CHINNEY SHUN CHEONG BUILDING SERVICES ENGINEERING LTD (formerly known as CHINNEY E & M (MAINTENANCE) LTD) v. JIM CHI WING AND OTHERS

HCA 824/2020

[2022] HKCFI 2711

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 824 OF 2020

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J U D G M E N T

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Introduction

1.  This is the assessment of damages in respect of an interlocutory judgment entered in favour of the Plaintiff on 29 September 2020.  It was ordered that the Defendants are to pay the Plaintiff damages to be assessed with costs to be taxed. 

2.  The Plaintiff has produced the 5^th Affirmation of Lam Chan Neng dated 18 August 2022 proving service of all necessary documents on the Defendants.  Despite the Plaintiff’s service of the documents for the assessment of damages hearing, the Defendants did not appear and the hearing took place in the Defendants’ absence. 

3.  The Plaintiff seeks to recover the following sums:-

(1)  For the Kai Tak Sub-Contract (defined below), loss and damages in the sum of HK$9,741,090.52. 

(2)  For the EHC Sub-Contract (defined below), loss and damages in the sum of HK$4,065,723.21. 

Plaintiff’s witness

4.  The Plaintiff called one witness to give oral testimony, Mr Yue Man Wai (“Mr Yue”).  Mr Yue tendered two witness statements to explain the damages suffered by the Plaintiff and to produce the documents evidencing the Plaintiff’s claim.  Mr Yue is employed by the Plaintiff as a quantity surveying manager. He is a registered professional surveyor (quantity surveyor)  in Hong Kong.  He has been working in the construction industry in Hong Kong for more than 33 years. 

5.  Mr Yue spoke to matters within his knowledge or which he could verify to be true and his evidence was consistent with the documentary evidence of the Plaintiff.  I accept Mr Yue’s evidence. 

6.  The Plaintiff has also filed the expert report of Mr Chang Yat Chun (“Mr Chang”)  on quantum dated 24 January 2022.  Pursuant to the Order of Master D To dated 17 May 2022, the expert report is adduced as evidence without calling Mr Chang.  Mr Chang’s report relates only to the rectification works, described below. 

The Facts

7.  The Plaintiff was at all material times a provider of electrical and mechanical engineering services. 

8.  The Defendants were partners carrying on the business as a subcontractor of electrical engineering works. 

9.  The Defendants were engaged by the Plaintiff pursuant to two written agreements dated 25 July 2016:-

(1)  By contract number WM229/CON/MPP60273 (“Kai Tak Sub-Contract”), the Defendants were engaged to supply labour, tools/equipment and miscellaneous items of small accessories as stipulated in Purchase Order No MPP60273 for electrical installation works to be carried out at Blocks A to C, Basement Carpark, Retail Block and all external area of the Home Ownership Scheme at Kai Tak Site IGI(B)  (“Kai Tak Site”)  for a lump sum fee of HK$11,500,000. 

(2)  By contract number WM229/CON/MPP60275 (“EHC Sub-Contract”), the Defendants were engaged to supply labour, tools/equipment and miscellaneous items of small accessories as stipulated in Purchase Order No MPP60275 for electrical installation works to be carried out at Block (G/F to R/F)  and the external area of the Public Rental Housing Development at Eastern Harbour Crossing Site – Phase 7 (“EHC Site”)  for a lump sum fee of HK$4,558,000.

10.  Pursuant to the written agreements, the Defendants had performed works in relation to the Kai Tak Sub-Contract and the EHC Sub-Contract, however, in repudiatory breach of the two sub-contracts, on or about 22 November 2018, the Defendants failed and/or refused to carry out further works under the contracts and then left and abandoned the Kai Tak Site and the EHC Site with all their tools and equipment.  The repudiatory breach was accepted by the Plaintiff by letter to the Defendants dated 23 November 2018. 

11.  In respect of the Kai Tak Sub-Contract:-

(1)  Upon the Plaintiff’s instructions and with approval, the Defendants carried out additional works for Conduit for WSD AMR System and Replacement of damaged conduit.  These were additional works not originally included in the Kai Tak Sub-Contract and amounted to HK$436,583 (“Additional/Variation Works”).[1] 

(2)  Pursuant to the Kai Tak Sub-Contract, the Plaintiff has made 24 interim payments to the Defendants for work done/services rendered in the sum of HK$11,930,556. 

(3)  In about September 2018, Jim Chi Wing of the Defendants informed the Plaintiff that the Defendants were facing cash flow issues and upon the Defendants’ request, the Plaintiff made advanced payments to enable the Defendants to pay their workers’ wages and MPF and direct payments to the Defendants’ workers and their MPF trustees (“Advanced/Direct Payments”). The sum was HK$7,773,576.52. 

(4)  Following the Defendants’ repudiation of the Kai Tak Sub-Contract, the Plaintiff employed Intelligence Electrical Engineering Ltd (“Intelligence”)  on or about 24.12.2018 to complete the outstanding works and/or to remedy defects and has incurred a sum of HK$1,962,000 (“Rectification Works”).

(5)  Due to the breaches of relevant safety rules by the Defendants’ workers (which took place prior to 22 November 2018)  the Plaintiff was fined by the principal contractor, Shui On Building Contractors Limited (“Shui On”)  and the Plaintiff claims HK$11,541 as contra charges (“Contra Charges”).

12.  The sums claimed by the Plaintiff in respect of the Kai Tak Sub-Contract is calculated as follows:-

Description	Amount (HK$)
Kai Tak Sub-Contract Sum	11,500,000.00
Variation Works	436,583.00
Total value of workdone	11,936,583.00
Less:
Interim Payments	(11,930,556.00)
Advanced and Direct Payments	(7,773,576,52)
Difference in value/Overpayment	(7,767,549.52)
Rectification Works	(1,962,000.000)
Contra Charges	(11,541.00)
Plaintiff’s claims	(9,741,090.52)

13.  In respect of the EHC Sub-Contract:-

(1)  Pursuant to the EHC Sub-Contract, the Plaintiff has made 24 interim payments to the Defendants for work done/services rendered in the sum of HK$4,658,000. 

(2)  In about September 2018, Jim Chi Wing of the Defendants informed the Plaintiff that the Defendants were facing cash flow issues and upon the Defendants’ request, the Plaintiff made advanced payments to enable the Defendants to pay their workers’ wages and MPF and direct payments to the Defendants’ workers and their MPF trustees.  The sum was HK$3,470,123.21. 

(3)  Following the Defendants’ repudiation of the EHC Sub-Contract, the Plaintiff employed Intelligence on or about 24.12.2018 to complete the outstanding works and / or to remedy defects and has incurred a sum of HK$495,000. 

14.  The sums claimed by the Plaintiff in respect of the Kai Tak Sub-Contract is calculated as follows:-

Description	Amount (HK$)
EHC Sub-Contract Sum	4,558,000.00
Sub-total	4,558,000.00
Less:
Interim Payments	(4,658,000.00)
Advanced Payments	(3,470,123.21)
Difference in value/Overpayment	(3,570,123.21)
Rectification Works	(495,600.00)
Plaintiff’s claims	(4,065,723.21)

Legal Principles

15.  Mr Lam, counsel for the Plaintiff, relies on, inter alia, the following principles:-

(1)  “Where a contract has been discontinued or terminated as the result of an accepted repudiatory breach by the Contractor, then subject to any express limitations, the Employer will be able to recover consequential loss in the shape of liabilities incurred to third parties, or loss of business or rentals, on the same principles as those already set out above in relation to defective work and delay in completion.  In addition, of course, the Employer will on normal principles be entitled to recover whatever other damages result directly from the failure to complete, including most obviously the additional cost of completing by another contractor … In some cases, also, the state of accounts between the parties at the time of termination may mean that a contractor has been overpaid in respect of the incomplete work, in which event, failing recovery under one or other of the conventional heads of damage for failure to complete, an Employer may be entitled to recover the overpayment in quasi-contract if the contract makes no provision for repayment.  Reasonable latitude under the rules of mitigation of damage will be permitted to Employers faced with the daunting task of completing by other contractors”: Hudson’s Building and Engineering Contracts, 14^th ed, at §7-040. 

(2)  In Able Contractors Limited v Wui Loong Scaffolding Works Company Limited (unrep, HCA 2587/2008, 13.6.2012) at §§1, 62, 63 in finding the defendant subcontractor to be in repudiation, the plaintiff superior contractor was entitled to engage a replacement subcontractor to carry out the remaining work and to claim against the defendant for the additional costs arising. 

(3)  In New Era Group (China) Limited v Studio M Interiors HK Limited (unrep, HCA 32/2018, 10.12.2021) at §§17-18, Master D To approached the overpayment byway of “difference in value” ie assessing the difference between the value of the works done and actual payment. 

Discussion

16.  In the course of Mr Yue’s oral testimony:-

(1)  For each head of claim, using one or two specific sets of documents for illustration purposes, Mr Yue spoke to the contemporaneous documents relied upon by the Plaintiff to demonstrate and explain how the sums had been calculated or arrived at. 

(2)  He explained which matters he had been personally involved in checking and confirming. 

(3)  He confirmed to the Court that his evidence was that the various sets of documentation for the Kai Tak Sub-Contract and the EHC Sub-Contract could be understood and interpreted in the same manner, in other words, for example, the Plaintiff’s practice of handling requests for interim payments applied on the Kai Tak Site and the EHC Site consistently. 

17.  In support of the Plaintiff’s claim for damages, in essence, the Plaintiff’s claim for the Plaintiff’s actually incurred cost of completing the electrical installation works at the Kai Tak Site and the EHC Site less the contract sums.[2] The Plaintiff’s contentions can be summarized as follows:-

(1)  During the Defendants’ engagement, the Plaintiff had from time to time made interim payments to the Defendant, and on the Defendants’ request, advance payments were also made to the Defendants due to their stated financial difficulties.  The advanced payments were to enable the Defendants to pay the workers’ wages and MPF payments. 

(2)  After the Defendants abandoned the sites, the Plaintiff made direct payment to the workers at the sites that had been working there and whom were owed outstanding wages and MPF payments. 

(3)  Upon the Defendants’ abandonment of the sites, alternative sub-contractors had to be engaged to carry out rectification works done and/or to complete the works. 

Interim Payments

18.  Mr Yue explained to the Court, using the underlying documents relating to the 1^st and 24^th interim payments for the Kai Tak Site for illustration purposes, that in respect of the interim payments for both the Kai Tak Site and the EHC Site, the Defendants would first submit an Invoice seeking interim payment.  Upon receipt of the same, the Plaintiff’s staff would consider whether what was being asked for by way of interim payment was reasonable, and whether it correctly calculated the 5% retention monies as was permitted under the respective contracts.  If the Plaintiff was satisfied that it was reasonable to make the interim payment, it would issue a “Sub-Contractor Payment Application” to approve the requested payment.  This document would set out the total amount of the contract sum, the Defendants’ invoiced amount, the calculation of the retention money and state the amount approved as interim payment.  Mr Yue showed the Court a document entitled “Payment and Direct Debit Report” setting out the amount approved for the said interim payment application and the corresponding cheque issued to the Defendants for settlement of the interim payment. 

19.  Mr Yue confirmed to the Court that the Plaintiff adopted the same mode of approving the interim payment applications made by the Defendants for the two sites and cheques were issued in the same way.  

20.  I am satisfied that the interim payments were made to the Defendants from time to time as set out in the Statement of Claim in respect of both the Kai Tak Site and the EHC Site. 

Advanced/Direct Payments

21.  Mr Yue showed me the documents recording the advance payments made to the Defendants.  First, the Defendants will issue an Invoice containing a request for advance payments.  If approved, the Plaintiff would issue a “Sub-Contractor Payment Application” setting out the amount sought and the amount approved/certified.  Thereafter, the payment made would be recorded in a “Remittance/Payment Advice” together with a cheque for the amount applied for. I am satisfied as to the amount claimed for the advance payment for both the Kai Tak Site and the EHC Site.  

22.  As for direct payments to the Defendants’ workers, the genesis for this payment was that when the Defendants abandoned the two sites, workers that had been hired by the Defendants remained on the site and had been owed outstanding wages for works performed on the site.  The Plaintiff therefore made payments to the workers for salaries.  Mr Yue explained to the Court that based on records maintained at the entrance / exit of the respective sites, the amounts that were due and owing to the workers were paid to the workers, to include wages and MPF payments.  Mr Yue’s evidence is that he personally checked the Plaintiff’s debit note setting out the names of the workers paid with the cheque and autopay records to ensure that all figures tallied up.  Mr Yue told the Court that he could confirm that all the workers hired by the Defendants who were owed wages / MPF payments were paid by the Plaintiff otherwise the Plaintiff would have received complaints from the Labour Department for non-payment, but no such complaint were ever received. 

23.  I am satisfied on the evidence that the direct payments to workers were made for both the Kai Tak Site and the EHC Site. 

Rectification Works

24.  Mr Yue explained that upon the Defendants leaving the works unfinished, the Plaintiff had to employ Intelligence on or about 24.12.2018 to complete the outstanding works not completed by the Defendants or to rectify the works that had been done but which had defects for the two sites. 

25.  Based on the materials including the contracts with Intelligence, I am satisfied that Intelligence had been engaged to perform the rectification works for the Kai Tak Site and the EHC Site. 

26.  The Plaintiff’s expert Mr Chang has assessed the amount for the respective rectification works to be higher than the Plaintiff’s actual claim based on the sums it had actually paid.  The Plaintiff confirms that it only seeks the sums actually incurred by it. 

Contra Charges

27.  Mr Yue testified that due to breaches of relevant safety rules by the Defendants’ workers prior to 22 November 2018 Shui On fined the Plaintiff and the Plaintiff claims HK$11,541 as contra charges against the Defendants. 

28.  The Kai Tak Sub-Contract contains “Construction Site Safety Rules and Guidelines” in relation to Illegal Workers at Schedule 1 and the obligation is on the Defendants to ensure that the workers comply with all rules.  It is provided in the Kai Tak Sub-Contract that if the Plaintiff becomes liable for any penalty by reason of the Defendants’ breach of the rules, the Defendants are to reimburse the Plaintiff for the same.  

29.  This head is supported by documents entitled “Subcontractor Debit Form” issued by Shui On from time to time, setting out the fine, a narrative report of the incident and photographic evidence of the breaches. 

30.  The amount claimed in the SOC §10 for Contra Charges was HK$14,541 but at the hearing the Plaintiff confirmed that there was a sum of HK$3,000 that had already been deducted and therefore the net amount for Contra Charges should be HK$11,541 after adjustment.  This has already been set out at Mr Yue’s Witness Statement at §12. 

31.  I am satisfied on the evidence that that the Contra Charges were issued against the Plaintiff and constituted damages suffered by the Plaintiff. 

Damages and interest

32.  Damages are therefore assessed at HK$13,806,813.73 (HK$9,741,090.52 + HK$4,065,723.21). 

33.  The Plaintiff asks for interest at judgment rate from the date of the interlocutory judgment (29 September 2020)  until payment, and I so order. 

Costs

34.  Given the outcome of this hearing and the action, the Plaintiff is entitled to costs of the hearing for the assessment of damages with certificate for counsel, and to the costs of the action.  

35.  At the hearing, Mr Lam submitted a statement of costs of the action including the hearing for assessment of damages (the only change to the statement being to add in one hour for the solicitor for attending the hearing).  I agree that it is appropriate for me to summarily assess the matter.  

36.  Costs are assessed at HK$950,000.