UNION BEST ENGINEERING LTD v. CHING NGAR ENGINEERING LTD AND ANOTHER

DCCJ 6376/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6376 OF 2003

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Dates of Trial :  26^th to 28^th July 2004

J U D G M E N T

1. In this claim the Plaintiff claims against the 1^st and 2^nd Defendants for the sum of $500,000.00 for breach of the termination agreement (hereinafter referred to as “the Agreement”) made on 9^th September 2003 wherein at the front of the Agreement the Plaintiff was stated as Party A and the 1^st Defendant was stated as party B.   However at the signatory page of the Agreement above Party A was the name of Lor Wai Leung and signature of Lor Wai Leung with the company chop of the Plaintiff and above Party B was the name of the 2^nd Defendant and the company chop of the 1^st Defendant.  

2. It is the Plaintiff’s case that the 1^st and 2^nd Defendants breached the Agreement.   Alternatively it is the Plaintiff’s case that the 2^nd Defendant had entered into an oral guarantee that he would guarantee the performance by the 1^st Defendant of the said Agreement and the 1^st Defendant had breached the Agreement.   In the alternative, the Plaintiff seeks a declaration that the Defendants are liable to indemnify the Plaintiff in the sum of HK$556,700.00 being the amount payable by the Plaintiff under a LBT award ordered to be paid by the 1^st Defendant, the Plaintiff and other principal contractors to the workers of the 1^st Defendant.   It is the Plaintiff’s case that this sum is payable owing to the breach of the Agreement by the 1^st and 2^nd Defendant and the breach of the oral guarantee by the 2^nd Defendant. 

The Issues

1.             The primary issue the Plaintiff pursued is whether the 2^nd Defendant gave an oral guarantee to the Plaintiff that the 1^st Defendant would comply with the terms of the Agreement. 

2.             If the 2^nd Defendant did not, whether the 2^nd Defendant is a party of the Agreement.

3.             If not, whether the 2^nd Defendant was personally liable on the Agreement even if he is held not to be a party to it.

The 1^st Issue

Evidence of Lor Wai Leung

3. Mr. Lor Wai Leung (PW1) gave evidence on behalf of the Plaintiff.  In September 2002, the Plaintiff company was awarded a contract for the works of installation of electrical appliances at a shopping arcade site in K2 Mongkok, and the Plaintiff company sub-contracted the said works to Luen Kwong Engineering Company Ltd. (“Luen Kwong”), and Luen Kwong sub-contracted the contract to Ching Ngar Engineering Limited (“Ching Ngar”) through Mr. Chu Wai Wing in February 2003.  Ching Ngar entered the site in March 2003 and was responsible for the installation of electrical appliances works at the  shopping arcade in K2 Mongkok.  The Plaintiff company was dissatisfied with the progress and quality of the works done by Ching Ngar and despite a number of complaints made by the Plaintiff company, Ching Ngar made no improvement.  In early September 2003, the Plaintiff terminated the sub-contracts with Luen Kwong and Ching Ngar, and demanded Luen Kwong and Ching Ngar to leave the site.   The proprietor of Luen Kwong is his elder brother Lor Wai Por.   PW1 did not directly contact the 2^nd Defendant but Lor Wai Por did.   Lor Wai Por told him that the 1^st Defendant wanted $1 - $2 million to leave the site.  PW1 said it is too much.  After negotiation between Lor Wai Por and Ching Ngar, Ching Ngar agreed to receive the sum of $500,000.00.   Ching Ngar wanted to be paid directly by the Plaintiff.   PW1 agreed to that.   He told Lor Wai Por that he would prepare an Agreement for Ching Ngar to sign.   On the 7^th September 2003, he prepared the Agreement.   He was afraid that if he paid money to Ching Ngar, they would not pay their workers.  If that happened, Ching Ngar’s workers might sue the Plaintiff for their wages.  

4. At first, he was going to give Ching Ngar a cheque post-dated to 25^th September 2003, as the payday was 25^th September.  On the 9^th September when the 2^nd Defendant came he gave the Agreement to the 2^nd Defendant to read.  At first, he requested the 2^nd Defendant to obtain statements from his sub-contractors and workmen that no wages were outstanding.  The 2^nd Defendant refused and insisted on receiving cash before he left the site.  The 2^nd Defendant informed him that unless the workers were paid they would not leave the site.  Because the 2^nd Defendant asked for a cash cheque, he telephoned his partner.  Both himself and his partner were in agreement that if they were to give a cash cheque to the 2^nd Defendant, they had to obtain a personal guarantee from the 2^nd Defendant.  The 2^nd Defendant then telephoned someone.  After that the 2^nd Defendant said that he could accept that.  He then asked the 2^nd Defendant to sign the Agreement in his personal capacity to guarantee the performance of the Agreement by Ching Ngar.  

5. The 2^nd Defendant telephoned his partner and read the Agreement to him before the 2^nd Defendant signed.   Mr. Lor then amended the last page of the Agreement to type the name of the 2^nd Defendant and his I.D. Card No. below the space for signature of Party B.   The 2^nd Defendant requested him to type his name and I.D. Card No. below his signature to guarantee the performance of the Agreement by the Plaintiff.  

6.  Subsequently, the Plaintiff was sued by the workers of Ching Ngar for their wages in the Labour Tribunal in LBTC 100133 of 2003.   The Labour Tribunal awarded the sum of $556,770.00 to be paid by the Plaintiff and his principal contractors and Ching Ngar to the workers of Ching Ngar.  He stated that his principal contractor deducted a sum of $700,000.00 from payment due to the plaintiff.  He stated that this sum included handling fee and interest.   He is still negotiating with his principal contractor as to whether the handling fees could be waived.   He could provide no documentary proof of the deduction by his principal contractor.  

7. The oral guarantee was pleaded by way of an amendment on the 1^st day of the trial.  Prior to that there was no reference to it except in the witness statement of Mr. Lor.  The witness statement was dated 10^th June 2004 just over 1-½ months before trial.  

Evidence of the 2^nd Defendant

8. Mr. Chu Wai Wing, the 2^nd Defendant gave evidence.  In May 2001, Ching Ngar was incorporated and has been carrying on the business of sub-contracting electrical installation work from the other sub-contractors.  In February 2003, the Company sub-contracted from Luen Kwong Electrical Engineering Company Limited (聯光電器工程有限公司), (“Luen Kwong”) the electrical installation work at Tai Po Industrial Estate (“Tai Po Project”).

9. In early March 2003, Lor Wai Por asked me whether Ching Ngar would like to sub-contract the electrical installation work at K2-Plaza, Mongkok (“K2 Project”) as Luen Kwong had already terminated its then sub-contractor who failed to complete the respective workdone on schedule.  As regards the K2 Project, the Plaintiff was the sub-sub-contractor of the electrical installation thereof at a sub-contract price of $13,800,000.00 and it in turn sub-contracted the electrical installation to Luen Kwong at the sub-contract price of $9,500,000.00.  Lor Wai Por’s brother, Lor Wai Leung, was and is a director of the Plaintiff.  Luen Kwong eventually sub-contracted the work to Ching Ngar at a price of $6,450,000.00

10. Luen Kwong failed to pay the interim payments to Ching Ngar as agreed to the end that Ching Ngar had to borrow money to pay its workers.   Ching Ngar then terminated its agreement with Luen Kwong wherein Luen Kwong had to pay Ching Ngar and its workers up to 30^th June 2003.   Thereafter, the Plaintiff took over Ching Ngar’s workers from 1^st July 2003 and had to be responsible for paying the workers from then.   However Luen Kwong still had the responsibility to pay Ching Ngar for the money due up to the 30^th June 2003.  

11. He stated that there was no complaint from the principal contractors related to the work of Ching Ngar and its workers.  The agreement was that once Ching Ngar is paid the amount owed by Luen Kwong, Ching Ngar would leave the site. 

12. In September, when he chased Luen Kwong for the payment due, Luen Kwong told him that the Plaintiff would make payment.    On the 9^th September 2003, he received a telephone call from Lor Wai Por telling him that Luen Kwong was able to make repayment and the Plaintiff would give him a cheque in the sum of $500,000.00.   He was asked to collect the cheque in the Plaintiff’s Company.

13. Two cheques would be given to him, one in the sum of $200,000.00 for the project in Tai Po, which Luen Kwong subcontracted to Ching Ngar and the other was for $500,000.00 for the K2 Project.   He was not told that he would have to sign an agreement and he only knew of that fact when he got to the Plaintiff’s office.  

14. He did not ask for a cash cheque.   He was given a cash cheque for $500,000.00 in respect of the K2 Project.   When he got there he was given the Agreement to sign.   The Agreement is at pages 21- 23 of the Bundle of Documents (BD) with the certified English translation at pages 24 to 28 thereof. He telephoned his partner Law Kwok Kwong to ask him whether he should sign.   He spent most of the time at the meeting reading the Agreement to Law Kwok Kwong.   When Law Kwok Kwong told him to sign he signed it.   He was not told that he would be the guarantor related to performance of the Agreement.   He signed on behalf of the 1^st Defendant and he stamped the Agreement with the 1^st Defendant’s company chop.    

15. He stated that after he signed and received the cheque, he was asked to sign the receipt (at page 30 of the BD) for the cheque in the sum of $500,000.00 (copy at page 29 of BD).   After the 2^nd Defendant had spoken to his partner on the telephone about the Agreement, Lor Wai Por stated that he had forgotten to put aside money for two of his staff one Law Kwok Ming and the other Yeung Ming Hang.  He asked the 2^nd Defendant to lend him money to pay his staff.  When the 2^nd Defendant said that he could not do that as the money was required to pay his workers, Lor Wai Por demanded that he either lent him the money or he would deduct the sum of $50,000.00 from the $500,000.00.   The 2^nd Defendant had to use $8,000 to pay Yeung Ming Hang and $20,000 to pay Law Kwok Ming who are staff of Luen Kwong because Luen Kwon did not have money to pay them.   Receipts related to these are found at pages 52 and 53 of the BD.

Evidence of Law Kwok Kwong

16. He gave evidence to confirm the evidence of the 2^nd Defendant that on the afternoon of 9^th September, he received a telephone call from the 2^nd Defendant.   The 2^nd Defendant told him there was a Termination Agreement.   When the 2^nd Defendant was talking to him he could hear the 2^nd Defendant talking to another.   The 2^nd Defendant read the Agreement to him.  After hearing the Agreement read, he told the 2^nd Defendant that he was a Director of Ching Ngar so that he could sign on behalf of Ching Ngar.   He stated that at first the sum owing by Luen Kwong was $700,000.00.   Later at the end of June it was agreed to be $530,000.00.   It was not until 9^th September 2003 that he knew that the sum agreed to be paid was $500,000.00.   He disagreed that he had agreed in early September 2003 that Ching Ngar would leave the K2 Site on receipt of $500,000.00.  

Finding on the 1^st Issue

                        Did the 2^nd Defendant give an oral guarantee to the Plaintiff that the 1^st Defendant would comply with the terms of the Agreement.

17. On the 9^th September 2003 the Plaintiff gave the 2^nd Defendant a cash cheque in the sum of $500,000.00.   Mr. Lor Wai Leung stated that he was afraid that the 2^nd Defendant would not use the money to pay Ching Ngar’s workers.  The workers could sue him for the arrears of wages due to them by Ching Ngar.   If the workers of Ching Ngar did that, as a principal contractor, he and other principal contractors could be held liable.   He originally intended to pay Ching Ngar by a post-dated cheque dated 25^th September 2003, which is the normal payday.  It was because of the 2^nd Defendant’s request to receive a cash cheque dated 9^th September that he sought a personal guarantee from the 2^nd Defendant in order to protect his interests in case Ching Ngar did not pay its workers.

18. On the same day the 9^th September 2003, the Plaintiff gave two cheques to the 2^nd Defendant for Ching Ngar.   One was the cash cheque of $500,000.00.   The other was a post-dated cheque to the 1^st Defendant in the sum of $200,000.00.   The 2^nd cheque was in respect of what Luen Kwong owed the 1^st Defendant for the Tai Po project.   Hence it seems to me highly likely that Luen Kwong and or the Plaintiff would have tried to give Ching Ngar a post-dated cheque even though the Plaintiff was telling the 2^nd Defendant that Ching Ngar must get all its workers off the site.   It is highly likely that the 2^nd Defendant then asked for a cash cheque.     

19. The 2^nd Defendant referred to the fact that Luen Kwong owed Ching Ngar the interim payments for payment of their workers.   Luen Kwong was not able to pay to Ching Ngar for some time.   In the end it was agreed that the Plaintiff would pay Ching Ngar.   The 2^nd Defendant’s evidence of the default of Luen Kwong in paying Ching Ngar the interim payments as promised has a ring of truth to it.   It seems highly likely that the Luen Kwong’s default had put great pressure on the 1^st Defendant.   The 2^nd Defendant gave evidence that Luen Kwong had also defaulted payments in the Tai Po Project wherein Luen Kwong was the 1^st Defendant’s principal contractor.  

20. The 2^nd Defendant gave evidence that Lor Wai Por put pressure on him to agree to use part of the $500,000.00 cash cheque to pay two workers of Lor Wai Por, the receipts of payment to them had been referred to at page 52 and 53 of the BD.  I accept this evidence as true. He was obliged to comply.  This shows the type of relationship between the 2^nd Defendant and Lor Wai Por which was rather oppressive.  The 2^nd Defendant would have been under pressure to take payment when he could.   

21. The 2^nd Defendant stated that he did not know there was an Agreement, which he had to sign until when he got to the office of the Plaintiff.   Mr. Lor Wai Leung stated otherwise.   It is clear that according to Mr. Lor Wai Leung, the oral guarantee was not raised until the 2^nd Defendant requested a cash cheque.   However the 2^nd Defendant stated that the cash cheque was already issued when he got there.   I am of the view that it is highly unlikely that the Plaintiff would have volunteered to pay a cash cheque to the 2^nd Defendant without some form of prior negotiation.   It is highly likely that the 2^nd Defendant insisted on a cash cheque to pay his workers.  He wanted to be able to pay the workers quickly.   Hence it seems to me that Lor Wai Leung’s evidence that he asked the 2^nd Defendant to personally sign the Agreement seems to me to be credible. 

22. The oral guarantee was not pleaded in the Statement of Claim and although it was in the witness statement of Mr. Lor Wai Leung, however, the witness statement was signed on the 10^th June 2004 1-½ months before trial.   This allegation of the oral guarantee was rather recent.   However in the original Statement of Claim, it was pleaded in paragraph 7 that the Plaintiff and the 2^nd Defendant entered into an oral agreement whereby the 2^nd Defendant agreed to procure the 1^st Defendant to dismiss all the employees of the 1^st Defendant at the site and pay out all the amounts due and owing by the 1^st Defendant to the employees of the 1^st Defendant and the 1^st and 2^nd Defendants shall further be responsible for all employer/employee relationship from the commencement of works to the termination of the K2 project.   It was upon amendment at the trial that the oral guarantee was pleaded.  

23. The Agreement at pages 21 to 23 state at the beginning that Party A is the Plaintiff and Party B is the 1^st Defendant.   However at the end of the Agreement Party A was Lor Wai Leung with the chop of the Plaintiff and Party B was Chu Wai Wing with the chop of the 1^st Defendant affixed.   There was the signature of Lor Wai Leung below his typed name and the signature of the 2^nd Defendant below his typed name.   It is strange for Lor Wai Leung to type the name of the 2^nd Defendant as Party B at the end of the Agreement and to type his own name as Party A.   Lor Wai Leung stated that he changed the name of Party A and Party B at the last page of the Agreement after he made the oral guarantee agreement with the 2^nd Defendant.   It is strange as to why Lor Wai Leung who drafted the Agreement did not re-draft the Agreement with a Party C as Guarantor or as suggested by the 2^nd Defendant’s Counsel copy the original agreement with changed parties with the 2^nd Defendant as Party B and the Plaintiff as Party A. 

24. Further, there are clauses, notably; Clause 2.3 of the Agreement could not easily be applied to the 2^nd Defendant when it states that “Party B shall forthwith dismiss all workers of Party B at the Site…” for the workers could not be described as the 2^nd Defendant’s workers.    Also the first two pages of the Termination Agreement contain the company chops of the Plaintiff and the 1^st Defendant respectively at the bottom of the right hand side.  No signature of either Lor Wai Leung or the 2^nd Defendant was there.  The 2^nd Defendant’s Counsel therefore submits that the name of the 2^nd Defendant at the last page of the Agreement does not substantiate the evidence of the oral guarantee agreement.   If the Plaintiff were to seek to evidence that the oral guarantee in the Agreement, surely other more explicit wording could be used in the agreement.

25. The 2^nd Defendant gave evidence that as far as the 1^st Defendant was concerned, their liability to pay the workers ended on 30^th June 2003.  He stated that as from the 1^st July 2003, the Plaintiff took over the liability to pay the workers of Ching Ngar.  Hence when the Agreement refers to the liability of Ching Ngar, as far as he was concerned he thought the liability to refer to the period up to the 30^th June 2003.  This evidence however was rejected by the presiding Officer in the Labour Tribunal in LBTC 10033 of 2003.  The Presiding Officer found by perusing the Agreement that the 2^nd Defendant’s evidence related to this fact could not be true.

26. In the opening submission of the Plaintiff’s Counsel, the Plaintiff’s Counsel referred to a tripartite agreement whereby the 2^nd Defendant orally guaranteed the performance of the agreement by the 1^st Defendant.   However, as the case progressed, in his final submission the Plaintiff’s Counsel referred to a 4 party agreement whereby the Plaintiff and the 1^st Defendant and the 2^nd Defendant and Lor Wai Leung were parties.   However, the last sentence of the Agreement stated, “The Agreement is in duplicate one for each party”.  This presumed there were only two parties.  This is not consistent with the situation of a 4 party agreement.  Clause 2.3 state “Party B’s acknowledge of the aforesaid sum means that Party B is willing to bear all labour responsibilities for the period from Party B’s entry into the Site to the termination of the works contract (including wages, wages in arrears etc.)”.    Which Party B is referred to in Clause 2.3?   It is confusing to say the least.   If there were 4 parties why are they not stated to be Party A, B, C and D?   As Lor Wai Leung himself drafted the Agreement. that contained clauses covering many eventualities, including “Liability in case of Breach”, why would such inconsistencies and lack of clarity be allowed by him to exist in an Agreement stated to be between four parties when the body of it refer to only two.  

27. It seemed to me that the 2^nd Defendant would not have easily agreed to guarantee the payment of the salary of the workers personally since he was not the boss of the workers.   On the other hand, it is not credible that there was no discussion about the requirement on Ching Ngar’s part for a cash cheque before the Plaintiff issued the cash cheque.   In my view it is unlikely that the Plaintiff would have offered a cash cheque to the 2^nd Defendant without a request for it.   Nor is it likely that the Plaintiff would have given a cash cheque without some form of guarantee that the 2^nd Defendant would not use it for his own purposes since the cheque could be converted into cash by the 2^nd Defendant and taken by the 2^nd Defendant for his own use as the money did not have to pass through Ching Ngar bank account.   Further the Plaintiff as an experienced contractor  would have been mindful of his liability as a principal contractor to Ching Ngar workers for unpaid wages and therefore would have tried to safeguard his falling into this scenario when the Plaintiff is adjudged to pay the unpaid wages of Ching Ngar.    

28. On the above facts and taking into account the above factors, I find that the Plaintiff on the 9^th September 2003 offered the 2^nd Defendant a post-dated cheque in the sum of $500,000.00.  The 2^nd Defendant asked for a cash cheque.   The Plaintiff then requested the 2^nd Defendant to guarantee that the money received would be used to pay the workers.   The Plaintiff by then had prepared the Agreement.  When the Plaintiff agreed to issue a cash cheque to the 2^nd Defendant upon the oral agreement that the 2^nd Defendant would guarantee that Ching Ngar would comply with the terms of the Agreement, the Plaintiff altered the last page of the Agreement by writing the name of the 2^nd Defendant as Party B.  He also put the name of Lor Wai Leung as Party A on the last page of the Agreement.   I find that Lor Wai Por had put pressure on the 2^nd Defendant to use part of the $500,000 to pay the wages of Yeung Ming Hang and Law Kwok Ming who were the workers of Luen Kwong.  Were the 2^nd Defendant to disagree, Lor Wai Por stated that payment would not be made to Ching Ngai later, even were Ching Ngar to sue him or get someone to assault him.   The 2^nd Defendant was under pressure as Luen Kwong had failed to pay the interim payments to Ching Ngar.  The 1^st and 2^nd Defendants were of the view that Luen Kwong may default in making payment to them.   That was why the 1^st and 2^nd Defendants requested to receive payment from the Plaintiff rather than from Luen Kwong.   The Plaintiff stepped in because the Plaintiff wanted the workers of Ching Ngar to leave the site as required by its principal contractors.   The Agreement was not amended to reflect the guarantee perhaps because there was pressure to conclude this transaction in the course of the meeting and there was insufficient time to do so.

29. Despite careful consideration and consciousness of the adverse consequences for the 2^nd Defendant upon this finding, I have no alternative but to find that there was an oral guarantee agreement between the 2^nd Defendant and the Plaintiff wherein the 2^nd Defendant guaranteed that the 1^st Defendant would perform its duties under the Agreement.  It is a sad case for the 2^nd Defendant that because of the pressures he was under he had agreed to be a personal guarantor that the 1^st Defendant would comply with the terms of the Agreement.  However I find that the evidence points to an oral guarantee having been given by the 2^nd Defendant that the 1^st Defendant would honour the terms of the Agreement.

2^nd and 3^rd Issues

30. Having made the finding aforesaid on the 1^st Issue, in my view, there is no need to consider the 2^nd and 3^rd Issues.   

31. I agree with the 2^nd Defendant’s Counsel that the evidence of Lor Wai Leung stating that the Plaintiff’s principal contractor Logon Engineering Limited has paid the LBTC10033/2003 award and that they had deducted $700,000.00 (representing the award with interest and handling fees) from monies payable to the Plaintiff is not substantiated.  There ought to have been some supporting documents that such a deduction had been made.   I therefore grant the relief sought in paragraph (vi) of the Prayer in the Re-amended Statement of Claim.   I grant a declaration that the 1^st and 2^nd Defendants are liable to indemnify the Plaintiff against the sum of HK$556,770.00 payable by the Plaintiff under the LBTC10033/2003 award upon proof that such payment had been made by the Plaintiff.   I grant an order nisi that the 1^st and 2^nd Defendants do pay the Plaintiff’s costs of the action to be taxed if not agreed with Certificate for Counsel.  

Representation :