CITIDECO LTD v. DIAMOND TERM LTD

HCCT33/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.33 OF 2005

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J U D G M E N T

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1. The plaintiff (“Citideco”) was the defendant’s (“Diamond”) subcontractor in a re-instatement project in which Diamond’s employer was the Hong Kong Jockey Club.  Citideco agreed to carry out certain re-decoration works at a Jockey Club premises in Kwun Tong.  The works were carried out and completed in early 2001.  After some discussions and amendments, the contract price was agreed at HK$1,170,000.  Diamond has paid $620,000 but no more.  Citideco’s claim, at the time of the trial, is for $869,896 being the outstanding sum due under the contract and the cost of variations which arose during the contract.

2. Both Citideco and Diamond are relatively small companies.  Diamond employs less than a dozen people and since 18 November 2005, when its former solicitors ceased to act, it has been represented in these proceedings by one of its directors, Mr Chau Kwan Ling.  At trial, Citideco was represented by Mr Anthony Chow of counsel.

3. Diamond’s former solicitors informed the court, on 18 November 2005, that they were ready for trial.  However, since Diamond has been represented by Mr Chau, three applications have been made for the trial to be adjourned.  The two grounds advanced for an adjournment were to have time to amend the Statement of Defence and to get the English translations of Chinese documents certified.  The latter ground was first advanced on 5 January 2006 and again on the first day of the trial, 10 January.  Mr Chau wanted all the translations of all the Chinese documents to be certified.  In my discretion, I decided that an adjournment (of many months) was not merited for this reason because both sides had translations, Mr Chau was not able to identify any document about which there was an issue concerning the two uncertified translations, both sides to the litigation spoke and wrote Chinese and the court had the advantage of an interpreter.  In the event, no Chinese document was referred to in the course of the evidence at trial.  No issue arose concerning the accuracy of translated documents. 

ISSUES AT TRIAL

4. Diamond’s final version of its Statement of Defence was not provided until the second day of the trial (together with Mr Chau Kwan Ling’s witness statement).  Mr Chau thus became both advocate and witness for Diamond.

5. Consequently the issues in the trial only crystallized as the evidence unfolded.  For example, Citideco only learnt during the trial that Diamond had, ultimately, been paid in full by the Jockey Club.  Citideco’s claim then changed because certain pre-trial issues no longer arose.  In particular, the effect of a reference to a “pay when paid” clause in the letter of acceptance ceased to be an issue.

6. What remained came down to three issues.  Firstly, whether or not a Mr Ronald Chan had authority to act on behalf of Diamond.  Secondly, whether or not Diamond is liable to pay for “variations” in the sum of $319,896.  Thirdly, whether Diamond had orally agreed to be responsible for all the costs of testing materials (such as concrete and reinforcement) and to provide certificates for certain goods and materials (such as the fire proofing of doors and the quality of glass).  I will deal with each issue briefly.  

(A)     Mr Ronald Chan’s authority

7. Mr Ronald Chan was not a witness at trial.  Neither had he ever prepared a witness statement.  It was he who signed the written part of the contract, namely a letter from Diamond dated 22 January 2001 signed by both parties.  He was Diamond’s “Administration Manager”.  Diamond contends that he had no technical knowledge and had no authority to bind them on matters of technical and contractual matters.  Another employee of Diamond who did not give evidence (although he had prepared a witness statement) was the site agent and project supervisor, Mr Au Hok Lai.

8. Mr Chau Kwan Ling’s primary complaint, in arguing that Mr Ronald Chan had no authority to act on their behalf, centred around a document on Diamond’s stationery dated 8 January 2001 entitled “Job Duties” which has the name “Ronald Chan Administration Manager” at the foot of the page.  Item 5 on the document refers to “acting as Contract Manager”.  Mr Chau submits that this is a very suspicious document.  He described it as a forgery.  I find it unnecessary to make any investigation into or finding concerning this document.  There is an abundance of evidence concerning Mr Chan’s authority without it.  For the purposes of this decision I attach no weight to it.

9. In my judgment, it is plain that Diamond is bound by the actions and agreements made by both Mr Ronald Chan and Mr Au.  It should be pointed out, at the outset, that Mr Chau Kwan Ling did not become employed by Diamond until after this project stated and did not become a director until after it finished.  The negotiating party at the material time was Mr Ronald Chan and the man on site (although not always) was Mr Au.  It was Mr Chan who signed the written contract and, I have no doubt, that it was Mr Chan who made oral agreements with Citideco (to which I shall turn later).

10. I am sure that the description of the contract alluded to by Citideco’s witness, Mr Daniel Chang, was fair and accurate.  He made the point that the Jockey Club was an important client to Diamond.  At the outset, Mr Ronald Chan agreed that Diamond would be responsible for the testing of materials.  Diamond was a Registered Contractor for such purposes, Citideco was not.

11. Moreover, both parties were anxious to complete the works within time.  Whenever a variation to the works became necessary, Mr Chan and Mr Au’s response was consistently the same.  Their instructions were always to get on with the job, do what was necessary, do not waste time and submit the bills later.  At the day of reckoning, the total amount of the costs of variations comes to an extra 27% of the contract sum.  There were a large number of fairly small variations.  It is the type of contract and type of approach where such an agreement is entirely understandable, reasonable and sensible.  Mr Chang impressed me as a witness and I rely on his evidence.

12. In short, I am satisfied that Mr Chan had, at least, the apparent authority to make all the agreements on behalf of Diamond which are alleged by Citideco.  It was not disputed that he had the authority to sign the letter of acceptance in January 2001.  It was reasonable therefore for Citideco to treat Mr Chan as one of the persons they were dealing with.  Diamond itself was not a big company and I accept from Daniel Chang that there was no issue or hint, at the time, other than that orders could be received and acted upon from Mr Chan and Mr Au.  The next question or issue at trial is what those agreements and instructions were.

(B)     Testing of materials and test certificates

13. I will deal with this issue before the question of variations because it comes first chronologically.

14. I find it entirely probable that there was an oral agreement between Ronald Chan and Daniel Chang that Diamond would be responsible for the cost of testing materials and certification of quality of materials.  They had the expertise and experience.  The only witness who gave evidence about the discussions which took place at the time was Daniel Chang.  As already stated I found him to be a straightforward and reliable witness.  

(i)      Evidence concerning what testing was done

15. A concrete test report dated 22 March 2001 was disclosed by Diamond in late 2005.  It disclosed that Diamond had carried out a concrete test.  Moreover, no request was made by Diamond, nor was any complaint made by Diamond that Citideco should carry out or should have carried out such a test until five months after the works had been completed.

(ii)     Evidence concerning certification

16. Diamond complained about lack of certification and/or test reports in respect of four items which, it submitted, entitled Diamond to pay to Citideco no more than the $620,000 it had paid.  I am satisfied that on each items the weight of the evidence falls firmly on Citideco’s side.

(a)     Fire doors and tempered glass

17. I accept that specific certificates for these items were never requested at the time of contract either in writing or orally.  There is no pleading of an implied term to this effect.  The quality of doors and tempered glass would, in the normal course of events, be certified by a label on the delivery packages from the suppliers.  This issue never arose during the carrying out of the works.  It is an afterthought.

(b)     Mill certificate

18. Similarly this document would have been provided by the supplier when the reinforcing bars were delivered.  Daniel Chang’s evidence for Citideco was that, at the time of delivery, he handed it to Mr Au.  I accept that the failure to provide this document would have been a matter of immediate concern to Diamond.  It is significant therefore that Diamond has not been able to produce any contemporaneous correspondence in which it requests a Mill certificate from Citideco.  This is cogent evidence that Daniel Chang did indeed hand it over to Mr Au even though Diamond has not been able to locate it.  Moreover, had it been a real issue at the time a copy would have been sought from the supplier.

(c)     Test report for reinforcement

19. The oral agreement making Diamond responsible for this puts an end to the issue.  A further piece of evidence supporting Citideco’s case is that a lorry from a laboratory was sent to the site to collect samples to be tested.  The lorry and driver had been arranged by Diamond.  On arrival Citideco provided samples to the driver from the bars delivered to it by the supplier.

(C)    Variations

20. I find it inherently improbable that Citideco would have undertaken $319,896 worth of variations on the understanding that as it was a “lump sum” contract it would not be able to claim for any of it.  Thus was Diamond’s case.

21. Diamond did not dispute that the work was done and only made minor complaints about the quantum of the works done.  The works have been carefully itemized and put into schedule form by Citideco.  The quantum of $319,896 is the figure arrived at by Mr Gabriel Lam, Citideco’s expert witness, and accepted by Daniel Chang.  The items are in part supported by written instructions.  All items are supported by credible evidence that the works were done, as requested, expeditiously and before written quotations were submitted. 

22. The impression gained from Daniel Chang’s evidence was that there was an atmosphere of team work, co-operation and trust designed to complete the project to a good standard and within time to the Jockey Club’s satisfaction.  As already stated I am satisfied that Ronald Chan and Mr Au were fully authorized to instruct Citideco to comply with the Jockey Club’s instructions and the additional costs would be dealt with later.

23. In opposition to the above Diamond places considerable reliance on two matters.  Firstly, on some handwritten notes of a meeting held on 20 July 2001.  When the question of variations is referred to in the note the author has recorded “No reply from subcontractor”.  Diamond’s evidence at trial on the matter was that, at that meeting, Citideco waived its rights to be paid for the variations it had claimed.  I am satisfied that neither the oral evidence nor the handwritten note goes that far.  The evidence of the 20 July meeting should be considered not in a vacuum but in context.  Daniel Chang had been requested to attend the meeting by Diamond.  The meeting was called by the Jockey Club to discuss matters with Diamond.  Citideco was not a party to their issues.  Daniel Chang attended in the same spirit of co-operation as already referred to.  He had, prior to this meeting, already made his written claim for variations to Diamond.  It is fanciful to think that by his silence at a meeting about a contract to which he was not a party he would waive a claim worth over $300,000.  Mr Chang’s evidence also suggested that he had been asked to remain quiet at the meeting.

24. Secondly, Diamond has referred to a Bill of Quantities prepared by Citideco two days after this meeting which does not include variations.  This again must be considered in context.  I am satisfied that this also was prepared, as stated by Mr Chang, in support of Diamond’s discussions with the Jockey Club in order to speed up payment to Diamond (which, in turn, Mr Chang hoped and believed would speed up payment to him).  It is significant that the rates used in the Bill are the rates applicable to the contract between the Jockey Club and Diamond, not those between Diamond and Citideco.

25. In short, my findings of fact in relation to issues (A), (B) and (C) above are that Mr Ronald Chan was authorized to and did bind his company and that the oral agreements he made with Citideco were as described by Mr Daniel Chang.

26. Two final matters remain namely, quantum and costs.

(D)    Quantum

27. No criticism has been made of Citideco’s workmanship or materials, nor of the time taken to complete the works.  The complaint about the lack of certificates does not include a complaint about the materials themselves.  The Jockey Club has paid and Diamond has accepted its payment.

28. Following on from my above findings, there can be no argument that firstly, Diamond is liable to pay the balance of the contract price.  It agreed to pay $1,170,000 (which in itself was a discounted price which trimmed Citideco’s profit margin to a minimum) whereas only $620,000 was ever paid.  Thus, $550,000 is due under the written contract.

29. In addition, there is a liability to pay for the variations which were completed either as a result of a request from Diamond or from the Jockey Club and confirmed by Diamond.  Mr Gabriel Lam has given each item his careful consideration.  Where possible he has applied a rate from the agreed Schedule of Rates and where the agreed Schedule does not provide an applicable rate, he has applied the sub-contractor’s rate which he found to be reasonable.  He finally calculated the final assessment on two different bases and, in evidence, preferred the lower of the two methods.  Citideco does not challenge this figure.

30. I am satisfied that Mr Lam’s report and evidence is fairly stated, independent and reasonable.  Any further reduction by the court would amount to tinkering.  There is no evidence from Diamond which seriously challenges his findings.

31. Diamond is liable to pay Citideco $319,896 for variations.

(E)     Costs

32. When the writ was issued, the District Court limit for jurisdiction was $600,000.  The claim was for over $1 million.  By the time this matter came on for trial both these figures had changed; the limit had gone up to $1 million and the claim had dropped to under $1 million (by virtue of Mr Lam’s report dated November 2004). 

33. One subsequent application was made by Diamond to transfer the case from the Civil List in the Court of First Instance to the Construction and Arbitration List.  Neither side applied to transfer the matter to the District Court.

34. Normally, as a matter of case management, it is desirable that cases within the District Court jurisdiction should be heard in the District Court.  In this particular case, however, I accede the Citideco’s claim for costs to be awarded on the High Court scale.  The case was a suitable one to be heard in the Construction and Arbitration List and the sum claimed was on the borderline of the new limit.  Originally, it was just above the limit, ultimately, it was just below the limit.  I do not criticize Citideco for not transferring it at a time which would have been relatively close to being ready for trial.

35. I give judgment to Citideco in the sum of $869,896 with costs on the High Court scale plus interest at prime plus 1% from the date of the writ to the date of this judgment and at judgment rate thereafter till satisfaction.  Costs to be taxed if not agreed.