CHEUNG SIU HO formerly t/a HANG LEE ENGINEERING CO v. PUI HING CONSTRUCTION CO LTD

DCCJ2198/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2198 OF 2011

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JUDGMENT

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Introduction

1.  The plaintiff was a sub-contractor of the defendant in relation to a project for certain electric cable route works (the “Project”).

2.  Paul Y Construction Company Limited (“Paul Y”) was the principal contractor of the Project.  The defendant subcontracted part of the Project from Paul Y and further sub-subcontracted certain works to the plaintiff in about end of January 1998 (the “Sub-subcontract”).

3.  The works under the Sub-subcontract were completed in about July 1999.  On about 5 May 2000, the parties signed a completion agreement to finalize the accounts for the works done by the plaintiff under the Sub-subcontract (the “Completion Agreement”).

4.  The plaintiff’s claim is for a sum of $226,000.00 (the “Sum”) which had been deducted by the defendant from the remuneration payable by the defendant to the plaintiff under the Sub-subcontract.

5.  The Sum was deducted from about December 1998 to May 2000 in respect of payments made to a Mr Lam Chong Man (“LCM”), an employee of the plaintiff, for an employees’ compensation claim.

6.  On about 29 November 1998, LCM sustained injuries when he was working at the Project.  Advance payments for employees’ compensation were paid to LCM since December 1998.  On 15 September 2000, LCM commenced an employees’ compensation claim in DCEC No. 815/2000 naming Paul Y, the defendant and the plaintiff as respondents (the “EC Action”).  On 24 September 2002 the EC Action was settled at $661,092.00 (inclusive of interest) together with costs which was subsequently taxed at $104,940.00 (pp 232 – 236 of the trial bundles).  Accordingly, the total amount paid to LCM was $766,032.00 (the “EC Payment”).

7.  In a letter dated 12 January 2012 (pp 272 to 277 of the trial bundles) Paul Y stated that it had paid $644,581.00 in the EC Action.  This amount was not disputed by the parties herein. According to an account summary attached to the aforesaid letter, the amount paid by Paul Y included legal costs in the sum of $173,753.00 paid by Paul Y for the EC Action.  It is not clear whether this sum of $173,753.00 included the aforesaid taxed costs paid to LCM.  Suffice to say the total amount paid by Paul Y was less than the EC Payment and part of the EC Payment had to be paid by other parties.

8.  Paul Y had taken out employees’ compensation insurance with HIH Insurance (Asia) Ltd (“HIH”) covering workers working at the Project.  HIH went into liquidation in mid-2001.  Before that, HIH had been handling the claim of LCM. It was likely that part of the EC Payment not paid by Paul Y was partly paid by HIH.  However, no evidence had been adduced to show how much was paid directly by HIH.

9.  Out of the amount paid by Paul Y, $614,845.00 was admitted in the liquidation of HIH.  There was no dispute that as at the trial of this action only $307,422.50 had been received by Paul Y from the estate of HIH.  Accordingly, $29,736.00 of the amount paid by Paul Y was not admitted and $307,422.50 of the admitted sum was not paid.  The total amount being $337,158.50.  In the said letter of Paul Y, Paul Y stated that $337,158.50 was deducted from the defendant’s contract sum as contra charges for unrecovered payments and costs arising from LCM’s claim.

10.  Advance payments had been paid to LCM since his injuries.  According to the order settling the EC Action, advance payments in the total sum of $326,592.00 had already been paid to LCM before settlement.  The defendant said that advance payments prior to January 1999 were paid by the defendant.  However, the defendant was unable to tell the exact amount paid by the defendant directly to LCM.

11.  There was no dispute that the defendant had deducted the Sum from the remuneration payable to the plaintiff under the Sub-subcontract.

12.  The defendant’s case was that under the Sub-subcontract, the plaintiff was responsible for all employees’ compensation payments paid to the plaintiff’s workers.  If the defendant had made payments, the plaintiff had to reimburse the defendant and the defendant was entitled to deduct the sums paid from the remuneration payable to the plaintiff under the Sub-subcontract.  As the EC Payment was either paid by the defendant directly or by fund deducted from the defendant’s contract sums under its subcontract with Paul Y, the defendant said that it was entitled to deduct the same from the plaintiff’s remuneration under the Sub-subcontract.  After giving credit to the amount received from the estate of HIH and the Sum, there was still a shortfall of $111,158.50 in respect of the amount deducted by Paul Y from the defendant’s contract sums.

13.  The defendant further contended that all claims under the Sub-subcontract had been settled by the Completion Agreement and that any claims for wrongful deduction of the Sum had been time-barred under the Limitation Ordinance (Cap 347).

14.  The plaintiff’s case was that under the Sub-subcontract, he was responsible for paying employees’ compensation to his workers for one year and the defendant had to reimburse him for the payments.  The plaintiff further contended that the defendant was not entitled to deduct his remuneration under the Sub-subcontract for payments made by Paul Y and that time for his claim for this wrongful deduction did not start to run until December 2010 when the plaintiff learned that the EC Payment was not made by the defendant but by Paul Y.  The plaintiff said that the Completion Agreement had expressly stated that the defendant still owed him the Sum.

15.  The issues to be determined in this case are:-

(1) Under the Sub-subcontract, who was liable to pay the EC Payment?

(2) If the plaintiff was liable to pay the EC Payment, whether the defendant was entitled to deduct the Sum from the plaintiff’s remuneration under the Sub-subcontract?

(3) If the plaintiff was not liable to pay the EC Payment or the defendant was not entitled to deduct the Sum from the plaintiff’s remuneration, whether the plaintiff was barred by the Completion Agreement or the Limitation Ordinance to claim the Sum?

The plaintiff’s case and evidence

16.  The plaintiff signed a witness statement dated 13 June 2012 and testified at the trial.  He adopted his said witness statement as his evidence at trial.

17.  The plaintiff’s case was that the Sub-subcontract consisted of an oral agreement (the “Oral Agreement”) and a written agreement (the “Written Agreement”).  The Oral Agreement was entered between the parties in about end of January 1998 when it was agreed,inter alia, that the plaintiff should be responsible for employees’ compensation claims of his workers for one year and the defendant should subsequently reimburse the plaintiff (the “Oral Term”). The Written Agreement was signed in about April 1998 after the plaintiff had already commenced works under the Sub-subcontract in February 1998.  The plaintiff pleaded in para 6(b) of the Statement of Claim that Clause 7 of the Written Agreement provided, inter alia, that:-

“All damages and compensation for personal injuries and loss of the company [the Defendant] arising from work-related injuries and/or injuries caused at work shall be borne by the Plaintiff. Under special circumstances, where the company [the Defendant] pays the damages and compensation in advance, it can deduct the amount from the remuneration and the Plaintiff shall not dissent. The Defendant shall reimburse the Plaintiff upon receipt of compensation from Paul Y’s insurers.”

18.  The plaintiff said that the aforesaid part of clause 7 (the “Written Term”) was different from the Oral Term and was wrongly included into the Written Agreement.  He had pointed that out to the defendant after he had signed the Written Agreement and asked the defendant to rectify the same.  Despite repeated promises, the defendant had failed to rectify.  The plaintiff contended that the Written Term was not part of the agreed terms of the Sub-subcontract and the defendant was liable to reimburse the Sum to him.

19.  The plaintiff said that when the parties signed the Completion Agreement on about 5 May 2000, it was expressly stated in the Completion Agreement that the defendant still owed the Sum to the plaintiff.

20.  The plaintiff pleaded that he had been chasing the defendant repeatedly for refund of the Sum from about the end of 2002 to 2009 but was told that the defendant was still waiting for payment from Paul Y or HIH.  The plaintiff had from about 2005 to 2009 repeatedly chased Paul Y for refund of the Sum but was told to contact the defendant.

21.  The plaintiff pleaded that he did not know that the EC Payment was not made by the defendant but by Paul Y until December 2010 when his solicitors received a letter dated 8 December 2010 from Paul Ystating that the payment was paid by Paul Y or HIH.  In para 13 of the Statement of Claim, the plaintiff pleaded as follows:

“(13) In fact and in truth, with the assistance of legal aid granted to CSH [the plaintiff] in 2010 and upon investigation by the assigned legal representatives of CSH, it is discovered and confirmed by Paul Y’s letter of 8 December 2010 that:-

(a)  all LCM’s employee’s compensation awarded under DCEC 815/2000 including all advance payments to LCM and legal costs, were paid by Paul Y and HIH;

(b)   out of Paul Y’s payments for the EC claim, a total of HK$614,845 was admitted as HIH’s Scheme Liabilities;

(c)  Paul Y only received Scheme Dividend of HK$307,342.50 from HIH’s estate (HK$215,195.75 on 23 December 2004; HK$30,662.25 on 12 February 2008; HK$30,742.25 on 10 December 2008) [sic];

(d)   all Paul Y’s payments for the EC Claim were made by Paul Y either to LCM directly as advance payments or through Paul Y’s lawyers during the court process;

(e)  all advance payments to LCM were paid by Paul Y during the period between January 1999 and July 2001;

(f)  the relevant insurance policy covering the EC Claim was bought by Paul Y and Paul Y’s entitlement was admitted against HIH’s estate under the Scheme Liabilities.”

22.  I shall refer to the facts pleaded in para 13(a) to (f) of the Statement of Claim as the “Undisclosed Facts” in this judgment.

23.  The plaintiff pleaded that the defendant had deliberately concealed all or some of the Undisclosed Facts from the plaintiff and the plaintiff was unable to discover the Undisclosed Facts despite exercising reasonable diligence.  The plaintiff relied on section 26(1)(b) of the Limitation Ordinance in support of his contention that the period of limitation should not begin to run until he received the aforesaid letter of Paul Y.

24.  The plaintiff pleaded in paras 16 and 17 of the Statement of Claim that the defendant had never paid any of the EC Payment to LCM or at all and was not entitled to deduct the Sum from the plaintiff’s remuneration.  The plaintiff claimed that the deduction was made in breach of the Written Agreement and liable to be returned to the plaintiff. Alternatively, the Sum was money had and received by the defendant to the use of the plaintiff and also liable to be returned to the plaintiff.

25.  The plaintiff confirmed that the Oral Agreement was agreed between him with a Madam So and a “Ah Chak” representing the defendant in about January 1998.  Based on the Oral Agreement, he started works on the Project on about 1 February 1998.

26.  In para 5.2 of his witness statement, the plaintiff set out the Oral Term as follows:-

“5.2 倘本人的公司的僱員在該等工程進行期間提出僱員補償索償，本人的公司須負責該等僱員補償（「該等僱員補償」）的官司（限期為一年內），惟，被告人須在其後向本人的公司支付相關的僱員索償及官司費；”

27.  The plaintiff stated that in April 1998 he signed the Written Agreement with the defendant.  In para 8.2 of his witness statement, he stated that the Written Agreement included the following term:-

“8.2 一般條款第7條 ─ 本人的公司須負責其所僱用的工人及員工的所有假期、薪金或遣散費，而被告人則毋須就以上各項負責。所有人身傷亡所帶來的賠償金及賠償，以及因工受傷及/或於工作期間受傷而導致被告人的損失均須由本人的公司負責。在特别的情況下，如果被告人墊支賠償金及賠償，它可以從本人的公司的酬金中扣除，而本人的公司不得反對。被告人會在收到保華的保險公司賠償後支付給本人的公司。”

28.  When testified at trial, the plaintiff said that after he had signed the Written Agreement, he discovered that the term in respect of employees’ compensation claims set out in clause 7 of the Written Agreement was different from the Oral Term.  He told Ah Chak of the discrepancy the next day.  Ah Chak promised that the defendant would amend the Written Agreement.  Despite his repeated chasings, the defendant took no action to rectify the Written Agreement.  The plaintiff produced at pp 111 to 114 of the trial bundles a copy of the Written Agreement in his possession which copy was only signed by him.

29.  The plaintiff maintained that the parties’ responsibilities in relation to employees’ compensation claimed by the plaintiff’s workers were governed by the Oral Term and not by the Written Term.

30.  The plaintiff further stated in his witness statement that LCM was injured during work at the Project on about 29 November 1998.  According to the Written Agreement and what the defendant told the plaintiff, the defendant would advance employees’ compensation payments to LCM from December 1998 onwards and deduct the payments from the plaintiff’s remuneration every month.  The defendant had been doing that every month since December 1998.  The plaintiff at trial confirmed that the deductions were made from 1998 to 2000.  As at May 2000, the defendant had deducted the amount of the Sum from his remuneration.

31.  The works under the Sub-subcontract were completed in about July 1999.  The plaintiff agreed that the parties had signed the Completion Agreement on about 5 May 2000.  The defendant’s director, Mr Ricky So Kai Kwong, signed the Completion Agreement for the defendant and Mr Y W Tang, a management staff of the defendant acted as witness.  The plaintiff said that before the Completion Agreement was signed, either Mr So or Mr Tang wrote on the Completion Agreement that there was still a sum of $226,000.00 owed to the plaintiff in relation the LCM’s case.  He said that the Completion Agreement was to finalize the contract sum（工程數）only which was separate from the LCM’s case.  The plaintiff had produced a copy of the Completion Agreement in his possession at p 137 of the trial bundles.

32.  LCM commenced the EC Action on about 15 September 2000 naming the plaintiff, the defendant and Paul Y as respondents.  The defence of all the respondents in the EC Action was taken up by HIH until HIH went into liquidation in about mid-2001.  The defence of the EC Action was then taken up by Paul Y.  The EC Action was subsequently settled.

33.  The plaintiff stated that from the end of 2002 to 2009, he had repeatedly chased the defendant for return of the Sum both in person and by phone.  He had met Madam So at least twice in the defendant’s office.  Madam So admitted that the defendant had deducted the Sum from his remuneration for advance payments paid to LCM and that the defendant was awaiting payment from Paul Y or HIH.  He would phone the defendant once or twice a month to chase for payment.  He had spoken with Ah Chak, Mr So’s sister, Mr Tang and Madam So.  They would tell him that either the defendant was still finalizing the accounts with Paul Y; or the defendant had not received payment; or HIH was in liquidation.  Every time he was told to wait. He trusted the defendant and did not take legal actions against the defendant to recover the Sum until this action.

34.  From about 2005 to 2009, the plaintiff had also phoned Paul Y many times to chase for payment of the Sum. He had talked to a Mr Yip and a Mr Lee of Paul Y several times on this matter.  Every time he was asked to contact the defendant to resolve the matter as Paul Y had no contractual relation with the plaintiff.  Paul Y also refused to disclose to him any information on the EC Action or the liquidation of HIH.

35.  The plaintiff stated that he only discovered the Undisclosed Facts when his solicitors received Paul Y’s letter dated 8 December 2010.  The plaintiff stated that the defendant had deliberately concealed certain facts from him.  He contended that the defendant had never paid any EC Payment to LCM and that he was unable to find out the Undisclosed Facts even with reasonable diligence.  He said that time for his claim should start to run from the date when Paul Y’s said letter was received.

36.  The plaintiff contended that the defendant had never made any of the EC Payment to LCM and that the defendant had breached the Written Agreement in deducting the Sum from his remuneration. The defendant was liable to return the Sum to him.

37.  The plaintiff agreed that when the defendant made payments to him under the Sub-subcontract, Ah Chak would explain the calculation to him.  He said that Ah Chak told him that money was deducted from his remuneration to pay LCM and Ah Chak had never told him that payments to LCM were not made by the defendant but by Paul Y.

38.  The plaintiff claimed interest on the Sum at 2% above the prime rate of HSBC as the Sum was his working capital. Alternatively, the plaintiff said the Sum was money had and received by the defendant to the use of the plaintiff.

The defendant’s case and evidence

39.  The defendant called Mr Chak Yiu Kwong (“Mr Chak”) and Mr So Kai Kwong (“Mr So”) to testify at trial.

40.  Mr Chak was the site agent of the defendant for the Project.  Mr Chak had signed a witness statement dated 28 September 2012. He adopted his said witness statement as his evidence at trial.

41.  He confirmed that he had discussed and negotiated on behalf of the defendant the Sub-subcontract with the plaintiff in early 1998.  He said that after agreement was reached with the plaintiff, he caused his subordinate to draft the Written Agreement.  He said that the Written Agreement was the final agreement which fully incorporated the entire agreed terms and conditions.  Mr Chak said that the plaintiff had not asked him to amend the Written Agreement.

42.  He said that after the plaintiff had signed the Written Agreement, he took it back to the defendant but the defendant had lost the copy in its possession because of lapse of time and office removal.  In respect of the various amendments on the copy of the Written Agreement produced by the plaintiff, Mr Chak only agreed that the amendment to clause 1 was made by him which he had initialed.  He said that other amendments appearing in that document were not made by him or the defendant.

43.  He said that after LCM suffered work injuries, the plaintiff had to pay periodic payments to LCM.  The plaintiff said that he had no money to pay.  The defendant had to make payments on his behalf.  Mr Chak said that prior to January 1999, advance payments to LCM were paid by the defendant.  From January 1999 onwards, they were paid by Paul Y.  Paul Y would deduct the payments from the defendant’s contract sums and the defendant would in turn deduct the same from the plaintiff’s remuneration.  Mr Chak said that although payments were made by Paul Y to LCM directly, the money paid to LCM was the defendant’s money as Paul Y had deducted the same from the defendant’s contract sums.

44.  The plaintiff would attend the defendant’s office every month to collect his remuneration.  The defendant would explain the calculation of the plaintiff’s remuneration (including the deductions) to the plaintiff before making payments to the plaintiff.  The plaintiff had never raised any objection to the defendant’s calculation or deductions.

45.  He said at trial that he had never told the plaintiff that the defendant would bear employees’ compensation claims from the plaintiff’s workers.  He said that such claims were responsible by the employer-subcontractor.  He said that employees’ compensation insurance was taken out by Paul Y.  When there were claims from workers of the subcontractors of the defendant, the defendant would inform Paul Y and Paul Y would report the same to its insurer for handling.  When Paul Y received insurance payments from its insurer, Paul Y would pay to the defendant and the defendant would pay to the subcontractor concerned.

46.  He said that the plaintiff should be liable to LCM’s claim.  He confirmed that other than the first two advance payments, the EC Payment was made by Paul Y at the first instance.  Paul Y would then deduct its payments paid to LCM from the accounts of the defendant and the defendant would in turn deduct the same from the plaintiff’s remuneration in accordance with the Written Agreement.

47.  He agreed that he had received phone calls from the plaintiff chasing for the Sum.  He had explained to the plaintiff that the amount was not recovered from HIH via Paul Y.

48.  Mr Chak agreed that the defendant had not signed final accounts with Paul Y for the Project works because the EC Payment was not yet fully recovered.  There might be further payments from HIH’s estate and the defendant did not agree to the amount of legal costs for the EC Action deducted by Paul Y. 

49.  Mr So is the managing director of the defendant.  Mr So had signed a witness statement dated 28 September 2012. He adopted his said witness statement as his evidence at trial.

50.  Mr So said that the Written Agreement was the entire agreement between the parties.  He agreed that Paul Y had made advance payments to LCM but such advancement was deducted from contract sums due to the defendant.  Mr So also agreed that the defendant had deducted the Sum from the plaintiff’s remuneration.

51.  He said that the defendant would not accept employees’ compensation liabilities for its subcontractors and would not agree to limit the subcontractors’ responsibilities to one year as this would encourage loose safety management at site.

52.  Mr So said that the previous practice was that when a subcontractor’s worker suffered work injuries, the employer-subcontractor would pay compensation directly to the injured worker. As the superior subcontractor and the principal contractor would also be liable to pay if the employer-subcontractor failed to pay, it was an alternative for the superior subcontractor or the principal contractor to make direct payment to the injured worker.  

53.  Mr So said that the accounts of the plaintiff for works under the Sub-subcontract were finally agreed and settled as per the Completion Agreement.  In his witness statement, he stated that he had expressly told and clarified to the plaintiff before the execution of the Completion Agreement that the hand-writing remark on the Completion Agreement stating that $226,000.00 was still owing to the plaintiff was not removing the specific condition and prerequisite for reimbursement to the plaintiff as stated in clause 7 of the Written Agreement.

54.  At trial, Mr So testified that the hand-written words were not written by Mr Tang and that the amendments to clauses 3 and 4 of the Completion Agreement were not there when the same was signed.  When he was further cross-examined, he said that he could not recall whether the amendments were there when the Completion Agreement was signed.  He disagreed that the said hand-written words amounted to an admission that the defendant owed the Sum to the plaintiff.  Mr So agreed that if further payments payable to the plaintiff were received from HIH after signing of the Completion Agreement, the defendant would still pay to the plaintiff.  He agreed that the insurance claim was not yet finalized.

55.  He agreed that the EC Action was at the beginning handled by HIH.  After HIH went into provisional liquidation, it was taken up by Paul Y.  The EC Action was subsequently settled as aforesaid.

56.  He agreed that the plaintiff had attended the defendant’s office and phoned the defendant to chase for payment of the Sum.  He denied that the defendant had agreed and admitted the liabilities as alleged by the plaintiff but stated that he had told the plaintiff that such amount was not recovered from HIH via Paul Y.

57.  Mr So stated that subsequent to HIH’s liquidation, a scheme of arrangement was put into place.  Under the said scheme Paul Y only received partial payment from HIH’s estate.

58.  The defendant was advised by Paul Y by a letter dated 12 January 2012 that HIH’s estate only admitted $614,845.00 out of the sum of $644,581.00 paid by Paul Y in the EC Action.  Out of the admitted sum, Paul Y had only received $307,422.50 from HIH’s estate.  The balance (being the un-admitted part and the unpaid admitted part) in the sum of $337,158.50 was deducted by Paul Y from the accounts of the defendant.  Mr So said that after taking into account the Sum deducted from the plaintiff’s remuneration, the defendant still suffered loss and the plaintiff should reimburse the defendant of such loss pursuant to the Written Agreement.

59.  He agreed that the defendant had not signed final accounts with Paul Y for the Project works as the defendant did not agree to the amount of legal costs deducted and still wanted to reserve its right to claim Paul Y and HIH for the balance EC Payment not recovered.

60.  Mr So also contended that the plaintiff’s claim had been time-barred in accordance with the Limitation Ordinance.  He denied that the defendant had deliberately concealed all or any of the Undisclosed Facts from the plaintiff as alleged.

Discussion and rulings

Who was liable to pay the EC Payment?

61.  The plaintiff’s case was that the liabilities to pay employees’ compensation claims from his workers including LCM were governed by the Oral Term whereas the defendant’s case was that they were governed by the Written Term.  The defendant denied that the Sub-subcontract included the Oral Term whereas the plaintiff said that the Written Term was wrongly included in the Written Agreement.

62.  The first issue which I have to determine is whether the Sub-subcontract included the Oral Term and whether the Written Term was wrongly included in the Written Agreement.

63.  There was no dispute that the plaintiff started to work on the Project in February 1998 and that the Written Agreement was not signed until April 1998.  I agree that the parties had to have an oral agreement for the Sub-subcontract before the plaintiff would commence work.  The issue is whether the Written Agreement had accurately included all terms of the Sub-subcontract agreed between the parties.

64.  The originally signed Written Agreement was not available at trial as it was kept by the defendant and the defendant said it had lost it due to lapse of time and removal of office.  The only copy made available to the court was the copy given to the plaintiff after it was signed by the plaintiff but not by the defendant.

65.  In the copy of the Written Agreement produced to the court, there were various amendments including amendments to clauses 1, 3 5, 7, 9 and condition 11.  Only amendment to clause 1 was initialed by Mr Chak and admitted by the defendant as agreed amendment. The defendant disputed the other amendments were there when the Written Agreement was signed.  All the amendments had no direct relevancy to this claim.

66.  The printed version of clause 5 of the Written Agreement provided for the defendant to keep 5% of the plaintiff’s remuneration as retention money.  In the copy produced by the plaintiff, the figure “5%” was deleted and replaced by “10%”.  There was no dispute that the defendant had in fact only kept 5% of the plaintiff’s remuneration as retention money.  In trying to establish that all the amendments were there when the Written Agreement was signed, Mr Law for the plaintiff was trying to argue that the defendant had not been strictly complying with the terms of the Written Agreement or in fact had been in breach of the Written Agreement in keeping 5% instead of 10% of the plaintiff’s remuneration as retention money.

67.  In my judgment, this is a futile exercise.  Even if the defendant had not strictly enforced its contractual rights in respect of the retention money, it does not mean that the defendant was not entitled to enforce its other contractual rights including its contractual rights to deduct the plaintiff’s remuneration for employees’ compensation payments paid to the plaintiff’s workers if such was the defendant’s contractual rights.

68.  For the purpose of this claim, I do not consider that it is necessary for me to determine on whether amendments to clauses 3, 5, 7, 9 and condition 11 of the Written Agreement on the copy produced by the plaintiff were there when he signed the Written Agreement.  If I have to making a ruling, I would prefer the defendant’s evidence to the plaintiff’s evidence on two grounds.  Firstly, Mr Chak had initialed the amendment to clause 1.  If other amendments were there before the plaintiff signed the Written Agreement, there were no reasons why Mr Chak would not have also initialed the other amendments.  Secondly, if the plaintiff had agreed to allow the defendant to keep 10% of the plaintiff’s remuneration as retention money, there were no reasons for the defendant to give up a better security of 10% retention money for a less protection of 5%.  

69.  I shall now turn to the agreed term of the parties on responsibilities for employees’ compensation payments made to the plaintiff’s workers.

70.  It was the plaintiff’s evidence that according to the Oral Term, if any of his workers suffered work injuries in the Project, he would be responsible to make periodic payments to the injured worker for one year and the defendant had to reimburse him of all the payments.  The plaintiff’s case was that the defendant had to fully reimburse him of those payments irrespective of whether the defendant might recover payment from other parties, might they be the insurance company; the superior subcontractor or the principal contractor.

71.  The Written Term which was part of clause 7 of the Written Agreement read as follows:-

“對於工傷方面及由工傷引至之一切傷亡賠償及公司（the defendant）之損失，均由乙方（the plaintiff）承擔。若有特殊情況由公司（被告人）代付的話，公司（the defendant）可以在糧款中扣除，乙方（the plaintiff）不得異議。甲方（the defendant）收到保華的保險公司賠償後，才會將賠償金撥回乙方（the plaintiff）。”

72.  Under the Written Term, the plaintiff was responsible for all employees’ compensation payments payable to his workers.  In the event that the payments were paid by the defendant, the defendant might deduct the payments from the plaintiff’s remuneration.  The defendant would pay back the compensation to the plaintiff after receiving payment from Paul Y’s insurer.

73.  According to the Oral Term, the plaintiff would only be responsible for compensation payments paid to LCM from 29 November 1998 to 28 November 1999 and the defendant would have to pay back such payments to the plaintiff.

74.  The plaintiff’s evidence was that the defendant had been deducting payments from his remuneration up to May 2000.  This had gone beyond the liabilities of the plaintiff under the Oral Term.  Mr Chak’s evidence was that the plaintiff had never raised any objection to the deductions when the deductions were made.  Such evidence was not challenged by the plaintiff.  If the Oral Term was the term agreed between the parties governing the parties’ liabilities towards employees’ compensation claims of the plaintiff’s workers, the plaintiff would not have agreed to deductions of his remuneration after 28 November 1999 without raising any objection.

75.  It was the plaintiff’s evidence that he had been chasing the defendant for return of the Sum since 2002 and the defendant kept on telling him that the defendant was still waiting for payment from Paul Y or HIH.  According to the plaintiff, the defendant had been using such reason for not returning the Sum to him from 2002 to 2009 for seven years.  If the Oral Term was the governing term, after 28 November 1999 the defendant had to return to the plaintiff all sums deducted from the plaintiff’s remuneration for accounts of the EC Payment irrespective of whether the defendant had recovered payment from other parties, be they Paul Y or HIH.  In such case, the plaintiff would not have been contended with the aforesaid explanation of the defendant for seven years without taking recovery actions against the defendant.

76.  It was also the evidence of the plaintiff that since 2005 he had been chasing Paul Y for payment of the Sum for four years up to 2009 when Paul Y kept on referring him back to the defendant. If the Oral Term was the governing term, the plaintiff was not concerned with whether the defendant had received payment from Paul Y.  There were no reasons why the plaintiff would have been chasing Paul Y for four years especially when the replies from Paul Y were far from encouraging.

77.  The plaintiff’s evidence and contemporaneous conduct simply do not support his own case that the Oral Term was the agreed term governing the parties’ liabilities for employees’ compensation claims of his workers.

78.  The plaintiff testified at trial that after he had signed the Written Agreement, he found that the Written Term was different from the Oral Term and he called Mr Chak the next day asking the defendant to rectify.  This was denied by Mr Chak.

79.  The discrepancy between the Oral Term and the Written Term was the central issue of the plaintiff’s claim herein.  The Statement of Claim had not pleaded this fact of the plaintiff asking the defendant to amend the Written Agreement.  Nowhere in the plaintiff’s witness statement had he mentioned this fact.  When the plaintiff was cross-examined on the reasons for missing such crucial evidence in his witness statement, the plaintiff gave no answer.

80.  If the plaintiff had asked the defendant to amend the Written Agreement and the defendant had agreed to do but failed to do so, the plaintiff should have told his solicitors who should have pleaded them in the Statement of Claim.  Even if these facts were not pleaded, the plaintiff’s solicitors in preparing the plaintiff’s witness statement would not have missed out such crucial facts.

81.  I do not accept the plaintiff’s evidence and find that he had not requested the defendant to amend the Written Agreement and that the Oral Agreement agreed between the parties prior to the plaintiff commencing works on the Project did not include the Oral Term.  I find that the parties’ liabilities in respect of employees’ compensation claims made by the plaintiff’s workers, including LCM, were governed by the Written Term.

Was deduction of the Sum in breach of the Written Term?    

82.  Mr Law submitted that even if the Written Term was a term of the Sub-subcontract, the defendant was entitled to deduct the plaintiff’s remuneration only if the defendant had paid the EC Payment under special circumstances.  Mr Law said that the EC Payment was not paid under special circumstances and was not paid by the defendant but by Paul Y or HIH.  He submitted that the defendant was not entitled to deduct the Sum pursuant to the Written Term from the plaintiff’s remuneration.

83.  Evidence of Mr Chak was that payments made to LCM prior to January 1999 were made by the defendant and payments from January 1999 onwards were made by Paul Y or HIH.  Although the plaintiff’s case was that all of the EC Payment was paid by Paul Y or HIH, the aforesaid evidence of Mr Chak was not challenged at trial.  I accept such evidence of Mr Chak and find that the defendant had paid advance payments to LCM prior to January 1999 and thereafter payments to LCM were paid by HIH or Paul Y.

84.  There was no dispute that the bulk, if not all, of the EC Payment was paid by Paul Y or HIH to LCM.

85.  The evidence of Mr Chak and Mr So was that after Paul Y made payments to LCM, Paul Y would deduct the payments from contract sums payable to the defendant and the defendant would in turn deduct the payments from the plaintiff’s remuneration.  The plaintiff did not admit the defendant’s alleged deductions made by Paul Y from the defendant’s contract sums, but did not challenge such evidence of the defendant.  Mr Law took issue on the fact that the defendant had not signed the final accounts prepared by Paul Y.  He submitted that the defendant had not agreed to the deductions made by Paul Y and had not admitted liabilities for the payments paid to LCM by Paul Y.  In such case, the payments were not made by the defendant.  Instead, they were made by Paul Y and the defendant was not entitled to deduct the plaintiff’s remuneration for payments not made by the defendant.

86.  The correspondences between the defendants and Paul Y produced to the court showed that Paul Y had deducted contract sums payable to the defendant for employees’ compensation payments paid to LCM.  I accept the evidence of Mr Chak and Mr So that such deductions had actually been made.

87.  The contract sums payable by Paul Y to the defendant were fees already earned by the defendant under its subcontract with Paul Y.  Paul Y had agreed to pay these sums to the defendant.  They were the defendant’s money.  Paul Y had used the defendant’s money to pay LCM.  Whether the defendant had agreed to the amount deducted or not, the facts remained that it was the defendant’s money and it was the fund used to pay LCM’s employees’ compensation claim.  According to the Written Term, the defendant was entitled to deduct the plaintiff’s remuneration for such payments made to LCM from the defendant’s fund.  I see no merits in Mr Law’s contention that the payments to LCM were not made by the defendant but by Paul Y.

88.  Mr Law further submitted that according to evidence of Mr So it was a usual practice for the principal contractor to make employees’ compensation payments directly to injured workers of subcontractors.  He submitted that in such case, the payments were not made in special circumstances and were not covered by the Written Term.

89.  Mr So’s evidence was that the previous practice was for the employer-subcontractor to pay compensation directly to his injured workers.  Alternatively, the compensation might be paid by the principal contractor who would in turn deduct the payment from contract sums payable to the subcontractor.  He agreed that this alternative way of payment was getting more common nowadays as the principal contractor and the superior-subcontractors were concerned that the employer-subcontractor might fail to pay employees’ compensation to his injured workers causing liabilities to the principal contractor and the superior-subcontractors.

90.  With respect, I do not agree with Mr Law.  In usual and ordinary cases, employees’ compensation should be paid directly by the employer to his employees.  Payment of employees’ compensation to an injured worker by a person who is not his employer is special.

91.  In some industries, such as building industry, where subcontracting is a common phenomenon, section 24 of the Employees’ Compensation Ordinance (Cap 282) provides for the principal contractor and the superior-subcontractors to be liable for employees’ compensation claims of the sub-subcontractor’s workers so as to protect the worker’s interest against uninsured and impecunious sub-subcontractor-employer.  In these industries, payment of employees’ compensation by a non-employer to the injured worker, which Mr So described as an alternative way, is getting common. However, it does not displace the fact that in usual and ordinary cases, it is the employer who shall pay the compensation to his injured workers.  I accept the defendant’s case that payment of employees’ compensation by the defendant to someone who was not its employee was special and covered by the Written Term.

92.  I find that the deduction of the Sum from the plaintiff’s remuneration was made in accordance with the Written Term.

93.  According to the Written Term, the plaintiff was the one responsible to pay the EC Payment to LCM.  The defendant had paid the EC Payment not paid directly by HIH, either directly or through Paul Y, to LCM.  The defendant was entitled to deduct the whole of such payments from the plaintiff’s remuneration.  As part of the EC Payment was made after the accounts for the Sub-subcontract works had been agreed in May 2000 when the Completion Agreement was signed, the defendant was unable to deduct such further payments from the plaintiff’s remuneration.  This does not relieve the plaintiff from reimbursing the defendant of the payments already made.

94.  The parties have no dispute on the amount paid to LCM, the amount admitted by HIH’s liquidator and the amount received from HIH’s estate.  It is clear that there was a shortfall in excessive of the Sum.  As the plaintiff is liable for the shortfall under the Written Term, I am of the view that the defendant is not obliged to pay to the plaintiff payments received from Paul Y or HIH’s estate until the shortfall has been reduced to equal to the Sum.  After that, further payments received from Paul Y or HIH shall be paid to the plaintiff.  If the defendant fails to pay these further payments to the plaintiff, the defendant will then be in breach of the Written Term.  However, evidence adduced before me suggests that this moment has yet to arrive.

95.  In the premise, I do not see any breach of the Sub-subcontract by the defendant in deducting the Sum from the plaintiff’s remuneration as at the date of the writ.  I find that the plaintiff had no claim against the defendant for the Sum as at the date of the writ and I dismiss the plaintiff’s claim herein.

Is the plaintiff’s claim barred by the Completion Agreement or the Limitation Ordinance?

96.  As my above findings have dispose of the plaintiff’s claim herein, it is, therefore, not strictly necessary for me to deal with the issues raised on the Completion Agreement and the Limitation Ordinance.  However, for the sake of completeness, I shall address these questions briefly.

The Completion Agreement

97.  The Completion Agreement had the following provisions:-

“雙方就解決所有有關上述工程費用及材料扣退數達成協議。

(1) 甲方（the defendant）同意支付$105,335.00給乙方（the plaintiff）。

(2) 乙方（the plaintiff）同意上述費用是杏花村97/8010工程（the Project）之最終及最後之工程費用。收取後同意不會再向甲方（the defendant）作出任何追討。”

98.  In the copy produced by the plaintiff, Clause (3) of the Completion Agreement was deleted and with the Chinese words “不認同” hand-written at the right hand margin.  The words “尚欠$226,000 - 林創民” (the “Words”) were hand-written after clause (4).

99.  The parties had disputes on whether the Words were there when the parties signed the Completion Agreement. The plaintiff’s case was that they were there.  The defendant’s case was shifting.

100.  In para 12(c) of the Defence, the defendant pleaded as follows:-

“(c)      The Defendant further avers that the Chinese statement “尚欠$226,000 - 林創民” was unilaterally written by others unknown to the Defendant and the Defendant had never agreed to the insertion of same in the Completion Agreement; and”

101.  In para 12 of his witness statement Mr So stated as follows:-

“12. I understand that the Plaintiff now alleged under Paragraph 8 of the SOC [Statement of Claim] that there was hand-writing remark stating the amount still owing to the Plaintiff at HK$226,000.00 notwithstanding the execution of the Completion Agreement. However, it is to emphasize that at that material time, I did expressly tell and clarify the Plaintiff (who acknowledged the same before the said execution) that such remark was not in any event removing the specific condition and prerequisite for reimbursement to the Plaintiff as particularly stated in the second part of Clause 7 of 1998 Written Agreement. As a matter of fact and law, the terms and conditions would and should not be amended by way of any final account at this final stage. In other words, all the terms and conditions of 1998 Written Agreement must still continuously carry the binding effect on both parties.”

102.  It can be seen that despite the defendant’s pleaded case, Mr So in his witness statement clearly admitted that the Words were there before the Completion Agreement was signed.  However, when Mr So testified at trial, he changed his stance to say at first that the Words were not there when the Completion Agreement was signed.  He later changed again to say that he could not recall whether the Words were there when the Completion Agreement was signed.

103.  Mr So prepared his witness statement assisted by the defendant’s solicitors.  He addressed his mind specifically to this issue and admitted that the Words were there before the parties signed the Completion Agreement.  His witness statement was a considered statement carefully prepared with legal assistance.  If the facts stated therein were not true facts, the defendant’s solicitors would not have included them in his witness statement.  I do not accept Mr So’s changed version of evidence given at trial and find that the Words were there before the Completion Agreement was signed by the parties.

104.  Mr Leung, representing the defendant, submitted that even assuming the Words were written there before the signing of the Completion Agreement, the plaintiff was still precluded from pursuing this claim against the defendant.  He submitted that the Completion Agreement had the effect of including and taking into account all advance employees’ compensation payments / deductions.

105.  With respect, I do not agree that the term of the Completion Agreement as it is would preclude the plaintiff from pursuing this claim.  The Completion Agreement clearly stated that it was to deal with the contract fee and materials for the Project.  The Completion Agreement also expressly stated that the Sum deducted in respect of LCM’s case was still outstanding.  It was also Mr So’s evidence that if payments payable to the plaintiff were received from Paul Y or HIH after signing of the Completion Agreement, the defendant would still pay to the plaintiff.  It is clear that even in Mr So’s mind, the Completion Agreement was not to settle matters relating to LCM’s case.  This is also confirmed in his witness statement when he stated that: “As a matter of fact and law, the terms and conditions [of the Written Agreement] would and should not be amended by way of any final account at this final stage.  In other words, all the terms and conditions of 1998 Written Agreement must still continuously carry the binding effect on both parties.”

106.  The plaintiff’s claim herein fails not because it was settled by the Completion Agreement but on other grounds as set out above in this judgment.

The Limitation Ordinance

107.  Mr Leung submitted that the question of time-bar would not arise for determination by the court if it was accepted that there had been no breach of contract on the part of the defendant.  If there was no breach of contract, no causes of action would accrue for the time to run.

108.  I agree.  In such case, it is not necessary for me to deal with the plaintiff’s alleged concealment.  However, for the sake of completeness, I shall also briefly deal with the plaintiff’s said contention.

109.  The defendant relied on section 4(1)(a) of the Limitation Ordinance to contend that any claim for wrongful deduction of the Sum in breach of the Sub-subcontract had been time-barred.

110.  Section 4(1)(a) of the Limitation Ordinance provides as follows:-

“(1) The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say –

(a)  actions founded on simple contract or on tort;”    

111.  In para 13 of the statement of claim, the plaintiff alleged that the defendant had concealed the Undisclosed Facts from the plaintiff.  The plaintiff’s case was that time did not start to run pursuant to section 26(1)(b) of the Limitation Ordinance until the plaintiff had received Paul Y’s letter dated 8 December 2010.

112.  Section 26(1)(b) of the Limitation Ordinance provides as follows:-

“(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either –

(a) …;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) …,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

113.  Although the plaintiff listed six facts in para 13 of the Statement of Claim, the material complaints were that the plaintiff did not know that the EC Payment was paid by Paul Y or HIH and not by the defendant and that the defendant had not signed its final accounts for the Project works with Paul Y until the plaintiff’s solicitors received Paul Y’s letter of 8 December 2010.

114.  In order to rely on section 26(1)(b) of the Limitation Ordinance, the burden is on the plaintiff to prove that the concealment of the relevant facts was a deliberate conscious decision of the defendant and that the plaintiff could not have discovered the concealed facts without exceptional measures which he could not reasonably have been expected to take. (See Lee Tsan Sum v Wong Pui Hon David [2010] 4 HKLRD 219)

115.  The plaintiff was one of the respondents named in the EC Action.  Although the EC Action was at the beginning handled by HIH and later handled by Paul Y after HIH went into liquidation, the plaintiff was nevertheless a party to the EC Action.  He had the rights and could easily access to information in the court files.  Although the solicitors acting for the respondents might have been appointed by HIH or Paul Y, they were also solicitors acting for the plaintiff in the EC Action. The plaintiff might also obtain information from the solicitors acting for the respondents in the EC Action on particulars of the settlement payment.

116.  The plaintiff had confirmed at trial that when he approached the defendant chasing for return of the Sum, the defendant’s representatives would not avoid him and would answer his questions.  In such case, if the plaintiff had asked the defendant’s representatives for details of payments to LCM, they would have told him how the mechanism worked, ie Paul Y had paid to LCM and deducted the defendant’s contract sums who would in turn deduct the plaintiff remuneration.  If the plaintiff had inquired with the defendant on whether the defendant had finalized the accounts for LCM’s payments with Paul Y, the defendant would have informed the plaintiff of the latest position.  I see no incentive or reasons for the defendant to conceal such facts from the plaintiff.

117.  I note that the plaintiff’s own evidence was that when he chased the defendant for return of the Sum, one of the reasons for the defendant not paying the Sum to him was that the defendant was still checking the final accounts with Paul Y.  I do not see deliberate concealment on the part of the defendant.

118.  The plaintiff might even check directly with LCM, who was his employee, on how LCM got paid.  As LCM had all along been receiving advance payments, there were no reasons to expect any hard feeling between LCM and the plaintiff.  In fact, there was no evidence to suggest that LCM was not on speaking terms with the plaintiff.  The plaintiff was the employer of LCM.  He was directly liable to pay compensation to LCM. If the plaintiff enquired with LCM on details of the advance payments made to him, I see no reasons for LCM refusing to answer him.

119.  In my judgment, the plaintiff fails to prove that the defendant had deliberately concealed from him the fact that the advance payments to LCM were paid directly by Paul Y to LCM or that the defendant had not signed final accounts with Paul Y on payments LCM.  The plaintiff also fails to prove that he could not have discovered these facts with reasonable diligence.  If the defendant’s deduction of the Sum was in breach of the Written Term as contended by Mr Law, the plaintiff’s cause of action had been accrued latest in May 2000 and the claim of the plaintiff for the Sum would have been time-barred in May 2006 pursuant to the Limitation Ordinance.

Conclusion and Costs

120.  I dismiss the plaintiff’s claim and make a costs order nisi that the plaintiff doth pay the costs of this action (including all costs previously reserved) to the defendant with counsel certificate for the trial, to be taxed if not agreed and the plaintiff’s own costs shall be taxed in accordance with the Legal Aid Regulations.

121.  The above costs order nisi shall become absolute after 14 days from the date hereof unless any party shall apply to vary the said order nisi within this 14 day period.