YEE TUNG FIBRE GLASS MANUFACTORY ENG CO (a firm) v. FRP (HONG KONG) LTD.

HCA 17840/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17840 OF 1998

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J U D G M E N T

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Introduction:

1. The plaintiff and defendant are contractors in the business for the supply and installation of fibreglass products. Since 1994 the defendant had been sub-contracting works to the plaintiff. Their established practice was that the plaintiff would issue a quotation for works requested. If that was accepted, the defendant would issue an order form. The plaintiff would then issue an invoice for 20% deposit and commence work upon receipt of the deposit. Further invoices would be issued as works progress until completion of the entire works. A monthly statement would be issued and settled by the defendant.

2. Their working relations used to be good and the defendant's payment used to be prompt until mid 1996 when the defendant fell into arrears of about $2 million. In July 1996, the plaintiff cancelled the installation parts of some of the contracts and supplied only the finished product. Their relations further deteriorated in September as arrears accumulated to about $2.5 million. In October 1996 when the defendant failed to pay about $1 million due under the Chek Lap Kok Airport II and the Wuhu Street projects, their relations broke up completely. The plaintiff disclosed to the architect about the use of undersized stainless steel hangers in the Wuhu Street project. As a result the defendant had to pay the cost of remedial works and penalty totalling about $1.6 million.

3. In December 1996, the defendant made payments in respect of some of the invoices after deducting its claim for set off. The plaintiff's claim is in respect of outstanding payments in respect of 14 projects totalling $1,663,148. The defendant admitted liability to $1,139,972.80 and counterclaimed for $1,619,801.84 damages, principally for costs of remedial work and penalty in the Wuhu Street project.

4. The evidence of the plaintiff was presented by its partner, Mr Leung who was responsible for most of the negotiations with the defendant, and by his wife who was responsible for the remarkably comprehensive documentation. The evidence of the defence was presented by its director, Mr Lo. For reasons as will become apparent in the part of this judgment that follows, I found Mr Lo an unreliable witness. His evidence is inconsistent with the contemporaneous documents. The defence he presented was frivolous and not made in good faith. On the other hand, Mr and Mrs Leung appeared to be straight forward and convincing witnesses. I accept their evidence and reject Mr Lo's.

Wharney Hotel Fibreglass Panels ($4,900.00):

5. On 20 December 1994, Mr Lo requested quotations for the supply of fibreglass ceiling panels for Wharney Hotel. The plaintiff gave two quotations, one for the 4th to 16th floors for 1,050 square metres and another one for the 17th to 19th floors for 99 square metres. The total amount under the two quotations was $344,700 at a unit price of $300 per square metre. The quotation was accepted by Mr Lo and the plaintiff issued an invoice in respect of 1,149 square metres of fibreglass panels. The defendant paid 20% deposit of $68,940.

6. The plaintiff started production and supplied the panels. On 2 March 1995, it issued an interim invoice in respect of 743 square metres of panels in the amount of $153,960 after deducting the initial deposit. On 31 March 1995, it issued a final invoice for 516 square metres in the amount of $154,800. The amount under the first invoice was settled. Two payments of $75,000 and $70,000 were made by the defendant on 28 June 1995 and 12 October 1995, leaving an outstanding balance of $9,800 in respect of the final invoice. Mrs Leung then discussed with Mr Lo about the outstanding payment and agreed to write off half of the amount outstanding and claimed $4,900 only. She faxed a copy of the revised invoice to the defendant on the same date.

7. That amount remained unpaid. When pressed for payment, the defendant replied in its letter dated 4 January 1996 that the amount of panels ordered was 1,149 square metres but the plaintiff over-supplied 1,259 square metres. The defendant claimed an overpayment of $23,200. On 3 April 1996, Mr Lo wrote to the plaintiff and alleged that the over supplied panels were to replace those which had colour defect or which were damaged during delivery. To that Mrs Leung replied by her letter dated 5 April 1996 in which she referred to the verbal agreement of 50% reduction of the total amount outstanding to $4,900 and refuted the defendant's accusations. She wrote in her letter that the defective panels or damaged panels which could not be repaired had been replaced on a piece for piece basis without charge. She said that the additional quantity was supplied at the defendant's request as a result of the defendant's under-estimation and wastage due to wrong sizing. Her evidence is corroborated by Mr Leung's.

8. I accept the plaintiff's evidence. Mrs Leung's evidence is supported by contemporaneous documents. Her reference in the April 1996 letter to the December 1995 agreement suggests not only that there had been no over supply of panels, there was in fact an agreement to reduce the outstanding balance to $4,900. Hence, I find the defendant's allegations of defective colour and damage are mere excuses not to pay. The defendant has a good system of accounting and payment. If there was in fact an over supply, it would not have made the over payment and would have made arrangements for the return to or collection by the plaintiff of the over supplied panels. I reject the defendant's evidence and find this claim proved.

Wharney Hotel Ceiling Mock Up ($1,500):

9. The defendant requested and accepted the plaintiff's quotation for a ceiling mock up for the Wharney Hotel. On 21 June 1996, the plaintiff delivered the mock up to the defendant and issued an invoice for $1,500. This invoice was not settled. On 9 October 1996, the plaintiff demanded payment or return of the mock up.

10. The defence is that the workmanship of the mock up was unacceptable. In its letter dated 8 October 1996, in response to the plaintiff's monthly statement dated 27 September 1996, the defendant alleged that the "ceiling panel is terrible and not accepted by the client". This complaint was made three months after delivery. There was no timely complaint or request for remedial work or to return the mock up. The defendant could not explain what had happened to the mock up or what caused the late complaint or lack of response. The setting at the time was that the defendant was in arrears of between $2 to $2.5 million and the parties' relation turned very bitter as a result of the Wuhu Street project. I have no difficulty in dismissing the defence as a concoction. Accordingly, I find this claim proved.

Far East Exchange Building ($23,200):

11. The defendant ordered fibreglass column formworks and paid 20% deposit of $10,600. The formworks were delivered to the defendant and the defendant paid $19,200 leaving $23,200 unpaid. The defendant did not dispute liability but claimed a set off from the alleged overpayment in respect of the fibreglass panels for Wharney Hotel. Having dismissed the defendant's defence in respect of the panels, I allow the plaintiff's claim for this amount of $23,200.

Macau Project ($16,000):

12. On 29 January 1996, the defendant requested a quotation for fibreglass mouldings for delivery to Macau. The defendant made two amendments to the drawings on 9 and 10 February 1996, the latter amendment included a recess for lighting. Mrs Leung explained to Ms Tsui of the defendant several times that the moulding would be difficult to remove after concreting because of the recess. However, Ms Tsui insisted the plaintiff for a quotation and said that the defendant would be responsible for the consequence. On 12 February 1996, the plaintiff quoted a sum of $40,000 for one set of three pieces of top moulding and one set of two pieces of bottom moulding. The quotation was accepted by the defendant on 23 March 1996. The mouldings were delivered to Macau on 24 April 1996.

13. On 15 May 1996, the defendant informed the plaintiff that the mouldings could not be dismantled after concreting. Mr and Mrs Leung went to Macau and gave some advice. A month later, Mr Leung visited the site again and found the mouldings were being used without problem. The plaintiff's invoice remained unsettled and pressed for payment after another three months. The defendant did not respond until 5 December 1996 when it claimed that the plaintiff should have supplied a four piece mould instead of three piece mould and claimed a right to a reduction in price. On 20 December 1996, the defendant paid $24,000, leaving $16,000 outstanding.

14. The plaintiff was not the designer of the moulds. It only made the moulds according to the defendant's specification. The plaintiff's quotation which was given as a result of the defendant's drawings, the defendant's own order form and the plaintiff's invoice all showed that the top moulds were to be made in sets of three and not four. Mr Lo's explanation that his order form was copied word for word from the plaintiff's quotation by mistake is yet another convenient excuse for not paying.

15. More importantly, in his letter to his own client dated 9 July 1996, he wrote:

"We are the manufacturer of fibreglass products only (not applicator). The design was given by your company and we did point out to your staff that what the problems would be. But your staff insist us to proceed and finally accepted the goods."

Firstly, this letter confirmed that the top moulds in sets of three were made in accordance with the design of the defendant's client. The defendant could not therefore have departed from its client's instructions to order sets of four from the plaintiff. Secondly, it also confirmed that the defendant had advised its own client of the difficulties in dismantling the mould after concreting. This was the very problem which Mrs Leung drew the defendant's attention to. This letter has destroyed Mr Lo's credibility and showed a total lack of good faith in the defendant's defence. I have no difficulties in accepting the plaintiff's evidence. I find that the defence is just another excuse to avoid payment which was raised with utmost bad faith. I find in favour of the plaintiff in his head of claim.

Ha Heung Road Project ($9,000):

16. This claim is related to 18 metres of eaves mouldings on the 20th floor of a building in Ha Heung Road, which the plaintiff claimed to have supplied. The defence is that the installation of this part of the mouldings had been cancelled. After a number of quotations and revisions, the plaintiff gave a final revised quotation including a quotation for 85 linear metres of eave mouldings at $500 per linear metre. 21.8 metres of those mouldings were to be installed on the 20th floor. On 14 February 1996, the defendant accepted this quotation and issued an order form. On 25 March 1996, Mr Rocky Li of the defendant sent a facsimile transmission to cancel the installation of part of the mouldings to be installed on the 20th floor. A plan showing the part to be cancelled was also faxed to the plaintiff. There is no evidence as to the length of the mouldings involved. The dimension and key on this plan are unclear. But if 21.8 metres were originally contracted for, a reduction of 18 metres would only leave 3.8 metres of mouldings to be installed. This is inconsistent with what could be understood from the plan. I could not be satisfied that the mouldings cancelled were as much as 18 metres. However, Mr Leung's evidence is that despite this fax, the mouldings were eventually all installed and the measurements were verified by Mr Rocky Li on site on or about 17 June 1996 before a second interim invoice including the costs for these mouldings were issued. However, it was not until three and half months later that the defendant first complained of over measurement and it was not until another two months later that the defendant informed the plaintiff that the actual amount of mouldings measured was 67 metres. The defendant exhibited an invoice dated 10 December 1996 which showed that it only charged its client for 67 metres as evidence of the amount of mouldings installed by the plaintiff. In view of the unsatisfactory state of the defendant's evidence and that Mr Rocky Li had not been called to rebut Mr Leung's evidence, I accept that despite the fax dated 25 March 1996 and the defendant's invoice to its own client, the total amount of mouldings installed was 85 metres. There could be many other reasons why the defendant only charged its client for 67 metres, including its own under-measurement. In respect of all the other claims considered so far, Mr Lo has shown himself to be an unreliable witness. His defences are frivolous and amounted to nothing but mere excuses to avoid payment. I reject his evidence and accordingly find this claim proved against the defendant.

Tung Chung Project ($27,800):

17. On 12 April 1996, the plaintiff gave the defendant a quotation in the sum of $193,000 for 14 fibreglass waffles for concreting purposes and one wooden mould and one fibreglass mould for use in production of the fibreglass waffles. Usually, the costs for making the wooden and fibreglass moulds, which are called production moulds, would not be separately itemised in a quotation and their costs would have been included in the costs of the waffles; and the production moulds would be discarded after one to one and half months. However, on this occasion, it was understood that there would be further orders for fibreglass waffles and Mr Lo specifically requested a quotation for the production moulds. This was to protect the defendant from being repeatedly charged an element of the cost of the production moulds when ordering additional waffles, if the costs of the production moulds had been built into the price of the waffles. The unit price for the waffle, the wooden mould and plastic mould were respectively, $12,000, $10,000 and $12,000.

18. The defendant accepted the plaintiff's quotation on the same date and issued an order for the waffles and moulds. The fibreglass waffles were delivered on 24 and 28 May 1996. On 31 May 1996, the plaintiff issued an invoice to the defendant in the amount of $154,400 net of the 20% deposit paid. The defendant did not pay.

19. It was not until four months later that the defendant informed the plaintiff that the reinforcement parts on the fibreglass waffles were not strong enough. The plaintiff replied that the waffles were made in accordance with the defendant's specification. Then on 22 November 1996, the defendant unilaterally deducted $2,800 as remedial expenses and $25,000 for the costs of the production moulds not returned and paid the plaintiff $126,000. As there was no further order, the wooden mould and fibreglass mould were disposed of.

20. The defendant's client, Aoki Corporation, complained that after their first cast using the waffles a large cracked appeared down one of the vertical corners of one of the waffles and that the stiffners were not strong enough and bowed during concreting. There is no evidence what caused the crack. Nothing is known about the concreting process, such as the arrangement of falsework, concreting speed and depth of concrete to be poured. Even Mr Lo himself admitted that these may have an impact on the waffle. The waffles were made in accordance with the design and specification of the defendant. In the absence of evidence of what happened during the concreting process and what caused the crack or of non-compliance with the specification, there is simply no evidence of any breach of contract or negligence on the part of the plaintiff in the manufacturing of the waffles. Accordingly, the defendant's claim for setting off the cost of repairs must be dismissed.

21. The defendant claimed that the contract was for purchase of the waffles and production moulds. As the plaintiff has not delivered the production moulds, the defendant is not obliged to pay for them. The invoice is equivocal as to whether the production moulds formed part of the goods to be sold or delivered. According to their past dealings, the production moulds were never delivered though they were paid for. This makes practical sense. The defendant would have no use for them after the finished products were manufactured. The manufacturing of the waffles and production moulds, as the defendant knew, took place in China. It makes no sense for the production moulds to be delivered to the defendant in Hong Kong together with the waffles, for the moulds to be stored and then re-delivered to the plaintiff's workshop in China when additional waffles are required. In fact there is no evidence that the defendant ever requested for the return of the production mould until September 1996, some four months after delivery of the waffles when the defendant sought to deny payment.

22. I find that the essence of the contract was the sale and purchase of the waffles, which were the finished product. The cost of the production mould was part of the manufacturing costs of the waffles. It was separately itemised on the invoice for pricing purpose so as to ensure that the defendant would not have to pay for them again should it place further orders. I therefore find that it was not a contractual term that the production moulds have to be delivered. While it was the parties' understanding that the production moulds would be retained for future use, the defendant never paid for them for six months, never placed any additional orders, never asked for their delivery until four months after delivery of the waffles and never gave any response when pressed for payment. It is only reasonable for the plaintiff to conclude that there will be no further order for waffles and there would be no need to retain the production moulds. By its inaction, the defendant must be taken to have waived its right to the moulds, even if it had any. I therefore dismiss the defendant's defence. The plaintiff is entitled to be paid the outstanding balance of $27,800 as claimed.

Chek Lap Kok Airport I Project ($150,396):

23. On 4 July 1996, the defendant issued an order to the plaintiff for fibreglass waffles and some KB series production moulds consisting of wooden moulds and fibreglass moulds. There were some subsequent revisions to the order as a result of changes in the mode of delivery. The contract amount was amended to $771,510. Two batches of waffles were delivered on 17 and 20 August 1996. On 20 August 1996, the plaintiff issued an invoice in the amount of $431,590 in respect of the two deliveries. On or about the same day, Mr Lo of the defendant informed Mr Leung that they had enough waffles and requested to cancel the balance of the order.

24. On 7 September 1996, the defendant demanded return of a list of moulds which it had paid for and intimated that it would collect the moulds on the following day and that if these moulds could not be returned it would set off the costs of these moulds from the balance due to the plaintiff. The plaintiff promptly replied on 9 September 1996 that it may collect those moulds that had been paid for and the moulds that had not been paid for could be collected upon payment.

25. The plaintiff had not received any deposit from the defendant and the waffles were delivered against the defendant's promise to pay as soon as it was paid by its client, Nishimatsu Construction Company Limited. In my view, the plaintiff is entitled to retain the production moulds until they are paid for. It has a right of lien over the production moulds as an unpaid seller.

26. As the relations between the parties turned bitter, the plaintiff wrote to Nishimatsu Corporation on 2 October 1996, saying that they ceased to do business with the defendant due to its heavy indebtedness. This marked a turning point in the relation between the parties. As the events unfold, the parties broke up a few days later as a result of their dispute over the Wuhu Street project.

27. Despite its promise to pay in November 1996, it was only until 20 December 1996 that the defendant paid $281,194, leaving an outstanding balance of $150,396. The defence is that the defendant was not liable for the price for the production moulds which had not been delivered and that after deducting the cost for remedial work as a result of the plaintiff's poor workmanship in the amount of $23,646, the defendant is only liable to a net balance of $9,600. For reasons as I have explained earlier in relation to the Tung Chung Project, the essence of the contract was the sale and delivery of the waffles, that the costs for the production moulds was part of the manufacturing costs; and it was not intended that the production moulds were to be delivered. The defendant has clearly indicated that it will not place further orders and even cancelled the balance of its order. The plaintiff offered to give the moulds to the defendant if it would pay for them, but it never did. The costs of these moulds should have been paid upon delivery of the waffles in accordance with the invoice. Time for payment had long lapsed. In the circumstances, the defendant has waived its rights to the moulds and is estopped from asserting its right to have the moulds handed over. It remains liable for the cost of the moulds which, as I have found, was part of the manufacturing costs of the waffles.

28. The defendant alleged that the rims of the waffles were damaged because the plaintiff used chipwood instead of plywood. There is nothing in the specifications which required the rims to be made of plywood. The rims were not weight bearing. There is no evidence that chipwood was not suitable for the purpose. On the contrary, according to the defendant's own document, an invoice from its own repairers, the remedial work performed was to repair the rims damaged through lack of protective packaging. The defendant's representative, Mr Ho, had signed receipt of the waffles in good condition. The damage must therefore have occurred during transit after delivery by the plaintiff to Tuen Mun and as a result of removal of the packaging. All these show that the damage was caused by improper handling during transit by the defendant for which the plaintiff should not be responsible and that the damage was not attributable to the use of chipwood instead of plywood. Accordingly, I dismiss this defence of set off and find the defendant liable for the outstanding balance.

Chek Lap Kok Airport II Project ($504,200):

29. There is no dispute that a quantity of fibreglass waffles contracted for had been delivered. The defendant admitted liability for $423,198 under this head of claim. The dispute is again related to the cost of production moulds of $58,000 which had not been delivered to the defendant and to a claim for set off of $23,002 for rectifying defects in the waffles.

30. For reasons as explained in relation to the Tung Chung and Chek Lap Kok Airport I projects, I find the defendant liable for the cost of the production mould. The defect as pleaded in the defence was the use of chipboard in the periphery (i.e. the rim) of the waffles. The evidence as adduced is that the defendant incurred expenses in repairing the cracked bottom of the waffles which was made of chipboard and not plywood. Counsel for the plaintiff took a pleading point, i.e. the defect as pleaded is not supported by the evidence. This is entirely correct. But even if the pleading related to the use of chipboard at the bottom of the waffles, there is no evidence that the defendant had specified the use of plywood and not chipboard nor is there any expert evidence that chipwood was not suitable for the purpose. There is no evidence about the concreting process, such as the arrangement of the falsework, the concreting speed and depth of the concrete to be poured. All these would have an effect on the waffles. The claim for set off must be dismissed. Accordingly, I allow the plaintiff's claim in the amount of $504,200.

Holiday Inn Project ($12,100):

31. The defendant placed an order for fibreglass ceiling to be installed in Holiday Inn Hotel on 7 December 1995. The plaintiff issued an invoice on 22 December 1995 in the amount of $68,400, which comprised of $46,400 for the fibreglass ceiling and $22,000 for installation and painting. The defendant duly paid 20% deposit of $13,680. There were certain variation orders since then until late June 1996.

32. By that time, i.e. July 1996, the defendant was in arrears of about $2 million. On 2 July 1996, Mr Leung had a meeting with the defendant's foreman in charge of the site and informed him that as the defendant was in serious arrears the plaintiff would not proceed with installation but would nevertheless deliver the fibreglass ceiling which was in fact ready for delivery. This was confirmed in writing by a letter dated 5 July 1996 addressed to Mr Lo. In this letter, the plaintiff also sought to similarly cancel the installation part of a contract in relation to Shouson Hill project, cancellation of the entire CDW Site project, suspension of the works in Wuhu Street project and in Yeung Uk Road project. The plaintiff's reason for cancellation of the installation part of the order was because these works had to be performed by outside contractors and in view of the arrears the plaintiff did not consider it prudent to incur those outside expenses. Miss Tsui and Mr Lo of the defendant made numerous requests to the plaintiff to complete the various projects. Eventually, in a conversation between Mr Lo and Mr Leung, Mr Lo agreed to the cancellation of the installation and painting part of this contract. The fibreglass ceilings were delivered to the defendant on 5 and 6 August 1996. The defendant arranged for the installation and painting on 4 September 1996.

33. The defence is that the plaintiff was in breach of contract in failing to install and paint as contracted. The defendant claimed it incurred $34,100 in installing and painting the fibreglass ceiling and making good the joints, which was $12,100 more than the contracted installation and painting costs with the plaintiff. It therefore set off the additional expenses of $12,100 against the balance due to the plaintiff and paid the plaintiff $30,520 on 20 December 1996. The plaintiff's claim is related this amount of $12,100.

34. At the time the defendant was in arrears of up to $2 million. The ceilings had already been manufactured and the plaintiff would suffer great loss to cancel the entire contract. On the other hand, it was not prudent to incur further expenses to engage outside contractors to complete the installation and painting. With the chance of being paid becoming slimmer, what the plaintiff did made good business sense. I have no difficulties in accepting Mr Leung's evidence that Mr Lo agreed to the variation in their contract. If the parties had not reached an agreement on the variation, the defendant would not have acknowledged receipt of the ceilings because it would have been the plaintiff's obligation, not only to deliver but to install it and paint it before acceptance.

35. Furthermore, in their letter dated 8 October 1996 in response to the plaintiff's monthly statement, a month after the defendant had incurred the installation and painting costs, it made no mention of the counterclaim. Its only comment was that "quality is not inspected by the architect". This is a strong indication that the parties were conducting their affairs in accordance with the variation. In response to that comment, the plaintiff wrote back the next day saying that the defendant's foreman had duly accepted the ceilings in good condition and gave the defendant three days to confirm acceptance of the goods or to have the goods returned. The defendant did not respond. On the defence case, it had already arranged installation by another sub-contractor on 4 September 1996. If there were no agreement to cancel the installation and painting part of the contract, the defendant would have responded by reminding the plaintiff that it was its duty to install or informed the plaintiff that it had as a result of the plaintiff's breach engaged another sub-contractor to install the ceiling and reserved its right to claim damages. None of that happened. There was virtual silence on the part of the defendant.

36. Then two months later, on 5 December 1996, the defendant for the first time raised a claim of set off. The plaintiff's case is supported by contemporaneous documents. The defendant's lack of response to those documents points strongly to the existence of an agreement to cancel the installation part of the contract and that the defendant's present claim of set off for the plaintiff's alleged breach is nothing but a subsequent concoction, dishonestly made to avoid its liability. I dismiss the defendant's defence and counterclaim and allow the plaintiff's claim in respect of the outstanding balance of $12,100.

CDW Project ($57,356):

37. The defendant requested the plaintiff for installation of fibreglass mouldings for a building project in a site formerly occupied by China Dyeing Works (CDW Project). The negotiation began in March 1996 and the defendant issued an order form on 3 June 1996 in the amount of $190,320. On 25 June 1996, the plaintiff issued an invoice in respect of 20% deposit. The defendant then requested for certain variation as a result of which the plaintiff issued a revised quotation on 4 July 1996.

38. One day later, the plaintiff wrote a letter to the defendant to cancel the contract for supply and installation in view of the defendant's heavy indebtedness to the plaintiff, which at that stage had accumulated to almost $2 million. This is the same letter referred to in the Holiday Inn project above. Miss Tsui and Mr Lo made numerous requests to the plaintiff to continue with the projects. Eventually, in a telephone conversation between Mr Lo and Mr Leung, the plaintiff agreed to produce the mouldings for the defendant. On 8 July 1996, Mr Rocky Li of the defendant sent the plaintiff a fax to confirm the above agreement saying "please produce the moulds as per drawing and specification". On the following day, the plaintiff replied giving a completion date of 45 days from date of receipt of 20% deposit. Subsequently, the defendant paid a deposit of $38,064. The mouldings under the quotation and a small quantity of additional mouldings were duly supplied to the defendant but were not paid for.

39. The defences are firstly, as a result of the plaintiff's delay in sending workers to the site to install the mouldings, it had to incur additional expenses in accelerating the installation; and secondly the plaintiff failed to supply the production moulds. Counsel for the defendant sought to rely on the defendant's letter dated 5 December 1996, which is the same letter referred to in the earlier transactions, as evidence of contemporaneous complaint that there was no agreement to cancel the installation part of the agreement.

40. The negotiations I outlined above are clearly documented. On the above facts, I find that as a result of a new series of negotiation, by novation the parties concluded a contract for supply of fibreglass mouldings without installation in substitution for the earlier contract. Mr Rocky Li's fax requesting for supply of moulding on 8 July 1996, the plaintiff's reply of 9 July 1996 demanding payment of deposit, the defendant's subsequent payment and the lack of contemporaneous complaint from the defendant are consistent with the conclusion of the novation agreement. The defendant's allegation in its letter of 5 December 1996 is clearly a subsequent concoction made in bad faith to evade liability. It also strongly and adversely reflects the credibility of its writer, Mr Lo, in this transaction as in any other transactions. Though the deposit paid by the defendant on 17 July 1996 included an element for the installation costs, I consider that an oversight on the part of the plaintiff in failing to adjust the amount of deposit and not evidence that the plaintiff had contracted to install the mouldings. The defendant is not entitled to claim any set off in respect of installation costs.

41. For similar reasons as stated in relation to the Tung Chung and the two Chek Lap Kok Airport projects, I find that the essence of the contract was to supply the mouldings which were the finished product and not the production moulds. The production moulds were never intended to be delivered and the defendant never requested for their delivery. The defendant's claim is not a bona fide one and was raised four months after delivery of the mouldings to evade its liability. Accordingly, I also dismiss the defence of a set off of the cost of the production moulds and allow the plaintiff's claim.

Excelsior Hotel Project ($55,464):

42. Three sums are claimed in relation to this project. On 31 January 1996, the plaintiff issued a quotation in the sum of $19,000 for the supply of four vases, inclusive of installation and painting. The quotation also included the cost of one production mould. On 16 July 1996, the defendant issued an order of $15,000 for the vases without painting and paid $3,000 deposit. Subsequently, the defendant requested additional work on the vases costing $3,200. The vases were delivered on 9 August 1996 with an invoice for $13,200, being the agreed price inclusive of the cost of additional work, but less deposit and installation.

43. The plaintiff issued a quotation dated 21 March 1996 for 8 vases. The quotation was revised on 27 June 1996 as a result of changes in specification. In its letter dated 5 July 1996 referred to above in relation to the other projects, the plaintiff confirmed it would perform this contract. This was obviously because the vases were in the course of production and the installation cost was small. On 16 July 1996, the defendant issued an order form for 6 vases instead of 8 and included certain alteration, which resulted in a reduction of the contract price to $23,600. The defendant paid a deposit of $5,960. The vases were delivered on 5 August 1996. On 8 August 1996, the plaintiff issued an invoice for $15,240 after deducting the deposit and installation costs.

44. The third claim is related to a quotation issued on 21 March 1996 in respect of a fibreglass ceiling. After two revisions as a result of alteration of specification, the plaintiff issued a sales contract dated 15 July 1996 in the sum of $59,000. The defendant paid a deposit of $11,100. The fibreglass ceiling was delivered to the defendant's site on 22 August 1996. The plaintiff issued an invoice in the amount of $34,400 in respect of the balance due less installation cost.

45. The total amount due to the plaintiff under these three invoices was $62,840. The defence is that the defendant's partial payment and right to set off totalling $55,464 has extinguished the plaintiff's claim.

46. According to the remarks in the first two invoices related to the delivery of the vases, the plaintiff cancelled the installation because of the defendant's failure to notify the plaintiff within reasonable time of the availability of the vases of the date of installation. These vases were delivered to the defendant five to six days ahead of the indicated delivery dates. Thus even if the defendant failed to arrange a date for installation, this did not amount to a repudiation as to justify the plaintiff to consider itself discharged from the further obligation to install the vases.

47. Another reason for the plaintiff's cancellation of the installation parts of all the three contracts was that the defendant had agreed to relieve the plaintiff of the obligation because of its serious indebtedness to the plaintiff. The plaintiff's case in respect of this project is not as strong as its case in respect of the Holiday Inn or CDW Site projects in which the agreements to vary the contracts were clearly documented. On the contrary, the plaintiff entered into these three contracts after its letter of 5 July 1996 referred to above, which cancelled the installation in view of the defendant's indebtedness. Fully aware of the defendant's indebtedness and having cancelled other installation work, the plaintiff issued quotations offering to install the vases and ceiling and accepted the deposits. The plaintiff must have undertaken to install these products. There is also no evidence to support a subsequent variation of these contracts. The plaintiff's verbal intimation to the defendant and letter cancelling the installation work was nothing but a unilateral declaration of intending breach on its part. The defendant is entitled, subject to its duty to mitigate, to set off reasonable expenses to put itself in the same position as if the contracts had been performed.

48. The defendant claimed $9,000 for making good joints for fibreglass ceiling and another $10,000 for its installation; and $4,000 for installing the ten vases. These were about double the plaintiff's contracted installation charges of $14,400. Bearing in mind the urgency the plaintiff had placed the defendant into, I accept these charges as reasonable and allow a set off of the additional amount of $8,600 paid by the defendant.

49. The defendant also alleged that it had paid a total of $74,300 under these three invoices. This amount included the total deposit of $20,060 which is not in dispute. The other payment of $54,240 formed part of a payment of $111,038 which was acknowledged by Mr Leung. The payment voucher signed by Mr Leung showed that the total sum of $111,038 was referable to a number of invoices less an amount of $46,864 set off in respect of the CDW Site project. Thus after discounting the amounts due under the various other invoices, the amount of $54,240 which the defendant alleged to have paid was in fact made up of $7,376 plus a set off of $46,864 in respect of the CDW Site project. Having earlier dismissed the defendant's claim to the set off, the only amount I may take into account is $7,376. I therefore allow the plaintiff's claim in the amount of $46,864 (i.e. the total invoice price inclusive of cost of installation less deposits, less $7,376 paid and a set off of $8,600 in respect of additional installation costs).

Wuhu Street Project ($591,850):

50. The plaintiff claimed under 11 invoices in respect of supply and installation of fibreglass mouldings in a building project in Wuhu Street. The defendant substantially admitted liability in respect of ten of the invoices in the amount of $505,584, but counterclaimed $1,549,737.84 by way of damages against the plaintiff for using undersized stainless steel hangers made of 50 X 50 X 3 mm stainless steel angle and under-strength anchor bolts in breach of the requirements of the building plan approved by the Building Authority on 16 July 1996. In the circumstances, it is more convenient to consider the defendant's counterclaim first.

51. The parties began negotiation on this project in August 1995. The plaintiff's quotations in turn formed the basis of the defendant's negotiation with the principal contractor, Chun Wo Building Construction Ltd (hereinafter called "Chun Wo"). After a number of quotations and revisions, the plaintiff's quotation of December 1995 was accepted by the defendant. The defendant issued an order form and the plaintiff issued its first invoice in relation to this project dated 15 February 1996 in the amount of $564,400. A 20% deposit was duly paid by the defendant on 4 March 1996. It is common ground that installation commenced on around 20 May 1996. All these dates are significant in view of the nature of the defendant's counterclaim. These dates show that negotiation, quotation and work commenced well before the date of approval of the building plan.

52. According to the plaintiff, the mouldings were to be installed using 50 X 50 X 3 mm stainless steel bracket as support. This is as shown in item 8 of the plaintiff's quotation and invoice, though the dimension of the bracket has not been specified. Then in April 1996 it was agreed at a meeting with the architect that stainless steel hangers instead of brackets were to be used for installation of three types of mouldings, EV-2, EV-4 and EV-6. On 15 April 1996 the plaintiff wrote to the defendant quoting an additional charge of $50,000 for the alteration. This was followed by another letter dated 26 April 1996 which contained a detailed breakdown of the additional charge. In this letter, the dimension of the stainless angle to be used for making the hangers was specified as 50 X 50 X 3 mm. On 11 June 1996, the defendant issued an order form for the alteration. On that order form, it also specified the dimension of the stainless steel angle to be used for making the hangers to be 50 X 50 X 3 mm.

53. The plaintiff delivered its first batch of products to the site on 17 May 1996 and commenced installation on 20 May 1996. Chun Wo's site quality controller discovered that the mouldings were not of the required stiffness and required additional wooden support to be installed. As a result Add 8 was issued by the defendant to cover the additional work.

54. On 25 May 1996, the architect discovered that the stainless steel brackets were installed at a distance of 1000 mm centre to centre apart instead of 500 mm as required by the drawing. Hence another quotation was issued by the plaintiff for the additional brackets and Add 4 was issued by the defendant.

55. At a site meeting on 7 June 1996, the architect queried why a stainless steel angle bracket of 780 mm in length was missing in the EV-1 installation and asked whether "Hilti" type tension bolts had been used. After the meeting, Mr Leung and Mrs Leung went to the defendant's office at night and had another meeting with Mr Lo and his staff Mr Rocky Li and Mr Tommy Lee. Mr Lo agreed to issue an order form for the additional work, Add-9.

56. At Mr Lo's request Mr Leung went to attend a meeting with the Building Authority on 20 July 1996. There he saw Mr Tommy Lee and Mr Lo. He was told to wait while Mr Lo and the staff of the Building Authority had a meeting. He noted from their drawing that the stainless steel angle to be used for making the hangers were to be of the dimension of 100 X 100 X 3 mm and that the drawing was quite different from what he had been given by the defendant. When he pointed out the discrepancy between the drawings, Mr Tommy Lee said he would seek to have the specification amended to 50 X 50 X 3 mm and Mr Lo told him to proceed with the remaining work.

57. On 12 September 1996, when Mr Leung attended the site office, he discovered that the specification for the stainless steel angle in the drawing had not been amended to 50 X 50 X 3 mm. The works were completed but the defendant refused to pay.

58. On 5 October 1996, Mrs Leung of the plaintiff wrote a strange letter to the defendant enquiring about the dimension of the stainless steel angle and thickness of the fibreglass mouldings as specified in the plan approved by the Building Authority. Two days later, Mrs Leung wrote a similar letter specifically requesting Mr Lo to consider "the serious consequence which the incident (the dimension) could bring". On the same day, Mrs Leung sent a third letter in this series reciting her telephone conversations with Mr Lo and Miss Chan of the defendant confirming that the earlier two letters had been received by the defendant. On the following day, i.e. 8 October 1996, Mrs Leung sent a fourth letter to the defendant. In this letter, the plaintiff reminded the defendant of its earlier queries about the dimension of the stainless steel angle and "the serious consequence". It threatened to send all related quotations and order forms to the architect, the principal contractor and the Building Authority.

59. Despite this series of letters, the outstanding invoices remained unsettled. The plaintiff had a meeting with the architect and disclosed to the architect that the hangers were made from stainless steel angle of 50 X 50 X 3 mm dimension. As a result, Chun Wo caused new hangers of the approved dimension to be installed again. The cost of installation of these larger hangers and the penalty for delayed completion formed the basis of the defendant's counterclaim of $1,619,801.84. The defendant's defence, in essence, is that it was a middle man between the plaintiff and Chun Wo and that the plaintiff was liable to indemnify the defendant of the damage it suffered.

60. I have no difficulties in rejecting the defendant's contention that it was a mere middle man so that the plaintiff was required to perform the defendant's obligation towards Chun Wo, i.e. to conform to the approved plan. There is no evidence that the plaintiff contracted for the whole of the defendant's obligation or substituted itself for the defendant. The defendant's contract sum with Chun Wo was 1.5 times over that as between the plaintiff and the defendant. The defendant was responsible for the design of the fibreglass mouldings and the fixing details. It prepared drawings for submission to the Building Authority. It arranged for part of the work, i.e. spraying work, to be performed by another sub-contractor. The defendant was responsible for all liaison between Chun Wo and the plaintiff and to liaise with the Building Authority. All these show the defendant had primary design and co-ordination duty to discharge. It could not have been a mere middle man nor could it have contracted on a back to back basis with the plaintiff.

61. The plan was not approved until 16 July 1996. Mr Lo agreed that he stole a march and ordered the works to proceed before the plan was approved. This is corroborated by the piece meal fashion in which additional works were ordered by the add-on invoices. Counsel for the defendant submitted that the plaintiff had been supplied with earlier versions or drafts of the plan showing the dimension of the stainless steel angle to be used for making the hangers shall be 100 X 100 X 3 mm; but these earlier versions were not produced. However, counsel referred to the plan annexed to Mr Rocky Li's fax dated 6 May 1996 showing the use of stainless steel hangers of 100 X 100 X 3 mm dimension. Under cross examination, Mr Leung explained that he had not paid attention to the dimension shown in that plan because in that fax his attention was directed to cancelling the use of hangers. He said that he was given some drawings showing typical fixing details for EV-1 to EV-5 and that he was told by Mr Lo that the mouldings were to be installed in the same manner as that in Ha Heung Road or in Discovery Bay projects, in which 50 X 50 X 3 mm stainless steel angle was used.

62. The picture that emerged is that prior to 15 April 1996 the use of stainless steel hangers was not contemplated and there was no approved plan at that stage. The architect requested for hangers to be installed. As a result of their past dealings, the plaintiff quoted hangers using stainless steel angles of 50 X 50 X 3 mm dimension on 15 April 1996. Between then and 6 May 1996, the defendant decided the dimension of the stainless steel angles to be used shall be 100 X 100 X 3 mm. Despite that, without informing the plaintiff of the change, the defendant issued an order form for the hangers using angles of 50 X 50 X 3 mm on 11 June 1996

63. Given the very piece meal fashion in which the add-on order forms were issued, I have no doubt that between August 1995 and 6 May 1996 the parties had been negotiating on the basis of using 50 X 50 X 3 mm stainless steel angles as they had used before. I also have no doubt that the plaintiff had not been properly informed of the revision in the dimension of the stainless steel angle to be used for making the hangers. If it had, it would certainly have quoted a price for using 100 X 100 X 3 mm stainless steel angle as the cost of additional material would be passed onto the defendant in any event. Also, if it had, it certainly would not have deliberately exposed the non compliance to the architect. The series of four letters to the defendant starting from 5 October 1996, which Mr Lo felt puzzled about, is on my reading, an implied threat to the defendant that unless it settled the outstanding invoices, the plaintiff would inform the architect, Chun Wo and the Building Authority about the undersized hangers. It was unfortunate for the defendant that Mr Lo failed to read between the lines. Mr Lo was quite unable to offer any explanation why he placed an order for using angle of 50 X 50 X 3 mm other than that his staff had blindly copied the plaintiff's quotation word for word onto the order form and he had negligently failed to discover the mistake. But that does not entitle him to pass on his mistake to the plaintiff by way of counterclaim. Though the conduct of Mr and Mrs Leung in exposing the use of undersized angle was not commendable, it nevertheless reflects where the truth actually lies.

64. As for the defendant's counterclaim for the cost in replacing the under-strength Hilti anchor bolts used by the plaintiff with "Hilti HSLG-R" bolts, Mr Lo admitted under cross examination that the specification was only introduced in the July 1996 amendment of the approved plan. But by then the plaintiff had installed using another type of Hilti anchor bolt. The defendant only had Mr Lo to blame for ordering works to commence before the approved plan was finalised and cannot pass on the cost of complying with the plan to the plaintiff.

65. Having made the above finding, I dismiss the defendant's counterclaim. The amount of the plaintiff's claim in dispute is not substantial. The plaintiff claims under a basic invoice, No. 9512461(3) and ten add-on invoices for additional work. The defendant denied liability to the last add-on invoice, No Add 10, disputed the quantum in relation to the basic invoice and add-on invoice, Add 5. The defendant admitted liability in full in respect of the other eight add-on invoices.

66. The defendant's first dispute is on item 6 of the basic invoice relating to the cost of installation of a total of 490 linear metres of six types of mouldings, EV-1 to EV-6. Its case is that the installation of EV-6 mouldings had been cancelled, so that the amount of mouldings installed was only 416 metres. Counsel for the defendant submitted that as the supply and installation of EV-6 mouldings were covered by add-on invoices, Add 2, Add 5 and Add 6, item 6 represented a double charge.

67. According to Mr Leung, though the installation of EV-6 moulding had been cancelled, it was re-ordered subsequently as indicated by the three add-on invoices. A careful reading of the add-on invoices shows that what was being invoiced was the cost of mouldings, cost of stainless steel hangers and cost of installation of the hanger, but not cost of installation of EV-6 mouldings. All the other invoices show that the installation cost for hangers was charged on a per piece basis, while the installation cost for mouldings was charged on a per metre basis. Consistent with that Add 5 contains a clear remark that the installation cost for the mouldings would be charged at the rate of $231.4 per linear metre. Thus all these add-on invoices which counsel for the defendant sought to place reliance on, put beyond doubt that no installation cost had been charged by these add-on invoices and that EV-6 mouldings were installed as an additional item after its cancellation. This is supported by the basic invoice, which invoiced the defendant for the cost of EV-1 to EV-5 mouldings but not EV-6 mouldings, while Item 6 contains a remark that the cost of installation invoiced is inclusive of the cost of installation of 77 metres of EV-6 mouldings. It is therefore obvious that EV-6 mouldings had been supplied and their material cost was invoiced under the add-on invoices, while the installation cost was invoiced under the basic invoice. For the above reason, I accept the evidence of Mr Leung and find that the defendant had not been double charged for the cost of installation of the EV-6 mouldings and is therefore liable for the amount as stated in the basic invoice

68. The other dispute is related to Item 3 on Add 5, which Mr Lo contested as not having been installed. I find that if he was honest in his evidence he was acting under a misapprehension that the installation of EV-6 mouldings had been cancelled. As I found that the installation of these mouldings had been re-ordered, I find the defendant liable for the entire amount as stated in this invoice.

69. The defendant disputed liability for Add 10. There are two invoices bearing the same reference and date. One is for 134 additional stainless steel hangers installed, but not previously invoiced. The hangers were initially installed at a distance of 1000 mm centre to centre. Later it was realised that the approved building plan required these hangers to be installed at a distance of 500 mm centre to centre. The additional hangers were installed at the defendant's instruction. It was estimated that about 500 additional hangers had been installed but the plaintiff was prepared to charge for 400 hangers to save argument and to waive the charge for the rest. As only 266 had been invoiced, Add 10 was issued to cover the balance of 134 hangers in the amount of $53,600. A second version of Add 10 invoice is for $200,600 in respect of the 134 additional stainless steel hangers and cost of additional labour incurred as result of installing the additional hangers and additional stainless steel brackets at a distance of 500 mm centre to centre instead of 1000 mm.

70. I have no doubt that these additional hangers and brackets had been installed. I am also sure that some of the mouldings had to be removed and re-mounted so that the additional hangers and brackets could be installed. I am unable to quantify the additional labour cost. On the facts, Chun Wo had very tight supervision on site. The inadequacies were promptly discovered and rectification work effected with little interruption. I assume the additional labour cost was negligible. Accordingly, I only allow the plaintiff's claim for the additional hangers in the amount of $53,600 and not the claim for additional labour.

71. Thus in respect of this project, I allow the plaintiff's claim in the amount of $591,850 as follows:

Invoice No.	Amount
9512461(3)	$455,240
Add 1	$20,200
Add 2	$88,750
Add 3	$14,000
Add 4	$60,000
Add 5	$31,740
Add 6	$11,700
Add 7	$13,800
Add 8	$50,000
Add 9	$49,200
Add 10	$53,600
Total:	$848,230
Less deposit paid:	($256,380)
Balance:	$591,850
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Conclusion:

72. The defendant did not dispute liability for the two invoices in respect of the Kowloon Bay and Yeung Uk Road projects in the amount of $6,662 and $202,720 respectively. Accordingly, I enter judgment for the plaintiff in the amount of $1,654,548 with interest at judgment rate from 21 October 1998 until payment and costs. Such costs are to be taxed if not agreed. The judgment sum is calculated as follows:

Project	Amount
Wharney Hotel Fibreglass Panels	$4,900
Wharney Hotel Mock Up	$1,500
Far East Exchange Building	$23,200
Kowloon Bay Project	$6,662
Macau Project	$16,000
Ha Heung Road Project	$9,000
Tung Chung Project	$27,800
Chek Lap Kok Airport I Project	$150,396
Chek Lap Kok Airport II Project	$504,200
Holiday Inn Project	$12,100
CDW Project	$57,356
Yeung Uk Road Project	$202,720
Excelsior Hotel Project	$46,864
Wuhu Street Project	$591,850
Total:	$1,654,548
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