LO CHAU YUEN v. THE INCORPORATED OWNERS OF MONTANE MANSION & ANOTHER

HCA2178/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2178 OF 2001

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REASONS  FOR  JUDGMENT

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Appeal

1. This is an appeal against the master's order dated 21 September 2001 entering interlocutory judgment for damages to be assessed for the plaintiff under Orders 14 and 14A of the Rules of the High Court. On 1 February 2002, I allowed the appeal, set aside the master's order and gave the defendants unconditional leave to defend. My reasons appear below.

Dispute

2. The dispute arose in these circumstances. In or about October 2000, the defendants invited tender for renovation works of electrical installation and equipment in respect of the two buildings of which they were the Incorporated Owners. A tender dated 20 October 2000 was submitted by the plaintiff at a total contract price of $5,180,000.00. One of the clauses of the tender provided that no legally binding agreement shall be found between the parties except upon the issuance of a letter of acceptance by the defendants. On or about 24 November 2000, the plaintiff agreed to reduce the contract price in its tender to $5,050,000.00.

3. On 17 December 2000, at the general meeting of the 1st and 2nd defendants, the plaintiff was selected by the owners to perform the renovation works of electrical installation and equipment. On 19 December 2000, a joint meeting of the management committees of the 1st and 2nd defendants ("the Meeting") was convened and the plaintiff and Miss Liu Mei Ki of Universal Housing Engineering Consultants Limited, the defendants' consultant, were also present at the meeting. At the end of the meeting, a letter was signed by a Mr Law representing the plaintiff and the two chairmen of the defendants ("the Letter"), which read :

"敬啟者：

有關海山樓 海景樓兩廈電力改善工程簽署合約事宜

本兩廈業主立案法團已於本年十二月十七日（星期日）召開週年業主大會，經業主投票選出 貴司為海山樓 海景樓電力改善工程承建商；有關工程造價：海山樓--HK$2,266,300元及海景樓 -- HK$2,783,700元。茲因此項工程額費用龐大，法團需時向兩廈業主籌集至總工程金額百分之七十，才開始正式動工。為此現經雙方協議將簽訂工程合約日期延後，惟有關事項不能遲於2001年3月19日。

特此函達 貴司及簽署確認。

 

此 致

新恆威建築工程公司東主

羅遠先生 台鑒 "

The defendants and the plaintiff were described as "employer" and "contractor" respectively. Miss Liu also signed as a witness.

4. It is the plaintiff's case that the Letter constituted a letter of acceptance within the meaning of the tender, thus giving rise to a legally binding contract between the parties. But by a letter dated 20 April 2001, the defendants denied that there was any binding agreement. By a letter dated 7 May 2001, the plaintiff alleged that the defendants were in repudiatory breach of contract and accepted the repudiation.

Proceedings

5. On 17 May 2001, the plaintiff commenced the present proceedings. A defence was filed on 7 June 2001. Amendments to the pleadings were made subsequently. On 19 June 2001, the plaintiff took out an application under Orders 14 and 14A for :

(1) Final judgment in this action against the defendants for the amount claimed in the Amended Statement of Claim with interest, if any, or alternatively interlocutory judgment on liability for damages and interest to be assessed;

(2) Further or alternatively, determination by the court pursuant to Order 14A of the Rules of the High Court of the following questions of law and/or construction :

(a) whether tender documents and the Letter dated 19 December 2000 from the defendants to the plaintiff contained or constituted a binding agreement ("the Agreement") within clause 7 of the Tender Document on page 1/1 and page 2/2;

(b) whether the Agreement had been terminated by the letter dated 20 April 2001 from the defendants' solicitors to the plaintiff's solicitors; and

(c) further or in the alternative to (a) and (b) above, whether the conduct of the defendants as averred in paragraphs 9 and 10 of the Amended Statement of Claim amounted to the defendants' repudiation of the said Agreement and whether such repudiation has been accepted by the plaintiff by the letter dated 7 May 2001 from the plaintiff's solicitors to the defendants' solicitors.

(3) Consequential to (2) above, final judgment in this action against the defendants for the amount claimed in the Amended Statement of Claim with interest, if any, or alternatively interlocutory judgment on liability for damages to be assessed upon the determination by the court the aforesaid questions of law and/or construction.

6. The master answered question 2(a) and (c) in the affirmative and granted interlocutory judgment against the defendants accordingly.

Issue : Whether the letter on acceptance?

7. The main issue before me, counsel agreed, is whether the Letter constituted acceptance of the plaintiff's tender as amended.

8. Mr Chun, counsel for the plaintiff, submitted that the tender documents contemplated a three-stage process : (1) submission of tender; (2) written acceptance of tender; and (3) signing of a formal contract. Legally binding contractual relationship shall come into existence when the second stage is attained. The Letter contained the following express provisions, and should receive the following constructions :

(a) The Letter formally notified the plaintiff that he was elected by resolution of owners' meeting of the defendants as the successful contender.

(b) The Letter put the agreed prices into writing. This evinced an intention to bind the plaintiff and the defendants to the fixed prices and prevent any purported increase of prices by the plaintiff.

(c) Commencement of works ("開始正式動工") shall take place upon collection of 70% of the prices by the defendants from individual owners. This rebuts the defendants' allegation that the Letter was to "wait until 70% of the required amount was raised before anything was done", or "making of the agreement was conditional upon the defendants raising 70% of the contractor fee", or the Letter was merely the plaintiff's agreement to "keep his offer open" until 19 March 2001.

(d) The date of signing the formal contract shall be postponed to a day not later than 19 March 2001.

(e) The Letter described the defendants as the "employers" ("僱主") and the plaintiff as the "principal contractor" ("總承建商"). No such description of the parties' capacities would be used if the Letter did not intend to be an acceptance.

(f) The Letter was not only signed and stamped by the defendants but also by the plaintiff and by one witness from the consultant. The Letter specifically asked the plaintiff to signify his consent by signature ("特此函達貴司及簽署確認"). No such solemn formalities would be adopted if the Letter did not intend to create legally binding obligations.

9. Counsel submitted that "Where a tender is submitted, e.g. for the erection of a building, a binding contract will normally arise from acceptance of the tender, unless it is expressly stipulated that there is to be no contract until certain formal documents have been executed" : Chitty on Contracts (28th Ed.), Vol.1, para.2-036. No such express stipulation is contained in the Letter. It is obvious that by denying the existence of binding contract, the defendants' letter dated 20 April 2001 constituted a repudiation, and the repudiation was accepted by the plaintiff's letter dated 7 May 2001. Mr Chun submitted that the defendants have no credible grounds of defence.

10. Mr Lin, for the defendants, submitted that the Letter did not amount to any acceptance. He contended that in construing the Letter, the court is to ascertain its meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract : ICS Ltd v. West Bromwich BS [1998] 1 WLR 896. If the background facts against which the Letter came to be signed were carefully considered, there could only be one conclusion, namely, that the defendants had no intention to enter into any binding agreement with the plaintiff on 19 December 2000. It is clear from the minutes of the Meeting and the tape recording exhibited that the management committees of the defendants were deeply concerned with the question of raising the necessary funds to finance the project. It was not accepted by them as a viable option as suggested by Miss Liu that they signed the contract first and use the 180 days' period to raise the fund. In the Letter, it is stated that the defendants need to collect up to 70% of the total contract price from the owners of the two buildings before the commencement of the works. No conceivable reason could be suggested as to why the defendants would have intended to conclude an agreement with the plaintiff at a time when they could not be sure whether and when they could raise the necessary funds. The intention of the defendants as can be discerned from the circumstances of the case must be that they did not intend to enter into a binding agreement with the plaintiff until they had collected a substantial portion of the funds from the owners.

11. Mr Chun in reply submitted that the tape and the transcript are either inadmissible or should not be given any significant weight.

A credible defence raised

12. For present purposes, the burden is on the defendants to raise a credible defence to the claim. Whether the Letter constituted acceptance of the plaintiff's tender as amended depends on a proper interpretation of its terms. I agree with Mr Lin that the factual matrix must be considered and hence the transcript of the Meeting is admissible. Indeed what transpired at the Meeting bears an important bearing on how the Letter is to be interpreted. The plaintiff does not seek to challenge the accuracy of the transcript. It says that it did not form the entire record, a point which the defendants dispute. Whether the transcript forms the entire record cannot be resolved by affidavit. I note that the plaintiff has not produced any other documentary evidence on what transpired at the Meeting. In the circumstances and for present purposes, the Letter should be considered with the transcript as the background facts. And I am satisfied that when the Letter is so considered, the interpretation contended by the defendants is a credible one. Accordingly, I hold that the defendants have raised a credible defence.

13. In view of my ruling, question 2(a) in the Order 14A application cannot be answered at this stage. It can only be answered after the pertaining matters, especially, those on what actually happened at the Meeting are fully canvassed at trial. With this question gone, other questions of law do not arise for consideration.

14. For the foregoing reasons, I will allow the appeal, set aside the order of the master, and give the defendants unconditional leave to defend.

15. As the appeal is allowed on the strength of fresh evidence, I will not disturb the master's costs order. The defendants will have the costs of this appeal, to be taxed if not agreed.