Choy Bing Wing t/a Bing Choy & Associates v. The Hong Kong & Shanghai Hotels, Ltd.

IN THE COURT OF APPEAL

1994, No. 218
(Civil)

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J U D G M E N T

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Godfrey, J.A.:

1. This is an appeal, and a cross-appeal, from an order of Kaplan, J. made on 20 October 1994, in effect (though not in form) declaring on what basis the plaintiff, a registered structural engineer, was entitled to be remunerated for his professional services provided to the defendant, the owner of the Peninsula Hotel, Kowloon, in connection with various building works of a temporary nature to be executed by the defendant preliminary to the construction by the defendant of an extension to the hotel.

2. Although the judge thought otherwise, this is, when properly analysed, a simple case. Unfortunately, the issue has been obscured by infelicities in the pleadings on both sides and by the inadmissible evidence led below as to what the parties believed to be the legal effect of their actions.

3. The material facts are no longer in dispute. So far as it is necessary to rehearse them for the purposes of disposing of this appeal and cross-appeal, they may be stated as follows.

4. By a letter dated 5 October 1987 ("the retainer") the defendant retained the plaintiff "as registered structural engineer of the extension of the Peninsula". The conditions of the engagement were recorded as follows:

"1. Team of Consultants

a. You shall constantly keep a team of engineers on full time basis for this project. Written approval shall be obtained from us prior to any appointment and/or termination of any members of the team.

b. Consultants shall include:-

- Mr. B.W. Choy shall be the partner in charge of mechanical aspect.

- Full time structural engineers.

- Full time geotechnical engineers.

2. Termination of Appointment

Termination of this appointment shall be made by reasonable notice from either party. On termination, you shall be entitled to have payment in full amount for the particular stage of work and we shall be entitled to use all the relevant plans and designs, copyrights related to this project shall be under our possession.

3. Scope of Work

3.1 You shall act as the registered structural and geotechnical engineer, providing full service for the whole project.

3.2 You shall liaise with all necessary authorities and government departments for all statutory matter concerning structural and geotechnical engineering.

4. Professional Fee

4.1 Professional fee shall be 1.5% of the total construction cost, which is estimate at present at HK$320 million, but to be adjusted for the purpose of fee calculation when actual figure are available in due course.

4.2 20% of the fee shall be paid upon submission of the foundation plan and calculation.

20% of the fee shall be paid upon approval of the building structural plan and calculation.

25% of the fee shall be paid upon the completion of the superstructural work.

25% fee shall be paid upon commencement of superstructural work.

7½% of fee shall be paid upon issuing of Occupation Permit.

2½% of fee shall be paid upon settlement of final account with contractors.

All printing costs and out of pocket expenses to be reimbursed separately at cost."

5. On 27 February 1988, the plaintiff claimed the first stage payment, calculated, in accordance with the provisions of clause 4.2 of the retainer, at HK$960,000, which the defendant duly paid.

6. On 14 November 1988, the plaintiff claimed the second stage payment, similarly calculated at HK$960,000, which again the defendant duly paid.

7. On 1 May 1989, the plaintiff claimed a further payment of HK$960,000 negotiated as a "progress fee" and this too the defendant duly paid, although it was not in accordance with the provisions of the retainer.

8. On 16 November 1989, the plaintiff claimed a further payment of HK$2,218,125. This again was not in accordance with the provisions of the retainer, but the defendant duly paid it.

9. On 25 July 1990, the defendant terminated the engagement of the plaintiff "as the registered structural and geotechnical engineer, providing full service for the whole project" (see clause 3.1 of the retainer). But the defendant requested the plaintiff to continue, among other things, to act as its registered structural engineer in connection with what I have already described as various building works of a temporary nature to be executed by the defendant preliminary to the construction of its proposed extension to the Peninsula Hotel. So far as this appeal and cross-appeal are concerned, these works were (1) a temporary transformer room (Activity A); (2) advance diversion works for heating, ventilation and air conditioning services to the hotel (Activity C); and (3) allocation and diversion works to provide temporary services accommodation in the existing hotel building (Activity D). (Activities E and F are the subject of an order not under appeal.) There was before the judge no credible evidence of any concluded agreement as to the basis on which the plaintiff was to be remunerated for the services which he was to continue to provide, after 25 July 1990, in relation to activities A, C and D. There were negotiations between the plaintiff and the defendant, referred to in a letter dated 14 September 1990 from the plaintiff to the defendant, in which the plaintiff, referring to meetings held on 25 July 1990 and on 11 September 1990 with the defendant, said this:

"In the meetings I requested your consideration that my remuneration is to be paid on hourly basis. Your early confirmation in an appointment agreement to be agreed shall be much appreciated."

10. This of course negates any suggestion of any such concluded agreement.

11. On 11 September 1990, the plaintiff accepted a negotiated sum of HK$3,768,080 from the defendant in full and final settlement of his fees due for all work performed by him on "the Peninsula Hotel Extension Project" (see the defendant's letter to the plaintiff dated 13 September 1990 to that effect, which was not challenged).

12. On 5 November 1990, the defendant terminated the engagement of the plaintiff in relation to activities A, C and D.

13. The parties subsequently found it impossible to agree on what basis the plaintiff ought to be remunerated for the services he had rendered to the defendant between 25 July 1990 and 5 November 1990 (the parties were at one stage at odds as to services so rendered prior to 25 July 1990, but we in this court need no longer concern ourselves with that).

14. The case for the plaintiff before us (a case introduced by an amendment to his pleadings allowed by the judge, in the face of opposition from the defendant, on the last day of the trial) is that the effect, in the circumstances to which I have referred, of the termination of the plaintiff's retainer, was to reduce the scope of the work prescribed by clause 3.1 of the retainer but otherwise to leave it, and particularly the fee provisions contained in it, in operation.

15. The case for the defendant before us (although not its case before the judge) is that the termination of the retainer put an end to the plaintiff's entitlement to professional fees based on the retainer, so that what the plaintiff is now entitled to receive is a reasonable sum to represent what was the value of the services he rendered to the defendant between 25 July 1990 and 5 November 1990 (in legal jargon, a quantum meruit). As I have said, this was not the defendant's case before the judge. Before the judge, the defendant was apparently content to accept that the fee provisions of the retainer were to continue to apply to the services to be rendered by the plaintiff even after termination of the retainer, but not in the same way as the plaintiff contended that those provisions were to continue to apply.

16. In my judgment, it is quite impossible to ascribe to the parties an intention that, when the retainer was terminated, the provisions which had been made in it for the payment of the plaintiff's professional fees, related as they were to the provision of "full service for the whole project", should continue to have effect in relation to the (very much) reduced scope of the professional services to be provided by the plaintiff to the defendant after the termination of the retainer. Any attempt to apply the original fee structure to the changed scope of work produces results so bizarre and so irrational that this suggestion, although the judge accepted it, must inevitably be rejected.

17. The defendant's case before us, that what the plaintiff is entitled to is a quantum meruit, is plainly to be preferred. The defendant terminated the plaintiff's retainer but requested him to continue, notwithstanding that termination, with certain of the work then in progress. In the absence of any concluded agreement as to how the plaintiff was to be remunerated for the work done by him pursuant to the defendant's request after 25 July 1990, he is clearly entitled to be paid whatever may be found to be reasonable remuneration for that work.

18. The judge did not identify the issue, and accordingly did not approach it, in this way. He found the plaintiff was entitled to be remunerated for his post 25 July 1990 services under the retainer, notwithstanding its termination (as the plaintiff had, by his amendment made at the last minute, contended). As I have indicated, I cannot agree with him.

19. We in this court have power, under O.59 r.10(3) of the Rules of the Supreme Court, "to draw inferences of fact and to give any judgment and make any order which ought to have been given or made and to make such further or other order as the case may require." I would propose that we do this by setting aside the whole of the judge's order and substitute for it an order that it be referred to the Master to assess what is a reasonable sum to be paid by the defendant to the plaintiff for the services rendered by the plaintiff to the defendant between 25 July 1990 and 5 November 1990 in relation to the activities A, C and D to which I have referred (and also the activities E and F which are, it is accepted, properly the subject of a similar determination).

20. We have already heard argument on the matter of the costs below; indeed, the judge's order as to costs is one of the orders a challenge to which is raised by the cross-appeal. This order was, broadly, to the effect that the defendant should have the costs of the trial from 3 weeks after the date of a payment in made by the defendant to the last day of the trial, on which day the plaintiff made the amendment on which he succeeded. If we reverse the judge, his order as to costs, made on the basis that the plaintiff had won on the issue of liability, cannot be allowed to stand. For my part, I would propose however that we do make an order for costs in favour of the defendant, though not the order the judge made. I would order that the defendant's costs of the action, down to the date of the order of 22 October 1994, be taxed and that 75% of those taxed costs be paid by the plaintiff to the defendant. The defendant, not the plaintiff, put forward the suggestion of an order for a quantum meruit in relation to activities A, C and D which has found favour with me. But the defendant did not do so until it served its notice of appeal. It went to trial accepting that the plaintiff was entitled to be remunerated on the basis of the fee structure prescribed in the retainer, a case it has abandoned in this court in favour of an acknowledgement that the plaintiff is entitled to a quantum meruit for items A, C and D, although the plaintiff himself had not made such a claim.

21. Although the defendant has succeeded in persuading us to reverse the judge, I cannot think it would be right, in the events which happened, to give the defendant all its costs below. As I have indicated, I think justice would be done if we were to give the defendant 75% of its costs below.

22. As to the costs in this court, the defendant has succeeded on the appeal, the plaintiff having failed to uphold the judge's order made in his favour at the trial. I would propose that the costs of the appeal should follow the event, and that the plaintiff be ordered accordingly to pay the defendant's costs of the appeal. I would make no order as to the costs of the cross-appeal.

23. There is nothing I can usefully add, except to say, not for the first time, that the cost of litigation, and the time which it takes to conclude it, would both be much reduced if only parties and their legal advisers would concentrate at an early stage on identifying what are the real issues between them, plead their cases accordingly, and lead at the trial only such evidence as is relevant to a consideration of those issues.

Liu, J.A.:

24. I agree that the appeal and the cross-appeal be disposed of in the manner proposed by my Lord Mr Justice Godfrey for the reasons he has given with which I also agree.

25. I further agree with the orders as to costs proposed.

Litton, V.-P.:

26. When the plaintiff's employment as structural engineer for the extension project was terminated on 25 July 1990 his outstanding fees for services rendered up to that date were paid. That is now common-ground. And yet, by his invoice No. 6176 of 10 December 1990, he claimed outstanding fees for professional services which went back to September 1987. And when the defendant refused to pay, he launched the present proceedings, by his writ of 8 January 1991, based upon the claim in that invoice. It is not surprising that the defendant defended the action.

27. It is also now common-ground that, for the professional services in relation to ancillary building works - works necessary to keep the hotel running whilst the extension project was on foot - rendered between 25 July and 5 November 1990, the plaintiff was entitled to payment. The only issue in the court below was: How should he be paid? The plaintiff, in effect, said this:

"Look at my invoice No. 6176. You will see that I have based my claim, amounting to $3,504,860 on an hourly basis, from September 1987 to November 1990 at $700/hour for the principal engineer, $400/hour for engineers, and $180/hour for draftsmen. The defendant might not have agreed those rates at our meeting of 25 July 1990, but they have certainly agreed the basis of payment: hourly rates; and those hourly rates are entirely reasonable."

28. As I view the matter, there were only two possible ways for computing the fees due to the plaintiff: (i) on an hourly basis, at different rates for different levels of services or (ii) on the basis of a percentage of the value of the work to which the services related. The defendant's case, as seen by its officers, before it got into the hands of lawyers, was that the plaintiff should be remunerated on the basis of (ii) above. This was, at any rate, how Mr Robinson and Mr McCullum, members of the defendant's staff, viewed the matter. However, when it came to the pleadings being formulated, the issue became distorted. Whilst it was admitted that the plaintiff's engagement, under the terms of the October 1987 agreement, had been terminated, the defendant went on by para 14(3) of the Defence to plead as follows:

"The Defendant avers that the agreement was that the Plaintiff would be reimbursed under the terms of the agreement of 5th October 1987 for that part of the Hotel Extension Works that had not been terminated."

29. This was, on any view, an odd pleading. The 5 October 1987 agreement was the basis upon which the plaintiff was engaged as "registered structural engineer for the extension of the Peninsula". Once that engagement was terminated, the October 1987 agreement was, by necessary implication, discharged: unless, of course, the parties had expressly agreed to keep it alive. That would have been, however, a very odd thing to do, for its terms, as can be seen from Godfrey JA's judgment, were simply not apt to deal with the new situation, when the plaintiff was no longer to be employed as "the registered structural engineer" for the whole extension project. And if it be averred that the parties had, indeed, done just that, the judge ought to have looked at the matter critically, to see if there was any evidence to support it. We have, in this court, been led through the evidence by counsel: no-one, neither the plaintiff himself nor Mr Robinson nor McCullum, the parties present at the meeting of 25 July 1990, came anywhere near to testifying to the effect that the parties had, on that date, agreed to keep the agreement alive, though in a modified form. The plaintiff's own letter of 10 September 1990 said:

"The appointment agreement was terminated on 25 July 1990".

30. That should have been the end of the matter.

31. The judge was, in my view, wrong to allow the plaintiff, on the last day of trial, to amend the statement of claim by adding para 10A and 10B: the application to amend, as it seems to me, was nothing more than skillful court-craft on the part of counsel in an attempt to save what was by then a hopeless case. The averment itself was based on shifting foundations of sand. Para 10A upon which the plaintiff succeeded in the court below reads:

"10A Further and in the alternative, if the agreement referred to in paragraph 9 hereof was not concluded and payment of HK$3,768,080 was paid in settlement of all fees due pursuant to the agreement referred to in paragraph 8 hereof ("October Agreement") and due in respect of production of feasibility studies for new designs for the proposed extension to the Peninsula Hotel up to 25 July 1990 the Plaintiff claims the following further payments:

(i) On 22 August 1990 the Buildings Ordinance Office approved the Plaintiff's structural drawings and calculations for the construction works referred to as Activity D in the particulars of paragraph 10(2) hereof. In the premises pursuant to clause 4.2 paragraph 2 of the October Agreement the Plaintiff is due a payment of 20% of the total construction costs of the extension and renovation works for the Peninsula Hotel."

32. The "agreement referred to in paragraph 9" is the alleged oral agreement to remunerate the plaintiff on an hourly basis, upon which the plaintiff wholly failed in the court below. This alternative claim proceeded, as can be seen from the pleading itself, on the basis that the outstanding fees due pursuant to the October 1987 agreement had been "fully settled": settled, that is, upon the termination of the plaintiff's employment, not upon the basis of the parties having agreed to modify the October 1987 agreement and to keep it alive. How then could the plaintiff have claimed the further payments as averred in sub-para (i) in that pleading? No facts were pleaded to support it. And yet this was the sole basis for the judgment in the court below in the plaintiff's favour. In my view it is unsupportable.

33. I wholly agree with Godfrey JA that the appeal must be allowed and that Mr Justice Kaplan's judgment be set aside.

34. As to the form of the order I note the terms as proposed in the defendant's Notice of Appeal as follows:

"FOR AN ORDER that such part of the Liability Order as aforesaid may be set aside, and that in place thereof judgment may be entered in the Action for the Plaintiff for a quantum meruit for work that he and his associates performed in connection with the extension project after 25 July 1990, such quantum to be assessed by a Master of the Supreme Court on a date to be fixed."

35. This is in my view is not sufficiently clear for the Master to adequately discharge his functions and, in my judgment, the order as proposed by Godfrey JA is a much clearer formulation of the judgment of this court. I would be happy to adopt that formulation.

Costs

36. As regards the costs, I agree that it would be illogical to conclude that the judge's ruling, based upon the validity of his judgment in the court below, could survive the reversal of that judgment. It seems to me that this court must now look at the matter afresh.

37. The defendant, by our judgment, should have been the successful party in the court below. Normally the defendant would get all the costs incurred in the court below, except those incurred in interlocutory proceedings not disturbed by the judgment of this court. Should the defendant in the circumstances of this case get all the costs? In my judgment the answer is No. They were, as Godfrey JA has said, partly responsible for the odd way in which the matter proceeded, and they were cramped by their own pleadings. I would therefore agree that in discharging Kaplan J's order we should substitute an order for costs in the terms as proposed by Godfrey JA. I would add this. In so agreeing, I do so with the full knowledge that there is a payment-in by the defendant in the court below and, conceivably, the plaintiff might, on the determination of the quantum meruit claim by the Master, get judgment in excess of the amount actually paid in. To have the defendant winning all the costs in those circumstances would, normally, be a result which would discomfort the Court of Appeal. But having regard the way in which the parties have proceeded in this case I would feel no discomfort if that should be the result. I would therefore discharge the order for costs in the court below and make an order in the terms as proposed by Godfrey JA.

38. As to the costs in this court, subject to anything which counsel may have to say, I propose that the successful defendant should get the costs of the appeal.