MASTER LEGEND ENGINEERING LTD v. CHANG TAI CHIN

DCCJ 849/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 849 OF 2010

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ASSESSMENT OF DAMAGES

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1.  This is an assessment of damages arising out of a painting works contract dispute.

2.  The Plaintiff was a building contractor under a government contract administered by the Architectural Services Department (“ASD”) for maintenance and repair of government properties in the Southern district (“Main Contract”).  There is a dispute as to whether the Plaintiff was a first-tier or second-tier sub-contractor under the Main Contract which is of no concern here as there is no dispute that the Plaintiff did engage the Defendant to carry out painting works under the Main Contract. 

3.  In or about late 2008, the Plaintiff initially engaged the Defendant to carry out painting works covered by works orders issued under the Main Contract on a daywork basis (“Daywork Contract”).  By a written agreement dated 2^nd January 2009, the Plaintiff engaged the Defendant to carry out painting works in the Stanley Bay and Wong Chuk Hang districts (Sub-Sub-Contract”).

4.  On 10^th March 2010, the Plaintiff commenced these proceedings against the Defendant suing for various sums of money allegedly due from the Defendant under the Daywork Contract or Sub-Sub-Contract and for damages for the Defendant’s breach of the Sub-Sub-Contract.  The Defendant counterclaims for outstanding payments due under the same contracts and for loss of profit/damages for wrongful termination of the Sub-Sub-Contract.

5.  The Plaintiff was initially represented by solicitors but has since April 2012 been acting in person.  In breach of an unless order dated 25^th April 2012, the Plaintiff failed to file and exchange with the Defendant its witness statements as to facts and was debarred from adducing such evidence in these proceedings.  The Plaintiff further failed to attend the Case Management Conferences on 23^rd July 2012 and 29^th October 2012.  On 4^th January 2013, interlocutory judgment on liability was entered for the Defendant on the counterclaim against the Plaintiff with damages to be assessed.   

6.  The Plaintiff was absent at the assessment hearing.  Being satisfied that due notice of the hearing had been given to the Plaintiff, I proceeded with assessment of damages in the Plaintiff’s absence.

The Defendant’s Case

7.  The Defendant himself was the only witness giving testimony at the assessment hearing.  He adopted his witness statement filed herein as evidence in chief.

8.  The Defendant further adduced in evidence the expert report on quantum prepared by Mr. Tang Lim Kit (“Mr. Tang”) dated 20^th August 2012 (“Expert Report”) pursuant to leave granted by Registrar Lui on 6^th February 2013.    

9.  According to the Defendant, the Plaintiff originally sub-contracted the works in question to a different contractor whose performance was not satisfactory and Mr. Tong Peng Kuong of the Plaintiff (“Mr. Tong”) brought in the Defendant halfway in late 2008.  The Plaintiff agreed to pay for the Defendant’s painting work at 43% of the value assessed by ASD. 

10.  In February to April 2009, the Plaintiff further commissioned the Defendant to rectify certain defective works left behind by the previous sub-contractor.  At the hearing, the Defendant told the Court that shortly after he started working on the government project, the Plaintiff asked him to sign the Sub-Sub-Contract which covered the period from 3^rd January 2009 to 31^st March 2010 and provided that the value of work done thereunder was to be assessed at 43% of the value assessed by ASD.

11.  Apart from the said basis for valuation which applied to normal works orders, the Defendant said a different basis was applied to minor works orders (“CB Orders”) at $180 for piece-meal works and $560 / $999 for works taking 0.5 / 1 manday to complete.  The CB orders performed by him had in fact been valued in such a manner even before he signed the Sub-Sub-Contract.    

12.  This was not pleaded in the Amended Defence and Counterclaim, nor was this reflected in the Sub-Sub-Contract. However, Table C attached to the Amended Statement of Claim sets out the CB Orders acknowledged by the Plaintiff to have been completed by the Defendant, apparently on a basis consistent with the Defendant’s case.  As will be seen below, the Expert Report assessed the value of the same CB Orders at a slightly lower sum, which the Defendant accepts for the present purpose.  The lack of pleading therefore does not stand in the way of my assessment. 

13.  In his witness statement, the Defendant gave a detailed account of how the contracts were actually carried out by the parties before any dispute arose, which I need not repeat for the present purpose.

14.  The performance of the contracts went well until April or May 2009 when the Plaintiff began to fail to make full and/or punctual payment to the Defendant in accordance with the terms of the Sub-Sub-Contract, thereby causing the Defendant difficulty in paying wages of the workers brought in by the Defendant to carry out the contracts. 

15.  Furthermore, the Plaintiff would only release payment to the Defendant in form of purported loans and would include unknown charges in payment certificates.  Mr. Tong told the Defendant that no payment would be released unless the Defendant signed on the purported loan agreements and payment certificates.  The Defendant was forced to sign the purported loan agreements in order to obtain payments. 

16.  In or about November 2009, the Defendant repeatedly chased Mr. Tong for outstanding payments under the Sub-Sub-Contract. On the last occasion when the parties spoke, Mr. Tong lost his temper and told the Defendant his service was no longer required.  No further painting works were assigned to the Defendant thereafter. 

17.  The Defendant appears to me to be an honest witness and his account of dealings with the Plaintiff is credible.  In the absence of evidence to the contrary, I accept the same as a truthful account of the dealings between the parties.

18.  The Defendant claims against the Plaintiff for outstanding payments under the Daywork Contract and the Sub-Sub-Contract and for loss of profit by reason of the Plaintiff’s wrongful termination of the Sub-Sub-Contract plus interest and costs.  Credit is given to the purchase of materials, rental of plant and equipment etc. made by and wages paid to the Defendant’s workers by the Plaintiff.  The Defendant relies on the Expert Report as evidence on quantum.  I shall therefore go into the Expert Report.

19.  The Expert Report comes with the curriculum vitae of its author Mr. Tang, a quantity surveyor by profession who, I am satisfied, is qualified to give the expert opinions set out in the same report.

20.  Mr. Tang had reportedly reviewed all pleadings as well as documents disclosed by both parties herein before addressing, inter alia, the following issues:

(i)   reasonable valuation of the Daywork Contract works (apart from those works orders admitted by the Defendant);

(ii)   reasonable valuation of the Plaintiff’s purchase of materials, rental of plant and equipment etc. (apart from those items admitted by the Defendant);

(iii)   reasonable valuation of the works completed by the Defendant under the Sub-Sub-Contract; and

(iv)   reasonable valuation of the remaining works not carried out by the Defendant under the Sub-Sub-Contract and the Defendant’s loss of profit arising therefrom.

Value of Daywork Contract works completed by the Defendant

21.  There is a factual dispute between the parties.  The Defendant avers that the value of Daywork Contract works was agreed between the parties at $481,800.  The Plaintiff denies any agreement and assesses the same at $465,930.  Mr. Tang went through contemporaneous documents to see if the figures therein tend to support either party’s case.

22.  In Appendix 2 to the Expert Report, Mr. Tang set out the work orders and contemporaneous documents including interim payment certificates he reviewed and assessed the value of Daywork Contract works at $479,700, which the Defendant accepts.

23.  I have no reason to question Mr. Tang’s assessment and assess the value of Daywork Contract works at $479,700 accordingly.

The Plaintiff’s purchase of materials, rental of plant and equipment etc. 

24.  The Plaintiff claims to have paid $316,679.55 but the Defendant admits only to the extent of $192,119.83.  Mr. Tang reviewed the documents disclosed under item 41 of the Plaintiff’s Supplemental List of Documents to look for indication of the 44 items included therein being related to the Sub-Sub-Contract or otherwise bearing the Defendant’s signature to indicate the latter’s acceptance of liability therefor. 

25.  Mr. Tang set out his assessment of the various items in dispute in Appendix 3 to the Expert Report. The Remark column thereof suggests that Mr. Tang had conducted his assessment independently instead of simply taking the Defendant’s assertions at face value.  He assessed the value of the Plaintiff’s purchase at $217,253.79, which the Defendant accepts.

26.  Mr. Tang’s assessment appears to me to be reasonable and proper.  I assess the value of the Plaintiff’s purchase of materials, rental of plant and equipment etc. at $217,253.79.

Value of works completed by the Defendant under the Sub-Sub-Contract

27.  In Tables A, B and C attached to the Amended Statement of Claim, the Plaintiff separately set out its assessment of (i) the value of works orders allegedly completed by the Plaintiff instead of the Defendant; (ii) the value of works orders completed by the Defendant; and (iii) the value of CB orders completed by the Defendant.

28.  The Defendant disputes the accuracy of Table A and asserts that all works orders issued prior to November 2009 excepting item 5 were completed by him as he was the only contractor undertaking painting works at the material time.  And he does not admit that Tables B and C have exhaustively set out all the works orders completed by him.  The Defendant therefore counterclaims for a higher sum for works orders and CB orders completed by him as well as for works orders not included in Tables A to C.

29.  In assessing the value of works orders set out in Tables A to C, Mr. Tang assumed to be correct the Defendant’s assertion above (as he was entitled so to do) and reviewed contemporaneous documents including a document entitled “W.O. Dimension Summary Report Listing by Item” which summarises the quantities of work submitted by the main contractor.

30.  In paragraphs 6.9 to 6.12 of the Expert Report, Mr. Tang explained the government practice in checking quantities or measurement submitted by contractors in a typical term contract for maintenance works (“Practice”) and by way of example produced in Appendix 4 to the Expert Report a set of typical documents taken out from the documents disclosed in these proceedings.  

31.  In Appendices 6(A) and 6(B) to the Expert Report, Mr. Tang carefully set out his assessment of nearly 500 works orders included in Tables A and B in accordance with the Practice and arrived at the total sum of $1,875,357.36, which the Defendant accepts.

32.  I have no reason to question Mr. Tang’s assessment and adopt the same as the value of those works orders in Tables A and B which were completed by the Defendant.

33.  As to the value of CB orders set out in Table C, Mr. Tang was unable to classify them into piece-meal works and works taking 0.5 /1 manday to complete.  He noted, however, from the table that the main contractor or the Plaintiff was entitled to a minimum payment of $250 for each CB order with the corresponding entitlement of the Defendant being $180.  Having checked the CB orders in Table C against the “Adjustment Dim Summary” for minor works orders (disclosed as item 45 of the Plaintiff’s 2^nd Supplemental List of Documents) which contains the certified value of the minor works orders, Mr. Tang was able to assess the value of the CB orders completed by the Defendant at $45,448.77, which is slightly lower than the total sum in Table C ($46,187.63). 

34.  Appendix 7 to the Expert Report shows Mr. Tang’s assessment on the basis of either 43% of the adjusted value of each CB order or a minimum value of $180.  The Defendant accepts Mr. Tang’s assessment.

35.  In the circumstances, I have no difficulty adopting Mr. Tang’s assessment as the value of CB orders completed by the Defendant.

36.  As said, the Defendant asserts that there were other works orders completed by him which have not been included in Tables A to C.  In attempting to assess such claims, Mr. Tang reviewed the two summary lists of works orders issued during the period from 3^rd January 2009 to 31^st March 2010 disclosed as items 51 and 52 of the Plaintiff’s 2^nd Supplemental List of Documents.  He was able to identify certain works orders which apparently involved painting works but were otherwise excluded from Tables A and B.  Without the corresponding “W.O. Dimension Summary Report Listing by Item” and “Adjustment Dim Summary”, however, he was unable to assess the value of such excluded orders.

37.  As to CB orders, Mr. Tang reviewed the works orders allegedly completed other than by the Defendant (disclosed as item 46 of the Plaintiff’s 2^nd Supplemental List of Documents). He attempted to and was able to identify only a few of such works orders among those included in the “Adjustment Dim Summary” (disclosed as item 45 of the Plaintiff’s 2^nd Supplemental List of Documents).  This enabled him to work out the value of such works orders (at the agreed rate of 43%) on the assumption that all such CB orders were completed by the Defendant.  For those CB orders not so identified, Mr. Tang adopted the minimum value of $250 (for the Plaintiff) and $180 (for the Defendant) for the purpose of assessment.

38.  Mr. Tang set out in Appendix 8 to the Expert Report his assessment of the value of works orders which the Defendant claims to have been completed by him but are not included in Tables A to C at $41,795.16.  The Defendant accepts the same and I assess the value of such works orders at $41,795.16 accordingly.

39.  In summary, Mr. Tang assessed the total value of the works orders completed by the Defendant under the Sub-Sub-Contract included in Tables A to C plus those excluded from such tables at $1,962,601.29 ($1,875,357.36 + $45,448.77 + $41,795.16  =  $1,962,601.29). The Defendant accepts the same.

40.  I have no reason to question Mr. Tang’s assessment and assess the value of works orders completed by the Defendant under the Sub-Sub-Contract at $1,962,601.29.

Value of the remaining works not carried out by the Defendant under the Sub-Sub-Contract and the Defendant’s loss of profit arising therefrom

41.  It is the Defendant’s case that he was prevented by the Plaintiff from completing items 5 and items 71 to 247 in Table A and suffered a loss of profit as a result.

42.  In Appendix 6(A) to the Expert Report, Mr. Tang assessed the total value of items 5 and items 71 to 247 in Table A at $939,452.44.

43.  According to the Plaintiff’s Notification of Remuneration Paid to Persons other than Employees for the year ended 31^st March 2010 filed with the Inland Revenue Department (“IRD”), the total emolument paid by the Plaintiff to the Defendant in the financial year 2009/2010 came to $1,898,762.  According to the Defendant’s salary tax assessment for the same financial year, however, the Defendant’s total income in that year was $380,000, which is about 20% of the sum of $1,898,762. On this basis, the Defendant claims a loss of profit of 20% as a result of the wrongful termination of the Sub-Sub-Contract by the Plaintiff.

44.  Mr. Tang admitted to have insufficient information to calculate with precision the profit margin for works done under the Sub-Sub-Contract and simply applied the percentage of 20% to the sum of $939,452.44 to arrive at the sum of $187,890.49 as the Defendant’s loss of profit in respect of the remaining works which the Defendant was prevented from carrying out under the Sub-Sub-Contract.

45.  At the hearing, the Defendant told the Court that he was approached by the IRD on his tax liability on the said sum of $1,898,762.  The Defendant said he never knew how to file a tax return and had always relied on others to do so.  He presented documentary evidence to the IRD to show his expenses and wages paid to workers in order to earn the payment from the Plaintiff and the IRD reckoned that the Defendant’s earnings for the year came to $380,000, which is about 20% of the said sum of $1,898,762.

46.  In any event, I find a profit margin of 20% in itself to be not far off the mark and assess the Defendant’s loss of profit (or earnings) at $187,890.49.

47.  I need not deal with any incidence of tax as it is not pleaded in the Plaintiff’s Amended Defence to Counterclaim.

Conclusion

48.  With credit being given to the purchase of materials, rental of plant and equipment etc. and the payment of wages to the Defendant’s workers by the Plaintiff as well as the payments previously received by the Defendant, the Defendant’s damages should be calculated as follows:

Description	Amount
Value of Daywork Contract works	$479,700.00
Value of works orders under the Sub-Sub-Contract	$1,962,601.29
LESS
The Plaintiff’s purchase of materials, rental of plant and equipment etc.	($217,253.79)
Wages paid to the Defendant’s workers by the Plaintiff	($273,250.00)
Previous payments received by the Defendant	($1,548,947.01)
ADD
Loss of profit	$187,890.49
Amount due from the Plaintiff to the Defendant:	$590,740.98

49.  In conclusion, I assess the damages due to the Defendant at $590,740.98 and adjudge the same to be payable by the Plaintiff.  There shall be interest on that sum at judgment rate from the date of writ until today and thereafter at judgment rate until payment.

50.  Costs of assessment of damages be to the Defendant.