SKYFORCE ENGINEERING LTD v. WANG KWONG ELECTRICAL ENGINEERING LTD

DCCJ 273/2021

[2024] HKDC 1860

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 273 OF 2021

--------------------

--------------------

-------------------

JUDGMENT

-------------------

1.  This is the judgment after a 6-day trial of the Plaintiff’s (“P”) action to claim against the Defendant (“D”) for breaches of an electrical installation works sub-sub-subcontract (the “Contract”) by (a) repeatedly failing to pay D’s workers, causing P to pay on D’s behalf upon intervention by the Labour Department and (b) suspending works at the construction site since 28 September 2019.[1] As a result of the breaches, P has accepted D’s repudiation of the Contract and claim damages in the sum of HK$1,293,947.75.

2.  In defence, D pleaded that it was P who first breached the Contract by (a) failing to honour its contractual duty to pay D within 30 days after issue of invoices[2] and (b) failing to provide clear, practicable and timely instructions and information as to certain design defects, cable lengths and drawings, which caused D’s workers unable to proceed with their works.[3]  D further pleaded that P, by letter dated 17 October 2019, wrongfully evicted D from the construction site and thereby was in repudiatory breach of the Contract.[4]  D accepted P’s repudiation of the Contract and counterclaimed P for 2 sums of money, to wit outstanding sum of HK$590,743.37 and damages in the sum of HK$187,005.97, on the following pleaded bases[5]:

Outstanding sum

(a)  The remaining value of works completed and invoiced under the Contract;

(b)  The value of variation works carried out and invoiced;

Damages

(c)  The value of un-invoiced works completed under the Contract;

(d)  The wasted expenditure incurred for:

(i)  payment in lieu of notice made to one of his workers[6]; and

(ii)  labour costs between 1 and 18 October 2019[7]; and

(e)  The loss of profits.

3.  The trial of this action came before me on 18 March 2024. P was represented by Mr Brian Chok of Counsel (“Mr Chok”) and D was unrepresented. For reasons given by me on that day, I granted leave to D to restore D’s Counterclaim. On the strength of the Chinese Affirmation made by Mr Tse Tung Wing[8] (“Mr Tse”) on 11 March 2024[9], I also allowed Mr Tse to represent D at trial.

4.  At trial, P called its 2 witnesses, Mr Lam Yiu Lun Alan[10] (“Mr Lam”), the senior project manager of P, and Mr Lo Yu Hung Spencer[11] (“Mr Lo”), the founder and a director of P, to testify. D called Mr Tse[12], the sole director of D, to testify.

5.  Since a substantial number of documents is in English and Mr Tse has made his witness statement in English, I ordered the trial be conducted in English with the assistance of an English interpreter.

6.  Parties have helpfully filed their written Closing Submissions. After I heard their oral closing submissions on 20 May 2024[13], I have reserved my judgment to be handed down on or before 19 November 2024.

7.  This I now do.

BACKGROUND

8.  The following is the indisputable background of this case.

9.  Prior to the Contract, D had undertaken with P and completed a construction project at 1 Lei Yue Mun Path (the “Lei Yue Mun Project”).[14]

10.  The Contract is related to a commercial building development project at 2C & 2D Lau Li Street and 69-70 Electric Road (the “Project”). Around the same time, D had also undertaken with P another electrical installation work project at Waterloo Road (the “Waterloo Road Project”).[15]

11.  The main contractor of the Project is ISP Construction (Engineering) Limited (“ISP”). Wah Cheong Construction Co Ltd (“Wah Cheong”) is the subcontractor of ISP, which then contracted out air-conditioning and electrical installation works to P.

12.  P further contracted out the following electrical installation works to 4 different sub-sub-subcontractors:

(a)  Installation of low voltage switch board – Vikings and Ellison Limited;

(b)  Emergency Generator – Powerco & Electric (Far East) Co Ltd;

(c)  Extra Low Voltage (ELV) – G4S Security System (Hong Kong) Ltd; and

(d)  Electrical installation – D.

13.  The Contract was for a fixed sum of HK$2,173,750.00 and was contained in the Details of Electrical Material / Equipment / Work submitted by D to P on 6 September 2018[16], the work order dated 27 November 2018[17] (the “Work Order”) with a set of standard terms[18] for sub-contractors of P incorporated (the “Standard Terms”).[19]  The relevant terms of the Contract are as follows:

Under the Section entitled “Remarks” of the Work Order

“1) Payment terms:

a) Monthly progress payment, 30 days credit against invoice.

…

4) 貴司 [D]必須遵守附頁之Standard Terms for Sub-contractor [Ref: Sub-cont (007) 之項目]。”

Under the Standard Terms

“4) 在任何時間分判商 [D]必須提供足夠保護確保地盤/工地內所有物料、工具及設施不受損壞並保持地盤及工地整齊清潔。施工用料必須存放在指定地點。任何形式的垃圾和廢料，均須按總承建商 [ISP]地盤內指定的地方棄置。如要自行於地盤以外地方棄置，均須按照政府指定之合法地點傾倒處理。

…

6) 有關工程合約期內之變更工程或追加工程 (VO)，分判商 [D]必須依照合約內單價或合理價錢完成。若拒絕完成變更或後加工程，因而導致本公司 [P]需另聘請其他分判商完成，本公司 [P]有權向該分判商 [D]追討差價及管理費用。若產生任何形式爭議或紛爭，本公司 [P] 將按照建築署所發出的「定期合約工程工料估算表（ 屋宇裝備工程 ）」 (以最後修訂本為最後準則) 的價值折扣 20% 後淨值單價處理。

7) 變更或追加工程必須在完成後一個月內提交報價單，如超過工程合約價百分之十（已收後加工程合約除外），分判商 [D]必須預先以書面形式通知本公司 [P]，本公司 [P]要按相關工程作出評估及批核。假如分判商 [D]未能於變更或追加工程竣工後兩個月內未能提交報價單和相關的工作證明（例如：本公司 [P]所發出的圖則及相片），本公司 [P]將不會接受處理。分判商 [D]將自行承擔所有因未能如期提交文件之責任。

…

10) 分判商 [D]必須依照本公司 [P]指定工程師 /地盤管理員/監督，在施工程序及時間上的指示安排作業。

…

15) 分判商 [D]所聘請之工人若觸犯任何法例而導致總承建商 [ISP]或本公司 [P]產生繳付任何罰款，分判商 [D]必須承擔負責所有有關罰款及引起之相關一切費用。

16) 合適的個人安全保護設施及裝備、地盤衣物、材料貯藏及高空作業所需工作台等，由分判商 [D]自行負責提供。施工作業期間，分判商 [D]所聘請之工人必須滿足香港所有相關之安全法例及總承建商 [ISP]之規章要求。否則，產生任何罰款，分判商 [D]必須承擔負責所有有關罰款及引起之相關一切費用。

17) 分判商 [D]必須提交工人發薪記錄，並附函提供由本公司 [P]地盤施工人員作實的工友和監督在地盤每天出勤簽到記錄。

18) 本公司 [P]如收到所屬分判商 [D]之工人任何欠薪投訴，本公司 [P]會即時停止發放分判商 [D]應收及所有工程款，直至欠薪得到解決。

…

21) 分判商 [D]必須按施工圖則提供相關服務施工。”

14.  On or about 26 October 2018, D commenced the electrical installation works.[20] At the material time, Mr Tony Chan (“Mr Chan”) was the project manager, Ms Ewing Lo the assistant engineer and Mr David Leung (“Mr Leung”) the engineering trainee.[21]

15.  For the electrical installation works carried out under the Contract, D has made various interim payment applications and done various variation works. The relevant interim payment application/invoice no., the relevant variation works invoices, the relevant dates of invoice, receipt, approval and endorsement and the relevant cheques issued are tabulated hereinbelow:

Interim Payment Application /Variation Work Invoice Reference	Date of Invoice	Date of Receipt	Date of approval and endorsement	Date of issue of cheque	Lapse of time (from Date of Receipt to Date of Issue)/Length of delay
J-05/IN-01/2018 IP (1)	28 Dec 2018 [C1/75]*	28 Jan 2019 [C1/75]* & [B2/267-268]*	18 Feb 2019 [C1/75]*	5 Mar 2019 [B1/17/§26(a)(vii)]* & [C2/255]*	37 days/7 days
J-05/IN-02/2019 IP (2)	13 Feb 2019 [C1/76]*	13 Feb 2019 [C1/76]*	18 Feb 2019 & 19 Feb 2019 [C1/76]*	3 April 2019 [B1/19/§26(b)(vii)]* & [C2/256]*	50 days/20 days
J-05/IN-03/2019 IP (3)	19 Mar 2019 [C1/77]*	20 Mar 2019 [C1/77]*	26 Mar 2019 & 3 Apr 2019 [C1/77]*	26 Apr 2019 [B1/21/§26(c)(vii)]* & [C2/257]*	38 days/8 days
J-05/IN-04/2019 IP (4)	12 Apr 2019 [C1/78]*	12 Apr 2019 [C1/79]*	29 Apr 2019 & 9 May 2019 [C1/79]*	20 May 2019 [B1/24/§26(d)(vii)]* & [C2/258]*	39 days/9 days
J-05/IN-05/2019 IP (5)	10 May 2019 [C1/80]*	10 May 2019 [C1/81]*	20 May 2019 & 30 May 2019 [C1/81]*	14 June 2019 [B1/27/§26(e)(vii)]* & [C2/259]*	36 days/6 days
J-05/IN-06/2019 IP (6)	13 Jun 2019 [C1/82]*	13 Jun 2019 [C1/83]*	27 Jul 2019 & 3 Jul 2019 [C1/83]*	17 July 2019 [B1/29/§26(f)(vii)]* & [C2/260]*	35 days/5 days
J-05/IN-07/2019 IP (7)	15 Jul 2019 [C1/84]*	15 Jul 2019 [C1/85]*	19 Jul 2019 & 31 Jul 2019 [C1/85]*	21 Aug 2019 [B1/32/§26(g)(vii)]* & [C2/261]*	37 days/7 days
J-05/IN-08/2019 IP (8)	13 Aug 2019 [C1/86]*	14 Aug 2019 [C1/87]*	29 Aug 2019 & 9 Sep 2019 [C1/87]*	2 Oct 2019 [B1/34/§26(h)(vii)]* & [C2/262]*	50 days/20 days
J-05/VO-IN-01/2019 VO (1)	13 Aug 2019 [C1/241-243]*				N/A
J-05/IN-09/2019 VO (9)	20 Sep 2019 [B2/311]* & [C1/88]*	20 Sep 2019 [B2/311]*	3 Oct 2019 [B2/311]*	Not issued [B1/36/§26(i)(v)]*	N/A
J-05/VO-IN-02/2019 VO (2)	20 Sep 2019 [C1/244-246]*				N/A
*Trial Bundle no./page no.

16.  Between 25 February 2019 and 22 March 2019, correspondence in the form of site memo, email and letter had been issued by ISP, Wah Cheong and P concerning D’s lack of progress and insufficient manpower mostly about the Transformer’s Room.[22]

17.  In or around July 2019, Mr Tse informed Mr Lam that D was unable to pay the wages of the workers employed for the Waterloo Road Project in which D similarly worked as the sub-contractor of P. At the request of Mr Tse, P advanced payments for the wages and sick leave compensation to D’s workers at the Waterloo Project which sums would be deducted from the payments due to D under the Waterloo Road Project. After completion of the Waterloo Road Project, D still owed P the sum of HK$155,633.03.[23]

18.  By letter dated 22 July 2019[24], D informed P that the length of the cable purchased did not match the length as required by the schematic diagram and that D could not further proceed with the work on schedule until P’s confirmation (the “Cable Problem”).

19.  On 25 July 2019,

(a)  P, by letter of even date, replied on the Cable Problem, saying that the site condition was changing from time to time and it was normal to find difference in length/quantity since the cable purchase order was placed at least 3 months before. In the same letter, P claimed that D did not give any feedback to P despite P’s asking D for the actual length of the cable[25];

(b)  in light of so many drawings and information previously issued by P’s staff, D, by letter of even date[26], strongly requested P for all the future issue of drawings to be covered by correspondence such as transmittal letter (the “Demand for Cover Letter”);

(c)  D, by letter of even date[27], informed P that the revision of location of A/C[28] fan coil unit obstructed the essential lighting installation and that the FSU[29] needed to be relocated, and requested P to issue instructions for its further handling (the “Design Defect”);

(d)  D, by letter of even date[30], informed P that the former would not proceed with any future variation, additional and abortive work unless the former received official written instruction[31] as a support for applying for variation and interim payment to cover labour’s salary expenses (the “Demand for Written Instruction”); and

(e)  P, by letter of even date[32], replied to the Demand for Cover Letter and Demand for Written Instruction, saying that for the Project, there was frequent change of design and those changes required immediate action, that verbal instruction was given when time was not enough for the issue of written instruction and that written instruction by P would be issued within 14 days after verbal instruction was given.

20.  P’s written instruction to D with covering transmittal letter dated 27 July 2019 was sent by P to D.[33]

21.  On 26 September 2019, P issued a site memorandum to D, giving the first official warning of using material unapproved of.[34]

22.  On 30 September 2019,

(a)  D, by letter of even date[35], complained to P about delay in making interim payment and warned P that it would suspend works from 1 October 2019 until satisfactory arrangement made by P for the construction fees and future finance of D; and

(b)  P, by letter of even date[36], denied D’s allegations made in the foregoing letter and did not accept D’s unilateral suspension of works.

23.  Between 9 and 25 October 2019, P had received letters from the Labour Department regarding D’s failure to pay its workers in the Project.[37] In the end, P paid a total sum of HK$583,683.75 to D’s workers.

24.  Following a series of emails from P to D[38], P, by letter dated 17 October 2019[39], inter alia, considered the conduct of D (i.e. failure to pay the wages of its workers) as not having the ability to perform the remaining parts of the work under the Contract and thereby accepted D’s repudiation of the Contract. In the same letter, P evicted D from the construction site by 18 October 2019 at 6:00 pm and held D responsible for all the loss and damage.

25.  On 1 November 2019,

(a)  P engaged a subcontractor, Nickel Engineering Limited (“Nickel”) to take up the outstanding and defective works left behind by D, for the sum of HK$1,600,000[40]; and

(b)  D, by letter of even date, complained to P about delayed payment and accepted P’s repudiation of the Contract as P evicted D from the construction site.[41]

ISSUES

26.  The issues culled from the pleadings[42] are as follows:

P’s claim / D’s counterclaim
(a)	Whether clause 18 of the Standard Terms was an innominate term (“Issue (1)”);
(b)	Whether the terms pleaded in para 8 of the D&C were implied in the Contract (“Issue (2)”);
(c)	(i)	Whether P was in breach of the Contract by delaying payment for the interim payment applications and variation works;
	(ii)	If so, whether D had accepted P’s repudiation of the Contract (“Issue (3)”);
(d)	What is the significance of the allegations concerning the Cable Problem, Design Defect and Demand for Cover Letter (“Issue (4)”);
(e)	Whether D had suspended works since 28 September 2019 (“Issue (5)”);
(f)	(i)	Whether the suspension of works by D’s workers amounted to repudiation of the Contract by D;
	(ii)	If so, whether P had accepted D’s repudiation of the Contract (“Issue (6)”);
(g)	(i)	Whether P was in breach of the Contract by evicting D from the construction site of the Project;
	(ii)	If so, whether D had accepted P’s repudiation of the Contract (“Issue (7)”);
Quantum
(h)	If D was in breach of the Contract,
	(i)	Whether P was justified in engaging Nickel and what is the recoverable quantum of damages;
	(ii)	Whether P was entitled to recover contra charges payable by D (“Issue (8)”); and
	(iii)	If P was in breach of the Contract, what is the quantum of D’s counterclaim (“Issue (9)”).

ASSESSMENT OF WITNESSES’ CREDIBILITY: LEGAL PRINCIPLES

27.  When assessing the credibility and reliability of the parties involved, the court should focus on the inherent probabilities of the parties’ respective cases, the internal consistency of their evidence and their demeanour when testifying at trial. This is aided by contemporaneous documents, circumstantial evidence tending to support one account rather than the other, and overall impression of the character/motivation of the witnesses.[43]

28.  Where there is a long passage of time between the events and the trial, the Court should place special importance to contemporaneous documentation. In Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, Stock JA (as he then was) held at pp.480J-481B & 481D-I the following:

“ … Comparison with contemporaneous documentation is always an aid to reliability of oral testimony, unless there is reason to believe that the documentation is contrived or materially incomplete; but where the passage of time between events and trial is as long as it was in the present case, and where there is such a host of contemporaneous documentation, as there was in this case, the documentation must, I would have thought, assume a special importance. …

I would venture to suggest that the truth, in so far as one is able to reach it or, as is sometimes the case, to reach a version of it that is more likely to be correct than not, can best be tested by reference to contemporaneous documentation where it exists, or to its absence where one would expect it to have been created, as well as to inherent probabilities (though bearing in mind that there may be occasions where the truth may run against that particular grain) having regard to all the facts that are known. This is particularly so in a case such as the present, where events have taken place so long before trial and where there exists a mountain of contemporaneous documentation that can be used to point the way. This is not to say that the documentation should have been treated as if it stood on its own, not to be explained, contradicted or supported by oral testimony. It is however to say that in this case the approach adopted to assessment of the facts placed far too much emphasis on character impression and too little upon what was suggested by the documentation and by the inherent probabilities in their historical context. That documentation, as well as conflicts within the evidence, inherent probabilities, and a study of how matters were originally pleaded and asserted in witness statements – these are the factors which in a trial such as this, so long removed from the time of the events in question, were likely to be of particular use in assessing the facts; …” (Emphasis added)

ISSUE (1)

29.  Clause 18 of the Standard Terms reads: “本公司 [P]如收到所屬分判商 [D]之工人任何欠薪投訴，本公司 [P]會即時停止發放分判商 [D]應收及所有工程款，直至欠薪得到解決。”

30.  The tenor of P’s plea in paras 4 and 5 of the Amended SoC is that D has repeatedly failed to pay the wages of its workers as and when they fell due and thereby was in breach of clause 18 of the Standard Terms.

31.  It is D’s case that clause 18 of the Standard Terms is an innominate term[44] of the Contract.

32.  In P’s Closing, it is submitted that clause 18 of the Standard Terms does not impose any “obligation” or “duty” on D to make punctual payments of wages to D’s workers. Accordingly, there can be no breach on the part of D. However, such clause provides a justification for P to withhold payments from D should P receive any complaint in any form from D’s workers about D’s non-payment of wages.[45]

33.  I agree.

34.  I understand that P’s submission on this issue is at variance with what P has pleaded in paras 4 and 5 of the Amended SoC. But this variance has no impact on my resolution of this issue and I say no more on this.

ISSUE (2)

35.  D has pleaded to rely on a multitude of implied terms in para 8 of D&C.

36.  In P’s Closing[46], it was submitted the following:

(a)  Whether a term should be implied is a question of fact and law and the burden is on the party asserting that the term should be implied to prove the same, i.e. D;

(b)  D has failed to establish, either during trial or in its Closing Submissions how these terms are implied into the Contract; and

(c)  If these terms are implied into the Contract, D has failed to establish how these implied terms were breached and if breached, how the breach(es) is/are related to D’s defence and its counterclaim.

37.  Hence, P has invited the Court to dismiss D’s contention for any implied term to be incorporated into the Contract.

38.  I have not been assisted by D on how all these implied terms pleaded are of relevance to the present case.

39.  For a term to be implied, it is necessary for it to give business efficacy to the contract and that it must be obvious and such term must not contradict any express term of the contract.[47]

40.  In determining whether a term should be implied for business efficacy, the Court of Appeal in Hong Kong Polytechnic University v Rehabaid Society [2023] HKCA 956, at para 59, referred to the comments made by Lord Neuberger in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd & Another [2016] AC 742, and held:

“necessity for business efficacy involves a value judgment … the test is not one of “absolute necessity”, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is … that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

41.  An unexpressed term can only be implied if such term must have been intended to be part of the contract. It is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them. It must have been a term that goes without saying.[48]

42.  In light of D’s defence pleaded and the express terms of the Contract[49], I can only comprehend that the following implied terms pleaded may be necessary by reason of business efficacy and of some relevance.

(a)  P would provide D clear, practicable and timely instructions and information including the necessary plans, schematics and/or diagrams for D’s execution of works; and

(b)  P would not hinder or prevent D from carrying out D’s obligations or from executing its works in accordance with the Contract.

43.  It is rare for every detail of the works to be already cut and dried on the day that the contract is made. It is almost inevitable that additional instructions will be needed as to what is required under the contract. In these circumstances, if the matter is not sufficiently dealt with by express terms, it will be implied, to give business efficacy to the contract, that the details and instructions necessary for the execution of the works must be given from time to time in the course of the contract and must be given at a reasonable time. The same is true of the present case and the implied terms mentioned in para 42 hereinabove is necessary for the execution of D’s works under the Contract.

ISSUE (3)

44.  Clause 1(a) under the section entitled “Remarks” of the Work Order provided for the payment terms and is pertinent: “Monthly progress payment, 30 days credit against invoice.”

45.  The Contract has not made time of payment of the essence.

46.  D has made 9 interim payment applications/invoices and submitted 2 variation works invoices between 28 December 2018 and 20 September 2019.[50]

47.  After receipt of D’s invoice, P would dispatch its staff to verify the progress of works as described in the invoice. The amount certified by P might be less than the sum claimed by D in the invoice. After certification and endorsement, P’s accounting department would issue the cheque and liaise with D for a date for D to collect the cheque.

Interim Payment Applications/Invoices Nos. 1 to 7

48.  Insofar as interim payment applications/invoices nos. 1 to 7 are concerned, there was a delay of making payments by P. The length of delay ranges from 5 to 20 days.

49.  As a starting point, stipulations as to time of payment are not generally of the essence of a contract of sale or hire or other similar commercial contracts unless a different intention is shown from the contractual terms.[51]

50.  In Decro-Wall International SA v Practitioners In Marketing Ltd [1971] 1 WLR 361, pursuant to the contract term, the defendants were required to pay for the goods by bills of exchange due 90 days from the date of the invoice. There were 27 bills and only one of them was paid on time. The delays in payment varied between 2 to 20 days. The reason for the delays was the defendants’ shortage of working capital, which the plaintiffs had never complained of. In March 1970, there were 3 bills due and the defendants were unable to settle the same on time but proposed a repayment schedule. In response, the plaintiffs viewed this as an act of repudiation and wrote to the defendants to terminate the contract. The first question the Court was required to consider was whether the defendants, by failing punctually to pay the bills of exchange prior to 9 April 1970, repudiated the agreement made in March 1967. Salmon LJ held at 368B-D:

“The first question to be decided on this appeal is whether the defendants, by failing punctually to pay the bills of exchange prior to April 9, 1970, repudiated the agreement made in March 1967. I have come to the conclusion that the judge was plainly right in holding that there had been no repudiation by the defendants. Clearly the defendants were in breach of the 1967 agreement by failing to pay the bills punctually. A breach of contract may be of such a nature as to amount to repudiation and give the innocent party the right (if he desires to exercise it) to be relieved from any further performance of the contract, or the breach may entitle the innocent party only to damages. How is the legal consequence of a breach to be ascertained? Primarily from the terms of the contract itself. The contract may state expressly or by necessary implication that the breach of one of its terms will go to the root of the contract and accordingly amount to repudiation. Where it does not do so, the courts must look at the practical results of the breach in order to decide whether or not it does go to the root of the contract…” (Emphasis added)

51.  In assessing whether the practical consequences of the defendants’ late payments were of such a character as to make the breaches go to the root of the contract, the Court considered the fact that the plaintiffs in that case agreed to an extension of payment time during the contract and concluded that late payment was never of vital importance to the plaintiffs. Salmon LJ held at 368H-369D:

“I now turn to the point as to whether the practical consequences of the defendants’ late payments in breach of contract were of such a character as to make the breaches go to the root of the contract. The fact that over the years the plaintiffs agreed to 120 and then 180-day bills being substituted for 90-day bills and even then extended payment on a number of occasions does not suggest that they regarded late payment as being of vital importance to them. Nor was it ... The case would have been quite different if the defendants’ breaches had been such as reasonably to shatter the plaintiffs’ confidence in the defendants’ ability to pay for the goods with which the plaintiffs supplied them. I think that, in such circumstances, the consequences of the breach could properly have been regarded as most serious, indeed fundamental, and going to the root of the contract so that the plaintiffs would have been entitled to refuse to continue doing business with the defendants. As already indicated, however, Mr Josef in his evidence plainly stated that the plaintiffs never doubted that if they went on supplying the defendants with goods, the defendants would meet the bills. They would, however, in all probability, meet them some days late, as they had done throughout the whole course of the dealings between the parties.” (Emphasis added)

52.  It is also worth referring to Sach LJ’s observations in Decro-Wall (supra), at 374G-H where His Lordship, in concluding that the late payments did not amount to repudiation, also considered the fact that the plaintiffs never complained of the late payments:

“Moreover, precise time of payment was never made of the essence of the contract. On the contrary, looking at the correspondence as a whole, at the changes in fact made from time to time in the terms of payment, and at the other changes which came under discussion, it seems plain that terms as to payment were at all times negotiable. The plaintiffs incidentally never gave notice that if the defaults continued they would terminate the contract.” (Emphasis added)

53.  In Dalkia Utilities Services Plc (supra), at para 102, one of the issues the Court was required to consider was whether the failure to pay the three instalments by the deadline (i.e. 12 August 2003) amounted to a breach of condition or deprive the plaintiff of substantially the whole benefit of the contract.

“…In assessing the materiality of any breach it is relevant to consider not only of what the breach consists but also the circumstances in which the breach arises, including any explanation given or apparent as to why it has occurred. The reason why payment was not forthcoming in the present case was not because of some mishap, mistake or misunderstanding. Celtech failed to pay because it did not then have the money to do so, in circumstances where the picture presented by Celtech to Dalkia was that it was facing insolvency, could not presently pay any part of the outstanding debt, and needed a 6 month moratorium (during which further debts would accrue) in order to be able to do so by monthly payments of £62,069 starting on August 15.” (Emphasis added)

54.  After considering the explanation that the defendant was unable to utilise its assets to make payments due to the insolvency situation, the Court factored in the stances expressed between the parties and the fact the plaintiff was willing to continue to perform the contract should the payment be made, at para 134:

“[134] I do not regard Celtech as having renounced or repudiated the agreement. The failure to pay the three instalments by August 12, 2003 did not amount to a breach of condition, nor did that failure, coupled with the statements made about its financial difficulties (in particular its inability “presently” to pay) indicate that it intended to perform, or could only perform, in such a manner as would deprive Dalkia of substantially the whole benefit of the contract. Celtech did not evince an intention never to pay, although it skirted close to the wind by indicating, no doubt as a lever in the negotiations, that “the current scenario can only lead Celtech International to bankruptcy” (23^rd July) and that it was “facing insolvency” (August 1). Mr Elliott told me more than once that he regarded the messages he was receiving as conflicting and that it was difficult to pick out the true message. I have little doubt that he appreciated that Celtech was taking a negotiating position in which both the prospect of insolvency and the prospect that Mr Perini would come up with funds were cards in their hands. At the same time the failure to come up with any payment prior to or after suspension (even though that would have expensive consequences for Celtech) gave an indication of inability or unwillingness to make payment, certainly within a short timeframe. There is, however, as it seems to me, force in Mr Gibson’s point that a mixed message lacks the necessary clarity to constitute a repudiation. Nor was Dalkia’s response to Celtech indicative of a belief that Celtech’s breaches, actual or intimated, were fundamental. On 29^th July Mr Elliott observed that “to threaten insolvency is not a helpful way to resolve any difficulties. I look forward to receiving your constructive suggestions”. He saw the letter of August 1 before he went on holiday and intended to continue discussions on his return. On that date Dalkia suspended the contract. In the letter of August 5 accompanying the statutory demand Dalkia indicated that, on payment of the demand, the energy service would resume. The tenor of the discussions on August 12 was that some further relatively modest movement from Celtech might avert termination. The notice of termination made no reference to repudiation.” (Emphasis added)

55.  In Valilas v Januzaj [2014] EWCA Civ 436, the Court ruled at para 43 that the past and threatened future breaches were not sufficient to deprive the defendant of substantially the whole benefit of the contract. The fact that the defendant would in the meantime be out of pocket and his cash flow would be affected was to be contrasted with the situation in which the claimant refused to perform his side of the bargain by refusing to pay at all:

“[43] The effect of these past and threatened future breaches could not on any view be said to deprive the Defendant of “substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing [his] undertakings”, the test propounded by Diplock LJ in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. Although he would be deprived of monthly payments, he would, as the judge held, obtain that to which he was entitled in the end. In the meantime he would no doubt be out of pocket, his cash-flow might be affected and he could, in theory at least, find himself paying interest on money borrowed to replace the Claimant’s missed or reduced payments. The position is to be contrasted with one, clearly repudiatory, in which the Claimant refused to perform his side of the bargain altogether, by refusing to pay at all.” (Emphasis added)

56.  The Court in Valilas (supra), at para 53 further enumerated the factors to be taken into consideration in deciding whether the breach or threatened breach of non-payment would give rise to a right to terminate the contract:

“[53] Whether a breach or threatened breach does give rise to a right to terminate involves a multi-factorial assessment involving the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach and the consequences of the breach for the injured party …”

57.  Whether non-payment amounted to repudiation depends on whether the circumstances show an intention not to be bound. In Creatiles Building Materials Co Ltd v To’s Universe Construction Co Ltd [2003] 2 HKLRD 309, Cheung JA held at para 23:

“23. Ultimately one has to examine the facts of the case to see whether the non-payment amounted to a repudiation. The principle is to consider whether the circumstances of the non-payment show an intention not to be bound.”

58.  Notwithstanding the delay, D has accepted the payments certified by P. D had never taken issue with the timing of payments until D’s letter dated 30 September 2019[52]. Neither has D issued any notice to P making payment time of the essence and intimating that if the defaults continued, it would terminate the Contract. D’s letter dated 30 September 2019 only raised the issue of late payments and warning to suspend works from 1 October 2019 until satisfactory arrangement made but stopped short of evincing its intention to terminate the Contract if non-payment continued.

59.  Furthermore, there is no evidence showing that D lacked confidence in P in paying D the contract price.

60.  More importantly, there is no evidence to show that P evinced an intention not to be bound by the Contract or acted in a manner to prevent D from performing the Contract.

Interim Payment Application/Invoice No. 8

61.  In or around July 2019, Mr Tse informed Mr Lam that D was unable to pay the wages of the workers employed for the Waterloo Road Project. At the request of Mr Tse, P advanced payments for the wages and sick leave compensation to D’s workers at the Waterloo Project which sums would be deducted from the payments due to D under the Waterloo Road Project. [53]

62.  At trial, Mr Lam testified[54] the following:

(a)  Mr Chan and Ms Ewing Lo worked on the construction sites and had collaboration with D’s workers in the Waterloo Project and the Project;

(b)  In August 2019, Mr Lam learned from Mr Chan and Ms Ewing Lo that several workers of D in the Waterloo Project and the Project did not receive their wages;

(c)  As early as in August 2019, Mr Chan and Ms Ewing Lo received complaints from D’s workers that D failed to pay their wages.

63.  Upon receipt of the Interim Payment Application/Invoice No. 8, Mr Lam had multiple discussions with Mr Lo on how to handle Invoice No. 8 since D had not been paying wages to its workers (employed for the Waterloo Road Project and the Project) for several months. They decided that full payment could not be made to D and the previous certification method should not be used. P only agreed to grant HK$100,000 to D.[55]

64.  According to Mr Lam, he discussed with Mr Tse in early October 2019 on how to resolve the issue of D’s workers’ unpaid wages to prevent any further delay in the Project. During the meeting, Mr Tse promised that upon receipt of the HK$100,000 cheque from P under Invoice No. 8, he would promptly address the issue of unpaid wages to prevent D’s workers from filing their complaints with the Labour Department.[56] Mr Tse did not dispute the meeting in early October 2019, but gainsaid the promise Mr Tse made during the meeting. Mr Tse said that during the meeting, Mr Lam told him that Mr Tse would be responsible for settling D’s workers’ wages in arrears on the condition that Mr Lam gave Mr Tse back the value of the invoices submitted or the value of the works done by D.[57]

65.  I accept Mr Lam’s evidence and this part of Mr Lam’s evidence is well supported by the content of P’s contemporaneous letter to D dated 17 October 2019[58]. On the other hand, I reject Mr Tse’s evidence on this aspect since this part of his evidence has never been mentioned in his witness statement and cannot be found in any correspondence between D and P including the one in reply to D’s letter dated 17 October 2019.

66.  Inasmuch as P’s payment under Invoice No 8 is concerned, there is nothing to show that P was in repudiatory breach of the Contract in that:

(a)  Pursuant to clause 18 of the Standard Terms, P was entitled to suspend payment upon receipt of outstanding wages complaint by D’s workers as early as in August 2019;

(b)  P’s payment and D’s receipt of HK$100,000 under Invoice No 8 were made under the agreement reached by Mr Lam and Mr Tse in early October 2019 to deal with the issue of D1’s workers’ unpaid wages in a bid to prevent them from filing complaints with the Labour Department;

(c)  There was no question of P’s ability to pay D under Invoice 8 and neither had P expressed an intention not to be bound by the Contract; and

(d)  After D received the sum of HK$100,000, D has not complained about the amount and timing of the sum provided by P to D. Neither has D disagreed with P’s reasons underlying the payment of HK$100,000 to D in D’s subsequent letters, such as the letter dated 1 November 2019[59] or the letter dated 30 November 2019[60].

Interim Payment Application/Invoice No. 9

67.  The Interim Payment Application/Invoice No 9 was issued and received on 20 September 2019. According to Clause 1(a) under the section entitled “Remarks” of the Work Order, P had 30 days to proceed with the application and made interim payment. The deadline for interim payment therefore fell on 20 October 2019.

68.  At that point of time, P was entitled to suspend payment to D under clause 18 of the Standard Terms.[61]

69.  Furthermore, as mentioned before, P had, between 9 and 25 October 2019, received letters from the Labour Department regarding D’s failure to pay its workers in the Project.[62] D’s workers’ wage complaints to the Labour Department which finally reached P have provided further justification for P to withhold interim payments to D pursuant to clause 18 of the Standard Terms.

70.  It should also not be forgotten that before the deadline for interim payment under Invoice No 9, P had, by letter dated 17 October 2019[63], inter alia, accepted D’s repudiation of the Contract and evicted D from the construction site by 18 October 2019 at 6:00 pm and held D responsible for all the loss and damage.

71.  For the reasons given below, D had repudiated the Contract by suspending works on the construction site and P rightly by letter dated 17 October 2019 accepted D’s repudiation of the Contract. The Contract therefore ended on 17 October 2019 and the question whether P was in breach of the Contract by failing to make any interim payment on 20 October 2019 is neither here nor there.

Variation Works Invoices

72.  For the variation works, all the relevant quotations can be found in Trial Bundle (C1) at pp 91-240. All the relevant quotations were issued from 1 April 2019 to 13 August 2019.

73.  According to Mr Tse, the dates of the quotation did not represent the dates of completion of the relevant variation works.[64]  There is no evidence as to when the relevant variation works were completed.

74.  All the variation works were billed under Variation Orders Invoice (1) dated 13 August 2019[65] (i.e. J-05/VO-IN-01/2019 - VO (1)) (the “VO Invoice (1)”) and Variation Orders Invoice (2) dated 20 September 2019[66] (i.e. J-05/VO-IN-02/2019 - VO (2)) (the “VO Invoice (2)”).

75.  The VO Invoice (1) and the VO Invoice (2) covered the same 28 variation orders with main differences lying in the % of work done and the amount claimed under some variation orders. The VO Invoice (1) claimed a total sum of HK$386,135.00 whereas the VO Invoice (2) claimed a total sum of HK$469,945.00.

76.  Clause 7 of the Standard Terms provided that “變更或追加工程必須在完成後一個月內提交報價單，如超過工程合約價百分之十（已收後加工程合約除外），分判商 [D]必須預先以書面形成通知本公司 [P]，本公司 [P]要按相關工程作出評估及批核。假如分判商 [D]未能於變更或追加工程竣工後兩個月內未能提交報價單和相關的工作證明（例如：本公司 [P]所發出的圖則及相片），本公司 [P]將不會接受處理。分判商 [D]將自行承擔所有因未能如期提交文件之責任。” (Emphasis added)

77.  It is undisputed that D has not provided P with the necessary proof of works to substantiate its claims under the VO Invoice (1) and VO Invoice (2). This falls foul of the contractual requirement under clause 7 of the Standard Terms and made it harder for P to make the relevant assessments.

78.  As explained by Mr Lam in evidence, his colleagues were required to verify whether the variation works had been completed and whether they had been correctly completed. In light of the volume of works arisen under the VO Invoice (1) and VO Invoice (2), the assessment would take 2 months to complete and only part of the assessment could be completed within 30 days.[67] In re-examination, Mr Lam further explained that the works D alleged to have been completed involved a lot of quotation figures which took some time for P to complete the assessment.[68]

79.  I accept Mr Lam’s explanation. P’s failure to make payments under the VO Invoice (1) and VO Invoice (2) cannot by any stretch suggest P’s intention not to be bound by the Contract.

80.  Furthermore, as mentioned before, P had received D’s workers’ wage complaints as early as in August 2019. Thus, P was entitled to suspend variation works payment to D pursuant to clause 18 of the Standard Terms.

81.  Insofar as the VO Invoice (2) is concerned, payments would fall due on 20 October 2019 according to clause 1(a) under the section entitled “Remarks” of the Work Order. Prior to 20 October 2019, D, for reasons given below, had repudiated the Contract by suspending works on the construction site and P rightly by letter dated 17 October 2019 accepted D’s repudiation of the Contract. The Contract therefore ended on 17 October 2019. Like Interim Payment Application/Invoice No 9, the question whether P was in breach of the Contract by failing to make any payment under the VO Invoice (2) on 20 October 2019 is neither here nor there.

Whether D had accepted P’s repudiation of the Contract

82.  It is trite that when the innocent party is faced with a repudiatory breach, he is entitled to treat the agreement as continuing (affirmation of the contract) or could bring it to an end (acceptance of repudiation). The innocent party must elect to choose between these options. There is no third choice save that the innocent party has a reasonable period of time to make up his mind whether he was going to affirm or terminate the agreement.[69]

83.  An act of acceptance of a repudiation requires no particular form: A communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end.[70]

84.  Even if P had committed a repudiatory breach of the Contract by its late-payment or non-payment under Interim Payment Applications/Invoices and/or Variation Works Invoices, D has never accepted or elected to accept P’s repudiation of the Contract.

(a)  As I have said, D had never taken issue with the timing of payments until D’s letter dated 30 September 2019[71]. D’s letter dated 30 September 2019 only raised the issue of late payments and a warning to suspend works from 1 October 2019 until satisfactory arrangement made but stopped short of evincing its intention to terminate the Contract if non-payment continued;

(b)  When Mr Tse was cross examined at trial,

(i)  he said that D’s workers started suspending work on the construction site in early October 2019 and if P could release payments on time, D could keep the original manpower and even increase its manpower to complete the work stipulated in the Contract[72]; and

(ii)  he said that as long as financial means permitted, he wanted to perform the Contract in answer to the question put to him: Even payments to D were late, when D’s letter dated 30 September 2019 was written, he had no intention to stop working or terminate the Contract and he wanted to further perform the Contract[73].

(c)  In D’s letter to P dated 1 November 2019[74], D only regarded P’s instruction to evict D from the construction site as an “unilateral termination” of the Contract. D however did not refer to P’s late/non-payment as an act of repudiation on the part of P.[75]

85.  Further, Mr Tse attended a meeting with Mr Lam in early October 2019 on how to resolve the issue of D’s workers’ unpaid wages to prevent any further delay in the Project and agreed with Mr Lam on certain arrangement to promptly address the issue to prevent the unpaid workers from filing their complaints with the Labour Department.[76] In addition, Mr Tse also deployed D’s workers to be present at the construction site.[77]  Such conducts go a long way to disprove any alleged acceptance by D of P’s repudiation of the Contract (if any).

86.  Granted that D’s letter dated 30 September 2019 did not amount to D’s acceptance of P’s repudiation of the Contract, the Contract stayed afloat until P, by its letter to D dated 17 October 2019[78], accepted D’s repudiation of the Contract (due to D’s suspending works or allowing its workers to suspend works).[79]

ISSUE (4)

87.  D’s pleaded case on the Design Defect, the Cable Problem and the Demand for Cover Letter[80] is as follows:

(a)  In or about June 2019, D notified P of D’s belief of the existence of the Design Defect. D repeatedly sought confirmation and/or further instructions from P regarding the Design Deficit (including in a meeting on or about 27 June 2019 and the letter dated 25 July 2019);

(b)  In or about June 2019, D repeatedly sought confirmation and/or further instructions from P regarding the Cable Problem (including in a meeting towards the end of June 2019 and by the letter dated 22 July 2019);

(c)  By the letter dated 25 July 2019, D sought confirmation and/or further instructions from P regarding unclear drawings;

(d)  Despite repeated requests, P failed and/or refused to provide D with clear, practicable and/or timely instructions and information and thereby was in wrongful breach of the Contract;

(e)  By reason of P’s failure and/or refusal,

(i)  D was unable to continue to carry out works in accordance with the Contract without fault on the part of D; and

(ii)  Between 1 October 2019 and 18 October 2019, the performance of works by D’s labour was hindered and/or prevented.

88.  In reply, P has averred the circumstances in which P has sufficiently dealt with the Design Defect, the Cable Problem and the Demand for Cover Letter and thereafter, D did not raise any further queries with P.[81]

89.  I discern the only relevance of the plea of the Design Defect, the Cable Problem and the Demand for Cover Letter is confined to P’s failure and/or refusal to provide D with clear, practicable and/or timely instructions and information on those matters. This, as D’s case runs, amounted to a wrongful breach of the Contract, causing hindrance to the performance of works by D’s labour between 1 and 18 October 2019.[82]

90.  It is not the D’s case that the aforesaid wrongful breach of the Contract amounted to a repudiatory breach of the Contract and that D has accepted such a repudiation on the part of P. In my view, the relevance of the aforesaid plea is within a very narrow compass and I seriously doubt the significance of the aforesaid plea in the present case.

91.  However, in deference to the parties’ diligent effort put in in addressing this issue, I shall say a few words thereon.

The Design Defect

92.  The problem arose when the air conditioning fan coil unit was installed in a position which blocked the power point. Mr Tse accepted that the problem was not a defect, but involved an abortive variation work. Ms Ewing Lo or Mr Leung gave verbal instructions to D’s workers to change the power point within weeks after the problem arose. By June 2019, the problem had been resolved because D’s workers had worked in accordance with the instructions of Ms Ewing Lo. When D issued the letter dated 25 July 2019 to P[83], the problem had been resolved.[84]

The Cable Problem

93.  The Cable Problem was about difference in length in regard to 10 types of cables, to wit the cables purchased were insufficient for the circuit installation.[85]

94.  Firstly, D observed the Cable Problem by the end of June 2019. After the Cable Problem was raised with P, Mr Chan came to deal with the problem and gave instruction to solve the problem a few days later.[86] D had engaged its own cable laying contractor. Even without clear instructions or solution before August 2019, the costs of engaging cable laying contractor would not be wasted as the labour had not yet arrived. At most, this would only delay the work. The cable laying contractor came to the construction site to commence work on 3 August 2019. The cable laying work could not be done in a day and there were additional cables delivered during the installation work. Mr Tse agreed that the Cable Problem did not have any major effect on the progress of the work. [87]

95.  Secondly, D received the most updated schematic diagram by 15 July 2019. Mr Tse agreed that upon receiving the updated schematic diagram, he could base on that schematic diagram to carry out the work or, if variation work were needed, to provide quotation and then carry out the work. He did not need to wait for P’s instructions to carry out the cable laying work.[88]

96.  Thirdly, D had raised no further complaint in its correspondence with P after P’s reply letter dated 25 July 2019[89].

The Demand for Cover Letter

97.  Mr Tse agreed that P had no obligation to give written instruction to D’s workers under the Contract. He further said the following[90]:

(a)  The use of transmittal letter would provide comfort and serve as a record or proof for claiming payment from P;

(b)  He did receive 1 or 2 transmittal letters covering the drawings from P in the early stage of the construction period;

(c)  Later, P only gave D drawings without transmittal letters at the construction sites;

(d)  Before D’s complaint letter dated 25 July 2019[91], P had on different occasions given D different instructions in the form of site memo albeit not for every incident;

(e)  He received the transmittal letter dated 27 July 2019[92] from P after his complaint letter dated 25 July 2019. The transmittal letter dated 27 July 2019 was the transmittal letter he wanted.

98.  There was no reason why Mr Tse in para 28 of his witness statement[93] said that although P replied to D’s letter dated 25 July 2019 by saying that written instruction by P would be issued within 14 days after verbal instruction was given, P had never done what they said and D did not receive any written instruction at all. Mr Tse admitted that he might have forgotten the transmittal letter dated 27 July 2019 because he did not study all documents when he made his witness statement.[94]

99.  Mr Tse agreed that it would not be able to tell which part of his witness statement was true and which part was prepared sloppily, in particular those parts of his witness statement which were not supported by contemporaneous record.[95]

100.  Mr Tse further agreed that up to September and October 2019, the major issues had been resolved and that D could carry out its work and manpower was deployed to perform the task on the construction site.[96]

101.  Overall, I am of the view that the issues of the Design Defect, the Cable Problem and the Demand for Cover Letter raised are disingenuous and do not hold any water at all.

ISSUE (5)

102.  P’s pleaded case is that D stopped/suspended all works on 28 September 2019.[97]  This was so despite D’s workers sometimes were present on the construction site.[98]

103.  It is plain that D’s workers had suspended their works on the construction site, but there is a dispute as to when they suspended their works. On the one hand, P said that D had stopped/suspended all works since 28 September 2019. On the other hand, D said that D’s workers had suspended all the works since 1 October 2019.

104.  There is clear and ample evidence to show that D’s workers had suspended their works on the construction site for a continuous period from 28 September 2019 to 17 October 2019[99] and I so find as a fact in this case.

105.  I also find that D’s suspension of works had a negative impact on the progress of the Project.[100]

ISSUES (6) & (7)

106.  Contractor has no general right to spend work even if payment is wrongly withheld: Keating on Construction Contracts (11^th Edn.), at para 6-140:

“No general right to suspend work Although particular contracts may give the contract express rights if certificates are not paid, there is no general right at common law to suspend work if payment is wrongly withheld. This is consistent with the principle that, except where there is a breach of condition or fundamental breach of contract, breach of contract by one party does not discharge the other party from performance of its unperformed obligations. By contrast where non-payment has been found to be repudiatory, a contractor may be entitled to suspend work as the employer cannot rely on its own breach to justify a contention that the contractor is itself in repudiatory breach…”[101]

107.  There are three types of repudiatory breach in the context of construction cases: Keating on Construction Contracts (supra.), at para 6-097:

“In the context of construction cases it has been said that there are three categories of case involving repudiatory breach:

(a) those cases in which the parties have agreed either that the term is so important that any breach will justify termination or that the particular breach is so important that it will justify termination;

(b) those contractors who simply walk away from their obligations thus clearly indicating an intention no longer to be bound; and

(c) those cases in which the cumulative effect of the breaches which have taken place is sufficiently serious to justify the innocent party in bringing the contract to a premature end.”[102] (Emphasis added)

108.  It is further commented that “an absolute refusal to carry out the work or an abandonment of work before it is substantially completed, without any lawful excuse, is a repudiation.”[103]

109.  The emails[104] which support my finding that D’s workers had suspended their works on the construction site for a continuous period from 28 September 2019 to 17 October 2019 are unchallenged by D.[105] From those emails, it is clear that there were outstanding works for D to attend to and P gave specific instructions to D to carry out the works as soon as possible. Despite clear warnings and instructions to resume works, D chose not to rectify the situation but continued its stance to suspend works on the construction site. Needless to say, any further suspension of works by D would delay the Project and entail serious adverse financial consequences to P. This, in my view, demonstrated D’s intention not to be bound by the Contract and amounted to a repudiatory breach of the Contract which P was entitled to accept. By P’s letter to D dated 17 October 2019[106], P accepted D’s repudiation in unequivocal terms and thus, the Contract was discharged on 17 October 2019.

110.  In the aforesaid premises, P rightly and lawfully exercised its right to accept D’s repudiation and therefore, was not in breach of the Contract by evicting D from the construction site on 18 October 2019.

ISSUES (8) & (9)

111.  In the Amended SoC, P claim is quantified as tabulated below:

Expenses incurred by P in completing the works	Amount (HK$)
(a)  Contra charges payable by D due to omission of works	12,370.00
(b)  Salary paid by P directly to D’s workers	583,683.75
(c)  Payment for the engagement of Nickel to carry out the outstanding portion of works and to make good the defects of work done by D	1,600,000.00
(d)  Payment made to D throughout the Project	1,271,644.00
LESS
(e)  Agreed contract price under the Contract[107]	2,173,750.00
Total:	HK$1,293,947.75[108]

112.  Expenses incurred by P in para 111(b) and (d) hereinabove are not in dispute. The salary paid by P directly to D’s workers and is recoverable from D under section 43F of the Employment Ordinance (Cap 57).

113.  In the D&C, D has counterclaimed for and prayed for a set off against the following sums:

(a)  HK$1,976,126.12 for the value of works completed and invoiced under the Interim Payment Applications/Invoices No.1 to 9;

(b)  HK$469,945 for the value of works completed and invoiced under the Variation Work Invoices;

(c)  HK$80,000 for the value of works performed in accordance with the Contract on a quantum meruit basis without any invoice;

(d)  HK$78,000 paid by D as wasted expenditure to its former employee Mr Yuan Kezi (袁克仔) in lieu of notice to terminate him;

(e)  HK$69,800 incurred by D as wasted expenditure for employing labour stationed on the construction site between 1 and 18 October 2019; and

(f)  HK$29,405.97 loss of profit in relation to the balance of the Contract price.

114.  I have already found that P rightly and lawfully exercised its right to accept D’s repudiation on 17 October 2019 and was not in breach of the Contract by evicting D from the construction site on 18 October 2019. Hence, D’s counterclaim for the sums itemized under para 113(c) to (f) hereinabove can be dismissed straightaway. I don’t think I need to further reason out my rejection of the aforesaid items of counterclaim save that I accept P’s counsel’s submissions in paras 133 to 148 of his Closing.

Engagement of Nickel - The Sum of HK$1.6 million

115.  As a result of D’s repudiatory breach of the Contract, P secured quotations from 3 different contractors and ultimately contracted with Nickel for the outstanding electrical installation works left unfinished by D for the sum of HK$1,600,000 on 1 November 2019.[109]  The bid price quoted by Nickel was the lowest among the 3 contractors. Nickel completed the unfinished works left over by D in around February 2020.[110]  As at the time when Mr Lam made his 1^st witness statement[111], P had already paid Nickel a total sum of HK$1,440,000 and the remaining 10% (i.e. HK$160,000) retention money would be released to Nickel after the expiry of the defects liability / warranty period.[112]  There is no evidence direct or otherwise suggesting that P has not released the 10% retention money after the defects liability / warranty period.

116.  Looking at the totality of evidence, I find that P is entitled to claim against D the entire sum of HK$1,600,00 as part of P’s claim in damages for D’s repudiatory breach of the Contract.

Value of Works Completed and Invoiced under the Interim Payment Applications/Invoices No.1 to 9

117.  In para 119.4 of P’s Closing Submissions, P has contended that as at 17 October 2019, the value of works completed by D was HK$1,760,737.50.

118.  On the contrary, D has contended that the value of works completed by it before it left the construction site was HK$1,976,126.12.

119.  The aforesaid dichotomy lies in the adoption of the percentage of completion. P’s case is that the percentage of works completed under the Contract was 81% at most. Whereas, Mr Tse said that the works were around 90% completed under the Contract.

120.  P relies on the interim certificate issued by Wah Cheong as at 17 October 2019 (the “17/10/19 Interim Certificate”) which said that the works for which D was responsible were 81% completed.[113] On the other hand, the 90% completion percentage relied on by Mr Tse is unsupported by any documentation let alone contemporaneous documentation. In cross examination, Mr Tse admitted that the 90% completion percentage was made without basis.[114]

121.  In Keating on Construction Contracts (supra), the author, when mentioning the provisional validity of the interim certificates, had this to say at para 5-014: “… The sum certified is not the true final value of the work done and materials supplied but what in the opinion of the engineer is due on the basis of the monthly statement …”

122.  I agree that the 17/10/19 Interim Certificate, though of provisional validity, is a more objective piece of evidence of the completion percentage of the works done by D before it left the construction site.

123.  Hence, I hold that D had completed 81% of the works under the Contract as at 17 October 2019.

Contra Charges of HK$12,370

124.  This item is not recoverable as part of P’s damages claim for D’s repudiatory breach of the Contract.

125.  This item, as submitted by P[115], concerns works omitted by D, which were eventually undertaken by Wah Cheong, i.e. removal of cable reels on G/F and failure to complete the installation[116]. The debit note issued by P to D on 8 November 2019 regarding this item (the “8/11/19 Debit Note”) can be found at Trial Bundle (C2) at p 328. The 8/11/19 Debit Note contained the following breakdown of this item:

	Description	Amount (HK$)
(a)	Debit Notification regarding removal of cable reels by Wah Cheong	6,000.00
(b)	Debit Notification regarding electrical installation carried out by Wah Cheong	4,370.00[117]
(c)	Administrative Charge	2,000.00
	Total:	12,370.00

126.  As submitted, P’s claim is predicated on clause 16 of the Standard Term which runs as follows:

“合適的個人安全保護設施及裝備、地盤衣物、材料貯藏及高空作業所需工作台等，由分判商 [D]自行負責提供。施工作業期間，分判商 [D]所聘請之工人必須滿足香港所有相關之安全法例及總承建商 [ISP]之規章要求。否則，產生任何罰款，分判商 [D]必須承擔負責所有有關罰款及引起之相關一切費用。” (Emphasis added)

127.  It was submitted by P that the phrase “總承建商之規章要求” included the instructions given by Wah Cheong to P, which was then conveyed by P to D under clause 10 of the Standard Term[118]. I disagree. It is beyond dispute that the main contractor (總承建商) in this case was ISP, not Wah Cheong. Wah Cheong was only the sub-contractor of ISP. All the supporting work instruction and work memoranda were issued by Wah Cheong. In my view, all penalty sums and related expenses incurred was at the very least not caused by D’s failure to satisfy the requirements of the main contractor’s rules and regulations. Clause 16 of the Standard Terms cannot be engaged as a basis and support of P’s claim for this item.

128.  Furthermore, the expenses were incurred for the purpose of rectification, not for the purpose of penalty. The sum of HK$4,370 (even if it can be described as a penalty sum) was nevertheless generated after P’s acceptance of D’s repudiation of the Contract on 17 October 2019 and was irrecoverable.

129.  Hence, I dismiss this item of claim.

Conclusion on P’s Claim

130.  In summary, P is entitled to a total sum of HK$1,281,577.75 (583,683.75 + 1,600,000 + 1,271,644 - 2,173,750).

131.  I have not forgotten that in closing, Mr Chok has revised the figure of HK$2,173,750 to HK$1,760,737.50 and claimed a total sum of HK$1,706,960.25. I understand the reason why Mr Chok has revised the figures: To reflect the actual value of work completed by D under the Interim Payment Applications/Invoices which was 81% of the contract sum.

132.  Without making an application for re-amendment of the Statement of Claim to revise the figures, I don’t think it is appropriate for me to inflate P’s claim by a side-wind. In fact, P has applied to amend the Statement of Claim on the date of closing. Had Mr Chok wanted to argue this point to inflate P’s claim, he should have at least, on the date of closing, added his revision of the figures in P’s application for amendment of the Statement of Claim and let Mr Tse have an opportunity to respond to this part of his amendment application.

Value of Works Completed and Invoiced under the Valuation Work Invoices

133.  The value of works completed and invoiced by D under the VO Invoice (1) [119] and the VO Invoice (2)[120] is relevant to D’s set-off and counterclaim. As I have said, the VO Invoice (1) and the VO Invoice (2) covered the same 28 variation orders with main differences lying in the percentage of work done and the amount claimed under some variation orders. The VO Invoice (2) claiming a total sum of HK$469,945.00 is a document relied on by D to support its counterclaim for the value of variation works completed by D before P’s acceptance of D’s repudiation of the Contract, i.e. 17 October 2019.

134.  All the relevant quotations were issued from 1 April 2019 to 13 August 2019. There is no evidence as to when the relevant variation works were completed.

135.  It is trite that the burden of proof rests upon the party who asserts the affirmative to prove the issue. In Wong Chun Kin trading as Kin Kee Aluminium Company v Millennium Engineering Limited, HCA 876/2004 (Unreported) 17 August 2007, DHCJ To’s observation at paras 41-42 is highly relevant which is as follows:

“41. Neither parties called any expert witness in support of their respective valuation of the work done by the Plaintiff. Being unassisted by any expert witnesses, the best I could do is to adopt a broad brush approach in analysing the evidence and to resolve the dispute on the burden of proof. On the question of burden of proof, it is important to distinguish between evidential burden and persuasive burden or legal burden. Evidential burden means the burden of passing the judge or the burden of adducing evidence. This burden may shift during the course of the trial. The legal burden does not. It is the burden which the law imposes on a party to prove a fact in issue to the requisite standard of proof. A party who fails to discharge a persuasive burden placed on him to the requisite standard of proof will lose on that issue. The burden of proof in any particular case depends on the circumstances in which the claim arose. The general rule is Ei qui affirmat nopn ei equi negat incumbit probation. Proof rests on he who affirms not he who denies. It therefore lies upon the party who substantially asserts the affirmative to prove the issue: see Constantine Line v Imperial Smelting Corporation [1942] AC 154 at 174. This burden is fixed at the beginning of the trial by the state of the pleading. The Plaintiff claims for cost of work done which is a positive assertion that work of a certain value had been executed by the Plaintiff. The Plaintiff bears the legal burden of proof. The Defendant has no burden to prove the contrary. It only bears the evidential burden of raising the issue. It is then for the Plaintiff to justify the cost of work which he claims. On the other hand, the burden of proof is on the Defendant in respect of its counterclaim for contra charges and damages for defective work.

42. The evidential burden is a light one. I am satisfied that the evidential burden has been discharged by the Defendant. In considering whether the Plaintiff has discharged the legal burden of proof, I bear in mind the reality in a construction site while work is in progress. I bear in mind that certification of the monthly progress payment is only an approximation which is by no means accurate. On the other hand, I attach great weight to contemporaneous documents. Those documents were created before the dispute arose. They were usually prepared in good faith. It would be particularly devious for a contractor or a sub-contractor to plant some false allegations in anticipation of a future claim or defence. I would be more cautious when considering documents which were created after the dispute has arisen.”

136.  The valuation of variations would be carried out by the mechanism contained in the contract or on the broader basis of reasonable valuation of the work: Chitty on Contract Vol 1 (35^th Edn) at para 40-100:

“The valuation of variations will either be carried out by reference to a mechanism contained within the contract, or on the broader basis of a reasonable valuation of the work. The contract mechanism may provide for a reasonable valuation in default of applicable rates.”

137.  If a specific rate is not provided for under the contract, there will be an implied term in the contract that a reasonable sum should be paid: Chitty on Contract Vol 1 (35^th Edn), at para 40-102:

“Where there are no rates or prices in the contract document covering the variation in question and the contract does not provide for a reasonable rate to be determined, the contractor will be entitled to a reasonable sum on the basis of an implied term as to payment. What is a reasonable sum will be a question requiring consideration of all factors in the case, and there are no rigid rules which will apply in such cases.”

138.  In Way v Latilla [1937] 3 All ER 759, at 764C-D:

“… it appears to me clear that the court may take into account the bargainings between the parties, not with a view to completing the bargain for them, but as evidence of the value which each of them puts upon the services.”

139.  For the purpose of my assessment on this issue, P has helpfully and fairly compiled a Re-revised Scott Schedule which refers to the basis in support of and against the works done by D under the 28 variation orders.

140.  At the Closing,

(a)  P has agreed to D’s claim for the value of works under variation order nos. 5, 6, 12, 13, 15, 18, 22 and 24;

(b)  The other variation orders are in dispute; and

(c)  P only relied on D’s failure to provide proof of variation works done as required by clause 7 of the Standard Terms to show that such failure would inevitably make it more difficult for P to process and assess the variation orders application and such failure did not prevent D from claiming the value of the variation works done.

141.  Assisted by the Re-revised Scott Schedule, I have compiled a Table annexed to this judgment containing the parties’ discussion and my analysis of each and every disputed variation order. Before analysing each disputed variation order, I have 4 observations to make: -

(a)  The VO Invoice (1) and the VO Invoice (2) are the only contemporaneous documentation telling P about the percentage of variation works D had done. Mr Tse agreed that those documents could not tell us when those variation works had been completed.[121]

(b)  In contradistinction to the normal construction practice, D has not taken photos on each variation work done/completed and attached those photos to the VO Invoice (1) and the VO Invoice (2) to prove completion of the variation works.[122]

(c)  Mr Tse did not particularise and detail his claim for variation works in his witness statement.

(d)  When Mr Tse was cross examining Mr Lam, he did not challenge Mr Lam’s evidence on D’s claim for variation works.

142.  Due to the aforesaid observations, I shall treat D’s claim for the value of the valuation works completed with some caution.

Conclusion on D’s Counterclaim

143.  In my judgment, D is entitled to the sum of HK$273,538.76 for the value of the variation works done under the Contract.[123]

DISPOSITION

144.  Accordingly, I make the following Order:

(a)  Judgment be entered for P on its claim for the sum of HK$1,281,577.75 with interest at 1% above the HSBC best lending rate from the date of the Writ to the date of judgment;

(b)  Judgment be entered for D on its counterclaim for the sum of HK$273,538.76 with interest at 1% above the HSBC best lending rate from the date of filing of the D&C to the date of judgment; and

(c)  D’s counterclaimed sum of HK$273,538.76 be set off against P’s claimed sum of HK$1,281,577.75 and the balance of HK$1,008,038.99 will carry interest at judgment rate from the date of judgment until payment.

145.  As to costs, I make the following order nisi:

(a)  D do pay P’s costs of the action on a party and party basis, such costs to be taxed if not agreed with certificate for counsel; and

(b)  P do pay D’s costs of the counterclaim on a party and party basis, such costs to be taxed if not agreed.

146.  The costs order nisi shall be made absolute unless application for variation is made within 14 days from the date of this judgment.

147.  This judgment is handed down in English. However, D may liaise with court clerk within 14 days upon receipt of this judgment to arrange for interpretation by a court translator at the District Court. The court clerk shall notify D of this liberty by a letter in Chinese.

148.  Lastly, I would like to thank Mr Chok for his able assistance.

ANNEXURE