HUNG MAU DECORATION CO LTD v. KOWLOON TSAI HOME OWNERS ASSOCIATION

HCA 3609/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3609 OF 2001

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J U D G M E N T

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1. The Plaintiff has instituted action against the Defendant for payment of an amount which it says is due consequent upon the conclusion of an agreement between them that it would carry out certain renovation work to staff quarters situate on the Defendant's premises. It may be thought self-evident that the first hurdle for the Plaintiff to clear is to establish the conclusion of the agreement between it and the Defendant.

Undisputed background

2. The Plaintiff is a company which carries on business as a building contractor. The Defendant is an incorporated company limited by guarantee which operates a club on property situate in Kowloon. At opposite ends of that property are erected a clubhouse and the staff quarters.

3. The parties had dealings from as long ago as 1980 when an agreement was concluded between them for renovation work to be carried out by the Plaintiff to buildings on the property. There were further dealings between them subsequently. Until October 1996 the works were of a relatively modest nature and, it appears, essentially comprised maintenance work. Payment has been made by the Defendant to the Plaintiff in respect of all of those works.

4. One David WU has been a member of the Executive Committee of the Defendant since, at latest, 1980. He it was who signed the agreement concluded in 1980. The Plaintiff also had dealt with him, and others, in respect of subsequent maintenance work before October 1996. In mid-1996 Mr WU became the General Manager of the Defendant. Consequent upon that event he was given permission to occupy, rent free, the staff quarters.

5. In March 1996 the Defendant was informed by the licensing authority that it required certain work to be carried out to the clubhouse so as to ensure that the structure complied with various regulations. The work was to be completed by March 1997: failing completion, the club's licence to operate would not be renewed. Mr WU arranged to meet Mr CHAN Hang-fat, the Manager of the Plaintiff, to discuss the works. The assistance of one Spencer LUK was enlisted by the Defendant to draw the plans for the proposed work: in an effort to save costs, the Defendant saying that its financial situation at that time was parlous, he was not to supervise the work itself.

6. The discussions occurred in early October 1996 between Mr CHAN, Mr WU and another manager of the Defendant, Ms KWAN, on the Defendant's premises and concerned the work to the clubhouse required by the licensing authority. Also discussed, but not with Ms KWAN, was renovation of the staff quarters. The Plaintiff was asked to provide two separate estimates of the costs involved, one for the clubhouse and one for the staff quarters: it did so. The initial estimate for the staff quarters was dated 22 October 1996 for an amount of $834,300.00, whilst that for the clubhouse works was dated 2 December 1996 for $2,848,200.00.

7. The Plaintiff received two amounts as separate and distinct deposits in respect of the work which it was to carry out: the Defendant furnished it with its own cheque in the sum of $300,000.00 in respect of the clubhouse works whilst Mr WU furnished it with his personal cheque in the sum of $120,000.00 in respect of the staff quarters work.

8. The work to both buildings was carried out from October 1996 until March 1997, in respect of the clubhouse, and April 1997 in respect of the staff quarters. Throughout the period of both sets of works there were regular meetings at the Defendant's premises between Mr CHAN, Mr WU and, on occasions, Mr LUK, at which progress, generally, was discussed. There has been reference to the staff quarters being handed back to the Defendant in both April and August 1997 but it seems that the work was substantially completed by April and that either small amounts of additional work or rectification of defects were effected between April and August 1997. Nothing turns on that aspect.

9. Mr CHAN agreed with Mr WU that, in respect of the work to the clubhouse, the Plaintiff would accept payment by instalments. Payment actually was made, in the period December 1996 to August 2000, by the Defendant in terms of that arrangement. For the sake of completion, although not necessary to my decision, I indicate that there were subsequent works carried out to the clubhouse in respect of which further amounts were paid. In all the Defendant paid $5,908,637.00 to the Plaintiff. Each payment was by way of a cheque drawn by the Defendant.

The Plaintiff's claim

10. The Plaintiff says that it contracted with the Defendant not only in respect of the works to the clubhouse but also the works to the staff quarters: that it had dealt with Mr WU previously when he acted on behalf of the Defendant and that

"The person who gave the instructions, the circumstances in which he did so, the past practice of the Defendant in relation to works vis-à-vis the Plaintiff, the location at which the instructions were given, and the contents of the instructions all had unmistakable (sic) pointed to the fact that the quotations were requested on behalf of the Defendant."

[Reply to Request 9(d) of the Defendant's Request for Further and Better Particulars].

11. It says, further, that the total amount due to it in respect of the works to the staff quarters was $1,590,950.00 from which falls to be deducted the deposit of $120,000.00 paid by Mr WU with his personal cheque which, the Plaintiff says, was a payment made by him on account of the Defendant. Consequently the balance due to it, for which the Defendant is liable, is $1,470,950.00.

The Defendant's defence

12. The Defendant admits that work was done to the staff quarters but denies liability on the basis that the work was done for the personal account of Mr WU: that when he contracted with the Plaintiff he did so not in his representative capacity but in his personal capacity. It has placed in issue the quantum of the Plaintiff's claim: this was not merely tactical but necessary, it says, because of the terms of the agreement between the Plaintiff and Mr WU.

The proceedings

13. The Plaintiff despatched a number of written requests for payment: the dates are of some significance as is the mode of address. I shall return to these matters. A demand was addressed by the Plaintiff's solicitors to the Defendant in March 2001 to which the then solicitors for the Defendant responded on 13 April 2001 setting out, in stark terms, the Defendant's defence.

14. Notwithstanding this, when action was instituted by the Plaintiff it choose - according to Mr CHAN, on advice - to proceed solely against the present Defendant, entirely ignoring Mr WU. In due course, the Defendant filed its defence in which it set out, with unequivocal clarity, the defence it had earlier foreshadowed. No attempt was made by the Plaintiff, in these circumstances, to join Mr WU in the proceedings.

15. Nor was any attempt made by the Plaintiff to reply to the defence or to raise the potential issue of the Defendant's enrichment. A feature of this case has been the refusal by the Plaintiff, or its advisors, to address the real issue, even so late as in the closing submission. It appears that the Plaintiff, or its advisors, have been fixated upon the concepts of the ostensible authority of Mr WU and estoppel. Those, and others, may be issues which would arise in due course but the primary issue which I am required to decide relates to the discussions which occurred between Mr CHAN and Mr WU, at the outset, in connection with the staff quarters. And that, plainly, depends upon the credibility of the witnesses, especially the two main actors. This aspect was dealt with in detail in the Defendant's closing submission: the Plaintiff declined to deal with it.

The evidence - Plaintiff's case

16. There had previously been an order by a Master that the witness statements stand as evidence in chief, absent an order from the court. No such order was sought. In supplementing his statement, Mr CHAN, the sole witness for the Plaintiff, explained certain handwritten notes which Mr WU had, admittedly, made on a copy of the estimate dated 22 October 1996 [Exh. P1][pages 8/12, Bundle 1B]. He went through each group of figures and explained what he claimed Mr WU had meant by them. Other than that the sketch in the bottom right corner of that document related, in part, to the alteration of access to the staff quarters, Mr WU placed an entirely different interpretation on the figures. I do not propose to traverse each item but by way of illustration, Mr CHAN says that the bottom left-hand inscriptions show dates and amounts that represent the payment schedule proposed by Mr WU: if this were correct, then the Defendant would have been in default of payment in terms of that schedule from the very outset and almost from immediately after the works commenced.

17. I accept the explanations provided by Mr WU and reject those of Mr CHAN which I found contrived and strained so as to sit more comfortably with the Plaintiff's subsequent account.

18. Mr CHAN was asked to deal with a number of matters which were not in issue. I do not propose to traverse those, save where reference was made to them in cross-examination. He was not asked, at this stage, anything concerning the critical issue of his discussions with Mr WU. He read out portions of what he styled a "revised quotation", which is the document upon which the claim is based [pages 58/60, Bundle 1B], highlighting the amounts additional to those contained in the original estimate.

19. In cross-examination he accepted that the Defendant had always made prompt payment in respect of all other amounts due by it. He said that there had been "no negotiations" concerning the individual items set out in the first estimate of $834,300.00 although the final figure "was negotiated". He stated that Mr WU had accepted the figure and disputed that Mr WU had told him that he had a budget of a maximum of $500,000.00. He accepted that there was no written indication on the estimate that it had been accepted. He disputed that there had been discussion concerning construction of a staircase about a month after the provision of the estimate and that it was at this stage that Mr WU had made the entries onto the original estimate: he accepted, however, that the original estimate had made no mention of the erection of a staircase and that, subsequently, a staircase actually had been erected.

20. He was asked about the document he called a "revised quotation". He accepted that the first estimate was presented by him on or about 22 October 1996. He accepted that the work was completed, at latest, by August 1997. He accepted that the "revised quotation" was dated 20 November 1997. He was particularly unimpressive in his attempts to explain just what this document was supposed to be. He claimed that this was a "quotation" which the Plaintiff had to prepare before rendering an "invoice": that the "revised quotation" had to be discussed with Mr WU "for an agreement" and to be checked with him: that although Mr WU was satisfied with the work, the "revised quotation" had to be submitted to him for further discussion. He accepted that there had been no discussions concerning costs between him and Mr WU between the dates of the two documents. He said that the Plaintiff previously had rendered invoices to customers before the amounts due were finally agreed. His evidence seems to amount to this: there was, in fact, no agreement as to the amount which would be paid to the Plaintiff; this was the amount which the Plaintiff would like to be paid; what it actually would accept in payment was subject to negotiation. His evidence on this issue is, literally, incredible.

21. There is a further difficulty with this area of his evidence: he accepted in cross-examination that because the Defendant, by agreement, was making payment of the amount due in respect of the works to the clubhouse by way of instalments he had expected that, in respect of the work to the staff quarters, it would only make payment after it had finished that series of payments and that it would continue making periodical payments until it had also discharged the further amount due. Although that is consistent with the basis upon which the Plaintiff's case was opened by its counsel, it does not sit easily either with Mr CHAN's witness statement [paras. 27/29][page 93, Bundle 1A] or with the rendering of statements and the making of oral and written reminders during the period when the Defendant was still effecting payment for the clubhouse works.

22. Mr CHAN accepted that Mr WU had not told him at any stage that the Defendant would be liable for the work to the staff quarters but disputed that Mr WU had said that he would be personally liable. His evidence was that there had been no discussion at all about who would pay for the staff quarters work. He accepted, too, that this was the only occasion upon which Mr WU had given him a personal cheque, which he had assumed was on account of the Defendant: he makes the remarkable claim that he had been "too embarrassed" to enquire why.

23. Mr CHAN also testified that there were specific discussions concerning payment for the clubhouse works by way of instalments, yet there were no discussions of any nature in regard to payment for the staff quarters works. That seems so improbable in the context of this matter as not to be believable.

24. It was the Plaintiff's pleaded case that the staff quarters had been handed over to Mr WU upon completion who indicated his satisfaction with the work. Mr CHAN contradicted this by testifying that all that had happened was that the keys had been returned to the Defendant's office.

25. There was nothing relevant that emerged from re-examination.

Defendant's case

26. Four witnesses were called for the Defendant. Mr David WU testified that he had requested Ms KWAN to arrange the initial meeting with Mr Chan: at that meeting Mr CHAN, Ms KWAN and he had been present and had discussed the building requirements of the licensing authority: he had made the Defendant's poor financial position known to Mr CHAN. Questions were asked of him for the Plaintiff about this aspect: the point that seemed to be being made was that it was strange that he would discuss internal financial affairs with a comparative stranger. Mr WU explained that the reason he had discussed financial matters with Mr CHAN was to plan expenditure, to budget for payments and that, as a consequence, it had been decided to carry out the work in phases - as eventually happened - and allow for periodical payments suitable to the Defendant. His evidence on this latter issue was, like the overwhelming majority of his and other witness' evidence, unchallenged: the then financial situation of the Defendant was confirmed, and unchallenged, by a subsequent witness, Mr Patrick WU.

27. Mr (David) WU's unchallenged evidence was that it was only after he had finished discussing the clubhouse work with Mr CHAN that he then raised with him the question of renovation of the staff quarters. This is consistent with the evidence of Ms KWAN, who says that she did not hear any discussions concerning the staff quarters: I make the obvious observation that had she wished to exaggerate her evidence in favour of the Defendant, this area would have been prime. Mr WU says that he made it clear to Mr CHAN that he would be personally liable for the cost of renovation of the staff quarters: Mr WU's evidence, which again was unchallenged, was that Mr CHAN indicated that he understood the position.

28. That he only raised his own requirements after discussions concerning a not insubstantial contract with the Defendant is understandable, given that he was concerned about costs. His evidence that Mr CHAN had said that costs could be minimised for work on the staff quarters by virtue of the fact that workmen would already be on the premises has the ring of truth to it.

29. Mr WU says that he told Mr CHAN his overall budget was about $500,000.00. At that stage there was no question of alteration to the entrance. He asked for, and this is accepted, an estimate: he was dismayed when he was presented with one in excess of $800,000.00. He explained how it was that he came to write on the estimate and the significance of the figures. He related how, with the cost of the subsequently-agreed change of access to the premises, the final figure which he had agreed with Mr CHAN was $750,000.00 and testified that he remained willing to pay the balance outstanding on that sum.

30. When questions were asked of him on behalf of the Plaintiff he reiterated that he had made no payment other than the initial deposit of $120,000.00 but explained that this were so because although he knew of the Plaintiff's claim it was far in excess of what he had agreed to pay. His unchallenged evidence is that Mr CHAN had agreed to adjust the estimate. He disputed that Mr CHAN had correctly related the significance of the figures he, Mr WU, had written on the first estimate: he disputed the generalised suggestion that he was not telling "the whole truth".

31. I accept Mr WU's evidence. He came across as a man who was simply relating a set of events as they occurred. Nothing in his testimony was inherently incredible. He gave his answers in a straightforward and entirely believable manner.

32. That finding really renders it unnecessary for me to deal with the remaining witnesses for the Defendant, for nothing they say in any way contradicts Mr WU's evidence. Each of them gave his or her evidence in an entirely acceptable manner. However, there are several matters upon it may be helpful for me to comment.

33. Ms KWAN says any letters which had been sent to the Defendant by registered post would be received by it: albeit that that is an expression of opinion, she is likely correct. She said that she would pass to Mr WU any letters for him and confirmed in re-examination that she would not open the letters before doing so. The relevance of this evidence is that, although each of the reminder letters which the Plaintiff despatched in respect of the outstanding amount has the Defendant as the addressee, in every instance the addressee shown on the proof of posting of a registered item [collectively, Exh. P5] is not the Defendant but is Mr WU. The significance of this is twofold: firstly, Ms KWAN, on her unchallenged evidence, would have handed those letters, unopened, to Mr WU which negates any suggestion that the claim would have been known to anyone other than Mr WU and, secondly, it suggests, in the absence of any evidence by the Plaintiff, that it was looking to Mr WU personally, although perhaps jointly with the Defendant.

34. However, perhaps the most striking support for the Defendant's case comes from Mr LUK. His evidence was that Mr WU had commissioned him to draw two sets of plans - one for the clubhouse, for which the Defendant would effect payment and one for the staff quarters, for which he, Mr WU, would effect payment. That evidence is wholly consistent with that of Mr WU. It is unequivocal. It was not challenged on behalf of the Plaintiff. It is supported by the documentary evidence of two personal cheques given to him by Mr WU in payment of the amounts due for services which he, Mr LUK, rendered to him, Mr WU, in respect of the renovations of the staff quarters.

Conclusion

35. Although the Defendant bears no onus in this matter, I am entirely persuaded by its witnesses that, during the discussions between Mr CHAN and Mr WU concerning the renovations of the staff quarters, Mr WU made it clear, and Mr CHAN appreciated and accepted, that Mr WU was acting in his personal capacity and that there was specific agreement that liability would attach personally to Mr WU. That he had, shortly before or even, coincidentally acted in another, perhaps more familiar, capacity on behalf of the Defendant in respect of another agreement relating to the clubhouse, in no way detracts from the factual situation insofar as the staff quarters are concerned.

36. Such agreement as was concluded in respect of the staff quarters was one between the Plaintiff and Mr WU. It follows that the Plaintiff's claim is dismissed.

37. Because of the way the Plaintiff has chosen to conduct these proceedings it is unnecessary for me to make any finding as to the amount which it was agreed Mr WU would pay to the Plaintiff.

38. There will be an order nisi, with liberty to restore for argument on notice given within 7 days of this judgement, that the Plaintiff pay the Defendant's costs as taxed or agreed.