Ku no doubt did regard the defendant as the best tender on their own merits - but, that assessment was because Mr Ng had selected them. In short I am satisfied that Mr Cheang did what he said he would do, no more no less. It was also what Mr Yim expected of him, no more no less. The evidence, as a whole, shows that on a balance of probabilities it was Mr Cheang's services which were the effective cause of the contract going to the defendant.

17. I consider it unnecessary to delve further into intricacies of the evidence of which there were many. Cross-examination revealed inconsistencies in both the plaintiff's case and the defendant's case. Neither principal witness emerged unscathed. At the end of the day I think Mr Yim felt he had struck a bad deal with Mr Cheang. He sensed at a later date that he might have got the contract anyway and has, perhaps innocently, overstated the representations made by Mr Cheang. His decision not to pay the commission came at least six months after the oral contract when he began to hear comments from others about Mr Cheang which were not favourable. This may have caused him to wonder if he had been deceived at the time, when, in fact, he had not been. He no doubt also felt that the 7% commission was far too high. He could have bargained for less. However, I find that, good or bad, a bargain had been made which was valid and binding. I have some sympathy for Mr Yim but I do not find there to be any grounds for him to maintain that he is under no obligation to pay the agreed commission.

Star rated items

18. In his letter of 14 February 1994 Mr Yim did not deny the agreement. He confirmed it. He did however claim that there had been an agreement which put the commission rate for certain items at 2% rather than 7%. Mr Cheang denied this. Having heard the evidence I am satisfied that although the figure of 2% was not finalized in the August 1993 discussions, there was some discussion that the star rate items would, inevitably, attract a different lower percentage. I reject Mr Cheang's evidence that there was no such discussion. There is no issue as to the arithmetic on this issue. At 7% for everything the sum due is $2,866,779.43. If the defendants claim that a lower figure was agreed and that lower figure should be as he stated in his 14 February letter, namely 2%, the sum due is $2,158,365.22.

19. I have no hesitation in finding the lower figure to be the one payable by the defendant. I give judgment for this sum together with interest at prime plus 1% from the date of the writ, 17 June 1999 plus costs to the plaintiff.