HONG KONG ASPHALT (GREEN) LTD v. SUN FOOK KONG (CIVIL) LTD

HCCT 17/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 17 OF 2010

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BACKGROUND

1.  The plaintiff is a Hong Kong company in the business of production and supply of bitumen pavement materials for road surfacing.  It is one of four bitumen suppliers approved by the Hong Kong Government and named in a list (“the List”)maintained by the Works Branch, Development Bureau, Hong Kong.

2.  The defendant is a Hong Kong company carrying on business as a civil engineering contractor.

3.  By a main contract dated 18 March 2009 No 07/HY/2008 Highways Department Term Contract (Management and Maintenance of Roads in Kowloon East Excluding High Speed Roads 2009‑2014) (“the Main Contract”), the Hong Kong Government as employer engaged the defendant as main contractor to carry out works and to supply goods and services.

4.  One of the terms of the Main Contract, namely Special Condition of Contract (“SCC”) 6, required the defendant to enter into written sub-contract(s) with approved suppliers appearing on the List for the supply of bituminous pavement materials.

THE PLAINTIFF’S CASE

5.  It is the plaintiff’s case that the defendant had appointed Fook Lucky Engineering Limited (“Fook Lucky”)as its sub-contractor for construction of road surfacing works including supply of bituminous pavement materials.  However, Fook Lucky was not a contractor named on the List.  Therefore by a contract partly oral and partly in writing, the defendant engaged the plaintiff as its bituminous supplier (“the Agreement”).  Insofar as the Agreement was oral, it was made between Cheuk King of the plaintiff and Howard Kong of the defendant on 13 May 2009.  Insofar as it was in writing, the contents were contained in or evidenced by a document entitled “Agreement for Supply of Bituminous Pavement Materials” (“the Document”) dated 13 May 2009 which set out certain terms and conditions.  It provided for the exclusive supply of bituminous materials required by the Main Contract for the full period (five years) from 1 April 2009 to 31 March 2014 including the three months run off time allowed at the end of the contract period.

6.  It is the plaintiff’s case that following a meeting between Howard Kong (of the defendant) and Cheuk King (of the plaintiff) on 13 May 2009, Howard Kong told Cheuk King to collect an agreement at the defendant’s head office in Wanchai and if the terms and conditions were acceptable to the plaintiff, the plaintiff should sign and return the same to the defendant for record purposes.  Cheuk King went to the defendant’s head office and collected the Document on 13 May 2009, signed it and faxed it back to the defendant on 14 May 2009, together with a more detailed breakdown and estimate of the total amount of bituminous pavement materials to be supplied under the Main Contract (“the Quotation”)namely about 434,000 tonne of bituminous pavement materials with the estimated value of $188,695,000.  (The Quotation, however, differed from the Document in the following respects: (i) rate for friction course was different ($340/tonne in the Document and $400/ton in the Quotation); (ii) the items to be provided were different in that the Document contained six items whereas the Quotation contained nine items; and (iii) units of quantities are different (one used metric tonnes and one used imperial tonnes.)

7.  It is further the plaintiff’s case that the defendant then wrongly repudiated the Agreement by informing the plaintiff that it had ceased to purchase bituminous pavement materials from the plaintiff and would like to terminate the Agreement (Statement of Claim paras 22 and 23). The plaintiff accepted the repudiation and sued for damages on two bases:

(1) Primarily the plaintiff sues for liquidated damages in the amount of $150/tonne of bituminous pavement materials which the defendant had obtained from other suppliers (by relying on a clause in the Document), totalling HK$65,050,833.

(2) In the alternative the plaintiff sues for its actual loss and damage quantified at HK$29,959,370.14.

THE DEFENDANT’S CASE

8.  The defendant denies the existence of the Agreement.  It says it had never entered into any agreement with the plaintiff whether orally or in writing (or a combination of both).  It had never asked the plaintiff to collect the Document from its office on 13 May 2009; nor has it ever received a faxed back (and signed) copy on 14 May 2009. 

9.  It says that at the material time it was engaged in a number of different strands of negotiations with different parties but none materialized into any concluded contract between the plaintiff and the defendant.  It is the defendant’s case that at the material time it had agreed in principle to use Fook Lucky as its sub-contractor.  Fook Lucky was looking for an approved supplier and sub-contractor for laying bituminous pavement materials, with a view that the defendant would then enter into a written sub-contract with the approved supplier so located by Fook Lucky.  While the plaintiff did supply bituminous pavement materials for use in the works under the Main Contract, the materials were supplied by the plaintiff pursuant to a handwritten preliminary agreement entered into between the plaintiff and Fook Lucky, and not pursuant to any contract between the plaintiff and the defendant.

10.  The defendant accepts that it had explored the possibility of negotiating a direct supply contract with the plaintiff but eventually the defendant decided not to enter into a supply contract with the plaintiff and communicated this (through Fook Lucky) to the plaintiff.  Since there was never any contract with the plaintiff to begin with, its decision not to enter into any supply contract with the plaintiff was not a repudiatory breach of anything. 

11.  Following the defendant’s decision not to enter into a supply contract with the plaintiff, it appointed Asphalt Surfaces (International) Limited (“ASL”) as supplier of bituminous materials.  Fook Lucky was also “disengaged” as the defendant’s sub-contractor under the Main Contract and it was replaced by three companies namely Million Investment Development Limited, Best Partners Engineering Limited and World Top Engineering Limited.  According to Yiu Hin Ming (director of Fook Lucky) these three companies were also related to him.

12.  The defendant says that the first time it had ever seen/received a copy of the Document signed by the plaintiff (and the Quotation) was when the plaintiff sent them (on the plaintiff’s case, they were re-sent) to the defendant on 23 June 2009.  Contentious correspondence then followed between the parties as to whether there had ever been any contract concluded in fact.

13.  The defendant further says that even if Howard Kong had purported to make any agreement with the plaintiff he had no authority to do so on behalf of the defendant.

14.  Further, on the plaintiff’s own case, after collecting the Document from the defendant’s office on 13 May 2009 it appended other additional and different terms to the Document (by attaching the Quotation to it) before faxing them back to the defendant.  Therefore, the defendant says, even if the Document had been collected from the defendant’s office and signed and faxed back, the act of faxing back the Document and the Quotation was at best a counter offer which would have had to be accepted before a contract could be formed, but there was no suggestion of any acceptance. 

15.  Lastly the defendant disputes both bases of damages put forward by the plaintiff.

THE WITNESSES

16.  The parties called the following witnesses:

(a) The plaintiff:

(1) Cheuk King (plaintiff’s general manager who, on the plaintiff’s case, negotiated and concluded the Agreement).

(2) Dugald Finlayson (expert witness).

(b) The defendant:

(1) Chan Chor Tung (defendant’s director).

(2) Bob Tsoi (estimating and subletting manager of the defendant).

(3) Howard Kong (defendant’s senior project manager who, on the plaintiff’s case, concluded the Agreement on behalf of the defendant).

(4) David Guan (管滿宇) (director of a company called China Zhejiang Construction Group (HK) Ltd (“CZC”)).

(5) Lee Cheuk Nam (“CN Lee”) (contract manager of CZC).

(6) Yiu Hin Ming (饒憲明) (director of Fook Lucky).

(7) Kevin Cheung (senior site agent employed by Fook Lucky).

(8) Chris Yung (senior site agent employed by Fook Lucky).

(9) Benny Kwok (expert witness).

17.  Insofar as it is contended that the Agreement was concluded partly orally, this issue obviously turns on credibility of witness testimony. 

18.  Insofar as it is contended that the Agreement was concluded partly in writing by the faxing back of the Document, the collection of the Document by the plaintiff on 13 May 2009 and the faxing back of the Document by the plaintiff on 14 May 2009 is denied by the defendant. There is no conclusive proof of such faxing back.  This part of the case (ie whether the Document and Quotation had in fact been faxed back on 14 May 2009) therefore turns on credibility also. 

19.  It is trite that in assessing questions of credibility the court will test the testimony of witnesses against the following factors:

(1) inherent credibility;

(2) contemporaneous documents; and

(3) such facts as are undisputed or indisputable.

20.  In building and construction cases, the court has emphasized the importance of looking at the contemporaneous documents, which are usually prepared bona fide at a time before any disputes had arisen.  For example in Eu Asia Engineering Ltd v Wing Hong Contractors Ltd (HCCT 16/1990; 23 December 1991, unreported) Kaplan J said at p6:

“In construction cases, as in most other cases, I attached great significance to the contemporaneous documents. These are usually prepared in good faith before a dispute has arisen or at any rate crystalized. It is a particularly devious contractor, employer or sub-contractor who systematically manufactures documents to assist in a future dispute. Fortunately, such instances are rare. I accept that once a dispute has been identified it is necessary to pay careful attention to the documents created after that time because it is only naturally that parties will reflect their grievances and justification for action taken in those documents …..”

21.  As far as demeanour is concerned, the appellate courts have warned against undue reliance on the demeanour of witnesses or the manner in which they testify (for very often the court only sees a witnesses for the first time, and it is sometimes difficult to tell whether the “demeanour” of a witness is because he or she is lying, or simply because that was his or her natural way of speaking).  That said, demeanour still has a role to play in assessing credibility, especially when the court has had a chance of observing a witness give evidence over a prolonged period of time, but it has to be judiciously applied in conjunction with the three surer guides I mentioned in the previous paragraphs.

ANALYSIS OF EVIDENCE

22.  With the above in mind I now proceed to discuss the inherent probabilities, the undisputed background and the documentary evidence.

23.  Prior to the Main Contract, the defendant had been involved in a previous maintenance contract with the Hong Kong Government.  For this previous government contract (18/HY/2004), the defendant was the Main Contractor and it sub-contracted the works to Sun Lucky, a company in which Yiu Hin Ming had an interest.  As for the supply of bitumen under that earlier contract, the supplier was one Pioneer Asphalts (Hong Kong) Limited (“Pioneer”).  There was a direct supply contract entered into between the defendant and Pioneer on that occasion, dated 11 May 2005.

24.  Articles of Agreement for the Main Contract were signed on 18 March 2009.  According to Chan Chor Tung of the defendant (and which the plaintiff did not seek to dispute), he noticed the Government’s tender notice for the relevant works (which eventually led to the Main Contract) in November 2008.  Because the previous contract with the Government referred to in the preceding paragraph had been profitable (and was due to expire in March 2009) he wanted the defendant to take part in the new tender exercise.

25.  Also according to Chan Chor Tung (in respect of which there is no challenge from the plaintiff), since in the previous government contract the defendant had used Sun Lucky (one of Yiu Hin Ming’s companies) as a sub-contractor to its satisfaction, Chan Chor Tung orally agreed with Yiu Hin Ming that the defendant would sub-contract the whole of the works under the Main Contract to companies designated by Mr Yiu.

26.  SCC 6(a)(iii) of the Main Contract provides as follows:

“If the Contractor [ie the defendant] is not included in the `List of Approved Suppliers of Materials and Specialist Contractors for Public Works’ maintained by the Employer [ie the Government] for … Supply of Bituminous Pavement Materials and Construction of Special Bituminous Surfacing … then he shall enter into written sub-contract(s) with the approved listed contractors, in the relevant Group(s), Category(ies) and, where appropriate, Class(es), for the execution of the respective parts of the Works.”

27.  SCC 6(b) provides as follows:

“The Contractor [ie the defendant] shall notify the Engineer in writing the engagement of an approved listed contractor within 7 days of the date of the relevant sub-contract.”

28.  Against this background, the parties provided different versions as to their dealings with one another other at the material time:

(1) Cheuk Kwan says that Mr Guan of CZC introduced Chan Chor Tung to him in about February/March 2009.  Chan Chor Tung told him that the defendant would be awarded the Main Contract and, with the recommendation of CZC, the defendant was interested in engaging the plaintiff to supply bituminous pavement materials for the Main Contract.  He further says that from April 2009 onwards there were discussions between the plaintiff (represented by him, his son Cheuk Yau Ping and Raymond Chan) and the defendant (represented by Howard Kong and Chan Chor Tung) for a supply contract.  Later, discussions took place between Howard Kong and him, and in a meeting on 13 May 2009 held in the defendant’s site office at Kai Yip Estate attended by him, Howard Kong and Yiu Hin Ming (of Fook Lucky), Howard Kong agreed with him that the defendant had no problem in engaging the plaintiff as exclusive supplier of bituminous material under the Main Contract, and that he should attend the defendant’s head office in Wanchai to collect an agreement and if the terms and conditions were acceptable then the plaintiff should sign and return the same to the defendant for record purpose.  He went to the defendant’s office in the late afternoon that day to collect the Document and signed it and faxed it back to the defendant on 14 May 2009 together with a detailed breakdown and estimate of the total amount to be supplied, as previously agreed between the parties.

(2) Chan Chor Tung, on the other hand, says that he had met Cheuk before on a private occasion in 1998 but hardly knew him as a business partner.  He met Cheuk King during a visit to the plaintiff’s plant in May 2009 but that was in the context of a proposed joint acquisition by the defendant and CZC of some interest in the plaintiff (see below) (Cheuk Kwan said in his evidence that this visit was for the purpose of ensuring that the plaintiff had the capability to supply sufficient and good quality of bituminous pavement material).  He disputes the existence of the Agreement and says that the Document and the Quotation had never been sent to the defendant prior to 23 June 2009. 

(3) Howard Kong once worked for the defendant from 1999 to 2000.  He then left the defendant and joined Hung Mau Realty & Construction Limited (“Hung Mau”) a company of which Cheuk King was a director.  In about March 2002 he left Hung Mau and re-joined the defendant.  He denies having made the agreement with Cheuk King. He also said that at the time his position was a project manager of the defendant and he had no authority to enter into sub-contracts or supply contracts on behalf of the defendant.  According to him, on 13 May 2009 a Chinese Preliminary Agreement (“the Chinese Preliminary Agreement”) was signed between Fook Lucky and the plaintiff whereby Fook Lucky (the defendant’s sub-contractor) engaged the plaintiff to supply and lay bituminous pavement materials for the Main Contract, and there was no reason for him to say on the same day to Cheuk Kwan that the defendant had agreed to engage the plaintiff as supplier.

(4) Yiu Hin Ming (who was present at the 13 May 2009 meeting involving Howard Kong and Cheuk King) said, under cross‑examination, that he did not have any impression that Howard Kong had said to Cheuk King that the defendant would enter into a direct contract with the plaintiff and that Cheuk King should collect a document from the defendant’s office. 

29.  It is common ground that a meeting did take place on 13 May 2009 during which the Chinese Preliminary Agreement was signed between the plaintiff and Fook Lucky (see further below).  It is further common ground that following 13 May 2009, information about the Production Manager, quality assurance plan, back-up plant, mix design information and site agents were received by the defendant from the plaintiff.  Letters were then written by the defendant to the Highways Department concerning design mix, project manager and site agents and the like.  The correspondence is identified in Cheuk King’s witness statement at §29.  The plaintiff then commenced supply and lay of bitumen. 

30.  The parties are in dispute as to whether the plaintiff commenced supply and work pursuant to the Agreement (per the plaintiff) or pursuant to the Chinese Preliminary Agreement signed between the plaintiff and Fook Lucky (per the defendant).

31.  I now look at the inherent probabilities and the contemporaneous documents at the material time to test the rival contentions by the parties and their witnesses. 

32.  One point that the plaintiff urged strongly upon me was the fact that under SCC 6(a)(iii) and SCC 6(b) the defendant had a duty to enter into a direct contract with an approved supplier and to notify the engineer.  As a matter of inherent probabilities therefore, so it is said, the defendant would have entered into a written contract with the plaintiff in compliance with the terms of the Main Contract. 

33.  I accept that, on a high level of generality, it is inherently more likely than not that a party would act to comply with the provisions of a contract (rather than to act contrary to a contract).  At the material time, the only approved bituminous supplier “on the horizon” was the plaintiff (neither the defendant nor Fook Lucky was an approved supplier).

34.  However, the force of this point is diminished by the fact that the defendant had not written to the Highways Department notifying the latter of the appointment of the plaintiff as its supplier, as it was obliged to do under SCC 6(b) within seven days of entering into the written contract (had it been entered into on 13 May 2009 and faxed back on 14 May 2009). 

35.  The plaintiff contended that the defendant’s letter dated 20 May 2009 to the Highways Department was such a notification pursuant to SCC 6(b).  However, the letter only enclosed mix design details in respect of certain bituminous materials which would be provided by the plaintiff.  It is true that it did mention that the materials would be supplied by the plaintiff but the focus was on the details of the mix, not on the fact that the plaintiff had been appointed supplier (or the fact that a contract had been concluded as required by SCC 6(a)(iii)).

36.  If a contract had indeed been formed and faxed back on 14 May 2009 one would have expected the defendant to mention the conclusion of the contract explicitly to the Highways Department.  It is to be noted that, by way of contrast, later when the defendant did enter into a supply contract with ASL, the defendant informed the Highways Department explicitly by a letter dated 29 June 2009.

37.  I have not lost sight of the fact that by PS clause 9.09A(5) the defendant was obliged to appoint a Production Manager employed by the supplier, and that by letter dated 21 May 2009 to the Highways Department, the defendant proposed Chan Kwai Wah (an employee of the plaintiff) as the Production Manager for the Main Contract and that the Highways Department by letter dated 22 May 2009 approved the appointment, with explicit reference to PS clause 9.09A(5).

38.  This point, however, is ambivalent.  PS clause 9.09A(5) required the defendant to appoint a Production Manager “employed by the supplier as approved by the Engineer”.  However, it is not entirely clear whether the “supplier” contemplated by this clause (i) merely means the supplier who in fact supplied bituminous materials (but who may not have a direct contract with the defendant), or (ii) means a supplier who pursuant to SCC 6(a)(iii) had a written contract with the defendant.  The words “as approved by the Engineer” does not necessarily suggest that it was the latter, because SCC 6(a)(iii) did not require any approval from the Engineer, and on balance, the words “as approved by the Engineer” probably means that the Project Manager so appointed had to be approved by the Engineer (which approval the Highways Department did give). 

39.  I therefore do not place much weight on the fact that the defendant had sought approval for the appointment of the plaintiff’s employee as Project Manager. 

40.  A most significant point against the plaintiff is this: If one looks at the bigger picture among the various parties at the material time, it will be apparent that different strands of negotiations were proceeding between/among the parties.  It is striking that amidst these negotiations, at no time prior to 13 May 2009 were there any documentary evidence of any negotiations between the plaintiff and the defendant (such as emails or drafts) that led to the Agreement.  It is a point that is seriously damaging against the credibility of the plaintiff’s case.

41.  I now go through the strands of negotiations briefly.

42.  First, there were negotiations between Fook Lucky and the plaintiff in respect of a possible contract between them (consequential upon Fook Lucky being sub-let, or sub-contracted, all the works under the Main Contract).  Eventually the Chinese Preliminary Agreement was signed on 13 May 2009.  The relevant correspondence and drafts were set out in the defendant’s closing submissions at Attachment 5, section I.

43.  By an e-mail dated 5 May 2009, Kevin Cheung of Fook Lucky sent to Cheuk Yau Ping a draft agreement dated 5 May 2009 to be entered into between the plaintiff and Fook Lucky (this was based on a previous contract between the defendant and Pioneer).  The detailed contents do not matter, but this is evidence of negotiations between the plaintiff and Fook Lucky at the time in connection with supply of bituminous pavement materials by the plaintiff to Fook Lucky.

44.  This was followed by an email from Cheuk Yau Ping to Kevin Cheung dated 7 May 2009 enclosing a revised draft agreement, and another email from Cheuk Yau Ping to Kevin Cheung also dated 7 May 2009 enclosing a revised draft agreement. 

45.  It is not disputed by the parties that the Chinese Preliminary Agreement was indeed signed between the plaintiff and Fook Lucky at a meeting on 13 May 2009.  The Chinese Preliminary Agreement was signed by Yiu Hin Ming on behalf of Fook Lucky and Cheuk King on behalf of the plaintiff.  It dealt with both supply and lay.  It set out three types of materials and the applicable percentage to be deducted from the Main Contract rates before the plaintiff was to obtain its share.  The percentages were as follows:

(1) Normal base material: 8%.

(2) SMA/special material (SMA, as I understand it, means “Stone Mastic Asphalt”): 20%.

(3) VO (Meaning “Variation Orders”): 26%.

46.  The parties are agreed that this meant that of the rates provided for under the Main Contract (between the defendant and the Hong Kong Government), the plaintiff was to get 100% less the relevant percentage.  For example, for supply and lay of “normal base material”, the plaintiff was to get 92%.  The 8% was the “cut” that Fook Lucky would get, and it is a matter for Fook Lucky and the defendant as to how the 8% was to be split between them. The document also provided for 20% for the two site agents.

47.  There was then a further email dated 13 May 2009 from Cheuk Yau Ping to Kevin Cheung at 7:52 pm enclosing a further draft agreement between the plaintiff and Fook Lucky (bearing the date of 12 May 2009). 

48.  If (as the plaintiff alleges) Cheuk King had already entered into an oral agreement with Howard Kong, obtained a copy of the Agreement from the defendant’s head office (according to Cheuk King this was in late afternoon of 13 May) that day and intended to sign it and return it by fax, then it would be extremely odd for Cheuk Yau Ping to continue to communicate with Kevin Cheung on the terms of a draft supply contract to be entered into between the plaintiff and Fook Lucky. 

49.  Cheuk Yau Ping (who, as will be seen, played a pivotal role in a lot of email communications which, if unexplained, are inconsistent with the plaintiff’s case) has not been called as a witness.  I therefore have no evidence or explanation from him as to his state of mind or understanding of the facts at the time when he sent the email. 

50.  I accept the defendant’s submissions that in the circumstances of this case I am entitled to, and I do, draw adverse inferences against the plaintiff to the effect that if Cheuk Yau Ping had been called he would not be able to give useful testimony for the plaintiff in areas requiring his explanation. 

51.  There is a dispute as to whether in his dealing with Cheuk Yau Ping and the plaintiff, Kevin Cheung had been introduced as (or had made known to Cheuk Yau Ping that he was) a Fook Lucky employee.  I do not think that at the end of the day much will turn on this issue, because irrespective of whether Cheuk Yau Ping knew that Kevin Cheung was a Fook Lucky employee, the fact remained that Cheuk Yau Ping (on behalf of the plaintiff) was a party to correspondence and drafts in connection with an agreement between the plaintiff and Fook Lucky.  Insofar as it may be necessary, I accept Kevin Cheung’s evidence that he told Cheuk Yau Ping that he was an employee of Fook Lucky and representing Fook Lucky, and that when Yiu Hin Ming introduced him to Cheuk Yau Ping he introduced him as his (Yiu’s) employee.  Kevin Cheung was in fact a Fook Lucky employee (although in order to facilitate his work at the site he had been given name cards and an email address of the defendant which address was used in the relevant series of email communications).  There was no reason why his capacity/identity as a Fook Lucky employee had to be concealed by Yiu Hin Ming or himself from the plaintiff.  Given that the emails and drafts related to a proposed agreement between the plaintiff and Fook Lucky, it was also natural for Kevin Cheung to introduce himself as representing Fook Lucky.  In any event, the context of the correspondence made it clear that Kevin Cheung was sending and receiving emails on behalf of Fook Lucky (in respect of a proposed agreement to which Fook Lucky was a party).

52.  Kevin Cheung was cross examined on what he understood to be the contractual requirement under the Main Contract for the defendant to enter into a contract with the plaintiff.  In the plaintiff’s closing submissions he was also criticized for his amendment of para 13 of his witness statement to remove the sentence which stated that he anticipated that, after agreeing the draft agreement between the plaintiff and Fook Lucky, a formal sub-contract would be entered into between the plaintiff and the defendant.

53.  The point was also made by the plaintiff that someone with Kevin Cheung’s education and professional background could not have failed to know that a further contract between the plaintiff and the defendant was required under SCC 6(a)(iii).

54.  At the end of the day I do not regard these issues as to the possible understanding on the part of Kevin Cheung as to contractual requirements are really material to the resolution of the factual issue in this case.  The effect of SCC 6(a)(iii) is a matter of objective fact.  It was quite clear from his evidence that in connection with the preparation of drafts he was an “executioner” carrying out orders.  His engineering qualifications do not make him someone who can speak on this matter. Whether the defendant really wanted to enter into a contract with the plaintiff is not something he could speak to.

55.  His removal of the relevant sentence in para 13 of his witness statement may, at first blush, give the impression that he was trying to remove a sentence that is unfavourable to the defendant.  However, upon analysis, his explanation for removing the sentence (namely that he did not know what the defendant would do) cannot be rejected as being inherently incredible.  Different people may have different standards as to when they would feel comfortable in saying that they “anticipated” that something would happen.  It often happens that after a witness had signed a witness statement he had second thoughts as to whether he had gone too far or had been too dogmatic.

56.  For the avoidance of doubt, even if that sentence had remained, I would (on proper analysis) have placed no weight on it anyway.  His subjective anticipation is not probative on whether the defendant (via Howard Kong) had entered into the Agreement.

57.  Coming back to the strands of negotiations going on at that time, CZC was involved in two parallel lines of negotiations in connection with the plaintiff. 

58.  One is that CZC was interested in acquiring a 20% stake in the plaintiff.  For example a Memorandum of Understanding was signed among, Cheuk Lam, Kwan Yau King (another shareholder in the plaintiff), CZC and the plaintiff on 16 March 2009.  The plaintiff does not dispute that CZC was interested in acquiring shares in the plaintiff.

59.  According to the defendant, the visit by Chan Chor Tung and Mr Guan (of CZC) to the plaintiff’s plant on 6 May 2009 was in furtherance of the possible purchase, though the plaintiff says that this was for the defendant to satisfy itself as to the plaintiff’s capability to supply good quality materials. 

60.  The other line of negotiation was that CZC was interested in negotiating to purchase bitumen from the plaintiff, and negotiating to sell bitumen on to the defendant and taking a profit as a middleman with a view to establishing a two tier supply structure: plaintiff to CZC, and then CZC to defendant.

61.  These negotiations are well borne out by the contemporaneous documentation set out by the defendant in its closing submissions at section II of Attachment 5.  For example, there was an email from CN Lee of CZC to Cheuk Yau Ping of the plaintiff dated 5 May 2009 enclosing a draft agreement to be entered between CZC and the plaintiff (whereby CZC would buy from the plaintiff).  There was an email of the same date from CN Lee of CZC to Bob Tsoi of the defendant also enclosing a draft agreement to be entered into between CZC and the defendant (whereby CZC would sell to the defendant). 

62.  A comparison between the prices in the two draft agreements would reveal that CZC was intending to buy from the plaintiff and then on sell to the defendant at a profit margin (for example, in the case of Road Base, the proposed purchase price from the plaintiff was HK$337 per ton and the proposed sale price to the defendant was HK$341 per ton, hence a profit of HK$4 per ton for CZC). 

63.  The correspondence between the defendant and CZC continued.  By an email dated 13 May 2009 Bob Tsoi of the defendant sent a draft supply contract to CN Lee of CZC, concerning supply of bitumen by CZC to the defendant.  Some parts of the draft were similar to the Agreement but some parts were different.  According to Bob Tsoi’s witness statement at §115 he prepared this draft based on a draft of an agreement which he obtained from Fook Lucky which was at that time being discussed between the plaintiff and Fook Lucky. 

64.  Bob Tsoi’s email was sent on 1:10 pm and according to Cheuk King, the 13 May 2009 meeting (at which Howard Kong made the oral part of the Agreement with him) was held after lunch.

65.  Then on 14 May 2009 (the day when the Agreement was said to have been faxed to the defendant), CN Lee of CZC sent an email to Cheuk Yau Ping enclosing the very same draft agreement (between the defendant and CZC) which Bob Tsoi had sent to C N Lee the day before. 

66.  The point to note at this juncture is that if Cheuk King had already picked up the Agreement at the defendant’s office on 13 May 2009 and was fact going to sign and fax it back on 14 May 2009 (or had already done so), that email from CN Lee (enclosing a draft supply agreement to be entered into between CZC and the defendant) would have an extremely odd piece in the jigsaw.  There was no evidence of any response or query raised by the plaintiff (to the effect that there was already—or would be—a supply contract between the plaintiff and the defendant).

67.  Then there followed an extremely telling series of email correspondence which provided some insight into the provenance of the Document. 

68.  The first one was dated 5 June 2009 from CN Lee of CZC to Bob Tsoi of the defendant, enclosing a draft agreement to be entered into directly between the plaintiff and the defendant.

69.  This is the first time in the bundles that any draft agreement between the plaintiff and the defendant had ever appeared.  According to CN Lee of CZC (and I find), he had been told by Mr Guan of CZC that he (Mr Guan) had decided not to proceed with the idea of a two tier structure because the profit margin would be too slim and that the plaintiff was not supportive.  But Mr Guan told CN Lee that since CZC and the defendant were still involved in the intended acquisition of the shareholding of the plaintiff, CZC would act as a “middleman” between the plaintiff and the defendant in the intended supply arrangements.  CN Lee told Bob Tsoi about this decision and prepared the draft agreement between the plaintiff and the defendant, based on the draft CZC/defendant agreement sent to him by Bob Tsoi on 13 May 2009. 

70.  Bob Tsoi replied to CN Lee by email on the same date (5 June 2009) at 5:49 pm, enclosing a draft agreement (again, to be entered into between the plaintiff and the defendant) with his proposed amendments which (for example) removed the clause about two site agents which was crossed out by hand in CN Lee’s attached draft in his original 5 June email and replaced “SFK” by “sub-contractor”. 

71.  Then, significantly, on 6 June 2009, C N Lee of CZC sent an email to Cheuk Yau Pingattaching a draft agreement between the plaintiff and the defendant (“the Draft”).  The Draft differed from the previous draft (sent by Bob Tsoi on 5 June 2009) only in the deletion of one clause (the third point from the bottom on the page headed “Terms & Conditions”, which was a “second” price fluctuation clause, there being already one price fluctuation clause at the top of the page).  The Draft was identical to the Agreement (save as to signatures and chops). 

72.  The significance of the sending of this Draft (and the reaction, of lack of it, as I shall describe below) is blindingly obvious.  If there already was a contract between the plaintiff and the defendant, there could be no plausible reason why the defendant would send the Draft (containing identical terms) to the plaintiff on 6 June 2009.

73.  At the risk of stating the obvious: On the evidence of Cheuk King, Cheuk Yau Ping was aware of the signed Agreement (“he definitely would know that”—said Chuek King, on day 2, p57 line 16).  There is no evidence that Cheuk Yau Ping or anyone from the plaintiff had responded to this email to the effect that the Agreement, in identical terms, had already been signed by Chuek King on behalf of the plaintiff and faxed back to the defendant on 14 May 2009.

74.  Then on 9 June 2009, there was an email from Bob Tsoi of the defendant to CN Lee of CZC which enclosed yet a further draft of an agreement between the plaintiff and the defendant. This draft is not the same as the Draft (and hence not the same as the Agreement) and contained two price fluctuation clauses (instead of only one price fluctuation clause, as in the case of the draft enclosed with the 5 June 2009 email from Bob Tsoi to CN Lee). 

75.  CN Lee made some revisions to this draft (by deleting one price fluctuation clause, and keeping only one price fluctuation clause) and sent his revised draft to Cheuk Yau Ping by an email also dated 9 June 2009. 

76.  Leaving aside these small points about differences in the details in the various drafts, the relevant and important point that can be gleaned from the above is that this email dated 9 June 2009 (which was sent by CN Lee to Cheuk Yau Ping) attached a draft agreement between the plaintiff and the defendant (and in the middle part of the email sent by CN Lee to Cheuk Yau Ping was the text of the 9 June 2009 email sent by Bob Tsoi to CN Lee in which Bob Tsoi asked CN Lee to arrange for a meeting probably at 11:00 am on 10 June 2009 with the plaintiff and Fook Lucky to finalise the matter). 

77.  If the plaintiff’s case (of a contract already formed on 14 May 2009) is true, then this (just like the Draft, which I have commented on below) would have been most odd and should have come as a surprise to Cheuk Yau Ping. This scenario means that a contract between the plaintiff and the defendant has (on the plaintiff’s case) already been formed, signed and faxed back, and then a third party (in the form of CZC) came in with a draft agreement on the same subject matter between the same parties with similar (but not identical terms), with an email containing a suggestion by the defendant that there should even be a meeting to “ finalise the matter”. 

78.  I do not need to say anything more to demonstrate the absurdity of this situation if what the plaintiff says is true.

79.  Yet there was no response by the plaintiff to the effect that an agreement had already been signed for the plaintiff to supply to the defendant.  I take this into account as a factor against the credibility of the plaintiff’s factual case.

80.  I now come to the meeting on 10 June 2009.  According to Chan Chor Tung (and I so find), in the morning of 9 June 2009 he became aware of adverse comments against the plaintiff by the Highways Department in respect of another project and this caused him concern.  He asked Bob Tsoi to arrange a meeting to be held among the defendant, CZC, the plaintiff and Fook Lucky on 10 June 2009 to discuss the issue and other matters concerning future supply arrangements and terms and conditions of the supply agreement. 

81.  By email dated 9 June 2009 (enclosing a draft agreement) Bob Tsoi asked CN Lee to arrange a meeting. 

82.  A meeting was held on 10 June 2009.  It was held in the defendant’s Wanchai office.  It was attended by Andy Chan and Bob Tsoi of the defendant, CN Lee of CZC, Cheuk King of the plaintiff and Yiu Hin Ming of Fook Lucky. 

83.  According to Bob Tsoi (and I so find), Cheuk King admitted that the Highways Department was about to issue another adverse report under another project handled by the plaintiff.  Bob Tsoi said that he would report it to the defendant’s management for further consideration and the defendant would notify the plaintiff of the defendant’s decision whether it would engage the plaintiff as its bituminous supplier in due course. 

84.  Bob Tsoi says that he then took out a copy of a draft agreement between the plaintiff and the defendant (which was the same as that attached to his email to CN Lee dated 9 June 2009).  He said that the defendant’s management had not reviewed the draft yet but asked the parties to review it after the meeting and provide the defendant with their comments later.  No comments were received from the plaintiff.  Cheuk King disputes that any drafts had been provided to him at this meeting. 

85.  Further, according to Bob Tsoi (and I so find), following this meeting the defendant had an internal meeting in which it was decided that it would not proceed with the acquisition plan and that it would not enter into a supply agreement with the plaintiff.

86.  The defendant’s case (in line with its case on the other drafts) is that the production of the draft agreement at this 10 June 2009 meeting and the plaintiff’s lack of response thereafter is a pointer against the plaintiff’s assertion that a contract between the plaintiff and the defendant had already been formed on 13/14 May 2009. 

87.  But before this argument can be legitimately made, I must first deal with the antecedent question of whether the draft has in fact been produced at the meeting by Bob Tsoi.  Unlike sending a draft by email (in which case the receipt of the draft is not and cannot seriously be denied by the plaintiff), Cheuk King denies that the draft has been produced to him at this meeting.

88.  I start with the pleadings.  In the Reply at para 15(4), the plaintiff admits that during the meeting Bob Tsoi had provided the draft agreement to Fook Lucky at the meeting.  However, the plaintiff denied that the draft was for the parties’ review and/or comment (because according to the plaintiff, by that time the Agreement had already been made). Also the plaintiff admitted that no comment had been provided by the plaintiff.

89.  Cheuk King did not address the 10 June 2009 meeting at all in his witness statement.  

90.  When challenged in cross examination about the meeting, he simply denied that he had been given anything, though he said he could not remember whether any draft had been produced (even if not given to him for comment).

91.  The above way in which the plaintiff dealt with the issue on the pleadings and in the witness statement is very coy.  If the pleader could make the admission (in the Reply) that the draft had been produced at the meeting to Fook Lucky,then instructions must have been obtained from someone in the plaintiff on this matter.  The one-million-dollar-question left in the mind of the reader of the pleading (including me) would be “If it was not given to the defendant and not for the purpose of inviting comments, why was it produced at the meeting in the first place?”  While one might say that in the pleadings one does not necessarily have to make positive averments and explanations, when it comes to witness statements one would expect the legal advisors, if there is a proper and coherent explanation as to why the draft was produced at the meeting, to mention it.  That has not been done.  Nor has Cheuk King explained it in his oral testimony or in cross examination.  His answer of “cannot remember” (when asked whether the draft had been produced at all at the meeting) was also at variance with the admission in the Reply.  Cheuk King was the only person representing the plaintiff at the meeting. 

92.  Bob Tsoi’s evidence in this regard, by way of contrast, was clear and coherent.  I prefer Bob Tsoi’s evidence to the denial of Cheuk King and find that the draft was produced in the circumstances described by Bob Tsoi.

93.  For the same reasons given in relation to the plaintiff’s lack of response to the emailed drafts, I regard the events at the 10 June 2009 meeting (and the plaintiff’s lack of response) as seriously denting the plaintiff’s credibility about the Agreement.

94.  In any event, irrespective of the purpose for which the draft was produced and even if it had not been produced to the plaintiff, on the basis of the admission (in the Reply) that it was produced to Fook Lucky one would have expected the plaintiff to raise a query as to why (if its case is true) given a contract had already been formed between the plaintiff and the defendant, a draft was still produced and why it was given to Fook Lucky. 

95.  If one were to step back and look at the bigger picture of the contemporaneous documentation and email exchanges as a whole (and these are parties who are accustomed to communicating by emails and forwarding drafts for comments), the Agreement was the odd one out:

(1) No drafts of any agreements between the plaintiff and the defendant were ever exchanged in May 2009.  Documentary evidence suggests that numerous strands of negotiations were going on, but none of those prior to 13 May 2009 involved drafts remotely resembling the Agreement.

(2) According to Cheuk King’s evidence, upon the defendant’s request he went go all the way to take the MTR from Kowloon East to the plaintiff’s office in Great Eagle Centre in Wanchai to pick up a physical document, when sending it by an email attachment (or even fax) would do.  We have seen that drafts of agreement were liberally exchanged by emails at the material time among the parties and Cheuk Yau Ping was certainly an email user. 

(3) In his oral evidence, Cheuk King explained that he had wanted to get the draft quickly and start work and he did not know how to use email himself and if it had been sent by email he would have to wait for his son to come back. But the fact is that he did not fax back the document until the next day anyway. It not as if he treated the matter extremely urgently. 

(4) The explanation about wanting to get it quickly (and not wanting to wait for his son to come back) did not make much sense anyway because on his own evidence in §26 of his witness statement, having obtained the physical document on 13 May 2009 he still had to wait for Cheuk Yau Ping to check that the terms were in line with those agreed between the parties.  He was not saying that he did anything with the Document before showing it to his son.  As the plaintiff’s closing stated at §21, Cheuk King had no knowledge of English except for the use of some terms common in his industry.  The whole explanation about why he did not want to use email but had to go all the way to get a physical document simply fell apart. 

96.  Further, despite their involvement in the saga (Raymond Chan being the alleged sender of the 14 May 2009 fax, and Cheuk Yau Ping being the recipient of numerous emails enclosing drafts which call for explanation, especially the 6 June 2009 email enclosing the Draft), none of them were called as witnesses for the plaintiff and there was no explanation.  I have already made this point about adverse inference in one specific context concerning Cheuk Yau Ping above.  Now as a general point I am entitled to, and I do, draw adverse inferences against the plaintiff to the effect that if they had been called, they would not have been able to give evidence favourable to the plaintiff. 

97.  A good deal of cross examination was conducted (for example against Bob Tsoi and Chan Chor Tung) as to the commercial rationale of the two tier structure, and about whether (or how) a two tier structure could tie in with SCC 6(a)(iii) or the intended acquisition by CZC of 20% of the plaintiff.  Elaborate submissions were also made by the plaintiff in closing against the defendant’s witnesses’ testimony on this “two tier” point and about the absence of any commercial rationale (eg §§25 and 26 against Guan, §49 against Bob Tsoi, §60 against the inherent probability of the two‑tier agreement).  It was contended by the plaintiff that since there was no commercial rationale for the two tier structure to begin with, and since the plaintiff was opposed to it, negotiations could not have been serious and so the plaintiff was justified in ignoring any emails or drafts concerning the two tiered structure.

98.  However, the point goes beyond whether or not the two tiered structure was commercially sensible or whether the plaintiff was opposed to it.  First, if the plaintiff was opposed to it or it was regarded as commercially not sensible, all the more reason why the plaintiff should respond by email and stop everyone from wasting their time.  Second, irrespective of commercial sense, the entering into of a two‑tier structure was flatly contrary to the Agreement and would have called for a response.  For example one would have expected the plaintiff at least to ask, upon receipt of CN Lee’s 14 May 2009 email attaching a draft agreement between the defendant and CZC, “What was this all about?  We oppose a two-tier deal, and by the way the defendant had a direct contract with us already!”  This is a serious business matter, and the counterparties (CZC and the defendant) were known to the plaintiff.  Commercial parties normally would not send redundant or absurd drafts persistently in a silly way.  And this is not a case where someone (like the plaintiff) can rudely ignore CN Lee as if ignoring a “cold call” from an unknown telephone salesman. 

99.  But in any case irrespective of the commercial sense (or suggested lack thereof) of the proposed two-tier structure, the important point (and objective fact) is that the series of email did exist and drafts had in fact been put forward.  It would have been a serious case of internal miscommunication and “the left hand not knowing what the right hand was doing” if, on the one hand, Bob Tsoi was negotiating with CZC about a supply contract and on the other hand at around the same time Howard Kong was obliviously asking Cheuk King to pick up a contract and to fax it back.

100.  Paras 57 to 59 of the plaintiff’s closing made the point that there were indeed parallel negotiations going on and a number of drafts in the defendant’s system.  The suggestion seemed to be that Howard Kong could well have conducted his own line of negotiation and because there were a number of drafts in the defendant, then one way or another the Document was created in the defendant’s system and was ready for collection upon conclusion of the Chinese Preliminary Agreement.

101.  I reject this submission.  For the other negotiations (whether it be the two‑tier negotiations, or negotiations for the plaintiff/defendant supply agreement), their documentary genesis could all be traced.  The process of inter parties discovery has enabled that to happen.  But in relation to any negotiations leading to the Agreement, the hard fact is that the plaintiff could not disclose any (and I cannot emphasize the word “any” strongly enough) drafts/emails and there is not an iota of documentary evidence in terms of drafts and emails relating to the Agreement prior to 13 May 2009; nor has the plaintiff provided any “flesh” as to how the negotiation had progressed with Howard Kong (despite Cheuk King’s statement at para 19 first sentence “Since early May 2009, various versions of draft agreement were prepared by the defendant and tabled for discussion”).  This has nothing to do with how many drafts might have been created in the defendant’s system because we are looking at inter partes drafts which, if they had existed, could have been disclosed by the plaintiff.

102.  It could be said that the co‑existence of these separate lines of negotiations is odd in itself, and it may be that no one has given me a coherent explanation as to how they were intended to fit in at the end of the day.  But I do not think that I should be detracted by this.  At that stage of negotiations, one could very well have different modes of structures being negotiated and not until the pen is appended to paper, everything could remain very fluid.  Despite the supposed oddity, the negotiations did take place: the documents were staring one in the face. Whatever oddity in question is far outweighed by the effect of the documentary evidence which shows that negotiations did take place and, importantly, that the plaintiff did not object to or comment on documents inconsistent with its case. 

103.  There is a saga concerning the issuance and payment of three invoices that I should deal with.

104.  Three invoices were issued by the plaintiff for the work done and materials that it had supplied.  They were all addressed to the defendant for the following amounts, totalling HK$239,334.37:

Date	Amount
31 May 2009	HK$79,842.30
30June 2009	HK$55,995.00
30 June 2009	HK$103,497.07

105.  According to Yiu Hin Ming, the defendant passed the invoices to Fook Lucky on 19 and 21 July 2009 for Fook Lucky to settle.  Fook Lucky checked the figures and on 24 July 2009 issued a cheque for HK$239,334.37 to settle all three in one go.  On 25 July 2009 Fook Lucky’s staff faxed a copy of the cheque and copies of the three invoices to the plaintiff and asked the plaintiff’s staff to check the figures.  On the same day Yiu Hin Ming met Cheuk King for lunch in a restaurant in Tuen Mun when he handed over the cheque to Cheuk King. Cheuk King then produced a copy of the cheque and copies of the three invoices (faxed by Fook Lucky to the plaintiff) and handed them to Yiu Hin Ming. Cheuk Kwan told him that he had signed on the copy of the cheque.  In his witness statement he said that he did not pay attention to the document, and after returning to the office he discovered that it contained the notation (translated from Chinese): “This company [Fook Lucky] pay [Adrian] the price for bitumen under invoice numbers AAC/INV/00906068, 00906069 and 00906073 totalling HK$239,334.37 on behalf of [the defendant]” but in the witness box he gave a different version namely that he actually objected on the spot.  Then on 27 July 2009 (and later on 27 October 2009) Fook Lucky issued two letters objecting to this wording, on the basis that the payment had nothing to do with the defendant and that the defendant had not asked Fook Lucky to pay.

106.  According to Cheuk King, however, the third invoice should have been issued to Fook Lucky and not to the defendant, but in any event he had been told by Yiu Hin Ming that the defendant had asked Fook Lucky to settle the first two invoices and Fook Lucky had no objection, and he therefore asked his secretary to type the notation on the copy of the cheque (faxed over to the plaintiff by Fook Lucky) and sent it back to Fook Lucky.  In the witness box, however, he elaborated on his evidence.  He said (day 2, p30 line 12 to p33 line 22; p67 line 1 to p72 line 15) that before meeting Yiu Hin Ming for lunch (and he said this took place on 24 July 2009), his accounting staff and Fook Lucky’s accounting staff agreed the wording to be typed on a copy of the cheque.  He then referred to documents containing the agreed wording being faxed to and by Fook Lucky.  There was some confusion and uncertainty in his evidence over whether, apart from the copy cheque with the notation typed in (which was done by Cheuk King’s staff) there was an additional fax from Fook Lucky’s side confirming the acceptability of the wording.  But the long and short of it is that he produced the copy cheque with the typed notation on it, and Yiu Hin Ming did read it in the Tuen Mun Restaurant before he (Cheuk Ming) signed on it. 

107.  The significance of this saga is this: the typewritten notation could be said to be contemporaneous language (in particular the reference to “on behalf of the defendant”) used by Cheuk King which supported the contention that the direct contracting (and paying) party vis-à-vis the plaintiff was the defendant. 

108.  It might also be relied upon to argue that Yiu Hin Ming did not object because he knew (as a witness to the 13 May meeting) that the defendant was indeed a contracting party. 

109.  I reject Cheuk King’s version of events and prefer Yiu Hin Ming’s.  I find that the wording was “slipped in” by the plaintiff in a misguided attempt boost its case and that Yiu Hin Ming missed that inadvertently. 

110.  I do so for the following reasons:

(1) After 23 June 2009 (when, it will be recalled, the plaintiff sent a copy of the Agreement to the defendant) the defendant had already disputed the existence of the Agreement.  Therefore it simply is incredible that (as alleged by Cheuk King) the defendant would still have asked Fook Lucky to pay the plaintiff “on its behalf”, thereby appearing to acknowledge a liability towards the plaintiff.

(2) By the same token, given that a dispute has already arisen between the parties, the document can hardly be regarded as “contemporaneous”. 

(3) Shortly afterwards Fook Lucky had already issued a “declaration” on 27 July 2009 to clarify that it had not agreed to the wording.

(4) Cheuk King’s evidence about the manner in which the language had been agreed was extremely confusing.  It contains matters not contained in his witness statement and, on one view, even departed from it.  For example the part in his oral evidence about accountants agreeing the wording was not mentioned in his witness statement.  Also, in his witness statement he said that he asked his secretary to type the wording on the copy cheque and “sent back” to Fook Lucky but in the witness box he said that the wording was worked out between accounting staff and he brought the signed version to Yiu Hin Ming at lunch.

(5) Cheuk King had not called his “accounting staff” to testify.  The defendant could not be blamed for not calling its own accounting staff to counter the evidence because Cheuk King’s evidence about the accounting staff came up for the first time in the witness box.  This also casts doubt on the veracity of his evidence and I do not accept the evidence that the wording was agreed upon by the accounting staff. 

(6) It is a matter of little moment that Mr Yiu had given inconsistent answers as to when he saw the wording on the receipt (in his statement he said that he only found it out when his staff alerted him to this when he got back to the office; in the witness box he said he spotted it at lunch and even refused to sign).  The point to note is that whether on the version in the witness statement or in the witness box, he was not saying that he spotted the words and willingly acquiesced to them as correctly representing the factual position (ie that Fook Lucky was paying on behalf of the defendant).  I am inclined to accept his account in his witness statement (rather than his new evidence in the witness box) as representing the position.  No proper explanation has been given as to why at trial he was able to better recall the matter than when he signed his witness statement.  His new evidence in the witness box smacks of a misguided effort in trying to boost the defendant’s case, in that he probably thought that it would sound better for him to say that he had objected on the spot (rather than to admit that it had slipped his attention). 

(7) It is not incredible for Yiu Hin Ming to have missed the wording when the document was given to him at the restaurant.  It was handed over as a receipt.  It bore what appeared to be a signature.  From my observation of him in the box he did not look like the kind of person who would pore over the language of a document and to spot nice points about the phrase “on behalf of”. 

111.  I should add that even though the first two invoices were issued to name of the defendant, I do not regard this as a contemporaneous fact showing that the plaintiff thought it had a contract with the defendant.  The second invoice was issued after the dispute had arisen.  Even the first invoice was dated 31 May 2009 Mr Pang SC had clarified to me (day 4 p22, lines 4-10) that it was issued to the defendant in July 2009. 

112.  There was a suggestion raised in Mr Pang SC’s cross‑examination of Yiu Hin Ming (but not contained in Cheuk King’s witness statement) that after the meal in Tuen Mun (on 24 July), on 25 July Yiu Hin Ming faxed back to the plaintiff’s office (i) the copy cheque with the typed words with Cheuk’s signature and (ii) copies of three invoices with the “paid” chop.  Debates had arisen as to whether these were indeed faxed back.  A long time was spent on this issue (day 4, p35-43). The fax header was not entirely conclusive.  

113.  But at the end of the day, whether it had indeed been faxed back by Yiu Hin Ming is a matter of little moment. Even if it had been faxed back by Yiu Hin Ming on 25 May, it does not mean that Yiu Hin Ming had “endorsed” them by faxing back the documents.  I repeat what I had said above about the likelihood of the words having slipped the attention of Yiu Hin Ming.  Anyway, the other documentary evidence against the plaintiff is just too overwhelming for this incident to have any material impact on the resolution of the disputed issue.

114.  One factor which is also very much against the credibility of the plaintiff’s case is that the original of the Agreement signed by Cheuk King (supposedly in possession of plaintiff) is unavailable at trial. 

115.  The defendant’s solicitors had asked for the original to be brought to trial.  What the plaintiff did was to file a 6^th supplemental list of documents which attached the faxed version in the receiving end on 23 June 2009.  It was the received document on the defendant’s side because it bore the defendant’s receipt stamp of 23 June 2009.  In the list itself it was described as “copy of the plaintiff’s facsimile to the defendant (original last seen in November 2009)”.

116.  This means that on the plaintiff’s case, it no longer has the original of the document which it alleges to have been faxed from its end.  I find that astonishing.  It is inconceivable that at a time when trouble was obviously already brewing (and that a seriously contentious issue was whether there was in fact a contract) that the plaintiff had not taken extra care to preserve what is perhaps the most crucial document in this case.

117.  Also, the language of the Document and the Quotation, and the cover sheet alleged faxed back on 14 May 2009 does not tally with the plaintiff’s case. 

118.  On the plaintiff’s case, Howard Kong said that all that Cheuk King needed to do was to collect the Document and sign it and return it for record purposes.  However, if that had been the case, the cover sheet would not have said (as it did) “kindly sign and sent back to us asap”. 

119.  It ought also have referred to the oral agreement reached between Howard Kong and Cheuk King and stated that the document had been signed and sent back for record purposes. 

120.  Also there should not have been any attachment (in the form of the Quotation) containing extra/inconsistent terms from the Document (this is a point on credibility, and is a separate point from the point that the attachment of the Quotation amounted to a counter offer—see below).

121.  Also, there is no satisfactory evidence as to how the quantities in the Quotation came about.  The defendant says it had not agreed to them.  Cheuk King in effect said it was a guess.  Insofar as it is necessary (and irrespective of the “counter offer” point) I find that there was no agreement on the Quotation.

122.  Insofar as demeanour and manner of giving evidence is concerned, I have the following comments. 

123.  Since the crucial issue in this case were the events of the 13 May 2009 meeting and the alleged collection of the Document and the alleged faxing back, the more important witnesses are those who spoke to these events namely Cheuk King, Howard Kong and Yiu Hin Ming.

124.  The other witnesses are of minor or peripheral importance, and they largely deal with background matters or comment on matters that are often self evident from the documents anyway. 

125.  Of the three important witnesses, Cheuk King is a most unimpressive witness.  My impression of him (both as a matter of strong feeling when he testified, and upon reviewing transcript of his oral testimony) is that whenever he was confronted with questions that were difficult to answer, he would take refuge by shifting responsibility to others (such as his accounts staff) or say that he could not remember.  He would also often feign ignorance about the matters put to him, when he plainly knew and understood the point that was being put to him in the questions asked.  At times he was evasive and would not commit to a clear answer. 

126.  I do not think this was in any way due to (as the plaintiff had submitted) his lack of sophistication.  In my judgment, the above attributes were hallmarks of an untruthful witness.  Whenever there is a conflict between his evidence and others, I would not accept his evidence unless supported by contemporaneous documents. 

127.  Howard Kong showed signs of nervousness and had trouble answering relatively simple questions.  In the overall context this did not really matter much because (as have been explained above) the contemporaneous documents were overwhelmingly in favour of the defendant.  There was not much explanation for him to do, and his evidence on the events of 13 May 2009 was clear and not shaken.

128.  I have already commented above on the internal discrepancies in Yiu Hin Ming’s evidence concerning when he spotted the typed notations on the copy of the cheque.  The plaintiff has made other attacks against his credibility.  I do not accept those other criticisms.

129.  Both Howard Kong and Yiu Hin Ming denied that any agreement had been concluded on 13 May 2009.  There is nothing to cause me to doubt their reliability or credibility. 

130.  The plaintiff has made a number of submissions on the credibility of some of the other defence witnesses (see paras 37‑51 of written closing).  I will not deal with them one by one, except to say that having considered them with care I am of the view that they are not of such weight as to cause me to doubt the veracity and truthfulness of their evidence.  Some of the criticisms are extremely peripheral in nature.  I have also already commented on some of the criticisms against Kevin Cheung above. 

131.  The defendant’s name appeared as “Customer Name” in the delivery dockets.  However, these are not contractual documents (in the sense of documents evidencing, or forming part of negotiations towards, a contract).  The focus is to evidence delivery on site, and not necessarily the niceties of contracting parties.  While they did mention the defendant’s name I do not think that they have much probative value in relating to the factual issue of the existence of the Agreement. 

132.  Taking all the above matters into account, I am driven to the factual conclusion that the plaintiff had failed to prove the conclusion of the Agreement.  I reject Cheuk King’s evidence as to the alleged agreement with Howard Kong on 13^th May and the alleged collection of the Document that day.  I also reject his evidence about the alleged faxing back on 14 May. 

133.  For the purpose of the factual case it suffices for me to reject Cheuk King’s evidence to dismiss the claim and it is strictly speaking not necessary for me to make findings as to how the document faxed on 23 June 2009 had come about.  However (and I stress this does not form the basis of my rejection of Cheuk King’s evidence) I find considerable force in the defendant’s submission that the plaintiff simply took the Draft (namely the draft agreement attached to CN Lee’s email dated 6 June 2009 to Cheuk Yau Ping), falsely dated it 13 May 2009, and then fabricated the fax and sent the document to the defendant on 23 June 2009.  Insofar as it may be regarded as necessary, I so find.

134.  At paras 101-102 of the plaintiff’s closing it was submitted that the complication in this case comes from the allegation that the plaintiff has conjured up the Agreement where none exists, and that such an allegation is a serious one in respect of which the burden falls on the defendant, and calls for highly cogent evidence in light of the seriousness of the allegation and the direct and circumstantial evidence in favour of the plaintiff. 

135.  The problem with this argument is that it loses sight of what the issue is and where the burden lies.  The burden is on the plaintiff to prove the Agreement.  The defendant does not need to prove anything.  Specifically it does not need to plead or prove a positive case as to how the Document had come about.  If I am not satisfied that the plaintiff then its claim stands dismissed without any need to find positive facts as to how the Document came to be created.  For example in the present case there is no pleaded issue about creation or fabrication of documents and the defendant does not need to prove this before its case can succeed.  Often it is argued that if the court were to reject one side’s case, it would mean that that party had committed acts of concoction of evidence as if there is some sort of duty on the other side to establish such concoction.  That is the sort of argument that the Court must be careful not to readily accede to (see Club Deluxe Ltd v Club Metropolitan Ltd & others [1995] 2 HKLR 69 at 81‑84 per Litton JA on a similar argument in the context of the court’s refusing to find that a party has proved the authenticity of a document).

136.  As I have said above, insofar as it is necessary, I do accept the defendant’s submissions and make a finding that the plaintiff had created the Document in circumstances as submitted by the defendant at para 4.4 of its closing.  I do so, having borne in mind the well-known authorities about the standard of evidence that is required before serious allegations can be proved (eg Re H (Minors) [1996] AC 563). I make such a finding in case the matter goes further and in case it is held that a positive finding of such nature is indeed required before the plaintiff’s case can be rejected.  But I must make clear once more that such a finding is not necessary before I could dismiss the claim, and even if I had not felt able to make that finding I would still have dismissed the claim because I am not satisfied that the burden had been met. 

137.  My finding that there was no contract between the plaintiff and the defendant may (put no higher than this) mean that SCC 6 had not been complied with.  But I accept the defendant’s submission that whether SCC 6 had been overlooked, or whether there was a misunderstanding between non-lawyers as to its effect, or a view that it could be circumvented in some way is irrelevant.  The contemporaneous documents tell the story.

138.  The defendant has put forward other arguments for rejecting the plaintiff’s claim.  In view of my findings on the basic factual case, I deal with those briefly.

139.  Even if the oral agreement had been made on 13 May and the Document (plus the Quotation) been faxed back on 14 May 2009, I accept the defendant’s submissions that this at best amounted to a counter‑offer. But before I discuss this point, I should first analyse the evidence as to how the document came about. 

140.  It will be recalled that the Quotation was said to have been faxed back by the plaintiff to the defendant on 14 May 2009.  The Quotation contained “quantity” (in ton) for nine items of materials as follows:

(1)	Roadbase (normal & RAP)	28,000 tons
(2)	37.5 mm Basecourse (normal & RAP)	10,000 tons
(3)	28 mm Basecourse (normal & RAP)	10,000 tons
(4)	20 mm Wearing Course (normal & RAP)	150,000 tons
(5)	10mm Wearing Course	5,000 tons
(6)	Friction Course	10,000 tons
(7)	20 mm Stone Mastic Asphalt	200,000 tons
(8)	10mm Polymer Modified Friction Course (PG76)	20,000 tons
(9)	Cushion Course (PG76)	1,000 tons

141.  The defendant denies having received this by fax on 14 May 2009, and says that the first time it saw this document was on 23 June 2009. A document in the same form had been sent by Cheuk Yau Ping to Fook Lucky on 7 May 2009 (without the reference to “quotation” and the plaintiff’s chop and signature and without a page of “payment terms”) and to CZC on 3 June 2009 (this time with the reference to “quotation” and with “payment terms” but without the plaintiff’s chop and signature). 

142.  As to the genesis of the Quotation, what was pleaded (and said by Cheuk King in evidence) was it was “agreed between the parties before”.  In his oral evidence (but not foreshadowed in witness statement), Cheuk King said that the figures were an estimate made by him, Howard Kong and Yiu Hin Ming and was not an exact figure.  According to him the occasion when the figures came up was prior to the signing of the Chinese Preliminary Agreement (which was 13 May 2009).  He said at that time CZC was pursuing him to give a figure (as to “the tonnage that is the estimate in this breakdown”) because CZC wanted to buy into the plaintiff.  He said the occasion took place at the site office, but he could not recall how it came about. He could not recall who first proposed the rates for the various items. He could not recall how the discussion went.  He did not take into account any information in coming to the estimates. 

143.  I have no hesitation in rejecting this evidence as to the genesis of the estimates in the Quotations.  Even though the occasion was said to be prior to the signing of the Chinese Preliminary Agreement it could not have been too far back in time.  It is astonishing that Cheuk King could not recall any details about the discussion (save to the limited extent he indicated in his oral evidence).  No details of this discussion were mentioned in his witness statement.  It is also inherently incredible for him to come to an estimate (or agree to any such estimate) without any information. 

144.  But even assuming (contrary to my finding) that the estimates were made in the manner described by Cheuk King and this document had been faxed back by the plaintiff to the defendant on 14 May 2009, this (specifically, the quantities stated therein) does not have any contractual force.  There was no plea or evidence that when Howard Kong told Cheuk King to pick up the Document in the defendant’s office he had also said or agreed that the estimates would be part of the deal.  Nor is there any evidence or plea that on the occasion when the “estimate” was made by Cheuk King, Howard Kong and Yiu Hin Ming, they agreed that the terms of the estimate were to be “carried over” into any contract that might eventually materialize between the plaintiff and the defendant.  As to the purpose of making the estimate, on Cheuk King’s own case he was at that time pursued by CZC to give them a figure.

145.  Even on the plaintiff’s own case, therefore, the quantities mentioned in the Quotation had no contractual force (in the sense that either side was bound to buy or sell the amount indicated).

146.  The Quotation contained additional or inconsistent terms when compared with the Document (which was what Cheuk King collected).  I have set these out above.  Those are not insignificant terms, but are terms relating to products, rates and quantities as summarized by the plaintiff’s closing submissions at para 4.2(3).  As such, even if it had been faxed back as alleged, it could only be a counter‑offer.  There is no plea or evidence that the counter offer had been accepted by the defendant.

147.  Further, on the evidence I find that Howard Kong had no actual authority to bind the defendant to any supply contract vis-à-vis the plaintiff and there was no implied or apparent authority either.  Howard Kong was a project manager who was responsible for operational matters on site.  There was a separate estimating department and manager in the defendant.  One would not normally expect a “technical” man such as Howard Kong to be dealing with (or to have authority to deal with) matters of contract conclusion which calls for, important, ability to make commercial decisions.  There had been no act of holding out by the defendant (vis-à-vis the plaintiff) that Howard Kong had authority to bind the defendant to supply contracts either.  There was no subsequent affirmation either.  The matters pleaded in para 9(5)(b) of the Reply are either matters that are disputed or abandoned or matters inherently incapable of affirming this particular contract which had been entered into without authority.  In this connection I accept the defendant’s closing submissions at para 4.15.

148.  I have not set out all the other submissions of the parties or dealt with each and every one of them.  However I have considered them all (by reference to the written and oral submissions), and insofar as I have not dealt with any point expressly it is because in the overall scheme of things those points are not sufficiently weighty to affect the conclusion above.

149.  The plaintiff’s claim therefore stands dismissed with costs (on a nisi basis) to the defendant to be taxed if not agreed.

QUANTUM

150.  In the event that this matter proceeds further, I now go on to indicate my views on the issue of quantum.  In order to retain a sense of proportion and not to overburden this (already lengthy) judgment, I propose to set out my discussions and conclusions relatively briefly (in a manner which will be readily comprehensible to the parties and those advising them) without elaborately describing the arguments and evidence “chapter and verse”.  Those underlying details would be well known to the parties and those advising them. 

151.  The parties each called one expert.  The plaintiff called Mr Dugald Finlayson and the defendant called Mr Benny Kwok. Mr Finlayson filed one report and Mr Kwok filed two.  They both testified orally on 29 November 2012 and were cross examined succinctly.

152.  Mr Finlayson is a quantity surveyor in terms of expertise.  Mr Kwok is a forensic accountant by training though he has some experience in construction and development companies.  They therefore do not share the same expert/technical discipline.  Both experts have experience in an area relevant to the exercise of assessment and I accept both of them as suitably qualified to give evidence as expert witnesses.

153.  The following issues fall for determination in respect of quantum:

(1) Whether quantum is to be assessed by reference to the quantity stated on the Quotation.

(2) Whether quantum is to be assessed by reference to the liquidated damages clause in the Document.

(3) If quantum is not to be assessed by reference to the liquidated damages clause, what the plaintiff’s actual loss is.

I shall deal with these in turn.

Quantity

154.  I have already concluded above that even on the plaintiff’s own case the Quotation had no contractual face, and was at most an unaccepted counter‑offer.  However, insofar as it is suggested that the Quotation can represent the defendant’s own estimate as to the amount of materials likely to be ordered or required by the plaintiff over the course of the Agreement, I reject this argument.  First, there is no evidence that the defendant suggested these figures (the defendant denies it; and Cheuk King said he could not recall).  And there is no evidence as to how the defendant has gone about estimating the quantities and there is nothing to enable me to gauge the reliability of the estimates. 

155.  The question of quantity therefore falls to be determined by reference to the quantity that would have been ordered by the plaintiff from the defendant over the course of the remaining part of the Agreement (rather than by reference to the figures stated in the Quotation). 

156.  There are two subsidiary points arising from this. 

157.  First, the defendant submitted that quantity is to be assessed by reference to actual delivery for “supply only” (as opposed to “supply and lay”) of the types of bituminous materials specified under the Agreement.  It says that this follows from the fact that the Agreement covered “supply only” as it only included “supply rates”.  The consequence is that when identifying delivery dockets under the defendant’s contract with ASL (who, it will be recalled, eventually entered into a supply contract with the defendant) for the purpose of working out the “hypothetical quantity” had the Agreement not been terminated, one should only look at “supply only” delivery dockets.

158.  I do not accept this submission.  Broadly speaking the purpose of the exercise is to ascertain the amount of bituminous materials that would have been required under the Main Contract (and which the defendant would have ordered from the plaintiff).  Whether the defendant had ordered from ASL under “supply only” or “supply and lay” delivery dockets, they both made up the amount of the bituminous materials required under the Main Contract.

159.  Therefore the correct quantity to look at (for the purpose of extrapolating the hypothetical quantity over the remaining term of the Agreement) would be quantity supplied by ASL under “supply only” as well as “supply and lay” dockets.  

160.  Second, it is submitted by the defendant that quantity should be assessed only by reference to the actual delivery made by ASL under purchase orders of net weight over 12 tonnes per purchase order. I accept this submission. 

161.  The Agreement provides as follows:

“For any bituminous material (net weight over 12 tonne/ purchase order) found to have been supplied by other bituminous supplier(s) without agreement from AEWTL [the plaintiff], Sub-contractor shall compensate AEWL [the plaintiff] by a payment of HK150/tonne.

…

AEWTL [the plaintiff] agreed that Sub-contractor can order any bituminous material with a net weight less than 12 tonne per purchase order for the Contract from other bituminous supplier(s).  AEWTL [the plaintiff] shall not be compensated in such case.”

162.  There is a minor point of construction here — the above clauses referred to “Sub-contractor” which, taken literally, would be Fook Lucky.  In context, however, it is quite obvious that it means the defendant. I have no difficulty in rectifying this mistake by way of construction, which is a well established technique of interpretation of contracts.

163.  Under the Agreement, the defendant was free to order from other suppliers bituminous materials with a net weight of less than 12 tonnes per purchase order without the need to pay compensation.  Given the well established principle that in assessing damages, one proceeds on the basis that (had the contract not been broken) the contract breaker would have performed the contract in a manner most beneficial to it, it is to be presumed that where there were purchase orders less than 12 tonnes per order, the defendant would have ordered them from other suppliers. 

164.  However, there is a slight twist here.  Prior to trial the defendant made disclosure of a number of purchase orders with its supplier ASL and the plaintiff successfully applied to exclude such evidence at the Pre Trial Review on 7 November 2012.  Mr Kwok’s expert report at first included references to such excluded materials and a supplemental report was filed which removed such references.  The upshot is therefore that there is no material (primary or expert) in respect of the question of damages based on purchase orders. 

165.  But it was due to the defendant’s late disclosure that the Purchase Orders were excluded (the burden of discovery is on the defendants anyway) and it is not right that the defendant can then turn round to argue that the plaintiff therefore unable to prove its case for damages by referral to the Purchase Orders.  I will therefore address the issue of quantum on the basis of whatever existing documentary materials which are properly before me.  I will not hold it against the plaintiff that the purchase orders have not been sought or relied on.

Liquidated damages clause

166.  I now address the plaintiff’s primary case based on the liquidated damages clause, which I have set out above and which I set out again here:

“For any bituminous material (net weight over 12 tonne/ purchase order) found to have been supplied by other bituminous supplier(s) without agreement from AEWTL [the plaintiff], Sub-contractor shall compensate AEWL [the plaintiff] by a payment of HK150/tonne.”

167.  I have already dealt with the point about the reference to “Sub contractor” in this clause.  It obviously is a mistake for the defendant, for the simple reason that this is not an agreement involving Fook Lucky and the only party who could conceivably be under any liability to compensate was the defendant. 

168.  The defendant contended that the clause could no longer bite since the Agreement has already been terminated (Hudson’s Building and Engineering Contract (12^th edn) §6-039 to 6-040; Keating on Construction Contract (9^th edn) §10-020).  I accept this submission. 

169.  I also accept the defendant’s submission that as a matter of construction, the clause contemplates a situation where the contracting relationship between the parties were still subsisting but not a situation where the Agreement had, on the plaintiff’s own case, been terminated.

170.  In case I am wrong on the above, I go on to address the validity of the clause as a liquidated damages clause.  The issue is whether the amount of HK$150/tonne represented a genuine pre-estimate of the plaintiff’s likely losses at the time the Agreement was entered into.

171.  On this, the experts had provided their respective opinions in their expert reports.  Mr Finlayson’s view is that the likely loss suffered by the plaintiff was HK$157.96/tonne.  Mr Kwok’s view is that the likely amount of loss was between nil to HK$50.16/tonne based on the estimated quantities in the Quotation (§7.11 and 7.12), and between nil and HK$43.15/ tonne based on actual delivered quantities. 

172.  Upon considering the written and oral evidence of the experts on this point I prefer that of Mr Kwok over that of Mr Finlayson’s because Mr Finlayson’s evidence on this issue had a number of unsatisfactory features which caused doubts in my mind as to the reliability of his assessment.

173.  For example in assessing the averaged price increase to the selling price Mr Finlayson adopted compound interest in his calculations in §3.23 of his report.  But as a result of cross examination (day 7, pp 53-56) he revisited his calculations and agreed that interest should not be compounded.  Though (to his credit) he acknowledged this criticism and did not persist in it, it was only acknowledged after cross‑examination and it casts doubt on the reliability of his evidence.  The plaintiff submitted that the numerical difference was not significant.  That may be so, but I am more concerned with the reliability of his evidence. 

174.  Then in the context of calculating the estimated price to be received under the Agreement by extrapolating the increase in ASD index, Mr Finlayson looked at the figures for the three previous years (2006-2009) in §3.21 of his report but the actual Agreement was for five years.  Mr Finlayson simply said that he thought three years was a reasonable period but eventually he did accept that last five years could be used.  If five years had been used (instead of three), one actually would obtain an increase of 10.31% rather than 15.77%.  It was readily apparent that five years was more appropriate and he did not really have any response to that.  Again this created a dent on his reliability. 

175.  Also, I am not impressed by his thesis that in assessing the likely loss anticipated at the time of the Agreement, only the variable costs (eg materials) should be treated as having been saved, and that staff costs would have to be expended in any event.  The evidence (such as payroll records) quite obviously showed that as a result of the termination of the Agreement staff costs were reduced and employment had to be terminated.  However when cross examined on this, Mr Finlayson could only repeat his point that he had paid a visit to the plant and saw six people there and there were only so many people one could put in an asphalt plant (though he accepted that he was not an expert in asphalt production). 

176.  Mr Pang SC pointed out that the plaintiff’s business also included laying and therefore the staff costs could well be attributable to the loss of “laying work” caused by the termination.  The point was also made that even if the payroll had been taken into account the effect would be a mere 3.6% (on the assumption that one looks at the quantities stated in the Quotation). 

177.  That may or may not be so, but the point is not the actual numerical effect.  Mr Finlayson was not saying that he had actually investigated the issue of staff costs and came to the conclusion that the extra staff were all involved in laying (and hence irrelevant), or that the numerical difference was just de minimis.  In fact in his evidence Mr Finlayson said he had no idea whether plaintiff had other business.  Yet he had not made inquiries to ascertain what the staff were doing before coming to a conclusion.  The point was specifically put to him in cross examination on day 7 pp 31-32 and Mr Finlayson simply repeated his point that he had gone to the production facility, which did not realty answer the point.  Again the point goes to the approach taken by Mr Finlayson and the degree to which I could place reliance on his evidence (rather than the actual numbers, a point which—because of the relative lack of investigation about the precise composition of the labor force—I do not feel able to resolve definitively). 

178.  Also by way of example, on the question of price fluctuation and the application of price indices, he accepted that one way of looking at the matter was that any increase in income would be cancelled out by increase in costs and there would be no need to do any separate calculations in respect of the increase in price and costs (and then offsetting one against the other).  This (ie treating them as cancelling each other out) was in fact the approach adopted by Mr Finlayson in relation to the next issue of the actual loss and damage.  However, he adopted a different approach in respect of the liquidated damages issue by applying one index to the income and another index to the costs.  I am not satisfied with his explanation for doing so.  In any event, the index adopted by Mr Finlayson in assessing income (the Architectural Services Department—“ASD”—index) was not an appropriate one to adopt because (for example) the work done by ASD was not the same as that covered by the Agreement. 

179.  Further, in calculating the hypothetical loss at §3.35 and §3.36 of his report Mr Finlayson has based himself upon the quantities stated in the Quotation.  However, I have already held that the Quotation did not form part of the Agreement; nor is there any evidence that the Quotation represented Cheuk Kwan’s or the defendant’s estimate.  There is therefore no basis on which the plaintiff can rely on the quantities in the Quotation as the basis of any hypothetical estimate of loss. 

180.  Lastly there is one point which particularly caused me some concern over the general reliability of Mr Finlayson’s evidence.  The point concerns his attitude towards the quantity upon which he should conduct his assessment. 

181.  Mr Finlayson’s primary position was to adopt the Quotation estimates as being the anticipated quantities of bituminous materials over the five year period (434,000 tons).  In §4.9 of his report he set out an alternative assessment on the basis of the works orders and docket records which yielded a much lower projection of 46,622 tons.  He accepted that he had no idea how the estimate in the Quotation was made.

182.  I must say that his response to cross examination on this issue is unsatisfactory (day 7, pp 67‑73).  The (almost ten-fold) discrepancy between the estimates in the Quotation and the extrapolated quantity (even allowing for his complaint about the adequacy of disclosed records by the defendant) ought to have alerted him to the possibility that something might have been amiss.  He is not a primary fact finder and one would not expect him to infer or speculate how the Quotation came about.  But he did not simply state the matter neutrally (eg saying that he was only using the Quotation as an “assumed”, or “as instructed”, basis).  Nor did he sound any caveat as to the reliability of the Quotation. What he did was actually to proffer his own speculative reason for why the Quotation might be reliable (§4.8 of his report, cross examined at day 7, pp 69-70).  When pressed with the large discrepancy between the Quotation and the actual figures, he kept repeating that he had given alternative assessments.  But what he did was to use the Quotation as his primary basis of assessment.  I am also not convinced by the suggestion of the possibility that there could be a sharp upturn near the tail end of the five year term of the contract. 

183.  Turning to Mr Kwok’s evidence, the main attack by the plaintiff against Mr Kwok’s evidence on the first issue was that in assessing gross profit margin he had taken two years (years ended 31 March 2008 and 2009) instead of four years (years ended 31 March 2008, 2009, 2010, 2011) and that had he done so the gross profit margin would have been higher.  However, I am satisfied with his explanation given in cross examination namely that he was trying to capture what was a reasonable sustainable business cycle at the time namely May to June 2009 and that at the time the available financial statements were those for 2007, 2008 and 2009 and he did not use 2007 financial statements because they captured transactions for seven years.  As of May 2009 the financial statements for 2010 and 2011 have not yet come into existence and could not have been considered in any hypothetical exercise of pre-estimating loss and damage. 

184.  Mr Kwok was also criticized for taking a weighted average approach to arrive at the unit rate, because there could be individual items that might be more profitable than others.  However, bearing in mind that the aim of the exercise was to arrive at a hypothetical estimate of likely losses as at the time of the Agreement I do not think that Mr Kwok’s method was unreasonable. 

185.  For the above reasons I take the view that the view that $150/ tonne was a valid liquidated damages provision.

186.  I should add that the plaintiff also relies on the amount of liquidated damages stipulated in (i) the term contract prior to the Main Contract; and (ii) in the agreement with ASL, to support the validity of the amount of HK$150/tonne as liquidated damages.  However, each contract has its own background and context and I do not accept that I can derive any meaningful assistance from the two “comparables” relied on by the plaintiff.

Actual loss

187.  The matter therefore falls to be decided on the basis of the actual loss and damage suffered by the plaintiff as a result of the breach. 

188.  For the plaintiff, Mr Finlayson doubted the reliability and completeness of the records disclosed by the defendant and decided, in the absence of further disclosure by the defendant, to assess damages by using estimated quantities contained in the Quotation and on that basis, arrived at a figure of HK$25,155,930.

189.  As an alternative, in the event that I were to accept the documents disclosed by the defendant as reliable then he assessed damages at HK$2,702,389.69. 

190.  On the other hand Mr Kwok’s primary assessment was that the plaintiff had suffered nil damages.  As an alternative, by reference to actual deliveries he came up with four different scenarios (initially there were six such alternative scenarios but they were reduced to four as a result of exclusion of late-disclosed materials):-

(1) Scenario C: HK$321,840 (plaintiff’s case adjusted by extrapolated quantities totaling 3,940 tonnes based on actual delivery dockets up to May 2011 for “supply only”).

(2) Scenario D: HK$125,513 (plaintiff’s case adjusted by extrapolated quantities totaling 3,940 tonnes based on actuial delivery dockets up to May 2011 for “supply only” and the discrepancies in production costs on raw material prices provided in Cheuk King’s witness statement).

(3) Scenario E: HK$2,768,613 (plaintiff’s case adjusted by extrapolated quantities totaling 49,155 tonnes based on actual delivery dockets up to May 2011 for “supply only” and “supply and lay”).

(4) Scenario F: HK$2,622,124 (plaintiff’s case adjusted by extrapolated quantities totaling 49,155 tonnes based on actual delivery dockets up to May 2011 for “supply only” and “supply and lay” and the discrepancies in production costs on raw material prices provided in Cheuk King’s witness statement).

These are subject to the overarching point that if I were satisfied that there ought to have been additional savings in variable costs, eg staff costs and repair/maintenance then the above losses could very well have been offset by the ballpark figure of HK$6,000,000 for staff costs savings. 

191.  Dealing first with Mr Finlayson’s primary measure (ie based on the Quotation), I have already decided that for the purpose of assessment, one should look at the actual deliveries and not the estimates contained in the Quotation.

192.  Further, the irregularities pointed out by Mr Finlayson (and which caused him to doubt the reliability and completeness of the defendant’s records) have been satisfactorily explained by Kevin Cheung.  In any event, while in an ideal world one would expect a 100% fit in all the relevant supporting documentation, we do live in an imperfect world and one has to accept that human errors and imperfections in documentation do occur from time to time.  I am not satisfied that the irregularities identified by Mr Finlayson (§4.6 of his report) are such that they could completely vitiate the validity of the defendant’s disclosure so as to justify the adoption of the quantities in the Quotation. 

193.  Mr Kwok started off by making the point, in effect, that the plaintiff’s business had been a losing business and he had not seen any evidence of any ability for the plaintiff to turn its business around.  The plaintiff submitted (rightly in my view) that profitability of a business is different from profitability of a contract and I would not have found that the plaintiff suffered nil damages simply because the plaintiff’s business had been unprofitable.  I should add that this point is rather tenuous and at one time it did create a slight dent in Mr Kwok’s reliability but overall, having heard the totality of their evidence I still think that Mr Kwok’s evidence is the more impressive of the two experts. 

194.  I have also decided above that in assessing damages I should adopt the actual quantities based on “Supply Only” and “Supply and Lay” dockets.

195.  On this basis the competing candidates remaining are:

(1) Mr Finlayson’s alternative figure of HK$2,702,389.69.

(2) Mr Kwok’s Scenario E of HK$2,768,613.

(3) Mr Kwok’s Scenario F of HK$2,622,124.

196.  The difference between these are insignificant. I will not make any adjustments based on the discrepancies identified by Mr Kwok within Cheuk King’s witness statement and will give the plaintiff the benefit of the doubt by adopting the higher figure of HK$2,768,613 as the amount of actual loss and damage suffered by the plaintiff. 

197.  The defendant has argued in addition that if I am satisfied that staff costs could be saved then a sum of HK$6,000,000 (based on HK$100,000 savings per month over the course of five years) would be saved which could effectively “wipe out” the amount of loss and damage.  I am not satisfied I can adopt this approach.  I do not believe that I have had the benefit of full evidence and analysis about the potential “split” of staff cost between (i) production; and (ii) lay.  I will therefore not “wipe out” the plaintiff’s damages claim by applying the HK$6,000,000 on this basis.  My discomfort about Mr Finlayson’s evidence on his approach to staff costs, however, is unaffected by this. 

198.  There are other points about the expert evidence raised by both parties.  The fact that I have not explicitly mentioned them does not mean that I have not taken them into account.  However, the nature of those points are such that they are not sufficient weight or moment to affect my decision based on the factors that I have expressly identified and discussed above.

199.  Lastly I thank counsel on both sides for their helpful and succinct presentation.