ETERNITY CONTRACTING & ENGINEERING CO LTD v. THE JARDINE ENGINEERING CORPORATION, LTD

CACV 236/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 236 OF 2016

(ON APPEAL FROM HCCT NO. 33 OF 2007)

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J U D G M E N T

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Hon Lam VP :

1.  I agree with the judgment of Cheung JA and for those reasons the appeal is dismissed with costs.

Hon Cheung JA :

I.  The appeal

2.  Louis Chan J dismissed the plaintiff’s claim for $4,372,180.80 which was pleaded by the plaintiff as ‘the balance due from the defendant to the plaintiff for work done and materials supplied by the plaintiff, at the defendant’s request pursuant to [an] agreement’.  The plaintiff now appeals.

II.  The background

3.1   The defendant was a sub‑contractor of Jardine-China Overseas Joint Venture (‘JCO’) in respect of plumbing and drainage (‘P&D’) works.  JCO was an electrical and mechanical (‘E&M’) sub‑contractor of the Main Contractor NECSO-China State-Hip Hing Joint Venture (‘the Main Contractor’) in respect of the KCRC East Rail Extensions Contracts.

3.2   The agreement between the plaintiff and the defendant was pleaded by the plaintiff as follows :

‘ 3. By an agreement made between the Plaintiff and the Defendant contained in or evidenced by the Plaintiff’s quotations and invoices made on various dates and by the Defendant’s Instruction to Sub‑contractor Ref.EMSCD/KFL/J62F210066 to the Plaintiff dated 12^th September 2003, the Plaintiff agreed to supply labour and materials to carry out the instructed P & D Installation Work for the Defendant at City One, Ma On Shan, Shek Mun and Wu Kai Sha stations (“the sites”) in relation to the KCRC East Rail Extension Contract Nos.TCC 200 & TCC 300 for such sum as should become payable thereunder. All the invoices and quotations in respect of the P & D Installation Work in relation to the KCRC East Rail Extension Contract Nos.TCC 200 & TCC 300 were duly served on the Defendant at various dates.’

3.3   The particulars of 15 invoices/quotations relied upon by the plaintiff are as follows :

No.	Date of Invoice/Quotation	Reference No.	Amount due (HK$)
1.	9 October 2003	QJEC07/23	$51,100.00
2.	10 November 2003	QJEC08/23	$375,200.00
3.	9 December 2003	QJEC09/23	$561,605.60
4.	12 January 2004	QJEC01/24	$585,100.00
5.	9 February 2004	QJEC02/24	$384,950.30
6.	9 March 2004	QJEC03/24	$28,104.00
7.	13 April 2004	QJEC04/24	$108,150.00
8.	10 May 2004	QJEC05/24	$326,055.90
9.	9 June 2004	QJEC06/24	$579,515.50
10.	9 July 2004	QJEC07/24	$442,372.60
11.	9 August 2004	QJEC08/24	$322,141.50
12.	9 September 2004	QJEC09/24	$276,273.50
13.	9 October 2004	QJEC10/24	$275,394.50
14.	9 November 2004	QJEC11/24	$229,845.10
15.	9 December 2004	QJEC12/24	$84,542.30
			______________
			$4,630,350.80

3.4   The plaintiff pleaded that the claim of $4,372,180.80 is made up of $4,630,350.80 less $258,170.00.  Details of the latter sum are pleaded as follows :

‘ 5. Pursuant to a letter from the Defendant to the Plaintiff dated 6^th December 2004, the Defendant agreed to issue payment to the claimants who are workers working for the Plaintiff at all material times in the sites aforesaid amounting to HK$258,170.00 to settle the claim for wages of the claimants under the Labour Department File No.LR 36-2004-2840 on behalf of the Plaintiff.

6. By virtue of the same letter in paragraph 5, the Defendant also agreed with the Plaintiff that the said sum of HK$258,170.00 is to be deducted from any amount due from the Defendant to the Plaintiff in relation to the KCRC East Rail Extension Project Contract Nos.TCC-200 and TCC-300.’

3.5   The defendant denied that there was any contractual relationship between the parties.  It admitted that it had issued the Instruction to Sub-contractor (‘ITS’) to the plaintiff, but pleaded that the ITS expressly stated that no money was payable unless a Work Order was issued by the defendant and no Work Order was issued to the plaintiff.  The defendant denied that the ITS created any contractual relationship between the parties or created any obligation on the part of the defendant to pay the plaintiff.  The defendant admitted that it had issued a letter dated 6 December 2004 to the plaintiff because the plaintiff had failed to pay wages to its workers at HK$258,170 which the defendant had paid on its behalf.  The letter was to claim from the plaintiff the said sum of HK$258,170.

3.6   The defendant’s case is that the plaintiff first asked the defendant to pay for the plaintiff’s supply of labour to the KCRC contracts by a letter dated 23 June 2005.  This letter was only received by the defendant by fax on 12 August 2005.  The 15 invoices claimed by the plaintiff in this action only first came to the defendant’s attention in mid-August 2005.  The defendant had never received these invoices when the works were being allegedly carried out by the plaintiff’s workers.  The defendant’s records did not show that the plaintiff was on the defendant’s lists of approved or preferred supplier or sub‑contractor.  There was no prior approval from a branch manager for the defendant to enter into a subcontract with the plaintiff.  There was no application made to the finance department for a subcontract to be entered into with the plaintiff pursuant to the Quality Policy.  There was also no record evidencing the internal consideration of the plaintiff as a sub‑contractor of the defendant for the P&D works.

3.7   The defendant further pleaded that, in the event there was a contract between the plaintiff and defendant, the plaintiff is put to strict proof as to the work done and materials supplied to the defendant.

3.8   As is apparent from the judgment below, counsel for the defendant in his closing submission changed the defendant’s position on the absence of a contractual relationship.  The case that was then put forward was that the ITS could only be a contingent contract subject to the issuance of a Work Order, which never happened.

III.  The decision

4.1   The Judge found that there was a conditional contract between the parties.  This is the Judge’s decision :

‘ 95. Having considered the submissions of the parties, I take the view that the ITS will only be effective after its confirmation by the issue of a Work Order by the defendant. I accept the evidence of Mr Mak [of the defendant] that an ITS would be issued when the defendant is not yet aware of the nature and extent of the works that it wishes to procure and the ITS is to put the subcontractor on notice that work may come so that it would be ready to go when a Work Order is issued. Before a Work Order is issued, the ITS is only a conditional contract. Whilst it is conditional, neither party has any obligation to render any performance pursuant to it. Once the Work Order is issued, it will become effective immediately.

 96.  This conditional contract may not impose any obligation upon the defendant, but it may impose an obligation on the sub-contractor to at least give notice of termination or withdrawal to the defendant if it no longer wants to wait for the work to come. .....

 ......

 99.  Since no Work Order was issued and the ITS remained a conditional contract between the parties, the plaintiff did not have to supply any worker to the Sites.  Even if it did, the defendant would have no obligation to pay it for the service.  On this ground alone, I have to dismiss the plaintiff’s claim for payment for supply of labour. 

 100.   Since the plaintiff’s claim for the costs of materials is made on the same basis as for the supply of labour (paragraph 3 of the statement of claim), the fact that the contract between the parties is only a conditional one is a bar for the recovery of such costs as well...’

4.2   Notwithstanding his view that there was no contractual relationship between the parties, the Judge nonetheless went into the merits of the plaintiff’s claim and decided against the plaintiff. He held that :

‘ 195. .....I do not think the evidence adduced by the plaintiff to establish its supply of labour and materials to the defendant is reliable and I cannot enter judgment for its claim. The plaintiff’s evidence is dubious and unreliable. The evidence as corroborated by the defendant’s evidence only proved that some of its workers had worked at the Sites on some days. But there is no reliable evidence to show how many workers had worked on what dates at which of the stations.

  196.  Though the defendant has not pleaded that the plaintiff’s claim is an exaggerated one or contains fabrication, it does not stop me from finding on the evidence that this is a claim full of exaggerations and fabrications.  There is no evidence that the plaintiff was financially capable to defray the alleged payments to the workers and for the purchase of the materials.  The evidence of its two witnesses Mr Chung and Mr Leung are incredible and unbelievable.  Mr Chung painted a most curious situation that even Mr Leung had not witnessed in his working life since the 1970s.  Mr Leung however has also failed to explain many oddities that involved him.  I do not accept that the plaintiff’s invoices (quotations) and the purported annexeures (including the monthly summary of attendance by workers and the daily worker records) had been sent to the defendant’s head office by Mr Leung.  I also do not accept that the plaintiff had paid the workers directly or through its worker Chan or at all.  The lack of financial and accounting evidence is fatal to the plaintiff on this point. 

  197.  On the whole, I find that the plaintiff has not proved its case on a balance of probability.  I think the plaintiff was trying to perpetrate a dishonest claim in this action.’ 

4.3   The reasons relied upon by the Judge to dismiss the plaintiff’s claim can be summarised as follows :

1)   Work without payment

1.1)  It was odd that the plaintiff could have provided workers to work for the defendant for 15 months from September 2003 to November 2004 without being paid by the defendant at all and it did not even send the defendant a demand letter until months after its workers had allegedly completed the work and left the sites. It was even stranger that despite its claim of financial difficulties, it continued to pay its own workers but was unable to produce any banking or accounting document including audited reports to show the source of funding and the use of such funds to pay the workers.  This was so despite repeated requests by the defendant’s solicitors for specific discovery of such documents.

2)   Low profit margin

2.1)  The plaintiff’s case is that it had supplied the workers through its labour leader or sub-contractor Mr Chan Kam Kui.  It paid Mr Chan HK$680 per man-day and charged the defendant HK$700 per man-day.  It had paid Mr Chan a total sum of HK$4,289,440 and invoiced the defendant a total of HK$4,415,600 for the labour supplied.  Its profit out of this sub-contract for supply of labour is HK$126,160.  If this is truthful (that it had incurred HK$4,415,600 for a profit of HK$126,160 or less than 2.9%) and without issuing a simple demand letter, then it is really contrary to business sense. 

3) Mr Leung, unsatisfactory witness for the plaintiff

3.1)  One of the plaintiff’s main witnesses was Mr K F Leung, the former Project Manager of the Building Services Contracting Department of Jardine M & E Contracting Limited (‘JME’), a subsidiary of the defendant from 2003 to February 2004.  After the defendant decided to wind down JME, the defendant assisted those in charge of JME to form Winice Corporation Ltd (‘Winice’) to take over the management of the projects then managed by JME.  The P&D works was one of the projects.  Mr Leung was one of the shareholders of Winice.  There was later a dispute between the defendant and Winice and the defendant was unable to gain access to the documents relating to subcontracts until 26 November 2016 when the parties settled their dispute and Winice returned documents relating to the P & D works to the defendant.  The 15 invoices from the plaintiff were found in the documents returned by Winice, but they were not stamped and not accompanied by any Purchase Order or Order Issue Checklist which were documents required for confirming a subcontract order.

3.2)  Mr Leung’s evidence is that he had on behalf of the defendant issued the ITS to the plaintiff and instructed the plaintiff to supply labour to carry out the P&D works according to the Main Contractor’s programme at the sites.  He understood that the ITS was a formal instruction by the defendant to the plaintiff.  The ITS was based on a standard form of the defendant.  He was aware of the clause stating that ‘This ITS Must be confirmed by a WORK ORDER.  Under no circumstances shall any money be paid without issue of a WO.’  He knew that the defendant had an internal policy that a Work Order was required before any money could be paid to a sub‑contractor.  He had no authority to change the terms on the standard form. 

3.3)  He had also drafted a Work Order to the plaintiff for approval and/or execution by the defendant’s senior management.  But he had not received any reply or explanation from the senior management regarding its non‑issuance.  He said in oral evidence that he had in fact drafted two draft Work Orders.  He drafted the first one about three months after the plaintiff’s commencement of works. He drafted the second two to three months after the first one.  But no work order was issued pursuant to the two drafts.

3.4)  He knew that his senior, the defendant’s project director Mr K S Yeung had on behalf of the defendant orally agreed with the plaintiff that the wages were HK$700 per man‑day.

3.5)  After the ITS was given to the plaintiff, the plaintiff’s workers followed the instructions and drawings provided by his team, including himself and his subordinate Mr David Wong, the site supervisor of the defendant, to carry out the P&D works.  The attendance of the plaintiff’s workers on the sites on each day was recorded on daily records prepared by the plaintiff.  He had instructed Mr David Wong to check the workers who had attended the sites against the daily records bearing their signatures.  If Mr Wong could not see any worker at the sites or if any worker had only worked for a short duration, then he would cross out the worker’s name from the daily record.  He thus believed that the daily records represented the actual number of man-days provided by the plaintiff.  After checking the daily records, Mr David Wong would summarize them on a monthly basis and produce the summary tables.  The number of workers provided by the plaintiff at the sites on each day can thus be found in the daily records signed by the plaintiff’s workers and submitted by the plaintiff to the defendant and in the summary tables prepared by Mr David Wong.

3.6)  After the plaintiff had submitted the daily records to the defendant, the defendant had in turn submitted them to JCO which had in turn submitted them to the Main Contractor of the project.  This was to ensure that the defendant had engaged enough workers on the sites as required by the KCRC contracts.  The Main Contractor and JCO also had to ensure that wages had been paid to the workers. The defendant thus kept all the workers’ attendance records and wages payment records for submission to JCO.

3.7)  Mr Leung said that after Mr David Wong had checked the daily records of a preceding month, the plaintiff would submit its invoice for payment of the man-days supplied and material costs paid by it in the preceding month.  He confirmed that during the construction period he had received one invoice each month from the plaintiff recording the number of man‑days supplied and material costs paid in the preceding month. 

3.8)  Mr Leung also confirmed in both his witness statement and oral evidence that he and Mr David Wong had checked and confirmed the accuracy of the invoices, especially on the number of man-days.  He then passed the same to the defendant every month.  After the defendant had completed the P&D works in or about November 2004, he had personally verified that the number of man-days claimed by the plaintiff in all the invoices did match the daily records.  He then drafted a Work Order to cover all the sums claimed by the plaintiff and submitted it to his senior Mr K S Yeung for processing of payment to the plaintiff. However, for unknown reasons, no one approved his draft.  As a result, no money was paid to the plaintiff. 

3.9)  The Judge was clearly not impressed by Mr Leung’s evidence.  The Judge held that :

‘ 109. If the invoices had indeed been sent to the defendant, as Mr Leung maintained, I think the defendant would have written to the plaintiff setting out the grounds of non-payment soon after the receipt of the first few invoices. In that event, the dispute between the parties would have arisen very soon. It would have resulted in a stoppage of supply of labour to the Sites. The plaintiff would not have continued with the saga for 15 months. But the defendant had not responded to the invoices. The defendant says that it was not aware of the invoices until it received the fax letter of the plaintiff on 12 August 2005. The absence of any response by the defendant to the invoices makes the defendant’s story credible.

110.  Mr Leung’s conduct is also worth consideration.  He was aware that the sum allegedly due to the plaintiff was on the increase.  He said in oral evidence that he had drafted two Working Orders for the plaintiff.  That was at three and five to six months respectively after the plaintiff had started supplying labour to the Sites.  But the drafts were not approved.  He then told his superior Mr KS Yeung that the defendant was not paying the plaintiff.  Mr Yeung raised it in a meeting of the defendant but could not secure payment for the plaintiff.  Mr Leung then just left the matter to rot and for the outstanding sum allegedly due to the plaintiff to increase month after month to over HK$4 million. 

111.  I think Mr Leung’s conduct in not alerting the defendant’s senior management of the problem is extraordinary.  If he was telling the truth, he should have known that a bombshell was developing.  He would certainly have told the defendant that either it should pay the plaintiff or to stop the plaintiff from sending any more workers to the Sites.  But he did not do either. 

112.  Furthermore, when Winice had the project management agreement with the defendant, Winice was under an obligation to inform the defendant of potential disputes. I agree with Mr Niehorster that it is inconceivable that Mr Leung would have failed to notify the defendant at an earlier stage had he indeed received the monthly invoices in issue from the plaintiff during October 2003 to December 2004.  Such inconceivable conduct casts doubt on the plaintiff’s case.  I would also mention that there is nothing in the evidence to show that there was any draft Work Order with a date of three or five to six months from the plaintiff’s commencement of supplying labour to the Sites.’

3.10)  I had already referred to the plaintiff’s case that it supplied the workers through its labour leader or sub‑contractor Mr Chan Kam Kui.  Mr Leung’s evidence was that he had received the original claims for payment from the plaintiff’s labour leader Mr Chan Kam Kui for the same months and for the same work but at a rate of HK$680 per man-day instead of HK$700 per man‑day. However, he said that he just ignored these claims by Mr Chan.  The Judge commented on this that :

‘ 120. ....On the plaintiff’s case, there is no reason why Mr Chan would have sent his claims to Mr Leung or Winice or the defendant. I also cannot understand why Mr Leung would have just ignored Mr Chan’s claims if he was telling the truth.’

4)   Unsatisfactory supporting documents

4.1)  The plaintiff was unable to provide a satisfactory answer why the payment-related documents did not show that they had been verified.  The Judge held that :

‘ 117. Mr Leung agreed that payment-related documents received by the project management team were routinely marked with an ink stamp showing the date of receipt, marked for action on the top right corner with Mr KS Yeung’s name in typeface and Mr Leung’s initials in handwriting indicating that Mr KS Yeung had directed Mr Leung to take action on the document (T2/122/12-127/13). Mr Leung also confirmed in oral evidence that for every letter received by the defendant, someone would chop a date stamp on it (T4/52/22-53/16). He further confirmed in oral evidence that this was also the practice at Winice (T4/87/21-25 and T5/8/9-14). Yet each and every of the plaintiff’s invoices addressed to the defendant and sent month after month did not bear such date stamp or the typeface of KS Yeung’s name. There was also no initial of Mr Leung. Mr Leung’s answer is that he did not remember why this happened (T3/119/1-123/16).

118.  Furthermore, though Mr Leung said that he had forwarded all these invoices to the defendant every month, the original invoices (all without date stamp, KS Yeung’s name in typeface and Mr Leung’s initials as mentioned above) were in fact kept by Winice.  They were only sent to the defendant together with other project documents in 2010.  Mr Leung again could not explain why this was so (T4/61/18-25).....

......

126.  However, the daily records of workers’ attendance prepared by the plaintiff do not have any date stamp on it.  They also do not have the initial of Mr KS Yeung in typeface.  The initial of Mr Leung and the relevant the job number are also not written thereon.  Mr David Wong also had not signed on them (T5/56/11-58/8).

127.  Without the date stamp chop on the invoices, there is nothing to show when or whether they had ever been received by the defendant.  I have also pointed out above that the original invoices were kept by Winice and were only sent to the defendant in 2010.  Without Mr KS Yeung’s initial on them, there is also no evidence that Mr Yeung had ever read them.  Mr Leung also agreed that in all probability, Mr Yeung had not read it (T4/58/4/59/18).  Mr Leung also accepted in oral evidence that if Mr David Wong did not sign these daily attendance records, logically it meant that he had not checked them (T5/58/22‑60/9). Furthermore, if Mr KS Yeung had not read them, there is no reason why they should have been sent to the defendant’s accounts department.  One therefore cannot tell if these records were prepared contemporaneously on a monthly basis per the actual attendance of workers or whether they were prepared at other times with fabrication and exaggeration.’

5)  Unsatisfactory evidence of Mr Chung

5.1)  Mr Chung Tak Leung was a director of the plaintiff and was the other witness for the plaintiff.  The Judge held that ‘His evidence on the whole sounds incredible and unreasonable’.  Specifically his evidence on the acknowledgement by its workers of receipt of wages paid by the plaintiff was problematic.  This is what the Judge held :

‘ 121. Mr Chung also said that the plaintiff had duly paid the wages to its workers since September 2003 for their work on the Sites except 12 workers for the period from 16 August to 15 November 2004 (who were paid in the labour dispute) and the workers acknowledged receipt of their wages by signing the wage acknowledgement. The wage acknowledgement contained the workers’ names, their Hong Kong Identity Card numbers, site pass numbers and signatures. But the amounts of wages received by the workers are not stated therein.’

6)  The JEMIS system

6.1)  Mr Leung agreed that he was supposed to input the amount provided in the plaintiff’s invoices in a computer system, the JEMIS system.  However, by September 2004 when, on the plaintiff's case, the plaintiff had already sent the defendant invoices for HK$4 million, Mr Leung still had not inputted any of the sums in the invoices into JEMIS.  His only explanation is that he ‘did not remember why there was such a big failure.’ 

6.2)  The Judge commented that Mr Leung’s explanation is not credible :

‘ 130. However, this failure, if it was indeed a failure, happened not just once or twice. It was a systematic failure that happened to all 15 plaintiff’s monthly invoices. There is nothing to explain why there could have been such a monthly systematic failure. Mr Leung’s answer of not remembering the reason is not credible. I do not accept his explanation that it was a mere failure on his part to do what he had been doing regularly. He did not fail to do this for other contractors and suppliers (T3/98/1-18, 101/11-24, 107/10-12 and 114/19-115/6).’

6.3)  Mr Leung prepared two draft contract booking forms dated 16 February and 13 April 2005 and produced them in evidence.  They included the sum of HK$4,630,180.80 in respect of the workers which the plaintiff contends that it had supplied.  However, Mr Leung again confirmed that in all probability he had not submitted them to the defendant’s head office.

7)  No wage acknowledgement sent to the defendant

7.1)  It is the plaintiff’s case that all the attendance records and wage acknowledgements had been sent to the defendant which had in turn sent the same to JCO.  The reason being that the Main Contractor and JCO had to ensure that the defendant had engaged enough workers on the sites as required by the KCRC contracts and had paid the workers.  However, Mr Leung eventually accepted that he had not sent the wage acknowledgements to the defendant (T5/146/10-147/20).

8)  The plaintiff’s attendance record is not accurate

8.1)  Having considered the attendance record of the labourers at the site prepared by the Main Contractor and the plaintiff, the inconsistency contained in these records and Mr Leung’s acceptance that in all probabilities the Main Contractor’s records were more accurate, the Judge held that :

‘ 136. Though the plaintiff may argue that the Main Contractor’s records show that it had supplied more man-days than it is claiming now and it had thus under claimed the defendant, the better view on these inconsistencies, in the light of the problems of the plaintiff’s documents, is that they were caused by the plaintiff’s records not having been prepared per the actual attendance of the workers.’

9)  THE PLAINTIFF’S CLAIM FOR LABOUR IS EXAGGERATED

9.1)  The defendant had previously engaged two other sub‑contractors to carry out the P&D works, namely, Honour Wealth and Waybo before the plaintiff appeared on the scene.  Honour Wealth had provided 457 man-days to carry out the concealed pipe works.  Waybo had provided about 2,570 man-days for HK$1.8 million at the rate of HK$700 per man-day.  The defendant had also paid HK$450,375 to Waybo’s labourers for their works from 16 June 2003 to 16 August 2003.  That amounted to 643.4 man-days at the same rate.  The total is about 3,671 man-days.  That is supposedly for the whole of the original scope of the P&D works. 

9.2)  On the other hand, the plaintiff’s claim is for: HK$4,415,600 (labour supply) + HK$214,750.80 (materials) – HK$258,170 (wages paid by the defendant) = HK$4,372,180.80.  The sum of HK$4,415,600 is for 6,308 man‑days at HK$700 per day. 

9.3)  The Judge agreed with Mr Niehorster for the defendant that :

‘ Mr Niehorster thus submitted that the plaintiff’s claim of 6,308 man-days (171% of 3,671 man-days) for completing the remaining works (assessed by JCO at 44%) is extraordinary and erroneous.’

9.4)  The exaggeration can further be tested by reference to JCO’s estimate (contained in its letter dated 19 March 2004 to JEC) of 492 man-days in order to complete all the works from mid March 2004 onwards.  This is what the Judge held :

‘ 148. Mr Leung accepted that JCO had made a generous estimate in the letter dated 19 March 2004 that 492 man-days were required to complete all the works (T5/93/8 – 15). However, the plaintiff is claiming 3,567 man-days for the period from March to November 2004. That is a seven-fold increase on JCO’s generous estimate. Leung, who was the project manager of this project, was unable to give any meaningful answer to this unthinkable perplexity (T5/95/7 – 96/14).’

9.5)  The Judge referred to another ‘example of absurdity’, namely, the provision of workers at the Wu Kai Sha station for the month of May 2004.  The plaintiff’s Daily Worker Records recorded 5.8 times more man-days than as required by the estimate of JCO (T5/99/9–T5/101/20).

9.6)  The Judge found this exaggeration was not supported by the plaintiff’s claim that the additional manpower was required to carry out the variation work.

10)  Claim for costs material

10.1)  The Judge held that the plaintiff’s claim for the costs of material was not a contractual claim but a claim for reimbursements as the plaintiff’s case was that it had purchased the materials on behalf of the defendant and was seeking reimbursements.  The real problem that the plaintiff had with this claim is that the invoices/receipts were addressed to parties other than the plaintiff and the plaintiff has supplied no evidence to show that it had paid for the materials either directly or by paying these parties.  Since this particular claim is in the nature of reimbursement of expenses, the Judge held that the plaintiff has to prove that it has already paid the suppliers before it can be entitled to the reimbursements. 

IV.  Grounds of appeal

5.  The plaintiff relied on four grounds of appeal :

1)  The Judge was wrong in law in finding that the ITS was a conditional contract and the defendant would have no obligation to pay even if the plaintiff had supplied labour.  Further the Judge was wrong to hold that the Control of Exemption Clause Ordinance was irrelevant;

2)  The Judge was wrong in law in finding that it was open to him to find that the plaintiff’s claims were exaggerated, fabricated and dishonest, when the defendant had not pleaded exaggeration, fabrication and dishonesty and the defendant did not run its case as such.  This seriously prejudiced the plaintiff in the preparation of its case and selection of witnesses;

3)  The Judge was wrong in law in dismissing the whole of the plaintiff’s claim when the defendant also admitted that the plaintiff had paid Mr Chan Kam Kui at least HK$793,600 for labour and Mr Iu of the defendant gave evidence that the plaintiff settled the labour dispute on site in February/March 2004; and the plaintiff produced evidence in support that it had paid material costs; and

4)  The Judge was wrong in his finding that the plaintiff’s claim was exaggerated, fabricated and dishonest.  The plaintiff relied on the details pleaded in its amended notice of appeal.

V.  My view

1)  Ground one

6.1  The relevant clause of the ITS is as follows :

‘ Please note: This ITS must be confirmed by a Work Order.  Under no circumstances shall any money be paid without issue of a WO’ (the ‘Clause’).

6.2   Mr Solomon Lam for the plaintiff argued that by definition, an agreement is conditional if its operation depends on an event which is not certain to occur.  Given the background facts, the issue of a work order by the defendant was not an event which was not certain to occur. He submitted that the ITS ought to have been regarded as an agreement subject to execution of formal document, so that the Court should find the ITS is an enforceable agreement between the parties, namely, a separate preliminary contract had come into existence at an earlier stage when the plaintiff began to render the services as requested; or the wordings of the clause are meaningless or can be severed.  Alternatively, the ITS is to be treated as similar to a letter of intent which can also be binding.

6.3   He further submitted that even if the ITS was a conditional contract, the issuance of Work Orders ought to have been regarded as a ‘promissory condition’.  Taking into account the wordings of the clause and the background facts as a whole, the defendant should be seen as having promised to issue a Work Order later.  When the defendant did not issue any Work Order, it was a breach of contract and the plaintiff was entitled to damages.

6.4   Mr Lam submitted even if the issuance of a Work Order was a ‘contingent condition’, the Judge ought to have considered that the defendant owed secondary obligations in not preventing the issuance of the Work Order and in reasonably and diligently bringing about the issuance of the Work Order on the part of the defendant.  When the defendant was in breach of such secondary obligations by not issuing a Work Order, it shall be treated as if the Work Order had been issued and the defendant shall be liable for the principal obligation i.e. obligation to pay, or is liable for damages.

6.5   Alternatively, Mr Lam submitted that the clause is in effect an exemption clause which falls within the definition under section 5 of Control of Exemption Clauses Ordinance (Cap 71) (‘CECO’) as it excludes or limits the defendant’s liability to pay.  The ITS is the defendant’s standard form, so that the clause is caught by section 8 of CECO and is subject to the reasonableness test.  It is wholly unreasonable for the defendant to rely on the clause to refuse payment to the plaintiff when labour and materials had been supplied to the defendant.  Therefore, the Judge was wrong in law in holding that the CECO is irrelevant.

6.6   In my view, it is unfortunate that the argument on conditional contract was only raised by the defendant at its closing submission.  The issue of conditional contract is a matter that should have been specifically pleaded so that the plaintiff would have a chance to properly respond to it.  It is not clear whether the arguments of Mr Lam had been raised before the Judge.  The Judge had certainly not dealt with any of the arguments now raised by Mr Lam other than the issue of CECO.  This is not satisfactory.  However, in my view, in the context of this case, it is not necessary to go into the issue of conditional contract at all because the Judge had actually gone into the merits of the plaintiff’s claim on the alternative basis that there was a contractual relationship between the parties.  Hence the issue of conditional contract raised by Mr Lam under the first ground is really an academic one.  This extends to the argument on the CECO as well.

6.7   Mr Lam, however, further submitted that, if the first ground of appeal is accepted, since the Judge had accepted that the plaintiff’s workers had worked on the site (which was not challenged by either party), the Court ought to treat the plaintiff as having successfully proved its case on liability and the remaining dispute between the parties is merely concerned with the quantum of the work done by the plaintiff.

6.8   In my view this is a simplistic way of looking at the matter and is incorrect.  The mere existence of the plaintiff’s workers on the sites does not even begin to prove that it should succeed on liability.  The crux of the dispute in this case is whether the plaintiff had indeed performed all the work as it had alleged.  With this controversy which clearly needed to be resolved (as the Judge had done in the present case), I do not see how it can be realistically argued that the plaintiff had established liability by the mere proof of the presence of workers on the sites and the Judge should then only be concerned with the assessment of damages only.

6.9   The defendant has filed a respondent’s notice contending that the Judge erred in law in finding that a conditional contract existed between the parties and ought to have held that there was no contract relationship between the parties. This, however, was not pursued on appeal.  In any event it is not necessary for me to deal with this point.

2)   Ground two

6.10  Mr Lam submitted that the defendant did not plead that there was exaggeration, fabrication nor dishonesty in its defence and counsel for the defendant expressly stated at trial that the defendant was not advancing a case of fraud. It was also not the defendant’s case that the daily worker records produced by the plaintiff were fake or that the whole claim was a bogus one.

6.11  Mr Lam submitted that when the Judge found the plaintiff’s claim was ‘exaggerated’, ‘fabricated’ and ‘dishonest’, he inevitability fell into a finding of ‘fraud’ which was plainly not open to him because fraud was not pleaded nor put to the plaintiff.

6.12  He submitted that the Judge was wrong in finding the plaintiff’s claim was exaggerated, fabricated and dishonest.  Even if the Judge did not accept the amount of labour claimed by the plaintiff and accepted JCO’s estimation, it is nevertheless an assessment on reasonableness of labour required and the plaintiff’s claimed amount cannot be said to be ‘exaggerated’.

6.13   In my view this is a point without substance.  While the Judge did use words like ‘exaggeration, fabrication or dishonesty’ in paragraphs 196 and 197 of the judgment, reading the judgment as a whole, the Judge had not decided the case on the basis of an unpleaded case of fraud.  He certainly had not adopted any wrong test or burden of proof in assessing the evidence.  It is the plaintiff’s case that it was entitled to $4,372,180.80 (and no alternative claim was put forward); that the work (and material) it had carried out were contained in the invoices which were provided to the defendant each month; the attendances of the workers were properly documented in the summary tables of daily attendance of workers and in the daily records; the wages paid by the plaintiff to the workers were acknowledged by the workers in the wage acknowledgement and that it had paid for materials on the plaintiff’s behalf.  However, after a careful analysis of the evidence, the Judge found that the plaintiff failed to establish its claim, not just by a few dollars and cents or a small percentage, but rather the whole of its case.  In such circumstances the Judge was clearly entitled to use strong words to express his dissatisfaction with the way the plaintiff’s case was presented.  He cannot be faulted.  In any event, the use of such words must be put in the proper contexts.  I have already referred to paragraphs 196 and 197 of the judgment.  These are the only two places where such words were used.  As pointed out by Mr Pennicott SC and Mr Niehorster for the defendant, the use of adjectives like ‘incredible’, ‘unbelievable’, ‘unreliable’, ‘extraordinary’, ‘dubious’ and ‘unreasonable’ in the context of the evidence of the plaintiff’s factual witnesses are far more prevalent.  The use of these adjectives and the findings made consequent upon them was the result of the detailed analysis of the plaintiff’s claim.

3)   Ground three

6.14   Mr Lam submitted even if the Judge found that the plaintiff could not prove its entitlement to the claimed amount, he ought to proceed with his own assessment based on the evidence he had accepted, namely, the defendant’s version.  He submitted that the Judge did indeed carry out his own assessment in his subsequent decision on costs.  Based on that, Mr Lam submitted by adopting 60 weeks from 18 September 2003 to 16 November 2004, one can arrive at a benefit obtained by the defendant in the sum of HK$700 x 8 labours x 6 days x 60 weeks = HK$2,016,000 (i.e. 2,880 man-days).  Taking into account the sum of HK$258,170 paid by the defendant in the labour dispute for and on behalf of the plaintiff, the plaintiff was entitled to at least HK$2,016,000 – HK$258,170 = HK$1,757,830 for labour cost.  A sum of HK$214,750.80 should also be added in respect of the plaintiff’s claim for material costs plus interest.

6.15   In my view this point is misconceived.  As pointed out earlier, the only claim put forward by the plaintiff is for the sum of $4,372,180,80.  There is no alternative claim at all, like quantum meruit or unjust enrichment or for damages to be assessed.  As a matter of fact, the plaintiff had sought leave to plead a quantum meruit claim not in its statement of claim but in its reply which was refused by the Judge and the plaintiff had not made any attempt thereafter to plead such a cause of action in its statement of claim.

6.16   In terms of finality of litigation, the Court proceeds on the principle that a reasoned judgment contains all the determination of the disputes between the parties.  While the Judge in this case had expressed in the decision on costs some other views on the case, it does not mean that his earlier reasoned judgment must somehow be read subject to his later expressed views.  This is not how the Court operates.  In any event, the later views were only said in the context of costs and has no bearing on the earlier determination on liability.

4)   Ground four

6.17  Despite the wide ranging challenges contained in the amended notice of appeal, Mr Lam in his written submission confined himself to three matters.  First the Judge was obviously wrong in misunderstanding the evidence of the defendant’s internal records, namely, the JME meeting minutes and the contract booking form as only relevant to the knowledge of the defendant on the existence of invoices but not the extent of the plaintiff’s work done.  Mr Lam referred to the knowledge of the defendant about the expected loss of the P&D works in the JME meetings and submitted that the defendant could not have calculated the loss without information concerning the plaintiff’s labour costs.  Second, the defendant’s own variation claim of $3.7 million on top of the original contract sum submitted to JCO supports the view that a lot of work had been done by the defendant through the plaintiff’s labours.  Mr Lam argued that the Judge rejected the plaintiff’s argument by taking into account JCO’s assessment on these variations and the fact that there was no arbitration or litigation between the defendant and JCO.  He submitted that the Judge had failed to consider JCO and the defendant was in the same group of companies with conflict of interests.  Thirdly, Mr Lam submitted that the defendant had allowed the sum of HK$218,565 as the plaintiff’s sundries and materials on 21 September 2004, when the plaintiff’s claimed amount was HK$190,569 and the Judge ought not to disallow the plaintiff’s claim on material costs.

6.18  This is a challenge by the plaintiff on findings of fact by the Judge.  The principle is well established that the appellant must show that the trial judge was plainly wrong on the finding of fact before the appellate court would interfere with the finding.  In my view the plaintiff has failed to overcome this high threshold in this appeal.  Quite apart from the benefit of observing and hearing the evidence directly, what the Judge had actually done in this case is to assess the inherent probability of the plaintiff’s case by considering, among other things, the following: the unsatisfactory nature of the documents relied upon by the plaintiff in support of its case; the objective evidence of the plaintiff’s inaction during the 15 months when it said it had performed its work, presented the documents for payment and yet not received any payment from the defendant; testing the accuracy of the plaintiff’s claim by reference to JCO’s own documents; testing the accuracy of the plaintiff’s claim by reference to the work that had already been completed before the plaintiff came into the scene and also by reference to the work that the plaintiff came to do after March 2004.  The first two matters now relied upon by the plaintiff had already been considered by the Judge and rejected.  The plaintiff simply failed to show that the Judge was plainly wrong in that regard.  In respect of the third matter, I also cannot see the link between the previous payment by the defendant for material and the defendant’s current claim for payment.

6.19  At the trial, the plaintiff had submitted that whether Mr Leung had passed the invoices to the defendant’s head office and whether the defendant’s representatives had checked them were the defendant’s internal matters.  It does not change the fact that the plaintiff had supplied labour and materials to the defendant. 

6.20  The Judge addressed this argument by saying that :

‘168. This is a misapprehension of the defendant’s position on the peculiarity of these documents. The defendant is saying that these documents had problematic features that show that they had not been sent to the defendant’s head office as alleged by the plaintiff and its witness Mr Leung.’

6.21  The plaintiff had not pleaded in the Court below that Winice, the project manager, was the agent of the defendant.  This particular decision of the Judge is not the subject matter of appeal.  In any event, I agree with the Judge’s view.  As I had mentioned earlier, the plaintiff first asked the defendant to pay for the plaintiff’s supply of labour by a letter dated 23 June 2005.  This letter was only received by the defendant by fax on 12 August 2005.  The 15 invoices claimed by the plaintiff in this action first came to the defendant’s attention in mid‑August 2005.  The defendant had never received these invoices when the works were being allegedly carried out by the plaintiff’s workers.  The defendant’s records failed to show that the plaintiff was on the defendant’s lists of approved or preferred supplier or sub‑contractor.  This cast a huge doubt whether the documents relied upon by the plaintiff were contemporaneous documents.

6.22  Mr Lam had also submitted that even if this Court is not minded to disturb the Judge’s findings on exaggeration, fabrication and dishonesty, the proper way to address this is to reduce the plaintiff’s costs entitlement after giving judgment to the plaintiff, or reduce interests if time has been wasted.  I disagree.  The Judge had considered these matters in his decision on costs.  I see no ground to disturb the costs order imposed by the Judge.

VI.  Conclusion

7.  Accordingly I would dismiss the appeal with costs to the defendant.  I do not consider that this appeal requires attendance by two counsel and therefore would not grant certificate for two counsel.

Hon Yuen JA :

8.  I agree with the judgment of Cheung JA.