GOLIK CONCRETE LTD v. TOWA CONCRETE LTD

DCCJ 7267/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7267 OF 2003

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J U D G M E N T

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The Plaintiff’s Claim

1.  This is the Plaintiff’s claim for the balance purchase price of concrete mixes sold to the Defendant and related charges in the total sum of $411,652.50.

2.  In September 1999, the Defendant was awarded a contract for the supply of concrete in two KCRC West Rail projects by Maeda-Chun Wo Joint Venture (“MCWJV”).  The unit prices of the different categories of concrete to be supplied by the Defendant were set out in a Letter of Acceptance dated 21 September 1999 (“the Letter of Acceptance”) and signed between MCWJV and the Defendant.  One of the Defendant’s obligations under the Letter of Acceptance was to set up a concrete batching plant in Kam Tin.

3.  At the material time, the Defendant was owned or controlled by Mr. Mak Wei Kei (“Mr. Mak”) or his family though Mr. Mak did not become a director until December 1999.  Mr. Mak used to be the majority shareholder of the Plaintiff and was still one of its directors in September 1999.   Because of his close connection with the Plaintiff, Mr. Mak managed to procure the supply of back-up concrete by the Plaintiff to MCWJV prior to the establishment of the Defendant’s batching plant in Kam Tin.

4.  At the request of the Defendant, the Plaintiff started to supply concrete to MCWJV’s site since about 24 September 1999.  The quantities and the relevant categories of concrete delivered on each occasion were set out in the Plaintiff’s delivery dockets which would be signed by the staff of MCWJV.  The Plaintiff would invoice the Defendant for the concrete delivered and the Defendant would in turn issue its own invoices to MCWJV.

5.  Although the Plaintiff had initially intended to mark up $50-$60 for each cubic metre of concrete over and above the unit prices agreed between MCWJV and the Defendant in the Letter of Acceptance, it was eventually agreed between the Plaintiff and the Defendant by late November 1999 that the Plaintiff would charge the Defendant at the same rate as per the Letter of Acceptance provided that the latter would provide a minimum of 4 concrete trucks each day to deliver the concrete from the Plaintiff’s Ping Che batching plant to the site locations.

6.  In order to prepare for bulk production of certain concrete mixes (known as design mixes as distinct from standard mixes), trial mixes would have to be made first.  It is common knowledge in the trade that the preparation of these trial mixes requires special care and extra manpower.  By a Trial Mixes Cost Agreement dated 13 October 1999, it was agreed between the Plaintiff and the Defendant that all costs relating to trial mixes (which MCWJV was not liable to bear) would be paid by the Defendant.

7.  There is no serious dispute on the amount of concrete delivered by the Plaintiff to MCWJV.  It is the Plaintiff’s case that a total value of $916,935.50 (excluding trial mixes of $94,717.00) has been delivered.  It is the Defendant’s case that MCWJV has only certified a total value of $875,605.50 (again excluding the same amount of trial mixes).  In other words, MCWJV has certified all the quantities of concrete mixes supplied by the Plaintiff except a sum of $41,330.00.  Counsel for the Plaintiff, Mr. K. C. Chan, stated in his opening that the Plaintiff is prepared to accept the figure certified by MCWJV.

8.  It is also not in dispute that on 9 February 2000, the Defendant has made a part payment of $600,000.00 to the Plaintiff for the concrete delivered.  The Plaintiff is therefore claiming the balance of $370,322.50 (i.e. $875,605.50 + $94,717.00 - $600,000.00).

The Defence

9.  The Defendant claims that although MCWJV has certified the amount of concrete delivered by the Plaintiff, MCWJV has withheld payment due to quality problems.

10.  Mr. Mak gave evidence for the Defendant and drew my attention to a few letters received from MCWJV between November and December 1999 which are said to have contained complaints about the quality of the concrete mixes delivered by the Plaintiff.

11.  Mr. Yin Xiaoguang, a director and general manager of the Plaintiff, while accepting that the Plaintiff did receive those letters from the Defendant when the former was pressing for payment, gave clear and cogent explanations for most if not all of the complaints mentioned in those letters.  I find Mr. Yin to be an honest and reliable witness.  I accept Mr. Yin’s explanation that the concerns expressed by MCWJV merely reflected obstacles encountered in the course of the production of trial mixes which were, as always, more susceptible to problems.  The major problem related to temperature control which was fixed eventually.  Mr. Yin testified that of all the regular mix deliveries, only two were rejected but they have not been charged by the Plaintiff.

12.  Mr. Mak also conceded under cross-examination that the last batch that received any complaint was the docket delivered on 16 November 1999, and that apart from the aforesaid written communication, there was no document whatsoever from MCWJV lodging a formal claim against the Plaintiff.  But Mr. Mak insisted that the Defendant has not been able to settle the Plaintiff’s invoices because of the refusal on the part of MCWJV to release payment, which culminated in the institution of proceedings by the Defendant against MCWJV in HCCT 140/2000.

13.  On the third day of the trial, Mr. Mak produced the Amended Statement of Claim filed by the Defendant in HCCT 140/2000.  Schedule 6 of that Amended Statement of Claim set out all the sales and payment records in respect of concrete delivered by the Defendant to MCWJV for the period between September 1999 to June 2000.  The Plaintiff’s invoices in question, namely, TC/JV/01 to TC/JV/04 (save 4 debit notes for minor sums) were also included in the Schedule.

14.  As can be seen from Schedule 6, as at 31 March 2000, MCWJV had effectively settled all the Defendant’s invoices (including TC/JV/01 to TC/JV/04) except a small balance of $57,367.08.

15.  If one takes into account the sum of $94,717.00 in respect of trial mixes (which MCWJV was not responsible to pay) and the sum of $41,330.00 arising from the differences in pricing between the Plaintiff’s invoices and the Letter of Acceptance (which has been abandoned by the Plaintiff), one will readily see that all the amounts in the Plaintiff’s 4 invoices in question had in fact been released by MCWJV by 31 March 2000.

16.  It is therefore not surprising that towards the end of Mr. Mak’s evidence under cross-examination, he was driven to concede the correctness of the above analysis of the state of account:

“Q. According to Schedule 6, invoices TC/JV/01 to TC/JV/03 had in fact been paid.

A. I have to reflect on that.  Apparently, yes.

.  .  .  .  .

Q. I put it to you that all the moneys regarding the 4 invoices had in fact been paid by MCWJV.

A. From what I have been shown, apparently, the money had been paid.”

17.  I therefore reject Mr. Mak’s evidence that MCWJV had certified but withheld payments in relation to the concrete mixes delivered by the Plaintiff in the KCRC West Rail projects.  I also reject Mr. Mak’s surreptitious suggestion that the amount due to the Plaintiff cannot be “identified” from the sum of $6,500,000.00 paid by MCWJV to the Defendant in November 2002 in settlement of HCCT 140/2000.  I accept Mr. Chan’s submission that, as can be seen from the Defendant’s own Schedule 6, MCWJV only started to withhold substantial sums against the Defendant in respect of the Defendant’s other dealings since April 2000.

18.  A further ground of defence is that pursuant to a conversation between Mr. Yin and Mr. Mak around June 2003, the Plaintiff had agreed to forego the 30% profit element of the concrete supplied to MCWJV.  It is the Defendant’s case that as a result of that settlement agreement, the Defendant is only liable to pay the Plaintiff $12,923.85 ($875,605.50 x 70% - $600,000.00).

19.  The allegation has only to be stated in order to show how incredible it is.  In any event, in a letter from the Plaintiff dated 25 November 2003, it was clearly stated that what the parties had discussed on a without prejudice basis was the proposal of offering a 30% discount on the outstanding sum of $411,652.50 provided that a final settlement agreement could be signed.  Although the offer was stated to be still open provided that payment would be effected within 7 days from the date of the letter, it was never accepted by the Defendant.  The Plaintiff then commenced these proceedings on 24 December 2003.

20.  For the above reasons, I am satisfied that the sum of $411,652.50, less the sum of $41,330.00 which the Plaintiff is no longer pursuing, is still owed and due by the Defendant.

The Defendant’s Counterclaim

21.  By a Chinese Agreement dated 6 March 1998 and entitled “Co-operation Agreement for Sale of Concrete” (合作混凝土銷售協議書) (“the Co-operation Agreement”), the Plaintiff agreed to assist the Defendant in obtaining concrete sales contract in the market and in securing a steady supply of cement to the Defendant’s batching plant.

22.  It is common ground that the sales contracts would be entered into in the name of the Plaintiff notwithstanding that the concrete was supplied by the Defendant.  Clause 4 of the Co-operation Agreement provided that the Plaintiff would be entitled to an administration fee of $12 per cubic metre of concrete supplied out of the sales amount whereas the Defendant would be entitled to the balance. 

23.  Around April or May 1998, pursuant to the Co-operation Agreement the Plaintiff entered into a sales contract with one Geoworks Equipment Company Limited (“Geoworks”).  The contract was approved and counter-signed by Mr. Mak as director of the Plaintiff.

24.  However, Geoworks subsequently defaulted in payment and was eventually wound up, leaving an unsatisfied default judgment obtained by the Plaintiff in the sum of $1,419,447.50.

25.  The Defendant now says that it was only a subcontractor to the Plaintiff who should bear the business risk of the main contractor defaulting in payment.  It is also the Defendant’s case that the Plaintiff had a duty to ensure the creditworthiness of Geoworks and to take such steps so as to secure payment in case of default.

26.  The Defendant therefore counterclaims against the Plaintiff for the lost receipt of the $1.4 million but is content to limit its claim to $1,000,000.00 within the jurisdiction of the Court.

27.  The Defendant’s contentions are premised on its construction of Clauses 7A and 7B of the Co-operation Agreement:

“7. 甲方責任：

(A) 市場開拓及協調與主判的關係。

(B) 與總承建商財務協調。”

28.  Mr. Mak argued on behalf of the Defendant that the meaning of “協調”(co-ordinating) is to “harmonize”, and the Plaintiff had failed to harmonize its own relationship or financial matters with Geoworks.

29.  It is, as Mr. Chan pointed out, trite law that in construing the terms of a contract, “the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of inquiry is the meaning of an isolated word or clause” (Chitty on Contracts, 29^th ed., para.12-063).

30.  It is accepted by Mr. Mak under cross-examination that at the time of the Co-operation Agreement, the average price of concrete in the market was in the region of $550 per cubic metre.  Of this sum, the Defendant would be able to make a profit of $110 to $120 whereas the Plaintiff was only entitled to the administration fee of $12.

31.  It is true that a related company of the Plaintiff would also benefit indirectly from the Co-operation Agreement by supplying cement to the Defendant for the production of concrete, but I do not see how that would be pertinent to the performance of the contractual obligations by the Plaintiff and the Defendant under the terms of the Co-operation Agreement.  On the other hand, it is important to note that under Clause 8E, the Defendant was responsible for all claims arising out of the project (“[乙方]承擔其項目期內引致一切索償”).

32.  I therefore find that the Defendant has not even begun to show that the Plaintiff had any of the duties under the Co-operation Agreement as argued by Mr. Mak.  The counterclaim is therefore dismissed.

Orders

33.  I therefore give judgment for the Plaintiff in the sum of $370,322.50 together with interest thereon at judgment rate from the date of writ to the date of judgment and thereafter until payment.

34.  I also make an order nisi that the Defendant is to pay the Plaintiff the costs of this action, to be taxed if not agreed, with Certificate for Counsel.