T.S. WONG AND CO. LTD. v. NG YAT CHI, A BANKRUPT

IN THE HIGH COURT OF HONG KONG

IN BANKRUPTCY

NO. 242 OF 1992

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D E C I S I O N

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1. This is an appeal against a decision of the Official Receiver and Trustee of the estate of Ng Yat Chi, the bankrupt, whereby claims totaling HK$4,493,962.28 were rejected. The proof of debt was lodged on the 13th December 1994, Notice of Rejection of the proof was dated the 14th August 1995 and the Notice of Appeal was filed on the 4th September 1995. There were a number of adjournments and the matter finally came for hearing on the 4th November this year. At the conclusion of the hearing which had over-run normal court hours, I said that I would hand down my decision in writing which I now do.

The Background

2. The bankrupt was a sub-contractor in respect of a number of building contracts. The Appellant, T.S. Wong and Company Limited, was a building contractor which sub-contracted a number of contracts to the bankrupt who traded under the name Vincent Construction Company.

3. One further feature of this case which is important is that the bankrupt, Mr. Ng Yat Chi, was apparently one of the four directors of the Appellant, the other three being Mr. Kei Kwong Chuen, Mr. Bao Feng and Mr. Wang Hong Ling. It appears that Mr. Bao is now dead. Mr. Wang and Mr. Kei are no longer directors of the Appellant and they apparently reside in China and at least for the purposes of this case have not been contacted. It would also appear that the bankrupt is likewise resident in China. I was informed at the hearing, that he too had been uncontactable, but was thought to be appearing that day in some other court. Mr. Ng has subsequently appeared in my court in connection with another case.

4. One of the contracts which the bankrupt was undertaking on behalf of the Appellant can be referred to as the "King's Road project". On the 11th August 1990, the bankrupt, trading as Vincent Construction Company, wrote to the Appellant in respect of the King's Road contract and informed them that he was encountering cash flow problems on the project as a result of what was referred to as "continuous increase in material and labour costs". It was said in the letter that it was anticipated that additional costs of some $4m. would be incurred by the end of the project compared with the original tender. The letter then asked for a loan of $4m. and went on to say:

"In view of the tight construction programme, we have entered into some bonus agreement with our sub-contractors to motivate timely Completion of this project, and this will lead to further additional costs being incurred by us. Therefore, we also request your consideration in granting us bonus paid on an ex-gratia basis if we could complete the project on or before the contract completion date."

5. There is a notation on that letter which indicates that Mr. Kei wrote "Agree to lend HK$2.6m. temporarily. Regarding the request for bonus, we shall consider after the work has completed." That notation is dated the 13th August.

6. At the end of August and beginning of September 1990, there were, it seems, a number of board meetings of T.S. Wong and Company Limited. For example, on the 31st August 1990, there was a board meeting at which Mr. Ng himself was elected Chairman of the meeting. On the 11th September 1990, there was another meeting. The exact business conducted at those meetings is not important but I will revert to that later.

7. On the 1st September 1990, there was, admittedly, a board meeting. It would appear that Mr. Kei was the Chairman of that meeting and Mr. Bao and Mr. Wang were also present since they signed against their names. Mr. Ng did not sign against his name. It is said in the evidence that it was a custom of that company that those directors who were present would sign against their names. The board meeting appears to have been concerned solely with the requests contained in the letter of the 11th August. Specifically, it was concerned with the request for a bonus to be paid on an ex gratia basis if the project was completed on or before the contract completion date.

8. Paragraph 2 of the minutes reads:

"After considering the matter, it was unanimously resolved that all the directors present that the Company shall paid Vincent Construction Company a bonus of HK$2,600,000 on ex-gratia basis if Vincent Construction Company could complete the project on or before the contract completion date."

9. The only evidence filed by the Appellant is the evidence of Mr. Li Kar Yin, who was apparently at the time a project quantity surveyor employed by the Appellants and has since April 1995 been promoted to the position of Contracts Manager. He is not and never has been a director of the Appellant. In paragraph 5 of his second affirmation he said:

"Further, I verily believe that as explained in paragraph 6(c) of my first affirmation, the earlier intention to grant the ex-gratia bonus to Vincent if the project was completed on time (paragraph 2, board minutes, exhibit LKY-4) has never been communicated to the bankrupt."

And a little further down:-

"I verily believe no other communication was made to the Bankrupt in relation to the matters discussed in the said meeting, or in relation to the intention to grant any ex-gratia bonus under the King's Road project if it could be completed on time."

10. His reference to paragraph 6(c) scarcely takes the matter any further since the paragraph merely contains a bald statement that there was no accrued right to the ex gratia payment and the decision at the board meeting that one would be paid was an internal decision of the applicant which was reversed and never communicated to Vincent or the bankrupt.

11. In view of the fact that statements which are made on information and belief have to be supported by the full facts upon which the statement is based, I have grave doubt as to whether that constitutes evidence that the decision was never communicated.

12. The statements by Mr. Li in his affirmations, appear to me to be statements merely of belief. They do not, at least explicitly aver that specific information has been passed to Mr. Li by any person within the company, nor does Mr. Li identify any document which states that Mr. Ng or Vincent Construction Company was not given information of the board meeting. In those circumstances it seems to me that Mr. Li has not given evidence of anything other than his own belief. He has not given evidence on information and belief.

13. Even if it does constitute admissible evidence, I find myself in the position that I am unable to accept Mr. Li's belief as sufficient evidence of the fact upon which I could either make a finding of fact or draw an inference that the decision was never communicated. It seems to me to be most unlikely that the decision was never communicated. Clearly the question of an ex gratia payment by way of bonus if work was completed on time must have been something which Mr. Ng, the bankrupt, considered important. The payment was, after all, a payment of HK$2.6m. Even on the assumption that Mr. Ng was not present at the meeting and took no part in the meeting of 1st September 1990 (and clearly he would have had a conflict of interest), I consider it most unlikely that as a director he would not know what decisions the other directors took at board meetings.

14. Before leaving this topic, it is also pertinent to point out that the Appellant had itself secured from the employer, Mount Land Limited, agreement to reimburse the Appellant for the cost of the bonus. That emerges from a memo dated 23rd December 1991.

15. In these circumstances, I find it difficult to conceive that Mr. Ng who, by all appearances, was an active director of the Appellant would not have known that the Appellant had agreed to the HK$2,600,000 bonus to Vincent Construction (part of which at least of course was being passed on to the sub-contractors) and that the Appellant had itself secured a corresponding undertaking from the employer.

16. Some attempt was at one stage made to raise the argument that the King's Road project had not been completed on time. The board minutes of the 1st September 1990 refer to "the contract completion date". I have not been shown the contract between T.S. Wong and Company Limited and the employer but from such correspondence as does exit, it would appear that an extension of time of 27 days was granted and therefore, in the light of the incomplete documentation, it does appear to me that the work was completed by the contract completion date which, for this purposes, I take to be the completion date as extended in accordance with what I would imagine to be the terms of the contract. In so far as this conclusion is inaccurate it seems to me that it is the Appellant's fault for not providing the full and complete information relating to the contract either to the Official Receiver or to this Court.

17. The final question which arises on this aspect is whether the HK$2.6m. which was admittedly paid to Vincent Construction as a loan is still recoverable or whether Vincent Construction is entitled to retain the money having completed the contract on time.

18. Even if it be right that the payment authorised by the board meeting of the 1st September 1990 should be regarded as a gift and that donation of the gift had not been perfected, I still consider that Vincent Construction Company is entitled to retain the HK$2,600,000. The letter of the 11th August 1990 makes clear that Vincent Construction was encountering cash flow problems and the costs were in excess of the budget. As Mr. Yeung, on behalf of the Official Receiver, pointed out there is no suggestion in this case that the agreement to make an ex gratia payment was obtained by duress. It seems to me that the agreement was beneficial to all parties. As I have indicated, it seems to me to have been part of a chain of agreements stretching from the employer at the top to the sub-contractors at the bottom. The clear result of the contract was that it was completed on time, there were no liquidated damages imposed by the employer and in my view following the case of Williams v. Roffey Bros. and Nicolls (Contractors) Limited [1991] 1 QB 1, it seems to me that the facts of this case fall within the parameters of a situation where the commitment to pay an ex gratia payment could be enforced irrespective of the fact that there were pre-existing contractual obligations. In this respect, I draw attention to what was said by Glidewell L. J. at page 15G-16B which was cited with the approval by Kaplan J. in UBC (Construction) Limited v. Sung Foo Kee Limited [1993] 2 HKLR 207.

Contra Payments

19. The next item is as to whether the Appellant is entitled to claim credit for the sum of HK$1,588,185.50 being a 15% charge on contra charges said to be incurred by it on behalf of the bankrupt or in the alternative to a 15% charge, the actual administrative costs and expenses it incurred in defraying the contra charges on behalf of the bankrupt.

20. Included in those charges is an element of interest. It is admitted on behalf of the Appellant that the interest claimed is unsustainable both as to the rate and as to the period.

21. Leaving that aside, the first basis upon which the administrative costs in respect of the contra payments is claimed is that it is a practice common in the trade. In my view, looking at the evidence that simply has not been made out. Apart from anything else, it is disputed by Mr. Wong Kam Din whose qualifications are not disputed. I would mention that there was some dispute as to whether he should be giving expert evidence but when it was pointed out that Mr. Li also had given expert evidence, the point was not pursued.

22. It was not disputed on behalf of the Official Receiver that the Appellant might be entitled to administrative costs in respect of contra payments properly made provided that those administrative costs were adequately demonstrated. In my view, the Official Receiver rightly rejected the claim for administrative costs and expenses in relation to the contra charges, I have been through the calculations which have been proffered and they are in exhibit LKY-12 to Mr. Li's affirmation. They are clearly highly repetitive and the excessive amounts claimed as administrative charges sometimes in respect of contra charges of very small amounts can only lead to the conclusion that claims inflated to an unacceptable amount have been lodged and in my view, the Official Receiver was correct in his approach in saying that these should be supported by at least some prima facie evidence from persons who undertook the work that the respective times suggested were spent.

23. As it is, the claim which has been put in claims what seems to me to be standard set amounts in respect of each bill no matter how large or small and on more than one occasion, the amount charged in respect of administrative costs is far in excess of the cost to be charged. In respect to the others, it is much more reasonable. Nevertheless, it seems to me to be very difficult to accept that the actual costs in respect of a large number of the payments could have been anything like what has been claimed. Moreover, the broad brush approach which appears to have been taken, in my view, justifies the Official Receiver in saying he requires to be satisfied properly that the appropriate amounts of time and therefore costs have been spent by the relevant persons.

24. This decision therefore does not prevent the Appellant from submitting a new claim properly supported by the necessary documentation and contracts and supporting evidence to show that the payments that were made were indeed contra payments and the quantity of the administrative costs which have been incurred in making those payments. I appreciate that as set out in Re Kentwood Constructions Limited [1960] 2 All E. R. 655 and Re Trepca Mines Limited [1960] 3 All E. R. 304, the court is empowered to look at new evidence provided by the Appellant but it seems to me that where the nature of the payments has been challenged it is necessary for the Appellant who seeks to a prove in a bankruptcy to show that he is entitled to the payments which he claims. As was made clear in the case of in Re Van Laun Ex parte Chatterton [1907] 2KB 23 the trustee in bankruptcy is not bound by any judgment or account stated or covenant for payment but has not only a right but the duty to investigate the nature of and grounds of the claim which has been put forward. It is his office to require some satisfactory evidence that the debt on which the proof is founded is a real debt.

25. In my view in this instance the Appellant has failed to bring forward satisfactory evidence and I therefore refuse this appeal. In doing so, I make it clear that it is open to the Appellant to present its case properly to the Officer Receiver and seek to be able to prove for an amount in respect of administrative costs.

26. I therefore refuse this Appeal and make an order nisi that the Official Receiver should have his costs taxed if not agreed.

(Anthony G. Rogers)

Judge of the High Court