GREAT BILL LTD t/a TAPBO CIVIL ENGINEERING CO v. LAM KIM SUN t/a TAI SANG CONSTRUCTION ENGINEERING CO

HCCT 8/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO. 8 OF 2003

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J U D G M E N T

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I.   INTRODUCTION

1.  In 2000 AMEC was the main contractor of an MTR construction project at Tseung Kwan O.  AMEC sub-contracted some work to Tapbo which in turn sub-sub-contracted part of the formwork involved to Tai Sang.  Such formwork related to both the sub-structure and super-structure of the project.

2.  Disputes arose.  In May 2001, Tai Sang being in financial difficulty, its workers either slowed down the pace of their work or stopped working completely.  To avoid further delay on the project, Tapbo and Tai Sang entered into a Milestone Agreement.  By that, Tapbo undertook to advance $1.75 million to Tai Sang in instalments.  The advances were conditional on Tai Sang resuming work and finishing the project. 

3.  In July 2001, the relevant formwork having been substantially completed and the $1.75 million having been fully paid, Tai Sang’s workers refused to complete the outstanding work.  Tapbo consequently arranged for another contractor to enter the site to complete the relevant works.  But Tai Sang’s workers prevented the substitute contractor from entering the site.

4.  On 28 July 2001 AMEC obtained an injunction from this Court in HCA No. 3392 of 2001 restraining Tai Sang and its workers from obstructing the substitute contractor.

5.  By these proceeding Tapbo claims damages against Tai Sang for breach of the sub-sub-contract.  Tapbo says that, by refusing to complete in July 2001, Tai Sang repudiated the sub-sub-contract.  Tapbo contends that it was entitled to accept Tai Sang’s repudiation and thereby end the sub-sub-contract.

6.  Tai Sang, on the other hand, claims that Tapbo wrongly terminated the contract.  Tai Sang claims sums said to remain due under the sub-sub-contract as well as damages said to represent 20% profit lost through premature termination.

7.  As a result of agreement among the parties over some figures, the matters in dispute were substantially narrowed down. The remaining issues focused on whether one or other party was entitled to certain sums over and above those which had been agreed.  It is those discrete issues of quantum which I need to consider in this Judgment.

II.  DISCUSSION

A.  What the parties agree on and where they differ

8.  The parties agree the following:-

(1) The value of the work done by Tai Sang is $19,981,441.18. 

(2) Tapbo has paid Tai Sang $18,207,732.75.

(3) Tai Sang must reimburse Tapbo for wages of $848,482 paid by Tapbo to Tai Sang’s workers.

(4) Tai Sang gives credit to Tapbo for $24,246.14 for miscellaneous items supplied by Tapbo to Tai Sang.

9.  The parties disagree on the following:-

(1) Tai Sang claims $572,500 as the cost of hiring additional workers at Tapbo’s request.  Tapbo accepts that it owes Tai Sang $474,500 in this respect.  There is thus a difference between the parties of $98,000.

(2) Tai Sang claims that Tapbo wrongly deducted $143,090 from Tai Sang’s account for formwork materials.

(3) Tai Sang claims that, without Tai Sang’s authority, Tapbo’s substitute contractor used materials left on site belonging to Tai Sang.  Tai Sang values the material benefit so obtained by Tapbo at $255,833.

(4) Tai Sang claims $111,737 lost profit for premature termination of the sub-sub-contract.

(5) Tapbo contends that it is entitled to contra-charges of $1,851,296.02.  Tai Sang says that Tapbo is only entitled to contra-charges of $1,596,649.34.  There is thus a difference between the parties of $254,646.68.

(6) Tapbo claims $321,042 as the cost of remedying work or damage allegedly caused by Tai Sang’s workers.

(7) Tapbo claims penalty payments of $12,500 from Tai Sang.

B.  Tai Sang claim of $98,000 for additional workers

10.  Tai Sang’s figure is supported by vouchers for additional workers. 

11.  The vouchers have spaces for 3 signatures: one for the Tai Sang staff requesting Tapbo’s authorisation for an additional worker, another for the responsible Tapbo foreman, and a third for “an approving officer” within Tapbo.

12.  According to Mr. Kenneth Lam (appearing for Tapbo) the difference of $98,000 arises because some vouchers have not been signed by a Tapbo approving officer, even though they may have been signed by a responsible Tapbo foreman.  In calculating the sum due for additional workers, Tapbo (Mr. Kenneth Lam says) has accordingly not taken account of those vouchers which do not bear an approving officer’s signature.

13.  I am not persuaded that this is a good reason for ignoring a voucher.  If a foreman approves a request for an additional worker, that constitutes an acceptance that Tai Sang can engage (and charge Tapbo for) the extra worker.  Tapbo through its foreman has represented to Tai Sang that the requisition of extra labour is justified.

14.  Mr. Simon Lam (Tapbo’s director) suggested in cross-examination that the vouchers were merely provisional authorisations which were subject to review at the end of the project.  Thus, for instance, if on a final review Tapbo thought that the work covered by a voucher formed part of Tai Sang’s obligations under the sub-sub-contract, then Tapbo would refuse to pay for the extra labour authorised by the voucher.

15.  I do not accept Tapbo’s argument.

16.  The foreman’s signature represents that the additional worker being requisitioned is a justified expense. By the foreman’s signature Tapbo must be taken as waiving the possibility of questioning the requisition later. 

17.  If there was something wrong about a requisition, the time to query would have been at the time when a voucher was being presented to the foreman for signature.  Otherwise, Tai Sang would be lulled by the foreman’s signature into thinking that it could safely engage an additional worker without being liable for the extra expense involved. 

18.  In the absence of any clear indication to the contrary, the foreman’s acceptance of the extra work cannot be treated as only provisional and capable of later retraction upon a final review.

19.  Mr. Kenneth Lam observes that the sub-sub-contract was a re-measurement contract.  He argues that this means that it was possible to re-open an approval for an additional worker as part of the re-measurement process.  The approval (Mr. Kenneth Lam suggests) was only interim. 

20.  I do not accept this contention.  Here remeasurement went to the final calculation of the work actually done by Tai Sang. I do not see how such “remeasurement” logically implies that a previous approval of the number of workers needed to carry out the relevant work (whether part of the original contract or variation) can be later be withdrawn or ignored.

21.  Tai Sang should be allowed the $572,500 claimed for additional workers.

C.  Tai Sang claim of $143,090 for formwork

22.  This has to do with formwork at gridlines 38-41 of the project. 

23.  Tapbo routinely ordered formwork materials on behalf of Tai Sang.  These materials could be used and re-used in formwork for about 4 times.  The materials cost about $140 per unit.  But, having purchased the same, to help Tai Sang’s cashflow, Tapbo did not charge the full $140 per unit immediately upon acquisition of the materials.  It instead charged one-quarter ($35 per unit) at the time of each use or re-use of the materials.  This meant that the full cost of the materials (that is, number of units x $35/unit x 4 uses) would only be recovered from Tai Sang upon the 4th use of a given set of materials.

24.  According to Mr. Lam Kim Sum (Mr. K. S. Lam) (Tai Sang’s sole proprietor), possibly around late October 2000, Mr. Simon Lam told him not to wait for Tai Sang’s workers to dismantle the materials used for the formwork at gridlines 38-41.  Instead, so as not to waste time, Tapbo said that it would purchase new materials which Tai Sang could immediately employ for the remaining formworks.

25.  Tai Sang reluctantly accepted this.  But Mr. K. S. Lam stresses that Tai Sang only agreed to bear “the extra costs in term of measurement of formwork done at lines 38-41 x $35.00”.  Mr. K. S. Lam suggests that the total measurement of formwork at lines 38-41 was 9,116.2 sq. m.  This therefore meant that only about $319,060 (approximately 9,116.2 x $35) ought to have been borne by Tai Sang.  But (Mr. K. S. Lam complains) $462,150 was deducted instead from Tai Sang’s account with Tapbo.  This leads to the difference of $143,090 now claimed by Tai Sang.

26.  In cross-examination by Ms. Gekko Lan (appearing for Tai Sang), Mr. Simon Lam said that he did not understand how Tai Sang had concluded that $462,150 had been deducted.  How (Mr Simon Lam asked) had the $462,150 been calculated?  Nor did Mr. Simon Lam accept the measurement of 9,116.2 sq. m.  He queried the basis of the measurement which had not been raised by Tai Sang in any discussions between the quantity surveyor experts engaged by the parties for this trial.

27.  Mr. Ho Yuk Hsien (Tai Sang’s foreman) apparently came up with the figure of $462,150 by adding together amounts invoiced by Kinform Ltd. and Hop Hing Saw Mill.  The invoices are dated between 14 September 2000 and 24 February 2001. 

28.  It is unclear to me on what basis Mr. Ho selected the invoices which he added up.  For example, if the agreement alleged was in late October 2000, why were September 2000 and January or February 2001 invoices chosen?

29.  Nor is it evident to me how Mr. Ho arrived at the measurement of 9,116.2 sq. m.

30.  Unfortunately, due to Tai Sang having lost touch with Mr. Ho, Mr. Ho was not called as a witness.  Mr. Ho had provided a witness statement.  But, given Tapbo’s lack of an opportunity to cross-examine Mr. Ho, I am unable to attach weight to it.

31.  Consequently, there is insufficient evidence to establish Tai Sang’s allegation of an over-deduction by Tapbo in the amount of $143,090.  This claim is thus rejected.

D.  Tai Sang claim of $255,833 for materials left on site

32.  Tai Sang having been enjoined not to obstruct the work of Tapbo’s substitute sub-contractor, Tai Sang left the site.  Some material belonging to Tai Sang was also left on site.  Tai Sang arranged with AMEC for Tai Sang’s workers to come on site to collect materials belonging to Tai Sang.  But (according to Tai Sang) some material was left on site at Tapbo’s request for use by Tapbo’s substitute contractor.  Tapbo denies making any such request and says that its substitute contractor brought its own materials.

33.  I am not satisfied that Tai Sang is entitled to this head of claim. 

34.  Tai Sang had an opportunity to collect loose materials belonging to it which had been left on site.  If it did not bother to collect any particular piece of loose material, I do not see why Tapbo should be made to pay for such loose material which Tai Sang did not bother to collect and so had effectively abandoned.

35.  On the other hand, where materials had been incorporated into the substructure or superstructure of the project, it would form part of (and be reimbursed as) the work done by Tai Sang. 

36.  Tai Sang suggests that such material could have been dismantled and possibly re-used.  It argues that merely measuring the value of work done using such material would not compensate Tai Sang for loss of the re-use value of the same materials.  But I am unable to say on the evidence that this is correct.  For example, how can one say whether materials incorporated into the site had or had not been used twice, thrice or four times?  The figure of $255,883 is premised on a re-use value amounting to $68 per unit.  But no explanation has been given of the basis for such estimate of re-use value.

37.  Finally, I am not persuaded that there was any request by Tapbo (through Mr. Simon Lam or anyone else) that Tai Sang leave materials on site for subsequent use by Tapbo’s substitute contractor.  The alleged request was belatedly mentioned by Mr. K. S. Lam in the course of giving oral evidence.  It did not feature in his witness statement, although one would have thought (assuming there was a request as alleged) that it would have been an obvious matter to mention in connection with a claim for the lost value of used material. 

E.  Tai Sang claim of $111,737 for lost profit

38.  Tai Sang contends that Tapbo was not entitled to treat the sub-sub-contract as repudiated, despite the refusal of its workers to complete outstanding work in July 2001.  Tai Sang says that, if the termination of the sub-sub-contract was wrongful, then it was deprived of the profit which it would have earned on the agreement.

39.  Tai Sang pleads that the value of the remaining work as at July 2001 was $558,687. It suggests that 20% of this would represent the profit which it would have made.  It therefore claims $111,737 (that is 20% of $558,687).

40.  I am unable to accept this submission.

41.  First, I think that Tapbo was entitled to treat the sub-sub-contract as repudiated when Tai Sang’s workers refused to complete the works in July 2001.  That refusal was a breach which would have gone to the root of what had been agreed, namely, that Tai Sang would complete the relevant formworks.  There was nothing wrongful in Tapbo’s termination.

42.  Ms. Lan submitted in her written closing submissions that the refusal of Tai Sang’s workers to complete the work was somehow due to Tapbo.  She says that Mr. Simon Lam “assured the workers that [Tapbo] promised to pay their wages once it received payment from [AMEC]”.

43.  I am unable to find that Mr. Simon Lam made such a promise.  For one thing, such a promise was not specifically put to Mr. Lam by Ms. Lan in cross-examination.  But let us assume that there was such a promise as alleged.  The suggestion is presumably that, having received payment from AMEC, Tapbo ought to have paid the workers (even if Tai Sang itself could not).  However, there is simply no evidence as to when Tapbo is supposed to have received any relevant payment from AMEC.  Thus, even on Ms. Lan’s own premises, I cannot find a breach on the part of Tapbo.

44.  Ms. Lan then suggested in her oral closing submissions that Tai Sang’s real case was that there was no evidence that in early July 2001 Tai Sang’s workers were obstructing anyone.  She accuses Tapbo instead of obstructing Tai Sang’s workers and seeking to bring in a substitute contractor.  If those were the circumstances, then it would have been Tapbo (Ms. Lan says) which breached the contract.

45.  I also reject this suggestion made by Ms. Lan.  There is simply no evidence, apart from Tai Sang’s assertion, that Tapbo without good reason tried to exclude Tai Sang’s workers from the site.  The more likely scenario was that Tai Sang’s workers, unhappy at not having received their wages, were impeding progress on site.  This prompted Tapbo to engage a substitute contractor.  This led to Tai Sang’s workers obstructing the substitute contractor, such that AMEC had to obtain the Court’s injunction. 

46.  Second, in any event, it is unclear to me how the $558,687 was measured. There was no discussion of this figure among the parties’ quantity surveyor experts and the alleged measurement was not flagged as an issue for the experts to determine.

47.  Third, even if the figure of $558,687 is accepted, there is no evidence that 20% is the appropriate profit margin.  Mr. K. S. Lam has simply asserted that percentage without any explanation.  If anything, 20% seems rather high.

48.  I therefore do not accept that Tai Sang is entitled to its claim for lost profit.

F.  Tapbo’s claim for additional contra-charges of $254,646.68

49.  The evidence in support of the $1,851,296.02 of contra-charges claimed by Tapbo consists of a schedule of invoices for items said to have been purchased (or paid for) by Tapbo on Tai Sang’s behalf.  Although the invoices form part of the trial bundle, it was not possible without the schedule to identify for which items precisely Tapbo was claiming.  The schedule was only produced to the Court on the 2nd day of the trial.

50.  For $31,304.10 of the contra-charges claimed, there are no supporting invoices in the trial bundle.  For that reason, Tapbo’s claim for at least that amount must fail.

51.  Of the contra-charges supported by invoices, Tai Sang accepts $1,596,649.34.  That leaves a balance of $223,342.58.

52.  But it is not clear to me from Tapbo’s evidence which invoices represent this disputed $223,342.50.  In presenting its case under this head, Tapbo has not identified the specific invoice entries which are in contention, much less why any such items are alleged to be for Tai Sang’s account.  This means that the Court can have no idea of the case for or against Tapbo’s entitlement to a specific disputed item.  The Court does not even know which particular items are in dispute.

53.  It is therefore not possible for me to assess the validity of Tapbo’s claim in relation to additional contra-charges over and above those accepted by Tai Sang.  The result is that I am not satisfied that Tapbo has made out a case for the additional contra-charges which it claims.

54.  I note Ms. Lan’s point, which seems to me a good one, that the schedule seeks to charge Tai Sang for foam and sponges (among other items) which according to sub-sub-contract were for Tapbo to bear.  Given that is the case, the schedule of invoices alone would not be a reliable basis to uphold Tapbo’s claim. 

55.  I note also that, in cross-examination, Mr. Simon Lam (who was the only factual witness for Tapbo) stated that he did not have first-hand knowledge as to the circumstances in which particular expenses appearing in the invoices were incurred. 

56.  This is hardly surprising since, being in overall charge, Mr. Simon Lam was unlikely to have had the time to deal with mundane details such as the purchasing of turnbuckles, bolts and other similar items appearing on the invoices now produced by Tapbo.  That would have been left to subordinates, possibly under the immediate supervision of a quantity surveyor or accountant.  Accordingly, Mr. Simon Lam’s evidence on this head of Tapbo’s claim was not of much assistance.

G.  Tapbo’s claim of $321,042 for remedial work or damage

57.  There are 2 components to this claim.  The 1st is for $159,270 said to have been incurred in relation to work which Tai Sang either did not do or did badly.  The 2nd is for $161,772 said to be compensation for damage to metal scaffolding which Tapbo provided to Tai Sang’s workers.

58.  I am not satisfied that Tapbo has made out its claim for the 1^st component.

59.  The evidence for the 1st component consists of a schedule of invoices for various items of expenditure.  But little (if any) explanation has been given to the Court to identify the precise circumstances in which the various expenses were incurred and exactly why such expenses are attributable to Tai Sang.

60.  Let me give examples. 

61.  A substantial part of the 1st component (over $80,000) relates to remedial work in sections AB7, AB8, AB9 and AB11 of the project.

62.  But no evidence has been adduced to explain just what the alleged repairs in these sections involved. In those circumstances, I am unable to determine whether or not Tai Sang should be liable for the expenditure claimed.

63.  Some items of expense (relatively minor) concern safety measures.  It may well have been that, insofar as the project’s superstructure was concerned, Tai Sang was responsible for the cost of particular safety measures. 

64.  But again there was little evidence explaining the specific circumstances in which Tapbo incurred expense in relation to particular safety measures.  In what particular ways is it being alleged that Tai Sang (as opposed to other sub-contractors also on site) failed to comply with what relevant safety obligations?  Mr. Simon Lam understandably had no first-hand knowledge of such matters.  As a practical matter, he had to rely on information conveyed to him by subordinates.

65.  Nor am I satisfied that Tapbo has made out its claim for the 2nd component.

66.  Mr. Simon Lam says that he personally saw Tai Sang’s workers dropping metal scaffolding from a height of 10 to 11 m.  Asked how he could be sure that the workers belonged to Tai Sang, he replied that this was because Tai Sang’s workers were the only ones working with metal scaffolding at particular zones of the construction site.  Asked whether he had seen the damage caused to the metal scaffolding which he observed being dropped, he said that he did not have to.  He could imagine the damage that would be caused.

67.  In my view, there are difficulties with Tapbo’s case on the 2^nd component.

68.  First, the sub-sub-contract provided that Tai Sang was only obliged to compensate Tapbo for damage to scaffolding where “the loss rate is 3%, above”.  If the “loss rate” was below 3%, then “[Tapbo] [would] give half the loss to [Tai Sang] as bonus”.

69.  There has been no survey report adduced in evidence of the total metal scaffolding provided to Tai Sang.  It is therefore unclear whether the $161,772 claimed in the 2nd component is below or above the 3% loss rate specified by the sub-sub-contract.

70.  Second, even if Mr. Simon Lam did see scaffolding being dropped, I doubt that he could be so certain that the persons doing the dropping were Tai Sang workers.  There were bound to be other sub-contractors’ workers on site and, especially from a distance, I do not think it would be possible to attribute any given group of workers to one or other sub-contractor.

71.  Third, on the assumption that the workers doing the dropping were from Tai Sang, I cannot be certain that the damage (if any) resulting from the dropping witnessed by Mr. Simon Lam amounted to $161,772 now claimed.  Without some sort of survey evidence, it is not possible to say.

H.  Tapbo’s claim of $12,500 for penalty payments

72.  The claim consists of 7 items ranging from $500 to $4,000 said to have been incurred by Tapbo as a result of unsafe work practices by Tai Sang’s workers.  The practices include: working at a no-work platform, not following a safety notice, using irregular power sockets, and not using safe shoes. 

73.  Few other particulars are given.

74.  Without further evidence of the circumstances in which the penalties were incurred by Tapbo, I am unable to say that Tai Sang should be liable for the same.

I.   Summary

75.  In light of the above, the final position between Tapbo and Tai Sang is as follows:- 

Value of work done by Tai Sang	$19,981,441.18
ADD:-
Cost of additional workers	$572,500.00
	$20,553,941.18
LESS:-
Payments already made to Tai Sang	$18,207,732.75
Amounts paid by Tapbo directly to Tai Sang’s workers	$848,482.00
Contra-charges	$1,596,649.34
Miscellaneous items supplied by Tapbo to Tai Sang	$24,246.14
TOTAL	($123,169.05)

76.  Consequently, $123,169.05 remains due from Tai Sang to Tapbo.

77.  I note that Tapbo initially sought an indemnity against amounts payable by it to AMEC as a result of Tai Sang’s repudiatory breach.  But there was no evidence of the amounts (if any) paid or payable to AMEC under this head of claim.  I accordingly indicated at the start of the trial that Tapbo could not be entitled to the indemnity sought.  Thereafter, Mr. Kenneth Lam (I think rightly) did not pursue the claim during the trial.

III. CONCLUSION

78.  There will be judgment in favour of Tapbo for the net amount of $123,169.05.  Interest will run on that sum from date of writ until date of judgment at 1% over Hongkong Bank’s prime rate from time to time.  Interest will run from date of judgment until payment at the judgment rate. 

79.  Ms. Lan observes that this case was started in December 2001 and has taken over 6.5 years to come to trial.  She submits that there has been inexcusable delay so that I should not award interest for some of the period from December 2001 to the present. 

80.  The action was originally taken out in the High Court’s General List.  The action was transferred by consent to the Construction and Arbitration List in January 2003.  That implies that up to the time of the transfer, the parties were prepared to countenance the 2 years that had elapsed since the writ was taken out. 

81.  Between the transfer and now, some 4.5 years has passed.  That is still a long period. However, I am not sure that it is so long that I should disallow interest for any time.  On balance, I therefore think that interest should run as I have stated above.  

82.  There will be an Order Nisi that Tai Sang is to pay Tapbo’s costs, such costs to be taxed if not agreed. 

83.  As I mentioned, by consent, the parties signified that they wished to avail themselves of the expertise available in the High Court’s Construction and Arbitration List. There is no equivalent specialist list in the District Court.  Therefore, despite the low net sum payable to Tapbo by Tai Sang, I doubt that it would be appropriate to have costs taxed at the District Court scale.

84.  There will be an Order Nisi then that costs are to be taxed on a party-and-party basis at the High Court scale.