THIEN HONG HEAVY MACHINERY (M) SDN. BHD. v. TOWER MARK LTD

DCCJ 1603/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1603 OF 2012

____________

____________

______________

J U D G M E N T

______________

1.  In this action the plaintiff sues for the balance of rental due in respect of three crawler cranes hired to the defendant in the sum of $810,435.05.

BACKGROUND

2.  The plaintiff is a Malaysian company in the business of supplying crawler cranes for use in construction sites while the defendant a local company engaged in a similar business.

3.  In or about May 2010, Mr. Jason Eng of the plaintiff (“Eng”) and Mr. Mark Ng of the defendant (“Ng”) reached an oral agreement (“Agreement”) whereby the plaintiff agreed to supply to the defendant certain crawler cranes for onward hiring to users in Hong Kong.

4.  Pursuant to the Agreement, the plaintiff shipped to Hong Kong at different times between July and August 2010 three crawler cranes (“Cranes”) each of which was hired out by the defendant to local users.

5.  In the meantime, Eng stayed in contact with Ng through long distance calls and would fly to Hong Kong to meet the latter from time to time to discuss matters relating to the hiring of the Cranes.  While the plaintiff had incurred costs in shipping the Cranes to Hong Kong, the defendant had incurred expenses in terms of importation declaration charges, local transportation costs as well as modification and repair costs and labour charges in connection with the Cranes. 

6.  In January 2011, Eng flew to Hong Kong and handed over to Ng the invoices for the rentals due for the Cranes.  In the next two months, the Cranes were all shipped back to Malaysia.  On 19 May 2011, Eng and Ng met in Hong Kong when Ng produced a table setting out the total rental due for the Cranes at HK$901,538.65 and the defendant’s outlay on the Cranes at HK$679,435.25(“Table”).[1] A the end of the meeting, Ng caused to be issued to Eng personally the plaintiff’s Cheque (“Cheque”) for the net sum of HK$221,103.40 (“Settlement Sum”) and Eng signed an Acknowledgement of Receipt therefor (“Acknowledgement of Receipt”).   

7.  Almost one year later, by its local solicitors’ letter dated 19 March 2012 to the defendant, the plaintiff demanded payment of the sum of HK$810,435.05 as balance due in respect of the Cranes after giving credit to the Settlement  Sum.  The defendant having denied liability, the plaintiff commenced this action on 16 May 2012.

THE PARTIES’ CASES

8.  On the terms of the Agreement, it is the plaintiff’s case that  the Cranes were supplied to the defendant on bare-rental and as-is-where-is basis whereby the plaintiff should charge a basic lump sum service charge/monthly rental whereas the defendant must bear all costs and expenses to put or render the Cranes to be in working and rentable state and condition including but not limited to assembly and dismantling expenses, inland transportation expenses, fuel, spare parts, crane operators’ wages, repair and maintenance.

9.  In its Amended Defence, the defendant avers that the Agreement was made partly orally, partly in writing and partly by conduct.  It is averred that at a meeting between Eng and Ng in May 2010, it was agreed that the plaintiff would send two to three of its cranes to Hong Kong for the defendant to find local hirers and the rental charges would be subject to further agreement between the parties upon hirers being found.  The defendant pleads that the said agreement was made subject to the following custom or usage in the trade of crane rental (“Trade Custom”), namely,

(a) The rental term of the Cranes would start from the date on which they were rented out to hirers in Hong Kong and end on the date of their return to the defendant as the intermediary.

(b) For a rental of over 26 days or more in a month (excluding Sundays), a full month’s rental would have to be paid.  For a rental of less than 26 days in a month (excluding Sundays), rental charges would be calculated as follows: number of days of rental / 26 days x one month rental.

(c) All reasonable costs and expenses of transportation of the Cranes between the plaintiff as owner and the defendant as intermediary including but not limited to import and export taxes, dismantling and packing of the cargo for the Cranes should be borne by the plaintiff as the crane owner.

(d) All necessary costs and expenses relating to the operation of the Cranes (including but not limited to fuel charges incurred before the Cranes were hired out); inspection, examination, repair, maintenance of the Cranes (including but not limited to the costs of lubricant, materials, replacement parts and labour charges) in compliance with statutory requirements in Hong Kong should also be borne by the plaintiff as the crane owner.

10.  It is the defendant’s case that upon their arrival in Hong Kong, the Cranes were found to be defective and/or non-functional in that they failed to comply with the local statutory requirements and as a result the defendant had to cause various modification and repair works to be done to the Cranes thereby incurring costs and expenses totaling HK$679,435.25.  Between August and November 2010, Eng and Ng agreed on the telephone the rental charge for each of the Cranes at HK$95,000.00 to HK$105,000.00 for hiring out to individual users for specified periods of two to four months.  On three occasions between August 2010 and January 2011, Eng visited the defendant at the latter’s storage yard when Eng was informed of the modification and repair works done or to be done to the Cranes and was provided with updated breakdowns of the defendant’s costs and expenses together with copies of invoices and receipts relating thereto whereupon Eng agreed to the defendant charging for each repair job on the Cranes at a daily rate of HK$1,000 per worker.

11.  The defendant further avers that when the Cranes were eventually returned to the plaintiff by shipment as arranged and paid for by the plaintiff, the defendant incurred further costs in arranging for transportation of the Cranes from its storage yard to the loading port (included in the sum of HK$679,435.25).  After all Cranes were safely returned to the plaintiff, Eng came to Hong Kong to finalize the account in respect of the Cranes with the defendant and to collect payment.  On 19 May 2011, Eng and Ng agreed on the final outstanding amount at the Settlement Sum and at Eng’s request the defendant issued the Cheque (marked payable to Eng instead of the plaintiff) in full and final settlement of the account.  Eng accepted and acknowledged receipt of the same as “final settlement of the three crawler cranes for renting” on the plaintiff’s behalf. Eng did not make any protest or otherwise indicate dissatisfaction with the Settlement Sum. 

12.  In its Amended Reply, the plaintiff avers that before the Cranes were shipped to Hong Kong, Eng and Ng met on two to three occasions in a hotel in Hong Kong when Ng asked Eng to rent and deliver to the defendant two to three cranes without specifying the model, size or condition (physical or otherwise) thereof.  On those occasions, Eng and Ng agreed that cranes of whatever model would be rented to the defendant on bare-rental and as-is-where-is basis in that the plaintiff would not be responsible for the repair and maintenance costs and expenses so that the defendant must pay rental to the plaintiff regardless of how the defendant would use the cranes and the repair and maintenance works allegedly done by the defendant was not the plaintiff’s concern.  It is denied that the defendant’s costs and expenses (including the costs of transportation from the defendant’s storage yard to the loading port) were for the plaintiff’s account or that Eng had agreed to the defendant charging for each repair job on the Cranes at a daily rate of HK$1,000 per worker.  The plaintiff further avers that the Agreement should prevail over the Trade Custom.

13.  Regarding the Cheque, the plaintiff denies that it was meant for full satisfaction and discharge of all sums due from the defendant to the plaintiff.  It is averred that on 19 May 2011, Ng “persuaded or otherwise told Jason Eng that the Plaintiff should receive the said sum in full satisfaction of all sums due and owed by the Defendant, failing which the Plaintiff would get nothing but a lawsuit and an empty judgment if the Plaintiff takes legal action” (“Ng’s Persuasion”).  It is further pleaded that “(h)aving short and limited time only in Hong Kong, Jason Eng should not have signed the receipt but for the economic duress exerted in the aforesaid manner due to pressing necessity for cashflow and financial straits that Jason Eng was coerced or otherwise left with no alternative…” (“Alleged Financial Difficulty”) 

14.  It is of note that upon being requested to provide further and better particulars of the plaintiff’s case on economic duress, the plaintiff stated in its answer that Eng could not recall every act and conduct of the defendant (through Ng or otherwise) other than Ng’s Persuasion. The plaintiff declined to give further particulars on the plaintiff’s “pressing necessity for cashflow and financial straits” other than suggesting that inference could be drawn from the sheer amount of HK$810,435.05 (when clearly no such inference could be drawn). 

15.  There are therefore the following issues for determination herein, namely,

(a) What were the terms of the Agreement; and

(b) Whether Eng accepted the defendant’s payment of the Settlement Sum on 19 May 2011 under duress.

EVIDENCE

16.  Eng was the only factual witness of the plaintiff.  The defendant tendered as witness Ng himself and a Mr. Chan Cheuk Tim (“Chan”).

Eng’s evidence

17.  First I need to examine Eng’s witness statement in some detail.  In paragraph 10, Eng denied the defendant’s allegation that the defendant was supposed to find hirers for the Cranes in Hong Kong and therefore would not have to pay any rental to the plaintiff should no hirers be found.  He further stated in paragraph 13 that the plaintiff had incurred hugh expenses in delivering the Cranes to Hong Kong and therefore could not afford to absolve the defendant’s requirement to pay rental in the event of no hirer being found.  He said it was a common practice in the construction industry for crawler cranes to be rented out on a bare- rental basis (租斷) to avoid users seeking to deduct from the rental due excessive and unreasonable repair costs.  As to as-is-where-is basis, it meant the defendant accepted the Cranes together with all defects.  As to how the Agreement came about, he said Ng approached him through a Malaysian friend of his around May 2010.  Later the same month he met Ng two to three times in Hong Kong when Ng told him crawler cranes were in high demand in Hong Kong and the defendant was unable to meet such demand even though it owed quite some crawler cranes.  As the plaintiff had idle crawler cranes, the plaintiff could supply the same to the defendant. Having told Ng about the types and models of the plaintiff’s crawler cranes, he indicated that they would be rented to the defendant on bare-rental and as-is-where-is basis so that the plaintiff would not provide any post-rental service and that the defendant would have to start paying rental to the plaintiff once a hirer was found, that is, rental would be payable only as from actual hiring out.  [I pause here to note that this does not sit well with his denial/assertion in paragraphs 10 and 13 above.]   The defendant otherwise did not require the plaintiff’s permission or consent in hiring out the Cranes to local users and whether the defendant was making a profit or not was not the plaintiff’s concern.  Ng agreed to such terms and indicated that the defendant would require crawler cranes with a loading capacity of 150 to 250 tonnes without specifying the types or models. 

18.  Among his replies to the various assertions in the Defence, Eng said on a day before the Lunar New Year in 2011 he had chased Ng for payment of rentals.  Ng offered to pay HK$300,000 in full and final settlement of all outstanding rentals but he rejected the same and reiterated the bare-rental term which would bar any deduction.  As Ng failed to pay rentals, he and the plaintiff’s management felt unable to trust Ng and the defendant and therefore demanded the return of the Cranes.  He further denied responsibility for the related transportation costs.

19.  Regarding the Settlement Sum, Eng maintained it was merely partial payment of the outstanding rentals and there never was any agreement between him and Ng that it was meant for full and final settlement of all outstanding rentals due from the defendant. As the Cranes were rented out on a bare-rental basis, he did not agree to the defendant’s deduction of its costs and expenses from the outstanding rentals. He concluded his statement by repeating the plaintiff’s pleaded case on economic duress.[2]    

20.  At the start of his examination in chief, Eng withdrew what he said in paragraphs 10 and 13 of his witness statement and accepted that the defendant would not have to pay any rental should no hirer be found but otherwise affirmed the rest of his witness statement.  He went on to supplement his evidence on the circumstances in which he signed the Acknowledgement of Receipt in that Ng had instructed his employee who delivered the Cheque to him not to release the Cheque without him signing the Acknowledgement of Receipt which contained the statement “Being final settlement of the three crawler cranes for renting”.  He had wanted to cross out this statement but was stopped by Ng’s employee.  As he was in need of money, he reluctantly signed by appending a casual stroke.[3]

21.  Eng further referred to a statement of account dated 30 June 2011 (“Statement of Account”) which he believed to have been sent to the defendant, that is, a few weeks after his acceptance of the Cheque.[4] Regarding the cost of transporting the Cranes from the defendant’s storage yard to the loading ports for the return trip to Malaysia and export declaration charges, he had neither discussed the same with Ng nor agreed to bear such costs.

22.  In cross examination, Eng admitted that he came to Hong Kong in May 2010 to explore the local market because he expected the market for crawler cranes in Malaysia to go quiet in the following few months.  He accepted that Ng did not have a chance to check the conditions of the Cranes before the same left Malaysia for Hong Kong.  He admitted to have little knowledge of the local statutory requirements in relation to crawler cranes and, despite some initial disagreement with Mr. Lam’s propositions, agreed that there might be a need for modification of the Cranes to comply with local regulations.  He further agreed that Ng would come to know about any defects in the Cranes only when they were delivered to Hong Kong. 

23.  As to what he meant by a bare-rental basis, Eng gave a slightly expanded meaning, that is, the plaintiff would not provide a crane driver or take responsibility for maintenance, hence a lower rental.  To one’s surprise, he then resiled from the plaintiff’s original position and admitted that the plaintiff would bear the repair costs for enabling its crawler cranes to obtain the necessary certificates for commencing operation, which does not sit well with the plaintiff’s case that the defendant was obliged to bear all costs and expenses to put or render the Cranes to be in working and rentable state and condition.  He was invited to look at a quotation for repair of one of the Cranes and confirmed that Ng did inform him of the need for such repair and that the plaintiff was to bear the repair cost.[5]

24.  Eng admitted that the rental for each of the Cranes was not fixed at the first meeting between him and Ng and was only agreed after the Cranes were delivered to Hong Kong and when the defendant managed to find a hirer for each of them.

25.  Eng insisted that one month rental would be payable even for a rental period of less than 26 days in a month.  When his attention was drawn to an invoice showing the plaintiff to have charged for the actual number of days in the month of October 2010 (17 days in total), however, he again resiled from the plaintiff’s original position and admitted that a daily rate was charged there.[6] He rationalized the same by saying that as a new comer he had agreed out of good grace to charge less for that particular crawler crane as the hirer had stopped using the crane prematurely due to damage to the gearbox restricting the mobility of the crane.  His attention was then drawn to the invoices relating to the other two crawler cranes which suggest a daily rate instead of monthly rate was applied, Eng again conceded.[7]

26.  On his acceptance of the Cheque, he fairly agreed with Mr. Lam that he could have refused to accept the Cheque and sued the defendant instead.  As to how the odd amount was arrived at, he admitted that Ng referred to the defendant’s costs and expenses and placed before him a bunch of invoices therefor.  On further cross examination, he admitted that Ng had in fact raised the defendant’s costs with him as early as December 2010 when he visited Ng in Hong Kong and when Ng provided him with invoices covering repair works effected both prior to and after issuance of the relevant certificates for the Cranes to start operating.  He said he reminded Ng that the plaintiff was not responsible for (post-certificate) maintenance and Ng replied that the invoices were for reference only.  When asked why he did not query Ng’s provision of such invoices to him when the plaintiff’s responsibility was limited to the repair costs incurred prior to the issuance of certificates, he could do no better than saying that the invoices for the repair costs due from the plaintiff were mixed with the other invoices but was otherwise unable to explain why Ng should provide him with irrelevant invoices.

27.  As to the Alleged Financial Difficulty, it turned out Eng was unwilling to disclose the plaintiff’s financial position on grounds of confidentiality, hence the half-hearted answer to the defendant’s request for further and better particulars as aforesaid.  On the other hand, he insisted that he had told Ng the plaintiff was in need of money and had chased Ng for payment of rentals.  He accepted that this evidence of his did not feature in his witness statement but attributed this to poor communication between him and his lawyer and his not be aware that his witness statement would be filed in court.

28.  As regards the Statement of Account, Eng said he was not sure if it was in fact sent to the defendant in June 2011.

29.  While denying to have agreed to the defendant’s labour charges at a daily rate of $1,000 per worker, Eng admitted to have seen references to the same in the defendant’s invoices and Ng had passed to him invoices both in December 2010 and January 2011.

Chan’s evidence

30.  Chan is the proprietor of a mechanical engineering company and has been dealing in the rental and sale of tower cranes and related services since 1982.  He professes to be conversant with matters relating to the rental of crawler cranes, mobile cranes and tower cranes in Hong Kong, Macao and South East Asia including Malaysia and is currently the Treasurer of Hong Kong Tower Crane Engineering Association.  

31.  It is Chan’s evidence that the Trade Custom is widely followed (unless otherwise agreed) in the crane rental business in Hong Kong, Macao and South East Asia including Malaysia.

32.  Mr. Jeremy Cheung, Counsel for the plaintiff, had initially objected to the tendering of Chan as a witness on the grounds that no leave had been sought by the defendant to introduce expert evidence on trade custom or usage.  As Mr. Lam rightly pointed out, however, Chan’s witness statement was served on the plaintiff well ahead of the trial and no objection was raised before the matter was set down for trial.  In any event, evidence on trade custom or usage may be given by an ordinary witness by reference to transactions within his own actual knowledge and it is not necessary to establish his status as an expert witness.  See Dickson Watch & Jewellery Co Ltd v Mow Tai Insurance & Reinsurance Co Ltd [1985] 1 HKC 505 at 513H-514B.  The only question is what weight should be given to Chan’s evidence.

33.  In cross examination, Chan fairly admitted to have previous business dealings with the defendant also relating to cranes.  His company would either rent out cranes directly to end users or through intermediaries. If an end user asks for a model he cannot provide, he would either refer the end user to a fellow businessman or otherwise hire the crane from a fellow businessman like the defendant, depending on the profit margin.  As end users in the market would normally know about the market rental of cranes, he reckoned the profit margin of an intermediary would be about 20%.  As to maintenance of his cranes during the rental period, his company as owner would provide monthly maintenance service as well as urgent repair during the interval at its own costs except in the case of misuse by end users.  If he was serving as an intermediary, the maintenance responsibility would fall on the actual owner of the crane and he would not shoulder such a responsibility for the simple reason that he would have little idea about any defects in the crane and therefore would have no idea as to the likely repair costs.  He would however agree to take up the maintenance responsibility should the profit margin be high enough and the rental period long enough, such as up to one year, so that such costs could be spread over the rental period.  He regarded a rental period of 3 months (as in the case of the Cranes) to be too short for an intermediary to bear the maintenance costs of a fellow businessman’s crane.  He had come across instances involving brand new cranes where an intermediary agreed to bear such costs.  He fairly admitted to have no experience in transnational dealings like the one between the parties herein and that his experience with crane rental business in Malaysia was limited to a joint venture there prior to 1998 and his understanding of the rental business there was acquired from small talks in the business circle.

Ng’s evidence

34.  Ng’s full story is to be found in his witness statement which contains a detailed account of the dealings between him and Eng.  In gist, in the second quarter of 2010 Eng through the introduction of a mutual acquaintance approached Ng by phone saying the plaintiff was looking for business opportunities in Hong Kong.  They subsequently met in a hotel in Mongkok, Hong Kong when Eng told him the plaintiff had a number of unrented cranes given the declining market in Singapore and Malaysia and asked if Ng could find hirers for those cranes in Hong Kong.  Eng then named the models owed by the plaintiff including those of the Cranes which Ng found to be rather old but reckoned there might be a rental market for the same so long as they were in a good working condition.  Eventually they agreed that Eng would arrange to deliver two to three cranes to the defendant.  Having told Eng about the prevailing rates for cranes of varying tonnes, Ng suggested they negotiate the rental charges when hirers were found and Eng agreed.  Ng reminded Eng that the cranes might have to be modified and a certificate had to be obtained from a registered professional engineer so as to render the cranes compliant with local statutory requirements. 

35.  Eng and Ng communicated by telephone most of the time.  In late June 2010, Eng called to say the plaintiff would ship the Cranes to Hong Kong.  When the first two cranes arrived in late July 2010, the defendant’s engineers found them to have a number of defects requiring repair.  Ng then called Eng to tell him about the same and asked if Eng would send his engineers over to Hong Kong to do the repair or let the defendant’s engineers do the job.  Eng chose the latter option. 

36.  In late July 2010, an offer came from a user to hire one of the cranes (“KOBELCO 7150”).  In early August 2010, Ng called Eng to inform him of the same and in turn offered to pay the plaintiff a monthly rental of HK$100,000 which Eng accepted. 

37.  On 10 August 2010, Eng came to Hong Kong and met Ng in the defendant’s storage yard in Yuen Long when Ng explained to Eng what work and repair had to be done to the first two cranes and provided Eng with the relevant receipts and invoices for repair charges, transportation and terminal charges together the defendant’s worksheets detailing the work and jobs done by its engineers and workers.  As for the regular repair that the two cranes would usually require due to their age, he told Eng that the defendant would charge for such repair work at a daily rate of HK$1,000 per worker.  Eng did not object to the said charges and the defendant had therefore carried out a number of modifications and repair works to the cranes.

38.  The third crane arrived in Hong Kong in early August 2010.  As with the first two cranes, the defendant paid import declaration charges on the plaintiff’s behalf.  Upon inspection, the defendant’s engineers found a number of defects requiring repair and certain parts requiring modification to comply with local statutory requirement.  Ng called to inform Eng who agreed that the defendant should carry out such works as it deemed necessary.

39.  On 12 August 2010, KOBELCO 7150 was delivered to the user whereupon it malfunctioned.  After repair, the crane could only work intermittently within a confined area.  The user terminated the hiring and returned the crane to the defendant on 25 October 2010.  The crane was shipped back to Malaysia in December 2010 and the defendant incurred costs for packing cargo and transporting the crane from its storage yard to the loading port and paid export declaration charges.  The user initially refused to pay any rental to the defendant.  Ng told Eng about this over the phone in early January 2011 when Eng agreed that the defendant would only have to pay one month’s rental to the plaintiff.  Eventually the user agreed to pay to the defendant 18 days’ rental for the defective crane.  During his visit to Hong Kong on or about 19 January 2011, Eng handed to him, inter alia, the plaintiff’s invoice for the agreed one month’s rental of HK$100,000.[8]

40.  In early September 2010, an offer came from a user for another crane (“HITACHI KH850-3”). He therefore informed Eng by phone and offered a monthly rental of HK$95,000 which Eng accepted.  During the period of hire, defects were found in the crane and the defendant had to send engineers to the work site to repair the same from time to time.  Eng was kept posted of the repair works.  The user terminated the hiring on 26 January 2011.  During his visit to Hong Kong, Eng handed to Ng the invoices for this crane covering the rental period from 7 September 2010 and 31 January 2011.  In relation to the invoice for January 2011, however, Ng found the plaintiff to have overcharged the defendant by HK$14,615.30 when the hiring period for that month was less than 26 days so that the hiring charge should be calculated by reference to the actual number of days according to the Trade Custom (“Overcharge”).[9] Ng told Eng about the Overcharge at their meeting on 19 May 2011 to which I shall be return below.

41.  In mid November 2010, a user was found for the remaining crane (“KOBELCO CKE-2500”).  In like manner, he called Eng to offer a monthly rental of HK$105,000 which Eng accepted and the crane was delivered to the user on 12 November 2010 for examination by a registered engineer and the relevant certificates were issued the next day.  However, Ng mistakenly told Eng the hiring started from 1 December 2010 when it had in fact started on 13 November 2010, which mistake Ng did not realize until he prepared the witness statement for this action (“Mistake”) to which I shall return below.

42.  As with the other two cranes, the defendant sent engineers to the work site to fix the defects in the third crane from time to time.  The hiring of this crane was terminated on 12 March 2011.  During a telephone conversation in March 2011 between Ng and Eng, Eng mentioned about offers in Malaysia for two of the Cranes.  In early April 2011, the plaintiff arranged for the same to be shipped back to Malaysia at its own costs and the defendant had similarly incurred costs in transporting them from its storage yard to the loading port.

43.  On two occasions when Eng came to the defendant’s storage yard in mid October 2010 and 19 January 2011, Ng updated Eng on the costs and expenses incurred by the defendant as aforesaid by reference to breakdowns and supporting documents.  On both occasions, Ng further reminded Eng of the daily rate of HK$1,000 per worker that the defendant charged for the regular repair jobs.

44.  Then came a meeting between Ng and Eng on 19 May 2011.  This meeting was proposed by Eng to reconcile their accounts for the Cranes.  They met at the same hotel in Mongkok when Ng presented to Eng the Table and brought up the Overcharge.  Ng further provided Eng with a set of the defendant’s official receipts, invoices and worksheets on the basis of which the defendant’s charges were calculated.  At the end of the meeting, Eng agreed to accept the Settlement Sum in full and final settlement of the accounts and asked Ng to issue a cheque marked payable to him so that he could cash the same before leaving for Malaysia.  Ng complied and told his account assistant to deliver to Eng the Cheque together with the Acknowledgement of Receipt which Eng duly signed.  In the course of preparing his witness statement, Ng realized the net figure should be HK$222,103.40, hence a shortfall of HK$1,000 in the Settlement Sum (“Shortfall”).   

45.  Since then, Ng had not heard from Eng until 10 months later when he received a demand letter from the plaintiff’s solicitors demanding payment of outstanding rentals for the Cranes in the sum of HK$810,435.05.  The letter did not say Eng had accepted the Settlement Sum under economic duress.  Nor was Ng aware that the plaintiff was experiencing financial difficulties at the material time as Eng had boasted of the plaintiff’s purchase of two new cranes of 280 tonnes at 4 to 5 million Singapore dollars during the meeting on 19 May 2011.

46.  Under cross examination, Mr. Ng revealed that the defendant’s profit margin in relation to two of the Cranes was 10% or so while a higher margin was obtained for the third one.  End users would normally be given a grace period of three to six months.  Ng was adamant that Eng had not chased him for payment of rentals as Eng was in the business and should understand its operation.

47.  Ng explained how the Mistake came about which was not challenged by Mr. Cheung.  He fairly accepted that the sum due to the plaintiff as appears in the Table should have been topped up by another 17 days’ rental (“17-day Rental”).

48.  Ng’s attention was drawn to a rental commencement notice for HITACHI KH850-3 issued by the defendant to the end user which states that the rental contract would commence on 6 September 2010 whereas the defendant only paid rental to the plaintiff as from 7 September 2010.  Ng could not recall how the one day difference came about but reckoned that it could be due to the examination of the crane for the purpose of issuing the relevant certificates finishing late on the day so that the end user might have refused to pay rental for the day of examination.  He also fairly accepted that his employee could have given him a wrong commencement date which he related to Eng verbally.

49.  As to the daily rate of HK$1,000 per worker, Ng said he told Eng “一千蚊一工”.  When put to practice, it meant the defendant would charge a daily rate of HK$1,000 for each worker sent out for the Cranes irrespective of the number of times that worker was summoned in the same day.  While on the witness stand, he could not point to any documentary proof.  His attention was then drawn to the defendant’s documents which show two workers to have been sent to perform one single repair on HITACHI KH850-3 and HK$2,000 were charged.  His instant response was that the job should require two pairs of hands to perform.  He was then referred to two entries in another document relating to the same crane which show two men to have been sent for one single job for which the defendant charged HK$3,655 and HK$2,655 covering labour and material costs incurred on 4 and 5 October 2010 respectively.  This time he was able to recount the incident which obliged his workers to work overnight to salvage a precarious position at a MTR worksite in West Kowloon.  His testimony was borne out by the relevant service reports in the trial bundle. 

50.  On the defendant’s costs incurred in transporting the Cranes from its storage yard to the loading port for the return trip to Malaysia, Ng told the court that he did not discuss this with Eng before returning the first crane in December 2010 and charging the plaintiff for the same.  When the remaining two cranes were to be returned and the cooperation with the plaintiff about to cease, he did not wish to incur such costs and had initially asked Eng to arrange to retrieve the cranes but Eng said it would be better for the defendant to arrange for cargo packing and transportation between its storage yard and the loading port.  This time Ng said in advance he would charge Eng and Eng agreed.

51.  As to the meeting on 19 May 2011, Ng said it was for reconciling accounts and denied Eng having ever displayed any dismay for not having been paid yet.   Earlier in March, Eng did ask him when accounts would be settled and he replied that this would be done after the remaining cranes were sent back to Malaysia.  At the meeting, Eng did bargain with him for waiver of various charges which he refused.  At the end of the meeting, Eng casually suggested that a cheque be issued and marked payable to him without saying why.  Had the atmosphere of the meeting been bad, he continued, he would not have caused a cheque to be issued to Eng personally but would have had it marked payable to the plaintiff instead.  He added that since the meeting was meant to reconcile accounts, Eng could have raised objection to individual items.  Had there been no room for negotiation, he would have brought along a cheque for the Settlement Sum to the meeting.

DISCUSSION

General Comments on credibility of witnesses

52.  There is no question about the independence of Chan as a witness called upon to share with this court his personal knowledge of the local rental market for crawler cranes.  His answers, as Mr. Cheung readily agreed during closing submission, accord with business commonsense.   I accept Chan as an honest witness.  The only question goes to the weight to be attached to his evidence on the Trade Custom.

53.  As to Ng, he was forthcoming and spontaneous in answering almost each and every question under cross examination and did not shy away from admitting actual or possible mistakes in the calculation of the defendant’s charges.  He was also able to offer unassailable explanations to all queries regarding the defendant’s accounts which might otherwise appear to contradict his evidence.  His explanation of the two entries of repair work done on 4 and 5 October 2010 is particularly worth noting.  Not only was it corroborated by documents, it came with particulars as to why overnight repair service was warranted.  Ng’s evidence remained unshaken and intact throughout cross examination and I find the same to be credible. 

54.  In contrast, Eng started his evidence in chief by reversing his evidence in paragraph 10 of his witness statement and now accepted that the defendant was not obliged to pay any rental in case of failure to find a hirer for the Cranes.  As to paragraph 13 of the same statement, he had to concede that the whole paragraph should be deleted.  His explanation for this was simply that he did not read his witness statement carefully when signing the same, apparently oblivious to the fact that he had signed also a statement of truth verifying the contents thereof. As his evidence progressed further, he made the striking concession that the plaintiff had to bear the repair/modification costs before the issuance of the relevant certificates which can hardly sit well with the plaintiff’s original position that it would take no responsibility for making good any defects in the Cranes after they were delivered to the defendant who would be taking the same on an as-is basis.  He was then confronted with the 26-day formula in the plaintiff’s own invoices and had to concede that the 26-day formula was in fact adopted by the plaintiff albeit as the good grace of a new comer to the market.  The net effect is that Eng had essentially accepted the defendant’s version of the terms of dealings between the parties.  Furthermore, when confronted with the inconsistencies between his oral evidence and his pleadings, he had more than once given answers to the effect that he was careless or had not carefully read the court documents before signing a statement of truth to verify the same.  Eng’s casual attitude towards court documents and his change of evidence in material respects would suffice for this court to conclude that he is not a credible witness.

Whether Eng accepted the Settlement Sum on 19 May 2011 under duress

55.  As Mr. Cheung seemed to have accepted in his opening submission, a determination of this issue against the plaintiff would conclude the whole case in favour of the defendant irrespective of the hiring terms to which Eng and Ng had agreed in respect of the Cranes.

56.  In Profit Step Development Ltd & Anor v Sun Rising Developing (Agriculture) Ltd & Anor (HCA 1649/2008) unrep., 30 November 2010, Fok J (as he then was) nicely summarized the legal principles on economic duress in the following terms:

“ 108. A helpful summary of the essential features of economic duress is to be found in Virgo, The Principles of the Law of Restitution (2006) at p.198 :

“Essentially economic duress arises where the defendant resorts to illegitimate commercial pressure, whether express or implied from circumstances, in support of his or her demands, whether these demands are for payment from the claimant or that the claimant is to enter into a contract or to vary an existing one.

 The key issue relates to the determination of what constitutes illegitimate commercial pressure for these purposes, since it is clear that commercial pressure alone cannot constitute economic duress.  What is needed are threats which are unlawful, typically threats to break a contract or to commit a tort.”

109.   The question of whether illegitimate pressure can be constituted by a lawful act as opposed to an unlawful act is an interesting question of law as yet unresolved in Hong Kong law.  Similarly, the question of whether the appropriate test of causation for economic duress is a “but for” test as opposed to a less exacting test of “predominant cause” or “significant cause” is likewise an interesting and unresolved question of law…

111. In addressing the question of economic duress, it is helpful, in my view, to keep in mind what was said by Lord Scarman in Pao On v Lau Yiu Long [1980] AC 614 at 636A-B :

“The commercial pressure alleged to constitute such duress must, however, be such that the victim must have entered the contract against his will, must have had no alternative course open to him, and must have been confronted with the worst of acts by the party exerting pressure.”

Lord Scarman emphasised the matters to which American judges attach great evidential attention, such as : (a) the effectiveness of the alternative remedy available, (b) the fact or absence of protest, (c) the availability of independent advice, (d) the benefit received, and (e) the speed with which the victim has sought to avoid the contract.”

57.  In his closing submission, Mr. Cheung referred to the fact that the plaintiff had paid considerable shipping charges upfront in bringing the Cranes to Hong Kong and suggested this did not sit well with Ng’s evidence that Eng had never conveyed a sense of grievance in respect of non-payment of rental and had only asked about reconciling accounts by March 2011.  Mr. Cheung further referred to Ng’s inability to explain why this action would have been instituted given the cordial relationship with Eng and to Eng’s testimony about his setbacks in collecting outstanding rentals from Ng.  In concluding that Ng had Eng ‘over a barrel’ in getting the latter to acknowledge the receipt of the Cheque, he relied on the following observation of Finlayson JA in Stott v Merit Investment Corp (1988) 48 DLR (4^th) 288 at 308:

“ In the majority of cases where effective economic pressure is applied, redress to the courts or arbitral tribunals is illusory. In fact it is usually a creditor or a person entitled to the benefit of a contract who is pressured into accepting something less than he is entitled to receive by law. Either he cannot afford the time and expense of litigation or he has every reason to believe that he will not be able to realize on his judgment if he resorts to the courts.”

58.  Mr. Lam submitted that even accepting Eng’s evidence, the plaintiff’s pleas of duress must fail. For the following reasons, I agree.

59.  First, I fail to see why the plaintiff must feel aggrieved for not having received any rental for the Cranes eight months after incurring hugh costs to bring them to Hong Kong, especially if end users would normally be given a grace period of three to six months to pay up according to Ng’s evidence which was not challenged.  Nor do I see why Ng is obliged to offer any explanation for the defendant’s institution of these proceedings. 

60.  It shall be remembered that the plaintiff’s plea of duress comprises two parts, namely, Ng’s Persuasion and the Alleged Financial Difficulty.  By way of further and better particulars, the plaintiff has confirmed that these are the only factual basis of its plea of duress.  Insofar as the plaintiff now seeks to rely on any pressure that might have been exerted by either Ng or his employee in making Eng sign the Acknowledgement of Receipt for the Cheque, the plaintiff must be precluded from so doing for the simple reason that this forms no part of the plaintiff’s pleaded case on duress.  Had this been pleaded, the defendant might well have called evidence from Ng and/or his employee on the tendering of the Cheque and the signing of the Acknowledgement of Receipt.   

61.  As regard Ng’s Persuasion, as Mr. Lam submitted, this is something often heard during any negotiation for settlement of a commercial dispute.  It is after all a commercial decision for a party to make, whether to take the litigation risk of getting nothing at all or to take the money placed before him (which would more often than not be a lesser sum) to avoid the litigation risk.  With hindsight, one may afterwards find himself to have made a bad bargain but this in itself would provide no grounds for him to renege on his decision.  This is so even if the pressure on him is “considerable and sometimes overwhelming, exercised by parties who find themselves in powerful bargaining positions.”  The key is whether the exercise of the pressure is illegitimate.  See Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §154 per Stock JA (as he then was).  I therefore see nothing sinister in Ng’s Persuasion.

62.  Next, I deal with the Alleged Financial Difficulty.  Financial difficulty is something that often faces businesspersons.  It is trite that inequality of bargaining power alone is insufficient.  See Esquire (Electronics) Ltd, supra.  Even if the Alleged Financial Difficulty has any bearing on the plaintiff’s plea of duress, the plaintiff has to prove both the existence of financial difficulty on the plaintiff’s part and the defendant’s knowledge of the same.  On whether the plaintiff was in fact in any financial difficulty when Eng signed the Acknowledgement of Receipt, the plaintiff had failed to provide any meaningful particular in answer to the defendant’s request.  Nor had Eng volunteered any information as to the plaintiff’s financial position at the material time.  In the circumstances, I agree with Mr. Lam that this court is entitled to draw an inference, insofar as is necessary, that the plaintiff was in fact not in any financial difficulty when Eng signed the Acknowledgement of Receipt.  See Telings International Hong Kong Ltd v John Ho (CACV 10/2010) unrep., 22 October 2010 at §79.  That said, I fail to see how the observation of Finlayson JA in Stott, supra, can have an application in the present case.

63.  The real difficulty that faces the plaintiff is its failure to plead any knowledge of the Alleged Financial Difficulty on the defendant’s part and this in my view is fatal to the plaintiff’s case insofar as its case on duress is premised on the Alleged Financial Difficulty.  Inadequacy of pleading aside, the only evidence the plaintiff could offer was Eng’s late allegation in the witness box that he had told Ng about the plaintiff’s financial difficulty when they met before the Lunar New Year in 2011.  This does not sit comfortably with Ng’s testimony that he was unaware of any financial difficulty on the plaintiff’s part and that Eng had boasted of having procured new equipment at considerable costs.  I reject Eng’s late allegation not only because of the failure to include such averment in either pleadings or witness statements but also because I prefer Ng’s evidence insofar as the two witnesses’ evidence conflicts with each other.  In particular, I find Ng’s testimony has a ring of truth when he said he would have had the Cheque marked payable to the plaintiff instead of Eng if the atmosphere during the meeting on 19 May 2011 had been bad and that he would have issued a cheque for the Settlement Sum in advance if there was no room for negotiation.

64.  Insofar as is necessary, I find as a fact that the plaintiff had not issued to the defendant the Statement of Account in June 2011 or made any protest of duress after May 2011 until it filed its Reply to the Defence herein.

65.  In light of the discussion above, I agree with Mr. Lam that Ng’s Persuasion itself cannot be illegitimate.  The question is whether even coupled with the Alleged Financial Difficulty the exercise of the pressure was illegitimate.  The answer must be no.

66.  In conclusion, the plaintiff’s plea of duress must be rejected.

What were the terms of the Agreement

67.  As said, rejection of the plaintiff’s plea of duress would dispose of the whole action. For completeness, I shall quickly deal with the terms of the Agreement.

68.  Following from my discussion on the general credibility of the witnesses, my observations of the quality of Eng’s evidence and the concessions he made during oral testimony so that he had essentially accepted the defendant’s version of the terms of dealings between the parties, I conclude that the plaintiff has failed to prove its version of the terms of agreement between the parties hereto.

69.  It is not in dispute that Eng and Ng had not agreed on the exact models or the rental therefor before the Cranes were actually delivered to Hong Kong.  Nor had the defendant sent its engineer to Malaysia to examine the Cranes so that Ng had no way to tell if the Cranes were free of any defects.  There was no guarantee that any hirer could be found for the Cranes when they arrive in Hong Kong, and if found, a higher than normal profit margin could be obtained and a long enough hiring period could be secured for any repair or maintenance costs to be spread over.  That being so, one wonders how Ng could have agreed to hire the Cranes for onward hiring on a bare-rental basis.  The plaintiff’s version is therefore devoid of business commonsense.

70.  As to the defendant’s version, despite some arithmetical errors in the Table, it is clear that the Settlement Sum was worked out on the basis of the terms as pleaded by the defendant.  Insofar as is necessary, I find as a fact that the parties had in all material respects conducted their dealings in accordance with the terms as propounded by the defendant, irrespective of whether the same were in line with the market practice.  In particular, I accept that Ng had all along kept Eng posted of the defendant’s costs and expenses in relation to the Cranes and the basis of calculation, to which Eng had either expressly or implicitly agreed. 

71.  The defendant’s case is that its terms are in accordance with the market practice in Hong Kong to which Chan’s evidence bears testimony.  Given my findings above, it is unnecessary for me to make any finding as to whether the Trade Custom does exist save to note that the defendant’s terms are those to which Chan would subscribe in conducting his own crane rental business.  According to Chan, an intermediary can forgo the Trade Custom and instead agree to bear the repair/maintenance costs of someone else’s crane in case of a high profit margin coupled with a long rental period.  To that extent, what Chan said is no more than business commonsense in weighing one’s profit margin against likely costs.

72.  I therefore rule against the plaintiff on this issue.

The 17- day Rental

73.  The parties reckoned that the 17-day Rental would translate into the sum of HK$68,654. There is no dispute that the plaintiff has not specifically pleaded a claim for the same.  Notwithstanding this, Mr. Cheung argued that this sum could be covered by the prayer for ‘such sum as this Court may deem just’.  In reliance on the comment of Mortimer NPJ in Mak Kang Hoi v Ho Yuk Wah (2007) 20 HKCFAR 552 at 583I to 584B, he further submitted that this court was entitled to make findings in the context of contractual disputes even if not precisely pleaded so long as the parties had advanced their cases with the surrounding facts leading up to the contract.

74.  In reply, Mr. Lam highlighted the fact that both the mistake in relation to the 17-day Rental as well as the Shortfall were admissions made back in July 2013 when Ng’s witness statement was filed.  The plaintiff had since made no application for amendment of its claim to include a claim for the same.  Indeed, the plaintiff had not made even an informal application when opening its case.  The court should therefore take the plaintiff to have waived its entitlement, if any, to these sums.  Mr. Lam further submitted that such mistakes would not affect the validity of the settlement as evidenced by Eng’s acceptance of the Cheque.  The only plea in an attempt to defeat the settlement was duress.  There was no plea of misrepresentation or material non-disclosures, which must be pleaded.  See Hong Kong Civil Procedure 2014,Vol. 1 at §18/12/25. 

75.  With respect to Mr. Cheung, I do not think Mak Kang Hoi, supra has any application here.  There the court at first instance made a finding on the contract terms which neither the plaintiff nor the defendant had specifically pleaded before finding for one of the parties.  In the present case, each party’s case on the terms of agreement is relatively clearcut and this court is able to decide which version to prefer.  I agree with Mr. Lam’s characterization of the plaintiff’s plea as one of “all-or-nothing”, that is, if the terms were as asserted by the defendant, then the plaintiff would have to accept all the defendant’s expenditures, and if otherwise, the plaintiff should not have to pay a penny (though at trial Eng conceded that the plaintiff should bear those incurred before the issuance of the relevant certificates).  As its pleading now stands, the plaintiff’s claim for outstanding rentals takes no account of the said mistakes of which the plaintiff must be taken to have knowledge.  This court is only invited to decide if the settlement reached on 19 May 2011 can be vitiated so that the defendant cannot set off its expenditures against the sum due to the plaintiff.  

76.  In the circumstances, I agree with Mr. Lam that it would be grossly unfair to allow the plaintiff to include these sums as part of their claim when the defendant might well have put forward a viable defence had the plaintiff included these sums in its pleaded case.  My determination therefore takes no account of the 17-day Rental or the Shortfall.

Conclusion

77.  The plaintiff having failed to prove his case against the defendant, his claim is dismissed.

78.  I make an order nisi thatthe plaintiff do pay the defendant its costs of the action, to be taxed if not agreed with a certificate for counsel.  The order nisi shall become absolute unless an application is made for variation of the same within 14 days from the date of judgment.