WESTCO CHINNEY LTD v. LEE TUNG CONSTRUCTION AND DECORATION CO LTD

DCCJ 6229/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6229 OF 2006

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J U D G M E N T

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1.  The Plaintiff claims against the Defendant for outstanding payments for work done as its sub-contractor in air conditioning (MVAC) work under 5 contracts.  The ‘employer’ of the work was the University of Hong Kong.

2.  The Defendant does not dispute the quantum of the Defendant’s claim but disagrees it was liable to the Plaintiff.

Undisputed Facts

3.  Both the Plaintiff and the Defendant have in the past been awarded contract works by the Hong Kong University as its main contractors from time to time.  They are both on the Hong Kong University’s approved building contractors list.

The Plaintiff’s Case

4.  The Plaintiff claimed that it entered into the 5 construction contracts with the Defendant directly as its MVAC sub-contractor, the Defendant was the main contractor (“the 5 contracts”).  The five contracts were all performed for the University of Hong Kong, They were:-

A.  Supply and installation of MVAC works for the upgrading of the laboratories at 2/F Hui Oi Chow Science Building (“contract A”);

B.  Supply and installation of MVAC works for SPACE at Extension of 2/F-3/F of the Causeway Centre; (“contract B”);

C.  Supply and installation of MVAC works at the Main Library Building Old and New Wing (“contract C”);

D.  Supply and installation of MVAC works at the 8/F Clinical Pathology Building at the Queen Mary Hospital (“contract D”);.

E.  Supply and installation of MVAC works at the Department of Obstetrics and Gynaecology at the Queen Mary Hospital (“contract E”).

5.  The Plaintiff claimed the five contracts were entered in writing and orally.  The terms of contract A were set out in a quotation letter from the Plaintiff to the Defendant dated 2 April 2002.  The terms of contract B were set out in the Plaintiff’s quotation to the Defendant dated 8 May 2002.  The terms of contract C were set out in the Plaintiff’s quotation to the Defendant dated 29 June 2002.  The terms of contract D were set out in the Plaintiff’s quotation to the Defendant dated 15 March 2003.  The terms of contract E were set out in the Plaintiff’s quotation to the Defendant dated 31 March 2003.

6.  It is the Plaintiff’s case that all 5 quotations were accepted by the Defendant.  All of the quotations or letters of acceptance, with the exception of contract C, were signed by the Defendant and endorsed with the Defendant’s company chop.  The Plaintiff further claimed that its officer-in-charge of the 5 contracts, Mr. Fung Kwok Leung, Eric (“Mr. Fung”), manager of the Plaintiff’s Project Engineering Division was in constant contact with the Defendant’s director, Mr. Leung Yu Kin (“Mr. Leung”).  Mr. Leung was in charge of the Plaintiff’s tenders as the MVAC sub-contractor to the 5 contracts before and after their awards to the Defendant by HKU.

7.  The Plaintiff claimed that it was the direct sub-contractor of the Defendant based on the quotations for the 5 contracts which were accepted both orally and in writing by the Defendant and the invoices and payment applications addressed and sent to the Defendant by the Plaintiff.

8.  The Plaintiff admitted that it had agreed with the Defendant to set off payments for the 5 contracts with one of the Defendant’s sub-contractors, Long Ki, who was also the Plaintiff’s sub-contractor in certain MVAC contracts performed for the Hong Kong University.  The Plaintiff denied it had ever accepted or agreed to be a sub-sub-contractor of the 5 contracts with Long Ki acting as the sub-contractor to the main contractor, the Defendant.  It denied knowledge of any sub-contracting between Mr. Lai or Long Ki and the Defendant in respect of the 5 contracts.

The Defence Case

9.  The Defence’s witness Mr. Leung claimed that he had come to know one Mr. Lai Hon Fai (“Lai”) who was employed as a supervisor to a building contractor on Hong Kong University (“HKU”) contracts in the 1990’s.  In 1999, Lai left his former employer and set up his own engineering business.  Lai was also friendly with Eric Fung of the Plaintiff through sub-contracting MVAC work of Hong Kong University projects from the Plaintiff.

10.  It is the Defendant’s claim that in or about the latter part of 1999, Mr. Leung reached a co-operation agreement with Lai as a result of which Lai would prepare MVAC tender applications on the Defendant’s behalf and Lai would also select the sub-contractors on the Defendant’s behalf on HKU projects.  Should the Defendant be successful in obtaining such contracts from HKU, the Defendant would receive 4% of the total contract sum for contracts with a value of under $200,000; the Defendant would be rewarded with 6% of the total contract sum for contracts exceeding $200,000.  The Defendant alleged that this arrangement was known to the Plaintiff because Lai was with Mr. Fung when the matter of co-operation was first mentioned at a car park in Cheung Sha Wan in mid 1999.  Mr. Leung therefore claimed that the Plaintiff knew and had accepted Lai to be a sub-contractor of the Defendant.

11.  Mr. Leung claimed that the 1999 co-operation ceased in 2006 when Lai disappeared and Long Ki was wound up.  The Defendant claimed Long Ki still owed the Defendant a debt of over $1 million.  Mr. Leung claimed that Long Ki Engineering Ltd. was a company incorporated by Lai in 2001 and Lai had conducted his engineering contractor work though this company since 2001.

12.  Mr. Leung admitted that he had signed the Plaintiff’s quotations for contracts A, B, D and E because Mr. Fung had told him he needed the Defendant’s confirmation on the quotations to satisfy his boss.  He claimed Mr. Fung had promised not to seek payment for the 5 contracts from the Defendant and would look to Long Ki for payment.  He had only signed the quotation after he confirmed the set-off arrangements with Lai.

13.  Mr. Leung further admitted that the Defendant would make applications for payment from the HKU, in turn, he would pay Long Ki after receiving payments from the HKU.  He further denied the Defendant had any direct contact with the Plaintiff regarding the 5 contracts.  In spite of having received invoices from the Plaintiff, the Defendant claimed it had never made any oral or written promise to pay the Plaintiff.

Quantum

14.  The Plaintiff’s claim was amended to $649,136.51 at the trial.  The amount is not disputed by the Defendant.  The Defendant’s dispute is solely on liability.

Issues on Liability

15.  The issue in dispute is whether the Defendant is contractually bound to pay the Plaintiff for work done on the 5 contracts.  If the Plaintiff was the Defendant’s sub-contractor for works under the 5 contracts it follows the Defendant would be liable to pay for the work done by the Plaintiff.

Who was the Defendant’s sub-contractor for the 5 contracts?

16.  The Plaintiff produced 5 written quotations for the 5 contracts addressed to the Defendant.  Four of the five quotations were signed by Mr. Leung and the Defendant’s chop was endorsed against it.  For contract A, Mr. Leung’s signature appeared twice indicating the Defendant’s acceptance of the amended quotation price of $1,379,000 reduced from the original quoted price of $1,400,000.  Mr. Leung admitted he had signed and dated it on 19 April 2002, and that he had amended the contract price after obtaining an agreement from the Plaintiff (p. 90 of bundle C-1).

17.  For contract B, Mr. Leung admitted he had reached an agreement for the contract price of $1,110,000 and he had amended the Plaintiff’s quotation of $1,120,000 and signed on the document to indicate the Defendant’s acceptance of the Plaintiff’s amended quotation (p. 226 of bundle C-1).

18.  The contract C quotation was not signed by the Defendant’s Mr. Leung or endorsed with the Defendant’s company chop.  Mr. Fung claimed that as the contract was not a large one, he did not insist upon it.  He claimed that he and Mr. Leung had a conversation over the contract C 4 June 2002 quotation and Mr. Leung negotiated a discount of 15% for the work.  He sent to Mr. Leung a letter of confirmation revising the price from $421,300 to $400,605 on 29 June 2002 (p. 14 of bundle C-2). 

19.  The contract D quotation price was $75,000.  On 15 March 2003, Mr. Fung sent a letter of confirmation to the Defendant recording the Defendant’s acceptance of the Plaintiff’s offer to perform the work at $69,750.  This letter was signed and returned by Mr. Leung on 26 March 2003, it was endorsed with the Defendant’s company chop (p. 134 of bundle C-2).

20.  The contract E quotation price was $160,500 on 31 March 2003.  Mr. Fung sent to the Defendant’s Mr. Leung a letter of confirmation referring to the 20 February 2003 quotation and thanking the Defendant for accepting the Plaintiff’s offer to perform the work at the price of $136,425.  Mr. Leung duly signed and returned the letter of confirmation with the Defendant’s company chop on the same day (p. 201of bundle C-2).

21.  The invoices and correspondences produced by the Plaintiff supported the Plaintiff’s claim that it had addressed all its communications, applications for payments and invoices to the Defendant directly.  These were often addressed for the attention of Mr. Leung.  Only a few of these documents were copied to Long Ki.  The Defendant produced copies of invoices, cheques to and receipts from Long Ki, they are evidence showing that the Defendant had made payments to Long Ki or Mr. Lai and that Lai and Long Ki had in some way taken part in these transactions.

22.  The most cogent evidence against the Defendant are the signed quotations and letters of confirmation returned by the Defendant to the Plaintiff in 4 of the 5 contracts.  In contracts A and B, the signed quotations returned were endorsed in Mr. Leung’s own writing recording a reduction of the Plaintiff’s original quotation price.  In contacts D and E, both letters of confirmation showed the Plaintiff’s original quotation price had been discounted.  All of them were addressed to Mr. Leung.  Mr. Leung did not deny he had discussed the contract price with Mr. Fung in respect of each of the 5 contracts and had managed to persuade the Plaintiff to reduce the quotation prices.  Mr. Leung was clearly eager to keep a record of the reduced contract price of the 5 contracts with the Plaintiff.  In contracts A and B, he had personally deleted the original quoted price and inserted the reduced price.  As they were meant to be records of the contracts entered, Mr. Leung signed on the amendments and at the columns on the bottom right corner to show the Defendant’s acceptance of the Plaintiff’s offers.

23.  Based on the documentary evidence before me, I reject Mr. Leung’s explanation that he had agreed to sign these quotations and letters of confirmation only because Mr. Fung had asked him to do so.

24.  Neither am I convinced that whatever arrangements the Defendant may have with Mr. Lai or Long Ki over the Defendant’s tenders for the MVAC portion of the HKU projects were ever disclosed to Mr. Fung.  The fact that Mr. Fung happened to be present when Mr. Lai came upon Mr. Leung by chance at a car park at Cheung Sha Wan (or at the HKU car park according to Mr. Fung) in early 1999, does not mean he was privy to the details of any agreement or arrangements between the Defendant and Long Ki.  In fact, Long Ki was only incorporated in 2001, it did not exist in 1999.  Furthermore, there was no evidence the Plaintiff took any part in Long Ki’s incorporation or its arrangements with the Defendant.  There is no documentary evidence to show Long Ki or Lai was the Defendant’s sub-contractor, there was not even a written contract between them.  Their relationship if contractual is certainly not known to any other but themselves.

25.  It is not disputed that the Plaintiff may have agreed with the Defendant to set off payments for the 5 contracts with Long Ki, this does not exonerate the Defendant from its contractual liability towards the Plaintiff.  Whatever outstanding amounts that Long Ki failed to settle with the Plaintiff on the Defendant’s behalf, the Defendant is bound to pay the Plaintiff.

26.  For the aforesaid reasons, I conclude the Defendant to be liable to the Plaintiff in the sum of $649,136.51 with interests from the date of writ to the date of judgment at ½ judgment rate and thereafter at judgment rate until full payment.

27.  Costs nisi – costs to the Plaintiff to be taxed if not agreed.  The order will be made absolute should there be no application to Court within 14 days of the day hereof.