CHAN HO WAN RICKY t/a HO WAN ENGINEERING AND TRANSPORTATION CO v. WONG CHUN KEUNG t/a C.K. ENGINEERING CO

HCA469/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.469 OF 2002

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J U D G M E N T

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1. The plaintiff issued the Writ of Summons on 2 February 2002 claiming the sum of $711,000 withheld by the defendant under an engineering sub-contract.

2. The trial was partly conducted in Chinese and there is no English translation of the documents in Chinese.

Background

3. The case is concerned with the sub-contract of disposal of excavated soil of the proposed Nam Cheong Station of the West Rail.

4. Gold Pacific Engineering Limited ("Gold Pacific") was a sub-contractor of Projects CC402 and CC404 ("CC402 and CC404). In CC404, Good & Right Transportation Co. Ltd ("Good & Right") was the original sub-sub-contactor for soil disposal, and in CC402, Mr Poon Shing Cheong ("Poon") was such sub-sub-contractor originally.

5. The plaintiff was an operator for dump trucks. Since November 2000, he has received work from Good & Right in CC404. The defendant was originally a supervisor of Gold Pacific for CC404.

6. The sub-sub-contract of Good & Right in CC404 was terminated by Gold Pacific with effect from 1 December 2000. The sub-sub-contract of Poon in CC402 was also terminated.

7. In around December 2000, the defendant offered the soil disposal sub-contracts for CC404 and CC402 together to the plaintiff. The unit price for CC404 was $34 per m³, and the unit price for CC402 was $27 per m³. The plaintiff was afraid of loss arising from CC404 and declined the offer.

8. In January, the defendant became a sub-contractor of Gold Pacific. On 19 January 2001, the plaintiff entered into an Engineering Sub-Contract and Special Contractual Terms for disposal of excarated soil in CC402 with the defendant (collectively "the Written Contract"). The unit price stated in the Written Contract was $24 per m³. The dispute is whether $24 per m³ is the full contract price.

Plaintiff's case

9. The plaintiff said that $24 per m³ was not the full contract price. The Written Contract was not the complete contract. There was an oral agreement entered into with the defendant on 7 January 2001 not evidenced by the Written Contract ("the Oral Agreement"). The terms of the Oral Agreement were pleaded as follows :

"(a) the price for the delivery of the said Materials be reduced from HK$27 per m³ to HK$24 per m³;

(b) the reduced price of HK$3.00 per m³ be withheld by the Defendant for the purpose of covering the loss which might be suffered by the Gold Pacific Engineering Limited Company ('Gold Pacific') being the sub-contractor in another construction site Project CC404 ('Project CC404') in relation to the alleged breach of contract on the part of Good & Right Transportation Company Limited ('Gold & Right') in Project CC404;

(c) the Defendant should produce the Plaintiff with supporting documents ('the said Required Documents') including but not limited to the final account submitted to the Developer by the Defendant or Gold Pacific and the records of expenses/costs evidencing the loss, if any, upon completion of Project CC402; and

(d) if no loss has been suffered by Gold Pacific or such loss is less than the sum withheld, the whole or the residual sum shall be returned to the Plaintiff upon the completion of the transportation work on the part of the Plaintiff at Project CC402."

10. These terms were verified by the plaintiff's evidence-in-chief as well as the evidence of Mr Cheung Wai Ming ("Cheung"), a director of Good & Right, who was also present at the meeting on 7 January 2001.

11. Apart from such terms, there was also an oral agreement that the plaintiff was to absorb the expenses of $100,000 left over by Poon.

12. The Written Contract was drafted by the plaintiff and typed by the secretary of one Tung Ning Engineering Company ("Tung Ning"). It appeared to be under the letterhead of the defendant because the plaintiff copied the terms from another contract of the defendant. He did not include the terms of the Oral Agreement because he did not know how to put them into writing.

13. Thereafter, the plaintiff further sub-contracted the soil disposal work to Tung Ning at $22.50 per m³.

14. On 10 August 2001, the sub-contract between the plaintiff and the defendant was terminated by mutual agreement in writing with effect from 11 August 2001 ("Termination Agreement"). The plaintiff said it was an early termination. The Termination Agreement only dealt with the Written Agreement, and all sums therein were eventually paid.

15. On 13 August 2001, the defendant sent a letter to the plaintiff referring to the termination of contract for CC402. It stated that the contractual price was originally $27 per m³. Upon mutual agreement, the contract was signed at $24 per m³. The balance of $3.00 per m³ was used to subsidise Gold Pacific in relation to the deficit for the soil disposal under CC404.

16. The letter listed out that under CC404, from November 2000 to May 2001, there were 6,103 truck trips, and on the basis of 5.5 m³ per trip, the soil removed were 33,566.5 m³. Based on the contract price of $34 per m³, the sum should be $1,141,261. But the actual costs for 6,103 truck trips were $2,053,700. Hence, the over expenditure was $912,439.

17. The letter further listed under CC402, the soil removed (by the plaintiff) was 237,000 m³. And that times $3.00 per m³ is $711,000. And the difference between $912,439 and $711,000 is $201,439, and this sum would be claimed by Gold Pacific against Good & Right.

18. The plaintiff said this letter supported the Oral Agreement. As the defendant failed to produce the trip records and the wage records of the truck drivers, the defendant should refund $711,000 to the plaintiff.

19. Cheung gave evidence to support the Oral Contract. He said the dispute between Gold Pacific and Good & Right as to the quantum of loss was still on going, and no final account had been prepared by Gold Pacific.

Defendant's case

20. The defendant said prior to January 2001, he was employed as a supervisor of Gold Pacific. The sub-contracts in CC404 and CC402 were originally offered to the plaintiff as a package. By then, CC404 was a certain loss because Good & Right was unable to perform the contract due to financial difficulties, and no one would be willing to take up CC404 alone. CC402 was offered at $27 per m³ to cover the loss in CC404. This offer was declined by the defendant.

21. Sometime in January 2001, the defendant became a sub-contractor of Gold Pacific. The plaintiff counter-offered to take up CC402 alone. The defendant said that on this basis, the unit price of CC402 would only be $24 per m³, as $3.00 per m³ would be deducted to subsidise Gold Pacific in taking up the soil disposal work in CC404 directly. Hence, the unit price was clearly stated to be $24.00 per m³ in the Written Contract.

22. The defendant said he was a sub-sub-contractor for CC402 only, but not for CC404. During the pre-contractual negotiations, there might be discussions about set-off, but the agreed price between the plaintiff and him was the reduced price of $24.00 per m³ as per the Written Contract. He denied that $711,000.00 were withheld by him. Even if there were any withholding, it was between Gold Pacific, Good & Right and the plaintiff only.

Assessment of the evidence

23. Mr Hui for the defendant sought to rely on the parol evidence rule to exclude the Oral Agreement. However, he conceded that there was no challenge to the plaintiff's evidence that the Written Contract was subject to the oral agreement that that the plaintiff would absorb the costs of $100,000 left over by Poon. As such, the Written Contract could hardly be said to be evidencing the entire agreement.

24. Another fundamental point is that the terms of the Oral Agreement stipulated that upon the completion of CC402, the defendant should produce, inter alia, the final account submitted to the developer by the defendant or Gold Pacific and the records of expenses/costs evidencing the loss, if any. Two points arise on this :

(1) the only evidence on the completion of CC402 is March 2002, which is a month after the issuance of the Writ of Summons; and

(2) on the evidence of Cheung, Gold Pacific and Good & Right are still in dispute over the loss and no final account has been drawn up.

Even assuming that the plaintiff is to be believed on the Oral Agreement, he may have difficulty proving the accrual of the cause of action, or at least at the time of the issuance of the Writ.

25. On point (2), Mr Lau for the plaintiff submitted that the defendant's obligation to submit the final account is independent of Gold Pacific, and it should produce the amount if Gold Pacific failed to do so. With respect, this construction lacks business efficacy. The dispute is between Gold Pacific and Good & Right. Only they can settle the matter, either amicably or by litigation. Thereafter, the final account can be drawn up, and then, the obligation of the defendant to produce them, if any.

26. As to point (1), Mr Lau has conceded that he is bound by the evidence as to the completion date.

27. Be that as it may, I find against any Oral Agreement on the facts.

28. Mr Hui pointed out a number of inconsistencies in the evidence of the plaintiff and Cheung :

(1) the plaintiff said in his witness statement that the Oral Agreement was reduced into writing in the Written Contract issued by the defendant while in fact it was prepared by the plaintiff himself;

(2) the plaintiff's explanation that he did not include the terms of the Oral Agreement in the Written Contract because he did not know how to put them into writing is incredible;

(3) the plaintiff explained that he put down $24 per m³ in the Written Contract because that was the wages he had to pay. In fact, he sub-contracted the job to Tung Ning $22.50 per m³ at and stood to earn $1.50 per m³;

(4) the Termination Agreement expressly dealt with payment of the 50% retention money in October 2001, and there is no reason why the withholding under the Oral Agreement was not mentioned;

(5) under cross-examination, the plaintiff agreed that neither "developer" nor "final account" was mentioned on 7 January 2001 and all that was mentioned was the truck records and wage records; and

(6) Cheung said he heard about "accounting records" on 7 January 2001, but still he never heard about mention of developer.

29. Mr Hui also referred to a letter dated 14 August 2001 sent by Messrs Jewkes Chan & Partners, solicitors acting for Cheung, to Gold Pacific :

"We act for Mr. Cheung Wai Ming.

We are instructed that an agreement has been reached between Mr. Tommy Lam of your company and our client on or around October 2000 that a sum of around HK$900,000.00 out of the profits derived from the project with respect to construction site CC402 shall be paid to our client in order to cover for his losses incurred out of the project with respect to construction site CC404. In this case, it is necessary for you to produce the relevant transportation service bills (the 'bills') involving our client with respect to construction site CC404 in order that our client may calculate the amount of losses incurred by him in relation thereto."

Mr Hui submitted that the letter was that Chan had admitted that the loss due from Good & Right to Gold Pacific was $900,000. Chan said $900,000 was not an admission, but only an estimate based on $3.00 per m³ and the intended excavated quantity in CC402. I find that the tenor of letter did not amount to any admission, but on the other hand, it mentioned payment to Good & Right for loses incurred as opposed to withholding. I do not find the letter point to one way or the other.

30. On the other hand, Mr Lau for the Plaintiff criticised the defendant as follows :

(1) In the Defence and the witness statement, the defendant simply denied the existence of the Oral Agreement and the withheld sum. He did not condescend into particulars on the reduction of the $3.00 per m³ as he was expected to do so;

(2) Even if the $3.00 per m³ was a reduction as opposed to be withheld, it should still be so stated in full the Written Contract.

31. On the last point, I see no query in stating the net sum of $24.00 per m³ without mentioning any reduction if that was the final agreed price. I am afraid Mr Lau seems to have been mislead by the letterhead of the Written Contract, or perhaps the plaintiff's witness statement, and has overlooked that the Written Contract was in fact drafted by the plaintiff and not the defendant.

32. I find that the plaintiff was not altogether forthcoming in explaining his choice of $24 per m³ in the Written Contract. He first said that was the wages he had to pay and tried to paint a picture that he was the loser in taking up the sub-contract all along. When confronted with the profit of $1.50 per m³ from the sub-contract to Tung Ning, he said he had to shoulder the loss of Poon. When pointed out that the loss of Poon was only $100,000, and after deducting that he should still be able to make at least $250,000, he said the contract resulted in a loss due to unforeseen circumstances.

33. Another important point is the failure to mention the withholding under the Oral Agreement in the Termination Agreement. Even if the relationship between the plaintiff and the defendant were hitherto amicable and trusting, by then, the relationship must be seen in another light due to the early termination. The Termination Agreement expressly dealt with payment of the 50% retention money in CC402, I see no reason why the withholding was not mentioned.

34. From the history of CC402 and CC404, I find the defendant's evidence that of $3.00 per m³ was simply deducted more plausible. The letter of 13 August 2001 by the defendant to the plaintiff was simply to show that a loss had actually been incurred in CC404 in support of the reduction.

35. I reject the evidence of the plaintiff and Cheung. I am not satisfied that the parties have entered into the Oral Agreement.

Decision

36. The plaintiff's claim is dismissed. The plaintiff shall pay costs of the action to the defendant, to be taxed if not agreed.

37. I thank Mr Lau and Mr Hui for their enthusiastic assistance in the case.