ACROTECH LTD. v. ESSMAN CONSTRUCTION CO. LTD.

HCA 13602/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13602 OF 1997

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J U D G M E N T

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The background:

1. The defendant was a sub-contractor of Tai Hing (Engineers & Builders) Limited (hereinafter called "Tai Hing"), which was the Main Contractor responsible for the maintenance and repairs of Government and Urban Council properties. The defendant, in turn, sub-sub-contracted the works to Wayhoong Engineering Company (hereinafter called "Wayhoong").

2. The plaintiff is an engineering contractor. In April 1996, a Mr Leung Kwok Hung or an officer of the Architectural Services Department responsible for the maintenance of the Coliseum suggested the plaintiff to tender for certain maintenance work in the Coliseum. Accordingly, on 3 April 1996, the plaintiff sent a quotation and an estimate for the works to Tai Hing for the attention of Mr Leung Kwok Hung. The plaintiff's managing director, PW1, knew there were other sub-contractors to Tai Hing all the way down the line, so he addressed the quotation to Tai Hing, for the attention of Mr Leung Kwok Hung, to avoid possible and unnecessary complications from the Architectural Services Department. In due course, the plaintiff collected the copy of the works contract with a signature and the impression of the defendant's chop at the space typed "agreed and accepted".

3. The plaintiff issued an invoice dated 30 April 1996 for a deposit in the amount of $86,245.60. This invoice was also addressed to Tai Hing for the attention of Mr Leung Kwok Hung. On 17 May 1996, the plaintiff collected the deposit in the form of a cheque issued by the defendant. The plaintiff then executed the works. The works order was a small job which was completed on 24 May 1996. In connection with the works, PW1 liaised with either Mr Leung Kwok Hung or officers of the Architectural Services Department, where necessary.

4. One day after completion of the works, the plaintiff issued an invoice dated 25 May 1996 for the cost of works. It is worth noting that this invoice was also addressed to Tai Hing, but c/o Wayhoong and for the attention of Mr Leung Kwok Hung.

5. On 10 October 1996, the plaintiff received another payment of $100,000 by cheque from the defendant. The plaintiff then issued another invoice for the remaining balance. This invoice was dated 10 October 1996 and has taken into account the $100,000 just received. Again, it is worth noting that this invoice was also addressed to Tai Hing c/o Wayhoong and for the attention of Mr Leung Kwok Hung.

6. Thereafter no further payment was received. When PW1 pressed for payment from Mr Leung Kwok Hung, Leung told him that the person responsible for payment was Mr Lau, the construction manager of the defendant.

The defendant's chop on the works contract:

7. The signature and the defendant's chop on the plaintiff's estimate and works contract are heavily relied on by the plaintiff as evidence that the defendant was the contracting party to the works contract. There is no dispute that the works described on the contract were works required by the Architectural Services Department as specified in their works order to Tai Hing and hence to the defendant.

8. According to Mr Lau, the defendant had sub-sub-contracted the maintenance works to Wayhoong. This is supported by the sub-contract agreement signed between the defendant and Wayhoong. For the purpose of enabling Wayhoong to acknowledge receipt of works order, plans and drawings received from the Architectural Services Department, the defendant gave one of its two company chops to Wayhoong to be kept in the District Maintenance Office at Kowloon Park. The other chop was under safe custody of the defendant's managing director. He confirmed that the impression of the chop on the works contract resembled that of his company's, but denied that the signature was signed and chop was impressed with authority of the defendant.

9. Given the sanctity the defendant attached to the other chop kept by the managing director, Mr Lau's explanation lacks persuasion. However, it appears that there was a desire or even practice among the trade to conceal the identity of the sub-sub-contractors working for the official contractors for the Architectural Services Department. For example, the plaintiff itself deliberately addressed the quotation, invoices and receipt to Tai Hing to avoid complication with the Architectural Services Department. Also, Mr Leung Kwok Hung, who indisputably was a sub-contractor of the defendant, was somehow described, according to the Architectural Services Department telephone directory, as Tai Hing's unit foreman in charge of Urban Council property in Yaumatei area. Mr Lau's explanation is not at all unbelievable.

The two payments by the defendant's cheques

10. Mr Lau explained that the two cheques issued by the defendant to the plaintiff were issued at the request of Wayhoong as advances to pay Wayhoong's sub-contractors. He said it was a normal practice in the trade to make advances to sub-contractors to enable them to pay their sub-sub-contractors, workers, or suppliers; and that to ensure that the money would be applied to that end the cheques were issued payable direct to those people and not to the sub-contractor. This loan arrangement was expressly provided for in paragraph 7 of Clause 3 of the agreement between the defendant and Wayhoong.

11. He produced two loan application forms lodged by Wayhoong in support of his allegation. In respect of the cheque for $86,249.60 dated 17 May 1996, Mr Lau's evidence is that Mr Leung Kwok Hung applied for an advance by signing the relevant loan note dated 16 May 1996 and told him that the plaintiff was pressing for payment urgently. Thus a staff from the plaintiff collected the cheque with a pre-signed receipt addressed Tai Hing dated 18 May 1996; but when the plaintiff's staff noticed that the cheque was from the defendant, he amended the name of the payer to that of the defendant.

12. This aspect of Mr Lau's evidence appears suspect for three reasons. Firstly, the form does not bear any signature from the alleged borrower, Mr Leung Kwok Hung, or the chop of Wayhoong. Secondly, neither Mr Lau nor Mr Leung Kwok Hung nor Wayhoong dated the application in Part (A) of the form. Thirdly, these alleged loans were not supported by any contemporaneous accounting record in the books of the defendant company.

13. On the other hand, the document appeared to be genuine and contemporaneous. It bears the invoice number of the plaintiff. More remarkable is this. Under Part (A), the payment was originally intended to be effected by a cheque post dated to 7 June 1996. The cheque made out did originally bear a date of "17-6-96", from which the figure "6" was amended to "5" and then the entire date deleted and amended to "17-5-96". There was also a hand-written note on the form to the effect that the cheque was to be dated "7/6/96". This date was then deleted and replaced by "17/5/96". This note suggests that originally the cheque was dated "7-6-96" in accordance with what was stated on Part (A) of the loan note. Then because the plaintiff was pressing for payment of the deposit before work would be started, the date on the cheque was amended, firstly by adding the figure "1" before "7" and over-writing the figure "5" on the figure "6". Then the date was deleted and replaced by "17-5-96" and then properly endorsed by the signatory of the cheque. While alterations to the loan note could be made anytime before trial, the alterations on the cheque itself could not. The inference is that the cheque was issued originally post dated to June as an advance payment or a loan in the normal course of business of the defendant with Wayhoong and was not intended as a payment of deposit pursuant to a contract between the plaintiff and the defendant. This lends credence to Mr Lau's account of what happened.

14. Mr Lau gave a similar explanation for the cheque of $100,000 dated 10 October 1996. He said that Mr Leung Kwok Hung applied for an advance of $309,296.40 which he reduced to $100,000 because he had not been to the site and thought the works had not been completed.

15. Counsel for the plaintiff criticised Mr Lau as being evasive; and apparently he was. He was the construction manager. It was an urgent job to be completed before 24 May 1996. The works were completed on that day. The alleged loan or part payment was dated 10 October 1996, six months afterwards. It is unthinkable that as the construction manager, Mr Lau did not go to the site to supervise or check the work which had been completed six months ago. On the other hand, Part (A) of the loan note stipulated that the payment was to be by a cheque post dated to 10 October 1996. The loan note was undated. There is no clue when the loan was applied for. It could not have been applied for on 10 October 1996, otherwise there was no need to issue a post dated cheque. It is possible that it was applied for shortly after 25 May 1996 when the plaintiff's invoice was issued. If so, it is not unreasonable that Mr Lau had not been to the site at that stage and did not know if the works had been completed.

16. Having considered the totality of the evidence, I find Mr Lau an honest and credible witness. I accept his evidence.

The plaintiff's invoices:

17. PW1 said that the plaintiff contracted with whoever signed and chopped on the works contract and that because the works contract bore the defendant's chop impression, he asserted that the defendant had contracted with the plaintiff.

18. On the other hand, there is no dispute that all the invoices and quotation were addressed to Tai Hing for the attention of Mr Leung Kwok Hung. However, one day after the completion of the works, the plaintiff issued an invoice to Tai Hing care of Wayhoong. The works lasted only for ten days. This invoice suggests that the plaintiff knew of the existence of Wayhoong at the time of the performance of the works and that Wayhoong was the party responsible for payment. Again after receipt of the October payment, the plaintiff issued another invoice in respect of the outstanding balance also addressed to Tai Hing care of Wayhoong. Despite the fact that the plaintiff now sought to rely on the defendant's chop on the works contract, the plaintiff never issued any invoice to the defendant or to Tai Hing care of the defendant and did not institute action against the defendant until December 1997. From all these evidence, I draw as the irresistible inference that all along the plaintiff knew it was not contracting with the defendant but with Wayhoong, though the defendant's chop was fixed on the works contract and that the defendant's cheques had been used to pay the deposit and one part payment. It is quite a common practice for a principal contractor or superior contractor to make direct payment to workers or sub-sub-contractors of his sub-contractor.

19. In view of the above finding, it is unnecessary for me to consider the question of agency, ostensible authority or implied authority, or negligence, raised by counsel.

Conclusion:

20. Accordingly, I find that the plaintiff contracted with Wayhoong and not the defendant for the works and the defendant was not a party to the works contract. The plaintiff's claim is therefore dismissed with costs.