SILVER VALUE GLOBAL LTD v. CHEUNG TAK WAH trading as MING KEE MACHINE ENGINEERING CO

DCCJ 659/2019

[2025] HKDC 473

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 659 OF 2019

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JUDGMENT

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BACKGROUND

1.  This case involves a claim by the Plaintiff for repudiatory breach of a contract for supply of goods and services against the Defendant for the return of the deposit paid in the sum of HK$1,500,000.00, alternatively for damages. The Defendant denies that there was repudiatory breach of the contract, and counterclaims for loss and damage arising from not being able to complete the remainder of the works by reason of the Plaintiff’s failure to, or delay in supplying the relevant parts and components.

2.  In December 2017, the Defendant, Mr Cheung Tak Wah trading as Ming Kee Machine Engineering Co entered into a contract (the "Contract") with the Plaintiff, ie Silver Value Global Limited to provide engineering work and materials, namely, the installation work of a propeller with tailor made stern axle shaft and supporting v-brackets, engines and their gearboxes, rudders and other related installation works (the "Works") in relation to a new yacht (the "Yacht") of the Plaintiff at the price of HK$2,980,000.

3.  The Contract was evidenced by a written invoice dated 8 December 2017 (the "Invoice") and, according to the Plaintiff, by 3 oral agreements in addition. The Plaintiff’s case is that the agreed completion date was within 9 months from 19 December 2017, ie by or around 19 September 2018.

4.  Briefly, the Plaintiff claims that completion of the Works was delayed and as a result the completion date was extended to 20 January 2019 based on two oral promises given by the Defendant in about 31 May 2018 and early November 2018 respectively, with some modifications to some of the specification on materials so as to save time. However, the Defendant did not complete the Works by 20 January 2019 and would not agree to complete the remaining works within 4 to 5 months as suggested by the Plaintiff in a meeting dated 28 January 2019. The Defendant insisted on having another 9 months for completion of the remainder of the Works which was considered by the Plaintiff to be unacceptable and unreasonable. Thus on 28 January 2019, the Plaintiff says it orally accepted the Defendant's repudiation of the Contract and later confirmed such acceptance through its solicitors on 29 January 2019.

5.  The Plaintiff later engaged another contractor, Wang Tak Engineering & Shipbuilding Co, Ltd (宏德機器鐵工廠有限公司) (“Wang Tak”) to complete the remainder of the Works left uncompleted by the Defendant, as a result of which, it says it has suffered loss and damage.

6.  The Defendant has on the other hand denied liability and counterclaims for damages for the Plaintiff’s alleged repudiatory breach of the Contract, and for damages for not being able to complete the remainder of the Contract and earn profits thereform.

THE ISSUES

7.  The Plaintiff has invited the court to determine the following issues:

(a)  What are the terms of the Contract;

(b)  Whether there is agreement as to the time for completion;

(c)  What is the reasonable time for completion of Works and whether there is an implied term thereof;

(d)  What are the respective obligations of the parties under the Contract to provide parts for the Works;

(e)  Whether there is a term of the Contract that if the Defendant would not be able to supply the parts and require the Plaintiff to supply, reasonable notice in advance should be given to the Plaintiff to enable the Plaintiff to meet the progress of the Works.

(f)  Whether the Plaintiff has agreed to provide the Parts under items 1 and 2 of the Invoice (“Parts 1 and 2”) but have failed and/or delayed to provide such parts;

(g)  Whether the Defendant requires the Plaintiff-Provided Parts 1 and 2 to complete the Works on time, and hence any failure to provide the parts by the Plaintiff has caused the time for completion to be extended or stayed;

(h)  Whether the Plaintiff or the Defendant was in breach of such obligations in failing to provide some parts for the purposes for the Works;

(i)  Whether the Defendant has completed or substantially completed the Works stated as Item 1 and Item 2 under the Contract and the Plaintiff is required to pay the 2^nd deposit before the Defendant is required to continue to complete the remaining Works;

(j)  Whether the breach of the respective obligations of the parties has effectively caused the delay for completion of the Works and the length of such delay caused by each party (if any);

(k)  Whether the Plaintiff or the Defendant was in repudiatory breach of the Contract;

(l)  What is the value of Works completed by the Defendant on 28 January 2019 (ie the date when the Contract was terminated) and the costs of completing the remaining work required under the Contract;

(m)  If the Defendant was in repudiatory breach of the Contract, what is the loss and damage suffered by the Plaintiff; and

(n)  If the Plaintiff was in repudiatory breach of the Contract, what is the loss and damage suffered by the Defendant.

8.  The Defendant has also compiled a list of issues which are differently formulated, but the issues also covered those related to ascertaining the terms of the Contract (including various alleged oral agreements), and whether there had been a breach on either side, and in particular, what is the interpretation of the term “自來” (which on the face of it could mean “self-provided”) under the Invoice. This relates to the interpretation of the Contract as to what parts or components were to be provided by which party. This will be further discussed below. There is also a dispute as to whether there was a condition precedent that such parts or components had to be delivered by the Plaintiff first before the Defendant could proceed further in the Works, and whether the Defendant had substantially performed the contract.

9.  I shall refer to the relevant issues below as and when pertinent.

THE PLAINTIFF’S CASE

Background leading up to the Contract

10.  The background to this case dated back to 2014 when the Plaintiff was desirous of promoting its business in building, sale and rental of yachts. As a result, the Plaintiff planned to build a timber yacht prototype, which would be 43m in length and larger than normal size of such yachts, for its business purposes.

11.  The Plaintiff then proceeded to build the Yacht in 2014. In mid-May 2017, there was a need for installation of propellers at the bottom of the Yacht and two rudders as well as fabricating and procuring and installing the necessary equipment and accessories for the aforesaid propellers and rudders for the Yacht. Further, it is said that the prospective contractor would also be required to supply some materials for installation of two main engines including stainless steel mounting base saddle (白鋼座).

12.  Mr Leung Chung Chi, also known as Johnny Leung (“LCC”) was employed as the manager of the Plaintiff at its shipyard at No 35 Praya Road, Ap Li Chau, Hong Kong. Mr Lo Lin Shing, Simon (“Mr Lo”) is and was at the material times the director of the Plaintiff. LCC worked for Mr Lo from 2 September 2012 and later for the Plaintiff when it was incorporated on 23 December 2013.

13.  LCC left the employment of the Plaintiff in around September or October 2019. On the last day of LCC’s employment, Mr Leung Tak Kei, also known as William Leung, took up his work. LCC is a holder of Higher Diploma in Ship Building and has worked in ship building for more than 30 years. LCC is conversant with ship building including pleasure boats.

14.  According to LCC, it is a trade practice in the local ship building industry that no detailed written contract would normally be made except for large ship builders. Details of the contract are usually first set out in a quotation or invoice and subsequently varied orally as need be. According to him, at the time of the issuing of a quotation or invoice, the date of completion would not be written down. Instead, the parties would subsequently discuss and agree on the date of completion. LCC has had business working experience with the Defendant for many years. As far as he understood, the Defendant's technical skill is in marine engineering, including installation of propelling engines and related works. He says that the aforesaid business mode had been used in various dealings and transactions between him and the Defendant over the years.

The Contract

1^st Oral Agreement

15.  The Plaintiff’s case is that on 24 May 2017, LCC invited the Defendant to inspect the Yacht on 27 May 2017 at the Plaintiff’s shipyard for preparation of a quotation for the Works. At the time of inspection, a Mr Lau Kam Pui was also present and was introduced by the Defendant to LCC. At that time, the timber hull and skeleton (which were mainly of teak and sapele) of the Yacht was already completed. During the inspection, LCC explained what works would be required from the Defendant, including the installation of propeller and accessories, engine, gear box and design of accessories, and also to design and erect a hoisting machine and to hoist the engine and gear box to its designated location. The prospective works would also involve to connect the main engine, gear box and propeller and all works necessary to enable the Yacht to start sailing.

16.  Amongst other items, the parts needed to be tailor made and to be measured by D included:

(i)  supporting cast copper V bracket (V字猛比);

(ii)  cast copper stern shaft tube;

(iii)  rudder stock (舵軸);

(iv)  rudder plate (舵板);

(v)  rudder stock tube;

(vi)  stainless steel mounting bases for engines and gear boxes; and

(vii)  stainless steel exhaust pipes and mufflers.

17.  According to the Plaintiff, there were no ready-made parts of the aforesaid accessories for the Yacht. To LCC’s knowledge, the Defendant was skillful in the works required except that LCC has no knowledge of whether the Defendant was skillful in drilling holes at the hull for installation of the shafts. However, this could be undertaken by sub-contracting. Drilling of holes is not a difficult task and is commonly encountered in ship building process. LCC also told the Defendant about the original plan of completion of the Yacht in 30 months, which had already been delayed as the Plaintiff wished to have high quality finished products. D appeared to be very excited about the Works and indicated that he had the ability to complete the job but needed time to find a sub-contractor and technician. He then agreed to undertake the installation work (with supply of the necessary components) for the Plaintiff (the “1^st Oral Agreement”).

2^nd Oral Agreement

18.  A few months later in November 2017, as the Defendant could not arrange for all the parts required for the Works, LCC discussed and agreed with him that those parts which he could not arrange for would be provided by the Plaintiff. The Defendant would supply additional parts not included in the costs of the Works and the Plaintiff would pay for those parts (the “2^nd Oral Agreement”).

19.  According to the Plaintiff, LCC and the Defendant also orally agreed that the Defendant was to provide all the parts that were to “come from his own” or to be “self-provided” (自來), unless and until he notified the Plaintiff of any parts required to be provided by the Plaintiff.

20.  Further, the Plaintiff’s case is that some time after 19 December 2019, it was also agreed orally in stages that the Plaintiff would provide additional accessories or parts in relation to two propellers (推進器) and two rudders (兩門舵), ie the propeller shaft (尾軸), propeller blade (螺旋槳), propeller nuts (螺旋槳絲母), coupling (急輪), screws for coupling (急輪螺絲), part of screws for V bracket (猛比螺絲), rudder seal (止水軸套(舵封)) and two rudder tillers (舵柄臂).

The Invoice

21.  On or about 8 December 2017, the Defendant issued the Invoice (No. MK/INV/17/090), countersigned by LCC, indicating a total contract sum of HK$2,980,000 for the Works. The Invoice listed the items of works as follows:-

(1)  Fabricate and install 2 cast copper propeller shaft tubes, 2 cast copper V brackets:

(a)  Works include labour for drilling holes, making wooden mould and water pressure testing, bearing, labour for installation and hoisting charges;

(b)  “Coming from his own” or “self-provided” (自來) propeller shaft, propeller blade, propeller nuts, coupling, coupling nuts, shaft tube screws, mount brackets screws, shaft seal, installation labour included, hoisting charges not included.

(2)  Two rudders including cast copper rudder stock tubes and casting processing, including water pressure testing, labour for installation and hoisting charges, stainless steel rudder body, bearing, including rudder stock processing, welding and labour for installation. “Coming from his own” or “self-provided” (自來) rudder stock, rudder blade material, rudder stock tube screws, rudder seals, 2 rudder tillers.

(3)  Install 2 main engines:

(a)  Newly made #316 stainless steel engine mounting base;

(b)  Newly made #316 stainless steel gear box mounting base;

(c)  Install 2 diesel engine oil filters, diesel supply pipe and diesel return pipe;

(d)  Install mufflers and exhaust risers for the two main engines (only include the #316 stainless steel material from engine “Turbo” exits to mufflers);

(4)  Labour for installation of power steering including installation of hydraulic cylinder, steering pump, hydraulic pipes and power steering system (electric power steering to be supplied by shipyard);

(5)  Labour for installation of fuel pipes for the bow thruster, including installation of hydraulic pipe and hydraulic oil tank;

(6)  Labour for installation of fuel pipes for fuel transfer pump; and

(7)  Labour for connection of fuel pipes for 2 electric generators and water pipe.

22.  It was also written in the Invoice that unless specified, all parts and materials shall be provided by the shipyard. The production and issuing of drawings and sketches or plans was excluded, and labour insurance for workers in the shipyard was also excluded.

23.  The following payment terms were also stated in the Invoice:

(a)  A deposit of approximately 50% (ie HK$1,500,000) shall be paid upon confirmation of acceptance of quotation;

(b)  Upon completion of Items 1 and 2, a second payment of 30% (ie HK$900,000) shall be paid;

(c)  The balance being 20% of the sum (ie HK$580,000) shall be paid upon completion of the Works.

3^rd Oral Agreement

24.  The Plaintiff says that on or about 19 December 2017, the Defendant told LCC that he would require around 6 months to complete the Works. LCC believed that 9 months were more reasonable and would give the Defendant more buffer for completing the Works. They then agreed that the Works should be completed in 9 months (the “3^rd Oral Agreement”). The Plaintiff says that the indicated time for completion was a material term of the Contract, without which it was not in accordance with business common sense.

25.  As a result of the above, on or about 19 December 2017, the Plaintiff issued a cheque of the Public Bank (Hong Kong) amounting to $1,500,000 to the Defendant as deposit. Thereafter, the Defendant commenced work on or around 4 January 2018. Thus, according to the Plaintiff, the agreed completion date should be around 19 September 2018 or at the latest, by the end of September 2018.

Alleged breach of the Contract

Delay in carrying out the Works

26.  Soon after the commencement of the Works in late December 2017 or January 2018, LCC noticed that only the Defendant and another worker were working at the shipyard. LCC was worried that the Works might not be finished on time. He then suggested to the Defendant that he should employ more workers. The Defendant originally agreed to do so, but he later indicated that he had difficulty in recruiting workers. LCC also noticed the slow progress in the process of “cutting” or “drilling” holes and recommended a Mr Pang Kwok Fai to the Defendant. Mr Pang was said to be experienced in that kind of work. However, the Defendant did not accept the suggestion, and said that Mr Pang’s fee was too high. Since then, LCC has regularly and continuously reminded the Defendant to recruit more workers and to speed up the work progress. According his observation, it had taken the Defendant around 5 months for “cutting or drilling holes” and the same was only completed on around 7 June 2018. According to him, had the Defendant engaged sufficient skilled labour, and with adequate and appropriate tooling, the Defendant could have finished the task of the drilling of holes in about one month. The Defendant only commenced Item 1(b) of the Works (ie wooden moulding) when the “hole drilling” part was about to complete.

27.  Between April and May 2018, LCC still held the thought that the Defendant would have difficulty in completing the Works on time. He suggested the Defendant use ready-made fiber glass propeller shaft case/tube instead of cast copper shaft case/tube, and to use stainless steel rudder stock case/tube instead of cast copper rudder stock case/tube.

28.  To expedite the progress of the Works, on or around 31 May 2018, LCC discussed with the Defendant and worked out a schedule in writing (the “First Schedule”) for the Works to ensure that the Defendant could complete the Works on time. According to LCC, the Defendant had agreed to the First Schedule and even took a photo of the First Schedule by using his mobile phone.

Extension of the agreed completion date

29.  By November 2018 and due to slow progress of work made by the Defendant, LCC was forced to work out another written work schedule (the “Second Schedule”) with the Defendant and to extend the completion date for the Works to 20 January 2019. The Second Schedule provided for around 2.5 months for the Defendant to complete Works and was premised upon the propeller shaft being delivered on 5 November 2019. Again, the Defendant agreed to the schedule and took a photo of the schedule by using his mobile phone. At the time, LCC again urged the Defendant to increase the manpower for the Works, to which the Defendant agreed.

Repudiation

30.  Given that the Works were still not completed, on or about 28 January 2019, Mr Lo together with the yacht designer Mr Po Yan Kin and Mr Lo’s housekeeper, Mr Chan Mei Shun had a meeting with the Defendant at the shipyard to discuss the solution for delay in completion of the Works.

31.  During the meeting, the Defendant claimed that the delay in completion was due to the fact that he had to wait for parts. He asked for advancement of the 2^nd stage payment to which Mr Lo of the Plaintiff had no objection. Mr Lo asked the Defendant to complete the Works in 4 to 5 months’ time. However, the Defendant replied in the negative and said he needed another 9 months instead to complete the Works. This request was unreasonable and unacceptable to the Plaintiff, as a result of which the Plaintiff considered the Defendant’s act in refusing to complete the Works within a reasonable time of 4 to 5 months as suggested by the Plaintiff evinced an intention not to be bound by the Contract, constituting a repudiatory breach. The Plaintiff through Mr Lo then accepted the Defendant’s repudiatory breach of the contract and told the Defendant that his service was no longer needed. Mr Lo requested the Defendant to leave with his belongings. At the time, the Defendant then took away the temporary wooden seats for the engine and gear box and left.

32.  On 29 January 2019, the Plaintiff through its solicitors sent a letter to the Defendant confirming the Plaintiff’s acceptance of the Defendant’s repudiatory breach of the contract.

THE DEFENDANT’S CASE

33.  The Defendant’s case is that there was only one written agreement contained in the Invoice, and the parties later varied the written agreement and agreed to vary the contract that the cast copper stern tube be changed to fiber glass material and cast copper stock tube be changed to stainless steel material, due to the alleged delay on the part of the Defendant. Apart from that, the Defendant denies the existence of the oral agreements alleged by the Plaintiff.

34.  The Defendant does not dispute that he was to provide fabrication and installation works including:

Stern Shaft Works:

(i)  Drilling of 2 holes in Yacht’s frame for the Stern Tubes;

(ii)  Construction of 2 sets of Stern Tubes and V-brackets;

(iii)  Providing the bearings of the stern shafts;

(iv)  Installation of the stern shafts, stern tubes, V-brackets, propellers, engines and their gearboxes;

(v)  Post-installation adjustments works, water pressure testing and sea-trial;

Rudder Works:

(vi)  Drilling of 2 sets of Holes for Rudder Glands (Rudder Stock Tubes);

(vii)  Construction of 2 sets of Rudder Glands;

(viii)  Casting and processing of the 2 sets of Rudders; and

(ix)  Installation of the 2 sets of Rudders with Rudder Glands and Tiller Arms.

35.  The Defendant says the main dispute is which party were to supply which parts. His case is that the parts to be provided by the Defendant were identified in the Invoice in the heading following the words “承造” (ie to build) and in the sub-sections following the term “包括” or “包” (ie “including”). This includes the Stern Tube, the Rudder Glands, and the bearings of the stern shaft. The parts which are not included in the quotation price under the Invoice were identified by the words “自來” as aforesaid, which the Defendant interprets as meaning that such partes were to be provided by the Plaintiff. These parts included the shaft, propeller, propeller nut, coupling, coupling nut, screws for the shaft tube, screws for the V-bracket and shaft seal (“Plaintiff-Provided Parts 1”) and the rudder stock, rudder’s material, screws for the rudder glands, rudder seal and tiller arms (“Plaintiff-Provided Parts 2”).

36.  The Defendant says that under the Invoice, it was a condition precedent for the Plaintiff to provide all the Plaintiff-Provided Parts 1 and 2. The Plaintiff had breached such terms by failing to provide the remaining parts. The Defendant was not able to complete such installation without such parts.

37.  The Defendant denies that he had ever agreed to any completion date as stated by LCC, whether in 9 months or not. His case is that due to the difficulties of the Works, lack of skillful workers in the “drilling” process, and the need to custom make parts and accessories, he had initially refused to accept the Works. It was until he had successfully found a skilled worker in drilling works that he then agreed to take up the Works, on the condition that the Plaintiff should provide certain parts and no completion time would be fixed.

38.  However, the Defendant admits that there was an implied term that the Defendant should complete the works within reasonable time, but whatever reasonable time to complete the Works, including installation, it did not begin to run until the Plaintiff had provided the Plaintiff-Provided Parts 1 & 2. The shaft was provided by the Plaintiff in late November 2018, whilst the rudder stock, rudder’s material and tiller arms, screw for bracket, seal for rudder were never provided by the Plaintiff. Reasonable time began to run for Item 1 and Item 2 only when the Plaintiff provided all of the Plaintiff-Provided Parts 1 and 2. Since the installation Works included adjustments, water testing, and sea trial, it was also a conditional precedent that such post-installation works cannot be done without all the parts having been provided.

39.  The Defendant says he was therefore unable to complete the Works due to the failure and/or delay on the part of the Plaintiff to provide all of the Plaintiff-Provided Parts 1 & 2. The Plaintiff has failed to satisfy the above conditional precedents.

40.  Further, whilst agreeing that LCC had prepared the aforesaid Schedules, the Defendant says that he had not agreed to them.

41.  The Defendant also says that prior to 28 January 2019, he had completed most of Item 1 and Item 2 but could not continue due to the missing Plaintiff-Provided Parts 1 and 2. Further, as he had commenced part of the woks under Items 3 to 6, it was not open for the Plaintiff to repudiate the contract. The Defendant therefore says he should be awarded the remaining profits under the contract as follows:

The remaining 2^nd and 3^rd Deposit (HK$2,980,000 – HK$1,500,000) – costs of materials (HK$180,000) and costs of labour (HK$702,000) = HK$598,000.00

APPLICABLE LEGAL PRINCIPLES

Implied date of completion

42.  The Plaintiff contends that even if the court finds that there was no oral agreements as to the completion date, there was nevertheless an implied term as to the time for performance under section 6 of the Supply of Services (Implied Terms) Ordinance (“SS(IT)O”), Cap 457.

“6. Implied term as to time for performance

(1) Where, under a contract for the supply of a service by a supplier acting in the course of a business, the time for the service to be carried out is not fixed by the contract, is not left to be fixed in a manner agreed by the contract or is not determined by the course of dealing between the parties, there is an implied term that the supplier will carry out the service within a reasonable time.

(2) What is a reasonable time is a question of fact.”

43.  In Keating on Construction Contracts, 11^th edition, the learned authors said at para.8-012 the following concerning reasonable time to complete:

“Absence of fixed date or period

If the parties fail to agree a fixed period within a date by which the works are to be completed, the court will normally imply a term into the contract to the effect that the contractor is to complete the works within a reasonable time. What is a reasonable time will depend upon all the circumstances of the case. In assessing what is reasonable the court will consider objectively what would be a reasonable time for the performance of the relevant work at the time the question arose and what other circumstances, outside the control of the contractor, should be reflected in the time for performance. The determination of what a reasonable man amounts to in this situation is a composite question which will be assessed objectively when the question arises and in the light of all relevant circumstances and not simply by a consideration of the time required to complete any work associated with the instruction of a variation that may have set time at large. A person obliged to complete within reasonable time:

“fulfils his obligation, notwithstanding protracted delay, so long as such delay is attributable to causes beyond his control, and he has acted neither negligently nor unreasonably.”

44.  In Okachi (HK) Co Ltd v Nominee (Holding) Ltd CACV 347/2005 (22 November 2006), the Court of Appeal at para.52 ruled that:

“52. Although in the Agreement the parties did not specify a date for the completion of the transaction, this being a commercial agreement the parties must have intended that the sale must be completed as soon as possible. Although the defendant had paid the purchase price, it was paid to a stakeholder and it could not be released to the plaintiff until the Agreement has been completed. Likewise the defendant would only be able to get hold of the Share on completion. Hence it is expected that both parties should progress as speedily as possible to reach the goal of completion...” (underline added)

45.  In Joy & Peace.com Inc v Topshow Consultants Ltd [2002] 2 HKC 143 at 150F-151C, the court stated that it would be prepared to imply a term if there arose from the language of the contract itself, and the circumstances under which it was entered into, an inference that the parties must have intended the stipulation in question. An implication of this nature might be made in two situations, namely where it was necessary to give effect to business efficacy to the contract and where the term implied represented the obvious, but unexpressed, intention of the parties.

Implied term of reasonable diligence

46.  The learned authors in Hudson’s Building and Engineering Contracts, 14^th edition at para.6-21 explained that as a matter of business efficacy, there must be an implied term in building and engineering contracts that the contractor will proceed with reasonable diligence and expedition:

“…… Furthermore, if a contractor persists in a rate of progress bearing no relation either to a contractually promised or reasonable date of completion, and the Employer accordingly gives notice requiring a reasonable or improved rate of progress but the Contractor then fails to proceed at a reasonable rate, it is submitted that the Contractor will be evincing either inability to complete, or an intention no longer to be bound by the Contract, in either case justifying termination by the Employer. Otherwise, provided the Contractor does not by unequivocal refusal openly evince an intention no longer to be bound (thus exposing itself to the assertion of an anticipatory repudiatory breach), the Employer will, in the absence of an implied term, be without remedy until the completion date has passed, and in the usual case where time is not of the essence probably not even then, until a still later notice is served.”

Time of the essence

47.  The Plaintiff says that between April and May 2018, LCC noticed the slow progress and it appeared to him that the Defendant would have difficulty in completing the Works on time. LCC then suggested the Defendant to increase the number of workers and to hire Mr Pang who was said to be skilled in “drilling holes”. The suggestion was not accepted by the Defendant. LCC also made other suggestion to the Defendant as aforesaid in order to help him speed up the work. The Plaintiff says these suggestions by LCC constituted an indication to the Defendant that time was, or had become of the essence in the contract.

48.  In the case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 @ [63-64], UpJohn LJ of the Court of Appeal stated:

“It is open to the parties to a contract to make it clear either expressly or by necessary implication that a particular stipulation is to be regarded as a condition which goes to the root of the contract, so that it is clear that the parties complete that any breach of it entitles the other party at once to treat the contract as at an end. That matter is to be determined as a question of the proper interpretation of the contract. BRAMWELL, B in Tarrabochia v Hickie (29), has warned against the dangers of too ready an implication of such a condition. He said :

“No doubt it is competent for the parties, if they think fit, to declare in express terms that any matter shall be a condition precedent, but when they have not so expressed themselves, it is necessary for those who construe the instrument to see whether they intended to do it. Since, however, they could have done it, those who construe the instrument should be chary in doing for them that which they might, but have not done for themselves”

Where, however, on the true construction of the contract, the parties have not made a particular stipulation a condition, it would be unsound and misleading to conclude that, being a warranty, damages is a sufficient remedy.

In my judgment, the remedies open to the innocent party for breach of a stipulation which is not a condition strictly so called, depend entirely on the nature of the breach and its foreseeable consequences. Breaches of stipulation fall, naturally, into two classes. First, there is the case where the owner by his conduct indicates that he considers himself no longer bound to perform his part of the contract; in that case, of course, the charterer may accept the repudiation and treat the contract as at an end. The second class of case is, of course, the more usual one, and that is where, due to misfortune such as the perils of the sea, engine failures, incompetence of the crew and so on, the owner is unable to perform a particular stipulation precisely in accordance with the terms of the contract try he never so hard to remedy it. In that case, the question to be answered is, does the breach of the stipulation go so much to the root of the contract that it makes further commercial performance of the contract impossible, or, in other words, is the who contract frustrated? If yes, the innocent party may treat the contract as at an end. If nay, his claim sounds in damages only”. [underline added]

49.  The principle in Hong Kong Fir Shipping Co Ltd was applied in Homyip Investment Ltd v Chu Kang Ming Trade Development Co Ltd [1995] 2 HKC 458.

50.  In the case of Charles Rickards Ltd v Oppenheim [1950] 1 K.B. 616 at 624, the Court of Appeal ruled that a party to a contract was entitled to give a reasonable notice making time of essence of the matter. Adequate protection to the supplier is given by the requirement that the notice should be reasonable. And “[i]n cases where time has not been made of the essence of the contract, or where, although time originally was the essence of the contract, the time so fixed for completion has ceased to be applicable by reason of waiver or otherwise, the employer has still a right by notice to fix a reasonable time for the completion of the work, and in case the contractor does not complete by that time, to dismiss the contractor just as a vendor would be entitled to rescind the contract in case of a contract for sale of land”[1].

51.  In respect of time stipulation, the Defendant refers to para.28-029 of Chitty on Contracts (35^th Ed) where it is stated that:

“Time is of the essence:

(1) Where the parties have expressly stipulated in their contract that the time fixed for performance must be exactly complied with, ⁸⁰ or that time is to be "of the essence”

(2) Where the circumstances of the contract or the nature of the subject matter indicate that the fixed date must be exactly complied with, e.g. the purchase of a leasehold house required for immediate occupation ; the sale of business land or premises, such as a public-house as a going concern ; the sale of a reversionary interest; the exercise of an option for the purchase or repurchase of property, or for determining a lease under a "break” clause or an option to acquire a leasehold interest in futuro (since in these cases, "the parties on the exercise of the option, are brought into a new legal relationship”); "mercantile contracts”, such as a contract for the sale of goods where a time is fixed for delivery, or for the sale of shares liable to fluctuate in value (where the contract stipulated a time for payment). However, the mere fact that the contract can be labelled "mercantile” or "commercial” does not determine the issue. Nor does the fact that the contract confers on a party the right to terminate or withdraw from the contract on the breach of a term of the contract, such as the failure to pay hire "punctually” under a charterparty, have the consequence that the term relating to the payment of hire has the status of a condition. Whether a time limit is of the essence of a contractual provision is a question of interpretation of the provision in the context of the contract as a whole. The question is whether the time specified in the particular clause was (expressly or by necessary implication) intended by the parties to be essential, e.g. because they needed to know precisely what were their respective obligations. Thus, where the buyers were required to give 15 days’ notice of readiness of the vessel so that the sellers could then nominate the port for loading, the House of Lords held time to be of the essence: performance by the buyers was a condition precedent to the sellers’ ability to perform their obligation. (However, under the Sale of Goods Act 1979 s.10 , unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of the contract of sale.) Similarly, a court is unlikely to be willing to infer that the parties have agreed that time is to be of the essence in the case of a contract of employment, a commercial agency contract or an analogous contract. In the latter contexts parties wishing to make time of the essence should make express provision to that effect in their contract.”

52.  Further, the Plaintiff also referred to Chitty on Contracts, 34^th edition, Vol. 1, para.6-090, the learned editors said:

“… The party granting the forbearance can generally retract it, provided that he gives reasonable notice of his intention to do so to the other party. Thus, in Charles Rickards Ltd v Oppenheim a contract for the sale of a car provided for delivery on March 20. The car was not delivered on that day but the buyer continued to press for delivery and finally told the seller on June 29 that he must have the car by July 25 at the latest. It was held that the buyer could not have refused peremptorily to accept the car by July 25 at the latest. It was held the original delivery date had gone by, as he had continued to press for delivery; but that he could refuse on the seller’s failure to comply with a notice to deliver within a reasonable time. As the notice had given the seller a reasonable time to deliver, the buyer was justified to take the car after July 25. A fortiori, the buyer could have refused to take delivery if the original delivery date had been extended only for a fixed time and if delivery had not been made by the end of that time.”

53.  Also, in Joy & Peace.com Inc v Topshow Consultants Ltd, Gill DJ stated:

“26. Of course a contract for due performance which expresses no time limit is not a charter for unreasonable delay. If undue delay can be established, the aggrieved party is entitled to give notice, calling for performance within a reasonable period of time; what is reasonable will depend on the facts and circumstances. Once that period has expired without performance then the aggrieved party can sue for breach. In this case there is evidence of delay but not undue delay.”

Notice making time of essence

67.  With respect to notice making time of the essence, Paras. 28-030 and 28-035 of Chitty on Contracts (35^th Ed) stated that:

“28-030 Where time was not originally of the essence of the contract, but one party has been guilty of delay, the other party may give notice requiring the contract to be performed within a reasonable time. Notice can be served at the moment of breach; it is not necessary to wait until there has been an unreasonable delay by the party in breach before serving the notice. The period of notice given must, however, be reasonable and what is reasonable will depend upon all the facts and circumstances of the case. Factors to which the courts will have regard in assessing the reasonableness of the period of notice include what remains to be done at the date of the notice; the fact that the party giving the notice has continually pressed for completion, or has before given similar notices which it has waived ; or that it is especially important for it to obtain early completion. A party who elects to give notice immediately upon the breach of contract would be well advised to be "cautious” in its selection of the period to be included in the notice. Notice making time of the essence of the contract can be given in relation to any term of the contract: entitlement to give notice is not confined to essential terms of the contract (although the ability to rely on the notice in order to terminate the contract will depend upon the nature of the breach that has given rise to the right to issue the notice). The party serving the notice must not itself be in default. Once notice has been given, both parties are bound by it so that, if the party giving the notice is not ready to perform on the expiry of the notice, the other party may be entitled to terminate. ¹¹¹ If, by notice, a party has made time of the essence, but later allows a further extension to another fixed date, time remains of the essence. The notice procedure laid down in the contract may be held to be exhaustive of the rights of the parties so that it will not be open to them to serve a notice (for example, of shorter duration) under the general law rather than the contract.”

…

28-035 Where, however, notice is given by one party purporting to make " time of the essence ” in respect of a breach of a non-essential term of the contract, the consequences are altogether different. Such a notice does not serve to make time of the essence so far as the obligations in the original contract are concerned, because one party cannot unilaterally vary the terms of a contract by turning what was previously a non-essential term of the contract into an essential term nor can one party by serving a notice on the other "impose additional obligations on a party to a contract”: the notice "has in law no contractual import”. The effect of the notice is rather to bring to an end the interference of equity with the legal rights of the parties so that the entitlement of the innocent party to terminate future performance of the contract is then governed solely by ordinary common law rules. Given that the notice cannot have the effect of turning the non-essential term of the contract into a condition, the party giving the notice can only terminate where the failure of the other party to comply with the terms of the notice goes to the root of the contract so as to deprive that party of a substantial part of the benefit to which it was entitled under the terms of the contract. Failure to comply with the terms of the notice can therefore only be used as evidence of a breach which entitles the other party to terminate further performance of the contract; it is not such a breach per se.”

54.  In Keating on Construction Contracts, 11^th edition, the learned authors said at §8-009 the following concerning notice making time of the essence:

“where a reasonable time for performance has elapsed and either time was not originally of the essence or has ceased to be of the essence by waiver or agreement, the employer can serve a notice requiring completion by a certain date. It is really telling the contractor that unless it completes by a certain date the employer will treat its failure as repudiation of the contract. If the notice was not given prematurely, and the date for completion was not unreasonably soon in all the circumstances, judged at the time when the notice was given, and the contractor fails to complete by such date, the employer can treat the contract as at an end and dismiss the contractor from the site. The contractor’s financial circumstances are irrelevant, it seems to the reasonableness of the notice.”

Contractual interpretation

55.  In respect of contractual interpretation, the principles have been reiterated by the Court of Final Appeal in Eminent Investments (Asia Pacific) Limited v Dio Corporation (2020) 23 HKCFAR 487 as follows:

“43. It is a truism that the starting point is the ordinary and natural meaning of the words of the contract, and of course in the vast majority of cases that is the ending point also. But, as Ma CJ pointed out in Fully Profit (Asia) Ltd v Secretary for Justice, in the more difficult cases it is not particularly helpful to refer to the “ordinary and natural meaning” of words because in such cases there can be much debate over exactly what is the ordinary or natural meaning of words; and in those cases the surer guide to interpretation is context.

44. In Wood v Capita Insurance Services Ltd, Lord Hodge JSC reviewed the many cases on interpretation and emphasised that interpretation was a unitary exercise. That is why, where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense.”

Condition precedent

56.  Regarding whether there is a condition precedent provided in a contract, the court summarised the test for determining whether a term is a condition precedent for the performance of the contractual obligation by another party in Hong Jing Co Ltd v Zhuhai Kwok Yuen Investment Co Ltd [2013] 1 HKLRD 441:

“39.1 Whether this term is a condition precedent or a contractual term of some other character must depend on

(1) the form of the clause itself,

(2) the relation of the clause to the contract as a whole,

(3) general considerations of law.

39.2 The applicable test is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean (Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, 1112). In Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 it was held by Lord Clarke of Stone-cum-Ebony JSC that:

where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense.”

Care and skill required in performing the Contract

57.  No doubt, the Contract was one for the supply of services through execution of the Works. Section 3 of the SS(IT)O provides that:

“For the purposes of this Ordinance -

…

(b) a contract is a contract for the supply of a service whether or not goods are also—

(i) transferred or to be transferred; or

(ii) bailed or to be bailed by way of hire,

under the contract, and whatever is the nature of the consideration for which the service is to be carried out.”

58.  Under the Contract, the Defendant as the contractor would be required to design and undergo various work processes, to employ a sufficient number of skillful workers and to provide suitable tools in order to accomplish the task. As a supplier acting in the course of a business, there was also an implied term that the Defendant would carry out the service with reasonable care and skill by virtue of section 5 of SS(IT)O:

“5. Implied term as to care and skill

In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.”

Return of deposit

59.  In Hudson’s Building and Engineering Contracts, 14^th edition, para.8-019, the learned authors said the following on the effects of an accepted repudiation or renunciation:

“Once repudiation is accepted, performance of the primary obligations comes to an end. However, the terms of the contract still remain important.

Prior to the leading case of Heyman v Darwins Ltd [1942] A.C. 788, it was sometimes thought, and some judicial pronouncements, as well as the use of the word “recission” for acceptance of repudiation, could be interpreted as suggesting, that the contract was at an end for all purposes, and should be treated as if it had never existed. It is now clear that the primary dual consequences of a termination for breach will be, first, to release the innocent party from all further performance of his obligations and, secondly, to entitle him for full damages, including loss of the contract, resulting from the termination. …”

60.  The Plaintiff says that as the Contract was an entire contract for installation of the engine, gearbox, propeller and rudder so that the Yacht will be seaworthy, and there was no substantial performance by the Defendant when the Contract was terminated, the deposit of HK$1,500,000.00 paid by the Plaintiff ought to be returned.

61.  The Plaintiff further says a contractor cannot recover the agreed price unless there is “substantial performance” of the contract, which issue one must take account both the nature of the defects and the proportion between the costs of rectifying them and the contract price (see Bolton v Mahadeva [1972] 1 WLR 1009, 1013E-1014D, CA).

62.  In Gartell v Yeovil [2016] EWCA Civ 62, it was held that notwithstanding work was done on the pitches and materials supplied, there was a total failure of consideration when the claimant had not performed its works on the pitches with reasonable care and skill to make an improvement to the pitches.

63.  The said cases of Bolton v Mahadeva and Gartell v Yeovil have been considered and applied in the local case of Tang Hong Far East Co Ltd v. Yiu Sai Hoi trading as Modern Engineering & Consultant Co DCCJ 6019/2016, 6 July 2018; [2018] HKDC 781, wherein Master S.H. Lee said the following at §§49 to 54 as follows:

“Return of the deposit paid to defendant

49. Ms Au submitted that the plaintiff can at law seek refund of the deposit of $200,000 paid to the defendant under the agreement on the two basis of (1) breach of implied term of the agreement pleaded at para 7(c) of the SOC; (2) total failure of consideration.

50. I agree with Ms Au that the plaintiff is entitled to recover the said deposit of $200,000 on the above 2^nd basis on the facts I find above and, as such, I say no more on the first basis relied by her.

51. Among others, Ms Au relied on Bolton v Mahadeva [1972] 1 WLR 1009, 1013E-1014D, CA, which held that a contractor cannot recover the agreed price unless there is “substantial performance” of the contract, which issue one must take account both the nature of the defects and the proportion between the costs of rectifying them and the contract price .

52. She further relied on para 31-32 of the case of Gartell v Yeovil [2016] EWCA Civ 62 , where the court held, notwithstanding work was done on the pitches and materials supplied, there was a total failure of consideration when the claimant had not performed its works on the pitches with reasonable care and skill to make an improvement to the pitches.

53. On the facts I find above, including the divers serious defects of such of the waterproofing works completed as identified by Mr Tsang, and his opinions, expressed in the expert report, the contract sum in the agreement and the amount required to re-do the waterproofing works in the Sino quotation, I hold that the defendant had failed to render substantially what the plaintiff had bargained for and there was a total failure of consideration in this case such that the defendant should refund the deposit to the plaintiff.

54. I allow this head of claim in full.”

64.  P asks the court to apply the same logic in Tang Hong v Yiu Sai Hoi and to find that the deposit of HK$1,500,000 was as security for performance of the Contract. Since the Contract has not been performed, the deposit should be returned.

THE WITNESSES

Factual and expert witnesses

65.  At the trial, the Plaintiff has called 3 witnesses, namely Mr Leung Chung Chi (ie LCC), Mr Leung Tak Kei and Mr Chan Mei Shun, whereas the Defendant has called 2 witnesses, namely Mr Cheung Tak Wah and Ms Shek Yuk Ying.

66.  The Plaintiff has called one expert witness, namely, Mr Lee Siu Kai, Johnson (“Mr Lee”), who is a Naval Architect and Marine Engineering Consultant with over 20 years of shipbuilding and marine engineering experience. On the other hand, the Defendant called one expert witness, namely Mr Wong Kwok Wah (“Mr Wong”), who stated that he is the owner of shipyards and with over 30 years of ship building experience.

Test for assessing the credibility and reliability of the parties

67.  In Honor Engineering Ltd v Hing Fat Machinery & Electrical Engineering Co Ltd (DCCJ 3397/2012, 17 April 2015), the court summarised the general principles for assessing the credibility of witnesses as follows:

“17. In Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513, Deputy High Court Judge Thomas Au (as he then was) observed that in assessing the credibility of a party’s case, the court should take into consideration the following (at paragraph 53):-

“(1) Whether the party’s case is inherently plausible or implausible;

(2) Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable;

(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility; and

(4) The demeanour of the witness.”

18. This dicta was recently cited with approval by the Court of Appeal in Ageas Insurance Company (Asia) Ltd v Lam Hau Wah Inneo, CACV 65/2014 (unreported, 9 January 2015) at paragraph 38 per Kwan JA. See: Singh Harjit v Determination Business Ltd t/a Muse Studio, DCEC 1082/2011 (unreported, 27 February 2015) at paragraph 12 per Deputy District Judge Sanjay A Sakhrani.

19. In my view, the contemporaneous documents provide the best guide as to what actually happened. As the Court of Appeal observed in Esquire (Electronics) Ltd v Hong Kong & Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, per Stock JA (as he then was) at paragraph 158 at p 494, where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them. 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 (unreported, 23 December 1991) (at p 6):-

“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 crystallized. 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 action taken in those documents …””

68.  The relevant principles in assessing the creditability of witnesses were also summarized by B. Chu J in Ip Fung Kuen v. Sam Kee Frozen Meat Company Limited & Ors (HCA 1897/2009, 6 April 2016) at paragraphs 65-80:

“65. The relevant principles in assessing a witness’s evidence have been set out by Poon J (as he then was) in Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (unreported) HA 1957/2005, 28 July 2011; and DHCJ Eugene Fung SC in Hui Cheung Fai v Daiwa Development Ltd (unreported) HCA 1734/2009, 8 April 2014.

66. In Big Island Construction (HK) Ltd, the then Poon J had explained as follows:

“24. In assessing credibility, the court takes into account, among other things, the inherent probabilities or improbabilities of one’s testimony, the contemporaneous document or any evidence, which is undisputed or indisputable, tending to support or contradict one account or the other and the overall impression of the characters and motivations of the witnesses: see In re B (Children), supra, per Baroness Hale at para 31 at p.24, applied by this court in Standard Chartered Bank v Li Wai Ping & others, HCA 10587/2000 & HCA 3575/2003, 17 February 2011, unreported, at para 19. Where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them: see Esquire (Electronics) Ltd v Hong Kong & Shanghai Banking Corp. Ltd [2007] 3 HKLRD 439, per Stock JA (as he then was) at para.158 at p.494”

67. In Hui Cheung Fai, DHCJ Eugene Fung SC has said:

“76. In making my findings of fact in this case, I am guided by a number of general principles which judges apply as to fact finding and the assessment of credibility.

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: eg 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 this or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusion 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 form the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at § 135 (Stock JA)).” (emphasis added)

69.  Also, in a recent judgment of Zhang Qiang v Cisco Systems (HK) Ltd (HCA 1497/2010, 17 March 2021), Keith Yeung J reiterated the importance of assessing the credibility of witnesses by considering the inherent likelihood or unlikelihood of the witness’ evidence and the internal consistency of the witness’ evidence:

“72. Whilst there are in this case a large body of contemporaneous correspondence (from which the agreed facts and chronology are distilled), credibility still matters, particularly in relation to Zhang’s state of understanding of the mistakes relied upon by Cisco HK (though I immediately state that I acknowledge the predominately objective nature of the test explained in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] 7 HKCFAR 79, which I will discuss below).

73. I remind myself when considering a witness’ credibility the importance of considering the inherent likelihood or unlikelihood of the witness’ evidence, the consistency of the witness’ evidence with undisputed or indisputable evidence, with contemporaneous conduct and documents, and the internal consistency of the witness’ evidence. I need to consider the totality of the evidence. I warn myself against attaching undue weight on demeanour, though demeanour is obviously relevant when considering credibility. I also accept Mr Kwan’s submission based on Ching Chi Sau v Yip Woon Yin Judy, CACV 261/2014, 10 June 2015, that the Court is entitled to reject the evidence of a witness in multiple areas but find in his favour on certain issues.”

70.  I shall bear in mind the above when assessing the evidence of the witnesses.

Evidence of Leung Chung Chi (ie LCC)

71.  LCC basically adopted the Plaintiff’s case as set out above. He explained that he had many years of business relationship with the Defendant and knew that the Defendant would not produce detailed contracts in writing, which was the norm in the ship-building industry. Important issues were dealt with by verbal discussions before reaching an agreement. In the past, the Defendant had seldom put down completion dates in invoices. The completion date would be agreed with the Defendant after the invoices were issued by him and after discussion with the “boss” of LCC. The Plaintiff says this normal practice is plausible and was not challenged by the Defendant. On the other hand, it is against commercial sense if no completion had been discussed or agreed on. Further, Madam Shek Yuk Ying, the wife of the Defendant, had in cross examination also admitted that there was discussion of completion date between LCC and the Defendant.

72.  Regarding the phrase “自來” (apparently meaning “coming from oneself”, or self-provided as aforesaid), which is an important terminology in deciding which party had the responsibility to provide the parts, LCC said that he did not know the true meaning of the phrase and that they had not discussed it. He also stated that since they had an oral agreement about the responsibility of providing parts, it was his understanding that the phrase “自來” would be understood to cover the oral agreement that some parts would be provided by the Defendant himself, and some parts would be provided by the Plaintiff, but ultimately the Plaintiff would be paying for the parts.

73.  LCC says there had been a completion date discussed and agreed upon as aforesaid. He also prepared and produced two Schedules to monitor the progress.

Evidence of Leung Tak Kei

74.  Mr Leung Tak Kei had taken up his position with the Plaintiff around the time when LCC left. He was not involved in the negotiation of the Contract nor the progress of the Works. His evidence was based on his dealing with Wang Tak and arranging the remainder of the uncompleted Works to be done by Wang Tak.

75.  When being asked in cross-examination whether a completion date in a contract is important, he gave his view that he considered a completion date was important and would normally be written in a contract. However, he himself would not accept a mere verbal agreement for a completion date.

Evidence of Chan Mei Shun

76.  Mr Chan Mei Shun was not involved in the negotiation of the Contract nor the progress of the Works. He was present at the meeting on 28 January 2019 when the Defendant refused to complete the Works within the time set by the Plaintiff. His evidence was largely not challenged.

Evidence of the Defendant

77.  The Defendant gave evidence adopting his case as set out above. The Plaintiff submitted that the evidence of the Defendant was in many areas inherently implausible. An example given was that he stated that LCC wrote him the price of HK$3.3 million in the Defendant’s quotation, and later provided him with a discounted price at HK$3,114,600, which was then further discounted to HK$2,980,000. According to the Defendant, all these prices were inserted and provided by LCC. However, the Plaintiff says it is common sense that the price of a quotation would be provided by the supplier, not by the buyer. It is more logical and reasonable that the Defendant would have first proposed to charge at HK$3.3 million for the Works, and after negotiations with LCC, eventually revised the price down to HK$2,980,000.

78.  Another example given by the Plaintiff is that the Defendant claims that whilst he had contracted out items 1 and 2 of the Works to Lau Kam Pui, he and his employee would supervise Lau Kam Pui’s work and assist him for 6 months. It was the Defendant’s evidence that he only accepted the Works because he had at last found someone who knew how to perform the drilling work. It was also his evidence that he did not know how to drill holes. It would be inherently unlikely that he would “supervise and assist” Lau Kam Pui, as he claims, for 6 months when he was of the opinion that Lau Kam Pui was only amongst the very few skilful workers who could perform the drilling work.

79.  The Plaintiff also sought to point out other examples of inconsistency between the Defendant’s evidence and the evidence of other witnesses as follows:

(a)  The Defendant said as Lau Kam Pui could not provide the V-brackets and stern shaft tubes, he had told LCC who verbally agreed to help him make the copper V-brackets and copper stern shaft tubes, but the Defendant would pay for them. However, the fact was that he had asked Wong Kwok Wah to make the V-bracket instead;

(b)  The Defendant said he did not discuss with Lau Kam Pui about the completion time for items 1 and 2 of the Works as no one would agree to take up the Works if a date was set. He disagreed that time is a concern, but at the same time, he said he would not accept it if Lau Kam Pui said he needed 3 years to complete the Works;

(c)  The Defendant said drilling holes is a highly skilled work, and only 3 persons in Hong Kong knew how to do. However, the fact was that he was indeed involved in drilling the holes. The Defendant also said his role was supervision to ensure accuracy. However, when Lau dropped out because of injuries he had suffered, he said he did the drilling himself. This shows that he had the ability and skill to do so, contrary to what he claimed initially;

(d)  The Defendant denied that he had arranged to buy the screws for the stern shaft tube. However, the evidence shows that he did order the screws from Hyundai Screws Mfy Co, Ltd (現代螺絲).

80.  However, I do not think the above submissions would affect the credibility of the Defendant as these are not substantial discrepancies.

Evidence of Shek Yuk Ying

88.  Shek Yuk Ying is the wife of the Defendant, who works for him, providing administrative and clerical support to his business. She admitted that most of her evidence was based on what the Defendant had told her. As such, much of her evidence would depend on whether the court would eventually accept the evidence of her husband on the issues.

The expert witnesses

Reliability and impartiality

89.  The relevant principles in assessing the reliability and impartiality of expert witness are well established and succinctly set out in the case of Chinachem Charitable Foundation Ltd v Chan Chun Chuen & Ors (HCAP 8/2007, 2 February 2010):

“483. ... As I observed in Best Origin Limited v Commissioner of Rating and Valuation LDGA 14 of 1998, 25 February 2008, paras. 97 to 105, one of the important criteria that the court can adopt in testing the reliability of the evidence of an expert is his impartiality and due observance of his overriding duty to the court. Though judges may not be as well qualified as experts in the areas of the latter’s expertise, we are experienced and well trained in detecting partisan and biased witnesses (both in respect of ordinary factual witnesses and expert witnesses).

484. An expert should not advance an argument or use a piece of information or data to support his opinion unless he is professionally convinced of the validity of the argument or the appropriateness of the use of that supporting material…

485. Here lies the crucial distinction between an advocate and an expert witness. Even though counsel and solicitor also owes an overriding duty to the court in certain respects, the court understands that as advocates they are not impartial as they also have a duty to present the case of their respective clients. But the position of an expert witness is different. His evidence is admitted to assist the court on a subject which requires expertise he has acquired (but not the court). Therefore, what the court wishes to hear is the expert’s own independent professional opinion on the topic instead of a biased view constructed and put forward for the purpose of advancing a party’s position. Given the court’s lack of expertise on the subject which an expert gives his evidence, the strict adherence by expert to the duty of independence is important for the proper administration of justice. Whilst there might still be bona fide reasonable disagreements between two experts, the disagreements should only be based on independent professional judgments instead of being client interest driven.

486. the court is vigilant in ensuring that the integrity of the legal process would not be tainted by evidence of an expert who put a party’s interest above his professional duty to the court. If it can be shown that an expert persistently adopted a stance which he himself had obvious difficulty in sustaining, most of the time this is the hallmark of the expert’s failure to adhere to the duty of independence.

487. Very often, the most telling indicia of the professionalism and impartiality of an expert witness is how he deals with his weakest point under cross-examination. In Best Origin, I have set out what this court expects from an expert witness when he is faced with his own mistake after he produced his report. Instead of keeping silent and hoping that the point would not be discovered, he should correct it on his own volition as soon as practicable.

488. Another acid test on the reliability of an expert witness is the way in which he deals with the arguments of his counterpart. Nowadays, the court expects expert witnesses to act responsibly and professionally in meeting the points raised by the experts on the other side. The whole point of requiring expert reports to be served or exchanged and directing meetings of experts and the preparation of joint statements/reports is to facilitate independent and frank communications between the experts in order to narrow down their differences through a dialogue on a professional level. The objective is to focus on the real issues that need to be adjudicated by the court. Unnecessary and unhelpful arguments should be trimmed down through these pre-trial procedures.

…

491. Unfortunately, there are occasions … where some experts jumped straight to a defensive mode instead of adopting a “step-back and look” approach in considering the other side’s arguments. In so doing, I am afraid that such expert is abandoning his impartiality and neglecting his overriding duty to the court.

…

498. Paragraph 8 (c) of the Code of Conduct requires an expert witness to set out the reasons for his opinion in his report. The purpose is to inform the court and the other parties the reasoning process of the expert witness. …Unless an expert set out in his report his reasons for arriving at his opinion in a manner that is comprehensible to layman, the report would not be of much use to the court…” [underline added]

90.  Also, in the recent case Chiu Yi Tung v Lo Yue Fung (DCCJ 3591/2019, 11 September 2023; [2023] HKDC 1117), the court summarised the general principles as follows :

“[51] It is right to point out that the stance adopted by Mr Chung in preparing his expert opinion seems to suggest that he might have placed his duty to the defendants above his overriding duty to the court, which in turn cast doubt on the reliability of his expert evidence. As Lam J (as Lam PJ then was) explained in Chinachem Charitable Foundation Limited v Chan Chun Chuen, HCAP 8 of 2007 (2 February 2010), §§483 and 485, one of the important criteria that the court can adopt in testing the reliability of the evidence of an expert is his impartiality and due observance of his overriding duty to the court. What the court wishes to hear is the expert’s own independent professional opinion on the topic instead of a biased view constructed and put forward for the purpose of advancing a party’s position. Given the court’s lack of expertise on the subject which an expert gives his evidence, the strict adherence by expert to the duty of independence is important for the proper administration of justice.” [underline added]

91.  In the case of Lam Ting Kwan v Teamwell Corporation Ltd (DCCJ 17/2016, 26 November 2019), the court rejected the expert evidence when he acted as an advocate for the Defendant:

“[105] In this case, I find Mr Lam has failed to understand his overriding duty owed to the court when he acted as an “advocate” on behalf of the defendant. This could render his expert evidence inadmissible: See Maysun Engineering Company Limited v International Education and Academic Exchanges Foundation Company, unreported, DCCJ 27/2006, (22 September 2010; Her Honour Judge Mimmie Chan (as she then was).”

Evidence of the Plaintiff’s expert witness

92.  Mr Johnson Lee, expert witness for the Plaintiff, is a Naval Architect and Marine Engineering Consultant with over 20 years of shipbuilding and marine engineering experience.

93.  Mr Johnson Lee provided his estimate of the time required for the Works and compiled an Estimated Timeline where he listed out the tasks in detail. He then based on the Estimated Timeline to work out the estimated time required for completing the remainder of Works that were not yet completed. While Mr Johnson Lee disagreed with the Defendant’s suggestion that his Estimated Timeline was too optimistic, he did readily admit that he had under-estimated the time required for installation of the propellers. He also admitted that his estimation of the time required for drilling hole takes one month was hearsay from other workers, not from his personal experience.

Evidence of the Defendant’s expert witness

94.  Mr Wong Kwok Wah, expert witness for the Defendant, stated that he started learning ship building skills when he was 16 years of age. According to him, he has had over 30 years of ship building experience. It is apparent that Mr Wong has acquired his knowledge of this subject by experience. Nevertheless, Mr Wong did not give any details of his learning experience in this subject, except for broad brush mentioning that he is skillful in carpentry, painting, fiberglass, repair, installation of machinery and copper die casting.

95.  Mr Wong stated that his expert report was based on the information from documents and his own knowledge and experience. There was no mention of Mr Wong inspecting the Yacht in question in his report, although it appeared that Mr Wong was invited to inspect it by the Defendant’s solicitors by letter on 16 February 2022.

96.  In estimating the reasonable time required for completion of the Works to be between 300 to 330 days, Mr Wong did not provide the methodology or the qualifications he has used in arriving the “rough” answers. The rough answers could have ranged from 50% to 100% in difference, eg drilling holes would need approximately 20-30 days, making fiberglass stern tube would need approximately 20-30 days, extra time for drilling holes if any obstruction is encountered might also require an extra 7 to 14 days.

97.  In arriving at his estimation for the time required for the Works, Mr Wong did not mention the manpower required in each of the jobs, except when he gave his opinion for completing the unfinished Works, he had used the wages of 3 workers (at daily wages of $1,800) for his calculation. However, in his other calculations, he had used $3,600 as the daily labour cost, which suggested the cost of 2 workers (each being at HK$1,800 per day) was used for the calculations. Nevertheless, Mr Wong has in his supplemental report suggested the labour cost for various jobs. Mr Wong also simply added up his “estimation” for the time required for each job and did not explain whether the jobs could be carried out simultaneously or concurrently.

98.  When giving evidence in court, it also transpired that Mr Wong has been a friend of the Defendant for over 30 years. He has also sub-contracted engineering installation and repair works to the Defendant for 26 years or so. He was also the supplier for the V-brackets to the Defendant in this case.

99.  In his report, Mr Wong stated that his opinion was based on the information in Appendix A as well as his experience and his professional knowledge. However, when being cross examined, he admitted that he does not know English and has no idea of what the Appendix A was about. When being asked if he had read the witness statements, the pleadings or other documents, he said he could not remember.

100.  When Mr Wong was asked whether the Works could be sped up if two teams of workers were deployed, he disagreed and said there would not be enough working space and not enough tools. When shown he was shown the photographs of the hull which appeared to be spacious and certainly large enough to house two teams or more, he then said he would not agree to deploy more workers due to safety issues.

101.  When cross-examined, Mr Wong also stated that details of the processes of the Works were given to him by the Defendant, and he then estimated the time required according to his experience. He could not provide a breakdown or source of his estimations.

102.  In his report, Mr Wong stated that drilling holes would require 20 to 30 days. If “big” screws went in the way when drilling, it will take an extra 7 to 14 days. He also stated that fabrication of copper V-brackets required 120 days. During cross examination, he explained that fabrication of the V-brackets only took 60 days, and the extra 60 days were spent on transportation and customs declaration.

103.  In any event, he agreed that the Defendant could carry out other processes when waiting for the V-brackets to arrive. He also agreed that items 3 to 7 of the Works could be carried out concurrently if there was sufficient manpower. He stated that the Plaintiff’s delay in supplying parts and failing to pay the second instalment payment would cause delay of the Defendant’s work. However, during his cross-examination, he admitted that this was not his conclusion, but he was so told by the Defendant. He simply did not examine the state of the works.

104.  In his report, Mr Wong also stated that items 3 to 7 of the Works required 90 to 100 days. However, in cross-examination, he admitted that he did not take into account that parts of the Works in these items had already been completed by the Defendant. When pointed out that he had in his report listed out the time required for items 3 to 7 of the Works which added up to 74 to 87 days only, Mr Wong insisted that it would require 90 to 100 days, but he nevertheless admitted that he did not check his previous figures when he put down 90 to 100 days.

105.  He also said that the remaining Works would require 130 working days, to be carried out by 3 workers, and the costs of extra materials was HK$180,000. When being cross-examined, he admitted that 130 working days was wrong as he had added the factor of delay in supply of parts into his estimation. The cost of extra materials was also what the Defendant had told him, and was not estimated by Mr Wong himself.

106.  In his supplemental report, Mr Wong said that the materials and labour costs for the remaining Works was valued at a total of HK$800,600. However, he also admitted that the figures were provided by the Defendant, and not from his own calculation.

107.  In his report, Mr Wong stated that for the change of material of Rudder Shaft Tube to stainless steel, he could not assess that the Defendant had suffered any loss. During cross-examination, he stated that the cost for copper was only slightly more expensive than stainless steel. When confronted with his supplemental report where he stated that the cost of stainless steel was 30% to 40% cheaper when compared with copper, he said he has no comment.

108.  More alarmingly, during his cross-examination, Mr Wong admitted that in the joint expert report, his reply to the Plaintiff’s expert opinion was in fact provided by the Defendant, and not from his own assessment. He did not read the Plaintiff’s expert report. He also admitted that his supplemental report was drafted by the Defendant’s solicitors, and the cost of the materials mentioned therein was in fact provided by the Defendant. He did not check the invoices and simply adopted the figures thinking they were reasonable.

109.  All of the above show that Mr Wong, who professed to be experienced in ship building, has not been able to demonstrate that his opinion on this subject, and in his expert reports, was accurate and based on objective data. More importantly, the purported opinion stated in his reports, or a substantial part of it, does not represent his own opinion.

110.  At this stage, I must state that in my view, it is plain as a pikestaff that Mr Wong has failed to demonstrate that he has acted professionally and impartially as an expert witness. He has adopted the views of the Defendant as his own opinion, and has acted as the advocate for the Defendant, a friend whom he has come to know for over 30 years. There is no independent or impartial view offered by Mr Wong. I am of the view that his expert opinion is unreliable and I do not accept his evidence as an professed expert.

111.  In assessing the merits of the parties’ cases, therefore, I will not be taking into account the professed expert opinion of Mr Wong.

ANALYSIS OF THE VARIOUS ISSUES

What were the agreed terms of the Contract and whether there was a completion date agreed

122.  According to LCC, the Contract for the Works included the aforesaid 3 Oral Agreements, and the written Invoice dated 8 December 2017 as described above.

129.  The Defendant denies the existence of the 3 Oral Agreements, and said that the Invoice was the only contract, which was subsequently varied in May 2018 when LCC and the Defendant agreed that the cast copper stern tube be changed to fibreglass material and the cast copper stock tube be changed to stainless steel material.

130.  Mr Johnson Lee said that it was trade custom that oral agreements would be made in the ship building industry. The Defendant admitted that his agreement with Lau Kam Pui was an oral agreement. In reviewing the evidence, I am satisfied that the making of oral agreements is inherently plausible in the ship building industry.

131.  On the other hand the Defendant says that is trite law that for a contract to be valid, there must be (1) acceptance, (2) supported by consideration, (3) the terms are sufficiently certain, and (4) have intention to create legal relation. Here, the 1^st Oral Agreement was lacking in consideration and there was in fact no acceptance by the Defendant at that time (i.e. 27 May 2017) and the parties were still negotiating the terms prior to the agreement on the Invoice:

a.  LCC on behalf of the Plaintiff had continued to request the Defendant for quotations for the Works from 4 September 2017 to 18 December 2017, which was a time period after the alleged 1^st Oral Agreement. LCC was still requesting the Defendant to make offers, up and until the Invoice in December. As such, as the Defendant submitted, there was simply no acceptance, prior to the Invoice;

b.  LCC and the Defendant continued to arrange for various meetings at LCC’s office to negotiate the price and terms of the quotation. It is not disputed that such e meetings were held;

c.  The evidence also shows that LCC had made a handwritten document that was given to the Defendant’s wife to produce the first drafts of the written contract;

d.  LCC admitted that he made handwritten amendments to the drafts that were later incorporated into the final Invoice in writing;

e.  There was no agreement on the price of the Works at the time of the 1^st Oral Agreement. The price for the draft quotation was never agreed (i.e. it was initially at HK$3,300,000), until the Invoice was signed, which was reduced to HK$2,980,000.

132.  The Defendant therefore says, which I accept, that prior to the last offer made by the Defendant on 8 December 2017, there was simply no agreed price and terms of the Contract. Thus, the alleged 1^st Oral Agreement simply did not exist.

133.  As for the 2^nd Oral Agreement, the Works as pleaded were in relation to the 1^st Oral Agreement which was not existent as I have found. There could not have been the 1^st Oral Agreement to incorporate into the 2^nd Oral Agreement as alleged. I also agree with the Defendant’s submission that according to the Plaintiff’s pleaded case, the 2^nd Oral Agreement refers to an invoice which was, at that time, not even in existence. Hence the terms in the 2^nd Oral Agreement were uncertain as to which invoice it refers to in the future. Further, the Plaintiff has alleged a term that refers to parts and accessories not included in the price of the future invoice, which made it even more uncertain what exactly those parts were meant to be. Although the court will often endeavour to find practical meaning in commercial agreements (see eg New World Developments Co Ltd v Sun Hung Kai Securities & Another (2006) 9 HKCFAR 403, per Ribeiro PJ at paras.28-32), there was overwhelming uncertainty here as to which parts and accessories the 2^nd Oral Agreement were meant to cover, or not to cover. I do not find that the alleged terms of the 2^nd Oral Agreement, even if it had been discussed, had formed any valid contract.

134.  In relation to the 3^rd Oral Agreement, ie whether the parties had agreed that the completion date would be 9 months from the payment of the deposit, the Plaintiff’s pleaded case is that it was “evidenced” in the written Invoice. However, not only is the term for completion not found under the Invoice, the 3^rd Oral Agreement was made after it was issued, so it is factually impossible for a document to evidence a future agreement that had yet to happen. I agree with the Defendant’s contention that such inconsistency further supports the 3^rd Oral Agreement being a recent fabrication. As such, I do not find that there was any valid agreement being the 3^rd Oral Agreement reached in the way as alleged.

141.  The Plaintiff says there must have been a completion time agreed upon or estimated on before the formation of contract to make it workable. The Contract was a typical commercial contract. The cost of construction and the time of completion were obviously important criteria for the parties to enter into the Contract. It does not make any commercial sense by claiming that there had never been any discussion on the date for completion or that the Defendant had all along refused to agree to any completion time to be stipulated under the Contract.

142.  According to the Defendant, the completion time could not be estimated due to the size of the Yacht, and the complexity and the difficulty of the task. Therefore, he insisted that he had not discussed or agreed upon a completion time with the Plaintiff. The Contract is more akin to a labour supply contract and thus the number of workers and duration of their work must form a very essential and material consideration. If the Contract was prolonged beyond the completion date estimated by the Defendant, it would certainly cause a loss to the Defendant as more labour input than expected will be required. Thus, having a completion date agreed will not just protect the Plaintiff, but also the Defendant himself. Any prolongation of the Contract due to for example the Plaintiff’s obstruction or delay in giving instructions would then entitle the Defendant to seek compensation for the extra cost. Further, Shek Yuk Ying, the Defendant’s wife, stated in court that she had heard LCC and the Defendant discuss about a completion date.

143.  LCC stated that the agreed date for completion of the Works was 9 months from the date of payment of deposit.

144.  However, the Defendant submitted that at that time, there were too many unknown variables and difficulties the parties were unable to even forecast a timetable for completion. The parties thus specifically had an intention to leave out the completion term. Even before the negotiation of the Works, the Plaintiff had severely underestimated the time needed to complete the Yacht. By LCC’s estimate, the Yacht would have been fully completed in December 2016. However, only the hull was built. This alone showed that the Plaintiff and its various experts were unable to fully appreciate the time required to complete the yacht, even with its vast knowledge, experience and expertise. Further, the evidence shows there was a lack of drilling experts in the marine industry for drilling of the shaft tube holes and the rudder tube holes. It was thus understandable that no exact completion date was agreed upon. In this regard, I accept the Defendant’s evidence that he had not agreed to any exact completion date.

145.  I accept the Defendant’s evidence in this regard.

The obligation to provide certain parts for the Works

146.  LCC has stated that the obligations of providing parts were agreed under the 2^nd Oral Agreement, ie he had discussed and agreed with the Defendant that those parts which the Defendant could not source himself would be provided by the Plaintiff. The Defendnat would supply additional parts not included in the costs of the Works and the Plaintiff would pay for those parts. LCC said he and the Defendant had verbally agreed that the Defendant was to provide all the parts under the expression “coming from his own” (自來) unless and until he notified the Plaintiff that he would require the Plaintiff to provide the same. It was also agreed verbally in stages that the Plaintiff would provide additional accessories and parts in relation to two propellers (推進器) and two rudders (兩門舵), propeller shaft (尾軸), propeller blade (螺旋槳), propeller nuts (螺旋槳絲母), coupling (急輪), screws for coupling (急輪螺絲), part of screws for V bracket (猛比螺絲), rudder seal (止水軸套(舵封)) and two rudder tillers (舵柄臂).

147.  However, as I have already ruled above, I do not accept that any valid agreement had been formed in terms of the 2^nd Oral Agreement as alleged by the Plaintiff.

148.  It seems from the evidence that the term “自來” (apparently meaning “coming from oneself”, or self-provided) came from Lau Kam Pui and the Defendant had copied it in the quotations and the Invoice issued to the Plaintiff. LCC stated that he did not know the true meaning of the term and that they had not discussed it. He also stated that since the Defendant and LCC had a verbal agreement about the responsibility of providing parts, it was his understanding that the term “自來” meant the Defendant was to provide all the parts unless and until he notified LCC that he would require the Plaintiff to provide the same, and ultimately the Plaintiff would be paying for the parts.

149.  On the other hand, it is the Defendant’s case that he should provide the stern shaft tubes, the rudders with rudder glands, the bearings of the stern shaft and V-brackets. It was also his evidence that the Plaintiff should provide the parts under the description “自來” in the Invoice. However, the Plaintiff says it was the Defendant’s evidence in court that the screws for stern shaft tube under “自來” under item 1(b) of the Works were in fact ordered by him, after the required sizes of these screws were measured by him. Such has strongly refuted the claim of the Defendant that the parts under the description “自來” should be provided by the Plaintiff. However, in my view, this cannot be conclusive, as this was related to only one of the items under the Invoice.

150.  In this regard, in light of my finding about the alleged 2^nd Oral Agreement, one can only fall back onto what was agreed in the written contract contained in the Invoice.

151.  I agree with the Defendant’s contention that the words “自來” mean that the relevant parts or components were to be provided by the Plaintiff.

152.  First of all, the literal meaning of the term means “self to bring” or “self-provided”. Taking together the term “加工” and “自來”, it is quite clear that it was the Plaintiff who should self-bring the parts and for the Defendant to provide the additional service works.

153.  Secondly, as the Defendant has pointed out, whatever the meaning of “自來”, it was distinct from “乘造”, “連鏽造”, & “新造” and “包括”. The terms “乘造”, “連鏽造”, “新造” could be translated as construct or fabricate. It is not in dispute that such parts are constructed and supplied by the Defendant. It was thus implied that the Defendant was also to make the necessary added services (such as machining) to allow such parts to be installed. On the other hand, by specifying additionally the term “加工”, this implies they were parts not to be supplied by the Defendant.

154.  The Defendant further submitted that the parts followed by “自來” in the Invoice were the high tensile parts that were to be subjected to more forces and therefore requires high tensile strength. It was uncertain which material the Plaintiff required, even if the ordering of parts was to be deferred to the Defendant.

155.  The Defendant further says the above interpretation was further fortified by the fact that the Plaintiff did not rely on the contractor, Wang Tak, to order the parts under “自來”, when contracting with Wang Tak to complete the Works. There was simply no intention on the part of the Plaintiff to provide such parts. For example, according to Mr Johnson Lee, the rudder design needed to be drawn and required approval from a naval engineer. The rudder blade and rudder stock was a performance part and a high tensile part. The Defendant was not a naval engineer nor did he have the expertise to determine the dimension and materials needed for the rudder blade and rudder stock needed for the Yacht.

What was the reasonable time for completion of the Works

156.  As mentioned above, the Contract was a contract for the supply of services through execution of the Works under Section 3 of the Supply of Services (Implied Terms) Ordinance (“SS(IT)O”). The Plaintiff therefore submitted there was an implied term as to the time for performance under Section 6 of the SS(IT)O.

157.  The Plaintiff says it was the Defendant’s own evidence in court that his estimation was 1 year which has included some buffer. The Plaintiff also says that during the period while waiting for the above-mentioned parts, the Defendant could have performed other tasks, as he has admitted that he could, and there was no need for him to be idle and wait for the parts. As such, 150 to 160 days should be subtracted from the 330 days estimated, making a total of 170 to 180 days for completing the Works at the most.

158.  Mr Johnson Lee, the Plaintiff’s expert, estimated that the Works would require 183 days to complete. There was a disagreement whether workers of shipyard would work on public holidays and Sundays. There were 14 days of public holidays and 39 Sundays between January and September 2018. Even taking into consideration the public holidays and Sundays factor, it would take approximately 8 months to complete.

159.  LCC stated that it was the Defendant who stated he would take 6 months to complete and LCC gave a further 3 months to him as a buffer, making a total of 9 months. The Plaintiff therefore says the reasonable time for completion of the Works, taking into consideration of the holiday factor, should be around 8 months, and this also corroborated the version given by LCC that 9 months was the agreed completion time.

129.  It was opined by Mr Lee, after reviewing the activities and duration spent, that there was no planning of work by the Defendant. Each item of the Works was fairly independent of the other and may be separately commenced and carried out. However, the Defendant chose on his own accord to defer the starting of other items of work until he and his co-worker finished one item of work. For example, the Defendant did not start the rudder hole drilling work until he had finished most of the work in Item 1. The drilling of the rudder hole did not start until October 2018, 11 months after the commencement of the Contract. Apparently, the hindrance was due to insufficient labour on the part of the Defendant. Had there been sufficient workers deployed for the Works, the Defendant could have commenced and proceeded with other items of works such as Items 3 to 7 and have them finished within time. The lack of planning and lack of sufficient and skillful workers obviously had caused an unreasonable delay of the progress of work.

130.  Further, the Plaintiff says the Defendant’s workers had not proceeded with the Works with reasonable diligence and expedition. As a result, some of the critical activities such as holes drilling for stern shaft have been dragged on for an unreasonably long period, eventually leading to severe delay of the progress of the Works.

131.  On the other hand, the Defendant contends that under the Invoice as subsequently varied, the Plaintiff had failed to provide the rudder stock, the rudder blade, screws for the rudder blade, and tiller arms.

132.  As pointed out by the Defendant, the rudder blade, rudder stock and tiller arms were only ordered after the contract was terminated by the Plaintiff, on 30 August 2019, and Rudder Seal on 16 July 2019. As such, there was already a breach of the condition precedent under the contract. Such a breach allows the other party to suspend its obligation until the other performs: See 28-006 of Chitty on Contracts (35^th Ed).

133.  As for Items 3 to 7 under the Invoice, it was a condition precedent that the Plaintiff was to provide the 2^nd installment of HK$900,000.00 to the Defendant before commencement of such works. The Plaintiff had further breached the payment terms by failing or refusing to pay the 2^nd Deposit. As such, the Defendant was not obligated to perform the Works under those items. D was entitled to suspend the performance of those items until payment. In any event, the Defendant submits that Items 3 to 7 required the completion of Items 1 and 2 before those items could be commenced.

134.  The installation of the engines under Item 3 required the installation of the stern shaft, since the engines connected to the stern shaft. Hence Item 3 could not be completed without Item 1 being installed first. In turn, the installation of pipes and tanks under Items 5-7 further required the engines to be completed before it could be installed. For example, even if the pipes could be installed, after the shaft was installed and the engines placed, certain pipes would need to be disconnected and reconnected again. Furthermore, the Defendant said during cross-examination that the Plaintiff did not provide the pipes for him to install the parts under Items 3 to 7.

135.  Therefore, the Defendant was not contractually obligated and/or prevented from installing items 3-7 without the Plaintiff having provided parts, for Items 1 and 2 to be completed. The Plaintiff had also breached the contract by failing to provide the Plaintiff Provided Parts 2.

136.  Under the terms of the contract, the Plaintiff was to provide the Plaintiff Provided Parts 1 and 2. Reasonable time was suspended until P provided all such parts. In this respect, the Defendant further submitted as follows.

Calculation 1

137.  Reasonable time was suspended until the Plaintiff had provided all or most of the parts necessary to install the Works. Under Item 1, there is no dispute that the Plaintiff provided the shaft, the propeller, propeller nut, coupling and coupling nut, sometime on 21 November 2018. The seal was provided some time on 16 January 2019.

138.  As pleaded by the Plaintiff, it was contractually was obligated to provide such parts “before commencement of the relevant works ..”. The same was also under the terms of the contract. There is no dispute that it was the Plaintiff to provide the tiller arms. This was not provided at all by the Plaintiff until after termination of the Contract which was then provided to Wang Tak. As such, under Contract, reasonable time only could begin to run when the Plaintiff had provided the tiller arms.

139.  Further, the Plaintiff had not provided the rudder material, rudder stock and screws for the rudder, which was also the obligation of the Plainitff under the Contract. Therefore, reasonable time was also suspended. Since P had not provided for the parts under Plaintiff Provided Parts 2, reasonable time had not even begun at the time of termination by the Plaintiff.

Calculation 2

140.  Taking Item 1 as independent to other items as suggested by Mr Johnson Lee, Item 1 would take 6 months, with no buffers given, using 7 days working week, and sea trial and testing for seaworthiness not included. Taking into account 6 days in a working week:

365 x ½ ÷ 6 x 7 = 256 days

141.  Taking into account the 17 days of statutory holiday:

256+17 x 256 ÷ 365 = 268 days

142.  Factually, Mr Johnson Lee admitted that the Defendant would not be able to perform the Works (i.e. install the parts) without being provided with the parts. He went on to explain that this was what he termed as the critical path, which were vital components or process which could not be progressed without first completion of that process or component.

143.  He also admitted during cross-examination that the shaft seal was located between the propeller and the coupling located in the engine room and that, if the coupling is installed, to install the shaft seal afterwards would require the loosening of the coupling and install the shaft seal. Therefore, it is submitted that the shaft seal is a part vital component which forms part of the critical path. Without such a part, the installation works cannot be completed.

144.  The deadline for completion began when the seal was delivered giving a reasonable completion date of at least 11 October 2019 (i.e. 16 January 2019 + 268 days, without taking into account sea trial and seaworthiness). Again, the Plaintiff had terminated the contract prior to the lapse of reasonable time.

Calculation 3

145.  The Works under Items 1-7 include sea trial which includes the realignment of shaft and testing of seals of the installations. The experts have not provided a number of days for sea trial. There is also no evidence on how much time Wang Tak had used for sea trial. The Yacht was moved from the Plaintiff’s shipyard to another shipyard on 17 December 2020. The Yacht went through further preparation for sea trial on 11 January 2021, with the last provided job report on 8 February 2021.

146.  There is no dispute that Wang Tak was a larger shipping company with sufficient manpower and expertise to complete the Works. Mr Johnson Lee stated that Wang Tak’s price was reasonable, which includes daily labour charges. Even if assuming there was no sea trial, and assuming Item 1 is independent and can be completed concurrently with Item 2-7, Wang Tak took 1 year and 9 months (i.e. 665 days from 15 April 2019 to 8 February 2021) to complete the remaining works.

147.  The Invoice was issued and signed on 8 December 2019, adding 665 days for Items 2 to 7 alone would provide a date of 4 October 2019.

148.  I accept the Defendant’s submissions above. By all calculations, the Plaintiff had terminated the Contract prior to the lapse of any reasonable time.

149.  The Defendant submits, which I accept, that it is a red herring that the Plaintiff has sought to argue that there was insufficient workman, or that the Defendant had bad planning. Hypothetically, even if the drill holes, v-bracket, and stern tubes, were completed, the Defendant could not install the parts without all the main components, which included the stern shaft and the shaft seal. Even though the drill holes were completed on 7 June 2018, as suggested by LCC, which resulted from the change of tube material to fiber glass requiring the widening of the drill hole, the Works could not continue until the stern shaft was provided on 19 November 2019 and ultimately requiring the shaft seal before installation can be made.

150.  The cause of delay stemmed from the lack of Plaintiff Provided Parts 1 & 2. Once parts were provided for Item 1, installation took 8 days, which was completed on 23 January 2019, without being tested or fine-tuned from sea trial. The tiller arms, rudder stock, and rudder blade were never provided and hence no installation works could be done for Item 2.

160.  In construction contracts, there is a positive duty for the parties to the contract to co-operate and do all necessary matters to enable the completion of the contract. See London Borough of Merton v Leach (1985) 32 BLR 51 at 81. Also, in Glenlion Construction v The Guinness Trust (1987) 39 BLR 89 at 103, it has been held that instructions should be given at such times and manners so as not to hinder or prevent the contractor from performing his obligations under the contract.

161.  The learned authors in Hudson’s Building and Engineering Contracts, 14^th edition at paras.3-079 to 3-080 had summarised these prevention and co-operation principles succinctly as follows:

“The remaining important obligations of the Employer which are discussed in this section, are aspects of non-completion, or co-operation. The negative prevention principle has been formulated as follows:

"there is an implied contract by each party that he will not do anything to prevent the other party from performing a contract or to delay him in performing it. I agree that generally such a term is by law imposed into every contract.”

The principle is sometimes referred to by saying that a party cannot take advantage of its own wrong in enforcing a contract.

“It is a principle very well established at common law that no person can take advantage of the non-fulfilment of a condition the performance of which has been hindered by himself.”

The positive duty has been stated as follows:

"Where in a written contract it appears that both parties have agreed that something should be done which cannot effectively be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing though there may be no express words to that effect.”

“I can think of no term that can properly be implied other than one based on the necessity for co-operation …. The law can enforce co-operation only in a limited degree – to the extent that it is necessary to make the contract workable.”

The basis of the prevention principle and of the duty of co-operation is sometimes said to be an implied term, and sometimes said to be a principle of justice. ….”

162.  It is necessary for the contractor to give reasonable notice in advance as to when the supply of any parts is needed even if the owner undertakes the supply of the same in order to co-ordinate with the contractor’s own progress of work, especially given that measurement is needed in respect of tailor-made parts. The Plaintiff says without the co-operation of the Defendant in giving reasonable notice in advance, the Plaintiff would not be in the position to know whether, when and what parts the Defendant would need to meet the progress of the Works. This is particularly the case that some components would require the measurement by the Defendant before the parts could be ordered.

163.  I do not agree with this argument. As set out above, there is an obligation on both parties to cooperate. The Plaintiff cannot simply leave the entire burden upon the Defendant in making requests for supply of the required parts, when there was also an obligation on the part of the Plaintiff to find out so as to ensure the smooth progress of the Works.

164.  Given the above analysis, there is no room for considering whether the Plaintiff had given reasonable notice to the Defendant to make time of the essence as alleged.

165.  It is also clear that the Defendant had completed Item 1 of the Works, and was prevented from completing Item 2. Thus, it is not obliged to return the deposit paid by the Plaintiff.

CONCLUSION

166.  For the reasons given above, I find that the Plaintiff was not entitled to treat the Contract as having been repudiated by the Defendant, and hence had wrongfully terminated the Contract. The Defendant is entitled to counterclaim for his loss and damage in terms of profits he could have earned had the contract been performed: See Monsa Investments Ltd v Richly Bright International Ltd (2015) 18 HKCFAR 232 at paras.15-41.

167.  As the Defendant has shown, the costs of performing the rest of the Contract was: HK$702,000.00 (labour costs) + HK$180,000.00 (cost of materials) = HK$882,000.00. The Plaintiff would also have paid for the 2^nd and 3^rd Installment of HK$1,480,000. The Defendant is therefore entitled to recover from the Plaintiff:

HK$1,480,000 - HK$882,000 = HK$598,000

168.  I therefore dismiss the Plaintiff’s claim, and give judgment in favour of the Defendant on his counterclaim for HK$598,000 with interest at the rate of 1% over prime from the date of the writ herein until the date of this Judgment, and thereafter at judgment rate until full payment.

229.  I also order that the Plaintiff shall pay the costs of this action to the Defendant, with Certificate for Counsel for the trial, to be taxed if not agreed.

230.  Lastly, it remains for me to thank counsel on both sides for their invaluable assistance.