BUILDTECH LTD v. HUNG WAN CONSTRUCTION CO LTD

DCCJ 1385/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1385 OF 2008

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JUDGMENT

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1. The plaintiff claims against the defendant the sum of $700,000 under an oral agreement of settlement reached in May 2003 due to the cancellation of a contract to supply gondolas in a Hong Kong Housing Authority project.

2. The defendant denies there was a settlement agreement reached between the parties and relies on the Limitation Ordinance claiming the plaintiff’s claim for compensation for breach of contract was time barred.

Background

3. The plaintiff (‘Buildtech’) is a Hong Kong company engaged in the business of supplying, installing and maintaining building maintenance units (otherwise known as ‘gondolas’) used in high rise building structures in Hong Kong to support workmen in the maintenance of the buildings’ facades.  It is not disputed that they are used after the occupation permit of a building has been granted.

4. The defendant (‘Hung Wan’) was the main contractor for the construction of Tsz Lok Estate Phase 2 in Tsz Wan Shan (‘the project’), the employer of the project was the Hong Kong Housing Authority (‘HKHA’) and Widnell Limited (‘Widnell’) was the Project’s quantity surveyor.

5. On 19 September 1995, Buildtech and Hung Wan entered into an agreement for the supply and installation of four complete sets of gondolas with ancillary equipment at the contract price of $1,780,000 (‘the contract’).  Under the terms of the contract, on 21 September 1995, Buildtech received a deposit of $178,000 from Hung Wan.

6. On or about 2 July 1998, HKHA informed Hung Wan in writing that the gondola supply contract had been cancelled.  Buildtech claims it had reached an oral agreement with Hung Wan to settle Buildtech’s loss of profit at $700,000 on or about May 2003.  The claim is disputed by Hung Wan.

The issue

7. The only issue remaining at trial is whether an oral settlement agreement was reached between Buildtech and Hung Wan in May 2003 to compensate the loss of profit of Buildtech at $700,000 payable upon Hung Wan’s receipt of payment from HKHA.

The plaintiff’s case

8. It is the evidence of Buildtech’s director Mr Hemmon Tseng Hing Ming (‘Tseng’) that Buildtech and Hung Wan signed a written agreement on 15 September 1995 with Buildtech as the sub-contractor of the Project for the supply of gondolas at $1,7800,000 (‘the contract’).  Buildtech was orally informed of the cancellation of gondola supply in the Project by Hung Wan’s chief quantity surveyor Mr Kenneth Chan (‘Chan’) on 15 September 1998.

9. On the same day, Buildtech issued a letter to Hung Wan claiming a loss of profit of $1,120,864 on the cancellation of the gondola supply contract.  It is further the evidence of Tseng that he had numerous telephone conversations with Chan in relation with Buildtech’s claim on the cancellation of the contract.

10. On 16 November 2002, HKHA requested for substantiation of the loss incurred as a result of the cancellation.  On 19 November 2002, Buildtech, through its claims consultant James R Knowles (‘JRK’), issued a letter setting out the basis of Buildtech’s claim for the loss of $1,120,864.  JRK’s letter was forwarded by Hung Wan to HKHA on 20 November 2002.

11. On 5 March 2003, Tseng was requested by Hung Wan to attend a joint meeting with HKHA at HKHA’s office.  The meeting was also attended by Mr Michael Choi, the senior architect of HKHA, Mr Tse Sek Chun (‘Tse’) of Widnell and Chan.  At the meeting, Tseng was requested to supply shop drawings, calculations, audited accounts and other details to substantiate Buildtech’s claim of loss of profit.  Although the parties agreed to meet again on 12 March 2003, the meeting did not take place because Buildtech was advised by JRK that it was not necessary to supply further substantiation information to Widnell, Buildtech therefore sent a letter to Hung Wan enclosing a letter setting out its position prepared by its consultant JRK.

12. On 4 April 2003, Chan told Tseng to contact Tse directly to discuss the exchange rate applicable on Buildtech’s compensation claim for gondolas ordered from Belgium involving payments in Belgian francs at the time of the gondola contract in September 1995.  On 7 April 2003, Tseng informed Chan and Tse that he would agree to adopt the average rate of exchange of Belgian francs with Hong Kong dollars between the date of the contract in September 1995 and the effective payment date to its Belgian supplier Secalt S A for the gondolas.  Tse then informed Tseng that he would forward his claim to HKHA.

13. It is Tseng’s evidence that since Hung Wan would benefit from a 15% administrative fee on the compensation of loss of profit paid to Buildtech by HKHA, Hung Wan was happy to work with Buildtech to make a claim against HKHA.

14. On 23 April 2003, Chan informed Tseng that Hung Wan was prepared to pay Buildtech the sum of $796,521.70 in full and final settlement of its claim and that the sum was offered by HKHA.  As Tseng was unhappy with the sum, on Chan’s suggestion, he called up Tse to find out the basis the figure was worked out.  However, Tse told him he had yet to finalise the exact figure with Hung Wan.  On 7 May 2003, Chan informed Tseng that the settlement sum of $796,521.70 is subject to the deduction of the $178,000 deposit received by Buildtech.

15. On 9 May 2003, Buildtech wrote to Hung Wan offering to settle its claim at $879,140.  Tseng claimed he was given to understand a settlement was close and he was advised by Chan he should accept a settlement of $800,000.

16. On 12 May 2003, Chan told Tseng that his boss would like Buildtech to accept a lower settlement sum.  Chan further advised him to reduce the sum to $700,000 as full and final settlement between Buildtech and Hung Wan.  Believing that Hung Wan had probably reached a settlement with HKHA and that Buildtech would be paid without further delay, Tseng informed Chan that Buildtech would accept the offer of settlement sum at $700,000.  Chan told him to put Buildtech’s acceptance in writing after confirming the settlement sum of $700,000 with Tseng.

17. On the aforesaid basis, Tseng issued a letter to Hung Wan confirming the terms of the oral settlement agreement.  He claimed he had expected the payment to be received on or before Hung Wan’s receipt of payment on the Project’s final accounts settlement.

18. Tseng admitted he had frequent contact with Hung Wan as Buildtech had been working with Hung Wan on another gondola supply contract between 2002 and 2004.  That it was his habit to call up Chan after the Chinese New Year reminding him of the agreed settlement payment.  This was done in 2004 and 2005.  He claimed Chan had informed him in March 2005 that the payment was not ready.  Tseng admitted he did not press Hung Wan further for payment until 2007 when Chan told him his boss wanted a further discount from Buildtech.  Tseng claimed he was surprised by the request as he believed there was an oral settlement agreement of his claim.  Failing to receive any payment from Hung Wan, Buildtech commenced proceedings against Hung Wan.

The Defence Case

19. Mr Kwan Yau Ming (‘Kwan’), the general manager of Hung Wan, gave evidence at the trial.  He claimed that his final approval was required in all settlement agreement with Hung Wan’s sub-contractors. Though Kenneth Chan was the staff responsible for negotiation of settlements, Chan had not discussed with him a settlement with Buildtech at $700,000 or $800,000 in May 2003 or at any other time.

20. He further claimed that though Chan had shown him Buildtech’s letters of 9 May 2003 and 12 May 2003, he did not give his approval for acceptance of Buildtech’s offer.  He said it is Hung Wan’s practice to put all settlement agreements with its sub-contractors in writing, there was no written agreement to settle in Buildtech’s claim.

21. The evidence of Chan corroborated with the evidence of Mr Kwan particularly on Hung Wan’s practice on settlement agreements with its sub-contractors and the letters it received from Buildtech on 15 September 1998, 9 and 12 May 2003 offering to settle the claim for $1,120,864, $800,000 and $700,000 respectively.  He further confirmed he had numerous meetings and telephone conversations with Tseng since 15 September 1998 and May 2003 regarding Buildtech’s claim on the cancellation of the gondola contract in the project. He claimed he did not take any action to accept the offer.  That even after receiving Buildtech’s letter of 30 January 2008 demanding payment of $700,000 it previously invoiced Hung Wan, Chan admitted he took no action until 19 February 2008 when he sent a letter in reply to Buildtech’s 30 January 2008 letter informing Buildtech its claim was time barred and a further letter of 25 March 2008 denying reaching any settlement agreement with Buildtech at $700,000.

22. Chan further claimed that though he was put in charge of negotiating settlements, all settlements had to be approved by Kwan and reduced in writing for Kwan’s approval before execution.  He referred to a settlement agreement form used by Hung Wan at p 59 of bundle B.

23. Hung Wan admitted that it received the sum of $356,000 from the HKHA as settlement of Hung Wan’s claim arising from the cancellation of the gondola supply contract.  Chan produced Hung Wan’s final account with the HKHA on the project prepared by Widnell dated 17 January 2006, the final account was accepted by Hung Wan.

24. Hung Wan claimed that, as the project’s main-contractor, it had 90 sub-contractors and suppliers.  Even though Buildtech was appointed the supplier of gondolas with the approval of HKHA, it was not a nominated contractor of the HKHA.  Any compensation for the cancellation of contract would be subject to the project’s quantity surveyor’s (Widnell) final accounts.  Chan claimed that it was clear to him when he discussed with Widnell the final account of Hung Wan, Buildtech’s full claim would not be paid.  In any event, he claimed Buildtech’s claim of loss of profit represented a 63% of the contract price of $1,780,000, was highly excessive.

25. Chan admitted he had been involved with meetings and discussions with Mr Tse of Widnell over Buildtech’s claim between November 2002 and early 2006.  Though the earlier meetings were attended by Tseng, he was not present after mid 2003.  Chan admitted it was based on these meetings and discussions that Widnell prepared the final account on the project for Hung Wan.  As a result, Widnell offered $356,000 on the cancellation of gondola claim in late 2005 or early 2006.  Out of the $356,000, Hung Wan claimed it is entitled to deduct 15% as its mark up plus a deduction of the deposit of $178,000 paid to Buildtech.

26. Hung Wan denies the parties had ever reached a settlement agreement on Buildtech’s claim at $700,000.  Further, Hung Wan admitted, in spite of accepting the final account on the project with HKHA, it failed to pay any part of the sum of $356,000 to Buildtech due to an oversight. 

Findings

27. It is not disputed that Buildtech entered into a contract to supply and install gondolas in the project with Hung Wan, the main contractor of the HKHA project on 19 September 1995, two years after Hung Wan was appointed the main contractor of the project worth $481,852,714.  It was understood that the use of gondolas in the project’s building maintenance work would take place at the end of the construction work after the issue of occupation permit, however, it was only in September 1998, 3 years after the contract that Buildtech was informed by Hung Wan that the gondola contract had been cancelled by HKHA. HKHA had in fact by letter notified Hung Wan of the cancellation on 2 July 1998, the occupation permit on the project was issued in September 1997. Consequently, on 15 September 1998, Buildtech submitted a final account to Hung Wan for its loss of $1,120,864 (p 17 of bundle C). 

28. Since then Buildtech had been discussing with Hung Wan the compensation for its loss of profit on the cancellation by HKHA.  After being notified by Hung Wan on 16 November 2002 that HKHA demanded a substantiation of Buildtech’s claim within 7 days, Buildtech engaged JRK to assist in the claim. 

29. On 19 November 2002, JRK on behalf of Buildtech sent a letter to Hung Wan explaining the position of Buildtech.  Hung Wan forwarded the letter to HKHA’s chief architect with a copy to Widnell (p 22-24 of bundle C) requesting an early assessment and payment. 

30. It was clear that Buildtech, Hung Wan and HKHA had been engaged in negotiations between 16 November 2002 and May 2003, this is supported by the exchange of correspondences including letters and emails between Tseng and Mr Gregory Tung of JRK, Buildtech’s letters enclosing JRK’s letter in answer to Widnell’s request for a breakdown on abortive work and loss of profit in March 2003.  In April and May 2003, Buildtech, Hung Wan and Widnell were engaged in working out the exchange rate of Belgian franc at the time of the contract on Buildtech’s claim.  This is supported by Buildtech’s email to Mr Tse of Widnell (p 38-39 of bundle C) and Tseng’s handwritten notes on the calculations on the applicable exchange rate. 

31. In the 7 May 2003 email Tseng sent to JRK’s Gregory Tung, Tseng informed Tung he was told by Chan that Widnell was prepared to pay Buildtech the sum of $796,521.70 as compensation of its loss on 28 April 2003, he was further told by Chan the deposit payment would be deducted from the settlement sum.  He was told further details would have to be worked out by Widnell and Hung Wan before finalising the offer.  Tseng then sought JRK’s advice on the acceptable settlement sum (p 40 of bundle C). 

32. On 9 May 2003, after a telephone discussion with Hung Wan, Buildtech sent Hung Wan a revised final account for $879,140.  The last paragraph of that letter stated that Buildtech was offering to settle its claim with Hung Wan at $800,000.  Further telephone negotiations followed after Hung Wan received the 9 May 2003 letter and on 12 May 2003, Buildtech sent Hung Wan a further letter offering a further discount of $100,000 and stated at the end of the letter: “We are to offer another special discount of $100,000 to your company.  Which makes a final total of $700,000 that your company remains to pay us.” (p 42-43 of bundle C). 

33. It is based on the aforesaid documentary evidence and the oral evidence of the parties that the court is asked to determine whether an oral settlement agreement had been reached between the parties on Buildtech’s claim for Hung Wan’s breach of contract. 

34. Before assessing the evidence on the oral settlement agreement, I will first examine the claim basis of Buildtech and the applicable legal basis of the claim.  Under the Sale of Goods Ordinance Cap 26, section 52 provides:-

“52. Damages for non-acceptance

(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.

(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.

(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the neglect or refusal to accept.”

35. Under s 52(2), Buildtech is entitled to recover the estimated loss directly and naturally resulting from the breach of contract of Hung Wan. 

36. It is not disputed that Buildtech is and was one of a handful of companies specialised in supplying gondolas and related building equipments in Hong Kong.  Buildtech was not a HKHA nominated supplier, supply contracts such as the one it signed with Hung Wan were usually signed with the main contractors of HKHA.  Tseng admitted between 2002 and 2004, Buildtech had another gondola supply contract with Hung Wan and Buildtech had maintained a good working relationship with Hung Wan.  Because of the indirect gondola supply relationship, Buildtech’s claim of the cancelled contract could only be made through Hung Wan while both parties understood the employer HKHA who cancelled the gondola supply would be the ultimate party paying the compensation.  This perhaps explains Buildtech’s patience in pursuing its loss from Hung Wan.  Unfortunately, the delay in lodging a claim in the Courts ran the danger of rendering the claim time barred. 

37. Based on the aforesaid background, I do not accept Mr Lam’s submission that the alleged settlement agreement is independent of the HKHA’s main contract with Hung Wan.  Buildtech’s claim is subject to the assessment and approval by the employer through its chief architect and quantity surveyor Widnell and payment would not be forthcoming until the final account of Hung Wan as the main contractor is settled, Buildtech knew it had to wait for its payment and it did with great patience. 

38. Buildtech claimed that the oral settlement agreement was reached in May 2003, unfortunately, its letters of 9 May and 13 May 2003 did not support the claim.  The former was a revised final account statement with an offer to settle at $800,000, discounted from the $879,140 set out in its final account. The latter was obviously written after further discussions and negotiations with Kenneth Chan.  It offered a further discount of $100,000 and reduced the offer to $700,000, according to Tseng, it was written at the suggestion of Chan. Unfortunately, these letters only referred to an offer to settle at a certain sum, there was no reference to an oral settlement agreement.  While I have no doubt that these letters were written after prolonged negotiations and discussions with Kenneth Chan and Mr Tse of Widnell to take into account the exchange rate of Belgian francs, there was no evidence in writing in support of Buildtech’s claim that a settlement agreement had been reached.  The documentary evidence only disclosed an offer was made by Buildtech.

39. Mr Niehorster, counsel for the defendant, referred to the judgment of Kaplan J in the Hong Kong case of Eu Asia Engineering Ltd v Wing Hong Contractors Ltd in HCCT000016/1990 where he said at p 9 of the judgment the following:-

“ In construction cases, as in most other cases, I attach great significance to the contemporaneous documents. These are usually prepared in good faith before a dispute has arisen or at any rate crystallised. It is a particularly devious contractor, employer or sub-contractor who systematically manufactures documents to assist in a future dispute. Fortunately, such instances are rare. I accept that once a dispute has been identified it is necessary to pay careful attention to the documents created after that time because it is only natural that parties will reflect their grievances and justification for actions taken in those documents. I am quite satisfied that all the contemporaneous documents until just before the crucial events can be relied upon. I will have to look harder at the other documents prepared once the dispute existed.”

40. I agree that the exchange of correspondences should explain the position of the parties at the relevant time.  They also reflected the progress of negotiation. At the trial, Buildtech made extensive disclosure of the emails and correspondences it had with Hung Wan, Widnell and its consultant JRK during the relevant period on the claim and the alleged settlement.  After careful consideration of the supporting documents, I am not satisfied the plaintiff had discharged the burden of proof that there was an oral settlement agreement reached between the parties.  Even though it is possible that Tseng may have been misled by Kenneth Chan that Tse on behalf of Widnell had agreed to the sum of $796,521.70, but it must be clear to him the assessment of loss was by no means final.  He was told by Tse that it was subject to further discussions with Hung Wan.  For an experienced businessman in the construction industry like Tseng, it is unlikely for him to expect Hung Wan, the main contractor, to commit to an agreement to pay its sub-contractor an amount not supported by the employer HKHA, particularly when it was HKHA that cancelled the gondola contract. 

41. While I am not convinced that the agreement form produced by Hung Wan was a form suitable for a settlement with Buildtech, it was a form suitable for settlement with small contractors written in the Chinese language when all correspondences between Buildtech and Hung Wan were in English, I accept Hung Wan would not enter into a settlement for payment of an amount of $700,000 without putting it in writing and signed by the parties.  Even though $700,000 compared to the $48M contract under the project seems to be small, it is by no means a negligible sum and a construction company on the HKHA list such as Hung Wan would be expected to keep proper documentary records and accounts of its operation. 

42. For the aforesaid reasons, I am not satisfied there was an oral agreement reached between the parties to settle Buildtech’s claim of loss of profit.  I dismiss the plaintiff’s claim with costs to the defendant to be taxed if not agreed with certificate for counsel.