CHAU TIN FONG t/a PERFECT STEEL WORK & ENGINEERING CO v. TSE CHI MING t/a MING WAH ENGINEERING CO AND ANOTHER

HCCT 111/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 111 OF 2003

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J U D G M E N T

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I.  Introduction

1.  Between 1994 and 2000 Mr Chau Tin Fong was engaged by either Mr Tse Chi Ming or the 2nd Defendant (Ming Wah) to carry out steel fixing works on some 20 projects. 

2.  Ming Wah was incorporated in July 1996.  There is no dispute that before then Mr Chau was working for Mr Tse.  There is a dispute as to whether from July 1996 onwards Mr Chau undertook work for Mr Tse (as Mr Chau contends) or for Ming Wah (as Mr Tse argues).  Confusion arises from the fact that, in addition to running Ming Wah the company, Mr Tse also trades as a sole proprietor under the name Ming Wah.

3.  The question of who engaged Mr Chau apart, a number of specific issues arise on a number of projects.  There is no dispute that Mr Chau has done the work which he contracted to do.  The debate in a given project is essentially how much is due to Mr Chau for work done. 

4.  In this Judgment, I shall briefly examine each disputed project with a view to assessing the amount which Mr Chau should be paid.  Having run through the various projects, I shall then determine who is liable, whether Mr Tse or his company, for any outstanding balance due to Mr Chau.

II.  Discussion

A.  The disputed projects

5.  Before considering the projects individually, I should quickly dispose of an issue between the parties as to their general terms of contracting.

6.  The Defendants contend that, in the absence of contrary specification, the Hong Kong Government’s Standard Method of Measurement of Civil Engineering Works (1992 ed.) (SMM) (especially sections 9 and 11) governed the parties’ relationship.

7.  I am unable to accept this.  The evidence was that Mr Tse said nothing about SMM when negotiating any contract with Mr Chau.  At most, Mr Tse mentioned that the projects were to be “back-to-back” with Mr Tse’s contractual obligations with his main contractors.  Such a vague reference can hardly suffice expressly to incorporate the terms of the SMM into dealings between Mr Chau and the Defendants.

8.  It was not pleaded, nor was any expert evidence adduced, to establish that as a matter of trade practice SMM routinely forms part of steel fixing, bore piling or similar contracts.  I am not persuaded therefore that the application of SMM is to be implied into any dealing between the parties as a trade usage.

9.  Mr Soo (appearing for the Defendants) argues that it is reasonable and equitable to imply the SMM into the various contracts between Mr Chau and either of the Defendants.  But reasonableness by itself is not a test for implying a term into a contract.  Many terms may be thought reasonable.  That quality alone does not mean that a term is so self-evident that a bystander recommending its express statement in an agreement will be dismissed by contracting parties as officious.

10.  Consequently, I reject the SMM as any safe guide to what the parties here may or may not have agreed.

A.1  Project C12: Tung Chung Sai Chau

11.  On 29 August 1996 Mr Chau initially claimed $49,050 for work on C12.  Mr Tse paid that amount on 10 September 1996.

12.  On 31 December 1996, Mr Chau claimed $25,000 for further work on C12.  This additional sum appears to be for additional work done on C12 not already billed in August 1996.

13.  Mr Soo suggests that the $25,000 was work which was already comprised within the first payment of $49,050.  However, there is no evidence of this.  I accept Mr Chau’s evidence on the nature of the $25,000 further work.

14.  Mr Soo further argues that the claim is time-barred since the work on C12 would have been completed at the end of August 1996.  Mr Chau did not sue for the $25,000 until 28 December 2002 when he commenced proceedings in the Small Claims Tribunal.

15.  But Mr Chau’s entitlement to the $25,000 would not have arisen until he had calculated the unpaid amount due on C12 and put in a claim for that sum.  Mr Chau’s invoice having been issued on 31 December 1996, his 28 December 2002 action would have been just within the limitation of 6 years.

16.  It follows that Mr Chau is entitled to receive a further payment of $25,000 on C12.

A.2  Project C22 Phase 1: Clearwater Bay Phase 1

17.  Mr Chau agreed to do these works for $1,320 per ton.  On 13 October 1997 he claimed $107,276 for the works.  He was paid this amount on 30 October 1997.

18.  The Defendants now say that Mr Chau was overpaid.  It transpires that, far from charging by a unit rate per ton,  Mr Chau built up the amount of $107,275 as follows: $70,626 labour, $6,650 miscellaneous expenses and $30,000 profit.  Mr Soo contends that the correct payment should have been 65.76 tons x $1,320/ton or $86,803.20.  The figure of 65.76 tons comes from bending schedules prepared by Mr Tse on the basis of pile details obtained from his main contractors.

19.  Mr Dawes (appearing for Mr Chau) accepts that Mr Chau’s entitlement should be calculated by reference to the agreed unit rate.  However, he submits that payment should be $89,215.96 based on 66.103 tons and an extra 1.485 tons for a pile AF6.  The 66.103 comes from site records prepared by Mr Chau’s workers.  Mr Dawes suggests that pile AF6 is missing from those records and should be added.

20.  During the trial there was an ongoing debate between the parties on whether the Court should use the tonnage figures in Mr Tse’s bending schedules or in records compiled by Mr Chau’s workers.  On this question, I agree with Mr Soo that Mr Chau’s figures do not seem to be as reliable as those of the Defendants.

21.  A key difference between the parties’ figures is that Mr Chau’s figures include the weight of steel used to make an “inner lane” in bore pile works. 

22.  The inner lane is a supporting frame which prevents the outer lane and main bars of a specific pile from collapsing in the course of construction.  It is necessary to construct an inner lane for reasons of safety.  The inner lane does not appear on a project’s drawings.  It is part of the work which any experienced contractor knows that he must do in order safely to build what is shown in the drawings.

23.  It is Mr Soo’s case that the steel used to make the inner lane should not be charged for in addition to the steel used for the outer lane and main bars structure.  The agreed rate for erecting the outer lane and main bars structure would already have factored into it all the work required to put up such structure.  The quoted rate would include the costs of any frame, scaffolding, or inner lane, needed to construct the outer lane and main bars structure as shown in the project’s drawings.  There should be no additional charge for the weight of the inner lane.

24.  I agree with Mr Soo.  Assume X says that he shall build a structure S as shown in drawings at a rate of $T per ton of steel used.  In the absence of any indication to the contrary, the natural assumption would be that the quoted rate covers the cost to X of whatever frames or supports X thinks may be needed to build S safely and that X will not charge extra for the weight of any steel used in his ancillary frames or supports.  Steel used for frames or supports not shown in the drawings for S should therefore not be measured when assessing payment due.

25.  On the inclusion of AF6, Mr Dawes submits that the pile is “attributable” to C22 Phase 1.  But Mr Soo points out that, even if one considers C22 Phases 1 and 2 together, pile BP1A cannot be located in the Defendants’ bending schedules and piles AF6, CC1, CC2, CG1 and CG2 cannot be located in Mr Chau’s records.  Indeed, to my mind, while the Defendants’ schedules may be more reliable than Mr Chau’s records, they are only marginally more so.

26.  In the circumstances, I should stick to one or other party’s version, rather than make matters more confused than they already have become, by arbitrarily picking and choosing elements from each.  Given my view that the final bending schedules proffered by the Defendant are relatively more reliable, I propose to follow those in general.

27.  I therefore reject Mr Dawes’ calculations on C22 Phase 1.  Mr Chau’s entitlement on this project is $86,803.20.

A.3  C22 Phase 2: Clearwater Bay Phase 2

28.  Both sides accept that work on C22 Phase 2 was to be paid at the rate of $1,350 per ton.  The parties differ on weight.  Mr Chau says the figure should be 268.210 tons, the Defendants 228.490 tons. 

29.  Since (as I have mentioned above) the Defendants’ figures are in my view the marginally more reliable, I assess Mr Chau’s entitlement at $308,461.50.

30.  Mr Chau additionally claims for the installation of steel connection bars between 35 piles at a rate of $1,250 per pile.  Mr Chau says that he was asked to do this extra work after he had started on C22 Phase 2.  It is Mr Chau’s case that Mr Tse agreed a rate of $1,250 per pile.

31.  Mr Tse denies that he agreed a rate of $1,250 per pile.  He is, however, prepared to remunerate Mr Chau for the connection bars on the basis of $1,350 per ton.  The connections bars weigh about 1.6 tons.

32.  Here I accept Mr Chau’s evidence.  The installation of connection bars was work of a different nature from the main bore pile work in C22 Phase 2.  Accordingly, it is more likely that Mr Chau proposed and Mr Tse accepted that the connections bars should be paid on a different basis.

33.  Mr Chau’s claim for $43,750 (35 piles x $1,250/pile) is allowed.

34.  Finally, on C22 Phase 2, Mr Chau claims for the fixing of 2 additional bore pile casings.  He says that he was asked to do this by Mr Ricky Poon acting on behalf of Mr Tse in June 1999. 

35.  Mr Chau wishes to charge $8,000 for this job, reflecting his labour and transportation costs.  These were incurred because Mr Poon’s request was made after C22 Phase 2 had been completed and Mr Chau’s labourers had already left the site.  The workers had to be recalled.

36.  I accept Mr Chau’s evidence here.  I allow $8,000 for the two extra steel casings.

37.  Mr Chau’s entitlement on this project is $308,461.50 + $43,750 + $8,000 or $360,211.50.

A.4  Project C24: Sai Kung Rural

38.  In October 1997 Mr Tse asked him to carry out footbridge repair works in Sai Kung.  Three sites were involved: Ho Chung, Pak Tam Chung and Pak Ah. 

39.  Although minor in nature, the works were in areas which were not easily accessible.  Mr Chau therefore said that he would charge on a daywork basis.  According to Mr Chau, Mr Tse agreed to this.

40.  Mr Tse denies that he agreed to a daywork charge.  Instead, Mr Tse maintains that he told Mr Chau that payment would be at a “reasonable rate”.

41.  Mr Soo argues that a charge based on tonnage of steel used is a reasonable and appropriate way of determining Mr Chau’s payment.

42.  I disagree.  The steel involved would not have been great.  Nonetheless, the work would have been difficult given the remoteness of the 3 sites and their distance from each other.  Even though one can compensate for these factors and charge at a very high rate per ton of steel used, it is more likely that the parties simply agreed to a daywork basis as Mr Chau contends.

43.  Mr Chau wishes to charge $180,500, said to be calculated on the basis of 117 man-days at $1,500 per man-day.

44.  Mr Soo submits that this is too high in any event.  He suggests that only 72 man-days were actually involved.  It also seems that Mr Chau added $5,000 to the amount obtained when multiplying 117 man-days by $1,500/man-day.  According to Mr Chau this $5,000 was to cover his own salary and provide a profit margin.

45.  The rate of $1,500/man-day appears to be the prevalent rate at the time of C24. 

46.  While I agree that Mr Chau’s figure seems inflated, I think Mr Dawes is right in pointing to evidence supporting 81, instead of 72, as the actual number of man-days involved.  It may be (as Mr Dawes notes) that not all daywork records are before the Court.  Nonetheless, I am constrained by the evidence actually before the Court. 

47.  I consequently think that Mr Chau’s entitlement on C24 is 81 man-days x $1,500/man-day or $121,500.  I do not think that it is right to add $5,000 on the figure as, on Mr Chau’s own case, there was no specific agreement for Mr Chau to do that.

A.5  Project C25: Sheung Shui Slaughterhouse

48.  The parties agree that remuneration on C25 should be at $1,200 per ton.  They differ as to tonnage.  Mr Chau says 63.181 tons, the Defendants 48.99 tons.

49.  For the reasons given above, I adopt the Defendants’ tonnage figure.  Mr Chau’s remuneration is 48.99 tons x $1,200/ton or $58,788.00.

A.6  Project C27: Tsing Lau Tau

50.  The parties agree that remuneration on C27 should be at $1,100 per ton.  On weight, Mr Chau puts forward 243 tons, the Defendants 219.93 tons.

51.  For the reasons given above, I prefer the Defendants’ figure.  Mr Chau’s remuneration is 219.93 tons x $1,100/ton or $241,923.

A.7  Project C29: Tsing Yi Footbridge

52.  Mr Chau says that he told Mr Chau that work on C29 would be charged on a daywork basis.  He claims that Mr Tse agreed, but a specific rate was never agreed.  Mr Tse alleges that he proposed $1,250 per ton and “if there was not enough work, I would compensate him on a discretionary basis”.

53.  In my judgment, by allowing Mr Chau to proceed, Mr Tse accepted that Mr Chau would be remunerated on a daywork basis.  The rate would be a reasonable one.

54.  The prevailing labour rate at the time was around $1,250 per man-day.  Mr Chau states, however, that such rate would not have compensated him for his cost and profit. 

55.  Mr Dawes notes that the outer lane of the steel casing for C29 was spiral and continuous whereas the main bars involved were of a light type (25 mm).  Further, the outer lane was thicker than normal (16 mm instead of 10 to 12 mm).  The work concerned was consequently more difficult than normal.

56.  In those circumstances, I am prepared to accept Mr Dawes’ submission that a higher daywork rate of $1,500 per man-day is reasonable and justified.

57.  The available records suggest that some 113.5 man-days were involved.  That means that Mr Chau’s entitlement is 113.5 x $1,500/man-day or $170,250.

58.  Mr Chau says that he was asked by Mr Tse’s site agent to do further work to fix 6 bore pile casings in September 1998.  This was completed on 3 December 1998.

59.  There is evidence that 16 man-days were involved for the further work.  This would give Mr Chau a right to an extra 16 man-days x $1,500/man-day or $24,000.

60.  The $24,000 together with the $170,250 mentioned above gives a total of $194,250 for C29.

A.8  Project C30: Homantin

61.  The parties agree on a unit rate of $1,200/ton.  They differ on quantity of steel.  Mr Chau says 145.003, the Defendants 136.66 tons. 

62.  Using the Defendants’ figure for the reasons given above, Mr Chau’s entitlement would be 136.66 tons x $1,200/ton or $163,992.

A.9  Projects C32 & C34: Tung Lo Wan Road and Yan Ping Road

63.  It is convenient to consider these projects together.

64.  On C32, the parties agree that for the main works the contractual rate was $1,200/ton.  The parties differ on weight.  Mr Chau says 425.06, the Defendants 355.66 tons.  The latter is an increase over the tonnage of 307.89 tons assessed by the Defendants’ expert Mr Peter Ng in his report.  The Defendants’ new figure is based on a bending schedule dated 15 April 1999 annexed to Mr Soo’s closing submissions.

65.  Exceptionally, I am not prepared to use the Defendants’ tonnage figure for this project.  That was only introduced at the last minute and Mr Dawes had no opportunity to cross-examine Mr Ng on the change. 

66.  I think that the fairest course is to use the tonnage submitted by the 2nd Defendant to its Main Contractor on this project as a guide.  That weight was 429.02 tons.  It is slightly more than the weight for which Mr Chau contends here.  Accordingly, Mr Chau’s figure should be accepted.

67.  This means that Mr Chau would be entitled to 425.06 x $1,200/ton or $510,072 on the main C32 works.

68.  On the main C34 works, there is little (if any) difference between the parties.  The agreed rate was $1,200 per ton and the weight was about 70.40 tons.  This gives Mr Chau $84,480.

69.  Mr Chau also claims an extra $20,000 for C32 and C34.  He says that $15,000 and $5,000 were incurred for these.  $15,000 was for fixing the steel casing for piles BP5, BP6 and BP19 on 3, 4 and 17 November 1998.  The work involved 12 units of labour at $1,250 per unit.  The $5,000 was for fixing piles BP15, BP17 and BP18 on 20 October 1998.  It involved 4 units of labour at $1,250 per unit.

70.  Mr Chau says that he was requested to do the extra work after completion of the main projects.  He therefore had to re-mobilise his workers.  For this reason he charged on a daywork basis.

71.  Mr Tse denies agreeing to daywork and says that, in any event, the extra work was part of the original projects which Mr Chau was supposed to do.

72.  Here I accept Mr Chau’s evidence.  There is no evidence that the additional work being charged was part of the original specification as Mr Tse contends.  I think that Mr Chau is thus entitled to a further $20,000.

73.  Mr Chau’s should be paid $510,072 + $84,480 + $20,000 or $614,552 for C32 and C34.

A. 10  Project C33: Sai Tsui Road

74.  The parties agree on a rate of $1,350/ton.  They differ on weight.  Mr Chau says 643.710, the Defendants 626.02 tons.  Taking the Defendants’ tonnage yields 626.02 tons x $1,350/ton or $845,127.  That should be Mr Chau’s entitlement.

A. 11  Project C35: Sham Wan Club

75.  Mr Chau says that in August 1998 he and Mr Tse agreed on this renovation project for a Deep Water Bay club house on a daywork basis.  Mr Tse’s case is that he “only agreed with the Plaintiff that he would be paid a reasonable rate”.

76.  Mr Chau is charging $20,000 for C35.  This represents 16 units of labour at $1,250 per unit.

77.  Here I accept Mr Chau’s evidence.  No actual rate having apparently been agreed, Mr Chau would be entitled to a reasonable labour rate.  The charge of $1,250 per man-day seems to have been the prevailing rate at the time.

A. 12  Project C36: Kwong Wah Street

78.  The parties agree a rate of $1,100 per ton.  They disagree on weight.  Mr Chau puts forward 265.460 tons, the Defendants 216.66.  In general, as already discussed, I prefer the Defendants’ figure.

79.  Mr Chau’s entitlement for C36 is consequently 216.66 tons x $1,100/ton or $238,326.

A. 13  Project C37: Siu Sai Wan

80.  Once again the unit rate is not in dispute.  This time it is $1,100 per ton.  Weight is at issue: 313.524 tons (Mr Chau) as against 265.88 tons (the Defendants).  I prefer the latter.  This gives Mr Chau 265.88 tons x $1, 100/ton or $292,468.

A. 14  Project C41: Kam Tin

81.  The parties agree that an amount of $197,744 is due on this project.

B  Whether the disputed projects were with Mr Tse or Ming Wah

82.  Before July 1996 Mr Chau dealt with Mr Tse.  Mr Chau was aware of Ming Wah’s incorporation.  But it seems that neither he nor Mr Tse addressed their minds as to who precisely was engaging Mr Chau’s services. 

83.  From time to time Mr Chau addressed memos to Ming Wah marked for Mr Tse’s attention.  That is consistent with a contract being with Mr Tse (correspondence being marked for him specifically) or, alternatively, with Ming Wah (correspondence being marked for Mr Tse as an officer of Ming Wah). 

84.  It is also true that from time to time Mr Chau received payments from Ming Wah.  Nonetheless, he would also receive payments from Mr Tse.  No clear pattern emerges from the parties’ history of dealings with each other.

85.  I am wary of construing the parties to a contract by reference to the subsequent behaviour of those involved.  Normally, a contract should only be read in light of the circumstances, objectively considered, at the time of contracting.

86.  On the balance of probability, I think the contracts were with Mr Tse.  In other words, having dealt initially with Mr Tse before Ming Wah was established, Mr Chau went on dealing with him in the same way as in the past.  He knew of Ming Wah, but probably did not think that its incorporation affected the personal relationship which he had developed with Mr Tse.

III.  Conclusion

87.  I have assessed Mr Chau’s entitlement against Mr Tse as follows:-

(1)	C12	$25,000.00
(2)	C22 Phase 1	$86,803.20
(3)	C22 Phase 2	$360,211.50
(4)	C24	$121,500.00
(5)	C25	$58,788.00
(6)	C27	$241,923.00
(7)	C29	$194,250.00
(8)	C30	$163,992.00
(9)	C32 & C34	$614,552.00
(10)	C33	$845,127.00
(11)	C35	$20,000.00
(12)	C36	$238,326.00
(13)	C37	$292,468.00
(14)	C41	$197,744.00
	TOTAL :	$3,460,684.70

88.  Mr Chau has received $3,165,068.60 from one or other of the Defendants by way of previous payments.  Of that sum $202,792 is attributable to projects over which there has been no dispute (C8 Kwai Shing East ($89,603.20); C6 Tin Shu Wai Phase 1 ($45,900) and Phase 2 ($18,239.40); C12 (initial payment) ($49,050)).  Subtracting $202,792 from $3,165,068.60 leaves $2,962,276.60 as the amount of previous payment from the Defendants attributable to the disputed projects.

89.  From the total of $3,460,684.70, there should accordingly be deducted the amount of $2,962,276.60.  That leaves $498,408.10 as outstanding from Mr Tse.

90.  There will be an Order that Mr Tse pay Mr Chau $498,408.10.  Interest is to run on that sum at 1% over Hong Kong prime from date of writ (10 May 2002) until date of judgment.  Thereafter, interest is to be at the judgment rate.

91.  Mr Chau’s claim against Ming Wah is dismissed.

92.  There will additionally be an Order Nisi as follows:-

(1)     Mr Tse is to pay the Plaintiff’s costs of the action, such costs to be taxed if not agreed.  Costs include all costs thrown away by reason of the adjournment on 18 October 2004 due to the Defendants’ late discovery.

(2)     Mr Tse is to have the costs of the discovery application heard on 18 October 2004.

(3)     Mr Tse is to pay Ming Wah’s costs of the action.

93.  On the Order Nisi, I comment as below.

94.  Taxation is to be on the ordinary High Court scale. 

95.  In closing, Mr Soo in effect submitted that I should direct any costs award in Mr Chau’s favour to be taxed on the District Court scale.  In my judgment, it was reasonable for Mr Chau to bring his claim in the High Court to take advantage of the greater expertise available here on construction matters.  The case was only belatedly transferred from the general list to the Construction and Arbitration List.  But I do not believe that detracts from the principle.

96.  I have proposed that Mr Tse and not Mr Chau be liable for Ming Wah’s costs of the action because, given Mr Tse’s Defence, it was reasonable for Mr Chau to join Ming Wah as a party to these proceedings.  In practice, Mr Tse being a controlling mind behind Ming Wah, the distinction between the Defendants is purely formal.

97.  Finally, by an Amended Order dated 3 January 2003 Master Woolley ordered Ming Wah to pay Mr Chau $200,000 as an interim payment.  Mr Chau having succeeded against Mr Tse and not Ming Wah, I invite the parties to agree how the $200,000 interim payment by Ming Wah should now be treated.  Failing agreement, there is to be liberty to restore the matter before me for further consideration.